UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 22, 2021

(336) 510-7840

(Registrant’s telephone number, including area code)

LAFFIN ACQUISITION CORP.

2255 Glades Road, Suite 324A
Boca Raton, Florida 33431

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Securities registered pursuant to Section 12(b) of the Act: None.

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

EXPLANATORY NOTE

We were incorporated as Laffin Acquisition Corp. in the State of Delaware on November 9, 2021. Prior to the Merger (as defined below), we were a “shell company” (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).

On October 22, 2021, our board of directors and all of our pre-Merger stockholders approved an amended and restated certificate of incorporation, which was effective upon its filing with the Secretary of State of the State of Delaware on October 22, 2021, and through which we changed our name to “Guerrilla RF, Inc.” On October 22, 2021, our board of directors also adopted amended and restated bylaws.

On October 22, 2021, our wholly-owned subsidiary, Guerrilla RF Acquisition Co., a corporation formed in the State of Delaware on October 20, 2021 (“Acquisition Sub”), merged with and into Guerrilla RF, Inc., a privately held Delaware corporation (“Guerrilla RF” or “GRF”). Pursuant to this transaction (the “Merger”), Guerrilla RF was the surviving corporation and became our wholly owned subsidiary, and all of the outstanding stock of Guerrilla RF was converted into shares of our common stock. All of Guerrilla RF’s outstanding warrants, options and stock appreciation rights were assumed by us. Following the consummation of the Merger, Guerrilla RF changed its name to “Guerrilla RF Operating Corporation”.

As a result of the Merger, we acquired the business of Guerrilla RF and will continue the existing business operations of Guerrilla RF as a public reporting company under the name Guerrilla RF, Inc.

On October 22, 2021, we sold 3,583,050 shares of our common stock pursuant to a private placement offering at a purchase price of $2.00 per share. Additional information concerning the private placement offering is presented below under Item 2.01, “Completion of Acquisition or Disposition of Assets—The Merger and Related Transactions —The Merger and Related Transactions —The Offering” and “Completion of Acquisition or Disposition of Assets—The Merger and Related Transactions,” and under Item 3.02, “Unregistered Sales of Equity Securities.”

In accordance with “reverse merger” or “reverse acquisition” accounting treatment, our historical financial statements as of period ends, and for periods ended, prior to the Merger will be replaced with the historical financial statements of Guerrilla RF prior to the Merger, in all future filings with the U.S. Securities and Exchange Commission (the “SEC”).

As used in this Current Report on Form 8-K (this “Report”), unless otherwise stated or the context clearly indicates otherwise, the terms the “Company,” the “Registrant,” “we,” “us” and “our” refer to Laffin Acquisition Corp., incorporated in the State of Delaware, and its subsidiaries after giving effect to the Merger and the company name changes described above.

This Report contains summaries of the material terms of various agreements executed in connection with the transactions described herein. The summaries of these agreements are subject to, and are qualified in their entirety by, reference to these agreements, which are filed as exhibits hereto and incorporated herein by reference.

This Report responds to the following Items in this Report:

Prior to the Merger, we were a “shell company” (as such term is defined in Rule 12b-2 under the Exchange Act). As a result of the Merger, we have ceased to be a “shell company.” The information included in this Report constitutes the current “Form 10 information” necessary to satisfy the conditions contained in Rule 144(i)(2) under the Securities Act of 1933, as amended (the “Securities Act”).

FORWARD-LOOKING STATEMENTS

This Report, including the sections entitled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business”, includes forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Forward-looking statements relate to, among others, our plans, objectives and expectations for our business, operations and financial performance and condition, and can be identified by terminology such as “may,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “will,” “could,” “project,” “target,” “potential,” “continue” and similar expressions that do not relate solely to historical matters. Forward-looking statements are based on management’s belief and assumptions and on information currently available to management. Although we believe that the expectations reflected in forward-looking statements are reasonable, such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements.

Forward-looking statements include, but are not limited to, statements about:

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

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

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

ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

The information contained in Item 2.01 below relating to the various agreements described therein is incorporated herein by reference. All descriptions of the agreements described below are qualified in their entirety by reference to the form of the relevant agreement that is filed as an exhibit to this Report and incorporated herein by reference.

ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.

THE MERGER AND RELATED TRANSACTIONS

Merger Agreement

On October 22, 2021, Laffin Acquisition Corp., Acquisition Sub and Guerrilla RF 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, with Guerrilla RF continuing as the surviving corporation and our wholly owned subsidiary.

As a result of the Merger, we acquired the business of Guerrilla RF, a fabless semiconductor company based in Greensboro, N.C. See “Description of Business” below. At the time the certificate of merger reflecting the Merger was filed with the Secretary of State of Delaware (the “Effective Time”), each of Guerrilla RF’s shares of capital stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive approximately 2.95 shares of our common stock (the “Common Share Conversion Ratio). Immediately prior to the Effective Time, an aggregate of 2,025,000 shares of our common stock owned by the stockholders of Laffin Acquisition Corp. prior to the Merger were forfeited and cancelled (the “Stock Forfeiture”).

In addition, pursuant to the Merger Agreement, options to purchase 1,065,067 shares of Guerrilla RF’s common stock issued and outstanding immediately prior to the closing of the Merger under Guerrilla RF’s 2014 Long Term Stock Incentive Plan (the “Guerrilla RF Plan”) were assumed and converted into options to purchase 3,146,366 shares of our common stock.

See ”Description of Capital Stock” below for more information. The issuance of shares of our common stock, or options to purchase shares of our common stock, to Guerrilla RF’s former security holders are collectively referred to as the “Share Conversion.”

The Merger Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions.

As a condition to the Merger, we entered into an indemnity agreement with our former officer and directors (the “Pre-Merger Indemnity Agreement”), pursuant to which we agreed to indemnify such former officer and directors for actions taken by them in their official capacities relating to the consideration, approval and consummation of the Merger and certain related transactions.

The Merger was treated as a recapitalization and reverse acquisition for us for financial reporting purposes. Guerrilla RF is considered the acquirer for accounting purposes, and our historical financial statements before the Merger will be replaced with the historical financial statements of Guerrilla RF before the Merger in future filings with the SEC. The Merger is intended to be treated as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended.

The issuance of securities pursuant to the Share Conversion was not registered under the Securities Act, in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer not involving any public offering, and Rule 506 of Regulation D promulgated by the SEC thereunder. These securities may not be offered or sold in the U.S. absent registration or an applicable exemption from the registration requirement and are subject to further contractual restrictions on transfer as described below under “Shares Eligible for Future Sales.”

The Offering

Immediately following the Effective Time of the Merger, we sold 3,583,050 shares of our common stock pursuant to in a private placement offering at a purchase price of $2.00 per share (the “Offering Price”). The private placement offering is referred to herein as the “Offering.”

The aggregate gross proceeds from the Offering were $7.2 million (before deducting placement agent fees and expenses of the Offering, which are estimated at $1.0 million).

The Offering was exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated by the SEC thereunder. The common stock in the Offering was sold to “accredited investors,” as defined in Regulation D, and was conducted on a “reasonable best efforts” basis.

In connection with the Offering and subject to the closing of the Offering, we agreed to pay the placement agents, GP Nurmenkari Inc. and its sub-agents (the “Placement Agents”), each a U.S. registered broker-dealer, a cash placement fee of 8% of the gross proceeds raised from investors in the Offering (or 4% of gross proceeds raised from current Guerrilla RF shareholders and their friends and family), to issue them 275,000 shares of our common stock, and to issue them warrants to purchase a number of shares of our common stock equal to 8% of the number of shares of common stock sold in the Offering (excluding shares sold to current Guerrilla RF shareholders and their friends and family), with a term of five years and an exercise price of $2.00 per share (the “Placement Agent Warrants”). We also agreed to pay certain expenses of the Placement Agents in connection with the Offering.

As a result of the foregoing, we paid the Placement Agents an aggregate commission of $469,774 and issued to them Placement Agent Warrants to purchase 183,100 shares of our common stock in connection with the closing of the Offering. We have also reimbursed the Placement Agents for approximately $25,000 of legal fees and expenses incurred in connection with the Offering. Following the final closing of the Offering, we will issued 275,000 shares to the Placement Agents and their affiliates.

Subject to certain customary exceptions, we have agreed to indemnify the Placement Agents to the fullest extent permitted by law against certain liabilities that may be incurred in connection with the Offering, including certain civil liabilities under the Securities Act, and, where such indemnification is not available, to contribute to the payments the Placement Agents and their sub-agents may be required to make in respect of such liabilities.

Registration Rights

In connection with the Merger and the Offering, we entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which we have agreed that promptly, but no later than 60 calendar days from the final closing of the Offering, we will file, subject to customary exceptions, a registration statement with the SEC (the “Registration Statement”), covering (i) the shares of our common stock issued in the Offering; (ii) the shares of common stock issuable upon exercise of the Placement Agent Warrants, (iii) the shares of our common stock issued as a result of the Share Conversion; (iv) 2,975,000 shares of our common stock held by persons who purchased or received such shares for services rendered from Laffin Acquisition Corp. prior to the Merger; and (v) 275,000 shares of our common stock issued to our Placement Agents ((i)-(v) collectively, the “Registrable Securities”). We will use our commercially reasonable efforts to ensure that such Registration Statement is declared effective within 150 calendar days after the final closing of the Offering.

Subject to customary exceptions, if (i) we are late in filing the Registration Statement, (ii) the Registration Statement is not declared effective within 150 days after the final closing of the Offering (provided that such failure of the Registration Statement to be declared effective within one hundred fifty (150) calendar days is the result of any action or failure to act on the part of the Company)(the “Registration Effectiveness Date”), (iii) we fail to maintain the effectiveness of the Registration Statement, (iv) the holders of Registrable Securities cannot use the Registration Statement to resell the Registrable Securities for a period of more than 15 consecutive trading days (except for suspension of the use of the Registration Statement during certain Blackout Period (as defined below)), or (v) following the listing or inclusion for quotation on the OTC Markets, the Nasdaq Stock Market (“Nasdaq”), the New York Stock Exchange (“NYSE”) or the NYSE American, trading of our common stock is suspended or halted for more than three full, consecutive trading days ((i)-(v) collectively, “Registration Events”), we will make payments to each holder of Registrable Securities as monetary penalties at a rate equal to 12% per annum of the total value of Registrable Securities held or purchased by such holder and affected during the period, based on the Offering Price; provided that the maximum amount of monetary penalties paid by us will not exceed 8% of such total value. No monetary penalties will accrue with respect to (1) any Registrable Securities removed from the Registration Statement in response to a comment from the staff of the SEC limiting the number of shares of common stock which may be included in the Registration Statement (a “Cutback Comment”), (2) any Registrable Securities that may be resold without manner of sale restrictions, current information requirements, volume limitations or other limitations under Rule 144 or another exemption from registration under the Securities Act, (3) any Registrable Securities excluded from a Registration Statement because a holder fails to provide information concerning the holder and the manner of distribution of the holder’s Registrable Securities that is required by SEC rules to be disclosed, and (4) any circumstance in which the SEC does not declare the Registration Statement effective on or before 150 days after the final closing of the Offering, and the reason for the SEC’s determination is that (a) the offering of any of the Registrable Securities constitutes a primary offering of securities by the Company, (b) Rule 415 of the Securities Act may not be relied upon for the registration of the resale of any or all of the Registrable Securities, and/or (c) a holder of any Registrable Securities must be named as an underwriter and such holder does not consent to be so named in the Registration Statement. Notwithstanding the previous sentence, if the SEC does not declare the Registration Statement effective before the Registration Effectiveness Date, in certain circumstances we may still be liable for liquidated damages if we do not continue to use our commercially reasonable efforts at the first opportunity that is permitted by the SEC to register for resale all such Registrable Securities, using one or more registration statements that we are then entitled to use. Any cutback resulting from a Cutback Comment shall be allocated to the Registrable Securities pro rata based on the total number of such shares held by or issuable to each holder thereof.

We must use commercially reasonable efforts to keep the Registration Statement effective for five years from the date it is declared effective by the SEC or until the date on which all Registrable Securities have been transferred other than to certain enumerated permitted assignees under the Registration Rights Agreement.

We will pay all expenses in connection with the registration obligations provided in the Registration Rights Agreement, including, without limitation, all registration, filing, and stock exchange fees, printing expenses, all fees and expenses of complying with applicable securities laws, the fees and disbursements of our counsel and of our independent public accountants, and the reasonable fees and disbursements of a single counsel to the holders of the Registrable Securities, not to exceed $35,000 in the aggregate. Each holder will be responsible for its own sales commissions, if any, transfer taxes and the expenses of any other attorney or advisor such holder decides to employ.

OTC Quotation

Our common stock is currently not listed on a national securities exchange or any other exchange, or quoted on an over-the-counter market. Following completion of the Offering, we intend to cause our common stock to be quoted on the OTC Markets QB tier as soon as practicable following the effectiveness of the Registration Statement. However, we cannot assure you that we will be able to do so and, even if we do so, there can be no assurance that our common stock will continue to be quoted on the OTC Markets or quoted or listed on any other market or exchange, or that an active trading market for our common stock will develop or continue. See “Risk Factors—There is currently no market for our common stock and there can be no assurance that any market will ever develop. You may therefore be unable to re-sell shares of our common stock at times and prices that you believe are appropriate.” below.

Guerrilla RF Plan and Outstanding Awards Thereunder

Pursuant to the Merger Agreement and upon the closing of the Merger, we assumed each option to purchase Guerrilla RF common stock that remained outstanding under the Guerrilla RF Plan, whether vested or unvested, and we converted it into an option to purchase such number of shares of our common stock equal to the number of shares of Guerrilla RF common stock subject to the option immediately prior to the Merger, multiplied by the Merger conversion ratio applicable to outstanding common stock, with any fraction rounded down to the nearest whole number. The exercise price per share of each such assumed option is equal to the exercise price of the Guerrilla RF option prior to the assumption, divided by the Merger conversion ratio applicable to outstanding common stock (rounded up to the nearest whole cent). Otherwise, each assumed option continues to have, and will be subject to, substantially the same terms and conditions as applied to the Guerrilla RF option immediately prior to the Merger, including the same vesting schedule. The terms of the Guerrilla RF Plan continue to govern the options covering an aggregate of 3,146,366 shares of our common stock subject to awards assumed by us, except that all references in the Guerrilla RF Plan to Guerrilla RF will now be deemed to refer to us. No additional awards will be issued under the Guerrilla RF Plan. See “Executive Compensation—Employee Benefit and Stock Plans” below for more information about the Guerrilla RF Plan and the outstanding awards thereunder.

Our 2021 Equity Incentive Plan

Pursuant to the Merger Agreement and upon the closing of the Merger, we adopted our 2021 Equity Incentive Plan (the “2021 Plan”), which provides for the issuance of incentive awards of stock options, restricted stock awards, restricted stock units (“RSUs”), stock appreciation rights (“SARs”), performance awards, cash awards, and stock bonus awards. We initially reserved 222,991 shares of our common stock, plus any reserved shares not issued or subject to outstanding grants under the Guerrilla RF Plan on the effective date of the 2021 Plan, for issuance pursuant to awards granted under our 2021 Plan. The number of shares reserved for issuance under our 2021 Plan will increase automatically on January 1 of each of 2022 through 2031 by the number of shares equal to the lesser of 5% of the total number of outstanding shares of our common stock as of the immediately preceding January 1, or a number as may be determined by our board of directors. See “Executive Compensation—Employee Benefit and Stock Plans” below for more information about the 2021 Plan.

Departure and Appointment of Directors and Officers

Our board of directors is authorized to and consists of seven members. As of the Effective Time, Mark Tompkins and Ian Jacobs resigned from our board of directors, and Ryan Pratt, David Bell, James (Jed) E. Dunn, Samuel Funchess, Sr., William J. Pratt, Gary Smith and Greg Thompson were appointed to our board of directors.

Also, as of the Effective Time, Ian Jacobs resigned from all officer positions with us, and Ryan Pratt was appointed as our Chief Executive Officer, Mark Mason was appointed as our Chief Operating Officer, John Berg was appointed as our Chief Financial Officer, and Jeff Broxson was appointed as our Vice President of Sales.

See “Management” below for information about our new directors and executive officers.

