# Guerrilla RF, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Guerrilla RF, Inc.](/companies/guer.md) (CIK 1832487)
- Form: 10-Q
- Filed: 2023-11-13
- Accepted by EDGAR: Nov 13, 2023, 14:15 ET
- Period: 2023-09-30
- Accession: 0001437749-23-031540
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1832487/000143774923031540/guer20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1832487/000143774923031540/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $3.4m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $10.4m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $1.5m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $4.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $1.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $5.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $2.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $8.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$3.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$10.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$4.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$12.3m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.62 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.80 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$11.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $138.5k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $876.9k | us-gaap:Cash |
| Current assets | at 2023-09-30 | $4.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $19.7m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $13.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $23.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | −$3.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 57,799 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, 2022 as filed with the SEC on March 3, 2023.*

### CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the exhibits hereto and the information incorporated by reference herein, sections entitled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to risks and uncertainties. Information regarding activities, events, and developments that we expect or anticipate will or may occur in the future, including, but not limited to, information relating to our future growth and profitability targets and strategies designed to increase total shareholder value, are forward-looking statements based on management’s estimates, assumptions and projections. Forward-looking statements also include, but are not limited to, statements regarding our future economic and financial condition and results of operations, the plans and objectives of management and our assumptions regarding our performance and such plans and objectives, as well as the amount and timing of other uses of cash flows. Forward-looking statements generally can be identified through the use of words such as “guidance,” "believe,” “could,” “potential,” “continue,” “outlook,” “project,” “believe,” “target,” “predict,” “estimate,” “forecast,” “strategy,” “may,” “goal,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “should” and other similar expressions that do not relate solely to historical matters. Forward-looking statements are based on management’s beliefs and assumptions and on information currently available to management. Although we believe that the expectations reflected in forward-looking statements are reasonable, such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by forward-looking statements.

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 raise sufficient equity capital or borrow sufficient funds to support our operating needs and fund our strategic plans;
- we may not be able to generate sufficient cash to service all of our debt or meet our operating needs;
- risks 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;
- 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, Inc. (formerly known as Laffin Acquisition Corp.) was incorporated in the State of Delaware on November 9, 2020. Guerrilla RF Operating Corporation (formerly known as Guerrilla RF, Inc.), a fabless semiconductor company based in Greensboro, North Carolina, was founded in 2013, initially as a North Carolina limited liability company before converting to a Delaware corporation. On October 22, 2021, Guerrilla RF Acquisition Corp., a wholly owned subsidiary of Guerrilla RF, Inc., merged with and into Guerrilla RF Operating Corporation in a “reverse merger” transaction, the Merger, with Guerrilla RF Operating Corporation continuing as the surviving corporation and a wholly-owned subsidiary of Guerrilla RF, Inc. On May 30, 2023, Guerrilla RF Operating Corporation was merged with and into the Company.

Prior to the Merger, Laffin Acquisition Corp. was a “shell” company registered under the Exchange Act, with no specific business plan or purpose until it began operating the business of Guerrilla RF 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.

Our common stock is currently quoted on the OTCQX, under the symbol “GUER.”

As disclosed in Note 1, the Company’s board of directors approved a reverse split of shares of the Company’s common stock on a six-for-one basis, which was effective as of 12:01 a.m. Eastern Time on April 17, 2023 (the “Effective Time”). As a result of the reverse stock split, at the Effective Time, every six (6) shares of the issued and outstanding common stock were automatically converted into one (1) share of common stock, but without any change in the par value per share. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would otherwise have resulted from the reverse stock split were rounded up to the next whole number. The number of authorized shares of common stock under the Company's Delaware Certificate of Incorporation remained unchanged at 300,000,000 shares. Proportionate adjustments were made to the per share exercise price and the number of shares of common stock issuable upon the exercise of all outstanding stock options and warrants granted by the Company. The number of shares of common stock deliverable upon settlement or vesting of restricted stock units were similarly adjusted. Concurrently, the number of shares of common stock reserved for future issuance under the Company’s 2014 and 2021 Equity Incentive Plans immediately prior to the Effective Time were reduced proportionately.

Our principal executive offices are located at 2000 Pisgah Church Road, Greensboro, North Carolina 27455. Our telephone number is (336) 510-7840. Our website address is *www.guerrilla-rf.com.* Information contained on, or that can be accessed through, our website is not a part of this Quarterly Report. All trademarks, service marks, and trade names appearing in this Quarterly Report are the property of their respective holders. Use or display by us of other parties’ trademarks, trade dress, or products is not intended to, and does not, imply a relationship with, or endorsements or sponsorship of, us by the trademark or trade dress owners.

