UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:
GUERRILLA RF, INC.
(Exact name of registrant as specified in its charter)
| (State of Other Jurisdiction of incorporation or Organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically; every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.0405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Class | Outstanding as of May 2, 2024 | |||||||
| Common Stock, $0.0001 par value |
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GUERRILLA RF, INC.
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024
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Condensed Consolidated Statements of Stockholders' Equity (Deficit) |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 24 |
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk. | 35 |
| Item 4. |
Controls and Procedures. | 35 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 36 |
| Item 1A. |
Risk Factors. | 36 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. | 37 |
| Item 3. | Defaults Upon Senior Securities. | 37 |
| Item 4. | Mine Safety Disclosure. | 37 |
| Item 5. | Other Information. | 37 |
| Item 6. |
Exhibits | 38 |
| SIGNATURES | ||
GLOSSARY OF TERMS AND ABBREVIATIONS
The following is a glossary of technical terms used in this Report:
Design win — Acknowledgment by an end-user customer that a product has been chosen or finalized for use in the customer’s system or application.
Distribution-customer — A customer that purchases Guerrilla RF products to sell to a third-party rather than for its own use.
End-user customer — The ultimate customer that utilizes or incorporates our products into its own products or solutions whether it purchased our products directly from Guerrilla RF or a third party.
Fabless — Semiconductor company that utilizes pure-play or outsourced wafer fabrication partners rather than owning and operating their own wafer foundry.
GaN — Gallium nitride semiconductor process used in high-power amplifier applications.
RF — Radio frequency.
Wafer — Thin slice of semiconductor material used as the substrate for building electronic circuits. Wafers are the output from the semiconductor foundry process before the assembly/packaging processes.
Wireless infrastructure — Systems designed or used by network operators or other professionals to ensure strong communication links to consumers or customers.
PART I. FINANCIAL INFORMATION.
ITEM 1.
The following unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although Guerrilla RF, Inc. (the "Company") believes that the disclosures made are adequate to make the information not misleading.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K filed with the SEC on March 29, 2024.
GUERRILLA RF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2024 (Unaudited) | December 31, 2023 | |||||||
| Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity (Deficit) | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Short-term debt | ||||||||
| Derivative liabilities | ||||||||
| Operating lease liability, current portion | ||||||||
| Finance lease liability, current portion | ||||||||
| Convertible notes | ||||||||
| Convertible notes - related parties | ||||||||
| Notes payable, current portion, net | ||||||||
| Total Current Liabilities | ||||||||
| Long-term debt | ||||||||
| Operating lease liability | ||||||||
| Finance lease liability | ||||||||
| Notes payable | ||||||||
| Total Liabilities | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding as of March 31, 2024 and December 31, 2023 | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
GUERRILLA RF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, |
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| 2024 |
2023 |
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| Product |
$ | $ | ||||||
| Royalties and non-recurring engineering |
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| Total |
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| Direct product costs |
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| Gross Profit |
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| Operating Expenses: |
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| Research and development |
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| Sales and marketing |
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| General and administrative |
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| Total Operating Expenses |
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| Operating Loss |
( |
) | ( |
) | ||||
| Interest expense |
( |
) | ( |
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| Change in fair value of derivative liabilities |
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| Other income (expense) |
( |
) | ||||||
| Total Other Expenses, net |
( |
) | ( |
) | ||||
| Net Loss |
$ | ( |
) | $ | ( |
) | ||
| Net loss per share - basic and diluted |
$ | ( |
) | $ | ( |
) | ||
| Weighted average common shares outstanding - basic and diluted |
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See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
GUERRILLA RF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
| Preferred Stock |
Common Stock |
Additional Paid-In-Capital |
Accumulated Deficit |
Total Stockholders' Equity (Deficit) |
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| January 1, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss |
( |
) | ( |
) | ||||||||||||||||
| Equity financing, net of issuance costs |
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| Net settled RSUs |
( |
) | ( |
) | ||||||||||||||||
| Share-based compensation |
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| March 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||
| Preferred Stock |
Common Stock |
Additional Paid-In-Capital |
Accumulated Deficit |
Total Stockholders' Equity |
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| January 1, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||
| Net loss |
( |
) | ( |
) | ||||||||||||||||
| Equity financing, net of issuance costs |
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| Shares issued for prepaid services |
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| Share-based compensation |
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| March 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
GUERRILLA RF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 |
2023 |
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| Cash flows from operating activities |
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| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustment to reconcile net loss to net cash used in operating activities |
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| Depreciation and amortization |
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| Share-based compensation |
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| Non-cash interest expense related to debt financing |
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| Accretion of notes payables |
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| Shares issued for prepaid services |
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| Change in fair value of derivative liabilities |
( |
) | ||||||
| Loss on extinguishment of debt |
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| Changes in assets and liabilities: |
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| Accounts receivable |
( |
) | ( |
) | ||||
| Inventories |
( |
) | ||||||
| Prepaid expenses |
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| Accounts payable and accrued expenses |
( |
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| Operating lease liability |
( |
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| Net cash used in operating activities |
( |
) | ( |
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| Cash flows from investing activities |
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| Purchases of property, plant, and equipment |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
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| Cash flows from financing activities |
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| Proceeds from notes payable, derivative liabilities and factoring agreement |
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| Principal payment of notes payable and recourse factoring agreement |
( |
) | ( |
) | ||||
| Proceeds from equity financing, net |
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| Principal payment on finance lease |
( |
) | ( |
) | ||||
| Repayment of finance insurance premiums |
( |
) | ( |
) | ||||
| Payment of deferred offering costs |
( |
) | ||||||
| Net cash provided by financing activities |
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| Net increase (decrease) in cash |
( |
) | ||||||
| Cash, beginning of period |
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| Cash, end of period |
$ | $ | ||||||
| Noncash investing and financing transactions: |
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| Modifications on finance leases |
$ | $ | ||||||
| Conversion of debt into equity |
$ | $ | ||||||
| Shares issued for prepaid services |
$ | $ | ||||||
| Financing of property and equipment |
$ | $ | ||||||
| Financing of insurance premiums and software |
$ | $ | ||||||
| Right-of-use assets obtained through operating lease |
$ | $ | ||||||
| Financing of mask set and wafer |
$ | $ | ||||||
| Property and equipment additions included in accounts payable |
$ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
Guerrilla RF, Inc. (formerly known as Laffin Acquisition Corp., the “Company”) was incorporated in the State of Delaware on November 9, 2020. On October 22, 2021, the Company's wholly-owned subsidiary, Guerrilla RF Acquisition Corp., a corporation formed in the State of Delaware on October 20, 2021 (“Acquisition Sub”) and privately held Guerrilla RF Operating Corporation (formerly known as Guerrilla RF, Inc.) entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, on October 22, 2021 (the “Closing Date”), Acquisition Sub merged with and into Guerrilla RF Operating Corporation with Guerrilla RF Operating Corporation continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the “Merger”). On May 30, 2023, Guerrilla RF Operating Corporation was merged with and into Guerrilla RF, Inc.
Prior to the Merger, Laffin Acquisition Corp. was a “shell” company registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with no specific business plan or purpose until it began operating the business of Guerrilla RF Operating Corporation following the closing of the Merger.
All references in these unaudited interim condensed consolidated financial statements and related Quarterly Report to “Guerrilla RF” refer to: (i) for periods prior to May 30, 2023, Guerrilla RF Operating Corporation; and (ii) for subsequent periods, Guerrilla RF, Inc. Unless otherwise stated or the context otherwise indicates, references to the “Company”, “we”, “our”, “us” or similar terms refer to Guerrilla RF, Inc.
Guerrilla RF designs and manufactures high‐performance Monolithic Microwave Integrated Circuits (MMICs) for the wireless infrastructure market. Guerrilla RF primarily focuses on researching and developing its existing products and building an infrastructure to handle a global distribution network; therefore, it has incurred significant start‐up losses.
