Annual Report for Fiscal Year Ending 12-31, 2024 (Form 10-K)

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

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

Overview

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

Guerrilla RF 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, providing access to multiple semiconductor process technologies. Guerrilla RF's primary external wafer foundries are located in Taiwan and Singapore, and our primary assembly and test suppliers are located in Malaysia and the Philippines.

● Revenue for fiscal year 2024 increased by 33.4% compared to fiscal year 2023, driven by the acquisition of new customers, the launch of new product programs, and increased market share in our core markets. Catalog, Wireless Infrastructure, Wireless Audio, and SatCom all posted solid gains, while Automotive experienced a temporary decline due to a key customer's delayed initiative. Despite this delay, our automotive product line remained a significant contributor, with significant order volume OEM customers and from major electronics suppliers to OEM component manufacturers. Our ongoing market‐diversification strategy continued to boost revenue, with notable sales increases in repeaters, wireless audio, and SatCom.

● Gross profit for fiscal year 2024 was 63.7% of revenues as compared to 57.1% for fiscal year 2023. Although the Company has continued to experience supply chain price increases, we have mitigated these cost pressures by carefully shifting our product mix toward higher-margin offerings. Product contribution margins rose from 70.5% in 2023 to 74.8% in 2024. Product contribution margins were partially offset by higher overhead costs, on a comparative period basis, which increased due to headcount additions in our Quality group, as well as increased facility costs.

● Operating loss was $8.8 million for 2024 as compared to $12.9 million for 2023. This decrease in operating loss was due to higher revenue, while our operating expenses remained relatively flat, with expenses in our engineering and research and development areas decreasing $0.6 million or 6% year over year. Sales and marketing expenses increased, rising $0.6 million to $6.3 million or 10% over the prior year period. Administration costs experienced a small increase of $49 thousand or 1% over the prior year period.

● Basic net loss per share was $1.12 and $2.25 for fiscal year 2024 and 2023, respectively.

● Purchases of property, plant and equipment were $0.4 million for fiscal year 2024 and $0.1 million for the fiscal year 2023. The majority of capital expenditures for 2024 are related to capital additions for the Company's laboratory equipment and related facilities.

As a relatively young company in its early stages of market penetration and customer acquisition, we have historically sought funding to support our operations and our research and development efforts, in furtherance of new product introductions, market share increases, and participation in new markets. On March 28, 2024, we completed a private placement offering of approximately $5 million, raising net cash proceeds of approximately $3 million, after deduction of expenses and the conversion of existing debt. On August 5, 2024, we completed a $22 million private placement offering, raising net cash proceeds of approximately $21.6 million, after deduction of expenses. We project these funds will be adequate to fund the business for the rest of this fiscal year and beyond. However, we may seek additional funding from capital and debt markets to support new product development efforts, take advantage of business opportunities, and expand our sales and marketing capabilities and reach.

New Headquarters and Design Center Capital

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

Distributor and Sales Networks

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

Key Metrics (Non-GAAP Measures)

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

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

		Year Ended December 31,
		2024				2023
Key Metrics
Number of products released			32				12
Number of total products			163				131
Number of products with lifetime revenue exceeding $100 thousand			73				62
Product backlog (in millions)		$	5.44			$	5.96

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

Number of total products: The cumulative number of production-released products since Guerrilla RF's inception through the end of the period.

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

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

Components of Results of Operations

Revenues

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

Direct Product Costs and Gross Profit

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

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

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

Operating Expenses

Operating expenses consist primarily of research and development expenses, sales and marketing expenses, and employee compensation costs for operations management, finance, accounting, information technology, compliance, and human resources personnel. In addition, general and administrative expenses include non-personnel costs, such as facilities, legal, accounting, and other professional fees, and other supporting corporate expenses not allocated to other departments. We expect our general and administrative expenses will decrease in the near term as the Company continues to focus on expense reduction. Over the longer term we expect general and administrative expenses to grow in absolute dollars as our business grows, but we expect general and administrative expenses to decrease as a percentage of revenues in the coming years.

