GUERRILLA RF, INC. 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 endedDecember 31, 2021 as filed with theSEC onApril 1, 2022 .
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions, and are not historical facts and typically are identified by use of terms such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required underU.S. federal securities laws.
Our business is subject to numerous risks and uncertainties including:
? those relating to fluctuations in our operating results;
? we may not be able to generate sufficient cash to service all of our debt or meet our operating needs;
? our dependence on developing new products, achieving design wins, and several large customers for a substantial portion of our revenue;
? the COVID-19 pandemic materially and adversely affecting our financial condition and results of operations;
? a loss of revenue if purchase contracts are canceled or delayed;
? our dependence on third parties such as suppliers, product manufacturers, and product assemblers and testers;
? risks related to sales through independent sales representatives and distributors;
? risks associated with the operation of our third-party manufacturing providers;
? business disruptions; ? poor manufacturing yields;
? increased inventory risks and costs due to timing of customer forecasts;
? our ability to continue to innovate in a very competitive industry;
? unfavorable changes in interest rates, pricing of certain precious metals, utility rates, and shipping and freight costs;
? our strategic investments failing to achieve financial or strategic objectives;
? our ability to attract, retain, and motivate key employees;
? warranty claims, product recalls, and product liability;
? changes in our effective tax rate and the enactment of international or domestic tax legislation, or changes in regulatory guidance;
? risks associated with environmental, health and safety regulations, and climate change;
? risks from international sales and third-party vendor operations;
? the impact of, and our expectations regarding, changes in current and future laws and regulations;
? changes in government trade policies, including the imposition of tariffs and export restrictions;
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? claims of infringement of third-party intellectual property rights;
? security breaches and other similar disruptions compromising our information;
? theft, loss, or misuse of personal data by or about our employees, customers, or third parties;
? our inability to remediate the material weaknesses identified in internal controls over financial reporting relating to certain control processes;
? provisions in our governing documents and
? volatility in the price of our common stock.
These and other risks and uncertainties, which are described in more detail in our most recent Annual Report on Form 10-K that we filed with theSEC 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 inGreensboro, N.C. Guerrilla RF was founded in 2013 with a mission to employ RF semiconductor technology to deliver RF solutions to customers in underserved markets. Over the past several years, Guerrilla RF has become a leader in developing high-performance MMIC products for wireless connectivity. It continues to target underserved markets and customers, delivering a range of high-performance MMIC products and associated technical support to a diverse set of customers that enable a more connected world. Guerrilla RF is a wholly-owned subsidiary of the Company. Guerrilla RF holds all material assets and conducts all business activities and operations of the Company. Accordingly, there are frequent references to Guerrilla RF throughout this discussion and analysis.
Guerrilla RF possesses in-house design, applications, sales, and customer
support functions as a fabless semiconductor company. We outsource the
manufacture and production of our MMIC products to subcontractors located
overseas, providing access to multiple semiconductor process technologies.
Guerrilla RF's primary external wafer foundries are in
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Table of Contents Merger Agreement OnOctober 22, 2021 , the Company (formerly known asLaffin Acquisition Corp. ),Guerrilla RF Acquisition Corp. , and Guerrilla RF entered into a merger agreement (the 'Merger Agreement') pursuant to whichGuerrilla RF Acquisition Corp. merged with and into Guerrilla RF, with Guerrilla RF continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the 'Merger').