Liquidity and Going Concern
In accordance with Financial Accounting Standards (“FASB”) Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited interim condensed consolidated financial statements are issued. The accompanying unaudited interim condensed consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has historically financed its activities through a combination of commercial loans and the proceeds of debt and equity issuances. The unaudited interim condensed consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should the Company be unable to continue as a going concern.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company has incurred substantial negative cash flows from operations in nearly every fiscal period since inception, including a net loss of $
Our primary source of liquidity has been from cash raised from private placements and debt financing. We also have two loan facilities, one of which is for up to $
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Risks and Uncertainties
The Company is subject to several risks associated with companies at a similar stage, including dependence on key individuals, competition from similar products and larger companies, volatility of the industry, ability to obtain adequate financing to support growth, the ability to attract and retain additional qualified personnel to manage the anticipated growth of the Company, and general economic conditions including the current macro-economic conditions impacting the banking and financial markets.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the rules and regulations for reporting the Quarterly Report on Form 10-Q ("Form 10-Q"), and are presented in U.S. dollars. Accordingly, they do not include all of the information and notes required by GAAP for annual consolidated financial statements. Any reference in these Notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by ASUs of the FASB. The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Guerrilla RF Operating Corporation, which was merged with and into the Company on May 30, 2023. All intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 ("2023 Form 10-K"). This report should be read in conjunction with our 2023 Form 10-K filed with the SEC on March 29, 2024. In our opinion, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates, and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2024 and its results of operations, cash flows, and changes in stockholders' equity (deficit) for the three months ended March 31, 2024 and 2023. The results for the three months ended March 31, 2024 are not necessarily indicative of the results expected for any future period or the full year.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the "Securities Act"), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of the extended transition period, which means that when a standard is issued or revised and it has different application dates for public and private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of our unaudited interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and related disclosures. The preparation of the unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements, and reported amounts of revenue and expenses during the reporting period. The Company’s significant estimates and judgments involve the the valuation of share-based compensation, and the valuation of equity financing. Accordingly, actual results could differ from those estimates.
Reclassifications
Certain prior period balance sheet and cashflow amounts have been reclassified to conform to the Company's fiscal 2024 presentation. These reclassifications have no impact on the Company's previously reported net loss.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment.
Concentrations of Credit Risk and Major Customers
Financial instruments at March 31, 2024, and December 31, 2023 that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company’s cash is deposited with major financial institutions in the U.S. At times, deposits in financial institutions located in the U.S. may be in excess of the amount of insurance provided on such deposits by the Federal Deposit Insurance Corporation (FDIC). To date, the Company has not experienced any losses on its cash deposits.
The Company’s accounts receivable are derived from revenue earned from customers located inside and outside of the U.S. Major customers are defined as those generating revenue in excess of 10% of the Company’s aggregate annual revenue. The Company had major distributor customer, Richardson RFPD, Inc. ("RFPD"). RFPD, a large product distributor serving numerous end-user customers, accounted for
Accounts Receivable
Accounts receivable primarily relate to amounts due from customers, which are typically due within 30 to 45 days. Accounts receivable also include royalty revenue from our one royalty agreement. The Company provides credit to its customers in the ordinary course of business and evaluates the need for a provision to be added to its allowance for expected credit losses. The allowance represents the Company’s best estimate of expected credit losses it may experience in the Company’s accounts receivable portfolio. Management estimates the allowance for expected credit losses based on an ongoing review of existing economic conditions, the financial conditions of the customers, historical trends in credit losses, and the amount and age of past due accounts. The Company does not require collateral or other security for accounts receivable. To reduce credit risk with accounts receivable, the Company performs ongoing evaluations of its customers’ financial condition. The Company establishes an allowance for expected credit losses and other customer claims. Historically, such losses have been immaterial and within management's expectations; therefore, the Company does not currently have an allowance for expected credit losses.
On June 1, 2022, the Company established a new loan facility (the Spectrum Loan Facility) with Spectrum. The Spectrum Loan Facility provides for advance payments up to $
Revenue Recognition
The Company recognizes product revenue when it satisfies a performance obligation by transferring a product or service to its customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products and services. Sales and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. Any shipping and handling fees charged to customers in conjunction with product distribution are reported within revenue. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. The Company provides an assurance-type warranty to its customers as part of its contracts' standard terms and conditions, which does not include a right of return for properly functioning products not deemed obsolete. These warranties do not provide an additional distinct service to the customer and are not deemed a separate performance obligation. Royalty revenue is recognized at the later of when the subsequent sale or usage occurs, or the performance obligation to which some or all the sales-based royalties have been allocated are satisfied.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of March 31, 2024 and 2023, the Company had $
The costs incurred by the Company for shipping and handling of materials used in its products are classified as cost of revenue in the unaudited interim condensed consolidated statements of operations. Any incidental items that are immaterial in the context of a sale to a customer are recognized as expense.
Share-Based Compensation
The Company measures and recognizes compensation expense for all stock options, shares of stock, and restricted stock units ("RSU") awarded to employees and nonemployees based on the estimated fair market value of the award on the grant date. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards. The Company estimates the fair value of RSUs awarded based upon the known fair market value of the underlying shares on the grant date. The Company recognizes compensation expense on a straight-line basis over the applicable vesting period. In addition, the Company accounts for forfeitures of awards as they occur.
Estimating the fair market value of options requires the input of subjective assumptions, including the expected life of the options, stock price volatility, the risk-free interest rate, and expected dividends. Therefore, the assumptions used in the Company’s Black-Scholes option-pricing model represent management’s best estimates and involve many variables, uncertainties, and assumptions, and the application of management’s judgment, as they are inherently subjective.
The Company applies ASU 2018-7, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Share-based awards issued to non-employees are no longer required to be revalued at each reporting period.
Net Income (Loss) Per Share
Basic net loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted net loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as options and warrants, which would result in the issuance of incremental shares of common stock. For periods prior to the Merger mentioned in Note 1, each of Guerrilla RF’s shares of capital stock issued and outstanding immediately prior to the closing of the Merger was retrospectively converted into approximately
In computing basic and diluted net loss per share, the weighted average number of shares is the same for both calculations because a net loss existed for the three months ended March 31, 2024 and 2023. There were
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following potentially dilutive securities have been excluded from the computation of basic shares for the three months ended March 31, 2024 and 2023 (unaudited), as they would be anti-dilutive:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Common stock warrants | ||||||||
| Restricted stock units | ||||||||
| Stock options | ||||||||
Convertible Debt Instruments
The Company evaluates agreements, including any convertible debt instruments to determine if those agreements or any embedded components of those agreements qualify as derivative financial instruments to be separately accounted for in accordance with FASB ASC Topic 815 “Derivatives and Hedging” (“ASC 815”). The accounting treatment of derivative financial instruments requires that the Company record any bifurcated embedded features at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded in earnings as non-operating, non-cash income or expense. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the agreement is reclassified as of the date of the event that caused the reclassification. Bifurcated embedded features are recorded at their initial fair values which create additional debt discount to the host instrument. The Company amortizes the respective debt discount over the term of the notes, using the effective interest method.
Fair Value of Financial Instruments
The Company measures the fair value of financial assets and liabilities based on ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities;
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable; and
Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).
The carrying amounts of the Company’s financial instruments, such as cash and accounts payable approximate fair values due to the short-term nature of these instruments.
See Note 8 – Derivative Liabilities for additional details regarding the valuation technique and assumptions used in valuing Level 3 inputs.
Recent Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. These amendments in ASU 2021-08 became effective for us as of the beginning of our 2024 fiscal year. The Company adopted this accounting guidance effective January 1, 2024. Its adoption did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.