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

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

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

Interest Expense

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

Change in Fair Value of Derivative Liabilities

Change in fair value of derivative liabilities is fully attributable to the call and put options features of the convertible notes for the years ended December 31, 2024 and December 31, 2023.

Other Income (Expenses)

Other income (expense) for the years ended December 31, 2023 and 2024 was immaterial in each period (no more than $281 thousand). Included in other income (expense) were small transactions related to foreign currency transactions and recognition of a county economic development grant.

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

		Year Ended December 31,
		2024				2023
Revenues		$	20,115,900			$	15,078,316
Direct product costs			7,302,192				6,473,477
Gross profit			12,813,708				8,604,839
Operating expenses:
Research and development			9,707,128				10,282,635
Sales and marketing			6,251,254				5,677,141
General and administrative			5,618,389				5,569,654
Total operating expenses			21,576,771				21,529,430
Operating loss			(8,763,063	)			(12,924,591	)
Other income (expenses):
Interest income			163,735				-
Interest expense			(3,267,653	)			(2,904,454	)
Loss on debt extinguishment			(1,523,221	)			-
Change in fair value of derivative liabilities			158,000				(142,200	)
Change in fair value of warrant liabilities			2,198,051				-
Other income			281,113				4,951
Total other expenses, net			(1,989,975	)			(3,041,703	)
Net loss		$	(10,753,038	)		$	(15,966,294	)

Comparison for the years ended December 31, 2024and 2023:

		Year Ended December 31,
		2024				2023				$ Change				% Change
Revenues		$	20,115,900			$	15,078,316			$	5,037,584				33	%

Revenues increased by $5.0 million to $20.1 million for the year ended December 31, 2024, compared to $15.1 million for the year ended December 31, 2023. This growth was primarily driven by increased product sales in our wireless infrastructure and catalog segments. Our product offerings and customer base both expanded during the year, reflecting our ongoing sales strategy of enhancing existing relationships and acquiring new customers through targeted marketing activities. Meanwhile, royalty and non‐recurring revenue declined by 99%, from $400 thousand in 2023 to $2 thousand in 2024, underscoring its reduced significance in our overall revenue plan.

We generate revenue from customers located within and outside the U.S. While we have several large customers, we define major customers as those responsible for more than 10% of Guerrilla RF's annual product shipment revenue. Using this definition, Guerrilla RF had one major customer, Richardson RFPD, Inc. ("RFPD"), during the years ended December 31, 2024, and December 31, 2023. RFPD, a large product distributor serving numerous end customers, generated 77% and 81% of product shipment revenue for the years ended December 31, 2024 and 2023.

Our existing product sales increased from $11.2 million for the year ended December 31, 2023to $17.0 million for the year ended December 31, 2024, or 74% and 84% of total product sales, respectively. We continued to develop and sell new products into our markets, however new product sales fell from $3.6 million for the year ended December 31, 2023to $3.1 million for the year ended December 31, 2024, or 24% and 15% of total product sales, respectively, primarily due to the delays related to a new product program.

International shipments amounted to $4.0 million (approximately 20% of total product revenue) and $2.3 million (approximately 16% of total product revenue) for the years ended December 31, 2024, and December 31, 2023, respectively.

Direct Product Costs and Gross Profit

		Year Ended December 31,
		2024				2023				$ Change				% Change
Direct product costs		$	7,302,192			$	6,473,477			$	828,715				13	%
Gross profit		$	12,813,708			$	8,604,839			$	4,208,869				49	%

Direct product costs increased $0.8 million to $7.3 million for the year ended December 31, 2024, compared to $6.5 million for the year ended December 31, 2023. The 13% increase in direct product costs was driven by increased product sales of 37% (excluding royalty and non-recurring revenue). This increase was also impacted to a lesser extent by an increase in fixed overhead costs (Quality staffing and related costs) of $0.1 million. Year-over-year gross profit increase was due to a sales volume increase of 37% combined with improved product contribution margins from product mix changes between 2023 and 2024, as sales from one of our higher margin categories (5G Infrastructure) grew disproportionately compared to other sales, reflecting a year over year increase of 360%.