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 150 million products in our portfolio of products to over 500 end customers worldwide.

### THIRD QUARTER FISCAL 2023 FINANCIAL HIGHLIGHTS

- Revenue for the third quarter of fiscal 2023 increased 51.6% as compared to the third quarter of fiscal 2022, primarily due to higher demand for our automotive products, for which revenue increased 145% compared to the prior year period. In the third quarter of 2023, the Company experienced a significant increase in automotive based sales, as compared to the third quarter of 2022 which suffered from poor supply chain conditions, and the addition of important customers in the space expanding Guerrilla RF’s reach in the automotive market. In the third quarter of 2023, new customer sales as well as existing customer sales both contributed to the increased demand for our products with new customer sales up 500+% from a very low base in the third quarter of 2022 of less than $0.1 million and existing customer sales up 42%.
- Gross profit for the third quarter of fiscal 2023 was 55.7% of revenues as compared to 57.2% for the third quarter of fiscal 2022. The Company's contribution margin decreased to 71.5% in the third quarter 2023, from 74.1% in the third quarter 2022, as product mix and a shift to higher automotive sales relative to all sales impacted overall contribution margins. Over these same periods, overhead spending increased slightly in dollar terms of $0.1 million, but as a percentage of sales it decreased from 20.2% in the third quarter of 2022 to 15.7% in the third quarter of 2023. Quarter-over-quarter gross profit margin decreased to 55.7% in the third quarter of 2023 from 59.0% in the second quarter of 2023 driven by lower overall contribution margins.
- Operating loss was $3.7 million for the third quarter of 2023, as compared to $3.3 million for the third quarter of 2022. This increase was primarily due to higher operating expenses primarily driven by increased R&D investments. Relative to sales, operating expenses decreased as a percentage (166% in the third quarter of 2023 vs. 208% in the third quarter of 2022). Operating expenses increased $1.0M from $4.6 million for the three months ended September 30, 2022, to $5.6 million for the three months ended September 30, 2023. R&D costs rose 32% when compared to the prior year period. Sales and marketing increased 21% from $1.2 million to $1.45 million while administrative costs remained relatively flat at $1.4 million.
- Net loss per share was $0.62 and $0.66 for the third quarter of fiscal 2023 and 2022, 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.

| Key Metrics | Nine Months Ended September 30, 2023 (unaudited) | 2022 (unaudited) |
| --- | ---: | ---: |
| Number of products released | 10 | 15 |
| Number of total products | 129 | 116 |
| Number of products with lifetime revenue exceeding $100 thousand | 61 | 49 |
| Product backlog | $5.95 million | $3.31 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:

*(unaudited)*

*(unaudited)*

*(unaudited)*

*(unaudited)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $3,365,911 | $2,219,304 | $10,376,133 | $9,172,565 |
| Direct product costs | 1,490,779 | 950,841 | 4,444,005 | 3,775,881 |
| Gross profit | 1,875,132 | 1,268,463 | 5,932,128 | 5,396,684 |
| Operating expenses: |  |  |  |  |
| Research and development | 2,775,430 | 2,097,276 | 8,014,588 | 5,916,216 |
| Sales and marketing | 1,445,790 | 1,192,286 | 4,437,683 | 3,447,564 |
| General and administrative | 1,381,119 | 1,325,383 | 4,304,624 | 3,828,763 |
| Total operating expenses | 5,602,339 | 4,614,945 | 16,756,895 | 13,192,543 |
| Operating loss | (3,727,207) | (3,346,482) | (10,824,767) | (7,795,859) |
| Other income (expenses): |  |  |  |  |
| Interest expense | (731,618) | (303,368) | (1,462,487) | (431,442) |
| Change in fair value of derivative liabilities | (47,400) | — | (47,400) | — |
| Other income (expenses) | 25,277 | (18,028) | 31,206 | (48,279) |
| Total other income (expenses), net | (753,741) | (321,396) | (1,478,681) | (479,721) |
| Net loss | $(4,480,948) | $(3,667,878) | $(12,303,448) | $(8,275,580) |

### Comparison of the three months ended September 30, 2023 and 2022 (unaudited):

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $3,365,911 | $2,219,304 | 1,146,607 | 52% |

