Amplitech Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company designs and assembles microwave amplifiers and related subsystems, and manufactures passive microwave components through its Specialty Microwave division. Its markets include aerospace, defense, government, satellite communications, and commercial applications.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1.057 million | $1.151 million | $2.554 million | $2.567 million |
| Gross profit | $314,000 | $520,000 | $713,000 | $986,000 |
| Gross margin | 29.68% | 45.21% | 27.93% | 38.39% |
| Operating income (loss) | ($537,000) | $45,000 | ($2.089 million) | ($471,000) |
| Net income (loss) | ($593,000) | $17,000 | ($1.945 million) | ($549,000) |
| Basic loss per share | ($0.06) | $0.01 | ($0.25) | ($0.22) |
- Cash flow: Nine-month operating cash use was $2.515 million; investing cash use was $5.414 million; financing cash provided was $30.677 million. Cash and cash equivalents rose to $22.948 million from $200,000 at December 31, 2020.
- Liquidity: Working capital was $28.626 million, versus $742,000 at year-end 2020. Marketable securities were reported at $4.153 million.
- Debt and leases: Notes payable totaled approximately $372,000; the line of credit had no outstanding balance. Total liabilities were $1.286 million, including operating and finance lease obligations.
- Equity: Stockholders’ equity was $30.610 million. Common shares outstanding increased to 9,343,671 at September 30, 2021 from 4,839,448 at December 31, 2020.
Material changes versus the prior comparable periods
- Q3 revenue declined 8.2%; nine-month revenue was nearly flat, down 0.5%. Management attributed pressure to supply-chain disruption, freight issues, and lower first-quarter sales.
- Gross margin weakened substantially in both comparisons. Management cited higher assembly labor and parts costs; it also noted pandemic-related operating impacts.
- SG&A rose 78.9% in Q3 and 92.4% for the nine months. Management cited increased public-company, compensation, promotion, recruiting, legal, accounting, and consulting costs. Approximately $370,000 of nine-month expenses were described as nonrecurring and related to public offerings.
- Nine-month operating cash use increased from $514,000 to $2.515 million, while financing cash flow increased mainly due to equity offerings and warrant exercises.
- The company repaid its $1.0 million term loan during the period and paid off its $200,000 line-of-credit balance. PPP loan forgiveness contributed a $232,200 gain on extinguishment of debt.
Outlook, commentary, and risks
- Management said cash on hand and expected operating cash would provide sufficient working capital for the next 12 months. It reported strong RFQ activity and expected this could translate into higher sales, but provided no quantified guidance.
- Management described plans to expand into 5G/6G, wireless infrastructure, quantum computing, and cybersecurity markets. A new 20,000-square-foot facility was leased in October 2021, with annual base rent of $346,242 and an expected move to full operations in Q1 2022. The company also opened an MMIC Design Center in Texas in November 2021, expected to be fully operational by year-end.
- COVID-19 effects and supply-chain delays may constrain manufacturing, shipments, customer communications, and revenue. The company also identified uncertainty around the future impact of pandemic-related measures.
- The company recorded nine-month unrealized investment losses of $63,135 and Q3 unrealized losses of $63,807. It stated that it did not consider its investments impaired at September 30.
- Disclosure controls and procedures were concluded to be ineffective as of September 30, 2021. Management reported no material changes to internal control over financial reporting during the quarter.
- The filing reported no applicable commitments or contingencies and no known pending legal proceedings. It reported no off-balance-sheet transactions.
Important facts for investors to verify
- Whether revenue and margins recover as supply-chain constraints ease, and whether the stated strong RFQ activity converts into orders and shipments.
- The drivers and sustainability of higher SG&A and assembly costs, including the distinction between recurring and offering-related expenses.
- Cash deployment, investment valuation and exposure, and whether cash burn remains consistent with management’s 12-month liquidity assessment.
- The execution, cost, and timing of the new manufacturing facility and Texas design center, including the impact of the new lease obligations.
- Potential dilution from the increased share count and outstanding warrants and options; the filing reported 3,296,942 warrants outstanding at September 30, 2021.
- Remediation of ineffective disclosure controls and procedures. The filing text does not provide a clear remediation timetable.