UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021March 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
Commission file number: 000-56238
Laffin Acquisition Corp.GUERRILLA RF, INC.
(Exact name of registrant as specified in its charter)
Delaware | 85-3837067 | |
| (State | (I.R.S. Employer |
| 1196 Pleasant Ridge Road, Suite 5, Greensboro, North Carolina | 27409 | |
Suite 324A Boca Raton, Florida | ||
| (Address of principal executive offices) | (Zip | |
Registrant’s telephone number, including area code: (336) 510-7840
Securities Registered Pursuantregistered pursuant to Section 12(b) of the Act: None
| ||||
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrantRegistrant has submitted electronicallyelectronically; every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405232.0405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | ||
| Non-accelerated filer ☒ | Smaller reporting company | ☒ | |
Emerging growth company ☒ | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒☐ No ☐☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.date:
| ||
LAFFIN ACQUISITION CORP.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
Class | Outstanding as of May 12, 2022 | |||||||
Common Stock, $0.0001 par value | 33,562,635 | |||||||
GUERRILLA RF, INC.
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022
GLOSSARY OF TERMS AND ABBREVIATIONS
The following is a glossary of technical terms used in this Report:
64T64R, 32T32R, 16T16R, 8T8R systems — Describes the number of transmit and receive paths in a 5G system architecture.
5G — A technology standard to increase the speed or amount of data communicated in a cellular network relative to 3G or LTE networks.
AEC-Q101 — Automotive Electronic Council’s electronic components stress qualification standard.
Cellular booster/DAS — System which extends and distributes a cellular signal within buildings such as below ground, large-area, or high-rise structures.
Cellular Compensator — Improves a cellular link inside a motorized vehicle by using an antenna outside the vehicle in combination with amplifiers to boost the signal in both the transmit and receive paths.
Cellular Repeater — Improves poor cellular service by boosting signal strength inside a building or structure.
C-V2X — Cellular-technology-based vehicle-to-everything communication standard.
CMOS — Complementary MOS (metal oxide semiconductor), widely used semiconductor transistor architecture.
Copper lead frame — Copper-based substrate used as a foundation for semiconductor packages.
DAB — Digital audio broadcasting. A terrestrial-based digital radio standard (HD Radio).
Design win — Acknowledgment by an end-user customer that a product has been chosen or finalized for use in the customer’s system.
Die/Chip — An individual semiconductor device on the wafer.
Distribution-customer — A customer that purchases Guerrilla RF products for the purpose of selling to a third-party rather than for its own use.
DSRC — Dedicated short-range communications. (Typically used in electronic toll collection).
End-usercustomer — The ultimate customer that utilizes or incorporates our products into its own products or solutions whether it purchased our products directly from Guerrilla RF or a third party.
EAR — Export Administration Regulation
Fab — Fabrication, generally refers to a semiconductor wafer fabrication facility.
Fabless — Semiconductor company that utilizes pure-play or outsourced wafer fabrication partners rather than owning and operating their own wafer foundry.
FM/DAB — Terrestrial-based radio broadcast standards.
GaN — Gallium nitride Semiconductor process used in high power amplifier applications.
GaAs HBT — Gallium arsenide heterojunction bipolar transistor. A semiconductor process allowing higher efficiency and improved linearity compared to GaAs MESFET processes.
GaAs pHEMT — Gallium Arsenide pseudomorphic high electron mobility transistor. A semiconductor process that allows larger bandgap differences, thus providing higher performance.
Gain blocks, switches, power detectors, drivers, mixers, digital step attenuators, high power amplifiers — Functional building blocks of RF components in a typical radio frequency system or architecture.
GHz — Frequency bands of operation (in Gigahertz).
GPS/GNSS — Global satellite positioning technologies.
IP — Intellectual property.
LNA — Low noise amplifier.
Linear driver amplifier — An amplifier used before the final amplification stage that produces increased power levels while adding minimal distortion to the output signal.
mMIMO active antenna array — Massive multiple-input and multiple-output antenna systems that include beamforming ability.
MMIC — Monolithic microwave integrated circuit. An integrated circuit designed to utilize the microwave frequency bands. (300MHz to 300GHz).
MESFET — Metal-semiconductor field-effect transistor, a type of transistor.
OEM — Original equipment manufacturers.
PA — Power Amplifier.
Package lead frame — Substrate (typically copper) used as a foundation to mount and package semiconductor devices.
pHEMT — Pseudomorphic high electron mobility transistor, a type of transistor.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND OTHER INFORMATION CONTAINED IN THIS REPORT
Point-to-pointradio — Radio link used between two communication endpoints or devices.
RF — Radio frequency.
RFIC — Radio frequency integrated circuit.
RFID — Radio frequency identification.
SDARS — Satellite Digital Audio Radio Service (e.g., Sirius XM Satellite Radio).
Si — Silicon — Standard fabrication process used for semiconductor processing.
SOI — Silicon on insulator. Fabrication process used for semiconductor manufacturing. Beneficial to reduce parasitic capacitance for a device.
Tape and reel — A method of packing surface mount devices by placing each device in an individual pocket on a carrier tape. Clear tape is applied to contain the device within the pocket. The carrier tape is wound on a reel, easing device handling and transportation.
Telematics — The convergence of telecommunications and information processing. The term is generally used for describing systems used in motor vehicles.
UWB — Ultra-wideband Radio technology using very low energy levels for short-range, high-bandwidth communications.
V2X — Vehicle-to-everything. Communication technology to allow vehicles to communicate with other vehicles, infrastructure, pedestrian devices, etc.
Wafer — Thin slice of semiconductor material used as the substrate for building electronic circuits. Wafers are the output from the semiconductor foundry process before the assembly/packaging processes.
WiFi — Wireless network protocol, based on the IEEE 802.11 family of standards.
Wireless backhaulpoint-to-point — A method used by communication providers to use wireless data links to connect radio towers or the core network.
Wireless infrastructure — Systems designed or used by network operators or other professionals to ensure strong communication links to consumers or customers.
This Quarterly
PART I. FINANCIAL INFORMATION.
The following unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of10-K filed with the Securities Act of 1933, as amendedand Exchange Commission (the “Securities Act”"SEC"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions, future performance, anticipated expenses, or projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. on April 1, 2022.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, or joint ventures we may make or collaborations or strategic partnerships we may enter into.GUERRILLA RF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
March 31, 2022 | December 31, 2021 | |||||||
Assets | ||||||||
Cash | $ | 2,590,646 | $ | 5,313,985 | ||||
Accounts receivable, net | 2,609,055 | 1,667,006 | ||||||
Inventories, net | 1,639,042 | 1,439,014 | ||||||
Prepaid expense | 1,041,328 | 1,187,418 | ||||||
Total Current Assets | 7,880,071 | 9,607,423 | ||||||
Operating lease right-of-use assets | 275,984 | 0 | ||||||
Property, plant, and equipment, net | 4,130,590 | 1,027,312 | ||||||
Total Assets | $ | 12,286,645 | $ | 10,634,735 | ||||
Liabilities and Stockholders' Equity | ||||||||
Short-term debt | $ | 7,310 | $ | 5,117 | ||||
Operating lease, current portion | 116,128 | 0 | ||||||
Finance lease, current portion | 669,309 | 118,420 | ||||||
Accounts payable and accrued expenses | 1,408,676 | 1,186,443 | ||||||
Total Current Liabilities | 2,201,423 | 1,309,980 | ||||||
Operating lease | 160,640 | 0 | ||||||
Finance lease | 2,694,369 | 264,347 | ||||||
Notes payable | 142,590 | 144,783 | ||||||
Total Liabilities | 5,199,022 | 1,719,110 | ||||||
Preferred stock, $.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2022 and December 31, 2021 | $ | 0 | $ | 0 | ||||
Common stock, $.0001 par value, 300,000,000 shares authorized, 33,234,894 and 33,222,192 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 3,323 | 3,322 | ||||||
Additional paid-in-capital | 23,996,792 | 23,958,705 | ||||||
Accumulated deficit | (16,912,492 | ) | (15,046,402 | ) | ||||
Total Stockholders' Equity | 7,087,623 | 8,915,625 | ||||||
Total Liabilities and Stockholders' Equity | $ | 12,286,645 | $ | 10,634,735 | ||||
Unless otherwise stated or the context otherwise requires, the terms “Laffin Acquisition Corp.,” “we,” “us,” “our” and the “Company” refer collectively to Laffin Acquisition Corp.
ii
LAFFIN ACQUISITION CORP.
INDEX TO FINANCIAL STATEMENTS
LAFFIN ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| September 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 7,392 | $ | 9,558 | ||||
| Total current assets | 7,392 | 9,558 | ||||||
| Total assets | $ | 7,392 | $ | 9,558 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accrued expenses | $ | 4,500 | $ | 4,500 | ||||
| Note payable – stockholder | 64,960 | 22,500 | ||||||
| Total current liabilities | 69,460 | 27,000 | ||||||
| Total liabilities | 69,460 | 27,000 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock, $0.0001 par value, authorized 10,000,000 shares, none issued | - | - | ||||||
| Common stock, $0.0001 par value, authorized 50,000,000 shares; 5,000,000 shares issued and outstanding | 500 | 500 | ||||||
| Accumulated deficit | (62,568 | ) | (17,942 | ) | ||||
| Total stockholders’ deficit | (62,068 | ) | (17,442 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 7,392 | $ | 9,558 | ||||
See accompanying notesNotes to condensed financial statementsCondensed Consolidated Financial Statements (Unaudited).
GUERRILLA RF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Product shipments | $ | 3,586,267 | $ | 2,583,388 | ||||
Royalties | 279,644 | 197,634 | ||||||
Total | 3,865,911 | 2,781,022 | ||||||
Direct product costs | 1,547,281 | 1,092,692 | ||||||
Gross Profit | 2,318,630 | 1,688,330 | ||||||
Operating Expenses: | ||||||||
Research and development | 1,802,006 | 1,063,106 | ||||||
Sales and marketing | 1,085,843 | 576,650 | ||||||
Administration | 1,239,650 | 305,314 | ||||||
Total Operating Expenses | 4,127,499 | 1,945,070 | ||||||
Operating Loss | (1,808,869 | ) | (256,740 | ) | ||||
Interest expense | (57,221 | ) | (148,825 | ) | ||||
Other income | 0 | 535,800 | ||||||
Total other income (expenses), net | (57,221 | ) | 386,975 | |||||
Net income (loss) | $ | (1,866,090 | ) | $ | 130,235 | |||
Net income (loss) per share, basic | $ | (0.06 | ) | $ | 0.02 | |||
Net income (loss) per share, diluted | $ | (0.06 | ) | $ | 0.01 | |||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
LAFFIN ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSSTOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
Preferred Stock | Common Stock | Additional Paid-In-Capital | Accumulated Deficit | Total Stockholders' Equity (Deficit) | ||||||||||||||||
December 31, 2021 | $ | 0 | $ | 3,322 | $ | 23,958,705 | $ | (15,046,402 | ) | $ | 8,915,625 | |||||||||
Net loss | 0 | 0 | 0 | (1,866,090 | ) | (1,866,090 | ) | |||||||||||||
Stock options exercised | 0 | 1 | 5,231 | 0 | 5,232 | |||||||||||||||
Share-based compensation | 0 | 0 | 32,856 | 0 | 32,856 | |||||||||||||||
March 31, 2022 | $ | 0 | $ | 3,323 | $ | 23,996,792 | $ | (16,912,492 | ) | $ | 7,087,623 | |||||||||
Preferred Stock | Common Stock | Additional Paid-In-Capital | Accumulated Deficit | Total Stockholders' Equity (Deficit) | ||||||||||||||||
December 31, 2020 | $ | 4,852 | $ | 2,261 | $ | 9,076,840 | $ | (12,209,247 | ) | $ | (3,125,294 | ) | ||||||||
Net income | 0 | 0 | 0 | 130,235 | 130,235 | |||||||||||||||
Stock options exercised | 0 | 4 | 12,663 | 0 | 12,667 | |||||||||||||||
Share-based compensation | 0 | 0 | 6,352 | 0 | 6,352 | |||||||||||||||
March 31, 2021 | $ | 4,852 | $ | 2,265 | $ | 9,095,855 | $ | (12,079,012 | ) | $ | (2,976,040 | ) | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
For the September 30, | ||||
| Revenue | $ | - | ||
| General and administrative expenses | 44,626 | |||
| Loss from operations | (44,626 | ) | ||
| Net loss | $ | (44,626 | ) | |
| Loss per common share - basic and dilutive net loss | 5,000,000 | |||
| Weighted average common shares outstanding - basic and dilutive | (0.01 | ) | ||
GUERRILLA RF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | (1,866,090 | ) | $ | 130,235 | |||
Adjustment to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 250,937 | 79,419 | ||||||
Share-based compensation | 32,856 | 6,352 | ||||||
Warrant amortization | 0 | 6,208 | ||||||
PPP loan forgiveness | 0 | (535,800 | ) | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (942,049 | ) | (107,678 | ) | ||||
Inventories | (200,028 | ) | 95,511 | |||||
Prepaid expenses | 146,090 | (129,567 | ) | |||||
Accounts payable and accrued expenses | 148,423 | (193,307 | ) | |||||
Net cash used in operating activities | (2,429,861 | ) | (648,627 | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of property, plant, and equipment | (152,464 | ) | (11,000 | ) | ||||
Net cash used in investing activities | (152,464 | ) | (11,000 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from exercise of stock options | 5,232 | 12,667 | ||||||
Proceeds from notes payable and factoring agreement | 0 | 1,236,865 | ||||||
Proceeds from PPP loan | 0 | 833,300 | ||||||
Principal payment of notes payable and recourse factoring agreement | 0 | (850,000 | ) | |||||
Principal payment on finance lease | (146,246 | ) | (13,934 | ) | ||||
Net cash provided (used) by financing activities | (141,014 | ) | 1,218,898 | |||||
Net increase (decrease) in cash | (2,723,339 | ) | 559,271 | |||||
Cash, beginning of period | 5,313,985 | 427,269 | ||||||
Cash, end of period | $ | 2,590,646 | $ | 986,540 | ||||
Noncash transactions: | ||||||||
Property and equipment financed through finance leases | $ | 3,127,940 | $ | 0 | ||||
Property and equipment additions included in accounts payable | $ | 73,810 | $ | 11,000 | ||||
See accompanying notesNotes to condensed financial statementsCondensed Consolidated Financial Statements (Unaudited).
