AmpliTech Group, Inc 10-Q for FY2022 Q1
AmpliTech Group, Inc. (AMPG)
About this 10-Q
AmpliTech Group, Inc filed this 10-Q on May 16, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $5.1M
- up 978.2% from $472.97K a year earlier
- Net income
- $3625
- compared with a net loss of $879.93K a year earlier
- Diluted EPS
- $0.00
- compared with -$0.16 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period ended
or
For the transition period from _________ to _________
Commission File Number
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices) (Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The | ||||
Warrants to Purchase Common Stock | AMPGW | The Nasdaq Stock Market LLC |
Indicate by check mark whether registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 9, 2022, the registrant had
AMPLITECH GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
March 31, 2022
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 34 | |||
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Use of Certain Defined Terms
Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” “our Company”, “the Company”, “AmpliTech”, “Specialty” or “SMW” “Spectrum” or “SSM”, “AmpliTech Group MMIC Design Center” or “AGMDC”, are the combined business of AmpliTech Group, Inc. and its consolidated subsidiary, AmpliTech, Inc. and AMPG’s divisions Specialty Microwave, Spectrum Semiconductor Materials, and AmpliTech Group MMIC Design Center.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved, and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Considering these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
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| Table of Contents |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
AmpliTech Group, Inc.
Condensed Consolidated Balance Sheets
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Assets |
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Current Assets |
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Cash and cash equivalents |
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Accounts receivable, net |
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Other Receivable |
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Inventories, net |
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Prepaid expenses |
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Total Current Assets |
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Property and equipment, net |
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Right of use operating lease assets |
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Intangible assets, net |
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Goodwill |
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Investment |
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Security deposits |
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Total Assets |
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Liabilities and Stockholders' Equity |
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Current Liabilities |
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Accounts payable and accrued expenses |
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Customer deposits |
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Current portion of financing lease |
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Current portion of operating lease |
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Current portion of notes payable |
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Total Current Liabilities |
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Long Term Liabilities |
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Finance lease, net of current portion |
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Operating lease, net of current portion |
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Notes payable, net of current portion |
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Revenue earnout |
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Total Liabilities |
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Commitments and Contingencies |
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Stockholders' Equity |
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Series A convertible preferred stock, par value $ |
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Common Stock, par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total Stockholders' Equity |
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Total Liabilities and Stockholders' Equity |
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See accompanying notes to the condensed consolidated financial statements
| 4 |
| Table of Contents |
AmpliTech Group, Inc. | ||||||||
Condensed Consolidated Statements of Operations | ||||||||
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Revenue |
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Cost of goods sold |
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Gross Profit |
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Operating Expenses |
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Selling, general and administrative |
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Research and development |
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Total operating expenses |
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Income (Loss) From Operations |
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Other Income (Expenses) |
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Interest expense, net |
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Total other income (expense) |
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Income (Loss) Before Income Taxes |
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Provision For Income Taxes |
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Net Income (Loss) |
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Net Income (Loss) Per Share; |
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Basic |
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Diluted |
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Weighted Average Shares Outstanding; |
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Diluted |
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See accompanying notes to the condensed consolidated financial statements
| 5 |
| Table of Contents |
AmpliTech Group, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Cash Flows from Operating Activities: |
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Net Income (Loss) |
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Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation and amortization |
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Amortization of prepaid consulting |
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Amortization of right-of-use operating lease asset |
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Stock based compensation |
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Changes in Operating Assets and Liabilities: |
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Accounts receivable |
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Other receivable |
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Inventories |
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Prepaid expenses |
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Security deposits |
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Accounts payable and accrued expenses |
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Operating lease liability |
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Customer deposits |
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Net cash used in operating activities |
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Cash Flows from Investing Activities: |
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Purchase of equipment |
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Investment |
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Net cash used in investing activities |
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Cash Flows from Financing Activities: |
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Proceeds received from public offering, net of expenses |
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Proceeds received from exercise of warrants |
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Proceeds (Repayment) of line of credit, net |
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Repayments on finance lease |
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Proceeds (Repayment) of notes payable, net |
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Net cash (used in) provided by financing activities |
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Net change in cash and cash equivalents |
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Cash and Cash Equivalents, Beginning of Period |
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Cash and Cash Equivalents, End of Period |
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Supplemental disclosures: |
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Cash paid for interest expense |
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Cash paid for income taxes |
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Non-Cash Investing and Financing Activities: |
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Promissory note on equipment |
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Finance agreement entered in exchange for prepaid assets |
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Equipment received for prepaid assets |
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See accompanying notes to the condensed consolidated financial statements
| 6 |
| Table of Contents |
AmpliTech Group, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
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Balance, December 31, 2021 |
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Stock based compensation |
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Net income for the three months ended March 31, 2022 |
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Balance March 31, 2022 |
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Balance, December 31, 2020 |
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Common stock issued in public offering |
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Additional shares issued in connection to reverse split due to rounding |
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Common stock issued upon exercise of warrants |
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Stock based compensation |
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Net loss for the three months ended March 31, 2021 |
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Balance, March 31, 2021 |
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See accompanying notes to the condensed consolidated financial statements
| 7 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
(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
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) (“Specialty”), 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 Specialty.
