AMPLITECH GROUP, INC. 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
Specialty Microwave designs and manufactures state-of- the-art precision SATCOM microwave components, RF subsystems and specialized electronic assemblies for the military and commercial markets, flexible and rugged waveguides, wave guide adapters and more.
AGMDC designs, develops and manufactures state-of-the-art signal processing components for satellite and 5G communications networks, defense, space and other commercial applications, allowing the Company to market its products to wider base of customers requiring high technology in smaller packages.
On
In 2021, the Company opened a monolithic microwave integrated circuits ("MMIC")
chip design center in
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In
The COVID-19 pandemic had disrupted and affected our business operations, which
has led to business and supply chain disruptions. The lingering effects of the
pandemic are likely to continue to disrupt our business and supply chain in the
future. For example, our offices and R&D and manufacturing locations had been,
and may continue to be, impacted due to national and regional government
declarations requiring closures, quarantines, and travel restrictions, although
nearly all government-imposed restrictions have been significantly reduced in
most parts of the world. However, given the unpredictable nature of COVID-19 and
its variants, it is difficult, if not impossible, to predict, whether any
government-imposed restrictions will be reimposed at previous levels or enhanced
in one or more ways impacting our business operations or those of third parties
upon which we rely. The COVID-19 pandemic, including associated business
interruptions and recovery, as well as other possible epidemics or outbreaks of
other contagions could result in a material adverse impact on our or our current
or anticipated customers' or suppliers' business operations, including reduction
or suspension of operations in the
On
On
As of
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On
The aggregate gross proceeds to the Company were approximately
On
Results of Operations
As of
For Years Ended
Revenues
Sales increased from
Cost of Goods Sold and Gross Profit
Cost of Goods Sold increased to
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to
Goodwill impairment
As of
Research and Development Expenses
Research and development expenditures are charged to operations as incurred. The major components of research and development costs include consultants, outside service, and supplies.
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The Company is continuing its research and development into the next generation of 5G/6G subsystems for cellular and satellite communications. The Company is in the process of designing and developing antennas and subsystems that will be an integral part of the GPS and 5G infrastructure. These subsystems will enable high-speed, high capacity 5G/6G networks that will be installed into infrastructure for retrofitting and improving connectivity for cellphones, satellites and many other everyday applications. This new product line is expected to be released to market late 2023, early 2024 fiscal year.
In 2021, the Company opened AGMDC, a MMIC chip design center in
Research and development costs for the years ended
Income (Loss) From Operations
As a result of the above, the Company has income from operations of
Other Income (Expenses)
As part of the acquisition of Spectrum Microwave, the purchase agreement
contained a revenue adjustment. The revenue adjustment was determined to be an
amount equal to 25% of two years net revenues minus
Due to market fluctuations, the Company recorded an unrealized gain on
investments of
Interest expense decreased from
On
The Company recorded
Realized loss on investments reflects realized loss of
Net Loss
The Company reported a net loss of
Liquidity and Capital Resources
Operating Activities
The net cash used in operating activities for the year ended
The net cash used in operating activities for the year ended
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Investing Activities
The net cash used in investing activities for the year ended
The net cash used in investing activities for the year ended
The Company paid cash for the acquisition of Spectrum Semiconductor Materials,
invested
Financing Activities
The net cash used in financing activities for the year ended
The net cash provided by financing activities for the year ended
We have historically financed our operations by the issuance of debt from third party lenders, equity offerings, notes issued to various private individuals and personal funds advanced from time to time by our largest shareholder, who is also the President and Chief Executive Officer of the Company.
As of
We intend to continue to finance our internal growth with cash on hand and cash provided from operations. 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
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
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.
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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
Accounts Receivable
Trade accounts receivables are recorded at the net invoice value and are not interest bearing.
The Company provides an allowance for doubtful accounts equal to the estimated
uncollectible amounts. The Company's estimate is based on historical collection
experience and a review of the 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
Employee Retention Credit
The Coronavirus Aid, Relief, and Economic Security Act (the "CARES
Act") provided an employee retention credit which was a refundable tax credit
against certain employment taxes. New legislation amended the employee retention
credit to be equal to 70% of qualified wages paid to employees after
Marketable Securities
The Company's investments in marketable securities are classified based on the nature of the securities and their availability for use in current operations. The Company's marketable securities are stated at fair value with all realized and unrealized gains and losses on investments in marketable equity securities recognized in other income, net. The realized and unrealized gains and losses on marketable securities are determined using specific identification method.
Inventories
Inventories, which 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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As of
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 3 to 10 years Straight-line Machinery and equipment 7 to 10 years Straight-line Computer equipment and software 1 to 7 years Straight-line Vehicles 5 years Straight-line Leasehold improvements 7 years Straight-line Long-lived assets
The Company reviews its property and equipment and right-of-use ("ROU") assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset group may not be recoverable. The test for
impairment is required to be performed by management upon triggering events.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to the future undiscounted cash flow expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value less
costs to sell. There were no impairments of long-lived assets for the years
ended
Intangible assets
The Company periodically evaluates the reasonableness of the useful lives of
these assets. These assets are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. If
impaired, intangible assets are written down to fair value based on discounted
cash flows or other valuation techniques. The Company has no intangibles with
indefinite lives. There were no impairments of intangible assets for the years
ended
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Goodwill We follow the acquisition method of accounting to record the assets and liabilities of acquired businesses at their estimated fair value at the date of acquisition. We initially record goodwill for the amount the consideration transferred exceeds the acquisition-date fair value of net identifiable assets acquired.
