Amplitech Group, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Unaudited results; comparisons are to the corresponding 2017 periods. AmpliTech designs and assembles custom RF and microwave amplifiers and related products, serving domestic and international customers in aerospace, government, defense, and commercial satellite markets.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $618,787 | $301,305 | $1,047,328 | $759,904 |
| Gross profit | $364,610 | $172,335 | $619,498 | $433,823 |
| Gross margin | 58.9% | 57.2% | 59.2% | 57.1% |
| General and administrative expense | $290,610 | $229,485 | $501,280 | $454,978 |
| Operating income (loss) | $74,000 | $(57,150) | $118,218 | $(21,155) |
| Net income (loss) | $71,455 | $(59,223) | $114,225 | $(25,559) |
Revenue rose approximately 105% in Q2 and 37.8% for the first half. Gross profit increased 112% in Q2 and 42.8% year to date. Operating results turned profitable in both comparison periods; net income was $0.00 per share as reported, rounded to two decimals. The filing attributes sales growth to new products and increased distributor orders; higher-margin large orders contributed to gross-profit growth. Cost of goods sold also increased, reflecting higher-cost parts, increased production, and outsourcing of large orders.
Cash flow, liquidity, and capital
- At June 30, 2018, cash was $131,174, compared with $117,990 at December 31, 2017. Current assets were $1,037,562 and current liabilities $387,659; working capital was $649,903, versus $439,811 at year-end.
- Six-month operating cash flow was negative $23,473, compared with positive $38,240 in 2017. Investing cash outflow was $2,133; financing provided $38,790, from net line-of-credit advances. Cash increased $13,184 during the period.
- Accounts receivable increased to $365,860 from $137,465 and inventory, net, rose to $458,202 from $335,668. The company reported no allowance for doubtful accounts; inventory included a $70,000 obsolescence reserve.
- The line of credit balance was $115,225, up from $76,435 at December 31, 2017. The facility has a $250,000 limit and matures April 20, 2019; its variable rate is subject to a 5% floor and 25% cap.
- Stockholders’ equity was $698,837, compared with $500,362 at year-end. Shares outstanding increased by 2.2 million to 48,336,326, following restricted-stock compensation to an advisor for sales and distribution assistance in Asia and the Middle East.
Outlook, risks, and notable disclosures
Management stated that cash on hand and cash provided by operations should be sufficient to fund operations for the next 12 months. The company may also use borrowings or debt or equity offerings to finance growth. No specific revenue or earnings guidance was provided. Management cautioned that actual results may differ from forward-looking expectations and identified potential acquisition or merger activity, future cash needs, financing, and business plans as subjects of forward-looking statements.
Management reported no material subsequent events, pending legal proceedings known to the company, or off-balance-sheet transactions. The company adopted ASC 606 using the modified retrospective method on January 1, 2018 and expected no material effect on reported revenue. It leases office space under a five-year agreement beginning February 2016; six-month 2018 rent expense was $26,748.
Significant control issue: Management concluded disclosure controls and procedures were not effective as of June 30, 2018. It reported no material change in internal control over financial reporting during the quarter. The filing states smaller reporting companies are not required to provide risk-factor or market-risk disclosures.
Key facts for investors to verify
- Whether higher sales and gross margins persist, and whether growth remains dependent on large orders and distributor activity.
- Collection of the substantially higher accounts receivable balance, inventory turnover and recoverability, and the adequacy of the inventory reserve.
- Liquidity relative to negative operating cash flow, line-of-credit use, and the April 2019 maturity; management’s 12-month funding assessment is an expectation, not a guarantee.
- The reasons for ineffective disclosure controls and any remediation plans or subsequent improvements.
- Share dilution and potential dilution: the filing reports 38,652,718 potential dilutive shares at June 30, 2018 and a much higher diluted weighted-average share count than basic shares for profitable 2018 periods.