GUERRILLA RF, INC. AND SUBSIDIARIES
LAFFIN ACQUISITION CORP.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ (DEFICIT)
For the Nine Months ended September 30, 2021
(Unaudited)
| Preferred Stock | Common Stock | Accumulated | Stockholders’ | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | Deficit | Deficit | |||||||||||||||||||
| Balance, December 31, 2020 | - | $ | - | 5,000,000 | $ | 500 | $ | (17,942 | ) | $ | (17,442 | ) | ||||||||||||
| Net loss | - | - | - | - | (44,626 | ) | (44,626 | ) | ||||||||||||||||
| Balance, September 30, 2021 | - | $ | - | 5,000,000 | $ | 500 | $ | (62,568 | ) | $ | (62,068 | ) | ||||||||||||
See accompanying notes to condensed financial statements
LAFFIN ACQUISITION CORP.
CONDENSED STATEMENT OF CASH FLOWS
For the Nine Months ended September 30, 2021
(Unaudited)
| Cash flows from operating activities: | ||||
| Net loss | $ | (44,626 | ) | |
| Net cash used in operating activities | (44,626 | ) | ||
| Cash flows from financing activities: | ||||
| Proceeds from stockholder note | 42,460 | |||
| Net cash provided by financing activities | 42,460 | |||
| Net change in cash | (2,166 | ) | ||
| Cash, beginning of period | 9,558 | |||
| Cash, end of period | $ | 7,392 | ||
See accompanying notes to condensed financial statements
LAFFIN ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)
Note 1.Nature of Operations ORGANIZATION AND NATURE OF BUSINESS
Guerrilla RF, Inc. (formerly known as Laffin Acquisition Corp. (the, the “Company”) was incorporated in the State of Delaware on November 9, 2020. The Company’s management has chosen December 31st for its fiscal year end.On October 22,2021, the Company's wholly-owned subsidiary, Guerrilla RF Acquisition Corp., a corporation formed in the State of Delaware on October 20,2021 (“Acquisition Sub”) and privately held Guerrilla RF Operating Corporation (formerly known as Guerrilla RF, Inc.) entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, on October 22,2021 (the “Closing Date”), Acquisition Sub merged with and into Guerrilla RF Operating Corporation with Guerrilla RF Operating Corporation continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the “Merger”).
Prior to the Merger, Laffin Acquisition Corp. was a “shell” company registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with no specific business plan or purpose until it began operating the business of Guerrilla RF Operating Corporation following the closing of the Merger.
All references in this Quarterly Report to “Guerrilla RF” refer to Guerrilla RF Operating Corporation, our direct, wholly-owned subsidiary. Unless otherwise stated or the context otherwise indicates, references to the “Company”, “we”, “our”, “us” or similar terms refer to Guerrilla RF, Inc. (formerly known as Laffin Acquisition Corp.) together with its wholly-owned subsidiary, Guerrilla RF. Guerrilla RF holds all material assets and conducts all business activities and operations of the Company. Accordingly, there are frequent references to Guerrilla RF throughout this Quarterly Report.
Guerrilla RF designs and manufactures high‐performance Monolithic Microwave Integrated Circuits (MMICs) for the wireless infrastructure market. Guerrilla RF primarily focuses on researching and developing its existing and future products and building an infrastructure to handle a global distribution network; therefore, it has incurred significant start‐up losses.
The Merger was accounted for as a “reverse acquisition” since, immediately following the consummation of the Merger, Guerrilla RF effectively controlled the Company. For accounting purposes, Guerrilla RF was deemed the accounting acquirer in the Merger. Consequently, the Merger is treated as a recapitalization of Guerrilla RF (i.e., a capital transaction involving the issuance of shares by the Company for the shares of Guerrilla RF). Accordingly, the assets, liabilities, and results of operations of Guerrilla RF became the historical consolidated financial statements of the Company, and the Company’s assets, liabilities, and results of operations were consolidated with Guerrilla RF beginning at the Closing Date. No step-up in basis or intangible assets or goodwill were recorded in the Merger.
Liquidity and Going Concern
In accordance with Financial Accounting Standards (“FASB”) Accounting Standards Update (“ASU”) No.2014-15,Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited interim condensed consolidated financial statements are issued. The accompanying unaudited interim condensed consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has historically financed its activities principally from common and preferred equity securities and debt issuances.
The Company has incurred recurring losses, and negative cash flows from operations in nearly every fiscal period since its inception, including a net loss of $1.9 million for the three months ended March 31, 2022. In addition, as of March 31, 2022, the Company had an accumulated deficit of $16.9 million. The Company expects losses and negative cash flows to continue, primarily as a result of continued sales and marketing efforts and planned investment in research and development. The Company had a cash balance of $2.6 million at March 31, 2022. The Company believes its cash, together with its access to other funding, including unused availability of $2.0 million under its factoring arrangement (further described in Note 5), will provide sufficient resources to support operations into the fourth quarter of 2022. The Company anticipates it will need additional funds to promote new products and working capital necessary to support increased sales, and it is actively evaluating alternative funding sources as part of its ongoing strategic planning.
If the Company is unable to obtain additional financing in sufficient amounts or on acceptable terms, the Company will be forced to delay, reduce, or eliminate some or all of its research and development programs and product portfolio expansion, which could adversely affect its operating results or business prospects. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all. The precise amount and timing of the funding needs cannot be determined accurately at this time. They will depend on many factors, including the market demand for the Company's products, the quality of product development efforts, management of working capital, and the continuation of standard payment terms and conditions for purchasing goods and services. This requirement for additional funding raises substantial doubt about our ability to continue as a going concern. The unaudited interim condensed consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should the Company be unable to continue as a going concern.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Risks and Uncertainties
The Company is subject to several risks associated with companies at a similar stage, including dependence on key individuals, competition from similar products and larger companies, volatility of the industry, ability to obtain adequate financing to support growth, the ability to attract and retain additional qualified personnel to manage the anticipated growth of the Company, and general economic conditions.
In December 2019, a novel strain of coronavirus disease (“COVID-19”) was organizedreported, and in March 2020, the World Health Organization characterized COVID-19 as a vehicleglobal pandemic. The COVID-19 pandemic has forced international, federal, state, and local governments to investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantagesenforce prohibitions of being a publicly traded corporation. The Company’s principal business objective is to achieve long-term growth potential through a combination with a business, rather than immediate short-term earnings.non-essential activities. The Company will not restrictfirst saw the impact of COVID-19 in the first quarter of 2020. The extent and duration of the adverse impact of COVID-19 on the Company over the longer term remains uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of COVID-19 and its potential target companiesrelated variants, the extent and effectiveness of containment actions taken, including mobility restrictions, the timing, availability, and effectiveness of vaccines, and the impact of these and other factors on travel behavior in general and on the Company’s business.
As the impact of COVID-19 continues to any specific business, industry, or geographical location. The analysis of business opportunitiesevolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment. These estimates and assumptions may change in future periods and will be undertaken by, or underrecognized in the supervision of,condensed consolidated financial statements as new events occur, and additional information becomes known. To the officerextent the Company’s actual results differ materially from those estimates and directors ofassumptions, the Company.Company’s future condensed consolidated financial statements could be affected.
Note 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and SummaryPrinciples of Significant Accounting PoliciesConsolidation
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements are presented in U.S. dollars and prepared in conformity with GAAP. Any reference in these Notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Guerrilla RF. All intercompany accounts and transactions have been preparedeliminated in accordanceconsolidation.
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates, and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2022 and its results of operations, cash flows, and changes in stockholders' equity (deficit) for the three months ended March 31, 2022 and 2021. Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022. The unaudited interim condensed consolidated financial statements, presented herein, do not contain the required disclosures under GAAP for annual consolidated financial statements. The condensed consolidated balance sheet as of December 31, 2021, has been derived from the audited consolidated balance sheet as of that date. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with accounting principles generally acceptedthe annual audited consolidated financial statements and related notes as of and for the year ended December 31, 2021, included in the United States of America (“GAAP”Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). on April 1, 2022.
Use of Estimates
The preparation of the unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. ActualThe Company’s significant estimates and judgments involve the identification of performance obligations in revenue recognition and the valuation of share-based compensation, including the underlying fair value of the common stock. Accordingly, actual results could differ from those estimates.
Cash
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and Cash Equivalentsin assessing performance. The Company views its operations and manages its business in one segment.
Concentrations of Credit Risk and Major Customers
Financial instruments at March 31, 2022 and 2021 that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable.
The Company’s cash is deposited with major financial institutions in the U.S. At times, deposits in financial institutions located in the U.S. may be in excess of the amount of insurance provided on such deposits by the Federal Deposit Insurance Corporation (FDIC). To date, the Company has not experienced any losses on its cash deposits.
The Company’s accounts receivable are derived from revenue earned from customers located in and outside of the U.S. Major customers are defined as those generating revenue in excess of 10% of the Company’s aggregate annual revenue. The Company had 1 major distributor customer, Richardson RFPD, Inc., during the three months ended March 31, 2022 and 2021 accounting for 85% and 80% of product shipment revenue for the three months ended March 31, 2022 and 2021, respectively. Accounts receivable from our major distributor customer represented 80% of accounts receivable at March 31, 2022 and 2021.
Cash and cash equivalents
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accounts Receivable
Accounts receivable primarily relate to amounts due from customers, which are reportedtypically due within 30 to 45 days. The accounts receivable also include royalty revenue from our one royalty agreement. The Company provides credit to its customers in the ordinary course of business and evaluates the need for allowances for potential credit losses. The Company does not require collateral or other security for accounts receivable. To reduce credit risk with accounts receivable, the Company performs ongoing evaluations of its customers’ financial condition. Historically, such losses have been immaterial and within management's expectations.
The Company has a factoring agreement that provides advance payments on up to 85% of invoices issued to one customer, our largest distributor, with receivables less than 90 days outstanding secured by the remaining 15%. As of March 31,2022 and 2021, the Company had $0 and $1,455,135 of factored invoices, respectively. At March 31, 2022 and 2021, the Company had $0 and $218,270 due from the factoring counterparty, respectively, included in accounts receivable on the unaudited interim condensed consolidated balance sheetsheets. See Note 5 for additional discussion on the factoring agreement.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. The Company depreciates computer hardware, software, production and computer equipment, and lab equipment using the straight-line method over their estimated useful lives, ranging from three to five years. The Company depreciates furniture and fixtures using the straight-line method over their estimated useful lives of seven years. Leasehold improvements are amortized over the shorter of the asset’s useful life or the remaining lease term. Repairs and maintenance are expensed as incurred by the Company.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The recoverability of assets held and used is measured by comparing the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which approximatesthe carrying amount of the assets exceeds the fair value. Forvalue of the purposeassets, less costs to sell. The Company did not record any expense related to asset impairment in the three months ended March 31, 2022 or 2021.
Deferred Offering Costs
The Company has not capitalized legal, professional, accounting, and other third-party fees directly associated with common equity financings as deferred offering costs as these acquisition costs are immaterial in relation to the financing and as a portion of our consolidated balance sheet. Transaction costs consisting of legal, accounting, financial advisory, and other professional fees incurred as part of the Merger mentioned in Note 1 were offset against the total proceeds from the Merger in the consolidated financial statements for the year ended December 31, 2021. At March 31, 2022, there were 0 deferred offering costs.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Convertible Preferred Stock Warrants
Accounting standards require that freestanding warrants and similar instruments, with certain settlement features of the financial statements cash equivalentsinstruments, should be accounted for as a preferred stock warrant liability even though the underlying shares of capital stock may be classified as equity. Such warrants would be measured and recognized at fair value and subject to re-measurement at each balance sheet date. All of the Company’s convertible preferred stock warrants were previously classified as equity. The Company did not have any convertible preferred stock warrants outstanding as of March 31,2022.
Revenue Recognition
The Company recognizes product revenue when it satisfies a performance obligation by transferring a product or service to its customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products and services. Sales and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. Shipping and handling fees charged to customers are reported within revenue. The Company does not have any significant financing components as payment is due at or shortly after the point of sale. The Company provides an assurance-type warranty to its customers as part of its contracts' standard terms and conditions, which does not include all highly liquid investments witha right of return for properly functioning products not deemed obsolete. These warranties do not provide an original maturity of three months or less. Thereadditional distinct service to the customer and are no cash equivalentsnot deemed a separate performance obligation. Royalty revenue is recognized at the balance sheet date.later of when the subsequent sale or usage occurs, or the performance obligation to which some or all the sales-based royalties have been allocated is satisfied. The costs incurred by the Company for shipping and handling are classified as cost of revenue in the unaudited interim condensed consolidated statements of operations. Any incidental items that are immaterial in the context of a sale to a customer are recognized as expense.
