UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission File Number 000-54355

 

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 Number)

 

35 Carlough Road. #3
Bohemia, NY 11716

(address of principal executive offices) (Zip Code)

 

631-521-7831

(Registrant’s telephone number, including area code)

 

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 x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of November 5, 2014, the registrant had 42,770,250 shares of common stock, par value $0.001 per share, issued and outstanding. 

 

 

 

AMPLITECH GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q

September 30, 2014

 

TABLE OF CONTENTS

 

			PAGE
PART 1 - FINANCIAL INFORMATION				4
Item 1.	Financial Statements (Unaudited)			4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			18
Item 4.	Controls and Procedures			18
PART II - OTHER INFORMATION				19
Item 1.	Legal Proceedings.			19
Item 1A.	Risk Factors			19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			19
Item 3.	Default Upon Senior Securities			19
Item 4.	Mine Safety Disclosures			19
Item 5.	Other Information			19
Item 6.	Exhibits			20
SIGNATURES				21

 

2

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

 

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

3

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

AmpliTech Group, Inc.

Condensed Consolidated Balance Sheets

As of September 30, 2014 and December 31, 2013

 

					September 30,				December 31,
					2014				2013
						(Unaudited)
Assets
Current Assets
	Cash and Cash Equivalents				$	56,878			$	10,623
	Accounts Receivable, Net					66,855				178,813
	Inventory, Net					170,657				128,078
	Prepaid Expenses					11,825				56,800
	Total Current Assets					306,215				374,314
Property and Equipment, Net						123,394				146,038
Deferred Financing Costs, Net						-				8,007
Security Deposits						5,375				5,375
	Total Assets				$	434,984			$	533,734
Liabilities and Stockholders' Deficit
Current Liabilities
	Accounts Payable and
	Accrued Expenses				$	137,237			$	191,259
	Customer Deposits					23,885				41,957
	Payroll Taxes Payable					152				7,140
	Convertible Notes Payable, Net					21,690				198,000
	Note Payable					26,958				42,338
	Factor Financing					41,088				116,384
	Current Portion of Capital Leases					37,934				59,385
	Current Portion of Loans Payable					-				41,748
	Due To Officer					52,291				-
Total Current Liabilities						341,235				698,211
Long-Term Liabilities
	Capital Leases					-				23,886
	Loans Payable					-				31,880
	Total Liabilities					341,235				753,977
Commitments and Contingencies
Stockholders' Deficit
	Series A Convertible Preferred Stock, par value $.001, 140,000 shares authorized, 140,000 and 0 shares issued and outstanding, respectively					140				-
	Common Stock, par value $.001, 500,000,000 shares authorized, 41,570,250 and 22,153,904 shares issued and outstanding, respectively					41,570				22,154
	Additional Paid-In Capital					1,594,081				574,573
	Accumulated Deficit					(1,542,042	)			(816,970	)
	Total Stockholders' Deficit					93,749				(220,243	)
		Total Liabilities and
		Stockholders' Deficit			$	434,984			$	533,734

 

See accompanying notes to the condensed consolidated financial statements

 

4

 

AmpliTech Group, Inc.

Condensed Consolidated Statements of Operations

For The Three and Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

		For The Three Months Ended								For The Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2014				2013				2014				2013
Sales		$	308,831			$	301,155			$	952,194			$	759,246
Cost of Goods Sold			175,548				90,525				496,508				318,763
Gross Profit			133,283				210,630				455,686				440,483
General anl Administrative Expenses			176,683				148,078				511,404				475,723
Income (Loss) From Operations			(43,400	)			62,552				(55,718	)			(35,240	)
Other Income (Expenses);
Interest Expense			(43,054	)			(27,417	)			(169,186	)			(61,996	)
Gain (Loss) on Shares Issued for Debt and Accrued Liabilities, Net											1,032
Compensation Related to Issuance of Series A Convertible Preferred			-				-				(501,200	)			-
Income (Loss) Before Income Taxes			(86,454	)			35,135				(725,072	)			(97,236	)
Provision (Credit) For Income Taxes			-				-				-				-
Net Income (Loss)		$	(86,454	)		$	35,135			$	(725,072	)		$	(97,236	)
Net Income (Loss ) Per Share;
Basic		$	(0.00	)		$	0.00			$	(0.03	)		$	(0.00	)
Diluted			(0.00	)			0.00				(0.03	)			(0.00	)
Weighted Average Shares Outstanding;
Basic			35,829,731				21,027,472				27,694,025				19,648,659
Diluted			35,829,731				21,027,472				27,694,025				19,648,659

 

See accompanying notes to the condensed consolidated financial statements

 

5

 

Amplitech Group, Inc.