Revenues increased $1.1 million to $3.4 million for the three months ended September 30, 2023, as compared to $2.2 million for the three months ended September 30, 2022. The increase in revenues was attributable to a $1.0 million increase in automotive product shipments to major automotive suppliers as well as to automotive OEM’s. Automotive markets are benefiting from improved supply chain conditions, which had negatively impacted volumes since early 2022. The Company has also enjoyed increased volumes due to the addition of new customers as the Company has won slots and increased its share of business in automotive in-cabin Wi-Fi, amplification of signal, GPS, and satellite radio antennae applications. Revenues were also impacted by an increase of $0.2 million in our repeaters/digital step attenuators products which we attribute to the sales of a new product category to a key automotive supplier. Revenues from white label royalty programs continued to decline, with revenues decreasing from $0.2 million for the three months ended September 30, 2022 to $11 thousand for the three months ended September 30, 2023.

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 September 30, 2023, and September 30, 2022. RFPD, a large product distributor serving numerous end-user customers, generated 79% and 81% of product shipment revenue for the three months ended September 30, 2023 and 2022, respectively.

Nonproduct (royalty and non-recurring engineering ("NRE")) revenues were down $0.2 million for the three months ended September 30, 2023, compared to September 30, 2022, at $11 thousand compared to September 30, 2022 at $0.2 million. New product sales increased significantly for the three months ended September 30, 2023 at $0.8 million versus $0.2 million for the three months ended September 30, 2022, driven by our automotive and repeaters/DAS products. Our existing product sales increased from $1.9 million for the three months ended September 30, 2022 to $2.6 million for the three months ended September 30, 2023, as a result of a rebound in automotive product demand due to the normalization of the supply chain. We also continue to grow our business through the acquisition of new customers.

International shipments remained flat at $0.4 million (approximately 13% of Q3 223 sales) for the three months ended September 30, 2023 and 2022.

### Direct Product Costs and Gross Profit

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Direct product costs | $1,490,779 | $950,841 | 539,938 | 57% |
| Gross profit | $1,875,132 | $1,268,463 | 606,669 | 48% |

Direct product costs increased $0.5 million to $1.5 million for the three months ended September 30, 2023, compared to $1.0 million for the three months ended September 30, 2022. The 57% increase in direct product cost was driven by a sales volume increase of 66%. This increase was further built upon at the gross profit line (48% increase) due to better absorption of fixed overhead costs (including quality department staffing, facilities costs, and equipment costs). Gross profit as a percentage of sales decreased from 57.2% for the third quarter of 2022, to 55.7% for third quarter of 2023 driven by lower contribution margins from product mix shifts.

### Research and Development Expenses

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $2,775,430 | $2,097,276 | 678,154 | 32% |

Research and development expenses increased almost $0.7 million to $2.8 million for the three months ended September 30, 2023, compared to $2.1 million for the three months ended September 30, 2022. The increase was attributable to increases of $0.6 million in facilities, information technology support and lab expenses, and $0.1 million of staffing additions in our engineering department.

### Sales and Marketing Expenses

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Sales and marketing | $1,445,790 | $1,192,286 | 253,504 | 21% |

Sales and marketing expenses increased $0.25 million to $1.45 million for the three months ended September 30, 2023, compared to $1.2 million for the three months ended September 30, 2022. The increase year over year was driven by increases of $0.1 million in staffing costs, and $0.15 million in various sales and marketing related facilities and information technology support as we continue to invest in our sales and marketing efforts to drive sales growth.

### General and Administrative Expenses

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| General and administrative expenses | $1,381,119 | $1,325,383 | 55,736 | 4% |

General and administrative expenses increased $0.1 million to $1.4 million for the three months ended September 30, 2023, compared to $1.3 million for the three months ended September 30, 2022. The increase was primarily related to an increase of $0.1 million in share-based compensation.

### Other Income (Expenses)

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $(731,618) | $(303,368) | $(428,250) | 141% |
| Change in fair value of derivative liabilities | $(47,400) | $— | $(47,400) | 0% |
| Other income (expense) | 25,277 | (18,028) | $43,305 | - |
| Total other income (expenses), net | $(753,741) | $(321,396) | $(432,345) | 135% |

Interest expense increased approximately $0.4 million to $0.7 million for the three months ended September 30, 2023, compared to $0.3 million for the three months ended September 30, 2022. The increase was attributable to two debt facilities the Company originally entered into during fiscal 2022, one of which was extended in the third quarter of 2023. The first is an asset-based loan with a total available draw of up to $3 million secured by inventory and accounts receivables, established in June 2022. The second is a $12 million commercial line of credit of which the Company has drawn $9.75 million as of September 30, 2023, which line was initially established in the third quarter of 2022. In addition, we have entered into a number of smaller notes secured by equipment and facility improvements which account for a smaller portion of interest expense increases in 2023.

