Amplitech Group, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Financial statements are unaudited. Amplitech designs and assembles customized microwave components and amplifiers; results include Specialty Microwave, acquired in September 2019.
Financial results and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1.151 million | $0.709 million | $2.567 million | $2.018 million |
| Gross profit | $520,246 | $350,370 | $985,548 | $1.035 million |
| Gross margin | 45.2% | 49.4% | 38.4% | 51.3% |
| Operating income (loss) | $44,998 | $(127,927) | $(470,718) | $13,806 |
| Net income (loss) | $17,010 | $(138,384) | $(549,219) | $(11,165) |
- Cash flow: Nine-month operating cash use was $514,298; investing cash use was $11,557; financing provided $377,018. Cash declined by about $148,837 to approximately $425,876.
- Liquidity: Current assets were $1.867 million and current liabilities $952,273, yielding working capital of $915,032. Management reported cash and operating resources were expected to fund operations for the next 12 months.
- Debt and leases: Notes payable totaled approximately $1.662 million and the line of credit had a $300,000 balance. Operating and finance lease liabilities were approximately $371,947 and $91,022, respectively. Total liabilities were $2.739 million.
- Equity and shares: Stockholders’ equity was $583,382, down from $1.094 million at year-end 2019. Common shares outstanding rose to 51,588,958 from 49,086,326.
Changes versus comparable periods
- Q3 revenue rose 62.3% year over year; management attributed growth to higher Amplitech sales and Specialty Microwave contributions. Nine-month revenue rose 27.2%, with the acquisition cited as a significant contributor.
- Despite higher sales, nine-month gross profit fell 4.8% and gross margin declined to 38.4%. Management cited outsourcing, labor and engineering costs, customer-specific product mix, and the addition of Specialty Microwave.
- Nine-month SG&A increased 42.6% to $1.456 million, including higher accounting, legal, consulting, director, hiring, equipment-leasing, and acquisition-related costs. Interest expense rose to $78,501 from $24,971.
- Q3 returned to operating and net profitability, compared with losses in Q3 2019; the company remained loss-making for the first nine months.
Outlook, risks and unusual items
- COVID-19: Reduced workforce availability and limits on customer-site access could constrain production and demand. Management said RFQ activity remained strong and open orders had not been cancelled, but orders could be delayed. It expected to continue operations unless required to close or pandemic effects worsened.
- Financing: The company received a $232,200 PPP loan at 1% interest and planned to apply for forgiveness; forgiveness was not reported as granted. It also drew $300,000 on a $500,000 line of credit, which was scheduled to mature October 1, 2020.
- Controls: Management concluded disclosure controls and procedures were not effective as of September 30, 2020. No material change in internal control over financial reporting was reported during the quarter.
- Equity-related items: A September service-provider agreement included fees of up to $200,000 tied to specified events and an agreement to issue 2,000,000 common shares. In July, a director’s warrants were exercised cashlessly, resulting in 2,052,632 shares issued.
- Subsequent proposal: A preliminary information statement proposed a 1-for-100 to 1-for-200 reverse split, among other corporate amendments and a 2020 equity plan. The filing said the proposal was still in the approval process and not effective.
- The filing reported no pending legal proceedings and no off-balance-sheet transactions. It cautioned that forward-looking statements are subject to risks and actual results may differ.
Key facts investors should verify
- Whether operating cash use, losses, and debt service remain manageable relative to cash and available borrowing capacity.
- Whether COVID-related access, staffing, supply-chain, or order delays materially affect sales and margins after Q3.
- Whether the PPP loan qualifies for forgiveness and the status of the line-of-credit maturity and any renewal or repayment.
- Progress in addressing the disclosed ineffective disclosure controls.
- Whether the proposed reverse split and equity-plan changes are approved, and the potential dilution from the proposed 2,000,000-share service-provider issuance.
- How the company’s customer-specific costs and Specialty Microwave integration affect gross margins and profitability.