Income Taxes
Cost of Revenue
The Company’s cost of revenue consists primarily of salaries and related expenses, overhead, third party services vendors, shipping and handling, and depreciation expense related to the equipment and information technology costs incurred directly in the Company’s revenue-generating activities.
Share-Based Compensation
The Company adoptedmeasures and recognizes compensation expense for all stock options awarded to employees and nonemployees based on the estimated fair market value of the award on the grant date. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards. The Company recognizes compensation expense on a straight-line basis over the requisite vesting period. In addition, the Company accounts for forfeitures of stock options as they occur.
The Company applies ASU 2018-7,Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. As a result of the adoption in the year ended December 31, 2020, share-based awards issued to nonemployees are no longer required to be revalued at each reporting period.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Estimating the fair market value of options requires the input of subjective assumptions, including the estimated fair value of the Company’s common stock, the expected life of the options, stock price volatility, the risk-free interest rate, and expected dividends. Therefore, the assumptions used in the Company’s Black-Scholes option-pricing model represent management’s best estimates and involve many variables, uncertainties, assumptions, and the application of management’s judgment, as they are inherently subjective.
Research and Development Costs
Research and development costs are expensed as incurred and consist primarily of personnel-related engineering and technical staff wages and benefits, prototype costs, and other direct expenses.
Advertising Costs
All advertising costs are expensed as incurred and included in sales and marketing expenses. Advertising expenses for the three months ended March 31, 2022, and 2021 were $7,750 and $5,402, respectively.
Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined by the first‐in, first‐out (FIFO) method.
Income Taxes
Income taxes are accounted for under the asset and liability method as required by FASB ASC Topic 740, “Income Taxes”Taxes , at its inception. Under (“ASC 740, deferred740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.bases and operating loss and tax credit carryforwards. Deferred tax assets including tax loss and credit carry-forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includescorresponding to the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced byUnder ASC 740, a valuation allowance is required when in the opinion of management, it is more likely than not that all or some portion or all of the deferred tax assets will not be realized.realized through generating sufficient future taxable income.
FASB ASC Subtopic 74010,Accounting for Uncertainty of Income Taxes, (“ASC 74010”) defines the criterion upon which an individual tax position must meet for any part of the benefit of the tax position to be recognized in consolidated financial statements prepared in conformity with GAAP. The Company recognizesmay only recognize the tax benefits ofbenefit from an uncertain tax positions only when the positions are “moreposition if it is more likely than not” tonot that such tax position will be sustained assumingon examination by taxthe taxing authorities, and determined to be attributed to the Company. The determination of attribution, if any, applies for each jurisdiction where the Company is subject to income taxesbased solely on the basis of laws and regulationstechnical merits of the jurisdiction.respective tax position. The applicationtax benefits recognized in the consolidated financial statements from such a tax position should be measured based on the largest benefit having a greater than 50% likelihood of lawsbeing realized upon ultimate settlement with the tax authority. In accordance with the disclosure requirements of ASC 74010, the Company’s policy on income statement classification of interest and regulations is subject to legal and factual interpretation, judgement, and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations, and court rulings. Therefore, the actual liability of the various jurisdictions may be materially different from management’s estimate. As of September 30, 2021, the Company has no accrued interest or penalties related to uncertainincome tax positions.obligations is to include such items as part of total income tax expense.
Loss per Common ShareGUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company adopted ASC 260, “Earnings per Share”, at its inception.
Net Income (Loss) Per Share
Basic net loss per share has been calculatedof common stock is computed by dividing the Company’s net loss available to common stockholders by the weighted average number of common sharesstock outstanding during theeach period. The diluted earnings (loss) Diluted net income per share is calculated by dividingof common stock includes the Company’seffect of the potential exercise or conversion of securities, such as options and warrants, which results in the issuance of incremental common stock. For periods prior to the Merger mentioned in Note 1, each of Guerrilla RF’s shares of capital stock issued and outstanding immediately prior to the closing of the Merger was retrospectively converted into approximately 2.95 shares of the Company's common stock. In computing basic and diluted net loss available to common stockholders byand income per share, the diluted weighted average number of shares is 33,228,202 for the three months ended March 31, 2022, and 6,702,686 basic shares and 10,069,021 diluted shares for the three months ended March 31, 2021. As such, all preferred stock, warrants, and options were excluded from the calculation of net loss per share for the three months ended March 31, 2022.
The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding for the period. The diluted weighted average number of shares outstanding isthree months ended March 31, 2022, as they would be anti-dilutive; however, the basic weighted number of shares adjusted as of the first of the year for any potentially dilutive debt or equity.
Emerging Growth Companysecurities have been included in the computation of diluted weighted-average shares of common stock outstanding for the three months ended March 31, 2021:
2022 | ||||
Convertible preferred stock | 0 | |||
Convertible preferred stock warrants | 0 | |||
Common stock warrants | 331,580 | |||
Stock options | 3,298,180 | |||
| 3,629,760 | ||||
Recent Accounting Pronouncements
In February 2016, the FASB issued ASC Topic 842,Leases. This standard requires all entities that lease assets with terms of more than 12 months to capitalize the assets and related liabilities on the balance sheet. In June 2020, the FASB issued ASU 2020-05, which delayed the effective date of Topic 842 until January 1, 2022. The Company is an “emerging growth company” and has electedadopted Topic 842 in the fiscal quarter ending March 31, 2022. See Note 8for further information related to uselease obligations on the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.unaudited interim condensed consolidated balance sheet upon adopting ASC Topic 842.
Recently Issued Accounting Pronouncements
ManagementIn June 2016, the FASB issued ASU 2016-13,Financial Instruments - Credit Losses, which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2022, and early adoption is permitted. The Company does not believe that any recently issued, but intend to adopt this standard early and is currently evaluating the impact of this standard. The Company does not yet effective accounting pronouncements, if adopted, would expect this standard to have a material effectimpact on its consolidated financial statements upon adoption.
In August 2020, the FASB issued ASC Update No.2020-06,Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The goal of the ASC is to simplify the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the accompanyingguidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. The new standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted this accounting guidance in the fiscal quarter ending March 31, 2022, and it did not have a material impact on its unaudited interim condensed consolidated financial statements.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3.Capital Stock INVENTORIES
Inventories are summarized as follows:
| March 31, 2022 | ||||||||
(unaudited) | December 31, 2021 | |||||||
Raw materials | $ | 656,525 | $ | 629,090 | ||||
Work-in-process | 317,494 | 339,746 | ||||||
Finished goods | 674,735 | 482,972 | ||||||
Inventory allowance | (9,712 | ) | (12,794 | ) | ||||
Inventory, net | $ | 1,639,042 | $ | 1,439,014 | ||||
As of March 31,2022 and December 31, 2021 there was an inventory allowance Preferred Stockof $9,712 and $12,794, respectively, for potential obsolete inventory.
As
4. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
| March 31, 2022 | ||||||||
| (unaudited) | December 31, 2021 | |||||||
Production assets | $ | 1,802,749 | $ | 1,616,308 | ||||
Computer equipment and software | 650,552 | 647,852 | ||||||
Lab equipment | 3,240,462 | 103,427 | ||||||
Office furniture and fixtures | 51,354 | 51,354 | ||||||
Leasehold improvements | 123,109 | 123,109 | ||||||
Construction work in progress | 91,790 | 63,750 | ||||||
| 5,960,016 | 2,605,800 | |||||||
Less accumulated depreciation | (1,829,426 | ) | (1,578,488 | ) | ||||
| $ | 4,130,590 | $ | 1,027,312 | |||||
The Company recorded depreciation and amortization expense of September 30, $0.3 million and $0.1 million for the three months ended March 31, 2022, and 2021, respectively, and $0.4 million for the year ended December 31, 2021.
5. DEBT
Short-Term Debt
Factoring Arrangement
The Company has an accounts receivable factoring arrangement with a financial institution (the “Factor”). Under the terms of the agreement, the Company, has 10,000,000 shares of preferred stock, par value of $0.0001, authorized and none issued or outstanding, with designations, rights and preferences determined from time to time, by our boardsells to the Factor certain of directors.its accounts receivable balances on a recourse basis for credit approved accounts. The Factor remits 85% of the domestic accounts receivable balance to the Company (the “Advance Amount”), with the remaining balance, less fees to be paid to the Company once the Factor collects the entire accounts receivable balance from the customer. The factoring fee is 0.98 % of the invoice’s face value factored for the first30 days required to collect the invoice and prorated on a per diem basis at 0.0327 % each day thereafter. The minimum invoice fee for any factored invoices is $1.50. The Company includes the cost of factoring in interest expense.
As stated previously, the Company factors the accounts receivable on a recourse basis. Therefore, if the Factor cannot collect the factored accounts receivable, the Company must refund the Advance Amount remitted to us for any uncollected accounts receivable. Accordingly, the Company records the liability of having to refund the Advance Amount as short-term debt when the factoring arrangement is utilized. As of March 31, 2022, 0 advances were outstanding under the factoring arrangement (i.e., the Company had $2.0 million of unused availability); and there was no liability.
The cost of factoring was as follows for the quarterly period ended March 31, 2022, and the year ended December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
Factoring Fees | $ | 0 | $ | 87,122 | ||||
Long-Term Debt
Loans Payable – EIDL
In response to COVID-19, the Small Business Administration (“SBA”) created the COVID-19 Economic Injury Disaster Loan (EIDL) program in March 2020. The program's purpose was to help small businesses meet financial obligations that could have been met had the Covid-19 pandemic not occurred. Unlike the Paycheck Protection Program (“PPP”) Loan Program, a loan under EIDL is not forgivable in the future but provides favorable interest and payment terms to approved applicants. The maximum EIDL available was equivalent to six months of a business’s working capital, up to $150,000. Businesses can use EIDL proceeds for working capital and normal operating expenses. On June 24, 2020, the Company received loan proceeds of $150,000 under the EIDL Program. As part of the EIDL program, the Company agreed to the SBA collateral conditions and agreed to pay annual interest of 3.75% per annum on the outstanding principal balance. Monthly installment payments commence at the end of the anticipated deferral allowance period in June 2022 for up to a maximum of 30 years from the loan date (thus, June 24, 2050). As of March 31, 2022, the Company had $149,900 of principal outstanding on the EIDL loan and accrued interest of $10,648.
Long-term debt is expected to mature as follows:
2022 | $ | 5,117 | ||
2023 | 8,772 | |||
2024 | 8,772 | |||
2025 | 8,772 | |||
2026 | 8,772 | |||
Thereafter | 109,695 | |||
| $ | 149,900 |
Loans Payable - PPP
On April 30, 2020, Guerrilla RF received loan proceeds of $535,800 under the PPP. PPP loans and accrued interest are forgivable after a “covered period” (24 weeks) as long as the borrower maintains its payroll levels and uses the loan proceeds for eligible purposes, including payroll, benefits, rent, and utilities. As of December 31, 2020, Guerrilla RF had $535,800 of principal outstanding on the PPP loan together with accrued interest of $3,611 as accounts payable and accrued expenses on the consolidated balance sheet. On February 17, 2021, Guerrilla RF received notice from the SBA that the $535,800 PPP loan was forgiven, including all accrued interest.
On February 19, 2021, Guerrilla RF received a second PPP loan of $833,300 (the “2021 PPP Loan”). Guerrilla RF used the 2021 PPP Loan to retain current employees, maintain payroll, and make lease and utility payments. On August 18, 2021, Guerrilla RF received confirmation from the SBA that the 2021 PPP Loan, including accrued interest, had been forgiven.
6. COMMON STOCK AND PREFERRED STOCK
Common Stock
As of September 30, 2021, the Company has 50,000,000 sharesEach share of common stock par value of $0.0001, authorized and has issued 5,000,000 shares of its $0.0001 par value common stock for $500entitles the holder to the founders of the Company. The holders of Common Stock are entitled to one1 vote per share on all matters submitted to a vote of stockholdersthe Company’s stockholders. Subject to preferences that may apply to any outstanding preferred stock, holders of common stock are entitled to receive ratably any dividends that the Company’s board of directors may declare out of funds legally available for that purpose on a non-cumulative basis. NaN dividends have been declared through March 31, 2022.
Common Stock Warrants
In October and November 2021, the Company issued warrants to nonemployees to purchase 183,100 and 148,480 shares of common stock, respectively, as payment for services related to the private placement and the Merger. The warrants have an exercise price of $2.00 per share and are immediately exercisable and expire in October and November 2026, respectively. The Company determined the warrants to be equity classified awards and recorded them as issuance costs related to the sale of common stock associated with the private placement and Merger (see Note 1).
Preferred Stock
The Company’s board of directors is authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences, and rights of the Company.shares of each series.
7. EQUITY INCENTIVE PLAN
In 2014, the Board adopted the Long‐Term Stock Incentive Plan (the “2014 Plan”), with 568,000 shares of common stock authorized for issuance under the 2014 Plan. Subsequently, stockholders approved an increase in the number of shares available under the 2014 Plan to 1,260,000 shares. Exercise prices range from $0.70 to $1.57 per share, depending on the date of the award. The 2014 Plan is frozen, and no further awards may be made under the 2014 Plan.
