AmpliTech Group, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. The unaudited statements cover the company and its subsidiaries. AmpliTech designs, engineers, and assembles custom microwave and RF amplifiers, subsystems, and related products, and provides project-based engineering services.
Financial results and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Sales | $148,907 | $317,985 | $458,091 | $580,738 |
| Gross profit (margin) | $42,559 (29%) | $200,236 (63%) | $229,852 (50%) | $339,075 (58%) |
| General and administrative expense | $186,326 | $138,803 | $327,347 | $243,597 |
| Operating income (loss) | ($143,767) | $61,433 | ($97,495) | $95,478 |
| Net income (loss) | ($162,730) | $43,100 | ($132,371) | $59,652 |
| Basic and diluted EPS | ($0.01) | $0.00 | ($0.01) | $0.00 |
- Cash flow: Six-month operating cash use was $138,273, compared with $1,422 provided in the prior-year period. Investing cash flow was zero; financing provided $114,025. Cash declined $24,248 to $3,468.
- Balance sheet at June 30: Current assets were $220,382 and current liabilities $762,976, resulting in a $542,594 working-capital deficit. Total assets were $411,459; total liabilities were $870,583; stockholders’ deficit was $459,124. Accumulated deficit was $804,847.
- Debt and financing: Current liabilities included $100,000 of convertible notes, $66,054 of notes payable, $161,310 of factor financing, $66,175 of current capital leases, and $58,574 of current loans payable. Long-term liabilities included $51,773 of capital leases, $52,339 of loans, and $3,495 due to an officer. The filing reports $34,876 of interest expense for the six-month period.
Changes and management commentary
- Six-month sales fell 21%; Q2 sales fell 53%. Management attributed the decline to production delays amid internal operational and cash-flow issues, including unfinished engineering and prototype work, component availability and delivery problems, and difficulty paying suppliers on required terms.
- Lower production utilization reduced labor efficiency. Cost of goods sold rose to 71% of Q2 sales from 37% a year earlier; the reported Q2 gross margin fell to 29% from 63%. For the six-month period, cost of goods sold rose to 50% of sales from 42%, and gross margin declined to 50% from 58%.
- G&A expense increased 34% for both the quarter and six-month period, principally due to legal, accounting, reporting, transfer-agent, and other public-company costs. Interest expense decreased modestly year over year, which management linked mainly to convertible notes being converted into equity.
- In February, holders converted $200,000 principal of notes into 2,000,000 common shares and received 119,863 additional restricted shares for accrued interest. The company also issued two $50,000 convertible notes, each bearing 8% interest, with a six-month term and a $0.10-per-share conversion price.
Outlook, risks, and other matters
- Going concern: Management stated that the working-capital deficit, accumulated deficit, and six-month loss raise substantial doubt about the company’s ability to continue as a going concern. The company needs additional funding and plans to seek debt or equity financing, customers, and acquisition prospects; management cautioned there is no assurance these efforts will succeed. The financial statements contain no adjustments for a potential inability to continue as a going concern.
- The company reported $3,468 of cash at quarter-end and said it historically relied on third-party debt, private lenders, and advances from its CEO/majority shareholder. A factor-financing balance of $93,750 related to domestic sales orders was additionally collateralized by pledged restricted shares from the CEO and a major shareholder.
- After quarter-end, the board authorized 500,000 preferred shares and designated 140,000 as Series A. Each Series A share is convertible into 100 common shares and carries 100 votes; the board intended to issue all 140,000 to the CEO.
- No material pending legal proceedings were reported. Management concluded disclosure controls were effective as of June 30, 2013, and reported no material change in internal control over financial reporting during the quarter. No numerical earnings or revenue guidance was provided.
Important facts for investors to verify
- Whether the company secured sufficient additional financing to meet obligations and sustain operations, given its minimal cash and going-concern warning.
- Whether supplier-payment and component-procurement constraints were resolved and production, sales, and gross margins recovered.
- The status, maturity, repayment, or conversion of the $100,000 convertible notes outstanding at June 30, including any subsequent share issuance.
- Whether the planned Series A issuance to the CEO occurred, and its resulting voting control and potential common-share dilution.
- The terms and ongoing availability of factor financing, and the status of the pledged shares securing the domestic sales-order balance.