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
| 8 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
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.
Spectrum Semiconductor Materials ("SSM”), located in Silicon Valley (San Jose, CA), is a global authorized distributor of integrated circuit ("IC") packaging and lids for 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").
| 9 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
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 condensed consolidated financial statements have been prepared using the accrual basis of accounting.
The accompanying unaudited interim condensed consolidated financial statements of AmpliTech Group, Inc. (“Group” or the “Company”) have been prepared by management in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for annual audited financial statements. In the opinion of management, all adjustments of a normal recurring nature, considered necessary for a fair presentation have been included.
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| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes related thereto for the years ended December 31, 2021 and 2020 included in Form 10-K filed with the SEC filed on March 31, 2022.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results could differ from those estimates.
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 March 31, 2022, 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 $
| 11 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
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 $
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 March 31, 2022 and December 31, 2021, the reserve for inventory obsolescence was $
| 12 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
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 |
|
|
| ||
Machinery/shop equipment |
|
|
| ||
Computer equipment/software |
|
|
| ||
Vehicles |
|
|
|
Long-lived assets
Long lived assets, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances which could trigger a review include, but are not limited to; significant decrease in the market price of the asset; significant adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with a history of losses, or a forecast of continuing losses associated with the use of the asset, and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount of fair value less costs to sell and would no longer be depreciated. The depreciable basis of assets that are impaired and continue in use is their respective fair values.
| 13 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
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 considerable 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 influence 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 $
Goodwill and Intangible Assets
Intangible assets include goodwill, trademarks, intellectual property and customer base acquired through the asset purchases of Specialty 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.
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.
| 14 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
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. Our contracts with customers do not include multiple performance obligations to be completed over a period.
Our performance obligations 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 March 31, 2022 contained a significant financing component. Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns, rebates, discounts, and other adjustments. The estimates of variable consideration are based on historical payment experience, historical and projected sales data, and current contract terms. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.
Allocate the transaction price to performance obligations in the contract. We typically do not have multiple performance obligations in our contracts with customers. As such, we generally recognize revenue upon transfer of the product to the customer's control at contractually stated pricing.
Recognize revenue when or as we satisfy a performance obligation. We generally satisfy performance obligations at a point in time upon either shipment or delivery of goods, in accordance with the terms of each contract with the customer. We do not have significant service revenue.
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| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
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 three months ended March 31, 2022 and 2021 were $
Income Taxes
The Company’s deferred tax assets and liabilities for the expected future tax consequences of events have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of certain assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At March 31, 2022, the Company had no material unrecognized tax benefits.
| 16 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
Earnings Per Share
Basic earnings per share (“EPS”) are determined by dividing the net earnings by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding under the treasury stock method. As of March 31, 2021, there were
The computation of weighted average shares outstanding and the basic and diluted earnings per share consisted of the following:
|
| Net Income (Loss) |
|
| Shares |
|
| Per Share Amount |
| |||
For the year ended March 31, 2022: |
|
|
|
|
|
|
|
|
| |||
Basic EPS |
| $ |
|
|
|
|
| $ |
| |||
Effect of dilutive stock options, warrants and series A shares |
|
| - |
|
|
| - |
|
|
|
|
|
Diluted EPS |
| $ |
|
|
|
|
| $ |
| |||
For the year ended March 31, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
| $ | ( | ) |
|
|
|
| $ | ( | ) | |
Effect of dilutive stock options, warrants and series A shares |
|
| - |
|
|
| - |
|
|
|
|
|
Diluted EPS |
| $ | ( | ) |
|
|
|
| $ | ( | ) | |
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.
| 17 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
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.