### Comparison of the nine months ended September 30, 2023 and 2022 (unaudited):

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $10,376,133 | $9,172,565 | 1,203,568 | 13% |

Revenues increased $1.2 million to $10.4 million for the nine months ended September 30, 2023, as compared to $9.2 million for the nine months ended September 30, 2022. The 13% increase in revenues was attributable to an increase of nearly $2.0 million for our automotive products, partially offset by a decrease of $0.8 million in Repeaters/DAS business due to overstock inventory corrections at a key customer. The automotive market has benefitted from better supply chain conditions, thus improving shipment volumes. In addition, we have acquired new customers for our products which have experienced increasing sales throughout 2023. For the nine months ended September 30, 2023 new customer sales were $1.7 million or 16% of all product sales compared to $0.3 million or 3% of all product sales for the nine months ended September 30, 2022. New customers in the automotive product category drove the increase of 520% year over year for the nine months ended September 30.

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 nine months ended September 30, 2023, and September 30, 2022. RFPD, a large product distributor serving numerous end-user customers, generated 81% of product shipment revenue for each of the nine month periods ended September 30, 2023 and 2022.

Nonproduct (royalty and non-recurring engineering ("NRE")) revenues decreased 42% for the nine months ended September 30, 2023, compared to September 30, 2022, from $0.7 million to $0.4 million, as our royalty revenues decreased. New product sales increased 8% from $1.2 million for the nine months ended September 30, 2022 to $1.3 million for the nine months ended September 30, 2023. The third fiscal quarter has historically been a moderate new product sales period as our customers calibrate the introduction of our products into their new products and solutions. Our existing product sales increased from $7.3 million for the nine months ended September 30, 2022 to $8.7 million for the nine months ended September 30, 2023, due to a rebound in automotive product demand.

International shipments amounted to $1.4 million (approximately 14% of product revenue) for the nine months ended September 30, 2023 and 2022.

### Direct Product Costs and Gross Profit

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Direct product costs | $4,444,005 | $3,775,881 | 668,124 | 18% |
| Gross profit | $5,932,128 | $5,396,684 | 535,444 | 10% |

Direct product costs increased $0.6 million to $4.4 million for the nine months ended September 30, 2023, compared to $3.8 million for the nine months ended September 30, 2022. The 18% increase in direct product cost was driven by a product sales volume increase of 18% (excluding royalty and NRE revenue). In addition to volume driven increases, there was a small increase in fixed overhead costs (quality department staffing, facilities costs, and equipment costs). Year-over-year gross profit, taking into account overhead spending increases, increased 10% from the nine months ended September 30, 2022 to the nine months ended September 30, 2023 on a comparative period basis, and as a percentage of revenue decreased from 57.2% to 55.7%.

### Research and Development Expenses

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $8,014,588 | $5,916,216 | 2,098,372 | 35% |

Research and development expenses increased $2.1 million to $8.0 million for the nine months ended September 30, 2023, compared to $5.9 million for the nine months ended September 30, 2022. The increase was attributable to increases of $1.5 million in facilities, information technology support and lab expenses, and $0.6 million of staffing additions in our engineering department.

### Sales and Marketing Expenses

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Sales and marketing | $4,437,683 | $3,447,564 | 990,119 | 29% |

Sales and marketing expenses increased $1.0 million to $4.4 million for the nine months ended September 30, 2023, compared to $3.4 million for the nine months ended September 30, 2022. The increase year over year was driven by increases of $0.4 million in staffing costs and $0.4 million in various sales and marketing expenses including sales commissions, trade shows, travel, and customer support, and $0.2 million for facilities and information technologies support.

### General and Administrative Expenses

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| General and administrative expenses | $4,304,624 | $3,828,763 | 475,861 | 12% |

General and administrative expenses increased $0.5 million to $4.3 million for the nine months ended September 30, 2023, compared to $3.8 million for the nine months ended September 30, 2022. The increase was related to an increase of $0.4 million in wages and benefits driven primarily from share-based compensation. The remaining increase of $0.1 million in legal, audit, and consulting fees was driven by activities associated with general legal and administration.

