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, 1997
                                             -----------------

                           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: (732) 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 [X]   No [ ]

         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 $2,433,310.

         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 31, 1998, was approximately $2,460,000.

         Number of shares  outstanding of the issuer's common stock, as of March
31, 1998 was 4,460,000.

         Documents Incorporated by Reference: None

<PAGE>

                                     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 1997 to
develop  single  channel and multi  channel  linear  power  amplifiers  for this
market. Certain of the Company's 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 32 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.

                                        2
<PAGE>

         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
(732) 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.  Such  potential  risks  and
uncertainties include, but are not limited to: dependence on a limited number of
customers  including  those in the  Korean  marketplace;  reductions,  delays or
cancellations in orders from new or existing customers;  potential deterioration
of business and economic  conditions  in the Company's  customers  marketplaces,
including  the  Korean   marketplace;   new  product   development  and  product
obsolescence;  potential deterioration of the Company's customers credit quality
due  to   deteriorating   economic   conditions  in  the   Company's   customers
marketplaces,  including the Korean  marketplace;  a limited number of potential
customers; intensely competitive industry with increasing price competition; new
product  development and product  obsolescence;  variability in gross margins on
new products and resulting  impacts on operating  results;  continued success in
the design of new amplifier  products and the ability to manufacture in quantity
such new products;  continued  favorable  business  conditions and growth in the
wireless   communications  market;  and  dependence  on  certain  suppliers  for
single-sourced components. In addition, prior financial performance and customer
orders are not necessarily indicative of the results that may be expected in the
future and the Company believes that such  comparisons  cannot be relied upon as
indicators  of future  performance.  Due to the foregoing  factors,  the Company
believes that  period-to-period  comparisons  of its  operating  results are not
necessarily  meaningful  and that such  comparisons  cannot  be  relied  upon as
indicators  of future  performance.  Additionally,  the  Company  undertakes  no
obligation   to  publicly   release  the  results  of  any  revisions  to  these
forward-looking  statements which may be made to reflect events or circumstances
occurring  after the date hereof or to reflect the  occurrence of  unanticipated
events.

                                        3
<PAGE>

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").  By 2002,
the Strategy Group  projects that there will be nearly 500 million  cellular and
PCS subscribers worldwide, more than tripling the end-year 1996 cellular and PCS
subscriber base of nearly 146 million. 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  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.  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.

         The Company has supplied prototype quantities and samples of its single
channel  and  multichannel  PCS  amplifiers  to major  North  American  OEMs for
evaluation. Typically it can take between 6 months to 1 year to become qualified
on a program with such OEMs. The Company has devoted  considerable  resources to
satisfy  these  OEMs.  The Company  believes  that its  products  have been well
received  and  the  Company  continues  to  monitor  the  situation  to  develop
relationships  with these customers.  No assurances can be made that the Company
will be successful in becoming qualified on a program with such OEMs.

         The PCS hardware  market  suppliers  are dominated by a few large OEMs.
The companies purchase their amplifiers from the Company's  competitors who were
approved  into  OEM  programs,  in most  instances,  at  least 1 year  prior  to
production.  The  Company  expects to  penetrate  this market with its single or
multichannel  linear power amplifiers during fiscal 1998.  However, no assurance
can be made that the Company will be successful in its attempt to penetrate this
market.

                                        4
<PAGE>

         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  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 has  developed and refined its products
for this market such as the 2.4 ghz and 3.5 ghz wireless  local loop  amplifier.
As a result of these  developments,  the Company  received  purchase  orders for
these products from its customers, such as DSC Communications.

         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.

                                        5
<PAGE>

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. As a result of these efforts, the Company has received prototype
purchase orders for its PCS multicarrier  linear power  amplifiers  during 1997.
These units have been  delivered to major North  American OEMs and are presently
being evaluated.

         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:

         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. 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. Amplidyne has
demonstrated  its PCS single and  multichannel  products to major U.S. OEM's and
attended  trade shows to promote its products.  As a result of this, the Company
has received favorable feedback from the engineering evaluation of its products.
The  Company  has  prototype  orders  for its  PCS  single  channel  amplifiers.
Typically  it takes 6 months  to 1 year for the  products  to be  evaluated  and
designed into OEM base  stations.  The Company is in this stage with a few major
OEM's and hopes to obtain  further  purchase  orders  during 1998.  However,  no
assurances  can be made that the Company will be  successful  in receiving  such
additional purchase orders.

         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  supplied  amplifiers  to several  emerging
wireless equipment manufacturers during 1997.

                                        6
<PAGE>

         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 1997 which management
believes will be a growth area for the Company during 1998.

         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  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 has adapted 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  1997  which can be used in PCS  repeater
subsystems. This segment of the business has shown increased growth during 1997.

         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

                                        7
<PAGE>

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.  The  Company  has  been  a  pioneer  in its  use  and
development  of  predistortion  technology  and  intends to further  enhance its
products using such technology.

         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.  The  Company's  PCS  multicarrier  linear power
amplifier has been well received in the industry and,  management  believes,  is
among the leading  products  available in the wireless  industry.  The Company's
single  channel PCS  amplifiers  have also been well  received in the  industry,
however,  the Company has experienced more competition in this area. The Company
is seeking to position  itself to be a viable  source in this area.  The Company
constantly  monitors such  situations and will employ  significant  resources to
explore such opportunities.

         By utilizing its proprietary and patented predistortion  technology and
its proprietary feed 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 50
watts  composite  power,  resulting  in  approximate  2 watt  per  channel.  The
Company's MCLPAs support up to 32 channels at 1.5 watts per channel,  to satisfy
the  increasing  need for  higher  power and  capacity  required  by the  system
operators.

         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 we enabled  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

                                        8
<PAGE>

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.

         BOOSLER  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 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.

         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.

                                        9
<PAGE>

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 32 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.

         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

                                       10
<PAGE>

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.