COVID-19 Pandemic and Supply Chain Update
In light of the uncertain and rapidly evolving situation relating to the spread of the COVID-19 pandemic and in compliance with government orders, we have taken measures intended to help minimize the risk of transmitting the virus to our employees, our customers, and the communities in which we participate, which could negatively impact our business. While we have a distributed workforce and our employees are accustomed to working remotely or with other remote employees, our workforce is not fully remote. Under normal conditions, our employees frequently travel to establish and maintain relationships with one another and with our customers, partners, and investors. The COVID-19 pandemic negatively impacted revenue for the year endedDecember 31, 2021 , as we experienced lower revenues due to a significant number of customers experiencing supply chain challenges. Consequently, we implemented cost reduction actions across our functional disciplines to assist us in navigating through what continues to be an uncertain environment. We experienced increased sales during the first half of 2022, driven by rebounding volumes in markets recovering from supply chain difficulties that impacted the timing of our customers' orders of our products; however, we anticipate that further supply chain disruptions through the end of 2022 will negatively impact customer order patterns, resulting in reduced sales growth. Our management team has, and will likely continue, to spend time, attention, and resources monitoring the COVID-19 pandemic and seeking to manage its effects on the supply chain, our business, and workforce. The extent to which the COVID-19 pandemic and our precautionary measures may impact our business will depend on future developments, which remain uncertain and cannot be predicted at this time. 24
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SECOND QUARTER FISCAL 2022 FINANCIAL HIGHLIGHTS
? Revenue for the second quarter of fiscal 2022 increased 10.4% as compared to the second quarter of fiscal 2021, which was driven primarily by higher demand for our automotive product solutions, higher royalties of our 5G wireless infrastructure products, and higher demand for our catalog products for a wide variety of customer applications. ? In conjunction with the increased revenues as highlighted above, direct product costs also increased resulting in gross profit for the second quarter of fiscal 2022 of 57.6% of revenues as compared to 60.7% for the second quarter of fiscal 2021. Although the Company has continued to experience supply chain price increases, we have been able to mitigate the effect of these increases by increasing prices we charge our customers related to the raw materials and assembly/test cost increases we experienced. Product contribution margins increased from 67.7% to 71.3%, in Q2 2021 to Q2 2022, mostly due to product mix as we experienced success on new power amplifiers being sold into the market. The higher product contribution margins were marginally offset by higher overhead costs, on a comparative period basis, which increased due to headcount additions in our Quality group, as well as increased costs of production mask amortization. ? Operating loss was$2.64 million for Q2 2022 as compared to$0.39 million for Q2 2021. This operating loss increase was primarily due to higher operating expenses relative to sales (144.1% in Q2 2022 vs. 74.6% in Q2 2021). Increased operating expenses were primarily attributable to increased investment in research and development (which grew 90%), sales and marketing, headcount additions, and additional costs associated with becoming a public company. Selling, general, and administrative costs increased year over year by 137.0% from 2021 to 2022 on a year to date basis.
? Net loss per share was
? Capital expenditures were
Key metrics 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 our 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.
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(unaudited) (unaudited) (unaudited) (unaudited)
Key Metrics
Number of products released 2 9 7 11
Number of total products 108 98 108 98
Number of products with lifetime
revenue exceeding $100 thousand 47 33 47 33
Number of products released: The total quantity of distinct new products released into production (products that have completed design, quality, and supply chain readiness) during the period.
Number of total products: The cumulative number of production-released products since Guerrilla RF's inception through the end of the period.
Number of products with lifetime revenue exceeding$100 thousand: The number of products that have achieved the threshold of cumulative sales of$100,000 since Guerrilla RF's inception through the end of the period.
Components of Results of Operations
Revenues We derive our revenue from sales of high-performance RF semiconductor products. We design, integrate, and package differentiated, semiconductor-based products that we sell to customers through our direct sales organization, our network of independent sales representatives, and our distributors. We generate revenue from customers located within and outside theU.S. In addition to sales to customers, we generate royalty revenue under a royalty agreement with one semiconductor manufacturer.
Direct Product Costs and Gross Profit
Direct Product Costs. Our direct product costs primarily consist of salaries and related expenses, overhead, third party services vendors, and depreciation expense related to the equipment and information technology costs incurred directly in the Company's revenue-generating activities.
Gross Profit. Our gross profit is calculated by subtracting our cost of revenues
from revenues. Gross margin is expressed as a percentage of total revenues. Our
gross profit may fluctuate from period to period as revenues fluctuate due to
the mix of products we sell to customers, royalty revenue volume, operational
efficiencies, and changes to our technology expenses and customer support.
We plan to focus on and grow the sales volume of new and existing products with
the highest gross margin. We intend to continue investing additional resources
in our engineering and design capabilities, which drives our research and
development efforts and, in turn, drives additional revenue streams and enables
us to improve our gross margin over time. The level and timing of investment in
these areas could affect our cost of revenues in the future.
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Operating Expenses
Operating expenses consist primarily of research and development expenses, sales
and marketing expenses, and employee compensation costs for operations,
management, finance, accounting, information technology, compliance, and human
resources personnel. In addition, general and administrative expenses include
non-personnel costs, such as facilities, non-income taxes, legal, accounting,
and other professional fees, and other supporting corporate expenses not
allocated to other departments. We expect our general and administrative
expenses will increase in absolute dollars as our business grows, but we expect
general and administrative expenses to decrease as a percent of revenues in the
coming years.
