AmpliTech Group, Inc. - Quarter Report: 2016 June (Form 10-Q)

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 June 30, 2016

or

o 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

 620 Johnson Avenue

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 o

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):

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

As of August 12, 2016, the registrant had 46,136,326 shares of common stock, par value $0.001 per share, issued and outstanding.

AMPLITECH GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q

June 30, 2016

TABLE OF CONTENTS

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.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

AmpliTech Group, Inc.

  Consolidated  Balance Sheets

See accompanying notes to the consolidated financial statements

AmpliTech Group, Inc.

Consolidated Statements of Operations

For The Three and Six Months Ended June 30, 2016 and 2015

(Unaudited)

See accompanying notes to the consolidated financial statements

AmpliTech Group, Inc.

Consolidated Statements of Cash Flows

For The Six Months Ended June 30, 2016 and 2015 (Unaudited)

See accompanying notes to the consolidated financial statements

AmpliTech Group, Inc.

Notes To Consolidated Financial Statements

For The Six Months Ended June 30, 2016 and 2015 (Unaudited)

(1) Organization and Business Description

AmpliTech, Inc. ("AmpliTech" or "the Company") was incorporated under the laws of the State of New York on October 18, 2002. AmpliTech designs, engineers and assembles micro-wave component based low noise amplifiers ("LNA") that meet individual customer specifications. Application of the Company's proprietary technology results in maximum frequency gain with minimal background noise distortion as required by each customer. The Company has both domestic and international customers in such industries as aerospace, governmental, defense and commercial satellite.

On August 13, 2012 (the "Closing Date"), AmpliTech Group, Inc. ("Group") acquired AmpliTech by issuing 16,675,000 shares of its Common Stock, constituting 100% of the outstanding shares of AmpliTech.  Also, pursuant to the Share Exchange Agreement, the shareholders of Group were issued an additional 741,600 shares of Common Stock on the Closing Date.  These shares plus the 458,400 Group shares issued and outstanding prior to closing the share exchange on August 13, 2012 total 1,200,000 shares, or 6% on a fully diluted basis.  The transactions was accounted for as a reverse acquisition in which AmpliTech is deemed to be the accounting acquirer, and the prior operations of Group are consolidated for accounting purposes.  The capital balances have been retroactively adjusted to reflect the reverse acquisition.

(2) Summary of Significant Accounting Policies

Basis of Accounting

The accompanying financial statements have been prepared using the accrual basis of accounting.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents 

The Company considers deposits that can be redeemed on demand and investments that have original maturities of less than three months, when purchased, to be cash equivalents. As of June 30, 2016 and 2015 the Company's cash and cash equivalents were deposited primarily in one financial institution.

AmpliTech Group, Inc.

Notes To Consolidated Financial Statements

For The Six Months Ended June 30, 2016 and 2015 (Unaudited)

Allowance for Doubtful Accounts 

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of accounts receivable. It is reasonably possible that the Company's estimate of the allowance for doubtful accounts will change in the future. An allowance of $0 has been recorded at June 30, 2016 and 2015, respectively. 

Depreciation and Amortization

Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes.  Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.

Income Taxes

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") 740 "Income Tax". ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of certain assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has adopted the provisions of FASB ASC 740-10-05 "Accounting for Uncertainty in Income Taxes". The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At June 30, 2016 and 2015, the Company had no material unrecognized tax benefits.

Earnings (Loss) Per Share

Basic earnings (loss) per share ("EPS") are determined by dividing the net earnings (loss) by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings (loss) by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding under the treasury stock method.  As of June 30, 2016 there were 39,655,230 potential dilutive shares that needed to be considered as common share equivalents.

AmpliTech Group, Inc

Notes To Consolidated Financial Statements

For The Six Months Ended June 30, 2016 and 2015 (Unaudited)

Inventory Obsolescence

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

Revenue Recognition

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

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

Use of Estimates

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

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.

AmpliTech Group, Inc 

Notes To Consolidated Financial Statements

For The Six Months Ended June 30, 2016 and 2015 (Unaudited)

Fair Value of Assets and Liabilities

The Company's financial instruments consist of notes payable, loans payable and a derivative liability. The Company believes all of the financial instruments' recorded values approximate their fair values because of their nature and respective durations.

The Company complies with the provisions of ASC 820-10, "Fair Value Measurements and Disclosures." ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:

Level 1. Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Cash and cash equivalents are valued using inputs in Level 1.

Level 2. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3. Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data.

Application of Valuation Hierarchy

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As such, the Company assessed that the fair value of cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, customer deposits, notes payable, and due to officer approximate their carrying values due to their short-term nature.