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 and DSC
Communications,  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  and  single  channel
amplifiers  for  infrastructure  equipment  systems in the  wireless  local loop
market in the 2 and 3-5 ghz.

         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.

                                       11
<PAGE>

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 MARKET.  There are industry projections that by 2002, there will be
over 500 million cellular and PCS subscribers worldwide,  more than tripling the
end-year  1996  cellular  and PCS  subscriber  base of nearly 140  million.  Key
factors in this growth are the continued  deployment of digital cellular systems
and the more recent  implementation  of PCS  including  PCN, PHS and a number of
U.S.-based  standards including PCS 1900 (based on the GSM protocol),  CDMA, and
TDMA.  As evidenced in markets such as Japan and the U.S.,  PCS-based  operators
are proving formidable competitors to cellular network operators. The Company is
currently  developing  products  for the PCS  market and has  shipped  prototype
products (single and  multichannel) for the PCS market and has recently received
additional   prototype  purchase  orders  for  PCS  multicarrier   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.  The  Company's
                  MCLPAs  typically  amplify up to 32  carriers  at 1.5 watts of
                  output power.

                                       12
<PAGE>

         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.



                        AMPLIDYNE'S MCLPA PRODUCT SUMMARY

-------------------------------------------------------------------------------
                                                      OUTPUT
    Product                                           POWER
   Model No.          FREQUENCY      STANDARD         WATTS    IMD (Dbc)*
   ---------          ---------      --------         -----    ---------
-------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------


*        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.

                                       13
<PAGE>

The following table lists the Company's high power linear amplifiers:


        Model No.      FREQUENCY        STANDARD      POWER WATTS
        ---------      ---------        --------      -----------
                          MHZ
                          ---
-------------------------------------------------------------------------------
        AMP0861-50      869-894           CDMA            25
                                        AMPS/TDMA         50
                                        AMP/CDPD          65
-------------------------------------------------------------------------------
        AMP0935-16      925-960            GSM            65
-------------------------------------------------------------------------------
        AMP0933-50      917-960           ETACS           65
-------------------------------------------------------------------------------
        AMP0450-25      463-468          NMT-450          50
-------------------------------------------------------------------------------
        AMP1855-25    1840-1870         DCS-1800        30/35
-------------------------------------------------------------------------------
        AMP1990-25    1930-1990         PCS-1900          35
                                          TDMA            50
                                          CDMA         17/25/35
-------------------------------------------------------------------------------


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).

                                       14
<PAGE>

         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.

SIGNIFICANT DEVELOPMENTS

         The following are some of the significant  developments achieved by the
         Company in 1997:

o        Developed  17, 25 and 35 watt  single  channel  amplifiers  for the PCS
         market (domestic and overseas).

o        Provided  samples to major OEMs for evaluation and attended trade shows
         such as the CTIA and PCIA to promote PCS products. As a result of these
         demonstrations,  the Company  received  prototype  quantity orders from
         domestic OEM's.

o        Began to develop  advanced  cellular  MCLPA's in the  digital  cellular
         market (CDMA/TDMA/GSM),  at power levels of 50 watts, incorporating its
         proprietary  predistortion  technology  to provide  the best  available
         products in this market.  The Company expects to provide samples of new
         products to customers in the third and fourth quarters of 1998.

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/FUTURE ORDERS

         As of December 31, 1997,  the Company had multi-year  delivery  backlog
and open future orders of approximately  $90,000,000  which the Company plans to
deliver  during  fiscal years  1998-2002  (which may be  extended).  The Company
cannot  predict  whether or not all of such  backlog or orders 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.

         A substantial  majority of these orders is  attributable to orders from
customers from the Korean market.  Based upon recent discussions with its Korean
customers,  the Company believes that the current  prolonged period of continued
economic and market  uncertainty  within Korea will result in either  postponed,
rescheduled or possibly  canceled  orders with the Company's  Korean  customers.
Such postponements or cancellations will significantly reduce the amount of the

                                       15
<PAGE>

Company's backlog and orders.  Product orders are subject to changes in delivery
schedules or to  cancellation  at the option of the customer.  Accordingly,  the
Company  stresses that backlog or orders as of any particular  date may not be a
reliable indicator of sales for any future period.

         The Company's Korean and other  international  customers,  collectively
accounted for  approximately 80% of the Company's net sales for fiscal 1997, and
approximately  66% of the Company's net sales for fiscal 1996.  These sales were
principally  for the  supply of  equipment  for  implementation  in the  digital
cellular and PCS networks in Korea.

         The  build-out  of the Korean PCS networks  began the first  quarter of
1997.  Sales to the  Company's  Korean  customers  for the Korean  PCS  networks
represented substantially all of the Company's PCS sales during 1997.

         During the fourth quarter of 1997,  certain Asian countries,  including
South Korea, began to experience weaknesses in their currencies, banking systems
and  equity  markets.   The  deteriorating   economic  and  currency  conditions
throughout  Asia led South  Korea,  along with  several  other Asian  countries,
including  Indonesia  and  Thailand,   to  request  economic  support  from  the
International Monetary Fund in December 1997.

         The Company  currently  believes that the completion of the buildout of
the Korean  wireless  networks is dependent  upon a  stabilization  of economic,
currency and banking  conditions within Korea. It is currently  anticipated that
the continued  deployment of both the cellular and PCS digital  networks will be
delayed  until  such time that  economic  conditions  become  stabilized  from a
long-term perspective.

         The Company's South Korean customers account for a substantial majority
of the  Company's  net sales.  Although the Company is  attempting to expand its
customer  base,  the Company  expects that a limited  number of  customers  will
continue to represent a  substantial  portion of the Company's net sales for the
foreseeable  future.  The Company  believes that its future success depends upon
its ability to broaden its customer base.

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 1995.