In 2021, the Board adopted the Equity Incentive Plan (the “2021 Plan”), which authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units ("RSU"), performance awards, cash awards, and stock bonus awards. The Company initially reserved 222,991 shares of common stock, plus any reserved shares not issued or subject to outstanding grants under the 2014 Plan on the effective date of the 2021 Plan, for issuance pursuant to awards granted under the 2021 Plan. The number of shares reserved for issuance under the 2021 Plan will increase automatically on January 1 of each of 2022 through 2031 by the number of shares equal to the lesser of 5% of the total number of outstanding shares of our common stock as of the immediately preceding December 31, or a number as may be determined by our board of directors.
The general purpose of the 2014 Plan and the 2021 Plan is to allow the Company to attract and motivate key employees and directors to align their interests with those of the Company’s shareholders.
Pursuant to awards made under the 2014 Plan and the 2021 Plan, the Company recorded stock-based compensation expense in the following expense categories in the unaudited interim condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021:
(in thousands) | 2022 | 2021 | ||||||
Cost of revenues | $ | 1.3 | $ | 0 | ||||
Research and development | 8.5 | 0 | ||||||
Sales and marketing | 14.2 | 0 | ||||||
Administration | 8.9 | 6.4 | ||||||
| $ | 32.9 | $ | 6.4 | |||||
NaN income tax benefits have been recognized in the unaudited interim condensed consolidated statements of operations for stock-based compensation arrangements, and 0 stock-based compensation costs have been capitalized as property and equipment through March 31, 2022.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company measures the fair value of each option award on the date of grant using the Black‐Scholes option-pricing model, which takes into account inputs such as the exercise price, the value of the underlying ordinary shares at the grant date, expected term, expected volatility, risk-free interest rate, and dividend yield. The fair value of each grant of options during the three months ended March 31, 2022 was determined using the methods and assumptions discussed below:
● | The expected term of employee options is determined using the “simplified” method, as prescribed in SEC’s Staff Accounting Bulletin (SAB) No.107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company’s lack of sufficient historical data. |
● | The expected volatility is based on the historical volatility of the publicly traded common stock of a peer group of companies. |
● | The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected term. |
● | The expected dividend yield is 0 because the Company has not historically paid and does not expect to pay a dividend on its ordinary shares for the foreseeable future. |
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the three months ended March 31, 2022 and 2021, the grant date fair value of all option grants was estimated at the time of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions:
2022 | 2021 | |||||||
Expected term (in years) | 6.25 | 5.00 | ||||||
Expected volatility | 67 | % | 45 | % | ||||
Risk-free rate | 0.11 | % | 0.30 | % | ||||
Dividend rate | — | — | ||||||
The weighted average grant date fair value of stock option awards granted was $1.21 and $0.53 during the three months ended March 31, 2022, and 2021, respectively.
The value of stock options is recognized as compensation expense by the straight-line method over the vesting period. Unrecognized compensation costs related to non‐vested options at March 31, 2022, and 2021 amounted to $816,298 and $21,691, respectively, which are expected to be recognized over an average of three years.
Stock option activity by share is summarized as follows for the three months ended March 31, 2022:
Number of Shares | Weighted-Average Exercise Price Per Option | Weighted- Average Remaining Contractual Life (in years) | ||||||||||
Shares underlying outstanding awards at December 31, 2021 | 3,180,882 | $ | 0.38 | 5.30 | ||||||||
Granted | 130,000 | 2.00 | ||||||||||
Exercised | (12,702 | ) | 0.41 | |||||||||
Shares underlying outstanding awards at March 31, 2022 | 3,298,180 | $ | 0.44 | 5.47 | ||||||||
Exercisable options at March 31, 2022 | 2,690,983 | $ | 0.34 | 4.83 | ||||||||
Each outstanding unexercised stock option at the Closing Date of the Merger ( October 22, 2021) was converted into the right to purchase approximately 2.95 shares of the Company's common stock. Pursuant to the Merger Agreement, options to purchase 1,065,067 shares of Guerrilla RF’s common stock issued and outstanding immediately prior to the closing of the Merger under the 2014 Plan were assumed and converted into options to purchase 3,146,366 shares of the Company's common stock. In conjunction with the modification of the number of shares issuable under the options, the exercise price of the options was also reduced by a corresponding 2.95 factor.
Twelve thousand seven hundred two (12,702) options were exercised during the three months ended March 31, 2022. The options exercised during the three months ended March 31, 2022, had an intrinsic value of $20 thousand. The aggregate intrinsic value of outstanding options exercisable as of March 31, 2022, was $4.5 million. At March 31, 2022, stock-based compensation for unvested options granted of $0.5 million will be recognized over a remaining weighted-average requisite service period of 1.6 years.
GUERRILLA RF, INC. AND SUBSIDIARIES
Note 4. Income TaxesNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
As of September 30, 2021, January 1, 2022 the Company adopted ASC Topic 842 and selected the transition alternative method with no comparative period adjustment. The practical expedients elected were no reassessment of lease classification, no re-evaluation of embedded leases, no reassessment of initial direct costs, and short-term lease exemption. On January 1, 2022 the Company recorded a finance lease asset and liability of $2,607,618 and an operating right-of-use asset and liability of $304,079.
The Company determines whether an arrangement is an operating lease or financing lease at inception. Lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments over the term of the lease. The Company generally uses its incremental borrowing rate, which is based on information available at the lease commencement date, to determine the present value of lease payments.
The Company has entered into leases primarily for real estate and equipment used in research and development. Operating lease expense is recognized in continuing operations by amortizing the amount recorded as an asset on a straight-line basis over the lease term. Financing lease expense is comprised of both interest expense, which will be recognized using the effective interest method, and amortization of the right-of-use assets. These expenses are presented consistently with other interest expense and amortization or depreciation of similar assets. In determining lease asset values, the Company considers fixed and variable payment terms, prepayments, incentives, and options to extend, terminate or purchase. Renewal, termination, or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised.
Balance sheet information related to right-of-use assets and liabilities is as follows:
Balance Sheet Location | March 31, 2022 | ||||
Operating Leases: | |||||
Operating lease right-of-use assets | Operating lease right-of-use assets | $ | 275,984 | ||
Current portion of operating lease liabilities | Operating lease, current portion | 116,128 | |||
Noncurrent portion of operating lease liabilities | Operating lease | 160,640 | |||
Total operating lease liabilities | $ | 276,768 | |||
Finance Leases: | |||||
Finance lease right-of-use assets | Property, plant, and equipment | $ | 2,964,182 | ||
Current portion of finance lease liabilities | Finance lease, current portion | 669,309 | |||
Noncurrent portion of finance lease liabilities | Finance lease | 2,694,369 | |||
Total finance lease liabilities | $ | 3,363,678 | |||
Lease cost recognized in the unaudited interim condensed consolidated financial statements is summarized as follows:
March 31, 2022 | March 31, 2021(1) | |||
Operating lease cost | $ 33,257 | $ 31,836 | ||
Finance lease cost: | ||||
Amortization of lease assets | 163,758 | 16,446 | ||
Interest on lease liabilities | 54,905 | 3,789 | ||
Total finance lease costs | $ 218,663 | $ 20,235 |
(1) Represent amounts under ASC 840.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other supplemental information related to leases is summarized as follows:
March 31, 2022 | ||||
Weighted average remaining lease term (in years): | ||||
Operating leases | 2.25 | |||
Finance leases | 4.63 | |||
Weighted average discount rate: | ||||
Operating leases | 7.00 | % | ||
Finance leases | 6.93 | % | ||
Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2022: | ||||
Operating cash flows from operating leases | $ | 32,473 | ||
Operating cash flows from finance leases | $ | 54,070 | ||
Financing cash flows from finance leases | $ | 146,246 | ||
Payments Due by Period | ||||||||||||||
2022(1) | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | ||||||||
Finance leases | $ 659,740 | $ 851,233 | $ 830,311 | $ 817,920 | $ 753,840 | $ 20,585 | $ 3,933,629 | |||||||
Less interest | 162,340 | 171,400 | 127,959 | 79,063 | 29,009 | 180 | 569,951 | |||||||
Finance lease liabilities | $ 497,400 | $ 679,833 | $ 702,352 | $ 738,857 | $ 724,831 | $ 20,405 | $ 3,363,678 | |||||||
Operating leases | $ 98,718 | $ 133,814 | $ 67,569 | $ - | $ - | $ - | $ 300,101 | |||||||
Less present value adjustment | 12,550 | 9,425 | 1,358 | - | - | - | 23,333 | |||||||
Operating lease liabilities | $ 86,168 | $ 124,389 | $ 66,211 | $ - | $ - | $ - | $ 276,768 | |||||||
The Company leases its office facilities in Greensboro, North Carolina under a lease agreement, which expires in June 2024. The lease agreement allows for early cancellation, subject to payment of an early cancellation penalty. Under the lease agreement, the Company is responsible for certain insurance and maintenance expenses. In addition, the lease agreement contains scheduled rent increases. The related rent expense for the lease is calculated on a straight-line basis according to the rental terms of the lease.
In July 2021, the Company entered into a lease agreement for additional office facilities in Greensboro, North Carolina, with an expiration date ten (10) years from the date the Company commences occupancy, which it estimates will be in early 2023. Under the lease agreement terms, the Company is responsible for certain insurance and maintenance expenses, which are not part of the minimum lease payments. In addition, the lease agreement contains scheduled rent increases. Upon taking control of the building, the related rent expense for the lease will be calculated on a straight-line basis according to the lease's rental terms. The Company will not remit any scheduled lease payments until it occupies the building. The Company anticipates approximately $13,100$4.0 million of new headquarter building asset additions, and an annual lease expense to be approximately $1.1 million upon occupancy.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Legal
In the ordinary course of business, the Company may become involved in grosslegal disputes. In the opinion of management, any potential liabilities resulting from any disputes would not have a material adverse effect on the Company’s unaudited interim condensed consolidated financial statements. As a result, 0 liability related to any such disputes has been recorded at March 31, 2022, or December 31, 2021.
Indemnification Agreements
From time to time, in the ordinary course of business, the Company may indemnify other parties when it enters into contractual relationships, including members of the Board of Directors, employees, customers, lessors, and parties to other transactions with the Company. In addition, the Company may agree to hold other parties harmless against specific losses, such as those that could arise from a breach of representation, covenant, or third-party infringement claims. It may not be possible to determine the maximum potential amount of liability under such indemnification agreements due to the unique facts and circumstances likely to be involved in each particular claim and indemnification provision. Management believes any liability arising from these agreements will not be material to the unaudited interim condensed consolidated financial statements. As a result, 0 liability for these agreements has been recorded at March 31, 2022, or December 31, 2021.
Employment Agreement
The Company has entered into an employment agreement with one executive. This employment agreement was entered into effective as of January 1, 2020. The Company desired the assurance of the executive's continued association and services to retain the executive's experience, skills, abilities, background, and knowledge. The employment is at-will, and the Company may terminate the employment relationship at any time, with or without cause, and with or without notice. The terms of the agreement stipulate compensation, benefits, specific restrictive covenants, and Company obligations upon termination of the employment agreement, including severance pay calculated as twelve monthly payments of 100% of the executive's monthly base salary.
.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. INCOME TAXES
The Company did not have any income tax expense for the three months ended March 31, 2022 or 2021.
Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items recorded in the interim period. The provision for income taxes for the three months ended March 31, 2022 and 2021 differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of 21% to pre-tax income primarily due to a valuation allowance.
The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year and permanent differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known, or the tax environment changes.
In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to realize deferred tax assets. Based upon the historical and anticipated future losses, management has determined that the deferred tax assets resulting fromdo not meet the more likely than not threshold for realizability. Accordingly, a valuation allowance has been recorded against the Company’s net deferred tax assets as of March 31, 2022, and December 31, 2021.
Potential 382 Limitation
As disclosed in our Annual Report on Form 10-K for the year ended, December 31, 2021, the Company’s ability to utilize its net operating loss carry-forwards("NOL") and research and development ("R&D") credit carryforwards may be substantially limited due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of $62,568 availablethe Internal Revenue Code, as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of a company's outstanding stock by certain stockholders or public groups.
The Company has not completed a study to assess whether one or more ownership changes have occurred since the Company became a loss corporation under the definition of Section 382; however, the Company anticipates completing such a study in the middle of 2022. If the Company has experienced an ownership change, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any such limitation may result in ownership provisionsthe expiration of a portion of the NOL or R&D credit carryforwards before utilization. Until a study is completed and any limitation is known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit under IRC 382. A valuation allowance has been recordedASC-740. Any carryforwards that expire prior to fully offset theseutilization as a result of such limitations will be removed from deferred tax assets because the Company’s management believes future realizationwith a corresponding reduction of the related tax benefitsvaluation allowance. Due to the existence of the valuation allowance, it is uncertain.not expected that any possible limitation will have an impact on the results of operations of the Company.
The difference between the tax provision at the statutory federal income tax rate on September 30, 2021 and the tax provisions attributable to loss before income taxes is as follows:
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Commitments and10. Related Party Transactions
We have Office Spacenot had any related party transactions, other than compensation arrangements in the quarter ended March 31, 2022. Any related party transactions between January 1, 2019 and December 31, 2021 are further described below and in our Annual Report on Form 10-K for the year ended December 31, 2021.
We describe below transactions since January 1,2019, in which the amounts involved exceeded $120,000, and any of our directors, executive officers or holders of more than 5% of Guerrilla RF’s pre-Merger capital stock, or an affiliate or immediate family member thereof, had or could have had a direct or indirect material interest. The following descriptions are historical and have not been adjusted to give effect to the Merger.
