# Guerrilla RF, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Guerrilla RF, Inc.](/companies/guer.md) (CIK 1832487)
- Form: 10-Q
- Filed: 2024-05-14
- Accepted by EDGAR: May 14, 2024, 16:55 ET
- Period: 2024-03-31
- Accession: 0001437749-24-016686
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1832487/000143774924016686/guer20240331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1832487/000143774924016686/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $5.1m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $1.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $3.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $2.3m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$1.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$3.4m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.42 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$842.4k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $26.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $3.6m | us-gaap:Cash |
| Current assets | at 2024-03-31 | $8.7m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $22.3m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $8.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $26.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | −$4.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,849 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, 2023 as filed with the SEC on March 29, 2024.*

### 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 generate sufficient cash to service all of our debt or meet our operating needs;
- we may not be able to achieve profitability or raise sufficient equity capital to support our operating needs and fund our strategic plans;
- those relating to fluctuations in our operating results;
- our dependence on developing new products, achieving design wins, and several large customers for a substantial portion of our revenue;
- a loss of revenue if purchase contracts are canceled or delayed;
- our dependence on third parties such as suppliers, product manufacturers, and product assemblers and testers;
- risks related to sales through independent sales representatives and distributors;
- risks associated with the operation of our third-party manufacturing providers;
- anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;
- our ability to further penetrate our existing customer base;
- our estimates regarding future revenues, capital requirements, general and administrative expenses, sales and marketing expenses, research and development expenses, and our need for or ability to obtain additional financing to fund our operations;
- developments and projections relating to our competitors and our industry, including semiconductor availability, which has affected the automotive industry, impacting vehicle production and thereby demand irregularities for our business;
- business disruptions;
- poor manufacturing yields;
- increased inventory risks and costs due to the timing of customer forecasts;
- our ability to continue to innovate in a very competitive industry;
- unfavorable changes in interest rates, pricing of certain precious metals, utility rates, and shipping and freight costs;
- our strategic investments failing to achieve financial or strategic objectives;
- our ability to attract, retain, and motivate key employees;
- warranty claims, product recalls, and product liability;
- changes in our effective tax rate and the enactment of international or domestic tax legislation, or changes in regulatory guidance;
- risks associated with environmental, health and safety regulations, and climate change;
- risks from international sales and third-party vendor operations;
- the impact of, and our expectations regarding, changes in current and future laws and regulations;
- changes in government trade policies, including the imposition of tariffs and export restrictions;
- our ability to protect and enforce our intellectual property protection and the scope and duration of such protection;
- claims of infringement of third-party intellectual property rights;
- security breaches and other similar disruptions compromising our information;
- theft, loss, or misuse of personal data by or about our employees, customers, or third parties;
- if we fail to maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and timely;
- provisions in our governing documents and Delaware law may discourage takeovers and business combinations that our stockholders might consider to be in their best interests; and,
- volatility in the price of our common stock.

These and other risks and uncertainties, which are described in more detail in our most recent Annual Report on Form 10-K that we filed with the SEC and those listed under the caption "Risk Factors" within this Quarterly Report on Form 10-Q, could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q as exhibits with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.

### Overview

Guerrilla RF is a fabless semiconductor company based in Greensboro, NC. Guerrilla RF was founded in 2013 with a mission to employ RF semiconductor technology to deliver RF solutions to customers in underserved markets. Over the past several years, Guerrilla RF has become a leader in developing high-performance MMIC products for wireless connectivity. It continues to target underserved markets and customers, delivering a range of high-performance MMIC products and associated technical support to a diverse set of customers that enable a more connected world.

Guerrilla RF possesses in-house design, applications, sales, and customer support functions as a fabless semiconductor company. It outsources the manufacture and production of its MMIC products to subcontractors located overseas, providing access to multiple semiconductor process technologies. Guerrilla RF’s primary external wafer foundries are in Taiwan and Singapore, and its primary assembly and test suppliers are located in Malaysia and the Philippines. We have produced and distributed in excess of 200 million products in our portfolio of products to over 200 end customers worldwide.