                                       16
<PAGE>

<TABLE>
<CAPTION>
                             NET REVENUES BY MARKET CATEGORIES
                                        (IN THOUSANDS)

                                                                            Year Ended
                                                                            December 31,
                                                                            ------------
                                                                           
 Markets                                                             1995     1996       1997
 -------                                                            ------   ------   -----------
<S>                                                                 <C>      <C>      <C>        
 Cellular Analog . . . . . . . . . . . . . . . . . . . . . . . . .  $  308   $  126   $    99
 Cellular Digital. . . . . . . . . . . . . . . . . . . . . . . . .     591      452        78
 Wireless Telephony. . . . . . . . . . . . . . . . . . . . . . . .     435      759       265
 Satellite Communications, Custom and other
  Products. . . . . . . . . . . . . . . . . . . . . . . . . . .  .     476      231       173
 Digital PCS Products. . . . . . . . . . . . . . . . . . . . . . .      --      652     1,818

         Total. . . . . . . . . . . . . . . . . . . . . . . . . ..  $1,810   $2,220   $ 2,433
</TABLE>


         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. In 1989 the Company began 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 26% in 1996
                  to approximately 7.2% of total sales in 1997.

                                       17
<PAGE>

         *        WIRELESS  TELEPHONY.  Sales to the wireless telephone segments
                  of the wireless  communications  industry have  decreased from
                  approximately  34% of total  revenues for fiscal year end 1996
                  to 11% of total revenue for the fiscal year end 1997.

         *        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.  Sales in this
                  sector of the market showed  substantial  growth during fiscal
                  1997 accounting for 75% of total sales.

         *        INTERNATIONAL  SALES.  Sales of wireless  products outside the
                  United States  (primarily to Western  Europe and the Far East)
                  represented approximately 30%, 66% and 80% of net sales during
                  fiscal 1995, fiscal 1996, and fiscal 1997,  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  positioned  to be a
                  prime source of base station, single channel 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.

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.

                                       18
<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

                                       19
<PAGE>

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.

         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.

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 1995, 1996 and 1997
were  approximately  $370,000,  $1,150,000  and  $876,000,   respectively,   and
represented approximately 21%, 52% and 36%, 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 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.

                                       20
<PAGE>

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,  1997,  the  Company  had a total of 37  employees,
including 24 in operations,  5 in  engineering,  2 in sales and marketing,  2 in
quality  assurance  and 4 in  administration.  The Company  believes  its future
performance  will  depend in large part on its  ability  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.

                                       21
<PAGE>

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.

                                       22
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

         Other  than as set  forth  below,  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 matter:

         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 $463,411.36,  plus
         interest,  costs  and  attorney  fees.  Management  believes  that  the
         allegations in the complaint are without merit.

         LARKEN ASSOCIATES V. AMPLIDYNE, INC.

                  In October 1997,  this action was dismissed  with prejudice as
         to the complaint and counterclaim. The Company paid Larken $41,000.

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.

                                       23
<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,  the last three quarters in 1997 and for the period of
January 1, 1998 up to March 31, 1998 as reported 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
                  April 1 - June 30              5-3/8                  4-1/2
                  July 1 - September 30          7-5/8                  4-1/4
                  October 1 - December 31        7-3/8                  1-5/8

                  1998 Calendar Year
                  ------------------

                  January 1 - March 31          $2-3/8                  $7/8


Warrants
--------
                  1997 Calendar Year                  Quoted Bid Price
                  ------------------                  ----------------
                                                 High                   Low
                                                 ----                   ---
                  January 22 - March 31          13/16                  1/4
                  April 1 - June 30              1-1/16                 1/2
                  July 1 - September 30          1-3/4                  1/4
                  October 1 - December 31        1-1/16                 1/4

                  1998 Calendar Year
                  ------------------

                  January 1 - March 31           $3/4                   $3/16

         On March 31, 1998 the closing  prices of the Common  Stock and Warrants
as  reported on Nasdaq  SmallCap  Market was $1.00 and $5/16,  respectively.  On
March 31,  1998  there  were  4,460,000  shares of  Common  Stock and  1,610,000
Warrants  outstanding,  held of record by  approximately 56 record holders (with
over 1,000 beneficial owners).

                                       24
<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,
                                          1996                1997
                                         ------              ------

Net sales                                  100%               100%
   Cost of goods sold                     99.0               78.9%
          Gross profit                     1.0               21.1%
   Selling, general and
     administrative                       51.6               66.4%
   Research, engineering and
     development                          51.8                 36%
Total operating expenses                 103.4              102.4%
Interest Income                                               5.8%
Interest expense                           4.9                2.0%
   Stock compensation and
      financing costs                    136.7                 25%
Loss before income taxes                (244.1)            (102.5)%
Provision (credit) for
    income taxes
Net loss                                (244.1)            (102.5)%


RESULTS OF  OPERATIONS - FISCAL YEAR ENDED  DECEMBER 31, 1997 COMPARED TO FISCAL
YEAR ENDED DECEMBER 31, 1996.

         Revenues  for the fiscal year ended  December 31, 1997  increased  9.6%
compared to the fiscal year ended  December 31, 1996.  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.  During 1997 the Company
continued  to refine its PCS single and  multichannel  amplifier  products,  and
several  products  were  shipped  to  major  OEM's  in the  U.S.  for  prototype
evaluations.  Furthermore  certain  production orders did not get released until
the 4th quarter. In the 4th quarter the Company shipped more than $1,000,000. In
fiscal year 1997,  approximately  17% of all product  shipments were  prototypes
compared to about 29% for the same period in 1996.

         The Company's sales to  international  markets  representing 80% of the
Company's  sales in 1997, were primarily to Korea,  which has recently  suffered
significant  currency  fluctuations.  The Company  believes that it's ability to
generate  sales  during the first part of 1998 will be  adversely  impacted  by,
among other things, economic conditions in Korea.


                                       25
<PAGE>

         Cost of sales as a  percentage  of sales was 79%  during the year ended
December  31,  1997,  compared  to 99%  during the same  period  for 1996.  This
decrease can be  attributed  to the  reduction in  engineering  and direct labor
costs  associated with the production of MCLPA  prototypes and other products in
1997.