Pro Forma Ownership

Immediately after giving effect to the Merger (and the issuance of an aggregate of 24,130,642 shares of our common stock in the Merger), the Stock Forfeiture, and the closing of the Offering, there were 30,688,692 shares of our common stock issued and outstanding as of the Closing Date, as follows:

Following the final closing of the Offering, an additional 275,000 shares will be issued to the Placement Agents and their affiliates.

In addition, there were as of the Closing Date:

No other securities convertible into or exercisable or exchangeable for our common stock are outstanding as of the date of this Report.

Accounting Treatment; Change of Control

The Merger is being accounted for as a “reverse merger” or “reverse acquisition,” and Guerrilla RF is deemed to be the acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that will be reflected in our financial statements relating to periods prior to the Merger will be those of Guerrilla RF, and will be recorded at the historical cost basis of Guerrilla RF, and the consolidated financial statements after completion of the Merger will include the assets and liabilities of Guerrilla RF, historical operations of Guerrilla RF, and operations of Laffin Acquisition Corp. from the Closing Date. As a result of the issuance of the shares of our common stock pursuant to the Merger, a change in control of Laffin Acquisition Corp. occurred as of the date of consummation of the Merger.

Except as described in this Report, no arrangements or understandings exist among present or former controlling stockholders with respect to the election of members of our board of directors and, to our knowledge, no other arrangements exist that might result in a change of control of Laffin Acquisition Corp..

We expect to continue to be a “smaller reporting company,” as defined under the Exchange Act, and an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) immediately following the Merger. We believe that as a result of the Merger, we have ceased to be a “shell company” (as such term is defined in Rule 12b-2 under the Exchange Act).

DESCRIPTION OF BUSINESS

We were incorporated in the State of Delaware on November 9, 2020. Guerrilla RF was incorporated in the State of Delaware on June 23, 2014. Pursuant to the Merger, on October 22, 2021, our wholly-owned subsidiary, Acquisition Sub, merged with and into Guerrilla RF. Guerrilla RF was the surviving corporation in the Merger and became our wholly-owned subsidiary, and the business of Guerrilla RF became our business.

Our telephone number is (336) 510-7840. Our website address is www.guerrilla-rf.com. Information contained on, or that can be accessed through, our website is not a part of this Report.

Glossary of Terms and Abbreviations

The following is a glossary of technical terms used in this Report:

64T64R, 32T32R, 16T16R, 8T8R systems – Describes the number of transmit and receive paths in a 5G system architecture.

5G – A technology standard to increase the speed or amount of data communicated in a cellular network relative to 3G or LTE networks.

AEC-Q101 – Automotive Electronic Council’s electronic components stress qualification standard.

Cellular booster/DAS – System which extends and distributes a cellular signal within buildings such as below ground, large-area, or high-rise structures.

Cellular Compensator – Improves a cellular link inside a motorized vehicle by using an antenna outside the vehicle in combination with amplifiers to boost the signal in both the transmit and receive paths.

Cellular Repeater – Improves poor cellular service by boosting signal strength inside a building or structure.

C-V2X – Cellular-technology-based vehicle-to-everything communication standard.

CMOS – Complementary MOS (metal oxide semiconductor), widely used semiconductor transistor architecture.

Copper lead frame – Copper-based substrate used as a foundation for semiconductor packages.

DAB – Digital audio broadcasting. A terrestrial-based digital radio standard (HD Radio).

Design win - Acknowledgment by end-customer that a product has been chosen or finalized for use in the customer’s system.

Die/Chip – An individual semiconductor device on the wafer.

DSRC – Dedicated short-range communications. (Typically used in electronic toll collection).

EAR – Export Administration Regulation

Fab – Fabrication, generally referring to a semiconductor wafer fabrication facility.

Fabless – Semiconductor company that utilizes pure-play or outsourced wafer fabrication partners rather than owning and operating their own wafer foundry.

FM/DAB – Terrestrial-based radio broadcast standards.

GaN – Gallium nitride Semiconductor process used in high power amplifier applications.

GaAs HBT – Gallium arsenide heterojunction bipolar transistor. A semiconductor process allowing higher efficiency and improved linearity compared to GaAs MESFET processes.

GaAs pHEMT – Gallium Arsenide pseudomorphic high electron mobility transistor. A semiconductor process that allows larger bandgap differences, thus providing higher performance.

Gain blocks, switches, power detectors, drivers, mixers, digital step attenuators, high power amplifiers– Functional building blocks of RF components in a typical radio frequency system or architecture.

GHz – Frequency bands of operation (in Gigahertz).

GPS/GNSS – Global satellite positioning technologies.

IP - Intellectual property.

LNA – Low noise amplifier.

Linear driver amplifier – An amplifier used before the final amplification stage that produces increased power levels while adding minimal distortion to the output signal.

mMIMO active antenna array – Massive multiple-input and multiple-output antenna systems that include beamforming ability.

MMIC – Monolithic microwave integrated circuit. An integrated circuit designed to utilize the microwave frequency bands. (300MHz to 300GHz).

MESFET – Metal-semiconductor field-effect transistor, a type of transistor.

OEM - Original equipment manufacturers.

PA – Power Amplifier.

Package lead frame – Substrate (typically copper) used as a foundation to mount and package semiconductor devices.

pHEMT – Pseudomorphic high electron mobility transistor, a type of transistor.

Point-to-point radio - Radio link used between two communication endpoints or devices.

RF – Radio frequency.

RFIC – Radio frequency integrated circuit.

RFID – Radio frequency identification.

SDARS – Satellite Digital Audio Radio Service (e.g., Sirius XM Satellite Radio).

Si – Silicon - Standard fabrication process used for semiconductor processing.

SOI – Silicon on insulator. Fabrication process used for semiconductor manufacturing. Beneficial to reduce parasitic capacitance for a device.

Tape and reel – A method of packing surface mount devices by placing each device in an individual pocket on a carrier tape. Clear tape is applied to contain the device within the pocket. The carrier tape is wound on a reel, easing device handling and transportation.

Telematics – The convergence of telecommunications and information processing. The term is generally used for describing systems used in motor vehicles.

UWB – Ultra-wideband Radio technology using very low energy levels for short-range, high-bandwidth communications.

V2X – Vehicle-to-everything. Communication technology to allow vehicles to communicate with other vehicles, infrastructure, pedestrian devices, etc.

Wafer – Thin slice of semiconductor material used as the substrate for building electronic circuits. Wafers are the output from the semiconductor foundry process before the assembly/packaging processes.

WiFi – Wireless network protocol, based on the IEEE 802.11 family of standards.

Wireless backhaul point-to-point – A method used by communication providers to use wireless data links to connect radio towers or the core network.

Wireless infrastructure – Systems designed or used by network operators or other professionals to ensure strong communication links to consumers or customers.

Overview of Guerrilla RF

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

Industry Trends

Global demand for ubiquitous, always-on connectivity has increased over the past several years, driving data traffic over wireless and wired networks. To keep pace with this demand, we believe that wireless and wired markets are undergoing multiyear technology upgrade cycles.

Cellular operators have been migrating to 5G technology to improve efficiency, increase data throughput, reduce signal latency, and enable massive machine-to-machine connectivity. Because 5G networks operate on different frequencies (low-, mid-, and high-band spectrum) and coexist with prior cellular standards, we believe 5G deployments will increase the content opportunity for Guerrilla RF’s infrastructure RF products.

Over the past several years, automakers have added more entertainment and safety features to their automobiles due in part to customer demands and in part due to increased demand for electric vehicles (EV) and an increasing focus on the development of autonomous vehicle technologies. We expect this trend will continue and result in increased demand for RF semiconductors in modern automobiles. We believe this trend offers a growing content opportunity for Guerrilla RF’s automotive RF products.

Markets

Our business is diversified across the following markets primarily: wireless infrastructure, automotive, and catalog markets.

Wireless Infrastructure

The wireless infrastructure market is characterized by the deployment of 5G networks over sub-7 GHz and millimeter wave frequencies, often with mMIMO active antenna arrays, which may significantly increase the number of RF transmit and receive channels. These 5G networks require a broad portfolio of highly efficient RF solutions that increase capacity and expand coverage in a compact form factor. We support wireless infrastructure OEM located across the globe with a broad portfolio of RF solutions serving all major/applicable frequency bands under 7 GHz.

Automotive

Next-generation wireless technologies are enabling new use cases in automotive wireless connectivity, including V2X applications that facilitate direct, high-speed communication. These new use cases require complex RF solutions spanning multiple protocols, including GPS, satellite radio, DAB, WiFi, 5G (sub-7 GHz), and UWB.

Catalog Markets

Other markets (which we group and refer to as ‘catalog markets’) include satellite navigation, cellular repeaters, point-to-point radios, RFID/asset tracking, defense, wireless audio, and test and measurement, as well as other high-performance RF applications. Our satellite navigation solutions enable precision location finding for agricultural, aviation, maritime, mining, and construction applications. Our solutions for the cellular repeater and point-to-point radio markets facilitate network densification and expanded coverages. Our offerings enable longer battery life and improved coverage for RFID/asset tracking and defense radios. In addition, our portfolio of devices offering a wide range of gain, linearity, and noise figure performance lend themselves to use in various demanding applications in certain product markets, including those referenced above.

Products

Guerrilla RF’s portfolio of products has been developed to improve performance, reduce complexity, enable smaller form factors, and solve other critical RF challenges.

Wireless Infrastructure

Our solutions for mMIMO systems include LNA’s, linear driver amplifiers, and discrete PA’s. In addition, we are in the course of developing GaN amplifier modules and SOI switches, and digital step attenuators to grow our wireless infrastructure product offerings.

Automotive

We provide automotive RF connectivity products, including LNAs, linear driver amplifiers, switches, PAs, and front-end solutions. Our automotive products are designed to meet or exceed AEC-Q100 quality and reliability standards, and we supply automotive OEMs, tier-1 suppliers, and chipset vendors.

Catalog

We supply various standard RF catalog components to several markets. Our products’ unique combination of low noise, broad bandwidth, and high linearity suit many applications, including wireless audio equipment, defense and first responder 2-way radios, test and measurement equipment, cellular repeaters, and wireless backhaul point-to-point links.

Research and Development

Since its inception, Guerrilla RF has focused on under-served markets by providing industry-leading performance in discrete and integrated RF devices including ultra-low noise amplifiers (Ultra-LNAs), gain blocks, drivers, PAs, switches, mixers, power detectors, digital step attenuators, and infrastructure-class high power amplifiers.

We invest in research and development (“R&D”) to develop products necessary to serve our target markets. Our R&D activities typically support competitive design win opportunities for significant programs at key customers, which require best-in-class performance, size, cost, and functional density. We also invest in R&D to develop new products for broader market applications. Our R&D efforts require us to focus on continuous improvement and innovation in fundamental areas, including software, simulation and modeling, systems architecture, circuit design, device packaging, module integration, and test related materials and designs.

As a fabless semiconductor company, we utilize our wafer foundry manufacturing suppliers’ GaAs, GaN, and SOI CMOS process technologies. We combine these technologies with proprietary design methods, IP and applications engineering expertise to improve performance, increase integration and reduce the size and cost of our products.

We work with our package and test suppliers to develop and qualify advanced packaging technologies to reduce component size, improve performance and reduce package costs. Our manufacturing partners’ capabilities enable us to bring these technologies to market in high volumes.

R&D expenses totaled $3.6 million for the year ended December 31, 2020 and $1.8 million for the year ended December 31, 2019. R&D activities in 2020 and 2019 focused on developing and releasing 25 new products to bring GRF’s product catalog to a total of 87 products at the end of 2020. In addition, during 2021, we have added 11 new products.

Raw Materials

We utilize an outsourced manufacturing model, and our manufacturing suppliers purchase raw materials to support our requirements. Our suppliers typically use industry-standard raw materials, which reduces supply chain risk. In addition, we purchase passive components for use in modules that include tuning components.

During 2020 and 2021, the semiconductor industry experienced supply constraints for specific raw materials, including wafers and package lead frames. We expect the industry to address these constraints eventually, but we believe it may take one to two years for these constraints to ease. Meanwhile, we work closely with our manufacturing partners, developing long-term strategic partnerships to forecast our product needs and achieve adequate manufacturing capacity to mitigate the risk of having limited availability of raw materials suppliers. As a result of these strategic partnerships, we can add suppliers, redesign products using alternative raw materials, qualify multiple wafer foundries, and extend or add supply commitments to provide flexibility in our supply chain.

Manufacturing

We believe that our outsourced manufacturing strategy allows us to identify the optimum semiconductor process technology for each product while ensuring we pay competitive prices for manufacturing. Our manufacturing suppliers are broadly distributed around the globe. We qualify additional manufacturing sites and sources of supply to reduce the risk of supply interruptions or price increases, and we closely monitor our suppliers’ key performance indicators. In addition, we seek to ensure that materials and manufacturing services are available from multiple sources.

Our product manufacturing comprises a two-step process: 1) wafer fabrication and 2) packaging. Wafers are produced in wafer foundries by subcontractors and shipped to our assembly subcontractors for packaging. Most of our products are manufactured using a single die which is placed on a copper lead frame. We use bond wires to connect terminals on the package to the appropriate pads on the die. Material composition and wire length significantly affect the performance of the end-product. Once a product has completed manufacturing, each device is RF tested to ensure it meets published specifications. We transfer compliant devices to tape and reel -- the generally accepted method customers use in their downstream manufacturing processes.

We subcontract with multiple wafer foundries located in Taiwan and Singapore. We currently utilize GaAs HBT and GaAs pHEMT process technologies; however, we are currently developing new products using SOI and GaN technologies.

We partner with multiple test and assembly (packaging) subcontractors in Malaysia and the Philippines, each of whom we consider highly experienced and well suited to support our new product roadmap. In addition, we believe that having multiple relationships provides us with additional capacity and flexibility, which is critical to risk mitigation.

Manufacturing yields vary significantly based on many factors, including product complexity, performance requirements, and the maturity of the chosen manufacturing processes. To maximize wafer yields and quality, parameters are measured throughout the manufacturing process to ensure the systems are in control and produce the expected outputs. Ongoing reliability monitoring and numerous quality control inspections are also conducted throughout the production flow to ensure that we deliver high-quality products to our customers.

Semiconductor fabrication is a specialized field requiring highly controlled and clean environments. As a result, the die on a wafer can become defective due to minute impurities, variances in the fabrication process, or defects in the masks used to transfer circuit patterns onto the wafers.

Our subcontractors’ manufacturing facilities are certified to the ISO 9001 quality standard, and select locations are accredited to additional automotive (IATF 16949) and environmental (ISO 14001) standards. These stringent standards are audited and certified by third-party certification bodies. The ISO 9001 standard is the international standard for creating a quality management system. IATF 16949 is the highest international quality standard for the global automotive industry and incorporates specific additional requirements for the automotive industry. ISO 14001 is an internationally agreed-upon standard for an environmental management system. Many of our key vendors and suppliers are certified to be compliant with these standards.

Customers

We design, develop, manufacture, and market products for leading domestic and international original equipment manufacturers and original design manufacturers. We also collaborate with leading reference design partners and design consultants globally.

Approximately 85% of our business in 2020 and 2021 year-to-date is from sales to customers in the following markets: Wireless Infrastructure, Automotive, and Cellular Boosters/DAS. Approximately 90% of all of our product sales are made via distributors, and approximately 10% of sales are made directly to end-user customers.

Our customers purchase RFIC and MMIC solutions for various applications, including base stations, satellite radio antennas, GPS/GNSS products, small cells, WiFi, cellular boosters, and compensators.

Export Controls

Some of our sales to overseas customers may, from time to time, be required to comply with export licenses or other restrictions imposed by the U.S. Department of Commerce. Additionally, all of our exports are required to comply with Export Administration Regulations. Most of the products, services, and technologies that fall within the scope of the Export Administration Regulations are not specifically controlled for export and are classified as “EAR99”. As of June 30, 2021, none of our products were subject to export licenses and, as such, were classified as “EAR99”. As such, they fall under U.S. Department of Commerce jurisdiction and are not included in the U.S. Department of Commerce’s Control List. We are also required to adhere to the Entity List published by the U.S. Department of Commerce’s Bureau of Industry and Security (https://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/entity-list ).

Sales and Marketing

We sell our products worldwide directly to customers and through a network of U.S. and foreign sales representative firms and distributors. We select our domestic and foreign sales representatives based on their technical skills and sales expertise, complementary product lines, and customer bases. In addition, we provide ongoing educational training about our products to our internal and external sales representatives and distributors. We maintain an internal sales and marketing organization responsible for key account management, customer application engineering support, sales and advertising literature, and technical presentations for industry conferences. Our direct sales personnel are located throughout the world. We handle all our technical customer support out of our headquarters in Greensboro, N.C.