AmpliTech Group, Inc

Notes To Consolidated Financial Statements

For The Six Months Ended June 30, 2016 and 2015 (Unaudited)

(3) Inventory

Inventory, which consists primarily of raw materials and finished goods, is stated at the lower of cost (first-in, first-out basis) or market (net realizable value). The inventory value at June 30, 2016 and December 31, 2015 was as follows:

(4) Property and Equipment

Property and Equipment with estimated useful lives of seven and ten years consisted of the following at June 30, 2016 and December 31, 2015:

Depreciation expense for the six months ended June 30, 2016 was $14,430.

AmpliTech Group, Inc

Notes To Consolidated Financial Statements

For The Six Months Ended June 30, 2016 and 2015 (Unaudited)

(5) Notes Payable

Notes Payable at June 30, 2016 includes an unsecured demand note executed on May 1, 2012, totaling $26,958 from one corporation with an interest rate of 8% per annum and a maturity date of October 31, 2012. Accrued interest related to this note was $8,932 and interest expense for the six months ended June 30, 2016 was $1,074.

(6) Line of Credit

On November 16, 2015, the Company entered into a commercial line of credit agreement and note for $150,000.  This agreement will be paid over a three year term with monthly payments equal to 2.780% of the outstanding balance plus accrued interest.  The initial variable interest rate on this agreement is 5.25% per annum.  This interest rate may change every year on the anniversary date or change date to reflect the new prime rate in effect as per the Wall Street Journal plus 2%.  The interest rate will never be greater than 25% or less than 5%.  On April 20, 2016, the existing line of credit was increased from $150,000 to $250,000 with an extended maturity date of April 20, 2019.The outstanding balance as of June 30, 2016 was $91,854 and the interest paid for the six months ended June 30, 2016 was $ 2,117.

(7) Due to Officer

On August 1, 2014, the Chief Executive Officer, who is also the Company's majority shareholder, paid off $56,291 of the SBA- backed working capital loan balance of on behalf of the Company. The balance of the deferred financing costs of $8,007 associated with this loan was written off as amortization expense. The loan 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 June 30, 2016, the amount due to officer was $47,403.  The Company repaid a net amount of $30,888 of principal and as June 30, 2016 accrued interest relating to this loan was $1,372.

(8) Capital Stock

Preferred Stock

On July 10, 2013, the board of directors of the company approved a certificate of amendment to the articles of incorporation and changed the authorized capital stock of the Company to include and authorize 500,000 shares of Preferred Stock, par value $0.001 per share.

AmpliTech Group, Inc

Notes To Consolidated Financial Statements

For The Six Months Ended June 30, 2016 and 2015 (Unaudited)

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.

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.

On May 8, 2014, the Board issued 140,000 shares of Series A to the principal executive officer and sole director of the Company.  Holders of the Series A shall vote together as a single class with the holders of our common stock, with the holders of Series A being entitled to fifty one percent (51%) of the total votes on all such matters. As a result, the Company recognized a compensation expense of $501,200 based on the fair-market value of the 100 underlying shares of common stock on the date of issuance, which was $.0358 per common share.  On December 23, 2014 the principal officer returned to the Company 139,000 of the 140,000 shares of Series A issued to him on May 8, 2014.

In exchange for the return of these 139,000 series A shares, the Company granted the principal executive officer and sole director of the Company an immediately exercisable option to purchase an aggregate of 400,000 shares of Series A at an exercise price of $0.0206 per share of the underlying common stock.  The extinguishment of these 139,000 shares has been accounted for in accordance with ASC 260-10-599-2 and has been treated in a manner similar to that of dividends.  Furthermore, because the company is in an accumulated deficit position, the difference between the carrying amount of the preferred stock returned and the value of the consideration given is booked into additional paid in capital.

Common Stock:

The Company originally authorized 50,000,000 shares of common stock with a par value of $0.001. Effective May 20, 2014, the Company increased its authorized shares of common stock from 50,000,000 to 500,000,000. As of June 30, 2016 and 2015 the Company had 46,136,326 shares of common stock issued and outstanding, respectively.

Options:

See preferred stock above.

AmpliTech Group, Inc

Notes To Consolidated Financial Statements
For The Six Months Ended June 30, 2016 and 2015 (Unaudited)

(9) Commitments and Contingencies:

The Company rented office space under a non-cancelable operating lease agreement that commenced in July 2011 and automatically renewed annually with similar terms for an additional twelve months. The future monthly rental payments required under this operating lease agreement from July 1, 2015 through June 30, 2016 was $35,580. This lease was terminated as of January 31, 2016.  On December 4, 2015, the Company entered into a new operating lease agreement to rent office space.  This five year agreement commences February 1, 2016 with an annual rent of $50,000 and 3.75% increases in each successive lease year.