Condensed Consolidated Statements of Stockholders' Equity

For The Nine Months Ended September 30, 2014

 

	Common Stock							Series A Convertible Preferred								Additional								Total Stockholders'
	Number of			Par				Number of				Par				Paid-In				Accumulated Deficit
	Shares			Value				Shares				Value				Capital								Equity
Balance, December 31, 2013	22,153,904			$	22,154				-			$	-			$	574,573			$	(816,970	)		$	(220,243	)
Conversion of convertible promissory notes	9,799,680				9,800												167,491								177,291
Note payable and accrued expenses exchanged for common stock	950,000				950												40,050								41,000
Discounts related to the beneficial conversion feature of convertible notes																	119,573								119,573
Issuance of Series A Convertible Preferred									140,000				140				501,060								501,200
Issuance of common stock related to a Stock Purchase Agreement	8,666,666				8,666												191,334								200,000
Net (loss) for the nine months ended September 30, 2014																					(725,072	)			(725,072	)
Balance, September 30, 2014	41,570,250			$	41,570				140,000			$	140			$	1,594,081			$	(1,542,042	)		$	93,749

 

See accompanying notes to condensed consolidated financial statements

 

6

 

AmpliTech Group, Inc.

Condensed Consolidated Statements of Cash Flows

For The Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

					September 30,				September 30,
					2014				2013
Cash Flows from Operating Activities:
	Net Loss				$	(725,072	)		$	(97,236	)
	Adjustments to reconcile net income to net cash (used in) operating activities:
		Depreciation and Amortization				30,651				47,484
		Amortization of Beneficial Conversion Discounts				102,005				-
		Financing Costs Related to a Convertible Note				17,897				-
		Gain on Shares Issued For Debt and Accrued Expenses, Net				(2,080	)			-
		Compensation Related to Issuance of Series A Convertible Preferred				501,200				-
		Changes in Operating Assets and Liabilities:
			Accounts Receivable			111,958				(66,607	)
			Inventory			(42,579	)			(56,196	)
			Prepaid Expenses			44,975				1,800
			Security Deposits			-				695
			Accounts Payable and
			Accrued Expenses			(17,622	)			67,470
			Customer Deposits			(18,072	)			1,262
			Payroll Taxes Payable			(6,988	)			18,494
		Total Adjustments				721,345				14,402
		Net cash used in operating activities				(3,727	)			(82,834	)
Cash Flows from Financing Activities:
	Repayment of Convertible Note					(44,668	)			(6,250	)
	Proceeds from Convertible Note, Net					40,000				108,000
	Sale of Restricted Common Stock					200,000				-
	Advances From/(Repayments To) Factor, Net					(75,296	)			51,869
	Note and Loan Repayments					(20,717	)			(39,558	)
	Capital Lease Financing Repayments					(45,337	)			(29,668	)
	Decrease in Due to Officer					(4,000	)			(15,240	)
		Net cash provided by financing activities				49,982				69,153
Net increase (decrease) in cash and cash equivalents						46,255				(13,681	)
Cash and Cash Equivalents, Beginning of Period						10,623				27,716
Cash and Cash Equivalents, End of Period					$	56,878			$	14,035
Supplemental disclosures:
		Interest and Taxes paid:
			Interest Expense		$	50,797			$	51,270
			Income Taxes		$	649			$	671
Non-Cash Financing and Investing Activities
	Issuance of Common Stock for Services Rendered				$	-			$	15,000
	Common Shares Issued Related To Convertible Notes				$	177,291			$	211,986
	Exchange of Notes Payable For Convertible Note				$	-			$	50,000
	Note Payable and Accrued Expenses
		Exchanged for Common Stock			$	43,079			$	-
	Loan Payable Balance Paid By Officer				$	56,291			$	-
	Beneficial Conversion Feature				$	119,574			$	-

 

See accompanying notes to the condensed consolidated financial statements

 

7

 

AmpliTech Group, Inc.