         Selling,  general  and  administrative  expenses  increased  in 1997 by
$469,646 to $1,615,556 from  $1,145,910,  in 1996.  Expressed as a percentage of
sales, the selling,  general and administrative  expenses were 66.4% in 1997 and
51.6% in 1996. The principal  factors  contributing  to the increase in selling,
general and  administrative  expenses were related to the  appointment  of a new
Sales Director in 1997,  attendance at trade shows with live  demonstrations  of
amplifier  PCS products as well as costs  incurred in  connection  with sales in
South Korea.

         Research,  engineering and development expenses decreased to 36% of net
sales in 1997 compared to 51.8% in 1996. In 1997, the principal  activity of the
business  related to the design and  production  of product  prototypes  for OEM
manufacturers,  particularly for the PCS single and multichannel  products.  The
research,  engineering and development  expenses  consist  principally of salary
cost for engineers and the expenses of equipment purchases  specifically for the
design and testing of the prototype products, which decreased during 1997.

         The  Company  had  interest  income in 1997 of  $140,931 or 5.8% of net
sales due to earnings on initial public offering proceeds.

         Interest  expense  was  lower  in  1997  because  of the  repayment  of
outstanding bank debt and promissory notes.

         Stock  compensation and financing expenses in 1996 of $3,034,990 and in
1997 of $607,179  relate to the 1996 and 1997  issuances  of stock,  options and
warrants at prices substantially lower than the initial public offering price.

         As a result  of the  foregoing,  the  Company  incurred  net  losses of
$2,493,611  or ($.57) per share for the year ended  December  31, 1997  compared
with net  losses of  ($5,419,940)  or ($2.03)  per share for the same  period in
1996.

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.

                                       26
<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 ($2.03) per share for the year ended December 31, 1996 compared
with net losses of ($2,025,677) or ($.96) per share for the same period in 1995.

 LIQUIDITY AND CAPITAL RESOURCES

         As of December 31, 1997,  the Company had cash and cash  equivalents of
$2,039,012.  The  Company's  bank line of credit  outstanding  of  $210,000  and
stockholders  loans of  $339,694  were  paid  from the  proceeds  of the  public
offering.  The funds from the credit line and  stockholder's  loan were used for
working capital purposes.  Additional loans totaling  $1,214,000 incurred during
1996 as a result of bridge  financings  were paid 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 $10,000 through 1999.

         The Company  believes  that the net proceeds of the  Company's  initial
public  offering and cash  generated from revenues will permit it to continue to
meet its working  capital  obligations  and fund the further  development of its
business for the next 12 months.  In light of the current economic  situation in
Korea,  and it's impact on sales, the Company expects to fund operations in 1998
with the  remaining  cash that was received  from the initial  public  offering.
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.

                                       27
<PAGE>

YEAR 2000

         The Company has considered the impact of the year 2000 as it relates to
the  accounting  and  manufacturing  operations  and does not  believe  there is
significant  risk  or  cost to the  Company,  nor is  there  any  impact  on the
Company's transactions with customers and suppliers.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The requirements of this statement will be effective for both interim and annual
periods  beginning  after  December  15, 1997.  Management  does not believe the
implementation  of  SFAS  130  will  have a  material  effect  on the  financial
statements.

         The FASB has issued SFAS No.  131,  "Disclosures  About  Segments of an
Enterprise and Related  Information"  ("SFAS No. 131"). SFAS No. 131 changes how
operating segments are reported in annual financial  statements and requires the
reporting of selected  information about operating segments in interim financial
reports issued to shareholders.  SFAS No. 131 is effective for periods beginning
after December 15, 1997, and comparative  information for earlier years is to be
restated.  SFAS No. 131 need not be applied to interim  financial  statements in
the initial year of its application. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 will have no impact on
the Company's results of operations, financial position or cash flows.

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.

                                       28
<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*       46        Chairman of the Board, President, Chief
                                   Executive Officer, Treasurer and Director
Tarlochan Bains          48        Vice President-Sales & Marketing and
                                   Director
Nirmal Bains             40        Secretary
Charles J. Ritchie*      56        Director
Manish V. Detroja*       32        Director
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.

                                       29
<PAGE>

CHARLES J.  RITCHIE  was  elected to the Board of  Directors  of the  Company in
February 1998.  Mr.  Ritchie has had a 32 year career with Lucent  Technologies,
formerly  AT&T,  with  assignments  that included  Product  Management,  Account
Management,  AT&T  Divestiture  Planning,  National  Cellular  Sales Manager for
non-Wireline Companies, International Wireless Product Support, and many others.
Since 1992, Mr. Ritchie has been an International  Wireless Product Support, and
many  others.  Since  1992,  Mr.  Ritchie  has  been an  International  Business
Development director for Europe, Middle Ease and Africa for the Network Wireless
Division  at Lucent  Technologies.  Marketing,  Sales and  Business  Development
education and  experience  were accrued over his business  career.  Mr.  Ritchie
received a Bachelors Degree in Electrical  Engineering at Youngstown  University
and  continued  with  graduate  work in  Electrical  Engineering  at Ohio  State
University.

MANISH V.  DETROJA  was  elected  to the Board of  Directors  of the  Company in
February  1998.  Mr.  Detroja has been with Current  Circuits  Inc.  ("CCI"),  a
private company engaged in the  manufacturing  of printed circuit boards for the
electric  industry,  since its  inception  in May of 1989.  From  1989-1993  Mr.
Detroja was the  production  manager for CCI and from 1993-1996 he was its sales
manager for the entire  United  States.  His is currently is President and Chief
Executive Officer. Mr. Detroja is a graduate of Temple University and has a B.S.
in Electrical Engineering Technology.

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

                                       30
<PAGE>

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 compensation  committee
consists of Devendar S. Bains, Charles J. Ritchie and Manish J. Detroja.

