# Guerrilla RF, Inc.: Form 10-Q for the period ended Mar 31, 2022

- Company: [Guerrilla RF, Inc.](/companies/guer.md) (CIK 1832487)
- Form: 10-Q
- Filed: 2022-05-13
- Accepted by EDGAR: May 12, 2022, 18:40 ET
- Period: 2022-03-31
- Accession: 0001437749-22-012193
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1832487/000143774922012193/guer20220331b_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1832487/000143774922012193/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-01-01 to 2022-03-31 | $3.9m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2022-01-01 to 2022-03-31 | $1.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-01-01 to 2022-03-31 | $2.3m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-01-01 to 2022-03-31 | $1.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-01-01 to 2022-03-31 | −$1.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-01-01 to 2022-03-31 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | −$1.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.06 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.06 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | −$2.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-01-01 to 2022-03-31 | $152.5k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-03-31 | $2.6m | us-gaap:Cash |
| Current assets | at 2022-03-31 | $7.9m | us-gaap:AssetsCurrent |
| Total assets | at 2022-03-31 | $12.3m | us-gaap:Assets |
| Current liabilities | at 2022-03-31 | $2.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-03-31 | $5.2m | us-gaap:Liabilities |
| Short-term borrowings | at 2022-03-31 | $0 | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2022-03-31 | $7.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,280 characters.

*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, 2021 as filed with the SEC on April 1, 2022.*

### SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions, and are not historical facts and typically are identified by use of terms such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required under U.S. federal securities laws.

Our business is subject to numerous risks and uncertainties including:

- 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;
- the COVID-19 pandemic materially and adversely affecting our financial condition and results of operations;
- 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;
- business disruptions;
- poor manufacturing yields;
- increased inventory risks and costs due to 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, and utility rates;
- 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;
- we may not be able to generate sufficient cash to service all of our debt or meet our operating needs;
- 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;
- our inability to remediate the material weaknesses identified in internal controls over financial reporting relating to certain control processes;
- 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, N.C. 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 is a wholly-owned subsidiary of the Company. Guerrilla RF holds all material assets and conducts all business activities and operations of the Company. Accordingly, there are frequent references to Guerrilla RF throughout this discussion and analysis.

Guerrilla RF possesses in-house design, applications, sales, and customer support functions as a fabless semiconductor company. We outsource the manufacture and production of our 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 our primary assembly and test suppliers are located in Malaysia and the Philippines.

#### Merger Agreement

On October 22, 2021, the Company (formerly known as Laffin Acquisition Corp.), Guerrilla RF Acquisition Corp., and Guerrilla RF entered into a merger agreement (the 'Merger Agreement') pursuant to which Guerrilla RF Acquisition Corp. merged with and into Guerrilla RF, with Guerrilla RF continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the 'Merger').

#### COVID-19 Pandemic and Supply Chain Update

In light of the uncertain and rapidly evolving situation relating to the spread of the COVID-19 pandemic and in compliance with government orders, we have taken measures intended to help minimize the risk of transmitting the virus to our employees, our customers, and the communities in which we participate, which could negatively impact our business. While we have a distributed workforce and our employees are accustomed to working remotely or with other remote employees, our workforce is not fully remote. Under normal conditions, our employees frequently travel to establish and maintain relationships with one another and with our customers, partners, and investors.

The COVID-19 pandemic negatively impacted revenue for six months for the year ended December 31, 2021, as we experienced lower revenues due to a significant number of customers experiencing supply chain challenges during 2021. Consequently, we implemented cost reduction actions across our functional disciplines to assist us in navigating through what continues to be an uncertain environment. We experienced increased sales during the first quarter of 2022, driven by rebounding volumes in markets recovering from supply chain difficulties that impacted the timing of our customers' orders of our products; however, we anticipate that further supply chain disruptions through the end of 2022 will negatively impact customer order patterns, resulting in reduced sales growth.

Our management team has, and will likely continue, to spend time, attention, and resources monitoring the COVID-19 pandemic and seeking to manage its effects on the supply chain, our business, and workforce. The extent to which the COVID-19 pandemic and our precautionary measures may impact our business will depend on future developments, which remain uncertain and cannot be predicted at this time.