### Other Income (Expenses)

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $(1,462,487) | $(431,442) | $(1,031,045) | 239% |
| Change in fair value of derivative liabilities | $(47,400) | $— | $(47,400) | 0% |
| Other income (loss) | $31,206 | $(48,279) | $79,485 | (165)% |
| Total other income (expenses), net | $(1,478,681) | $(479,721) | $(998,960) | 208% |

Interest expense increased approximately $1.0 million to $1.5 million for the nine months ended September 30, 2023, compared to $0.4 million for the nine months ended September 30, 2022. The increase was attributable to two debt facilities the Company originally entered into during fiscal 2022, one of which was extended in the third quarter of 2023. The first is an asset-based loan with a total available draw of up to $3 million secured by inventory and accounts receivables, established in June 2022. The second is a $12 million commercial line of credit of which the Company has drawn $9.75 million as of September 30, 2023, which line was initially established in the third quarter of 2022. In addition, we have entered into a number of smaller notes secured by equipment and facility improvements as well as unsecured convertible promissory notes, which account for a smaller portion of interest expense increases in 2023.

During the nine months ended September 30, 2023, we recognized a change in fair value related to embedded derivatives.

Other income was insignificant in both the first nine months of 2022 and 2023.

### Liquidity and Capital Resources

The Company has incurred substantial negative cash flows from operations in nearly every fiscal period since inception, including a net loss of $4.5 million for the three months ended September 30, 2023. As of September 30, 2023, the Company had an accumulated deficit of $39.4 million, a significant portion of which is attributable to the Company’s ongoing investment in research and development, investment in its facilities to support plans for business expansion and growth, and expenses associated with its sales and marketing efforts in support of new product offerings. Management has recently introduced a series of cost-cutting measures, including voluntary salary reductions by the executive management team, which are expected to ultimately reduce annualized expenses between $3.0 million and $5.0 million over the next several quarters. As a result, the Company expects to break even on an operating basis, i.e., excluding interest expense, and other non-operating and non-recurring expenses, by mid-2024 when revenues are projected to grow to a level that are in excess of operating expenses. In the meantime and until the Company consistently realizes positive net income, it will continue to require additional funding.

As of September 30, 2023, the Company had cash resources of $0.9 million. It has two loan facilities, one of which is for up to $3.0 million with a specialty lender (referred to as the Spectrum Loan Facility, described in Note 5 to our unaudited interim 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 the unaudited condensed consolidated financial statements). As of September 30, 2023, the Company had drawn down $1.0 million under the Spectrum Loan Facility and $9.75 million under the Salem Loan Facility. In addition, the Company entered into several smaller secured and unsecured loans to finance specific equipment and furnishing needs in the first nine months of 2023. These smaller financing agreements totaled approximately $1.0 million as of September 30, 2023, and are largely long-term in nature. As discussed in Note 5, the Company has also issued unsecured convertible promissory notes in the aggregate amount of $790,000. As discussed in Note 13, subsequent to September 30, 2023, the Company drew down an additional $1.25 million under the Salem Loan Facility, leaving up to $1.0 million available for future draws.

As noted above, the Company will continue to require additional funding until it consistently realizes positive net income. Potentially, the Company could draw down additional funds under the Spectrum Loan Facility; however, its ability to do so is dependent upon the value of eligible accounts receivable assigned to Spectrum as security for advances under the Spectrum Loan Facility, which value fluctuates from time to time and is ultimately outside of the Company’s control. The Company may also draw down the remaining $1.0 million in Additional Advances under the Salem Loan Facility; however, Salem has discretion to withhold any further Additional Advances and there is no assurance that it will agree to provide access to the remaining $1.0 million under the Salem Loan Facility.

The Spectrum Loan Facility expires in June 2024, and automatically renews annually thereafter unless either party elects to terminate the facility upon not less than 60 days prior notice. The Company anticipates that the Spectrum Loan Facility will renew and be extended through June 2025, at a minimum. The Salem Loan Facility matures on April 30, 2024. The Company is currently exploring options for the renewal and extension of the Salem Loan Facility, as well as alternative financing and other strategic opportunities to support the Company's business.