The Company has reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on its unaudited interim condensed consolidated financial statements.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVENTORIES
Inventories are summarized as follows:
| March 31, 2024 | ||||||||
| (unaudited) | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Inventory allowance | ( | ) | ( | ) | ||||
| Inventory, net | $ | $ | ||||||
As of March 31, 2024 and December 31, 2023, there was an inventory allowance of $
4. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
| March 31, 2024 | ||||||||
| (unaudited) | December 31, 2023 | |||||||
| Production assets | $ | $ | ||||||
| Computer equipment and software | ||||||||
| Lab equipment | ||||||||
| Office furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation and amortization expense was $
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10, Property, Plant, and Equipment. ASC 360-10 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. DEBT
Spectrum Loan Facility
Under the terms of the AR Agreement, Spectrum has agreed to advance funds equal to approximately
The scheduled term of the Spectrum Loan Facility is 24 months from the Spectrum Effective Date, unless earlier terminated as per the terms of the Spectrum Loan Facility. The term of the facility will automatically renew unless either party provides at least 60 days’ notice prior to the scheduled expiration date. In the event of an early termination of the AR Agreement by the Company or resulting from the Company’s default or other circumstances impacting the Company (including bankruptcy, reorganization, sale of assets, and cessation of business), the Company will be required to pay a prepayment fee.
The Company’s obligations under the Spectrum Loan Facility are secured by first-priority liens on essentially all of the Company’s assets; provided, however, that the Company is permitted to grant purchase money security interests on certain equipment, furniture and similar tangible assets financed by a third party.
In addition to annual facility fees of $
The Spectrum Loan Facility contains various covenants and restrictions on the Company's financial and business operations including restrictions on the purchase or redemption of any Company shares and the declaration or payment of any dividends on the Company's stock. As of March 31, 2024, the Company was in compliance with these covenants and restrictions.
The Company has borrowed $
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Salem Loan Facility
On August 11, 2022, the Company entered into the Salem Loan Facility with Salem. The Salem Loan Facility provided financing to the Company in the aggregate amount of up to $
On May 1, 2023, Salem made an additional advance of $
On August 14, 2023, Salem made an additional advance of $
On September 5, 2023, the Company and Salem entered into the amended and restated loan agreement (the 'A&R Loan Agreement') in order to (i) provide for additional advances of up to $
On September 6, 2023, Salem made an additional discretionary advance of $
On October 23, 2023, Salem made an additional advance of $
On December 18, 2023, Salem made a final advance of $
In the second half of 2023, AMB Investments, LLC and others purchased participation interests in $
On March 28, 2024, Salem extended the maturity date of the Salem Loan Facility from April 30, 2024 to January 31, 2026. Additional revisions included changing the interest rate to (i)
As of March 31, 2024, the total amount the Company has financed under the Salem Loan Facility is:
| Principal amount of promissory notes payable | $ | |||
| Accrued interest | ||||
| Less: unamortized debt issue costs | ( | ) | ||
| Less: unamortized debt discount | ( | ) | ||
| Notes payable, net | $ |
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Convertible Notes Payable
In July 2023, the Company entered into note purchase agreements with certain accredited investors pursuant to which the Company issued unsecured convertible promissory notes in the aggregate principal amount of $
The Company analyzed the embedded features of the Convertible Notes and determined that the Convertible Notes contained (i) an automatic conversion pursuant to which the holders may elect to convert their Convertible Notes into shares of the Company’s common stock at a price of $
On March 28, 2024, all of the Convertible Notes, including accrued interest, were converted into equity in connection with the 2024 Private Placement referenced in Note 6.
New Headquarters and Design Center Capital Addition Financing
In conjunction with the Company's move into expanded office facilities in early 2023, the Company entered into a financing arrangement related to furniture for the new office facilities in April 2022. The total cost of the furniture financed was $
The Company entered into a lease agreement in July 2021 in conjunction with the Company's move into its new headquarters and design center in early 2023 (as described in Note 9 to our unaudited interim condensed consolidated financial statements). The new headquarters and design center were renovated in accordance with plans agreed upon with the landlord. The Company took possession of the building once all improvements and renovations (the "new building asset additions") were substantially complete. Initially, the Company anticipated the new building asset additions being completed and taking possession in September 2022; however, the landlord, as the sole improvement and renovation contractor, experienced significant construction delays and as a result the new headquarters and design center did not become available until the first quarter of 2023. In August 2022, the Company reached an agreement with the landlord over the timing of the payments for the new building asset additions in light of the significant construction delays. The total cost of the new building asset additions was $
As part of the aforementioned August 2022 lease amendment, the Company made the landlord an initial payment of $
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Debt Maturity
As of March 31, 2024, debt (as discounted) is expected to mature as follows:
| 2024 | $ | |
| 2025 | ||
| 2026 | ||
| 2027 | ||
| 2028 | ||
| Thereafter | ||
| $ |
6. COMMON STOCK AND PREFERRED STOCK
Common Stock
The Company is authorized to issue
Upon the closing of the Merger and the private placement offering in 2021 (the “2021 APO”), there were
On December 30, 2022, the Company completed the initial closing of a private placement (the “2022/23 PIPE”) as it entered into a Unit Purchase Agreement (the “Unit Purchase Agreement”) with investors (the “Purchasers”) pursuant to which the Company sold
In connection with the 2021 APO and the 2022/23 PIPE, the Company also issued warrants to the respective placement agents.
Additionally, a total of
On March 28, 2024, the Company completed the initial closing of the 2024 Private Placement as it entered into a Unit Purchase Agreement with investors pursuant to which the Company sold
See Note 5 – Debt – Salem Loan Facility and Convertible Notes for details regarding common stock issued in connection with debt.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Common Stock Warrants
As mentioned above, on February 28, 2023, the Company completed the 2022/23 PIPE. Each Unit sold in the 2022/23 PIPE included one warrant to purchase -half of a share of common stock. Thus, Units sold in the 2022/23 PIPE included warrants to purchase
Preferred Stock
The Company’s Board of Directors is authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences, and rights of the shares of each series. There is
7. SHARE-BASED COMPENSATION
In 2014, the Company adopted the Long‐Term Stock Incentive Plan (the “2014 Plan”), with
In 2021, the Board adopted the Equity Incentive Plan (the “2021 Plan”), which authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, performance awards, cash awards, and stock bonus awards. The Company initially reserved
The general purpose of the 2014 Plan and the 2021 Plan is to allow the Company to attract and motivate key employees and directors to align their interests with those of the Company’s shareholders.
Stock Option Awards
The Company measures the fair value of each option award on the date of grant using the Black‐Scholes option-pricing model, which takes into account inputs such as the exercise price, the value of the underlying ordinary shares at the grant date, expected term, expected volatility, risk-free interest rate, and dividend yield. The fair value of each grant of options during the three months ended March 31, 2024 was determined using the methods and assumptions discussed below:
| ● | The expected term of employee options is determined using the “simplified” method, as prescribed in the SEC’s Staff Accounting Bulletin (SAB) No. 107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company’s lack of sufficient historical data. |
| ● | The expected volatility is based on the historical volatility of the publicly traded common stock of a peer group of companies. |
| ● | The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term. |
| ● | The expected dividend yield is |
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The value of stock options is recognized as compensation expense using the straight-line method over the vesting period. Unrecognized compensation costs related to unvested options at March 31, 2024, and 2023 amounted to$
Stock option activity by share is summarized as follows for the three months ended March 31, 2024 (unaudited):
| Number of Shares | Weighted-Average Exercise Price Per Option | Weighted- Average Remaining Contractual Life (in years) | ||||||||||
| Shares underlying outstanding awards at December 31, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Cancelled/Forfeited | ||||||||||||
| Shares underlying outstanding awards at March 31, 2024 | $ | |||||||||||
| Exercisable options at March 31, 2024 | $ | |||||||||||
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
RSU Awards
The RSUs awarded to employees during the three months ended March 31, 2024 vest over three equal annual installments from the date of the grant. The RSUs are subject to the recipient’s continued service through the applicable vesting date. The share-based compensation expense to be recognized for these RSUs over the remaining vesting period subsequent to March 31, 2024 is approximately $
The fair value of each RSU was estimated on the date of grant, based on the weighted average price of the Company's stock. The Company will issue new shares of common stock to satisfy RSUs upon vesting. The following table summarizes the RSU activity and weighted averages for share-based awards granted under the terms of the 2021 Plan (unaudited):
| Three Months Ended March 31, | ||||||||
| Number of RSUs | Weighted Average Grant Date Fair Value | |||||||
| Outstanding at December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Cancelled/Forfeited | ( | ) | ||||||
| Outstanding at March 31, 2024 | $ | |||||||
Pursuant to awards made under the 2014 Plan and the 2021 Plan, the Company recorded stock-based compensation expense in the following expense categories in the unaudited interim condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Direct product costs | $ | $ | ||||||
| Research and development | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| $ | $ | |||||||
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. DERIVATIVE LIABILITIES
As of January 1, 2024, the Company had Level 3 derivative liabilities that were measured at fair value at issuance, related to the put options of the Convertible Notes. On March 28, 2024, the redemption feature of the Company’s Convertible Notes was triggered prompting the Company to mark-to-market the fair value of the bifurcated put options of the Convertible Notes. As of March 28, 2024, the Company determined that the probability of settlement pursuant to such put option was de minimis and, as a result, the fair value of such bifurcated put options was $
The following table sets forth a summary of the changes in the fair value of Level 3 derivative liabilities that are measured at fair value on a recurring basis:
| Beginning balance as of January 1, 2024 | $ | |||
| Change in fair value of derivative liabilities | ( | ) | ||
| Ending balance on March 31, 2024 | $ |
9. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company determines whether an arrangement is an operating lease or financing lease at inception. Lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments over the term of the lease. The Company generally uses its incremental borrowing rate, which is based on information available at the lease commencement date, to determine the present value of lease payments.