### FIRST QUARTER FISCAL 2022 FINANCIAL HIGHLIGHTS

- Revenue for the first quarter of fiscal 2022 increased 39.0% as compared to the first quarter of fiscal 2021, which was driven primarily by higher demand for our automotive product solutions, higher royalties of our 5G wireless infrastructure products, and higher demand for our catalog products for a wide variety of customer applications.
- Gross profit for the first quarter of fiscal 2022 was 60.0% of revenues as compared to 60.7% for the first quarter of fiscal 2021. Although the Company did experience across the board supply chain price increases, we were able to increase prices we charge our customers related to raw materials and assembly/test cost increases we experienced. Changes in product contribution margins were negligible as was the impact of lesser royalty revenues as a percentage of overall revenue. The biggest driver of lower gross margins was an increase in overhead costs relative to sales year over year due to costs associated with our Operations and Quality group as well as increased costs of production mask amortization.
- Operating loss was $1.81 million for the first quarter of fiscal 2022 as compared to $0.26 million for the first quarter of fiscal 2021. This increase was primarily due to higher operating expenses relative to sales (106.8% in Q1 2022 vs. 70.0% in Q1 2021). Increased operating expenses were primarily attributable to increased investment in research and development, sales and marketing, and new employees, as well as additional costs associated with becoming a public company. The Company increased its investment in research and development year over year by 47.1% as we focused on new product development. Selling, general, and administrative costs increased year over year by 190.7%.
- Net loss per diluted share was $0.06 for the first quarter of fiscal 2022 as compared to net income per diluted share of $0.01 for the first quarter of fiscal 2021. A key contributing factor to the net income in the first quarter of 2021 was the forgiveness of a PPP loan in that period.
- Capital expenditures were $0.2 million for the first quarter of fiscal 2022 as compared to $0.01 million for the first quarter of fiscal 2021.

### Key metrics

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.

*(unaudited)*

*(unaudited)*

| Key Metrics | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Number of products released | 2 | 1 |
| Number of total products | 103 | 88 |
| Number of products with lifetime revenue exceeding $100 thousand | 45 | 26 |

*Number of products released:* The total quantity 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 Guerrilla RF's 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 Guerrilla RF's inception through the end of the period.

### 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, our network of independent sales representatives, and our 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 primarily consist of 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 drives our research and development efforts and, in turn, drives additional revenue streams and enables 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.

Research and development ("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. We expect our sales and marketing expenses will increase in absolute dollars as we expand our sales and marketing efforts.

#### 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 stock warrants, and lease expense related to our capital leases.

#### Other Income (Expenses)

On April 30, 2020, Guerrilla RF received loan proceeds of $535,800 under the Paycheck Protection Program (“PPP”) established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) administered by the Small Business Administration (“SBA”). PPP loans and accrued interest are forgivable after a “covered period” (24 weeks) as long as the borrower maintained its payroll levels and used the loan proceeds for eligible purposes, including payroll, benefits, rent, and utilities. As of December 31, 2020, Guerrilla RF had $535,800 of principal outstanding on its PPP loan together with accrued interest of $3,611, recorded as accounts payable and accrued expenses on our consolidated balance sheet. On February 17, 2021, Guerrilla RF received notice from the SBA that the $535,800 PPP loan was forgiven, including all accrued interest.

On February 19, 2021, Guerrilla RF received a second PPP loan of $833,300 (the “2021 PPP Loan”). Guerrilla RF used the 2021 PPP Loan to retain current employees, maintain payroll, and make lease and utility payments. On August 18, 2021, Guerrilla RF received notice from the SBA that the 2021 PPP Loan, including accrued interest, had been forgiven.

