Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
(1) Organization and Business Description
AmpliTech Group 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.
On September 12, 2019, Amplitech Group Inc. acquired the assets of Specialty Microwave Corporation (SMW), a privately held company based in Ronkonkoma, NY. The purchase included all inventory, orders, customers, property and equipment, and all intellectual property. The assets also included all eight team members of SMW. The total consideration paid was $1,143,633, consisting of $668,633 in cash and a $475,000 promissory note with an interest rate of 6%. The Company also entered into a five-year lease on the property located at 120 Raynor Avenue, Ronkonkoma, NY with an option to buy the property during the first two years of the lease for $1,200,000 and then at fair market value for the remainder of the lease term (see Note 4).
Specialty designs and manufactures passive microwave components and related subsystems that meet individual customer specifications. SMW has both domestic and international customers for use in satellite communication ground networks.
(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 of a normal recurring nature, considered necessary for a fair presentation have been included.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020. 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, 2019 and 2018 included in Form 10-K filed with the SEC.
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.
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.
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 March 31, 2020, the Company’s cash and cash equivalents were deposited in two financial institutions.
Accounts Receivable
Trade accounts receivable are recorded at the net invoice value and are not interest bearing.
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. No allowance has been recorded at March 31, 2020 and 2019, respectively.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
Inventories
Inventories, which consist primarily of raw materials, work in progress and finished goods, is stated at the lower of cost (first-in, first-out basis) or market (net realizable value).
Inventory quantities and related values are analyzed at the end of each fiscal quarter to determine those items that are slow moving and 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.
Property and Equipment
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.
Property and equipment are depreciated as follows:
Description
|
|
Useful Life
|
|
Method
|
Office equipment
|
|
7 years
|
|
Straight-line
|
Machinery and equipment
|
|
5 to 7 years
|
|
Straight-line
|
Computer equipment
|
|
3 to 7 years
|
|
Straight-line
|
Vehicles
|
|
5 years
|
|
Straight-line
|
Long-lived assets
Long lived assets, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances which could trigger a review include, but are not limited to; significant decrease in the market price of the asset; significant adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount of fair value less costs to sell and would no longer be depreciated. The depreciable basis of assets that are impaired and continue in use is their respective fair values.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
Goodwill and Intangible Assets
Intangibles assets include goodwill, trademarks, intellectual property and customer base acquired through the asset purchase of Specialty Microwave. The Company accounts for Other Intangible Assets under the guidance of ASC 350, “Intangibles-Goodwill and Other.” Under the guidance, other intangible assets with definite lives are amortized over their estimated useful lives Intangible assets with indefinite lives are tested annually for impairment. Goodwill is not amortized. We test goodwill balances for impairment annually at December 31 or whenever impairment indicators arise.
Leases
On January 1, 2019, we adopted ASU No. 2016-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized on the balance sheet. We adopted this standard using the modified retrospective approach with an effective date as of the beginning of January 2019. Prior year financial statements were not restated under the new standard. We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the lease term. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Revenue Recognition
We sell our products through a combination of a direct sales force in the United States and independent sales representatives in international markets. Revenue is recognized when a customer obtains control of promised goods based on the consideration we expect to receive in exchange for these goods. This core principle is achieved through the following steps:
Identify the contract with the customer. A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods to be transferred and identifies the payment terms related to these goods, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. We do not have significant costs to obtain contracts with customers. For commissions on product sales, we have elected the practical expedient to expense the costs as incurred.
Identify the performance obligations in the contract. Generally, our contracts with customers do not include multiple performance obligations to be completed over a period. Our performance obligations generally relate to delivering single-use products to a customer, subject to the shipping terms of the contract. Limited warranties are provided, under which we typically accept returns and provide either replacement parts or refunds.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
We do not have significant returns. We do not typically offer extended warranty or service plans.
Determine the transaction price. Payment by the customer is due under customary fixed payment terms, and we evaluate if collectability is reasonably assured. None of our contracts as of March 31, 2020 contained a significant financing component. Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns, rebates, discounts, and other adjustments. The estimates of variable consideration are based on historical payment experience, historical and projected sales data, and current contract terms. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.
