Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
(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 833,750 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 60,000 shares of the outstanding 889,250 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 microwave 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.
Specialty designs and manufactures passive microwave components and related subsystems that meet individual customer specifications for both domestic and international customers for use in satellite communication ground networks.
On February 17, 2021, AmpliTech Group Inc., common stock and warrants under the symbols “AMPG” and “AMPGW”, respectively, commenced trading on NASDAQ. A reverse split of the outstanding common stock at a 1-for-20 ratio became effective February 17, 2021 as of 12:01 a.m., Eastern Time. In connection with the public offering, 1,371,428 units at an offering price of $7.00 per unit were sold. Each unit issued in the offering consisted of one share of common stock and one warrant. All shares amounts have been retroactively re-stated to reflect the reverse split.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
On November 19, 2021, AmpliTech Group, Inc. entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Spectrum Semiconductor Materials Inc. (the “Seller” or “SSM”), pursuant to which AmpliTech would acquire substantially all of the assets of the Company (the “Acquisition”). The Acquisition was completed on December 15, 2021.
The aggregate purchase price for the acquisition was $10,250,000, subject to certain working capital and other adjustments of which $665,200 was paid by the issuance of 188,442 unregistered shares of AmpliTech common stock at the closing of the Acquisition. Pursuant to the Purchase Agreement, AmpliTech will file a resale registration statement on Form S-3 registering the Stock Proceeds for resale by Spectrum.
The Purchase Agreement contains representations, warranties, and covenants believed to be customary for a transaction of this nature, including covenants as to indemnification for breaches of certain representations, warranties and covenants, subject to certain exclusions and caps. Further, the completion of the Acquisition was subject to release of all liens and to the satisfaction of closing conditions, including the continued employment of certain Company employees. (See Note 4.)
Spectrum Semiconductor Materials(“SSM”), located in the Silicon Valley (San Jose, CA), is a global authorized distributor of integrated circuit (“IC”) packaging and lids used semiconductor device assembly, prototyping, testing, and production requirements.
IC packaging is the case or enclosure that contains the semiconductor device to protect it from corrosion or physical damage; the IC packaging also supports the electrical contacts, which connect the semiconductor device to a circuit board. IC packaging often gets sealed with lids, which creates an airtight seal to prevent contaminants, particles, liquids, or gases from entering the packaging to ensure the proper operation of the device. The Company offers multiple IC packaging and lids product lines according to desired product specifications, device performance, dimensions, resistances, and tolerances.
Our IC packaging and lids products serve a global customer base in a wide range of end-market applications, including aerospace, defense, industrial, medical, wireless, communications, automotive, and other growing markets. The Company is ISO 9001:2015 and AS9120B certified for the Distribution of Semiconductor Materials for the Assembly Phase of Integrated Circuit Manufacturing, as well as in compliance with the Conflict Minerals Reporting Template (“CMRT”), the European Union’s Restriction of Hazardous Substances (“RoHS”) and Registration, Evaluation, Authorization, and Restriction of Chemicals (“REACH”) directives, as well as registered with the U.S. Government’s System for Award Management (“SAM”).
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
The COVID-19 Pandemic
The global health crisis caused by the novel coronavirus COVID-19 pandemic and its resurgences has and may continue to negatively impact global economic activity, which, despite progress in vaccination efforts, remains uncertain and cannot be predicted with confidence. In addition, variants of COVID-19, including Delta and Omicron, continue to emerge, the impact of which cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of the COVID-19 vaccines against COVID-19 variants along with the response by governmental bodies and regulators. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on our business. Many countries around the world have continued to impose quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. Accordingly, our ability to continue to operate our business may also be limited. Such events may result in a period of business, supply and manufacturing disruptions, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. We continue to monitor the impacts of COVID-19 on the global economy and on our business operations. Although we expect the vaccinations for COVID-19 will continue to improve conditions, the ultimate impact from COVID-19 on our business operations and financial results will depend on, among other things, the ultimate severity and scope of the pandemic, including the new variants of the virus, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, the rate at which historically large increases in unemployment rates will decrease, if at all, and whether, and the speed with which, the economy recovers. We are not able to fully quantify the impact that these factors will have on our business, but developments related to COVID-19 may materially affect financial condition and results of operations in future periods.
(2) Summary of Significant Accounting Policies
Basis of Accounting
The accompanying consolidated 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.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
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.
Reclassifications
Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations.
Cash and Cash Equivalents
The Company considers deposits that can be redeemed on demand and investments and marketable securities that have original maturities of less than three months, when purchased, to be cash equivalents. As of December 31, 2021, the Company’s cash and cash equivalents were deposited in four financial institutions.
Accounts Receivable
Trade accounts receivables 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. An allowance of $39,380 and $125,400 has been recorded at December 31, 2021 and 2020, respectively.
Employee Retention Credit
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provided an employee retention credit which was a refundable tax credit against certain employment taxes. New legislation amended the employee retention credit to be equal to 70% of qualified wages paid to employees after December 31, 2020, and before January 1, 2022. During calendar year 2021, a maximum of $10,000 in qualified wages for each employee per qualifying calendar quarter may be counted in determining the 70% credit. Therefore, the maximum tax credit that can be claimed by an eligible employer is $7,000 per employee per qualifying calendar quarter of 2021. The Company qualifies for the employee retention credit for quarters that experience a significant decline in gross receipts, defined as quarterly gross receipts that are less than 80 percent of its gross receipts for the same calendar quarter in 2019. The Company qualified for the credit beginning on January 1, 2021 and received credits for qualified wages through June 30, 2021. During the year ended December 31, 2021, the Company recorded an employee retention credit totaling $201,215.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
Marketable Securities
The Company’s investments in marketable securities are classified based on the nature of the securities and their availability for use in current operations. The Company’s marketable securities are stated at fair value with all realized and unrealized gains and losses on investments in marketable equity securities recognized in other income, net. The realized and unrealized gains and losses on marketable securities are determined using specific identification method.
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.