The following table summarizes the results of our operations for the periods presented:

*(unaudited)*

*(unaudited)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Revenues | $3,865,911 | $2,781,022 |
| Cost of revenues | 1,547,281 | 1,092,692 |
| Gross profit | 2,318,630 | 1,688,330 |
| Operating expenses: |  |  |
| Research and development | 1,802,006 | 1,063,106 |
| Sales and marketing | 1,085,843 | 576,650 |
| General and administrative | 1,239,650 | 305,314 |
| Total operating expenses | 4,127,499 | 1,945,070 |
| Loss from operations | (1,808,869) | (256,740) |
| Other income (expenses): |  |  |
| Interest expense | (57,221) | (148,825) |
| Other income (expenses) | — | 535,800 |
| Total other income (expenses), net | (57,221) | 386,975 |
| Net income (loss) | $(1,866,090) | $130,235 |

### Comparison of the three months ended March 31, 2022 and 2021:

|  | Three Months Ended March 31, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $3,865,911 | $2,781,022 | 1,084,889 | 39% |

Revenues increased $1.1 million to $3.9 million for the three months ended March 31, 2022, as compared to $2.8 million for the three months ended March 31, 2021. The increase in revenues was driven by the growth of product sales to our automotive supplier customers and our catalog customers over a wide breadth of applications and customers. Sales to our large automotive supplier customers grew approximately 44% from the prior year period. Fifty-eight percent (58%) of the growth in revenues over the periods presented is attributable to new catalog products. Our overall number of product offerings and the number of customers we ship to in volume continue to contribute to increased sales. Our increased sales were driven by rebounding volumes in markets recovering from supply chain difficulties that have impacted the timing of our customers' orders of our products; however, we anticipate that further supply chain disruptions through the end of 2022 will negatively impact customer order patterns, resulting in reduced sales growth.

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, Richardson RFPD, Inc. ("RFPD"), during the three months ended March 31, 2022, and March 31, 2021. RFPD, a large product distributor serving numerous end-user customers, generated 85% and 80% of product shipment revenue for the three months ended March 31, 2022 and 2021 respectively.

Royalty revenues increased 41% for the three months ended March 31, 2022, compared to March 31, 2021, as our customer with whom we have a royalty agreement experienced an increase in sales of wireless infrastructure products licensed under our proprietary designs.

International shipments amounted to $0.5 million (approximately 15% of product revenue) and $0.5 million (approximately 19% of product revenue) for the three months ended March 31, 2022, and March 31, 2021, respectively.

### Direct Product Costs and Gross Profit

|  | Three Months Ended March 31, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Direct product costs | $1,547,281 | $1,092,692 | 454,589 | 42% |
| Gross profit | $2,318,630 | $1,688,330 | 630,300 | 37% |

Direct product costs increased $0.5 million to $1.5 million for the three months ended March 31, 2022, compared to $1.1 million for the three months ended March 31, 2021. The 42% increase in direct product cost was primarily driven by a product sales volume increase of 39% (excluding royalty revenue). Direct product costs relative to sales increased slightly due to increases in Operations and Quality support and staffing. Year over year, royalties grew in concert with product sales increasing 41% from the year ago period, thus having no impact on overall gross margin percentage year over year due to the shift in our overall revenue mix. Royalty revenues were $0.28 million for the three months ended March 31, 2022, and $0.2 million for the three months ended March 31, 2021.

### Research and Development Expenses

|  | Three Months Ended March 31, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $1,802,006 | $1,063,106 | 738,900 | 70% |

Research and development expenses increased $0.7 million to $1.8 million for the three months ended March 31, 2022, compared to $1.1 million for the three months ended March 31, 2021. The increase was attributable to $0.3 million of staffing additions in our engineering department, and $0.4 million was attributable research lab and equipment and prototype expenses.

### Sales and Marketing Expenses

|  | Three Months Ended March 31, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Sales and marketing | $1,085,843 | $576,650 | 509,193 | 88% |

Sales and marketing expenses increased $0.5 million to $1.1 million for the three months ended March 31, 2022, compared to $0.6 million for the three months ended March 31, 2021. The increase year over year was driven by increases of $0.4 million in staffing costs and $0.1 million in various sales and marketing expenses including sales commissions, information technology support, and customer support.

### General and Administrative Expenses

|  | Three Months Ended March 31, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| General and administration expenses | $1,239,650 | $305,314 | 934,336 | 306% |

General and administrative expenses increased $0.9 million to $1.2 million for the three months ended March 31, 2022, compared to $0.3 million for the three months ended March 31, 2021. The increase was primarily related to increases in wages and benefits ($0.6 million) and $0.3 million of directors and officers insurance and professional fees. The increase in wages, benefits, and professional fees was driven by headcount additions within our information technology and accounting departments, and expenses incurred to support our public company structure.

