Item 1A. Risk Factors
Item 1A. Risk Factors
The following risks could materially and adversely
affect our business, financial condition, cash flows, and results of operations, and the trading price of our common stock could decline.
These risk factors do not identify all of the risks that we face. Our operations could also be affected by factors that are not presently
known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past
financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results
or trends in future periods. Refer also to the other information set forth in this Annual Report on Form 10-K, including in Part II, Item
7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as our Consolidated
Financial Statements and the related notes in Part II, Item 15.
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We might not be able to continue as a going concern.
Our consolidated financial
statements as of December 31, 2022 have been prepared under the assumption that we will continue as a going concern for the next twelve
months. As of December 31, 2022, we had cash, cash equivalents and investments of $2.9 million and an accumulated deficit of $149.6 million.
We do not believe that our cash, cash equivalents and investments are sufficient to fund our operations for the next 12 months. We will
need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit
and sufficient cash flows to continue doing business without raising additional capital from time to time. As a result of our
expected operating losses and cash burn for the foreseeable future and recurring losses from operations, if we are unable to raise sufficient
capital through additional debt or equity arrangements, there will be uncertainty regarding our ability to maintain liquidity sufficient
to operate our business effectively, which raises substantial doubt as to our ability to continue as a going concern. If we cannot continue
as a viable entity, our stockholders would likely lose most or all of their investment in us.
If we are unable to generate sustainable operating
profit and sufficient cash flows, then our future success will depend on our ability to raise capital. We are seeking additional financing
and evaluating financing alternatives in order to meet our cash requirements for the next 12 months. We cannot be certain that raising
additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be
available to us or, if available, will be on terms acceptable to us. If we issue additional securities to raise funds, these securities
may have rights, preferences, or privileges senior to those of our common stock, and our current stockholders may experience dilution.
If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current product development programs,
cut operating costs, forego future development and other opportunities or even terminate our operations.
We have a history of losses, and we will need to raise additional
capital.
We recorded net losses of approximately $32.4
million and $10.9 million for the years ended December 31, 2022 and December 31, 2021, and we ended the period with an accumulated deficit
of approximately $149.6 million. These and prior-year losses have resulted in significant negative cash flows. To remain competitive and
expand our product offerings to customers, we will need to increase revenues substantially beyond levels that we have attained in the
past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional
capital from time to time. Given our history of fluctuating revenues and operating losses, and the challenges we face in securing customers
for our products, we cannot be certain that we will be able to achieve and maintain profitability on either a quarterly or annual basis
in the future. As a result, we may need to raise additional capital in the future, which may or may not be available to us at all or only
on unfavorable terms.
Our failure to generate the significant capital necessary or
raise additional capital to expand our operations and invest in new products could reduce our ability to compete and could harm our business.
We intend to continue spending to grow our business.
If we do not achieve and maintain profitability, we will need additional financing to pursue our business strategy, develop new products,
respond to competition and market opportunities and acquire complementary businesses or technologies. There can be no assurance that such
additional capital, whether in the form of debt or equity financing, will be sufficient or available and, if available, that such capital
will be offered on terms and conditions acceptable to us.
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If we were to raise additional capital through
sales of our equity securities, our stockholders would suffer dilution of their equity ownership. If we engage in debt financing, we may
be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing
our stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could harm our business, operating
results and financial condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other
things:
● develop or enhance our products;
● continue to expand our product development and sales and marketing
organizations;
● acquire complementary technologies, products or businesses;
● expand operations, in the United States or internationally;
● hire, train and retain employees; or
● respond to competitive pressures or unanticipated working
capital requirements.
Our failure to successfully market our products could seriously
harm our ability to execute our business strategy and may force us to curtail our research and development plans or existing operations.
Our success depends upon the acceptance by our
target markets of our products and technologies by original equipment manufacturers or OEMs and service providers. Our prospective customers
may be unwilling to adopt and design-in our products due to the uncertainties and risks surrounding designing a new IC or module and/or
incorporating new IP into their systems and relying on a small, sole-sourced supplier. Thus, currently, we do not know whether we will
be able to generate adequate profit from making and selling our products and licensing our technologies.
An important part of our strategy to gain market
acceptance is to penetrate new markets by targeting market leaders to accept our technology solutions. This strategy is designed to encourage
other participants in those markets to follow these leaders in adopting our solutions. If a high-profile industry participant adopts our
products for one or more of its products but fails to achieve success with those products, or is unable to successfully implement our
products, other industry participants’ perception of our solutions could be harmed. Any such event could reduce the amount of future
sales of our products.
