AmpliTech Group, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed April 2, 2018. This is an annual report, not a standalone fourth-quarter earnings report. The company designs and assembles customer-specific RF amplifiers and related microwave components for aerospace, defense, satellite and other markets.
Financial performance and liquidity
| Metric | 2017 | 2016, revised | Change |
|---|---|---|---|
| Revenue | $1,380,743 | $2,036,443 | Down $655,700 (32.2%) |
| Gross profit | $728,299 | $1,208,843 | Down 39.8% |
| Gross margin | 52.7% | 59.4% | Down 6.7 percentage points |
| Operating income (loss) | $(90,096) | $471,916 | Declined |
| Net income (loss) | $(97,049) | $456,288 | Changed to a loss |
| Operating cash flow | $(166,827) | $346,663 | Changed to cash use |
- Net loss margin was approximately 7.0%; 2016 net margin was approximately 22.4%. G&A rose 11.1% to $818,395, while R&D spending rose to $68,447 from $35,369.
- Cash and cash equivalents were $117,990 at year-end, down from $283,660. Working capital was $439,811; current assets were $604,973 and current liabilities $165,162.
- Line-of-credit borrowings were $76,435, versus $54,907 in 2016; the facility limit is $250,000 and maturity is April 20, 2019. The $15,000 demand note reported in 2016 was repaid. Total reported liabilities were $165,162.
- Investing cash use was $5,371; financing cash provided was $6,528. Management said cash on hand and expected operating cash flow would be sufficient for the next 12 months.
Material changes, outlook and risks
- Management attributed the revenue decline to a shift in demand toward new products requiring engineering design and additional R&D, with those products intended to target larger commercial markets. The filing gives no quantified revenue or earnings guidance.
- Plans include developing and expanding products and pursuing mergers and acquisitions. New offerings include wideband 18–40 GHz and cryogenic amplifiers. The company reported capacity to assemble about 100 amplifiers monthly, with outsourcing available for larger or time-sensitive orders.
- Two customers represented approximately 28.75% and 17.80% of 2017 revenue. The company cautioned that it cannot assure those customers will place similarly large orders in the following year.
- Other disclosed risks include intense competition, potential price pressure, reliance on suppliers and customer-specific demand, limited production scale, and lack of owned intellectual property other than its domain name. The company had five full-time employees as of March 30, 2018.
- A February 2018 advisory agreement for Asian and Middle Eastern sales provides for 2.2 million restricted shares; 500,000 shares were issued at $0.0325 per share and the remaining 1.7 million were scheduled for April 2018. Verify completion and dilution effects. No dividends are anticipated.
- Adoption of the new revenue standard was expected to accelerate recognition for certain customer-specific production arrangements; the company had not quantified the transition impact.
- No pending legal proceedings or off-balance-sheet arrangements were reported. The auditor gave an unqualified opinion on the financial statements but was not engaged to audit internal control over financial reporting.
Important investor verification points
- Reconcile the filing’s conflicting statements about disclosure controls: it first says they were not effective, but later describes them as effective while also referring to material weaknesses. The filing separately says internal control over financial reporting was effective.
- Review the revised 2016 results: a tax-provision correction increased reported net income by $41,092, to $456,288. The company characterized the prior-period error as not material.
- Check customer concentration, order backlog conversion, product-development costs and whether the expected larger-market demand materialized.
- Assess cash burn, inventory growth and the company’s ability to service its variable-rate credit line; verify that management’s 12-month liquidity expectation remains supportable.
- Assess potential dilution, including the 2.2 million advisory shares and preferred-stock conversion and voting rights. The filing reports 46,136,326 common shares outstanding at year-end and 46,636,326 as of March 30, 2018.