Notes To Consolidated Financial Statements
For The Years Ended December 31, 2015 and 2014
(1) Organization and Business Description
AmpliTech, Inc. ("AmpliTech" or "the Company") was incorporated under the laws of the State of New York on October 18, 2002. AmpliTech designs, engineers and assembles micro-wave component based low noise amplifiers ("LNA") that meet individual customer specifications. Application of the Company's proprietary technology results in maximum frequency gain with minimal background noise distortion as required by each customer. The Company has both domestic and international customers in such industries as aerospace, governmental, defense and commercial satellite.
(2) Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared using the accrual basis of accounting.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers deposits that can be redeemed on demand and investments that have original maturities of less than three months, when purchased, to be cash equivalents. As of December 31, 2015 and 2014 the Company's cash and cash equivalents were deposited primarily in one financial institution.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of accounts receivable. It is reasonably possible that the Company's estimate of the allowance for doubtful accounts will change in the future. An allowance of $0 has been recorded at December 31, 2015 and 2014, respectively.
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2015 and 2014
Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Income Taxes
The Company accounts for income taxes under the provisions of Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") 740 "
Income Tax
". ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of certain assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has adopted the provisions of FASB ASC 740-10-05 "Accounting for Uncertainty in Income Taxes". The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2015 and 2014, the Company had no material unrecognized tax benefits.
Earnings (Loss) Per Share
Basic earnings (loss) per share ("EPS") are determined by dividing the net earnings (loss) by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings (loss) by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding under the treasury stock method. As of December 31, 2015 and 2014 there were 39,607,619 and 0, respectively potential dilutive shares that needed to be considered as common share equivalents.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2015 and 2014
Inventory Obsolescence
Inventory quantities and related values are analyzed at the end of each fiscal quarter to determine those items that are slow moving or obsolete. An inventory reserve is recorded for those items determined to be slow moving with a corresponding charge to cost of goods sold. Inventory items that are determined obsolete are written off currently with a corresponding charge to cost of goods sold.
Revenue Recognition
Revenues and costs of revenues are recognized during the period in which the products are shipped. The Company applies the provisions of FASB Accounting Standards Codification ("ASC") 605-10, Revenue Recognition in Financial Statements ASC 605-10, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. ASC 605-10 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue for sale of products when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv)the collectability is reasonably assured.
The Company's sources of revenue are from the sale of various component amplifiers. Revenue is recognizes upon shipment of such products. The Company offers a 100% satisfaction guarantee against defects for 90 days after the sale of their product except for a few circumstances. There are no maintenance or service contracts related to any product sale.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2015 and 2014
Fair Value of Assets and Liabilities
The Company's financial instruments consist of convertible notes payable, loans payable and a derivative liability. The Company believes all of the financial instruments' recorded values approximate their fair values because of their nature and respective durations.
The Company complies with the provisions of ASC 820-10, "
Fair Value Measurements and Disclosures
." ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
Level 1.
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Cash and cash equivalents are valued using inputs in Level 1.
Level 2.
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3.
Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data.
Application of Valuation Hierarchy
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As such, the Company assessed that the fair value of cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, customer deposits, notes payable, factor financing, current portion of capital leases and loans payable and due to officer approximate their carrying values due to their short-term nature.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2015 and 2014
(3) Inventory
Inventory, which consists primarily of raw materials and finished goods, is stated at the lower of cost (first-in, first-out basis) or market (net realizable value). The inventory value at December 31, 2015 and 2014 was as follows;
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
$
|
119,027
|
|
|
$
|
129,852
|
|
Work-in Progress
|
|
|
11,562
|
|
|
|
33,106
|
|
Finished Goods
|
|
|
87,500
|
|
|
|
75,186
|
|
Engineering Models
|
|
|
3,726
|
|
|
|
3,726
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
221,815
|
|
|
$
|
241,870
|
|
Less: Reserve for Obsolescence
|
|
|
(76,000
|
)
|
|
|
(78,000
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
145,815
|
|
|
$
|
163,870
|
|
(4) Property and Equipment
Property and Equipment with estimated useful lives of seven and ten years consisted of the following at December 31, 2015 and 2014;
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Lab Equipment
|
|
$
|
546,498
|
|
|
$
|
544,923
|
|
Furniture and Fixtures
|
|
|
11,568
|
|
|
|
11,568
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
558,066
|
|
|
|
556,941
|
|
Less: Accumulated Depreciation
|
|
|
(470,252
|
)
|
|
|
(440,648
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,814
|
|
|
$
|
115,843
|
|
Depreciation expense for 2015 and 2014 was $29,604 and $30,195 respectively.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2015 and 2014
(5) Convertible Notes Payable
During 2014 the Company had converted $214,293 of convertible promissory notes plus accrued interest of $5,320 to 14,365,756 shares of free trading common stock at a conversion price ranging from $.0094 to $.06 per share with interest rates between 8 to 12%.
(6) Notes Payable
Notes Payable at December 31, 2015 and 2014 includes a demand note totaling $26,958 from one corporation with an interest rate of 8% per annum. Accrued interest related to this note was $7,858 and $5,750 as of December 31, 2015 and 2014, respectively. Interest expense related to these notes for 2015 and 2014 was $2,108 and $2,157 respectively.