Our website contains extensive product information and includes state-of-the-art parametric search tables that allow engineers to locate products quickly and easily. Customers can learn about our products, download datasheets, product catalogs, s-parameters, application notes, and many other technical documents from our website. Our team of application engineers interacts with customers during all design and production stages, maintains regular contact with customer engineers, provides product application notes and engineering data, and assists in resolving technical problems. We maintain close relationships with our customers and provide them technical support to help them anticipate future product needs. We actively seek their input to guide our product roadmaps.

Seasonality

Our sales are generated via standard purchase orders or specific agreements with customers. Historically, we have experienced seasonal fluctuations in the sale of our products, with revenue typically strongest in our fourth fiscal quarter.

Competition

We operate in competitive environments across all of our markets. Our customers’ product life cycles can be relatively long compared to mobile phones or similar consumer products. For example, wireless infrastructure and automotive market product life cycles can be in the 5-10 year range compared to the 12-18 month range for mobile phones or similar products. Our ability to effectively compete is primarily determined by our ability to innovate with new products, improve existing products already on the market, maintain close relationships with our supply chain partners and key customers, and deliver new and improved products before our competitors. In addition, our competitiveness is affected by the quality of our customer service and technical support.

We compete primarily with Qorvo, Inc., NXP Semiconductors N.V., Skyworks Solutions, Inc., and MACOM Technology Solutions Inc.

Many of our current and potential competitors have entrenched market positions and customer relationships, established patents, and other IP and substantial technological capabilities. The selection process for our products is highly competitive, and our customers provide no guarantees that they will include our products in the next generation of their products. Additionally, many of our competitors may have significant financial, technical, manufacturing, and marketing resources, which may allow them to implement new technologies and develop new products more quickly.

Intellectual Property (IP)

Our IP, including patents, copyrights, trademarks, and trade secrets, is essential to our business, and we actively seek opportunities to leverage our IP portfolio to promote our business interests. We also actively seek to monitor and protect our global IP rights and deter unauthorized use of our IP and other assets. Such efforts can be complex because of the absence of consistent international standards and laws. Moreover, we respect the IP rights of others and strive to mitigate the risk of infringing or misappropriating third-party IP.

Patent applications are filed within the U.S. and may be filed in other countries where we have a market presence. On occasion, some applications do not mature into patents for various reasons, including rejections based on prior art. In addition, the laws of some foreign countries do not protect IP rights to the same extent as U.S. laws. We have two patents, each of which will expire in February 2034. Because of our rapid innovation and product development and the comparatively slow pace of patenting processes, our products could be obsolete before the related patents expire or are granted. However, we believe the duration and scope of our patents are sufficient to support our business, which as a whole is not significantly dependent on any one particular patent or IP right. As we expand our products and offerings, we also seek to expand our patent prosecution efforts to cover such products.

We periodically register federal trademarks, service marks, and trade names that distinguish our product brand names in the market. We also monitor these marks for their proper and intended use. Additionally, we rely on non-disclosure and confidentiality agreements to protect our interest in confidential and proprietary information that gives us a competitive advantage, including business strategies, unpatented inventions, designs, and process technology. Such information is closely monitored and made available only to those employees whose responsibilities require access to the data.

Human Capital

We believe that our employees are our greatest assets, and we must continue to attract, develop, retain and motivate our employees to remain competitive and execute our business strategy. We strive to meet these objectives by offering competitive pay and benefits in a diverse, inclusive, and safe workplace. In addition, we provide opportunities for our employees to grow and develop their careers.

As of June 30, 2021, we had 46 permanent employees and three temporary employees in four countries. By region, approximately 90% of our total employees are located in the United States and 10% in Asia. By primary job function, about 50% of our employees have engineering or technician roles, 8% are in operations, and 42% have sales, marketing, or other administrative roles. None of our employees is represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.

Competitive Pay and Benefits

We provide compensation and benefits packages that we believe are competitive within our industry. We use a combination of compensation and other programs (which vary by region and salary grade) to attract, motivate and retain our employees, including stock option awards, retirement programs, unlimited personal time off, and health and wellness benefits and programs. In addition, we benchmark our compensation and benefits packages annually to remain competitive with our peers and attract and retain talent throughout our organization.

Employee Recruitment, Retention, and Development

We are committed to recruiting, hiring, retaining, promoting, and engaging a diverse workforce to serve our global customers. We have established relationships with professional associations and industry groups to attract talent proactively. In addition, we partner with universities to recruit undergraduate and graduate students for our internship program and entry-level positions. We also invest in employee development programs to provide employees with the training and education they need to help achieve their career goals and build relevant skills.

We believe our unique corporate culture, competitive compensation and benefits programs, and career growth and development opportunities promote longer employee tenure and reduce turnover. We monitor employee turnover rates as our success depends upon retaining and investing in our highly skilled technical staff. As a result, our attrition rate has consistently been below the technology industry average.

Diversity, Equity, and Inclusion

We value the uniqueness that an inclusive and diverse global team brings to our company. Therefore, we are focused on creating an environment that leverages the perspectives and contributions of each employee.

Safety, Health, and Wellness

In response to the COVID-19 pandemic, we reduced business travel and instituted comprehensive safety protocols for our facility. In addition, we offered the option to our employees to work from home, though most opted to return to in-person work after lockdowns ended.

We prioritize safe working conditions. We are committed to an injury-free workplace and provide dedicated workplace training and leadership support to reduce or eliminate health and safety risks.

Government Regulations

Environmental

Guerrilla RF and our overseas manufacturing subcontractors are subject to various extensive and changing domestic and international federal, state, and local governmental laws, regulations, and ordinances related to the use, storage, discharge, and disposal of toxic, volatile, or otherwise hazardous chemicals used in the manufacturing process.

We monitor our manufacturing subcontractors and their compliance with applicable environmental laws and regulations.

We require that our suppliers certify their compliance with applicable environmental laws and regulations related to hazardous materials used in the manufacturing, assembly, and testing of our products, particularly materials retained in the final product. In addition, we have developed specific restrictions on the content of certain hazardous materials in our products and those of our suppliers and outsourced manufacturers and subcontractors. This practice helps ensure our products are compliant with the requirements of the markets into which we sell our products and with our customers’ needs.

Import/Export Controls

We are also subject to import/export controls, tariffs, and other trade-related regulations and restrictions in countries where we conduct business. These controls, tariffs, regulations, and restrictions (including those related to, or affected by, United States-China relations, as discussed below) may impact our business, including our ability to sell products and manufacture or source components.

Other Governmental Regulations

Government regulations are subject to change in the future. Accordingly, we cannot assess the possible effect of compliance with future requirements or whether our compliance with such regulations will materially impact our business, results of operations, or financial condition.

Facilities

Our current corporate headquarters are located in Greensboro, North Carolina, where we lease approximately 10,800 square feet of office space under a lease agreement which is scheduled to expire in 2024, subject to a right to early-termination upon payment of an early termination fee.

Although we believe our existing facilities are suitable to meet our current needs, we also believe that substantial additional space will be required to meet projected growth. In that regard, we have entered into a new lease agreement for alternative space in which we would occupy a different building having in excess of 50,000 square feet in Greensboro, North Carolina once the building is renovated in accordance with plans we have agreed upon with a new landlord. The lease is for a term of 10 years and two months once all improvements and renovations are substantially complete and we take possession of the building. Each party has the option to terminate the lease in the event we do not raise capital in the amount of at least $12 million (net of costs) prior to December 13, 2021.

RISK FACTORS

Investing in our common stock involves a high degree of risk. Accordingly, you should carefully consider the risks and uncertainties described below together with all of the other information contained in this Report, including our audited annual and interim unaudited financial statements, unaudited pro forma financial statements, and the related notes included in this Report, before deciding to invest in our common stock. If any of the following risks occur, our business, prospects, operating results, and financial condition could suffer materially. In such an event, the trading price of our common stock could decline, and you might lose all or part of your investment.

Risk Factors Summary

Risks Related to Our Business and Industry

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

We have incurred significant losses in the past and recorded a net loss of $2.0 million for the year ended December 31, 2020, and $421 thousand for the six months ended June 30, 2021. As of December 31, 2020, we had an accumulated deficit of $12.2 million and $12.6 million at June 30, 2021. Our business and stock price may be adversely affected if we cannot make consistent progress toward future profitability.

Our ability to be profitable in the future depends upon continued demand for our solutions from existing and new customers. Furthermore, further adoption of our solutions depends upon our ability to improve the quality of our products. In addition, our profitability will be affected by, among other things, our ability to execute on our business strategy, the timing and size of contracts, the pricing and costs of our solutions, competitive offerings, macroeconomic conditions affecting the RF industry, the COVID-19 crisis, and the extent to which we invest in sales and marketing, research and development, and general and administrative resources.

Impact of COVID-19 on our Business

The ultimate impact of the COVID-19 pandemic on our business is unknown. However, beginning in the second quarter of 2020, we observed delays, declining demand, and price fluctuations in the semiconductor industry. We also observed a substantial reduction in our automotive business. In addition, our supply-chain management was adversely affected by factory shut-downs and reductions in capacity as factories were required to adhere to stay-at-home orders or limit the on-site staff to reduce the rate of infections.

To protect the health and safety of our employees, we have taken precautionary action and adopted social distancing measures, daily temperature checks upon entry to the workplace, and the implementation of staffing plans whereby employees can work remotely. Our efforts continue to evolve in response to new government measures and scientific knowledge regarding COVID-19. To contain COVID-19 or slow its spread, since early 2020, governments worldwide have enacted measures, including orders to close all businesses not deemed “essential,” isolating residents to their homes or places of residence, and implementing the practice of social distancing when engaging in essential activities. These measures have impacted the method and timing of certain business meetings and deliverables to specific customers and our ability to obtain certain suppliers’ materials, equipment, and services.

We anticipate that these actions and the global health crisis caused by COVID-19 will continue to impact business activity across the globe negatively. When COVID-19 is demonstrably contained, we anticipate a rebound in economic activity, depending on the rate, pace, and effectiveness of the containment efforts deployed by various national, state, and local governments; however, the timing and extent of any such rebound is uncertain. We will continue to monitor the situation actively. We may take further actions altering the business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. The potential effects of such alterations or modifications on our business are unclear, including our customers, employees, and prospects for our financial results.

We have a limited operating history upon which investors can evaluate our business and prospects.

We are an emerging commercial company that began commercial operations selling products in 2014. Since we base our expectations of potential customers and future demand for our products on only limited experience, it is difficult for our management and investors to forecast and evaluate our prospects and revenues accurately. Therefore, the proposed progression of our operations is subject to the risks inherent in light of the expenses, difficulties, complications, and delays frequently encountered in connection with the growth of any new business, as well as those risks that are specific to our Company in particular. The risks include but are not limited to our reliance on third parties to complete some processes for the manufacturing and packaging of our products and the possibility that we will not be able to achieve design wins with our products. In addition, to successfully introduce and market our products at a profit, we must establish brand name recognition and competitive advantages for our products. There are no assurances that the Company can successfully address these challenges. If unsuccessful, the Company and its business, financial condition, and operating results will be materially and adversely affected.

We may not generate sufficient cash to service our debt or to fund capital expenditures. As a result, we may be forced to take other actions to satisfy our debt obligations and financing requirements, which may not be successful or on terms favorable to us.

Our ability to make scheduled payments on, or to refinance, our debt obligations and to fund working capital, planned capital expenditures and expansion efforts, and any strategic alliances or acquisitions we may make in the future depends on our ability to generate cash in the future and on our financial condition and operating performance. However, our financial condition and operating performance are subject to prevailing economic and competitive conditions and specific financial, business, and other factors beyond our control. As a result, we cannot ensure that we will maintain a level of cash flows from operating activities sufficient to permit us to pay our debt. For example, should our cash flows and capital resources be insufficient to fund our debt service obligations, we may face liquidity issues and be forced to reduce or delay investments and capital expenditures, sell assets, seek additional capital, or restructure or refinance our debt. These alternative measures may not be successful and may not permit us to meet our scheduled debt service and other obligations.

Our operating results are substantially dependent on developing new products and achieving design wins. Therefore, our future revenues that fund our growth in operations, continuing product development, administrative costs, and sales and marketing efforts are highly dependent on winning slots for our new product offerings.

Our largest markets are characterized by high levels of competition from formidable market participants, and they are often much larger in size and have greater capacity than us. Therefore, to effectively compete in our markets, we must introduce new product solutions that satisfy customer demands for greater functionality and improved performance. However, it is possible that we may fail to provide such solutions in time for our customers’ design cycles. In that case, we may experience a lack of growth that is central to our strategic plans or even suffer substantial decreases in our revenue by missing out on these design windows.

Our success depends on our ability to develop and introduce new products in a timely and cost-effective manner and secure production orders from our customers. The development of new products is a highly complex process, and we have experienced delays in completing the development and introduction of new products at times.

We participate in markets with a broad array of applications which make our ability to predict market requirements more challenging and consequently makes the definition and design of new products that address those requirements more difficult to ensure the future success of our business.

Our success at effective product development depends on several factors, including the following:

The industry and the markets in which we operate are highly competitive and subject to rapid technological change. Therefore, for our RF products to be competitive and achieve market acceptance, we need to keep pace with the rapid development of new process technologies.

The markets in which we compete are intensely competitive. We operate primarily in the industry that designs and produces semiconductor components for wireless communications and other wireless devices, which are subject to rapid changes in both product and process technologies based on demand and evolving industry standards. The markets for our products are characterized by:

Our R&D activity and resulting products could become obsolete or less competitive sooner than anticipated because of a faster than expected change in one or more of the above-noted factors. Therefore, for our products to be competitive and achieve market acceptance, we need to keep pace with the rapid development of new process technologies, which requires us to:

Many of our current and potential competitors have entrenched market positions and customer relationships, established patents, and other IP and substantial technological capabilities. Additionally, many of our competitors may have significant financial, technical, manufacturing, and marketing resources, which may allow them to implement new technologies and develop new products more quickly.

We may require additional capital to support our business growth, and such capital may not be available.

We intend to continue making investments to support business growth. We may 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. Accordingly, we may need to engage in additional equity or debt financing to secure funds. However, equity and debt financing might not be available when needed or, if available, might not be available on terms satisfactory to us. If we raise additional funds through equity financing, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. If we are unable to obtain adequate financing or financing on terms satisfactory to us in the future, our ability to continue to support our business growth and to respond to business challenges could be significantly limited as we may have to delay, reduce the scope of, or eliminate some or all of our initiatives, which could harm our operating results.

We are still developing many of our products, and they may not be accepted in the market or by significant customers.

Although we believe that our products provide advantages over existing MMIC products in the market, we cannot be sure that new products will achieve market acceptance.

The successful development and market acceptance of our MMIC products will be highly complex and will depend on the following principal competitive factors, including our ability to:

If we are unsuccessful in accomplishing these objectives, we may not compete successfully against current and potential competitors. As a result, the market may not accept our future MMIC products.

In addition, Tier 1 manufacturers may be less receptive to adopting solutions from smaller companies such as the Company due to their desire to limit the expansion of their approved vendor lists. The Company could also face pressure from competitors who can provide more lucrative bundling options due to the breadth of their overall portfolio.

We depend on a large distributor and several large customers in the automotive and wireless infrastructure market.

A substantial portion of our product revenue results from sales to large suppliers in the automotive industry, which require special performance and reliability requirements and stringent volume delivery demands. In addition, we rely heavily on the wireless infrastructure market, which, similar to our automotive customers, requires we reliably meet high volume delivery schedules. Therefore, our future operating results will be heavily affected by the success of large automotive and wireless infrastructure customers.

Our three largest end customers collectively accounted for approximately 60% and 57% of our revenue for 2020 and 2019, respectively.

We often service end customers through our largest distributor, who will ship to and bill directly for product shipments. The concentration of billings to this distributor as a portion of our total revenues were 60% and 42% for fiscal years 2020 and 2019, respectively. It is possible that demand for their customers’ products decreases materially.

We depend heavily on third parties.

We partner with a limited number of external suppliers and rely on them to fulfill our customers’ orders. These third-party suppliers perform complex manufacturing processes, including die processing, packaging, and test, tape and reel. The semiconductor industry has experienced supply constraints for specific items, which the COVID-19 pandemic has exacerbated.

