Notes To Condensed Consolidated Financial Statements
For The Nine Months Ended September 30, 2017 and 2016 (Unaudited)
(1) Organization and Business Description
AmpliTechGroup Inc. (“AmpliTech” or “the Company”) was incorporated under the laws of the State of Nevada on December 30, 2010. On August 13, 2012, the Company acquired AmpliTech Inc., by issuing 16,675,000 shares of the Company’s Common Stock to the shareholders of Amplitech Inc. in exchange for 100% of the outstanding shares of AmpliTech Inc. (“the Share Exchange”). After the Share Exchange, the selling shareholders owned 1,200,000 shares of the outstanding 17,785,000 shares of Company common stock, resulting in a change in control. Accordingly, the transaction was accounted for as a reverse acquisition in which AmpliTech, Inc. was deemed to be the accounting acquirer, and the operations of the Company were consolidated for accounting purposes. The capital balances have been retroactively adjusted to reflect the reverse acquisition.
AmpliTech designs, engineers and assembles micro-wave component based low noise amplifiers (“LNA”) that meet individual customer specifications. Application of the Company’s proprietary technology results in maximum frequency gain with minimal background noise distortion as required by each customer. The Company has both domestic and international customers in such industries as aerospace, governmental, defense and commercial satellite.
(2) Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared using the accrual basis of accounting.
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 three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017. 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 year ended December 31, 2016 included in Form 10-K filed with the SEC.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Nine Months Ended September 30, 2017 and 2016 (Unaudited)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiary. 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, 2017 the Company’s cash and cash equivalents were deposited primarily in one financial institution.
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 reasonablypossible 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, 2017 and December 31, 2016.
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, 2017, the Company had no material unrecognized tax benefits.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Nine Months Ended September 30, 2017 and 2016 (Unaudited)
Earnings 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, 2017 and 2016 there were 39,814,921 and 39,814,831, respectively potential dilutive shares that needed to be considered as common share equivalents. As of September 30, 2017, because of the net loss, the effect of these potential common shares is anti-dilutive for September 30, 2017.
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 recognized 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.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Nine Months Ended September 30, 2017 and 2016 (Unaudited)
Concentration of Credit Risk
Financial instruments that potentially subject the company to concentration of credit risk consist primarily of accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. Therefore, management does not believe significant credit risks exist at September 30, 2017.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, “
Revenue From Contracts With Customers
,” which changes the definitions/criteria used to determine when revenue should be recognized from being based on risks and rewards to being based on control. Among other changes, ASU 2014-09 changes the manner in which variable consideration is recognized, requires recognition of the time value of money when payment terms exceed one year, provides clarification on accounting for contract costs, and expands disclosure requirements. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017. Although the Company will not complete its final assessment and quantification of the impact of ASU 2014-09 on its consolidated financial statements until adoption, it expects the adoption to have the effect of accelerating the timing of revenue recognition compared to current standards for those arrangements under which the Company is producing customer-specific products without alternative use and would be entitled to payment for work completed, including a reasonable margin. The Company is still in the process of developing an estimate of the impact of the transition adjustment on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business (“ASU 2017-01”). The Amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. Early adoption of this standard is permitted.
Fair Value of Assets and Liabilities
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.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Nine Months Ended September 30, 2017 and 2016 (Unaudited)
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.