Allocate the transaction price to performance obligations in the contract. We typically do not have multiple performance obligations in our contracts with customers. As such, we generally recognize revenue upon transfer of the product to the customer's control at contractually stated pricing.
Recognize revenue when or as we satisfy a performance obligation. We generally satisfy performance obligations at a point in time upon either shipment or delivery of goods, in accordance with the terms of each contract with the customer. We do not have significant service revenue.
Reserves are recorded as a reduction in net sales and are not considered material to our condensed consolidated statements of income for the three months ended March 31, 2020.
Research and Development
Research and development expenditures are charged to operations as incurred. The major components of research and development costs include consultants, outside service, and supplies. Research and development costs for the three months ended March 31, 2020 and 2019 were $20,026 and $17,629.
Income Taxes
The Company’s 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 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 March 31, 2020, the Company had no material unrecognized tax benefits.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
Earnings Per Share
Basic earnings per share (“EPS”) are determined by dividing the net earnings by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings 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 March 31, 2020, there were 43,100,000 potentially dilutive shares that need to be considered as common share equivalents and because of the net loss, the effect of these potential common shares is anti-dilutive.
The computation of weighted average shares outstanding and the basic and diluted earnings per share consisted of the following:
|
|
Net (Loss)
Income
|
|
|
Shares
|
|
|
Per Share
Amount
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
(322,961
|
)
|
|
|
49,536,326
|
|
|
$
|
(0.01
|
)
|
Effect of dilutive stock options, warrants and series A shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
(322,961
|
)
|
|
|
49,536,326
|
|
|
$
|
(0.01
|
)
|
For the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
78,802
|
|
|
|
48,336,326
|
|
|
$
|
0.00
|
|
Effect of dilutive stock options, warrants and series A shares
|
|
|
|
|
|
|
39,864,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
78,802
|
|
|
|
88,200,852
|
|
|
$
|
0.00
|
|
Fair Value of Assets and Liabilities
Fair value is defined 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. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined in the following categories as follows:
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
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.
Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.
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 March 31, 2020.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." ASU 2018-13 modifies the fair value measurements disclosures with the primary focus to improve effectiveness of disclosures in the notes to the financial statements that is most important to the users. The new guidance modifies the required disclosures related to the valuation techniques and inputs used, uncertainty in measurement, and changes in measurements applied. The adoption of this standard became effective for us on January 1, 2020 and did not have a material impact on our consolidated financial statements.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We are currently assessing the impact of this standard on our combined financial statements.
We do not expect the adoption of these or other recently issued accounting pronouncements to have a significant impact on our results of operation, financial position or cash flow.
(3) Revenues
The following table presents sales disaggregated based on geographic regions and for the three months ended:
|
|
March 31,
|
|
|
March 31,
|
|
Amplitech Inc.
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Domestic sales
|
|
$
|
409,840
|
|
|
$
|
282,350
|
|
Foreign sales
|
|
|
134,440
|
|
|
|
395,968
|
|
Total sales
|
|
$
|
544,280
|
|
|
$
|
678,318
|
|
|
|
|
|
|
|
|
|
|
Specialty Microwave
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Domestic sales
|
|
$
|
210,363
|
|
|
$
|
-
|
|
Foreign sales
|
|
|
1,305
|
|
|
|
-
|
|
Total sales
|
|
$
|
211,668
|
|
|
$
|
-
|
|
Total sales for the three months ended March 31, 2020 and 2019
|
|
$
|
755,948
|
|
|
$
|
678,318
|
|
(4) Acquisition of Specialty Microwave
On September 12, 2019, Amplitech Group Inc. acquired Specialty Microwave Corporation ("SMW"), a privately held company based in Ronkonkoma, NY. The purchase included all inventory, orders, customers, property and equipment, and all intellectual property. The assets also included all eight team members of SMW. The total consideration paid was $1,143,633, consisting of $668,633 in cash and a $475,000 promissory note with an interest rate of 6%. Additional acquisition costs that were expensed at December 31, 2019 totaled approximately $77,000. The Company also entered into a five- year lease on the property located at 120 Raynor Avenue, Ronkonkoma, NY with an option to buy the property during the first two years of the lease for $1.2 mm and then at fair market value for the remainder of the lease term.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
As both companies are similar in nature, the acquisition will allow the combined resources and customer base to support more productivity and help in the development of new product lines. We started consolidating both companies for financial reporting purposes as of September 12, 2019.
