AmpliTech Group, Inc. — Q1 2013 Form 10-Q
Period: Three months ended March 31, 2013; financial statements are unaudited. AmpliTech designs and assembles customer-specific microwave/RF amplifiers and related components and subsystems, and provides engineering services.
Financial results and position
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Sales | $309,183 | $262,752; up $46,431 (18%) |
| Cost of goods sold | $121,641 | $123,914 |
| Gross profit / margin | $187,542 / 60% | $138,838 / 52% |
| General and administrative expenses | $156,270 | $104,793 |
| Operating income | $31,272 | $34,045 |
| Interest expense | $15,913 | $17,493 |
| Net income | $15,359 | $16,552 |
| Net cash from (used in) operations | $(92,842) | $77,855 |
| Net cash from (used in) financing | $74,462 | $(129,399) |
Cash fell to $9,336 from $27,716 at December 31, 2012. Current assets were $284,518 and current liabilities $672,269, a working capital deficit of $387,751 (versus $599,787 at year-end). Total assets were $492,118; total liabilities were $803,512; stockholders’ deficit was $311,394. Debt and financing included $100,000 of convertible notes, $104,300 of factor financing, $119,947 of loans payable, $126,403 of capital leases, and $65,997 of notes payable. Amounts include current and long-term balances where applicable.
Material changes and financing
- Sales rose 18%, which management attributed to outsourcing assembly for certain orders beginning in Q4 2012, freeing in-house capacity for higher-margin work and increasing production. Product sales in both periods were mainly low-noise amplifiers.
- Gross margin increased to 60% from 52%; management attributed the improvement to the outsourced assembly model. G&A rose 49%, primarily due to legal, accounting, filing, transfer-agent, and depositary-service costs associated with the S-1 and 2012 Form 10-K.
- Despite higher gross profit, operating income and net income declined year over year. Operating cash use reflected, in part, a $101,067 increase in accounts receivable and a $74,668 decline in customer deposits.
- Holders converted $200,000 of previously outstanding convertible principal into 2,000,000 common shares; 119,863 restricted shares were also issued for accrued interest. The company issued two additional six-month convertible notes of $50,000 each, bearing 8% interest and convertible at $0.10 per share. One replaced two prior notes. Shares outstanding were 19,994,863 at March 31, versus 17,875,000 at December 31.
- The company’s common stock began OTC Bulletin Board quotation under “AMPG” on February 22, 2013.
Outlook, risks, and other matters
No quantified revenue, earnings, or cash-flow guidance is provided. Management said it expects to seek additional working capital through debt and equity financing, pursue new customers, and consider acquisition prospects; it cautioned that there is no assurance these efforts will succeed. The filing states that the working-capital deficit, accumulated deficit of $657,117, limited cash, and need for additional capital raise substantial doubt about the company’s ability to continue as a going concern. It reported a $192,995 net loss for 2012 and warned that insufficient funding could jeopardize operations.
The filing reports no material pending legal proceedings, no defaults upon senior securities, and no subsequent events requiring disclosure. Management concluded disclosure controls were effective as of March 31, 2013 and reported no material change in internal control over financial reporting during the quarter. The company identified itself as an emerging growth company and elected the extended transition period for new or revised accounting standards.
Important facts for investors to verify
- Availability, timing, and terms of additional financing, and the company’s ability to meet obligations given its low cash balance and going-concern uncertainty.
- Whether the improved gross margin and higher sales from outsourced assembly can be sustained, and whether receivables can be collected as expected.
- Current status and maturity, conversion, and repayment terms of convertible notes, factor financing, loans, and capital leases.
- The filing’s statements report Q1 2013 net income of $15,359; confirm this against the underlying financial statements when comparing periods, as narrative text may be inconsistent.
- Potential dilution from convertible debt and the impact of the substantial increase in shares outstanding.