2019 Notes
In March 2019, Guerrilla RF sold in a private placement an aggregate of $1.75 million of term notes at an interest rate of 12% per annum (each, a “2019 Note” and collectively, the “2019 Notes”). Prior to the Merger, and in anticipation of the Merger and the related private placement offering, all of the 2019 Notes were amended to cause the principal amount to convert to shares of our common stock at $1.70 per share, and at the time of the private placement offering, the principal amounts owed under the 2019 Notes were converted under those terms, and accrued interest owed under such 2019 Notes was paid. The following table sets forth the principal amount of the 2019 Notes, and the number of shares of our common stock into which they were converted upon the closing of the Merger, sold to our directors, executive officers or holders of more than 5% of Guerrilla RF’s pre-Merger capital stock, or an affiliate or immediate family member thereof.
Principal | Number of Shares of Common Stock Issued Upon Mandatory | |||||||
Name of Stockholder | Amount | Conversion | ||||||
AMB Investments, LLC | $ | 575,000 | 338,235 | |||||
Jeanne Pratt | $ | 250,000 | 147,059 | |||||
Samuel W. Funchess | $ | 100,000 | 58,824 | |||||
William H. Pratt | $ | 50,000 | 29,412 | |||||
AMB Notes
Guerrilla RF previously issued several promissory notes (the “AMB Notes”) to AMB Investments LLC (“AMB Investments”), which holds more than 5% of our outstanding capital stock. Certain of the AMB Notes were originally issued to Al Bodford, and each AMB Note originally issued to Al Bodford was assigned by him to AMB Investments in September 2021. The AMB Notes and their original terms are as follows: (i) Non-Negotiable Note dated March 27,2017 issued to Al Bodford in the principal amount of $333,333 accruing interest at the rate of 8% per annum; (ii) Non-Negotiable Note dated March 12,2018 issued to Al Bodford in the principal amount of $1,000,000 accruing interest at the rate of 8% per annum; (iii) Term Note dated March 31,2019 issued to Al Bodford in the principal amount of $175,000 accruing interest at the rate of 12% per annum (a 2019 Note, discussed above); and (iv) Term Note dated April 15,2020 issued to AMB Investments in the principal amount of $500,000 accruing interest at the rate of 12% per annum; and, (v) Term Note dated April 2, 2019 issued to CML Microcircuits (USA), Inc. (f/k/a CML Microsystems, Inc.) in the principal amount of $400,000 and assigned to AMB Investments on October 15, 2021 (a 2019 Note discussed above). Prior to the Merger, and in anticipation of the Merger and the private placement offering, all of the AMB Notes were amended to cause the principal amount to convert to shares of our common stock at $1.70 per share, and upon the closing of the related private placement offering, the principal amount owed under the AMB Notes was converted under those terms, and accrued interest owed under such AMB Notes was paid.
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Thompson Note
In July 2020, Guerrilla RF issued an unsecured Term Note (the “Thompson Note”) to Greg Thompson, a member of our Board of Directors, in the principal amount of $250,000 accruing interest at the rate of 12% per annum. Prior to the Merger, and in anticipation of the Merger and the related private placement offering, the Thompson Note was amended to cause the principal amount to convert to shares of our common stock at $1.70 per share, and upon the closing of the private placement offering, the principal amount owed under the Thompson Note was converted under those terms, and accrued interest owed thereunder was paid.
2021 Convertible Debt Financing
Between July 15,2021 and October 1,2021, Guerrilla RF sold an aggregate of $1,488,600 of convertible promissory notes to ten accredited investors at an interest rate of 6% per annum (each, a “Convertible Note” and collectively, the “Convertible Notes”). The corresponding note purchase agreements provided for the mandatory conversion of the Convertible Notes into shares of the Company’s common stock upon the closing of the Merger and the related private placement offering at the offering price ($2.00 per share).
The Company utilizesfollowing table sets forth the office spaceprincipal amount of the Convertible Notes, and equipmentthe number of shares of our common stock into which they were converted upon the closing of the Merger, sold to our directors, executive officers or holders of more than 5% of Guerrilla RF’s pre-Merger capital stock, or an affiliate or immediate family member thereof.
Name of Stockholder | Principal | Number of Shares of | ||||||
William J. Pratt | $ | 100,000 | 50,000 | |||||
Jeanne Pratt | $ | 100,000 | 50,000 | |||||
William H. Pratt | $ | 100,000 | 50,000 | |||||
2021 Promissory Notes to Warrant Holders
In August 2021, Guerrilla RF issued promissory notes for an aggregate principal amount of approximately $300,000 to the holders of its managementoutstanding warrants (the “2021 Notes”). The 2021 Notes accrued interest at no cost. the rate of 6% per annum until November 30,2021 and at the rate of 12% per annum thereafter. Immediately prior to the closing of the Merger, the warrants were exercised and the warrant exercise price paid in exchange for the cancelation of the 2021 Notes. The following table sets forth the principal amount of the 2021 Notes.
Name of Stockholder | Principal | |||
AMB Investments LLC | $ | 233,333 | ||
David Reich | $ | 50,000 | ||
Jason Bodford | $ | 16,666 | ||
GUERRILLA RF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note Payable - Stockholder
On November 13, 2020,Certain privately held Guerrilla RF, Inc.'s existing investors, including investors affiliated with certain of our directors and officers, purchased an aggregate of 1,294,000 shares of our common stock in the Company issued a promissory note (the “Note”)private placement offering associated with the Merger, for an aggregate gross purchase price of $2,588,000. Such purchases were made on the same terms as the shares that were sold to other investors in the majority stockholder of the Companyprivate placement offering and not pursuant to any pre-existing contractual rights or obligations.
Policies and Procedures for Related Party Transactions
The Audit Committee of our Board of Directors adopted a charter in the fourth quarter of 2021,which the Company agreed to repay the sum ofrequires that any and all amounts advanced to the Company, on or before the date that the Company consummates a business combinationtransaction with a private company or reverse takeover transaction orrelated person and any other transaction, after which the Company would cease topotential conflict of interest situation must be a shell company. The Note is non-interest bearing unless an event of default occurs. As of September 30, 2021, the amount due under the note payable was $64,960.reviewed, approved, and monitored by our Audit Committee.
Note 6. Going Concern11. Employee Benefit Plan
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred losses from inceptiona 401(k) plan to provide defined contribution retirement benefits for all eligible employees. Participants may contribute a portion of $62,568,their compensation to the plan, subject to the limitations under the Internal Revenue Code. The Company’s contributions to the plan are at the discretion of executive management with board of directors advisement. Under the 401(k) plan, the Company may contribute up to four percent (4%) of eligible employee salaries. The Company made $79,234 and $41,115 of contributions to the plan in the three months ended March 31, 2022 and 2021 respectively.
12. Subsequent Events
Management has negative working capital of $62,068, and has a stockholders’ deficit of $62,068 as of September 30, 2021. Management believes these conditions raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months followingevaluated subsequent events occurring after March 31, 2022, through May 12, 2022, the date thesethe unaudited interim condensed consolidated financial statements arewere issued. Management intends to finance operations overThe following subsequent events have occurred during the next twelve months through additional borrowings on the existing Note.period.
The accompanying financial statements do not include any adjustments that might be required should the Company be unable to continue as a going concern.
Note 7. Contingencies - COVID-19Coronavirus Pandemic
On March 11, 2020, the World Health Organization officially declaredcharacterized the outbreaknovel COVID-19 virus as a global pandemic. The pandemic has affected the Company’s business operations to a limited extent, most of which impacted its customers' ordering patterns due to the pandemic’s effect on their operations; however, the Company continues to monitor the evolving situation related to COVID-19 actively and may take further actions that alter its business operations, including those that may be required by federal, state, or local authorities, or that the Company determines are in the best interests of its employees, partners, and shareholders. To date, the Company has been able to continue to deliver its products and solutions without material delays or difficulties despite the COVID-19 pandemic.
Employee Stock Option and Restricted Stock Unit Grants
On April 4, 2022, the compensation committee of the novel coronavirus COVID-19 a “pandemic.” A significant outbreakboard of COVID-19 and other infectious diseases has resulted in a widespread health crisis that has significantly adversely affected businessesdirectors granted stock options to new employees of all types, economies and financial markets worldwide. The businessthe Company to purchase an aggregate of any potential target company with250,700 shares of the Company's common stock at an exercise price of $2.00 per share. The granted option awards vest equally over four years (25% per year) on the anniversary of the date they started working for the Company.
On April 8, 2022, the compensation committee of the board of directors granted 348,100 restricted stock units (RSU) to various employees under which the Company consummates a business combination couldholders have the right to receive an aggregate of 348,100 shares of the Company's common stock. The RSU awards vest over three equal annual installments from the date of the grant subject to the recipient’s continued service through the applicable vesting date and the shares not vested are forfeited upon separation from the Company. The share-based compensation expense to be materiallyrecognized for these RSUs over the remaining vesting period subsequent to the period ending March 31, 2022 is approximately $0.7 million.
These employee stock option and adversely affected. Furthermore, RSU grants were issued from the 2021 Plan, which is further described in Note 7.
New Headquarters Office Facilities Capital Addition Financing
In conjunction with the Company's planned move into expanded office facilities in early 2023, which will become the Company's new headquarters, the Company mayentered into a financing arrangement related to furniture for the new office facilities in April 2022. The total cost of the furniture financing is $1.1 million, which includes tax, freight, interim storage, and installation labor. The Company will be unableresponsible for paying interest-only payments to complete a business combination if continued concerns relatingthe financing company related to COVID-19 restrict travel, limit the abilityfurniture procurement order (interest on principal of $496 thousand) placed in April 2022 prior to have meetings with potential investors or the target company’s personnel, vendors and services providers are unavailable to negotiate and consummate a transactionfirst scheduled principal financing payment in a timely manner. The extent to which COVID-19 impacts our search for a business combination will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extended period of time, the Company’s ability to consummate a business combination, or the operations of a target business with which the Company ultimately consummates a business combination, may be materially adversely affected.August 2022.
Note 8. Proposed Merger AgreementITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
On October 8,The following discussion and analysis of our financial condition and results of operations, as well as other sections in this Quarterly Report on Form 10-Q, should be read together with the unaudited interim condensed consolidated financial statements and related notes included elsewhere in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 the Companyas filed with the SEC a Schedule 14F-1 Information Statementon April 1, 2022.
This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions, and are not historical facts and typically are identified by use of terms such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required under U.S. federal securities laws.
Our business is subject to numerous risks and uncertainties including:
● those relating to an anticipated changefluctuations in our operating results;
● our dependence on developing new products, achieving design wins, and several large customers for a substantial portion of our revenue;
● the COVID-19 pandemic materially and adversely affecting our financial condition and results of operations;
● a loss of revenue if purchase contracts are canceled or delayed;
● our dependence on third parties such as suppliers, product manufacturers, and product assemblers and testers;
● risks related to sales through independent sales representatives and distributors;
● risks associated with the operation of our third-party manufacturing providers;
● business disruptions;
● poor manufacturing yields;
● increased inventory risks and costs due to timing of customer forecasts;
● our ability to continue to innovate in a very competitive industry;
● unfavorable changes in interest rates, pricing of certain precious metals, and utility rates;
● our strategic investments failing to achieve financial or strategic objectives;
● our ability to attract, retain, and motivate key employees;
● warranty claims, product recalls, and product liability;
● changes in our effective tax rate and the enactment of international or domestic tax legislation, or changes in regulatory guidance;
● risks associated with environmental, health and safety regulations, and climate change;
● risks from international sales and third-party vendor operations;
● the impact of, and our expectations regarding, changes in current and future laws and regulations;
● changes in government trade policies, including the imposition of tariffs and export restrictions;
● we may not be able to generate sufficient cash to service all of our debt or meet our operating needs;
● claims of infringement of third-party intellectual property rights;
● security breaches and other similar disruptions compromising our information;
● theft, loss, or misuse of personal data by or about our employees, customers, or third parties;
● our inability to remediate the material weaknesses identified in internal controls over financial reporting relating to certain control processes;
● provisions in our governing documents and Delaware law may discourage takeovers and business combinations that our stockholders might consider to be in their best interests; and,
● volatility in the compositionprice of its board of directorsour 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 is expected to occur in connectionwe filed with a proposed mergerthe 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 completedmaterially different from those expressed or implied by any of these forward-looking statements. Moreover, we operate in a very competitive and amongrapidly 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 Company, a recently formed wholly-owned subsidiaryimpact of all factors on our business or the Company (“Merger Sub”), and Guerrilla RF, Inc.,, a privately held Delaware corporation (“Guerrilla”), pursuantextent to which Merger Sub would mergeany 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 into events and circumstances may be materially different from what we expect.
Overview
Guerrilla with Guerrilla continuing as the surviving entity (the “Merger”) and as the Company’s wholly-owned subsidiary, after which the Company would continue the business of Guerrilla. The Merger would occur pursuant to an Agreement and Plan of Merger and Reorganization expected to be entered into by and among the Company, Guerrilla and Merger Sub (the “Merger Agreement”).
GuerrillaRF is a fabless semiconductor company based in Greensboro, N.C. Guerrilla RF was founded in 2013 with a mission to employ RF semiconductor technology to deliver RF solutions to customers in underserved markets. Over the past several years, Guerrilla RF has become a leader in developing high performance Monolithic Microwave Integrated Circuit (MMIC)high-performance MMIC products for wireless connectivity. It continues to target underserved markets and customers, delivering a range of high-performance MMIC products and associated technical support to a diverse set of customers that enable a more connected world. Guerrilla RF is headquartereda wholly-owned subsidiary of the Company. Guerrilla RF holds all material assets and conducts all business activities and operations of the Company. Accordingly, there are frequent references to Guerrilla RF throughout this discussion and analysis.
