Amplitech Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results include AmpliTech’s microwave businesses and Spectrum Semiconductor Materials (SSM), acquired December 15, 2021. The prior-year reported quarter did not include SSM, so reported year-over-year comparisons are not like-for-like.
Business context and results
AmpliTech designs and manufactures microwave amplifiers, RF subsystems and related products, and operates a semiconductor packaging and lids distribution business through SSM. It is developing 5G/6G products and MMIC designs.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $5.10 million | $473,000 |
| Gross profit / margin | $2.32 million / 45.6% | $55,000 / 11.6% |
| Operating expenses | $2.31 million | $909,000 |
| Operating income (loss) | $9,000 | $(854,000) |
| Net income (loss) | $3,625 | $(880,000) |
| Net margin | 0.1% | (186.0%) |
| Net cash used in operating activities | $(1.84) million | $(659,000) |
Revenue rose about 978%, with SSM contributing $4.03 million; AmpliTech Inc. generated $1.07 million, including domestic sales of $867,000 and international sales of $201,000. Management also attributed growth in amplifier and RF subsystem sales to easing COVID restrictions. Gross margin improved substantially, while SG&A increased to $1.90 million and R&D rose to $413,000. The filing’s MD&A refers once to “Spectrum Microwave”; elsewhere the acquired business is identified as Spectrum Semiconductor Materials.
Financial position and liquidity
- Cash and cash equivalents were $15.96 million at March 31, 2022, down $2.06 million from year-end. Current assets were $23.15 million; working capital was $20.29 million.
- Total assets were $34.24 million and stockholders’ equity was $29.08 million. Total liabilities were $5.16 million.
- Notes payable totaled approximately $376,000. The $750,000 revolving credit line had no outstanding balance. Lease liabilities totaled approximately $1.14 million ($1.10 million operating and $43,000 finance).
- Operating cash use of $1.84 million reflected working-capital movements, including higher receivables and inventory and lower accounts payable. Investing cash use was $183,000; financing cash use was $35,000. No equity-offering proceeds were received in the quarter.
- Inventory, net of a $1.04 million obsolescence reserve, was $4.63 million. Accounts receivable, net, was $1.99 million.
Material changes, outlook and risks
- SSM’s acquisition drove most of the revenue increase and expanded the company into semiconductor materials distribution. SSM generated reported segment net income of $1.08 million; AmpliTech Inc. reported a segment loss of $806,000 and corporate operations a loss of $269,000.
- Management expected new 5G/wireless infrastructure products to be released during fiscal 2022 and expected the MMIC design center to begin contributing revenue in 2022. These are expectations, not reported results. Management stated cash on hand and cash from operations should fund operations for the next 12 months.
- The SSM acquisition includes a revenue earnout recorded at $1.365 million, with the final revenue adjustment to be calculated after 2022. A $708,076 working-capital adjustment owed to the seller is included in the acquisition consideration. The filing also describes $1.5 million placed in escrow, with release scheduled for March 31, 2023.
- On April 1, 2022, the company moved into a new 20,000-square-foot facility under a seven-year, two-month lease with annual base rent of $346,242, subject to stated annual increases. On May 5, 2022, it borrowed $441,139 for equipment; the loan is secured by a money-market account with a $500,000 balance.
- Management identified continuing uncertainty from COVID-19 and potential business, supply and manufacturing disruption. Cash balances exceeded FDIC insurance limits by $14.78 million at quarter-end. Inventory recoverability and acquisition-related estimates are also relevant judgment areas.
- Management concluded disclosure controls and procedures were not effective as of March 31, 2022. It reported no material changes to internal control over financial reporting during the quarter. The company reported no pending legal proceedings to its knowledge.
Important facts for investors to verify
- How much of future revenue and cash generation comes from SSM, and whether reported growth persists on a comparable, organic basis.
- Whether the 5G/6G product launch and MMIC revenue expectations are achieved, and the associated development and commercialization costs.
- Operating cash use and working-capital trends, particularly inventory, receivables and supplier payments.
- The final SSM working-capital and revenue earnout settlements, including the earnout’s potential cash impact and escrow release.
- Remediation of ineffective disclosure controls, and the terms and liquidity impact of the post-quarter equipment borrowing and new facility lease.
- Potential dilution: 9,582,113 common shares were outstanding as of May 9, 2022; the quarter-end filing lists approximately 3.30 million warrants outstanding.