Research and development ("R&D") expenses consist of costs for the design,
development, testing, and enhancement of our products and are generally expensed
as incurred. These costs consist primarily of personnel costs, including
salaries, benefits, bonuses, and share-based compensation for our product
development personnel Research and development expenses also include training
costs, product management, third-party partner fees, and third-party consulting
fees. We expect our research and development expenses to increase in absolute
dollars as our business grows, but as a percent of revenues, R&D expenses are
expected to decrease.
Sales and marketing expenses consist primarily of employee compensation costs
related to sales and marketing, including salaries, benefits, bonuses, and
share-based compensation, costs of general marketing activities and promotional
activities, travel-related expenses, and allocated overhead. Sales and
marketing expenses also include costs for advertising and other marketing
activities. Advertising is expensed as incurred. We expect our sales and
marketing expenses will increase in absolute dollars as we expand our sales and
marketing efforts.
Non-income taxes include excise taxes, sales and use taxes, capital stock and franchise taxes, and property taxes. Capital stock and franchise taxes are taxes that States charge the Company for the privilege of incorporating or doing business in a State.
Interest Expense
Interest expense consists primarily of the interest incurred on our debt obligations, our prior factoring arrangement expense, the non-cash interest expense associated with the amortization of common stock warrants, and lease expense related to our capital leases.
Other Income (Expenses) OnApril 30, 2020 , Guerrilla RF received loan proceeds of$535,800 under the Paycheck Protection Program ("PPP") established as part of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") administered by theSmall Business Administration ("SBA"). PPP loans and accrued interest are forgivable after a "covered period" (24 weeks) as long as the borrower maintained its payroll levels and used the loan proceeds for eligible purposes, including payroll, benefits, rent, and utilities. As ofDecember 31, 2020 , Guerrilla RF had$535,800 of principal outstanding on its PPP loan together with accrued interest of$3,611 , recorded as accounts payable and accrued expenses on our consolidated balance sheet. OnFebruary 17, 2021 , Guerrilla RF received notice from the SBA that the$535,800 PPP loan was forgiven, including all accrued interest. OnFebruary 19, 2021 , Guerrilla RF received a second PPP loan of$833,300 (the "2021 PPP Loan"). Guerrilla RF used the 2021 PPP Loan to retain current employees, maintain payroll, and make lease and utility payments. OnAugust 18, 2021 , Guerrilla RF received notice from the SBA that the 2021 PPP Loan, including accrued interest, had been forgiven. 26
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The following table summarizes the results of our operations for the periods
presented:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues $ 3,087,350 $ 2,797,420 $ 6,953,261 $ 5,578,442
Direct product costs 1,277,759 1,100,118 2,825,040 2,192,810
Gross profit 1,809,591 1,697,302 4,128,221 3,385,632
Operating expenses:
Research and development 2,016,934 1,060,532 3,818,940 2,123,638
Sales and marketing 1,169,435 649,071 2,255,278 1,225,721
General and administrative 1,263,730 377,641 2,503,380 682,955
Total operating expenses 4,450,099 2,087,244 8,577,598 4,032,314
Loss from operations (2,640,508 ) (389,942 ) (4,449,377 ) (646,682 )
Other income (expenses):
Interest expense (70,853 ) (160,828 ) (128,074 ) (309,653 )
Other income (expenses) (30,251 ) - (30,251 ) 535,800
Total other income (expenses), net (101,104 ) (160,828 ) (158,325 ) 226,147
Net loss $ (2,741,612 ) $ (550,770 ) $ (4,607,702 ) $ (420,535 ) Comparison of the three months ended
Three Months Ended June 30,
2022 2021 $ Change % Change
Revenues $ 3,087,350 $ 2,797,420 289,930 10 %
Revenues increased $0.3 million to $3.1 million for the three months ended June
30, 2022 , as compared to $2.8 million for the three months ended June 30,
2021 . The increase in revenues was attributable to a variety of products in both
our automotive and catalog product purchasing customer bases. Sales to our
large automotive supplier customers are being impacted by macro-economic
conditions beyond our control. As we indicated in our Quarterly Report on Form
10-Q for Q1 2022, we anticipate further supply chain disruptions through the end
of 2022. We further anticipate that we will likely see increased volatility in
customer order patterns, resulting in reduced sales growth in some quarters and
increased sales growth in others.