If these third-party suppliers fail to deliver our products on time, we will be unable to satisfy our customers’ orders, which will negatively impact our financial results, cash flow, and our ability to fund further product development efforts.

Our key suppliers commit to being compliant with applicable ISO 9001 quality standards; however, should they experience quality and reliability issues, this may delay shipments to our customers and negatively affect our reputation directly with customers and our reputation in the market, which could negatively impact our financial results.

We sell to several large companies with considerable bargaining power, which may require us to agree to terms and conditions that could harm our business or ability to recognize revenues.

Large companies comprise a significant portion of our current and target customer base. These customers generally have greater purchasing power than smaller entities and, accordingly, often demand more favorable terms from suppliers, including us. As a result, as we seek to expand our sales to existing customers and acquire new customers, we may be required to agree to terms and conditions that are more favorable to our customers, and that may affect the timing of our ability to recognize revenue, increase our costs, and harm our business, financial condition, and results of operations. Failure to satisfy such onerous terms may result in litigation, damages, additional costs, market share loss, and reputation loss. Additionally, these large customers may require that we agree to most-favored customer or exclusivity provisions concerning specific products that restrict our ability to do business with other customers causing us to increasingly rely on such large customers.

We face risks related to sales through independent sales representatives and distributors.

We sell a significant portion of our products through third-party distributors. We depend on these distributors to help us create end-customer demand, provide technical support and other value-added services to customers, fill customer orders, and stock our products. As a result, a material change in our relationship with one or more of these distributors or their failure to perform as expected could negatively impact our financial results.

Our ability to add or replace distributors for some of our products may be limited because our end customers may be hesitant to accept the addition or replacement of a distributor due to advantages in the incumbent distributors’ technical support and favorable business terms related to payments, discounts, and stocking of acceptable inventory levels.

Using third parties for sales representation and distribution exposes us to many risks, including competitive pressure, concentration, credit risk, and compliance risks. Other third parties may use one of our distributors or sales representatives to sell products that compete with our products. We may need to provide financial and other incentives such as higher commission rates to encourage them to prioritize the sale of our products. Our distributors may face financial difficulties, including bankruptcy, which could harm our collection of accounts receivable and financial results.

Violations of the Foreign Corrupt Practices Act of 1977 or similar laws by our distributors or other third-party intermediaries could have a material impact on our business.

Failure to manage risks related to our use of distributors or other third-party intermediaries may reduce sales, increase expenses, and weaken our competitive position.

Business disruptions could harm our business and adversely affect our results of operations.

Our business could be disrupted by natural disasters, industrial accidents, cybersecurity incidents, telecommunications failures, power or water shortages, extreme weather conditions, public health issues (including the COVID-19 pandemic), military actions, acts of terrorism, political or regulatory issues, and other man-made disasters or catastrophic events.

We carry commercial property damage and business interruption insurance against various risks, with limits we deem adequate, for reimbursement for damage to our fixed assets and the resulting disruption of our operations. However, this coverage likely would not wholly cover the negative impact to our business for any lengthy interruption, which could harm our Company in an unanticipated way and result in significant losses, a decline in revenue, and an increase in our costs and expenses. Disruptions from these events would likely require substantial recovery time and impact profits and cash flow in a significant manner. In addition, such business disruptions would adversely impact our relationships with our customers.

If our customers independently experience comparable business disruptions, they may reduce or cancel their orders, which may adversely affect our results of operations.

If we experience poor manufacturing yields, our operating results may suffer.

Our products are unique and fabricated using semiconductor process technologies that are highly complex. In some cases, we assemble our products in customized packages. Some of our products consist of multiple components in a single module and feature enhanced levels of integration and complexity. Our customers insist that we design our products to meet their same quality, performance, and reliability specifications. Our manufacturing yield is a combination of yields across the entire supply chain, including wafer fabrication, assembly, and test yields. Due to the complexity of our products, we periodically experience difficulties in achieving acceptable yields, particularly for new products.

Our customers test our products once they assemble them into their products. The number of usable products that result from our subcontractor production process can fluctuate because of many factors, including:

Although our supply chain partners and our engineering and quality groups constantly seek to improve our manufacturing yields, such efforts may encounter significant barriers to success resulting in less-than-optimal yields or losses that would directly impact profits and increase costs, and lower cash flows. For example, costs of product defects and deviations from required specifications include the following: disposal of inventory or financial write-offs of inventory;

These issues could negatively impact our market position and reputation with customers, resulting in long-term harm to our business and financial results.

We are subject to inventory risks and costs because we build our products based on anticipated customer orders and forecasts often before receiving purchase orders for the products.

To ensure the availability of our products for some of our largest end customers, we start manufacturing certain products in advance of receiving purchase orders based on forecasts provided by these customers. However, these forecasts do not represent binding purchase commitments, and we do not recognize sales for these products until they are shipped to our customers. As a result, we incur significant inventory and manufacturing costs in advance of anticipated sales. Because demand for our products may not materialize or may be lower than expected, manufacturing based on forecasts subjects us to heightened risks of higher inventory carrying costs, increased obsolescence, and higher operating costs. In addition, if product demand decreases or we fail to forecast demand accurately, we could be required to write off inventory, which would negatively impact our gross margin and other operating results.

We operate in a very competitive industry and must continue to innovate.

We compete with several companies primarily to design, manufacture, and sell RF solutions and discrete integrated circuits and modules. Increased competition from any source could adversely affect our operating results through lower prices for our products, reduced demand for our products, losses of existing design slots with critical customers, and a corresponding reduction in our ability to recover development, engineering, and manufacturing costs.

Many of our existing and potential competitors have entrenched market positions, historical affiliations with OEMs, considerable internal manufacturing capacity, established IP rights, and substantial technological capabilities. The semiconductor industry has experienced increased industry consolidation over the last several years, a trend we expect to continue. Many of our existing and potential competitors may have more significant financial, technical, manufacturing, or marketing resources than we do. As a result, we cannot be sure that we will compete successfully with our competitors.

Unfavorable changes in interest rates, pricing of certain precious metals, utility rates, and foreign currency exchange rates may adversely affect our financial condition, liquidity, and results of operations.

Any of these macro conditions could negatively impact our supply chain partners and the industry as a whole, which could materially decrease our profits and cash flow.

To compete, we must attract, retain, and motivate key employees, and our failure to do so could harm our business and our results of operations.

We must hire and retain qualified employees, develop leaders for essential business functions, and train and motivate our employees. Our future operating results and success depend on keeping critical technical personnel and management and expanding our sales and marketing, R&D, finance, and administration personnel. We do not have employment agreements with the vast majority of our employees.

We must attract qualified personnel. The competition for qualified personnel is intense especially considering the size of our organization, which must compete with much larger companies for top talent. The number of people with experience, particularly in RF engineering, software engineering, integrated circuit design, and technical marketing and support, is limited. In addition, existing or new immigration laws, policies, or regulations in the U.S. may limit the pool of available talent. For example, travel bans, difficulties obtaining visas, and other restrictions on international travel could make it more challenging to manage our international operations effectively, operate as a global company, or service our international customer base. Changes in the interpretation and application of employment-related laws to our workforce practices may also result in increased operating costs and less flexibility in meeting our changing workforce needs. As a result, we cannot be sure that we will be able to attract and retain skilled personnel in the future, which could harm our business and our results of operations.

Litigation or legal proceedings could expose us to significant liabilities, occupy a considerable amount of our management’s time and attention, and damage our reputation.

We may, from time to time, be a party to various litigation claims and legal proceedings. We will evaluate these claims and proceedings to assess the likelihood of unfavorable outcomes and estimate, if possible, the amount of potential losses. For example, our manufacturers’ failure to successfully manufacture products that conform to our design specifications and the U.S. Federal Communications Commission (FCC) strict regulatory requirements may lead to product defects and substantial costs to repair or replace these parts or materials, significantly impacting our ability to develop and implement our technology and improve our products’ performance. In addition, claims made or threatened by our suppliers, distributors, customers, competitors, or current or former employees could adversely affect our relationships, damage our reputation or otherwise adversely affect our business, financial condition, or results of operations. The costs associated with defending legal claims and paying damages could be substantial. Our reputation could also be adversely affected by such claims, whether or not successful.

We may establish reserves as appropriate based upon assessments and estimates under our accounting policies in accordance with U.S. GAAP. We base our assessments, estimates, and disclosures on the information available to us at the time and rely on legal and management judgment. Actual outcomes or losses may differ materially from assessments and estimates. Actual settlements, verdicts, or resolutions of these claims or proceedings may negatively affect our business and financial performance. For example, a successful claim against us that is not covered by insurance or over our available insurance limits could require us to make significant damages payments and could materially adversely affect our financial condition, results of operations, and cash flows.

We may become subject to warranty claims, product recalls, and product liability claims that could materially and adversely affect our financial condition and results of operations.

We may become subject to warranty claims, product recalls, and product liability claims that could lead to significant expense. In addition, although we maintain reserves for reasonably estimable liabilities and purchase product liability insurance, we may elect to self-insure concerning some issues, and our reserves may be inadequate to cover the uninsured portion of such claims.

Product liability insurance is subject to significant deductibles, and such insurance may be unavailable or inadequate to protect against all claims. If one of our customers recalls a product containing one of our devices, we may incur material costs and expenses, including replacement costs, direct and indirect product recall-related costs, diversion of technical and other resources, and reputational harm. Our customer contracts typically contain warranty and indemnification provisions, and in some instances, may also have liquidated damages provisions relating to product quality issues. The potential liabilities associated with such provisions are significant, and in some cases, are included in agreements with some of our largest end customers. Any such liabilities may significantly exceed any revenue we receive from the sale of the relevant products. Costs, payments, or damages incurred or paid by us in connection with warranty and product liability claims and product recalls could materially and adversely affect our financial condition and results of operations.

We are subject to risks associated with environmental, health, and safety regulations and climate change.

We are subject to many U.S. and foreign environmental, health, and safety laws and regulations. These laws and regulations include those related to the use, transportation, storage, handling, emission, discharge, and recycling or disposal of hazardous materials. Our failure to comply with any of these existing or future laws or regulations could result in:

Existing and future environmental laws and regulations could also impact our product designs and limit or restrict the materials or components included in our products.

New climate change laws and regulations could require changes to manufacturing processes and increase our costs. In addition, new restrictions on carbon dioxide emissions or other greenhouse gases could result in increased costs for us and our suppliers. Various jurisdictions are developing different climate change-based regulations that may increase expenses and adversely affect our operating results. We expect increased worldwide regulatory activity relating to climate change in the future. Future compliance with these laws and regulations may adversely affect our business and the results of operations.

Impact of Product Demand on our Business

Our revenue, earnings, margins, and other operating results have fluctuated significantly and may fluctuate considerably in the future. If demand for our products weakens as a result of economic conditions or for other reasons, our revenue and profitability will be impacted. Our future operating results will depend on many factors, including business, political and macroeconomic changes such as trade restrictions and recession or slowing growth in the semiconductor industry and the overall global economy.

If demand for our products slows, our financial and operating results will be negatively impacted, thus impeding our ability to fund future product development efforts and, in extreme cases, negatively impacting our ability to finance normal operations without acquiring funds through credit or equity raises.

In addition, if our end customers experience spikes in demand far more than anticipated, our ability to respond effectively to such demand might be impacted. This type of demand surge could negatively impact cash flow (e.g., supply chain inventory requirements) in the short term and potential loss of credibility with the industry in the long term if we do not meet demands reasonably.

We are subject to high degrees of product demand variability. Even if we achieve a design win, our customers can delay or cancel a program without advanced warning, creating risk for inventory obsolescence, ineffective use of cash, and resources channeled to less than optimal business opportunities. The loss of a design win and failure to add new design wins to replace lost revenue and weakened customer demand would have a material adverse effect on our business, financial condition, and results of operations.

We rely on our intellectual property portfolio and may not be able to successfully protect against the use of our intellectual property by third parties.

We rely on a combination of patents, trademarks, trade secret laws, confidentiality procedures, and licensing arrangements to protect our intellectual property rights. We cannot be sure that patents will be issued from any pending applications or that patents will be issued in all countries where we can sell our products. Further, we cannot be sure that any claims allowed from pending applications will be of sufficient scope or strength to provide meaningful protection against our competitors. Our competitors may also be able to design around our patents.

The laws of some countries in which we develop, manufacture, or sell our products may not protect our products or intellectual property rights to the same extent as U.S. laws. This risk increases the possibility of misappropriation or infringement of our technology and products. Although we intend to defend our intellectual property rights vigorously, we may not be able to prevent the misappropriation of our technology. Additionally, our competitors may independently develop non-infringing technologies that are substantially equivalent or superior to ours.

We may need to engage in legal actions to enforce or defend our intellectual property rights. Generally, intellectual property litigation is both expensive and unpredictable. Our involvement in intellectual property litigation could divert the attention of our management and technical personnel and have a material, adverse effect on our business.

We may be subject to claims of infringement of third-party intellectual property rights.

Our operating results may be adversely affected if third parties claim that our products infringed their patent, copyright, or other intellectual property rights. Such assertions could lead to expensive and unpredictable litigation, diverting the attention of management and technical personnel. An unsuccessful result in such litigation could adversely affect our business, including injunctions, exclusion orders, and royalty payments to third parties. In addition, if one of our customers or a supplier to one of our customers is found to have infringed on third-party intellectual property rights, such a finding could adversely affect the demand for our products.

Risks Related to Regulatory Requirements

Government regulation may adversely affect our business.

The effects of regulation may materially and adversely impact our business. For example, the FCC’s regulatory policies relating to radio frequency emissions, consumer protection laws of the U.S. Federal Trade Commission, product safety regulatory activities of the U.S. Consumer Products Safety Commission, and environmental regulatory actions of the U.S. Environmental Protection Agency could impede sales of our products in the United States. In addition, our customers and we are also subject to various import and export laws and regulations. Should we fail to comply with these regulations, we may be unable to produce and deliver these products to specific customers, and we may become subject to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, or injunctions.

Our business is also increasingly subject to complex foreign and U.S. laws and regulations, including but not limited to anti-corruption laws, such as the Foreign Corrupt Practices Act of 1977 and equivalent laws in other jurisdictions, antitrust or competition laws, and data privacy laws, among others. In addition, foreign governments may impose tariffs, duties, and other import restrictions on components we obtain from non-domestic suppliers and export restrictions on products that we sell internationally. These tariffs, duties, or restrictions could materially and adversely affect our business, financial condition, and results of operations.

Our product or manufacturing standards could also be impacted by new or revised environmental rules and regulations or other social initiatives. Those rules, or similar rules adopted in other jurisdictions, could adversely affect our costs, the availability of minerals used in our products, and our relationships with customers and suppliers.

We may incur substantial expenses related to regulatory requirements, and any regulatory compliance failure could cause our business to suffer.

The wireless communications industry is subject to ongoing regulatory obligations and reviews. Maintaining compliance with these requirements may result in significant additional expense to us, and any failure to maintain such compliance could cause our business to suffer.

Noncompliance with applicable regulations or requirements could also subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, or injunctions. An adverse outcome in such litigation could require paying contractual damages, compensatory damages, punitive damages, attorneys’ fees, and other costs. These enforcement actions could harm our business, financial condition, and results of operations. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition, and results of operations could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and increased professional fees.

We are subject to risks from international sales and operations.

We operate globally with sales personnel in multiple countries, and some of our business activities are concentrated in Asia. As a result, we are subject to regulatory, geopolitical, and other risks associated with doing business outside the U.S., including:

Sales to customers located outside the U.S. accounted for approximately 50% of our revenue in 2020. Approximately 6% of our sales in 2020 sales were attributable to customers located in China. We expect that revenue from international sales to China and other markets will continue to be a significant part of our total revenue. Any weakness in these economies could decrease demand for products that contain our products, which could materially and adversely affect our business. The imposition by the U.S. of tariffs on goods imported from China and potentially other countries, countermeasures imposed by China in response, U.S. export restrictions on sales of products to China, and other government actions that restrict or otherwise adversely affect our ability to sell our products to Chinese customers may have a material impact on our business, including our ability to sell products and to manufacture or source components.

As a company with some sales outside of the U.S., our results may be affected by movements in currency exchange rates as we grow our sales network. In addition, our exposure may increase or decrease over time as our foreign business levels fluctuate in the countries where we may have sales or operations. These changes could have a material impact on our financial results. The functional currency for our current operations and international sales is the U.S. dollar; however, that may expand to other currencies as we grow.

