AmpliTech Group, Inc.: Form 10-Q for the period ended Sep 30, 2023

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contain forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.

Business Overview

AmpliTech Group Inc. (“AMPG,” “AmpliTech” or the “Company”), incorporated in 2010 in the state of Nevada, is the parent company of its subsidiary, AmpliTech, Inc., and AMPG’s divisions Specialty Microwave, Spectrum Semiconductor Materials, AmpliTech Group MMIC Design Center (“AGMDC”) and AmpliTech Group True G Speed Services (‘AGTGSS”).

AmpliTech designs, engineers, and assembles microwave component-based low noise amplifiers (“LNA”) that meet individual customer specifications. Application of the Company’s proprietary technology results in maximum frequency gain with minimal background noise distortion as required by each customer. The Company has both domestic and international customers in such industries as aerospace, governmental, defense, and commercial satellite.

Specialty designs and manufactures passive microwave components and related subsystems that meet individual customer specifications for both domestic and international customers for use in satellite communication ground networks.

AGMDC designs, develops and manufactures state-of-the-art signal processing components for satellite and 5G communications networks, defense, space and other commercial applications, allowing the Company to market its products to wider base of customers requiring high technology in smaller packages.

Spectrum Semiconductor Materials ("SSM”), located in Silicon Valley (San Jose, CA), is a global authorized distributor of integrated circuit ("IC") packaging and lids for semiconductor device assembly, prototyping, testing, and production requirements.

In August 2022, AmpliTech Group’s True G Speed Services (AGTGSS) division was founded to serve and provide complete system integration and ORAN compliant O-RU’s (Radio Units) for telcos, enabling the industry to access ‘True 5G Speeds’. AGTGSS provides Managed Services, Cyber Security, Cloud Services, Data Sciences and Telco Cloud Services. AGTGSS will also be providing full installation of Private 5G Networks (P5G) which includes the deployment of AmpliTech Group developed radio units. AGTGSS will implement AmpliTech’s low noise amplifier devices in these systems to promote greater coverage, longer range and faster speeds.

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Our mission is to patent our proprietary IP and trade secrets that were used in small volume niche markets and expand our capabilities through strategic partnerships, joint ventures, mergers/acquisitions with key industry leaders in the 5G/6G, quantum computing, and cybersecurity markets. We believe this will enable us to scale up our products and revenue by developing full systems and subsystems with our unique technology as a core component, which we expect will position us as a global leader in these rapidly emerging technology sectors and addresses large volume markets as well, such as cellphone handsets, laptops, server networks, and many other applications that improve everyday quality of life.

The Company’s research and development initiative to expand its product line of low noise amplifiers to include its new 5G and wireless infrastructure products and MMIC designs is progressing significantly. Our combined engineering and manufacturing resources are expected to complement the development of new subsystems for satellite, wireless, and 5G infrastructure, as well as advanced military and commercial markets.

Corporate Information

Our principal executive offices are located at 155 Plant Avenue, Hauppauge, NY 11788. Our telephone number is (631) 521-7831. Our corporate website is www.amplitechinc.com (http://www.amplitechinc.com). The information on our website is not a part of, or incorporated in, this prospectus.

Results of Operations

For the Three Months Ended September 30, 2023 and September 30, 2022

Revenues

Sales decreased from $5,435,654 for the three months ended September 30, 2022, to $3,387,169 for the three months ended September 30, 2023, a decrease of $2,048,485 or approximately 37.69%. Sales in the amplifier and related passive microwave components and subsystems division decreased by $423,207, or 21.12%. The decrease in domestic sales as compared to the same period last year is a result of shipping a major DX rated order from one customer in 2022. Spectrum sales decreased by $1,625,278, or 47.36%, a decline attributable to a decrease in sales from both domestic and international customers. The effect COVID placed on the supply chain in 2021 and 2022 triggered higher demand for our integrated circuit (IC) products. With COVID restrictions and worldwide supply chain concerns easing, the demand for IC packaging has decreased.

