Amplitech Group, Inc. — Q2 2020 Form 10-Q
Period: Three and six months ended June 30, 2020. Unaudited consolidated interim results. The company designs and assembles microwave/RF components and acquired Specialty Microwave Corporation (SMW) in September 2019; therefore, 2020 results include SMW while 2019 comparisons generally do not.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $660,699 | $631,208 | $1,416,647 | $1,309,526 |
| Gross profit | $225,988 | $360,766 | $465,302 | $684,884 |
| Gross margin | 34.21% | 57.15% | 32.9% | 52.3% |
| Operating income (loss) | ($216,469) | $59,085 | ($515,716) | $141,733 |
| Net income (loss) | ($243,268) | $48,416 | ($566,229) | $127,219 |
- For the six months, cost of goods sold rose to $951,345 from $624,642, while SG&A increased to $981,018 from $543,151. Management attributed costs to outsourcing and labor, SMW-related expenses, and increased parent-company professional, director, investor-relations and legal costs.
- Cash and cash equivalents were $432,546 at June 30, down from $574,712 at December 31, 2019. Working capital was $806,668, compared with $1,354,758 at year-end; stockholders’ equity was reported as $551,139 on the balance sheet.
- Six-month cash flow: $266,736 used in operations, $9,479 used in investing, and $134,049 provided by financing; cash declined by $142,166. The financing inflow included the $232,200 PPP loan.
- Current liabilities were $709,786 versus current assets of $1,516,454. Notes payable totaled approximately $1.71 million, including current and long-term portions. Operating and finance lease liabilities totaled approximately $504,000. The $500,000 credit line had no outstanding balance.
- Weighted-average basic and diluted shares were 49,536,326 in 2020. Six-month loss per share was reported as $0.01; potential shares were excluded as anti-dilutive.
Changes versus the prior comparable period
- Six-month revenue increased 8.18%, but the filing says legacy AmpliTech sales declined by approximately $185,000; SMW contributed $292,331. Q2 revenue rose 4.68%, with SMW contributing approximately $80,664 while legacy AmpliTech sales declined by about $51,172.
- Gross margin contracted materially, and the company moved from operating and net income in the 2019 comparison periods to losses in 2020. Higher manufacturing costs and SG&A, as well as increased interest expense, contributed.
- Cash from operations shifted from $43,144 provided in the first half of 2019 to $266,736 used in the first half of 2020. Cash at June 30, 2020 was below the $710,067 reported at June 30, 2019.
Outlook, risks and other notable items
- Management said it believed cash on hand and cash from operations would provide sufficient working capital for the next 12 months, while also stating it may use borrowings or debt or equity offerings to fund growth. No quantified revenue or earnings guidance was provided.
- COVID-19 measures reduced workforce availability and disrupted some customers and suppliers. Management warned that restricted access to customer facilities could affect demand fulfillment and results; RFQ activity remained strong, but orders could be delayed into the third and fourth quarters. The company continued operations under social-distancing and work-from-home measures and reported no cancellations of open orders.
- The company received a $232,200 PPP loan at 1% and planned to apply for forgiveness; forgiveness was not reported as obtained. The loan is restricted to eligible payroll, rent, utilities and mortgage-interest costs.
- SMW acquisition consideration was $1,143,633, including a $475,000 note bearing 6% interest. The company also has a seven-year $1 million term loan at 6.75%, secured by company assets.
- Management concluded disclosure controls and procedures were not effective as of June 30, 2020. It reported no material change in internal control over financial reporting during the quarter. The filing reported no pending legal proceedings known to the company.
- After quarter-end, 450,000 shares were issued to Maxim Group on July 9. Director Wayne Homschek was terminated July 25 and elected to exercise 3,000,000 cashless warrants on July 28; the filing does not clearly state the resulting net shares issued.
Important facts for investors to verify
- Reconcile the cash-flow statement’s $134,049 financing cash inflow with MD&A wording that says financing cash provided was $142,166; the latter equals the reported net cash decline in the cash-flow statement.
- Reconcile stockholders’ equity of $551,139 on the balance sheet with $551,487 in MD&A, and verify the six-month EPS note, which contains a $556,229 net-loss figure despite $566,229 elsewhere in the filing.
- Confirm the current operating-lease liability: the balance sheet lists $111,484 current and $293,832 long-term, while the lease note lists $102,332 current and $302,984 long-term. Both presentations total $405,316.
- Verify the number of shares outstanding following the July 2020 Maxim issuance and cashless warrant exercise, and assess potential dilution from outstanding preferred shares, options and warrants.
- Monitor cash burn, margin recovery, debt service and the outcome of the PPP forgiveness application, alongside the effect of COVID-19 disruptions and SMW integration.