         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  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.  The audit committee consists
of Devendar S. Bains, Charles J. Ritchie and Manish J. Detroja.

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,
1997,  all Section  16(a)  filing  requirements  applicable  to its officers and
directors and greater than ten percent beneficial owners were satisfied.

                                       31
<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,  1995,  1996 and 1997 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
                                                                         --------------------------------------------------
                                          Annual Compensation              Awards        Securities            Payouts
                                       ------------------------------    -----------   --------------    ------------------
Name Of Individual                                       Other Annual    Restricted      Underlying      Ltip     All Other
And Principal Position         Year    Salary   Bonus    Compensation    Stock Awards  Options/sars(#)   Payouts  Comp.
----------------------         ----    ------   -----    ------------    ------------  --------------    -------  ---------

<S>                            <C>    <C>                 <C>               <C>           <C>               <C>    <C>
Devendar S. Bains, Chairman,   1997   $85,000    ---      $20,000(1)        ---                 ---         ---    ---
Chief Executive Office,        1996   $80,000    ---      $20,000(1)        ---           1,000,000         ---    ---
President and Treasurer        1995   $85,000    ---      $20,000(1)        ---                 ---         ---    ---
</TABLE>

(1)  Represents  payment for health  insurance and  automobile  insurance  lease
payments on behalf of such individual but does not include deferred compensation
(See note H to the financial statements).

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.

         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.

                                       32
<PAGE>

         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  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,  1,233,000  options (net of 34,000  forfeited) to purchase
Common  Stock  under  the  Incentive  Option  Plan  were  granted  to  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,
33.33% of which  vested in 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,  66.66% of which
vested  and  33.33%  of which  will  vest in June  1998.  The 701  Warrants  are
exercisable until June 30, 1999.

                                       33
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth  information,  as of March 31, 1998 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)          2,700,000             52.33
  Tarlochan Bains(3)               66,667              1.47
  Nirmal Bains(2)(4)            2,700,000             52.33
  Charles J. Ritchie(5)               ---               ---
  Manish V. Detroja(6)                ---               ---
  Harris Freedman(7)              193,333              4.22
  Sharon Will(8)                  160,000              3.50

  All Officers and
  Directors as a group
  (7 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  666,667 Employee Options (but does
         not include 333,333 Employee Options) which was granted to Mr. Devendar
         Bains.  Includes  33,333  Employee  Options  ( but not  include  16,667
         Employee Options) which was granted to Ms. Nirmal Bains. See "Executive
         Compensation-Stock Option Plans and Agreements."

   (3)   Does not include 33,333 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 92 Parker Road, Long Valley, NJ 07853.

   (6)   The address for such person is 925 Schwal Road, Hatfield, PA 19440.

   (7)   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  70,000  shares of Common  Stock and 123,333
         warrants to purchase Common Stock at $2.50 per share.  Does not include
         an additional 61,667 of such warrants. See Item 9.

  (8)    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  50,000  shares of Common Stock and
         110,000 warrants to purchase Common Stock at $2.50 per share.  Does not
         include an additional 55,000 of such warrants. See Item 9.

                                       34
<PAGE>

ITEM 12. CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS

         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.  $339,694 was repaid  during
1997.

         In connection with the Company's settlement with Larken Associates (See
"Legal  Proceedings"),  Devendar S. Bains,  the  Company's  President  and Chief
Executive  Officer,  loaned  the  Company  $41,000  (in  October  1997)  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.

                                       35
<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-21

                                       36
<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.

                                       37
<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, 1998
      Devendar S. Bains         President, Treasurer,
                                Principal Accounting Officer
                                and Director


  /s/ TARLOCHAN BAINS                              
  ----------------------------  Vice President and Director      April 15, 1998
      Tarlochan Bains


  /s/ NIRMAL BAINS 
  ----------------------------  Secretary                        April 15, 1998
      Nirmal Bains


  /s/ CHARLES J. RITCHIE
  ----------------------------  Director                         April 15, 1998
      Charles J. Ritchie


  /s/ MANISH V. DETROJA
  ----------------------------  Director                         April 15, 1998
      Manish V. Detroja

                                       38
<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, 1998
    --------------------------     President, Treasurer,
    Devendar S. Bains              Principal Accounting Officer
                                   and Director


/s/ TARLOCHAN BAINS                Vice President and Director    April 15, 1998
    --------------------------
    Tarlochan Bains


/s/ NIRMAL BAINS                   Secretary                      April 15, 1998
    --------------------------
    Nirmal Bains

/s/ CHARLES J. RITCHIE             Director                       April 15, 1998
    --------------------------
    Charles J. Ritchie

/s/ MANISH V. DETROJA              Director                       April 15, 1998
    --------------------------
    Manish V. Detroja


                                       39

<PAGE>

                                 Amplidyne, Inc.

                          INDEX TO FINANCIAL STATEMENTS


                                                                   PAGE


Report of Independent Certified Public Accountants                 F-2


Financial Statements

        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-21



                                      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,  1996  and  1997,  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, 1996 and 1997,  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
March 25, 1998


                                      F-2
<PAGE>


                                 Amplidyne, Inc.

                                 BALANCE SHEETS

                                  December 31,
<TABLE>
<CAPTION>

                           ASSETS                           1996                  1997
                                                         ----------            ----------
<S>                                                      <C>                   <C>       
CURRENT ASSETS
    Cash and cash equivalents                            $  104,310            $2,039,012
    Accounts receivable, net of allowance
      for doubtful accounts of $119,000 and
      $40,510 in 1996 and 1997, respectively                207,339               706,893
    Inventories                                             402,696               324,622
    Deferred financing costs                                324,540
    Private placement receivables                            55,000
    Prepaid expenses and other current assets                 5,665                 9,296
                                                         ----------            ----------

         Total current assets                             1,099,550             3,079,823


PROPERTY AND EQUIPMENT - AT COST
    Machinery and equipment                                 389,433               538,214
    Furniture and fixtures                                   42,806                43,750
    Autos and trucks                                         19,923                19,923
    Leasehold improvements                                    4,162                 4,162
                                                         ----------            ----------

                                                            456,324               606,049
    Less accumulated depreciation and amortization          145,593               237,494
                                                         ----------            ----------

                                                            310,731               368,555


PREPAID REGISTRATION COSTS                                  167,053


OTHER ASSETS                                                 45,230                35,000
                                                         ----------            ----------

                                                         $1,622,564            $3,483,378
                                                         ==========            ==========
</TABLE>



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                            F-3
<PAGE>

                                 Amplidyne, Inc.