(7) Line of Credit
On November 16, 2015, the Company entered into a commercial line of credit agreement and note for $150,000. This agreement will be paid over a three year term with monthly payments equal to 2.780% of the outstanding balance plus accrued interest. The initial variable interest rate on this agreement is 5.25% per annum. This interest rate may change every year on the anniversary date or change date to reflect the new prime rate in effect as per the Wall Street Journal plus 2%. The interest rate will never be greater than 25% or less than 5%. As of December 31, 2015, the outstanding balance was $62,361. Interest expense relating to this line of credit for 2015 was $298.
(8) Factor Financing
In September 2011, AmpliTech entered into an agreement with a private lender ("the Factor") to finance 80% of certain accounts receivable, with recourse, plus 50% of domestic sales orders. The total credit facility is $300,000, including a maximum of $60,000 to finance domestic sales orders until such time as they are converted to accounts receivable. The discount fee charged by the Factor to finance the accounts receivable is 2% of the customer invoice for the first thirty days, plus 1% for each fifteen day period thereafter to a maximum of ninety days at which time the invoice is charged back to the Company with full recourse. The discount fee related to the financed sales orders is 2% per each thirty day period until converted to accounts receivable.
The outstanding balances owed to the Factor at December 31, 2015 and 2014 for financed accounts receivable was $0 and $68,836 respectively. Discounts, interest expense and factoring fees related to this facility were $22,655 and $29,695 for the years ended December 31, 2015 and 2014, respectively.
The factoring agreement was terminated on November 16, 2015 and the balance of $64,790 was paid in full with the Company's newly acquired Line of Credit (See Note 7).
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2015 and 2014
(9) Capital Leases
AmpliTech entered into a thirty-six month lease agreement to finance certain laboratory equipment in May 2012 with a bargain purchase option of $1. As such, the Company has accounted for this transaction as a capital lease, assuming an imputed 6% annual interest rate. The capital lease was paid in full in 2015.
(10) Due to Officer
On August 1, 2014, the Chief Executive Officer, who is also the Company's majority shareholder, paid off $56,291 of the SBA- backed working capital loan balance of on behalf of the Company. The balance of the deferred financing costs of $8,007 associated with this loan was written off as amortization expense. The $56,291 is payable on demand and accrues interest at a rate of 8% per annum. Payments will be made for the amount demanded plus accrued interest on the unpaid balance through the demand date. During the year ended December 31, 2015, the Company borrowed an additional $79,000 net and repaid $47,000 in principle and paid $2,629 of interest expense. As of December 31, 2014, the Company repaid $10,000 of principle plus accrued interest of approximately $1,592.
(11) Income Taxes
The provision for (benefit from) income taxes for the years ended December 31, 2015 and 2014 are as follows, assuming a combined effective tax rate of approximately 40%.
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Federal and state
taxable income
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Federal and state
loss carryforwards
|
|
|
20,020
|
|
|
|
(107,548
|
)
|
Change in valuation allowance
|
|
|
(20,020
|
)
|
|
|
107,548
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
-
|
|
|
$
|
-
|
|
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2015 and 2014
The Company had deferred tax income tax assets as of December 31, 2015 and 2014 as follows:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Loss carryforwards
|
|
$
|
414,316
|
|
|
$
|
434,336
|
|
Less: valuation allowance
|
|
|
(414,316
|
)
|
|
|
(434,336
|
)
|
|
|
|
|
|
|
|
|
|
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, 2015, the Company has net federal and state net operating loss carry forwards of approximately $1,085,840 that expire in various years through 2034.
(12) Capital Stock
Preferred Stock
On July 10, 2013, the board of directors of the company approved a certificate of amendment to the articles of incorporation and changed the authorized capital stock of the Company to include and authorize 500,000 shares of Preferred Stock, par value $0.001 per share.
In July 2013, the Board of Directors of the Company designated 140,000 shares of Preferred Stock as Series A Convertible Preferred Stock (or "Series A"). Furthermore, each share of Series A is convertible into 100 shares of common stock at any time after issuance and the holder of each share of Series A is entitled to 100 votes when the vote of holders of the Company's common stock is sought. In January 2015, the Board of Directors of the Company increased the number of Series A designated from 140,000 to 401,000.
On May 8, 2014, the Board issued 140,000 shares of Series A to the principal executive officer and sole director of the Company. Holders of the Series A shall vote together as a single class with the holders of our common stock, with the holders of Series A being entitled to fifty one percent (51%) of the total votes on all such matters. As a result, the Company recognized a compensation expense of $501,200 based on the fair-market value of the 100 underlying shares of common stock on the date of issuance, which was $.0358 per common share. On December 23, 2014 the principal officer returned to the Company 139,000 of the 140,000 shares of Series A issued to him on May 8, 2014.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2015 and 2014
The Company granted the principal executive officer and sole director of the Company an immediately exercisable option to purchase an aggregate of 400,000 shares of Series A at an exercise price of $0.0206 per share of the underlying common stock. The extinguishment of these 139,000 shares has been accounted for in accordance with ASC 260-10-599-2 and has been treated in a manner similar to that of dividends. Furthermore, because the company is in an accumulated deficit position, the difference between the carrying amount of the preferred stock returned and the value of the consideration given is booked into additional paid in capital.