Research and Development Expenses

		Year Ended December 31,
		2024				2023				$ Change				% Change
Research and development		$	9,707,128			$	10,282,635			$	(575,507	)			6	%

Research and development expenses decreased $0.6 million to $9.7 million for the year ended December 31, 2024, compared to $10.3 million for the year ended December 31, 2023. R&D spending decreased as prototype mask sets related to new product development declined, driven in part by reduced efforts on silicon development. Lab, facility and information technology support decreased $0.6 million due to expense reduction efforts. This was offset by wages increasing $0.2 million primarily due to executive bonuses being paid for 2024, whereas there were no comparable bonuses in 2023.

Sales and Marketing Expenses

		Year Ended December 31,
		2024				2023				$ Change				% Change
Sales and marketing		$	6,251,254			$	5,677,141			$	574,113				10	%

Sales and marketing expenses increased $0.6 million to $6.3 million for the year ended December 31, 2024, compared to $5.7 million for the year ended December 31, 2023. The 10% increase year over year was driven primarily by increases in wages and benefits of $0.7 million, including sales representative commissions. Driving cost increases in this category were executive bonuses of $0.1 million in 2024, with no comparable bonuses in 2023, increased share-based compensation of $0.2 million, and headcount related increases for the United Kingdom and European sales team of $0.2 million. In addition, sales representative commissions increased almost $0.2 million driven by significant increases in sales volumes in 2024 compared to 2023. Lastly, facility and information support costs declined by $0.1 million from the previous year due to cost-cutting efforts.

General and Administrative Expenses

		Year Ended December 31,
		2024				2023				$ Change				% Change
General and administrative expenses		$	5,618,389			$	5,569,654			$	48,735				1	%

General and administrative expenses were $5.6 million for the years ended December 31, 2024, and 2023. There was a decrease of $0.8 million in wages and benefits resulting from reductions in headcount. In addition, software costs fell by $0.4 million as a result of cost-cutting efforts. These decreases were offset by increases in non-income taxes of $0.3 million and professional fees of $0.2 million. Increases of $0.7 million in general expenses, which included facilities costs, office supplies and expenses, and general information technology support, including cyber security, resulted in a net increase overall in general and administrative costs of less than $0.1 million.

Other Income (Expenses)

		Year Ended December 31,
		2024				2023				$ Change				% Change
Interest income		$	163,735			$	-			$	163,735				0	%
Interest expense		$	(3,267,653	)		$	(2,904,454	)		$	(363,199	)			13	%
Loss on debt extinguishment		$	(1,523,221	)		$	-			$	(1,523,221	)			0	%
Change in fair value of derivative liabilities		$	158,000			$	(142,200	)		$	300,200				(211	)%
Change in fair value of warrant liabilities		$	2,198,051			$	-			$	2,198,051				0	%
Other income		$	281,113			$	4,951			$	276,162				5578	%
Total other income (expenses), net		$	(1,989,975	)		$	(3,041,703	)		$	1,051,728				(35	)%

Other expense decreased approximately $1.1 million to $2.0 million for the year ended December 31, 2024, compared to $3.0 million for the year ended December 31, 2023. The decrease was largely attributable to a change in warrant liabilities of $2.2 million, which was driven by a significant decrease in the Company's share price, which was a key determinant in the value of those warrant liabilities. Offsetting this gain was a loss of $1.5 million on the loss on debt extinguishment. Following the significant funding event in the third quarter of 2024, the Company repaid a significant amount of an existing loan facility ("Salem Loan Facility") with Salem Investment Partners V, Limited Partnership ("Salem"), resulting in the write-off of unamortized costs associated with that debt that was being amortized over 5 years.

In addition, the Company had smaller contributors to other income including $0.2 million in interest income earned on funds deposited in a money market account which it did not have in 2023, and a change in its derivative liabilities, reflecting an decrease in fair value of $0.2 million.

Finally, an increase in interest expense, as a result of higher levels of debt during the first three quarters of 2024 compared to 2023 of $0.3 million was counteracted by a $0.3 million of other income driven by a grant that was received during 2024.