### FIRST QUARTER FISCAL 2024 FINANCIAL HIGHLIGHTS

- Revenue for the first quarter of fiscal 2024 increased 57.6% as compared to the first quarter of fiscal 2023, primarily due to higher demand for our wireless infrastructure products (up 405%) and repeaters and attenuators (up 90%), compared to the prior year period. In the first quarter of 2024, the Company experienced a significant increase in wireless infrastructure business due to a key design ramp with a new customer. In the first quarter of 2024, new customer sales as well as existing customer sales both contributed to the increased demand for our products with new customer sales up 284% from the first quarter of 2023 and existing customer sales up 21%.
- Gross profit for the first quarter of fiscal 2024 was 62.8% of revenues as compared to 56.6% for the first quarter of fiscal 2023. The Company's contribution margin increased to 73.8% in the first quarter 2024, from 73.1% in the first quarter 2023, as product mix and a shift to higher margin wireless infrastructure products. Over these same periods, overhead spending increased slightly in absolute terms (less than $0.1 million), and as a percentage of sales it decreased from 16.5% in the first quarter of 2023 to 11.0% in the first quarter of 2024.
- Operating loss was $1.8 million for the first quarter of 2024, as compared to $3.7 million for the first quarter of 2023. This decrease in operating loss was primarily due to higher revenues and gross profits which grew at a significant pace while operating expenses decreased 10% due to reductions in wages and benefits. Operating expenses decreased $0.5 million from $5.5 million for the three months ended December 31, 2023, to $5.0 million for the three months ended March 31, 2024. Relative to sales, operating expenses decreased as a percentage (98% in the first quarter of 2024 vs. 170% in the first quarter of 2023). R&D costs decreased 13% when compared to the prior year period. Sales and marketing remained flat at $1.4 million while administrative costs reduced slightly by 6%.
- Net loss per share was $0.42 and $0.62 for the first quarter of fiscal 2024 and 2023, respectively.

### Key Metrics (Non-GAAP Measures)

These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Company compensates for such limitations by relying primarily on GAAP results and using non-GAAP measures only as supplemental data. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by us, may differ from and may not be comparable to similarly titled measures used by other companies.

We regularly review the following key metrics to measure our performance, identify trends affecting our business, formulate financial projections, make strategic business decisions, and assess working capital needs.

| Key Metrics | Three Months Ended March 31, 2024 (unaudited) | 2023 (unaudited) |
| --- | ---: | ---: |
| Number of products released | 2 | 2 |
| Number of total products | 133 | 121 |
| Number of products with lifetime revenue exceeding $100 thousand | 67 | 54 |
| Product backlog | $8.3 million | $6.50 million |

*Number of products released:* The total number of distinct new products released into production (products that have completed design, quality, and supply chain readiness) during the period.

*Number of total products:* The cumulative number of production-released products since our inception through the end of the period.

*Number of products with lifetime revenue exceeding $100 thousand:* The number of products that have achieved the threshold of cumulative sales of $100,000 since our inception through the end of the period.

*Product backlog:* The amount of product sales that have been committed to by customers, but have not yet been completed, shipped, or invoiced. The Company's product backlog can be materially impacted by supply chain constraints, a shift in customer ordering patterns whereby customers place orders in anticipation of extended product delivery lead times, or other customer order delivery request modifications. Furthermore, because the Company partners closely with a number of its customers to produce high-performance, quality components that are often designed into customers’ end products, immediate substitution of the Company’s products is neither typically desired by customers nor necessarily feasible. As such, the Company has not historically experienced significant order cancellations, and the Company does not expect significant order cancellations in the future. The Company closely monitors product backlog and its potential impact on the Company’s financial performance.

### Components of Results of Operations

#### Revenues

We derive our revenue from sales of high-performance RF semiconductor products. We design, integrate, and package differentiated, semiconductor-based products that we sell to customers through our direct sales organization, a network of independent sales representatives, and distributors. We generate revenue from customers located within and outside the U.S. In addition to sales to customers, we generate royalty revenue under a royalty agreement with one semiconductor manufacturer.

#### Direct Product Costs and Gross Profit

*Direct Product Costs.* Our direct product costs consist of actual direct product expenses, salaries and related expenses, overhead, third-party services vendors, and depreciation expense related to the equipment and information technology costs incurred directly in the Company’s revenue-generating activities.

*Gross Profit.* Our gross profit is calculated by subtracting our cost of revenues from revenues. Gross margin is expressed as a percentage of total revenues. Our gross profit may fluctuate from period to period as revenues fluctuate due to the mix of products we sell to customers, royalty revenue volume, operational efficiencies, and changes to our technology expenses and customer support.

We plan to focus on and grow the sales volume of new and existing products with the highest gross margin. We intend to continue investing additional resources in our engineering and design capabilities, which drive our research and development efforts and, in turn, drive additional revenue streams and enable us to improve our gross margin over time. The level and timing of investment in these areas could affect our cost of revenues in the future.