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 December 31, 2015 and 2014 the Company had 46,136,326 shares of common stock issued and outstanding, respectively.
Between February 28, 2014 and March 18, 2014, the holder of the Convertible Promissory Note dated August 21, 2013 for $58,000 converted the entire balance, plus accrued interest related thereto of $2,320, into 1,069,436 shares of free trading common stock at an average conversion price of approximately $.06 per share.
On March 31, 2014, a note payable due an individual in the amount of $12,000, plus accrued interest of $13,080 related thereto, was exchanged for 350,000 shares of restricted common stock at approximately $.072 per share. The fair market value of the Company's common stock on this date was $.06 per share. As a result, the Company recognized a gain in the amount of $4,080.
On March 31, 2014, accrued commissions to a sales agent in the amount of $7,500 was exchanged for 100,000 shares of restricted common stock at $.075 per share. The fair market value of the Company's common stock on this date was $.06 per share. As a result, the Company recognized a gain in the amount of $1,500.
On April 15, 2014, the holder of the Convertible Promissory Note dated September 26, 2013 for $42,500 converted $15,000 of this balance into 717,703 shares of free trading common stock at a conversion price of approximately $.02 per share.
Between May 27, 2014 and June 12, 2014, the holder of the Convertible Promissory Note dated November 27, 2013, with a total value of $81,293 related to the first advance, converted an additional $15,625 of this balance into 1,250,000 shares of free trading common stock at an average conversion price of $.0125 per share.
On May 29, 2014, an accrued professional fee to a consultant in the amount of $10,500 was exchanged for 500,000 shares of restricted common stock at $.021 per share. The fair market value of the Company's common stock on this date was $.03 per share. As a result, the Company recognized a loss in the amount of $3,500.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2015 and 2014
On July 9, 2014, the Company executed a Securities Purchase Agreement pursuant to which it agreed to sell an aggregate of 13,000,000 shares of restricted common stock to an unrelated corporation in three equal installments for a total purchase price of $300,000. The first installment of $100,000 for 4,333,333 shares was consummated on July 10, 2014. The second installment of $100,000 for 4,333,333 shares was completed on August 15, 2014, and the last installment of $100,000 for 4,333,334 shares was to be completed on September 15, 2014. At the request of the purchaser, the Company granted an extension until November 15, 2014 to complete the third installment.
In the event that the final payment of $100,000 was not made on or before the November 15, 2014, that portion of the stock purchase shall no longer be part of the Agreement an there will be no further obligation on the part of the Company to engage in any further sales of its securities to purchaser. The third installment of $100,000 due on November 15, 2014 was not completed. Until the earlier of two years or when the purchaser no longer has any shares in the Company, if the Company issues stock or options, warrants or other securities convertible or exercisable for shares of common stock at a purchase price of $0.023 per share or less, the purchaser has full ratchet anti-dilution provisions, other than with respect to certain securities issuances.
Between July 1, 2014 and July 14, 2014, the holder of the Convertible Promissory Note dated September 26, 2013 for $42,500 converted the remaining $27,500 balance, plus accrued interest related thereto of $1,700, into 2,093,261 shares of free trading common stock at a conversion price of approximately $.014 per share.
Between July 18, 2014 and July 24, the holder of the Convertible Promissory Note dated October 22, 2013 for $32,500 converted the entire balance, plus accrued interest related thereto of $1,300, into 2,569,280 shares of free trading common stock at an average conversion price of approximately $.013 per share.
Between September 9, 2014 and September 29, 2014, the holder of the Convertible Promissory Note dated November 26, 2013, with a total value of $81,293 related to the first advance, converted an additional $23,346 of this balance into 2,100,000 shares of free trading common stock at an average conversion price of approximately $.011 per share.
Between October 14, 2014 and November 19, 2014, the holder of the Convertible Promissory Note dated November 26, 2013, with a total value of $81,293 related to the first advance, converted the final balance of $42,322 into 4,566,076 shares of free trading common stock at an average conversion price of $.0094 per share.
Options:
See preferred stock above.
AmpliTech Group, Inc
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2015 and 2014
(13) Commitments and Contingencies:
The Company rents office space under a non-cancelable operating lease agreement that commenced in July 2011 and automatically renews annually with similar terms for an additional twelve months. The future monthly rental payments required under this operating lease agreement from July 1, 2015 through June 30, 2016 is $35,580. This lease was terminated as of January 31, 2016. On December 4, 2015, the Company entered into a new operating lease agreement to rent office space. This five year agreement commences February 1, 2016 with an annual rent of $50,000 and 3.75% increases in each successive lease year.
(14) Subsequent events
In accordance with ASC 855-10, Company management reviewed all material events through the date of this report. There are no material subsequent events to report.