Amplitech Group, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020, compared with 2019. This is an annual report, not a standalone fourth-quarter report.
Business context
Amplitech designs and assembles customized RF amplifiers and related subsystems for aerospace, defense, government, satellite communications, and commercial markets. Its Specialty Microwave subsidiary manufactures passive microwave components. Management is pursuing product development and expansion into 5G/6G, wireless infrastructure, and cryogenic amplifier applications; it also identifies partnerships and acquisitions as strategic priorities.
Financial results and liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $3.458 million | $3.123 million | Up 10.7% |
| Gross profit | $1.254 million | $1.566 million | Down 19.9% |
| Gross margin | 36.3% | 50.2% | Down 13.9 percentage points |
| Operating expenses (SG&A) | $2.170 million | $1.484 million | Up 46.2% |
| Operating income (loss) | ($916,000) | $82,000 | Declined |
| Net income (loss) | ($1.026 million) | $5,945 | Turned to a loss |
| Net cash used in operating activities | $521,000 | $20,000 | Greater cash use |
Management attributed the lower gross margin to product mix, outsourced production, and higher labor and material costs. SG&A rose with consulting, legal and stock compensation costs, added sales and marketing staff, and Specialty Microwave integration expenses. Interest expense was $110,000, versus $76,000 in 2019.
At year-end, cash and cash equivalents were $200,000, working capital was $742,000, total assets were $2.812 million, and total liabilities were $2.371 million. Notes payable totaled $1.604 million, and the line of credit balance was $200,000; operating and finance lease liabilities were approximately $355,000 and $83,000, respectively. The company reported an accumulated deficit of $1.868 million. No EBITDA or current ratio is stated in the filing.
Material changes and events
- Revenue increased, with domestic sales rising to $2.720 million from $2.161 million, while international sales declined to $738,000 from $961,000.
- Specialty Microwave, acquired in September 2019, contributed a full year of operations in 2020, increasing sales as well as staffing and operating costs.
- Cash declined by $375,000 during 2020, to $200,000, while operating cash outflow increased to $521,000.
- After year-end, the company completed a public offering alongside its Nasdaq listing and 1-for-20 reverse split. The filing reports approximately $11.0 million of gross offering proceeds and approximately $10.9 million of net proceeds. It also reports $1.133 million of gross proceeds from warrant exercises in March 2021.
Outlook, risks, and unusual items
- Outlook: Management plans continued product development, expansion of existing product lines, and consideration of acquisitions. It expects cash on hand and operating cash flows to fund operations for the next 12 months; no numeric revenue or earnings guidance is provided.
- COVID-19: Shutdowns, reduced workforce availability, customer communication difficulties, and delivery delays affected operations. Management warned that disruption could reduce revenue into 2021. The company received a $232,200 PPP loan and was applying for forgiveness at the time of the filing.
- Going concern: The auditor identified going-concern evaluation as a critical audit matter, citing the annual loss, operating cash outflow, and accumulated deficit. Management said positive working capital, expected revenue growth, and post-year-end offering proceeds supported its view that it could meet obligations for at least one year from issuance.
- Controls and audit: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end because of material weaknesses in the control environment and financial-statement disclosure controls. The auditor issued an unqualified opinion on the financial statements but did not audit internal control effectiveness.
- Other risks and contingencies: The company faces larger competitors, potential supplier and production constraints, and uncertainty around commercializing products in new markets. It reported no pending legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether PPP loan forgiveness was obtained and the final treatment of the $232,200 loan.
- Post-offering cash, debt, liquidity, and use of proceeds, including the reported offering net proceeds and subsequent warrant exercises.
- Progress in remediating the disclosed material weaknesses and whether controls improve after the Nasdaq listing.
- Whether gross margins recover as product mix, outsourcing, and labor and materials costs change.
- Actual performance of new 5G, wireless, and cryogenic products, and the revenue contribution from Specialty Microwave.