Notes To Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2013 and 2014 (Unaudited)

 

Basis of Presentation

 

The accompanying unaudited interim condensed consolidated financial statements of AmpliTech Group, Inc. (“Group” or the “Company”) have been prepared by management in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for annual audited financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included.

 

The results of operations for the nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes related thereto for the years ended December 31, 2012 and 2013 included in Form 10-K filed with the SEC.

Going Concern

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates the Company continuing as a going concern. As of September 30, 2014, the Company had a working capital deficit of $35,020 and Stockholders’ Equity of only $93,749. Additionally, there was a net loss of $725,072 for the nine months ended September 30, 2014 and a net loss of $144,494 for the year ended December 31, 2013. These factors raise substantial doubt as to the Company’s ability of to continue as a going concern. However, the Company plans to improve its financial condition by converting the existing Convertible Promissory Notes to equity by issuing additional shares of common stock as well as raising working capital from the issuance of additional equity or debt instruments. Also, the Company plans to improve operations by pursuing new customers, developing new products and expanding its distribution channels, both domestically and internationally, in order to increase sales and improve cash flow. However, there is no assurance that the Company will be successful in accomplishing these objectives. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

Inventory

Inventory, which consists primarily of raw materials and finished goods, is stated at the lower of cost (first-in, first-out basis) or market (net realizable value). The Inventory value at December 31, 2013 and September 30, 2014 was as follows;

 

		September 30,				December 31,
		2014				2013
Raw Materials		$	142,865			$	102,768
Work-in Progress			22,825				22,696
Finished Goods			72,983				70,630
Engineering Models			3,726				3,726
Subtotal		$	242,399			$	199,820
Less: Reserve for
Obsolescence			(71,742	)			(71,742	)
Total		$	170,657			$	128,078

 

8

 

AmpliTech Group, Inc.

Notes To Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2013 and 2014 (Unaudited)

 

Notes Payable

 

Note Payable at September 30, 2014 consisted of a demand note in the amount of $26,958 from an unrelated corporation with interest calculated at 8% per annum. Accrued interest related to this note was $5,204 and interest expense for the nine months ended September 30, 2014 was $1,611.

 

Factor Financing

 

The outstanding balance owed to the Factor at September 30, 2014 for financed accounts receivable was $41,088. Interest expense and related costs paid to the Factor for the nine months ended September 30, 2014 was $24,431.

 

Convertible Notes Payable

 

Between February 28, 2014 and March 18, 2014, the holder of the Convertible Promissory Note dated August 21, 2013 for $58,000 converted the entire balance, plus accrued interest related thereto of $2,320, into 1,069,436 shares of free trading common stock at an average conversion price of approximately $.06 per share. The Company recognized a $25,380 discount related the beneficial conversion feature calculated on the number of shares related to the face value of the note, which were 877,680 shares. The calculation was based on the difference between the effective conversion price and the fair market value on the date the note was first exercisable, or approximately $.03 per share. This discount was recorded as Interest Expense with a corresponding offset to Paid-in Capital.

 

On April 15, 2014, the holder of the Convertible Promissory Note dated September 26, 2013 for $42,500 converted $15,000 of this balance into 717,703 shares of free trading common stock at a conversion price of approximately $.02 per share. The Company recognized a $35,135 discount related the beneficial conversion feature, the total of which was offset to Paid-in Capital. This discount was calculated based on the number of shares related to the face value of the note, which were 1,194,379 shares. The calculation was based on the difference between the effective conversion price and the fair market value on the date the note was first exercisable, or approximately $.03 per share. This discount was being amortized over the exercise period, which is approximately 130 days. Between July 1, 2014 and July 14, 2014, the remaining $27,500 balance, plus accrued interest related thereto of $1,700, was converted into 2,093,261 shares of free trading common stock at a conversion price of approximately $.014 per share. As of September 30, 2014 the Company recorded the remaining unamortized discount balance of $3,182 as interest expense.