The Company believes that its existing cash and cash equivalents, together with additional financing under the Salem Loan Facility, will provide sufficient resources to support operations through mid-February 2024, with additional funding being required in early 2024 to finance the Company until it consistently achieves positive net income. In the event the Company is unable to draw down the remaining $1.0 million under the Salem Loan Facility or secure alternative funding sources, it may be unable to fund ongoing operations and pay its obligations as they become due before the end of fiscal 2023. Additionally, if the Company is unable to secure additional funding in early 2024, it may be unable to fund ongoing operations and pay its obligations as they become due before the end of February 2024. 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 (or in the case of the Spectrum and Salem Loan Facilities, the renewal of existing loan facilities) 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.

The Company moved into its new corporate headquarters and design center, located in Greensboro, North Carolina, in the first quarter of 2023. As of September 30, 2023, the Company does not anticipate additional excess construction

Cash (used in) provided by:

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $(11,178,989) | $(5,980,423) |
| Investing activities | (138,470) | (1,590,027) |
| Financing activities | 7,853,963 | 4,311,353 |
| Net decrease in cash | $(3,463,496) | $(3,259,097) |

32

#### Operating Activities

Cash used in operating activities was $11.2 million and $6.0 million for the nine months ended September 30, 2023 and 2022, respectively. Cash used in operating activities for the nine months ended September 30, 2023 was principally due to our net loss of $12.3 million. For the nine months ended September 30, 2023, non-cash items that were a part of the net operating loss included depreciation and amortization of $1.2 million and stock-based compensation of $0.9 million. During the nine months ended September 30, 2023, increases in trade accounts receivable of $0.4 million and decreases to accounts payable and accrued expenses of $1.8 million also contributed to the net cash used in operating cash flows as noted above.

Cash used in operating activities for the nine months ended September 30, 2022, primarily resulted from our net loss of $8.3 million. During the nine months ended September 30, 2022, there was a moderate increase in inventory of $0.3 million, a decrease to accounts receivable of $0.8 million and a decrease to prepaid expenses of $0.8 million. For the nine months ended September 30, 2022, non-cash items that were a part of the net operating loss included depreciation and amortization of $0.9 million and stock-based compensation of $0.4 million.

#### Investing Activities

Cash used in investing activities was $0.1 million and $1.6 million for the nine months ended September 30, 2023 and 2022, respectively. Cash used in investing activities resulted from capital expenditures on property and equipment for all periods presented. Cash used in investing activities resulted from capital expenditures on property and equipment for all periods presented. In 2022 such expenditures were greater than normal due to outlays for building improvements and upfit related to Guerrilla RF’s new headquarters building which were put into construction in progress until the headquarters was occupied in early 2023.

#### Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2023 of $7.9 million was primarily attributable to net proceeds of $5.4 million from private placement equity financing, $3.8 million of additional net debt financing, and $1.3 million of payments related to deferred offering costs, finance leases and insurance premiums.

Cash provided by financing activities during the nine months ended September 30, 2022 of $4.3 million principally resulted from net debt financing of $4.6 million, from the Spectrum and Salem Loan Facilities.

### Contractual Obligations and Commitments

The following summarizes our significant contractual obligations as of September 30, 2023 (*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 September 30, 2023 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 | $607,789 | $607,789 | $— | $— | $— |
| Long-term notes (excluding interest) | 776,377 | — | 776,377 | — | — |
| Long-term debt | 863,018 | — | 408,612 | 419,301 | 35,105 |
| Short-term debt | 8,806,908 | 8,806,908 | — | — | — |
| Operating lease obligations | 7,086,973 | 185,583 | 1,319,628 | 1,031,062 | 4,550,700 |
| Finance lease obligations | 3,033,270 | 252,810 | 1,860,583 | 898,522 | 21,355 |
| Total | $21,174,335 | $9,853,090 | $4,365,200 | $2,348,885 | $4,607,160 |

### Off-Balance Sheet Arrangements

As of September 30, 2023 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, 2022, filed with the SEC on March 3, 2023, 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

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, 2022 and 2021, which included an explanatory paragraph as to our ability to continue as a going concern.

The Company had a cash balance of $877 thousand at September 30, 2023. As of September 30, 2023, the outstanding balance under the Spectrum Loan Facility was $1.0 million and the outstanding balance under the Salem Loan Facility was $9.75 million. As discussed in Note 5, in the third fiscal quarter of 2023, the Company issued unsecured convertible promissory notes in the aggregate amount of $790,000 and drew down $3.25 million under the Salem Loan Facility to fund operations. Subsequent to September 30, 2023, the Company drew down an additional $1.25 million under the Salem Loan Facility, leaving up to $1.0 million available for future draws.

