Amplitech Group, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. The unaudited statements are prepared under U.S. GAAP. AmpliTech designs and assembles custom RF and microwave amplifiers and related products for aerospace, government, defense, satellite and commercial customers.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $530,113 | $284,151 | $1,577,441 | $1,044,055 |
| Gross profit | $280,329 | $142,163 | $899,827 | $575,986 |
| Gross margin | 52.9% | 50.0% | 57.0% | 55.2% |
| Operating income (loss) | $11,432 | $(53,244) | $129,650 | $(74,399) |
| Net income (loss) | $6,728 | $(54,433) | $120,953 | $(79,992) |
| Interest expense | $4,704 | $1,189 | $8,697 | $5,593 |
- Q3 revenue increased 86.6% year over year; nine-month revenue rose 51.1%. Management attributed growth to the expanded product line, particularly telecommunications products, distributor orders, and increased marketing.
- Nine-month cost of goods sold rose 44.8%, slower than revenue growth. Management cited higher component costs for cryogenic and telecommunications products and outsourcing of large orders. Gross margin improved, which management attributed to sales mix.
- General and administrative expense increased 37.6% in Q3 and 18.4% for the nine-month period. Cited drivers included commissions, sales hiring and consulting, and computer-system repair and software upgrades.
- Reported basic and diluted EPS were $0.00 for 2018 periods, rounded to cents. Nine-month diluted weighted-average shares were 87.4 million versus 47.6 million basic shares; the filing notes 40 million potential dilutive shares.
Cash flow, liquidity and capital
- Cash and cash equivalents were $246,905 at September 30, 2018, versus $117,990 at December 31, 2017. Working capital was $626,322, up from $439,811; current assets were $1.07 million and current liabilities $439,099.
- For the nine months, operating activities provided $113,352, investing activities used $6,863, and financing activities provided $22,426. Cash increased by $128,915. Operating cash flow included net income and higher customer deposits, partly offset by increases in receivables and inventory.
- Debt included a $105,854 line-of-credit balance, against a $250,000 facility maturing April 20, 2019, and capital-lease obligations of $150,191 in scheduled principal payments. The company entered a 60-month equipment lease in July 2018; equipment acquired through the lease was $157,184.
- Net inventory was $449,111, including a $70,000 obsolescence reserve. Accounts receivable were $306,413; the company reported no allowance for doubtful accounts.
- Common shares outstanding increased from 46,136,326 at year-end 2017 to 48,336,326 at September 30, 2018. The increase included 2.2 million restricted shares issued as compensation under an advisory agreement for product sales and distribution in Asia and the Middle East.
Outlook, risks and notable disclosures
- Management said cash on hand and operating cash flow should provide sufficient working capital for the next 12 months, while also identifying borrowings and debt or equity offerings as possible financing sources. This is management’s expectation, not a guarantee.
- Management stated the January 2018 adoption of ASC 606, using the modified retrospective method, was not expected to materially affect reported revenue; revenue continued to be recognized upon shipment or delivery under contract terms.
- Disclosure controls and procedures were concluded to be not effective as of September 30, 2018. The filing reported no material changes in internal control over financial reporting during the period.
- The company reported no off-balance-sheet transactions, pending legal proceedings known to it, defaults upon senior securities, or material subsequent events. Smaller reporting company status meant the filing did not provide the specified market-risk disclosures or a separate risk-factors update.
- The company cautioned that forward-looking statements are subject to risks and uncertainties and undertook no general obligation to update them.
Investor verification points
- Assess whether revenue growth and improved gross margins persist, particularly given product mix, component-cost pressure, and outsourcing of large orders.
- Review receivables, inventory levels and customer deposits against sales growth, cash conversion, and order delivery obligations.
- Confirm line-of-credit terms, repayment capacity and capital-lease commitments, including the facility’s April 2019 maturity.
- Investigate the reasons for ineffective disclosure controls and whether remediation has occurred since the reporting date.
- Evaluate potential dilution from the 40 million potential shares and the advisory share issuance; reconcile these with the reported diluted share counts and EPS.