#### Operating Expenses

Operating expenses consist primarily of research and development expenses, sales and marketing expenses, and employee compensation costs for operations management, finance, accounting, information technology, compliance, and human resources personnel. In addition, general and administrative expenses include non-personnel costs, such as facilities, legal, accounting, and other professional fees, and other supporting corporate expenses not allocated to other departments. We expect our general and administrative expenses will increase in absolute dollars as our business grows, but we expect general and administrative expenses to decrease as a percent of revenues in the coming years.

R&D expenses consist of costs for the design, development, testing, and enhancement of our products and are generally expensed as incurred. These costs consist primarily of personnel costs, including salaries, benefits, bonuses, and share-based compensation for our product development personnel. Research and development expenses also include training costs, product management, third-party partner fees, and third-party consulting fees. We expect our research and development expenses to increase in absolute dollars as our business grows, but as a percent of revenues, R&D expenses are expected to decrease.

Sales and marketing expenses consist primarily of employee compensation costs related to sales and marketing, including salaries, benefits, bonuses, and share-based compensation, costs of general marketing activities and promotional activities, travel-related expenses, and allocated overhead. Sales and marketing expenses also include costs for advertising and other marketing activities. Advertising is expensed as incurred. As we expand our sales and marketing efforts, we expect our sales and marketing expenses will increase in absolute dollars.

Non-income taxes include excise taxes, sales and use taxes, capital stock and franchise taxes, and property taxes. Capital stock and franchise taxes are taxes that states charge the Company for the privilege of incorporating or doing business in a state.

#### Interest Expense

Interest expense consists primarily of the interest incurred on our debt obligations, our factoring arrangement expense, the non-cash interest expense associated with the amortization of common shares issued to certain of our debtholders, and lease expense related to our capital leases.

#### Results of Operations

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

*(unaudited)*

*(unaudited)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Revenues | $5,091,249 | $3,230,888 |
| Direct product costs | 1,870,675 | 1,403,345 |
| Gross profit | 3,220,574 | 1,827,543 |
| Operating expenses: |  |  |
| Research and development | 2,251,533 | 2,586,169 |
| Sales and marketing | 1,352,909 | 1,361,949 |
| General and administrative | 1,454,695 | 1,546,163 |
| Total operating expenses | 5,059,137 | 5,494,281 |
| Operating loss | (1,838,563) | (3,666,738) |
| Other income (expenses): |  |  |
| Interest expense | (1,684,787) | (341,857) |
| Change in fair value of derivative liabilities | 158,000 | — |
| Other income (expenses) | (7,202) | 7,177 |
| Total other income (expenses), net | (1,533,989) | (334,680) |
| Net loss | $(3,372,552) | $(4,001,418) |

### Comparison of the three months ended March 31, 2024 and 2023 (unaudited):

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $5,091,249 | $3,230,888 | 1,860,361 | 58% |

Revenues increased $1.9 million to $5.1 million for the three months ended March 31, 2024, as compared to $3.2 million for the three months ended March 31, 2023. The increase in revenues was attributable to a $1.3 million increase in wireless infrastructure product shipments as design wins at new customers drove volume up. Revenues were also impacted by increased demand from to our international customers, which doubled to $0.7 million. Our catalogue products also enjoyed healthy increases growing by 97% to $2.1 million. The only category to decline over this period was our automotive products which saw a pause in its growth from the growth experienced over the last few years. Automotive products declined 19% from $1.7 million to $1.4 million.

We generate revenue from customers located within and outside the U.S. While we have several large customers, we define major customers as those responsible for more than 10% of Guerrilla RF’s annual product shipment revenue. Using this definition, Guerrilla RF had one major customer, RFPD, during the three months ended March 31, 2024, and March 31, 2023. RFPD, a large product distributor serving numerous end-user customers, generated 82% and 84% of product revenue for the three months ended March 31, 2024 and 2023, respectively. Our existing product sales increased from $2.9 million for the three months ended March 31, 2023 to $4.4 million for the three months ended March 31, 2024, as a result of increased sales from new and existing design wins that ramped in 2024.. We also continue to grow our business through the acquisition of new customers. Sales to new customers grew 284% to $2.0M for the three months ended March 31, 2024, compared to $0.5M for the three months ended March 31, 2023.

Nonproduct (royalty and non-recurring engineering ("NRE")) revenues were down $0.2 million for the three months ended March 31, 2024, compared to March 31, 2023, at essentially $0.