(10) Subsequent events

In accordance with ASC 855-10, Company management reviewed all material events through the date of this report.  There are no material subsequent events to report.

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.

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.

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

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 Six Months Ended June 30, 2016 and June 30, 2015

Revenues

Sales decreased by $76,195 or approximately 11%, when comparing sales for the six months ended June 30, 2016 of $651,045 to sales for the six months ended June 30, 2015 of $727,240. This decrease was overall directly related to a manufacturing shutdown as the Company moved to a larger facility in February 2016. Equipment damage as a result of the relocation and repair delays hindered production as well.

Cost of Goods Sold and Gross Profit

Cost of goods sold as a percentage of sales decreased by $76,044 or 23% while gross profit remained constant. The decrease is directly related to an increase in production capacity that resulted from more efficient outsourcing of assembly on a certain large foreign sales order with a higher gross margin.

General and Administrative Expenses

General and administrative expenses increased from $333,441 for the first six months of 2015 compared to $370,923 for the first six months of 2016, an increase of $37,482 or approximately 11%. This increase primarily was due to relocation expenses incurred for the larger facility and the increase in marketing efforts made by the company to increase product line exposure and client base, both domestically and internationally.

Income (Loss) From Operations

As a result of the above, the Company had net income from operations of $22,004 for the six months ended June 30, 2016 compared to the net income from operations of $59,636 for the six months ended June 30, 2015, an overall decrease of $37,632.

Other Income (Expenses)

Interest expense decreased from $19,373 for the first six months of 2015 compared to $8,462 for the first six months of 2016, a decrease of $10,911 or approximately 56%. The decrease is primarily due to the refinancing of the factoring agreement to a line of credit with a significantly lower interest rate.

For The Three Months Ended June 30, 2016 and June 30, 2015

Revenues

Sales increased by $125,777 or approximately 33%, when comparing sales for the three months ended June 30, 2016 of $504,565 to sales for the three months ended June 30, 2015 of $378,788. This increase was directly related to an increase in production capacity that resulted from more efficient outsourcing of assembly on a certain large foreign sales order.

Cost of Goods Sold and Gross Profit

Cost of goods sold as a percentage of sales decreased by $42,766 or 22% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The decrease is directly related to an increase in production capacity that resulted from more efficient outsourcing of assembly on a certain large foreign sales order with a higher gross margin. This resulted in a corresponding 91% increase in gross profit as a percentage of sales, or $168,543 when comparing the first three months of 2016 gross profit of $354,440, to the first three months of 2015 gross profit of $185,897.

General and Administrative Expenses

General and administrative expenses increased from $166,965 for the three months ended June 30, 2015 compared to $194,855 for the three months ended June 30, 2016, an increase of $27,890. The focus during the three month period ended June 30, 2016 was to concentrate on advertising for the annual trade show held in May 2016. In addition, the company incurred equipment lease and repair expenses for damages sustained during the relocation.

Income (Loss) From Operations

As a result of the above, the Company had net income from operations of $159,585 for the three months ended June 30, 2016 compared to net income from operations of $18,932 for the three months ended June 30, 2015, an increase of $140,653 or 7.43%.

Other Income (Expenses)

Interest expense decreased from $9,479 for the three months ended June 30, 2015 compared to $4,824 for the three months ended June 30, 2016, a decrease of $4,655. The decrease is primarily due to the refinancing of the factoring agreement to a line of credit with a significantly lower interest rate.

Liquidity and Capital Resources

We have historically financed our operations by the issuance of 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 June 30, 2016, we had $153,590 in cash and cash equivalents compared to $49,035 in cash and cash equivalents as of December 31, 2015. As of December 31, 2015 and June 30, 2016 we had a working capital surplus of $44,876 and $58,193 respectively. We had a stockholders' equity of $141,123 and $154,665 as of December 31, 2015 and June 30, 2016, respectively.

Net cash provided by operating activities was $120,285 for the six months ended June 30, 2016, resulting primarily to the decrease in accounts receivable and an increase in accounts payable and customer deposits. The net cash used in investing activities was $14,335 to purchase lab equipment. The net cash used in financing activities for the six months ended June 30, 2016 was $1,395 which results primarily from the repayment of the officer's loan and the net proceeds of approximately $29,000 from the line of credit.

We intend to finance our internal growth with cash on hand, cash provided from operations, borrowings from the line of credit of up to $250,000, debt or equity offerings, or some combination thereof. We believe that our cash provided from operations and cash on hand will provide sufficient working capital to fund our operations for the next twelve months.

Critical Accounting Policies, Estimates and Assumptions

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

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

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.

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.

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 June 30 , 2016 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.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

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

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Exhibits

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.