The Company has entered into leases primarily for real estate and equipment used in research and development. Operating lease expense is recognized in continuing operations by amortizing the amount recorded as an asset on a straight-line basis over the lease term. Financing lease expense is comprised of both interest expense, which will be recognized using the effective interest method, and amortization of the right-of-use assets. These expenses are presented consistently with other interest expense and amortization or depreciation of similar assets. In determining lease asset values, the Company considers fixed and variable payment terms, prepayments, incentives, and options to extend, terminate or purchase. Renewal, termination, or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised.
Balance sheet information related to right-of-use assets and liabilities is as follows:
| Balance Sheet Location | March 31, 2024 | ||||
| Operating Leases: | |||||
| Operating lease right-of-use assets | Operating lease right-of-use assets | $ | |||
| Current portion of operating lease liabilities | Operating lease, current portion | ||||
| Noncurrent portion of operating lease liabilities | Operating lease | ||||
| Total operating lease liabilities | $ | ||||
| Finance Leases: | |||||
| Finance lease right-of-use assets | Property, plant, and equipment | $ | |||
| Current portion of finance lease liabilities | Finance lease, current portion | ||||
| Noncurrent portion of finance lease liabilities | Finance lease | ||||
| Total finance lease liabilities | $ | ||||
Lease cost recognized in the unaudited interim condensed consolidated statements of operations is summarized as follows:
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease cost | $ | $ | ||||||
| Finance lease cost: | ||||||||
| Amortization of lease assets | ||||||||
| Interest on lease liabilities | ||||||||
| Total finance lease costs | $ | $ | ||||||
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other supplemental information related to leases is summarized as follows:
| March 31, 2024 | ||||
| Weighted average remaining lease term (in years): | ||||
| Operating leases | ||||
| Finance leases | ||||
| Weighted average discount rate: | ||||
| Operating leases | % | |||
| Finance leases | % | |||
| Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2024: | ||||
| Operating cash flows from operating leases | $ | |||
| Operating cash flows from finance leases | $ | |||
| Financing cash flows from finance leases | $ | |||
| Payments Due by Period | ||||||||||||||||||||||||||||
| 2024(1) | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | ||||||||||||||||||||||
| Operating leases | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Less present value adjustment | ||||||||||||||||||||||||||||
| Operating lease liabilities | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Finance leases | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Less interest | ||||||||||||||||||||||||||||
| Finance lease liabilities | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
(1) Amounts are for the remaining nine months ending December 31, 2024.
The Company leases its former headquarters, located in Greensboro, North Carolina under a lease agreement which expires in June 2024. The lease agreement allows for early cancellation, subject to payment of an early cancellation penalty. Under the lease agreement, the Company is responsible for certain insurance and maintenance expenses. In addition, the lease agreement contains scheduled rent increases. The related rent expense for the lease is calculated on a straight-line basis according to the rental terms of the lease.
New Headquarters and Design Center
In July 2021, the Company entered into a lease agreement for its new headquarters and design center (also in Greensboro, North Carolina), with a lease term of ten years and two months from the date the Company commences occupancy, which occurred in the first quarter of 2023. Under the lease agreement, the Company is responsible for certain insurance and maintenance expenses, which are not part of the minimum lease payments. In addition, the lease agreement contains scheduled rent increases. Upon taking control of the building, the related rent expense for the lease is calculated on a straight-line basis according to the lease's rental terms. The Company commenced remitting scheduled lease payments in the second quarter of 2023. The Company anticipates an annual lease expense of approximately $
In conjunction with the Company's move into the new headquarters and design center in early 2023, the Company entered into a financing lease arrangement related to furniture for the new office facilities in April 2022. The total cost of the furniture financed was$
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company recorded advanced rent amounts paid and payable to the landlord as long-term prepaid expenses and other on the consolidated balance sheet as of December 31, 2022. These amounts were reclassified to the operating lease right-of-use asset upon lease commencement in the first quarter of 2023.
Legal
In the ordinary course of business, the Company may become involved in legal disputes. In the opinion of management, any potential liabilities resulting from any disputes would not have a material adverse effect on the Company’s unaudited interim condensed consolidated financial statements. As a result,
Indemnification Agreements
From time to time, in the ordinary course of business, the Company may indemnify other parties when it enters into contractual relationships, including members of the Board of Directors, employees, customers, lessors, lenders, and parties to other transactions with the Company. In addition, the Company may agree to hold other parties harmless against specific losses, such as those that could arise from a breach of representation, covenant, or third-party infringement claims. It may not be possible to determine the maximum potential amount of liability under such indemnification agreements due to the unique facts and circumstances likely to be involved in each particular claim and indemnification provision. Management believes any liability arising from these agreements will not be material to the unaudited interim condensed consolidated financial statements. As a result,
Employment Agreement
The Company has entered into an employment agreement with one executive. This employment agreement was entered into effective as of January 1, 2020 and automatically renews annually. The Company desired the assurance of the executive's continued association and services to retain the executive's experience, skills, abilities, background, and knowledge. The employment is at-will, and the Company may terminate the employment relationship at any time, with or without cause, and with or without notice. The terms of the agreement stipulate compensation, benefits, specific restrictive covenants, and Company obligations upon termination of the employment agreement, including severance pay calculated as twelve monthly payments of the executive's monthly base salary.
Salary Deferral Program
The Company introduced a voluntary salary deferral program in order to facilitate increased employee ownership in the Company, whereby all employees were offered the opportunity to defer a portion of their salaries, in anticipation of some or all of the deferred payments being invested in a future capital raise. Beginning June 28, 2023, Ryan Pratt, CEO and Chairman of the Company, Mark Mason, the Company’s Chief Operating Officer, John Berg, the Company’s Chief Financial Officer, and Kellie Chong, Chief Business Officer, elected to defer approximately
10. INCOME TAXES
The Company did have any income tax expense for the three months ended March 31, 2024 or 2023.
Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items recorded in the interim period. The provision for income taxes for the three months ended March 31, 2024 and 2023 differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of
The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year and permanent differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known, or the tax environment changes.
In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to realize deferred tax assets. Based upon the historical and anticipated future losses, management has determined that the deferred tax assets do not meet the more likely than not threshold for realizability. Accordingly, a full valuation allowance has been recorded against the Company’s net deferred tax assets as of March 31, 2024, and December 31, 2023.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Deferred tax assets and liabilities are determined based on the differences between the unaudited interim condensed consolidated financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse.
Potential 382 Limitation
At December 31, 2023, the Company had federal NOL and R&D credit carryforwards of approximately $
The Company’s ability to utilize its net operating loss ("NOL") and research and development ("R&D") credit carryforwards may be substantially limited due to ownership changes that could occur in the future, as provided under Section 382 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), as well as similar State provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of a company's outstanding stock by certain stockholders or public groups.
