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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties as described under the heading “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this Annual Report. You should review the disclosure under the heading “Risk Factors” in this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Guerrilla RF is a fabless semiconductor company based in Greensboro, N.C. Guerrilla RF was founded in 2013 with a mission to employ RF semiconductor technology to deliver RF solutions to customers in underserved markets. Over the past several years, Guerrilla RF has become a leader in developing high-performance MMIC products for wireless connectivity. It continues to target underserved markets and customers, delivering a range of high-performance MMIC products and associated technical support to a diverse set of customers that enable a more connected world. Guerrilla RF is a wholly-owned subsidiary of the Company. Guerrilla RF holds all material assets and conducts all business activities and operations of the Company. Accordingly, throughout this discussion and analysis, there are frequent references to Guerrilla RF.

Guerrilla RF possesses in-house design, applications, sales, and customer support functions as a fabless semiconductor company. We outsource the manufacture and production of our MMIC products to subcontractors located overseas, providing access to multiple semiconductor process technologies. Guerrilla RF’s primary external wafer foundries are in Taiwan and Singapore, and our primary assembly and test suppliers are located in Malaysia and the Philippines.

FISCAL 2023 FINANCIAL HIGHLIGHTS

● Revenue for fiscal year 2023 increased 30.0% as compared to fiscal year 2022. Revenue gains came from the acquisition of new customers, the release and ramp of new product programs and through gain of market share in automotive, wireless infrastructure, and catalog. Within catalog, wireless audio and SatCom drove revenue increases. Our automotive products experienced significant order volume increase from our OEM customer including a new direct EV automotive customer, as well as growth from our customers who are major electronics suppliers to automotive OEM’s automotive component suppliers.

● Gross profit for fiscal year 2023 was 57.1% of revenues as compared to 58.3% for fiscal year 2022. Although the Company has continued to experience supply chain price increases, we have been able to mitigate the effect of these increases by increasing the prices we charge our customers related to the raw materials and assembly/test cost increases we experienced. Product contribution margins remained relatively flat, decreasing from 71.5% in 2022 to 70.5% in 2023. Product contribution margins were partially offset by higher overhead costs, on a comparative period basis, which increased due to headcount additions in our Quality group, as well as increased facility costs.

● Operating loss was $12.9 million for 2023 as compared to $11.1 million for 2022. This increase in operating loss was due to higher operating expenses primarily in our engineering and research and development areas rising $2.2 million or 27%. Sales and marketing expenses also increased, rising $1.0 million to $5.7 million or 18%. Administration costs experienced a small increase of $0.4 million or 8%.

● Net loss per share was $2.25 and $2.17 for fiscal year

2023

and

2022

, respectively.

● Purchases of property, plant and equipment were $0.1 million for fiscal year 2023 and $0.5 million for the fiscal year 2022. The majority of capital expenditures for 2023 are related to capital additions for the Company's laboratory equipment and related facilities.

Ongoing Funding of Operations

As a relatively young company in its early stages of market penetration and customer acquisition, we have historically sought funding to support our operations and our research and development efforts, in furtherance of new product introductions, market share increases, and participation in new markets. On March 28, 2024, we completed a private placement offering of approximately $5 million, raising net cash proceeds of approximately $3 million, after deduction of expenses and the conversion of existing debt. We project these funds will be adequate to fund the business for the rest of this fiscal year and beyond. However, we may seek additional funding from capital and debt markets to support new product develop efforts, take advantage of business opportunities, and expand our sales and marketing capabilities and reach.

New Headquarters

In the first quarter of 2023, we moved into a new headquarters building in Greensboro, NC to support our growing employee base and research and development and customer support laboratory space requirements. The new facility incorporates over 50,000 square feet of office and clean laboratory space, and replaced our former headquarters (also in Greensboro) of approximately 10,000 square feet of space.

Distributor and Sales Networks

We work with global distributors and sales representatives to promote and expand our sales force. Guerrilla RF leverages these ongoing business partnerships for long-term sales and market strategies. In 2022, we expanded our sales representative network in North America, Korea, Japan, and China. Currently, we work with three large electronic component distributors and over 19 sales representative organizations worldwide.

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Key Metrics (Non-GAAP Measures)

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

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

Year Ended December 31,

Key Metrics

Number of products released 12 18

Number of total products 131 119

Number of products with lifetime revenue exceeding $100 thousand 62 52

Product backlog $5.96 million $4.50 million

Number of products released: The total quantity of distinct new products released into production (products that have completed design, quality, and supply chain readiness) for 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 our inception through the end of the period.

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

Components of Results of Operations

Revenues

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

Direct Product Costs and Gross Profit

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

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

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

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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 decrease in the near term as the Company continues to focus on expense reduction. Over the longer term we expect general and administrative expenses to grow in absolute dollars as our business grows, but we expect general and administrative expenses to decrease as a percentage of revenues in the coming years.

Research and development 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 percentage of revenues, R&D expenses are expected to decrease.

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

Administrative expenses consist primarily of employee compensation costs related to executive management of the Company, financial management, human resources and information technology. In addition, administrative expenses include business and liability insurance, audit and legal fees as well as consulting and advising. Currently the Company is focused on limiting the growth of administrative expenses and expect such expenses to decline moderately in the coming year.

Interest Expense

Interest expense consists primarily of the interest incurred on our debt obligations, our factoring arrangement expenses, the non-cash interest expense associated with the amortization of warrants issued to certain of our equityholders and debtholders that have a contingent beneficial conversion feature related to certain convertible notes payable, and lease expense related to our capital leases.

Change in Fair Value of Derivative Liabilities

Change in fair value of derivative liabilities is fully attributable to the call and put options features of the convertible notes for the year ended December 31, 2023. There was no change in fair value derivative liability in 2022.

Other Income (Expenses)

Other income (expense) for the years ended December 31, 2022 and 2023 was immaterial in each period (no more than $31 thousand). Included in other income (expense) were small transactions related to foreign currency transactions and lease/debt closing type transactions.

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

Year Ended December 31,

Operating expenses:

Other income (expenses):

Change in fair value of derivative liabilities (142,200 ) —

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Comparison for the years ended December 31, 2023 and 2022:

Year Ended December 31,

Revenues increased $3.5 million to $15.1 million for the year ended December 31, 2023, as compared to $11.6 million for the year ended December 31, 2022. The increase in revenue was driven by the growth of product sales primarily in automotive. Overall, the number of products and customers continues to expand each year, driving revenue increases as we execute on our sales strategy in order to positively impact revenue through the expansion of our product choices to customers as well as the acquisition of new customers through marketing and sales activities. Royalty and non-recurring revenue have become less important to our revenue plans and have declined from 2022 levels, down 62%, to $0.4 million for 2023 compared to $1.0 million for 2022.

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 years ended December 31, 2023, and December 31, 2022. RFPD, a large product distributor serving numerous end customers, generated 81% of product shipment revenue for the years ended December 31, 2023 and 2022.

Our existing product sales increased from $7.1 million for the year ended December 31, 2022 to $11.2 million for the year ended December 31, 2023, or 56%. We continued to develop and sell new products into our markets, and new product sales grew from $3.4 million for the year ended December 31, 2022 to $3.6 million for the year ended December 31, 2023, or 6%.

International shipments amounted to $2.3 million (approximately 16% of product revenue) and $1.9 million (approximately 22% of product revenue) for the years ended December 31, 2023, and December 31, 2022, respectively.

Direct Product Costs and Gross Profit

Year Ended December 31,

Direct product costs increased $1.6 million to $6.5 million for the year ended December 31, 2023, compared to $4.8 million for the year ended December 31, 2022. The 34% increase in direct product costs was driven by a product sales volume increase of 39% (excluding royalty and non-recurring revenue). This increase was also impacted to a lesser extent by increased fixed overhead costs (Quality staffing and related costs). Year-over-year gross profit increase was due to a sales volume increase of 39% partially offset by reduced product contribution margins from product mix changes from 2022 to 2023.

Research and Development Expenses

Year Ended December 31,

Research and development expenses increased $2.2 million to $10.3 million for the year ended December 31, 2023, compared to $8.1 million for the year ended December 31, 2022. The increase was attributable to $0.6 million of employee additions in our engineering department, and $1.6 million of facilities and information technology costs including prototype material, software and laboratory costs.