Liquidity and Capital Resources

Our primary source of liquidity has been cash raised from private placements and debt financing. As of December 31, 2024, we had cash resources of $8.0 million. We also have a loan facility for up to $3.75 million (referred to as the Spectrum Loan Facility, described in Note 5 to our consolidated financial statements) with Spectrum Commercial Services Company, L.L.C. ("Spectrum"). On March 28, 2024 we completed a private placement offering of approximately $5 million, raising net cash proceeds of approximately $3 million, after deduction of expenses and the conversion of existing debt. On August 5, 2024, we completed a $22 million private placement offering, raising net cash proceeds of approximately $21.6 million, after deduction of expenses. As of December 31, 2024, we had drawn down $0.6 million under the Spectrum Loan Facility and had an outstanding balance of $4.5 million under the Salem Loan Facility. The Company believes that its existing cash and cash equivalents following this raise will provide sufficient resources to support operations through the rest of this fiscal year and beyond. However, we may seek additional funding opportunities if management believes such funds can be successfully invested in business opportunities for the Company.

As described in Note 1 to our consolidated financial statements, we have incurred recurring losses and negative cash flows from operations since inception and have an accumulated deficit at December 31, 2024 of $53.8 million. We expect losses and negative cash flows to continue in the near term, primarily due to continued investment in research and development, sales and marketing efforts, and increased administration expenses as our Company grows. We plan to continue to invest in the implementation of our long-term strategic plan and we anticipate that we will continue to narrow cash burn from historical levels. so that cash reserves will provide the necessary working capital to conclude the Company is a going concern.

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

Cash (used in) provided by:

		Year Ended December 31,
		2024				2023
Operating activities		$	(6,653,784	)		$	(13,454,990	)
Investing activities			(752,180	)			(101,714	)
Financing activities			14,599,296				9,997,615
Net increase (decrease) in cash		$	7,193,332			$	(3,559,089	)

Operating Activities

Cash used in operating activities was $6.7 million and $13.5 million for the years ended December 31, 2024 and 2023, respectively. Cash used in operating activities for the year ended December 31, 2024 principally resulted from our net loss of $10.8 million, with uses offset by $1.7 million in share-based compensation, non-cash depreciation and amortization of $1.5 million, accretion of notes payable of $1.3 million, non-cash interest expense related to debt refinancing of $0.4 million, as well as a change in inventory allowance of $0.2 million, and further adjusted by an aggregate gain of $2.3 million on the change in fair value of derivative and warrant liabilities. There was also $0.1 million provided from the decrease of prepaid expenses, an increase of accounts receivable of $0.2 million, and an increase in operating lease liability of $0.4 million. In addition, there was a $0.5 million increase in inventories.

Cash used in operating activities for the year ended December 31, 2023, principally resulted from our net loss of $16.0 million, with uses offset by non-cash depreciation and amortization of $1.6 million, non-cash interest expense related to debt refinancing of $0.4 million, accretion of notes payable of $1.1 million as well as $1.3 million in share-based compensation. There was also $1.0 million provided from the decrease of prepaid expenses, an increase of accounts receivable of $1.0 million, and a decrease in operating lease expense of $0.1 million. In addition, there was a $2.2 million decrease in accounts payable and accrued expenses and a $0.1 million decrease in inventory.

Investing Activities

Cash used in investing activities was $0.8 million and $0.1 million for the years ended December 31, 2024 and 2023, respectively. Cash used in investing activities resulted from capital expenditures on property and equipment for all periods presented, and additional capital expenditures in 2024 for the purchase of intangible assets.

Financing Activities

Cash provided by financing activities during the year ended December 31, 2024, of $14.6 million was principally attributable to $8.3 million in net payments related to the Spectrum Loan Facility and Salem Loan more than offset by total net proceeds from equity financing of $24.6 million. Principal payments on capital leases reduced total cash provided by financing by $1.0 million.

Contractual Obligations and Commitments

The following summarizes our significant contractual obligations as of December 31, 2024.