If the Company experiences an ownership change, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. The Section 382 limitation is a limitation on the amount of a new loss corporation’s post-change year taxable income that can be offset by the old loss corporation’s pre-change NOLs. Any such limitation may result in the expiration of a portion of the Company's NOL or R&D credit carryforwards before utilization. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the Company's deferred tax valuation allowance.
In 2022, the Company's tax advisors completed a study to assess whether one or more ownership changes had occurred since the Company became a loss corporation under the definition of Section 382. At that time, it was determined that the Company had not experienced any "ownership changes" since 2014. As of March 31, 2024, the Company does not believe that an ownership change has occurred. As a result, as of March 31, 2024,
11. Related Party Transactions
See Note 5 – Debt – Convertible Notes for details regarding the conversion of the Convertible Notes in connection with the 2024 Private Placement.
See Note 5 – Debt – Salem Loan Facility for details regarding AMB Investments, LLC participation in the Salem Loan Facility, and the debt conversion in connection with the 2024 Private Placement.
Participation in the 2024 Private Placement
Certain existing shareholders, including investors affiliated with certain of our directors and officers, purchased an aggregate of
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. Employee Benefit Plan
The Company has a 401(k) plan to provide defined contribution retirement benefits for all eligible employees. Participants may contribute a portion of their compensation to the plan, subject to the limitations under the Code. The Company’s contributions to the plan are at the discretion of executive management with board of directors advisement. Under the 401(k) plan, the Company may contribute up to four percent (
13. Subsequent Events
Management has evaluated subsequent events occurring after March 31, 2024, through May 14, 2024, the date the unaudited interim condensed consolidated financial statements were issued, and concluded the following subsequent events have occurred during that period but were not recognized in the unaudited interim condensed financial statements. Except as described below, the Company has concluded that no subsequent event has occurred that requires disclosure.
Acquisition of GaN Device Portfolio from Gallium Semiconductor
On April 26, 2024, the Company finalized the acquisition of Gallium Semiconductor's entire portfolio of GaN power amplifiers and front-end modules. The Company acquired all previously released components as well as new cores under development at Gallium Semiconductor. Additionally, all associated intellectual property (IP) has been transferred to the Company as part of this portfolio acquisition. By integrating these assets, the Company intends to significantly enhance its ongoing efforts to develop and commercialize a new line of GaN devices tailored for wireless infrastructure, military, and satellite communications applications. The Company did not acquire any employees or facilities.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations, as well as other sections in this Quarterly Report on Form 10-Q, should be read together with the unaudited interim condensed consolidated financial statements and related notes included elsewhere in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the SEC on March 29, 2024.
Forward-looking statements contained in this Quarterly Report on Form 10-Q are predictions only, and actual results could differ materially from management’s expectations due to a variety of factors, including those described below. All forward-looking statements are expressly qualified in their entirety by such risk factors.
The forward-looking statements that we make in this Quarterly Report on Form 10-Q are based on management’s current views and assumptions regarding future events and speak only as of their dates. We disclaim any obligation to update developments of these risk factors or to announce publicly any revisions to any of the forward-looking statements that we make, or to make corrections to reflect future events or developments, except as required by the federal securities laws.
Our business is subject to numerous risks and uncertainties, including the following:
● we may not be able to generate sufficient cash to service all of our debt or meet our operating needs;
● we may not be able to achieve profitability or raise sufficient equity capital to support our operating needs and fund our strategic plans;
● those relating to fluctuations in our operating results;
● our dependence on developing new products, achieving design wins, and several large customers for a substantial portion of our revenue;
● a loss of revenue if purchase contracts are canceled or delayed;
● our dependence on third parties such as suppliers, product manufacturers, and product assemblers and testers;
● risks related to sales through independent sales representatives and distributors;
● risks associated with the operation of our third-party manufacturing providers;
● anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;
● our ability to further penetrate our existing customer base;
● our estimates regarding future revenues, capital requirements, general and administrative expenses, sales and marketing expenses, research and development expenses, and our need for or ability to obtain additional financing to fund our operations;
● developments and projections relating to our competitors and our industry, including semiconductor availability, which has affected the automotive industry, impacting vehicle production and thereby demand irregularities for our business;
● business disruptions;
● poor manufacturing yields;
● increased inventory risks and costs due to the timing of customer forecasts;
● our ability to continue to innovate in a very competitive industry;
● unfavorable changes in interest rates, pricing of certain precious metals, utility rates, and shipping and freight costs;
● our strategic investments failing to achieve financial or strategic objectives;
● our ability to attract, retain, and motivate key employees;
● warranty claims, product recalls, and product liability;
● changes in our effective tax rate and the enactment of international or domestic tax legislation, or changes in regulatory guidance;
● risks associated with environmental, health and safety regulations, and climate change;
● risks from international sales and third-party vendor operations;
● the impact of, and our expectations regarding, changes in current and future laws and regulations;
● changes in government trade policies, including the imposition of tariffs and export restrictions;
● our ability to protect and enforce our intellectual property protection and the scope and duration of such protection;
● claims of infringement of third-party intellectual property rights;
● security breaches and other similar disruptions compromising our information;
● theft, loss, or misuse of personal data by or about our employees, customers, or third parties;
● if we fail to maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and timely;
● provisions in our governing documents and Delaware law may discourage takeovers and business combinations that our stockholders might consider to be in their best interests; and,
● volatility in the price of our common stock.
These and other risks and uncertainties, which are described in more detail in our most recent Annual Report on Form 10-K that we filed with the SEC and those listed under the caption "Risk Factors" within this Quarterly Report on Form 10-Q, could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations, except as required by law.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q as exhibits with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.
Overview
Guerrilla RF is a fabless semiconductor company based in Greensboro, NC. Guerrilla RF was founded in 2013 with a mission to employ RF semiconductor technology to deliver RF solutions to customers in underserved markets. Over the past several years, Guerrilla RF has become a leader in developing high-performance MMIC products for wireless connectivity. It continues to target underserved markets and customers, delivering a range of high-performance MMIC products and associated technical support to a diverse set of customers that enable a more connected world.
Guerrilla RF possesses in-house design, applications, sales, and customer support functions as a fabless semiconductor company. It outsources the manufacture and production of its MMIC products to subcontractors located overseas, providing access to multiple semiconductor process technologies. Guerrilla RF’s primary external wafer foundries are in Taiwan and Singapore, and its primary assembly and test suppliers are located in Malaysia and the Philippines. We have produced and distributed in excess of 200 million products in our portfolio of products to over 200 end customers worldwide.
FIRST QUARTER FISCAL 2024 FINANCIAL HIGHLIGHTS
● Revenue for the first quarter of fiscal 2024 increased 57.6% as compared to the first quarter of fiscal 2023, primarily due to higher demand for our wireless infrastructure products (up 405%) and repeaters and attenuators (up 90%), compared to the prior year period. In the first quarter of 2024, the Company experienced a significant increase in wireless infrastructure business due to a key design ramp with a new customer. In the first quarter of 2024, new customer sales as well as existing customer sales both contributed to the increased demand for our products with new customer sales up 284% from the first quarter of 2023 and existing customer sales up 21%.
●Gross profit for the first quarter of fiscal 2024 was 62.8% of revenues as compared to 56.6% for the first quarter of fiscal 2023. The Company's contribution margin increased to 73.8% in the first quarter 2024, from 73.1% in the first quarter 2023, as product mix and a shift to higher margin wireless infrastructure products. Over these same periods, overhead spending increased slightly in absolute terms (less than $0.1 million), and as a percentage of sales it decreased from 16.5% in the first quarter of 2023 to 11.0% in the first quarter of 2024.