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We generate revenue from customers located within and outside theU.S. While we have several large customers, we define major customers as those responsible for more than 10% of Guerrilla RF's annual product shipment revenue. Using this definition, Guerrilla RF had one major customer, RFPD, during the three months endedJune 30, 2022 , andJune 30, 2021 . RFPD, a large product distributor serving numerous end-user customers, generated 80% of product shipment revenue for the three months endedJune 30, 2022 and 2021 International shipments amounted to$0.6 million (approximately 21% of product revenue) and$0.4 million (approximately 16% of product revenue) for the three months endedJune 30, 2022 , andJune 30, 2021 , respectively.
Direct Product Costs and Gross Profit
Three Months Ended June 30,
2022 2021 $ Change % Change
Direct product costs $ 1,277,759 $ 1,100,118 177,641 16 %
Gross profit $ 1,809,591 $ 1,697,302 112,289 7 %
Direct product costs remained relatively flat for the three months ended June
30, 2022 , compared to the three months ended June 30, 2021 . The lack of change
in direct product cost compares to a slight increase in product sales of 7%.
This resulted in improved contribution margins of 3.6% reflecting improved
direct margins from our product mix sales coming largely from our new power
amplifier products, which enjoy higher margins relative to other products we
offer. Overhead costs relative to sales increased from 11.0% to 15.2%, from Q1
2021 to Q2 2022, due to increases in Operations and Quality support and
staffing. From 2021 to 2022 on a comparative period basis, royalties and
non-recurring engineering revenue grew from $0.13 million to $0.23 million
having an impact on our overall gross profit.
Research and Development Expenses
Three Months Ended June 30,
2022 2021 $ Change % Change
Research and development $ 2,016,934 $ 1,060,532 956,402 90 %
Research and development expenses increased
Sales and Marketing Expenses
Three Months Ended June 30,
2022 2021 $ Change % Change
Sales and marketing $ 1,169,435 $ 649,071 520,364 80 %
Sales and marketing expenses increased $0.5 million to $1.2 million for the
three months ended June 30, 2022 , compared to $0.6 million for the three
months ended June 30, 2021 . The increase year over year was driven by increases
of $0.4 million in staffing costs and $0.1 million in various sales and
marketing expenses including sales commissions, information technology support,
and customer support.
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General and Administrative Expenses
Three Months Ended June 30,
2022 2021 $ Change % Change
General and administrative expenses $ 1,263,730 $ 377,641 886,089 235 %
General and administrative expenses increased $0.9 million to $1.3 million
for the three months ended June 30, 2022 , compared to $0.4 million for the three
months ended June 30, 2021 . The increase was primarily related to an increase
of $0.6 million in wages and benefits and $0.3 million of directors' and
officers' insurance and professional fees. The increase in wages, benefits, and
professional fees was driven by headcount additions within our information
technology and accounting departments, and expenses incurred to support our
public company structure.
Other Income (Expenses)
Three Months Ended June 30,
2022 2021 $ Change % Change
Interest expense $ (70,853 ) $ (160,828 ) $ 89,975 (56 )%
Other income (30,251 ) - $ (30,251 ) -
Total other income (expenses), net
(37 )%
Interest expense decreased approximately $0.1 million to $0.07 million for the
three months ended June 30, 2022 , compared to $0.16 million for the three months
ended June 30, 2021 . The decrease was attributable to decreased factoring fees.
Other income (expense) was zero in Q2 2021 compared to $(0.03) million for the
three months ended June 30, 2022 . Other expense in Q2 2022 was attributable to
closing costs on our ABL closed in the quarter.
Comparison of the six months ended
Six Months Ended June 30,
2022 2021 $ Change % Change
Revenues $ 6,953,261 $ 5,578,442 1,374,819 25 %
Revenues increased $1.4 million to $7.0 million for the six months ended June
30, 2022 , as compared to $5.6 million for the six months ended June 30, 2021 .