Sales and Marketing Expenses

Year Ended December 31,

Sales and marketing expenses increased $1.0 million to $5.7 million for the year ended December 31, 2023, compared to $4.6 million for the year ended December 31, 2022. The 23% increase year over year was driven by employee additions in customer support and inside sales of $0.4 million, facilities and information technology costs of $0.5 million and $0.1 million of sales and marketing related expenses.

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General and Administrative Expenses

Year Ended December 31,

General and administrative expenses increased $0.4 million to $5.6 million for the year ended December 31, 2023, compared to $5.1 million for the year ended December 31, 2022. The increase was primarily related to increases in wages and benefits of $0.2 million, $0.1 million of legal and professional fees, and $0.1 million related to general expenses. The increase in wages, benefits, and professional fees was driven by headcount additions within our information technology and accounting departments, and expenses related to being a public company.

Other Income (Expenses)

Year Ended December 31,

Change in fair value of derivative liabilities $ (142,200 ) $ — $ (142,200 ) 0 %

Interest expense increased approximately $2.0 million to $2.9 million for the year ended December 31, 2023, compared to $0.9 million for the year ended December 31, 2022. The increase was attributable to greater utilization of two loan facilities Guerrilla RF entered into in 2022, one of which was extended in the third quarter of 2023. The first is an asset-based loan with a total available draw of up to $3.0 million secured by inventory and accounts receivables. The second is a $12.0 million commercial line of credit which was fully drawn as of December 31, 2023. In addition, we have entered into a number of smaller notes secured by equipment and facility improvements as well as unsecured convertible promissory notes.

During the year ended December 31, 2023, we recognized a change in fair value related to embedded derivatives.

Other income and expense was insignificant in 2022 and 2023.

Liquidity and Capital Resources

Our primary source of liquidity has been cash raised from private placements and debt financing. As of December 31, 2023, we had cash resources of $0.8 million. We also have two loan facilities, one of which is for up to $3.0 million with a specialty lender (referred to as the Spectrum Loan Facility, described in Note 5 to our consolidated financial statements), and the other of which is for up to $12.0 million with a different lender (referred to as the Salem Loan Facility, also described in Note 5 to our consolidated financial statements). As of December 31, 2023, we had drawn down $1.2 million under the Spectrum Loan Facility and $12.0 million under the Salem Loan Facility. Subsequent to our year end close on March 28, 2024 we raised approximately $3 million net in a private placement offering to support our current and future liquidity needs. The Company believes that its existing cash and cash equivalents following this raise will provide sufficient resources to support operations through the rest of this fiscal year and beyond. However, we may seek additional funding opportunities if management believes such funds can be successfully invested in business opportunities for the company.

As described in Note 1 to our consolidated financial statements, we have incurred recurring losses and negative cash flows from operations since inception and have an accumulated deficit at December 31, 2023 of $43.0 million. We expect losses and negative cash flows to continue in the near term, primarily due to continued investment in research and development, sales and marketing efforts, and increased administration expenses as our Company grows. We plan to continue to invest in the implementation of our long-term strategic plan and we anticipate that we will continue to narrow cash burn from historical levels so that cash reserves will provide the necessary working capital to conclude the company is a going concern.

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

Cash (used in) provided by:

Year Ended December 31,

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Operating Activities

Cash used in operating activities was $13.4 million and $9.2 million for the years ended December 31, 2023 and 2022, respectively. Cash used in operating activities for the year ended December 31, 2023 principally resulted from our net loss of $16.0 million, with uses offset by non-cash depreciation and amortization of $1.6 million, non-cash interest expense related to debt refinancing of $0.4 million, accretion of notes payable of $1.2 million as well as $1.3 million in share-based compensation. There was also $1.0 million provided from the decrease of prepaid expenses, an increase of accounts receivable of $1.0 million, and a decrease in operating lease expense of $0.1 million. In addition, there was a $2.2 million decrease in accounts payable and accrued expenses and a $0.1 million decrease in inventory.

Cash used in operating activities for the year ended December 31, 2022, principally resulted from our net loss of $12.0 million. Moderate decreases in our accounts receivable and a moderate increase in inventories along with a $0.9 million decrease in prepaid expenses and an increase of $0.8 million in accounts payable and accrued expenses in total had an overall positive impact on cash used in operations. Depreciation and amortization of $1.4 million and share-based compensation of $0.6 million additionally positively impacted net cash used in operating activities.

Investing Activities

Cash used in investing activities was $0.1 million and $0.5 million for the years ended December 31, 2023 and 2022, respectively. Cash used in investing activities resulted from capital expenditures on property and equipment for all periods presented.

Financing Activities

Cash provided by financing activities during the year ended December 31, 2023, of $10.0 million was principally attributable to $6.1 million in net proceeds from two debt transactions noted above as well as total net proceeds from equity financing of $5.4 million. Principal payments on capital leases reduced total cash provided by financing by $1.0 million.

Contractual Obligations and Commitments

The following summarizes our significant contractual obligations as of December 31, 2023. As mentioned above associated with the move of our business headquarters in the first quarter of 2023, the Company anticipates at least another $0.7 million of excess construction costs and related interest and deferral fees for which it will be responsible, and they will become due in the first half of 2023. We anticipate an annual lease expense of approximately $1.1 million over the 10-year and two-month term of the building lease.

Payments due by period

Total Less than 1 year 1 – 3 years 4 – 5 years More than 5 years

Off-Balance Sheet Arrangements

As of December 31, 2023 and 2022, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

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

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Other than as described under Note 2 to our audited consolidated financial statements, the Critical Accounting Policies and Significant Judgments and Estimates included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the U.S. Securities and Exchange Commission on March 3, 2023, have not materially changed.

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

Liquidity and Going Concern

We have fully drawn down all available funds under the Salem Loan Facility ($12.0 million). We continue to utilize to our fullest ability our asset based line with Spectrum, which we refer to as the Spectrum Loan Facility. Subsequent to December 31, 2023, on March 28, 2024 we completed a private placement offering of approximately $5 million, raising net cash proceeds of approximately $3 million, after deduction of expenses and the conversion of existing debt to further support our current and future liquidity needs. In addition, on March 28, 2024 Salem extended the maturity date of the Salem Loan Facility from April 30, 2024 to January 31, 2026.

Our recurring operating losses and operating plans have in the past raised substantial doubt about our ability to continue as a going concern for the next 12 months. With the completion of the private placement and the extension of debt terms with Salem in Q1 of 2024, combined with our projections for narrowing losses over the coming 12 months we believe that our liquidity has improved significantly. However, we recognize that our projections are subject to a number of risks, many of which are outside of our control. As a result, there remains uncertainty as to whether we have sufficient cash and cash equivalents to fund the business over the next 12 months. If not, we will require to seek additional funding, which may not be available at rates acceptable to us, or at all. This potential requirement for additional funding raises substantial doubt about our ability to continue as a going concern. Our independent registered public accounting firm issued their audit report on our consolidated financial statements for the years ended December 31, 2023 and 2022, which included an explanatory paragraph as to our ability to continue as a going concern.

Share-Based Compensation

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

The estimated fair value of each grant and modification of stock options awarded during fiscal 2023 and fiscal 2022 was determined using the following methods and assumptions:

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

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

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

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JOBS Act Accounting Election

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Guerrilla RF, Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm 46

Consolidated Balance Sheets 47

Consolidated Statements of Operations 48

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) 49

Consolidated Statements of Cash Flows 50

Notes to Consolidated Financial Statements 51

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Audit Committee of Guerrilla RF, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Guerrilla RF, Inc. (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit that raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ FORVIS LLP

We have served as the Company’s auditor since 2021.

Raleigh, NC

March 29, 2024

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Guerrilla RF, Inc.

Consolidated Balance Sheets

December 31, 2023 and 2022

Assets

Prepaid expenses and other - 3,574,746

Liabilities and Stockholders' Equity (Deficit)

Derivative liabilities 158,000 -

Convertible notes 78,905 -

Convertible notes - related parties 700,189 -

Notes payable, current portion, net 10,948,668 -

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Guerrilla RF, Inc.

Consolidated Statements of Operations

For the Years Ended December 31, 2023 and 2022

Year Ended December 31,

Operating Expenses:

Change in fair value of derivative liabilities (142,200 ) -

Net loss per share - basic and diluted $ (2.25 ) $ (2.17 )

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Guerrilla RF, Inc.