The fair value of the purchase consideration issued to Specialty Microwave was allocated to the net tangible assets acquired. The Company accounted for the Acquisition as the purchase of a business under GAAP under the acquisition method of accounting, and the assets and liabilities acquired were recorded as the acquisition date, at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately $337,633. The excess of the aggregate fair value of the net tangible assets has been allocated to net intangible assets of $806,000.
The following table summarizes the allocation of the purchase price of the acquisition:
Provisional purchase consideration at fair value:
|
|
|
|
Cash
|
|
$
|
668,633
|
|
Promissory Note
|
|
|
475,000
|
|
Total purchase price
|
|
$
|
1,143,633
|
|
|
|
|
|
|
Allocation of purchase price:
|
|
|
|
|
Inventory
|
|
$
|
301,754
|
|
Property and equipment
|
|
|
46,156
|
|
Goodwill
|
|
|
120,136
|
|
Tradename
|
|
|
70,233
|
|
Customer relationships
|
|
|
412,860
|
|
Intellectual property
|
|
|
202,771
|
|
Less: Customer Deposit
|
|
|
(10,277
|
)
|
Net assets acquired
|
|
$
|
1,143,633
|
|
The following table summarizes the Company’s consolidated results of operations for the years ended, as well as unaudited pro forma consolidated results of operations as though the acquisition had occurred on January 1, 2019. The proforma results for the three months ended March 31, 2020 are not included in the table below because the operating results of Specialty Microwave were included in our consolidated statement of operations.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
|
|
For The Three Months Ended
|
|
|
|
March 31, 2019
|
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
678,318
|
|
|
$
|
971,969
|
|
Net income attributable to common shareholders
|
|
|
78,802
|
|
|
|
122,288
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share, basic and diluted:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the Acquisition been completed as of January 1, 2019 or to project potential operating results as of any future date or for any future periods.
(5) Inventories
The inventory value at March 31, 2020 and December 31, 2019 was as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
$
|
386,436
|
|
|
$
|
403,397
|
|
Work-in Progress
|
|
|
127,167
|
|
|
|
135,223
|
|
Finished Goods
|
|
|
126,893
|
|
|
|
124,510
|
|
Engineering Models
|
|
|
3,726
|
|
|
|
3,726
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
644,222
|
|
|
$
|
666,856
|
|
Less: Reserve for Obsolescence
|
|
|
(88,000
|
)
|
|
|
(109,146
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
556,222
|
|
|
$
|
557,710
|
|
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
(6) Property and Equipment
Property and Equipment with estimated useful lives of three, five and seven years consisted of the following at March 31, 2020 and December 31, 2019:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Lab Equipment
|
|
$
|
793,405
|
|
|
$
|
728,620
|
|
Manufacturing Equipment
|
|
|
25,000
|
|
|
|
25,000
|
|
Automobiles
|
|
|
19,527
|
|
|
|
19,527
|
|
Furniture and Fixtures
|
|
|
32,696
|
|
|
|
31,201
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
870,628
|
|
|
|
804,348
|
|
Less: Accumulated Depreciation
|
|
|
(617,107
|
)
|
|
|
(606,238
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
253,521
|
|
|
$
|
198,110
|
|
Depreciation expense for the three months ended March 31, 2020 and 2019 was $10,869 and $12,622, respectively.
(7) Intangible Assets
Goodwill
The goodwill is related to the acquisition of Specialty Microwave Corp. on September 12, 2019 and is primarily related to expected improvements and technology performance and functionality, as well sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition. Goodwill is generally not amortizable for tax purposes and is not amortizable for financial statement purposes. As of March 31, 2020, goodwill is valued at $120,136.
