Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations, as well as other sections in this Quarterly Report on Form 10-Q, should be read together with the unaudited interim condensed consolidated financial statements and related notes included elsewhere in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as filed with the SEC on March 26, 2026.

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

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

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

Overview

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

FIRST QUARTER FISCAL 2026 FINANCIAL HIGHLIGHTS

● Revenue for the first quarter of fiscal 2026 increased approximately 48% as compared to the first quarter of fiscal 2025, from approximately $4.4 million to $6.5 million. The increase was primarily driven by continued strength in the Company's core product shipments, reflecting ongoing demand across key end markets and the increase in productions resulting from continuing design wins.

● Gross margin for the first quarter of fiscal 2026 was approximately 69.9% of revenues, as compared to 61.1% in the prior year period. The improvement in gross margin was primarily driven by higher production volumes, improved manufacturing efficiencies, and favorable product mix. Contribution margin remained strong at approximately 79.5%, reflecting the scalability of the Company's fabless semiconductor model. Over these same periods, overhead expenses increased modestly in absolute dollars but declined as a percentage of revenue, demonstrating improved operating leverage on higher sales volumes.

● Operating loss was approximately $0.04 million for the first quarter of fiscal 2026, as compared to an operating loss of $3.16 million in the first quarter of fiscal 2025, bringing the Company near operating breakeven. The substantial reduction in operating loss was primarily driven by the increase in revenue and gross profit, combined with continued cost discipline. Total operating expenses decreased approximately 21.9% year-over-year to $4.6 million. Research and development expenses decreased approximately 20.4%, sales and marketing expenses decreased approximately 14.6%, and general and administrative expenses decreased approximately 33.5%, reflecting the Company's ongoing cost optimization initiatives. As a percentage of revenue, operating expenses declined meaningfully, further evidencing improved operating efficiency.

● Net income for the first quarter of fiscal 2026 was approximately $1.1 million, compared to a net loss of $3.5 million in the prior-year period. The year-over-year improvement reflects stronger operating performance, as well as the impact of certain non-cash and non-operating items, including approximately $0.4 million related to the Employee Retention Tax Credit (ERTC) and changes in the fair value of warrant liabilities.

● Net income (loss) per share was $0.06 and ($0.34) for the first quarter of fiscal 2026 and 2025, respectively.

Key Metrics (Non-GAAP Measures)

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

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

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

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

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

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

Components of Results of Operations

Revenues

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

Direct Product Costs and Gross Profit

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

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

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

Operating Expenses

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

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

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

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

Interest Income

Interest income consists of interest earned on cash.

Interest Expense

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

Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities is fully attributable to the revaluation of the warrants.

Other Income

Other income includes net proceeds from an employee retention tax credit.

Income Tax Expense

Income tax expense consists of state income taxes incurred during the three months ended March 31, 2026. There were no income taxes incurred in the three months ended March 31, 2025.

Results of Operations

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

Comparison of the three months ended March 31, 2026 and 2025 (unaudited):

Revenues increased $2.1 million, or 48%, to $6.5 million for the three months ended March 31, 2026, compared to $4.4 million for the three months ended March 31, 2025. The increase in revenues was primarily driven by continued strength in the Company's catalog category, which increased $3.2 million, or 207%, to $4.8 million, reflecting higher volumes across a broad set of end markets and the continued increase in production resulting from prior design wins. This growth was partially offset by a decrease in the Company's automotive category, which declined $1.2 million, or 53%, to $1.1 million, primarily due to reduced demand in certain legacy automotive programs, including compensator and SDARS applications. Revenue from the Company's wireless infrastructure category increased modestly by $0.03 million, or 6.2%, to $0.6 million.

The increase in total revenue was also driven by higher shipments of existing products, which increased $2.8 million, or 83%, to $6.3 million for the three months ended March 31, 2026, compared to $3.4 million in the prior year period. This growth reflects the continued conversion of prior design wins into production. New product revenue decreased to $0.2 million, compared to $1.0 million in the prior year period, as fewer new product introductions reached initial production during the current quarter.