Economic regulation in China and other countries where we sell products could adversely impact our business and the results of operations.

A significant portion of our potential customer base is located in China and other countries outside of the U.S. For many years, the Chinese economy has experienced periods of rapid growth and wide fluctuations in inflation. In response to these factors, the Chinese government has, from time to time, adopted measures to regulate growth and to contain inflation, including currency controls and measures designed to restrict credit, control prices, or set currency exchange rates. Such actions in the future, as well as other changes in Chinese or other non-U.S. laws and regulations, including efforts in furtherance of reducing dependence on foreign semiconductor manufacturers, could increase the cost of doing business in other countries, foster the emergence of foreign competitors, decrease the demand for our products in those countries, or reduce the supply of necessary materials for our products, which could have a material adverse effect on our business and results of operations.

Changes in government trade policies, including the imposition of tariffs and export restrictions, have limited and could continue to limit our ability to sell or provide our products and other items to specific customers and suppliers, which may materially adversely affect our sales and results of operations.

The U.S. and foreign governments have taken and may continue to take administrative, legislative, or regulatory action that could materially interfere with our ability to export, re-export, and transfer products and other items in certain countries, particularly in China. For example, the imposition of tariffs has not had a direct, material adverse impact on our business; however, the direct and indirect effects of tariffs and other restrictive trade actions are difficult to measure and are only one part of economic and trade policy.

Furthermore, we have experienced and may continue to experience restrictions on our ability to export, re-export, and transfer our products and other items to specific foreign customers and suppliers where exports, re-exports, or transfers of products require export licenses or are prohibited by government action. As an example, the U.S. government has in the past imposed export restrictions that effectively banned American companies from exporting, re-exporting, and transferring products to DJI Technology Company and Huawei Technologies Co., Ltd.

Even if such restrictions are lifted, any financial or other penalties or continuing export restrictions imposed on our customers could have a continuing negative impact on our future revenue and results of operations. In addition, other foreign customers or suppliers affected by future U.S. government sanctions or threats of sanctions may respond by developing new solutions to replace our products or by adopting our foreign competitors’ solutions.

We cannot predict what further actions may ultimately be taken concerning tariffs or other trade measures between the U.S. and China or other countries, what products or entities may be subject to such actions, or what steps may be taken by other countries in response. The loss of foreign customers or suppliers or the imposition of restrictions on our ability to sell or transfer products to such customers or suppliers due to tariffs, export restrictions, or other U.S. regulatory actions could materially and adversely affect our sales and business and results of operations.

Security breaches and other disruptions could compromise our proprietary information and expose us to liability, which would cause our business and reputation to suffer.

We rely on trade secrets, technical know-how, and other unpatented proprietary information relating to our product development and manufacturing activities to provide us with competitive advantages. We protect this information by entering into confidentiality agreements with our employees, consultants, strategic partners, and other third parties. We also design our computer systems and networks and implement various procedures to restrict unauthorized access to the dissemination of our proprietary information.

We face internal and external data security threats. For example, current, departing, or former employees or third parties could attempt to improperly use or access our computer systems and networks to copy, obtain, or misappropriate our proprietary information or otherwise interrupt our business. Like others, we are also subject to significant system or network disruptions from numerous causes, including computer viruses and other cyber-attacks, facility access issues, new system implementations, and energy blackouts.

Security breaches, computer malware, phishing, spoofing, and other cyber-attacks have become more prevalent and sophisticated in recent years. While we defend against these threats daily, we do not believe that such attacks have caused us any material damage to date. Because the techniques used by computer hackers and others to access or sabotage networks constantly evolve and generally are not recognized until launched against a target, we may be unable to anticipate, counter or ameliorate all these techniques. As a result, our and our customers’ proprietary information may be misappropriated, and we cannot predict the impact of any future incident. Any loss of such information could harm our competitive position, result in a loss of customer confidence in the adequacy of our threat mitigation and detection processes and procedures, cause us to incur significant costs to remedy the damages caused by the incident, and divert management and other resources. We routinely implement improvements to our network security safeguards, and we are devoting increasing resources to the security of our information technology systems. However, we cannot assure that such system improvements will be sufficient to prevent or limit the damage from any future cyber-attack or network disruptions.

The costs related to cyber-attacks or other security threats or computer systems disruptions typically would not be fully insured or indemnified by others. As a result, the occurrence of any of the events described above could result in the loss of competitive advantages derived from our R&D efforts or our IP. Moreover, these events may result in the early obsolescence of our products, product development delays, or diversion of the attention of management and critical information technology and other resources, or otherwise, adversely affect our internal operations and reputation or degrade our financial results and stock price.

We may be subject to theft, loss, or misuse of personal data by or about our employees, customers, or other third parties, which could increase our expenses, damage our reputation, or result in legal or regulatory proceedings.

In the ordinary course of our business, we have access to sensitive, confidential, or personal data or information regarding our employees and others that is subject to privacy and security laws and regulations. Therefore, the theft, loss, or misuse of personal data collected, used, stored, or transferred by us to run our business, or by our third-party service providers, including business process software applications providers and other vendors that have access to sensitive data, could result in damage to our reputation, disruption of our business activities, significantly increased business and security costs or costs related to defending legal claims.

Global privacy legislation, enforcement, and policy activity in this area are rapidly expanding and creating a complex regulatory compliance environment. For example, the European Union has adopted the General Data Protection Regulation (“GDPR”), which requires companies to comply with rules regarding the handling of personal data, including its use, protection, and the ability of persons whose data is stored to correct or delete such data about themselves. Failure to meet GDPR requirements could result in penalties of up to 4% of worldwide revenue. In addition, the interpretation and application of consumer and data protection laws in the U.S., Europe, and elsewhere are often uncertain and fluid and may be interpreted and applied in a manner that is inconsistent with our data practices. As a result, complying with these changing laws has caused, and could continue to cause, us to incur substantial costs, which could harm our business and results of operations. Further, failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged non-compliant activity. Finally, even our inadvertent failure to comply with federal, state, or international privacy-related or data protection laws and regulations could result in audits, regulatory inquiries, or proceedings against us by governmental entities or others.

RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK

The market price and trading volume of our common stock may be volatile and could decline significantly following the Merger.

The quotation systems, including the OTC Markets QB tier, or stock exchanges, including Nasdaq, on which our common stock may be quoted or on which our common stock may be listed following the Merger have from time to time experienced significant price and volume fluctuations. As a result, even if an active, liquid, and orderly trading market develops and is sustained for our common stock following the Merger, the market price of our common stock may be volatile and could decline significantly. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, you may be unable to resell your shares at or above the market price of our common stock as of the date of the consummation of the Merger. We cannot assure you that the market price of common stock will not fluctuate widely or decline significantly in the future in response to several factors, including, among others, the following:

In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their shares. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us.

Following the Merger’s consummation, we will be obligated to develop and maintain proper and effective internal control over financial reporting. If we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired. In addition, the presence of material weaknesses increases the risk of material misstatement of the consolidated financial statements.

Laffin Acquisition Corp. is currently a public company and is required, pursuant to Section 404(a) of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of its internal control over financial reporting on its annual report on Form 10-K. Following the Merger, we will be subject to the same requirements. Effective internal control over financial reporting is necessary for reliable financial reports, and, together with adequate disclosure controls and procedures, such internal controls are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet its reporting obligations. Ineffective internal controls could also cause investors to lose confidence in reported financial information, which could have a negative effect on the trading price of our common stock.

The report by management will need to include disclosure of any material weaknesses identified in internal control over financial reporting. However, for as long as we are an “emerging growth company” under the JOBS Act following the consummation of the Merger, our independent registered public accounting firm will not be required to attest to the effectiveness of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. Management’s assessment of internal controls, when implemented, could detect problems with internal controls, and an independent assessment of the effectiveness of internal controls by our auditors could detect further problems that management’s assessment might not, and could result in the identification of material weaknesses that were not otherwise identified. Undetected material weaknesses in internal controls could lead to financial statement restatements and require us to incur remediation expenses. We are required to disclose changes made in internal control and procedures on a quarterly basis. To comply with the public company requirements, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.

We are in the early stages of developing the system and processing the documentation necessary to perform the evaluation needed to comply with Section 404. As a result, we may not be able to complete its evaluation, testing, and any required remediation in a timely fashion. During the evaluation and testing process, if we identify material weaknesses in internal control over financial reporting, we will be unable to assert that internal control over financial reporting is effective.

If we are unable to assert that our internal control over financial reporting is effective as a result of the material weaknesses described above, we could lose investor confidence in the accuracy and completeness of financial reports, which would cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC. In addition, if we are unable to continue to meet these requirements following the consummation of the Merger, we may not be able to remain quoted on the OTC Markets QB, or following our potential up listing, Nasdaq.

We have identified material weaknesses in our internal control over financial reporting that, if not properly remediated, could result in material misstatements in our consolidated financial statements in future periods.

We have limited accounting and financial reporting personnel and other resources with which to address our internal controls and related procedures. In connection with the audit of Guerrilla RF’s financial statements for the years ended December 31, 2020 and 2019, we identified certain deficiencies relating to our internal control over financial reporting some of which constitute material weaknesses under standards established by the Public Company Accounting Oversight Board (the “PCAOB”). The PCAOB defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. We identified material weaknesses related to the fact that certain members of our finance team and personnel are able to operate across a number of different functions and have user access that gives rise to segregation of duties risks in connection with our information technology infrastructure. Access to systems has subsequently been restricted and access will be managed by independent personnel. The other material weakness relates to a lack of evidence to support review work, oversight procedures and certain accounting policies. Formal review processes and meetings are being introduced in addition to the creation of a specific role in the finance team to review documentation and prepare evidence of such review and accounting policy decisions.

These material weaknesses have a pervasive impact on various activity level and financial reporting cycles. We will need to take additional measures to fully remediate these issues. The measures we have taken, and expect to take, to improve our internal controls may not be sufficient to (1) address the issue identified, (2) ensure that our internal controls are effective, or (3) ensure that the identified material weaknesses or other material weaknesses will not result in a material misstatement of our annual or interim financial statements. In addition, other material weaknesses may be identified in the future. If we are unable to correct deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in SEC rules and forms will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.

The shares of common stock issued in the Merger and the Offering are “restricted securities” and, as such, may not be sold except in limited circumstances.

None of the shares of common stock have been registered under the Securities Act or registered or qualified under any state securities laws. The shares of common stock issued in the Merger and Offering were sold and/or issued pursuant to exemptions contained in and under those laws. Accordingly, such shares of common stock are “restricted securities” as defined in Rule 144 under the Securities Act and must, therefore, be held indefinitely unless registered under applicable federal and state securities laws, or an exemption is available from the registration requirements of those laws. The certificates representing the shares of common stock issued in the Merger reflect their restricted status.

We have agreed to register the shares of common stock issued in the Merger and the Offering. However, there can be no assurance that the SEC will declare the registration statement effective, thereby enabling the shares of common stock issued in the Merger or the Offering to be freely tradable. In addition, Rule 144 under the Securities Act, which permits the resale, subject to various terms and conditions, of limited amounts of restricted securities after they have been held for six months, will not immediately apply to our common stock because we were at one time designated as a “shell company” under SEC regulations. Pursuant to Rule 144(i), securities issued by a current or former shell company that otherwise meet the holding period and other requirements of Rule 144 nevertheless cannot be sold in reliance on Rule 144 until one year after the date on which the issuer filed current “Form 10 information” (as defined in Rule 144(i)) with the SEC reflecting that it ceased being a shell company, and provided that at the time of a proposed sale pursuant to Rule 144, the issuer has satisfied certain reporting requirements under the Exchange Act. We believe this requirement to file Form 10 information has been satisfied by the filing of this Report. Because, as a former shell company, the reporting requirements of Rule 144(i) will apply regardless of holding period, the restrictive legends on certificates for the shares of common stock issued in the Merger and the Offering cannot be removed except in connection with an actual sale that is subject to an effective registration statement under, or an applicable exemption from the registration requirements of, the Securities Act.

If we are unable to register in a timely manner the shares of common stock issued to stockholders in the Merger or the Offering, then the ability to resell shares of our common stock so issued will be delayed.

We have agreed, at our expense, to prepare and file with the SEC a registration statement registering the resale of an aggregate of approximately 31 million shares of our common stock issued in connection with the Merger and the Offering. There are many reasons, including some over which we have little or no control, which could keep the registration statement from being declared effective by the SEC, including delays resulting from the SEC review process and comments raised by the SEC during that process. The shares of common stock covered by such registration statement will not be eligible for resale until the registration statement is effective or an exemption from registration, such as Rule 144, becomes available. If the registration statement is not filed within 60 days of the closing of the Offering, then we may be subject to certain liquidated damages pursuant to the Registration Rights Agreement we entered into with the holders of the Registrable Securities. See “The Merger and Related Transactions—Registration Rights Agreement” for more information.

There is currently no market for our common stock, and there can be no assurance that any market will ever develop. Therefore, you may be unable to resell shares of our common stock at times, and prices that you believe are appropriate.

Our common stock is not listed on a national securities exchange or any other exchange, or quoted on an over-the-counter market. Therefore, there is no trading market, active or otherwise, for our common stock. Moreover, our common stock may never be included for trading on any stock exchange, automated quotation system, or over-the-counter market. Accordingly, our common stock is highly illiquid, and you will likely experience difficulty reselling such shares at times and prices that you may desire.

Our common stock may not be eligible for listing or quotation on any securities exchange.

We do not currently meet the initial quantitative listing standards of any national securities exchange or over-the-counter trading system. As a result, we cannot assure you that we will be able to meet the initial listing standards of any national securities exchange or, if we do meet such initial listing standards, that we will be able to maintain any such listing. Further, the national securities exchanges are adopting so-called “seasoning” rules that will require that we meet specific requirements, including prescribed periods of time trading over-the-counter and minimum filings of periodic reports with the SEC, before we are eligible to apply for listing on such national securities exchanges. We intend to contact an authorized market maker for an over-the-counter quotation system to sponsor our common stock. Still, we cannot guarantee that such sponsorship will be approved and our common stock listed and quoted for sale. Even if our common stock is quoted for sale on an over-the-counter quotation system, buyers may be insufficient in numbers to allow for a robust market, and it may prove impossible to sell your shares. In addition, an investor may find it challenging to obtain accurate quotations as to the market value of our common stock. In addition, if we fail to meet the criteria outlined in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, further affecting its liquidity, making it more difficult for us to raise additional capital.

The designation of our common stock as “penny stock” would limit the liquidity of our common stock.

Our common stock may be deemed a “penny stock” (as that term is defined under Rule 3a51-1 of the Exchange Act) in any market that may develop in the future. Generally, a “penny stock” is a common stock not listed on a securities exchange and trades for less than $5.00 a share. Prices often are not available to buyers and sellers, and the market may be very limited. As a result, penny stock in start-up companies is among the riskiest equity investments. Broker-dealers who sell penny stock must provide purchasers with a standardized risk disclosure document prepared by the SEC. The document provides information about the penny stock and the nature and level of risks involved in investing in the penny stock market. A broker must also provide purchasers with bid and offer quotations and information regarding broker and salesperson compensation and make a written determination that the penny stock is a suitable investment for the purchaser and obtain the purchaser’s written agreement to the purchase. As a result, many brokers choose not to participate in penny stock transactions. If our common stock is deemed a “penny stock” because of penny stock rules, there may be less trading activity in any market that develops for our common stock in the future, and stockholders are likely to have difficulty selling their shares.

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our common stock.

The Financial Industry Regulatory Authority, or FINRA, has adopted rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Before recommending speculative or low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative or low-priced securities will not be suitable for at least some customers. If these FINRA requirements apply to us or our securities, they may make it more difficult for broker-dealers to recommend that at least some of their customers buy our common stock, which may limit the ability of our stockholders to buy and sell our common stock and could have an adverse effect on the market for and price of our common stock.

Because we became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not be able to attract the attention of research analysts at major brokerage firms.

Because we did not become a reporting company by conducting an underwritten initial public offering of our common stock, and because we will not be listed on a national securities exchange, security analysts of brokerage firms may not provide coverage of our company. In addition, investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we became a public reporting company through an underwritten initial public offering because they may be less familiar with our company as a result of more limited coverage by analysts and the media, and because we became public at an early stage in our development. The failure to receive research coverage or support in the market for our shares will have an adverse effect on our ability to develop a liquid market for our common stock.

