AmpliTech Group, Inc 10-K for FY2020
AmpliTech Group, Inc. (AMPG)
About this 10-K
AmpliTech Group, Inc filed this 10-K on March 31, 2021, covering the fiscal year ended December 31, 2020 (FY2020).
Headline figures
Fiscal year ended December 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.46M
- up 10.7% from $3.12M a year earlier
- Net loss
- $1.03M
- compared with net income of $5945 a year earlier
- Diluted EPS
- -$0.37
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2020
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 001-40069
| AmpliTech Group, Inc. |
| (Exact name of registrant as specified in its charter) |
| Nevada |
| 27-4566352 |
| (State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
|
| 620 Johnson Avenue Bohemia, NY |
|
11716 |
| (Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code: (631) 521-7831
Securities registered pursuant to Section 12(g) of the Exchange Act: Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
| Common Stock, $0.001 par value per share |
| AMPG |
| The Nasdaq Stock Market LLC |
| Warrants to purchase shares of Common Stock, par value $0.001 per share |
| AMPGW |
| The Nasdaq Stock Market LLC |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ No ☒
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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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). Yes ☒ ☐ No
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 (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock, par value $0.001 per share, held by non-affiliates of the registrant, based on the closing price of the common stock as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $2,715,324.
As of March 25, 2021, the registrant had 6,579,771 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
AMPLITECH GROUP, INC.
ANNUAL REPORT ON FORM 10-K
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| Table of Contents |
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” are to the combined business of AmpliTech Group, Inc. and its consolidated subsidiaries, AmpliTech, Inc. and Specialty Microwave.
Forward-Looking Statements
This Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K. All subsequent written and oral forward-looking statements concerning other matters addressed in this Annual Report on Form 10-K 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 Annual Report on Form 10-K.
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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Business Overview
Amplitech 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, medium power amplifiers, cryogenic amplifiers, and custom assembly designs for the aerospace, governmental, defense and commercial satellite 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.
Specialty designs and manufactures passive microwave components and related subsystems for use in satellite communication ground networks that meet individual customer specifications for both domestic and international customers.
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 is progressing significantly. We have introduced new products that will be manufactured through our SMW acquisition. The combined engineering and manufacturing resources is expected to complement the new product development of subsystems for satellite, wireless, and 5G infrastructures, as well as advanced military and commercial markets.
Our Corporate History and Structure
AmpliTech Group Inc. (“AmpliTech” or “the Company”) was incorporated under the laws of the State of Nevada on December 30, 2010. On August 13, 2012, the Company acquired AmpliTech Inc., by issuing 833,750 shares of the Company’s Common Stock to the shareholders of Amplitech Inc. in exchange for 100% of the outstanding shares of AmpliTech Inc. (“the Share Exchange”). After the Share Exchange, the selling shareholders owned 60,000 shares of the outstanding 893,750 shares of Company common stock, resulting in a change in control. Accordingly, the transaction was accounted for as a reverse acquisition in which AmpliTech, Inc. was deemed to be the accounting acquirer, and the operations of the Company were consolidated for accounting purposes. The capital balances have been retroactively adjusted to reflect the reverse acquisition.
AmpliTech designs, engineers and assembles micro-wave component based low noise amplifiers (“LNA”) that meet individual customer specifications. Application of the Company’s proprietary technology results in maximum frequency gain with minimal background noise distortion as required by each customer. The Company has both domestic and international customers in such industries as aerospace, governmental, defense and commercial satellite.
On September 12, 2019, Amplitech Group Inc. acquired substantially all of the assets of Specialty Microwave Corporation (SMW), a privately held company based in Ronkonkoma, NY. The purchase included all inventory, orders, customers, property and equipment, and goodwill. Following the closing of the asset purchase, we hired all eight team members of SMW. In connection with the acquisition, the Company began using the trade name “Specialty Microwave”. The total consideration paid was $1,143,633, consisting of $668,633 in cash and a $475,000 promissory note with an interest rate of 6%. The Company also entered into a five-year lease on the property located at 120 Raynor Avenue, Ronkonkoma, NY with an option to buy the property during the first two years of the lease for $1,200,000 and then at fair market value for the remainder of the lease term.
Specialty designs and manufactures passive microwave components and related subsystems for use in satellite communication ground networks that meet individual customer specifications for both domestic and international customers.
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The COVID-19 Pandemic
The COVID-19 pandemic has caused significant worldwide disruption throughout the course of 2020 and resulted in the imposition of various public and private sector measures to try to contain the virus, on a local, state, national and international level, such as travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders, and shutdowns. These measures have temporarily impacted our workforce and operations and some of the operations of our customers, and vendors, suppliers, and partners. The ultimate impact and efficacy of government measures and potential future measures is currently unknown.
There is uncertainty regarding the business impacts from such measures and potential future measures. While we have been able to continue our operations through a combination of work-from-home and social distancing policies implemented to protect employees, these measures have resulted in reduced workforce availability. Accordingly, we resumed operations on May 5, 2020, with the CDC safeguard guidelines in place. Difficulties in communicating with our customers’ employees and delivery delays due to COVID-19 may impact our ability to meet customer demand, and thus decrease revenue into 2021 and negatively impact our financial condition and results of operations.
Our Products
Our products consist of RF amplifiers and related subsystems, operating at multiple frequencies from 50kHz to 44GHz, including low noise amplifiers, medium power amplifiers, cryogenic amplifiers, and custom assembly designs for the aerospace, governmental, defense and commercial satellite markets. We also offer non-recurring engineering services on a project-by-project basis, for a predetermined fixed contractual amount, or on time plus material basis.
Our existing product line includes the 18 to 40 GHz wide band low noise amplifier. It is designed mainly for wideband telecommunications such as military and space applications, point to point radios as well as test equipment.
Our new line of cryogenic amplifiers is designed to operate at temperatures as low as 4K that offer much lower noise figures than our standard models. Consuming as little DC power as +0.5V DC@8mA, the light weight, compact housings provide excellent performance while generating very little heat. These amplifiers are very useful for applications that require the absolute minimum amounts of noise injection for the growing market of low temperature applications, such as quantum computing, medical applications, RF imaging, research & development, space communications, accelerators, radiometry and telephony.
In connection with the acquisition of the SMW business, we began designing and manufacturing passive microwave components and related subsystems that meet individual customer specifications for both domestic and international customers.
Low Noise Amplifiers
Low Noise Amplifiers, or LNAs, are amplifiers used in receivers of almost every type of communication system (Wi-Fi, radar, satellite, base station, cell phone, radio, etc.) to improve signal strength and increase sensitivity and range of receivers.
Medium Power Amplifiers
Medium Power Amplifiers, or MPAs, provide increased output power and gain in transceiver chains to increase signal power and maintain dynamic range and linearity in radars, base-stations, wireless networks, and almost every communication system.
Satellite Access Point Block Downconverter (BDC)
The Specialty Microwave BDC assembly is used as a test device on Satellite Access Point (SAP) antennas located worldwide. The BDC assembly down converts a Ka band signal, 17.7 GHz to 19.7 GHz, from the LNAs on either polarization of the antenna to between 950 and 2150 MHz using a high and low band block downconverter.
1:2 Tx Protection Switch Panel Subsystem
The Specialty Microwave 1:2 Tx Protection Switch panel is a logic panel used in satellite communications earth stations. The system mechanism operates waveguide and coaxial switches to operator desired positions.
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Desktop/Benchtop and compact wideband Power Amplifiers
These products are utilized over a frequency range of .1 to 40 GHz used in SATCOM rack mount systems as well as test equipment used in integrators and manufacturers of various communications systems such as cellular base stations, simulators, and point to point wireless radios.
Waveguide to Coaxial Adapters
These adapters are used in all SATCOM and satellite internet gateway systems from S band to K band, or 2GHz to 50 GHz.
Cryogenic Amplifiers
Designed to operate at 4k temperatures with industry low noise figures from 2-26 GHz range. With a low power dissipation of less than 10 mWatts, these cryogenic amplifiers can be used in applications for quantum computing, nanophysics, astronomy, superconductor research as well as making significant impact to 5G applications.
Cryogenic and Non-Cryogenic 4g/5g Small Cell Subsystems
These products are utilized in private and public high-speed networks and airline WI-FI systems.
Our Technology
Our products are supported by hybrid design topologies that create highly linear Radio Frequency (RF) products that amplify and transform signals with minimal addition of noise, achieving high Signal to Noise Ratio (SNR) and increased receiver sensitivity and range, at a low cost and low power consumption. Our hybrid design topologies include:
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| · | Discrete Microwave Integrated Circuit (MIC) |
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| · | Pseudomorphic High Electron Mobility Transistor (PHEMT) |
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| · | MIC and Low Noise MIC |
We believe the discrete topology that we utilize provides various advantages:
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| · | Can easily optimize Voltage Standing Wave Ratio (VSWR) and Noise Figure |
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| · | Flexibility of design; can easily adapt to change of specs, technology, etc. |
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| · | Low DC power consumption |
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| · | Can control and optimize gain flatness due to discrete gain stages |
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| · | Optimum use of MIC technology and experience |
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| · | Use of negative bias is not necessary |
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| · | Specially selected components with specific parameters that yield proprietary results due to use in a particular configuration |
To date, our research and development activities have primarily been conducted on new product designs to the extent as requested by the customers. The cost of our research and development activities is incorporated into the unit selling prices and, as such, is borne directly by the customers. In addition to the research and development for our customers, we invest in research and development for new products on emerging technologies such as 5G/6G, cybersecurity, MMICs, IoT and wireless products for the future. For the years ending December 31, 2020 and 2019, the Company has incurred research and development costs of $61,953 and $56,507, respectively.
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Industry and Competition
Market Overview
We operate our business in the industry of high-power Radio Frequency (RF) semiconductor. We believe that the RF semiconductor industry has the following features:
High demand for complex, next-generation Wireless signal processing applications.
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| · | Mass adoption of Internet and Web-based applications, and other high-band width applications |
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| · | Ability to combine analog and digital signal processing into more integrated RF solutions |
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| · | Widespread application of low-cost, high-performance and functionality wireless networks |
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| · | Emergence of 5G/6G, WI-FI 6e, satellite and advanced wireless network infrastructure rollouts |
Growing opportunity for advanced RF subsystems, modules and components.
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| · | Demand for precise, high-speed signal conditioning interfaces between analog and digital |
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| · | Combining analog/digital signal processing capabilities into more highly integrated solutions |
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| · | Widespread application of low-cost, high-performance wireless network systems |
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| · | Convergence of computing, communications, and consumer electronics with state-of-the-art signal processing capability with less power consumption |
Complements OEM design, and manufacturing capabilities.
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| · | Deliver high quality and feature improvements that service provider requires |
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| · | Lower production costs and shorten product development cycles |
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| · | Adhere to flexibility, performance, streamlined procurement processes and value requirements |
Current and Future Target Markets.
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| · | High speed terrestrial and satellite terminals (SATCOM, “Internet in the Sky”) |
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| · | 5G/Wi-Fi6E and 6G wireless infrastructure (Cellular Base Stations, Small Cells, Private Wi-Fi Networks) |
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| · | IoT (Internet of Things) |
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| · | Cloud farms, big data and MEC architecture |
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| · | Quantum supercomputers/Quantum research |
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| · | Deep space astronomy |
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| · | Autonomous self-driving vehicles |
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| · | Telemedicine, AR/VR (Augmented and Virtual Reality) |
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| · | Drones, UAVs (Unmanned aerial vehicles) |
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| · | Cyber-security |
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| · | Military/Defense ECM/EW |
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Competition
We face competition in the amplifier industry from many established players. Some of our competitors have longer operating histories and significantly greater financial, research and development, marketing and other resources than us. As a result, some of these competitors are able to devote greater resources to the development, promotion, sale and support of their products. These competitors may also have the ability to provide discounted pricing on their products to gain market share. In addition, consolidation in the amplifier industry could intensify the competitive pressures that we face. Many of our existing and potential competitors may be better positioned than we are to acquire other companies, technologies or products. We compete on the basis of technology, cost, and design flexibility.
Our ability to compete successfully depends on numerous factors, including our ability to:
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| • | maintain and increase our market share and the strength of our brand in amplifiers; |
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| • | maintain and expand our relationships with channel partners; |
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| • | secure products in large volume in a cost-effective and timely manner from our suppliers; |
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| • | develop innovative, differentiated, high-performance products relative to our competitors’ solutions; and |
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| • | protect our intellectual property. |
We cannot assure you that our solutions will compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by our existing competitors or new companies entering our market. In addition, we cannot assure you that our competitors do not have or will not develop processes or product designs that currently or in the future will enable them to produce competitive products at lower costs than ours.
Our Strategy
Our objective is to become a premier designer, manufacturer and distributor of high quality and state-of-the-art cryogenic microwave amplifiers, RF designs and applications for Wireless Networks and the future of Wireless Communication. Key elements of our strategy include the following:
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| · | Reorganization to have our shares traded on a national exchange to improve access to capital resources and a much broader customer base with higher volumes, as well as better access to large OEMs (Original Equipment Manufacturers) |
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| · | New product development |
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| · | Commercializing of existing core technology into specific high-volume technology sectors and obtaining patent on such technology |
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Manufacturing
Our manufacturing facilities are located at our corporate office in Bohemia, New York and in Ronkonkoma, New York. Our manufacturing process in Bohemia involves the assembly of numerous individual components and precise fine-tuning by production technicians. Our manufacturing facility is estimated to be capable of assembling up to 100 amplifiers per month. If we receive larger quantity orders that need to be fulfilled in a short time-frame, or in excess of our capacity at the main facility, we will outsource the assembly by sending kitted raw materials to a qualified contract assembly facility in the local Northeast.
Our manufacturing process in Ronkonkoma is dedicated to the design, manufacturing and testing of passive microwave components, RF subsystems, specialized electronics and related products.
We are currently certified to the ISO 9001:2015 standard. ISO 9001 is a uniform worldwide Quality Management System (QMS) standard.
Suppliers
Our material consists of purchased component parts used in our assembly process. The following table describes supplier concentration based upon the percentage of materials purchased from each supplier for 2020:
| Supplier A |
| $ | 133,240 |
|
|
| 14.14 | % |
| Supplier B |
|
| 109,060 |
|
|
| 11.58 | % |
| Supplier C |
|
| 84,065 |
|
|
| 8.92 | % |
| Supplier D |
|
| 67,640 |
|
|
| 7.18 | % |
| Supplier E |
|
| 36,844 |
|
|
| 3.91 | % |
| All other suppliers (approximately 100) |
|
| 511,371 |
|
|
| 54.27 | % |
| Total |
| $ | 942,220 |
|
|
| 100 | % |
Marketing
We employ an aggressive and focused approach to market our products, at various venues including trade shows, strategic alliances, website and trade magazines. We target specific types of customers such as system integrators, defense contractors, cellular and wireless service providers but it should be noted that we are also focused on expanding our customer base to include users of consumer applications and products. In addition, during the COVID pandemic, we have increased our online and print ads as well as held virtual meetings and conferences.
