SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
[X] Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission File No. 0-21931
AMPLIDYNE, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3440510
(State of or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
144 Belmont Drive
Somerset, New Jersey 08873
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (908) 271-8473
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.0001 per share
(Title of Class)
Class A Redeemable Common Stock Purchase Warrant
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 __ No X
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of the Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $2,219,945.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, computed by reference to the closing price of such stock as
of March 14, 1997, was approximately $12,937,500.
Number of shares outstanding of the issuer's common stock, as of March
14, 1997 was 4,460,000.
Documents Incorporated by Reference: None
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PART I
Item 1. BUSINESS
General
Amplidyne, Inc., a Delaware corporation ("Amplidyne" or the "Company")
designs, manufactures and sells ultra linear power amplifiers and related
subsystems to the worldwide wireless, local loop and satellite uplink
telecommunications market. These power amplifiers, which are a key component in
cellular base stations, increase the power of radio frequency ("RF") and
microwave signals with low distortion, enabling the user to significantly
increase the quality and quantity of calls processed by new and existing
cellular base stations. The Company's wireless telecommunications products
consist of solid-state, RF and microwave, single and multicarrier power
amplifiers that support a broad range of analog and digital transmission
protocols including advanced mobile phone services ("AMPS"), code division
multiple access ("CDMA"), time division multiple access ("TDMA"), total access
communication systems ("TACS"), extended total access communication systems
("ETACS"), nordic mobile telephone ("NMT"), global system for mobile
communications ("GSM") and digital communication service at 1800 MHz
("DCS-1800"). The products are marketed to the cellular, wireless local loop and
personal communication systems ("PCS") segments of the wireless
telecommunications industry. The PCS segment of the market is one of the fastest
growing segments and the Company has devoted significant resources in 1996 to
develop products for this market. The Company's largest wireless
telecommunications customers are DSC Communications and Samsung, each of which
is an original equipment manufacturer ("OEM").
Amplidyne has several products covered by a patent issued by the United
States Patent and Trademark Office for Pre-Distortion and Pre-Distortion
Linearization which, the Company believes, is more effective in reducing
distortion than other currently available technology. In addition to its
presence in the wireless telecommunications industry, the Company designs and
manufactures products for uplink satellite communications and for audio and TV
transmission links. The Company also believes that its products have great
potential opportunity for the wireless communication industry in developing
countries.
In addition to the Company's product line of single channel power
amplifiers which are currently utilized by the wireless communications industry,
the Company has developed a Multicarrier Linear Power Amplifier ("MCLPA"). MCLPA
combines the performance capabilities of up to 25 single carrier amplifiers into
one unit, eliminating the need for numerous single carrier amplifiers and the
corresponding unnecessary space occupied by the cavity filters encasing the
amplifiers. Management believes that with its (i) proprietary technology (which
effectively reduces distortion), (ii) technological expertise and (iii)
established product line consisting of ultra linear single channel power
amplifiers, the Company can achieve similar performance with its MCLPAs. The
Company's linear power amplifiers and MCLPAs utilizes the Company's patented
predistortion and proprietary feed forward technology which amplifies many
channels with minimal distortion at the same time with one product.
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The Company intends to capitalize on its extensive management
experience developing power amplifiers for worldwide markets by introducing more
sophisticated amplifiers for commercial applications. Amplidyne believes that
its core technological expertise should continue to enhance its ability to
introduce new products for the wireless telecommunications industry.
The Company was incorporated on December 14,1995 pursuant to the laws
of the State of Delaware as the successor to Amplidyne, Inc., a New Jersey
corporation ("Amplidyne-NJ"), which was incorporated in October 1988. The
Company was organized to effectuate a reincorporation of Amplidyne-NJ with and
into the Company on December 22, 1995. The Company maintains its executive
offices at 144 Belmont Drive, Somerset, NJ 08873 and its telephone number is
(908) 271-8473. The Company completed its initial public offering of 1,610,000
Units (each Unit consisting of one (1) share of Common Stock and one (1)
Redeemable Common Stock Purchase Warrant ) in January 1997 pursuant to firm
commitment underwritten offering. The offering price was $5.10 per Unit. The
Common Stock and Warrants trade on the Nasdaq SmallCap Market.
Forward Looking Statements
Certain information contained in this Annual Report on Form 10-KSB,
including, without limitation, information appearing under Part I, Item I
(Business), and Part II, Item 6 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) are forward-looking statements
(within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended). Factors set
forth that appear with the forward-looking statements, or in the Company's other
Securities and Exchange Commission filings, including its Registration Statement
on Form SB-2 dated January 21, 1997, could affect the Company's actual results
and could cause the Company's actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company in this Annual Report on Form 10-KSB.
Industry Background
The market for wireless communication services has grown substantially
during the past decade. Cellular service has been one of the fastest growing
segments of the wireless telecommunications market. The worldwide wireless
revolution exploded in 1994, adding 24 million new subscribers bringing the
total global subscriber count in 1995 to approximately 55 million, a growth rate
of more than 70%. However, this represents a worldwide penetration of only
1.35%. Industry officials project a worldwide market penetration of 8% going
into the next century, a 50% compounded annual growth rate ("CAGR"). The growth
in cellular communications has required, and will continue to require,
substantial investment by cellular service providers in wireless infrastructure
equipment. Moreover, management believes that intensified competition among
cellular service providers is resulting in declining costs to end-users as well
as new types of service offerings. This demand, coupled with unprecedented
growth, will, in management's belief, require new infrastructure equipment and
technology that will allow better coverage for higher-density networks. Carriers
also need to have the flexibility to place cell sites anywhere, provide speedier
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deployment without regard to frequency allocation or planning with lower
installation, maintenance and operational costs. In order for carriers to meet
their demands, new technologies and base station equipment must be deployed.
The PCS market is also one of the fastest growing segments in the
wireless telecommunications market. Recently major OEMs such as AT&T have
announced digital PCS services nationwide; such service is expected to begin in
early 1997. PCS service providers are attracting more subscribers than analysts
had projected. The attraction to consumers is lower prices than cellular and as
well as the fact that PCS phones use more powerful digital technology, which
improves call quality compared with cellular service. This result is due to the
fact that PCS transmits at a higher radio frequency. It is also easier to
program PCS phones for advanced features (i.e., sending electronic mail and news
headlines). Amplidyne has developed PCS linear amplifiers and PCS MCLPAs.
Management believes that these products will produce increased sales for the
Company during the next few years.
A cellular system consists of a number of cell sites which are
networked to form a cellular system operator's geographic coverage area. Each
cell site has a base station which houses the equipment that transmits and
receives telephone calls between the cellular subscriber within the cell and the
switching office of the local wireline telephone system. Such base station
equipment includes an antenna and a series of transceivers, power amplifiers and
cavity filters. Large cell sites, which generally cover a geographic area of up
to five miles in radius, are commonly referred to as "macrocells."
Cellular system operators in densely populated areas are able to expand
the capacity of their existing cellular systems by incorporating smaller cells,
commonly referred to as "microcells," that divide macrocells into several
smaller cell sites, typically one to three miles in radius. The base stations
for microcells are substantially smaller physically than base stations for
macrocells. Microcells require less expensive equipment at each base station,
but require greater numbers of these smaller base stations to maintain service
quality and system capacity.
The ability of cellular system operators to increase system capacity
through the use of microcells is largely dependent on their ability to broadcast
multiple signals with acceptable levels of interference and distortion. In
cellular systems, the amplifier is generally the greatest source of signal
interference and distortion, particularly with multi carrier high power
amplifiers. Consequently, obtaining amplifiers which can transmit and receive
multiple signals with low distortion or interference from adjacent signals
("high spectral purity") is critical to a cellular system operator's ability to
increase system capacity. Substantial resources and technical expertise are
required to design and manufacture multi carrier power amplifiers with high
spectral purity. To achieve high spectral purity, multi carrier amplifier
systems must have high interference cancellation properties.
In addition to cellular/ PCS system operators' need for base station
equipment, in many developing countries, where access to the public switch
telephone network ("PSTN") by the general population is significantly less than
in developed countries, the Company believes that wireless
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telecommunications systems are the most economic means to provide basic
telephone service. The expense, difficulty and time requirements of building and
maintaining a cellular or PCS network is generally less than the cost of
building and maintaining a comparable wireline network. Thus, in many less
developed countries, wireless service may provide the primary service platform
for both mobile and fixed telecommunications applications. In a wireless local
loop system, use is made of wireless radio systems instead of wireline networks
to connect telephone subscribers to the PSTN. The Company believes that the
potential opportunities for wireless communication services in countries without
reliable or extensive wireline systems may be even greater than in countries
with developed telecommunication systems.
The Company's satellite amplifier products are used to amplify the
signal which is being transmitted from the ground up to the satellite. The
manufacturers of satellite communications equipment operate in commercial
markets such as television broadcast services and commercial military
communications. Amplidyne has also provided amplifiers for terrestrial radio
systems which are used for television and audio signal transmission.
Company Strategy
Utilizing its proprietary, patented technology and experience in
interference cancellation, the Company is pursuing a strategy, focused on the
need of cellular, wireless local loop and PCS system operators, to develop
technologically advanced amplifier based products. The Company has recently
developed products which address the technical issues faced by such system
operators as a result of the rapid growth in wireless telephone use (cellular,
PCS and wireless local loop) and the resulting need to increase systems
capacity.
Since early 1995 the Company has been involved in research, design and
development of linear power amplifiers and MCLPAs for the wireless
communications industry and most recently for the emerging PCS industry. The
Company has received a patent from the United States Patent and Trademark Office
on its predistortion technology which has enabled the Company to provide ultra
linear amplifiers with its proprietary feed forward technology. Since early 1996
the Company has allocated substantial engineering resources to develop linear
power amplifiers and MCLPAs for the emerging PCS market. The Company has focused
on establishing working relationships with major OEMs to develop products for
the PCS market, which is projected to show increased growth in 1997.
Management believes that with its predistortion technology and the
linearity capability of its core amplifier technology, the Company can achieve
similar performance from a multicarrier amplifier which others achieve by using
dual feed forward loops; this results in much higher component count within the
amplifier unit and may result in poor reliability for such products, compared to
predistortion based feed forward amplifiers which use fewer components and
thereby have a high reliability.
The Company's business strategy focuses primarily on the wireless
communication market and consists of the following elements:
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Increase Penetration of Wireless Equipment Manufacturers. Since 1991,
the Company has positioned itself as a supplier of amplifier products to large
wireless telecommunications OEMs, such as DSC Communications and Samsung.
Amplidyne seeks to capitalize on its existing customer relationships and become
a more significant source of its customers' amplifiers by working closely with
OEM customers to offer innovative solutions to technical requirements and
problems. Based on the performance characteristics and functionality of its
products, Amplidyne believes it will be able to more rapidly penetrate the
infrastructure equipment market by initially focusing its marketing efforts on
large OEMs rather than system operators.
Develop Relationships with Emerging Wireless Equipment Manufacturers.
The Company anticipates that emerging wireless equipment manufacturers will make
an increasingly significant contribution to the growth of the wireless
telecommunications industry particularly the PCS and cellular segments.
Management believes that its linear power amplifiers and MCLPAs will assist
these equipment manufacturers in providing high capacity, low distortion low
cost per channel products and has already begun to sell amplifiers to several
emerging wireless equipment manufacturers.
Develop Products for Multiple Protocols. The Company intends to
continue to invest resources in the research and development of new products for
various protocols. For cellular systems, the Company currently supports the AMPS
and TACS analog protocols, and the CDMA, TDMA, E-TACS, NMT and GSM digital
protocols. For PCS systems, Amplidyne currently supports CDMA, TDMA, DCS-1800
and PCS-1900 digital protocols. Amplidyne is continuing to develop products that
incorporate protocols which it believes will address the needs of established
and emerging wireless systems. Management believes the development of products
for multiple protocols will enable Amplidyne to benefit from the continuing
growth of existing wireless systems and other emerging wireless
telecommunications markets while reducing the risks associated with relying on
the success of one or a limited number of existing or emerging industry
protocols.