Consolidated Statements of Change in Stockholders' Equity (Deficit)

For the Years Ended December 31, 2023 and 2022

Stock options exercised - - 5,232 - 5,232

Conversion of promissory notes to common stock - - 52,000 - 52,000

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Guerrilla RF, Inc.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2023 and 2022

Year Ended December 31,

Cash flows from operating activities

Adjustment to reconcile net loss to net cash used in operating activities

Non-cash interest expense related to debt financing 407,710 39,568

Impairment on property plant and equipment and operating lease 115,438 -

Change in fair value of derivative liabilities 142,200 -

Inventory allowance 9,661 -

Changes in assets and liabilities:

Cash flows from investing activities

Purchases of property, plant, and equipment (101,714 ) (549,850 )

Cash flows from financing activities

Proceeds from exercise of stock options - 5,232

Repayments of finance insurance premiums (569,665 ) (53,115 )

Noncash investing and financing transactions:

Modification on operating and finance leases $ 806,617 $ -

Shares issued for prepaid services $ 100,000 $ -

Property and equipment financed through finance leases $ 271,725 $ 4,745,311

Property and equipment additions included in accounts payable $ 35,000 $ 15,873

Financing of property and equipment $ 483,787 $ -

Financing of insurance premiums and software $ 470,860 $ 382,843

Financing of mask set and wafer $ 369,421 $ -

Right-of use assets obtained through operating lease $ 7,837,471 $ 327,400

Conversion of promissory notes to common stock $ - $ 52,000

Other long term asset additions included in accounts payable $ - $ 2,369,612

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

1. Organization and Nature of Business

Guerrilla RF, Inc. (formerly known as Laffin Acquisition Corp., the “Company”) was incorporated in the State of Delaware on November 9, 2020. On October 22,2021, the Company's wholly-owned subsidiary, Guerrilla RF Acquisition Corp., a corporation formed in the State of Delaware on October 20,2021 (“Acquisition Sub”) and privately held Guerrilla RF Operating Corporation (formerly known as Guerrilla RF, Inc.) entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, on October 22,2021 (the “Closing Date”), Acquisition Sub merged with and into Guerrilla RF Operating Corporation with Guerrilla RF Operating Corporation continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the “Merger”). On May 30, 2023, Guerrilla RF Operating Corporation was merged with and into Guerrilla RF, Inc.

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

All references in these Consolidated Financial Statements to “Guerrilla RF” refer to: (i) for periods prior to May 30, 2023, Guerrilla RF Operating Corporation; and (ii) for subsequent periods, Guerrilla RF, Inc. Unless otherwise stated or the context otherwise indicates, references to the “Company”, “we”, “our”, “us” or similar terms refer to Guerrilla RF, Inc. together with Guerrilla RF Operating Corporation.

Guerrilla RF designs and manufactures high‐performance Monolithic Microwave Integrated Circuits (MMICs) for the wireless infrastructure market. Guerrilla RF primarily focuses on researching and developing its existing products and building an infrastructure to handle a global distribution network; therefore, it has incurred significant start‐up losses.

Liquidity and Going Concern

In accordance with Financial Accounting Standards Accounting Standards Update (“ASU”) No.2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic205-40), 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 consolidated financial statements are issued. The accompanying consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has historically financed its activities through a combination of commercial loans and the proceeds of debt and equity issuances. The 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.

The Company has incurred substantial negative cash flows from operations in nearly every fiscal period since inception. For the year ended December 31, 2023, the Company incurred a net loss of $16.0 million and used $13.4 million in cash to fund operations. As a result, the Company had an accumulated deficit of $43.0 million as of December 31, 2023. The Company's cash as of December 31, 2023 was $0.8 million. We expect losses and negative cash flows to continue in the near term, primarily due to continued investment in research and development, sales and marketing efforts, and increased administration expenses as our Company grows. We plan to continue to invest in the implementation of our long-term strategic plan and we anticipate that we will require additional funding in fiscal 2024. There is no assurance that appropriate funding will be available on terms, which are acceptable to us, or at all. This requirement for additional funding raises substantial doubt about our ability to continue as a going concern.

Our primary source of liquidity has been from cash raised from private placements and debt financing. We also have two loan facilities, one of which is for up to $3.0 million with a specialty lender (referred to as the Spectrum Loan Facility, described in Note 5 to our consolidated financial statements), and the other for $12.0 million with a different lender (referred to as the Salem Loan Facility, also described in Note 5 to our consolidated financial statements). As of December 31, 2023, we had drawn down $1.2 million under the Spectrum Loan Facility and the full $12.0 million under the Salem Loan Facility. On March 28, 2024 we completed a private placement offering of approximately $5 million, raising net cash proceeds of approximately $3 million, after deduction of expenses and the conversion of existing debt. In addition, Salem extended the maturity date of the Salem Loan Facility from April 30, 2024 to January 31, 2026. As a result, the Company believes that its existing cash and cash equivalents will provide sufficient resources to support operations for the rest of this fiscal year and beyond. Nevertheless, with the variability of results each quarter and other risks associated with its business, the Company recognizes that liquidity could become an issue and recognizes that it may require additional funding at some time in the next 12 months. The Company may also require additional funds to respond to business challenges, including developing new solutions or enhancing existing solutions, enhancing our operating infrastructure, expanding our sales and marketing capabilities, and acquiring complementary businesses, technologies, or assets. The Company recognizes that it may be unable to secure additional funding sources at rates and terms acceptable or at all, and as a result there is substantial doubt about our ability to continue as a going concern.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Risks and Uncertainties

The Company is subject to several risks associated with companies at a similar stage, including dependence on key individuals, competition from similar products and larger companies, volatility of the industry, ability to obtain adequate financing to support growth, the ability to attract and retain additional qualified personnel to manage the anticipated growth of the Company, and general economic conditions including the current macro-economic conditions impacting the banking and financial markets.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with GAAP and with the rules and regulations for reporting the Annual Report on Form 10-K ("Form 10-K"), and are presented in U.S. dollars. Accordingly, they do not include all of the information and notes required by GAAP for annual consolidated financial statements. Any reference in these Notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Guerrilla RF Operating Corporation that was merged with and into the Company in May 2023. All intercompany accounts and transactions have been eliminated in consolidation.

Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the "Securities Act"), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of the extended transition period, which means that when a standard is issued or revised and it has different application dates for public and private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and reported amounts of revenue and expenses during the reporting period. In addition, the Company’s significant estimates and judgments involve the valuation of share-based compensation and the evaluation of equity financing, including the underlying fair value of the common stock. Accordingly, actual results could differ from those estimates.

Reclassifications

Certain prior period income statement and balance sheets amounts have been reclassified to conform to the Company's fiscal 2023 presentation. The reclassifications have no impact on the Company's previously reported net loss.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment.

Concentrations of Credit Risk and Major Customers

Financial instruments at December 31, 2023 and 2022that 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.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

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 annual product shipment revenue. The Company had one major customer during the years ended December 31, 2023 and 2022. Revenues from the major customer accounted for 81% of product shipment revenue for both the years ended December 31, 2023 and 2022. Accounts receivable from our major customer represented 71% of accounts receivable at December 31, 2023, and 76% of accounts receivable at December 31, 2022.

Accounts Receivable

Accounts receivable primarily relate to amounts due from customers, which are typically due within 30 to 45 days. Accounts receivable also include royalty revenue from our one royalty agreement. The Company provides credit to its customers in the ordinary course of business and evaluates the need for a provision to be added to its allowance for expected credit losses. The allowance represents the Company’s best estimate of expected credit losses it may experience in the Company’s accounts receivable portfolio. Management estimates the allowance for expected credit losses based on an ongoing review of existing economic conditions, the financial conditions of the customers, historical trends in credit losses, and the amount and age of past due accounts. The Company does not require collateral or other security for accounts receivable. To reduce credit risk with accounts receivable, the Company performs ongoing evaluations of its customers’ financial condition. The Company establishes an allowance for expected credit losses and other customer claims. Historically, such losses have been immaterial and within management's expectations; therefore, the Company does not currently have an allowance for expected credit losses.

The Company had a factoring agreement that provided advance payments on up to 85% of invoices issued to RFPD, its largest distributor, with receivables less than 90 days outstanding secured by the remaining 15%. The Company terminated this factoring agreement in the second quarter of 2022.

On June 1, 2022, the Company established a new loan facility (the Spectrum Loan Facility) with Spectrum. The Spectrum Loan Facility provides for advance payments up to $3.0 million, calculated, in part, based on the value of eligible accounts receivable assigned to Spectrum as security for advances under the Spectrum Loan Facility. As of December 31, 2023, there were $1.2 million of advances under the Spectrum Loan Facility. At December 31, 2023, $0.2 million of excess collateral was due from Spectrum, which is included in accounts receivable on the consolidated balance sheets. See Note 5 for additional discussion on the Spectrum Loan Facility.