International shipments grew substantially at 100% from $0.3 million to $0.7 million (approximately 14% of Q1 2024 sales) for the three months ended March 31, 2024 and 2023.

### Direct Product Costs and Gross Profit

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Direct product costs | $1,870,675 | $1,403,345 | 467,330 | 33% |
| Gross profit | $3,220,574 | $1,827,543 | 1,393,031 | 76% |

Direct product costs increased $0.5 million to $1.9 million for the three months ended March 31, 2024, compared to $1.4 million for the three months ended March 31, 2023. The 35% increase in direct product cost was driven by a sales volume increase of 58%. Increases in direct product costs were less than increases in revenues as product mix resulted in lower costs relative to revenue. Gross profit as a percentage of sales increased from 56.6% for the first quarter of 2023, to 62.8% for first quarter of 2024 driven by higher contribution margins from product mix shifts.

### Research and Development Expenses

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $2,251,533 | $2,586,169 | (334,636) | (13)% |

Research and development expenses decreased $0.3 million to $2.3 million for the three months ended March 31, 2024, compared to $2.6 million for the three months ended March 31, 2023. The decrease was attributable to a slight decrease in wages and benefits of ($0.1 million), a decrease of ($0.2 million) in facilities, information technology support and lab expenses, and ($0.1 million) of reductions on R&D prototyping activities.

### Sales and Marketing Expenses

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Sales and marketing | $1,352,909 | $1,361,949 | (9,040) | (1)% |

Sales and marketing expenses remained flat at $1.4 million for the three months ended March 31, 2024 and 2023. Staffing costs remained relatively consistent year over year as did sales and marketing spending and travel and other related expenses.

### General and Administrative Expenses

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| General and administrative expenses | $1,454,695 | $1,546,163 | (91,468) | (6)% |

General and administrative expenses remained relatively flat at $1.5 million for the three months ended March 31, 2024 and 2023. Within general and administrative expenses salaries and benefits decreased slightly by ($0.1 million) due to staffing changes while facilities ands certain support costs increased lightly by $0.1 million.

### Other Income (Expenses)

|  | Three Months Ended March 31, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $(1,684,787) | $(341,857) | $(1,342,930) | 393% |
| Change in fair value of derivative liabilities | $158,000 | $— | $158,000 | 0% |
| Other income (expense) | (7,202) | 7,177 | $(14,379) | - |
| Total other income (expenses), net | $(1,533,989) | $(334,680) | $(1,199,309) | 358% |

Interest expense increased approximately $1.3 million to $1.7 million for the three months ended March 31, 2024, compared to $0.3 million for the three months ended March 31, 2023. The increase was attributable to two debt facilities the Company originally entered into during fiscal 2022. The first is an asset-based loan with a total available draw of up to $3.75 million secured by inventory and accounts receivables, established in June 2022. The second is a $12 million commercial loan facility of which the Company has drawn fully as of March 31, 2024, This facility was initially established in the third quarter of 2022 and matures in January 2026.

Other income was insignificant in both the first three months ended March 31, 2023 and 2024.

### Liquidity and Capital Resources

Our primary source of liquidity has been cash raised from private placements and debt financing. As of March 31, 2024, we had cash resources of $3.6 million. We also have two loan facilities, one of which is for up to $3.75 million with a specialty lender (referred to as the Spectrum Loan Facility, described in Note 5 to our unaudited condensed consolidated financial statements), and the other of which is for up to $12.0 million with a different lender (referred to as the Salem Loan Facility, also described in Note 5 to our unaudited condensed consolidated financial statements). As of March 31, 2024, we had drawn down $2.2 million under the Spectrum Loan Facility and $12.0 million under the Salem Loan Facility. On March 28, 2024 we completed the initial closing of the 2024 Private Placement of approximately $5 million, raising net cash proceeds of approximately $3 million, after deduction of expenses and the conversion of existing debt. On April 7, 2024, we completed a second closing, raising net cash proceeds of approximately $0.1 million after deduction of expenses. The Company believes that its existing cash and cash equivalents following this raise will provide sufficient resources to support operations through the rest of this fiscal year and beyond. However, we may seek additional funding opportunities if management believes such funds can be successfully invested in business opportunities for the Company.

As described in Note 1 to our consolidated financial statements, we have incurred recurring losses and negative cash flows from operations since inception and have an accumulated deficit at March 31, 2024 of $46.4 million. We expect losses and negative cash flows to continue in the near term, primarily due to continued investment in research and development, sales and marketing efforts, and increased administration expenses as our Company grows. We plan to continue to invest in the implementation of our long-term strategic plan and we anticipate that we will continue to narrow cash burn from historical levels so that cash reserves will provide the necessary working capital to conclude the Company is a going concern.