Maintain a Technology Leadership Position. In management's belief the
Company, with its innovative products, has been addressing the needs of its
customers for products that solve significant technical problems. The Company
believes its interference cancellation technologies are among the most advanced
that are commercially available in the industry, both in performance and
diversity of methodology. The Company utilizes proprietary and patented
predistortion technology and proprietary feed forward interference cancellation
technology in its linear power amplifiers and MCLPAs to enable the user to
significantly increase the quality and quantity of calls processed by new and
existing cellular base stations. The Company intends to continue to invest
substantial resources in research and development associated with its
interference cancellation technologies. See "Technology". The Company has
emphasized research and development on PCS products during 1996 which management
believes will be a growth area for the Company during 1997.
Develop Innovative Proprietary Products. To date, the Company has
focused its efforts in the development of amplifier products which are highly
innovative and are not the standard "commodity" type product. In addition, the
Company believes that it has compiled an extensive design library in the
solid-state, high power amplifier industry utilizing its proprietary and
patented technology and expertise in interference cancellation. The Company has
developed and intends to
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continue to develop products which combine basic components in unique and high
performance configuration to command higher prices in the wireless
communications market. In addition, the Company also plans to adopt this
expertise for new commercial market applications and product requirements and
develop products for the emerging DCS-1800 and PCS-1900 markets. The Company has
developed amplifier products during 1996 which can be used in PCS repeater
subsystems. Management believes that this segment of the business will show
increased growth.
Provide Support from Product Design through Installation and Operation.
The Company works with its customers throughout the design process to assist
them in refining and developing their amplifier specifications. Once the
specifications have been met and the product delivered, Amplidyne continues to
provide technical support to facilitate system integration, start-up and
continued operation. By providing customer support services from the product
design phase through installation and operation, management believes it fosters
increased levels of customer loyalty and satisfaction. In addition, through this
process, the Company believes it will develop new product definitions and
implementations to further enhance the strategic position of the Company in the
wireless market.
Maintain Control of the Manufacturing Process. As part of the
transition to becoming a leading amplifier supplier to the wireless
telecommunications market, Amplidyne is in the process of implementing in-house
automated manufacturing in order to control its production schedule. In certain
instances, Amplidyne has made the strategic decisions to select single or
limited source suppliers in order to obtain lower pricing, receive more timely
delivery and maintain quality control.
The Amplidyne Advantage
The Company believes that its products, particularly the ultra linear
power amplifiers and MCLPAs, have several features which differentiate them from
those of its competitors, such as:
The Predistortion Solution. Utilizing its proprietary technology the
Company can obtain significant distortion reduction in its core amplifiers. This
enables the predistorted amplifier to have feed forward correction (which is
described below, see "Technology") applied to it to achieve distortion
cancellation. The Company believes that its competitors are only able to obtain
this level of distortion cancellation by use of complex and component intensive
"Dual Feed Forward Loops" resulting in the use of more components within the
amplifier unit. In general, the fewer components that an amplifier uses, the
better its reliability.
Superior Distortion and Spurious Cancellation Resulting in Ultra Linear
High Power Amplifiers.The Company believes the use of MCLPAs is critical in the
implementation of new cellular systems and upgrade of older analog systems.
Cellular systems need to cover large areas with minimum hardware in order to
minimize cost per subscriber. Reduction of the distortion and spurious signals
from the amplifiers is a key enabling technology. Amplidyne has developed
proprietary interference cancellation technology using multiple methods to
achieve high suppression of spurious output and distortion typically associated
with higher power amplifiers.
By utilizing its proprietary and patented predistortion technology and
its proprietary feed
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forward technology, the MCLPAs amplification capacity of the Company's
amplifiers are, in management's belief, among the best in the industry. Standard
MCLPAs currently support 25 channels with approximately 25 watts composite
power, resulting in approximate 1 watt per channel. The Company's MCLPAs support
up to 25 channels at 4 watts per channel, an approximate 400% increase over
industry standard MCLPAs.
High Quality and Reliability. Amplidyne believes that it has
consistently provided high quality, reliable products to its customers. The
Company has many thousands of its amplifiers in the field. Management believes
that its reputation for quality and reliability will enable Amplidyne to attract
new customers and maintain existing customers for all its products.
Linearity, Low Distortion and High Amplification. Wireless service
providers' ability to manage scarce spectrum resources more effectively and
accommodate a larger number of subscribers is largely dependent on their ability
to broadcast signals with high linearity, which pertains to the ability of a
component to amplify a wave form without altering its characteristics in
undesirable ways. Linear amplifiers allow signals to be amplified without
introducing spurious emissions that might interfere with adjacent channels.
Higher linearity increases the capacity of cellular systems by enabling a more
efficient use of digital transmission technologies, microcellular architectures
and adaptive channel allocation. In current cellular systems, the power
amplifier is generally the source of the greatest amount of signal distortion.
Consequently, obtaining power amplifiers with high linearity and low distortion
is critical to wireless service providers' ability to improve spectrum
efficiency.
The Company has several products covered by a patent issued by the
United States Patent and Trademark Office which it believes gives it a
significant advantage over its competitors. These features for Pre-distortion
and Pre-distortion Linearization designs significantly reduces distortion below
that which is currently available in the marketplace.
Multicarrier Designs. Multicarrier amplification, in which all channels
are amplified together by a MCLPA, rather than each channel using a separate
amplifier, allows for instantaneous electronic channel allocation. Functionally,
it combines multiple single channel power amplifiers, typically 16, into a
single unit, thereby eliminating the single channel power amplifiers and the
corresponding tunable cavity filters. MCLPAs require significantly higher
linearity compared to single channel designs.
By virtue of the Company's high linearity products which incorporates
pre-distortion and feed forward technology achieving, in management's belief,
the lowest distortion in the industry, the MCLPA amplified signal remains within
their prescribed band and spectrum with low interference of adjacent channels
thus providing flexibility to accommodate any frequency plan. Management
believes that its technology in MCLPAs will enable Amplidyne to attract new
customers.
Low Noise Amplifier. Since 1991, the Company has been manufacturing low
noise amplifiers (LNA) which are used in the receiver section of the base
station (digital and analogue). With this technology, the Company has the
ability to offer "booster amplifiers" to the wireless
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industry which incorporate LNAs, MCLPAs and receive / transmit filters.
Management believes that there is a significant market for "booster amplifiers"
which it intends to pursue. The Company has recently received orders for small
quantities of its low noise PCS products. Management believes that this line of
products have growth potential.
High Quality, Reliability and Customer Support. The Company believes
that the power amplifier in cell sites historically has been the single most
common point of equipment failure in wireless telecommunications networks.
Increasingly reliable power amplifiers, therefore, will improve the level of
service offered by wireless service providers, while reducing their operating
costs. In addition, MCLPAs eliminate the need for high-maintenance, tunable
cavity filters which should further reduce costs.
The Company works closely with its customers throughout the design
process in refining and developing their amplifier specifications. The Company
uses the latest equipment and computer aided design and modeling, solid state
device physics, advanced digital signal processing ("DSP") and digital control
systems, in the development of its products in their specialized engineering and
research departments. The integration of the Company's design and production is
a factor in the Company's ability to provide its customers with high
reliability, low distortion and low maintenance amplifiers.
Technology
Wireless Transmit Technology. A typical cellular communications system
comprises a geographic region containing a number of cells, each with a base
station, which are networked to form a cellular service provider's coverage
area. Each base station or cell site houses the equipment that transmits and
receives telephone calls to and from the cellular subscriber within the cell and
the switching office of the local wireline telephone system. Such equipment
includes a series of transceivers, power amplifiers, tunable cavity filters and
an antenna. In a single channel system, each channel requires a separate
transceiver, power amplifier and tunable cavity filter. The power amplifier
within the base station receives a relatively weak signal from the transceiver
and significantly boosts the power of the outgoing wireless signal so that it
can be broadcast throughout the cell. The radio power levels necessary to
transmit the signal over the required range must be achieved without distorting
the modulation characteristics of the signal. The signal must also be amplified
with linearity in order to remain in the assigned channel with low distortion or
interference with adjacent channels.
Because cellular operators are allocated a small RF spectrum and
certain channels, it is necessary to make efficient use of the spectrum to
enable optimum system capacity. By amplifying all channels with minimum
distortion at the same time, rather than inefficient use of single channel
amplification, one obtains better system capacity. A MCLPA combines the
performance capabilities of up to 25 single carrier amplifiers into one unit,
eliminating the need for numerous single carrier amplifiers and their
corresponding tunable cavity filters. These MCLPAs require less space than
multiple single channel amplifiers and their corresponding tunable cavity
filters which reduce the size and cost of a base station.
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MCLPAs create distortion products which can cause adjacent channel
interference. The minimization of these distortion products requires
sophisticated technology. This is accomplished through interference cancellation
techniques such as "predistortion" and "feed forward" accompanied by highly
advanced control and processing technology. The Company has developed certain
proprietary technology and methods to achieve minimal distortion in its
amplifiers, technically called predistortion and feed forward correction. The
Company uses three distinct technologies (A) Linear class A and AB amplifiers,
(B) Predistorted class A and AB amplifiers and (C) Predistortion feed forward
amplifiers. The Company's proprietary leading edge products contain patented
predistortion and proprietary feed forward technology combined in a proprietary
automatic correction technique.
All amplifiers create distortion when they are run at a high power
level. In an ideal case the output of the amplifier would faithfully reproduce
the input signal without any distortion. In real life, however, distortion
characteristics are produced. These distortion products can cause interference
with another caller's channel which in turn produces poor call quality. By using
a simple, patented technology, Amplidyne recreates the distortion for the
amplifier in such a manner to cancel the interference signals.
Amplidyne believes that this cancellation technique is superior to any
other predistortion technology available at present. Feed forward cancellation
involves taking the distortion created by the amplifier and processing it in
such a way that when it is added back into the amplifier having been
pre-distorted and combined with the feed forward technology, distortion
cancellation occurs. The Company believes that its patented technology has the
most unique and potent technology for distortion cancellation. Furthermore,
Amplidyne has selected linear class AB technology for its base amplifier which
it believes also has superior distortion characteristics compared to other
competitors because it is easier to pre-distort. Thus the three key ingredients
(a) Linear class A and AB amplifiers, (b) Predistortion technology and (c) Feed
forward technology enables Amplidyne to produce MCLPAs with what it believes to
be the best distortion cancellation available on the market.
Analog v. Digital Technology. Cellular system operators are increasing
their system capacity by transitioning from analog to digital technology.
Cellular systems based on analog technology are capable of carrying only one
call per channel. Current analog standards and formats include AMPS and TACS.
Digital systems allow a given channel of spectrum to carry multiple calls
simultaneously thereby increasing system capacity. Conversion to digital
transmission is expected to allow three to eight times as many voice
conversations to occupy the same frequency bands. Current digital standards and
formats include TDMA and CDMA in North America and GSM and DCS-1800 in Europe.
An additional cellular system operating in the specialized mobile radio ("SMR")
spectrum is in the early stages of deployment in the United States. This system
uses digital techniques that include Frequency Hopping Multiple Access ("FHMA").
Wireless Receive Technology. The receiving section of a cellular base
station frequently uses two antennas for efficient spectrum usage. The
deployment of complex circuitry and techniques, including the use of GaAsFET
(Gallium Arsenide Field Effect Transistors) enhances the systems performance,
enabling the weak "noisy" signal to be amplified with a significant reduction in
the level of noise. Amplidyne has been manufacturing low noise amplifiers since
1991, with thousands currently in service.
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Markets
The market for wireless communications services has grown substantially
during the past decade as cellular wireless local loop, SMR and other new and
emerging applications (such as PCS) have become increasingly accessible and
affordable to growing numbers of consumers. The growth of these markets has
increased the demand for the Company's products, although the Company cannot
predict trends in these markets.
Cellular Market. The market for cellular communications is currently
the largest of the wireless services. See " Industry Background." Cellular
system operators have expanded the capacity of their existing cellular systems
by splitting macrocells into smaller microcells. The Company believes that the
relatively small size, high power and performance characteristics of its
microcell MCLPAs will be particularly attractive to companies like AT&T, DSC
Communications, Samsung, Goldstar as well as emerging wireless
telecommunications infrastructure equipment providers when providing
infrastructure equipment for such new cell sites.