We rely on our sales representatives and one distributor to channel our products throughout the Americas as well as to countries in Europe, the Middle East and South Asia.
During the 4th quarter of 2016, we entered into an agreement appointing an exclusive distributor of our products in the U.S, Canada, Mexico and South America.
In February 2018, the Company entered into an advisory agreement with Sunbiz Holding Corp in order to promote market awareness in Asia and the Middle East. The advisory agreement has been extended for additional two years.
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Trade Shows
We attend trade shows such as MTTS (Microwave Theory and Techniques Show), IMS (International Microwave Symposium), EDIC (Electronic Design Innovation Conference) European Microwave Symposium, SATCON, MILCOM and the American Institute of Physics Exhibit (APS). We also sponsor some trade shows to gain recognition and presence.
Strategic Alliances
We explore opportunities with global OEMs (Original Equipment Manufacturers) by working strategic alliances and that improve sales and presence in the marketplace and expand our product line and capabilities, thereby broadening our customer base. Two such companies are Orban Microwave and MPT Corp. The two companies have expertise in the planar phased array and GPS antennas as well as the ability to design and manufacture subsystems incorporating our low noise amplifiers and other products.
Website
We maintain a dynamic website to capture more business via worldwide customer searches for our products on the internet. Our website is available at www.amplitechinc.com.
Trade Magazines
We advertise our products in Microwave Product Digest.
Customers
We serve a diverse customer base located primarily in the United States, Europe and South Asia, in the aerospace, governmental defense, commercial satellite and wireless industries. Our customers include Viasat, L3 Harris Technologies, Raytheon, and Mercury Systems. As of December 31, 2020, there were no customers that accounted for more than 10% of our total revenue. We have both direct and indirect relationships with these customers domestically and abroad via exclusive and non-exclusive sales representatives and through our distributor.
Government Regulation
We are subject to the local, state and national laws and regulations of the jurisdictions where we operate that affect companies generally, including laws and regulations around commerce, intellectual property, trade, environmental, health and safety, commerce and contracts, privacy and communications, consumer protection, web services, tax, and state corporate laws and securities laws; and specifically those conducting business of electronics, many of which are still evolving and could be interpreted in ways that could harm our business. Existing and future laws and regulations may impede our growth. These regulations and laws may change over time. Unfavorable regulations and laws could diminish the demand for our products and services and increase our cost of doing business.
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Intellectual Property
We regard domain names, tradename, customer relationships, trade secrets, proprietary technologies and similar intellectual property important to our success.
We rely on contractual restrictions to protect our proprietary rights in products and services. It is our policy to enter into confidentiality and invention assignment agreements with our employees and contractors as well as nondisclosure agreements with our suppliers and strategic partners in order to limit access to and disclosure of our proprietary information. We cannot assure you that these contractual arrangements or the other steps taken by us to protect our intellectual property will prove enough to prevent misappropriation of our technology or to deter independent third-party development of similar technologies. We plan to use the information obtained from the IP story to file additional patents relating to our intellectual property and trade secrets.
Employees
As of March 25, 2021, we have sixteen (16) full time employees. From time to time, we may hire additional workers on a contract basis as the need arises.
Smaller reporting companies are not required to provide the information required by this item.
Smaller reporting companies are not required to provide the information required by this item.
Our principal executive office is located at 620 Johnson Avenue, Bohemia, NY 11716. The property at this location is leased by the Company at monthly rental expense of $4,167 for a term of five years ending January 31, 2021. The annual basic rent shall be increased by 3.75% in each successive lease year. Our wholly owned subsidiary, AmpliTech, Inc., also operates out of our principal executive office. We believe that currently this space is adequate. On January 13, 2021, the landlord and the Company agreed that the lease term shall be extended on a month-by month basis, commencing February 1, 2021.
The Company also entered into a five- year lease on the property located at 120 Raynor Avenue, Ronkonkoma, NY with an option to buy the property during the first two years of the lease for $1.2 mm and then at fair market value for the remainder of the lease term. The lease commences on September 15, 2019 with a monthly rental expense of $7,500. The annual rent shall be increased by 3% in each successive lease year beginning on January 1, 2021.
There are no pending legal proceedings to which we are a party or of which any of our property is the subject. From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigations are subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time and harm our business.
Not applicable.
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Market Information
Up through February 16, 2021, our common stock traded on the over-the-counter market and was quoted on the OTCQB market under the symbol “AMPG”. Our common stock and warrants have been approved for the listing on the NASDAQ Capital Market, or NASDAQ, under the symbols “AMPG” and “AMPGW”, respectively, and commenced trading on the NASDAQ on February 17, 2021.
Holders
As of March 25, 2021, there were 49 holders of record of our common stock. This does not reflect the number of persons or entities who held stock in nominee or street name through various brokerage firms.
Dividend Policy
We have never declared or paid dividends on our common stock. We do not anticipate paying any dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. Any future determination to declare dividends will be subject to the discretion of our board of directors and will depend on various factors, including applicable laws, our results of operations, financial condition, future prospects and any other factors deemed relevant by our board of directors.
Recent Sales of Unregistered Securities
On October 15, 2019, the Company engaged Maxim Group LLC (“Maxim”) as its financial advisor to assist the Company in growth strategy. As consideration for Maxim’s services, Maxim received 27,500 shares of the Company’s common stock on October 15, 2019, 22,500 shares of the Company’s common stock on April 15, 2020.
On January 5, 2021, the Company issued 2,005,000 shares of common stock, to Fawad Maqbool, the Chief Executive Officer of the Company. 5,000 of the shares were issued at par value upon the conversion of 1,000 shares of Series A Preferred Stock held by Mr. Maqbool. The remaining 2,000,000 of the shares were issued pursuant to the exercise by Mr. Maqbool of options to purchase 400,000 shares of Series A Preferred Stock, at an exercise price of $1.03 per share, which were then immediately converted into the 2,000,000 Shares. These issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
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Smaller reporting companies are not required to provide the information required by this item.
| ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included in “Item 8. Financial Statements and Supplementary Data.”
Forward-Looking Statements
In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.” Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors.
Non- GAAP Financial Measures
We believe that presenting non-GAAP financial measures provides management and investors useful measures to evaluate performance and trends of the total company and its businesses. This includes adjustments in recent periods to GAAP financial measures to increase period-to-period comparability following actions to strengthen our overall financial position and how we manage our business.
Business Overview
Amplitech 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, medium power amplifiers, cryogenic amplifiers, and custom assembly designs for the aerospace, governmental, defense and commercial satellite 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.
Specialty designs and manufactures passive microwave components and related subsystems for use in satellite communication ground networks that meet individual customer specifications for both domestic and international customers.
Our plans for the next year include new product development, expansion of existing product line and targeting mergers and acquisitions.
The COVID-19 Pandemic
The COVID-19 pandemic has caused significant worldwide disruption throughout the course of 2020 and resulted in the imposition of various public and private sector measures to try to contain the virus, on a local, state, national and international level, such as travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders, and shutdowns. These measures have temporarily impacted our workforce and operations and some of the operations of our customers, and vendors, suppliers, and partners. The ultimate impact and efficacy of government measures and potential future measures is currently unknown.
There is uncertainty regarding the business impacts from such measures and potential future measures. While we have been able to continue our operations through a combination of work-from-home and social distancing policies implemented to protect employees, these measures have resulted in reduced workforce availability. Accordingly, we resumed operations on May 5, 2020, with the CDC safeguard guidelines in place. Difficulties in communicating with our customers’ employees and delivery delays due to COVID-19 may impact our ability to meet customer demand, and thus decrease revenue into 2021 and negatively impact our financial condition and results of operations.
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On April 20, 2020, the Company entered into a Paycheck Protection Program Promissory Note (“PPP Note”) in the principal amount of $232,200 (“PPP Loan”) from BNB Bank (“PPP Loan Lender”). The PPP Loan was obtained pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) administered by the U.S Small Business Administration (“SBA”). The PPP Loan was disbursed by the PPP Loan Lender on April 20, 2020 (the “Disbursement Date”). The PPP Loan bears an interest at 1.00% per annum and may be prepaid at any time prior to maturity with no prepayment penalties. The Company is in the process of applying for PPP loan forgiveness. The Company may qualify for full loan forgiveness if during the 8 to 24 week covered period following the loan disbursement, the loan proceeds were used by the Company for payroll costs, mortgage interest payments, rent and utilities. This has helped to offset some of the adverse effects of this pandemic and allowed us to serve our customers at a reduced capacity but without experiencing any cancellation of our open orders.
On February 17, 2021, Amplitech Group Inc., common stock and warrants under the symbols “AMPG” and “AMPGW”, respectively, commenced trading on NASDAQ. A reverse split of the outstanding common stock at a 1-for-20 ratio became effective February 17, 2021 as of 12:01 a.m., Eastern Time. All per share amounts and number of shares in the consolidated financial statements and related notes have been retroactively restated to reflect the reverse stock split. In connection with the public offering, 1,371,428 units at an offering price of $7.00 per unit were sold. Each unit issued in the offering consisted of one share of common stock and one warrant. Maxim Group LLC acted as sole book-running manager for the offering and partially exercised its overallotment option to purchase 205,714 warrants at the public offering price. The Company received gross proceeds of approximately $9.6 million, before deducting underwriting discounts and commissions and other offering expenses.
On February 24, 2021, Maxim exercised its overallotment option to purchase an additional 205,714 shares of common stock, bringing the total gross proceeds of the public offering to approximately $11.0 million.
Results of Operations
As of December 31, 2020, the Company had a working capital of $741,606 and an Accumulated Deficit of $1,868,372. The Company recorded a net loss of $1,025,559 for the year ended December 31, 2020 and income of $5,945 for the year ended December 31, 2019, respectively.
For Years Ended December 31, 2020 and December 31, 2019
Revenues
Sales increased from $3,122,630 for the year ended December 31, 2019 to $3,458,081 for the year ended December 31, 2020, an increase of $335,451 or approximately 10.74%. While the acquisition of Specialty Microwave has increased sales in satellite communications, the mandatory shutdown in New York as a result of COVID 19 has created uncertainty and disruption with some of our key customers and suppliers. While we have been able to continue our operations through a combination of work-from-home and social distancing policies implemented to protect employees, these measures have resulted in reduced productivity and our ability to meet customer demand temporarily.
Cost of Goods Sold and Gross Profit
Cost of Goods Sold increased to $2,203,844 in 2020 from $1,556,654 in 2019, an increase of $647,190 or approximately 41.58%. This increase was the result of the increase in sales for the year as well as an increase in our outsourcing costs and raw materials. As our products become more customer specific, the cost of engineering support, assembly labor and custom parts, specifically for our cryogenic amplifiers, have increased as well. In addition, we hired a new engineer and assemblers as well as acquiring the employees of SMW. 2020 represents a full year of expenses relating to the acquisition of SMW and new hires. As a result, the gross profit was $1,254,237 for 2020 compared to $1,565,976 for 2019, a decrease of $311,739 or 19.91%. Gross profit as a percentage of sales decreased to 36.27% from 50.15% as a result of the product mix with some of our products that are being outsourced having a lower gross profit margin and the increase in cost for labor and materials. Our operating performance for the year ended December 31, 2020 has been negatively impacted by the effect of the COVID-19 pandemic. Although there is still uncertainty as to when the economy will return to normal, we expect to continue our business efforts and not shut down unless otherwise mandated by federal and state regulations, and/or more severe pandemic repercussions.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $2,170,183 in 2020 from $1,483,979 in 2019, an increase of $686,204, or approximately 46.24%. The Company experienced an increase in parent company expenses, such as consulting fees, legal fees and stock compensation expense relating to the issuance of warrants. The Company also hired a new director of sales and a marketing associate to promote and expand existing and new product lines. With the acquisition of Specialty Microwave, payroll, employee benefits, insurance and facility costs have increased as well as other general and administrative costs due to the integration of both companies.
Other Income (Expenses)
Interest expense increased by $33,561, or 44.13%, when comparing the year ended December 31, 2020 to the year ended December 31, 2019. The increase was primarily due to the additional borrowing on the Company’s line of credit and the additional financing associated with the acquisition of Specialty Microwave and the financing of equipment purchases.
Net Income
The Company reported a net loss of $1,025,559 in 2020 and net income of $5,945 in 2019, respectively.
Liquidity and Capital Resources
Operating Activities
The net cash used in operating activities for the year ended December 31, 2020 was $521,485 resulting primarily from the net loss and the operating changes in prepaid expenses, accounts payable and customer deposits and the operating lease liability.
The net cash used in operating activities for the year ended December 31, 2019 was $20,015 resulting primarily from net income and the operating changes in accounts receivable, inventory, prepaid expenses, accounts payable as well as customer deposits and the operating lease liability.
Investing Activities
The net cash used in investing activities for the year ended December 31, 2020 and 2019 was $71,619
and $681,286, respectively. The Company purchased equipment and paid cash for the acquisition of Specialty Microwave.
Financing Activities
The net cash provided by financing activities for the year ended December 31, 2020 was $217,928, a result of proceeds received from notes payable and the line of credit offset by their repayments and the repayment of the finance lease.
The net cash provided by financing activities for the year ended December 31, 2019 was $833,915 a result of proceeds received from notes payable offset by the repayment of the line of credit and finance lease.
We have historically financed our operations through net income, debt from third party lenders, 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.
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As of December 31, 2020, we had cash and cash equivalents of $199,536, a working capital of $741, 606 and an accumulated deficit of $1,868,372.
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 that 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.
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.
Basis of Accounting
The accompanying consolidated financial statements have been prepared using the accrual basis of accounting.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
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.
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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, 2020, the Company’s cash and cash equivalents were deposited in two financial institutions.
Accounts Receivable
Trade accounts receivable are recorded at the net invoice value and are not interest bearing.
The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change in the future. An allowance of $125,400 and $0 has been recorded at December 31, 2020 and 2019, respectively.
Inventories
Inventories, which consists primarily of raw materials, work in progress and finished goods, are 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.
