Business context and reporting period
AmpliTech Group, Inc. designs, engineers, and assembles microwave component amplifiers and related subsystems, and provides project-based engineering services. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2016; comparisons are with the corresponding 2015 periods. The company reported 46,136,326 common shares outstanding as of October 28, 2016.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Sales | $721,482 | $380,233 | $1,372,527 | $1,107,472 |
| Gross profit | $411,720 | $168,242 | $796,973 | $561,318 |
| Gross margin | 57.1% | 44.2% | 58.1% | 50.7% |
| Operating income | $243,634 | $23,350 | $249,925 | $82,986 |
| Net income | $239,206 | $15,506 | $237,035 | $55,769 |
| Interest expense | $4,428 | $7,844 | $12,890 | $27,217 |
Q3 sales increased 90% year over year; nine-month sales increased 24%. Management attributed the gains and improved gross profit to increased production capacity and more efficient outsourced assembly for a large foreign sales order. General and administrative expense rose 16% in Q3 and 14% for the nine-month period, mainly because of relocation and marketing costs, including trade shows, advertising, and website redesign. Management cited refinancing the factoring arrangement with a lower-rate line of credit as the primary reason interest expense declined.
Reported basic earnings per share were $0.01 for both 2016 periods; diluted EPS was reported as $0.00. No income-tax provision was recorded in either period.
Cash flow, liquidity, and debt
- Cash was $192,170 at September 30, 2016, versus $49,035 at December 31, 2015. Working capital was $288,901, compared with $44,876 at year-end 2015; stockholders’ equity was $378,158, up from $141,123.
- For the first nine months, operating activities provided $221,385; investing activities used $14,335, primarily for lab equipment; financing activities used $63,915, principally reflecting repayment to the CEO and line-of-credit repayments. Cash increased by $143,135.
- Current liabilities totaled $314,582. They included $26,958 of notes payable, $59,737 outstanding on the line of credit, and $17,000 due to the officer. The line-of-credit facility was increased to $250,000, with a stated maturity of April 20, 2019; its initial variable rate was 5.25%, subject to stated limits.
- The $26,958 unsecured demand note bears 8% interest and had a stated maturity date of October 31, 2012. The officer balance is also payable on demand and bears 8% interest. Nine-month accrued interest on these balances was $9,475 and $1,990, respectively.
- Inventory, net, increased to $275,131 from $145,815 at year-end, with a $76,000 obsolescence reserve at both dates. Customer deposits increased to $117,107 from $77,630.
Outlook, risks, and other matters
Management said cash on hand and operating cash flow should be sufficient to fund operations for the next 12 months. It expects to finance growth with cash, operating cash flow, borrowings under the line of credit, debt or equity offerings, or a combination. This is management’s expectation, not a guarantee. Results depend in part on the described large foreign sales order; the filing provides no quantified revenue guidance. The company cautions that forward-looking statements are subject to risks and uncertainties and undertakes no general obligation to update them.
The company reported no material subsequent events, pending legal proceedings, off-balance-sheet transactions, or changes in internal control over financial reporting during the period. Management concluded disclosure controls were effective to provide reasonable assurance. The company noted that cash was held primarily at one financial institution.
Important facts for investors to verify
- Whether the large foreign order is recurring, and how much sales and margin depend on it.
- The status, enforceability, and repayment terms of the demand note with a stated 2012 maturity, and the related-party officer balance.
- Whether the reported cash and working-capital position can support operations as planned, considering customer deposits, inventory growth, and available line-of-credit capacity.
- The basis for reporting no income-tax provision despite nine-month net income, and the difference between basic and diluted EPS.
- Inventory recoverability and the adequacy of the unchanged $76,000 obsolescence reserve.