Wireless Local Loop and SMR Markets. Wireless local loop systems are
increasingly being adopted in developing markets to more quickly implement
telephone communication services. In certain developing countries, such as
Indonesia and Brazil, wireless local loop systems provide an attractive
alternative to copper and fiber optic cable based systems, with the potential to
be implemented more quickly and at lower cost than wireline telephone systems.
The Company designs, manufactures and markets MCLPAs for infrastructure
equipment systems in the wireless local loop market.
SMR, like cellular communications, is a two-way service for both speech
and data. SMR originally was designed as a private network for closed groups
communicating between a base station and a large number of users, mainly for
dispatching taxis, delivery and public safety vehicles. SMR system operators are
subject to certain limitations which make the use of SMR frequencies more
appropriate for short dispatch messages. The success of SMR as a new type of
wireless service will depend in part on whether infrastructure manufacturers and
service providers can reduce costs so as to gain greater market penetration than
cellular service providers.
Custom Communications and Other Markets. The custom communications
market consists of small niche segments within the larger communications market:
long-haul radio communications, land mobile communications, surveillance
communications, ground-to-air communications, microwave communications,
broadband communications and telemetry tracking. The Company sells custom
amplifiers and related products to these segments. See " Customers, Sales and
Marketing".
PCS and Other Potential Markets. The Company believes that new types of
wireless systems will be introduced in the near future. For example, in 1994 and
1995, the FCC auctioned RF spectrum in the 1.85 to 1.99 gigahertz range for the
provision of PCS. Like SMR, the success of PCS will depend in part on whether
manufacturers and service providers can reduce system manufacturing and service
costs sufficiently. The Company believes that cellular, SMR and PCS will share
future markets with PCS capturing the most significant portion of this market.
See
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"Business - Industry Background." The Company is currently developing products
for the PCS market, has shipped prototype products for the PCS market and has
recently received purchase orders for PCS linear power amplifiers.
Products
The Company designs and sells multicarrier transmit amplifiers and low
noise receive amplifiers for the cellular communications market, as well as the
PCS, wireless local loop and special mobile radio (SMR) segments of the wireless
communications industry. The Company also provides a large number of catalog and
custom amplifiers to OEMs and to other customers in the communications market in
general.
o Multicarrier Linear Power Amplifiers (MCLPAs). When a
cellular or PCS user places a call, the call is processed
through a base station, amplified, and then transmitted on to
the person receiving the call. Therefore, all base stations
require amplifiers (MCLPAs) whether they are being used for
cellular, PCS or local loop applications. Amplidyne
manufactures these amplifiers. The objective is to provide a
quality product at a good price and to have exemplary
reliability. Management believes that Amplidyne's products
with its patented predistortion technology, core linear
amplifier technology and proprietary feed forward technology
achieve all of the above mentioned objectives. Amplidyne's
MCLPAs are a unique line of ultra linear devices which utilize
a proprietary predistortion and phase locked feed forward
architecture. MCLPAs typically amplify up to 25 carriers at 4
watts of output power.
The following table provides certain information regarding the
Company's MCLPAs. The key item in this table is the IMD specification, which
management believes is among the best available in the industry.
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AMPLIDYNE'S MCLPA PRODUCT SUMMARY
<TABLE>
<CAPTION>
OUTPUT
Product POWER
Model No. FREQUENCY STANDARD WATTS IMD (dBc)*
--------- --------- -------- ------ ----------
<S> <C> <C> <C> <C>
AMP461/466-N-100 463-467.5 NMT-450 100 -70
AMP651/866-SE-100 851-866 SETACS 100 -70
AMP869-896-100 869-894 AMPS/CDMA 100 -70
CDPD, TDMA
AMP917/950-E-100 917-960 ETACS/CDMA 100 -70
AMP1819-D-100 1805-1880 DCS-1800 100 -70
AMP1990-P-100 1930-1990 PCS-1900 100 -70
AMP1855-K-100 1840-1870 PCS-CDMA 100 -70
</TABLE>
* Carrier to Intermodulation Distortion Radio (the industry's
standard measure) and spurious emissions.
o High Power Linear Amplifiers. Amplidyne's product line of
linear amplifiers have a high third order intercept point
which translates to better call quality. These high power
amplifiers are supplied as modules or plug in enclosures. The
communication bands available are NMT-450, AMPS, TACS, ETACS
and PCS. The output power ranges from 1 to 200 Watts. These
amplifiers can be used in instances where service providers
only need a single transmit channel.
<PAGE>
The following table lists the Company's high power linear amplifiers:
<TABLE>
<CAPTION>
Model No. FREQUENCY MHz STANDARD POWER WATTS IMD (dBc)
- --------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C>
AMP0861-50 869-894 CDMA 25 -50
AMPS/TDMA 50 -40
AMP/CDPD 65 -25
AMP0935-16 925-960 GSM 65 -25
AMP0933-50 917-960 ETACS 65 -25
AMP0450-25 463-468 NMT-450 50 -40
AMP1855-25 1840-1870 DCS-1800 30 -30
AMP1990-25 1930-1990 PCS-1900 30 -30
TDMA 50 -40
CDMA 25 -40
</TABLE>
o Local Loop and Mini Cell Amplifiers. Local loop and mini cell
amplifiers are designed with a proprietary circuit to
achieve a high IMD specification, which translates to better
call quality through the mini cell. These amplifiers can be
supplied by the Company as modules or in a rack configuration.
o Low Noise Amplifier, Cellular, PCN, PCS, GSM. Amplidyne's
low noise amplifiers are manufactured with a mix of silicon
and GaAsFET devices. These amplifiers offer the user the
lowest noise and the highest intercept point, while
maintaining good efficiency. Received calls at a base
station are low in level due to the fact that hand held
cellular phones typically operate at half a watt power level.
This weak signal has to be amplified clearly which is done
by using Amplidyne's low noise amplifier. All amplifiers
undergo 72 hour burn-in period to ensure reliable filed
operation.
o Communication Amplifiers. These amplifiers are designed for
cellular and PCN/PCS applications and use GaAs or Silicon
Bipolar FET devices. Management believes that this product
provides the industry's best performance per dollar. The
transmit amplifiers are optimized for low distortion
products. Custom configurations are available for all
communication amplifiers. This line of products is aimed at
the single channel base station users employing the digital
cellular standards (CDMA and TDMA). Management believes by
marketing this product in this format a distinct, large
market can be addressed by these products.
<PAGE>
o Receive Multi-Coupler Amplifiers. Amplidyne supplies dual
receiver multi-carriers for cellular and PCS bands.
Management believes that this product line offers high
performance and reliability. Receive multi-coupler
amplifiers consist of low noise amplifiers, as described
above, filters and other components used as a receiving
subsystem within the base station. Management believes by
offering this product line, Amplidyne has more value added
to its low noise amplifiers and at the same time can satisfy
the requirements of its customers.
The Company has used its technological expertise to improve the
linearity of its amplifiers by introducing pre-distortion and compensation
techniques. Several of the Company's single-channel amplifiers include linearity
correction and compensation networks. These techniques are combined with
automatic error correction circuits to enhance the linearity and performance of
the Company's feed-forward amplifiers. Amplidyne has also used its technological
expertise to design and manufacture new products, such as the first 200 watt
average power multi-channel pre-distortion amplifier, and a PCS single-channel
CDMA amplifier being used in an overseas CDMA base station evaluation.
The Company's wireless telecommunications amplifiers can be configured
as modules, separate plug-in amplifier units or integrated subsystems. The
Company's products are integrated into systems by OEM customers, and therefore
must be engineered to be compatible with industry standards and with certain
customer specifications, such as frequency, power, linearity and built-in test
(BIT) for automatic fault diagnostics.
Product Warranty
The Company warrants new products against defects in materials and
workmanship for a period of one (1) year from the date of shipment. To date,
the Company has not experienced a material line of warranty claims.
Backlog
As of December 31, 1995 the Company had a backlog of $3.5 million. As
of December 31, 1996, the Company had a multi-year delivery backlog of
approximately $103,000,000. It is anticipated that this backlog will be filled
with continuing production during fiscal years 1997-1999. The Company cannot
predict whether or not all of such backlog will be delivered inasmuch as
purchase orders are subject to changes and/or cancellation particularly since
the wireless communications industry is characterized by rapid technological
change, new product development, product obsolescence and evolving industry
standards. In addition, as technology changes, corporations are frequently
requested to update and provide new prototypes in accordance with new
specifications if products become obsolete or inferior.
Customers, Sales & Marketing
Customers. The Company markets its products worldwide generally to
wireless communications manufacturers (OEMs) and communications system
operators. The table below indicates net revenues derived from customers in the
Company's markets since 1994.
15
<PAGE>
Net Revenues By Market Categories
(in thousands)
Year Ended
December 31,
-----------------------
Markets 1994 1995 1996
- ------- ---- ---- ----
Cellular Analog ....................... $2,780 $ 308 $ 126
Cellular Digital....................... 143 591 452
Wireless Telephony..................... 187 435 759
Satellite Communications, Custom
and other Products.................... 465 476 231
Digital PCS Products................... --- --- 652
Total............................. $3,575 $1,810 $2,220
Historically, the Company has derived a substantial percentage of its
net revenues from various customers during certain fiscal periods and until
fiscal 1994 the Company derived substantially all of its net revenues from
cellular analog products. However, since 1995 the Company has focused primarily
on digital cellular and wireless telephony and therefore the sales in those
areas have substantially increased. The Company expects that for future sales
the Company will have substantial market share in the cellular digital, wireless
telephony and digital PCS products.
* Cellular Analog and Digital. Since 1989 the Company has been
working closely with AT&T Bell Labs to develop products for
analog base stations primarily in the AMPS Band. These
products consist primarily of high linearity pre-amp
amplifiers and low noise amplifiers for the receive section of
the base station. In subsequent years the Company shipped
thousands of the amplifiers to its OEM customers. However,
with the transition of digital technology the sales of the
products decreased substantially in 1995 and the Company
concentrated its efforts in developing MCLPAs. In February
1995 the Company received prototype orders for its wireless
MCLPAs. Sales to the analog and digital cellular industry have
decreased from 82% in 1994 to approximately 26% of total sales
in 1996.
* Wireless Telephony. As a result of the shift in the Company's
research, engineering and development and marketing efforts,
sales to the wireless telephone segments of the wireless
communications industry have increased from approximately 5%
of total revenues for fiscal year end 1994 to 34% of total
revenue for the fiscal year end 1996.
16
<PAGE>
* Digital PCS. The Company has shipped prototype amplifiers to
its OEM customers as of December 31, 1996 accounting for 29%
of sales in the period ended December 31, 1996 and recently
received purchase orders for its PCS products. Management
expects this sector of the market to show substantial growth
during fiscal 1997. The Company believes it is one of the
pioneers for low noise, and single channel high power MCLPAs
for the worldwide OEM and system operators.
* International Sales. Sales of wireless products outside the
United States (primarily to Western Europe and the Far East)
represented approximately 8%, 30% and 34% of net sales during
fiscal 1994, fiscal 1995 and fiscal 1996, respectively. The
Company believes that cellular, PCS and wireless telephony
growth worldwide is going to far exceed growth rate
experienced in the U.S. The Company is positioning itself with
strategic alliances with key OEM's overseas to be a prime
source of base station, low noise and multi carrier power
amplifiers.
* Sales and Marketing. The Company's executive officers are
involved in all aspects of the Company's relationships with
its major OEM and system operator customers. The Company
employs a direct sales approach focused on providing its
wireless industry customers with unique solutions to satisfy
their transmit and receive amplification needs. Sales of the
Company's products to OEM and system operators requires close
technical liaison with customer engineers and purchasing
managers. The Company has entered into technical sales
representative agreements for the territories of Maryland,
Virginia, Pennsylvania, Washington, D.C., Delaware, New
Jersey, Korea, England and parts of Western Europe. By having
sales representatives in selected areas the Company can better
serve its key customers in these areas and continue to have
good relationships with them by providing technical support as
well as strong individual based customer service.