### Other Income (Expenses)

|  | Three Months Ended March 31, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $(57,221) | $(148,825) | $91,604 | (62)% |
| Other income | — | 535,800 | $(535,800) | - |
| Total other income (expenses), net | $(57,221) | $386,975 | $(444,196) | (115)% |

Interest expense decreased approximately $0.1 million to $0.05 million for the three months ended March 31, 2022, compared to $0.15 million for the three months ended March 31, 2021. The decrease was attributable to decreased factoring fees.

Other income decreased $0.5 million for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The decrease was entirely due to PPP loan forgiveness in the three months ended March 31, 2021.

### Liquidity and Capital Resources

Our primary source of liquidity is cash raised from private placements. As of March 31, 2022, we had cash resources of $2.6 million. We also have an accounts receivable factoring arrangement with a financial institution (as described in Note 5 of our unaudited interim condensed consolidated financial statements). Under the terms of the factoring agreement, we have access to up to $2.0 million of advances. As of March 31, 2022, no advances were outstanding, meaning that we had unused availability of $2.0 million. Based upon our current financial projection models, we anticipate that our cash and $2.0 million of advances available under our factoring arrangement will be sufficient to fund our ongoing operations into the fourth quarter of 2022.

As described in Note 1 of our unaudited interim condensed consolidated financial statements, we have incurred recurring losses and negative cash flows from operations since inception and have an accumulated deficit at March 31, 2022 of $16.9 million. We expect losses and negative cash flows to continue, primarily due to continued investment in research and development, sales and marketing efforts, and increased administration expenses as our Company grows. As our fiscal 2022 progresses, and we continue to invest in the implementation of our long-term strategic plan, we anticipate that we will require additional debt and/or equity funding. We are actively evaluating funding sources as part of our ongoing strategic planning. There is no assurance that appropriate financing will be available on terms, which are acceptable to us or at all. This requirement for additional funding raises substantial doubt about our ability to continue as a going concern.

As mentioned in Note 8 to our unaudited interim condensed consolidated financial statements as of March 31, 2022, the Company has entered into a lease agreement for additional office facilities in Greensboro, North Carolina. The Company will not remit any scheduled lease payments until it occupies the building, which it anticipates will occur in early 2023. Initial building asset addition financing related to the additional office facilities was completed in April 2022 and is further discussed in Note 12 to our unaudited interim condensed consolidated financial statements as of March 31, 2022. The Company anticipates approximately $4.0 million of new headquarter building asset additions, and an annual lease expense of approximately $1.1 million upon occupancy.

The following table summarizes our sources and uses of cash for each of the periods presented:

Cash (used in) provided by:

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Operating activities | $(2,429,861) | $(648,627) |
| Investing activities | (152,464) | (11,000) |
| Financing activities | (141,014) | 1,218,898 |
| Net increase (decrease) in cash | $(2,723,339) | $559,271 |

29

#### Operating Activities

Cash used in operating activities was $2.4 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively. Cash used in operating activities for the three months ended March 31, 2022 principally resulted from our net loss of $1.9 million. In addition, $0.9 million was attributable to increased accounts receivable, partially offset by $0.1 million attributable to the increase in our accounts payable and accrued expenses.

Cash used in operating activities for the three months ended March 31, 2021, principally resulted from our net income of $0.1 million, which was offset by the non-cash component of net income for the PPP loan forgiveness of $0.5 million. A small increase in our accounts receivable and prepaid expenses were partially offset by a moderate increase in accounts payable.

#### Investing Activities

Cash used in investing activities was $0.15 million and $0.01 million for the three months ended March 31, 2022 and 2021, respectively. Cash used in investing activities resulted from capital expenditures on property and equipment for all periods presented.

#### Financing Activities

Cash used by financing activities for the three months ended March 31, 2022 of $0.1 million was primarily attributable to principal payments on capital leases.

Cash provided by financing activities during the three months ended March 31, 2021, of $1.2 million principally resulted from the issuance of notes payable and factoring proceeds totaling $1.2 million, and proceeds from a second PPP loan of $0.8 million. These were partially offset by principal payments of notes payable and our factoring arrangement of $0.8 million.