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Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Property and equipment are depreciated as follows:
| Description |
| Useful Life |
| Method |
| Office equipment |
| 7 years |
| Straight-line |
| Machinery and equipment |
| 5 to7 years |
| Straight-line |
| Computer equipment |
| 3 to7 years |
| Straight-line |
| Vehicles |
| 5 years |
| Straight-line |
Long-lived assets
Long lived assets, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances which could trigger a review include, but are not limited to; significant decrease in the market price of the asset; significant adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount of fair value less costs to sell and would no longer be depreciated. The depreciable basis of assets that are impaired and continue in use is their respective fair values.
Goodwill and Intangible Assets
Intangible assets include goodwill, trademarks, intellectual property and customer base acquired through the asset purchase of Specialty Microwave. The Company accounts for Other Intangible Assets under the guidance of ASC 350, “Intangibles-Goodwill and Other.” Under the guidance, other intangible assets with definite lives are amortized over their estimated useful lives Intangible assets with indefinite lives are tested annually for impairment. Goodwill is not amortized. We test goodwill balances for impairment annually at December 31 or whenever impairment indicators arise.
Leases
On January 1, 2019, we adopted ASU No. 2016-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized on the balance sheet. We adopted this standard using the modified retrospective approach with an effective date as of the beginning of January 2019. Prior year financial statements were not restated under the new standard. We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the lease term. The Company has elected not to separate lease and non-lease components for all property leases for the purpose of calculating ROU assets and lease liabilities. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis considering such factors as lease term and economic environment risks.
Revenue Recognition
We sell our products through a combination of a direct sales force in the United States and independent sales representatives in international markets. Revenue is recognized when a customer obtains control of promised goods based on the consideration we expect to receive in exchange for these goods. This core principle is achieved through the following steps:
Identify the contract with the customer. A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods to be transferred and identifies the payment terms related to these goods, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. We do not have significant costs to obtain contracts with customers. For commissions on product sales, we have elected the practical expedient to expense the costs as incurred.
Identify the performance obligations in the contract. Generally, our contracts with customers do not include multiple performance obligations to be completed over a period. Our performance obligations generally relate to delivering single-use products to a customer, subject to the shipping terms of the contract. Limited warranties are provided, under which we typically accept returns and provide either replacement parts or refunds.
We do not have significant returns. We do not typically offer extended warranty or service plans.
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Determine the transaction price. Payment by the customer is due under customary fixed payment terms, and we evaluate if collectability is reasonably assured. None of our contracts as of December 31, 2020 contained a significant financing component. Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns, rebates, discounts, and other adjustments. The estimates of variable consideration are based on historical payment experience, historical and projected sales data, and current contract terms. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.
Allocate the transaction price to performance obligations in the contract. We typically do not have multiple performance obligations in our contracts with customers. As such, we generally recognize revenue upon transfer of the product to the customer’s control at contractually stated pricing.
Recognize revenue when or as we satisfy a performance obligation. We generally satisfy performance obligations at a point in time upon either shipment or delivery of goods, in accordance with the terms of each contract with the customer. We do not have significant service revenue.
Reserves are recorded as a reduction in net sales and are not considered material to our consolidated statements of income for the years ended December 31, 2020 and 2019.
Research and Development
Research and development expenditures are charged to operations as incurred. The major components of research and development costs include consultants, outside service, and supplies. Research and development costs for the years ended December 31, 2020 and 2019 were $61,953 and $56,507.
Income Taxes
The Company’s deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of certain assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2020 and 2019, the Company had no material unrecognized tax benefits.
Earnings Per Share
Basic earnings per share (“EPS”) are determined by dividing the net earnings by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding under the treasury stock method.
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Fair Value of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorizing within fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined in the following categories:
Level 1. Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Cash and cash equivalents are valued using inputs in Level 1.
Level 2. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3. Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company’s own data.
Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.
Concentration of Credit Risk
Financial instruments that potentially subject the company to concentration of credit risk consist primarily of accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. Therefore, management does not believe significant credit risks exist at December 31, 2020. Sales to the Company’s two largest customers represented approximately 8.18% and 7.91% of total sales for the year ended December 31, 2020.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the fair value measurements disclosures with the primary focus to improve effectiveness of disclosures in the notes to the financial statements that is most important to the users. The new guidance modifies the required disclosures related to the valuation techniques and inputs used, uncertainty in measurement, and changes in measurements applied. The adoption of this standard became effective for us on January 1, 2020 and did not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We are currently assessing the impact of this standard on our combined financial statements.
We do not expect the adoption of these or other recently issued accounting pronouncements to have a significant impact on our results of operation, financial position or cash flow.
Off Balance Sheet Transactions
As of December 31, 2020, we did not have any off-balance sheet arrangements.
| ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Smaller reporting companies are not required to provide the information required by this item.
| 20 |
| Table of Contents |
Index to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
| F-1 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Amplitech Group, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Amplitech Group, Inc. (“the Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessment
Critical Audit Matter Description
As described in note 1 to the consolidated financial statements, the Company tests goodwill for impairment annually at the reporting unit level, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Reporting units are tested for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is recorded based on the difference between the fair value and carrying amount, not to exceed the associated carrying amount of goodwill. The Company’s annual impairment test occurred on December 31, 2020. The goodwill associated with the Specialty Microwave Reporting Unit was approximately $120,000. The Company utilized a third-party valuation specialist to assist in the preparation of the goodwill impairment test for this reporting unit. The Company primarily used a discounted cash flow income method, a guideline public company market method, and a comparable transaction market method to estimate the fair value of the reporting unit.
| F-2 |
| Table of Contents |
How the Critical Audit Matter was Addressed in the Audit
We identified the evaluation of the impairment analysis for goodwill as a critical audit matter because of the significant estimates and assumptions management used in the discounted cash flow analysis performed by management to determine fair value of the reporting unit. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Our audit procedures related to the following:
|
| · | Testing management’s process for developing the fair value of the reporting unit. |
|
| · | Evaluating the appropriateness of the discounted cash flow model utilized by the Company. |
|
| · | Testing the completeness and accuracy of underlying data used in the fair value estimate. |
|
| · | Evaluating the significant assumptions provided by management or developed by the third-party valuation specialist related to revenues, gross margin, other operating expenses, income taxes, long term growth rate, and discount rate to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. |
|
| · | In relation to the comparable transaction and guideline company approach, evaluating: (1) the reasonableness of the comparable companies and comparable transactions used; (2) the appropriateness of the market multiple used (enterprise value / revenue); and (3) the reasonableness of the market multiple values applied |
In addition, professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the discounted cash flow model, discount rate assumptions and market method approaches.
Evaluation of a Going Concern
Critical Audit Matter Description
As noted in the accompanying consolidated financial statements the Company suffered a net loss of $1,025,559, used net cash flows from operations of $521,485 for the year ended December 31, 2020, and has an accumulated deficit as of December 31, 2020 of $1,868,372, which raises doubt about its ability to continue as a going concern.In 2020, the Company: (1) had increased revenues year over year of 11% and managements expectation is for continued revenue growth; (2) ended 2020 with positive working capital of $741,606; and (3) subsequent to year end through a public offering, received net proceeds of approximately $10.9 million.
When considering these factors in conjunction with the Company’s operating plan, management believes it has sufficient ability to fund operations and satisfy the Company’s obligations as they come due for at least one year from the financial statement issuance date.
How the Critical Audit Matter was Addressed in the Audit
We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and execution uncertainty regarding the Company’s future cash flows and its impact on capital needs and the risk of bias in management’s judgments and assumptions in estimating these cash flows.
Our audit procedures related to the Company’s assertion on its ability to continue as a going concern included the following, among others:
|
| · | We performed testing procedures such as analytical procedures to identify conditions and events that indicate there could be substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. |
|
| · | We reviewed and evaluated management’s plans for dealing with the adverse effect of the conditions and events that raised doubt about the Company’s ability to continue as a going concern |
|
| · | We tested the reasonableness of management’s assessment of whether the Company has sufficient liquidity to fund operations for at least one year from the financial statement issuance date. |
|
| · | We inquired of Company management and reviewed company records to assess whether there are additional factors that contribute to the uncertainties disclosed. |
/s/ Sadler, Gibb & Associates, LLC
We have served as the Company’s auditor since 2013
Draper, UT
March 31, 2021
| F-3 |
| Table of Contents |
Consolidated Balance Sheets
|
|
| December 31, |
|
| December 31, |
| ||
|
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
| ||
| Assets |
|
|
|
|
|
| ||
| Current Assets |
|
|
|
|
|
| ||
| Cash and cash equivalents |
| $ | 199,536 |
|
| $ | 574,712 |
|
| Accounts receivable, net |
|
| 357,055 |
|
|
| 619,195 |
|
| Inventories, net |
|
| 517,338 |
|
|
| 557,710 |
|
| Prepaid expenses |
|
| 322,124 |
|
|
| 124,209 |
|
| Total Current Assets |
|
| 1,396,053 |
|
|
| 1,875,826 |
|
|
|
|
|
|
|
|
|
|
|
| Property and equipment, net |
|
| 289,251 |
|
|
| 198,110 |
|
| Right of use operating lease assets |
|
| 347,156 |
|
|
| 465,092 |
|
| Intangible assets, net |
|
| 632,209 |
|
|
| 673,429 |
|
| Goodwill |
|
| 120,136 |
|
|
| 120,136 |
|
| Security deposits |
|
| 26,707 |
|
|
| 27,821 |
|
|
|
|
|
|
|
|
|
|
|
| Total Assets |
| $ | 2,811,512 |
|
| $ | 3,360,414 |
|
|
|
|
|
|
|
|
|
|
|
| Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
| Current Liabilities |
|
|
|
|
|
|
|
|
| Accounts payable and accrued expenses |
|
| 113,541 |
|
| $ | 154,507 |
|
| Customer deposits |
|
| 15,300 |
|
|
| 35,680 |
|
| Current portion of financing lease |
|
| 32,084 |
|
|
| 30,556 |
|
| Current portion of operating lease |
|
| 87,930 |
|
|
| 130,628 |
|
| Current portion of notes payable |
|
| 205,592 |
|
|
| 169,697 |
|
| Line of credit |
|
| 200,000 |
|
|
| - |
|
| Total Current Liabilities |
|
| 654,447 |
|
|
| 521,068 |
|
|
|
|
|
|
|
|
|
|
|
| Long Term Liabilities |
|
|
|
|
|
|
|
|
| Finance lease, net of current portion |
|
| 51,159 |
|
|
| 83,376 |
|
| Operating lease, net of current portion |
|
| 267,050 |
|
|
| 338,344 |
|
| Notes payable, net of current portion |
|
| 1,398,574 |
|
|
| 1,323,953 |
|
| Total Liabilities |
|
| 2,371,230 |
|
|
| 2,266,741 |
|
|
|
|
|
|
|
|
|
|
|
| Commitments and Contingencies |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock, par value $0.001, 401,000 shares authorized, 0 and 1,000 shares issued and outstanding, respectively |
|
| - |
|
|
| 1 |
|
|
Common Stock, par value $0.001, 500,000,000 shares authorized, 4,839,448 and 2,454,316 shares |
|
|
|
|
|
|
|
|
| issued and outstanding, respectively |
|
| 4,839 |
|
|
| 2,455 |
|
| Common stock subscription payable |
|
| - |
|
|
| 24,480 |
|
| Additional paid-in capital |
|
| 2,303,815 |
|
|
| 1,909,550 |
|
| Accumulated deficit |
|
| (1,868,372 | ) |
|
| (842,813 | ) |
|
|
|
|
|
|
|
|
|
|
| Total Stockholders’ Equity |
|
| 440,282 |
|
|
| 1,093,673 |
|
|
|
|
|
|
|
|
|
| |
| Total Liabilities and Stockholders’ Equity |
| $ | 2,811,512 |
|
| $ | 3,360,414 |
|
See accompanying notes to the consolidated financial statements
| F-4 |
| Table of Contents |
Consolidated Statements of Operations
For The Years Ended December 31, 2020 and 2019
|
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
| ||
| Revenue |
| $ | 3,458,081 |
|
| $ | 3,122,630 |
|
|
|
|
|
|
|
|
|
|
|
| Cost of goods sold |
|
| 2,203,844 |
|
|
| 1,556,654 |
|
|
|
|
|
|
|
|
|
|
|
| Gross Profit |
|
| 1,254,237 |
|
|
| 1,565,976 |
|
|
|
|
|
|
|
|
|
|
|
| Selling, general and administrative expense |
|
| 2,170,183 |
|
|
| 1,483,979 |
|
|
|
|
|
|
|
|
|
|
|
| Income (Loss) From Operations |
|
| (915,946 | ) |
|
| 81,997 |
|
|
|
|
|
|
|
|
|
|
|
| Other Expenses |
|
|
|
|
|
|
|
|
| Interest expense, net |
|
| (109,613 | ) |
|
| (76,052 | ) |
|
|
|
|
|
|
|
|
|
|
| Income (Loss) Before Income Taxes |
|
| (1,025,559 | ) |
|
| 5,945 |
|
|
|
|
|
|
|
|
|
|
|
| Provision For Income Taxes |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Net Income (Loss) |
| $ | (1,025,559 | ) |
| $ | 5,945 |
|
|
|
|
|
|
|
|
|
|
|
| Net Income (Loss) Per Share; |
|
|
|
|
|
|
|
|
| Basic |
| $ | (0.37 | ) |
| $ | 0.00 |
|
| Diluted |
| $ | (0.37 | ) |
| $ | 0.00 |
|
|
|
|
|
|
|
|
|
|
|
| Weighted Average Shares Outstanding; |
|
|
|
|
|
|
|
|
| Basic |
|
| 2,782,303 |
|
|
| 2,429,666 |
|
| Diluted |
|
| 2,782,303 |
|
|
| 4,499,931 |
|
See accompanying notes to the consolidated financial statements
| F-5 |
| Table of Contents |
Consolidated Statements of Stockholders’ Equity
For The Years Ended December 31, 2020 and 2019
|
|
| Series A Convertible Preferred |
|
| Common Stock |
|
| Common |
|
| Additional |
|
|
|
| Total |