 

On April 16, 2014, the Company received an additional advance of $40,000 related to the Promissory Note dated November 26, 2013. Pursuant to the terms of this Promissory Note, the additional advance has a two year term from the date of receipt and is convertible, in whole or in part, at the sole discretion of the holder beginning after 180 days into shares of Group common stock at the lesser of $.15 or 60% of the lowest trading price in the twenty-five trading days immediately prior to the date of conversion. Alternatively, the Company can prepay this advance, plus OID interest in the amount of $4,666, at its sole discretion at any time within 90 days from the date of issuance. On July 14, 2014, The Company elected to repay within the 90 day period allowed the additional advance of $40,000. The total amount paid was $44,666, including the OID interest of $4,666.

 

9

 

AmpliTech Group, Inc.

Notes To Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2013 and 2014 (Unaudited)

 

On April 24, 2014, The Company recognized a $20,672 discount resulting from the beneficial conversion feature related to the Convertible Promissory Note dated October 22, 2013, the total of which was offset to Paid-in Capital. This discount was calculated on the number of shares related to the $32,500 face value of the note, which were 1,596,764 shares. The calculation was based on the difference between the effective conversion price and the fair market value on the date the note was first exercisable, or approximately $.013 per share. This discount is being amortized over the remaining life of the note which is due July 24, 2014. Between July 18, 2014 and July 24, 2014 the entire note balance, plus accrued interest related thereto of $1,300, was converted into 2,569,280 shares of free trading common stock at an average conversion price of approximately $.013 per share. As of September 30, 2014 the Company recorded the remaining unamortized discount balance of $5,393 as interest expense.

 

Pursuant to the Promissory Note dated November 26, 2013, a one-time interest charge of 12%, or $7,800, was added to the $65,000 advance received in November 2013 because it was not repaid within the 90 day period from the effective date of the advance. As a result, the total value related to this advance was $80,386, including OID interest of $7,586 related thereto. Additionally, the Company recognized a $38,386 discount related the beneficial conversion feature, the total of which was offset to Paid-in Capital. This discount was calculated based on the number of shares related to the total value of the note, which were 4,241,856 shares. The calculation was based on the difference between the effective conversion price and the fair market value on the date the note was first exercisable, or approximately $.01 per share. This discount is being amortized over the remaining life of the note which is due November 25, 2015. Between May 27, 2014 and June 12, 2014, the holder converted $15,625 of this balance into 1,250,000 shares of free trading common stock at an average conversion price of $.0125 per share. Between September 9, 2014 and September 29, 2014, an additional $23,346 of this balance was converted into 2,100,000 shares of free trading common stock at an average conversion price of $.011 per share. As of September 30, 2014 the Company has recorded $20,818 as interest expense and an unamortized discount balance of $17,568 related to this note. The estimated amount of shares issuable upon the assumed conversion of the $41,415 note balance based on the fair-market-value of the common stock at September 30, 2014 is approximately 3,765,000, approximately $.011 per share.

 

Capital Lease

 

AmpliTech entered into a thirty-six month lease agreement to finance certain lab equipment in May 2012 with a bargain purchase option of $1. As such, the Company has accounted for this transaction as a Capital Lease, assuming an imputed 6% annual interest rate. Future lease payments related to this capital lease as of September 30, 2014 are as follows; 

 

Total rental payments		$	38,792
Less: Discount at 6%			( 858	)
Principal balance		$	37,934

 

The remaining future discounted principal payments as of September 30, 2014 was $37,934.

 

10

 

AmpliTech Group, Inc.

Notes To Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2013 and 2014 (Unaudited)

 

Due to Officer

 

On August 1, 2014, the Chief Executive Officer, who is also the Company’s major shareholder, paid off $56,291 of the SBA backed working capital loan balance of on behalf of the Company. The $56,291 is payable on demand and accrues interest at a rate of 8% per annum. Payments will be made for the amount demanded plus accrued interest on the unpaid balance through the demand date. As of September 30, 2014, the Company repaid $4,000 of principle plus accrued interest of approximately $737. 