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 the carrying amount of the assets exceeds the fair value of the assets, less costs to sell. The Company evaluated its long-lived assets for impairment in the year ended December 31, 2023, and determined IT equipment and leasehold improvements were impaired and recorded an asset impairment expense. See Note 4 for further information.

Deferred Offering Costs

The Company will capitalize legal, professional, accounting, and other third-party fees directly associated with common equity financings as deferred offering costs on the balance sheet as a non-current asset until the transaction is complete. The Company will recognize such previously deferred offering costs and any additional incurred offering costs in connection with such transaction, as a reduction of additional paid in capital. Transaction costs consisting of legal, accounting, financial advisory, and other professional fees incurred as part of the Merger mentioned in Note 1, and the private placements mentioned in Note 6 were offset against the total proceeds from the Merger and private placements in the accompanying consolidated financial statements for both the years ended December 31, 2023 and 2022.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 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 received at or shortly after the point of sale. The Company provides an assurance-type warranty to its customers as part of its contracts' standard terms and conditions, which does not include a right of return for properly functioning products not deemed obsolete. These warranties do not provide an additional distinct service to the customer and are not deemed a separate performance obligation. Royalty revenue is recognized at the later of when the subsequent sale or usage occurs, or the performance obligation to which some or all the sales-based royalties have been allocated are satisfied.

During the years ended December 31, 2023 and 2022, the Company had $250 thousand of revenue from contracts with customers to be recognized over time as the services are delivered to the customer. Certain nonrecurring engineering service revenues are recognized over time as the services are delivered to the customer. During the year ended December 31, 2023, the Company recognized $0 of revenue that was deferred as of December 31, 2022. As of December 31, 2023 and 2022, the Company did not have any contract liabilities where performance obligations have not yet been satisfied. During the years ended December 31, 2023 and 2022, there was no revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods.

The costs incurred by the Company for shipping and handling are classified as direct product costs in the consolidated statements of operations. Any incidental items that are immaterial in the context of a sale to a customer are recognized as expense.

Direct Product Costs

The Company’s direct product costs consist 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 measures and recognizes compensation expense for all stock options, shares of stock, and restricted stock units ("RSU") awarded to employees and nonemployees based on the estimated fair market value of the award on the grant date. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards. The Company estimates the fair value of shares of stock and RSUs awarded based upon the known fair market value of the underlying shares on the grant date. The Company recognizes compensation expense on a straight-line basis over the applicable vesting period. In addition, the Company accounts for forfeitures of awards as they occur.

Estimating the fair market value of options requires the input of subjective assumptions, including the 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, and assumptions, and the application of management’s judgment, as they are inherently subjective.

The Company applies ASU 2018-7,Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Share-based awards issued to non-employees are no longer required to be revalued at each reporting period.

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 years ended December 31, 2023 and 2022 were $19,961 and $39,219, respectively.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Inventories

Inventories are valued at the lower of cost and net realizable value. Cost is determined by the first‐in, first‐out (FIFO) method. The Company analyzes its product portfolio and inventory aging in determining whether an inventory allowance is needed. Historically, such allowances have been immaterial and within management's expectations.

Income Taxes

Income taxes are accounted for under the asset and liability method as required by FASB ASC Topic 740,Income Taxes (“ASC 740”). 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 and operating loss and tax credit carryforwards. Deferred tax assets 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 corresponding to the enactment date. Under ASC 740, a valuation allowance is required when it is more likely than not all or some portion of the deferred tax assets will not be 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 may recognize the tax benefit from an uncertain tax position only if it is more likely than not such tax position will be sustained on examination by the taxing authorities, based solely on the technical merits of the respective tax position. The tax 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 being realized upon ultimate settlement with the tax authority. In accordance with the disclosure requirements of ASC 74010, the Company’s policy on the statements of operations classification of interest and penalties related to income tax obligations is to include such items as part of total income tax expense.

Convertible Debt Instruments

The Company evaluates agreements, including any convertible debt instruments to determine if those agreements or any embedded components of those agreements qualify as derivative financial instruments to be separately accounted for in accordance with FASB ASC Topic 815 “Derivatives and Hedging” (“ASC 815”). The accounting treatment of derivative financial instruments requires that the Company record any bifurcated embedded features at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded in earnings as non-operating, non-cash income or expense. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the agreement is reclassified as of the date of the event that caused the reclassification. Bifurcated embedded features are recorded at their initial fair values which create additional debt discount to the host instrument. The Company amortizes the respective debt discount over the term of the notes, using the effective interest method.

Fair Value of Financial Instruments

The Company measures the fair value of financial assets and liabilities based on ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 — quoted prices in active markets for identical assets or liabilities;

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable; and

Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions).

The carrying amounts of the Company’s financial instruments, such as cash and accounts payable approximate fair values due to the short-term nature of these instruments.

See Note 8 – Derivative Liabilities for additional details regarding the valuation technique and assumptions used in valuing Level 3 inputs.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Net Loss Per Share

Basic net loss per share of common stock is computed by dividing net loss by the weighted average number of common stock outstanding during each period. Diluted net loss per common stock includes the effect, if any, from the potential exercise or conversion of securities, such as options and warrants, which would result in the issuance of incremental common stock. In computing basic and diluted net loss per share, the weighted average number of shares is the same for both calculations because a net loss existed for the years ended December 31, 2023 and 2022. As such, all RSUs, warrants, and options were excluded from the calculation of net loss per share for the years ended December 31, 2023 and 2022.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:

Year Ended December 31,

The table above excludes convertible notes that are contingently convertible upon future events that have not occurred. See Note 5 – Debt – Convertible Notes for terms of conversion of the convertible notes.

Reverse Stock Split

As disclosed in Note

6, the Company’s board of directors approved a reverse split of shares of the Company’s common stock on a

six-for-

one basis, which was effective as of

12:01 a.m. Eastern Time on

April 17, 2023 (the “Effective Time”). As a result of the reverse stock split, at the Effective Time, every

six shares of the issued and outstanding common stock were automatically converted into

one share of common stock, but without any change in the par value per share.

No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would otherwise have resulted from the reverse stock split were rounded up to the next whole number. The number of authorized shares of common stock remained unchanged at

300,000,000 shares. Proportionate adjustments were made to the per share exercise price and the number of shares of common stock issuable upon the exercise of all outstanding stock options and warrants granted by the Company. The number of shares of common stock deliverable upon vesting of RSUs were similarly adjusted. Concurrently, the number of shares of common stock reserved for future issuance under the Company’s

2014 and

2021 Equity Incentive Plans immediately prior to the Effective Time were reduced proportionately. Unless otherwise stated, all share-based information in the Annual Report on Form

10-K and the accompanying consolidated financial statements are presented on a post-split basis.

Recent Accounting Pronouncements

In 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 adopted ASU 2016-13 effective January 1, 2023. Its adoption did not have a material impact on the Company’s consolidated financial statements.

In October 2021, the FASB issued ASU No.2021-08,Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in ASU 2021-08 will become effective for us as of the beginning of our 2024 fiscal year. Early adoption is permitted, including adoption in any interim period. We do not expect that this guidance will have a material impact upon our financial position and results of operations.

In September 2022, the FASB issued ASU No.2022-04,Liabilities- Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted this accounting guidance effective January 1, 2023. It did not have a material impact on its consolidated financial statements.

The Company has reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on its consolidated financial statements.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

3. Inventories

Inventories are summarized as follows:

Inventory allowance (9,661 ) -

As of December 31, 2023, there was an inventory allowance of $9,661 made up of potential scrap and obsolete inventory.

4. Property and Equipment

Property and equipment is summarized as follows:

Construction work in progress - 207,027

Depreciation expense was $1,592,567and $1,357,571 for the years ended December 31, 2023 and 2022, respectively.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10,Property, Plant, and Equipment. ASC 360-10 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flowsdo not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.

In fiscal 2023, the Company concluded the undiscounted future cash flows associated with certain of its long-lived assets, specifically leasehold improvements for the old headquarters and cameras used for the security equipment at the new headquarters and design center, indicated the carrying amount of those cameras is not recoverable. As a result, the Company reviewed the long-lived assets for impairment and recorded a $20 thousand impairment charge, which is included in General And administrative expenses on the consolidated statements of operations. The impairment was measured under an income approach utilizing forecasted discounted cash flows to determine fair values of the impairment assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820,Fair Value Measurement.