Competition
The ability of the Company to compete successfully and sustain
profitability depends in part upon the rate of which OEM customers incorporate
the Company's products into their systems. The Company believes that a
substantial majority of the present worldwide production of power amplifiers is
captive within the manufacturing operations of a small number of wireless
telecommunications OEMs and offered for sale as part of their wireless
telecommunications systems. The Company's future success is dependent upon the
extent to which these OEMs elect to purchase from outside sources rather than
manufacture their own amplification products. There can be no assurance that OEM
customers will incorporate the Company's products into their systems or that in
general OEM customers will continue to rely, or expand their reliance, on
external sources of supply for their power amplification products. Since each
OEM product involves a separate proposal by the amplifier supplier, there can be
no assurance that the Company's current OEM customers will not rely upon
internal production capabilities or a non-captive competitor for future
amplifier product needs. The Company's OEM customers continuously evaluate
whether to manufacture their own amplification products or purchase them from
outside sources. These OEM customers are large manufacturers of wireless
telecommunications equipment who could elect to enter the non-captive market and
compete directly with the Company. Such increased competition could materially
adversely affect the Company's business, financial condition and results of
operations.
17
<PAGE>
Certain of the Company's competitors have substantially greater
technical, financial, sales and marketing, distribution and other resources than
the Company and have greater name recognition and market acceptance of their
products and technologies. In addition, certain of these competitors are already
established in the wireless amplification market, but the Company believes it
can compete with them effectively. No assurance can be given that the Company's
competitors will not develop new technologies or enhancements to existing
products or introduce new products that will offer superior price or performance
features. To the extent that OEMs increase their reliance on external sources
for their power amplification needs more competitors could be attracted to the
market.
The Company expects its competitors to offer new and existing products
at prices necessary to gain or retain market share. The Company expects to
experience significant price competition, which could have a materially adverse
effect on gross margins. Certain of the Company's competitors have substantial
financial resources which may enable them to withstand sustained price
competition or downturns in the power amplification market. Currently, the
Company competes primarily with non-captive suppliers of power amplification
products. The Company believes that its competition, and ultimately the success
of the Company, will be based primarily upon service, pricing, reputation and
the ability to meet the delivery schedules of its customers.
Manufacturing
The Company assembles, tests, packages, and ships its products at its
manufacturing facilities located in Somerset, New Jersey. This facility includes
a separate assembly and test facility for various custom products.
Manufacturing Process. The Company's manufacturing process consists of
purchasing components, assembling and testing components and subassemblies,
integrating the subassemblies into a final product and testing the product. The
Company's amplifiers consist of a variety of subassemblies and components
designed or specified by the Company including housings, harnesses, cables,
packaged RF power transistors, integrated circuits and printed circuit boards.
Most of these components are manufactured by others and are shipped to the
Company for final assembly. Each of the Company's products receives extensive in
process and final quality inspections and tests.
The Company's devices, components and other electrical and mechanical
subcomponents are generally purchased from multiple suppliers. The Company does
not have any written agreement with any of its suppliers. The Company has
followed a general policy of multiple sourcing for most of its suppliers in
order to assure a continuous flow of such supplies. However, the Company does
purchase certain transistors produced by a single manufacturer because of the
high quality of its components. The Company believes it is unlikely that such
transistors would become unavailable, however, if that were to occur, there are
multiple manufacturers of generally comparable transistors. The Company would
require a period of time to "return" its products to function properly with the
replacement transistors. The Company believes that the distributors of such
transistors maintain adequate inventory levels, which would mitigate any adverse
effect on the Company's production in the event unavailability or shortage of
such transistors. If for any reason the Company could not obtain comparable
replacement transistors or could not return its products to operate with the
replacement transistors, the Company's business, financial condition and results
of operations could be adversely affected.
18
<PAGE>
The Company currently utilizes discrete circuit technology on printed
circuit boards which are designed by the Company and provided by suppliers to
the Company's specifications. All transistors and other semiconductor devices
are purchased in sealed packages ready for assembly and testing. Other
components such as resistors, capacitors, connectors or mechanical supported
subassemblies are also manufactured by others. Components are ordered from
suppliers under master purchase orders with deliveries timed to meet the
Company's production schedules. As a result, the Company maintains a low
inventory of components, which could result in delay in production in the event
of delays in such deliveries.
The Company is in the process of integrating automated equipment to
place surface mount components on printed circuit boards.
Microwave Integrated Circuit Manufacturing Facility. The Company is
planning to install a facility to support assembly and testing of custom RF and
microwave amplifiers and other passive components for which miniaturization is
particularly important. Handling of all components, assembly and testing is
undertaken in environmentally controlled surroundings. The Company believes that
this approach may be used as a core technology for PCS products in the future
and the Company may use its capability and technology in conceptualization and
implementation of PCS amplifiers and related products. However, the Company to
date has not manufactured PCS products utilizing the approach and no assurance
can be made that the Company will be able to make such products utilizing the
approach. There currently are adequate and readily available sources for all
components used in the Company's custom products.
In connection with the Company's transition to an automated
manufacturing process, the Company intends to introduce computerized
surface-mount machinery and related process equipment to support automated
assemblies. The Company anticipates the transition to commence in the second
quarter of 1997.
Research, Engineering and Development
The Company's research, engineering and development efforts are focused
on the design of amplifiers for new protocols, the improvement of existing
product performance, cost reductions and improvements in the manufacturability
of existing products.
The Company has historically devoted a significant portion of its
resources to research, engineering and development programs and expects to
continue to allocate significant resources to these efforts. The Company's
research, engineering and development expenses in fiscal 1994, 1995 and 1996
were approximately $330,000, $370,000 and $1,150,000, respectively, and
represented approximately 9%, 21% and 52%, respectively, of net revenues. These
efforts were primarily dedicated to the development of the linear feed forward,
high power, low distortion amplifiers, resulting in the Company's models for
AMPS, TACS, NMT-450 and PCS-1900.
The Company uses the latest equipment and computer aided design and
modeling, solid state device physics, advanced digital signal processing ("DSP")
and digital control systems, in the development of its products in the
specialized engineering and research departments.
The Company uses a CAD environment employing networked work stations to
model and test new circuits. This design environment, together with the
Company's experience in interference
19
<PAGE>
cancellation technology and modular product architecture, allows the Company to
rapidly define, develop and deliver new and enhanced products and subsystems
sought by its customers.
The markets in which the Company and OEM customers compete are
characterized by rapidly changing technology, evolving industry standards and
continuous improvements in products and services.
Patents, Proprietary Technology and Other Intellectual Property
The Company's ability to compete successfully and achieve future
revenue growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing the rights of others. The Company has
a policy of seeking patents, when appropriate, on inventions resulting from its
ongoing research and development and manufacturing activities.
Presently, the Company has been granted a patent (No. 5,606,286) by the
United States Patent and Trademark Office with respect to its Pre-Distortion and
Pre-Distortion Linearization technology which, the Company believes, is more
effective in reducing distortion then other currently available technology.
There can be no assurance that the Company's patent will not be challenged or
circumvented by competitors.
Notwithstanding the Company's active pursuit of patent protection, the
Company believes that the success of its amplifier business depends more on its
specifications, CAE/CAD design and modeling tools, technical processes and
employee expertise than on patent protection. The Company generally enters into
confidentiality and non-disclosure agreements with its employees and limits
access to and distribution of its proprietary technology. The Company may in the
future be notified that it is infringing certain patent and/or other
intellectual property rights of others. Although there are no such pending
lawsuits against the Company or unresolved notices that the Company is
infringing intellectual property rights of others, there can be no assurance
that litigation or infringement claims will not occur in the future.
Governmental Regulations
The Company's customers must obtain regulatory approval to operate
their base stations. The United States Federal Communications Commission ("FCC")
recently adopted new regulations that impose more stringent RF and microwave
emissions standards on the telecommunications industry. There can be no
assurance that the Company's customers will comply with such regulations which
could materially adversely affect the Company's business, financial condition
and results of operations. The Company manufactures its products according to
specifications provided by its customers, which specifications are given to
comply with applicable regulations. The Company does not believe that costs
involved with manufacturing to meet specifications will have a material impact
on its operations. There can be no assurances that the adoption of future
regulations would not have a material adverse affect on the Company's business.
Employees
As of December 31, 1996, the Company had a total of 42 employees,
including 21 in operations, 15 in engineering, 1 in sales and marketing, 2 in
quality assurance and 3 in administration. The Company believes its future
performance will depend in large part on its ability
20
<PAGE>
to attract and retain highly skilled employees. None of the Company's employees
is represented by a labor union and the Company has not experienced any work
stoppages. The Company considers its employee relations to be good.
Environmental Regulations
The Company is subject to Federal, state and local governmental
regulations relating to the storage, discharge, handling, emissions, generation,
manufacture and disposal of toxic or other hazardous substances used to
manufacture the Company's products. The Company believes that it is currently in
compliance in all material respects with such regulations. Failure to comply
with current or future regulations could result in the imposition of substantial
fines on the Company, suspension of production, alteration of its manufacturing
process, cessation of operations or other actions which could materially and
adversely affect the Company's business, financial condition and results of
operations.
Item 2. PROPERTIES.
The Company leases (from an unaffiliated party) approximately 21,000
square feet at 144 Belmont Drive, Somerset, New Jersey 08873 which serves as the
Company's executive offices and manufacturing facility. The lease term commenced
on May l, 1996 and expires on April 30, 1999. The annual rental is $168,000. The
Company has the option to extend the term of the lease for a three (3) year
period so long as it exercises the option for the entire building (36,405 square
feet) less space leased to third parties.
The Company leases (from an unaffiliated party) approximately 6,000
square feet at Building 7, Unit 9, Ilene Court, Belle Mead, New Jersey 08502
which until April 1996 served as the Company's executive offices. The lease term
expires on October 31, 1997. The annual rental increases to a maximum of
$40,500. Total rental expenses for the years ended December 31, 1995 and 1996
were $34,295 and $42,400, respectively. The Company is presently in litigation
with the landlord of the premises.
21
<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation or governmental
proceedings that management believes would result in judgments or fines that
would have a material adverse effect on the Company.
The Company is involved in the following matters:
AirNet Communications Corporation v. Amplidyne, Inc.
Plaintiff 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. Plaintiff also alleges damages in the
amount of $4,322,579.05, plus interest, costs and attorneys fees. The
Company filed an answer to the complaint denying the allegations
therein and a counterclaim on March 10, 1997. The counterclaim alleges
breach of contract, common law fraud, conversion and unjust enrichment.
The Company further asserts damages in the amount of $48,587.48, plus
interest, costs and attorney fees. Management believes that the
allegations in the complaint are without merit.
Larker Associates v. Amplidyne, Inc.
Plaintiff filed a compliant in the Supreme Court of New
Jersey, Somerset County alleging breach of a lease (for the premises
located in Belle Mead, New Jersey -- See "Item 2 - Properties").
Plaintiff is alleging damages in the amount of $48,587.48. The Company
filed an answer to the compliant and a counterclaim for breach of
lease, cancellation of any rental due and damages in an amount in
excess of $10,000. Management believes that the claim is without merit.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no matters which have been submitted to a vote
of the Company's security holders.
22
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock and Warrants commenced trading on the Nasdaq
Small Cap Market on January 22, 1997.The Common Stock and Warrants are regularly
quoted and traded on the Nasdaq SmallCap Market under the symbols AMPD and
AMPDW, respectively.
The following table sets forth the range of high and low bid quotation
prices for the Company's Common Stock and Warrants for the period January 22,
1997 up to March 31,1997 as requested by the Nasdaq SmallCap Market. The quotes
represent inter-dealer prices without adjustment or mark-ups, mark-downs or
commissions and may not necessarily represent actual transactions. The trading
volume of the Company's Common Stock and Warrants fluctuates and may be limited
during certain periods. As a result, the liquidity of an investment in the
Common Stock and Warrants may be adversely affected.
