Amplitech Group, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2014. Unaudited results cover the three and nine months ended September 30, 2014, with comparisons to 2013. The company designs and assembles customer-specific microwave/RF amplifiers and related systems, and provides engineering services.
Key financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Sales | $308,831 | $301,155 | $952,194 | $759,246 |
| Gross profit | $133,283 | $210,630 | $455,686 | $440,483 |
| Gross margin | 43% | 70% | 48% | 58% |
| Operating income (loss) | $(43,400) | $62,552 | $(55,718) | $(35,240) |
| Interest expense | $43,054 | $27,417 | $169,186 | $61,996 |
| Net income (loss) | $(86,454) | $35,135 | $(725,072) | $(97,236) |
- Nine-month sales rose 25%, while gross profit increased only 3%; the filing attributes weaker margins to outsourced assembly on a significant domestic order.
- Third-quarter sales grew about 3%, but gross profit fell about 37% and operating results swung from income to loss. G&A rose 19% in the quarter and about 8% year to date.
- The nine-month loss includes a $501,200 non-cash compensation charge for Series A preferred shares issued to the CEO, as well as elevated interest expense related mainly to convertible-note discounts. No income-tax provision was recorded.
- Basic and diluted loss per share for the nine months was reported as $(0.03); weighted-average shares were 27.7 million. Approximately 17.8 million potentially dilutive shares were excluded as anti-dilutive.
Cash flow, balance sheet, and financing
- At September 30, cash was $56,878, versus $10,623 at December 31, 2013. Nine-month operating cash use was $3,727, compared with $82,834 in 2013; financing provided $49,982, compared with $69,153.
- Current assets were $306,215 and current liabilities $341,235, producing a $35,020 working-capital deficit. Total liabilities were $341,235; stockholders’ equity was $93,749, versus a $220,243 deficit at year-end 2013. Total assets were $434,984.
- Current obligations included $21,690 of convertible notes, a $26,958 demand note, $41,088 of factor financing, $37,934 of current capital leases, and $52,291 due to the CEO. The CEO had paid $56,291 of an SBA-backed loan on the company’s behalf; the amount was payable on demand at 8% interest.
- Common shares outstanding were 41,570,250 at September 30 and 42,770,250 as of November 5, 2014. The company issued 8,666,666 restricted shares for $200,000 under a stock-purchase agreement; a third $100,000 installment for 4,333,334 shares remained outstanding, extended to November 15, 2014. The agreement includes full-ratchet anti-dilution protection for certain issuances at $0.023 per share or less.
Outlook, risks, and unusual items
- Management stated that the company’s working-capital deficit, nine-month loss, and prior-year loss raise substantial doubt about its ability to continue as a going concern. Plans include raising equity or debt, possible conversion of existing notes, pursuing customers, developing products, and expanding distribution. Management expected the Microphase installment, operating cash flow, and cash on hand to fund operations for the next 12 months, but stated there was no assurance of success.
- On May 8, the company issued 140,000 Series A convertible preferred shares to its CEO and sole director. They carry 51% of total voting power and are convertible into 14 million common shares at the holder’s option; the issuance generated the $501,200 non-cash compensation charge.
- Convertible notes converted into common shares during the period, including conversions at prices around $0.011–$0.06 per share. A further $10,872 conversion into 1.2 million shares occurred on October 14. These conversions and the preferred-stock terms present significant dilution and control considerations.
- The filing reports no pending legal proceedings, no defaults upon senior securities, and no off-balance-sheet transactions. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the overdue $100,000 Microphase installment was received by the extended November 15 deadline, and the resulting share issuance and anti-dilution effects.
- Current cash needs, debt repayment terms, and the company’s ability to address the going-concern uncertainty without further financing.
- Convertible-note balances, conversion prices, and potential share issuance, including post-quarter conversions and the dilutive impact of the Series A preferred shares.
- Whether outsourced-order economics and gross margins improve after the sharp third-quarter margin decline.