At December 31, 2023, the Company concluded it did not have any other triggering events requiring assessment of impairment of its long-lived assets.

5. Debt

Factoring Arrangement

The Company previously had an accounts receivable factoring arrangement with a financial institution (the “Factor”), which ended in the second quarter of 2022. Under the terms of the agreement, the Company, from time to time, sold to the Factor certain of its accounts receivable balances on a recourse basis for credit-approved accounts. The Factor remitted 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 collected the entire accounts receivable balance from the customer. The factoring fee was 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 was $1.50. The Company included the cost of factoring in interest expense.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

As stated previously, the Company factored the accounts receivable on a recourse basis. Therefore, if the Factor could not collect the factored accounts receivable, the Company had to refund the Advance Amount remitted to it for any uncollected accounts receivable. Accordingly, the Company recorded the liability of having to refund the Advance Amount as short-term debt when the factoring arrangement was utilized. The Company terminated the factoring arrangement as of June 1, 2022. As of December 31, 2023, and 2022 there were no advances or other liabilities outstanding under the factoring arrangement.

Spectrum Loan Facility

On June 1, 2022 (the "Spectrum Effective Date"), the Company entered into the Spectrum Loan Facility with Spectrum. Pursuant to the terms of the General Credit and Security Agreement (the "Credit Agreement"), the Company may borrow monies to purchase eligible equipment in an amount equal to the lesser of (i) 75% of the cost of such eligible equipment and (ii) $500,000; provided that this maximum eligibility will automatically be reduced by 1/48th each month during the term of the facility. The Credit Agreement also allows for additional borrowing in an amount equal to the lesser of (i) 50% of the net amount of eligible inventory (as defined in the Credit Agreement), (ii) $350,000, and (iii) 50% of the purchased accounts receivable outstanding under the related Assignment of Accounts and Security Agreement (the “AR Agreement”).

Under the terms of the AR Agreement, Spectrum has agreed to advance funds equal to approximately 85% of eligible accounts receivable that are collected by Spectrum under a “lock box” arrangement. The maximum amount that may be advanced under the AR Agreement is $3.0 million less any amounts loaned under the Credit Agreement.

The scheduled term of the Spectrum Loan Facility is 24 months from the Spectrum Effective Date, unless earlier terminated as per the terms of the Spectrum Loan Facility. The term of the facility will automatically renew unless either party provides at least 60 days’ notice prior to the scheduled expiration date. In the event of an early termination of the AR Agreement by the Company or resulting from the Company’s default or other circumstances impacting the Company (including bankruptcy, reorganization, sale of assets, and cessation of business), the Company will be required to pay a prepayment fee.

The Company’s obligations under the Spectrum Loan Facility are secured by first-priority liens on essentially all of the Company’s assets; provided, however, that the Company is permitted to grant purchase money security interests on certain equipment, furniture and similar tangible assets financed by a third party.

In addition to annual facility fees of $30,000 and other quarterly and transaction fees payable to Spectrum, interest accrues on amounts owed under the Spectrum Loan Facility at the prime rate as quoted by the Wall Street Journal plus 3.5%, but in no event lower than 7.0%.

The Spectrum Loan Facility contains various covenants and restrictions on the Company's financial and business operations including restrictions on the purchase or redemption of any Company shares and the declaration or payment of any dividends on the Company's stock. For the year ended December 31, 2023, the Company maintained compliance with these covenants and restrictions.

The Company has borrowed $1.2 million under the Spectrum Loan Facility as of December 31, 2023. The Company includes the interest expense of the Spectrum Loan Facility ($244 thousand) as part of its interest expense on its consolidated statements of operations, and the total amount of $1.2 million borrowed under the Spectrum Loan Facility is included as short-term debt on the consolidated balance sheet as of December 31, 2023.

SalemLoan Facility

On August 11, 2022 (the 'Salem Effective Date'), the Company entered into the Salem Loan Facility with Salem. The Salem Loan Facility provided financing to the Company in the aggregate amount of up to $8.0 million, with an initial advance of $5.0 million. In addition to a 2.0% closing fee, the Company issued Salem 25,000 shares of common stock as consideration for the Salem Loan Facility. The Company agreed to issue up to an additional 25,000 shares of common stock in the event Salem advanced the additional $3.0 million.

On May 1, 2023, Salem made an additional advance of $1.5 million to the Company. At the same time, the Company agreed to increase the interest rate for the Salem Loan Facility from 13.0% to 14.0% per annum, with 11.0% payable monthly and 3.0% payable either monthly or at maturity, with the outstanding principal and interest due in August 2027. In conjunction with the additional advance of $1.5 million, the Company paid Salem a closing fee of $60 thousand and issued 12,500 shares of common stock to Salem. The $1.5 million advance was allocated between notes payable, common stock and additional paid-in capital based on the relative fair value of the underlying common stock and had an approximate effective interest rate of 17%. If the Company repays the loan during the firstthree years of the term, it is required to pay a prepayment premium equal to (i) 3.0% of the prepaid principal during year 1, (ii) 2.0% of the prepaid principal during year 2, and (iii) 1.0% of the prepaid principal during year 3. The Salem Loan Facility contained customary affirmative and negative covenants that imposed restrictions on the Company’s financial and business operations, including limitations on liens, indebtedness, fundamental changes and changes in the nature of the Company’s business, the purchase or redemption of any Company stock, and the declaration or payment of any dividends on the Company's stock. On June 30, 2023, the Company entered into an amendment to its agreement with Salem that delayed the application of one of the financial covenants.

On August 14, 2023, Salem made an additional advance of $1.5 million to the Company. The interest rate for the advance was 14.0% per annum, with principal and interest due in August 2027. In conjunction with this advance, the Company incurred cash closing costs of $78 thousand, including a closing fee of $45 thousand, and issued 400,000 shares of common stock to Salem. The $1.5 million advance was allocated between notes payable, common stock and additional paid-in capital based on the relative fair value of the underlying common stock and an approximate effective interest rate of 28%.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

On September 5, 2023, the Company and Salem entered into the amended and restated loan agreement (the 'A&R Loan Agreement') in order to (i) provide for additional advances of up to $4.0 million, and (ii) change the maturity date of all previous advances from August 11, 2027 to April 30, 2024. The additional advances have an interest rate of 14.0% per annum, with payment of interest deferred until the April 30, 2024 maturity date. The Company determined that the A&R Loan Agreement represented a debt modification and, accordingly, no extinguishment accounting was required. As a result of prospectively revising the amortization of existing debt discount of previous advances, new approximate effective interest rates between 29% and 98% were established on the previous advances. The A&R Agreement provides that the Company must maintain compliance with certain net cash flow and liquidity requirements. As of December 31, 2023, the Company was in full compliance with all covenants, representations, and warranties set forth in the A&R Loan Agreement.

On September 6, 2023, Salem made an additional discretionary advance of $1.75 million under the Salem Loan Facility. In conjunction with receiving the additional loan facility and drawing down $1.75 million of additional advances, the Company incurred cash closing costs of $88 thousand and issued 660,000 shares of common stock to Salem. The $1.75 million of additional advances was allocated between notes payable, common stock and additional paid-in capital based on the relative fair value of the underlying common stock and had an approximate effective interest rate of 104%.

On October 23, 2023, Salem made an additional advance of $1.25 million under the Salem Loan Facility. The Company incurred cash closing costs of $43 thousand associated with the additional advance, which the Company recognized as deferred debt discount to be amortized over the term of the additional advance and had an approximate effective interest rate of 21%.

On December 18, 2023, Salem made a final advance of $1.0 million under the Salem Loan Facility. In conjunction with receiving the additional advance, the Company incurred cash closing costs of $45 thousand which the Company recognized as deferred debt discount to be amortized over the term of the additional advance and had an approximate effective interest rate of 26%.

In the second half of 2023, AMB Investments, LLC and others purchased participation interests in $5.5 million of additional advances made under Salem Loan Facility. AMB Investments, LLC owns a 47.17% participation interest in those advances, giving it a pecuniary interest in approximately $2.6 million of the Salem Loan Facility and 500,000 shares of common stock issued to Salem in connection with the advances made in the second half of 2023. Director, Gary Smith is President of AMB Investments, LLC.