                                 BALANCE SHEETS

                                  December 31,
<TABLE>
<CAPTION>


                      LIABILITIES AND
                    STOCKHOLDERS' EQUITY                            1996           1997
                                                               ------------    ------------
<S>                                                                 <C>             <C>    
CURRENT LIABILITIES
    Bank line of credit                                        $    210,000
    Notes payable                                                 1,214,000
    Current maturities of lease obligations                         381,392    $    136,396
    Accounts payable                                                690,760         194,572
    Accrued expenses                                                401,518         189,123
    Stockholders' loan                                              442,745         103,051
                                                               ------------    ------------

         Total current liabilities                                3,340,415         623,142


LONG-TERM LIABILITIES
    Lease obligations                                               200,969          67,875
    Deferred compensation                                                           140,000


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; 2,850,000
       shares and 4,460,000 shares issued and outstanding
       at December 31, 1996 and 1997, respectively                      285             446
    Additional paid-in capital                                    5,239,961      12,304,592
    Accumulated deficit                                          (7,159,066)     (9,652,677)
                                                               ------------    ------------

                                                                 (1,918,820)      2,652,361
                                                               ------------    ------------

                                                               $  1,622,564    $  3,483,378
                                                               ============    ============
</TABLE>


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                      F-4
<PAGE>

                                 Amplidyne, Inc.

                            STATEMENTS OF OPERATIONS

                             Year ended December 31,


                                                1996               1997
                                            -----------        -----------

Net sales                                   $ 2,219,945        $ 2,433,310
Cost of goods sold                            2,198,503          1,920,178
                                            -----------        -----------

         Gross profit                            21,442            513,132

Operating expenses
    Selling, general and administrative       1,145,910          1,615,556
    Research, engineering and development     1,150,710            876,214
                                            -----------        -----------

         Operating loss                      (2,275,178)        (1,978,638)

Other nonoperating income (expenses)
    Interest income                                                140,931
    Interest expense                           (109,772)           (47,975)
    Stock compensation and financing cost    (3,034,990)          (607,179)
                                            -----------        -----------

         Loss before income taxes            (5,419,940)        (2,492,861)

Provision for income taxes                                             750
                                            -----------        -----------

         NET LOSS                           $(5,419,940)       $(2,493,611)
                                            ===========        ===========

Net loss per share - basic and diluted      $     (2.03)       $     (0.57)
                                            ===========        ===========

Weighted average number of shares
    outstanding                               2,668,767          4,367,320
                                            ===========        ===========



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                      F-6
<PAGE>
<TABLE>
<CAPTION>

                                                        Amplidyne, Inc.

                                               STATEMENT OF STOCKHOLDERS' EQUITY

                                             Years ended December 31, 1996 and 1997


                                                           Common Stock          Additional
                                                   -----------------------------   paid-in        Accumulated
                                                    Shares        Par Value        capital          Deficit           Total
                                                   ---------      ---------      ----------       -----------      -----------
<S>                                                <C>               <C>         <C>              <C>              <C>         
Balance at December 31, 1995                       2,100,000         $210        $1,184,790       $(1,739,126)     $  (554,126)

Net loss                                                                                           (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)

Net loss                                                                                           (2,493,611)      (2,493,611)
Financing and compensation costs related to
    options and warrants issued                                                     282,639                            282,639
Registration costs                                                               (1,428,847)                        (1,428,847)
Issuance of common stock                           1,610,000          161         8,210,839                          8,211,000
                                                   ---------         ----       -----------       -----------      ----------

BALANCE AT DECEMBER 31, 1997                       4,460,000         $446       $12,304,592       $(9,652,677)     $ 2,652,361
                                                   =========         ====       ===========       ===========      ===========
</TABLE>



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.


                                                              F-6
<PAGE>

                                 Amplidyne, Inc.

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,


<TABLE>
<CAPTION>
                                                               1996            1997
                                                            -----------    -----------

<S>                                                         <C>            <C>         
Cash flows from operating activities
    Net loss                                                $(5,419,940)   $(2,493,611)
                                                            -----------    -----------
    Adjustments to reconcile net loss to net cash used in
       operating activities
         Depreciation and amortization                          102,710        102,131
         Loss on disposal of fixed assets                        11,023
         Bad debt expense                                       109,000         23,640
         Write-off of obsolete inventory                                       149,696
         Write-off of equipment                                 304,005
         Stock compensation and finance cost                  3,034,990        607,179
         Changes in assets and liabilities
           Accounts receivable                                 (150,637)      (523,194)
           Inventories                                         (121,618)       (71,623)
           Prepaid expenses and other current assets             22,570         (3,631)
           Accounts payable and accrued expenses                620,351       (568,581)
           Other assets                                         (85,000)
           Customer advances                                   (155,932)
                                                            -----------    -----------
         Total adjustments                                    3,691,462       (284,383)
                                                            -----------    -----------
         Net cash used in operating activities               (1,728,478)    (2,777,994)
                                                            -----------    -----------
Cash flows from investing activities
    Purchase of fixed assets                                    (93,767)      (149,725)
                                                            -----------    -----------
Cash flows from financing activities
    Repayments of bank line of credit                           (20,000)      (210,000)
    Proceeds from (repayments of) notes payable               1,159,000     (1,159,000)
    Payment of lease obligations                                (66,884)      (378,090)
    Proceeds from (repayments of) stockholder loans             297,745       (339,694)
    Registration costs                                         (167,053)    (1,261,795)
    Stock issuance                                              570,000      8,211,000
                                                            -----------    -----------
         Net cash provided by financing activities            1,772,808      4,862,421
                                                            -----------    -----------
         NET (DECREASE) INCREASE IN CASH AND
             CASH EQUIVALENTS                                   (49,437)     1,934,702