We test goodwill for impairment at a level within the Company referred to as the
reporting unit, which is our business segment level or one level below the
business segment. We test our goodwill for impairment annually on
To test goodwill for impairment, we may perform both qualitative and quantitative assessments. If we elect to perform a qualitative assessment for a certain reporting unit, we evaluate events and circumstances impacting the reporting unit to determine the probability that goodwill is impaired. If we perform a quantitative assessment for a certain reporting unit, we calculate the fair value of that reporting unit and compare the fair value to the reporting unit's net book value. We estimate fair values of our reporting units based on projected cash flows, and sales and/or earnings multiples applied to the latest twelve months' sales and earnings of our reporting units. Projected cash flows are based on our best estimate of future sales, operating costs and balance sheet metrics reflecting our view of the financial and market conditions of the underlying business; and the resulting cash flows are discounted using an appropriate discount rate that reflects the risk in the forecasted cash flows.
If we determine it is more-likely-than-not that the fair value of the reporting
unit is less than its carrying amount, we measure any loss from an impairment by
comparing the fair value of each reporting unit to its carrying amount,
including goodwill. If the carrying amount of a reporting unit exceeds its fair
value, goodwill is considered impaired, and an impairment loss is recognized in
an amount equal to that excess.
Investment Policy-Cost Method
Investments consist of non-controlling equity investments in privately held
companies. The Company elected the measurement alternative for these investments
without readily determinable fair values and for which the Company does not
control or have the ability to exercise considerable influence over operating
and financial policies. These investments are accounted for under the cost
method of accounting. Under the cost method of accounting, the non-marketable
equity securities are carried at cost less any impairment, adjusted for
observable price changes of similar investments of the same issuer. Fair value
is not estimated for these investments if there are no identified events or
changes in circumstances that may influence the fair value of the investment.
Under this method, the Company's share of the earnings or losses of such
investee companies is not included in the consolidated balance sheet or
consolidated statements of operations. The Company held
Leases
We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the lease term. The Company has elected not to separate lease and non-lease components for all property leases for the purpose of calculating ROU assets and lease liabilities. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis considering such factors as lease term and economic environment risks.
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Revenue Recognition
We sell our products through a combination of a direct sales force in
Identify the contract with the customer. A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party's rights regarding the goods to be transferred and identifies the payment terms related to these goods, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for services that are transferred is probable based on the customer's intent and ability to pay the promised consideration. We do not have significant costs to obtain contracts with customers. For commissions on product sales, we have elected the practical expedient to expense the costs as incurred.
Identify the performance obligations in the contract. Generally, our contracts with customers do not include multiple performance obligations to be completed over a period. Our performance obligations generally relate to delivering single-use products to a customer, subject to the shipping terms of the contract. Limited warranties are provided, under which we typically accept returns and provide either replacement parts or refunds.
We do not have significant returns. We do not typically offer extended warranty or service plans.
Determine the transaction price. Payment by the customer is due under customary
fixed payment terms, and we evaluate if collectability is reasonably assured.
None of our contracts as of
Allocate the transaction price to performance obligations in the contract. We typically do not have multiple performance obligations in our contracts with customers. As such, we generally recognize revenue upon transfer of the product to the customer's control at contractually stated pricing.
Recognize revenue when or as we satisfy a performance obligation. We generally satisfy performance obligations at a point in time upon either shipment or delivery of goods, in accordance with the terms of each contract with the customer. We do not have significant service revenue.
Cost of Sales
We include product costs such material, direct labor, overhead costs, production-related depreciation expense, outside labor and production supplies in cost of sales.
Shipping and Handling
Shipping and handling charges are generally incurred at the customer's expense. However, when billed to our customers, shipping and handling charges are included in net sales for the applicable period, and the corresponding shipping and handling expense is reported in cost of sales.
Research and Development
Research and development expenditures are charged to operations as incurred. The major components of research and development costs include consultants, outside service, and supplies.
The Company continues its research and development into the next generation of 5G/6G subsystems for cellular and satellite communications. The Company is in the process of designing and developing antennas and subsystems that will be an integral part of the GPS and 5G infrastructure. These subsystems will enable high-speed, high capacity 5G/6G networks that will be installed into infrastructure for retrofitting and improving connectivity for cellphones, satellites and many other everyday applications. This new product line is expected to be released to market late 2023, early 2024 fiscal year.
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In 2021, the Company opened AGMDC, a MMIC chip design center in
Research and development costs for the years ended
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
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
Fair Value Measurements
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined in the following three categories:
Level 1: Unadjusted quoted prices that are available in active markets for identical assets or liabilities at the measurement date.
Level 2: Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly.
Level 3: Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment.
Cash and cash equivalents, receivables, inventory, prepaid expenses, accounts payable, accrued expenses, and customer deposits approximate fair value, due to their short-term nature. The carrying value of notes payable and short and long-term debt also approximates fair value since these instruments bear market rates of interest.
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to long-lived assets, intangible assets, and goodwill, which are remeasured when the derived fair value is below carrying value in the consolidated balance sheets.
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Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.
Concentration of Credit Risk
Financial instruments that potentially subject the company to concentration of credit risk consist primarily of cash and accounts receivable.
Accounts at each institution are insured by the
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
Sales to the Company's largest customer represented approximately 18.41% of
total sales for the year ended
As of
Recent Accounting Pronouncements
In
In
In
Off Balance Sheet Transactions
As of
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