Common
Stock
- ------
1997 Calendar Year Quoted Bid Price
------------------ ------------------
High Low
---- ---
January 22 - March 31 5-5/8 4-1/4
Warrants
- --------
1997 Calendar Year Quoted Bid Price
------------------ ----------------
High Low
---- ---
January 22 - March 31 13/16 1/4
On March 31, 1997 the closing prices of the Common Stock and Warrants
as reported on Nasdaq SmallCap Market was $5-1/8 and $27/32, respectively. On
March 31, 1997 there were 4,460,000 shares of Common Stock and 1,610,000
Warrants outstanding, held of record by approximately 41 record holders.
23
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
The following table sets forth certain operating data as percentage of
total revenue:
Percentage of Total Net Sales
Years ended
December 31,
1995 1996
-------------------------
Net sales 100.0% 100%
Cost of goods sold 97.0 99.0
Gross profit 3.0 1.0
Selling, general and
administrative 28.5 51.6
Research, engineering and
development 20.6 51.8
Total operating expenses 49.1 103.4
Interest expense .6 4.9
Stock compensation and
financing costs 65.2 136.7
Loss before income taxes (111.9) (244.1)
Provision (credit) for
income taxes
Net loss (111.9) (244.1)
Results of operations - Fiscal year ended December 31, 1996 compared to Fiscal
Year ended December 31, 1995
Revenues for the fiscal year ended December 31, 1996 increased 23%
compared to the fiscal year ended December 31, 1995. The Company's principal
business strategy since 1995 has been devoted to the engineering production of
the linear power amplifiers and Multicarrier Linear Power Amplifiers (MCLPA)
prototypes for major international OEM manufactures. As a result, the production
of commercial cellular amplifiers decreased significantly in 1995 replaced with
minimal revenues relating to the MCLPA. During fiscal year 1996, the Company's
revenues relating to the MCLPA as compared to the same period in 1995 increased
significantly as the MCLPA is further developed and nearing acceptance by OEM
manufacturers. In fiscal year 1996, approximately 29% of all product shipments
were prototypes compared to about 7% for the same period in 1995.
Cost of sales as a percentage of sales was 99% during the year ended
December 31, 1996, compared to 97% during the same period for 1995. This
increase can be attributed to the extensive engineering and direct labor costs
associated with the production of MCLPA prototypes.
24
<PAGE>
Selling, general and administrative expenses increased in 1996 by
$629,496 to $1,145,910 from $516,414 in 1995. Expressed as a percentage of
sales, the selling, general and administrative expenses were 51.6% in 1996 and
28.5 % in 1995. The principal factors contributing to the increase in selling,
general and administrative expenses relate to consulting and professional fees
in 1996 that did not exist in 1995 and increased rent expense due to the Company
leasing a new larger facility.
Research, engineering and development expenses increased to 51.8% of
net sales in 1996 compared to 20.6% in 1995. In 1996, the principal activity of
the business related to the design and production of product prototypes for OEM
manufacturers. The research, engineering and development expenses consist
principally of salary costs for engineers and the expenses of equipment
purchased specifically for the design and testing of the prototype products.
Interest expense was higher in 1996 because of the outstanding
bank debt, lease obligations and promissory notes.
Stock compensation expense in 1996 of $3,034,990 relates to the
1996 issuance of stock and options at prices substantially lower than the
initial public offering price.
As a result of the foregoing, the Company incurred net losses of
($5,419,940) or ($1.49) per share for the year ended December 31, 1996
compared with net losses of ($2,025,677) or ($.56) per share for the same
period in 1995.
1995 Compared with 1994
In 1995 the Company began focusing its business on the MCLPA, a
relatively recent outgrowth in the market place. Since 1989 the Company had
concentrated in the commercial cellular amplifier business. The transition in
the Company's focus from a supplier of single channel amplifiers to the design
of MCLPA prototypes for large OEM wireless telecommunications manufacturers
resulted in a decrease in revenues of $1,764,910, or 49%, to $1,810,222 in 1995
from $3,575,132 in 1994. Shipments of prototype products accounted for about 7%
of all shipments in 1994 whereas in 1995 they accounted for 21%. During 1995
approximately 61% of net sales were to four customers and approximately 30% of
total sales were export sales.
Cost of sales as a percentage of sales was 97% in 1995 compared to 76%
in 1994. The increase is principally due to the change in the business. The
Company's focus on the MCLPA has required a substantial amount of direct labor
costs, principally engineering, to develop the MCLPA technology.
Selling, general and administrative expenses decreased in 1995 by
$205,579 to $516,414 from $721,993 in 1994. Expressed as a percentage of sales,
the selling, general and administrative expenses were 29% in 1995 and 20% in
1994. Selling, general and administrative expenses decreased as a result of
lower sales commissions, reduction in management bonuses and fewer staff. The
percentage increase in 1995 is attributed to fixed costs, such as rent, etc.,
representing a higher portion of net sales.
Research, engineering and development expenses as a percentage of net
sales increased to 21% in 1995 compared to 9% in 1994. This increase reflects
the changes in the business to design and production of prototypes for OEM
manufacturers. The research and development expenses
25
<PAGE>
consist principally of salary costs for engineers and the expensing of equipment
purchases acquired specifically for the design and testing of the prototype
products.
Stock compensation and financing costs of $1,180,000 in 1995 relates
to the assignment of stock from the principal stockholder to a director and a
law firm and stock agreements with officers of the Company.
Liquidity and Capital Resources
As of December 31, 1996, the Company had a current ratio of .33 to 1.00
The bank line of credit outstanding totaled $210,000 in addition to stockholders
loans of $442,745. The funds from the credit line and stockholder's loan were
used for working capital purposes. Additional loans totaling $1,214,000 were
incurred during 1996 as a result of bridge financings. All of the bridge
financing loans paid interest at 8% and were paid in January 1997 (at the
closing of the initial public offering).
The Company has several lease obligations for certain research,
engineering and development equipment used in the production processes requiring
minimum monthly payments of $22,637 through 1999.
The Company believes that the net proceeds of the Company's initial
public offering will permit it to continue to meet its working capital
obligations and fund the further development of its business for the next 12
months. 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.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See financial statements following Item 13 of this Annual Report on
Form 10-KSB.
Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
26
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF THE
REGISTRANT
The names and ages of the directors and executive officers of the
Company are set forth below:
Name Age Position(s) with the Company
- ---- --- ----------------------------
Devendar S. Bains* 45 Chairman of the Board, President, Chief
Executive Officer, Treasurer and Director
Tarlochan Bains* 47 Vice President-Sales & Marketing and Director
Nirmal Bains 39 Secretary
Robert S. Benou* 60 Director
William A. Suter 45 RF Design Manager
Harris Freedman 61 Vice President - Strategic Alliances
Sharon Will 36 Vice President - Corporate Communications and
Investor Relations
* Member of the Compensation Committee and Audit Committee.
Background of Executive Officers and Directors
Devendar S. Bains has been Chairman of the Board, President, Chief Executive
Officer, Treasurer and a director of the Company since its inception in 1988.
From 1983 to 1988 Mr. Bains was Group Project Leader of Amplifier division
of Microwave Semiconductor Corporation. Previously, Mr. Bains was employed at
G.E.C. in Coventry, England. Mr. Bains received a Bachelor's Degree in
Electronic Engineering from Sheffield University, England, and a Masters
Degree from the University of Leeds and Sheffield, England. Mr. Bains is the
brother of Tarlochan Bains and the husband of Nirmal Bains.
Tarlochan Bains has been Vice President of Sales and Marketing since 1991.
Previously, Mr. Bains was Technical Manager at Land Rover in Solihull, England.
He has a Masters Degree in Mechanical Engineering from Hatfield Polytechnic,
England. Mr. Bains is the brother of Devendar S. Bains and the brother-in-law
of Nirmal Bains.
Nirmal Bains has been Secretary of the Company since 1989. She has a degree
in Computer Programming from Cittone Institute in New Jersey. Mrs. Bains is
the wife of Devendar S. Bains and the sister-in-law of Tarlochan Bains.
Robert S. Benou has been a Director of the Company since December 1995. Since
1968 Mr. Benou has been the Chairman of the Board, President and Chief
Executive Officer of Conolog Corporation, a publicly traded company on Nasdaq.
Conolog is engaged in the design, manufacture
27
<PAGE>
and distribution of electronic and electromagnetic components and subassemblies
for use in telephones, radio and microwave transmission and reception and
communication. Mr. Benou is a graduate of Victoria College and has a Bachelor of
Science from Kingston College, England and a Bachelor of Science in Electronic
Engineering from Newark College of Engineering.
William A. Suter is the RF Design Manager of the Company responsible for
the design and development of the Company's products. Previously he was Senior
Design Engineer for Amplifonix, Inc. from August 1993 to November 1995,
Plessey SA from November 1989 to June 1993, BH Electronics from February 1989
to October 1989, and Communication Techniques, Inc. from February 1986 to
February 1987. Mr. Suter has published various articles on amplification
methods and technology in several industry publications. Mr. Suter has a
Bachelors of Science in Electronic Engineering from the University of Cape
Town, South Africa.
Harris Freedman has served as Vice President - Strategic Alliances of the
Company since July 1996. Since August 1994 he has been Vice President of
Hemispherx Biopharma, Inc., a publicly traded company listed on Nasdaq. He is
the Secretary of SMACS Holdings Corp. a private company which provides
strategic-alliance services to emerging technology companies in the private and
public markets. His business experience has encompassed developing significant
business contacts and acting as an officer of several companies in the
pharmaceutical, health care and entertainment fields. Mr. Freedman was Vice
President of U.S. Alcohol Testing of America, Inc., from August 1990 to February
1991. Additionally, he was Vice President - East Coast Marketing for MusicSource
U.S.A., Inc from October 1992 to January 1994. Mr. Freedman attended New York
University from 1951 to 1954.
Sharon Will has been Vice President - Corporate Communications and Investor
Relations of the Company since July 1996. Since November 1994 she has been Vice
President of Hemispherx Biopharma, Inc., a publicly traded company listed on
Nasdaq. She was a registered sales representative and Senior Vice President for
Institutional Sales at Westfield Financial Corporation from September 1994 to
October 1994. She was a registered sales representative with Marsh Block
Corporation from July 1994 to September 1994. From October 1993 to July 1994 she
served as a registered sale representative at Seaboard Securities Corp. From
October 1991 to present, Ms. Will has been President of Worldwide Marketing Inc.
a manufacturers' representative of various companies selling to the retail trade
markets. Ms. Will was the National Sales Manager of Innovo, Inc., a domestic
manufacturer of textiles, from October 1989 to November 1991. She attended
Baylor College as an undergraduate for two years with a primary focus on
chemistry.
The Company has established a compensation committee and an audit
committee. The compensation committee reviews executive salaries, administers
any bonus, incentive compensation and stock option plans of the Company,
including the Amplidyne, Inc. 1996 Incentive Stock Option and Stock Appreciation
Rights Plan, and approves the salaries and other benefits of the executive
officers of the Company. In addition, the compensation committee consults with
the Company's management regarding pension and other benefit plans, and
compensation policies and practices of the Company.
The audit committee reviews the professional services provided by the
Company's independent auditors, the independence of such auditors from
management of the Company, the annual financial statements of the Company and
the Company's system of internal accounting
28
<PAGE>
controls. The audit committee also reviews such other matters with respect to
the accounting, auditing and financial reporting practices and procedures of the
Company as it may find appropriate or as may be brought to its attention.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely upon its review of the copies
of such reports furnished to the Company during the year ended December 31,
1996, all Section 16(a) filing requirements applicable to its officers and
directors and greater than ten percent beneficial owners were satisfied.
29
<PAGE>
Item 10. Executive Compensation
Compensation of Directors and Executive Officers
Summary Compensation Table
The following table sets forth the aggregate compensation paid by the
Company for the years ended December 31, 1994, 1995 and 1996 for its Chief
Executive Officer. No other employee received compensation in excess of
$100,000. Each director of the Company is entitled to receive reasonable
out-of-pocket expenses incurred in attending meetings of the Board of Directors
of the Company but are not compensated for services provided in their capacities
as directors.