Guerrilla RF possesses in-house design, applications, sales, and customer support functions as a fabless semiconductor company. We outsource the manufacture and production of our MMIC products to subcontractors located overseas, providing access to multiple semiconductor process technologies. Guerrilla RF’s primary external wafer foundries are in Greensboro, North Carolina.Taiwan and Singapore, and our primary assembly and test suppliers are located in Malaysia and the Philippines.
PursuantMerger Agreement
On October 22, 2021, the Company (formerly known as Laffin Acquisition Corp.), Guerrilla RF Acquisition Corp., and Guerrilla RF entered into a merger agreement (the 'Merger Agreement') pursuant to which Guerrilla RF Acquisition Corp. merged with and into Guerrilla RF, with Guerrilla RF continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the 'Merger').
COVID-19 Pandemic and Supply Chain Update
In light of the uncertain and rapidly evolving situation relating to the spread of the COVID-19 pandemic and in compliance with government orders, we have taken measures intended to help minimize the risk of transmitting the virus to our employees, our customers, and the communities in which we participate, which could negatively impact our business. While we have a distributed workforce and our employees are accustomed to working remotely or with other remote employees, our workforce is not fully remote. Under normal conditions, our employees frequently travel to establish and maintain relationships with one another and with our customers, partners, and investors.
The COVID-19 pandemic negatively impacted revenue for six months for the year ended December 31, 2021, as we experienced lower revenues due to a significant number of customers experiencing supply chain challenges during 2021. Consequently, we implemented cost reduction actions across our functional disciplines to assist us in navigating through what continues to be an uncertain environment. We experienced increased sales during the first quarter of 2022, driven by rebounding volumes in markets recovering from supply chain difficulties that impacted the timing of our customers' orders of our products; however, we anticipate that further supply chain disruptions through the end of 2022 will negatively impact customer order patterns, resulting in reduced sales growth.
Our management team has, and will likely continue, to spend time, attention, and resources monitoring the COVID-19 pandemic and seeking to manage its effects on the supply chain, our business, and workforce. The extent to which the COVID-19 pandemic and our precautionary measures may impact our business will depend on future developments, which remain uncertain and cannot be predicted at this time.
FIRST QUARTER FISCAL 2022 FINANCIAL HIGHLIGHTS
● Revenue for the first quarter of fiscal 2022 increased 39.0% as compared to the first quarter of fiscal 2021, which was driven primarily by higher demand for our automotive product solutions, higher royalties of our 5G wireless infrastructure products, and higher demand for our catalog products for a wide variety of customer applications.
● Gross profit for the first quarter of fiscal 2022 was 60.0% of revenues as compared to 60.7% for the first quarter of fiscal 2021. Although the Company did experience across the board supply chain price increases, we were able to increase prices we charge our customers related to raw materials and assembly/test cost increases we experienced. Changes in product contribution margins were negligible as was the impact of lesser royalty revenues as a percentage of overall revenue. The biggest driver of lower gross margins was an increase in overhead costs relative to sales year over year due to costs associated with our Operations and Quality group as well as increased costs of production mask amortization.
● Operating loss was $1.81 million for the first quarter of fiscal 2022 as compared to $0.26 million for the first quarter of fiscal 2021. This increase was primarily due to higher operating expenses relative to sales (106.8% in Q1 2022 vs. 70.0% in Q1 2021). Increased operating expenses were primarily attributable to increased investment in research and development, sales and marketing, and new employees, as well as additional costs associated with becoming a public company. The Company increased its investment in research and development year over year by 47.1% as we focused on new product development. Selling, general, and administrative costs increased year over year by 190.7%.
● Net loss per diluted share was $0.06 for the first quarter of fiscal 2022 as compared to net income per diluted share of $0.01 for the first quarter of fiscal 2021. A key contributing factor to the net income in the first quarter of 2021 was the forgiveness of a PPP loan in that period.
● Capital expenditures were $0.2 million for the first quarter of fiscal 2022 as compared to $0.01 million for the first quarter of fiscal 2021.
Key metrics
We regularly review the following key metrics to measure our performance, identify trends affecting our business, formulate financial projections, make strategic business decisions, and assess working capital needs.
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
(unaudited) | (unaudited) | |||||||
Key Metrics | ||||||||
Number of products released | 2 | 1 | ||||||
Number of total products | 103 | 88 | ||||||
Number of products with lifetime revenue exceeding $100 thousand | 45 | 26 | ||||||
Number of products released: The total quantity of distinct new products released into production (products that have completed design, quality, and supply chain readiness) during the period.
Number of total products: The cumulative number of production-released products since Guerrilla RF's inception through the end of the period.
Number of products with lifetime revenue exceeding $100 thousand: The number of products that have achieved the threshold of cumulative sales of $100,000 since Guerrilla RF's inception through the end of the period.
Components of Results of Operations
Revenues
We derive our revenue from sales of high-performance RF semiconductor products. We design, integrate, and package differentiated, semiconductor-based products that we sell to customers through our direct sales organization, our network of independent sales representatives, and our distributors. We generate revenue from customers located within and outside the U.S. In addition to sales to customers, we generate royalty revenue under a royalty agreement with one semiconductor manufacturer.
Direct Product Costs and Gross Profit
Direct Product Costs. Our direct product costs primarily consist of salaries and related expenses, overhead, third party services vendors, and depreciation expense related to the equipment and information technology costs incurred directly in the Company’s revenue-generating activities.
Gross Profit. Our gross profit is calculated by subtracting our cost of revenues from revenues. Gross margin is expressed as a percentage of total revenues. Our gross profit may fluctuate from period to period as revenues fluctuate due to the mix of products we sell to customers, royalty revenue volume, operational efficiencies, and changes to our technology expenses and customer support.
We plan to focus on and grow the sales volume of new and existing products with the highest gross margin. We intend to continue investing additional resources in our engineering and design capabilities, which drives our research and development efforts and, in turn, drives additional revenue streams and enables us to improve our gross margin over time. The level and timing of investment in these areas could affect our cost of revenues in the future.
Operating Expenses
Operating expenses consist primarily of research and development expenses, sales and marketing expenses, and employee compensation costs for operations, management, finance, accounting, information technology, compliance, and human resources personnel. In addition, general and administrative expenses include non-personnel costs, such as facilities, legal, accounting, and other professional fees, and other supporting corporate expenses not allocated to other departments. We expect our general and administrative expenses will increase in absolute dollars as our business grows, but we expect general and administrative expenses to decrease as a percent of revenues in the coming years.
Research and development ("R&D") expenses consist of costs for the design, development, testing, and enhancement of our products and are generally expensed as incurred. These costs consist primarily of personnel costs, including salaries, benefits, bonuses, and share-based compensation for our product development personnel Research and development expenses also include training costs, product management, third-party partner fees, and third-party consulting fees. We expect our research and development expenses to increase in absolute dollars as our business grows, but as a percent of revenues, R&D expenses are expected to decrease.
Sales and marketing expenses consist primarily of employee compensation costs related to sales and marketing, including salaries, benefits, bonuses, and share-based compensation, costs of general marketing activities and promotional activities, travel-related expenses, and allocated overhead. Sales and marketing expenses also include costs for advertising and other marketing activities. Advertising is expensed as incurred. We expect our sales and marketing expenses will increase in absolute dollars as we expand our sales and marketing efforts.
Interest Expense
Interest expense consists primarily of the interest incurred on our debt obligations, our factoring arrangement expense, the non-cash interest expense associated with the amortization of common stock warrants, and lease expense related to our capital leases.
Other Income (Expenses)
On April 30, 2020, Guerrilla RF received loan proceeds of $535,800 under the Paycheck Protection Program (“PPP”) established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) administered by the Small Business Administration (“SBA”). PPP loans and accrued interest are forgivable after a “covered period” (24 weeks) as long as the borrower maintained its payroll levels and used the loan proceeds for eligible purposes, including payroll, benefits, rent, and utilities. As of December 31, 2020, Guerrilla RF had $535,800 of principal outstanding on its PPP loan together with accrued interest of $3,611, recorded as accounts payable and accrued expenses on our consolidated balance sheet. On February 17, 2021, Guerrilla RF received notice from the SBA that the $535,800 PPP loan was forgiven, including all accrued interest.
On February 19, 2021, Guerrilla RF received a second PPP loan of $833,300 (the “2021 PPP Loan”). Guerrilla RF used the 2021 PPP Loan to retain current employees, maintain payroll, and make lease and utility payments. On August 18, 2021, Guerrilla RF received notice from the SBA that the 2021 PPP Loan, including accrued interest, had been forgiven.
The following table summarizes the results of our operations for the periods presented:
Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (unaudited) | (unaudited) | |||||||
Revenues | $ | 3,865,911 | $ | 2,781,022 | ||||
Cost of revenues | 1,547,281 | 1,092,692 | ||||||
Gross profit | 2,318,630 | 1,688,330 | ||||||
Operating expenses: | ||||||||
Research and development | 1,802,006 | 1,063,106 | ||||||
Sales and marketing | 1,085,843 | 576,650 | ||||||
General and administrative | 1,239,650 | 305,314 | ||||||
Total operating expenses | 4,127,499 | 1,945,070 | ||||||
Loss from operations | (1,808,869 | ) | (256,740 | ) | ||||
Other income (expenses): | ||||||||
Interest expense | (57,221 | ) | (148,825 | ) | ||||
Other income (expenses) | — | 535,800 | ||||||
Total other income (expenses), net | (57,221 | ) | 386,975 | |||||
Net income (loss) | $ | (1,866,090 | ) | $ | 130,235 | |||
Comparison of the three months ended March 31, 2022 and 2021:
Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
Revenues | $ | 3,865,911 | $ | 2,781,022 | 1,084,889 | 39 | % | |||||||||
Revenues increased $1.1 million to $3.9 million for the three months ended March 31, 2022, as compared to $2.8 million for the three months ended March 31, 2021. The increase in revenues was driven by the growth of product sales to our automotive supplier customers and our catalog customers over a wide breadth of applications and customers. Sales to our large automotive supplier customers grew approximately 44% from the prior year period. Fifty-eight percent (58%) of the growth in revenues over the periods presented is attributable to new catalog products. Our overall number of product offerings and the number of customers we ship to in volume continue to contribute to increased sales. Our increased sales were driven by rebounding volumes in markets recovering from supply chain difficulties that have impacted the timing of our customers' orders of our products; however, we anticipate that further supply chain disruptions through the end of 2022 will negatively impact customer order patterns, resulting in reduced sales growth.
We generate revenue from customers located within and outside the U.S. While we have several large customers, we define major customers as those responsible for more than 10% of Guerrilla RF’s annual product shipment revenue. Using this definition, Guerrilla RF had one major customer, Richardson RFPD, Inc. ("RFPD"), during the three months ended March 31, 2022, and March 31, 2021. RFPD, a large product distributor serving numerous end-user customers, generated 85% and 80% of product shipment revenue for the three months ended March 31, 2022 and 2021 respectively.
Royalty revenues increased 41% for the three months ended March 31, 2022, compared to March 31, 2021, as our customer with whom we have a royalty agreement experienced an increase in sales of wireless infrastructure products licensed under our proprietary designs.
International shipments amounted to $0.5 million (approximately 15% of product revenue) and $0.5 million (approximately 19% of product revenue) for the three months ended March 31, 2022, and March 31, 2021, respectively.
Direct Product Costs and Gross Profit
Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
Direct product costs | $ | 1,547,281 | $ | 1,092,692 | 454,589 | 42 | % | |||||||||
Gross profit | $ | 2,318,630 | $ | 1,688,330 | 630,300 | 37 | % | |||||||||
Direct product costs increased $0.5 million to $1.5 million for the three months ended March 31, 2022, compared to $1.1 million for the three months ended March 31, 2021. The 42% increase in direct product cost was primarily driven by a product sales volume increase of 39% (excluding royalty revenue). Direct product costs relative to sales increased slightly due to increases in Operations and Quality support and staffing. Year over year, royalties grew in concert with product sales increasing 41% from the year ago period, thus having no impact on overall gross margin percentage year over year due to the shift in our overall revenue mix. Royalty revenues were $0.28 million for the three months ended March 31, 2022, and $0.2 million for the three months ended March 31, 2021.
Research and Development Expenses
Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
Research and development | $ | 1,802,006 | $ | 1,063,106 | 738,900 | 70 | % | |||||||||
Research and development expenses increased $0.7 million to $1.8 million for the three months ended March 31, 2022, compared to $1.1 million for the three months ended March 31, 2021. The increase was attributable to $0.3 million of staffing additions in our engineering department, and $0.4 million was attributable research lab and equipment and prototype expenses.
Sales and Marketing Expenses
Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
Sales and marketing | $ | 1,085,843 | $ | 576,650 | 509,193 | 88 | % | |||||||||
Sales and marketing expenses increased $0.5 million to $1.1 million for the three months ended March 31, 2022, compared to $0.6 million for the three months ended March 31, 2021. The increase year over year was driven by increases of $0.4 million in staffing costs and $0.1 million in various sales and marketing expenses including sales commissions, information technology support, and customer support.
General and Administrative Expenses
Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
General and administration expenses | $ | 1,239,650 | $ | 305,314 | 934,336 | 306 | % | |||||||||
General and administrative expenses increased $0.9 million to $1.2 million for the three months ended March 31, 2022, compared to $0.3 million for the three months ended March 31, 2021. The increase was primarily related to increases in wages and benefits ($0.6 million) and $0.3 million of directors and officers insurance and professional fees. The increase in wages, benefits, and professional fees was driven by headcount additions within our information technology and accounting departments, and expenses incurred to support our public company structure.