		Payments due by period
		Total				Less than 1 year				1 - 3 years				4 - 5 years				More than 5 years
Purchase order obligations		$	459,112			$	459,112			$	-			$	-			$	-
Short-term notes			500,000				500,000
Long-term notes			4,000,000				-				4,000,000				-				-
Long-term debt			440,879				-				440,879				-				-
Short-term debt			828,492				828,492				-				-				-
Operating lease obligations			6,305,794				669,001				1,086,093				1,367,264				3,183,436
Finance lease obligations			1,495,889				667,718				769,199				58,972				-
Total		$	14,030,166			$	3,124,323			$	6,296,171			$	1,426,235			$	3,183,436

Off-Balance Sheet Arrangements

As of December 31, 2024 and 2023, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments involve derivatives 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, the Critical Accounting Policies and Significant Judgments and Estimates included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission on March 29, 2024, have not materially changed.

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

Liquidity and Going Concern

In accordance with Financial Accounting Standards Accounting Standards Update ("ASU") No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The accompanying consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has historically financed its activities through a combination of commercial loans and the proceeds of debt and equity issuances. The consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

The Company has incurred substantial negative cash flows from operations in nearly every fiscal period since inception. For the years ended December 31, 2024 and 2023, the Company incurred a net loss of $10.8 million and $16.0 million, respectively. For the years ended December 31, 2024 and 2023, the Company used $6.7 million and $13.5 million in cash to fund operations, respectively. As a result, the Company had an accumulated deficit of $53.8 million as of December 31, 2024. The Company's cash and working capital as of December 31, 2024 was $8.0 million and $6.3 million, respectively. We expect losses and negative cash flows to continue in the near term, primarily due to continued investment in research and development, sales and marketing efforts, and increased administration expenses as our Company grows. The Company plans to continue to invest in the implementation of its long-term strategic plan and anticipates that it will continue to narrow cash burn from historical levels.

Our primary source of liquidity has been from cash raised from private placements and debt financing. We also have a loan facility for up to $3.75 million with a specialty lender (referred to as the Spectrum Loan Facility, described in Note 5 to our consolidated financial statements). On March 28, 2024 we completed a private placement offering of approximately $5 million, raising net cash proceeds of approximately $3 million, after deduction of expenses and the conversion of existing debt. On August 5, 2024, we completed a $22 million private placement offering, raising net cash proceeds of approximately $21.6 million, after deduction of expenses. Additionally, on August 2, 2024, the Company initiated the amendment of the a loan facility (referred to as the Salem Loan Facility, described in Note 5) to (i) reduce the outstanding principal balance from $12.0 million to $4.5 million, (ii) extend the maturity date from January 31, 2026 to December 31, 2028, and (iii) reduce the interest rate from 14% (comprising 3% payment-in-kind (deferred) and 11% cash) to 12% cash. The amendment was effective on August 5, 2024 after the principal balance was reduced from $12.0 million to $4.5 million by using a portion of the proceeds from the private placement offering in August 2024. As a result, the Company believes that its existing cash and cash equivalents will provide sufficient resources to fund operations for at least the next twelve months after the issuance date of these financial statements.

Fair Value of Financial Instruments

We measure the fair value of financial assets and liabilities based on ASC 820 "Fair Value Measurements and Disclosures" ("ASC 820"), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

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

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

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

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

The carrying amounts of our financial instruments, such as cash, accounts receivable, and accounts payable approximate fair values due to the short-term nature of these instruments. We have valued certain warrants as Level 3 warrant liabilities and carried at their fair value computed using a Monte-Carlo simulation. The Monte Carlo simulation considered assumptions including the number of trials, warrant dilution, bid price estimates and multiple VWAP amounts for the cashless conversions of the North Run Warrants. Additionally, other key assumptions used in the Monte-Carlo simulation include the risk-free rate, the expected term of the warrants, expected stock price volatility, expected dividends and management's assumption that the probability of a fundamental transaction occurring is de minimis.

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 inNote 2of our consolidated financial statements. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed inNote 2 to ouraudited consolidated financial statements appearing elsewhere in this Annual Report.