As of December 31, 2021 and 2020, the reserve for inventory obsolescence was $1,031,986 and $70,000, respectively.
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/shop equipment | | 5 to 10 years | | Straight-line |
Computer equipment/software | | 1 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.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
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.
Investment Policy-Cost Method
Investments consist of non-controlling equity investments in privately held companies. The Company elected the measurement alternative for these investments without readily determinable fair values and for which the Company does not control or have the ability to exercise significant influence over operating and financial policies. These investments are accounted for under the cost method of accounting. Under the cost method of accounting, the non-marketable equity securities are carried at cost less any impairment, adjusted for observable price changes of similar investments of the same issuer. Fair value is not estimated for these investments if there are no identified events or changes in circumstances that may have an effect on the fair value of the investment. Under this method, the Company’s share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or consolidated statements of operations. The Company held $250,000 of investments without readily determinable fair values at December 31, 2021 (see Note 9). These investments are included in investments on the consolidated balance sheets. There were no indicators of impairment during the year ended December 31, 2021.
Goodwill and Intangible Assets
Intangible assets include goodwill, trademarks, intellectual property and customer base acquired through the asset purchases of Specialty Microwave and Spectrum. 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.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
Leases
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. The Company has elected not to separate lease and non-lease components for all property leases for the purpose of calculating ROU assets and lease liabilities. 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. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis considering such factors as lease term and economic environment risks.
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.
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 December 31, 2021 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.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
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.
Cost of sales includes the cost of the product sold, direct labor, outside service, quality assurance, packaging and assembly, shipping and write downs of inventory.
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.
The Company has begun its research and development into the next generation of 5G/6G subsystems for cellular and satellite communications. The Company is in the process of designing and developing antennas and subsystems that will be an integral part of the GPS and 5G infrastructure. These subsystems will enable high-speed, high capacity 5G/6G networks that will be installed into infrastructure for retrofitting and improving connectivity for cellphones, satellites and many other everyday applications.
In 2021, the Company opened a MMIC chip design center in Texas and has started to implement several of its proprietary amplifier designs into MMIC components. MMICs, or monolithic microwave integrated circuits, are semiconductor chips used in high-frequency communications applications. MMIC’s are widely desired for power amplification solutions to service emerging technologies such as phased array antennas and quantum computing. MMIC’s carry a smaller footprint enabling them to be incorporated into a broader array of systems while reducing costs by eliminating connectors and skilled labor.
Research and development costs for the years ended December 31, 2021 and 2020 were $1,833,399 and $61,953, respectively. For financial reporting purposes, research and development costs of $61,953 was reclassed from selling and administrative expense for the year ended December 31, 2020.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
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 December 31, 2021, the Company had no material unrecognized tax benefits.
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 December 31, 2021 and 2020, there were 3,818,142 and 2,005,000, respectively, potentially dilutive shares that need to be considered as common share equivalents.
The computation of weighted average shares outstanding and the basic and diluted earnings per share consisted of the following:
| | Net Loss | | | Shares | | | Per Share Amount | |
| | | | | | | | | |
For the year ended December 31, 2020: | | | | | | | | | |
Basic EPS | | $ | (1,025,559 | ) | | | 2,782,303 | | | $ | (0.37 | ) |
Effect of dilutive stock options, warrants and series A shares | | | | | | | | | | | | |
Diluted EPS | | $ | (1,025,559 | ) | | | 2,782,303 | | | $ | (0.37 | ) |
For the year ended December 31, 2021: | | | | | | | | | | | | |
Basic EPS | | $ | (4,758,808 | ) | | | 8,900,824 | | | $ | (0.53 | ) |
Effect of dilutive stock options, warrants and series A shares | | | | | | | | | | | | |
Diluted EPS | | $ | (4,758,808 | ) | | | 8,900,824 | | | $ | (0.53 | ) |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
Fair Value Measurements
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the 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 three categories:
Level 1: Unadjusted quoted prices that are available in active markets for identical assets or liabilities at the measurement date.
Level 2: Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly.
Level 3: Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment.
Cash and cash equivalents, receivables, inventory, prepaid expenses, accounts payable, accrued expenses, and customer deposits approximate fair value, due to their short-term nature. The carrying value of notes payable and short and long-term debt also approximates fair value since these instruments bear market rates of interest.
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to long-lived assets, intangible assets, and goodwill, which are remeasured when the derived fair value is below carrying value in the consolidated balance sheets.
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.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
Concentration of Credit Risk
Financial instruments that potentially subject the company to concentration of credit risk consist primarily of cash and accounts receivable
Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At December 31, 2021 and 2020, the Company had $17,018,874 and $0 in excess of the FDIC insured limit, respectively.
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 December 31, 2021. Sales to the Company’s two largest customers represented approximately 25.98% and 10.60% of total sales for the year ended December 31, 2021.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019. This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify as a small reporting company. The Company has elected this extension and the effective date for the Company to adopt this standard will be for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018 modifies the disclosure requirements of Accounting Standards Codification ASC 820 with certain removals, modifications, and additions. Eliminated disclosures that may affect the Company include (1) transfers between level 1 and level 2 of the fair value hierarchy, and (2) policies related to valuation processes and the timing of transfers between levels of the fair value hierarchy. Modified disclosures that may affect the Company include (1) a requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse if the entity has communicated the timing publicly for investments in certain entities that calculate net asset value, and (2) clarification that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Additional disclosures that may affect the Company include (1) disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring level 3 fair value measurements held at the end of the reporting period, and (2) disclosure of the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until the effective date. We adopted ASU 2018-03 as of January 1, 2021. Our adoption did not have a material impact on our consolidated financial statements.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
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. The adoption of this standard became effective for us on January 1, 2021 and did not have a material impact on our consolidated financial statements.