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 $
The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. Therefore, management does not believe significant credit risks exist at March 31, 2022.
Recent Accounting Pronouncements
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.
| 18 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
(3) Revenues
The following table presents sales disaggregated based on geographic regions and for the years ended:
AmpliTech Inc. |
| March 31, 2022 |
|
| March 31, 2021 |
| ||
Domestic sales |
| $ |
|
| $ |
| ||
International sales |
|
|
|
|
|
| ||
Total sales |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Spectrum |
| March 31, 2022 |
|
|
|
|
| |
Domestic sales |
| $ |
|
|
|
|
| |
International sales |
|
|
|
|
|
|
| |
Total sales |
| $ |
|
|
|
|
| |
Total sales for the three months ended March 31, 2022 were $
(4) Segment Reporting
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company's internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company's business segments.
The following table presents summary information by segment for the three months ended March 31, 2022:
March 31, 2022 |
| AmpliTech Inc. |
|
| Spectrum |
|
| Corporate |
|
| Total |
| ||||
Revenue |
| $ |
|
|
|
|
| $ |
|
| $ |
| ||||
Cost of Goods Sold |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income (Loss) |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and Amortization |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest Expense |
|
|
|
|
|
|
|
|
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|
| ||||
| 19 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
(5) Acquisition of Spectrum Semiconductors Materials
On December 15, 2021, AmpliTech Group Inc. acquired Spectrum Semiconductor Materials (SSM), an “S” Corporation located in 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 and 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 $
Simultaneously with the execution of the Purchase Agreement, $
The Indemnification Escrow Fund will be 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.
| 20 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
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 $
The Working Capital Adjustment was determined to be $
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 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 as the acquisition date, at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately $
| 21 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
The following table summarizes the allocation of the purchase price of the acquisition:
Purchase consideration at fair value: |
|
|
| |
Cash |
| $ |
| |
Common stock |
|
|
| |
Net working capital adjustment |
|
|
| |
Indemnification escrow amount |
|
|
| |
Fair value of revenue earnout |
|
|
| |
Total purchase price |
| $ | 11,488,314 |
|
|
|
|
|
|
Allocation of purchase price: |
|
|
|
|
Working Capital |
| $ |
| |
Property and Equipment |
|
|
| |
Goodwill |
|
|
| |
Tradename |
|
|
| |
Customer relationships |
|
|
| |
Right of Use operating lease asset |
|
|
| |
Right of Use operating lease liability |
|
| ( | ) |
Other asset |
|
|
| |
Net assets acquired |
| $ |
| |
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, 2021:
|
| For the three months ended |
| |||||
|
| March 31, 2021 |
| |||||
|
| As Reported |
|
| Pro Forma |
| ||
|
|
|
|
|
|
| ||
Net sales |
| $ |
|
| $ |
| ||
Net income(loss) attributable to common shareholders |
|
| ( | ) |
|
|
| |
Earnings per common share, basic and diluted: |
|
|
|
|
|
|
|
|
Basic |
|
| ( | ) |
|
|
| |
Diluted |
|
| ( | ) |
|
|
| |
| 22 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
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, 2021 or to project potential operating results as of any future date or for any future periods.
(6) Marketable Securities
The following table is a summary of marketable securities at March 31, 2022:
|
| Adjusted Cost |
|
| Realized Gains |
| Realized Loss |
| Fair Value |
| ||
Level 1 (1) |
|
|
|
|
|
|
|
|
|
| ||
Money Market Fund |
| $ |
|
|
|
|
|
| $ |
| ||
Total |
| $ |
|
|
|
|
|
| $ |
| ||
Cash and cash equivalents in our marketable securities account at March 31, 2022 was $
(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 March 31, 2022, the Company does not consider any of its investments to be impaired.