As of December 31, 2023, the total amount the Company has financed under the Salem Loan Facility is:

Principal amount of promissory notes payable $ 12,000,000

Less: unamortized debt issue costs (199,993 )

Less: unamortized debt discount (1,259,049 )

Notes payable, current portion, net $ 10,948,668

On August 11, 2022, in connection with the closing of the Salem Loan Facility, the Company paid off its obligations under its Economic Injury Disaster Loan ("EIDL") loan from the Small Business Administration (see further discussion of the EIDL loan below).

Loans Payable – EIDL

In response to COVID-19, the Small Business Administration (the 'SBA') created the 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"), an EIDL loan is not forgivable in the future but provides favorable interest and payment terms. The maximum EIDL available was equivalent to six months of a business’s working capital, up to $150,000. Businesses could 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 were to commence at the end of the anticipated deferral allowance period in December 2022 for up to a maximum of 30 years from the loan date (thus, 2050). As mentioned above, in conjunction with closing the Salem Loan Facility on August 11, 2022, the Company repaid the entire outstanding principal ($149,900) and accrued interest ($12 thousand) of the EIDL loan.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Convertible Promissory Notes

In July 2023, the Company entered into note purchase agreements with certain accredited investors pursuant to which the Company issued unsecured convertible promissory notes in the aggregate principal amount of $790,000 (the "Convertible Notes"), which mature on December 31, 2024 (the “Maturity Date”). Of such aggregate principal amount, the Company issued Convertible Notes in the aggregate principal amount of $710,000 to the Company’s Chief Executive Officer (in the principal amount of $80,000) and his family members (in the aggregate principal amount of $630,000). Convertible Notes in the aggregate principal amount of $290,000 accrue interest at a simple rate of 8.0% per annum, payable at maturity, and one Convertible Note in the principal amount of $500,000 accrues interest at a simple rate of 16.0% per annum, payable at maturity. Upon the issuance of equity securities pursuant to which the Company receives aggregate gross proceeds of at least $2.0 million (the “Next Equity Financing”), the Convertible Notes will automatically convert into the same equity securities issued in such Next Equity Financing at a conversion price equal to the lowest per share purchase price of equity securities issued in the Next Equity Financing. Further, in the event of a change of control of the Company, each convertible note will, at the election of the holder, either be: (a) repaid in cash at an amount equal to the sum of (i) the outstanding principal balance and all accrued and unpaid interest due on such Convertible Note plus (ii) an additional amount equal to 20% of such outstanding amount due; or (b) converted into shares of the Company’s common stock equal to the outstanding balance of the Convertible Note (including any accrued but unpaid interest thereon) divided by $6.00 per share. At any time on or after the Maturity Date but prior to the date the Convertible Note is repaid by the Company, at the election of the holder thereof, such holder’s Convertible Note will convert into that number of shares of the Company’s common stock equal to the quotient (rounded up to the nearest whole share) obtained by dividing (x) the outstanding principal balance and unpaid accrued interest of such Convertible Note on the date of such conversion by (y) $6.00 per share.

The Company analyzed the embedded features of the Convertible Notes and determined that the Convertible Notes contained (i) an automatic conversion pursuant to which the holders may elect to convert their Convertible Notes into shares of the Company’s common stock at a price of $6.00 per share which did not require bifurcation, (ii) a redemption feature pursuant to an event of a Next Equity Financing which did not require bifurcation, (iii) a put option triggered upon a change of control with a fair value of $15,800 which was bifurcated from the debt host and recorded with a credit to derivative liabilities and a debit to debt discount, and (iv) an automatic conversion pursuant to which the Convertible Notes may be converted into shares of the Company’s common stock at a price of $6.00 per share upon a change of control which did not require bifurcation. Including the impact of the embedded features, Convertible Notes in the aggregate principal amount of $290,000 have an approximate effective simple interest rate of 9.4% per annum, and one Convertible Note in the principal of $500,000 has an approximate effective simple interest rate of 17.4% per annum. The debt discount is being amortized over the term of the Convertible Notes using the effective interest method and the derivative liabilities are marked-to-market at each reporting date. See Note 8 – Derivative Liabilities for additional details.

New Headquarters and Design Center Capital Addition Financing

In conjunction with the Company's move into expanded office facilities in early 2023, the Company entered into a financing arrangement related to furniture for the new office facilities in April 2022. The total cost of the furniture financed was $1.1 million, which included tax, freight, interim storage, and installation labor. The Company was responsible for paying interest-only payments to the financing company related to the furniture procurement order (interest on principal of $496 thousand) placed in April 2022 prior to the first scheduled principal financing payment, which occurred in August 2022 ($246 thousand). The Company made interest-only payments to the financing company related to the furniture procurement order through August 2022 in the amount of $17 thousand. The total scheduled principal and interest payments to be made after December 31, 2023 related to the April 2022 furniture financing are $360 thousand.

The Company entered into a lease agreement in July 2021 in conjunction with the Company's move into its new headquarters and design center in early 2023. The new headquarters and design center were renovated in accordance with plans agreed upon with the landlord. The Company took possession of the building once all improvements and renovations (the "new building asset additions") were substantially complete. Initially, the Company anticipated the new building asset additions being completed and taking possession in September 2022; however, the landlord, as the sole improvement and renovation contractor, experienced significant construction delays and as a result the new headquarters and design center did not become available until the first quarter of 2023. In August 2022, the Company reached an agreement with the landlord over the timing of the payments for the new building asset additions in light of the significant construction delays. The total cost of the new building asset additions was $7.7 million, with the Company responsible for the balance in excess of the landlord's $3.5 million allowance (the "excess construction costs") plus deferral fees and interest.

As part of the aforementioned August 2022 lease amendment, the Company made the landlord an initial payment of $1.3 million towards the excess construction costs and related financing costs. The August 2022 lease amendment included new financing terms for the excess construction costs, which included a deferral fee (2% per annum) and interest (18% per annum). Thus, the Company paid the landlord a 2% deferral fee which was applied to all excess construction costs as invoiced by the landlord. The Company also paid 18% interest on all excess construction costs and deferral fees from the date the landlord invoiced them until the Company remitted payment. The initial payment of $1.3 million towards the excess construction costs was applied first to accrued interest, then to the deferral fee, and then to excess construction costs. The Company has paid the remaining balance of the excess construction costs of $3.2 million, with the last payment in April 2023. The Company does not owe the landlord for any further excess construction costs as of December 31, 2023.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Debt Maturity

Debt is expected to mature as follows:

Thereafter -

6. Common Stock

Common Stock

The Company is authorized to issue 300,000,000 shares of common stock with a par value of $ 0.0001 as of December 31, 2023 and 2022. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the 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. No dividends had been declared through December 31, 2023.

Upon the closing of the Merger and the private placement offering in 2021 (the "2021 APO), there were 5,524,534 shares of common stock issued and outstanding: (i) 4,021,774 shares of common stock issued in the Merger in exchange for the capital stock and convertible debt of Guerrilla RF Operating Corporation, (ii) 495,834 shares of common stock held by pre-merger stockholders of Laffin Acquisition Corp., our predecessor, (iii) an aggregate of 961,092 shares of common stock issued in the 2021 APO, and (iv) an aggregate of 45,834 shares of common stock issued to the placement agent and its affiliates in connection with the 2021 APO. The aggregate gross proceeds from the 2021 APO was $11.5 million before deducting placement agent fees and expenses of approximately $2.1 million.

On December 30,2022, the Company completed the initial closing of a private placement (the “2022/23 PIPE”) as it entered into a Unit Purchase Agreement (the “Unit Purchase Agreement”) with investors (the “Purchasers”) pursuant to which the Company sold 647,057 units (the “Units”), each Unit consisting of one share of the Company’s common stock and one warrant to purchase one-half of a share of common stock. The purchase price of each Unit was $7.80 per Unit, resulting in gross proceeds at this initial closing of approximately $5.0 million before the deduction of estimated offering expenses of approximately $700,200. The Company continued to accept subscriptions for Units and had additional closings through February 28, 2023. Altogether, the Company sold 1,183,192 Units, resulting in gross proceeds of approximately $9.2 million before the deduction of estimated offering expenses of approximately $1.2 million.

In connection with the 2021 APO and the 2022/23 PIPE, the Company also issued warrants to the respective placement agents.

Additionally, a total of 1,097,500 shares of common stock were issued to Salem in the years ended December 31, 2023 and 2022 in connection with the Salem Loan Facility. See Note 5 – Debt – Salem Loan Facility for more details regarding common stock issued in connection with debt.