On August 5, 2020, FASB issued ASU 2020-06, which is expected to reduce complexity and improve comparability of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with an early adoption permitted. The adoption of this standard became effective for us on January 1, 2021 and did not have a material impact on our consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU amends ASC 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations. The ASU is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on our consolidated 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.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
(3) Revenues
The following table presents sales disaggregated based on geographic regions and for the years ended:
AmpliTech Inc. | | December 31, 2021 | | | December 31, 2020 | |
Domestic sales | | $ | 2,865,872 | | | $ | 2,720,342 | |
International sales | | | 524,019 | | | | 737,739 | |
Total sales | | $ | 3,389,891 | | | $ | 3,458,081 | |
Spectrum | | December 31, 2021 | |
Domestic sales | | $ | 153,349 | |
International sales | | | 1,732,192 | |
Total sales | | $ | 1,885,543 | |
(4) Acquisition of Spectrum Semiconductors Materials
On December 15, 2021, AmpliTech Group Inc. acquired Spectrum Semiconductor Materials (SSM), an “S”Corporation located in the Silicon Valley (San Jose, CA). Spectrum Semiconductor Materials (“SSM) is a global authorized distributor of integrated circuit (“IC”) packaging and lids for semiconductor device assembly, prototyping, testing, and production requirements.
The purchase is expected to deliver significant strategic top and bottom-line benefits while also building on AmpliTech’s technical and management expertise and distribution reach.
The purchase included all accounts receivables, accounts payable, inventory, orders, customers, property and equipment and intellectual property. The aggregate purchase price for the acquisition was $10,123,276, subject to certain working capital and other adjustments of which $665,200 was paid by the issuance of 188,442 unregistered shares of AmpliTech common stock at the closing of the Acquisition.
Simultaneously with the execution of the Purchase Agreement, $1,500,000 was deposited into escrow, comprising of a $750,000, “Purchase Price Adjustment Escrow Fund” and a $750,000, “Indemnification Escrow Fund. The Purchase Price Adjustment Escrow Fund is available for the payment of any working capital adjustment owed by Seller to Buyer or Buyer to Seller pursuant to and in accordance with the Purchase Agreement.
The Indemnification Escrow Fund is available to satisfy any losses incurred or sustained by or imposed upon the Indemnified Parties pursuant to and in accordance with the Purchase Agreement. The escrow release date is March 31, 2023.
Within sixty (60) days after the Closing Date, AmpliTech prepared and delivered to Seller a statement setting forth its calculation of Closing Working Capital of the Business, according to the terms of the Purchase Agreement. The “Working Capital Adjustment” shall be an amount equal to the Closing Working Capital minus $3,296,427. If the Working Capital Adjustment is a positive number, Buyer shall pay to Seller an amount equal to the Working Capital Adjustment. If the Working Capital Adjustment is a negative number, Seller shall pay to Buyer an amount equal to the Working Capital Adjustment.
The Working Capital Adjustment was determined to be $708,076 owed to Seller.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
Within forty (40) days after December 31, 2022, AmpliTech will prepare and deliver to Seller a statement setting forth its calculation of Two Years Net Revenues of the business, or the “Revenue Statement”. The Revenues Adjustment shall be an amount equal to 25% of two years net revenues minus $20,000,000. If the Revenues Adjustment is a positive number, Buyer shall pay to Seller an amount equal to the Revenues Adjustment. If the Revenues Adjustment is a negative number, Seller shall pay to Buyer and amount equal to the Revenues Adjustment. The fair value of the revenue adjustment was determined to be $1,365,038 owed to Seller and recorded as a contingent liability as of December 31, 2021.
The Purchase Agreement contains representations, warranties, and covenants believed to be customary for a transaction of this nature, including covenants as to indemnification for breaches of certain representations, warranties and covenants, subject to certain exclusions and caps. Further, the completion of the Acquisition is subject to release of all liens and to the satisfaction of closing conditions, including the continued employment of certain Company employees.
The fair value of the purchase consideration issued to Spectrum Semiconductor Materials 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 at 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 $4,098,516. The excess of the aggregate fair value of the net tangible assets has been allocated to net intangible assets of $7,389,794. We are amortizing the customer relationships and tradename intangible assets acquired over 20 years. Goodwill and intangibles recognized for this transaction are deductible for tax purposes. Acquisition related costs totaled approximately $350,000.
The following table summarizes the allocation of the purchase price of the acquisition:
Purchase consideration at fair value: | | | |
Cash | | $ | 8,000,000 | |
Common stock | | | 665,200 | |
Net working capital adjustment | | | 708,076 | |
Indemnification escrow amount | | | 750,000 | |
Fair value of revenue earnout | | | 1,365,038 | |
Total purchase price | | $ | 11,488,314 | |
| | | | |
Allocation of purchase price: | | | | |
Working Capital | | $ | 3,730,133 | |
Property and equipment | | | 99,188 | |
Goodwill | | | 4,696,883 | |
Tradename | | | 514,284 | |
Customer relationships | | | 2,178,631 | |
Right of Use operating lease asset | | | 858,508 | |
Right of Use operating lease long-term liability | | | (619,271 | ) |
Other asset | | | 29,958 | |
Net assets acquired | | $ | 11,488,314 | |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
From the date of acquisition until December 31, 2021, SSM contributed revenue of $1,885,543 and net income from continuing operations of $435,974 which are included in our consolidated statements of operations.
The following table summarizes the Company’s consolidated results of operations, as well as unaudited proforma consolidated results of operations as though the acquisition had occurred on January 1, 2020:
| | For the year ended | |
| | December 31, 2021 | |
| | As Reported | | | Pro Forma | |
| | | | | | |
Net sales | | $ | 5,275,434 | | | $ | 18,588,686 | |
Net loss attributable to common shareholders | | | (4,758,805 | ) | | | (1,763,333 | ) |
| | | | | | | | |
Earnings per common share, basic and diluted: | | | | | | | | |
Basic | | | (0.53 | ) | | | (0.09 | ) |
Diluted | | | (0.53 | ) | | | (0.09 | ) |
Spectrum sales in 2021 increased dramatically both domestically and in South East Asia due to their aggressive purchasing strategy which enabled them to secure orders that their competitors could not satisfy as a result of the global supply chain instability.
