Notes To Consolidated Financial Statements
For The Nine Months Ended September 30, 2016 and 2015 (Unaudited)
(1) Organization and Basis of Presentation
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of AmpliTech Group, Inc. (“Group” or the “Company”) have been prepared by management in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for annual audited financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included.
The results of operations for the nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes related thereto for the years ended December 31, 2015 and 2014 included in Form 10-K filed with the SEC.
(2) Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared using the accrual basis of accounting.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers deposits that can be redeemed on demand and investments that have original maturities of less than three months, when purchased, to be cash equivalents. As of September 30, 2016 and 2015 the Company’s cash and cash equivalents were deposited primarily in one financial institution.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Nine Months Ended September 30, 2016 and 2015 (Unaudited)
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change in the future. An allowance of $0 has been recorded at September 30, 2016 and 2015, respectively.
Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Income Taxes
The Company accounts for income taxes under the provisions of Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740 “
Income Tax
”. ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of certain assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has adopted the provisions of FASB ASC 740-10-05 “Accounting for Uncertainty in Income Taxes”. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At September 30, 2016 and 2015, the Company had no material unrecognized tax benefits.
Earnings (Loss) Per Share
Basic earnings (loss) per share (“EPS”) are determined by dividing the net earnings (loss) by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings (loss) by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding under the treasury stock method. As of September 30, 2016 there were 39,814,831 potential dilutive shares that needed to be considered as common share equivalents.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Nine Months Ended September 30, 2016 and 2015 (Unaudited)
Inventory Obsolescence
Inventory quantities and related values are analyzed at the end of each fiscal quarter to determine those items that are slow moving or obsolete. An inventory reserve is recorded for those items determined to be slow moving with a corresponding charge to cost of goods sold. Inventory items that are determined obsolete are written off currently with a corresponding charge to cost of goods sold.
Revenue Recognition
Revenues and costs of revenues are recognized during the period in which the products are shipped. The Company applies the provisions of FASB Accounting Standards Codification (“ASC”) 605-10, Revenue Recognition in Financial Statements ASC 605-10, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. ASC 605-10 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue for sale of products when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) the collectability is reasonably assured.
The Company’s sources of revenue are from the sale of various component amplifiers. Revenue is recognizes upon shipment of such products. The Company offers a 100% satisfaction guarantee against defects for 90 days after the sale of their product except for a few circumstances. There are no maintenance or service contracts related to any product sale.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management 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 the reported amounts of revenues and expenses for the periods presented. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Nine Months Ended September 30, 2016 and 2015 (Unaudited)
Fair Value of Assets and Liabilities
The Company’s financial instruments consist of notes payable, loans payable and a derivative liability. The Company believes all of the financial instruments’ recorded values approximate their fair values because of their nature and respective durations.
The Company complies with the provisions of ASC 820-10, “
Fair Value Measurements and Disclosures
.” ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
Level 1.
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Cash and cash equivalents are valued using inputs in Level 1.
Level 2.
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3.
Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Nine Months Ended September 30, 2016 and 2015 (Unaudited)
Application of Valuation Hierarchy
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As such, the Company assessed that the fair value of cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, customer deposits, notes payable, and due to officer approximate their carrying values due to their short-term nature.
(3) Inventory
Inventory, which consists primarily of raw materials and finished goods, is stated at the lower of cost (first-in, first-out basis) or market (net realizable value). The inventory value at September 30, 2016 and December 31, 2015 was as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Raw Materials
|
|
$
|
197,646
|
|
|
$
|
119,027
|
|
Work-in Progress
|
|
|
65,028
|
|
|
|
11,562
|
|
Finished Goods
|
|
|
84,731
|
|
|
|
87,500
|
|
Engineering Models
|
|
|
3,726
|
|
|
|
3,726
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
351,131
|
|
|
$
|
221,815
|
|
Less: Reserve for Obsolescence
|
|
|
(76,000
|
)
|
|
|
(76,000
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
275,131
|
|
|
$
|
145,815
|
|
(4) Property and Equipment
Property and Equipment with estimated useful lives of seven and ten years consisted of the following at September 30, 2016 and December 31, 2015:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Lab Equipment
|
|
$
|
560,834
|
|
|
$
|
546,498
|
|
Furniture and Fixtures
|
|
|
11,568
|
|
|
|
11,568
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
572,402
|
|
|
|
558,066
|
|
Less: Accumulated Depreciation
|
|
|
(491,898
|
)
|
|
|
(470,252
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
80,504
|
|
|
$
|
87,814
|
|
Depreciation expense for the nine months ended September 30, 2016 was $21,645.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Nine Months Ended September 30, 2016 and 2015 (Unaudited)
(5) Notes Payable
Notes Payable at September 30, 2016 includes an unsecured demand note executed on May 1, 2012, totaling $26,958 from one corporation with an interest rate of 8% per annum and a maturity date of October 31, 2012. Accrued interest related to this note was $9,475 and interest expense for the nine months ended September 30, 2016 was $1,617.