Cash and cash equivalents at beginning of year                  153,747        104,310
                                                            -----------    -----------
Cash and cash equivalents at end of year                    $   104,310    $ 2,039,012
                                                            ===========    ===========
Supplemental disclosures of cash flow information:
    Cash paid during the year for
      Interest                                              $    39,009    $    47,975
</TABLE>

See Note K for noncash investing and financing activity.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                      F-7
<PAGE>



                                 Amplidyne, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1996 and 1997



NOTE A - NATURE OF OPERATIONS AND LIQUIDITY

     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.  

     The Company has incurred  losses of $5,419,940  and  $2,493,611 in 1996 and
     1997,  respectively.  The Company funded operations during this period from
     bridge  financing  and  proceeds  from  its  initial  public  offering.  In
     addition, the Company's sales to international markets, representing 80% of
     the Company's  sales in 1997,  were primarily to Korea,  which has recently
     suffered significant currency fluctuations which might affect the Company's
     future sales.

     Management  believes  that its ability to generate  sales  during the first
     part of 1998 will be adversely  impacted by, among other  things,  economic
     conditions in Korea. Management plans include steps to reduce cost incurred
     and cash  requirements,  including cash flow management of production.  The
     Company expects to fund operations in 1998 with the remaining cash that was
     received from the initial public offering.

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.


                                      F-8
<PAGE>


                                 Amplidyne, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1996 and 1997



NOTE B (CONTINUED)

     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 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 under the provisions of Statement
         of  Financial  Accounting  Standards  No. 109,  "Accounting  for Income
         Taxes."  This  statement  requires,  among other  things,  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
         law 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.  Net sales were primarily to Korea. The Korean  marketplace
         has suffered significant  currency  fluctuations which might affect the
         Company's future sales.

         A relatively  few customers  account for a  substantial  portion of the
         Company's revenues and accounts receivable.


                                      F-9
<PAGE>


                                 Amplidyne, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1996 and 1997



NOTE B (CONTINUED)

         During 1996,  three customers  accounted for 65% of net sales (34%, 19%
         and 12%). In 1996,  export sales accounted for approximately 66% of net
         sales and were primarily to the United Kingdom and Korea.

         During  1997,  two  customers  accounted  for 72% of net sales (56% and
         16%).  Export sales in 1997,  including sales through a sales agent for
         international markets, accounted for approximately 80% of net sales and
         were primarily to 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  and cash  equivalents,  accounts
         receivable,   accounts   payable,   accrued   expenses  and  notes  and
         stockholder's loan payable, approximate fair value, principally because
         of the short maturity of these items.

     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."


                                      F-10
<PAGE>


                                 Amplidyne, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1996 and 1997



NOTE B (CONTINUED)

     8.  PREPAID REGISTRATION COSTS

         Prepaid  registration  costs represent  certain direct fees incurred in
         connection  with the public  offering  in January  1997 (Note C).  Such
         amounts were accounted for as a reduction of proceeds.

     9.  CASH EQUIVALENTS

         The Company  considers all highly  liquid  investments  purchased  with
         original maturities of three months or less to be cash equivalents.

         The Company  maintains  cash and cash  equivalents  in bank deposit and
         money market  accounts which, at times,  may exceed  federally  insured
         limits or not be insured. The Company has not experienced any losses in
         such  accounts  and does not  believe it is exposed to any  significant
         credit risk on cash and cash equivalents.

    10.  ADVERTISING EXPENSES

         The  Company  expenses  advertising  costs  as  incurred.   Advertising
         expenses were  $105,444,  and $26,067 for the years ended  December 31,
         1997 and 1996, respectively.


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 consisted 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 ending January 21, 2001. 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.


                                      F-11
<PAGE>


                                 Amplidyne, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1996 and 1997



NOTE C (CONTINUED)

     In January  1997 and March  1997,  the  Company  received  net  proceeds of
     approximately  $6,782,000,  which  included  the  overallotment  of 210,000
     units.  The  proceeds are net of legal fees,  underwriters'  fees and other
     expenses of the offering totalling approximately $1,429,000.


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 repaid 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 accrued interest at 8% per annum.
     All  principal  and  interest  were paid at the  closing  of the  Company's
     initial public offering.

     The  difference  between the exercise  prices and fair market values of the
     above private  placement  transactions  in aggregate is $3,208,280  and was
     charged to operations over the term of the debt (to January 29, 1997).  The
     total  financing  costs  reflected in  nonoperating  expenses for the years
     ended December 31, 1996 and 1997, is $2,883,740 and $324,540, respectively.


                                      F-12
<PAGE>


                                 Amplidyne, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1996 and 1997



NOTE D (CONTINUED)

     During 1997, the Company revised 200,000 of the options and warrants issued
     in March 1996,  September 1996 and December  1996.  The exercise  prices of
     these  options  and  warrants  were  changed  from  $2.50,  $2.50 and $4.00
     respectively  to the lower of $2.50 or 20% below  market  price on exercise
     date.  The  expiration  date of 25,000 of such  options  and  warrants  was
     extended  until January 20, 2001. The exercise terms of these warrants were
     revised to a cashless exercise commencing October 1, 1998.


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.
     This employee left the Company  during 1997,  forfeiting his right to these
     options. The options were exercisable at $1.00 per share and vested ratably
     over a three-year period. Approximately $20,000 of compensation expense was
     charged to operations in 1996.