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------
Awards Securities
Annual Compensation ---------- ---------- Payouts
Name of Individual ----------------------------- Restricted Underlying ----------------
and Principal Other Annual Stock Options/ LTIP All Othr
Position Year Salary Bonus Compensation Awards SARS(#) Payouts Comp.
- ---------------------- ---- ------ ----- ------------ ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Devendar S. Bains,
Chairman, 1996 $80,000 --- $20,000(1) --- 1,000,000 --- ---
Chief Executive Office, 1995 85,000 --- 20,000(1) --- --- --- ---
President and Treasurer 1994 85,000 $200,000 10,000(1) --- --- --- ---
</TABLE>
(1) Represents payment for health insurance and automobile insurance lease
payments on behalf of such individual.
Set forth below is information relating to stock options granted to the
officers and directors in fiscal 1996.
Option/SAR Grants in Fiscal 1996
<TABLE>
<CAPTION>
Percent of
Number of Total
Securities Option/SARs
Underlying Granted to
Option/SARs Employees in Exercise
Name Granted Fiscal 1996 Price($/sh) Expiration Date
- ---- ------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Devendar S. Bains 1,000,000 77.10% $4.00 December 31, 2000
Nirmal Bains 50,000 3.86% $4.00 December 31, 2000
Tarlochan Bains 100,000 7.71% $4.00 December 31, 2000
</TABLE>
Aggregated Option/SARs Exercises During Fiscal 1996
and Year End Option/SAR Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Shares Underlying Unexercised Options/SARs
Acquired Options/SARs at FY-End at FY-End(1)
on Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Devendar S. Bains --- --- ---- 1,000,000 --- $1,000,000
Nirmal Bains --- --- ---- 50,000 --- 50,000
Tarlochan Bains --- --- ---- 100,000 --- $ 100,000
</TABLE>
(1) Represents the value of options assuming the initial public offering price
per share.
30
<PAGE>
Employment Agreements
The Company has entered into five-year employment agreements commencing
May 1, 1996 with each of Devendar Bains (Chairman, Chief Executive Officer,
President and Treasurer), Tarlochan Bains (Vice President - Sales & Marketing),
and Nirmal Bains (Secretary). The employment agreements provide for annual base
salaries of $162,000, $100,000 and $50,000 with respect to Devendar Bains,
Tarlochan Bains and Nirmal Bains, respectively. The employment agreements
provide for discretionary bonuses to be determined in the sole discretion of the
Board of Directors and contain covenants not to compete with the Company for a
two year period following termination of employment.
The Company has entered into a two-year agreement commencing December
1995 and ending December 1997 with Robert Benou. Mr. Benou is to provide the
Company with such services as requested by the Company. Under such agreement,
Mr. Benou will receive compensation of $30,000 per year for a minimum of two
years.
In December 1995 the Company entered into three-year employment
agreements with each of Harris Freedman and Sharon Will, Vice President for
Strategic Alliances and Vice President for Corporate Communications and Investor
Relations, respectively. Under the terms of each agreement they are to be paid
$60,000 per annum through December 1998.
Stock Option Plans and Agreements
Incentive Option Plan - In May 1996, the Directors of the Company
adopted and the stockholders of the Company approved the adoption of the
Company's 1996 Incentive Stock Option Plan (" Incentive Option Plan"). The
purpose of the Incentive Option Plan is to enable the Company to encourage key
employees and Directors to contribute to the success of the Company by granting
such employees and Directors incentive stock options ("ISOs").
The Incentive Option Plan will be administered by the Board of
Directors or a committee appointed by the Board of Directors (the "Committee")
which will determine, in its discretion, among other things, the recipients of
grants, whether a grant will consist of ISOs or a combination thereof, and the
number of shares to be subject to such options.
The Incentive Option Plan provides for the granting of ISOs to purchase
Common Stock at an exercise price to be determined by the Board of Directors or
the Committee not less than the fair market value of the Common Stock on the
date the option is granted.
The total number of shares with respect to which options may be granted
under the Incentive Option Plan is 1,500,000. ISOs may not be granted to an
individual to the extent that in the calendar year in which such ISOs first
become exercisable the shares subject to such ISOs have a fair market value on
the date of grant in excess of $100,000. No option may be granted under the
Incentive Option Plan after May 2006 and no option may be outstanding for more
than ten years after its grant. Additionally, no option can be granted for more
than five (5) years to a
31
<PAGE>
stockholder owning 10% or more of the Company's outstanding Common Stock and
such options must have an exercise price of not less than 110% of the fair
market value on the date of grant.
Upon the exercise of an option, the holder must make payment of the
full exercise price. Such payment may be made in cash or in shares of Common
Stock, or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations.
The Incentive Option Plan may be terminated or amended at any time by
the Board of Directors, except that, without stockholder approval, the Incentive
Option Plan may not be amended to increase the number of shares subject to the
Incentive Option Plan, change the class of persons eligible to receive options
under the Incentive Option Plan or materially increase the benefits of
participants.
In May 1996, 1,267,000 options to purchase Common Stock under the
Incentive Option Plan were granted to 40 employees ("Employee Options") ,
including Dave Bains (1,000,000 options), Tarlochan Bains (100,000 options) and
Nirmal Bains (50,000 options), the Company's Chief Executive Officer, Vice
President-Sales and Marketing and Secretary, respectively. See "Principal
Stockholders." No determinations have been made regarding the persons to whom
options will be granted in the future, the number of shares which will be
subject to such options or the exercise prices to be fixed with respect to any
option. The Employee Options are exercisable at $4.00 which will vest, as to
33.33%, one year from the date of grant (May 1997) and, as to the remainder,
ratably over the following two-year period (33.33% in May 1998 and 33.33% in May
1999).
In addition, in May 1996, 30,000 options were granted to 1 employee
("Key Employee Options") which are exercisable at $1.00 which will vest, as to
33.33%, one year from the date of grant (May 1997) and, as to the remainder,
ratably over the following two-year period (33.33% in May 1998 and 33.33% in May
1999) .
701 Warrants
In December 1995, the Company issued 701 Warrants to purchase 350,000
Shares at $2.50 per share pursuant to Rule 701 under the Act to Harris Freedman
and Sharon Will, the Company's Vice President for Strategic Alliances and Vice
President for Corporate Communications and Investor Relations, respectively, of
the Company. The 701 Warrants vest in one-third increments (commencing June
1996) over a three (3)year period and are exercisable until June 30, 1999.
32
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 31, 1997 with
respect to the beneficial ownership of the outstanding shares of the Company's
Common Stock by (i) any holder of more than five percent (5%) of the outstanding
shares; (ii) the Company's officers and directors; and (iii) the directors and
officers of the Company as a group:
Name of Beneficial Number of Shares Percentage %
Owner* of Common Stock(1) Ownership
------- --------------- ------------
Devendar S. Bains(2) 2,350,000 48.86
Tarlochan Bains(3) 33,333 .74
Nirmal Bains(2)(4) 2,350,000 48.86
Robert S. Benou 50,000 1.12
Harris Freedman(5) 151,667 3.35
Sharon Will(6) 165,000 3.66
All Officers and
Directors as a group
(6 persons) 2,750,000 57.73
- ---------
* Unless otherwise indicated, the address of all persons listed in this
section is c/o Amplidyne, Inc., 144 Belmont Drive, Somerset, NJ 08873.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options. Each beneficial owner's percentage
ownership is determined by assuming those options that are held by such
person and that are exercisable within 60 days from the date of the
Prospectus have been exercised.
(2) Mr. Devendar Bains is the husband of Mrs. Nirmal Bains and the
brother of Mr. Tarlochan Bains. Mr. Devendar Bains is the record
holder of 2,000,000 of such shares. Includes 333,333 Employee Options
(but does not include 666,667 Employee Options) which was granted to
Mr. Devendar Bains. Includes 16,667 Employee Options (but not include
33,333 Employee Options) which was granted to Ms. Nirmal Bains. See
"Executive Compensation-Stock Option Plans and Agreements."
(3) Does not include 66,666 Employee Options. See "Executive Compensation
- Stock Option Plans and Agreements."
(4) Does not include 33,333 Employee Options. See "Executive Compensation
- Stock Option Plans and Agreements."
(5) The address for such person is 1241 Gulf of Mexico Drive, Longboat
Key, Florida 34228. Mr. Freedman is the Vice President - Strategic
Alliances of the Company. Includes 90,000 shares of Common Stock and
61,667 warrants to purchase Common Stock at $2.50 per share. Does not
include an additional 123,333 of such warrants. See Item 9.
(6) The address for such person is RRI Box 132, Millerton, New York 12546.
Ms. Will is the Vice President - Corporate Communications and
Investor Relations of the Company. Includes 110,000 shares of Common
Stock and 55,000 warrants to purchase Common Stock at $2.50 per share.
Does not include an additional 110,000 of such warrants. See Item 9.
33
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All of the sales of securities prior to the date hereof were
made in reliance upon Section 4(2) of the 1933 Act, which provides exemption
for transactions not involving a public offering.
The Company was incorporated on December 14, 1995 pursuant to the laws
of the State of Delaware as the successor to Amplidyne, Inc., a New Jersey
corporation ("Amplidyne-NJ"), which was incorporated in October 1988. The
Company was organized to effectuate a reincorporation of Amplidyne-NJ with and
into the Company on December 22, 1995.
Between January 1994 and December 1996, Devendar S. Bains, the
Company's President and Chief Executive Officer, loaned the Company an aggregate
of $442,745 without interest, payable on demand.
The Company intends to indemnify its officers and directors to the full
extent permitted by Delaware law. Under Delaware law, a corporation may
indemnify its agents for expenses and amounts paid in third party actions and,
upon court approval in derivative actions, if the agents acted in good faith and
with reasonable care. A majority vote of the Board of Directors, approval of the
stockholder or court approval is required to effectuate indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to officers, directors or persons
controlling the Company, the Company has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in such Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by an officer, director or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such officer, director or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue.
Transactions between the Company and its officers, directors, employees
and affiliates will be on terms no less favorable to the Company than can be
obtained from unaffiliated parties. Any such transactions will be subject to the
approval of a majority of the disinterested members of the Board of Directors.
34
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements are included in Part II, Item 7:
Index to Financial Statements F-1
Report of Independent Certified Public Accountants F-2
Balance Sheet F-3
Statement of Operations F-5
Statement of Stockholders' Equity F-6
Statement of Cash Flows F-7
Notes to Financial Statements F-8 - F-19
35
<PAGE>
(a) (2) Exhibits
1.1* Form of Underwriting Agreement
1.2* Form of Selected Dealer Agreement
1.3* Form of Agreement Among Underwriters
3.1* Certificate of Incorporation of the Company
3.2* Certificate of Merger (Delaware)
3.3* Certificate of Merger (New Jersey)
3.4* Agreement and Plan of Merger
3.5* By-Laws of the Company
4.1* Specimen Certificate for shares of Common Stock
4.2* Specimen Certificate for Warrants
4.3* Form of Underwriter's Purchase Option
4.4* Form of Warrant Agreement
5.1* Opinion of Bernstein & Wasserman, LLP, counsel to the Company
10.1* 1996 Incentive Stock Option Plan
10.2* Employment Agreement between the Company and Devendar S. Bains
10.3* Employment Agreement between the Company and Tarlochan Bains
10.4* Employment Agreement between the Company and Nirmal Bains
10.5* Agreement of Lease for Premises located at 144 Belmont Drive,
Somerset, New Jersey 08873
10.6* Agreement of Lease for Premises located at Unit 9, Building 7,
Ilene Court, Belle Mead, New Jersey 08502
10.7* Agreement between the Company and Electronic Marketing Associates,
Inc.
10.8* Agreement between the Company and Link Microtek Limited.
10.9* Agreement between the Company and ENS Engineering.
10.10* Employment Agreement between the Company and Harris Freedman.
10.11* Employment Agreement between the Company and Sharon Will.
10.12* Form of Lockup Agreement with Officers, Directors and 5% or
Greater Shareholders.
10.13* Form of Lockup Agreement with Selling Securityholders.
23.1* Consent of Bernstein & Wasserman, LLP (included in Exhibit 5.1)
23.2* Consent of Grant Thornton, LLP, Independent Certified Public
Accountants.