Cost of Goods Sold and Gross Profit

Cost of Goods Sold decreased from $2,774,739 for the three months ended September 30, 2022, to $1,904,388 for the three months ended September 30, 2023, a decrease of $870,351 or 31.37%. This decrease is directly related to the decline in sales. As a result, gross profit was $1,482,781 for the three months ended September 30, 2023, compared to $2,660,915 for the three months ended September 30, 2022, a decrease of $1,178,134, or 44.28%. Overall, gross profit as a percentage of sales decreased to 43.78% from 48.95%, with AmpliTech reporting a gross profit margin of 44.69% while Spectrum’s gross profit margin was 42.98%.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $1,984,452 for the three months ended September 30, 2023, from $1,852,345 for the three months ended September 30, 2022, an increase of $132,107 or approximately 7.13%. For this current period, there was an increase in recruiting fees, stock compensation and consulting fees.

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Research and Development Expenses

Research and development expenditures are charged to operations as incurred. The major components of research and development costs include engineering, consultants, outside service, and supplies.

Research and development costs for the three months ended September 30, 2023, and 2022, were $425,573 and $222,549, respectively. The increase of $203,024, or 91.23% is a result of hiring additional personnel for the AGMDC division as it completes its MMIC design releases. The company’s R&D costs include the launching of over 75 new SKUs of products, such as passive products and the new MMIC based LNA’s, Coaxial in line low noise amplifiers as well as Coaxial in line band pass filters. In addition, research and development costs were incurred for cryogenic amplifiers for quantum computing and 5G CAT B 64T64R ORAN Radios.

Income (Loss) From Operations

As a result of the above, the Company reported a loss from operations of $927,244 and income from operations of $586,021 for the three months ended September 30, 2023 and 2022, respectively.

Other Income (Expenses)

The Company recorded net interest expense of $750 and $9,318 for the three months ended September 30, 2023, and 2022.

Due to market fluctuations, the Company recorded an unrealized gain on investments of $4,098 and $213 for the three months ended September 30, 2023 and 2022, respectively. In addition, the Company recorded a realized gain on investments of $36,187 for the three months ended September 30, 2023.

Net Income (Loss)

The Company reported a net loss of $887,709 and net income $576,916 for the three months ended September 30, 2023 and 2022, respectively.

For the Nine Months Ended September 30, 2023 and September 30, 2022

Revenues

Sales decreased from $15,119,216 for the nine months ended September 30, 2022, to $11,572,699 for the nine months ended September 30, 2023, a decrease of $3,546,517 or approximately 23.46%. Sales in the amplifier and related passive microwave components and subsystems division have remained constant with an increase of $57,120, or 1.27%, resulting primarily from an increase in telecommunication applications. Spectrum sales decreased by $3,603,637, or 33.96%, a decline primarily attributable to a decrease in sales from international customers. The effect COVID placed on the supply chain in 2021 and 2022 triggered higher demand for our integrated circuit (IC) products. With COVID restrictions and worldwide supply chain concerns easing, the demand for IC packaging has decreased.

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Cost of Goods Sold and Gross Profit

Cost of Goods Sold decreased from $8,096,984 for the nine months ended September 30, 2022, to $6,305,928 for the nine months ended September 30, 2023, a decrease of $1,791,056 or 22.12%. Overall, this decrease is directly related to the decline in sales. As a result, gross profit was $5,266,771 for the nine months ended September 30, 2023, compared to $7,022,232 for the nine months ended September 30, 2022, a decrease of $1,755,461, or 25%. Overall, gross profit as a percentage of sales decreased from 46.45% to 45.51%.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased to $5,677,778 for the nine months ended September 30, 2023, from $5,975,440 for the nine months ended September 30, 2022, a decrease of $297,662 or approximately 4.98%. Expenses such as recruiting fees, rent, utilities, insurance, IR/PR, business development, consulting and employee benefits increased and offset with a decrease in legal, accounting, stock compensation and sales salaries/commissions.

