Amplitech Group, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; interim financial statements are unaudited. AmpliTech designs and assembles microwave component amplifiers and related subsystems, and provides project-based engineering services.
Financial performance and position
| Metric | Q1 2015 / March 31, 2015 | Prior comparable period / December 31, 2014 |
|---|---|---|
| Sales | $348,452 | $323,876 in Q1 2014 |
| Gross profit and margin | $207,179; approximately 59.5% | $154,079; approximately 47.6% in Q1 2014 |
| General and administrative expense | $166,476 | $188,426 in Q1 2014 |
| Operating income (loss) | $40,703 | $(34,347) in Q1 2014 |
| Interest expense | $9,894 | $53,343 in Q1 2014 |
| Net income (loss) | $30,809 | $(82,110) in Q1 2014 |
| Cash and cash equivalents | $26,555 | $19,162 at December 31, 2014 |
| Working capital | $8,011 | $(30,145) at December 31, 2014 |
| Total assets / liabilities / stockholders’ equity | $413,729 / $291,847 / $121,882 | $444,463 / $353,390 / $91,073 at December 31, 2014 |
Operating cash flow was $22,499, while financing activities used $15,106; cash increased by $7,393 during the quarter. The filing reports no income tax provision. Basic and diluted EPS were each reported as $0.00. Weighted-average shares were 46,136,326 basic and 85,779,616 diluted; the notes identify 39,643,290 potential dilutive shares.
At March 31, current liabilities included $26,958 of notes payable, $73,990 of factor financing, $9,626 of current capital leases, and $40,291 due to the CEO. The $26,958 demand note bears 8% interest; the CEO advance is payable on demand and bears 8% interest.
Changes versus prior period
- Sales increased approximately 7% year over year. Management attributed the increase to greater production capacity from more efficient outsourced assembly.
- Gross profit rose $53,100, and gross margin improved to approximately 59.5% from 47.6%. Management said cost of goods sold declined because the prior-year period included fulfillment of a significant domestic order with a substantially lower gross margin.
- General and administrative expense declined approximately 11%, which management attributed to reductions in expenses at the parent company and operating subsidiary.
- Interest expense declined approximately 81%, primarily because convertible-debt interest was extinguished in 2014. The company moved from a quarterly net loss to net income.
- Working capital improved from a $30,145 deficit at year-end to an $8,011 surplus; stockholders’ equity increased to $121,882.
Outlook, risks, and notable items
- Going concern: The company stated that substantial doubt exists about its ability to continue as a going concern, citing limited working capital, a $1,556,231 accumulated deficit, and a $770,070 net loss for 2014. Management said additional funding is needed and there is no assurance its plans will succeed.
- Planned financing: On April 28, 2015, the company agreed to sell 75,000 Series B preferred shares to a private investment firm for $500,000. The shares are convertible into 21,975,000 common shares; the first $166,667 installment was expected in May 2015. The filing describes this as expected financing, not cash received by March 31.
- Management expected the proposed investment, operating cash flow, and cash on hand to provide sufficient working capital for the next twelve months. Its plans also include seeking customers, developing products, and expanding distribution domestically and internationally.
- Series B preferred shares are non-voting and have liquidation preference junior to Series A and pari passu with common stock. Separately, each Series A share is convertible into 100 common shares and carries 100 votes; the authorized Series A designation was increased to 401,000 shares in January 2015.
- The company offers a 90-day satisfaction guarantee against product defects, subject to exceptions. Inventory included an $82,000 obsolescence reserve. Cash was held primarily at one financial institution.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting. The filing reported no pending legal proceedings, unregistered equity sales during the quarter, defaults on senior securities, or off-balance-sheet transactions.
Important facts for investors to verify
- Whether and when the agreed $500,000 Series B financing was funded, and the timing and conditions of subsequent installments.
- Cash burn, collections, customer deposits, factor-financing costs, and the company’s ability to meet demand obligations and other near-term liabilities.
- The going-concern warning and whether improved quarterly results can be sustained, particularly given the prior-year loss and limited working-capital cushion.
- The potential dilution and voting impact of convertible securities. The filing reports 39.6 million potential dilutive shares and 21.975 million common shares issuable on Series B conversion.
- The basis for reported diluted EPS and share counts, and how the substantial difference between basic and diluted weighted-average shares affects per-share results.