27 Financial Data Schedule
* Incorporated by Reference to the Company's Registration Statement on
Form SB-2, No. 333-11015.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
fourth quarter of fiscal 1996.
36
<PAGE>
Amplidyne, Inc.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants
Financial Statements F-2
Balance Sheets F-3
Statements of Operations F-5
Statement of Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8 - F-19
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Amplidyne, Inc.
We have audited the accompanying balance sheets of Amplidyne, Inc. as of
December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Amplidyne, Inc., as of December
31, 1995 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
April 10, 1997
F-2
<PAGE>
Amplidyne, Inc.
BALANCE SHEETS
December 31,
ASSETS 1995 1996
---- ----
CURRENT ASSETS
Cash $153,747 $ 104,310
Accounts receivable, net of allowance
for doubtful accounts of $10,000 and
$119,000 in 1995 and 1996, respectively 165,702 207,339
Inventories 281,078 402,696
Deferred financing costs 324,540
Private placement receivables 55,000
Prepaid expenses and other current assets 28,235 5,665
-------- ----------
Total current assets 628,762 1,099,550
PROPERTY AND EQUIPMENT - AT COST
Machinery and equipment 132,067 389,433
Furniture and fixtures 13,144 42,806
Autos and trucks 19,923 19,923
Leasehold improvements 21,220 4,162
-------- ----------
186,354 456,324
Less accumulated depreciation and amortization 103,951 145,593
------- ----------
82,403 310,731
PREPAID REGISTRATION COSTS 167,053
OTHER ASSETS 11,100 45,230
-------- ----------
$722,265 $1,622,564
======= =========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Amplidyne, Inc.
BALANCE SHEETS
December 31,
LIABILITIES AND
STOCKHOLDERS' EQUITY 1995 1996
---- ----
CURRENT LIABILITIES
Bank line of credit $ 230,000 $ 210,000
Notes payable 1,214,000
Current maturities of lease obligations 78,365 381,392
Accounts payable 287,498 690,760
Accrued expenses 184,429 401,518
Customer advances 155,932
Stockholders' loan 270,716 442,745
----------- -----------
Total current liabilities 1,206,940 3,340,415
LONG-TERM LIABILITIES
Lease obligations 69,451 200,969
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 1,000,000
shares of no stated value; no shares
issued and outstanding
Common stock - authorized, 25,000,000
shares of $.0001 par value; 2,100,000
shares and 2,850,000 shares issued and
outstanding at December 31, 1995 and
1996, respectively 210 285
Additional paid-in capital 1,184,790 5,239,961
Retained earnings (accumulated deficit) (1,739,126) (7,159,066)
----------- ----------
(554,126) (1,918,820)
----------- ----------
$ 722,265 $ 1,622,564
=========== ==========
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Amplidyne, Inc.
STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Net sales $ 1,810,222 $ 2,219,945
Cost of goods sold 1,756,365 2,198,503
--------- ----------
Gross profit 53,857 21,442
Operating expenses
Selling, general and administrative 516,414 1,145,910
Research, engineering and development 372,334 1,150,710
----------- ----------
Operating loss (834,891) (2,275,178)
Other nonoperating expenses
Interest expense 10,736 109,772
Stock compensation and financing costs 1,180,000 3,034,990
---------- ----------
Loss before income taxes (2,025,627) (5,419,940)
Provision for income taxes 50
---------- ----------
NET LOSS $(2,025,677) $(5,419,940)
========== ==========
Net loss per share $(.56) $(1.49)
==== =====
Weighted average number of shares
outstanding 3,644,950 3,644,950
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Amplidyne, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
Common stock Additional Retained
----------------------------- paid-in earnings
Shares Par value capital (deficit) Total
-------- --------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 2,100,000 $210 $ 4,790 $ 286,551 $ 291,551
Net loss for 1995 (2,025,677) (2,025,677)
Assignment of common stock 400,000 400,000
Stock-related compensation expense 780,000 780,000
--------- ---- ---------- ---------- -----------
Balance at December 31, 1995 2,100,000 210 1,184,790 (1,739,126) (554,126)
Net loss for 1996 (5,419,940) (5,419,940)
Private placements 550,000 55 549,945 550,000
Financing and compensation costs
related to Options and warrants issued 3,359,530 3,359,530
Contributed capital 125,716 125,716
Exercise of options 200,000 20 19,980 20,000
--------- ---- ---------- ----------- -----------
Balance at December 31, 1996 2,850,000 $285 $5,239,961 $(7,159,066) $(1,918,820)
========= ==== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
Amplidyne, Inc.
STATEMENTS OF CASH FLOWS
Year ended December 31,
1995 1996
------ ------
Cash flows from operating activities
Net loss $(2,025,677) $(5,419,940)
---------- ----------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 30,011 102,710
Loss on disposal of fixed assets 11,023
Bad debt expense 109,000
Write-off of equipment 304,005
Stock compensation expense 1,180,000 3,034,990
Changes in assets and liabilities
Accounts receivable 243,133 (150,637)
Inventories 4,288 (121,618)
Prepaid expenses and other current
assets 6,389 22,570
Accounts payable and accrued
expenses 124,989 620,351
Other assets (85,000)
Customer advances 119,952 (155,932)
--------- ---------
Total adjustments 1,708,762 3,691,462
--------- ---------
Net cash used in operating
activities (316,915) (1,728,478)
--------- ----------
Cash flows from investing activities
Purchase of fixed assets (41,220) (93,767)
--------- ----------
Cash flows from financing activities
Proceeds from (repayments of) bank line
of credit 230,000 (20,000)
Proceeds from notes payable 1,159,000
Lease obligations 128,545 (66,884)
Proceeds from stockholder loans 150,000 297,745
Prepaid registration costs (167,053)
Stock issuance 570,000
--------- ---------
Net cash provided by financing
activities 508,545 1,772,808
--------- ---------
NET INCREASE (DECREASE)
IN CASH 150,410 (49,437)
Cash at beginning of year 3,337 153,747
--------- ---------
Cash at end of year $ 153,747 $ 104,310
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for
Interest $ 11,426 $ 39,009
Income taxes 9,496
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1996
NOTE A - NATURE OF OPERATIONS
Amplidyne, Inc. (the "Company") designs, manufactures and sells ultra
linear power amplifiers and related subsystems to the worldwide wireless,
local loop and satellite uplink telecommunications market. Many of its
customers are large, international telecommunications original equipment
manufacturers ("OEMs") for which products are manufactured to their
specifications.
The Company was incorporated on December 14, 1995, as a Delaware
corporation as the successor to Amplidyne, Inc. (the predecessor company),
a New Jersey corporation, which was incorporated in October 1988. On
December 22, 1995, the predecessor company was merged into the Company.
Each share of the predecessor company, 100 shares outstanding, was
exchanged for 21,000 shares of the Company. As a result, the sole
shareholder of the predecessor owned 2,100,000 shares of the Company after
the merger.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
1. Revenue Recognition
Revenue is recognized upon shipment of products to customers.
2. Inventories
Inventories are stated at the lower of cost or market; cost is
determined using the first-in, first-out method.
3. Property, Plant and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their
estimated service lives which range from three to seven years.
Leasehold improvements are amortized over the lives of the respective
leases or the
F-8
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1996
NOTE B (continued)
service lives of the improvements, whichever is shorter. The
straight-line method of depreciation is followed for substantially all
assets for financial reporting purposes, but accelerated methods are
used for tax purposes.
4. Income Taxes
The Company accounts for income taxes using an asset and liability
approach for financial accounting and reporting for deferred income
taxes. In addition, the deferred tax liabilities and assets are
required to be adjusted for the effect of any future changes in the tax
laws or rates. Deferred income taxes arise from temporary differences
resulting in the basis of assets and liabilities for financial
reporting and income tax purposes.
5. Fair Value of Financial Instruments, Concentrations of Credit
Risk and Economic Dependency
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and accounts
receivable.
The Company's customers are generally large, international, original
equipment manufacturers. A relatively few customers account for a
substantial portion of the Company's revenues and accounts receivable.
During 1995, four customers accounted for 61% of net sales. Export
sales in 1995 accounted for approximately 30% of net sales and were
primarily to the United Kingdom and Spain. During 1996, three customers
accounted for 65% of net sales. In 1996, export sales accounted for
approximately 66% of net sales and were primarily to the United
Kingdom and Korea.
In addition, the Company is dependent on a limited number of suppliers
for key components used in the Company's products (primarily power
transistors). Management believes that other suppliers could provide
similar components on comparable terms. A change in suppliers, however,
could disrupt manufacturing.
The carrying values of financial instruments potentially subject to
valuation risk, consisting of cash, accounts receivable, accounts
payable, accrued expenses and notes payable, approximate fair value,
principally because of the short maturity of these items.
F-9
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1996
NOTE B (continued)
6. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
7. Stock-based Employee Compensation
Stock-based employee compensation is accounted for under the intrinsic
value based method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." Included in
these notes to the financial statements are the pro forma disclosures
required by Statement of Financial Accounting Standards No. 123 ("SFAS
No. 123"), "Accounting for Stock-Based Compensation."
8. Prepaid Registration Costs
Prepaid registration costs represent certain direct fees incurred in
connection with the public offering. Such amounts will be accounted for
as a reduction of proceeds.
9. Deferred Financing Costs
Deferred financing costs represent costs incurred with the issuance of
warrants in connection with the private placements. The costs are being
charged to operations over the expected term of the debt (to January
29, 1997).
10. Prior Year Reclassifications
Certain items previously reported in specific financial statement
captions have been reclassified to conform with the 1996 presentation.
F-10
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1996
NOTE C - PUBLIC OFFERING
A registration statement covering an underwritten public offering of
1,610,000 units at a price of $5.10 per unit, prior to underwriters'
commissions, was declared effective by the Securities and Exchange
Commission on January 22, 1997. Each unit consists of one share of common
stock, par value $.0001 per share and one redeemable common stock purchase
warrant. Each warrant entitles the holder to purchase one share for $6.00
during the four-year period commencing one year from the date of the
offering. The Company may redeem the warrants at a price of $.01 per
warrant at any time with not less than thirty days' prior written notice if
the average closing price equals or exceeds $9.00 per share for any twenty
consecutive trading days.
In January 1997 and March 1997, the Company received net proceeds of
approximately $5,600,000, which included the overallotment of 210,000
units. The proceeds are net of legal fees, underwriters' fees and other
expenses.
The following table summarizes shares of common stock reserved for
issuance:
Number
of shares
Reserved for issuable
------------ ----------
Offering shares and warrants 3,220,000
Underwriters' overallotment warrants and shares 280,000
Options to noteholders 550,000
Warrants to noteholders 476,500
Shares reserved for stock option and SARs plan 1,500,000
Warrants to officers 350,000
Options to employees 30,000
---------
6,406,500
=========
F-11
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1996
NOTE D - PRIVATE PLACEMENTS
In March 1996, the Company issued, in a private placement, ten units at
$50,000 per unit, resulting in proceeds of $480,000, which is net of
expenses of $20,000. Each unit consists of 25,000 shares of common stock at
$1.00 per share, par value $.0001 per share, 25,000 options each to
purchase one share of common stock at $2.50 per share, exercisable until
December 31, 1998, and an 8% promissory note in the principal amount of
$25,000, which was paid at the closing of the Company's initial public
offering.
In April 1996, the Company issued an additional twelve units at $50,000 per
unit, resulting in proceeds of $600,000. Each unit consists of 25,000
shares of common stock at $1.00 per share, par value of $.0001 per share,
25,000 options each to purchase one share of common stock at $2.50 per
share, exercisable until December 31, 1998, and an 8% promissory note in
the principal amount of $25,000, which was paid at the closing of the
Company's initial public offering.
In September 1996, the Company issued, in a private placement, promissory
notes in the aggregate of $375,000, including 187,500 warrants to purchase
common stock at $2.50 per share.
In December 1996, the Company issued, in two private placements, promissory
notes in the aggregate of $289,000, including 189,000 and 100,000 warrants
to purchase common stock at $4.00 and $2.50 per share, respectively.