Capital Stock

Effective May 20, 2014, the Company increased its authorized shares of common stock from 50,000,000 to 500,000,000.

 

Between February 28, 2014 and March 18, 2014, the holder of the Convertible Promissory Note dated August 21, 2013 for $58,000 converted the entire balance, plus accrued interest related thereto of $2,320, into 1,069,436 shares of free trading common stock at an average conversion price of approximately $.06 per share.

 

On March 31, 2014, a note payable due an individual in the amount of $12,000, plus accrued interest of $13,080 related thereto, was exchanged for 350,000 shares of restricted common stock at approximately $.072 per share. The fair market value of the Company’s common stock on this date was $.06 per share. As a result, the Company recognized a gain in the amount of $4,080.  

 

On March 31, 2014, accrued commissions due a sales agent in the amount of $7,500 was exchanged for 100,000 shares of restricted common stock at $.075 per share. The fair market value of the Company’s common stock on this date was $.06 per share. As a result, the Company recognized a gain in the amount of $1,500.

 

On April 15, 2014, the holder of the Convertible Promissory Note dated September 26, 2013 for $42,500 converted $15,000 of this balance into 717,703 shares of free trading common stock at a conversion price of approximately $.02 per share.

 

On May 8, 2014, the Board issued 140,000 shares of Series A Convertible Stock to the principal executive officer and sole director of the Company. The holder of the Series A Convertible Stock shall vote together as a single class with the holders of our common stock, with the holders of Series A being entitled to fifty one percent (51%) of the total votes on all such matters. Each outstanding share of Series A is convertible at the option of the holder into one hundred (100) shares of the Company’s common stock. As a result, the Company recognized a non-cash charge of $501,200 based on the fair-market value of the underlying common stock on the date of issuance, which was $.0358 per share. This non-cash charge was recorded as compensation expense with a corresponding offset to paid-in capital.

 

Between May 27, 2014 and June 12, 2014, the holder of the Convertible Promissory Note dated November 26, 2013, with a total value of $80,360 related to the first advance, converted an additional $15,625 of this balance into 1,250,000 shares of free trading common stock at an average conversion price of $.0125 per share.

 

11

 

AmpliTech Group, Inc.

Notes To Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2013 and 2014 (Unaudited

 

On May 29, 2014, accrued professional fees due a consultant in the amount of $10,500 was exchanged for 500,000 shares of restricted common stock at $.021 per share. The fair market value of the Company’s common stock on this date was $.03 per share. As a result, the Company recognized a loss in the amount of $3,500.

 

On July 9, 2014, the Company executed a Securities Purchase Agreement pursuant to which it agreed to sell an aggregate of 13,000,000 shares of restricted common stock to an unrelated corporation in three equal installments for a total purchase price of $300,000. The first installment of $100,000 for 4,333,333 shares was consummated on July 10, 2014. The second installment of $100,000 for 4,333,333 shares was completed on August 15, 2014 and the last installment of $100,000 for 4,333,334 shares was to be completed on September 15, 2014. Until the earlier of two years or when the purchaser no longer has any shares in the Company, if the Company issues stock or options, warrants or other securities convertible or exercisable for shares of common stock at a purchase price of $0.023 per share or less, the purchaser has full ratchet anti-dilution provisions, other than with respect to certain securities issuances. As of September 30, 2014 and through the issuance of these financials, the third installment of $100,000 due on September 15, 2014 was not completed. At the request of the purchaser, the Company granted an extension until November 15, 2014 to complete the third installment.

 

Between July 1, 2014 and July 14, 2014, the holder of the Convertible Promissory Note dated September 26, 2013 for $42,500 converted the remaining $27,500 balance, plus accrued interest related thereto of $1,700, into 2,093,261 shares of free trading common stock at a conversion price of approximately $.014 per share.

 

Between July 18, 2014 and July 24, the holder of the Convertible Promissory Note dated October 22, 2013 for $32,500 converted the entire balance, plus accrued interest related thereto of $1,300, into 2,569,280 shares of free trading common stock at an average conversion price of approximately $.013 per share.

