Amplitech Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014. The unaudited statements cover AmpliTech Group, Inc., which designs, engineers, and assembles custom microwave/RF amplifiers and related components and provides project-based engineering services.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Sales, 2014 (2013) | $319,487 ($148,907) | $643,363 ($458,091) |
| Gross profit, 2014 (2013) | $165,984 ($42,559) | $320,063 ($229,852) |
| Gross margin, 2014 (2013) | 52% (29%) | 50% (50%) |
| Operating income (loss), 2014 (2013) | $20,833 (loss; see discrepancy below) | ($15,704) (($97,495)) |
| Net loss, 2014 (2013) | ($556,656) (($162,730)) | ($640,956) (($132,371)) |
- Second-quarter sales rose about 115% year over year; first-half sales rose about 40%. Management attributed the increase to higher production on large, recurring orders and improved outsourced assembly turnaround and quality.
- First-half operating loss narrowed by $81,791. The six-month net loss worsened substantially, largely reflecting a $501,200 noncash compensation charge for Series A preferred stock issued to the CEO and $126,132 of interest expense, versus $34,876 in the prior-year period.
- Six-month operating cash flow was positive $5,884, compared with cash use of $138,273 in 2013. Financing activities used $15,600, versus providing $114,025 in 2013. Cash fell to $907 from $10,623 at December 31, 2013.
- At June 30, total assets were $461,989, current assets $318,553, current liabilities $559,681, and total liabilities $570,470. Working capital deficit was $241,128 and stockholders’ deficit was $108,481.
- Current liabilities included $123,477 of convertible notes, $109,810 of factor financing, $56,340 of current capital leases, and $44,124 of current loan maturities. The filing reports no clear aggregate debt figure distinct from its liability line items.
- Basic loss per share was $0.02 for the quarter and $0.03 for the six months, versus $0.01 in each comparable 2013 period.
Material changes, outlook, and risks
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing the working capital and stockholders’ deficits and continuing losses. Plans include raising equity or debt, possible conversion of notes to equity, winning customers, developing products, and expanding distribution; success is not assured.
- After quarter-end, Microphase agreed to buy 13 million restricted shares for $300,000 in three installments. The first $100,000 installment for 4,333,333 shares closed July 10; two $100,000 installments were scheduled for August 15 and September 15. Management stated it believed these proceeds, operating cash, and cash on hand would fund operations for the next 12 months. The agreement includes full-ratchet anti-dilution protection for certain future issuances at $0.023 per share or less.
- On July 14, the company repaid a $40,000 convertible-note advance plus $4,680 of original issue discount interest. Subsequent note conversions also resulted in common-share issuances, adding potential dilution.
- In May, 140,000 Series A shares were issued to the CEO and sole director. They are convertible into 14 million common shares and carry 51% of total voting power while outstanding.
- On May 20, authorized common shares increased from 50 million to 500 million. As of August 11, 35,136,917 common shares were issued and outstanding.
- Management reported effective disclosure controls as of June 30 and no material changes in internal control over financial reporting. The company reported no pending legal proceedings and no off-balance-sheet transactions.
Important facts for investors to verify
- Whether the two remaining Microphase installments were completed as scheduled and how the cash was used.
- Whether liquidity improved sufficiently to address the going-concern uncertainty, near-term obligations, and extremely low cash balance.
- The extent of dilution from convertible notes, subsequent conversions, preferred-stock conversion rights, and the Microphase anti-dilution provision.
- The reported operating-loss comparison for the second quarter: the financial statements show a 2013 loss of $143,767, while MD&A cites $128,767 and calculates a $149,600 improvement. The filing does not reconcile this inconsistency.
- Inventory recoverability: inventory was $146,083 net of a $71,742 obsolescence reserve at June 30.