Other Income (Expenses)
| Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
Interest expense | $ | (57,221 | ) | $ | (148,825 | ) | $ | 91,604 | (62 | )% | ||||||
Other income | — | 535,800 | $ | (535,800 | ) | - | ||||||||||
Total other income (expenses), net | $ | (57,221 | ) | $ | 386,975 | $ | (444,196 | ) | (115 | )% | ||||||
Interest expense decreased approximately $0.1 million to $0.05 million for the three months ended March 31, 2022, compared to $0.15 million for the three months ended March 31, 2021. The decrease was attributable to decreased factoring fees.
Other income decreased $0.5 million for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The decrease was entirely due to PPP loan forgiveness in the three months ended March 31, 2021.
Liquidity and Capital Resources
Our primary source of liquidity is cash raised from private placements. As of March 31, 2022, we had cash resources of $2.6 million. We also have an accounts receivable factoring arrangement with a financial institution (as described in Note 5 of our unaudited interim condensed consolidated financial statements). Under the terms of the proposed Merger Agreement, it is expectedfactoring agreement, we have access to up to $2.0 million of advances. As of March 31, 2022, no advances were outstanding, meaning that all outstanding equity interestswe had unused availability of Guerrilla$2.0 million. Based upon our current financial projection models, we anticipate that our cash and $2.0 million of advances available under our factoring arrangement will be convertedsufficient to fund our ongoing operations into sharesthe fourth quarter of 2022.
As described in Note 1 of our Common Stock, such thatunaudited interim condensed consolidated financial statements, we have incurred recurring losses and negative cash flows from operations since inception and have an accumulated deficit at March 31, 2022 of $16.9 million. We expect losses and negative cash flows to continue, primarily due to continued investment in research and development, sales and marketing efforts, and increased administration expenses as our Company grows. As our fiscal 2022 progresses, and we continue to invest in the holders of Guerrilla equity before the proposed Merger will own approximately 89.1% of the outstanding sharesimplementation of our Common Stock after the Merger (before giving effect to a potential private placement offering of Common Stock by the Companylong-term strategic plan, we anticipate that we expect will be consummated simultaneously with require additional debt and/or immediately after the proposed Merger), resulting in a changeequity funding. We are actively evaluating funding sources as part of control of the Company. Completion of a private placement financingour ongoing strategic planning. There is expected to be a condition to completion of the Merger.
Certain other information regarding the proposed Merger and proposed changes to the management and share ownership of the Company is set forth in the Schedule 14F-1.
The foregoing description of the proposed Merger Agreement and potential Common Stock private placement and related matters does not purport to be complete and is qualified in its entirety by the terms of the actual Merger Agreement and of terms and documentation for a private placement, none of which has yet been completed and executed. The proposed Merger is expected to be subject to satisfaction of a number of other conditions precedent, and there can be no assurance that the Merger Agreementappropriate financing will be signed or that the Merger or Common Stock private placement will be consummated or other such conditions satisfied. If and when the Merger Agreement is signed, it will be further described in and filed by the Company with the SEC as an exhibit to a Current Reportavailable on Form 8-K. If and when a Common Stock private placement is consummated, it will be further described in, and material agreements relating thereto will be filed by the Company with the SEC as exhibits to a Current Report on Form 8-K.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview of our Business
Laffin Acquisition Corp. was incorporated in the State of Delaware on November 9, 2020. Since inception, the Company has been engaged in organizational efforts and obtaining initial financing. The Company was formed as a vehicle to pursue a business combination through the acquisition of, or merger with, an operating business. The Company filed a registration statement on Form 10 with the U.S. Securities and Exchange Commission (the “SEC”) on January 4, 2021, and since its effectiveness, the Company has focused its efforts to identify a possible business combination.
The Company is currently considered to be a “blank check” company. The SEC defines those companies as “any development stage company that is issuing a penny stock, within the meaning of Section 3(a)(51) of the Exchange Act, and that has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies.” Many states have enacted statutes, rules and regulations limiting the sale of securities of “blank check” companies in their respective jurisdictions. The Company is also a “shell company,” defined in Rule 12b-2 under the Exchange Act as a company with no or nominal assets (other than cash) and no or nominal operations. Management does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long as weterms, which are subject to those requirements.
In addition, the Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements of Sections 14A(a) and (b) of the Exchange Act to hold a nonbinding advisory vote of shareholders on executive compensation and any golden parachute payments not previously approved.
The Company has also elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We will remain an “emerging growth company” until the earliest of (1) the last day of the fiscal year during which our revenues exceed $1.07 billion, (2) the date on which we issue more than $1 billion in non-convertible debt in a three year period, (3) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement filed pursuant to the Securities Act, or (4) when the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. To the extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions availableacceptable to us as an emerging growth company may continue to be available to us as a smaller reporting company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (2) scaled executive compensation disclosures; and (3) theor at all. This requirement to provide only two years of audited financial statements, instead of three years.
The Company was organized as a vehicle to investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of being a publicly held corporation. The Company’s principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with an operating business. The Company will not restrict its potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.
The Company currently does not engage in any business activities that provide cash flow. During the next twelve months we anticipate incurring costs related to:
(i) filing Exchange Act reports, and
(ii) investigating, analyzing and consummating an acquisition.
We believe we will be able to meet these costs through use of funds to be loaned by or invested in us by our stockholders, management or other investors. As of September 30, 2021, the Company had $7,392 in cash. There are no assurances that the Company will be able to secure any additional funding as needed. Currently, however,raises substantial doubt about our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Our ability to continue as a going concern is also dependent on our ability to find a suitable target company and enter into a possible reverse merger with such company. Management’s plan includes obtaining additional funds by equity financing through a reverse merger transaction and/or related party advances, however, there is no assurance of additional funding being available.concern.
The Company may consider acquiring a business which has recently commenced operations, is a developing companyAs mentioned in need of additional funds for expansion into new products or markets, is seeking to develop a new product or service, or is an established business which may be experiencing financial or operating difficulties and is in need of additional capital. In the alternative, a business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires to establish a public trading market for its shares while avoiding, among other things, the time delays, significant expense, and loss of voting control which may occur in a public offering.
Any target business that is selected may be a financially unstable company or an entity in its early stages of development or growth, including entities without established records of sales or earnings. In that event, we will be subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, we may effect a business combination with an entity in an industry characterized by a high level of risk, and, although our management will endeavor to evaluate the risks inherent in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks. Our management anticipates that it will likely be able to effect only one business combination, due primarilyNote 8 to our limited financing and the dilutionunaudited interim condensed consolidated financial statements as of interest for present and prospective stockholders, which is likely to occur as a result of our management’s plan to offer a controlling interest to a target business in order to achieve a tax-free reorganization. This lack of diversification should be considered a substantial risk in investing in us, because it will not permit us to offset potential losses from one venture against gains from another.
The Company anticipates that the selection of a business combination will be complex and extremely risky. Our management believes that there are numerous firms seeking the perceived benefits of becoming a publicly traded corporation. Such perceived benefits of becoming a publicly traded corporation include, among other things, facilitating or improving the terms on which additional equity financing may be obtained, providing liquidity for the principals of and investors in a business, creating a means for providing incentive stock options or similar benefits to key employees, and offering greater flexibility in structuring acquisitions, joint ventures and the like through the issuance of stock. Potentially available business combinations may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.
On March 11, 2020, the World Health Organization officially declared the outbreak of the novel coronavirus COVID-19 a “pandemic.” A significant outbreak of COVID-19 and other infectious diseases has resulted in a widespread health crisis that has significantly adversely affected businesses of all types, economies and financial markets worldwide. The business of any potential target business with which we consummate a business combination could be materially and adversely affected. Furthermore, we may be unable to complete a business combination if continued concerns relating to COVID-19 restrict travel, limit the ability to have meetings with potential investors or the target company’s personnel, vendors and services providers are unavailable to negotiate and consummate a transaction in a timely manner. The extent to which COVID-19 impacts our search for a business combination will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extended period of time, our ability to consummate a business combination, or the operations of a target business with which we ultimately consummate a business combination, may be materially adversely affected.
As of the date of this Form 10-Q,31, 2022, the Company has not entered into any definitivea lease agreement with any party, nor have there been any specific discussions with any potential business combination candidates regarding business opportunities for the Company.
Recent Development—Proposed Merger
On October 8, 2021, we filed with the SEC a Schedule 14F-1 Information Statement relating to an anticipated change in the composition of its board of directors that is expected to occur in connection with a proposed merger to be completed by and among the Company, a recently formed wholly-owned subsidiary of the Company (“Merger Sub”), and Guerrilla RF, Inc., a privately held Delaware corporation (“Guerrilla”), pursuant to which Merger Sub would merge with and into Guerrilla, with Guerrilla continuing as the surviving entity (the “Merger”) and as the Company’s wholly-owned subsidiary, after which the Company would continue the business of Guerrilla. The Merger would occur pursuant to an Agreement and Plan of Merger and Reorganization expected to be entered into by and among the Company, Guerrilla and Merger Sub (the “Merger Agreement”).
Guerrilla is a fabless semiconductor company founded in 2013 with a mission to employ RF semiconductor technology to deliver RF solutions to customers in underserved markets. Guerrilla has become a leader in developing high performance Monolithic Microwave Integrated Circuit (MMIC) products for wireless connectivity. Guerrilla is headquarteredadditional office facilities in Greensboro, North Carolina. The Company will not remit any scheduled lease payments until it occupies the building, which it anticipates will occur in early 2023. Initial building asset addition financing related to the additional office facilities was completed in April 2022 and is further discussed in Note 12 to our unaudited interim condensed consolidated financial statements as of March 31, 2022. The Company anticipates approximately $4.0 million of new headquarter building asset additions, and an annual lease expense of approximately $1.1 million upon occupancy.
The following table summarizes our sources and uses of cash for each of the periods presented:
Cash (used in) provided by:
Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
Operating activities | $ | (2,429,861 | ) | $ | (648,627 | ) | ||
Investing activities | (152,464 | ) | (11,000 | ) | ||||
Financing activities | (141,014 | ) | 1,218,898 | |||||
Net increase (decrease) in cash | $ | (2,723,339 | ) | $ | 559,271 | |||
PursuantOperating Activities
Cash used in operating activities was $2.4 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively. Cash used in operating activities for the three months ended March 31, 2022 principally resulted from our net loss of $1.9 million. In addition, $0.9 million was attributable to increased accounts receivable, partially offset by $0.1 million attributable to the terms of the proposed Merger Agreement, it is expected that all outstanding equity interests of Guerrilla will be converted into shares ofincrease in our Common Stock, such that the holders of Guerrilla equity before the proposed Merger will own approximately 89.1% of the outstanding shares of our Common Stock after the Merger (before giving effect to a potential private placement offering of Common Stock by the Company that we expect will be consummated simultaneously with or immediately after the proposed Merger), resulting in a change of control of the Company. Completion of a private placement financing is expected to be a condition to completion of the Merger.
Certain other information regarding the proposed Merger and proposed changes to the management and share ownership of the Company is set forth in the Schedule 14F-1.
The foregoing description of the proposed Merger Agreement and potential Common Stock private placement and related matters does not purport to be complete and is qualified in its entirety by the terms of the actual Merger Agreement and of terms and documentation for a private placement, none of which has yet been completed and executed. The proposed Merger is expected to be subject to satisfaction of a number of other conditions precedent, and there can be no assurance that the Merger Agreement will be signed or that the Merger or Common Stock private placement will be consummated or other such conditions satisfied. If and when the Merger Agreement is signed, it will be further described in and filed by the Company with the SEC as an exhibit to a Current Report on Form 8-K. If and when a Common Stock private placement is consummated, it will be further described in, and material agreements relating thereto will be filed by the Company with the SEC as exhibits to a Current Report on Form 8-K.
Liquidity and Capital Resources
As of September 30, 2021, the Company had total assets equal to $7,392 comprised exclusively of cash. The Company’s current liabilities as of September 30, 2021 totaled $69,460 comprised of accounts payable and accrued expenses and amounts due under a note payable to a shareholder. The Company can provide no assurance that it can continue to satisfy its cash requirements for at least the next twelve months.expenses.
The following isCash used in operating activities for the three months ended March 31, 2021, principally resulted from our net income of $0.1 million, which was offset by the non-cash component of net income for the PPP loan forgiveness of $0.5 million. A small increase in our accounts receivable and prepaid expenses were partially offset by a summary ofmoderate increase in accounts payable.
Investing Activities
Cash used in investing activities was $0.15 million and $0.01 million for the Company’s cash flows providedthree months ended March 31, 2022 and 2021, respectively. Cash used in investing activities resulted from capital expenditures on property and equipment for all periods presented.
Financing Activities
Cash used by (used in) operating and financing activities for the ninethree months ended September 30, 2021:March 31, 2022 of $0.1 million was primarily attributable to principal payments on capital leases.
Cash provided by financing activities during the three months ended March 31, 2021, of $1.2 million principally resulted from the issuance of notes payable and factoring proceeds totaling $1.2 million, and proceeds from a second PPP loan of $0.8 million. These were partially offset by principal payments of notes payable and our factoring arrangement of $0.8 million.
Contractual Obligations and Commitments
The following summarizes our significant contractual obligations as of March 31, 2022; however, the following table does not include any contractual obligations or commitments that will develop as we continue the preparation, planning, and asset financing negotiations associated with the planned move of our business headquarters in early 2023. We anticipate approximately $4.0 million of new headquarter building asset additions, and an annual lease expense of approximately $1.1 million upon occupancy.
