Amplitech Group, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018, compared with FY 2017. This is an annual filing; the provided text does not give standalone fourth-quarter results.
Business context
Amplitech designs, engineers and assembles custom RF amplifiers and related components, including low-noise and medium-power amplifiers, oscillators and filters, for aerospace, defense, satellite and other communications markets. It reported five full-time employees as of March 19, 2019. The company highlighted new wideband and cryogenic amplifier products and plans for product development, expansion and potential acquisitions.
Financial performance and position
| Metric | FY 2018 / Dec. 31, 2018 | FY 2017 / Dec. 31, 2017 |
|---|---|---|
| Revenue | $2,397,418 | $1,380,743 |
| Gross profit; gross margin | $1,381,192; 57.6% | $728,299; 52.7% |
| Operating income (loss) | $341,424 | $(90,096) |
| Net income (loss) | $328,993 | $(97,049) |
| Cash from (used in) operations | $352,302 | $(166,827) |
| Cash and cash equivalents | $442,098 | $117,990 |
| Working capital | $836,786 | Not stated in the provided text |
| Total assets | $1,407,840 | $665,524 |
| Total liabilities | $492,535 | $165,162 |
- Revenue rose 73.6%; management attributed growth to demand shifts in telecommunications products and increased distributor orders. Gross profit increased 89.7%, with the margin improvement attributed to higher-margin new products.
- Cost of goods sold increased 55.8% to $1,016,226. General and administrative expense rose 27.1% to $1,039,768, reflecting higher sales commissions, sales hires supporting Asia and the Middle East, and computer-system repair and software upgrade costs.
- Interest expense was $12,431, up from $6,953, primarily due to additional line-of-credit borrowing. No income-tax provision was recorded; deferred tax assets were fully reserved.
- Investing cash outflow was $10,584, mainly for equipment. Financing cash outflow was $17,610, including line-of-credit and capital-lease repayments. Equipment acquired through a capital lease totaled $157,184.
- At year-end, the line of credit had a $72,897 balance and a $250,000 facility limit; it was due to mature April 20, 2019. Capital-lease liabilities totaled $143,113, split between $29,180 current and $113,933 long-term.
Changes, outlook and notable matters
- Domestic sales increased to $2,007,357 from $679,033; international sales declined to $390,061 from $701,710.
- Two customers accounted for approximately 35.50% and 25.36% of FY 2018 revenue. The filing cautions that there is no assurance they will place similarly large orders in the next year.
- On March 18, 2019, after year-end, the company secured $350,000 of financing at 10.79% annual interest for a five-year term to support growth initiatives. Management stated that year-end cash and operating cash flows were expected to fund operations for the following 12 months.
- The company issued 2.2 million restricted shares, valued at $85,950, for advisory services related to Asia and Middle East sales and distribution; $48,471 remained prepaid at year-end. Common shares outstanding increased to 48,336,326 from 46,136,326.
- Management identified plans for new products, expansion of existing lines and potential mergers and acquisitions; the filing provides no quantified revenue or earnings guidance.
- Disclosure controls and internal control over financial reporting were assessed as ineffective due to material weaknesses, including weaknesses in the control environment and disclosure controls. The company had no independent directors, audit committee or audit committee financial expert. The auditor gave an unqualified opinion on the financial statements but was not engaged to audit internal control.
- Other considerations include no owned intellectual property apart from the domain name, supplier concentration (one supplier represented 22.99% of 2018 material purchases), an $80,000 inventory-obsolescence reserve, and no pending legal proceedings reported. The company stated it had no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the two major customers continued ordering at comparable levels and whether the 2018 domestic-sales increase is sustainable.
- Terms, covenants and use of proceeds for the $350,000 post-year-end financing, and repayment status of the line of credit due in April 2019.
- Cash conversion and working-capital needs, particularly receivables, inventory and customer deposits as sales expand.
- Progress in remediating the disclosed material weaknesses and establishing independent board and audit oversight.
- Potential dilution and voting effects of preferred shares and options; the filing reports 40.1 million potential dilutive shares, while FY 2018 reported basic and diluted EPS both rounded to $0.00.