| | For the year ended | |
| | December 31, 2020 | |
| | As Reported | | | Pro Forma | |
| | | | | | |
Net sales | | $ | 3,458,081 | | | $ | 11,120,653 | |
Net loss attributable to common shareholders | | | (1,025,559 | ) | | | (38,208 | ) |
| | | | | | | | |
Earnings per common share, basic and diluted: | | | | | | | | |
Basic | | | (0.37 | ) | | | (0.00 | ) |
Diluted | | | (0.37 | ) | | | (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, 2020 or to project potential operating results as of any future date or for any future periods.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
(5) Marketable Securities
The following table is a summary of marketable securities at December 31, 2021:
| | Adjusted Cost | | | Unrealized Gains | | | Unrealized Losses | | | Fair Value | |
Level 1 (1) | | | | | | | | | | | | |
Money Market Fund | | $ | 4,931,960 | | | | - | | | | - | | | $ | 4,931,960 | |
Marketable Equitable Securities | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | |
Total | | $ | 4,931,960 | | | | - | | | | - | | | $ | 4,931,960 | |
Amounts included in cash and cash equivalents at December 31, 2021 was $4,931,960.
During the year ended December 31, 2021, the Company sold all of their marketable securities, resulting in a realized a loss of $97,862.
| (1) | Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities. |
When evaluating an investment for impairment, the Company reviews factors including the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, changes in market interest rates and whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s cost basis. As of December 31, 2021, the Company does not consider any of its investments to be impaired.
(6) Inventories
The inventory consists of the following at December 31, 2021 and 2020:
| | December 31, | | | December 31, | |
| | 2021 | | | 2020 | |
| | | | | | |
Raw Materials | | $ | 609,841 | | | $ | 325,251 | |
Work in Progress | | | 162,072 | | | | 129,882 | |
Finished Goods | | | 4,452,885 | | | | 132,205 | |
Subtotal | | $ | 5,224,798 | | | $ | 587,338 | |
Less: Reserve for Obsolescence | | | (1,031,986 | ) | | | (70,000 | ) |
| | | | | | | | |
Total | | $ | 4,192,812 | | | $ | 517,338 | |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
(7) Property and Equipment
Property and Equipment consisted of the following at December 31, 2021 and 2020:
| | December 31, | | | December 31, | |
| | 2021 | | | 2020 | |
| | | | | | |
Lab Equipment | | $ | 1,893,564 | | | $ | 865,414 | |
Manufacturing Equipment | | | 25,000 | | | | 25,000 | |
Automobiles | | | 7,335 | | | | 19,527 | |
Computer Equipment and Software | | | 159,315 | | | | - | |
Furniture and Fixtures | | | 27,504 | | | | 36,165 | |
| | | | | | | | |
Subtotal | | | 2,112,718 | | | | 946,106 | |
Less: Accumulated Depreciation | | | (757,430 | ) | | | (656,855 | ) |
| | | | | | | | |
Total | | $ | 1,355,288 | | | $ | 289,251 | |
Depreciation expense for the years ended December 31, 2021 and 2020 was $105,578 and $50,617, respectively.
Equipment purchased in the amount of $157,184 under a financing lease is included as of December 31, 2021 and 2020.
(8) Intangible Assets
Goodwill
Goodwill is related to the acquisition of Specialty Microwave Corp. on September 12, 2019 and the acquisition of Spectrum Semiconductor Materials Inc. on December 15, 2021. Goodwill 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 amortizable for tax purposes and is not amortizable for financial statement purposes. As of December 31, 2021 and 2020, goodwill was valued at $4,817,019 and $120,136, respectively.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
Other Intangible Assets
Intangible assets with an estimated useful life of fifteen and twenty years consisted of the following at December 31, 2021:
| | Gross Carrying Amount | | | Accumulated Amortization | | | Net | | | Weighted Average Life | |
Trade name | | $ | 584,517 | | | $ | - | | | $ | 584,517 | | | Indefinite | |
Customer relationships | | | 2,591,491 | | | | 63,418 | | | | 2,528,073 | | | | 18.81 | |
Intellectual Property | | | 202,771 | | | | 31,279 | | | | 171,492 | | | | 12.71 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 3,378,779 | | | $ | 94,697 | | | $ | 3,284,082 | | | | | |
Amortization expense for the years ended December 31, 2021 and 2020 was $41,042 and $41,221, respectively.
Annual amortization of intangible assets are as follows:
2022 | | | 149,974 | |
2023 | | | 149,974 | |
2024 | | | 149,974 | |
2025 | | | 149,974 | |
2026 | | | 149,974 | |
Thereafter | | | 1,949,695 | |
| | $ | 2,699,565 | |
(9) Cost Method Investment
On June 10, 2021, the Company entered into a membership interest purchase agreement with SN2N, LLC for an aggregate purchase price of $350,000, to be paid in four tranches. Each tranche represents a 5% membership interest, and in aggregate a 20% membership interest. SN2N plans to design and manufacture an un-hackable communications channel that creates a new security paradigm; a state-of-the art signal amplification secured by intelligence-community-caliber hardware encryption. AmpliTech would serve as exclusive manufacturer for the low noise amplifier product line used with this encryption technology. As of December 31, 2021, the Company has made an investment of $250,000 for a 15.00% membership interest.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
(10) Line of Credit
On November 20, 2021, AmpliTech renewed its business line of credit for $750,000 maturing on November 1, 2022. The line is evaluated monthly on a borrowing base formula advancing 75.00% of accounts receivables aged less than 90 days and 50.00% of inventory raw materials costs. The interest rate shall be based upon the Wall Street Journal Prime Rate, plus 1%. The Company has the option to prepay all, or any portion of the amount owed prior to its due date without penalty.
In connection with the loan, the Company granted the lender a security interest in all of its respective assets. In addition, the President and CEO, has agreed to guarantee the loan.
The Company made net cash payments of $200,000 for the year ended December 31, 2021 and borrowed $200,000 during the year end December 31, 2020, respectively.
As of December 31, 2021 and 2020, the outstanding balance on the line of credit was $0 and $200,000, respectively.