Potentially, the Company could draw down additional funds under the Spectrum Loan Facility; however, its ability to do so is dependent upon the value of eligible accounts receivable assigned to Spectrum as security for advances under the Spectrum Loan Facility, which value fluctuates from time to time and is ultimately outside of the Company’s control. The Company may also draw down the remaining $1.0 million in Additional Advances under the Salem Loan Facility; however, Salem has discretion to withhold any further Additional Advances and there is no assurance that it will agree to provide access to the remaining $1.0 million under the Salem Loan Facility. The Company believes that its existing cash and cash equivalents, together with additional financing under the Salem Loan Facility, will provide sufficient resources to support operations through mid-February 2024, with additional funding being required in early 2024 to finance the Company until it consistently achieves positive net income. In the event the Company is unable to draw down the remaining $1.0 million under the Salem Loan Facility or secure alternative funding sources, it may be unable to fund ongoing operations and pay its obligations as they become due before the end of fiscal 2023. Additionally, if the Company is unable to secure additional funding in early 2024, it may be unable to fund ongoing operations and pay its obligations as they become due before the end of February 2024. 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 (or in the case of the Spectrum and Salem Loan Facilities, the renewal of existing loan facilities) 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.

#### 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 estimated 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 2023 and 2022 was determined using the following methods and assumptions:

- *Estimated fair value of common stock.* As our common stock was not publicly traded prior to May 13, 2022, and subsequently has experienced limited trading volumes, our Board of Directors periodically estimated the fair value of our common stock considering, among other things, contemporaneous valuations of our preferred and common stock prepared by an independent third-party valuation firm prior to fiscal 2023 in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
- *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.

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 and this trading volume sufficiency has continued through the quarter ending September 30, 2023. In addition, as all of Guerrilla RF's preferred stock was converted into common stock in October 2021, we will no longer need to estimate the fair value of preferred stock as no preferred stock has been outstanding since October 2021.

### 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.

## 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, 6,042 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 September 30, 2023, 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 weakness in internal controls over financial reporting disclosed within our Annual Report on Form 10-K for the year ended December 31, 2022, management concluded that our disclosure controls and procedures were not effective as of September 30, 2023. While the existence of the material weakness did not result in a material misstatement to the financial statements, it presented a reasonable possibility that a material misstatement in 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 weakness disclosed within our Annual Report on Form 10-K for the year ended December 31, 2022, 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 have been implemented and we have designed control procedures to address the material weakness. The actions taken by management include, but are not limited to:

- the retention of a public accounting firm to assist us with our tax accounting and tax provision calculations;
- the retention of an accounting advisory services consulting firm to assist us with evaluating and documenting the accounting treatment of significant unusual transactions;
- the enhancement of our procedures to evaluate and document the accounting treatment of significant unusual transactions, including the utilization of an accounting research tool;
- the enhancement of our segregation of duties through a review and revision of information technology access rights;
- the enhancement and formalization of our financial reporting scheduling and closing calendar; and
- the enhancement of our secondary review process during our financial reporting process.

We can offer no assurance that these remediation steps will prevent any future deficiencies in our internal control over financial reporting. Any failure to maintain adequate internal control over financial reporting could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. Furthermore, we can give no assurance that the measures we have taken will remediate the outstanding material weakness, or will prevent any future material weaknesses, or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, our strengthened controls and procedures may not be adequate to prevent or identify irregularities or errors, which could affect the fair presentation of our consolidated financial statements.

### Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2023, 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 weakness in internal controls over financial reporting disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

## Risk factors

As filed, 9,685 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, 2022 filed with the SEC on March 3, 2023. 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, 2022.*

### 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, $12.0 million for the year ended December 31, 2022, and $12.3 million for the nine months ended September 30, 2023. As of September 30, 2023, we had an accumulated deficit of $39.4 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 lingering effects of 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 pay our obligations as they become due, including maturing loans, and we may be unable to find additional funding.***

We have incurred significant losses in the past and recorded a net loss of $12.0 million for the year ended December 31, 2022, $2.8 million for the year ended December 31, 2021, and $12.3 million for the nine months ended September 30, 2023. Our cash balance stood at $0.8 million on September 30, 2023. We expect to break even on an operating basis, i.e., excluding interest expense, and other non-operating and non-recurring expenses, by mid-2024 when revenues are projected to grow to a level that are in excess of operating expenses. In the meantime and until we consistently realize positive net income, we will continue to require additional funding.