(7) Inventories
The inventory consists of the following at March 31, 2022 and December 31, 2021:
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Raw Materials |
| $ |
|
| $ |
| ||
Work-in Progress |
|
|
|
|
|
| ||
Finished Goods |
|
|
|
|
|
| ||
Subtotal |
| $ |
|
| $ |
| ||
Less: Reserve for Obsolescence |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Total |
| $ |
|
| $ |
| ||
| 23 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
(8) Property and Equipment
Property and Equipment consisted of the following at March 31, 2022 and December 31, 2021:
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Lab Equipment |
| $ |
|
| $ |
| ||
Manufacturing Equipment |
|
|
|
|
|
| ||
Automobiles |
|
|
|
|
|
| ||
Computer Equipment and Software |
|
|
|
|
|
| ||
Leasehold Improvements |
|
|
|
|
|
| ||
Furniture and Fixtures |
|
|
|
|
|
| ||
Subtotal |
|
|
|
|
|
| ||
Less: Accumulated Depreciation |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
| ||
Depreciation expense for the three months ended March 31, 2022 and 2021 was $
(9) Intangible Assets
Goodwill
Goodwill is related to the acquisition of Specialty 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 not amortizable for tax purposes and is not amortizable for financial statement purposes. As of March 31, 2022 and December 31, 2021, goodwill was valued at $
Other Intangible Assets
Intangible assets with an estimated useful life of fifteen and twenty years consisted of the following at March 31, 2022:
|
| Gross Carrying |
|
| Accumulated |
|
|
|
|
| Weighted |
| ||||
|
| Amount |
|
| Amortization |
|
| Net |
|
| Average Life |
| ||||
Trade name |
| $ |
|
| $ |
|
| $ |
|
|
| |||||
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Intellectual Property |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ |
|
| $ |
|
| $ |
|
|
|
|
| |||
| 24 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
Amortization expense for the three months ended March 31, 2022 and 2021 was $
Annual amortization of intangible assets are as follows:
2022 | ||||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Thereafter | ||||
| $ |
(10) 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 $
(11) Line of Credit
On November 20, 2021, AmpliTech renewed its business line of credit for $
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.
As of March 31, 2022 and 2021, the outstanding balance on the line of credit was $
| 25 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
(12) Leases
The following was included in our balance sheet as of March 31, 2022:
Operating leases |
| March 31, 2022 |
| |
|
|
|
| |
Assets |
|
|
| |
ROU operating lease assets |
| $ |
| |
|
|
|
|
|
Liabilities |
|
|
|
|
Current portion of operating lease |
| $ |
| |
Operating lease, net of current portion |
| $ |
| |
Total operating lease liabilities |
| $ |
| |
|
|
|
|
|
Finance leases |
|
|
|
|
Assets |
|
|
|
|
Property and equipment, gross |
| $ |
| |
Accumulated depreciation |
|
| ( | ) |
Property and equipment, net |
| $ |
| |
|
|
|
|
|
Liabilities |
|
|
|
|
Current portion of financing lease |
| $ |
| |
Finance lease, net of current portion |
| $ |
| |
Total operating lease liabilities |
| $ |
| |
The weighted average remaining lease term and weighted average discount rate at March 31, 2022 were as follows:
Weighted average remaining lease term (years) |
| March 31, 2022 |
| |
Operating leases |
|
|
| |
Finance leases |
|
|
| |
Weighted average discount rate |
|
|
|
|
Operating leases |
|
| % | |
Finance leases |
|
| % | |
| 26 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
Finance Lease
The following table reconciles future minimum finance lease payments to the discounted lease liability as of March 31, 2022:
2022 |
|
|
| |
2023 |
|
|
| |
Total lease payments |
|
|
| |
Less imputed interest |
|
| ( | ) |
Less sales tax |
|
| ( | ) |
Total lease obligations |
|
|
| |
Less current obligations |
|
| ( | ) |
Long-term lease obligations |
| $ |
|
Operating Leases
On December 4, 2015,
On January 15, 2016, the Company entered into a five-year agreement to lease 2 copiers with and annual payment of $
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 $
On November 27, 2019,
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 $
| 27 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
The following table reconciles future minimum operating lease payments to the discounted lease liability as of March 31, 2022:
2022 |
|
|
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
Total lease payments |
|
|
| |
Less imputed interest |
|
| ( | ) |
Total lease obligations |
|
|
| |
Less current obligations |
|
| ( | ) |
Long-term lease obligations |
| $ |
|
(13) Notes Payable
Promissory Note:
On September 12, 2019, AmpliTech Group, Inc. acquired Specialty, 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 Specialty. The total consideration paid was $
| 28 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
Loan Payable:
On September 12, 2019, the Company was approved for a $