The increase in revenues was driven by the growth of product sales to our
automotive supplier customers and our catalog customers over a wide breadth of
applications and customers. Sales to our large automotive supplier customers
grew approximately 27% from the prior year period. Forty-two percent (42%) of
the growth in revenues over the periods presented is attributable to new catalog
products. Our overall number of product offerings and the number of customers
we ship to in volume continue to contribute to increased sales. Our increased
sales were driven by rebounding volumes in markets recovering from supply chain
difficulties that have impacted the timing of our customers' orders of our
products; however, we anticipate that further supply chain disruptions through
the end of 2022 will negatively impact customer order patterns, resulting in
reduced sales growth.
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We generate revenue from customers located within and outside theU.S. While we have several large customers, we define major customers as those responsible for more than 10% of Guerrilla RF's annual product shipment revenue. Using this definition, Guerrilla RF had one major customer, RFPD, during the six months endedJune 30, 2022 , andJune 30, 2021 . RFPD, a large product distributor serving numerous end-user customers, generated 83% and 80% of product shipment revenue for the six months endedJune 30, 2022 and 2021 respectively. Royalty revenues increased 54% for the six months endedJune 30, 2022 , compared to the six months endedJune 30, 2021 , as our customer with whom we have a royalty agreement experienced an increase in sales of wireless infrastructure products licensed under our proprietary designs. International shipments amounted to$0.9 million (approximately 18% of product revenue) and$1.1 million (approximately 18% of product revenue) for the six months endedJune 30, 2022 , andJune 30, 2021 , respectively.
Direct Product Costs and Gross Profit
Six Months Ended June 30,
2022 2021 $ Change % Change
Direct product costs $ 2,825,040 $ 2,192,810 632,230 29 %
Gross profit $ 4,128,221 $ 3,385,632 742,589 22 %
Direct product costs increased $0.6 million to $2.8 million for the six
months ended June 30, 2022 , compared to $2.2 million for the six months ended
June 30, 2021 . The 29% increase in direct product cost was primarily driven by
a product sales volume increase of 23% (excluding royalty revenue). Direct
product costs relative to sales increased due to increases in Operations and
Quality support and staffing. Year over year, royalties grew in concert with
product sales increasing 31% from the year ago period, thus having no impact on
overall gross margin percentage year over year due to the shift in our overall
revenue mix. Royalty revenues were $0.5 million for the six months ended June
30, 2022 , and $0.3 million for the six months ended June 30, 2021 .
Research and Development Expenses
Six Months Ended June 30,
2022 2021 $ Change % Change
Research and development $ 3,818,940 $ 2,123,638 1,695,302 80 %
Research and development expenses increased $1.7 million to $3.8 million for the
six months ended June 30, 2022 , compared to $2.1 million for the six
months ended June 30, 2021 . The increase was attributable to $0.7 million
of staffing additions in our engineering department, and $0.3 million was
attributable to research lab and equipment, and $0.7 million attributable to
engineering tools and support as well as prototype expenses.
Sales and Marketing Expenses
Six Months Ended June 30,
2022 2021 $ Change % Change
Sales and marketing $ 2,255,278 $ 1,225,721 1,029,557 84 %
Sales and marketing expenses increased $1.0 million to $2.3 million for the six
months ended June 30, 2022 , compared to $1.2 million for the six months ended
June 30, 2021 . The increase year over year was driven by increases of
$0.9 million in staffing costs and $0.3 million in various sales and marketing
expenses including sales commissions, information technology support, and
customer support.
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General and Administrative Expenses
Six Months Ended June 30,
2022 2021 $ Change % Change
General and administrative expenses $ 2,503,380 $ 682,955 1,820,425 267 %
General and administrative expenses increased $1.8 million to $2.5 million
for the six months ended June 30, 2022 , compared to $0.7 million for the six
months ended June 30, 2021 . The increase was primarily related to increases in
wages and benefits ($1.3 million ) and $0.5 million of directors and
officers insurance and professional fees. The increase in wages, benefits, and
professional fees was driven by headcount additions within our information
technology and accounting departments, and expenses incurred to support our
public company structure.