Other Intangible Assets
Intangible assets with an estimated useful life of fifteen years consisted of the following at March 31, 2020:
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
|
Weighted
Average Life
|
|
Trade name
|
|
$
|
70,233
|
|
|
$
|
-
|
|
|
$
|
70,233
|
|
|
Indefinite
|
|
Customer relationships
|
|
|
412,860
|
|
|
|
15,157
|
|
|
|
397,703
|
|
|
|
14.7
|
|
Intellectual Property
|
|
|
202,771
|
|
|
|
7,576
|
|
|
|
195,195
|
|
|
|
14.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
685,864
|
|
|
$
|
22,733
|
|
|
$
|
663,131
|
|
|
|
|
|
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
(8) Line of Credit
On September 12, 2019, Amplitech entered a new business line of credit for $500,000 maturing on October 1, 2020. The line will be evaluated monthly on a borrowing base formula advancing 75% of the accounts receivables aged less than 90 days and 50% of inventory raw materials costs. The interest rate shall be based upon the Wall Street Journal Prime Rate, plus 1%. As of March 31, 2020, the outstanding balance is $0.
(9) Leases
We adopted ASC 842 “Leases” using the modified retrospective approach, electing the practical expedient that allows us not to restate our comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption.
The following was included in our balance sheet as of March 31, 2020:
Operating leases
|
|
As of
March 31,
2020
|
|
Assets
|
|
|
|
ROU operating lease assets
|
|
$
|
432,339
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current portion of operating lease
|
|
|
123,639
|
|
Operating lease, net of current portion
|
|
|
313,698
|
|
Total operating lease liabilities
|
|
$
|
437,337
|
|
|
Finance leases
|
|
|
|
|
Assets
|
|
|
|
|
Property and equipment, gross
|
|
$
|
157,184
|
|
Accumulated depreciation
|
|
|
(39,296
|
)
|
Property and equipment, net
|
|
|
117,888
|
|
Liabilities
|
|
|
|
|
Current portion of financing lease
|
|
|
30,931
|
|
Finance lease, net of current portion
|
|
|
75,368
|
|
Total operating lease liabilities
|
|
$
|
106,299
|
|
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
The weighted average remaining lease term and weighted average discount rate at March 31, 2020 were as follows:
Weighted average remaining lease term (years)
|
|
March 31,
2020
|
|
Operating leases
|
|
|
4.04
|
|
Finance leases
|
|
|
3.25
|
|
|
|
|
|
Weighted average discount rate
|
|
March 31,
2020
|
|
Operating leases
|
|
|
6.28
|
%
|
Finance leases
|
|
|
4.89
|
%
|
Finance Lease
The Company entered into a 60-month lease agreement to finance certain laboratory equipment in July 2018 with a purchase option of $1. As such, the Company has accounted for this transaction as a finance lease.
The following table reconciles future minimum finance lease payments to the discounted lease liability as of March 31, 2020:
Remaining in 2020
|
|
$
|
28,332
|
|
2021
|
|
|
37,778
|
|
2022
|
|
|
37,778
|
|
2023
|
|
|
18,889
|
|
Total lease payments
|
|
|
122,777
|
|
Less imputed interest
|
|
|
(8,884
|
)
|
Less sales tax
|
|
|
(7,594
|
)
|
Total lease obligations
|
|
|
106,299
|
|
Less current obligations
|
|
|
(30,931
|
)
|
Long-term lease obligations
|
|
$
|
75,368
|
|
Operating Leases
On December 4, 2015, the Company entered into a new operating lease agreement to rent office space in Bohemia, NY. This five-year agreement commenced February 1, 2016 with an annual rent of $50,000 and 3.75% increases in each successive lease year.
On January 15, 2016, the Company entered into a five-year agreement to lease 2 copiers with and annual payment of $2,985.
