Common stock, 500,000 no par value shares authorized, 80,250 shares issued and 77,000 shares outstanding as of September 30, 2021 and December 31, 2020
872,336
872,336
Treasury stock, at cost
(136,368
)
(136,368
)
Retained earnings
3,127,935
2,258,943
TOTAL STOCKHOLDERS' EQUITY
3,863,903
2,994,911
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
6,074,319
$
5,488,988
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
SPECTRUM SEMICONDUCTOR MATERIALS, INC.
STATEMENTS OF INCOME
(Unaudited)
For the Nine Months Ended
September 30,
2021
2020
Net sales
$
10,051,968
$
5,604,200
Cost of sales
5,354,889
2,968,108
Gross profit
4,697,079
2,636,092
Operating Expenses
General and administrative
470,964
492,101
Personnel
1,846,045
1,252,742
Depreciation
29,398
30,229
Total Operating Expenses
2,346,407
1,775,072
INCOME FROM OPERATIONS
2,350,672
861,020
Other Income (Expense)
Interest expense
(8,126
)
(18,580
)
Gain on forgiveness of PPP loan
220,446
-
Total Other Income (Expense)
212,320
(18,580
)
NET INCOME
$
2,562,992
$
842,440
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
SPECTRUM SEMICONDUCTOR MATERIALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock
At Cost
Total
Number of
No Par Value
Treasury
Retained
Stockholders'
Shares
Amount
Stock
Earnings
Equity
Balance at December 31, 2020
77,000
$
872,336
$
(136,368
)
$
2,258,943
$
2,994,911
Distributions paid
(1,694,000
)
(1,694,000
)
Net income for the nine months ended September 30, 2021
2,562,992
2,562,992
Balance at September 30, 2021
77,000
$
872,336
$
(136,368
)
$
3,127,935
$
3,863,903
Balance at December 31, 2019
77,000
$
872,336
$
(136,368
)
$
2,272,592
$
3,008,560
Distributions paid
(616,000
)
(616,000
)
Net income for the nine months ended September 30, 2020
842,440
842,440
Balance at September 30, 2020
77,000
$
872,336
$
(136,368
)
$
2,499,032
$
3,235,000
The accompanying notes are an integral part of these financial statements.
3
SPECTRUM SEMICONDUCTOR MATERIALS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
2021
2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$
2,562,992
$
842,440
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
29,398
30,229
Inventory reserve
107,595
78,796
Amortization of operating lease right-of-use asset
191,801
185,041
Gain on forgiveness of PPP loan
(220,446
)
-
Changes in operating assets and liabilities:
Accounts receivable
(343,457
)
(284,753
)
Inventory
(461,165
)
(196,835
)
Prepaid expenses and other assets
31,713
(34,295
)
Accounts payable and accrued expenses
518,722
206,080
Customer deposits
(119,875
)
(25,730
)
Operating lease liability
(192,888
)
(145,740
)
Net cash provided by operating activities
2,104,390
655,233
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
-
(28,973
)
Net cash used in investing activities
-
(28,973
)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable
-
218,600
Proceeds from line of credit
-
100,000
Repayments of loans payable
(15,474
)
(14,714
)
Repayments of line of credit
(253,700
)
(195,900
)
Distributions paid
(1,694,000
)
(616,000
)
Net cash used in financing activities
(1,963,174
)
(508,014
)
NET CHANGE IN CASH
141,216
118,246
CASH, BEGINNING OF YEAR
286,376
260,612
CASH, END OF YEAR
$
427,592
$
378,858
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest
$
7,723
$
17,670
Cash paid for income taxes
$
-
$
-
The accompanying notes are an integral part of these unaudited condensed financial statements.
IC packaging is the case or enclosure that contains the semiconductor device to protect it from contamination or physical damage; the IC packaging also supports the electrical contacts, which connect the semiconductor device to a circuit board. IC packaging often gets sealed with lids, which creates an airtight seal to prevent contaminants, particles, liquids, or gases from entering the packaging to ensure the optimum device performance. The Company offers multiple IC packaging solutions and lids product lines according to desired product specifications, device performance, dimensions, resistances, and tolerances.
Impact of COVID-19
In December 2019, a novel strain of coronavirus ("COVID-19") emerged in China. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The extent of the COVID-19 pandemic's continued effect on our operational and financial performance and those of third parties on which the Company relies will depend on future developments, including the duration, spread and intensity of the outbreak, the pace at which jurisdictions across the country re-open and restrictions begin to lift. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential impacts on its business and financing. However, these effects could have a material impact on the Company's liquidity, capital resources, operations and business and those of the third parties on which the Company relies.
NOTE 2 – BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements as of September 30, 2021, and for the nine months ended September 30, 2021 and 2020, have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for the interim financial information. Accordingly, these condensed financial statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited interim condensed financial statements contain all adjustments necessary, all which are of a normal and recurring nature, to state fairly the Company’s financial position, results of operations and cash flows. Interim results are not necessarily indicative of results for a full year or future periods. These condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020.
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019. This pronouncement was amended under ASU 2019-10 to allow an extension on the adoption date for entities that qualify as a small reporting company. The Company has elected this extension and the effective date for the Company to adopt this standard will be for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on the Company's financial position, results of operations, or cash flows.
The Company currently believes that all other issued and not yet effective accounting standards are not relevant to the Company's financial statements.
5
SPECTRUM SEMICONDUCTOR MATERIALS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 4 – REVENUE RECOGNITION
The Company generates revenue from the sale of IC packaging and lid product lines for semiconductor devices and components to customers, which primarily consist of device manufacturers and third-party purchasing companies. The Company applies a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the performance obligation is satisfied.
