Amplitech Group, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The company designs and manufactures custom microwave/RF amplifiers and related components for aerospace, government, defense, satellite and commercial customers. Financial statements are unaudited.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Sales | $146,480 | $348,452; down 58% |
| Gross profit and margin | $38,484; 26.3% | $207,179; 59.5% |
| General and administrative expense | $176,065 | $166,476; up 6% |
| Operating income (loss) | $(137,581) | $40,703 |
| Interest expense | $3,638 | $9,894 |
| Net income (loss) | $(141,219) | $30,809 |
| Operating cash flow | $148,250 | $22,499 |
| Cash at period end | $127,142 | $49,035 at Dec. 31, 2015 |
| Working capital | $(103,782), per MD&A | $44,876 at Dec. 31, 2015 |
At March 31, total assets were $501,165 and current liabilities were $501,261; stockholders’ equity was a deficit of $96. Current assets were $397,478. Reported current debt included a $26,958 demand note, $57,441 line-of-credit balance and $27,403 due to the officer. The company also reported $288,690 in customer deposits. No income-tax provision was recorded. Basic and diluted loss per share were both reported as $0.00, rounded as presented.
Operating cash flow benefited principally from collections of receivables and a $211,060 increase in customer deposits, despite the net loss; inventory increased by $84,890. Investing cash outflow was $14,335 for equipment. Financing cash outflow was $55,808, including $50,888 repaid to the officer and $4,920 of net line-of-credit repayments.
Changes, outlook and risks
- Management attributed the 58% sales decline and sharp gross-margin compression to a manufacturing shutdown during the February move to a larger facility, equipment damage and repair delays. Manufacturing salaries continued during the production slowdown. Relocation costs also contributed to higher G&A.
- Interest expense fell 63%, which management attributed primarily to replacing factoring financing with a lower-rate line of credit.
- Management said cash on hand and operating cash flow should fund operations for the next 12 months; it also cited possible borrowing or debt or equity offerings as financing sources. This is forward-looking and not a guarantee.
- On April 20, 2016, the line-of-credit facility was increased from $150,000 to $250,000 and its maturity extended to April 20, 2019. The filing reports no other material subsequent events.
- The company entered a five-year office lease beginning February 1, 2016, with annual rent of $50,000 and 3.75% increases in successive lease years. It reported no pending legal proceedings and no off-balance-sheet transactions.
- Management concluded disclosure controls were effective at providing reasonable assurance; no material changes to internal control over financial reporting were reported. The company cautioned that actual results may differ from forward-looking statements. Specific market-risk and risk-factor disclosures were not required for this smaller reporting company.
Important facts for investors to verify
- Whether production and sales recovered after the facility move and equipment repairs, and whether customer demand supports a return to prior revenue and margins.
- Whether operating cash generation is sustainable, given its reliance on collections and higher customer deposits, and how the working-capital deficit will be funded.
- Availability, terms and use of the expanded line of credit; repayment terms for the demand note and officer balance; and any future financing or dilution.
- Inventory recoverability: net inventory was $230,705 after a $76,000 obsolescence reserve, while inventory rose during the quarter.
- The filing reports 39,607,619 potential dilutive shares in its EPS note, while diluted weighted-average shares shown for Q1 2016 equal basic shares. Investors may wish to verify the treatment and potential dilution of these securities.