| · | On December 20, 2019, the Company borrowed $ |
| · | On May 14, 2020, the Company borrowed $ |
| · | On June 10, 2020, the Company borrowed $ |
In January 2022, the Company purchased machinery for $
Future principal payments over the term of the loans as of March 31, 2022 are as follows:
|
| Payments |
| |
2022 |
|
|
| |
2023 |
|
|
| |
2024 |
|
|
| |
Total remaining payments |
| $ |
| |
(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 $
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
| 29 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
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
Common Stock:
The Company originally authorized
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,
On February 24, 2021, Maxim Group LLC exercised its overallotment option to purchase an additional
As of December 31, 2021,
| 30 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
On April 15, 2021, the Company entered into definitive agreements with certain institutional investors for the sale of
On December 15, 2021,
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
| 31 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
Stock Options:
Below is a table summarizing the changes in stock options outstanding for the three months ended March 31, 2022:
|
|
|
| Weighted Average |
| |||
|
| Number of Options |
|
| Exercise Price ($) |
| ||
Outstanding at December 31, 2021 |
|
|
|
| $ |
| ||
Granted |
|
| - |
|
|
| ||
Exercised |
|
| - |
|
|
|
| |
Expired |
|
| - |
|
|
|
| |
Outstanding at March 31, 2022 |
|
|
|
| $ |
| ||
Exercisable at March 31, 2022 |
|
|
|
| $ |
| ||
As of March 31, 2022, all outstanding stock options were issued according to the Company's 2020 Plan, and there remains
Stock-based compensation expense related to stock options of $
Warrants:
Below is a table summarizing the changes in warrants outstanding for the three months ended March 31, 2022:
|
|
|
| Weighted Average |
| |||
|
| Number of Warrants |
|
| Exercise Price ($) |
| ||
Outstanding at December 31, 2021 |
|
|
|
| $ |
| ||
Granted |
|
| - |
|
| - |
| |
Exercised |
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
Outstanding at March 31, 2022 |
|
| 3,296,942 |
|
| $ | 7.83 |
|
Exercisable at March 31, 2022 |
|
|
|
| $ |
| ||
Stock-based compensation expense related to warrants of $
| 32 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2022 and 2021
(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”.
(16) Subsequent events
In accordance with ASC 855-10, Company management reviewed all material events through the date of this report.
On October 15, 2021, the Company entered into 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 $
On May 5, 2022, the Company borrowed $
| 33 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contain forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.
Business Overview
AmpliTech Group Inc. (“AMPG,” “AmpliTech” or the “Company”), incorporated in 2010 in the state of Nevada, is the parent company of its subsidiary AmpliTech, Inc., and AMPG’s divisions Specialty Microwave, Spectrum Semiconductor Materials, and AmpliTech Group MMIC Design Center (“AGMDC”).
AmpliTech Inc. designs, engineers and assembles micro-wave component-based amplifiers that meet individual customer specifications. Our products consist of RF amplifiers and related subsystems, operating at multiple frequencies from 50kHz to 44GHz, including low noise amplifiers (“LNA”), medium power amplifiers, cryogenic amplifiers, and custom assembly designs for the global satellite communications, telecom (5G & IoT), space, defense, and quantum computing markets. We also offer non-recurring engineering services on a project-by-project basis, for a predetermined fixed contractual amount, or on a time plus material basis. We have both domestic and international customers in such industries as aerospace, governmental, defense and commercial satellite.
Specialty Microwave designs and manufactures state-of- the-art precision SATCOM microwave components, RF subsystems and specialized electronic assemblies for the military and commercial markets, flexible and rugged waveguides, wave guide adapters and more.
AGMDC designs, develops and manufactures state-of-the-art signal processing components for satellite and 5G communications networks, defense, space and other commercial applications, allowing the Company to market its products to wider base of customers requiring high technology in smaller packages.
On November 19, 2021, AMPG entered into an Asset Purchase Agreement with Spectrum Semiconductor Materials Inc. (“SSM”), a globally authorized distributor of integrated circuit (IC) packaging and lids for semiconductor device assembly, prototyping, testing, and production requirements founded in 1990 and headquartered in San Jose, CA, pursuant to which AMPG acquired substantially all of the assets of the Company (the Acquisition). The Acquisition was completed on December 15, 2021.