 

Between September 9, 2014 and September 29, 2014, the holder of the Convertible Promissory Note dated November 26, 2013, with a total value of $80,360 related to the first advance, converted an additional $23,346 of this balance into 2,100,000 shares of free trading common stock at an average conversion price of approximately $.011 per share.

 

Earnings (Loss) Per Share

 

Basic net income (loss) per share (“EPS”) is determined by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings (loss) by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding under the treasury stock method. 

 

As of September 30, 2014 and 2013 there were approximately 17,765,000 and 0 potentially dilutive common shares that were excluded from the EPS calculation because their effects would have been anti-dilutive for the nine months then ended, respectively.

 

Subsequent Event

 

On October 14, 2014, the holder of the Convertible Promissory Note dated November 26, 2013, with a total value of $80,360 related to the first advance, converted an additional $10,872 of this balance into 1,200,000 shares of free trading common stock at a conversion price of approximately $.0091 per share.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.

 

Business Overview

 

We design, engineer and assemble micro-wave component based amplifiers that meet individual customer’s specifications. Our products consists of Radio Frequency (RF) amplifiers and related subsystems, operating at multiple frequencies from 50kHz to 44GHz, including Low Noise Amplifiers, Medium Power Amplifiers, oscillators, filters, and custom assemblies designs. 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.

 

Recent Developments

 

Securities Purchase Agreement

 

As previously reported, the Company executed a Securities Purchase Agreement on July 9, 2014 with Microphase Corporation (“Microphase”), pursuant to which Microphase agreed to purchase an aggregate of 13,000,000 shares of restricted common stock in three equal installments for a total purchase price of $300,000. The first installment of $100,000 for 4,333,333 shares was consummated on July 10, 2014. The second installment of $100,000 for 4,333,333 shares was completed on August 15, 2014 and the last installment of $100,000 for 4,333,334 shares was to be completed on September 15, 2014. At the request of Microphase, the Company granted an extension until November 15, 2014 to complete the third installment.

 

Emerging Growth Company Status

 

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation.

 

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Under the JOBS Act, we will remain an “emerging growth company” until the earliest of:

 

•	the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more;
•	the last day of the fiscal year following the fifth anniversary of the completion of this offering;
•	the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and
•	the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, or the Exchange Act. We will qualify as a large accelerated filer as of the first day of the first fiscal year after we have (i) more than $700 million in outstanding common equity held by our non-affiliates and (ii) been public for at least 12 months. The value of our outstanding common equity will be measured each year on the last day of our second fiscal quarter.

 

The Section 107 of the JOBS Act provides that we may elect to utilize the extended transition period for complying with new or revised accounting standards and such election is irrevocable if made. As such, we have made the election to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

 

Results of Operations

 

For The Nine Months Ended September 30, 2014 and September 30, 2013

 

Revenues

 

Sales increased by $192,948, or approximately 25%, when comparing sales for the nine months ended September 30, 2014 of $952,194 to sales for the nine months ended September 30, 2013 of $759,246. This increase was directly related to an increase in production capacity that resulted from more efficient outsourcing of assembly with respect to similar sales orders in 2014.

 

Cost of Goods Sold and Gross Profit

 

Cost of goods sold as a percentage of sales increased by approximately 10% when comparing 52% for the nine months ended September 30, 2014 to 42% for the nine months ended September 30, 2013. This increase is the direct result of outsourced assembly required on a significant domestic sales order with an overall significantly lower gross margin. This resulted in a corresponding 3% increase in gross profit as a percentage of sales, or $15,203, when comparing the first nine months of 2014 gross profit of $455,686, or 48%, to the first nine months of 2013 gross profit of $440,483, or 58%.

 

General and Administrative Expenses

 

General and administrative expenses increase from $475,723 for the first nine months of 2013 compared to $511,404 for the first nine months of 2014, an increase of $35,681, or approximately 8%. This resulted from increases in various general and administrative expenses in both the parent company and operating subsidiary.