     In December 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.


                                      F-13
<PAGE>


                                 Amplidyne, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1996 and 1997



NOTE E (CONTINUED)

     In February  and June 1997,  the Company  granted  warrants to  consultants
     whereby  they have the option to purchase  up to 75,000  shares of stock at
     $4.00 per share.  The  warrants  are  exercisable  ratably over three years
     ending June 2000. For financial reporting purposes,  the fair value of such
     warrants  aggregates to $209,500 and is being charged to operations ratably
     over the period from issuance to June 30, 2000.

     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 and 1997 for
     options granted to a key employee and officers of the Company  reflected in
     nonoperating  expenses was $151,250 and  $262,500,  respectively.  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 by the following:

                                                1996                 1997
                                             ----------           ----------

        Net loss                             $1,226,695           $1,638,552

        Loss per share                       $      .46           $      .38

     The  weighted-average  fair value of the individual  options granted during
     1996 is  estimated  at $1.07 on the date of grant.  There  were no  options
     granted in 1997.  The fair values  were  determined  using a  Black-Scholes
     option-pricing model with the following assumptions:

                                                  1996
                                                --------

        Volatility                                36.00%
        Risk-free interest rate                    6.42%
        Expected life                            2 years


                                      F-14
<PAGE>


                                 Amplidyne, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1996 and 1997



NOTE E (CONTINUED)

     Stock option activity during 1996-1997 is summarized below:

                                               Shares of           Weighted-
                                              common stock          average
                                              attributable       exercise price
                                               to options         of options
                                              ------------       --------------

        Unexercised at January 1, 1996            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

        Granted                                         -               -
        Exercised                                       -               -
        Forfeited                                  64,000            2.59
                                                ---------            ----

        UNEXERCISED AT DECEMBER 31, 1997        1,583,000            3.67
                                                =========            ====

     The following  table  summarizes  information  concerning  outstanding  and
exercisable options at December 31, 1997:

<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>  
        $2.50 to 4.00                   1,583,000           2.67             $3.67           1,583,000           $3.67
</TABLE>


                                                             F-15
<PAGE>


                                 Amplidyne, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1996 and 1997



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, 1997, the net operating  loss  carryforward  is  approximately
     $4,561,000.  The net operating loss  carryforwards  expire at various dates
     through 2012, 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, 1996 and 1997


NOTE G (CONTINUED)

     Future minimum lease payments on these leases are as follows:

        Year ending December 31,
             1998                                                   $  152,665
             1999                                                       64,012
             2000                                                        6,781
             2001                                                          525
                                                                    ----------

                                                                       223,983
             Less amount representing interest                         (19,712)
                                                                    ----------

        Present value of minimum lease payments                     $  204,271
                                                                    ==========

     The net  carrying  value of assets  under  capital  leases was $177,682 and
     $138,197 at December  31, 1996 and 1997,  respectively,  and is included in
     property  and  equipment.  Amortization  of these  assets  is  included  in
     depreciation and research and development expenses.


NOTE H - COMMITMENTS

     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, 1996 and 1997



NOTE H (CONTINUED)

         The Company was obligated,  until October 31, 1997, under its lease for
         its previous 6,000 square-foot office location.

         Future minimum lease payments on noncancellable operating leases are as
         follows:

               Year ending December 31,
                   1998                              $  182,512
                   1999                                  44,750
                   2000                                     579
                                                     ----------

                                                     $  227,841
                                                     ==========

         Rent expense was $245,839 and $209,500 for the years ended December 31,
         1996 and 1997, 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 Chairman,  Vice  President of Sales and Marketing and the Secretary
         have agreed to defer approximately $140,000 of compensation at December
         31, 1997.  They have no  intention to require  payment from the Company
         before January 1, 1999.

         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 received compensation of $30,000 per
         year for two years.


                                      F-18
<PAGE>

                                 Amplidyne, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1996 and 1997



NOTE H (CONTINUED)

         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.


NOTE I - LOSS PER SHARE

     In February 1997, the Financial Accounting Standards Board issued Statement
     of Financial  Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
     128"). SFAS No. 128 specifies the compilation,  presentation and disclosure
     requirements  for earnings per share for entities with publicly held common
     stock or potential  common stock.  The  requirements  of this statement are
     effective for interim and annual  periods  ending after  December 15, 1997.
     All prior years were restated in accordance with SFAS No. 128.

     Net loss per common share - basic and diluted is determined by dividing the
     net  loss  by the  weighted  average  number  of  shares  of  common  stock
     outstanding.  Net loss per common share diluted does not include  potential
     common  shares  derived from stock  options and  warrants  because they are
     antidilutive.  (See  Notes C, D and E for the  number of  potential  common
     shares.)


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 $339,694 was repaid from proceeds of the
     initial public offering.

     Effective  March 31, 1996,  $125,716 of stockholder  loans was forgiven and
     contributed to capital.


                                      F-19
<PAGE>


                                 Amplidyne, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1996 and 1997



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 noncash deferred financing costs. In
     December 1996, the Company recorded a noncash amount of $55,000 relating to
     a December private placement.


NOTE L - LITIGATION

     The Company is a defendant 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
     approximately  $4,323,000,  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  approximately  $463,000,  plus
     interest,   costs  and  attorneys'  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.


NOTE M - 401(k) PLAN

     During 1996,  the Company  established  a defined  contribution  plan,  the
     "Amplidyne, Inc. 401(k) Plan," effective June 1, 1996. No contributions are
     made by the Company.  All employees  with greater than six months'  service
     with the Company are eligible to join the plan. The plan is administered by
     American Funds Service Company.


                                      F-20
<PAGE>


                                 Amplidyne, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1996 and 1997



NOTE N - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

     In the fourth quarter of 1997, the Company recorded the following:

            Stock compensation cost                   $   283,000
            Deferred compensation expense             $   140,000
            Write-off of obsolete inventory           $   150,000




                                      F-21