Amplitech Group, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; this is an annual report, not standalone fourth-quarter results. The filing was signed March 25, 2020. AmpliTech designs and assembles customer-specific RF amplifiers and microwave subsystems. Specialty Microwave, acquired in September 2019, manufactures passive microwave components and related systems.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $3,122,630 | $2,397,418 |
| Gross profit / gross margin | $1,565,976 / 50.15% | $1,381,192 / 57.62% |
| Operating income | $81,997 | $341,424 |
| Net income | $5,945 | $328,993 |
| Net cash from (used in) operations | ($20,015) | $352,302 |
| Cash and cash equivalents at year-end | $574,712 | $442,098 |
- Revenue increased 30.25%, including $510,364 from Specialty Microwave after acquisition. Management attributed growth to demand in telecommunications and cryogenic products, distributor orders, and the acquisition.
- Gross margin fell to 50.15% from 57.62%, which management attributed to product mix, outsourcing, and higher labor and materials costs. SG&A rose 42.73% to $1,483,979; interest expense increased to $76,052 from $12,431.
- Working capital was $1,354,758; accumulated deficit was $842,813. Cash used in investing was $681,286, primarily for the Specialty acquisition. Financing provided $833,915, mainly from notes payable.
- Notes payable totaled $1,493,650 at year-end, including $169,697 current and $1,323,953 long-term. The $1 million term loan is secured by all Company assets; the Specialty acquisition note bears 6% interest. The $500,000 revolving credit facility had no year-end balance. Operating lease liabilities were $468,972.
- Management reported EBITDA of $301,539 and adjusted EBITDA of $506,231, both non-GAAP measures. Adjusted EBITDA included add-backs for stock compensation, IP consulting, and acquisition costs.
Material developments, outlook, and risks
- The Specialty Microwave asset acquisition cost $1,143,633: $668,633 cash and a $475,000 promissory note. The purchase added inventory, customer relationships, intellectual property, goodwill, facilities, and eight employees. The company also took a five-year Ronkonkoma lease with a purchase option.
- Management’s stated plans include product development, expansion of existing product lines, and pursuing mergers and acquisitions. It gave no quantified revenue or earnings guidance and said cash on hand and operating cash flow should fund operations for the next 12 months.
- Risks include competitive markets, reliance on suppliers (one supplier represented 34.10% of 2019 material purchases), execution and integration of the acquisition, and significant debt and fixed lease obligations. The filing reports no pending litigation and no off-balance-sheet arrangements.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to material weaknesses, including deficiently communicated accounting procedures and inadequate disclosure controls. The company had no audit committee or audit committee financial expert; the auditor did not audit internal controls.
- The filing reports no customer above 10% of revenue in its business overview, but separately states the two largest customers represented approximately 11% and 10% of sales. Series A preferred stock carries 51% of total voting rights, and substantial potential dilution is disclosed from convertible preferred stock, options, and warrants.
Important facts for investors to verify
- Reconcile the MD&A revenue figure, which appears as “$3,1202,630,” with the audited statements’ $3,122,630 and the stated year-over-year increase of $725,212.
- Review the debt agreements, collateral, repayment schedules, and ability to service obligations given the sharp decline in earnings and negative operating cash flow.
- Assess acquisition performance, including Specialty’s post-acquisition contribution, purchase-price allocation, and the assumptions supporting acquired intangible assets and goodwill.
- Confirm the customer concentration disclosure and evaluate the effect of preferred-stock voting rights and outstanding potential dilution.
- Monitor remediation of the disclosed material weaknesses and the company’s progress toward effective financial reporting controls.