● Operating loss was $1.8 million for the first quarter of 2024, as compared to $3.7 million for the first quarter of 2023. This decrease in operating loss was primarily due to higher revenues and gross profits which grew at a significant pace while operating expenses decreased 10% due to reductions in wages and benefits. Operating expenses decreased $0.5 million from $5.5 million for the three months ended December 31, 2023, to $5.0 million for the three months ended March 31, 2024. Relative to sales, operating expenses decreased as a percentage (98% in the first quarter of 2024 vs. 170% in the first quarter of 2023). R&D costs decreased 13% when compared to the prior year period. Sales and marketing remained flat at $1.4 million while administrative costs reduced slightly by 6%.
● Net loss per share was $0.42 and $0.62 for the first quarter of fiscal 2024 and 2023, respectively.
Key Metrics (Non-GAAP Measures)
These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Company compensates for such limitations by relying primarily on GAAP results and using non-GAAP measures only as supplemental data. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by us, may differ from and may not be comparable to similarly titled measures used by other companies.
We regularly review the following key metrics to measure our performance, identify trends affecting our business, formulate financial projections, make strategic business decisions, and assess working capital needs.
| Three Months Ended March 31, |
||||||||
| 2024 (unaudited) | 2023 (unaudited) | |||||||
| Key Metrics |
||||||||
| Number of products released |
2 | 2 | ||||||
| Number of total products |
133 | 121 | ||||||
| Number of products with lifetime revenue exceeding $100 thousand |
67 | 54 | ||||||
| Product backlog |
$8.3 million |
$6.50 million |
||||||
Number of products released: The total number of distinct new products released into production (products that have completed design, quality, and supply chain readiness) during the period.
Number of total products: The cumulative number of production-released products since our inception through the end of the period.
Number of products with lifetime revenue exceeding $100 thousand: The number of products that have achieved the threshold of cumulative sales of $100,000 since our inception through the end of the period.
Product backlog: The amount of product sales that have been committed to by customers, but have not yet been completed, shipped, or invoiced. The Company's product backlog can be materially impacted by supply chain constraints, a shift in customer ordering patterns whereby customers place orders in anticipation of extended product delivery lead times, or other customer order delivery request modifications. Furthermore, because the Company partners closely with a number of its customers to produce high-performance, quality components that are often designed into customers’ end products, immediate substitution of the Company’s products is neither typically desired by customers nor necessarily feasible. As such, the Company has not historically experienced significant order cancellations, and the Company does not expect significant order cancellations in the future. The Company closely monitors product backlog and its potential impact on the Company’s financial performance.
Components of Results of Operations
Revenues
We derive our revenue from sales of high-performance RF semiconductor products. We design, integrate, and package differentiated, semiconductor-based products that we sell to customers through our direct sales organization, a network of independent sales representatives, and distributors. We generate revenue from customers located within and outside the U.S. In addition to sales to customers, we generate royalty revenue under a royalty agreement with one semiconductor manufacturer.
Direct Product Costs and Gross Profit
Direct Product Costs. Our direct product costs consist of actual direct product expenses, salaries and related expenses, overhead, third-party services vendors, and depreciation expense related to the equipment and information technology costs incurred directly in the Company’s revenue-generating activities.
Gross Profit. Our gross profit is calculated by subtracting our cost of revenues from revenues. Gross margin is expressed as a percentage of total revenues. Our gross profit may fluctuate from period to period as revenues fluctuate due to the mix of products we sell to customers, royalty revenue volume, operational efficiencies, and changes to our technology expenses and customer support.
We plan to focus on and grow the sales volume of new and existing products with the highest gross margin. We intend to continue investing additional resources in our engineering and design capabilities, which drive our research and development efforts and, in turn, drive additional revenue streams and enable us to improve our gross margin over time. The level and timing of investment in these areas could affect our cost of revenues in the future.
Operating Expenses
Operating expenses consist primarily of research and development expenses, sales and marketing expenses, and employee compensation costs for operations management, finance, accounting, information technology, compliance, and human resources personnel. In addition, general and administrative expenses include non-personnel costs, such as facilities, legal, accounting, and other professional fees, and other supporting corporate expenses not allocated to other departments. We expect our general and administrative expenses will increase in absolute dollars as our business grows, but we expect general and administrative expenses to decrease as a percent of revenues in the coming years.
R&D expenses consist of costs for the design, development, testing, and enhancement of our products and are generally expensed as incurred. These costs consist primarily of personnel costs, including salaries, benefits, bonuses, and share-based compensation for our product development personnel. Research and development expenses also include training costs, product management, third-party partner fees, and third-party consulting fees. We expect our research and development expenses to increase in absolute dollars as our business grows, but as a percent of revenues, R&D expenses are expected to decrease.
Sales and marketing expenses consist primarily of employee compensation costs related to sales and marketing, including salaries, benefits, bonuses, and share-based compensation, costs of general marketing activities and promotional activities, travel-related expenses, and allocated overhead. Sales and marketing expenses also include costs for advertising and other marketing activities. Advertising is expensed as incurred. As we expand our sales and marketing efforts, we expect our sales and marketing expenses will increase in absolute dollars.
Non-income taxes include excise taxes, sales and use taxes, capital stock and franchise taxes, and property taxes. Capital stock and franchise taxes are taxes that states charge the Company for the privilege of incorporating or doing business in a state.
Interest Expense
Interest expense consists primarily of the interest incurred on our debt obligations, our factoring arrangement expense, the non-cash interest expense associated with the amortization of common shares issued to certain of our debtholders, and lease expense related to our capital leases.
Results of Operations
The following table summarizes the results of our operations for the periods presented:
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| (unaudited) |
(unaudited) |
|||||||
| Revenues |
$ | 5,091,249 | $ | 3,230,888 | ||||
| Direct product costs |
1,870,675 | 1,403,345 | ||||||
| Gross profit |
3,220,574 | 1,827,543 | ||||||
| Operating expenses: |
||||||||
| Research and development |
2,251,533 | 2,586,169 | ||||||
| Sales and marketing |
1,352,909 | 1,361,949 | ||||||
| General and administrative |
1,454,695 | 1,546,163 | ||||||
| Total operating expenses |
5,059,137 | 5,494,281 | ||||||
| Operating loss |
(1,838,563 | ) | (3,666,738 | ) | ||||
| Other income (expenses): |
||||||||
| Interest expense |
(1,684,787 | ) | (341,857 | ) | ||||
| Change in fair value of derivative liabilities |
158,000 | — | ||||||
| Other income (expenses) |
(7,202 | ) | 7,177 | |||||
| Total other income (expenses), net |
(1,533,989 | ) | (334,680 | ) | ||||
| Net loss |
$ | (3,372,552 | ) | $ | (4,001,418 | ) | ||
Comparison of the three months ended March 31, 2024 and 2023 (unaudited):
| Three Months Ended March 31, |
||||||||||||||||
| 2024 | 2023 | $ Change |
% Change |
|||||||||||||
| Revenues |
$ | 5,091,249 | $ | 3,230,888 | 1,860,361 | 58 | % | |||||||||
Revenues increased $1.9 million to $5.1 million for the three months ended March 31, 2024, as compared to $3.2 million for the three months ended March 31, 2023. The increase in revenues was attributable to a $1.3 million increase in wireless infrastructure product shipments as design wins at new customers drove volume up. Revenues were also impacted by increased demand from to our international customers, which doubled to $0.7 million. Our catalogue products also enjoyed healthy increases growing by 97% to $2.1 million. The only category to decline over this period was our automotive products which saw a pause in its growth from the growth experienced over the last few years. Automotive products declined 19% from $1.7 million to $1.4 million.
We generate revenue from customers located within and outside the U.S. While we have several large customers, we define major customers as those responsible for more than 10% of Guerrilla RF’s annual product shipment revenue. Using this definition, Guerrilla RF had one major customer, RFPD, during the three months ended March 31, 2024, and March 31, 2023. RFPD, a large product distributor serving numerous end-user customers, generated 82% and 84% of product revenue for the three months ended March 31, 2024 and 2023, respectively. Our existing product sales increased from $2.9 million for the three months ended March 31, 2023 to $4.4 million for the three months ended March 31, 2024, as a result of increased sales from new and existing design wins that ramped in 2024.. We also continue to grow our business through the acquisition of new customers. Sales to new customers grew 284% to $2.0M for the three months ended March 31, 2024, compared to $0.5M for the three months ended March 31, 2023.