Reverse Stock Split

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

Unless otherwise stated, all share-based information in the Annual Report on Form

10-K and the accompanying consolidated financial statements are presented on a post-split basis.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Common Stock Warrants

An aggregate of 55,270 warrants were issued to the Company's placement agents in the 2021 APO. The warrants issued in the 2021 APO have an exercise price of $12.00 per share and a term of five years. In connection with the 2022/23 PIPE, the Company issued 591,656 warrants to investors and 177,490 warrants to its placement agents. The warrants issued to investors in connection with the 2022/23 PIPE have an exercise price of $12.00 per share, and the warrants issued to the placement agents have an exercise price of $7.80 per share. As of December 31,2023, there were 824,416 outstanding warrants.

Preferred Stock

The Company’s Board of Directors is authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences, and rights of the shares of each series. There is no issued or outstanding preferred stock as of December 31, 2023 and 2022.

7. Share-Based Compensation

2014, the Company adopted the Long‐Term Stock Incentive Plan (the

“2014 Plan”), with

94,667 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

210,000shares. Exercise prices range from

$4.20 to

$9.42 per share, depending on the date of the award.

No further awards

may be made under the

2014 Plan.

In 2021, the Board adopted the 2021 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 37,166shares 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 each year until 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.

The general purpose of the 2014 Plan and the 2021 Plan is to allow the Company to attract and motivate key employees and directors to align their interests with those of the Company’s shareholders.

Stock Option Awards

The Company measures the fair value of each option award on the date of grant using the Black‐Scholes option-pricing model, which takes into account inputs such as the exercise price, the value of the underlying ordinary shares at the grant date, expected term, expected volatility, risk-free interest rate, and dividend yield. The fair value of each grant of options was determined using the methods and assumptions discussed below:

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

For the years ended December 31, 2023 and 2022, 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:

Year Ended December 31,

Expected term (in years) 6.25 6.25

Expected volatility 52 % 52 %

Dividend rate — —

The weighted average grant date fair value of stock option awards granted was $4.61 and $7.80 during the years ended December 31, 2023 and 2022, 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 December 31, 2023 amounted to $344,275, which are expected to be recognized over an average of approximately three years.

Stock option activity by share is summarized as follows for the years ended December 31, 2023 and 2022:

Exercised - -

In the year ended December 31, 2023, the Company granted 13,135 stock options to new employees at multiple exercise prices between $7.80 and $9.00 per share. These option awards vest equally over four years (25% per year) on the anniversary of the date the recipient started working for the Company.

In the year ended December 31, 2022, the Company granted 78,667 stock options to new employees at multiple exercise prices between $12.00 and $24.90 per share. These option awards vest equally over four years (25% per year) on the anniversary of the date the recipient started working for the Company.

No options were exercised during the year ended December 31, 2023.

Restricted Stock Unit ("RSU") Awards

In the years ended December 31, 2023 and 2022 the Company granted 381,127 and 150,520 RSUs, respectively to various employees and directors. The RSU awards made to non-employees in the year ended December 31, 2023 (44,877) vest on the earliest of (i) April 5,2024, subject to the recipient's continued service with the Company, (ii) the recipient's death, or (iii) the recipient's disability. The RSU awards made to non-employees in the year ended December 31, 2023 (25,000) vest on the earliest of (i) June 2, 2023, subject to the recipient's continued service with the Company, (ii) the recipient's death, or (iii) the recipient's disability. The RSUs awarded to employees during the year ended December 31, 2022 (336,250) vest over three equal annual installments from the date of the grant. The RSUs are subject to the recipient’s continued service through the applicable vesting date. The share-based compensation expense to be recognized for these RSUs over the remaining vesting period subsequent to December 31,2023 is approximately $1.4 million.

The RSU grants during the years ended December 31, 2023 and 2022 were issued from the 2021 Plan. The fair value of each RSU was estimated on the date of grant, based on the weighted average price of the Company's stock reduced by the present value of the expected dividend stream during the vesting period using the risk-free interest rate. The Company will issue shares of common stock to satisfy RSUs upon vesting. The following table summarizes the RSU activity and weighted averages.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

The following table summarizes RSU activity:

Number of RSUs Weighted Average Grant Date Fair Value

Outstanding at December 31, 2021 - $ -

Vested - -

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 consolidated statements of operations for the years ended December 31, 2023 and 2022:

Year Ended December 31,

No income tax benefits have been recognized in the consolidated statements of operations for stock-based compensation arrangements, and no stock-based compensation costs have been capitalized as property and equipment through December 31, 2023.

8. DERIVATIVE LIABILITIES

As of December 31, 2023, the Company had Level 3 derivative liabilities that were measured at fair value at issuance, related to the put options of the Convertible Notes. See Note 5 – Debt – Convertible Notes for additional details. The put options were valued using a discounted cash flow valuation technique.

The following table sets forth a summary of the changes in the fair value of Level 3 derivative liabilities that are measured at fair value on a recurring basis:

Beginning balance as of January 1, 2023 $ -

Issuance of Convertible Notes 15,800

Change in fair value of derivative liabilities 142,200

There are derivative liabilities of $158,000 as of December 31, 2023. For the derivative liabilities valuation, as of the issuance dates of the Convertible Notes between July 12, 2023 and July 21, 2023, the significant unobservable inputs used in the discounted cash flow were a discount rate between 8% to 16% and the probability of a change of control occurring of 10%. For the derivative liabilities valuation, as of December 31, 2023, the significant unobservable inputs used in the discounted cash flow were a discount rate between 8% to 16%.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

9. Commitments and Contingencies

Lease Commitments

As of 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 $2.6 million and an operating right-of-use asset and liability of $0.3 million.

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 December 31, 2023

Operating Leases:

Noncurrent portion of operating lease liabilities Operating lease 6,176,508

Total operating lease liabilities $ 6,922,477

Finance Leases:

Finance lease right-of-use assets Property, plant, and equipment $ 2,528,643

Noncurrent portion of finance lease liabilities Finance lease 1,593,979

Total finance lease liabilities $ 2,572,522

Lease cost recognized in the consolidated financial statements is summarized as follows:

For the Year Ended December 31,

Finance lease cost:

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Other supplemental information related to leases is summarized as follows:

Weighted average remaining lease term (in years):

Operating leases 8.68

Finance leases 2.98

Weighted average discount rate:

Operating leases 11.00 %

Finance leases 7.56 %

Operating cash flows from operating leases $ 1,726,941

Operating cash flows from finance leases $ 243,865

Financing cash flows from finance leases $ 1,043,149

The following table summarizes our future minimum payments under contractual obligations for operating and financing liabilities as of December 31, 2023:

Payments Due by Period

In July 2023, the Company entered into a sub-lease for 4,800 square feet of its former headquarters at a monthly rent of $5,540, which is the same monthly rental due under the lease on a per square foot basis. As a result of this sub-lease, the Company recorded a $95 thousand impairment charge, which is included in general and administrative expenses on the consolidated statement of operations for the year ended December 31,2023.

New Headquarters and Design Center Capital Addition Financing

In July 2021, the Company entered into a lease agreement for its new headquarters and design center (also in Greensboro, North Carolina), with a lease term of ten years and two months from the date the Company commences occupancy, which occurred in the first quarter of 2023. Under the lease agreement, the Company is responsible for certain insurance and maintenance expenses, which are not part of the minimum lease payments. In addition, the lease agreement contains scheduled rent increases. Upon taking control of the building, the related rent expense for the lease is calculated on a straight-line basis according to the lease's rental terms. The Company commenced remitting scheduled lease payments in the second quarter of 2023. The Company anticipates an annual lease expense of approximately $1.5 million over the term of the lease. Lease expense recognition commenced in the first quarter of 2023. The initial lease payment was made in the second quarter of 2023.

In conjunction with the Company's move into the new headquarters and design center in early 2023, the Company entered into a financing lease arrangement related to furniture for the new office facilities in April 2022. The total cost of the furniture financed was $1.1 million, which included tax, freight, interim storage, and installation labor. The Company was responsible for paying interest-only payments to the financing company related to the furniture procurement order (interest on principal of $496 thousand) placed in April 2022 prior to the first scheduled principal financing payment, which occurred in August 2022 ($246 thousand). The Company made interest-only payments to the financing company related to the furniture procurement order through August 2022 in the amount of $17 thousand. The total scheduled principal and interest payments to be made after December 31,2023 related to the furniture financing are $360 thousand.