Payments due by period | ||||||||||||||||||||
Total | Less than 1 year | 1 – 3 years | 4 – 5 years | More than 5 years | ||||||||||||||||
Purchase order obligations | $ | 808,225 | $ | 808,225 | $ | — | $ | — | $ | — | ||||||||||
Short-term debt obligations (excluding interest) | 7,310 | 7,310 | — | — | — | |||||||||||||||
Long-term debt obligations (excluding interest) | 142,590 | — | 17,544 | 17,544 | 107,502 | |||||||||||||||
Operating lease obligations | 276,768 | 116,128 | 160,640 | — | — | |||||||||||||||
Finance lease obligations | 3,363,678 | 669,309 | 1,393,378 | 1,300,991 | — | |||||||||||||||
Total | $ | 4,598,571 | $ | 1,600,972 | $ | 1,571,562 | $ | 1,318,535 | $ | 107,502 | ||||||||||
| Net Cash (Used In) Operating Activities | $ | (44,626 | ) | |
| Net Cash Provided by Financing Activities | $ | 42,460 | ||
| Net Change in Cash | $ | (2,166 | ) |
The Company has only cash assets and has generated no revenues since inception. The Company is also dependent upon the receipt
Issuance of Promissory Note to a Stockholder and Director
On November 13, 2020, in connection with advances made in connection with costs incurred by the Company, the Company issued a promissory note to Mark Tompkins, a stockholder and director of the Company, pursuant to which the Company agreed to repay Mr. Tompkins the sum of any and all amounts that Mr. Tompkins may advance to the Company on or before the date that the Company consummates a business combination with a private company or reverse takeover transaction or other transaction after which the Company would cease to be a shell company (as defined in Rule 12b-2 under the Exchange Act). The Company has used the proceeds from the note to cover its expenses. Although Mr. Tompkins has no obligation to advance funds to the Company under the terms of the note, it is anticipated that he may advance funds to the Company as fees and expenses are incurred in the future. As a result, the Company issued the note in anticipation of such advances. Interest shall not accrue on the outstanding principal amount of the note except if an Event of Default (as defined in the note) has occurred. In the event of an Event of Default, the entire note shall automatically become due and payable (the “Default Date”), and starting from five (5) days after the Default Date, the interest rate on the note shall accrue at the rate of eighteen percent (18%) per annum. As of September 30, 2021, the total amount due under the note was $64,960.
Results of Operations
The Company has not conducted any active operations since inception, except for its efforts to locate suitable acquisition candidates. No revenue has been generated by the Company for the nine months ended September 30, 2021. It is unlikely the Company will have any revenues unless it is able to effect an acquisition or merger with an operating company, of which there can be no assurance. It is management’s assertion that these circumstances may hinder the Company’s ability to continue as a going concern. The Company’s plan of operation for the next twelve months shall be to continue its efforts to locate suitable acquisition candidates.
For the nine months ended September 30, 2021, the Company had a net loss of $44,626 comprised of accounting, audit and other professional service fees incurred in relation to the preparation and filing of the Company’s SEC filings and general and administrative expenses.
Off-Balance Sheet Arrangements
The Company doesAs of March 31, 2022, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Other than as described under Note 2 to our unaudited interim condensed consolidated financial statements, the Critical Accounting Policies and Significant Judgments and Estimates included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on April 1, 2022, have not materially changed.
Our critical accounting policies are those policies that haverequire the most significant judgments and estimates in the preparation of our unaudited interim condensed consolidated financial statements. Management has determined that our most critical accounting policies are those relating to revenue recognition, stock-based compensation, lease accounting, income taxes including the valuation allowance for deferred tax assets, and going concern considerations.
Recently adopted accounting standards
In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842), or ASU 2016-02. ASU 2016-02 addresses the financial reporting of leasing transactions. Under past guidance for lessees, leases are reasonably likelyonly included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update requires the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability are expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the consolidated statement of cash flows. For finance leases, interest on the lease liability is recognized separately from the amortization of the right-of-use asset in the consolidated statement of operations and the repayment of the principal portion of the lease liability is classified as a financing activity while the interest component is included in the operating section of the consolidated statement of cash flows. In June 2020, the FASB issued ASU 2020-05, which delayed the effective date of Topic 842 until January 1, 2022. We adopted ASC 842 using the optional transition method outlined in ASU 2018-11. The Company adopted Topic 842 in the fiscal quarter ending March 31, 2022. The adoption of ASC 842 resulted in the recognition of operating lease right-of-use assets of approximately $304,000 and corresponding lease liabilities of approximately $304,000. The adoption of these ASUs did not have a current or future effectmaterial impact on the Company’s financial condition, changes in financial condition, revenues or expenses,our results of operations, liquidity, capital expenditures or capital resources that is materialhowever, the adoption resulted in significant changes to investors.our financial statement disclosures. See Note 8 for further information related to lease obligations on the unaudited interim condensed consolidated balance sheet upon adopting ASC Topic 842.
Contractual Obligations
As a “smaller reporting company”JOBS Act Accounting Election
We are an emerging growth company, as defined by Item 10 of Regulation S-K,in the Company is not required to provide this information.
Emerging Growth Company
As an “emerging growth company” underJumpstart Our Business Startups ("JOBS") Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the Company hasenactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use thethis extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until thosethe 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, apply to private companies.as described in Note 2 of our unaudited interim condensed consolidated financial statements. As a result, of this election, our unaudited interim condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited interim condensed consolidated financial statements appearing elsewhere in this Quarterly Report.
ItemITEM 3. Quantitative and Qualitative Disclosures about Market Risk.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
AsWe are a “smallersmaller reporting company”company as defined by Item 10Rule 12b-2 of Regulation S-K, the Company isExchange Act and are not required to provide the information required byunder this Item.item.
ITEM 4. CONTROLS AND PROCEDURES.
Item 4. Controls and Procedures
Management
’s Evaluation of our Disclosure Controls and Procedures
DisclosureUnder 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 areand procedures as of March 31, 2022, the end of the period covered by this Form 10-Q. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed with the objective of ensuringto provide reasonable assurance that information required to be disclosed by a company in ourthe reports filedthat it files or submits under the Exchange Act such as this Form 10-Q, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.forms promulgated by the SEC. Disclosure controls are alsoand procedures include, without limitation, controls and procedures designed withto ensure that information required to be disclosed by a company in the objective of ensuringreports that such informationit files or submits under the Exchange Act is accumulated and communicated to ourthe company’s management, including the Principal Executive Officerits principal executive officer and Principal Financial Officer,principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized, recorded
In designing and reported; and (2) our assets are safeguarded against unauthorized or improper use, to permit the preparation of our condensed financial statements in conformity with GAAP.
In connection with the preparation of this Form 10-Q, management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and operation ofevaluating our disclosure controls and procedures, (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based uponmanagement recognizes that evaluation, our Principal Executive and Financial Officer concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures, were effective.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations of the Effectiveness of Control
A control system, no matter how well conceivedwell-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controldisclosure 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 are met.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 of anyin a control system, nomisstatements due to error or fraud may occur and not be detected.
Based on this evaluation, as a result of our material weaknesses on internal controls over financial reporting disclosed within our Annual Report on Form 10-K for the year ended December 31, 2021, management concluded that our disclosure controls and procedures were not effective as of March 31, 2022. While the existence of the material weaknesses did not result in a material misstatement to the financial statements, it presented a reasonable possibility that a material misstatement to the financial statements could have occurred.
Status of Remediation of Previously Identified Material Weaknesses in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.
To respond to the material weaknesses disclosed within our Annual Report on Form 10-K for the year ended December 31, 2021, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. Our remediation efforts are in process and we have designed control procedures to address the material weaknesses. The actions taken by management include, but are not limited to:
• We have retained a public accounting firm to assist us with our tax accounting and tax provision calculations;
• We have enhanced our procedures to evaluate and document the accounting treatment over significant unusual transactions including the utilization of an accounting research tool to which we have subscribed;
• We have enhanced our segregation of duties through a review and revision of information technology access rights;
• We have enhanced and formalized our financial reporting scheduling and closing calendar; and
• We have enhanced our secondary review process during our financial reporting process.
While we believe the steps taken to date and those planned for future implementation will improve the effectiveness of our internal control over financial reporting, we have not completed all remediation efforts and cannot conclude the material weaknesses have been remediated. The elements of our remediation plans can provide absoluteonly be accomplished over time, and we can offer no assurance that all control issues, if any, withinthese initiatives will ultimately have the intended effects. The material weaknesses cannot be considered remediated until applicable controls have operated for a companysufficient period of time and management has concluded, through testing, that these controls are operating effectively. We will document policies and procedures for, and test the implementation and operating effectiveness of, the newly-designed controls in future periods.
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2022, there have been detected.changes in our internal control over financial reporting as such term is defined in Rule 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. These changes are a result of our above-noted actions taken to remedy the material weaknesses on internal controls over financial reporting disclosed within our Annual Report on Form 10-K for the year ended December 31, 2021.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
ThereWe are nonot a party to any material pending legal proceedings. From time to time, we may become involved in lawsuits and legal proceedings as definedthat arise in the ordinary course of business.
The risks set out below represent updates to risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 1, 2022. The information in this Quarterly Report on Form 10-Q should be read in conjunction with the other factors described in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Risks Related to Our Business and Industry
We have incurred significant losses in the past and will experience losses in the future.
We have incurred significant losses in the past and recorded a net loss of $2.8 million for the year ended December 31, 2021, $2.0 million for the year ended December 31, 2020, and $1.9 million for the three months ended March 31, 2022. As of March 31, 2022, we had an accumulated deficit of $16.9 million. If we cannot make consistent progress toward future profitability, our business and stock price may be adversely affected.
Our ability to be profitable in the future depends upon continued demand for our products from existing and new customers. Further sales of our products depend upon our ability to improve the quality of our products, enhance customer satisfaction, and increase efficiency and productivity. In addition, our profitability will be affected by, Item 103among other things, our ability to execute our business strategy, the timing and size of Regulation S-K,customer sales, the pricing and costs of our products, competitive products, macroeconomic conditions affecting the semiconductor industry, the COVID-19 pandemic, and the extent to which we invest in sales and marketing, research and development, and general and administrative resources.
We may not have sufficient cash available to fund our operations and make interest or principal payments on our indebtedness when due, and we may be unable to find additional sources of capital.
Our cash balance stood at $2.6 million on March 31, 2022. In addition, we have unused availability of up to $2.0 million under our factoring arrangement. However, as we currently do not generate positive cash flow from operations, we cannot guarantee that we will have sufficient cash available to fund our operations and service our obligations when due. We expect losses and negative cash flows to continue, primarily due to continued research, development, and marketing efforts as well as increased administration expenses as our Company grows. Therefore, we anticipate that we will require additional funding later this year and we are a party or of which anyactively evaluating alternative funding sources as part of our property is the subject, other than ordinary routine litigation incidentalongoing strategic planning. There can be no assurance that we will be able to the Company’s business.secure additional funding on favorable terms, or at all. Our failure to secure additional funding on favorable terms, or at all, may cause us to reduce or delay planned investments and capital expenditures, harm our business, financial condition and results of operations, and affect our ability to continue as a going concern.
There are no proceedingsOur 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 whichRussia 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 directors, officersTreasury Office of Foreign Assets Control Sectoral Sanctions Identifications List dated April 29, 2022. However, the related sanctions and other measures imposed by the European Union, the U.S., and other countries and organizations in response have led, and may continue to lead, to disruption and instability in global markets, supply chains, and industries that could negatively impact our businesses, financial condition, and results of operations. We have taken steps to ensure our export control processes and controls observe enacted and evolving export sanctions imposed upon Russia, Belarus, and all restricted entities that have been identified by the United States government. Nevertheless, if we inadvertently make any product sales or affiliates of the Company,shipments to Russian customers or any registered or beneficial holder of more than 5% of the Company’s voting securities, is an adverse party or hassanctioned entities, such non-compliance may have a material interest adverse to thateffect on our financial condition or operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
None.
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.ITEM 6. EXHIBITS.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosure.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
See the Exhibit IndexThe following the signature page to this Form 10-Q foris a list of exhibits filed or furnished withas part of this report, which Exhibit IndexQuarterly Report on Form 10-Q. Where so indicated, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is incorporated herein by reference.indicated.
Exhibit | Description | Form | File No. | Exhibit | Filing Date | Filed Herewith |
2.1 | 8-K | 000-56238 | 2.1 | October 27, 2021 | ||
3.1 | 8-K | 000-56238 | 3.2 | October 27, 2021 | ||
3.2 | 8-K | 000-56238 | 3.3 | October 27, 2021 | ||
4.1 | 8-K | 000-56238 | 4.1 | October 27, 2021 | ||
4.2 | 8-K | 000-56238 | 4.2 | October 27, 2021 | ||
|
31.1 | X | |
31.2 | X | |
32.1 | X | |
32.2 | Certification of John Berg, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X |
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X |
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | X |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | X |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | X |
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document. | X |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | X |
104 | Cover Page Interactive Data File - the cover page from the Registrant’s from Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL and contained in Exhibit 101. | X |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GUERRILLA RF, INC. | |||
Date: May 12, 2022 | By: | /s/ | |
| Ryan Pratt Chief Executive Officer | ||
| GUERRILLA RF, INC. | ||
Date: May 12, 2022 | By: | /s/ John Berg |
John Berg Chief Financial Officer (principal financial officer)
| ||
EXHIBIT INDEX
17