Other Income (Expenses)
Six Months Ended June 30,
2022 2021 $ Change % Change
Interest expense $ (128,074 ) $ (309,653 ) $ 181,579 (59 )%
Other income (loss) $ (30,251 ) $ 535,800 $ (566,051 ) (106 )%
Total other income (expenses), net $ (158,325 ) $ 226,147 $ (384,472 ) (170 )%
Interest expense decreased approximately
Other income decreased
Liquidity and Capital Resources
Our primary source of liquidity is cash raised from private placements and debt financing. As ofJune 30, 2022 , we had cash of$1.7 million . We also have a loan facility of up to a$3.0 million with a specialty lender (referred to as the Spectrum Loan Facility as described in Note 5 of our unaudited interim condensed consolidated financial statements). As ofJune 30, 2022 , we have drawn$1.2 million under the Spectrum Loan Facility. As ofJune 30, 2022 , the Company was actively pursuing an additional loan facility to support its current and future liquidity needs and that additional loan facility was successfully closed inAugust 2022 (see Note 12 about the Salem Loan Facility). The Company believes that its cash, the Spectrum Loan Facility, and the Salem Loan Facility will provide sufficient resources to support operations into 2023. As described in Note 1 of our unaudited interim condensed consolidated financial statements, we have incurred recurring losses and negative cash flows from operations since inception and have an accumulated deficit atJune 30, 2022 of$19.7 million . We expect losses and negative cash flows to continue beyond 2022, primarily due to continued investment in research and development, sales and marketing efforts, and increased administration expenses as our Company grows. As our fiscal 2022 progresses, and we continue to invest in the implementation of our long-term strategic plan, we anticipate that we will require additional funding. We are actively pursuing such additional funding as part of our ongoing strategic planning. There is no assurance that appropriate funding will be available on terms, which are acceptable to us, or at all. This requirement for additional funding raises substantial doubt about our ability to continue as a going concern.
The Company's current corporate headquarters are located in
The
Company recognized that substantial additional space will be required to execute its business strategy and facilitate projected growth. As described in Note 8 of our unaudited interim condensed consolidated financial statements, inJuly 2021 , the Company entered into a lease agreement for new headquarters, also located inGreensboro , that would provide in excess of 50,000 square feet of office space. The new headquarters are being renovated in accordance with plans agreed upon with the landlord, and the Company will take possession of the building once all improvements and renovations are substantially complete. Initially, the Company anticipated the renovations being completed and taking possession inSeptember 2022 ; however, the landlord has experienced significant delays and as a result it is now expected that the new headquarters will not become available untilMarch 2023 , at the earliest. This delay has caused the Company to delay hiring additional employees, negatively impacting its ability to timely execute on its business strategy and achieve planned growth, adversely affecting the Company's future operations and financial performance until occupancy occurs. The Company is in ongoing discussions with the new building landlord over the timing of the payments for the new building asset additions in light of the significant delays the landlord has experienced. If there is a further delay in the renovations beyondMarch 2023 , the impact on the Company and its future business will be exacerbated. The Company will not make any scheduled lease payments until it occupies the building and will not recognize any associated lease payment expense until it remits scheduled lease payments. Initial building asset addition financing related to the new headquarter facilities was completed inApril 2022 and is further discussed in Note 5 to our unaudited interim condensed consolidated financial statements as ofJune 30, 2022 . The Company anticipates approximately$4.0 million of new headquarter building asset additions, and an annual lease expense of approximately$1.1 million upon occupancy. The following table summarizes our sources and uses of cash for each of the periods presented: Cash (used in) provided by: Six Months Ended June 30, 2022 2021 Operating activities$ (4,197,437 ) $ (848,847 ) Investing activities (299,608 ) (114,835 ) Financing activities 887,790 979,136
Net increase (decrease) in cash
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Table of Contents Operating Activities Cash used in operating activities was$4.2 million and$0.8 million for the six months endedJune 30, 2022 and 2021, respectively. Cash used in operating activities for the six months endedJune 30, 2022 principally resulted from our net loss of$4.7 million . For the six months endedJune 30, 2022 , non-cash items that were a part of the net operating loss included depreciation of$0.5 million , stock-based compensation of$0.2 million , and the amortization of prepaid insurance of$.4 million . During the six months endedJune 30, 2022 , the use of prepaid prototype wafers used in R&D activities offset the impact of net operating losses with prepaid expenses decreasing by$0.1 million as a result. In addition during the six months endedJune 30, 2022 , moderate increases in trade accounts receivable of$0.3 million and inventory of$0.4 million partially offset the non-cash impacts to the operating activities of the Company. Cash used in operating activities for the six months endedJune 30, 2021 , primarily resulted from our net loss of$0.4 million . A key non-cash component of the net loss was the forgiveness of a PPP loan of$0.5 million in that same period. During the six months endedJune 30, 2021 , moderate increases in prepaid expenses of$0.1 million and inventory of$0.1 million , which decreased cash from operations, were offset by a small decrease in accounts receivable of$0.1 million . Investing Activities Cash used in investing activities was$0.3 million and$0.1 million for the six months endedJune 30, 2022 and 2021, respectively. Cash used in investing activities resulted from capital expenditures on property and equipment for all periods presented. Financing Activities
Cash provided by financing activities for the six months ended
Cash provided by financing activities during the six months endedJune 30, 2021 , of$1.0 million principally resulted from the issuance of notes payable and factoring proceeds totaling$1.0 million , and proceeds from a second PPP loan of$0.8 million . These were partially offset by principal payments of notes payable and our factoring arrangement of$0.8 million .