On September 12, 2019, the Company entered into a new operating lease agreement to rent office space in Ronkonkoma, NY. This five- year agreement commenced on September 12, 2019 with an annual rent of $90,000 and 3% increase in each successive lease year beginning in 2021. The Company has an option to buy the property during the first two years of the lease for $1,200,000 and then at fair market value for the remainder of the lease term.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
On November 27, 2019, the Company entered a 39-month agreement to lease an automobile with a monthly payment of $420
The following table reconciles future minimum operating lease payments to the discounted lease liability as of March 31, 2020:
2020
|
|
$
|
117,261
|
|
2021
|
|
|
102,849
|
|
2022
|
|
|
100,521
|
|
2023
|
|
|
98,765
|
|
2024
|
|
|
75,972
|
|
Total lease payments
|
|
|
495,368
|
|
Less imputed interest
|
|
|
(58,031
|
)
|
Total lease obligations
|
|
|
437,337
|
|
Less current obligations
|
|
|
(123,639
|
)
|
Long-term lease obligations
|
|
$
|
313,698
|
|
(10) Notes Payable
Promissory Note:
On September 12, 2019, Amplitech Group Inc. acquired Specialty Microwave Corporation (SMW), a privately held company based in Ronkonkoma, NY. The purchase included all inventory, orders, customers, property and equipment, and all intellectual property. The assets also included all eight team members of SMW. The total consideration paid was $1,143,633, consisting of $668,633 in cash and a $475,000 promissory note with an interest rate of 6%. Beginning November 1, 2019, payment of principal and interest shall be due payable in fifty-nine (59) monthly payments of $9,213 with a final payment due October 1, 2024 of $9,203. As of March 31, 2020, the balance of this promissory note was $440,732. Principal payments of $13,812 along with interest expense of $4,615 was paid for the three months ended March 31, 2020. The promissory note is secured by certain assets of the Company.
Loan Payable:
On September 12, 2019, the Company entered a $1,000,000 seven- year term loan with amortization based on a ten- year repayment schedule. The loan bears interest at a fixed rate of 6.75% with a monthly repayment amount of $11,533. As of March 31, 2020, the balance of the loan was $964,439 and interest expense paid was $16,666. This loan is collateralized by all Company assets.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
In addition, on September 12, 2019, the Company was approved for a $250,000 equipment leasing facility. On December 20, 2019, the Company borrowed $58,192 against this facility to be paid over a three-year term with monthly payments of $ 1,736 at an interest rate of 5.26%. The balance as of March 31, 2020 was $51,930.
Future principal payments over the term of the loans as of March 31, 2020 are as follows:
|
|
Payments
|
|
2020
|
|
|
133,448
|
|
2021
|
|
|
187,969
|
|
2022
|
|
|
198,398
|
|
2023
|
|
|
191,725
|
|
Thereafter
|
|
|
745,861
|
|
Total remaining payments
|
|
$
|
1,457,101
|
|
(11) Stockholders’ Equity
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.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
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 March 31, 2020, and December 31, 2019, the Company had 49,086,326 shares of common stock issued and outstanding.
On July 2, 2019, Amplitech Group, Inc. entered an engagement for strategic intellectual property consulting services with ipCapital Group (“ipCG”), to assist in the formulation and execution ofAmplitech’s intellectual property (“IP”) strategy around its proprietary trade secrets, knowhow and technology to formulate a comprehensive “ipStory”. The consideration paid to ipCG is $30,000, of which ipCG has agreed to accept 200,000 shares of restricted common stock upon completion of the project. These shares were issued on October 15, 2019 at a value of $14,000.
On October 15, 2019, the Company engaged Maxim Group LLC (“Maxim”) as its financial advisor to assist the Company in growth strategy to the investment community with an ultimate goal of a potential up-list and capital raise on NASDAQ.
As consideration for Maxim’s services, Maxim shall be entitled to receive, and the Company agrees to pay Maxim, the following compensation:
|
(a)
|
The Company will issue to Maxim or its designees 2,000,000 shares of the Company’s Common Stock (“Common Stock”) based on the following schedule:
|
|
i.
|
550,000 restricted shares of Common Stock upon the execution of the Agreement implying a price per share of $0.10. These shares were valued on October 15, 2019 at $0.054 with a value of $29,920. As of March 31, 2020, $27,468 was expensed with the balance of $2,452 in prepaid expenses to be amortized over the vesting period. The shares were issued on January 13, 2020.
|
|
|
|
|
ii.
