Business Context and Reporting Period
AmpliTech Group, Inc. filed this annual report for the fiscal year ended December 31, 2016, with audited comparative results for 2015. It designs and assembles customer-specific RF amplifiers and related components and subsystems, and provides non-recurring engineering services. The filing does not provide separate fourth-quarter financial results.
Products operate across 50 kHz to 44 GHz; the company highlighted a new 18–40 GHz wideband low-noise amplifier. It reported six full-time employees as of March 2, 2017 and estimated assembly capacity of about 100 amplifiers per month.
Financial Performance and Position
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $2,036,443 | $1,484,793 |
| Gross profit / margin | $1,208,843 / 59.4% | $733,086 / 49.4% |
| Operating income / margin | $471,916 / 23.2% | $86,580 / 5.8% |
| Net income / margin | $415,196 / 20.4% | $50,050 / 3.4% |
| Net cash provided by operating activities | $346,663 | $29,809 |
| Cash and cash equivalents, year-end | $283,660 | $49,035 |
| Working capital, year-end | $474,276 | $44,876 |
| Total liabilities, year-end | $226,262 | $338,915 |
Revenue rose 37.2%; gross profit increased 64.9%, while general and administrative expense grew 14% to $736,927. Interest expense fell to $15,628 from $36,530. The 2016 income tax provision was $41,092, versus none in 2015. The company reported an accumulated deficit of $1,121,794 at year-end.
Year-end current debt included a $54,907 line-of-credit balance and $15,000 in notes payable; the demand note bears 8% interest. The credit facility was increased to $250,000 in April 2016, with maturity extended to April 20, 2019 and a variable rate initially set at 5.25%. The company had repaid the $78,291 due to its CEO by year-end. The five-year office lease has disclosed future minimum payments totaling $223,633.
Material Changes, Outlook, and Risks
- Management attributed revenue growth to a backlog of domestic and international orders, including a significant foreign order representing approximately 35% of sales and described as having a high gross margin. Higher inventory investment partly offset operating cash generation.
- Management plans further product development, expansion of existing product lines, and pursuit of mergers and acquisitions. It said cash on hand and operating cash flow should fund operations for the next 12 months. No quantified revenue or earnings guidance was provided.
- In the fourth quarter of 2016, the company appointed an exclusive distributor for the U.S., Canada, Mexico, and South America. It also reported $35,369 of customer-related R&D costs in 2016, versus none in 2015.
- Customer concentration is significant: the two largest customers accounted for approximately 34.8% and 17.6% of 2016 revenue. The company cautioned that large orders may not recur. It also relies on component suppliers; the largest supplier represented 24.5% of 2016 material purchases.
- The company reported no owned intellectual property other than its domain name and relies on contractual protections. Competitive pressure, dependence on key customers and suppliers, and the small workforce are relevant operating risks. No pending legal proceedings or off-balance-sheet arrangements were reported.
- The auditor issued an unqualified opinion on the consolidated financial statements, but was not engaged to audit internal control over financial reporting. The controls discussion contains conflicting statements: management calls internal controls effective, yet also refers to material weaknesses without clearly describing them. The filing states there were no material subsequent events through the report date.
Most Important Facts to Verify
- Whether the large 2016 customer orders and elevated gross margins are repeatable, and the status and performance of the new exclusive distributor.
- Customer and supplier concentration, backlog conversion, and inventory recoverability; net inventory included a $65,000 obsolescence reserve.
- The nature and remediation of the material weaknesses referenced in the controls disclosure, and the apparent inconsistency in management’s conclusions about control effectiveness.
- Potential dilution and voting control: the filing reports 39,869,206 potential dilutive shares, 85,743,945 weighted-average diluted shares, and Series A preferred-stock voting and conversion rights. Confirm the applicable share counts and ownership disclosures.
- Whether available liquidity remains sufficient given operating needs, the variable-rate credit facility, demand note, and lease commitments. The company reported no dividends and intends to retain funds for growth.