Amplitech Group, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. AmpliTech designs, engineers and assembles custom microwave/RF amplifiers and related products for domestic and international customers, including aerospace, government, defense and commercial satellite markets. The interim financial statements are unaudited.
Financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $301,305 | $504,565 | $759,904 | $651,045 |
| Gross profit | $172,335 | $354,440 | $433,823 | $392,924 |
| Gross margin | 57.2% | 70.3% | 57.1% | 60.4% |
| General and administrative expense | $229,485 | $194,855 | $454,978 | $370,920 |
| Operating income (loss) | $(57,150) | $159,585 | $(21,155) | $22,004 |
| Net income (loss) | $(59,223) | $154,761 | $(25,559) | $13,542 |
| Interest expense | $2,073 | $4,824 | $4,404 | $8,462 |
For Q2, revenue declined 40.3% year over year, and gross profit fell 51.4%. For the first half, revenue rose 16.7% and gross profit rose 10.4%, but higher operating expenses drove the company to an operating and net loss. Reported basic and diluted loss per share rounded to $0.00.
Cash flow, balance sheet and liquidity
- At June 30, 2017, cash was $291,047; current assets were $696,875 and current liabilities were $196,538, yielding working capital of $500,337. The current ratio was approximately 3.5.
- Total liabilities were $196,538 and stockholders’ equity was $571,852. Recorded debt comprised a $15,000 demand note and a $26,825 line-of-credit balance. The demand note carried 8% interest; related accrued interest was reported as $10,484.
- For the six months, operating activities provided $38,240; investing activities used $2,771, mainly for equipment; and financing activities used $28,082, principally for net line-of-credit repayments. Cash increased by $7,387.
- Inventory, net of a $65,000 obsolescence reserve, was $303,958, up from $266,938 at year-end 2016.
Changes, outlook and other matters
- Management attributed first-half sales growth to increased marketing and advertising. The Q2 revenue comparison was affected by a large foreign order with higher gross margin fulfilled in Q2 2016.
- First-half cost of goods sold increased by $67,960; management cited outsourcing larger-quantity orders. G&A rose 22.7% for the first half, attributed to marketing, trade shows and research and development. Q2 G&A included approximately $13,000 more R&D expense.
- Management said cash on hand and operating cash flow should provide sufficient working capital for the next 12 months. It also said growth may be funded through cash, borrowings, debt or equity offerings, or a combination. This is management’s expectation, not a guarantee.
- The company disclosed a correction to its 2016 tax provision that increased 2016 net income by $41,092; management deemed the correction immaterial to previously issued annual statements and revised the comparative information. No material subsequent events or pending legal proceedings were reported. The filing reported no off-balance-sheet transactions.
- Management concluded disclosure controls were effective at providing reasonable assurance; it reported no material changes in internal control over financial reporting. The company did not provide a separate risk-factor discussion, stating smaller reporting companies were not required to do so. Forward-looking statements are subject to risks and uncertainties, and the filing provides no specific quantified guidance.
Important facts for investors to verify
- Review the full financial statements and customer/order details to assess the sharp Q2 revenue decline and the sustainability of first-half growth.
- Assess whether gross margins and spending on marketing and R&D can support a return to profitability, and monitor inventory quality and the $65,000 obsolescence reserve.
- Verify the company’s liquidity outlook, line-of-credit terms and demand-note obligations, including the separately disclosed accrued interest.
- Check the 2016 revision disclosures: the revision table appears to show revised stockholders’ equity of $594,411, while the balance sheet reports $597,411 at December 31, 2016. The filing text does not reconcile this difference.
- Confirm share-count and per-share disclosures in the underlying statements: diluted weighted-average shares are approximately 86.0 million versus 46.1 million basic shares, while displayed per-share amounts round to $0.00.