Amplitech Group, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. The company designs and assembles custom microwave/RF amplifiers and related components. Financial statements are unaudited.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Sales | $378,788 | $319,487 | $727,240 | $643,363 |
| Gross profit | $185,897 | $165,984 | $393,077 | $320,063 |
| Gross margin | 49.1% | 52.0% | 54.1% | 49.7% |
| Operating income (loss) | $18,932 | $20,833 | $59,636 | ($15,704) |
| Net income (loss) | $9,453 | ($556,656) | $40,263 | ($640,956) |
| Interest expense | $9,479 | $72,789 | $19,373 | $126,132 |
Reported basic and diluted EPS were $0.00 for both 2015 periods, versus losses of $0.02 per share in Q2 2014 and $0.03 for the first half of 2014. The 2015 diluted weighted-average share count was 85.8 million, compared with 46.1 million basic shares; the filing identifies 39.67 million potential dilutive shares.
Balance sheet, cash flow and liquidity
- At June 30, cash was $20,923, total assets $425,549, and stockholders’ equity $131,336. Working capital was positive $24,812, versus a deficit of $30,145 at December 31, 2014.
- Current liabilities were $294,213. Notable obligations included $26,958 of demand notes payable at 8%, $38,312 of factor financing, and $36,291 due to the CEO, payable on demand and accruing interest at 8%. No capital lease balance remained at quarter-end.
- For the first half, operating activities provided $66,171; financing activities used $64,410, primarily for factor, officer-loan and capital-lease repayments. Cash increased $1,761 to $20,923.
- Inventory, net of an $82,000 obsolescence reserve, was $156,349. Accounts receivable was $131,214.
Changes, outlook and risks
- First-half sales rose 13% year over year; management attributed the increase to more efficient outsourced assembly for recurring foreign orders. Gross profit increased $73,014, while general and administrative expense decreased $2,326.
- Q2 sales rose 19%, but gross margin declined to 49.1% from 52.0%. Management cited bulk material purchases; Q2 G&A expense increased $21,814, partly due to trade-show advertising and higher sales commissions. Operating income was slightly lower than a year earlier.
- Interest expense fell substantially, which management attributed primarily to the extinguishment of convertible debt interest in 2014. The prior-year comparison also included a $501,200 charge related to Series A preferred stock issuance.
- A proposed $500,000 Series B preferred-stock investment did not proceed because the prospective investor did not execute the agreement. The company issued no common shares in the first half.
- Management said it expected cash on hand, operating cash flow and potential borrowings or securities offerings to fund operations for the next 12 months, but reported no financing agreements and gave no assurance funding would be available. The filing states that the accumulated deficit, prior-year loss and limited working capital raise substantial doubt about the company’s ability to continue as a going concern. It reported a $770,070 net loss for fiscal 2014.
- No material subsequent events, pending legal proceedings or off-balance-sheet transactions were reported. Management considered disclosure controls effective and reported no material change in internal control over financial reporting. No quantified revenue or earnings guidance was provided.
Most important facts for investors to verify
- Whether the company can secure financing and sustain operations given the explicit going-concern uncertainty and only $20,923 in cash.
- Availability and terms of future funding after the proposed $500,000 preferred investment fell through.
- The potential dilution reflected in 39.67 million potential common shares and the reported 85.8 million diluted weighted-average shares.
- Collectability of receivables, inventory quality and the adequacy of the $82,000 inventory-obsolescence reserve.
- Terms and repayment expectations for demand notes, factor financing and the CEO payable; the filing’s balance-sheet and related-party debt disclosures should be reconciled.