Nonproduct (royalty and non-recurring engineering ("NRE")) revenues were down $0.2 million for the three months ended March 31, 2024, compared to March 31, 2023, at essentially $0.
International shipments grew substantially at 100% from $0.3 million to $0.7 million (approximately 14% of Q1 2024 sales) for the three months ended March 31, 2024 and 2023.
Direct Product Costs and Gross Profit
| Three Months Ended March 31, | ||||||||||||||||
| 2024 |
2023 | $ Change |
% Change |
|||||||||||||
| Direct product costs |
$ | 1,870,675 | $ | 1,403,345 | 467,330 | 33 | % | |||||||||
| Gross profit |
$ | 3,220,574 | $ | 1,827,543 | 1,393,031 | 76 | % | |||||||||
Direct product costs increased $0.5 million to $1.9 million for the three months ended March 31, 2024, compared to $1.4 million for the three months ended March 31, 2023. The 35% increase in direct product cost was driven by a sales volume increase of 58%. Increases in direct product costs were less than increases in revenues as product mix resulted in lower costs relative to revenue. Gross profit as a percentage of sales increased from 56.6% for the first quarter of 2023, to 62.8% for first quarter of 2024 driven by higher contribution margins from product mix shifts.
Research and Development Expenses
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change |
% Change |
|||||||||||||
| Research and development |
$ | 2,251,533 | $ | 2,586,169 | (334,636 | ) | (13 | )% | ||||||||
Research and development expenses decreased $0.3 million to $2.3 million for the three months ended March 31, 2024, compared to $2.6 million for the three months ended March 31, 2023. The decrease was attributable to a slight decrease in wages and benefits of ($0.1 million), a decrease of ($0.2 million) in facilities, information technology support and lab expenses, and ($0.1 million) of reductions on R&D prototyping activities.
Sales and Marketing Expenses
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change |
% Change |
|||||||||||||
| Sales and marketing |
$ | 1,352,909 | $ | 1,361,949 | (9,040 | ) | (1 | )% | ||||||||
Sales and marketing expenses remained flat at $1.4 million for the three months ended March 31, 2024 and 2023. Staffing costs remained relatively consistent year over year as did sales and marketing spending and travel and other related expenses.
General and Administrative Expenses
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change |
% Change |
|||||||||||||
| General and administrative expenses |
$ | 1,454,695 | $ | 1,546,163 | (91,468 | ) | (6 | )% | ||||||||
General and administrative expenses remained relatively flat at $1.5 million for the three months ended March 31, 2024 and 2023. Within general and administrative expenses salaries and benefits decreased slightly by ($0.1 million) due to staffing changes while facilities ands certain support costs increased lightly by $0.1 million.
Other Income (Expenses)
| Three Months Ended March 31, | ||||||||||||||||
| 2024 | 2023 | $ Change |
% Change |
|||||||||||||
| Interest expense |
$ | (1,684,787 | ) | $ | (341,857 | ) | $ | (1,342,930 | ) | 393 | % | |||||
| Change in fair value of derivative liabilities |
$ | 158,000 | $ | — | $ | 158,000 | 0 | % | ||||||||
| Other income (expense) |
(7,202 | ) | 7,177 | $ | (14,379 | ) | - | |||||||||
| Total other income (expenses), net |
$ | (1,533,989 | ) | $ | (334,680 | ) | $ | (1,199,309 | ) | 358 | % | |||||
Interest expense increased approximately $1.3 million to $1.7 million for the three months ended March 31, 2024, compared to $0.3 million for the three months ended March 31, 2023. The increase was attributable to two debt facilities the Company originally entered into during fiscal 2022. The first is an asset-based loan with a total available draw of up to $3.75 million secured by inventory and accounts receivables, established in June 2022. The second is a $12 million commercial loan facility of which the Company has drawn fully as of March 31, 2024, This facility was initially established in the third quarter of 2022 and matures in January 2026.
Other income was insignificant in both the first three months ended March 31, 2023 and 2024.
Liquidity and Capital Resources
Our primary source of liquidity has been cash raised from private placements and debt financing. As of March 31, 2024, we had cash resources of $3.6 million. We also have two loan facilities, one of which is for up to $3.75 million with a specialty lender (referred to as the Spectrum Loan Facility, described in Note 5 to our unaudited condensed consolidated financial statements), and the other of which is for up to $12.0 million with a different lender (referred to as the Salem Loan Facility, also described in Note 5 to our unaudited condensed consolidated financial statements). As of March 31, 2024, we had drawn down $2.2 million under the Spectrum Loan Facility and $12.0 million under the Salem Loan Facility. On March 28, 2024 we completed the initial closing of the 2024 Private Placement of approximately $5 million, raising net cash proceeds of approximately $3 million, after deduction of expenses and the conversion of existing debt. On April 7, 2024, we completed a second closing, raising net cash proceeds of approximately $0.1 million after deduction of expenses. The Company believes that its existing cash and cash equivalents following this raise will provide sufficient resources to support operations through the rest of this fiscal year and beyond. However, we may seek additional funding opportunities if management believes such funds can be successfully invested in business opportunities for the Company.
As described in Note 1 to our consolidated financial statements, we have incurred recurring losses and negative cash flows from operations since inception and have an accumulated deficit at March 31, 2024 of $46.4 million. We expect losses and negative cash flows to continue in the near term, primarily due to continued investment in research and development, sales and marketing efforts, and increased administration expenses as our Company grows. We plan to continue to invest in the implementation of our long-term strategic plan and we anticipate that we will continue to narrow cash burn from historical levels so that cash reserves will provide the necessary working capital to conclude the Company is a going concern.
Cash (used in) provided by:
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Operating activities |
$ | (842,394 | ) | $ | (5,835,386 | ) | ||
| Investing activities |
(26,000 | ) | (117,799 | ) | ||||
| Financing activities |
3,687,786 | 3,490,346 | ||||||
| Net increase (decrease) in cash |
$ | 2,819,392 | $ | (2,462,839 | ) | |||
Operating Activities
Cash used in operating activities was $0.8 million and $5.8 million for the three months ended March 31, 2024 and 2023, respectively. Cash used in operating activities for the three months ended March 31, 2024 was principally due to our net loss of $3.4 million, non-cash items of $1.9 million, increase in accounts receivables of $0.7 million, inventories of $0.2 million, and offset by payable and accrued liabilities increase of $1.4 million. For the three months ended March 31, 2024, non-cash items that were a part of the net operating loss included depreciation and amortization of $0.4 million, stock-based compensation of $0.4 million, and non-cash and accretion of notes payable of $1.2 million.
Cash used in operating activities for the three months ended March 31, 2023 was principally due to our net loss of $4.0 million. For the three months ended March 31, 2023, non-cash items that were a part of the net operating loss included depreciation of $0.4 million and stock-based compensation of $0.3 million. During the three months ended March 31, 2023, increases in trade accounts receivable of $0.5 million and decreases to accounts payable and accrued expenses of $1.9 million partially contributed to the net loss for operating cash flow as noted above.
Investing Activities
Cash used in investing activities was $26 thousand and $118 thousand for the three months ended March 31, 2024 and 2023, respectively. Cash used in investing activities resulted from capital expenditures on property and equipment for all periods presented.
Financing Activities
Cash provided by financing activities for the three months ended March 31, 2024 of $3.7 million was primarily attributable to net proceeds of $3.0 million from private placement equity financing, $1.0 million of additional net debt financing, and $0.3 million of payments related finance leases and insurance premiums.
Cash provided by financing activities for the three months ended March 31, 2023 of $3.5 million was primarily attributable to net private placement offering proceeds of $3.7 million, partially offset by principal payments on capital leases.