(6) Line of Credit
On November 16, 2015, the Company entered into a commercial line of credit agreement and note for $150,000. This agreement will be paid over a three year term with monthly payments equal to 2.780% of the outstanding balance plus accrued interest. The initial variable interest rate on this agreement is 5.25% per annum. This interest rate may change every year on the anniversary date or change date to reflect the new prime rate in effect as per the Wall Street Journal plus 2%. The interest rate will never be greater than 25% or less than 5%. On April 20, 2016, the existing line of credit was increased from $150,000 to $250,000 with an extended maturity date of April 20, 2019.The outstanding balance as of September 30, 2016 was $59,737 and the interest paid for the nine months ended September 30, 2016 was $3,189.
(7) Due to Officer
On August 1, 2014, the Chief Executive Officer, who is also the Company’s majority shareholder, paid off $56,291 of the SBA- backed working capital loan balance of on behalf of the Company. The balance of the deferred financing costs of $8,007 associated with this loan was written off as amortization expense. The loan is payable on demand and accrues interest at a rate of 8% per annum. Payments will be made for the amount demanded plus accrued interest on the unpaid balance through the demand date. As of September 30, 2016, the amount due to officer was $17,000. The Company repaid a net amount of $61,291 of principal and as September 30, 2016 accrued interest relating to this loan was $1,990.
(8) Capital Stock
Preferred Stock
On July 10, 2013, the board of directors of the company approved a certificate of amendment to the articles of incorporation and changed the authorized capital stock of the Company to include and authorize 500,000 shares of Preferred Stock, par value $0.001 per share.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Nine Months Ended September 30, 2016 and 2015 (Unaudited)
In July 2013, the Board of Directors of the Company designated 140,000 shares of Preferred Stock as Series A Convertible Preferred Stock (or “Series A”). Furthermore, each share of Series A is convertible into 100 shares of common stock at any time after issuance and the holder of each share of Series A is entitled to 100 votes when the vote of holders of the Company’s common stock is sought. In January 2015, the Board of Directors of the Company increased the number of Series A designated from 140,000 to 401,000. There are currently 1,000 shares of Series A outstanding.
In April 2015, the Board of Directors of the Company designated 75,000 shares of Preferred Stock as Series B Convertible Preferred Stock (or “Series B”). The Series B shares are convertible into common stock at a conversion rate of one Series B share for 289 common shares. In addition, a holder of Series B Preferred Stock shall not be entitled to have any voting rights and shall hold a liquidation preference junior to a holder of Series A shares and pari passu with common shareholders. There are currently no shares of Series B outstanding.
Common Stock:
The Company originally authorized 50,000,000 shares of common stock with a par value of $0.001. Effective May 20, 2014, the Company increased its authorized shares of common stock from 50,000,000 to 500,000,000. As of September 30, 2016 and 2015 the Company had 46,136,326 shares of common stock issued and outstanding, respectively.
Options:
During 2014, the Company granted the principal executive officer and sole director of the Company an immediately exercisable option to purchase an aggregate of 400,000 shares of Series A at an exercise price of $0.0206 per share of the underlying common stock. There is no expiration date for this option.
(9) Commitments and Contingencies:
The Company rented office space under a non-cancelable operating lease agreement that commenced in July 2011 and automatically renewed annually with similar terms for an additional twelve months. The future monthly rental payments required under this operating lease agreement from July 1, 2015 through June 30, 2016 was $35,580. This lease was terminated as of January 31, 2016. On December 4, 2015, the Company entered into a new operating lease agreement to rent office space. This five year agreement commences February 1, 2016 with an annual rent of $50,000 and 3.75% increases in each successive lease year.
(10) Subsequent events
In accordance with ASC 855-10, Company management reviewed all material events through the date of this report. There are no material subsequent events to report.