As disclosed in Note 5, the Company entered into a lease agreement in July 2021 in conjunction with the Company's move into its new headquarters and design center in early 2023. The total cost of the new building asset additions were $7.7 million, with the Company being responsible for the balance in excess of the landlord's $3.5 million allowance (the "excess construction costs") plus deferral fees and interest.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Legal

In the ordinary course of business, the Company may become involved in legal disputes. In the opinion of management, any potential liabilities resulting from any disputes would not have a material adverse effect on the Company’s consolidated financial statements. As a result, no liability related to any such disputes has been recorded at December 31, 2023 or 2022.

Indemnification Agreements

From time to time, in the ordinary course of business, the Company may indemnify other parties when it enters into contractual relationships, including members of the Board of Directors, employees, customers, lessors, lenders, and parties to other transactions with the Company. In addition, the Company may agree to hold other parties harmless against specific losses, such as those that could arise from a breach of representation, covenant, or third-party infringement claims. It may not be possible to determine the maximum potential amount of liability under such indemnification agreements due to the unique facts and circumstances likely to be involved in each particular claim and indemnification provision. Management believes any liability arising from these agreements will not be material to the consolidated financial statements. As a result, no liability for these agreements has been recorded at December 31, 2023 or 2022.

Employment Agreement

The Company has entered into an employment agreement with one executive. This employment agreement was entered into effective as of January 1, 2020 and automatically renews annually. The Company desired the assurance of the executive's continued association and services to retain the executive's experience, skills, abilities, background, and knowledge. The employment is at-will, and the Company may terminate the employment relationship at any time, with or without cause, and with or without notice. The terms of the agreement stipulate compensation, benefits, specific restrictive covenants, and Company obligations upon termination of the employment agreement, including severance pay calculated as twelve monthly payments of the executive's monthly base salary.

10. Income Taxes

The Company did not have any income tax expense for the years ended December 31, 2023 or 2022.

The provision for income taxes for the years ended December 31, 2023 and 2022 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 accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known, or the tax environment changes.

In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to realize deferred tax assets. Based upon the historical and anticipated future losses, management has determined that the deferred tax assets do not meet the more likely than not threshold for realizability. Accordingly, a full valuation allowance has been recorded against the Company’s net deferred tax assets as of December 31, 2023 and December 31, 2022.

On August 9, 2022, the U.S. Government enacted the U.S. CHIPS and Science Act (“CHIPS Act”). The CHIPS Act creates a 25% investment tax credit for certain investments in domestic semiconductor manufacturing. The credit is provided for qualifying property, which is placed in service after December 31, 2022, and any impact to the Company would start in fiscal 2023. On August 16, 2022, the U.S. Government enacted the Inflation Reduction Act. The Inflation Reduction Act introduces a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations. Applicable corporations would be allowed to claim a credit for the minimum tax paid against regular tax in future years. The Inflation Reduction Act also includes an excise tax that would impose a 1% surcharge on stock repurchases. This excise tax is effective January 1, 2023. The Company is currently evaluating the effect the CHIPS Act and the Inflation Reduction Act will have on its consolidated financial statements. At present, the Company does not expect that any of the provisions included in the two aforementioned pieces of legislation will result in a material impact to the Company’s deferred tax assets, liabilities, or income taxes payable.

Deferred tax assets and liabilities are determined based on the differences between the consolidated financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Significant components of the Company's deferred tax assets for federal income taxes consisted of the following:

Noncurrent deferred income tax asset arising from:

Noncurrent deferred income tax liability arising from:

Net $ - $ -

The Company does not have unrecognized tax benefits as of December 31, 2023, or 2022. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

On August 9, 2022, the U.S. Government enacted the U.S. CHIPS and Science Act (“CHIPS Act”). The CHIPS Act creates a 25% investment tax credit for certain investments in domestic semiconductor manufacturing. The credit is provided for qualifying property, which is placed in service after December 31, 2022, and any impact to the Company would start in fiscal 2023. On August 16, 2022, the U.S. Government enacted the Inflation Reduction Act. The Inflation Reduction Act impact to the Company would start in fiscal 2023. The Inflation Reduction Act introduces a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations. Applicable corporations would be allowed to claim a credit for the minimum tax paid against regular tax in future years. The Inflation Reduction Act also includes an excise tax that would impose a 1% surcharge on stock repurchases. This excise tax is effective January 1, 2023. The Company is currently evaluating the effect the CHIPS Act and the Inflation Reduction Act will have on its consolidated financial statements. At present, the Company does not expect that any of the provisions included in the two aforementioned pieces of legislation will result in a material impact to the Company’s deferred tax assets, liabilities, or income taxes payable.

The Company had net operating loss carryforwards (“NOL”) for federal and state income tax purposes at December 31, 2023, and December 31, 2022 of approximately:

December 31,

The net operating loss carryforwards generated before 2018 begin expiring in 2033 for federal and 2030 for state income tax purposes. Federal and state net operating losses generated in 2018 and into the future now have an indefinite life.

December 31,

The credit carryforwards begin expiring in 2034 for federal tax purposes.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

The NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The annual limitation amount is determined based on the Company's value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.

A reconciliation of income tax benefit at the statutory federal income tax rate and income taxes as reflected in the consolidated financial statements is as follows:

December 31,

Federal tax benefit at the statutory rate (21.0 )% (21.0 )%

State tax, net of federal benefit (1.0 )% (2.0 )%

Research & development credits (1.5 )% (2.2 )%

Change in the valuation allowance 21.9 % 24.2 %

Income Tax Expense (Benefit) — % — %

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company’s tax returns remain subject to examination; carryforward amounts from all tax years remain subject to adjustment.

Potential 382 Limitation

At December 31, 2023, the Company had federal NOL and R&D credit carryforwards of approximately $26,826,582 and $858,020, respectively, which are generally available to offset future taxable income.

A company’s ability to deduct its federal NOL and R&D credit carryforwards can be substantially constrained under the general annual limitation rules of Section 382 of the Code, as well as similar State provisions, if it were to undergo an ownership change. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of a company's outstanding stock by certain stockholders or public groups.

If the Company were to experience an ownership change, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. The Section 382 limitation is a limitation on the amount of a new loss corporation’s post-change year taxable income that can be offset by the old loss corporation’s pre-change NOLs. Any such limitation may result in the expiration of a portion of the Company's NOL or R&D credit carryforwards before utilization. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the Company's deferred tax valuation allowance.

In 2022, the Company's tax advisors completed a study to assess whether one or more ownership changes had occurred since the Company became a loss corporation under the definition of Section 382. At that time, it was determined that the Company had not experienced any "ownership changes" since 2014. As of December 31, 2023, the Company does not believe that an ownership change has occurred. As a result, as of December 31, 2023, no amounts were considered as an uncertain tax position or disclosed as an unrecognized tax benefit under ASC-740. The Company has a full deferred tax valuation allowance as of December 31, 2023.

Subsequent to year-end, the Company issued additional shares of common stock in a private placement offering. The Company has not analyzed whether, as a result, it is deemed to have experienced an ownership change; however, if an ownership change is deemed to have occurred or occurs in the future, such change may result in the expiration of a portion of the Company's NOL or R&D credit carryforwards before utilization.

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Guerrilla RF, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

11. Related Party Transactions

See Note 5 – Debt – Salem Loan Facility and – Convertible Promissory Notes for details regarding participation interests in the Salem Loan Facility and convertible notes purchased by related parties during the year ended December 31, 2023.

Participation in 2022/23 PIPE

Certain existing shareholders, including investors affiliated with certain of our directors and officers, purchased an aggregate of 45,383 Units in conjunction with the 2022/23 PIPE through all closings during the period December 2022 through February 2023.

12. Employee Benefit Plan

The Company has a 401(k) plan to provide defined contribution retirement benefits for all eligible employees. Participants may contribute a portion of their compensation to the plan, subject to the limitations under the Internal Revenue Code. The Company’s contributions to the plan are at the discretion of Executive Management with Board of Directors advisement. The Company made $378,177 and $336,383 of contributions to the plan in 2023 and 2022, respectively.

13. Subsequent Events

Subsequent events have been evaluated through the date that the Company approved the consolidated financial statements. The following subsequent events have occurred during the period.

GUER US Equity

GUER · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GUER US Equity☆

GUER · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GUER US Equity