 

Income (Loss) From Operations

 

As a result of the above, the Company had a loss from operations of $55,718 for the nine months ended September 30, 2014 compared to a loss from operations of $35,240 for the nine months ended September 30, 2013, an overall increase of $20,478, or approximately 58%. This increase is primarily related to the overall decrease in gross margin for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

 

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Other Expenses

 

Include an interest expense increase of $107,190, or approximately 173%, when comparing the nine months ended September 30, 2013 to the nine months ended September 30, 2014. This increase results primarily from the accretion and write-off of discounts related to certain convertible notes that became exercisable in prior periods. They also include compensation related to issuance of Series A Convertible Preferred for the nine months ended September 30, 2014 that was calculated based on the fair-market-value of the underlying common stock on the date of issuance. This non-cash charge of $501,200 was not included in general and administrative expenses so that the periods presented would be more comparable.

 

For The Three Months Ended September 30, 2014 and September 30, 2013

 

Revenues

 

Sales increased by only $7,676, or approximately 3%, when comparing sales for the three months ended September 30, 2014 of $308,831 to sales for the three months ended September 30, 2013 of $301,155. This nominal increase resulted from a slight increase in outsource assembly with respect to similar sales orders.

 

Cost of Goods Sold and Gross Profit

 

Cost of goods sold as a percentage of sales increased by approximately 27% when comparing 57% for the three months ended September 30, 2014 to 30% for the three months ended September 30, 2013. This increase is the direct result of outsourced assembly required on a significant domestic sales order with an overall significantly lower gross margin. This resulted in a corresponding 37% decrease in gross profit as a percentage of sales, or $77,347, when comparing the three months ended September 30, 2014 gross profit of $133,283, or 43%, to the three months ended September 30, 2013 gross profit of $210,630, or 70%.

 

General and Administrative Expenses

 

General and administrative expenses increase from $148,078 for the third quarter of 2013 compared to $176,683 for the third quarter of 2014, an increase of $28,605, or approximately 19%. This resulted from increases in various general and administrative expenses in both the parent company and operating subsidiary.

 

Income (Loss) From Operations

 

As a result of the above, the Company had a loss from operations of $43,400 for the three months ended September 30, 2014 compared to income from operations of $62,552 for the three months ended September 30, 2013, an overall decrease of $105,952, or approximately 169%. This decrease is primarily related to the overall decrease in gross margin for the three months ended September 30, 2014 compared to the three months ended September 30, 2013.

 

Other Expenses

 

Includes an interest expense increase of $15,637, or approximately 57%, when comparing the three months ended September 30, 2013 to the three months ended September 30, 2014. This increase results primarily from the accretion and write-off of discounts related to certain convertible notes that became exercisable in prior periods.

 

Liquidity and Capital Resources

 

We have historically financed our operations by the issuance of convertible promissory notes, 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.

 

As of September 30, 2014, we had $56,878 in cash and cash equivalents compared to $10,623 in cash and cash equivalents as of December 31, 2013. As of December 31, 2013 and September 30, 2014 we had a working capital deficit of $323,897 and $35,020, respectively. We had a stockholders’ deficit of $220,243 at December 31, 2013 and stockholder’s equity of $93,749 at September 30, 2014.

 

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Net cash used in operating activities was $3,727 for the nine months ended September 30, 2014. The net cash provided by financing activities for nine months ended September 30, 2014 was $49,982, which resulted from the sale of restricted common stock that was used to repay a convertible note advance in full as well as provide additional working capital.

 

We intend to finance our internal growth with cash on hand, cash provided from operations, borrowings, debt or equity offerings, or some combination thereof. We are also expecting to receive the third installment of $100,000 from Microphase for the issuance of 4,333,333 shares by November 15, 2014. We believe that this installment plus our cash provided from operations and cash on hand will provide sufficient working capital to fund our operations for the next twelve months.

 

Going Concern

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates the Company continuing as a going concern. As of September 30, 2014, the Company had working capital deficit of $35,020 and Stockholders’ Equity of only $93,749. Additionally, there was a net loss of $725,072 for the nine months ended September 30, 2014 and a net loss of $144,494 for the year ended December 31, 2013. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. However, the Company hopes to improve its financial condition by the existing Convertible Promissory Note holders electing to convert their notes to equity by issuing additional shares of common stock as well as raising working capital from the issuance of additional equity or debt instruments. Also, the Company plans to improve operations by pursuing new customers, developing new products and expanding its distribution channels, both domestically and internationally, in order to increase sales and improve cash flow. However, there is no assurance that the Company will be successful in accomplishing these objectives. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

Critical Accounting Policies, Estimates and Assumptions

 

The SEC defines critical accounting policies as those that are, in management's view, most important to the portrayal of our financial condition and results of operations and those that require significant judgments and estimates.