Contractual Obligations and Commitments
The following summarizes our significant contractual obligations as ofJune 30, 2022 ; however, the following table does not include any contractual obligations or commitments that will develop as we continue the preparation, planning, and asset financing negotiations associated with the planned move of our business headquarters in 2023. We anticipate approximately$4.0 million of new headquarter building asset additions, and an annual lease expense of approximately$1.1 million commencing upon occupancy. Payments due by period Less than 1 More than 5 Total year 1 - 3 years 4 - 5 years years Purchase order obligations$ 382,199 $ 382,199 $ - $ - $ - Short-term debt obligations (excluding interest) 5,117 5,117 - - - Long-term debt obligations (excluding interest) 144,783 - 17,544 17,544 109,695 Loan agreements 1,190,638 1,190,638 - - - Operating lease obligations 248,977 118,826 130,151 - - Finance lease obligations 3,389,156 713,158 1,875,542 800,456 - Total$ 5,360,870 $ 2,409,938 $ 2,023,237 $ 818,000 $ 109,695 32
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Critical Accounting Policies and Estimates
Other than as described under Note 2 to our unaudited interim condensed
consolidated financial statements, the Critical Accounting Policies and
Significant Judgments and Estimates included in our Annual Report on
Form 10-K for the year ended
Our critical accounting policies are those policies that require the most significant judgments and estimates in the preparation of our unaudited interim condensed consolidated financial statements. Management has determined that our most critical accounting policies are those relating to revenue recognition, stock-based compensation, lease accounting, income taxes including the valuation allowance for deferred tax assets, and going concern considerations.
Recently adopted accounting standards
InFebruary 2016 , theFinancial Accounting Standards Board , or FASB, issued Accounting Standards Update, or ASU, No. 2016-02, Leases (Topic 842), or ASU 2016-02. ASU 2016-02 addresses the financial reporting of leasing transactions. Under past guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update requires the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability are expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the consolidated statement of cash flows. For finance leases, interest on the lease liability is recognized separately from the amortization of the right-of-use asset in the consolidated statement of operations and the repayment of the principal portion of the lease liability is classified as a financing activity while the interest component is included in the operating section of the consolidated statement of cash flows. InJune 2020 , the FASB issued ASU 2020-05, which delayed the effective date of Topic 842 untilJanuary 1, 2022 . We adopted ASC 842 using the optional transition method outlined in ASU 2018-11. The Company adopted Topic 842 in the fiscal quarter endingMarch 31, 2022 . See Note 8 for further information related to lease obligations on the unaudited interim condensed consolidated balance sheet upon adopting ASC Topic 842. 33
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JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business
Startups ("JOBS") Act. Under the JOBS Act, emerging growth companies can delay
adopting new or revised accounting standards issued subsequent to the enactment
of the JOBS Act until such time as those standards apply to private companies.
We have elected to use this extended transition period for complying with new or
revised accounting standards that have different effective dates for public and
private companies until the earlier of the date that we are no longer an
emerging growth company, or affirmatively and irrevocably opt out of the
extended transition period provided in the JOBS Act. We have not elected to
early adopt certain new accounting standards, as described in Note 2 of our
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.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited interim condensed consolidated financial statements appearing elsewhere in this Quarterly Report.
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