Because the Merger was a reverse merger, the registration statement we file for the shares of common stock received by investors in the Merger might be subject to heightened scrutiny by the SEC, and we may not be able to attract the attention of major brokerage firms.

Additional risks may exist due to our becoming a public reporting company through a “reverse merger.” For example, certain SEC rules are more restrictive when applied to reverse merger companies, such as the ability of stockholders to resell their shares of common stock pursuant to Rule 144, and the SEC may subject the registration statement we file for the shares of common stock received by investors in the Merger and the Offering to heightened scrutiny. In addition, securities analysts of major brokerage firms may not provide coverage of our capital stock or business. Because we became a public reporting operating company through a reverse merger, brokerage firms have no incentive to recommend purchasing our common stock. As a result, we cannot assure you that brokerage firms will want to provide analyst coverage of our capital stock or business in the future.

We are an emerging growth company and a smaller reporting company. Therefore, any decision on our part to comply only with specific reduced reporting and disclosure requirements applicable to emerging growth companies and smaller reporting companies could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including:

We could be an emerging growth company for up to five years following the completion of the initial public offering of Laffin Acquisition Corp. However, our status as an emerging growth company will end as soon as any of the following takes place:

We cannot predict if investors will find our common stock less attractive if we rely on any of the exemptions afforded emerging growth companies. However, if some investors find our common stock less attractive because we rely on any of these exemptions, there may be a less active trading market for our common stock, and our common stock’s market price may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to avail ourselves of this provision of the JOBS Act. As a result, we will not be subject to new or revised accounting standards at the same time as other public companies that are not emerging growth companies. Therefore, our consolidated financial statements may not be comparable to those of companies that comply with new or revised accounting pronouncements as of public company effective dates.

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a “smaller reporting company” even after we are no longer an emerging growth company. As a result, we may take advantage of the scaled disclosures available to smaller reporting companies. We will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates are less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates are less than $700.0 million measured on the last business day of our second fiscal quarter.

We may face risks related to securities litigation that could result in significant legal expenses and settlement or damage awards.

We may in the future become subject to claims and litigation alleging violations of the securities laws or other related claims, which could harm our business and require us to incur significant costs. Significant litigation costs could impact our ability to comply with certain financial covenants under our credit agreement. To the extent permitted by law, we are generally obliged to indemnify our current and former directors and officers who are named as defendants in these types of lawsuits. Regardless of the outcome, litigation may require significant attention from management and could result in substantial legal expenses, settlement costs, or damage awards that could have a material impact on our financial position, results of operations, and cash flows.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and prevent stockholders’ attempts to replace or remove our current management.

Our amended and restated certificate of incorporation and our amended and restated bylaws that will be in effect upon completion of this offering contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors who are not nominated by current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions:

In addition, our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law (the “DGCL”), our amended and restated certificate of incorporation, or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.

Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Our amended and restated bylaws will provide that the federal district courts of the United States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (“Federal Forum Provision”). Our decision to adopt a Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal courts or state courts will follow the holding of the Delaware Supreme Court or determine that the Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court. While neither the exclusive forum provision nor the Federal Forum Provision applies to suits brought to enforce any duty or liability created by the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder also must be brought in federal court. Thus, our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.

Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may limit a stockholder’s ability to bring a claim in a judicial forum of their choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees.

In addition, Section 203 of the DGCL may discourage, delay or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.

We do not intend to pay dividends for the foreseeable future, and, as a result, your ability to achieve a return on your investment will depend on appreciation of the price of our common stock.

We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, our stock price and trading volume could decline.

Our stock price and trading volume following our quotation on the OTC Markets QB tier, if any, or following our potential up listing on Nasdaq, if any, will be heavily influenced by the way analysts and investors interpret our financial information and other disclosures. Securities and industry analysts do not currently, and may never, publish research on our business. If few securities or industry analysts commence coverage of us, our stock price could be negatively affected. If securities or industry analysts downgrade our common stock or publish negative reports about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price to decline and could decrease the trading volume of our common stock.

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 Financial Statements and the related Notes and other financial information included in this Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this 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 “Forward-Looking Statements” elsewhere in this Report. You should review the disclosure under the heading “Risk Factors” in this 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

On October 22, 2021, Laffin Acquisition Corp., Acquisition Sub and Guerrilla RF entered into a Merger Agreement. Pursuant to the terms of the Merger Agreement, on the Closing Date, Acquisition Sub merged with and into Guerrilla RF, with Guerrilla RF continuing as the surviving corporation and our wholly-owned subsidiary. As a result of the Merger, we acquired the business of Guerrilla RF and will continue the existing business operations of Guerrilla RF as a public reporting company under the name Guerrilla RF, Inc.

The Merger was treated as a recapitalization and reverse acquisition for us for financial reporting purposes, and Guerrilla RF is considered the acquirer for accounting purposes. As a result of the Merger and the change in our business and operations, a discussion of the past financial results of Laffin Acquisition Corp. is not pertinent, and under applicable accounting principles, the historical financial results of Guerrilla RF, the accounting acquirer, prior to the Merger are considered our historical financial results.

Our discussion and analysis is organized as follows:

Guerrilla RF

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

Recent Developments

Merger Agreement

On October 22, 2021, Laffin Acquisition Corp., Acquisition Sub and Guerrilla RF entered into a Merger Agreement. Pursuant to the terms of the Merger Agreement, on the Closing Date, Acquisition Sub merged with and into Guerrilla RF, with Guerrilla RF continuing as the surviving corporation and our wholly-owned subsidiary.

As a result of the Merger, we acquired the business of Guerrilla RF, a fabless semiconductor company based in Greensboro, N.C. See “Description of Business.” At the Effective Time, each of Guerrilla RF’s shares of capital stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive approximately 2.95 shares of our common stock (the “Common Share Conversion Ratio”). Immediately prior to the Effective Time, an aggregate of 2,025,000 shares of our common stock owned by the stockholders of Laffin Acquisition Corp. prior to the Merger were forfeited and cancelled (the “Stock Forfeiture”).

In addition, pursuant to the Merger Agreement, options to purchase 1,065,067 shares of Guerrilla RF’s common stock issued and outstanding immediately prior to the closing of the Merger under the Guerrilla RF Plan were assumed and converted into options to purchase 3,146,366 shares of our common stock.

Private Placement Offering

Following the Effective Time of the Merger, we sold 3,583,050 shares of our common stock pursuant to a private placement offering at the Offering Price.

COVID-19 Crisis Update

In light of the uncertain and continuously evolving situation relating to the spread of the COVID-19 crisis and in compliance with government orders, we have taken measures intended to help minimize the risk of transmitting the virus to our employees, our customers, and the communities in which we participate, which could negatively impact our business. Although we continue to monitor the situation and may adjust our current policies as more information and guidance become available, COVID-19 could negatively impact our marketing efforts, our ability to serve our current and potential customers, our business expansion efforts, our ability to recruit employees across the organization and in sales and marketing, in particular, which could have longer-term effects on our sales pipeline or create operational or other challenges, any of which could harm our business. The extent to which the COVID-19 crisis and our precautionary measures may impact our business will depend on future developments, which are highly uncertain and cannot be predicted at this time.

Outlook And Challenges Facing Our Business

Wireless Industry

Rising consumer and governmental demand for always-on wireless broadband connectivity are creating an unprecedented demand for high-performance RF semiconductors for many industries and sectors. In addition, mobile devices such as smartphones, tablets, and wearables are quickly becoming the primary means of accessing the Internet, driving the Internet of Things (IoT). The rapid growth in mobile data traffic is testing the limits of existing wireless bandwidth. Carriers and regulators have responded by opening new spectrums of radio frequencies, which has resulted in a substantial increase in frequency bands in new mobile devices and additional demand for RF applications. We anticipate that the introduction of 5G mobile technologies and their associated frequencies over the next several years will create even greater demand for our high-performance RF products.

Automotive Industry

We focus on five key applications within the automotive space, all tied to vehicle telematics and infotainment: GPS/GNSS, SDARS, Cellular Compensators, V2X, and FM/DAB.

There has been significant negative press surrounding recent semiconductor shortages, which have affected the automotive industry. GRF has, thus far, avoided these shortages due to aggressive forecasting management and significantly shorter fab process cycles. Our pHEMT and HBT GaAs offerings continue to enjoy faster cycle times than competing devices that utilize silicon-based processes. Nevertheless, GRF’s overall demand has been slowed this year due to non-GRF shortages that have reduced overall vehicle production. We anticipate that the recent demand irregularities will normalize in the near term; however, any additional COVID-related shutdowns may result in further delays.

In terms of the competitive outlook, each wireless application is subject to a constant push by automobile manufacturers to differentiate on performance, solution size, and cost. However, given our competitive advantages, we look at each of these challenges as opportunities.

We anticipate that the most mature telematics application (GPS/GNSS) will continue to see increased competitive pressure from modular alternatives. On the SDARS front, we anticipate that GRF’s market position could come under pressure as new competitors enter the market or as automotive suppliers seek waivers to relax Sirius XM’s stringent radio requirements (which would open the market up to cheaper alternatives). Finally, although the demand for Cellular Compensators within the luxury vehicle segment continues to grow year on year, there is a risk that this featured accessory may not gain widespread adoption within the mid- and lower-tier vehicle segments, which will adversely affect our business.

GRF continues to see accelerated interest in cable loss compensation for both C-V2X and DSRC radios. Risks include the speed of market adoption coupled with a potentially diminished need for many vehicle antennas. However, we view both risk factors as minimal due to the rapidly growing popularity of V2X telematics coupled with the challenging propagation environment associated with vehicle antenna placement. New competitive entrants from the WiFi market could also add pressure from size and cost reductions.

5G

The insatiable demand for bandwidth bodes well for the entire cellular infrastructure market. The recent fanfare surrounding the speed and latency improvement that come with 5G is a testament to the pull of this consumer demand. That said, there is the risk that 5G buildouts may take longer than anticipated – or operators may take a more conservative approach to deploy hardware that supports the very highest levels of throughput and capacity. For sub-6GHz systems, demand for the high-end 64T64R systems (which utilize the highest count of radio paths and RFIC content) may shift to favor 32T32R, 16T16R, or even 8T8R alternatives.

Cellular Repeaters/Boosters/DAS

Overall demand is growing, albeit at a more modest pace than Automotive and 5G. We expect demand on the consumer front to grow as more individual’s transition to hybrid schedules that include working from home. Repeater/booster purchases are, of course, governed by a consumer’s willingness to upgrade their home coverage while using personal/discretionary income. Similarly, DAS deployments are subject to discretionary spending within corporate budgets.

Catalog Business

Our catalog business is driven by a base of well over 300 unique customers. This diversity helps to mitigate the market-specific risks outlined above. That said, the macro demand from this segment is still subject to seasonal fluctuations. In addition, the customer base’s breadth and sheer size also limit our visibility into this market’s demand, so our forecasting is limited.

Future Prospects

We anticipate that we will continue to experience operating losses in 2021 and 2022 as we seek to implement our long-term strategic plan, using the net proceeds from the Offering to accelerate new product development through increased R&D spending, expand our sales and marketing efforts and increase our overall headcount in order to achieve efficiencies through scaled growth. Our goal is to double our revenues annually over the coming years.  With such an increase, we anticipate proportional increases in product cost, overhead and operating expenses. We aim to initially achieve profitability in 2023, with increased profitability thereafter; however, doing so is dependent upon numerous factors, including the development of revenues, general business and economic conditions, and other risks and uncertainties, including those listed under the caption “Risk Factors.”

Executive Summary

Guerrilla RF has one reportable business segment representing the entity as a whole. Our business segment represents groups of similar products combined based on similar design and development requirements, product characteristics, manufacturing processes and distribution channels, and how management allocates resources and measures results. The following table summarizes the results of our operations for the periods presented:

Revenue for the year ended December 31, 2020, was $8.1 million, up 15.1% from the year ended December 31, 2019, against a very challenging economic environment caused by the COVID-19 pandemic. Revenue for the six months ended June 30, 2021, was $5.6 million, up 43.9% from the six months ended June 30, 2020.

As a percentage of our aggregate revenues, Wireless Infrastructure revenue represented 18.9% and 30.6% for the six months ended June 30, 2021, and the year ended December 31, 2020, respectively. Automotive revenue represented 35.4% and 36.6% for the six months ended June 30, 2021, and the year ended December 31, 2020, respectively. Finally, Catalog revenue represented 45.7% and 32.8% for the six months ended June 30, 2021, and the year ended December 31, 2020, respectively. The revenue achieved in each of our customer groups for the most recent six-month and yearly periods represents record revenue compared to prior periods since our inception.

Our gross profit percentage for 2020 declined to 64.0% from 65.9% in 2019, primarily due to changes in the amount of product sales versus royalty revenues as a percentage of all revenue. Our gross profit percentage for the six months ended June 30, 2021, declined to 60.7% from 69.3% for the six months ended June 30, 2020, primarily due to the mix of royalty revenues versus product revenues.

Our 2020 net cash flows used in operating activities was $2.0 million, driven by our continued investments in product development. Our cash position at the end of 2020 was $427 thousand. Our net cash flows used in operating activities through the six months ended June 30, 2021, was $849 thousand, mainly attributable to a SBA PPP loan forgiveness and our continued investments in product development. Our cash position at June 30, 2021, was $443 thousand.

We continue to face unprecedented challenges posed by the COVID-19 pandemic. Even though we have managed to grow our business during the pandemic, we cannot reasonably estimate the duration and severity of this global pandemic or its ultimate impact on our business. During fiscal 2020 and the six months ended June 30, 2021, we did not encounter material disruptions to our global supply chain or operations. However, the duration, severity, and future impact of the COVID-19 pandemic remains uncertain and may result in significant disruptions to our operations, including our supply chain, and may negatively impact our financial condition. Therefore, we will continue to monitor the implications of the COVID-19 pandemic on our business.

We saw significant growth in our product revenues, which more than offset the decrease in royalty revenues in 2020 and the six months ended June 30, 2021, consistent with our long-term strategic plan. We anticipated a decline in royalty revenues from 2019, and we expect the decline to continue through the remainder of 2021. Our royalty agreement is perpetual and with one customer.

In September 2020, we released the first of what we anticipate being a series of new PA products.  Since being released, these new PA products have accounted for increased revenues and enhanced contribution margin, i.e., the amount by which a product’s selling price exceeds its total variable costs per unit of product sold (contribution margin = sales revenue − variable costs). We expect to continue releasing new PA products through 2021 and beyond.  As we release more PA devices and gain traction with those already released, we expect revenue growth to accelerate.  In addition, we are working towards prototyping our first silicon products, which, if successful, we expect to increase our range of product offerings significantly.

Key metrics

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

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 our inception through the end of the period.

Number of products with lifetime revenue exceeding $100 thousand: The number of products that have achieved the threshold of cumulative sales of $100,000 during the period, i.e., a product achieved cumulative lifetime sales exceeding $100 thousand since we released the product at any prior point in time.

Industry Dynamics and Trends

Many factors affect our business and industry including, among others, the COVID-19 pandemic. The pandemic has affected both supply and demand in the semiconductor industry. On the supply side, semiconductor and packaging suppliers have faced government-mandated shutdowns and labor shortages. On the demand side, remote workers have increased various electronics purchases. This combination of supply disruption and demand distortion has caused shortages and capacity allocations across the industry. In turn, these shortages have significantly driven up prices throughout the value chain, which we anticipate will ultimately be passed on to end consumers.

Fiscal 2020 Financial Highlights

The table below summarizes our results of operations for fiscal years 2020 and 2019, along with a year-over-year comparison.

Six months ended June 30, 2021, Financial Highlights

Revenue

Revenue for the six months ended June 30, 2021, and the year ended December 31, 2020, increased compared to the respective prior year periods, primarily due to higher demand from our Wireless Infrastructure and Automotive customers.

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 during the six months ended June 30, 2021, and the years ended December 31, 2020, and 2019. Revenue from our one major customer accounted for 79.1%, 81.8%, and 63.0% of product shipment revenue for the six months ended June 30, 2021, the year ended December 31, 2020, and the year ended December 31, 2019, respectively.

International shipments amounted to $3.1 million (approximately 55.3% of revenue), $3.5 million (approximately 42.6% of revenue), and $3.0 million (approximately 63.4% of revenue) for the six months ended June 30, 2021, and the years ended December 31, 2020, and 2019, respectively.