(11) Leases
The following was included in our balance sheet as of December 31, 2021 and 2020:
Operating leases | | December 31, 2021 | | | December 31, 2020 | |
| | | | | | |
Assets | | | | | | |
ROU operating lease assets | | $ | 1,115,588 | | | $ | 347,156 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Current portion of operating lease | | $ | 391,571 | | | $ | 87,930 | |
Operating lease, net of current portion | | $ | 795,317 | | | $ | 267,050 | |
Total operating lease liabilities | | $ | 1,186,888 | | | $ | 354,980 | |
Finance leases | | | | | | | | |
Assets | | | | | | | | |
Property and equipment, gross | | $ | 157,184 | | | $ | 157,184 | |
Accumulated depreciation | | | (78,592 | ) | | | (56,137 | ) |
Property and equipment, net | | $ | 78,592 | | | $ | 101,047 | |
Liabilities | | | | | | |
Current portion of financing lease | | $ | 33,688 | | | $ | 32,084 | |
Finance lease, net of current portion | | $ | 17,471 | | | $ | 51,159 | |
Total operating lease liabilities | | $ | 51,159 | | | $ | 83,243 | |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
The weighted average remaining lease term and weighted average discount rate at December 31, 2021 and 2020 were as follows:
Weighted average remaining lease term (years) | | December 31, 2021 | | | December 31, 2020 | |
Operating leases | | | 3.01 | | | | 3.72 | |
Finance leases | | | 1.50 | | | | 2.50 | |
Weighted average discount rate | | | | | | | | |
Operating leases | | | 4.25 | % | | | 6.33 | % |
Finance leases | | | 4.89 | % | | | 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 December 31, 2021:
2022 | | | 37,778 | |
2023 | | | 18,889 | |
Total lease payments | | | 56,667 | |
Less imputed interest | | | (2,003 | ) |
Less sales tax | | | (3,505 | ) |
Total lease obligations | | | 51,159 | |
Less current obligations | | | (33,688 | ) |
Long-term lease obligations | | $ | 17,471 | |
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 13, 2021, a lease rider was annexed to the original lease whereby the lease term will be extended on a month-by-month basis, commencing on February 1, 2021.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
On January 15, 2016, the Company entered into a five-year agreement to lease 2 copiers with and annual payment of $2,985. This lease was terminated on November 16, 2020 and the Company entered into a new five-year agreement to lease 2 copiers with an annual payment of $3,976.
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 3.00% 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. This option has expired and was not exercised as of December 31, 2021.
On November 27, 2019, the Company entered a 39-month agreement to lease an automobile with a monthly payment of $420.
On December 15, 2021, the Company assumed the SSM lease agreement for office and warehouse space in San Jose, CA, with the same terms and conditions. Effective February 1, 2020, the lease term will expire on January 31, 2025 with a base rent of $24,234 for the first 12 months and increase by approximately 3.00% every year.
The following table reconciles future minimum operating lease payments to the discounted lease liability as of December 31, 2021:
2022 | | | 411,233 | |
2023 | | | 419,050 | |
2024 | | | 405,944 | |
2025 | | | 30,876 | |
Total lease payments | | | 1,267,103 | |
Less imputed interest | | | (80,215 | ) |
Total lease obligations | | | 1,186,888 | |
Less current obligations | | | (391,571 | ) |
Long-term lease obligations | | $ | 795,317 | |
(12) 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 December 31, 2021 and 2020, the balance of this promissory note was $279,119 and $369,516, respectively. Principal payments of $90,397 and $85,028 along with interest expense of $20,167 and $25,536 was paid during the years ended December 31, 2021 and 2020, respectively The promissory note is secured by certain assets of the Company.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
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 December 31, 2021 and 2020, the balance of the loan was $0 and $909,475, respectively. Interest expense for December 31, 2021 and 2020 was $23,999 and $65,498, respectively. On May 10, 2021, the Company paid off the balance of the seven-year term loan.
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).
On April 20, 2021, SBA approved the PPP loan forgiveness of $232,200.
In addition, on September 12, 2019, the Company was approved for a $250,000 equipment leasing facility. The Company has borrowed against the leasing facility as follows:
| · | On December 20, 2019, the Company borrowed $58,192 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 December 31, 2021 and 2020, was $18,630 and $38,011, respectively. Principal payments of $19,381 and $18,444 were made for the years ended December 31, 2021 and 2020, respectively. Total interest expense paid for the years ended December 31, 2021 and 2020, was $1,451 and $2,388, respectively. |
| | |
| · | On May 14, 2020, the Company borrowed $27,494 to be paid over a three-year term with monthly payments of $815 at an interest rate of 4.268%. The balance as of December 31, 2021 and 2020, was $12,632 and $21,620, respectively. Principal payments of $8,988 and $5,874 were made for the years ended December 31, 2021 and 2020, respectively. Total interest expense paid for the years ended December 31, 2021 and 2020, was $792 and $646, respectively. |
| | |
| · | On June 10, 2020, the Company borrowed $41,015 to be paid over a three-year term with monthly payments of $1,216 at an interest rate of 4.278%. The balance as of December 31, 2021 and 2020, was $19,986 and $33,343, respectively. Principal payments of $13,357 and $7,672 were made for the years ended December 31, 2021 and 2020, respectively. Total interest expense paid for the years ended December 31, 2021 and 2020, was $1,235 and $840, respectively. |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
Future principal payments over the term of the loans as of December 31, 2021 are as follows:
| | Payments | |
2022 | | | 129,876 | |
2023 | | | 110,894 | |
2024 | | | 89,597 | |
| | | | |
Total remaining payments | | $ | 330,367 | |
(13) Income Taxes
The difference between the income tax expense (benefit) reported and amounts computed by applying the statutory federal rate of 21.0% to pretax loss for the years ended December 31, 2021 and 2020 is as follows:
| | 2021 | | | 2020 | |
Federal and state net operating loss | $ | (999,349 | ) | | $ | (215,367 | ) |
Meals & entertainment | | 8,830 | | | | 41 | |
Life insurance | | 3,919 | | | | 825 | |
Goodwill | | (7,162 | ) | | | (1,682 | ) |
SBA PPP Loan | | 48,762 | | | | | |
Stock-based compensation | | 153,715 | | | | 41,194 | |
Depreciation | | (25,493 | ) | | | 1,598 | |
State tax, net of federal benefit | | 183,643 | | | | 10,768 | |
Other | | - | | | | (3,344 | ) |
Tax rate change | | - | | | | - | |
Change in Valuation Allowance | | 633,135 | | | | 165,967 | |
Total income tax provision | $ | - | - | | | $ | - | |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
The provision for Federal income tax consists of the following for the years ended December 31, 2021 and 2020 is as follows:
| | 2021 | | | 2020 | |
Net operating loss carryforwards | $ | 1,082,454 | | | $ | 151,469 | |
Depreciation | | (68,158 | ) | | | 4,789 | |
Allowance for doubtful accounts | | 10,239 | | | | - | |
Goodwill amortization | | (11,643 | ) | | | (1,682 | ) |
Stock based compensation | | - | | | | 220,322 | |
Inventory Reserve | | 268,316 | | | | - | |
Valuation allowance | | (1,281,208 | ) | | | (378,898 | ) |
Total net deferred tax assets | $ | | - | | | $ | - | |
The Company has maintained a full valuation allowance against the total deferred tax assets for all periods due to the uncertainty of future utilization.