Cash (used in) provided by:

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Operating activities | $(842,394) | $(5,835,386) |
| Investing activities | (26,000) | (117,799) |
| Financing activities | 3,687,786 | 3,490,346 |
| Net increase (decrease) in cash | $2,819,392 | $(2,462,839) |

31

#### Operating Activities

Cash used in operating activities was $0.8 million and $5.8 million for the three months ended March 31, 2024 and 2023, respectively. Cash used in operating activities for the three months ended March 31, 2024 was principally due to our net loss of $3.4 million, non-cash items of $1.9 million, increase in accounts receivables of $0.7 million, inventories of $0.2 million, and offset by payable and accrued liabilities increase of $1.4 million. For the three months ended March 31, 2024, non-cash items that were a part of the net operating loss included depreciation and amortization of $0.4 million, stock-based compensation of $0.4 million, and non-cash and accretion of notes payable of $1.2 million.

Cash used in operating activities for the three months ended March 31, 2023 was principally due to our net loss of $4.0 million. For the three months ended March 31, 2023, non-cash items that were a part of the net operating loss included depreciation of $0.4 million and stock-based compensation of $0.3 million. During the three months ended March 31, 2023, increases in trade accounts receivable of $0.5 million and decreases to accounts payable and accrued expenses of $1.9 million partially contributed to the net loss for operating cash flow as noted above.

#### Investing Activities

Cash used in investing activities was $26 thousand and $118 thousand for the three months ended March 31, 2024 and 2023, respectively. Cash used in investing activities resulted from capital expenditures on property and equipment for all periods presented.

#### Financing Activities

Cash provided by financing activities for the three months ended March 31, 2024 of $3.7 million was primarily attributable to net proceeds of $3.0 million from private placement equity financing, $1.0 million of additional net debt financing, and $0.3 million of payments related finance leases and insurance premiums.

Cash provided by financing activities for the three months ended March 31, 2023 of $3.5 million was primarily attributable to net private placement offering proceeds of $3.7 million, partially offset by principal payments on capital leases.

### Contractual Obligations and Commitments

The following summarizes our significant contractual obligations as of March 31, 2024 (*unaudited).* As mentioned above, associated with the move into our new business headquarters and design center in the first quarter of 2023, the Company paid what it anticipates was its final payment of $66 thousand of excess construction costs and related interest and deferral fees for which it will be responsible in April 2023. The Company does not anticipate any further excess construction costs and related interest and deferral fees subsequent to March 31, 2024 that would be material to the Company's reported financial results.

|  | Payments due by period Total | Less than 1 year | 1 – 3 years | 4 – 5 years | More than 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Purchase order obligations | $840,039 | $840,039 | $— | $— | $— |
| Long-term notes | 12,003,000 | — | 12,003,000 | — | — |
| Long-term debt | 634,717 | — | 402,873 | 231,844 | — |
| Short-term debt | 2,839,529 | 2,839,529 | — | — | — |
| Operating lease obligations | 6,726,509 | 731,952 | 892,272 | 1,186,858 | 3,915,427 |
| Finance lease obligations | 2,334,405 | 939,975 | 1,192,389 | 191,482 | 10,559 |
| Total | $25,378,199 | $5,351,495 | $14,490,534 | $1,610,184 | $3,925,986 |

### Off-Balance Sheet Arrangements

As of March 31, 2024 and December 31, 2022, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

### Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments in the preparation of our unaudited interim condensed consolidated financial statements involve revenue recognition, the valuation of our stock-based compensation, including the underlying estimated fair value of our common stock, lease accounting, income taxes including the valuation allowance for deferred tax assets, and going concern considerations. Accordingly, actual results may differ from these estimates. To the extent that there are differences between our estimates and actual results, our future consolidated financial statement presentation, financial condition, results of operations, and cash flows will be affected.

Other than as described under Note 2 to our audited consolidated financial statements, the Critical Accounting Policies and Significant Judgments and Estimates included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 29, 2024, have not materially changed.