We generate revenue from customers located within and outside the United States. Domestic revenue increased $1.1 million, or 32.9%, to $4.3 million, while international revenue increased $1.0 million, or 88.9%, to $2.2 million for the three months ended March 31, 2026, compared to the prior year period. International revenue represented 33.4% of total revenue for the quarter, compared to 26.1% in the prior year period, reflecting continued expansion of the Company's global distribution footprint.

Beginning in the first quarter of 2026, the Company updated its internal market categorizations to better reflect customer end-market exposure. Market revenue information for prior periods has been recast to conform to the current presentation to provide meaningful period-to-period comparisons. This change did not affect total revenue, net loss, or any amounts reported in the consolidated financial statements.

Direct Product Costs and Gross Profit

Direct product costs increased $0.2 million, or 14%, to $1.9 million for the three months ended March 31, 2026, compared to $1.7 million for the three months ended March 31, 2025. The increase in direct product costs was significantly lower than the 47.6% increase in revenues over the same period, reflecting improved revenue leverage and favorable product mix.

Gross profit increased $1.8 million, or 69%, to $4.5 million for the three months ended March 31, 2026, compared to $2.7 million for the prior year period. Gross margin expanded to approximately 69.9% for the three months ended March 31, 2026, compared to 61.1% in the prior year period, representing an increase of approximately 890 basis points.

The improvement in gross margin was primarily driven by higher revenue volumes and the improved overhead absorption, as well as a favorable shift in product mix toward higher margin catalog products. Direct product costs as a percentage of revenue declined meaningfully, reflecting the scalability of the Company's fabless semiconductor model and continued supply chain discipline.

Overall, the Company's gross profit performance demonstrates strong operating leverage as incremental revenue gains continue to convert at a high contribution margin, consistent with expectations for analog and RF semiconductor companies operating at increasing scale.

Research and Development Expenses

Research and development expenses decreased $0.5 million, or 20%, to $2.0 million for the three months ended March 31, 2026, compared to $2.5 million for the three months ended March 31, 2025. The decrease was primarily attributable to ongoing expense reduction initiatives and year-over-year headcount rationalization efforts implemented across the organization.

Despite the reduction in absolute spending, the Company continues to prioritize investments in key product development programs aligned with its strategic roadmap, while driving improved efficiency in engineering resources.

Sales and Marketing Expenses

Sales and marketing expenses decreased $0.3 million, or 15%, to $1.6 million for the three months ended March 31, 2026 compared to $1.9 million for the three months ended March 31, 2025. The decrease was primarily driven by ongoing cost reduction initiatives and lower personnel-related expenses as a result of headcount rationalization.

Additional reductions were achieved through tighter controls over discretionary spending, including travel and marketing-related activities, while maintaining support for key customer engagements and revenue-generating programs.

General and Administrative Expenses

General and administrative expenses decreased $0.5 million, or 33%, to $1.0 million for the three months ended March 31, 2026, compared to $1.5 million for the three months ended March 31, 2025. The decrease was primarily attributable to continued execution of the Company's cost reduction initiatives, including headcount rationalization and reductions in professional services and other administrative expenses.

The Company continues to align its general and administrative cost structure with current operating levels, while maintaining the necessary infrastructure to support its growth and public company requirements.

Other Income (Expenses)

Interest expense remained unchanged at $0.2 million for the three months ended March 31, 2026 and 2025.

During the three months ended March 31, 2026 , the Company recorded a gain on change in fair value of warrant liabilities of $0.9 million as compared to a loss on the change in fair value of warrant liabilities of $0.2 million during the three months ended March 31, 2025, which represented a net change of $1.2 million. The changes are the result of the remeasurement of the Historical Warrants and the North Run Warrants that are accounted for as liabilities and carried at fair value at March 31, 2026 and 2025.

Other income increased $0.4 million primarily due to the ERTC received during the three months ended March 31, 2026. In addition, during the three months end March 31, 2026, the Company had interest income of $0.02 million compared to $0.07 million in the comparable period of 2025.