In 2021, the Company opened a monolithic microwave integrated circuits (“MMIC”) chip design center in Texas and has started to implement several of its proprietary amplifier designs into MMIC components. MMICs are semiconductor chips used in high-frequency communications applications. MMICs are widely desired for power amplification solutions to service emerging technologies, such as phased array antennas and quantum computing. MMICs carry a smaller footprint enabling them to be incorporated into a broader array of systems while reducing costs.
| 34 |
| Table of Contents |
Our mission is to patent our proprietary IP and trade secrets that were used in small volume niche markets and expand our capabilities through strategic partnerships, joint ventures, mergers/acquisitions with key industry leaders in the 5G/6G, quantum computing, and cybersecurity markets. We believe this will enable us to scale up our products and revenue by developing full systems and subsystems with our unique technology as a core component, which we expect will position us as a global leader in these rapidly emerging technology sectors and addresses large volume markets as well, such as cellphone handsets, laptops, server networks, and many other applications that improve everyday quality of life.
The Company’s research and development initiative to expand its product line of low noise amplifiers to include its new 5G and wireless infrastructure products and MMIC designs is progressing significantly. Our combined engineering and manufacturing resources are expected to complement the development of new subsystems for satellite, wireless, and 5G infrastructures, as well as advanced military and commercial markets.
Corporate Information
Our principal executive offices are located at 155 Plant Avenue, Hauppauge, NY 11788. Our telephone number is (631) 521-7831. Our corporate website is www.amplitechinc.com. The information on our website is not a part of, or incorporated in, this prospectus.
Recent Developments
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 moved into the new manufacturing and headquarters facility April 1, 2022.
On May 5, 2022, the Company borrowed $441,139 to be paid over a three-year term with monthly payments of $13,341 totaling $480,276. An advance payment of $26,682 will be applied to the first and last month’s payments. This equipment is secured by a money market account with a balance of $500,000.
Results of Operations
For the Three Months Ended March 31, 2022 and March 31, 2021
Revenues
Sales increased from $472,974 for the three months ended March 31, 2021 to $5,099,520 for the three months ended March 31, 2022, an increase of $4,626,546 or approximately 978.18%. Sales increased primarily due to the acquisition of Spectrum Microwave, whose sales for this quarter totaled $4,031.365. Following the easing of COVID restrictions, amplifier and RF subsystems sales increased as well for the three-month period by $595,181 or 125.84%.
| 35 |
| Table of Contents |
Cost of Goods Sold and Gross Profit
Cost of Goods Sold increased from $417,993 for the three months ended March 31, 2021 to $2,775,922 for the three months ended March 31, 2022, an increase of $2,357,929 or approximately 564.11%. This increase is directly related to approximately $2,131,584 of additional expense included in cost of goods sold as part of the SSM acquisition and the increase in sales. As a result, the gross profit was $2,323,598 for the three months ended March 31, 2022 compared to $54,981 for the three months ended March 31, 2021, an increase of $2,268,617 or 4126.18%. As a result of the acquisition and the increase in LNA and RF subsystems sales, gross profit as a percentage of sales increased to 45.57% from 11.62%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $1,901,310 for the three months ended March 31, 2022 from $901,325 for the first three months ended March 31, 2021, an increase of $999,985 or approximately 110.95%. With the acquisition of Spectrum, selling, general and administrative expenses increased by $821,797. In addition, expenses such as salaries, employee benefits, accounting fees, IR/PR, advertising, and trade show expenses have increased as well.
Research and Development Expenses
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. This new product line is expected to be released to market during fiscal year 2022.
AGMDC, the MMIC chip design center in Texas has started to implement several of its proprietary amplifier designs into MMIC components. MMICs are semiconductor chips used in high-frequency communications applications and are widely desired for power amplification solutions to service emerging technologies such as phased array antennas and quantum computing. AGMDC is expected to start contributing to revenue during 2022.
Research and development costs for the three months ended March 31, 2022 and 2021 were $413,303 and $7,229, respectively.
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| Table of Contents |
Income (Loss) From Operations
As a result of the above, the Company has income from operations of $8,985 and a net loss from operations of $853,573 for the three months ended March 31, 2022 and 2021, respectively.