### Contractual Obligations and Commitments

The following summarizes our significant contractual obligations as of March 31, 2022; however, the following table does not include any contractual obligations or commitments that will develop as we continue the preparation, planning, and asset financing negotiations associated with the planned move of our business headquarters in early 2023. We anticipate approximately $4.0 million of new headquarter building asset additions, and an annual lease expense of approximately $1.1 million upon occupancy.

|  | Payments due by period Total | Less than 1 year | 1 – 3 years | 4 – 5 years | More than 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Purchase order obligations | $808,225 | $808,225 | $— | $— | $— |
| Short-term debt obligations (excluding interest) | 7,310 | 7,310 | — | — | — |
| Long-term debt obligations (excluding interest) | 142,590 | — | 17,544 | 17,544 | 107,502 |
| Operating lease obligations | 276,768 | 116,128 | 160,640 | — | — |
| Finance lease obligations | 3,363,678 | 669,309 | 1,393,378 | 1,300,991 | — |
| Total | $4,598,571 | $1,600,972 | $1,571,562 | $1,318,535 | $107,502 |

30

### Off-Balance Sheet Arrangements

As of March 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

Other than as described under Note 2 to our unaudited interim condensed 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, 2021, filed with the SEC on April 1, 2022, have not materially changed.

Our critical accounting policies are those policies that require the most significant judgments and estimates in the preparation of our unaudited interim condensed consolidated financial statements. Management has determined that our most critical accounting policies are those relating to revenue recognition, stock-based compensation, lease accounting, income taxes including the valuation allowance for deferred tax assets, and going concern considerations.

### Recently adopted accounting standards

In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-02, *Leases* (Topic 842), or ASU 2016-02. ASU 2016-02 addresses the financial reporting of leasing transactions. Under past guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update requires the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability are expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the consolidated statement of cash flows. For finance leases, interest on the lease liability is recognized separately from the amortization of the right-of-use asset in the consolidated statement of operations and the repayment of the principal portion of the lease liability is classified as a financing activity while the interest component is included in the operating section of the consolidated statement of cash flows. In June 2020, the FASB issued ASU 2020-05, which delayed the effective date of Topic 842 until January 1, 2022. We adopted ASC 842 using the optional transition method outlined in ASU 2018-11. The Company adopted Topic 842 in the fiscal quarter ending March 31, 2022. The adoption of ASC 842 resulted in the recognition of operating lease right-of-use assets of approximately $304,000 and corresponding lease liabilities of approximately $304,000. The adoption of these ASUs did not have a material impact on our results of operations, however, the adoption resulted in significant changes to our financial statement disclosures. See Note 8 for further information related to lease obligations on the unaudited interim condensed consolidated balance sheet upon adopting ASC Topic 842.

### JOBS Act Accounting Election

We are an emerging growth company, as defined in the Jumpstart Our Business Startups ("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 of 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.

### Recently Issued Accounting Pronouncements

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.

## Market risk

As filed, 153 characters.

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.

## Controls and procedures

As filed, 5,789 characters.

**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 evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2022, the end of the period covered by this Form 10-Q. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) 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 officer and principal financial officer, 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, as a result of our material weaknesses on internal controls over financial reporting disclosed within our Annual Report on Form 10-K for the year ended December 31, 2021, management concluded that our disclosure controls and procedures were not effective as of March 31, 2022. While the existence of the material weaknesses did not result in a material misstatement to the financial statements, it presented a reasonable possibility that a material misstatement to the financial statements could have occurred.

### Status of Remediation of Previously Identified Material Weaknesses in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.

To respond to the material weaknesses disclosed within our Annual Report on Form 10-K for the year ended December 31, 2021, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. Our remediation efforts are in process and we have designed control procedures to address the material weaknesses. The actions taken by management include, but are not limited to:

- We have retained a public accounting firm to assist us with our tax accounting and tax provision calculations;
- We have enhanced our procedures to evaluate and document the accounting treatment over significant unusual transactions including the utilization of an accounting research tool to which we have subscribed;
- We have enhanced our segregation of duties through a review and revision of information technology access rights;
- We have enhanced and formalized our financial reporting scheduling and closing calendar; and
- We have enhanced our secondary review process during our financial reporting process.