We derive our revenue from sales of high-performance RF semiconductor products. We design, integrate, and package differentiated, semiconductor-based products that we sell to customers through our direct sales organization, our network of independent sales representatives, and our distributors. We believe the primary drivers of our future revenue growth will include:

Our core strategy is to develop and innovate high-performance products that address our customers’ most complex technical challenges in our primary markets.

We expect our future revenue to be driven by growth in the Wireless Infrastructure market, growth in the telematics segment of the Automotive market, continued upgrades and expansion of communications equipment, and increased adoption of our high-performance RF components.

Gross Profit

Our gross profit has increased through June 30, 2021, primarily due to increased products sales volume, offset slightly by volume-based price discounts.

Operating Expenses

For the six months ended June 30, 2021, and the year ended December 31, 2020, research and development (“R&D”) spending increased compared to the prior year periods primarily due to engineering headcount additions and increased product development spend, partially offset by lower travel expenses. R&D costs mainly consist of engineer salaries and wages (including other variable compensation), engineering-related costs (including laboratory equipment, prototype fabrication, and license-related costs), and other pre-production-related expenses.

For the six months ended June 30, 2021, and the year ended December 31, 2020, sales, marketing, and administration expenses increased compared to the prior year periods primarily due to increased employee headcount, partially offset by lower travel expenses. Sales, marketing, and administration expenses mainly consist of personnel salaries and wages, operating facilities, operating supplies, and sales and marketing costs.

Interest and Income Taxes

The following table reflects our interest expenses for the fiscal years ended December 31, 2020, and 2019, and the six months ended June 30, 2021, and June 30, 2020.

Interest expense

We recognized $469 thousand and $465 thousand of interest expense in fiscal 2020 and 2019, respectively. We recognized $310 thousand of interest expense for the six months ended June 30, 2021, and $203 thousand of interest expense for the same period in 2020.

Warrant expense

In the six months ended June 30, 2021, we recorded warrant expense of $13 thousand compared to warrant expense of $13 thousand for the six months ended June 30, 2020. In fiscal year 2020, we recorded warrant expense of $25 thousand compared to warrant expense of $128 thousand in fiscal year 2019. Warrant expense is recorded within our above-noted interest expense. See Note 5 and Note 6 to our audited year ended December 31, 2020 Financial Statements, and unaudited Six Months ended June 30, 2021 Financial Statements, respectively, for additional information regarding the warrants.

Income tax expense

We had no income tax expense for the six months ended June 30, 2021, and fiscal year 2020, as we have a full valuation allowance on our deferred tax assets.

We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. We base the measurement of deferred tax assets and liabilities upon the enacted tax rates expected to apply to taxable income in the years we expect those temporary differences to be recovered or settled.

Deferred tax assets, including assets arising from loss carryforwards, are recognized, net of a valuation allowance, if based upon the available evidence, it is more likely than not that we will realize the asset. We established a valuation allowance against deferred tax assets in the taxing jurisdictions where, based upon the positive and negative evidence available, it is more likely than not that we will not realize the related deferred tax assets. Realization is dependent upon generating future income in the taxing jurisdictions where operating loss carryovers, credit carryovers, depreciable tax basis, and other deferred tax assets exist. Management reevaluates the ability to realize the benefit of these deferred tax assets quarterly. As of June 30, 2021, and December 31, 2020, and 2019, the valuation allowance against domestic deferred tax assets was $3.0 million, $3.0 million, and $2.4 million, respectively.

The income tax benefit from an uncertain tax position is recognized if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities. The income tax benefit recognized is measured based on the largest benefit that is more than 50% likely to be realized upon resolution of the uncertainty. Unrecognized tax benefits are presented as a reduction to the deferred tax asset for related net operating loss carryforwards, unless these would not be available, in which case the uncertain tax benefits are presented together with the related interest and penalties as a liability, under accrued liabilities and other non-current liabilities based on the timing of the expected payment. Penalties are recorded as an income tax expense, whereas interest is reported as a financial expense in the statements of operations.

See Note 9 and Note 2 to our audited year ended December 31, 2020 Financial Statements, and unaudited Six Months ended June 30, 2021 Financial Statements, respectively, for additional information regarding income taxes.

Share-Based Compensation

Under Financial Accounting Standards Board ASU 2018-7, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award using an option pricing model for stock options (Black-Scholes model) and is recognized as expense over the employee’s requisite service period.

As of June 30, 2021, and December 31, 2020, the total remaining unearned compensation cost related to unvested, unrestricted incentive stock options was $101 thousand and $24 thousand, respectively, which will be amortized over the weighted-average remaining service period of approximately three years.

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

Net cash generated by financing activities is our primary source of liquidity. As of June 30, 2021, we had working capital of approximately $1.2 million, which included $443 thousand in cash and cash equivalents.

At this time, we cannot estimate the long-term impact of the COVID-19 pandemic on our business, financial condition, results of operations, or cash flow. We believe we have sufficient liquidity available from operating cash flows, cash on hand, and the availability of funds from investors. However, as the situation evolves, we will assess our liquidity needs, evaluate available alternatives and take appropriate actions.

Guerrilla RF has been in continuous operation since 2013 and has remained liquid since the inception of our operations. Guerrilla RF has experienced and will likely encounter tight cash management requirements in the future as it funds significant product development efforts and acquires talent necessary to support continuing growth.

The following table reflects the significant categories of cash flows for the six months ended June 30, 2021, and 2020.

Cash Flows from Operating Activities

Operating activities in fiscal 2020 used cash of $2.0 million, compared to $974 thousand in fiscal 2019, primarily due to changes in working capital related to inventory, accounts receivable, and accounts payable. Operating activities in the six months ended June 30, 2021, used cash of $849 thousand, compared to $678 thousand in the six months ended June 30, 2020, primarily due to PPP loan forgiveness and changes in working capital driven by accounts receivable.

Cash Flows from Investing Activities

Net cash used in investing activities in fiscal 2020 was $311 thousand, compared to $309 thousand in fiscal 2019, due to purchases of property, plant, and equipment. Investing activities in the six months ended June 30, 2021, used cash of $115 thousand, compared to $234 thousand in the six months ended June 30, 2020, also due to property, plant, and equipment purchases.

Cash Flows from Financing Activities

Net cash provided by financing activities in fiscal 2020 was $1.8 million, compared to net cash provided by financing activities of $1.7 million in fiscal 2019. This increase in cash flows was due primarily to increases in our factoring arrangement and debt financing activity in 2020. Net cash provided by financing activities for the six months ended June 30, 2021, was $979 thousand, compared to net cash provided by financing activities of $696 thousand for the six months ended June 30, 2020. This increase in cash flows was due primarily to government-sponsored debt financing activity in the six months ended June 30, 2021, compared to the six months ended June 30, 2020. See Note 5 and Note 6 to our audited year ended December 31, 2020 Financial Statements, and unaudited Six Months ended June 30, 2021 Financial Statements, respectively, for more information.

Our future capital requirements may differ materially from those currently anticipated and will depend on many factors, including market acceptance of and demand for our products, acquisition opportunities, technological advances, and our relationships with suppliers and customers. Based on current and projected cash flow levels from operations, coupled with our existing cash and cash equivalents and our investor financing, we believe that we have sufficient liquidity to meet our short-term and long-term cash requirements. However, if there is a significant decrease in demand for our products or revenue grows slower than anticipated, operating cash flows may be insufficient to meet our needs. If existing resources and cash from operations are inadequate to meet our future requirements or if we perceive conditions to be favorable, we may seek additional debt or equity financing. Additional equity or debt financing could be dilutive to holders of our common stock. Further, we cannot be sure that additional equity or debt financing, if required, will be available on favorable terms, if at all.

Debt Position

Short-term Debt

As of December 31, 2020, and 2019, there was $1,297,611 and $0, respectively, of short-term debt outstanding in addition to the current portion of our long-term debt discussed below under the heading “Long-term Debt.” As of June 30, 2021, and 2020, there was $1 million and $0, respectively, of short-term debt outstanding in addition to the current portion of our long-term debt discussed below under the heading “Long-term Debt.”

Guerrilla RF has an accounts receivable factoring arrangement with a financial institution (the “Factor”). Under the terms of the agreement, Guerrilla RF, from time to time, sells to the Factor certain of its accounts receivable balances on a recourse basis for credit approved accounts. The Factor remits 85% of the domestic accounts receivable balance to Guerrilla RF (the “Advance Amount”), with the remaining balance (“Factored Balance Due”), less fees to be forwarded to Guerrilla RF once the Factor collects the entire accounts receivable balance from the customer. The base factoring fee is 0.98% (prior to December 4, 2020, it was 1.5%) of the face value of the factored invoice, with an additional fee of 0.0327% (prior to December 4, 2020, it was 0.05%) per day in the event that the invoice remains outstanding and unpaid after 30 days. In the event that the factored invoice is not paid within 90 days, then Guerrilla RF is required to repurchase the invoice. The minimum invoice fee for any factored invoices is $1.50. We include the cost of factoring in interest expense.

As stated above, the accounts receivable Guerrilla RF factors are done so on a recourse basis. Therefore, if the Factor cannot collect the accounts receivable factored, Guerrilla RF must refund the Advance Amount remitted to it for the uncollected accounts receivable. Accordingly, Guerrilla RF records the liability of having to refund the Advance Amount as short-term debt

The following table summarizes the amounts due to and from the Factor and the factoring fees paid, as of the dates and for the stated periods.

The cost of factoring was as follows:

Please see Note 5 and Note 6 to our audited year ended December 31, 2020 Financial Statements, and unaudited Six Months ended June 30, 2021 Financial Statements, respectively, for more information.

Please see Note 5 and Note 6 to our audited year ended December 31, 2020 Financial Statements, and unaudited Six Months ended June 30, 2021 Financial Statements, respectively, for more information.

Balance Sheet and Working Capital

December 31, 2020, Compared to December 31, 2019

As of December 31, 2020, Guerrilla RF had current assets of $2.3 million, including cash on hand of $427 thousand. As of December 31, 2019, current assets were $2.9 million, including cash on hand of $904 thousand.

Net Property, Plant, and Equipment was $790 thousand as of December 31, 2020, compared to $417 thousand as of the year ended December 31, 2019. The approximate $313 thousand year-over-year increase is primarily due to equipment purchases for our Greensboro, North Carolina facility.

As of December 31, 2020, and December 31, 2019, total assets were $4.0 million and $3.3 million, respectively.

As of December 31, 2020, current liabilities were $2.1 million and increased year-over-year by $1.9 million from $285 thousand at December 31, 2019, due to increases in accounts payable, fixed asset leases, debt, and employee compensation accruals.

Long-term liabilities totaled $5.0 million as of December 31, 2020, compared to $4.7 million as of December 31, 2019. The increase of $276 thousand was primarily due to the addition of a SBA PPP loan of $536 thousand and a lease liability of $258 thousand.

Stockholders’ deficit was $3.1 million as of December 31, 2020, compared to $1.6 million as of December 31, 2019. Additional paid-in-capital (“APIC”) was $9.1 million as of December 31, 2020, increasing by $525 thousand from $8.6 million as of December 31, 2019. The year-over-year increase was primarily due to proceeds from the exercise of warrants and options of $0.7 million and preferred stock issued in payment of a convertible note of $1.0 million. As a result, the $1.5 million increase in stockholders’ deficit consisted of the $525 thousand increase in APIC reduced by the $2.1 million net loss recorded for the year ended December 31, 2020.

June 30, 2021, Compared to June 30, 2020

As of June 30, 2021, Guerrilla RF had current assets of $3.2 million, including cash on hand of $443 thousand. As of June 30, 2020, current assets were $3.0 million, including cash on hand of $688 thousand.

Net Property, Plant, and Equipment was $840 thousand as of June 30, 2021, compared to $524 thousand as of June 30, 2020. The $316 thousand year-over-year increase was due to purchasing laboratory and information technology equipment for the Greensboro, North Carolina facility, production mask sets, and capital leases.

As of June 30, 2021, and June 30, 2020, total assets were $4.0 million and $3.6 million, respectively.

As of June 30, 2021, current liabilities were $2.0 million and increased year-over-year by $1.1 million from $926 thousand at June 30, 2020, primarily due to increases in the current portion of notes payable, accounts payable, fixed asset leases, debt, and employee compensation accruals.

Long-term liabilities totaled $5.5 million as of June 30, 2021, compared to $4.6 million as of June 30, 2020. The increase of $930 thousand was primarily due to the addition of the government-sponsored debt financing and a lease liability.

Stockholders’ deficit was $3.5 million as of June 30, 2021, compared to $1.9 million as of June 30, 2020. The $1.6 million increase in stockholders’ deficit resulted from an increase in accumulated deficit resulting from net losses over the previous 12 months. APIC was $9 .1 million as of June 30, 2021, increasing by $55 thousand as of June 30, 2020. The year-over-year increase was primarily due to proceeds from the issuance of common stock, share-based compensation, and the conversion of notes payable.

See Note 11 to our unaudited June 30, 2021 Financial Statements for additional information about capital raise financing transactions subsequent to June 30, 2021.

Impact of Inflation

We do not believe that the effects of inflation had a significant impact on our revenue or operating income during fiscal years 2020 and 2019. However, there can be no assurance that our business will not be affected by inflation in the future.

Contractual Obligations

Set forth below is a summary of our significant contractual obligations (dollars in thousands) as of December 30, 2020, and June 30, 2021, related to our capital commitments, purchase obligations, leases, other obligations, and long-term liabilities, and the effect such obligations are expected to have on our liquidity and cash flows in future periods:

In addition to our contractual obligations noted above, in July 2021, the Guerrilla RF entered into an operating lease agreement for additional office facilities in Greensboro, North Carolina, which has an estimated expiration date in June 2031. The lease is a contingent liability that allows for termination with penalty if Guerrilla RF cannot successfully raise additional equity financing at a level satisfactory to the landlord. Guerrilla RF will not remit any lease payments until it occupies the building. See further information in Note 11 of our Financial Statements for the six months ended June 30, 2021.

Off-Balance Sheet Arrangements

As of June 30, 2021, and December 31, 2020, 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.

Factoring Arrangement

See the information set forth above, below the heading “Short Term Debt,” for a discussion of the accounts receivable factoring arrangement Guerrilla RF has with a financial institution.

Critical Accounting Policies AND ESTIMATES

The preparation of financial statements requires management to use judgment and estimates. The level of uncertainty in estimates and assumptions increases with the length of time until we complete the underlying transactions. As a result, actual results could differ from those estimates. The accounting policies that are most critical in the preparation of our financial statements are those that are important to the presentation of our financial condition and results of operations and require significant judgment and estimates on the part of management. Our critical accounting policies are reviewed periodically with our Audit Committee. We also have other policies that we consider key accounting policies; however, these policies typically do not require us to make estimates or judgments that are difficult or subjective. (See Note 2 of the Notes to Financial Statements.)

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 after the enactment of the JOBS Act until 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 (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our Financial Statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Revenue Recognition. Guerrilla RF 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 Guerrilla RF expects to be entitled to in exchange for those products and services. Sales and other taxes Guerrilla RF collects concurrent with revenue-producing activities are excluded from revenue. Shipping and handling fees charged to customers are reported within revenue. Guerrilla RF does not have any significant financing components as payment is received at or shortly after the point of sale. 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. The costs incurred by Guerrilla RF for shipping and handling are classified as cost of revenue in the statements of operations. Any incidental items that are immaterial in the context of a sale to a customer are recognized as an expense.

Our pricing terms are negotiated independently on a stand-alone basis. In determining the transaction price, we evaluate whether the price is subject to a refund or adjustment to determine the net consideration to which we expect to be entitled. Our terms and conditions do not give our customers a right of return associated with the original sale of our products. However, we may authorize sales returns under certain circumstances, including courtesy returns and like-kind exchanges.

Accounts receivable primarily relate to amounts due from customers, which are typically due within 30 to 45 days. Guerrilla RF provides credit to its customers in the ordinary course of business and evaluates the need for allowances for potential credit losses. Guerrilla RF does not require collateral or other security for accounts receivable. Guerrilla RF performs ongoing evaluations of its customers’ financial condition to reduce credit risk with accounts receivable. Historically, such losses have been immaterial and within management’s expectations.