| |||||||||||||||
|
|
| Number of |
|
| Par |
|
| Number of |
|
| Par |
|
| Stock |
|
| Paid-In |
|
| Accumulated |
|
| Stockholders’ |
| ||||||||
|
|
| Shares |
|
| Value |
|
| Shares |
|
| Value |
|
| Payable |
|
| Capital |
|
| Deficit |
|
| Equity |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Balance, December 31, 2018 |
|
| 1,000 |
|
| $ | 1 |
|
|
| 2,416,816 |
|
| $ | 2,417 |
|
|
| - |
|
| $ | 1,761,645 |
|
| $ | (848,758 | ) |
| $ | 915,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock payable |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 24,480 |
|
|
|
|
|
|
| - |
|
|
| 24,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock based compensation |
|
| - |
|
|
| - |
|
|
| 37,500 |
|
|
| 38 |
|
|
| - |
|
|
| 147,905 |
|
|
| - |
|
|
| 147,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income for the year ended December 31, 2019 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5,945 |
|
|
| 5,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, December 31, 2019 |
|
| 1,000 |
|
| $ | 1 |
|
|
| 2,454,316 |
|
| $ | 2,455 |
|
| $ | 24,480 |
|
| $ | 1,909,550 |
|
| $ | (842,813 | ) |
| $ | 1,093,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock issued for common stock subscription payable |
|
| - |
|
|
| - |
|
|
| 22,500 |
|
|
| 22 |
|
|
| (24,480 | ) |
|
| 24,458 |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock issued for prepaid consulting |
|
| - |
|
|
| - |
|
|
| 225,000 |
|
|
| 225 |
|
|
| - |
|
|
| 234,775 |
|
|
| - |
|
|
| 235,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercise of warrants into Preferred A shares |
|
| 400,000 |
|
|
| 400 |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| 7,840 |
|
|
| - |
|
|
| 8,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Conversion of Series A Preferred Stock into common stock |
|
| (401,000 | ) |
|
| (401 | ) |
|
| 2,005,000 |
|
|
| 2,005 |
|
|
| - |
|
|
| (1,604 | ) |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock based compensation |
|
| - |
|
|
| - |
|
|
| 30,000 |
|
|
| 30 |
|
|
| - |
|
|
| 128,898 |
|
|
| - |
|
|
| 128,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock issued upon exercise of warrants |
|
| - |
|
|
| - |
|
|
| 102,632 |
|
|
| 102 |
|
|
| - |
|
|
| (102 | ) |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss for the year ended December 31, 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,025,559 | ) |
|
| (1,025,559 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, December 31, 2020 |
|
| - |
|
| $ | - |
|
|
| 4,839,448 |
|
| $ | 4,839 |
|
| $ | - |
|
| $ | 2,303,815 |
|
| $ | (1,868,372 | ) |
| $ | 440,282 |
|
See accompanying notes to the consolidated financial statements
| F-6 |
| Table of Contents |
Consolidated Statements of Cash Flows
For The Years Ended December 31, 2020 and 2019
|
|
| December 31, |
|
| December 31, |
| ||
| Cash Flows from Operating Activities: |
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
| ||
| Net (Loss) Income |
| $ | (1,025,559 | ) |
| $ | 5,945 |
|
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
| 91,837 |
|
|
| 53,879 |
|
| Amortization of prepaid consulting |
|
| 67,235 |
|
|
| 65,640 |
|
| Amortization of right-of-use operating lease asset |
|
| 135,075 |
|
|
| 75,558 |
|
| Stock based compensation |
|
| 128,928 |
|
|
| 118,023 |
|
| Amortization of debt discount |
|
| - |
|
|
| 24,465 |
|
| Changes in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
| 262,140 |
|
|
| (357,193 | ) |
| Inventories |
|
| 40,372 |
|
|
| 135,232 |
|
| Prepaid expenses |
|
| (30,150 | ) |
|
| 42,843 |
|
| Security deposits |
|
| 1,114 |
|
|
| (16,114 | ) |
| Accounts payable and accrued expenses |
|
| (40,966 | ) |
|
| 65,954 |
|
| Operating lease liability |
|
| (131,131 | ) |
|
| (69,250 | ) |
| Customer deposits |
|
| (20,380 | ) |
|
| (164,997 | ) |
|
|
|
|
|
|
|
|
|
|
| Net cash used in operating activities |
|
| (521,485 | ) |
|
| (20,015 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
| Cash paid in acquisition |
|
| - |
|
|
| (668,633 | ) |
| Purchase of equipment |
|
| (71,619 | ) |
|
| (12,653 | ) |
| Net cash used in investing activities |
|
| (71,619 | ) |
|
| (681,286 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
| Proceeds from line of credit |
|
| 300,000 |
|
|
| - |
|
| Repayment of line of credit |
|
| (100,000 | ) |
|
| (72,897 | ) |
| Proceeds from exercise of warrants |
|
| 8,240 |
|
|
| - |
|
| Repayments on finance lease |
|
| (30,689 | ) |
|
| (29,181 | ) |
| Proceeds from notes payable |
|
| 232,200 |
|
|
| 1,325,535 |
|
| Repayment of notes payable |
|
| (191,823 | ) |
|
| (389,542 | ) |
| Net cash provided by financing activities |
|
| 217,928 |
|
|
| 833,915 |
|
|
|
|
|
|
|
|
|
|
|
| Net change in cash and cash equivalents |
|
| (375,176 | ) |
|
| 132,614 |
|
|
|
|
|
|
|
|
|
|
|
| Cash and Cash Equivalents, Beginning of Period |
|
| 574,712 |
|
|
| 442,098 |
|
|
|
|
|
|
|
|
|
|
|
| Cash and Cash Equivalents, End of Period |
| $ | 199,536 |
|
| $ | 574,712 |
|
|
|
|
|
|
|
|
|
|
|
| Supplemental disclosures: |
|
|
|
|
|
|
|
|
| Cash paid for interest expense |
| $ | 107,007 |
|
| $ | 51,891 |
|
| Cash paid for income taxes |
| $ | 200 |
|
| $ | 50 |
|
|
|
|
|
|
|
|
|
|
|
| Non-Cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
| Common stock issued for prepaid consulting |
| $ | 235,000 |
|
| $ | - |
|
| Original issuance discount |
| $ | - |
|
| $ | 24,465 |
|
| Adoption of ASC 842 operating lease asset and liability |
| $ | - |
|
| $ | 540,651 |
|
| Promissory note on equipment |
| $ | 70,139 |
|
| $ | 58,192 |
|
| Equipment received for prepaid assets |
| $ | 58,192 |
|
| $ | - |
|
| Common stock issued for common stock payable |
| $ | 24,480 |
|
| $ | - |
|
| Cashless exercise of warrant |
| $ | 103 |
|
| $ | - |
|
| Promissory note issued in Specialty acquisition |
| $ | - |
|
| $ | 475,000 |
|
| Intangible assets acquired in Specialty acquisition |
| $ | - |
|
| $ | 806,000 |
|
| Inventory acquired in Specialty acquisition |
| $ | - |
|
| $ | 301,754 |
|
| Property acquired in Specialty acquisition |
| $ | - |
|
| $ | 46,156 |
|
| Liabilities assumed in Specialty acquisition |
| $ | - |
|
| $ | 10,277 |
|
| Right of use asset in exchange for right of use liabilities |
| $ | 17,138 |
|
| $ | - |
|
See accompanying notes to the consolidated financial statements
| F-7 |
| Table of Contents |
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
(1) Organization and Business Description
AmpliTech Group Inc. (“AmpliTech” or “the Company”) was incorporated under the laws of the State of Nevada on December 30, 2010. On August 13, 2012, the Company acquired AmpliTech Inc., by issuing 833,750 shares of the Company’s Common Stock to the shareholders of AmpliTech Inc. in exchange for 100% of the outstanding shares of AmpliTech Inc. (“the Share Exchange”). After the Share Exchange, the selling shareholders owned 60,000 shares of the outstanding 889,250 shares of Company common stock, resulting in a change in control. Accordingly, the transaction was accounted for as a reverse acquisition in which AmpliTech, Inc. was deemed to be the accounting acquirer, and the operations of the Company were consolidated for accounting purposes. The capital balances have been retroactively adjusted to reflect the reverse acquisition.
AmpliTech designs, engineers and assembles microwave component based low noise amplifiers (“LNA”) that meet individual customer specifications. Application of the Company’s proprietary technology results in maximum frequency gain with minimal background noise distortion as required by each customer. The Company has both domestic and international customers in such industries as aerospace, governmental, defense and commercial satellite.
On September 12, 2019, Amplitech Group Inc. acquired substantially all of the assets of Specialty Microwave Corporation (SMW), a privately held company based in Ronkonkoma, NY. The purchase included all inventory, orders, customers,property and equipment, and goodwill. Following the closing of the asset purchase, we hired all eight team members of SMW. In connection with the acquisition, the Company began using the trade name “Specialty Microwave”. The total consideration paid was $1,143,633, consisting of $668,633 in cash and a $475,000 promissory note with an interest rate of 6%. (See Note 4)
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.
| F-8 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
The COVID-19 Pandemic
The COVID-19 pandemic has caused significant worldwide disruption throughout the course of 2020 and resulted in the imposition of various public and private sector measures to try to contain the virus, on a local, state, national and international level, such as travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders, and shutdowns. These measures have temporarily impacted our workforce and operations and some of the operations of our customers, and vendors, suppliers, and partners. The ultimate impact and efficacy of government measures and potential future measures is currently unknown.
There is uncertainty regarding the business impacts from such measures and potential future measures. While we have been able to continue our operations through a combination of work-from-home and social distancing policies implemented to protect employees, these measures have resulted in reduced workforce availability. Accordingly, we resumed operations on May 5, 2020, with the CDC safeguard guidelines in place. Difficulties in communicating with our customers’ employees and delivery delays due to COVID-19 may impact our ability to meet customer demand, and thus decrease revenue into 2021 and negatively impact our financial condition and results of operations.
(2) Summary of Significant Accounting Policies
Basis of Accounting
The accompanying consolidated financial statements have been prepared using the accrual basis of accounting.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers deposits that can be redeemed on demand and investments that have original maturities of less than three months, when purchased, to be cash equivalents. As of December 31, 2020, the Company’s cash and cash equivalents were deposited in two financial institutions.
| F-9 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
Accounts Receivable
Trade accounts receivable are recorded at the net invoice value and are not interest bearing.
The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change in the future. An allowance of $125,400 and $0 has been recorded at December 31, 2020 and 2019, respectively.
Inventories
Inventories, which consist primarily of raw materials, work in progress and finished goods, is stated at the lower of cost (first-in, first-out basis) or market (net realizable value).
Inventory quantities and related values are analyzed at the end of each fiscal quarter to determine those items that are slow moving and obsolete. An inventory reserve is recorded for those items determined to be slow moving with a corresponding charge to cost of goods sold. Inventory items that are determined obsolete are written off currently with a corresponding charge to cost of goods sold.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Property and equipment are depreciated as follows:
| Description |
| Useful Life |
| Method |
| Office equipment |
| 7 years |
| Straight-line |
| Machinery and equipment |
| 5 to 7 years |
| Straight-line |
| Computer equipment |
| 3 to 7 years |
| Straight-line |
| Vehicles |
| 5 years |
| Straight-line |
Long-lived assets
Long lived assets, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances which could trigger a review include, but are not limited to; significant decrease in the market price of the asset; significant adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.
| F-10 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
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.
Goodwill and Intangible Assets
Intangible assets include goodwill, trademarks, intellectual property and customer base acquired through the asset purchase of Specialty Microwave. The Company accounts for Other Intangible Assets under the guidance of ASC 350, “Intangibles-Goodwill and Other.” Under the guidance, other intangible assets with definite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are tested annually for impairment. Goodwill is not amortized. We test goodwill balances for impairment annually at December 31 or whenever impairment indicators arise.
Leases
On January 1, 2019, we adopted ASU No. 2016-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized on the balance sheet. We adopted this standard using the modified retrospective approach with an effective date as of the beginning of January 2019. Prior year financial statements were not restated under the new standard. We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the lease term. The Company has elected not to separate lease and non-lease components for all property leases for the purpose of calculating ROU assets and lease liabilities. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis considering such factors as lease term and economic environment risks.
Revenue Recognition
We sell our products through a combination of a direct sales force in the United States and independent sales representatives in international markets. Revenue is recognized when a customer obtains control of promised goods based on the consideration we expect to receive in exchange for these goods. This core principle is achieved through the following steps:
Identify the contract with the customer. A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods to be transferred and identifies the payment terms related to these goods, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. We do not have significant costs to obtain contracts with customers. For commissions on product sales, we have elected the practical expedient to expense the costs as incurred.
| F-11 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
Identify the performance obligations in the contract. Generally, our contracts with customers do not include multiple performance obligations to be completed over a period. Our performance obligations generally relate to delivering single-use products to a customer, subject to the shipping terms of the contract. Limited warranties are provided, under which we typically accept returns and provide either replacement parts or refunds.
We do not have significant returns. We do not typically offer extended warranty or service plans.
Determine the transaction price. Payment by the customer is due under customary fixed payment terms, and we evaluate if collectability is reasonably assured. None of our contracts as of December 31, 2020 contained a significant financing component. Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns, rebates, discounts, and other adjustments. The estimates of variable consideration are based on historical payment experience, historical and projected sales data, and current contract terms. Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur
when the uncertainty associated with the variable consideration is subsequently resolved. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.
Allocate the transaction price to performance obligations in the contract. We typically do not have multiple performance obligations in our contracts with customers. As such, we generally recognize revenue upon transfer of the product to the customer’s control at contractually stated pricing.
Recognize revenue when or as we satisfy a performance obligation. We generally satisfy performance obligations at a point in time upon either shipment or delivery of goods, in accordance with the terms of each contract with the customer. We do not have significant service revenue.
Reserves are recorded as a reduction in net sales and are not considered material to our consolidated statements of income for the years ended December 31, 2020 and 2019.
Research and Development
Research and development expenditures are charged to operations as incurred. The major components of research and development costs include consultants, outside service, and supplies. Research and development costs for the years ended December 31, 2020 and 2019 were $ 61,953 and $ 56,507.
| F-12 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
Income Taxes
The Company’s deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of certain assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 31, 2020, the Company had no material unrecognized tax benefits.
Earnings Per Share
Basic earnings per share (“EPS”) are determined by dividing the net earnings by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding under the treasury stock method. As of December 31, 2020, and 2019, there were 0 and 2,005,000 potentially dilutive shares that need to be considered as common share equivalents.