Contractual Obligations and Commitments
The following summarizes our significant contractual obligations as of March 31, 2024 (unaudited). As mentioned above, associated with the move into our new business headquarters and design center in the first quarter of 2023, the Company paid what it anticipates was its final payment of $66 thousand of excess construction costs and related interest and deferral fees for which it will be responsible in April 2023. The Company does not anticipate any further excess construction costs and related interest and deferral fees subsequent to March 31, 2024 that would be material to the Company's reported financial results.
| Payments due by period |
||||||||||||||||||||
| Total |
Less than 1 year |
1 – 3 years |
4 – 5 years |
More than 5 years |
||||||||||||||||
| Purchase order obligations |
$ | 840,039 | $ | 840,039 | $ | — | $ | — | $ | — | ||||||||||
| Long-term notes |
12,003,000 | — | 12,003,000 | — | — | |||||||||||||||
| Long-term debt |
634,717 | — | 402,873 | 231,844 | — | |||||||||||||||
| Short-term debt |
2,839,529 | 2,839,529 | — | — | — | |||||||||||||||
| Operating lease obligations |
6,726,509 | 731,952 | 892,272 | 1,186,858 | 3,915,427 | |||||||||||||||
| Finance lease obligations |
2,334,405 | 939,975 | 1,192,389 | 191,482 | 10,559 | |||||||||||||||
| Total |
$ | 25,378,199 | $ | 5,351,495 | $ | 14,490,534 | $ | 1,610,184 | $ | 3,925,986 | ||||||||||
Off-Balance Sheet Arrangements
As of March 31, 2024 and December 31, 2022, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments in the preparation of our unaudited interim condensed consolidated financial statements involve revenue recognition, the valuation of our stock-based compensation, including the underlying estimated fair value of our common stock, lease accounting, income taxes including the valuation allowance for deferred tax assets, and going concern considerations. Accordingly, actual results may differ from these estimates. To the extent that there are differences between our estimates and actual results, our future consolidated financial statement presentation, financial condition, results of operations, and cash flows will be affected.
Other than as described under Note 2 to our audited consolidated financial statements, the Critical Accounting Policies and Significant Judgments and Estimates included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 29, 2024, have not materially changed.
We believe that the accounting policies described below involve a greater degree of judgment and complexity. Accordingly, these are the policies we think are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Liquidity and Going Concern
We have fully drawn down all available funds under the Salem Loan Facility ($12.0 million). We continue to utilize to our fullest ability our asset-based line with Spectrum, which we refer to as the Spectrum Loan Facility. On March 28, 2024, we completed the initial closing of the 2024 Private Placement of approximately $5 million, raising net cash proceeds of approximately $3 million, after deduction of expenses and the conversion of existing debt. On April 7, 2024, we completed a second closing, raising net cash proceeds of approximately $0.1 million after deduction of expenses. In addition, on March 28, 2024, Salem extended the maturity date of the Salem Loan Facility from April 30, 2024 to January 31, 2026.
Our recurring operating losses and our current operating plans raise substantial doubt about our ability to continue as a going concern for the next twelve months. Our independent registered public accounting firm issued their audit report on our consolidated financial statements for the years ended December 31, 2023 and 2022, which included an explanatory paragraph as to our ability to continue as a going concern.
The Company had a cash balance of $3.6 million as of March 31, 2024. As of March 31, 2024, the outstanding balance under the Spectrum Loan Facility was $2.2 million and the outstanding balance under the Salem Loan Facility was $12.0 million. The Company believes that its existing cash and cash equivalents will provide sufficient resources to support operations through fiscal 2024 and into 2025. If the Company experiences unexpected downturn in business or pressure on its gross margins it may find that cash reserves become very low and endanger the ability to continue operations as the company wishes to. If the Company is unable to secure additional funding in such situations it may be unable to fund ongoing operations and pay its obligations as they become due. The Company must also make arrangements to renew or replace the Spectrum and Salem Loan Facilities before they mature. There is no assurance that appropriate additional funding will be available on terms which are acceptable to the Company, or at all. This requirement for additional funding and the renewal of existing loan facilities raises substantial doubt about the Company’s ability to continue as a going concern. This requirement for additional funding and the renewal of existing loan facilities raises substantial doubt about the Company’s ability to continue as a going concern.
Share-Based Compensation
We recognize the grant-date fair value of share-based awards issued as compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award. To date, we have not issued awards where vesting is subject to performance or market conditions. The fair value of stock options is estimated at the time of grant using the Black-Scholes option pricing model, which requires the use of inputs and assumptions such as the fair value of the underlying common stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and dividend yield, the most critical of which is the estimated fair value of our common stock.
The estimated fair value of each grant and modification of stock options awarded during fiscal 2024 and 2023 was determined using the following methods and assumptions:
| ● |
Fair value of common stock. Market trading value.
|
| ● |
Expected term. Due to the lack of a large public market for the trading of our common stock and the lack of sufficient company-specific historical data, the expected term of employee stock options is determined using the “simplified” method, as prescribed in SAB No.107 ("SAB 107"), Share-Based Payment, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option. |
| ● |
Risk-free interest rate. The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term. |
| ● |
Expected volatility. The expected volatility is based on historical volatilities of peer companies within our industry which were commensurate with the expected term assumption, as described in SAB 107. |
| ● |
Dividend yield. We assume a dividend yield of 0% because we have never paid, and for the foreseeable future do not expect to pay, a dividend on our common stock. |
The inputs and assumptions used to estimate the fair value of share-based payment awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different inputs and assumptions, our share-based compensation expense could be materially different for future awards.
The Option Price Method, or OPM, treats common stock as call options on a company’s enterprise value, with exercise prices based on the liquidation preferences of the preferred stock. The OPM uses the Black-Scholes option-pricing model to determine the price of the call option. The OPM is appropriate to use when the range of possible future outcomes is so difficult to predict that forecasts would be highly speculative.
Our common stock became quoted on the OTCQX, an OTC Markets Group trading platform, on May 13, 2022. We began using our quoted common stock price as a fair value estimation factor to value our common stock once it achieved sufficient trading volume during the year ended December 31, 2022.
Recently Adopted Accounting Standards
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited interim condensed consolidated financial statements appearing elsewhere in this Quarterly Report.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we are no longer an emerging growth company, or affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We have not elected to early adopt certain new accounting standards, as described in Note 2 to our unaudited interim condensed consolidated financial statements. As a result, our unaudited interim condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Management’s Evaluation of our Disclosure Controls and Procedures
Under the supervision of and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2023, the end of the period covered by this Annual Report on Form 10-K. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms promulgated by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.
Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of March 31, 2024.
Changes in Internal Control over Financial Reporting
In order to address our significant deficiency, we have improved our processes for the review of lease modifications, terminations and additions at a detailed level at the senior financial management level.
We are not a party to any material pending legal proceedings. From time to time, we may become involved in lawsuits and legal proceedings that arise in the ordinary course of business.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
Trading Arrangements of Section 16 Reporting Persons
During the quarter ended March 31, 2024 person who is required to file reports pursuant to Section 16(a) of the Securities and Exchange Act of 1934, as amended, with respect to holdings of, and transactions in, the Company’s common stock (i.e. directors, certain large shareholders and certain officers of the Company) maintained, adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1(c) arrangement”, as those terms are defined in Section 229.408 of the regulations of the SEC.
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q. Where so indicated, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated.
| 31.1 |
X |
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| 31.2 |
X |
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| 32.1 |
X |
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| 32.2 |
Certification of John Berg, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X |
| 101.INS |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
X |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document. |
X |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
X |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
X |
| 101.LAB |
Inline XBRL Taxonomy Extension Labels Linkbase Document. |
X |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
X |
| 104 |
Cover Page Interactive Data File - the cover page from the Registrant’s from Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL and contained in Exhibit 101. |
X |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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GUERRILLA RF, INC. |
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| Date: May 14, 2024 |
By: |
/s/ Ryan Pratt |
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Ryan Pratt Chief Executive Officer (principal executive officer) |
| GUERRILLA RF, INC. | ||
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| Date: May 14, 2024 |
By: |
/s/ John Berg |
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John Berg Chief Financial Officer (principal financial officer) |