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 , accounts receivable, prepaid expenses, accounts payable and accrued expenses, customer deposits, notes payable, and amounts due to officer approximate their carrying values due to their short-term nature.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Nine Months Ended September 30, 2017 and 2016 (Unaudited)
(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, 2017 and December 31, 2016 was as follows:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Raw Materials
|
|
$
|
235,499
|
|
|
$
|
189,373
|
|
Work-in Progress
|
|
|
55,471
|
|
|
|
48,791
|
|
Finished Goods
|
|
|
99,328
|
|
|
|
90,048
|
|
Engineering Models
|
|
|
3,726
|
|
|
|
3,726
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
394,024
|
|
|
$
|
331,938
|
|
Less: Reserve for Obsolescence
|
|
|
(65,000
|
)
|
|
|
(65,000
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
329,024
|
|
|
$
|
266,938
|
|
(4) Property and Equipment
Property and Equipment with estimated useful lives of seven and ten years consisted of the following at September 30, 2017 and December 31, 2016:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Lab Equipment
|
|
$
|
560,833
|
|
|
$
|
560,833
|
|
Furniture and Fixtures
|
|
|
14,339
|
|
|
|
11,568
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
575,172
|
|
|
|
572,401
|
|
Less: Accumulated Depreciation
|
|
|
(519,142
|
)
|
|
|
(499,111
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,030
|
|
|
$
|
73,290
|
|
Depreciation expense for the nine months ended September 30, 2017 was $20,031.
(5) Notes Payable
Notes Payable at September 30, 2017 includes a demand note totaling $15,000 from one corporation with an interest rate of 8% per annum. Accrued interest related to this note was $10,787 as of September 30, 2017 and interest expense related to this note for the nine months ended September 30, 2017 was $898.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Nine Months Ended September 30, 2017 and 2016 (Unaudited)
(6) Line of Credit
On November 16, 2015, the Company entered into a commercial line of credit 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, 2017 was $24,648 and the interest paid for the nine months ended September 30, 2017 was $1,785.
(7) 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.
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, 2017 and December 31, 2016 the Company had 46,136,326 shares of common stock issued and outstanding, respectively.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Nine Months Ended September 30, 2017 and 2016 (Unaudited)
Options:
During 2014, the Company granted the chief 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 and the related expense has been recorded in prior years.
(8) Commitments and Contingencies:
On December 4, 2015, the Company entered into a new operating lease agreement to rent office space. This five year agreement commenced February 1, 2016 with an annual rent of $50,000 and 3.75% increases in each successive lease year.
Rent expense for the nine months ended September 30, 2017 was $38,750.
(9) Revision of Prior Year Financial Statements:
The Company’s correction of the tax provision for the year ended December 31, 2016, resulted in an increase of net income by $41,092.
In accordance with the guidance provided by the SEC’s Staff Accounting Bulletin 99,
Materiality
and Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
the Company has determined that the impact of adjustments relating to the correction of this accounting error are not material to previously issued annual audited consolidated financial statements. Accordingly, these changes are disclosed herein and will be disclosed prospectively.
As a result of the aforementioned correction of accounting errors, the relevant annual financial statements have been revised as follows:
Effects on financials for the year ended December 31, 2016:
|
|
December 31, 2016
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts Payable and accrued expenses
|
|
$
|
133,925
|
|
|
$
|
(41,092
|
)
|
|
$
|
92,833
|
|
Total Current Liabilities
|
|
|
226,262
|
|
|
|
(41,092
|
)
|
|
|
185,170
|
|
Total Liabilities
|
|
$
|
226,262
|
|
|
$
|
(41,092
|
)
|
|
$
|
185,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
594,411
|
|
|
|
556,319
|
|
|
|
41,092
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
782,581
|
|
|
$
|
41,092
|
|
|
$
|
782,581
|
|
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Nine Months Ended September 30, 2017 and 2016 (Unaudited)
|
|
For the year ended December 31, 2016
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Revised
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
$
|
41,092
|
|
|
$
|
(41,092
|
)
|
|
$
|
-
|
|
Net income
|
|
$
|
415,196
|
|
|
$
|
41,092
|
|
|
$
|
456,288
|
|
|
|
For the year ended December 31, 2016
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Revised
|
|
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
415,196
|
|
|
$
|
41,092
|
|
|
$
|
456,288
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
40,250
|
|
|
|
(41,092
|
)
|
|
|
842
|
|
Total adjustments
|
|
|
(68,533
|
)
|
|
|
(41,092
|
)
|
|
|
(109,625
|
)
|
(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.