As of December 31, 2021, the Company has net federal and state net operating loss carry forwards of approximately $4,869,606 that begin to expire in 2037.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
(14) Stockholders’ Equity
The total number of shares of stock this Corporation is authorized to issue shall be five hundred one million (501,000,000) shares, par value $0.001 per share. Our authorized capital stock consists of 500,000,000 shares of common stock and 1,000,000 shares of blank check preferred 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. On October 7, 2020, the Board of Directors of the Company approved a certificate of amendment to the articles of incorporation and changed the total number of authorized shares of Preferred Stock to be 1,000,000 shares, $0.001 per share.
On October 7, 2020, our Board of Directors and our stockholders approved a resolution to amend and restate the certificate of designation of preferences, rights and limitations of Series A Convertible Preferred Stock to restate that there are 401,000 shares of the Company’s blank check Preferred Stock designated as Series A Convertible Preferred Stock. The amended and restated certificate clarifies that the Series A Convertible Preferred Stock convert at a rate of five shares of the Company’s common stock for every share of Series A Convertible Preferred Stock, and also restates that the Series A Convertible Preferred Stock shall be entitled to vote on all matters submitted to shareholders of the Company for each share of Series A Convertible Preferred Stock owned on the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, on the date such vote is taken or any written consent of shareholders is solicited. The number of votes entitled to be cast by the holders of the Series A Convertible Preferred Stock equals that number of votes that, together with votes otherwise entitled to be cast by the holders of the Series A Convertible Preferred Stock at a meeting, whether by virtue of stock ownership, proxies, voting trust agreements or otherwise, entitle the holders to exercise 51% of all votes entitled to be cast to approve any action which Nevada law provides may or must be approved by vote or consent of the holders of common stock entitled to vote.
On November 20, 2020, the Company issued 2,005,000 shares of common stock to Fawad Maqbool, the Chief Executive Officer of the Company. 5,000 of the shares were issued at par value upon the conversion of 1,000 shares of Preferred Stock. The remaining 2,000,000 of the shares were issued pursuant to the exercise by Mr. Maqbool of options to purchase 400,000 shares of Preferred Series A stock, at an exercise price of $1.03 per share, which were then converted into 2,000,000 shares of Common Stock.
On December 23, 2020, the Company filed amended and restated articles of incorporation to keep the authorized shares of Common Stock at 500,000,000 and set the authorized shares of blank check preferred stock at 1,000,000. On December 23, 2020, the Company filed an amended and restated certificate of designation of preferences, rights and limitations of the Series A Convertible Preferred Stock.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
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.
On December 7, 2020, the Board of Directors approved a reverse stock split of the Company’s common stock, in connection with a potential listing onto NASDAQ in a ratio to be determined by the Board based on market conditions and the Company’s trading price at the time of such reverse split in the range of 1:20 to 1:200, while the authorized shares of common stock remain at 500,000,000. A reverse stock split of the outstanding common stock at a 1-for-20 ratio became effective February 17, 2021. All per share amounts and number of shares in the consolidated financial statements and related notes have been retroactively restated to reflect the reverse stock split.
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 the ultimate goal of an up-list and capital raise on NASDAQ.
As consideration for Maxim’s services, Maxim was entitled to receive, and the Company agreed to pay Maxim, the following compensation:
| (a) | The Company issued to Maxim or its designees 100,000 shares of the Company’s Common Stock (“Common Stock”) based on the following schedule: |
| i. | 27,500 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. The full amount of $29,920 was expensed as consulting fees in 2020 and the shares were issued on January 13, 2020. |
| | |
| ii. | $54,000 payable in 22,500 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 and classified as common stock subscription payable as they had not been issued. On July 9, 2020, Maxim was issued 22,500 shares of common stock in exchange for the common stock subscription payable. The full amount of consulting fees was expensed in 2019. |
| | |
| iii. | 50,000 restricted shares of Common Stock 90 days following the placement agency agreement dated April 15, 2021. These shares were valued on October 15, 2019 at a price of $0.054 with a value of $54,000 and expensed as consulting fees for the three months ended March 31, 2021. These shares were issued on November 10, 2021. |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
On July 28, 2020, Wayne Homschek elected to exercise 150,000 of his cashless warrants and 102,632 shares of common stock was issued.
On October 12, 2020, the Company engaged service providers for services related to the NASDAQ up list totaling $100,000. The Company issued 100,000 shares on December 18, 2020 under the Company’s equity incentive plan immediately following the filing of a Registration Statement on Form S-8 and were issued without restrictions. These services have been expensed as of March 31, 2021.