We believe that the accounting policies described below involve a greater degree of judgment and complexity. Accordingly, these are the policies we think are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

#### Liquidity and Going Concern

We have fully drawn down all available funds under the Salem Loan Facility ($12.0 million). We continue to utilize to our fullest ability our asset-based line with Spectrum, which we refer to as the Spectrum Loan Facility. On March 28, 2024, we completed the initial closing of the 2024 Private Placement of approximately $5 million, raising net cash proceeds of approximately $3 million, after deduction of expenses and the conversion of existing debt. On April 7, 2024, we completed a second closing, raising net cash proceeds of approximately $0.1 million after deduction of expenses. In addition, on March 28, 2024, Salem extended the maturity date of the Salem Loan Facility from April 30, 2024 to January 31, 2026.

Our recurring operating losses and our current operating plans raise substantial doubt about our ability to continue as a going concern for the next twelve months. Our independent registered public accounting firm issued their audit report on our consolidated financial statements for the years ended December 31, 2023 and 2022, which included an explanatory paragraph as to our ability to continue as a going concern.

The Company had a cash balance of $3.6 million as of March 31, 2024. As of March 31, 2024, the outstanding balance under the Spectrum Loan Facility was $2.2 million and the outstanding balance under the Salem Loan Facility was $12.0 million. The Company believes that its existing cash and cash equivalents will provide sufficient resources to support operations through fiscal 2024 and into 2025. If the Company experiences unexpected downturn in business or pressure on its gross margins it may find that cash reserves become very low and endanger the ability to continue operations as the company wishes to. If the Company is unable to secure additional funding in such situations it may be unable to fund ongoing operations and pay its obligations as they become due. The Company must also make arrangements to renew or replace the Spectrum and Salem Loan Facilities before they mature. There is no assurance that appropriate additional funding will be available on terms which are acceptable to the Company, or at all. This requirement for additional funding and the renewal of existing loan facilities raises substantial doubt about the Company’s ability to continue as a going concern. This requirement for additional funding and the renewal of existing loan facilities raises substantial doubt about the Company’s ability to continue as a going concern.

#### Share-Based Compensation

We recognize the grant-date fair value of share-based awards issued as compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award. To date, we have not issued awards where vesting is subject to performance or market conditions. The fair value of stock options is estimated at the time of grant using the Black-Scholes option pricing model, which requires the use of inputs and assumptions such as the fair value of the underlying common stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and dividend yield, the most critical of which is the estimated fair value of our common stock.

The estimated fair value of each grant and modification of stock options awarded during fiscal 2024 and 2023 was determined using the following methods and assumptions:

- *Fair value of common stock.* Market trading value.
- *Expected term.* Due to the lack of a large public market for the trading of our common stock and the lack of sufficient company-specific historical data, the expected term of employee stock options is determined using the “simplified” method, as prescribed in SAB No.107 ("SAB 107"), Share-Based Payment, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option.
- *Risk-free interest rate.* The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term.
- *Expected volatility.* The expected volatility is based on historical volatilities of peer companies within our industry which were commensurate with the expected term assumption, as described in SAB 107.
- *Dividend yield.* We assume a dividend yield of 0% because we have never paid, and for the foreseeable future do not expect to pay, a dividend on our common stock.

The inputs and assumptions used to estimate the fair value of share-based payment awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different inputs and assumptions, our share-based compensation expense could be materially different for future awards.

The Option Price Method, or OPM, treats common stock as call options on a company’s enterprise value, with exercise prices based on the liquidation preferences of the preferred stock. The OPM uses the Black-Scholes option-pricing model to determine the price of the call option. The OPM is appropriate to use when the range of possible future outcomes is so difficult to predict that forecasts would be highly speculative.

Our common stock became quoted on the OTCQX, an OTC Markets Group trading platform, on May 13, 2022. We began using our quoted common stock price as a fair value estimation factor to value our common stock once it achieved sufficient trading volume during the year ended December 31, 2022.

### Recently Adopted Accounting Standards

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited interim condensed consolidated financial statements appearing elsewhere in this Quarterly Report.

### JOBS Act Accounting Election

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we are no longer an emerging growth company, or affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We have not elected to early adopt certain new accounting standards, as described in Note 2 to our unaudited interim condensed consolidated financial statements. As a result, our unaudited interim condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

## 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, 2,736 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 conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2023, the end of the period covered by this Annual Report on Form 10-K. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms promulgated by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of March 31, 2024.

### Changes in Internal Control over Financial Reporting

In order to address our significant deficiency, we have improved our processes for the review of lease modifications, terminations and additions at a detailed level at the senior financial management level.

Filed May 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-016686. Last ingested by Listed: Nov 6, 2026, 21:49 ET. No prices; not investment advice.