Research and Development Expenses

Research and development expenditures are charged to operations as incurred. The major components of research and development costs include engineering, consultants, outside service, and supplies.

Research and development costs for the nine months ended September 30, 2023, and 2022, were $1,643,458 and $811,688, respectively. The increase of $831,770, or 102.47% is a result of hiring additional personnel for the AGMDC division as it completes its MMIC design releases. The company’s R&D costs include the launching of over 75 new SKUs of products, such as passive products and the new MMIC based LNA’s, Coaxial in line low noise amplifiers as well as Coaxial in line band pass filters. In addition, research and development costs were incurred for cryogenic amplifiers for quantum computing and 5G CAT B 64T64R ORAN Radios.

Loss From Operations

As a result of the above, the Company reported a loss from operations of $2,054,465 and income from operations of $235,104 for the nine months ended September 30, 2023 and 2022, respectively.

Other Income (Expenses)

The Company recorded net interest income of $20,335 and interest expense of $24,316 for the nine months ended September 30, 2023, and 2022.

Due to market fluctuations, the Company recorded an unrealized gain on investments of $41,700 and $213 for the nine months ended September 30, 2023 and 2022, respectively. In addition, the Company recorded a realized gain on investments of $49,994 for the nine months ended September 30, 2023.

Net Income (Loss)

The Company reported a net loss of $1,942,436 and net income $211,001 for the nine months ended September 30, 2023 and 2022, respectively.

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Liquidity and Capital Resources

Operating Activities

The net cash used in operating activities for the nine months ended September 30, 2023 was $1,766,090 resulting primarily from the net loss and operating changes in accounts receivable, inventories, prepaid expenses, accounts payable and accrued expenses, operating lease liability and customer deposits

The net cash used in operating activities for the nine months ended September 30, 2022 was $3,508,820 resulting primarily from net income and operating changes in accounts receivable, inventories, accounts payable and accrued expenses, operating lease liability and customer deposits.

Investing Activities

The net cash used in investing activities for the nine months ended September 30, 2023, was $3,739,714 of which $931,692 related to the purchase of equipment and $2,808,022 for the net purchases of marketable securities.

The net cash used in investing activities for the nine months ended September 30, 2022 was $1,287,613, of which $696,253 related to the purchase of equipment, $493,110 for the net purchases of marketable securities and $98,250 for our investment in SN2N.

Financing Activities

The net cash used in financing activities for the nine months ended September 30, 2023, was $2,326,712, resulting primarily from the repayments of notes payable, financing lease liabilities, and the revenue earnout.

The net cash used in financing activities for the nine months ended September 30, 2022 was $167,485, resulting primarily from the repayments of notes payable and financing lease liabilities

As of September 30, 2023, we had cash and cash equivalents of $5,457,706, working capital of $15,901,627, and an accumulated deficit of $9,246,720.

As of December 31, 2022, we had cash and cash equivalents of $13,290,222, working capital of $18,149,940, and an accumulated deficit of $7,304,284.

We intend to continue to finance our internal growth with cash on hand, cash provided from operations, borrowings, debt or equity offerings, or some combination thereof. We believe that our cash provided from operations and cash on hand will provide enough working capital to fund our operations for the next twelve months.

Critical Accounting Policies, Estimates and Assumptions

The SEC defines critical accounting policies as those that are, in management's view, most important to the portrayal of our financial condition and results of operations and those that require significant judgment and estimates.

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The discussion and analysis of our financial condition and results of operations is based upon financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates, including the allowance for doubtful accounts, the salability and recoverability of inventory, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes there have been no significant changes during the nine-month period ended September 30, 2023, to the items disclosed as critical accounting policies in management’s discussion and analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.

Off Balance Sheet Transactions

None.

Evaluation of Disclosure Controls and Procedures

Our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Based on that evaluation, as of September 30, 2023, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes that have affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the period covered by this report.

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