We believe that our existing cash and cash equivalents, together with additional financing under the Salem Loan Facility, will provide sufficient resources to support operations through mid-February 2024, with additional funding being required in early 2024. In the event we are unable to draw down the remaining $1.0 million under the Salem Loan Facility or secure alternative funding sources, we may be unable to fund ongoing operations and pay our obligations as they become due before the end of fiscal 2023. Additionally, if we are unable to secure additional funding in early 2024, we may be unable to fund ongoing operations and pay our obligations as they become due before the end of February 2024. We must also make arrangements to renew or replace the Spectrum and Salem Loan Facilities before they mature, with the Salem Loan Facility due to mature on April 30, 2024. There is no assurance that appropriate additional funding (or in the case of the Spectrum and Salem Loan Facilities, the renewal of existing loan facilities) will be available on terms, which are acceptable to us, or at all. If we do not renew our existing loan facilities and/or secure additional financing in a timely manner, we will be unable to fund ongoing operations and pay our obligations as they become due, affecting our ability to continue as a going concern.

***We have a significant amount of accounts payable, and our failure to pay our vendors on a timely basis may have an adverse effect on our ability to secure their future services.***

We have a significant amount of accounts payable, including past due amounts. Until these accounts are brought current, our vendor relationships may suffer irreparable harm and our vendors may be unwilling to continue to do business with us in the future, under terms acceptable to us, which could result in material adverse consequences to us.

***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 October 18, 2023. 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 business, 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.

***Due to the unknown evolution of new sanctions and export controls targeting the People's Republic of China ("PRC") and its ability to purchase and manufacture certain semiconductor chips, our business could be adversely affected.***

On October 7, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security ("BIS") announced a series of regulations – issued as an interim final rule – amending the Export Administration Regulations to enhance export controls on a range of goods, software, and technology and restrict the PRC’s ability to purchase and manufacture advanced computing chips. The regulations impose new controls on items relating to advanced computer and semiconductor manufacturing capabilities, broaden end-use restrictions, expand the scope of foreign-produced items subject to licensing requirements, and add to Entity List prohibitions. We do not anticipate the new regulations will have a material effect on our financial condition or operations. The production of our high-performance MMICs is not reliant on any manufacturing in the PRC, or, to our knowledge, on any companies that are owned by the PRC or Chinese investors. Through the nine months ended September 30, 2023, we received less than five percent of all our sales from customers located within the PRC. RF semiconductors such as what we design and produce are not currently covered under the new BIS restrictions. We have taken steps to ensure our export control processes and controls observe enacted and evolving export sanctions imposed upon the PRC and all restricted entities that have been identified by the United States government. Nevertheless, if we inadvertently make any product sales or shipments to any sanctioned entities, such non-compliance may have a material effect on our financial condition or operations.

***Our ability to realize our deferred tax asset and deduct certain future losses could be limited if we experience an ownership change as defined in the Code.***

Under the Code, a corporation is generally allowed a deduction for NOLs carried over from prior taxable years. As of December 31, 2022, we had approximately $28.9 million of gross federal and State NOLs and $0.6 million of other carryforwards available to reduce future federal taxable income. Our ability to use our NOLs and other carryforwards will depend on the amount of taxable income generated in future periods. A corporation’s ability to deduct its federal NOL carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 of the Code if it undergoes an “ownership change” as defined in Section 382 (generally, where cumulative stock ownership changes among material stockholders exceed 50% during a rolling three-year period). Accordingly, if the Company were to undergo an "ownership change", our ability to utilize our NOLs and other carryforwards would be limited, and this could have a material effect on our business, financial condition, and results of operations. The relevant calculations for Section 382 are technical and highly complex. Whether an “ownership change” occurs is largely outside of our control, and there can be no assurance that such a change will not occur in the future. If an “ownership change” occurs in the future it is possible that the limitations imposed could cause a net increase in our federal income tax liability and cause federal income taxes to be paid earlier than if such limitations were not in effect. An ownership change could also eliminate a portion of the federal tax loss carryforward if the limitation is low and causes our NOLs to expire unutilized. Any such “ownership change” could have a material adverse effect on our future business, results of operations, financial condition, and the value of our common stock.

Filed Nov 13, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-031540. Last ingested by Listed: Nov 6, 2026, 21:49 ET. No prices; not investment advice.