The computation of weighted average shares outstanding and the basic and diluted earnings per share consisted of the following:
|
|
| Net (Loss) Income |
|
| Shares |
|
| Per Share Amount |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
| For the year ended December 31, 2020: |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
| |||
| Basic EPS |
| $ | (1,025,559 | ) |
|
| 2,782,303 |
|
| $ | (0.37 | ) |
| Effect of dilutive stock options, warrants and series A shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted EPS |
| $ | (1,025,559 | ) |
|
| 2,782,303 |
|
| $ | (0.37 | ) |
| For the year ended December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic EPS |
| $ | 5,945 |
|
|
| 2,429,666 |
|
| $ | 0.00 |
|
| Effect of dilutive stock options, warrants and series A shares |
|
|
|
|
|
| 2,070,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted EPS |
| $ | 5,945 |
|
|
| 4,499,931 |
|
| $ | 0.00 |
|
| F-13 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
Fair Value of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined in the following categories as follows:
Level 1. Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Cash and cash equivalents are valued using inputs in Level 1.
Level 2. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3. Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company’s own data.
Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.
Concentration of Credit Risk
Financial instruments that potentially subject the company to concentration of credit risk consist primarily of accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. Therefore, management does not believe significant credit risks exist at December 31, 2020.
| F-14 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the fair value measurements disclosures with the primary focus to improve effectiveness of disclosures in the notes to the financial statements that is most important to the users. The new guidance modifies the required disclosures related to the valuation techniques and inputs used, uncertainty in measurement, and changes in measurements applied. The adoption of this standard became effective for us on January 1, 2020 and did not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We are currently assessing the impact of this standard on our combined financial statements.
We do not expect the adoption of these or other recently issued accounting pronouncements to have a significant impact on our results of operation, financial position or cash flow.
3) Revenues
The following table presents sales disaggregated based on geographic regions and for the years ended:
|
|
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Domestic sales |
| $ | 2,720,342 |
|
| $ | 2,161,445 |
|
| International sales |
|
| 737,739 |
|
|
| 961,185 |
|
| Total sales |
| $ | 3,458,081 |
|
| $ | 3,122,630 |
|
| F-15 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
(4) Acquisition of Specialty Microwave
On September 12, 2019, AmpliTech Group Inc. acquired substantially all of the operating assets of Specialty Microwave Corporation (SMW), a privately held company based in Ronkonkoma, NY. The purchase included all inventory, orders, customers, property and equipment, and all goodwill. Following the closing of the asset purchase, we hired all eight team members of SMW. In connection with the acquisition, the Company began using the trade name “Specialty Microwave”. The total consideration paid was $1,143,633, consisting of $668,633 in cash and a $475,000 promissory note with an interest rate of 6%. Additional acquisition costs that were expensed at December 31, 2019 totaled approximately $77,000. The Company also entered a five- year lease on the property located at 120 Raynor Avenue, Ronkonkoma, NY with an option to buy the property during the first two years of the lease for $1.2 mm and then at fair market value for the remainder of the lease term.
As both companies are similar in nature, the acquisition will allow the combined resources and customer base to support more productivity and help in the development of new product lines. We started consolidating both companies for financial reporting purposes as of September 12, 2019.
The fair value of the purchase consideration issued to Specialty Microwave was allocated to the net tangible assets acquired. The Company accounted for the Acquisition as the purchase of a business under GAAP under the acquisition method of accounting, and the assets and liabilities acquired were recorded as the acquisition date, at their respective fair values and consolidated with those of the Company. The fair value of the net assets acquired was approximately $337,633. The excess of the aggregate fair value of the net tangible assets has been allocated to net intangible assets of $806,000.
The following table summarizes the allocation of the purchase price of the acquisition:
| Provisional purchase consideration at fair value: |
|
|
| |
| Cash |
| $ | 668,633 |
|
| Promissory Note |
|
| 475,000 |
|
| Total purchase price |
| $ | 1,143,633 |
|
|
|
|
|
|
|
| Allocation of purchase price: |
|
|
|
|
| Inventory |
| $ | 301,754 |
|
| Property and equipment |
|
| 46,156 |
|
| Goodwill |
|
| 120,136 |
|
| Tradename |
|
| 70,233 |
|
| Customer relationships |
|
| 412,860 |
|
| Intellectual property |
|
| 202,771 |
|
| Less: Customer Deposit |
|
| (10,277 | ) |
| Net assets acquired |
| $ | 1,143,633 |
|
(5) Inventories
The inventory value at December 31, 2020 and 2019 were as follows:
|
|
| December 31, |
|
| December 31, |
| ||
|
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
| ||
| Raw Materials |
| $ | 325,251 |
|
| $ | 403,397 |
|
| Work-in Progress |
|
| 129,882 |
|
|
| 135,223 |
|
| Finished Goods |
|
| 128,479 |
|
|
| 124,510 |
|
| Engineering Models |
|
| 3,726 |
|
|
| 3,726 |
|
|
|
|
|
|
|
|
|
|
|
| Subtotal |
| $ | 587,338 |
|
| $ | 666,856 |
|
| Less: Reserve for Obsolescence |
|
| (70,000 | ) |
|
| (109,146 | ) |
|
|
|
|
|
|
|
|
|
|
| Total |
| $ | 517,338 |
|
| $ | 557,710 |
|
(6) Property and Equipment
Property and Equipment consisted of the following at December 31, 2020 and 2019:
|
|
| December 31, |
|
| December 31, |
| ||
|
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
| ||
| Lab Equipment |
| $ | 865,414 |
|
| $ | 728,620 |
|
| Manufacturing Equipment |
|
| 25,000 |
|
|
| 25,000 |
|
| Automobiles |
|
| 19,527 |
|
|
| 19,527 |
|
| Furniture and Fixtures |
|
| 36,165 |
|
|
| 31,201 |
|
|
|
|
|
|
|
|
|
|
|
| Subtotal |
|
| 946,106 |
|
|
| 804,348 |
|
| Less: Accumulated Depreciation |
|
| (656,855 | ) |
|
| (606,238 | ) |
|
|
|
|
|
|
|
|
|
|
| Total |
| $ | 289,251 |
|
| $ | 198,110 |
|
Depreciation expense for years ended December 31, 2020 and 2019 was $50,617 and $41,443, respectively.
| F-16 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
(7) Intangible Assets
Goodwill
The goodwill is related to the acquisition of Specialty Microwave Corp. on September 12, 2019 and is primarily related to expected improvements and technology performance and functionality, as well sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition. Goodwill is generally not amortizable for tax purposes and is not amortizable for financial statement purposes. As of December 31, 2020, goodwill is valued at $120,136.
Other Intangible Assets
Intangible assets with an estimated useful life of fifteen years consisted of the following at December 31, 2020:
|
|
| Gross Carrying |
|
| Accumulated |
|
|
|
|
| Weighted |
| ||||
|
|
| Amount |
|
| Amortization |
|
| Net |
|
| Average Life |
| ||||
| Trade name |
| $ | 70,233 |
|
| $ | - |
|
| $ | 70,233 |
|
| Indefinite |
| |
| Customer relationships |
|
| 412,860 |
|
|
| 35,894 |
|
|
| 376,966 |
|
|
| 13.7 |
|
| Intellectual Property |
|
| 202,771 |
|
|
| 17,761 |
|
|
| 185,010 |
|
|
| 13.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ | 685,864 |
|
| $ | 53,655 |
|
| $ | 632,209 |
|
|
|
|
|
Amortization expense for the years ended December 31, 2020 and 2019 was $41,221 and $12,435, respectively.
Annual amortization of intangible assets are as follows:
| 2021 |
|
| 41,042 |
|
| 2022 |
|
| 41,042 |
|
| 2023 |
|
| 41,042 |
|
| 2024 |
|
| 41,042 |
|
| 2025 |
|
| 41,042 |
|
| Thereafter |
|
| 356,766 |
|
|
|
| $ | 561,976 |
|
(8) Line of Credit
On September 12, 2019, AmpliTech entered into a new business line of credit for $500,000 maturing on October 1, 2020. The line is evaluated monthly on a borrowing base formula advancing 75% of accounts receivables aged less than 90 days and 50% of inventory raw materials costs. The interest rate shall be based upon the Wall Street Journal Prime Rate, plus 1%. The Company has the option to prepay all or any portion of the amount owed prior to its due date without penalty.
| F-17 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
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.
On November 20, 2020, the Company entered into a new business line of credit for $750,000, maturing on November 1, 2021 with the same covenants listed above.
As of December 31, 2020, the outstanding balance on the line of credit was $200,000 with accrued interest of $1,283. As of December 31, 2019, the outstanding balance on the line of credit was $0.
(9) Leases
We adopted ASC 842 “Leases” using the modified retrospective approach, electing the practical expedient that allows us not to restate our comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption.
The following was included in our balance sheet as of December 31, 2020 and 2019:
| Operating leases |
| December 31, 2020 |
|
| December 31, 2019 |
| ||
|
|
|
|
|
|
|
| ||
| Assets |
|
|
|
|
|
| ||
| ROU operating lease assets |
| $ | 347,156 |
|
| $ | 465,092 |
|
|
|
|
|
|
|
|
|
|
|
| Liabilities |
|
|
|
|
|
|
|
|
| Current portion of operating lease |
| $ | 87,930 |
|
| $ | 130,628 |
|
| Operating lease, net of current portion |
| $ | 267,050 |
|
| $ | 338,344 |
|
| Total operating lease liabilities |
| $ | 354,980 |
|
| $ | 468,972 |
|
|
|
|
|
|
|
|
|
|
|
| Finance leases |
|
|
|
|
|
|
|
|
| Assets |
|
|
|
|
|
|
|
|
| Property and equipment, gross |
| $ | 157,184 |
|
| $ | 157,184 |
|
| Accumulated depreciation |
|
| (56,137 | ) |
|
| (33,682 | ) |
| Property and equipment, net |
| $ | 101,047 |
|
| $ | 123,502 |
|
| Liabilities |
|
|
|
|
|
|
|
|
| Current portion of financing lease |
| $ | 32,084 |
|
| $ | 30,556 |
|
| Finance lease, net of current portion |
| $ | 51,159 |
|
|
| 83,376 |
|
| Total operating lease liabilities |
| $ | 83,243 |
|
| $ | 113,932 |
|
| F-18 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
The weighted average remaining lease term and weighted average discount rate at December 31, 2020 and 2019 were as follows:
| Weighted average remaining lease term (years) |
| December 31, 2020 |
|
| December 31, 2019 |
| ||
| Operating leases |
|
| 3.72 |
|
|
| 4.18 |
|
| Finance leases |
|
| 2.50 |
|
|
| 3.50 |
|
| Weighted average discount rate |
|
|
|
|
|
|
|
|
| Operating leases |
|
| 6.33 |
|
|
| 6.34 | % |
| Finance leases |
|
| 4.89 |
|
|
| 4.89 | % |
Finance Lease
The Company entered into a 60-month lease agreement to finance certain laboratory equipment in July 2018 with a purchase option of $1. As such, the Company has accounted for this transaction as a finance lease.
The following table reconciles future minimum finance lease payments to the discounted lease liability as of December 31, 2020:
| 2021 |
|
| 37,778 |
|
| 2022 |
|
| 37,778 |
|
| 2023 |
|
| 18,889 |
|
| Total lease payments |
|
| 94,445 |
|
| Less imputed interest |
|
| (5,360 | ) |
| Less sales tax |
|
| (5,842 | ) |
| Total lease obligations |
|
| 83,243 |
|
| Less current obligations |
|
| (32,084 | ) |
| Long-term lease obligations |
| $ | 51,159 |
|
| F-19 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
Operating Leases
On December 4, 2015, the Company entered into a new operating lease agreement to rent office space in Bohemia, NY. This five-year agreement commenced February 1, 2016 with an annual rent of $50,000 and 3.75% increases in each successive lease year.
On January 15, 2016, the Company entered into a five-year agreement to lease 2 copiers with and annual payment of $2,985. This lease was terminated on November 16, 2020 and the Company entered into a new five-year agreement to lease 2 copiers with an annual payment of $3,976.
On September 12, 2019, the Company entered into a new operating lease agreement to rent office space in Ronkonkoma, NY. This five- year agreement commenced on September 12, 2019 with an annual rent of $90,000 and 3% increase in each successive lease year beginning in 2021. The Company has an option to buy the property during the first two years of the lease for $1,200,000 and then at fair market value for the remainder of the lease term.
On November 27, 2019, the Company entered a 39-month agreement to lease an automobile with a monthly payment of $420
The following table reconciles future minimum operating lease payments to the discounted lease liability as of December 31, 2020:
| 2021 |
|
| 106,825 |
|
| 2022 |
|
| 104,497 |
|
| 2023 |
|
| 102,741 |
|
| 2024 |
|
| 79,848 |
|
| 2025 |
|
| 3,645 |
|
| Total lease payments |
|
| 397,655 |
|
| Less imputed interest |
|
| (42,675 | ) |
| Total lease obligations |
|
| 354,980 |
|
| Less current obligations |
|
| (87,930 | ) |
| Long-term lease obligations |
| $ | 267,050 |
|
(10) Notes Payable
Promissory Note:
On September 12, 2019, AmpliTech Group Inc. acquired Specialty Microwave Corporation (SMW), a privately held company based in Ronkonkoma, NY. The purchase included all inventory, orders, customers, property and equipment, and all intellectual property. The assets also included all eight team members of SMW. The total consideration paid was $1,143,633, consisting of $668,633 in cash and a $475,000 promissory note with an interest rate of 6%. Beginning November 1, 2019, payment of principal and interest shall be due payable in fifty-nine (59) monthly payments of $9,213 with a final payment due October 1, 2024 of $9,203. As of December 31, 2020, and 2019, the balance of this promissory note was $369,516 and $454,544, respectively. Principal payments of $85,028 along with interest expense of $25,536 was paid during the year ended December 31, 2020. Principal payments of $20,456 along with interest expense of $7,185 was paid for the year ended December 31, 2019. The promissory note is secured by certain assets of the Company.
| F-20 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
Loan Payable:
On September 12, 2019, the Company entered a $1,000,000 seven- year term loan with amortization based on a ten- year repayment schedule. The loan bears interest at a fixed rate of 6.75% with a monthly repayment amount of $11,533. As of December 31, 2020, and 2019, the balance of the loan was $909,475 and $982,423, respectively. Interest expense for December 31, 2020 and 2019, was $65,498 and $17,022, respectively. This loan is collateralized by all Company assets.
On April 20, 2020, the Company entered into a Paycheck Protection Program Promissory Note (“PPP Note”) in the principal amount of $232,200 (“PPP Loan”) from BNB Bank (“PPP Loan Lender”). The PPP Loan was obtained pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid Relief and Economic Security Act (“CARES Act”) administered by the U.S Small Business Administration (“SBA”). The PPP Loan was disbursed by the PPP Loan Lender on April 20, 2020 (the “Disbursement Date”). The PPP Loan bears an interest at 1.00% per annum and will mature two years from the Disbursement Date. The Company is in the process of applying for PPP Loan forgiveness. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used by the Company for 2020 payroll costs, mortgage interest payments, rent and utilities. This has helped to offset some of the adverse effects of this pandemic and allowed us to serve our customers at a reduced capacity but without experiencing any cancellation of our open orders.