The warrants are exercisable for a three-year period. The promissory
notes accrue interest at 8% per annum. All principal and interest were
paid at the closing of the Company's initial public offering.
The differences between the exercise prices and fair market values of
the above private placement transactions in aggregate is $3,208,280 and
is being charged to operations over the expected term of the debt (to
January 29, 1997). The total financing costs reflected in nonoperating
expenses for the year ended December 31, 1996, is $2,883,740.
F-12
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1996
NOTE E - STOCK PLANS
An incentive option plan and stock appreciation rights ("SARs") were
authorized prior to the public offering whereby options could be granted to
purchase no more than 1,500,000 shares of common stock at exercise prices
no less than fair market value as of date of grant. Under the plan,
employees and directors may be granted options to purchase shares of common
stock at the fair market value at the time of grant. Options generally vest
in three years and expire in four years from the date of grant. In May
1996, 267,000 options were granted to approximately forty employees of the
Company. The options are exercisable at $4.00 per share (estimated fair
market value). In June 1996, 1,000,000 options were granted to the
principal shareholder. The options are exercisable at $4.00 per share
(estimated fair market value).
In May 1996, 30,000 options were granted to a key employee of the Company.
The options are exercisable at $1.00 per share and vest ratably over a
three-year period. Approximately $90,000 of compensation expense will be
charged to operations over the three-year period of vesting.
On December 22, 1995, the Company's principal shareholder entered into
stock assignment agreements with an individual and a law firm, which
assigned without cost 50,000 shares each for services previously rendered
to the Company. For financial reporting purposes, the difference between
the cost to the assignees (zero) and $4.00 (the estimated fair market value
per share), which aggregates to $400,000, is considered to be a
contribution to capital by the principal stockholder and consulting
expense charged to operations in 1995.
In December 1995, the Company entered into employment agreements with its
Vice-President of Corporate Communications and Investor Relations and its
Vice-President of Strategic Alliances. Under the terms of each agreement,
the officers will be paid $60,000 per year (paid monthly) each for
thirty-six months beginning in January 1996. The aggregate compensation
will be charged ratably to operations beginning in January 1996. In
addition, the officers were given the opportunity to purchase an aggregate
of 200,000 shares at $.10 per share upon execution of the agreements and
purchased such shares in April 1996. For financial reporting purposes, the
difference between the $.10 per share and $4.00 (the estimated fair market
value per share) is considered to be compensation ($780,000), which was
charged to operations in December 1995 with a corresponding amount credited
to paid-in capital.
F-13
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1996
NOTE E (continued)
Also in December 31, 1995, the Company granted warrants to the officers
whereby they have the option to purchase up to 350,000 shares of stock at
$2.50 per share. The warrants are exercisable one-third after June 30,
1996, two-thirds after June 30, 1997 and 100% on June 30, 1998. For
financial reporting purposes, the difference between the $2.50 per share
and $4.00 (the estimated fair market value per share) aggregates to
$525,000 and is being charged to operations ratably over the period from
July 1, 1996 to June 30, 1998.
The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for its stock options. Under APB No. 25, if
the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Total compensation expense during 1996 for options
granted to a key employee and officers of the Company reflected in
nonoperating expenses was $151,250. SFAS No. 123, "Accounting for
Stock-Based Compensation," requires presentation of pro forma net loss and
loss per share as if the Company had accounted for its employee stock
options granted subsequent to December 31, 1994, under the fair value
method of that statement. For purposes of pro forma disclosure, the
estimated fair value of the options is amortized to expense over the
vesting period. Under the fair value method, the Company's net loss and
loss per share would have been increased as follows:
1995 1996
--------- --------
Net loss $116,795 $1,226,695
Loss per share $.01 $.28
The weighted-average fair value of the individual options granted during
1995 and 1996 is estimated as $2.62 and $1.07, respectively, on the date of
grant. The fair values for both years were determined using a Black-Scholes
option-pricing model with the following assumptions:
1995 1996
--------- --------
Volatility 36.00% 36.00%
Risk-free interest rate 6.42% 6.42%
Expected life 2 years 2 years
F-14
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1996
NOTE E (continued)
Stock option activity during 1995-1996 is summarized below:
Shares of Weighted-
common stock average
attributable exercise price
to options of options
------------ --------------
Unexercised at January 1, 1995 - $ -
Granted 550,000 1.63
Exercised - -
Forfeited - -
---------
Unexercised at December 31, 1995 550,000 1.63
Granted 1,297,000 3.93
Exercised 200,000 .10
Forfeited - -
---------
Unexercised at December 31, 1996 1,647,000 3.63
=========
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1996:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------- ----------------------------
Weighted-
Number average Weighted- Number Weighted-
outstanding remaining average exercisable average
Range of at period - contractual exercise at period - exercise
exercise prices end life price end price
- --------------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ .10 to 1.00 30,000 4.00 $1.00 - -
2.50 to 4.00 1,617,000 3.15 3.68 231,000 $2.50
--------- -------
1,647,000 231,000
========= =======
</TABLE>
F-15
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1996
NOTE F - INCOME TAXES
The Company accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"). Temporary differences and carryforwards
give rise to deferred tax assets and liabilities. The principal components
of the deferred tax assets relate to net operating loss carryforwards. At
December 31, 1996, the net operating loss carryforward is approximately
$2,000,000. The net operating loss carryforwards expire at various dates
through 2011, and because of the uncertainty in the Company's ability to
utilize the net operating loss carryforwards, a full valuation allowance
has been provided.
Internal Revenue Code Section 382 places a limitation on the utilization of
Federal net operating loss and other credit carryforwards when an ownership
change, as defined by the tax law, occurs. Generally, this occurs when a
greater than 50 percentage point change in ownership occurs. Accordingly,
the actual utilization of the net operating loss carryforwards and other
deferred tax assets for tax purposes may be limited annually under Code
Section 382 to a percentage (about 6%) of the fair market value of the
Company at the time of any such ownership change.
The Company's tax provision (benefit) differs from the expected statutory
rate principally due to the impact of state income and minimum taxes,
increases in valuation allowance and impact of surtax exemptions.
NOTE G - CAPITAL LEASE OBLIGATIONS
The Company has capital leases for certain equipment for use in its
manufacturing and research and development activities.
F-16
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1996
NOTE G (continued)
Future minimum lease payments on these leases are as follows:
Year ending December 31,
1997 $441,970
1998 147,887
1989 64,012
2000 6,781
2001 525
--------
661,175
Less amount representing interest (78,814)
--------
Present value of minimum lease payments $582,361
=======
The carrying value of assets under capital leases was $0 and $177,682 at
December 31, 1995 and 1996, respectively, and is included in property and
equipment. Amortization of these assets is included in depreciation and
research and development expenses.
NOTE H - COMMITMENTS AND CONTINGENCIES
1. Operating Leases
The Company leases office and manufacturing space and various equipment
under operating leases expiring through 2000.
During March 1996, the Company entered into a lease agreement for
approximately 21,000 square feet of additional office and manufacturing
space. The lease term commenced May 1, 1996 and is for a three-year
period ending April 30, 1999. The annual rental is $168,000 plus the
Company's share of real estate taxes, utilities and other occupancy
costs. The Company has the option to renew the lease for another
three-year term so long as it exercises its option to lease the entire
building (36,405 square feet).
F-17
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1996
NOTE H (continued)
The Company is still obligated, until October 31, 1997, under its lease
for its previous 6,000 square-foot office location. This location may
be utilized by the Company as its mechanical workshop or it may be
sublet.
Future minimum lease payments on noncancellable operating leases are as
follows:
Year ending December 31,
1997 $229,117
1998 182,512
1999 44,750
2000 579
--------
$456,958
=======
Rent expense was $129,000 and $245,839 for the years ended December 31,
1995 and 1996, respectively.
2. Bank Line of Credit
During May 1995, the Company obtained a bank line of credit of $250,000
to meet short-term liquidity requirements. Borrowings under the line
were due December 3, 1996 and paid in January 1997 from the proceeds of
the public offering.
3. Employment Agreements
Commencing May 1, 1996, the Company entered into three five-year
employment agreements with its Chairman, its Vice President of Sales
and Marketing and its Secretary. The agreements call for aggregate
annual base salaries of $312,000, plus certain employee benefits.
The Company entered into a two-year consulting agreement commencing
December 1995 and ending December 1997 with a Director of the Company.
Under such agreement, the Director will receive compensation of
$30,000 per year for a minimum of two years.
F-18
<PAGE>
Amplidyne, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1996
NOTE I - LOSS PER SHARE
All shares, warrants and options issued or granted within the prior twelve
months at prices lower than the initial public offering price ($5 per
share) are considered, for purposes of calculating loss per share, to be
outstanding for all periods presented. Accordingly, loss per share amounts
are based upon the weighted average number of shares outstanding (2,850,000
shares) for each period presented plus the effect of below market warrants
and options calculated based on the treasury stock approach (794,950 shares
for each period presented). The total shares outstanding for purposes of
loss per share calculations is 3,644,950.
Proceeds from the public offering of common stock (Note C) were used to
retire debt of $1,214,000 in January 1997. Had the public offering and
corresponding retirement of debt occurred on January 1, 1996 or on their
date of issuance in 1996, net loss per share would have been $1.00 in 1996.
NOTE J - STOCKHOLDER LOAN
During 1994, 1995 and 1996, the Company's president and principal
shareholder advanced funds to the Company for operating needs. Amounts so
advanced were without interest and are expected to be repaid in full from
proceeds of the initial public offering.
Effective March 31, 1996, $125,716 of stockholder loans was forgiven and
contributed to capital.
NOTE K - SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company acquired equipment under capital lease obligations totalling
$501,429 during the year ended December 31, 1996. During 1996, the officer
of the Company forgave $125,716 in debt, and contributed to capital. In
1996, the Company recorded $324,500 in non-cash Deferred Financing Costs.
In December 1996, the Company recorded a non-cash amount of $55,000
relating to a December Private Placement.
NOTE J - LITIGATION
The Company is a Defendent to a complaint filed in the Circuit Court of the
Eighteenth Judicial District of the State of Florida on January 23, 1997
alleging breach of contract and alleged damages in the amount of
$4,322,579.05, plus interest, costs and attorneys fees. The Company filed
an answer to the complaint denying the allegations therein and a
counterclaim on March 10, 1997. The counterclaim alleges breach of
contract, common law fraud, conversion and unjust enrichment. The Company
further asserts damages in the amount of $463,411.36, plus interest, costs
and attorney fees. Management believes that the allegations in the
complaint are without merit.
From time to time, the Company is party to what it believes is routine
litigation and proceedings that may be considered as part of the ordinary
course of its business. Except for the proceedings noted above, the
Company is not aware of any current or pending litigation or proceedings
that would have a material effect on the Company's results of operations or
financial condition.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMPLIDYNE, INC.
By:/s/ Devendar S. Bains
---------------------------
Name: Devendar S. Bains
Title: Chief Executive Officer,
President, Treasurer, Principal
Accounting Officer and Director
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Signature Title Date
--------- ----- ----
/s/ Devendar S. Bains Chief Executive Officer, April 15, 1997
- ------------------------ President, Treasurer,
Devendar S. Bains Principal Accounting Officer
and Director
/s/ Tarlochan Bains Vice President and Director April 15, 1997
- ------------------------
Tarlochan Bains
/s/ Nirmal Bains Secretary April 15, 1997
- -------------------------
Nirmal Bains
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 104,310
<SECURITIES> 0
<RECEIVABLES> 326,339
<ALLOWANCES> 119,000
<INVENTORY> 402,696
<CURRENT-ASSETS> 1,099,550
<PP&E> 456,324
<DEPRECIATION> (145,593)
<TOTAL-ASSETS> 1,622,564
<CURRENT-LIABILITIES> 3,340,415
<BONDS> 2,006,361
0
0
<COMMON> 285
<OTHER-SE> (1,919,105)
<TOTAL-LIABILITY-AND-EQUITY> 1,622,564
<SALES> 2,219,945
<TOTAL-REVENUES> 0
<CGS> 2,198,503
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,296,620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,772
<INCOME-PRETAX> (5,419,940)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,419,940)
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