On October 16, 2020, the Company entered into an advisory agreement to assist in product sales and distribution in Asia and the Middle East. The advisor will be paid compensation of 100,000 shares totaling $108,000 over a two- year period. These shares were issued under the Company’s equity incentive plan immediately following the filing of a Registration Statement on Form S-8 and were issued without restrictions. As of December 31, 2021, $65,244 of expense had been recognized and $42,756 remained as a prepaid to be amortized over a two-year period.
On October 16, 2020, the Company entered into a public relations service agreement whereby the consultant will be paid compensation of 25,000 shares totaling $27,000 over a nine-month period. These shares were issued under the Company’s equity incentive plan immediately following the filing of a Registration Statement on Form S-8 and were issued without restrictions. As of June 30, 2021, $27,000 of expense had been recognized
On November 20, 2020, the Company issued 2,005,000 shares of common stock to Fawad Maqbool, the Chief Executive Officer of the Company. 5,000 of the shares were issued at par value upon the conversion of 1,000 shares of Preferred Stock. The remaining 2,000,000 of the shares were issued pursuant to the exercise by Mr. Maqbool of options to purchase 400,000 shares of Preferred Series A stock, at an exercise price of $1.03 per share, which were then converted into 2,000,000 shares of Common Stock.
On December 18, 2020, the Company issued 30,000 shares of common stock under the Company’s stock option plan as stock compensation totaling $90,000.
On February 17, 2021, AmpliTech Group Inc., common stock and warrants under the symbols “AMPG” and “AMPGW”, respectively, commenced trading on NASDAQ. In connection with the public offering, 1,371,428 units at an offering price of $7.00 per unit were sold. Each unit issued in the offering consisted of one share of common stock and one warrant. Maxim Group LLC acted as sole book-running manager for the offering. Net proceeds received was $8,119,502.
On February 24, 2021, Maxim Group LLC exercised its overallotment option to purchase an additional 205,714 shares of common stock. Net proceeds received was $1,330,095.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
As of December 31, 2021, 210,700 warrants were exercised at an exercise price of $7.00 and 210,700 shares of common stock were issued. Gross proceeds received were $1,474,900.
On April 15, 2021, the Company entered into definitive agreements with certain institutional investors for the sale of 2,715,000 shares of common stock in a registered direct offering priced at-the-market under NASDAQ rules. Concurrently, the Company agreed to issue to the investors, in a private placement, warrants to purchase an aggregate of 1,900,500 shares of common stock at an exercise price of $8.48 per share with a five-year term. Maxim Group LLC acted as the exclusive placement agent for this offering. The shares of common stock as described were offered pursuant to a “shelf” registration statement filed with the SEC on April 1, 2021 and declared effective on April 14, 2021. The aggregate gross proceeds to the Company were approximately $23 million dollars before deducting placement agent’s fees and expenses. The offering closed on April 16, 2021. On April 30, 2021, the Company filed a registration statement providing for the resale of the shares of common stock issuable upon the exercise of the warrants issued in the private placement. The registration statement became effective on May 11, 2021.
On December 15, 2021, 188,442 unregistered shares of AmpliTech’s common stock were issued as part of the Spectrum Semiconductor Materials acquisition for $665,200.
2020 Equity Incentive Plan:
In October 2020, the Board of Directors and shareholders adopted the Company’s 2020 Equity Incentive Plan (the “2020 Plan”), effective as of December 14, 2020. Under the 2020 Plan, the Company reserved 1,250,000 shares of common stock to grant shares of the Company’s common stock to employees and individuals who perform services for the Company. The purpose of the 2020 Plan is to attract and retain the best available personnel for positions of substantial responsibility, to provide incentives to individuals who perform services for the Company, and to promote the success of the Company’s business. The 2020 Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares, and other stock or cash awards as the Board of Directors may determine.
Stock Options:
On June 30, 2021, the Company granted to each of our Board of Directors (Mr. Lee, Mr. Kappers, and Mr. Mazziota) ten-year nonqualified stock options to purchase 12,500 shares of common stock (totaling 37,500) according to the Company’s 2020 Plan. The stock options vest in full on the date of the grant, with an exercise price of $4.63 per share. The Company has calculated these options estimated fair market value at $134,550 using the Black-Scholes model, with the following assumptions: expected term 2.5 years, stock price $4.63, exercise price $4.63, volatility 153.1%, risk-free rate 0.36%, and no forfeiture rate.
On July 26, 2021, the Company granted three employees, a consultant and two advisors to the Board ten-year stock options to purchase shares of common stock (totaling 52,000) according to the Company’s 2020 Plan. The stock options vest in equal quarterly installments over three years commencing one year after the grant date, with an exercise price of $3.88 per share. The Company has calculated these options estimated fair market value at $190,252 using the Black-Scholes model, with the following assumptions:
expected term 7.0 years, stock price $3.88, exercise price $3.88, volatility 142.6%, risk-free rate 1.04%, and no forfeiture rate.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
On September 29, 2021, the Company granted one employee five-year stock options to purchase 1,000 shares of common stock according to the Company’s 2020 Plan. The stock options vest 50% on the date of grant and 50% on the one-year anniversary of the date of grant. The Company has calculated these options estimated fair market value at $2,868 using the Black-Scholes model, with the following assumptions: expected term 3.0 years, stock price $3.62, exercise price $3.88, volatility 147.2%, risk-free rate 0.55%, and no forfeiture rate.
On November 26, 2021, the Company granted two officers, one board member, two board advisors and one employee stock options to purchase 200,000 shares of common stock according to the Company’s 2020 Plan. The stock options vest immediately with an exercise price of $3.52 per share. The Company has calculated these options estimated fair market value at $532,562 using the Black-Scholes model, with the following assumptions: expected term 2.5 years, stock price $3.52, exercise price $3.52, volatility 146.7%, risk-free rate 0.83%, and no forfeiture rate.