Other Income (Expenses)
Interest expense decreased by $20,998 or 79.66%, when comparing the three months ended March 31, 2022 to the three months ended March 31, 2021. The decrease was primarily due to the repayment of debt.
Net Income (Loss)
The Company reported net income of $3,625 for the three months ended March 31, 2022, compared to a loss of $879,931 for the three months ended March 31, 2021.
Liquidity and Capital Resources
Operating Activities
The net cash used in operating activities for the three months ended March 31, 2022 was $1,842,051 resulting primarily from net income and operating changes in accounts receivable, inventories, accounts payable and accrued expenses customer deposits and operating lease liability.
The net cash used in operating activities for the three months ended March 31, 2021 was $658,991, resulting primarily from the net loss and the operating changes in accounts receivable, inventories, and the operating lease liability.
Investing Activities
The net cash used in investing activities for the three months ended March 31, 2022 was $182,850, of which $82,850 related to the purchase of equipment and $100,000 for our investment in SN2N.
The net cash used in investing activities for the three months ended March 31, 2021 was $15,000 for the purchase of equipment.
Financing Activities
The net cash used in financing activities for the three months ended March 31, 2022 was $35,013 a result primarily from the repayments of notes payable and finance lease.
| 37 |
| Table of Contents |
The net cash provided by financing activities for the three months ended March 31, 2021 was $10,329,693 which includes $10,582,197 million from new issuances of common stock and warrants, netted against the repayment of the line of credit, notes payable and finance lease payments.
We have historically financed our operations by the issuance of debt from third party lenders, equity offerings, notes issued to various private individuals and personal funds advanced from time to time by the majority shareholder, who is also the President and Chief Executive Officer of the Company.
As of March 31, 2022, we had cash and cash equivalents of $15,958,960, a working capital of $20,285,198 and an accumulated deficit of $6,623,552.
As of December 31, 2021, we had cash and cash equivalents of $18,018,874, a working capital of $20,467,429 and an accumulated deficit of $6,627,177.
We intend to continue to finance our internal growth with cash on hand, cash provided from operations, borrowings, debt or equity offerings, or some combination thereof. We believe that our cash provided from operations and cash on hand will provide enough working capital to fund our operations for the next twelve months.
Critical Accounting Policies, Estimates and Assumptions
The SEC defines critical accounting policies as those that are, in management’s view, most important to the portrayal of our financial condition and results of operations and those that require significant judgments and estimates.
The discussion and analysis of our financial condition and results of operations is based upon our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, the salability and recoverability of inventory, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes there have been no significant changes during the three month period ended March 31, 2022, to the items disclosed as critical accounting policies in management’s discussion and analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.
| 38 |
| Table of Contents |
Off Balance Sheet Transactions
None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
.
Smaller reporting companies are not required to provide the information required by this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Based on that evaluation, as of March 31, 2022, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes that have affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the period covered by this report.
| 39 |
| Table of Contents |
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
To the best of our knowledge, there are no pending legal proceedings to which we are a party or of which any of our property is the subject.
Item 1A. Risk Factors.
Smaller reporting companies are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable
Item 5. Other Information.
None.
| 40 |
| Table of Contents |
Item 6. Exhibits.
(a) Exhibits
Exhibit No. | Description | |
Rule 13a-14(a)/ 15d-14(a) Certification of Principal Executive Officer | ||
Rule 13a-14(a)/ 15d-14(a) Certification of Principal Financial Officer | ||
101. INS | XBRL Instance Document | |
101. SCH | XBRL Taxonomy Extension Schema Document | |
101. CAL | XBRL Taxonomy Extension Calculation Link base Document | |
101. DEF | XBRL Taxonomy Extension Definition Link base Document | |
101. LAB | XBRL Taxonomy Extension Label Link base Document | |
101. PRE | XBRL Taxonomy Extension Presentation Link base Document |
| 41 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AmpliTech Group, Inc. | |||
Date: May 16, 2022 | By: | /s/ Fawad Maqbool | |
Fawad Maqbool | |||
| President and Chief Executive Officer (Principal Executive Officer) |
| |
Date: May 16, 2022 | By: | /s/ Louisa Sanfratello | |
Louisa Sanfratello Chief Financial Officer (Principal Financial and Accounting Officer) |
|
| 42 |