Guerrilla RF has a factoring agreement that provides advance payments on up to 85% of invoices issued to one customer, our largest distributor, with receivables less than 90 days outstanding, secured by the remaining 15%. Guerrilla RF sold $1.0 million of invoices during the year ended December 31, 2020. The base factoring fee was 1.5% (after December 4, 2020, it was reduced to 0.98%) with an additional fee of 0.05% (after December 4, 2020, it was reduced to 0.0327%) per day in the event that the invoice remains outstanding and unpaid after 30 days. In the event that the factored invoice is not paid within 90 days, then Guerrilla RF is required to repurchase the invoice.

We incur some commission expense that is incremental to obtaining contracts with customers. For example, we expense sales commissions (recorded in the “Selling and marketing” expense line item in the Financial Statements) when incurred because we do not owe such commissions until the performance obligation is satisfied. Therefore, no remaining period exists over which to amortize the commissions.

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 of stock options awarded during fiscal 2020 and fiscal 2019 and the six months ended June 30, 2021, and 2020 were determined using the following methods and assumptions:

The inputs and assumptions used to estimate the fair value of stock-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 stock-based compensation expense could be materially different for future awards.

In valuing our common and preferred stock, our Board of Directors determined the equity value of our business by taking a combination of the cost, income, and market approaches.

The income approach estimates a company’s fair value based on the present value of its future estimated cash flows and its residual value beyond the forecast period. These future values are discounted to their present values using a discount rate which is derived from an analysis of the cost of capital of comparable publicly-traded companies in the same industry or similar lines of business as of each valuation date and is adjusted to reflect the risks inherent in us achieving these estimated cash flows. For the market approach, we utilized the guideline company method by analyzing a population of comparable companies and selected those technology companies that we considered to be the most comparable to us in terms of product offerings, revenue, margins, and growth. We then used these guideline companies to develop relevant market multiples and ratios, which are then applied to our corresponding financial metrics to estimate our equity value.

The enterprise values determined by the income and market approaches were then allocated to our common stock using the Current Value Method, Probability Weighted Expected Return Method, and the Option Pricing Method, or OPM.

The OPM treats common stock and preferred stock as call options on a company’s enterprise value, with exercise prices based on the liquidation preferences of the preferred stock. Therefore, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preference at the time of an assumed liquidity event such as a merger, sale, or initial public offering. The common stock is modeled as a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after liquidating the preferred stock. The OPM uses the Black-Scholes option-pricing model to determine the price of the call option. The OPM is appropriate when the range of possible future outcomes is so difficult to predict that forecasts would be highly speculative.

Given the absence of a public trading market for our capital stock, our Board of Directors exercised reasonable judgment and considered a number of subjective factors to determine the best estimate of the fair value of our common stock, including:

Income Taxes. In determining income for financial statement purposes, we must make certain estimates and judgments in calculating tax expense, the resultant tax liabilities, and the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of revenues and expenses.

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 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 740 10, Accounting for Uncertainty of Income Taxes, (“ASC 740 10”) 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 financial statements prepared in conformity with U.S. generally accepted accounting principles. Guerrilla RF may only recognize the tax benefit from an uncertain tax position if it is more likely than not that 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 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 740 10, Guerrilla RF’s policy on the statement of operations classification of interest and penalties related to income tax obligations is to include such items as part of total income tax expense.

See Note 9 to our audited year ended December 31, 2020 Financial Statements, for additional information regarding our uncertain tax positions and discussion of unrecognized tax benefits.

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 year ended December 31, 2020 Financial Statements, and unaudited Six Months ended June 30, 2021 Financial Statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Financial Risk Management

The primary objective of our financial risk management activities is to reduce the negative financial impact resulting from changes in interest rates, equity prices, and commodity prices (the “Underlying Exposures”). We manage these Underlying Exposures through operational means and the use of various financial instruments when deemed appropriate. As a result, the method and extent to which we can reduce the economic impact related to the Underlying Exposures may vary over time. Similarly, there can be no assurance that our financial risk management activities will successfully mitigate the financial impact resulting from movements in the Underlying Exposures.

Commodity Risk

We use precious metals regularly in the manufacturing processes of our products. Typical supply versus demand scenarios exist for the required commodities, and thus, we are subject to price fluctuations. We also utilize a gold reclamation process to salvage gold from scrapped materials as an environmentally friendly cost-saving tool. While we attempt to mitigate the risk of price increases, we cannot completely safeguard against these events that have the potential to limit the ability to manufacture our products or increase the cost of goods sold.

Executive Officers

Ryan Pratt is the founder of Guerrilla RF and has served as its Chief Executive Officer and as a member of its board of directors since 2014. Prior to founding Guerrilla RF, Mr. Pratt served as Director of Engineering at Skyworks, Greensboro Design Center from June 2008 to February 2013. Prior to that, Mr. Pratt served in various roles at RF Micro Devices, Inc. (“RFMD”), a global company providing wireless communication products, now named Qorvo, Inc., including as Senior Design Engineer from January 2004 to May 2006, and as Design Engineering Manager from May 2006 to June 2008. Mr. Pratt holds a Bachelor of Science degree in Electrical and Electronics Engineering from North Carolina State University. We believe that Mr. Pratt is qualified to serve on our board of directors because he is the founder and Chief Executive Officer of Guerrilla RF and due to his extensive business and technical experience in the RF semiconductor industry.

John Berg has served as Chief Financial Officer of Guerrilla RF since 2016. From December 1999 to March 2014, Dr. Berg served as Director of Finance at RFMD. Prior to joining RFMD, Dr. Berg served as Corporate Controller for Sara Lee Branded Apparel from 1985 to 1999. Dr. Berg holds a Bachelor of Science degree in Accounting from the University of North Carolina at Greensboro, an MBA from High Point University, a Master of Science degree in Accounting from University of Connecticut, and a DBA from Northcentral University.

Mark Mason has served as Chief Operating Officer of Guerrilla RF since July 2019. From February 2011 until July 2019, he was Vice President of Operations at Triad Semiconductor. Prior to joining Triad Semiconductor, Mr. Mason spent 14 years at RFMD, most recently as the Manager of the Production Test Development Multi-Market Products Group. Mr. Mason holds a Bachelor of Science degree in Electrical Engineering from West Virginia University.

Jeff Broxson has served as Vice President of Sales of Guerrilla RF since 2014. Prior to joining Guerrilla RF, Mr. Broxson served as Business Development Manager for Triad Semiconductor, Inc. from September 2008 to July 2013, Area Sales Manager for Power Integrations, Inc. from 2004 to 2006 and Sales Manager for Beacon Electronic Associates, Inc. from 1997 to 2004. Earlier in his career, Mr. Broxson served in various engineering positions with Oki Telecom, Inc. Mr. Broxson holds a Bachelor of Science degree in Electrical Engineering from University of Missouri-Rolla.

Non-Employee Directors

David Bell has served as a member of the Guerrilla RF board of directors since 2020. Mr. Bell has 40 years of technology development experience. Mr. Bell co-founded Actev Motors, Inc. in December 2014, a company now focused on modular drivetrains for robots and instruments used in UVC ultraviolet light disinfection. He has served as Actev Motor’s Chief Executive Officer since its founding. Prior to co-founding Actev Motors, Mr. Bell served as President and Chief Operating Officer, then President and Chief Executive Officer at Intersil Corporation from 2007 to 2012. From 1994 to 2007, Mr. Bell served in various roles at Linear Technology Corporation, including as President from 2003 to 2007. Mr. Bell holds a degree in Electrical Engineering from the Massachusetts Institute of Technology. We believe that Mr. Bell is qualified to serve on our board of directors due to his experience as an entrepreneur and substantial operational experience, business acumen and expertise in technology development.

James (Jed) E. Dunn has served as a member of the Guerrilla RF board of directors since 2016. Since 2013, Mr. Dunn has served as Managing Director at Newport LLC, a business advisory company assisting middle market and startup companies focus on strategy and growth. Prior to Newport, Mr. Dunn served as the Chief Executive Officer at Piedmont Hematology-Oncology Associates, PLLC, from 2008 to 2012. From 1988 to 2007, Mr. Dunn was the Owner and Chief Executive Officer at Coleman Resources, a contract supplier of design, printing, fulfillment, and logistics services. Earlier in his career, Mr. Dunn served as a corporate lender at First Union Bank. Mr. Dunn currently serves as a director of Triad Growth Partners, Inc., a provider of technology commercialization services. He also serves on the Board of Trustees for Washington and Lee University. Mr. Dunn holds a Bachelor of Arts degree in Economics from Washington and Lee University. We believe that Mr. Dunn is qualified to serve on our board due to his experience as an entrepreneur and business advisor to middle market and start-up companies.

Samuel Funchess, Sr. has served as a member of the Guerrilla RF board of directors since 2014. Since 2006, Mr. Funchess has served as President and Chief Executive Officer of the Nussbaum Center for Entrepreneurship, Inc. a non-profit business incubator in North Carolina. Mr. Funchess served as President and CEO of Software Publishers from 2001 to 2012. Earlier in his career, Mr. Funchess worked in the financial sector. Mr. Funchess holds a Bachelor of Administrative Science degree in Accounting and Management from Guilford College. We believe that Mr. Funchess is qualified to serve on our board of directors due to his experience advising entrepreneurs and background in finance and operations.

William J. Pratt has served as a member of the Guerrilla RF board of directors since 2014. In 1991, Mr. Pratt co-founded RFMD. He retired in 2008 as RFMD’s Chief Technology Officer. Mr. Pratt served as chairman of the board of directors of RFMD from 1991 until 2002. Mr. Pratt earned a Bachelor of Science degree in Electrical Engineering from Villanova University and brings significant experience as a semiconductors and technology professional. We believe that Mr. Pratt is qualified to serve on our board due to his more than 30 years of experience in the wireless communications industry and his deep understanding of the challenges and issues facing semiconductor companies gained from his experience as co-founder and Chief Technology Officer of RFMD.

Gary Smith has served as a member of the Guerrilla RF board of directors since August 2020. Since August 2018, Mr. Smith has served as President at AMB Investments, LLC. Before joining AMB Investments, Mr. Smith served as President and Chief Executive Officer of North State Aviation, LLC, an aviation MRO, from September 2016 through July 2018, and as Vice President and General Manager of the Elastomers Group at Wabtec Corporation from January 2014 to September 2016. Earlier in his career, Mr. Smith served as Executive Vice President and Chief Financial Officer at Longwood Industries from 2011 to 2013, Kinetic Systems Inc. from 2008 to 2011, International Textile Group, Inc. from 2004 to 2008, and Cone Mills Corporation from 1999 to 2004. Mr. Smith holds a Bachelor of Science degree in Accounting and Finance from the University of North Carolina at Greensboro and an MBA from the Bryan School of Business, University of North Carolina at Greensboro. We believe that Mr. Smith is qualified to serve on our board of directors due to his extensive experience in global operations and financial leadership.

Greg Thompson has served as a member of the Guerrilla RF board of directors since 2019. Since 2013, Mr. Thompson has served as Director of Regional Sales and Business Development at pSemi Corporation, a Murata company, a manufacturer of high-performance radio frequency CMOS integrated circuits. Prior to joining pSemi Corporation, Mr. Thompson was Vice President of Sales at RFMD from 1993 to 2011. Mr. Thompson holds a Bachelor of Science degree in Engineering and Management from Clarkson University and an MBA from Pepperdine University. We believe that Mr. Thompson is qualified to serve on our board of directors due to his substantial experience in the semiconductor and wireless communications industry, including broad operating experience in sales.

Corporate Governance

Appointment of Officers

Our executive officers are appointed by, and serve at the discretion of, our board of directors.

Board Composition

Our board of directors currently consists of seven members. Ryan Pratt, David Bell, James (Jed) E. Dunn, Samuel Funchess, Sr., William J. Pratt, Gary Smith and Greg Thompson have been designated to serve as members of our board of directors.

Each of our current directors will continue to serve until the election and qualification of his or her successor, or his or her earlier death, resignation or removal.

Classified Board of Directors

Our board of directors will consist of seven members and be divided into three classes of directors, designated Class I, Class II and Class III, with staggered three-year terms. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our current directors will be divided among the three classes as follows:

Each director’s term continues until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Our amended and restated certificate of incorporation and amended and restated bylaws to be in effect upon the completion of this Merger will authorize only our board of directors to fill vacancies on the board of directors. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.

Director Independence

Our securities are not listed on a national securities exchange or on any inter-dealer quotation system that has a requirement that a majority of directors be independent. We evaluate independence by the standards for director independence set forth in the Nasdaq Marketplace Rules. Under such rules, our board of directors has determined that all members of the board of directors except Ryan Pratt and William J. Pratt are independent directors. In making such independence determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. In considering the independence of the directors listed above, our board of directors considered the relationship of our directors with the holders of more than 5% of our common stock.

Under the rules of Nasdaq, independent directors must comprise a majority of a listed company’s board of directors within a specified period of listing. In addition, rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating, governance, and corporate responsibility committees be independent. Under rules, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries. We intend to satisfy the audit committee independence requirements of Rule 10A-3 as of the closing of the Merger.

Our board of directors has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our board of directors determined that Messrs. Bell, Dunn, Funchess, Smith and Thompson are “independent directors” as defined under the applicable rules and regulations of the SEC and the listing requirements and rules of Nasdaq. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and current and prior relationships as they may relate to us and our management, including the beneficial ownership of our capital stock by each non-employee director and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.”

Family Relationships

There is one family relationship to note among the directors and executive officers. Ryan Pratt, our Chief Executive Officer, is the son of William J. Pratt, a director.

Committees of the Board of Directors

Our board of directors has an audit committee, a compensation committee, and a corporate governance and nominating committee, each of which, pursuant to its respective charter, will have the composition and responsibilities described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors.

Audit Committee

Our audit committee is composed of Mr. Bell, Mr. Dunn and Mr. Smith. Mr. Smith is the chair of our audit committee. Each member of our audit committee is financially literate. Our board of directors has determined that each member of our audit committee is independent within the meaning of the Nasdaq director independence standards and applicable rules of the SEC for audit committee members. Our board of directors has also determined that Mr. Smith qualifies as an “audit committee financial expert” under the rules of the SEC. Our audit committee’s principal functions are to assist our board of directors in its oversight of:

Compensation Committee

Our compensation committee is composed of Mr. Funchess and Mr. Thompson. Mr. Funchess is the chair of our compensation committee. Our compensation committee is responsible for, among other things:

Each member of our compensation committee is a non-employee director as defined in Rule 16b-3 of the Exchange Act. Our board of directors has also determined that each member of our compensation committee is also an independent director within the meanings of Nasdaq’s director independence standards and applicable SEC rules.

Corporate Governance and Nominating Committee

Our corporate governance and nominating committee is composed of Mr. Dunn and Mr. William J. Pratt. Mr. Dunn is the chair of our corporate governance and nominating committee. Our corporate governance and nominating committee’s principal functions include, among other things:

Our corporate governance and nominating committee does not currently satisfy the listing standards of Nasdaq, and therefore we are ineligible to be listed on the exchange until we satisfy these requirements.

Compensation Committee Interlocks and Insider Participation

None of the members of the compensation committee is currently, or has been at any time, one of our officers or employees. None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board or compensation committee during fiscal 2021.

Non-Employee Director Compensation

From our inception to the date of this Report, no compensation was earned or paid to Ian Jacobs or Mark Tompkins, who were our sole directors prior to the Merger. Guerrilla RF became our wholly-owned subsidiary upon the closing of the Merger on October 22, 2021. In connection with the closing of the Merger, Messrs. Jacobs and Tompkins resigned from our board directors, and the current members were appointed to our board of directors, effective as of October 22, 2021.

During 2020 and 2019, no cash compensation was paid to the non-employee members of our board of directors. All compensation paid to Mr. Ryan Pratt, our employee director, is set forth below in the section titled “Executive Compensation – Summary Compensation Table.” In addition, we have not established a formal policy to provide cash or equity compensation to our non-employee directors for their service on our board of directors or committees of our board of directors. The following table summarizes the compensation paid to the Company’s non-employee directors for 2020 and 2019.

Outstanding Equity Awards at December 31, 2020

The following table presents information regarding the outstanding options held by each of our directors and named executive officers as of December 31, 2020. These options were converted into options to purchase our common stock in connection with the Merger, and the table below reflects all outstanding options as of December 31, 2020 as if they had been granted by us. None of our directors or named executive officers held any outstanding restricted stock unit or other equity awards as of that date.