On November 30, 2021, the Company granted two employees five-year stock options to purchase 15,000 shares of common stock according to the Company’s 2020 Plan. The stock options vest 12 months after the initial date of employment for each employee. The Company has calculated these options estimated fair market value at $43,077 using the Black-Scholes model, with the following assumptions: expected term 3.0 years, stock price $3.88, exercise price $3.88, volatility 144.2%, risk-free rate 0.81%, and no forfeiture rate.
Below is a table summarizing the changes in stock options outstanding for the year ended December 31, 2021:
| | | | | Weighted Average | |
| | Number of Options | | | Exercise Price ($) | |
Outstanding at December 31, 2020 | | | - | | | | - | |
Granted | | | 305,500 | | | $ | 3.74 | |
Exercised | | | - | | | | - | |
Expired | | | - | | | | - | |
Outstanding at December 31, 2021 | | | 305,500 | | | $ | 3.74 | |
Exercisable at December 31, 2021 | | | 305,500 | | | $ | 3.70 | |
As of December 31, 2021, all outstanding stock options were issued according to the Company’s 2020 Plan, and there remains 944,500 shares of common stock available for future issuance under the 2020 Plan.
Stock-based compensation expense related to stock options of $692,076 and $128,928 was recorded for the years ended December 31, 2021 and 2020 respectively. As of December 31, 2021, the remaining unrecognized compensation cost related to non-vested stock options is $211,233 and is expected to be recognized over 3.57 years. The outstanding stock options have a weighted average remaining contractual life of 5.65 years and a total intrinsic value of $88,080.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
Warrants:
Effective February 19, 2021, AmpliTech Group Inc., common stock and warrants under the symbols “AMPG” and “AMPGW,” respectively, commenced trading on NASDAQ. In connection with the public offering, 1,371,428 units sold at an offering price of $7.00 per unit. Each unit issued in the offering consisted of one share of common stock and one warrant. Maxim Group LLC acted as sole book-running manager for the offering and partially exercised its overallotment option to purchase 205,714 warrants at the public offering price. The warrants expire ten years from the date of issuance.
Effective April 16, 2021, the Company entered into definitive agreements with certain institutional investors to sell 2,715,000 shares of common stock in a registered direct offering priced at the market under NASDAQ rules. Concurrently, the Company agreed to issue to the investors, in a private placement, warrants to purchase an aggregate of 1,900,500 shares of common stock at an exercise price of $8.48 per share with a five-year term.
For the year ended December 31, 2021, 210,700 warrants were exercised at $7.00, resulting in the issuance of 210,700 shares of common stock.
On July 20, 2021, in connection with a product development agreement with an unrelated party, the Company issued warrants to purchase 30,000 shares of common stock. The warrants vest in one year from issuance, with an exercise price of $5.00 per share. The Company has calculated these warrants estimated fair market value at $88,803 using the Black-Scholes model, with the following assumptions: expected term 3.0 years, stock price $3.80, exercise price $5.00, volatility 149.8%, risk-free rate 0.37%, and no forfeiture rate.
| | | | | Weighted Average | |
| | Number of Warrants | | | Exercise Price ($) | |
Outstanding at December 31, 2020 | | | - | | | | - | |
Granted | | | 3,507,642 | | | $ | 7.83 | |
Exercised | | | (210,700 | ) | | $ | 7.00 | |
Expired | | | - | | | | - | |
Outstanding at December 31, 2021 | | | 3,296,942 | | | $ | 7.83 | |
Exercisable at December 31, 2021 | | | 3,266,942 | | | $ | 7.86 | |
Stock-based compensation expense related to warrants of $39,901 and $38,927 was recorded for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, the remaining unrecognized compensation cost related to non-vested warrants is $48,902. The outstanding warrants have a weighted average remaining contractual life of 6.31 years and a total intrinsic value of $0.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2021 and 2020
(15) Commitments and Contingencies
On November 19, 2021, AmpliTech Group, Inc. entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Spectrum Semiconductor Materials Inc. (the “Seller” or “SSM”), pursuant to which AmpliTech would acquire substantially all of the assets of the Company (the “Acquisition”). The Acquisition was completed on December 15, 2021.
Within forty (40) days after December 31, 2022, AmpliTech, as stipulated in the Purchase Agreement, will prepare and deliver to Seller a statement setting forth its calculation of Two Years Net Revenues of the business, or the “Revenue Statement”. The Revenues Adjustment shall be an amount equal to 25% of two years net revenues minus $20,000,000. If the Revenues Adjustment is a positive number, Buyer shall pay to Seller an amount equal to the Revenues Adjustment. If the Revenues Adjustment is a negative number, Seller shall pay to Buyer and amount equal to the Revenues Adjustment. The fair value of the revenue adjustment was determined to be $1,365,038 owed to Seller and recorded as a contingent liability as of December 31, 2021.
(16) Subsequent events
In accordance with ASC 855-10, Company management reviewed all material events through the date of this report.
On January 20, 2022, the current Board of Directors, renewed their directors’ agreements and shall be issued 15,000 restricted stock units (“RSU’s”) pursuant to the Company’s 2020 Equity Incentive Plan.
On February 23, 2022, Jorge Flores, Executive Director of Operations, was promoted to Chief Operating Officer. As COO, Jorge will lead critical initiatives to further streamline operations, drive growth, and take ownership of creating an enhanced experience for AmpliTech’s valued customers.
On February 28, 2022, the Company paid SN2N its final tranche of $100,000 for an additional 5% membership interest, for completing the code optimization and FPGA design. In aggregate, the Company owns a 20% membership interest.
On October 15, 2021, the Company entered a new lease for a 20,000 square foot facility at 155 Plant Avenue, Hauppauge, New York, for a term of seven years and two months. The yearly base rent of $346,242 shall increase at a rate of 2.75% per year to begin on the first anniversary lease commencement date and each year thereafter. The first two months of basic rent shall be abated following the commencement lease date. In the event the landlord decides to sell the property, the Company shall have the right of first offer to purchase subject property. Upon lease execution, the Company paid two months of base rent as a security deposit and one month’s rent totaling $86,560.
The Company expects to be fully operational at the new manufacturing and headquarters facility April 1, 2022.