In addition, on September 12, 2019, the Company was approved for a $250,000 equipment leasing facility. The Company has borrowed against the leasing facility as follows:
|
| · | On December 20, 2019, the Company borrowed $58,192 to be paid over a three-year term with monthly payments of $ 1,736 at an interest rate of 5.26%. The balance as of December 31, 2020 and 2019 was $38,011 and $56,683. |
|
| · | On May 14, 2020, the Company borrowed $27,494 to be paid over a three-year term with monthly payments of $815 at an interest rate of 4.268%. The balance as of December 31, 2020 was $21,620. |
|
| · | On June 10, 2020, the Company borrowed $41,015 to be paid over a three-year term with monthly payments of $1,216 at an interest rate of 4.278%. The balance as of December 31, 2020 was $33,343. |
| F-21 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
Future principal payments over the term of the loans as of December 31, 2020 are as follows:
|
|
| Payments |
| |
| 2021 |
|
| 205,592 |
|
| 2022 |
|
| 349,333 |
|
| 2023 |
|
| 306,009 |
|
| 2024 |
|
| 186,035 |
|
| 2025 |
|
| 103,254 |
|
| Thereafter |
|
| 453,943 |
|
| Total remaining payments |
| $ | 1,604,166 |
|
| F-22 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
(11) Income Taxes
The provision for (benefit from) income taxes for the years ended December 31, 2020 and 2019 are as follows, at the expected combined effective tax rate of approximately 26%.
|
|
| December 31, |
| |||||
|
|
| 2020 |
|
| 2019 |
| ||
| Federal and state net operating loss |
| $ | (215,367 | ) |
| $ | 1,248 |
|
| Meals & entertainment |
|
| 41 |
|
|
| 90 |
|
| Life insurance |
|
| 825 |
|
|
| 825 |
|
| Goodwill |
|
| (1,682 | ) |
|
| (888 | ) |
| Stock-based compensation |
|
| 41,194 |
|
|
| 24,785 |
|
| Depreciation |
|
| 1,598 |
|
| (5,474 | ) | |
| State tax, net of federal benefit |
|
| 10,768 |
|
|
| (62 | ) |
| Other |
|
| (3,344 | ) |
|
| (3,344 | ) |
| Tax rate change |
|
|
|
|
|
| - |
|
| Total income tax provision |
| $ | - |
|
| $ | - |
|
The provision for Federal income tax consists of the following for the years ended December 31, 2020 and 2019 :
|
|
| 2020 |
|
| 2019 |
| ||
| Net operating loss carryforwards |
| $ | 151,469 |
|
| $ | 19,273 |
|
| Depreciation |
|
| 4,789 |
|
| 3,191 |
| |
| Goodwill amortization |
|
| (1,682 | ) |
|
| (888 | ) |
| Stock based compensation |
|
| 220,322 |
|
|
| 137,934 |
|
| Valuation allowance |
|
| (374,898 | ) |
|
| (159,510 | ) |
| 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, 2020, the Company has net federal and state net operating loss carry forwards of approximately $917,000 that begin to expire in 2037.
| F-23 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
(12) Stockholders’ Equity
The total number of shares of stock this Corporation is authorized to issue shall be five hundred one million (501,000,000) shares, par value $0.001 per share. This stock shall be divided into two classes to be designated as “Blank Check Preferred Stock” (“Preferred Stock”) and “Common Stock”.
Preferred Stock
On July 10, 2013, the Board of Directors of the Company approved a certificate of amendment to the articles of incorporation and changed the authorized capital stock of the Company to include and authorize 500,000 shares of Preferred Stock, par value $0.001 per share. On October 7, 2020, the Board of Directors of the Company approved a certificate of amendment to the articles of incorporation and changed the total number of authorized shares of Preferred Stock to be 1,000,000 shares, $0.001 per share.
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 October 7, 2020, our Board of Directors and our stockholders approved a resolution to amend and restate the certificate of designation of preferences, rights and limitations of Series A Convertible Preferred Stock to restate that there are 401,000 shares of the Company’s blank check Preferred Stock designated as Series A Convertible Preferred Stock. The amended and restated certificate clarifies that the Series A Convertible Preferred Stock convert at a rate of five shares of the Company’s common stock for every share of Series A Convertible Preferred Stock, and also restates that the Series A Convertible Preferred Stock shall be entitled to vote on all matters submitted to shareholders of the Company for each share of Series A Convertible Preferred Stock owned on the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, on the date such vote is taken or any written consent of shareholders is solicited. The number of votes entitled to be cast by the holders of the Series A Convertible Preferred Stock equals that number of votes that, together with votes otherwise entitled to be cast by the holders of the Series A Convertible Preferred Stock at a meeting, whether by virtue of stock ownership, proxies, voting trust agreements or otherwise, entitle the holders to exercise 51% of all votes entitled to be cast to approve any action which Nevada law provides may or must be approved by vote or consent of the holders of common stock entitled to vote.
| F-24 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
On November 20, 2020, the Company issued 2,005,000 shares of common stock to Fawad Maqbool, the Chief Executive Officer of the Company. 5,000 of the shares were issued at par value upon the conversion of 1,000 shares of Preferred Series A Stock. The remaining 2,000,000 of the shares were issued pursuant to the exercise by Mr. Maqbool of options to purchase 400,000 shares of Preferred Series A Stock, at an exercise price of $1.03 per share, which were then converted into 2,000,000 shares of Common Stock.
In April 2015, the Board of Directors of the Company designated 75,000 shares of Preferred Stock as Series B Convertible Preferred Stock (or “Series B”). The Series B shares are convertible into common stock at a conversion rate of one Series B share for 289 common shares. In addition, a holder of Series B Preferred Stock shall not be entitled to have any voting rights and shall hold a liquidation preference junior to a holder of Series A shares and pari passu with common shareholders. There are currently no shares of Series B outstanding. On October 7, 2020, the Board of Directors withdrew the Series B preferred stock designation.
Common Stock:
The Company originally authorized 50,000,000 shares of common stock with a par value of $0.001. Effective May 20, 2014, the Company increased its authorized shares of common stock from 50,000,000 to 500,000,000.
On December 7, 2020, the Board of Directors approved a reverse stock split of the Company’s common stock, in connection with a potential listing onto NASDAQ in a ratio to be determined by the Board based on market conditions and the Company’s trading price at the time of such reverse split in the range of 1:20 to 1:200, while the authorized shares of common stock remain at 500,000,000. The reverse stock split became effective February 17, 2021 as of 12:01 a.m. Eastern Time. All per share amounts and number of shares in the consolidated financial statements and related notes have been retroactively restated to reflect the reverse stock split.
On October 15, 2019, the Company engaged Maxim Group LLC (“Maxim”) as its financial advisor to assist the Company in growth strategy to the investment community with an ultimate goal of a potential up-list and capital raise on NASDAQ.
As consideration for Maxim’s services, Maxim shall be entitled to receive, and the Company agrees to pay Maxim, the following compensation:
|
| (a) | The Company will issue to Maxim or its designees 100,000 shares of the Company’s Common Stock (“Common Stock”) based on the following schedule: |
|
| i. | 27,500 restricted shares of Common Stock upon the execution of the Agreement implying a price per share of $0.10. These shares were valued on October 15, 2019 at $0.054 with a value of $29,920. As of December 31, 2020, the full amount of $29,920 was expensed as consulting fees and the shares were issued on January 13, 2020. |
|
|
|
|
|
| ii. | $54,000 payable in 22,500 restricted shares of Common Stock six months from the date of the Agreement implying a price per shares of $0.12. These shares were valued on October 15, 2019 at a price of $0.054 with a value of $24,480 and classified as common stock subscription payable as they had not been issued. On July 9, 2020, Maxim was issued 22,500 shares of common stock in exchange for the common stock subscription payable. During the year ended December 31, 2019, $24,480 was expensed as consulting fees. |
|
|
|
|
|
| iii. | 50,000 restricted shares of Common Stock 90 days following the up listing of the Company’s Common Stock to NASDAQ. |
On July 2, 2019, Amplitech Group, Inc. entered an engagement for strategic intellectual property consulting services with ipCapital Group (“ipCG”), to assist in the formulation and execution of Amplitech’s intellectual property (“IP”) strategy around its proprietary trade secrets, knowhow and technology to formulate a comprehensive “ipStory”. The consideration paid to ipCG is $30,000, of which ipCG has agreed to accept 200,000 shares of restricted common stock upon completion of the project. These shares were issued on October 15, 2019 at a value of $14,000.
On July 9, 2020, Maxim was issued 22,500 shares of common stock in exchange for common stock payable.
On July 28, 2020, Wayne Homschek elected to exercise 150,000 of his cashless warrants and 102,632 of common stock was issued.
| F-25 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
On October 12, 2020, the Company engaged service providers for services related to the NASDAQ up list totaling $100,000 and were issued 100,000 shares of common stock under the Company’s equity incentive plan immediately following the filing of a Registration Statement on Form S-8 and were issued without restrictions. As of December 31, 2020, $90,000 was classified as a prepaid expense.
On October 16, 2020, the Company entered into an advisory agreement to assist in product sales and distribution in Asia and the Middle East. The advisor will be paid compensation of 100,000 shares totaling $108,000 over a two- year period. These shares were issued under the Company’s equity incentive plan immediately following the filing of a Registration Statement on Form S-8 and were issued without restrictions. As of December 31, 2020, $11,244 of expense had been recognized and $96,756 remained as a prepaid to be amortized over a two- year period.
On October 16, 2020, the Company entered into a public relations service agreement whereby the consultant will be paid compensation of 25,000 shares totaling $27,000 over a nine-month period. These shares were issued under the Company’s equity incentive plan immediately following the filing of a Registration Statement on Form S-8 and were issued without restrictions. As of December 31, 2020, $9,000 of expense had been recognized and $18,000 remained as a prepaid to be amortized over nine months.
On November 20, 2020, the Company issued 2,005,000 shares of common stock to Fawad Maqbool, the Chief Executive Officer of the Company. 5,000 of the shares were issued at par value upon the conversion of 1,000 shares of Preferred Series A Stock. The remaining 2,000,000 of the shares were issued pursuant to the exercise by Mr. Maqbool of options to purchase 400,000 shares of Preferred Series A Stock, at an exercise price of $1.03 per share, which were then converted into 2,000,000 shares of Common Stock.
On December 18, 2020, the Company issued 30,000 shares of common stock under the Company’s stock option plan as stock compensation totaling $90,000.
| F-26 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
Options:
During 2014, the Company granted the chief executive officer of the Company an immediately exercisable option to purchase an aggregate of 400,000 shares of Series A at an exercise price of $0.0206 per share. There is no expiration date for this option and the related expense has been recorded in prior years. On November 20, 2020 cash proceeds of $8,240 were received and the options were exercised for 2,000,000 shares of common stock.
Warrants:
On April 25, 2019, Wayne Homschek joined the Board of Directors as an independent Director who aided in corporate strategy, financing and investor relations. He was paid $5,000 per month for one year and receive a warrant, exercisable into 150,000 shares of common stock at an exercise price of $0.60 per share. As per the agreement, 75,000 warrants vested in six months and the remaining balance of 75,000 vested one year later. The following table summarizes the warrants outstanding of the Company for the year ended December 31, 2020:
|
|
| Number of |
|
| Weighted Average |
| ||
|
|
| Warrants |
|
| Exercise Price ($) |
| ||
| Outstanding at December 31, 2019 |
|
| 150,000 |
|
|
| .60 |
|
| Granted |
|
| - |
|
|
| - |
|
| Exercised |
|
| (150,000 | ) |
|
| (.60 | ) |
| Expired |
|
| - |
|
|
| - |
|
| Outstanding at December 31, 2020 |
|
| - |
|
|
| - |
|
The Company has calculated the estimated fair market value of these warrants at $142,950, using the Black-Scholes model and the following assumptions: expected term 5.75 years, stock price $1.00, exercise price $0.60, 153.48% volatility, 2.35% risk free rate, and no forfeiture rate.
The Company recognized stock-based compensation of $38,927 and $104,023 for the year ended December 3, 2020 and 2019 respectively.
On July 25, 2020, Wayne Homschek was terminated as a director of Amplitech Group, Inc. The Board of Directors of the Company determined that the monthly compensation payable to Mr. Homschek was no longer financially viable. Prior to such termination, the Company had no disagreements with Mr. Homschek regarding the reporting or operations of the Company. Upon Mr. Homschek’ s termination, the Company accelerated the vesting period of his warrants. On July 28, 2020, Mr. Homschek exercised 150,000 of his cashless warrants for 102,632 common stock.
| F-27 |
| Table of Contents |
AmpliTech Group, Inc.
Notes To Consolidated Financial Statements
For The Years Ended December 31, 2020 and 2019
2020 Equity Incentive Plan
In October 2020, the Board of Directors and shareholders adopted the Company’s 2020 Equity Incentive Plan (the “2020 Plan”), effective as of December 14, 2020. Under the 2020 Plan, the Company reserved 1,250,000 shares of common stock to grant shares of common stock of the Company to employees and individuals who perform services for the Company. The purpose of the 2020 Plan is to attract and retain the best available personnel for positions of substantial responsibility, to provide incentives to individuals who perform services for the Company, and to promote the success of the Company’s business. The 2020 Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Board of Directors may determine.
(13) Commitments and Contingencies: None applicable
(14) Subsequent events
In accordance with ASC 855-10, Company management reviewed all material events through the date of this report.
On January 13, 2021, a lease rider was annexed to the lease agreement dated September 23, 2015, between Fortunato Development, Inc. and the Company for the office space leased in Bohemia, NY. The landlord and the Company agreed that the lease term shall be extended on a month-by-month basis, commencing on February 1, 2021.
On January 20, 2020, the Board of Directors, appointed Matthew Kappers, Andrew Lee and Daniel Mazziota to the Board. Matthew Kappers was appointed chairman of the nominating and corporate governance committee, Andrew Lee as the chairman of the audit committee and Daniel Mazziota as the chairman of the compensation committee.
On February 16, 2021, the Company entered into an Underwriting Agreement with Maxim Group LLC as underwriter and as a representative of several underwriters to sell 1,371,428 units at a public offering price of $7.00 per unit. Each unit consists of one share of common stock valued at $6.99 per unit and one warrant at $0.01 per unit. We granted a 45-day option to the underwriter, to purchase up to an additional 205,714 shares of common stock and/or 205,714 additional warrants (overallotment option). In connection with the offering, the underwriter will receive an underwriting discount equal to 7.5% of the gross proceeds from the sale of the units in the offering.