The following table presents the Company's revenues disaggregated by type of customer of such revenue recognized during the nine months ended September 30, 2021 and 2020:
September 30,
September 30,
2021
2020
Device manufacturers
$
6,530,601
$
4,473,920
Third-party purchasing companies
2,981,893
838,500
Other
539,474
291,780
Total
$
10,051,968
$
5,604,200
The following table presents the Company's revenues disaggregated by geographic regions of such revenue recognized during the nine months ended September 30, 2021 and 2020:
September 30,
September 30,
2021
2020
Domestic
$
5,630,927
$
3,714,597
Asia
3,577,894
1,247,966
Europe
797,583
617,606
Other
45,564
24,031
Total
$
10,051,968
$
5,604,200
6
SPECTRUM SEMICONDUCTOR MATERIALS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 5 – INVENTORY
Inventory consists of the following at September 30, 2021 and December 31, 2020:
September 30,
December 31,
2021
2020
Finished goods
$
4,286,071
$
3,824,906
Less: reserve
(897,421
)
(789,826
)
Inventory, net
$
3,388,650
$
3,035,080
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 2021 and December 31, 2020:
September 30,
December 31,
2021
2020
Computer hardware
$
72,790
$
72,790
Software
157,280
157,280
Office equipment
4,652
4,652
Total property and equipment
234,722
234,722
Less: accumulated depreciation
(129,004
)
(99,606
)
Property and equipment, net
$
105,718
$
135,116
Depreciation expense for the nine months ended September 30, 2021 and 2020 was $29,398 and $30,229, respectively.
NOTE 7 – OPERATING LEASES
The Company has one facility lease for an office and warehouse space under long-term leases.
The Company's operating ROU asset and lease liability consisted of the following at September 30, 2021 and December 31, 2020:
September 30,
2021
December 31,
2020
Operating lease right-of-use asset
$
923,658
$
1,115,459
Lease liability, current portion
295,701
280,682
Lease liability, long-term
689,880
897,787
Total operating lease liability
985,581
$
1,178,469
7
SPECTRUM SEMICONDUCTOR MATERIALS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 7 – OPERATING LEASES (CONTINUED)
Weighted-average remaining lease term (months)
49
Weighted average discount rate
3.8
%
The components of lease expense consisted of the following for the nine months ended September 30, 2021 and 2020:
September 30,
September 30,
2021
2020
Operating lease cost
$
222,557
$
222,557
Variable fees
73,560
66,753
Net lease cost
$
296,117
$
289,310
Future minimum lease payments under operating leases as of September 30, 2021 were as follows:
Period Ending
September 30,
Amount
2021 – remaining
$
74,778
2022
306,735
2023
316,316
2024
326,001
2025
27,234
Total
$
1,051,064
Less imputed interest
(65,483
)
Total lease liability
$
985,581
NOTE 8 – NOTES PAYABLE AND LINE OF CREDIT
Notes payable and line of credit consist of the following at September 30, 2021 and December 31, 2020:
Origination
Maturity
Interest
September 30,
December 31,
Lender
Date
Date
Rate
2021
2020
Comerica Bank – Line of credit
10/31/12
Demand
3.50
%
$
105,800
$
359,500
Comerica Bank – Loan payable
08/27/19
09/01/21
5.00
%
-
15,474
Comerica Bank – SBA PPP loan
05/04/20
04/29/22
1.00
%
-
218,600
Total line of credit and notes payable
$
105,800
$
593,574
Less: current portion
(105,800
)
(374,974
)
Line of credit and notes payable, net of current portion
$
-
$
218,600
8
SPECTRUM SEMICONDUCTOR MATERIALS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 8 – NOTES PAYABLE AND LINE OF CREDIT (CONTINUED)
On May 4, 2020, the Company received a $218,600 Paycheck Protection Program ("PPP") loan from the Small Business Administration ("SBA") under provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The PPP loan has a two-year term and bears interest at a rate of 1.0% per annum. The PPP provides that the PPP loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company used the proceeds from the PPP loan for qualifying expenses and applied for forgiveness of the PPP loan in accordance with the terms of the CARES Act. On March 4, 2021, the Company received notice from Comerica Bank that its loan had been forgiven in its entirety by the SBA.
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at September 30, 2021 and December 31, 2020:
September 30,
December 31,
2021
2020
Trade accounts payable
$
835,401
$
308,054
Sales commissions payable
83,986
50,018
Accrued payroll liabilities
161,759
209,726
Other accrued liabilities
22,852
19,324
Total accounts payable and accrued expenses
$
1,103,998
$
587,122
NOTE 10 – SUPPLIER AND CUSTOMER CONCENTRATION
Significant customers and suppliers are those that account for greater than ten percent of the Company's revenues and purchases.
During the nine months ended September 30, 2021, the Company purchased a substantial portion of finished goods from four third-party vendors, which compromised 94.3% percent of the Company's purchases. During the nine months ended September 30, 2020, the Company purchased a substantial portion of finished goods from three third-party vendors, which compromised 94.6% percent of the Company's purchases. The Company believes there are other suppliers that could be substituted should any of the suppliers become unavailable or non-competitive.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
There are no legal proceedings which the Company believes will have a material adverse effect on its financial position.
NOTE 12 – SUBSEQUENT EVENTS
On December 15, 2021, the acquisition of the Company by AmpliTech Group, Inc. ("AmpliTech") was completed. The aggregate purchase price was $10,250,000, subject to certain working capital and other adjustments, of which $750,000 was paid by the issuance of 188,442 unregistered shares of AmpliTech's common at the closing of the acquisition.
By December 10, 2021, the full balance of the Comerica Line of Credit was paid in full.
Subsequent to September 30, 2021, the Company paid $385,000 in owner distributions.
9
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