 

The discussion and analysis of our financial condition and results of operations is based upon our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, the salability and recoverability of inventory, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

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.

 

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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.

 

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. Company’s cash and cash equivalents were deposited primarily in one financial institution.

 

Allowance for Doubtful Accounts

 

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of Accounts Receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change in the future.

 

Depreciation and Amortization

 

Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally, accelerated depreciation methods) for tax purposes where appropriate. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.

 

Income Taxes

 

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740 “Income Tax”. ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of certain assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has adopted the provisions of FASB ASC 740-10-05 “Accounting for Uncertainty in Income Taxes”. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

 

Earnings (Loss)Per Share

 

Basic earnings (loss) per share (“EPS”) is determined by dividing the net earnings (loss) by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings (loss) by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities(such as stock options and convertible securities) outstanding under the treasury stock method. There were no dilutive financial instruments issued or outstanding for the periods presented.

 

Inventory Obsolescence

 

Inventory quantities and related values are analyzed at the end of each fiscal quarter to determine those items that are slow moving or obsolete. An inventory reserve is recorded for those items determined to be slow moving with a corresponding charge to cost of goods sold. Inventory items that are determined obsolete are written off currently with a corresponding charge to cost of goods sold.

 

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Revenue Recognition

 

Revenues and costs of revenues are recognized during the period in which the products are shipped. The Company applies the provisions of FASB Accounting Standards Codification (“ASC”) 605-10, Revenue Recognition in Financial Statements ASC 605-10, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. ASC 605-10 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue for sale of products when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) the collectability is reasonably assured.

 

The Company’s sources of revenue are from the sale of various component amplifiers. Revenue is recognizes upon shipment of such products. The Company offers a 100% satisfaction guarantee against defects for 90 days after the sale of their product except for a few circumstances. There are no maintenance or service contracts related to any product sale.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results could differ from those estimates.

 

Off Balance Sheet Transactions

 

None.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Smaller reporting companies are not required to provide the information required by this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

 

Based on the evaluation as of September 30, 2014, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes that have affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the period covered by this report. 

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

To the best of our knowledge, there are no pending legal proceedings to which we are a party or of which any of our property is the subject.

 

Item 1A. Risk Factors.

 

Smaller reporting companies are not required to provide the information required by this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

JMJ, the holder of the Convertible Promissory Note dated November 26, 2013, with a total value of $80,360 related to the first advance, converted an additional $34,218 of this balance between September 9, 2014 and October 14, 2014 into 3,300,000 shares of free trading common stock at an average conversion price of approximately $.010 per share. The issuance of these shares was exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) thereof as a transaction by an issuer not involving a public offering.

 

The Company executed a Securities Purchase Agreement on July 9, 2014 with Microphase Corporation (“Microphase”), pursuant to which the Company issued Microphase an additional 4,333,333 shares of restricted common stock on August 15, 2014 for $100,000. The issuance of these shares was exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) thereof as a transaction by an issuer not involving a public offering.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable

 

Item 5. Other Information.

 

None.

 

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Item 6. Exhibits.

 

(a) Exhibits

 

Exhibit No.

Description

 

31.1		Rule 13a-14(a)/ 15d-14(a) Certification of Principal Executive Officer
31.2		Rule 13a-14(a)/ 15d-14(a) Certification of Principal Financial Officer
32.1		Section 1350 Certification of Principal Executive Officer
32.2		Section 1350 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

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	AmpliTech Group, Inc.
Date: November 10, 2014	By:	/s/ Fawad Maqbool
		Fawad Maqbool
		President and Chief Executive Officer (Principal Executive Officer)

 

Date: November 10, 2014	By:	/s/ Louisa Sanfratello
		Louisa Sanfratello Chief Financial Officer (Principal Financial Officer)

 

 

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