On February 17, 2021, Amplitech Group Inc., common stock and warrants under the symbols “AMPG” and “AMPGW”, respectively, commenced trading on NASDAQ. A reverse split of the outstanding common stock at a 1-for-20 ratio became effective February 17, 2021 as of 12:01 a.m., Eastern Time. In connection with the public offering, 1,371,428 units at an offering price of $7.00 per unit were sold. Each unit issued in the offering consisted of one share of common stock and one warrant. Maxim Group LLC acted as sole book-running manager for the offering and partially exercised its overallotment option to purchase 205,714 warrants at the public offering price. The Company received gross proceeds of approximately $9.6 million, before deducting underwriting discounts and commissions and other offering expenses.
On February 24, 2021, Maxim exercised its overallotment option to purchase an additional 205,714 shares of common stock, bringing the total gross proceeds of the public offering to approximately $11.0 million.
From March 8 to March 12, 2021, 161,800 warrants were exercised at an exercise price of $7.00. Gross proceeds received were $1,132,600.
| F-28 |
| Table of Contents |
| ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
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 the evaluation as of December 31, 2020, for the reasons set forth below, 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.
Management’s Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to, in general, provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
The framework used by management in making that assessment was the criteria set forth in the document entitled “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013). Based on that re-evaluation due to material weakness identified below, our management, including our chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were not effective as of December 31, 2020 to ensure that information required to be disclosed in our Exchange Act reports was (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure, because of material weaknesses in our internal controls over financial reporting. We have identified the following material weaknesses.
1. As of December 31, 2020, we did not maintain effective controls over the control environment. Specifically, we have not developed and effectively communicated to our employees the accounting policies and procedures. This has resulted in inconsistent practices.
2. As of December 31, 2020, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.
Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2020, based on the criteria established in “INTERNAL CONTROL-INTEGRATED FRAMEWORK” issued by the COSO.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
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.
None.
| 21 |
| Table of Contents |
| ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Our executive officers and directors are as follows:
| Name |
| Age |
| Position |
|
|
| |||
| Fawad Maqbool |
| 60 |
| Chairman, President, Chief Executive Officer, Treasurer, Director |
| Louisa Sanfratello |
| 55 |
| Chief Financial Officer and Secretary, Director |
| Matthew Kappers (1) |
| 56 |
| Director |
| Andrew Lee (1) |
| 37 |
| Director |
| Daniel Mazziota (1) |
| 84 |
| Director |
(1) Appointed on January 20, 2021
A brief description of the background and business experience of our executive officer and directors for the past five years is as follows:
Fawad Maqbool, age 60, has served as the President, Chief Executive Officer and Chairman of the Board of Directors since founding Amplitech, Inc. 2002. Prior to founding Amplitech, Inc., Mr. Maqbool was the President of Aeroflex Amplicomm, Inc. for 2000 and 2001. His duties included, among other things, overseeing the design and development of amplifiers specifically for fiber optic communication applications. Mr. Maqbool was with MITEQ, Inc. from 1987 through 1999 where he began as an Engineering Group Leader and ultimately held the title of Department Head responsible for a staff of thirty-two consisting of engineers, technicians, assemblers and support personnel. His professional career began with the Hazeltine Corporation in 1983 where he was a Microwave Design Engineer through 1986. Mr. Maqbool received a bachelor’s degree in electrical engineering (major in microwaves and RF) and biomedical engineering from the City College of New York. He subsequently earned a master’s degree in electrical engineering (major in microwaves and RF) from Polytechnic University, now the New York University Tandon School of Engineering. Through his prior service, Mr. Maqbool possesses the knowledge and experience in microwaves and RF electrical engineering that aids him in efficiently and effectively identifying and executing the Company’s strategic priorities. As our Chief Executive Officer, Chairman and founder, Mr. Maqbool brings to the Board of Directors extensive knowledge of the Company’s products, structure, history, and culture as well as years of expertise in the industry.
Louisa Sanfratello, CPA, age 55, has been an accountant, servicing numerous clients in various industries since 1987. Her professional career began with the public accounting firm of Holtz Rubenstein & Co, where she gathered invaluable experience for several years and moved on to more challenging positions in both the public and private sector. She served as a Controller for The New Interdisciplinary School for over 10 years. Her responsibilities included overseeing the accounting department in addition to working directly with the NYS Department of Education. Ms. Sanfratello was also employed by the Make A Wish Foundation of Suffolk County as chief accountant working directly with the President and CFO. She joined AmpliTech, Inc. in 2012 as Chief Financial Officer, where she manages the company’s finances and SEC filings. Her responsibilities also include assisting the CEO in developing new business, maintaining operating budgets and ensuring adequate cash flow. Ms. Sanfratello was appointed to the Board of Directors for her extensive knowledge of the Company’s products and her financial and accounting expertise.
Matthew Kappers, age 56, has served as a director of the Company since January 2021. Mr. Kappers serves as the chairman of the Nominating and Corporate Governance Committee. Since 2011, Mr. Kappers has been a Managing Director at Concordia Financial Group, an investment bank and consulting firm. He has experience in completing mergers and acquisitions, as well as post acquisition operations. Prior to Concordia Financial Group, he was in the corporate development group for two multi-billion dollar NYSE companies (Republic Services, Inc. and Loewen Group International, Inc.). In addition to his M&A background, he has been the COO and CFO for several small to medium-sized privately held companies. Mr. Kappers earned a B.A. degree from Vanderbilt University and a M.B.A. degree from Miami University. Mr. Kappers’ financial and operations knowledge and experience qualifies him to serve on our board of directors.
| 22 |
| Table of Contents |
Andrew Lee, age 37, has served as a director of the Company since January 2021. Mr. Lee serves as the chairman of the Audit Committee. Mr. Lee is a licensed CPA and holds his MBA degree from Washington State University. Mr. Lee received his Bachelor of Business Administration, with concentrations in Finance and Accounting, from Walla Walla University. Mr. Lee began working at RealWear in 2017 as a CFO. Prior to joining RealWear, Mr. Lee led Finance and Operations as the CFO of Ryonet Corporation, a high-growth firm in Vancouver, Washington. Mr. Lee’s finance and accounting experience qualifies him to serve on our board of directors.
Daniel Mazziota, age 84, has served as a director of the Company since January 2021. He serves as the chairman of the Compensation Committee. Mr. Mazziota founded Microwave Power Devices, Inc. in 1967, which he sold in 1981 to Macom Technology Solutions, a Nasdaq listed developer and producer of radio, microwave, and millimeter wave semiconductor devices and components. He served as the President of Microwave Power Devices, Inc. until his retirement in 1988. He is currently president of IDM Consulting, which provides consulting services to the microwave component and sub system industry. He received his BEE and MSEE degrees from New York Polytechnic Institute and is a fellow of the Institute. Mr. Mazziota’s microwave component and sub system industry experience qualifies him to serve on our board of directors.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board of Directors and holds office until removed by the Board of Directors.
Family Relationships
There are no family relationships between any of our directors or executive officers.
Involvement in Legal Proceedings
To our knowledge, there have been no material legal proceedings that would require disclosure under the federal securities laws that are material to an evaluation of the ability of our director or executive officers.
Potential Conflicts of Interest
We are not aware of any current or potential conflicts of interest with our director or executive officers.
Board Committees
Effective January 20, 2021, we formed an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, each of which is comprised of our three independent directors. Mr. Kappers was appointed chairman of the Nominating and Corporate Governance Committee, Mr. Lee as the chairman of the Audit Committee and Mr. Mazziota as the chairman of the Compensation Committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, officers and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC and are required to furnish us with copies of these reports. Based solely on our review of the reports filed with the SEC, we believe that all persons subject to Section 16(a) of the Exchange Act timely filed all required reports in 2020.
Code of Ethics
We have adopted a code of ethics that applies to our officers, employees and directors, including our Chief Executive Officer and Chief Financial Officer. Our code of ethics is available on our website.
| 23 |
| Table of Contents |
Summary Compensation Table
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to, the named person, during the years ended December 31, 2020 and 2019:
Summary Compensation of Named Executive Officers
| Name and Principal Position |
| Fiscal Year |
| Salary ($) |
|
| Bonus ($) |
|
| Stock Awards ($) |
|
| All Other Compensation ($) |
|
| Total ($) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Fawad Maqbool |
| 2019 |
|
| 212,384 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 212,384 |
|
| Chairman, President and Chief Executive Officer |
| 2020 |
|
| 191,827 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 191,827 |
|
| Louisa Sanfratello |
| 2019 |
|
| 101,463 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 101,463 |
|
| Chief Financial Officer, Secretary |
| 2020 |
|
| 147,788 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 147,788 |
|
Outstanding Equity Awards at Fiscal Year End
There were no outstanding equity awards held by our executive officers as of December 31, 2020 and 2019.
Compensation of Directors
During the years ended December 31, 2020 and 2019, our former director Wayne Homschek received $35,000 and $45,000, respectively in compensation.
On April 25, 2019, Wayne Homschek joined the Board of Directors as an independent director. He was paid $5,000 per month and was issued a warrant, exercisable into 150,000 shares of common stock at an exercise price of $0.60 per share. As per the agreement, 75,000 warrants vested six months after issuance and the remaining balance of 75,000 vested one year after issuance. On July 25, 2020, Mr. Homschek was terminated as a director and the Company accelerated the vesting period of his warrants. Mr. Homschek exercised all of his warrants during the fiscal year ended December 31, 2020.
The following table summarizes the warrants outstanding of the Company for the year ended December 31, 2020:
|
|
| Number of |
|
| Weighted Average |
| ||
|
|
| Warrants |
|
| Exercise Price ($) |
| ||
| Outstanding at December 31, 2019 |
|
| 150,000 |
|
|
| .60 |
|
| Granted |
|
| - |
|
|
| - |
|
| Exercised |
|
| (150,000 | ) |
|
| (.60 | ) |
| Expired |
|
| - |
|
|
| - |
|
| Outstanding at December 31, 2020 |
|
| - |
|
|
| - |
|
| 24 |
| Table of Contents |
The Company has calculated the estimated fair market value of these options at $42,950, using the Black-Scholes model and the following assumptions: expected term 5.75 years, stock price $1.00, exercise price $0.60, 153.48% volatility, 2.35% risk free rate, and no forfeiture rate. The weighted average life of these warrants is 9.32 years.
The Company recognized stock-based compensation of $38,927 and $104,023 for the years ended December 31, 2020 and 2019, respectively.
In connection with their respective appointments, each of Matthew Kappers, Andrew Lee and Daniel Mazziota entered into director agreements with the Company, providing for, among other things that each of the directors shall be entitled to fees for attendance at virtual meetings, reimbursement of expenses for attending meetings and grants of up to 250,00 options to purchase shares of common stock of the Company pursuant to the Company’s 2020 Equity Incentive Plan.
2020 Equity Incentive Plan
In October 2020, the Board of Directors and shareholders adopted the Company’s 2020 Equity Incentive Plan (the “2020 Plan”), effective as of December 14, 2020. Under the 2020 Plan, the Company reserved 1,250,000 shares of common stock to grant shares of common stock of the Company to employees and individuals who perform services for the Company. The purpose of the 2020 Plan is to attract and retain the best available personnel for positions of substantial responsibility, to provide incentives to individuals who perform services for the Company, and to promote the success of the Company’s business. The 2020 Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Board of Directors may determine.
The following table sets forth certain information with respect to the beneficial ownership of our voting securities by (i) each director and named executive officer, (ii) all executive officers and directors as a group; and (iii) each shareholder known to be the beneficial owner of 5% or more of the outstanding common stock of the Company as of March 15, 2020. Beneficial ownership is determined in accordance with the rules of the SEC. Generally, a person is considered to beneficially own securities: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, and (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days (such as through exercise of stock options or warrants). For purposes of computing the percentage of outstanding shares held by each person or group of persons, any shares that such person or persons has the right to acquire within 60 days are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise indicated below, the address of each person listed in the table below is c/o 620 Johnson Avenue, Bohemia, NY 11716.
| 25 |
| Table of Contents |
|
|
| Amount and Nature of Beneficial Ownership |
| |||||
|
|
| Common Stock (1) |
| |||||
| Name and Address of Beneficial Owner |
| No. of Shares |
|
| % of Class |
| ||
| Directors and Officers |
|
|
|
|
|
| ||
| Fawad Maqbool, Chairman, President, and Chief Executive Officer |
|
| 2,639,004 |
|
|
| 40.11 | % |
| Louisa Sanfratello, Chief Financial Officer |
|
| 10,000 |
|
| * |
| |
| Daniel Mazziota |
|
| 97,150 | (2) |
|
| 1.52 | % |
| Matthew Kappers |
|
| - | (2) |
| * |
| |
| Andrew Lee |
|
| - | (2) |
| * |
| |
|
|
|
|
|
|
|
|
|
|
| All officers and directors as a group (5 persons) |
|
| 2,746,154 |
|
|
| 41.63 | % |
|
|
|
|
|
|
|
|
|
|
| *Less than 1% |
|
|
|
|
|
|
|
|
| 1) | Based on 6,579,771 shares of common stock issued and outstanding. |
|
|
|
| 2) | Will be issued 12,500 options to purchase shares of common stock. |
| ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
The following sets forth a summary of transactions since the beginning of the fiscal year of 2020, or any currently proposed transaction, in which the Company was to be a participant and the amount involved exceeded or exceeds $120,000 and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
In February 2021, we paid Bentley Associates, L.P., an affiliate of our former director Wayne Homschek, an advisory fee of $280,000 upon the closing of our public offering in February 2021. Mr. Homschek resigned from our board in July 2020.
Director Independence
Mr. Kappers, Mr. Lee and Mr. Mazziota are independent using the definition of independence under NASDAQ Listing Rule 5605 (a) (2).
| 26 |
| Table of Contents |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table shows the aggregate fees we paid for professional services provided to us for 2020 and 2019:
|
|
| 2020 |
|
| 2019 |
| ||
| Audit Fees |
| $ | 65,133 |
|
| $ | 55,500 |
|
| Audit-Related Fees |
|
| 7,900 |
|
|
| 55,938 |
|
| Tax Fees |
|
| 2,300 |
|
|
| 2,250 |
|
| All Other Fees |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| Total |
| $ | 75,333 |
|
| $ | 113,688 |
|
Audit Fees
For the year ended December 31, 2020 and 2019, we paid $65,133 and $55,500 respectively for professional services rendered for the audit and review of our financial statements.