|
$54,000 payable in 450,000 restricted shares of Common Stock six months from the date of the Agreement implying a price per shares of $0.12. These shares were valued on October 15, 2019 at a price of $0.054 with a value of $24,480. As of March 31, 2020, $22,473 was expensed with the balance of $2,007 in prepaid expenses to be amortized over the vesting period. As of March 31, 2020, these shares have not been issued and classified as common stock payable.
|
|
|
|
|
iii.
|
1,000,000 restricted shares of Common Stock upon an up listing of the Company’s Common Stock to a national exchange (NASDAQ or NYSE).
|
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
Options:
During 2014, the Company granted the chief executive officer 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. There is no expiration date for this option and the related expense has been recorded in prior years.
Warrants:
On April 25, 2019, Wayne Homschek joined the Board of Directors as an independent Director who will aid in corporate strategy, financing and investor relations. He will be paid $5,000 per month for one year and receive a warrant, exercisable into 3,000,000 shares of common stock at an exercise price of $0.03 per share. As per the agreement, 1,500,000 warrants vest in six months and the remaining balance of 1,500,000 shall vest one year later. The following table summarizes the warrants outstanding of the Company for the three months ended March 31, 2020:
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Number of
Warrants
|
|
|
Exercise
Price ($)
|
|
|
Intrinsic
Value
|
|
Outstanding at March 31, 2020
|
|
|
3,000,000
|
|
|
|
.03
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Outstanding at March 31, 2020
|
|
|
3,000,000
|
|
|
|
.03
|
|
|
$
|
29,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020
|
|
|
1,500,000
|
|
|
|
.03
|
|
|
$
|
14,850
|
|
The Company has calculated the estimated fair market value of these warrants at $142,950, using the Black-Scholes model and the following assumptions: expected term 5.75 years, stock price $0.05, exercise price $0.03, 153.48% volatility, 2.35% risk free rate, and no forfeiture rate. The weighted average life of these warrants is 9.07 years.
The Company recognized stock-based compensation of $11,847 and $0 for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, the total remaining unrecognized compensation cost related to non-vested warrants was $27,080.
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2020 and 2019 (Unaudited)
(13) Subsequent events
In accordance with ASC 855-10, Company management reviewed all material events through the date of this report.
The COVID-19 Pandemic
The novel strain of the coronavirus identified in China in late 2019 (COVID-19) has globally spread throughout other areas such as Asia, Europe, the Middle East, and North America and has resulted in authorities imposing, and businesses and individuals implementing, numerous unprecedented measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders, and shutdowns. These measures have temporarily impacted our workforce and operations, and some of the operations of our customers, and vendors, suppliers, and partners. Some of the countries in which we operate have been affected by the outbreak and have already taken measures to try to contain it. The ultimate impact and efficacy of government measures and potential future measures is currently unknown.
There is uncertainty regarding the business impacts from such measures and potential future measures. While we have been able to continue our operations through a combination of work-from-home and social distancing policies implemented to protect employees, these measures have resulted in reduced workforce availability. Our DOA7 rated orders classifies us as a DHS CISA ("Critical Infrastructure") company and we opened on May 5, 2020 with the CDC safeguard guidelines in place. Restrictions on our access to customer facilities may impact our ability to meet customer demand this quarter and into next quarter and could affect our financial condition and results of operations. Some of our customers may have experienced disruptions in their operations, but our RFQ activity remains strong which may result in delayed orders third and fourth quarters.
On April 20, 2020, the Company entered into a Paycheck Protection Program Promissory Note (“PPP Note”) in the principal amount of $232,200 (“PPP Loan”) from BNB Bank (“PPP Loan Lender”). The PPP Loan was obtained pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”) administered by the U.S Small Business Administration (“SBA”). The PPP Loan was disbursed by the PPP Loan Lender on April 20, 2020 (the “Disbursement Date”). The PPP Loan bears an interest at 1.00% per annum and is payable monthly commencing six months from the Disbursement Date. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used by the Company for 2020 payroll costs, mortgage interest payments, rent and utilities. This has helped to offset some of the adverse effects of this pandemic and allowed us to serve our customers at a reduced capacity but without experiencing any cancellation of our open orders.