Amplitech Group, Inc. — Q1 2017 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2017, compared with Q1 2016. Amplitech designs and assembles custom microwave/RF amplifiers and related products for aerospace, government, defense, satellite and commercial customers; it also performs project-based engineering services.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / prior balance-sheet date |
|---|---|---|
| Revenue | $458,600 | $146,480 |
| Gross profit / margin | $261,489 / 57.0% | $38,484 / 26.3% |
| General and administrative expense | $225,493 | $176,065 |
| Operating income (loss) | $35,996 | $(137,581) |
| Net income (loss) | $33,664 | $(141,219) |
| Operating cash flow | $(26,559) | $148,250 |
| Cash and equivalents | $250,239 | $283,660 at Dec. 31, 2016 |
| Working capital | $553,243 | $515,368 at Dec. 31, 2016 |
Q1 basic EPS was $0.01; diluted EPS was reported as $0.00. At March 31, total assets were $803,897, total liabilities $172,822, and stockholders’ equity $631,075. Current liabilities included a $15,000 demand note and $50,467 outstanding on a line of credit; the line had a stated $250,000 limit and April 20, 2019 maturity. The company reported no income-tax provision for Q1.
Changes versus the prior comparable period
- Revenue rose $312,120, approximately 213%; management attributed the comparison in part to a Q1 2016 manufacturing shutdown during relocation and production delays from equipment damage and repairs.
- Gross profit increased $223,005. Management said the improvement reflected higher sales and outsourcing orders with significant quantities.
- G&A expense increased $49,428, or approximately 28%, attributed to expanded marketing and research and development.
- The company moved from an operating loss and net loss to operating and net income. Interest expense declined $1,306 to $2,332.
- Cash declined $33,421 during Q1. Operating cash use reflected increases in inventory and prepaid expenses; investing cash use was $2,422 for equipment, and financing cash use was $4,440 from line-of-credit repayment.
Outlook, risks and unusual items
- Management said cash on hand and cash from operations should provide sufficient working capital for the next 12 months, while also identifying borrowing and debt or equity offerings as potential funding sources for growth. No revenue or earnings forecast was provided.
- The company’s stated risks include uncertainty in forward-looking statements, estimates and assumptions, and the possibility that actual results differ from expectations. Inventory salability and recoverability, receivable collectability, taxes and contingencies require estimates.
- Inventory was $290,023 net of a $65,000 obsolescence reserve. Cash was deposited primarily at one financial institution. The company reported no material subsequent events, pending legal proceedings, off-balance-sheet transactions, or changes to internal control over financial reporting; management concluded disclosure controls were effective as of period-end.
- The filing reports a correction to 2016 tax accounting that increased 2016 net income by $41,092 and reduced reported accrued liabilities by the same amount. The note’s figures for restated stockholders’ equity do not reconcile with the balance sheet figures elsewhere in the filing.
- Potential diluted shares were reported as 86,030,685, compared with 46,136,326 basic weighted-average shares in Q1 2017. The company also reported 46,136,326 common shares outstanding as of May 8, 2017.
Investor verification priorities
- Reconcile the 2016 restatement: the note gives restated equity of $594,411, while the balance sheet reports $597,411; the note’s presented totals also appear inconsistent. Confirm the correct comparative figures.
- Assess whether the Q1 revenue and gross-margin improvement is repeatable, given management’s explanation of the unusually weak Q1 2016 shutdown and the outsourcing of large orders.
- Track cash conversion and working-capital needs, especially inventory and prepaid-expense growth, against management’s 12-month liquidity statement.
- Review dilution from convertible preferred stock and other potentially dilutive securities, and confirm the basis for the reported diluted EPS.
- Monitor the demand note, line-of-credit balance and terms, and the company’s potential need for external financing.