Audit Related Fees
For the fiscal years ended December 31, 2020 and 2019, we paid approximately $7,900 and $55,938, respectively, for audit related services for the acquisition of Specialty Microwave Corp.
Tax Fees
For our fiscal years ended December 31, 2020 and 2019, we paid $2,300 and $2,250 respectively, for professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees
We did not incur any other fees related to services rendered by our independent registered public accounting firm for the fiscal years ended December 31, 2020 and 2019.
The SEC requires that before our independent registered public accounting firm is engaged by us to render any auditing or permitted non-audit related service, the engagement be either: (i) approved by our Audit Committee or (ii) entered into pursuant to pre-approval policies and procedures established by the Audit Committee, provided that the policies and procedures are detailed as to the particular service, the Audit Committee is informed of each service, and such policies and procedures do not include delegation of the Audit Committee’s responsibilities to management.
We did not have an audit committee as of December 31, 2020. Our Board of Directors pre-approved all services provided by our independent registered public accounting firm. All the above services and fees during 2020 were pre-approved by our Board of Directors. All the above services in 2020 were reviewed and approved by our Board of Directors either before or after the respective services were rendered. As of January 20, 2021, the Board of Directors appointed three independent directors to a newly appointed audit committee and appointed Andrew Lee as the chairman of the audit committee.
| 27 |
| Table of Contents |
Item 15. Exhibits and Financial Statement Schedules.
(a) Documents filed as part of this Annual Report.
| 1. | Report of Independent Registered Public Accounting Firm |
| Consolidated Balance Sheets as of December 31, 2020 and 2020 |
| F-3 |
|
| Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 |
| F-4 |
|
| Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019 |
| F-5 |
|
| Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2020 |
| F-6 |
|
| Notes to Consolidated Financial Statements |
| F-7 |
|
| 2. | Financial Statement Schedules |
Exhibits:
|
| 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 Linkbase Document |
|
|
| |
| 101. DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
|
|
| |
| 101. LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
|
|
| |
| 101. PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
| 28 |
| Table of Contents |
Pursuant to the requirements of Section 13 or 15(d) 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: March 31, 2021 | By: | /s/ Fawad Maqbool | |
|
| Fawad Maqbool | ||
|
| President and Chief Executive Officer (Principal Executive Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name |
| Title |
| Date |
|
|
| |||
| /s/ Fawad Maqbool |
| President, Chief Executive Officer and |
| March 31, 2021 |
| Fawad Maqbool |
| Chairman of the Board of Directors (Principal Executive Officer) | ||
|
|
|
|
| |
| /s/ Louisa Sanfratello |
| Chief Financial Officer and Secretary |
| March 31, 2021 |
| Louisa Sanfratello |
| (Principal Financial and Accounting Officer) | ||
|
|
|
|
|
|
| /s/ Andrew Lee |
| Director |
| March 31, 2021 |
| Andrew Lee |
|
|
|
|
|
|
|
|
|
|
| /s/ Daniel Mazziota |
| Director |
| March 31, 2021 |
| Daniel Mazziota |
|
|
|
|
|
|
|
|
|
|
| /s/ Matthew Kappers |
| Director |
| March 31, 2021 |
| Matthew Kappers |
|
|
|
|
| 29 |
EXHIBIT 4.4
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 500,000,000 shares of common stock, $0.001 par value per share, and 1,000,000 shares of blank check preferred stock, $0.001 par value per share. As of March 25, 2021, there are 6,579,771 shares of common stock and 0 shares of preferred stock outstanding.
This description is intended as a summary, and is qualified in its entirety by reference to our amended and restated articles of incorporation and amended and restated by-laws, which are filed, or incorporated by reference, as exhibits to our filings with the Securities and Exchange Commission.
Common Stock
Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available for dividend payments. All outstanding, shares of common stock are fully paid and nonassessable. The holders of common stock have no preferences or rights of cumulative voting, conversion, or pre-emptive or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. In the event of any liquidation, dissolution or winding-up of our affairs, holders of common stock will be entitled to share ratably in any of our assets remaining after payment or provision for payment of all of our debts and obligations and after liquidation payments to holders of outstanding shares of preferred stock, if any.
Warrants
Overview. The following summary of certain terms and provisions of our tradeable warrants (the “Warrants”) is not complete and is subject to, and qualified in its entirety by, the provisions of the warrant agent agreement between us the Warrant Agent, and the form of Warrant, both of which are filed as exhibits to our filings with the Securities and Exchange Commission. Prospective investors should carefully review the terms and provisions set forth in the warrant agent agreement, including the annexes thereto, and form of Warrant.
The Warrants entitle the registered holder to purchase one share of our common stock at a price equal to $7.00 per share, subject to adjustment as discussed below, immediately following the issuance of such warrant and terminating at 5:00 p.m., New York City time, on February 19, 2026. The Warrants trade on the Nasdaq Capital Market under the symbol “AMPGW.”
The exercise price and number of shares of common stock issuable upon exercise of the Warrants may be adjusted in certain circumstances, including in the event of a stock dividend or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of common stock at prices below its exercise price.
Exercisability. The Warrants are exercisable at any time after their original issuance and at any time up to the date that is five (5) years after their original issuance. The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of Warrants being exercised. Under the terms of the Warrant Agreement, we must use our best efforts to maintain the effectiveness of the registration statement and current prospectus relating to common stock issuable upon exercise of the Warrants until the expiration of the Warrants. If we fail to maintain the effectiveness of the registration statement and current prospectus relating to the common stock issuable upon exercise of the Warrants, the holders of the Warrants shall have the right to exercise the Warrants solely via a cashless exercise feature provided for in the Warrants, until such time as there is an effective registration statement and current prospectus.
Exercise Limitation. A holder may not exercise any portion of a Warrant to the extent that the holder, together with its affiliates and any other person or entity acting as a group, would own more than 4.99% of the outstanding common stock after exercise, as such percentage ownership is determined in accordance with the terms of the Warrant, except that upon prior notice from the holder to us, the holder may waive such limitation up to a percentage not in excess of 9.99%.
| 1 |
Exercise Price. The exercise price per whole share of common stock purchasable upon exercise of the Warrants is $7.00 per share. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common stock and also upon any distributions of assets, including cash, stock or other property to our stockholders.
Fractional Shares. No fractional shares of common stock will be issued upon exercise of the Warrants. If, upon exercise of the Warrant, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, pay a cash adjustment in respect of such fraction in an amount equal to such fraction multiplied by the exercise price. If multiple Warrants are exercised by the holder at the same time, we shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the exercise price.
Transferability. Subject to applicable laws, the Warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange Listing. The Warrants have been approved for listing on the Nasdaq Capital Market under the symbol “AMPGW” and commenced trading on Nasdaq on February 17, 2021.
Warrant Agent; Global Certificate. The Warrants will be issued in registered form under a warrant agent agreement between the Warrant Agent and us. The warrants shall initially be represented only by one or more global warrants deposited with the Warrant Agent, as custodian on behalf of The Depository Trust Company (DTC) and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC.
Fundamental Transactions. In the event of a fundamental transaction, as described in the Warrants and generally including any reorganization, recapitalization or reclassification of our common stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding common stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding common stock, the holders of the Warrants will be entitled to receive the kind and amount of securities, cash or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental transaction.
Rights as a Stockholder. The Warrant holders do not have the rights or privileges of holders of common stock or any voting rights until they exercise their Warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the Warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
Governing Law. The Warrants and the warrant agent agreement are governed by New York law.
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. The current amended and restated certificate authorizes the Company to issue 1,000,000 shares of Preferred Stock.
In July 2013, the Board of Directors of the Company designated 140,000 shares Series A Convertible Preferred Stock. In January 2015, the Board of Directors of the Company increased the number of Series A Convertible Preferred Stock designated from 140,000 to 401,000. On October 7, 2020, our Board of Directors and our stockholders approved a resolution to amend and restate the certificate of designation of preferences, rights and limitations of Series A Convertible Preferred Stock to restate that there are 401,000 shares of the Company’s blank check Preferred Stock designated as Series A Convertible Preferred Stock. The amended and restated certificate clarifies that the Series A Convertible Preferred Stock convert at a rate of five shares of the Company’s common stock for every share of Series A Convertible Preferred Stock, and also restates that the Series A Convertible Preferred Stock shall be entitled to vote on all matters submitted to shareholders of the Company for each share of Series A Convertible Preferred Stock owned on the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, on the date such vote is taken or any written consent of shareholders is solicited. The number of votes entitled to be cast by the holders of the Series A Convertible Preferred Stock equals that number of votes that, together with votes otherwise entitled to be cast by the holders of the Series A Convertible Preferred Stock at a meeting, whether by virtue of stock ownership, proxies, voting trust agreements or otherwise, entitle the holders to exercise 51% of all votes entitled to be cast to approve any action which Nevada law provides may or must be approved by vote or consent of the holders of common stock entitled to vote. There are currently 0 shares of Series A Convertible Preferred Stock outstanding.
| 2 |
On October 7, 2020, the Board of Directors of the Company approved a resolution to withdraw the Series B Preferred Stock designation by filing a certificate of withdrawal. Our Board of Directors took this action to remove the Series B Preferred Stock designation from any of its blank check Preferred Stock. At the time of withdrawal, there were no holders of the Series B Preferred Stock and the Company had no plans to issue Series B Preferred Stock.
Our Board of Directors has the authority, without further stockholder authorization, to issue from time to time shares of preferred stock in one or more series and to fix the terms, limitations, relative rights and preferences and variations of each series. Although we have no present plans to issue additional shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of common stock, could adversely affect the rights and powers, including voting rights, of the common stock, and could have the effect of delaying, deterring or preventing a change of control of us or an unsolicited acquisition proposal.
Nevada Anti-Takeover Statutes
The following provisions of the Nevada Revised Statutes (“NRS”) could, if applicable, have the effect of discouraging takeovers of our company.
Transactions with Interested Stockholders. The NRS prohibits a publicly-traded Nevada company from engaging in any business combination with an interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless, prior to that date, the Board of Directors of the corporation approved either the business combination itself or the transaction that resulted in the stockholder becoming an interested stockholder.
An “interested stockholder” is defined as any entity or person beneficially owning, directly or indirectly, 10% or more of the outstanding voting stock of the corporation and any entity or person affiliated with, controlling, or controlled by any of these entities or persons. The definition of “business combination” is sufficiently broad to cover virtually any type of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise benefit its own interests rather than the interests of the corporation and its stockholders.
In addition, business combinations that are not approved and therefore take place after the three year waiting period may also be prohibited unless approved by the board of directors and stockholders or the price to be paid by the interested stockholder is equal to the highest of (i) the highest price per share paid by the interested stockholder within the 3 years immediately preceding the date of the announcement of the business combination or in the transaction in which he or she became an interested stockholder, whichever is higher; (ii) the market value per common share on the date of announcement of the business combination or the date the interested stockholder acquired the shares, whichever is higher; or (iii) if higher for the holders of preferred stock, the highest liquidation value of the preferred stock.
Acquisition of a Controlling Interest. The NRS contains provisions governing the acquisition of a “controlling interest” and provides generally that any person that acquires 20% or more of the outstanding voting shares of an “issuing corporation,” defined as Nevada corporation that has 200 or more stockholders at least 100 of whom are Nevada residents (as set forth in the corporation’s stock ledger); and does business in Nevada directly or through an affiliated corporation, may be denied voting rights with respect to the acquired shares, unless a majority of the disinterested stockholder of the corporation elects to restore such voting rights in whole or in part.
The statute focuses on the acquisition of a “controlling interest” defined as the ownership of outstanding shares sufficient, but for the control share law, to enable the acquiring person, directly or indirectly and individually or in association with others, to exercise (i) one-fifth or more, but less than one-third; (ii) one-third or more, but less than a majority; or (iii) a majority or more of the voting power of the corporation in the election of directors.
The question of whether or not to confer voting rights may only be considered once by the stockholders and once a decision is made, it cannot be revisited. In addition, unless a corporation’s articles of incorporation or bylaws provide otherwise (i) acquired voting securities are redeemable in whole or in part by the issuing corporation at the average price paid for the securities within 30 days if the acquiring person has not given a timely information statement to the issuing corporation or if the stockholders vote not to grant voting rights to the acquiring person’s securities; and (ii) if voting rights are granted to the acquiring person, then any stockholder who voted against the grant of voting rights may demand purchase from the issuing corporation, at fair value, of all or any portion of their securities.
The provisions of this section do not apply to acquisitions made pursuant to the laws of descent and distribution, the enforcement of a judgment, or the satisfaction of a security interest, or acquisitions made in connection with certain mergers or reorganizations.
| 3 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Fawad Maqbool, President and Chief Executive Officer of Amplitech Group, Inc. (the “Company”), certify that:
| 1. | I have reviewed this annual report on Form 10-K of the Company for the year ended December 31, 2020; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
|
|
|
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: |
|
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
|
| b. | Designed such disclosure control over financial reporting, or caused such internal control over financial reporting got be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
| c. | Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
| d. | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
|
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
|
|
|
|
|
| b. | Any fraud, whether material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: March 31, 2021
| By: | /s/ Fawad Maqbool |
|
|
| Fawad Maqbool |
|
|
| President and Chief Executive Officer (Principal Executive Officer) |
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EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Louisa Sanfratello, Chief Financial Officer and Secretary of Amplitech Group, Inc. (the “Company”), certify that:
| 1. | I have reviewed this annual report on Form 10-K of the Company for the year ended December 31, 2020; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
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| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: |
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| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b. | Designed such disclosure control over financial reporting, or caused such internal control over financial reporting got be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c. | Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d. | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
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| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
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| b. | Any fraud, whether material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date March 31, 2021
| /s/ Louisa Sanfratello |
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| Louisa Sanfratello, CPA Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Fawad Maqbool, President and Chief Executive Officer, of Amplitech Group, Inc. (the “Registrant”) certifies, under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of the Registrant for the year ended December 31, 2020 (the "Report"):
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| (1) | fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Dated: March 31, 2021
| By: | /s/ Fawad Maqbool |
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| Fawad Maqbool |
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| President and Chief Executive Officer (Principal Executive Officer) |
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A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Louisa Sanfratello, Chief Financial Officer and Secretary of Amplitech Group, Inc. (the “Registrant”) certifies, under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of the Registrant for the year ended December 31, 2020 (the "Report"):
| (1) | fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Dated: March 31, 2021
| /s/ Louisa Sanfratello |
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| Louisa Sanfratello, CPA Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) |
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A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.