Liquidity and Capital Resources

Our primary sources of liquidity have been proceeds from private placements and borrowings under our credit facilities. As of March 31, 2026, we had cash and cash equivalents of $3.2 million. We also have two loan facilities, one of which is for up to $3.75 million with a specialty lender (referred to as the Spectrum Loan Facility, described in Note 5 to our unaudited condensed consolidated financial statements), and the other of which is a $4.5 million term loan with a different lender (referred to as the Salem Loan Facility, also described in Note 5 to our unaudited condensed consolidated financial statements).

During 2024, we completed two private placement financings. On March 28, 2024, we completed a private placement that resulted in net cash proceeds of approximately $3.0 million, after expenses and the conversion of existing debt. On August 5, 2024, we completed an additional private placement generating net proceeds of approximately $21.6 million.

As of March 31, 2026, we had approximately $1.4 million outstanding under the Spectrum Loan Facility and $4.5 million outstanding under the Salem Loan Facility.

As discussed in Note 1 to our consolidated financial statements, we have incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $59.7 million as of March 31, 2026. While we generated positive operating cash flow during the second half of 2025, cash flows from operating activities for the three months ended March 31, 2026 were negative, albeit significantly improved compared to the three months ended March 31, 2025.

We expect to continue investing in research and development, sales and marketing, and administrative infrastructure. Management continues to focus on cost control, margin improvement, and capital efficiency.

Based on current operating plans, existing cash balances, and availability under the Spectrum Loan Facility, we believe that our liquidity will be sufficient to fund operations for at least the next twelve months from the issuance date of these financial statements. However, this assessment is based on current forecasts and assumptions, and there can be no assurance that we will not require additional capital. We may seek to raise additional funds through equity, debt financings, or other sources as market conditions permit.

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

Cash (used in) provided by:

Operating Activities

Cash used in operating activities was $1.3 million and $2.3 million for the three months ended March 31, 2026 and 2025, respectively.

Cash used in operating activities for the three months ended March 31, 2026 was principally due to our net income of $1.1 million, a decrease in non-cash items of $0.2 million, and a decrease in working capital of $2.2 million. For the three months ended March 31, 2026, non-cash items that were a part of the net operating income included depreciation and amortization of $0.3 million, share-based compensation of $0.1 million, and operating lease expense of $0.2 million, which were more than offset by a decrease in the change in the fair value of warrant liabilities of $0.9 million.

Cash used in operating activities was $2.3 million for the three months ended March 31, 2025. Cash used in operating activities for the three months ended March 31, 2025 was principally due to our net loss of $3.6 million, non-cash items of $0.9 million, decrease in accounts receivables of $0.3 million and inventories of $0.1 million. For the three months ended March 31, 2025, non-cash items that were a part of the net operating loss included depreciation and amortization of $0.3 million, stock-based compensation of $0.4 million, and non-cash and change in fair value of warrant liabilities of $0.2 million.

Investing Activities

Cash used in investing activities was $0.06 million and $0.04 million for the three months ended March 31, 2026 and 2025, respectively. Cash used in investing activities resulted from capital expenditures on property and equipment in the three months ended March 31, 2026 and 2025.

Financing Activities

Cash provided in financing activities for the three months ended March 31, 2026 of $0.3 million was due to $0.4 million of payments related to finance leases and finance agreements, which was more than offset by $0.7 million of additional net debt financing and a refund of used offering cost.

Cash provided by financing activities for the three months ended March 31, 2025 of $0.5 million was due to $0.8 million of additional net debt financing, partially offset by $0.3 million of payments related to finance leases and insurance premiums.

Contractual Obligations and Commitments

The following summarizes our significant contractual obligations as of March 31, 2026 (unaudited).

Off-Balance Sheet Arrangements

As of March 31, 2026 and December 31, 2025, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments in the preparation of our unaudited interim condensed consolidated financial statements involve derivative and warrant liabilities and the valuation of equity financing. Accordingly, actual results may differ from these estimates. To the extent that there are differences between our estimates and actual results, our future consolidated financial statement presentation, financial condition, results of operations, and cash flows will be affected.

Other than as described under Note 2 to our audited consolidated financial statements and as described above, the Critical Accounting Policies and Significant Judgments and Estimates included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 26, 2026, have not materially changed.

Recently Adopted Accounting Standards

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

JOBS Act Accounting Election

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