While we believe the steps taken to date and those planned for future implementation will improve the effectiveness of our internal control over financial reporting, we have not completed all remediation efforts and cannot conclude the material weaknesses have been remediated. The elements of our remediation plans can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. The material weaknesses cannot be considered remediated until applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We will document policies and procedures for, and test the implementation and operating effectiveness of, the newly-designed controls in future periods.

### Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2022, there have been changes in our internal control over financial reporting as such term is defined in Rule 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. These changes are a result of our above-noted actions taken to remedy the material weaknesses on internal controls over financial reporting disclosed within our Annual Report on Form 10-K for the year ended December 31, 2021.

## Risk factors

As filed, 4,364 characters.

*The risks set out below represent updates to risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 1, 2022. The information in this Quarterly Report on Form 10-Q should be read in conjunction with the other factors described in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.*

### Risks Related to Our Business and Industry

***We have incurred significant losses in the past and will experience losses in the future.***

We have incurred significant losses in the past and recorded a net loss of $2.8 million for the year ended December 31, 2021, $2.0 million for the year ended December 31, 2020, and $1.9 million for the three months ended March 31, 2022. As of March 31, 2022, we had an accumulated deficit of $16.9 million. If we cannot make consistent progress toward future profitability, our business and stock price may be adversely affected.

Our ability to be profitable in the future depends upon continued demand for our products from existing and new customers. Further sales of our products depend upon our ability to improve the quality of our products, enhance customer satisfaction, and increase efficiency and productivity. In addition, our profitability will be affected by, among other things, our ability to execute our business strategy, the timing and size of customer sales, the pricing and costs of our products, competitive products, macroeconomic conditions affecting the semiconductor industry, the COVID-19 pandemic, and the extent to which we invest in sales and marketing, research and development, and general and administrative resources.

***We may not have sufficient cash available to fund our operations and make interest or principal payments on our indebtedness when due, and we may be unable to find additional sources of capital.***

Our cash balance stood at $2.6 million on March 31, 2022. In addition, we have unused availability of up to $2.0 million under our factoring arrangement. However, as we currently do not generate positive cash flow from operations, we cannot guarantee that we will have sufficient cash available to fund our operations and service our obligations when due. We expect losses and negative cash flows to continue, primarily due to continued research, development, and marketing efforts as well as increased administration expenses as our Company grows. Therefore, we anticipate that we will require additional funding later this year and we are actively evaluating alternative funding sources as part of our ongoing strategic planning. There can be no assurance that we will be able to secure additional funding on favorable terms, or at all. Our failure to secure additional funding on favorable terms, or at all, may cause us to reduce or delay planned investments and capital expenditures, harm our business, financial condition and results of operations, and affect our ability to continue as a going concern.

***Our business could be affected by new sanctions and export controls targeting Russia and other responses to Russia’s invasion of Ukraine.***

The Russia-Ukraine conflict may adversely affect Guerrilla RF’s business. Currently, we do not have any supply chain partners located in Russia or Ukraine. Nor do we have any pending product sales or product shipments to Russian customers or, to our knowledge, any entities listed on the U.S. Department of the Treasury Office of Foreign Assets Control Sectoral Sanctions Identifications List dated April 29, 2022. However, the related sanctions and other measures imposed by the European Union, the U.S., and other countries and organizations in response have led, and may continue to lead, to disruption and instability in global markets, supply chains, and industries that could negatively impact our businesses, financial condition, and results of operations. We have taken steps to ensure our export control processes and controls observe enacted and evolving export sanctions imposed upon Russia, Belarus, and all restricted entities that have been identified by the United States government. Nevertheless, if we inadvertently make any product sales or shipments to Russian customers or any sanctioned entities, such non-compliance may have a material effect on our financial condition or operations.

Filed May 13, 2022.
Source: SEC EDGAR, the filing index for accession 0001437749-22-012193. Last ingested by Listed: Nov 6, 2026, 17:13 ET. No prices; not investment advice.