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Future revenue growth depends on our winning designs with existing
and new customers, retaining current customers, and having those customers design our solutions into their product offerings and successfully
selling and marketing such products. If we do not continue to win designs in the short term, our product revenue in the following years
will not grow.
We sell our ICs to customers that include our
ICs and modules in their products. Our technology is generally incorporated into products at the design stage, which we refer to as a
design win, and which we define as the point at which a customer has made a commitment to build a board against a fixed schematic for
its system, and this board will utilize our products. As a result, our future revenue depends on our OEM customers designing our products
into their products, and on those products being produced in volume and successfully commercialized. If we fail to retain our current
customers or convince our current or prospective customers to include our products in their products and fail to achieve a consistent
number of design wins, our results of operations and business will be harmed. In addition, if a current or prospective customer designs
a competitor’s offering into its product, it becomes significantly more difficult for us to sell our products to that customer because
changing suppliers involves significant cost, time, effort and risk for the OEM. Even if a customer designs one of our ICs or modules
into its product, we cannot be assured that the OEM’s product will be commercially successful over time, or at all, or that we will
receive or continue to receive any revenue from that customer. Furthermore, the customer product for which we obtain a design win may
be canceled before the product enters production or before or after it is introduced into the market. Because of our extended sales cycle,
our revenue in future years is highly dependent on design wins we are awarded today. Our lack of capital and uncertainty about our future
technology roadmap also may limit our success in achieving additional design wins, as discussed under “ We may experience difficulties
in transitioning to new wafer fabrication process technologies or in achieving higher levels of design integration, which may result in
reduced manufacturing yields, delays in product deliveries and increased costs .”
The design win process for our products is generally lengthy,
expensive and competitive, with no guarantee of revenue, and, if we fail to generate sufficient revenue to offset our expenses, our business
and operating results would suffer.
Achieving a design win for one of our products
is typically a lengthy, expensive and competitive process because our customers generally take a considerable amount of time to evaluate
our products. In the markets we serve, the time from initial customer engagement to design win to production volume shipments can range
from one to three years, though it may take longer for new customers or markets we intend to address. In order to win designs, we are
required to both incur design and development costs and dedicate substantial engineering resources in pursuit of a single customer opportunity.
Even though we incur these costs we may not prevail in the competitive selection process, and, even if we do achieve a design win, we
may never generate sufficient, or any, revenue to offset our development expenditures. Our customers have the option to decide whether
or not to put our solutions into production after initially designing our products in the specification. The customer can make changes
to its product after a design win has been awarded to us, which can have the effect of canceling a previous design win. The delays inherent
in our protracted sales cycle increase the risk that a customer will decide to cancel, curtail, reduce or delay its product plans, causing
us to lose anticipated revenue. In addition, any change, delay or cancellation of a customer’s plans could harm our financial results,
as we may have incurred significant expense while generating no revenue.
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If our foundries do not achieve satisfactory yields or quality,
our cost of net revenue will increase, our operating margins will decline and our reputation and customer relationships could be harmed.
We depend not only on sufficient foundry manufacturing
capacity and wafer prices, but also on good production yields (the number of good die per wafer) and timely wafer delivery to meet customer
demand and maintain profit margins. The fabrication of our products is a complex and technically demanding process. Minor deviations in
the manufacturing process can cause substantial decreases in yields and, in some cases, cause production to be suspended. From time to
time, our foundries experience manufacturing defects and reduced manufacturing yields. Changes in manufacturing processes or the inadvertent
use of defective or contaminated materials by our foundries could result in lower than anticipated manufacturing yields, which would harm
our revenue or increase our costs. For example, in the past, one of our foundries produced ICs and met its process specification range
but did not meet our customer’s specifications causing us to write off a portion of our production lot. Many of these problems are
difficult to detect at an early stage of the manufacturing process and may be time consuming and expensive to correct. Poor yields from
our foundry, or defects, integration issues or other performance problems in our ICs, could cause us significant customer relations and
business reputation problems, harm our operating results and give rise to financial or other damages to our customers. Our customers might
consequently seek damages from us for their losses. A product liability claim brought against us, even if unsuccessful, would likely be
time consuming and costly to defend.
We may experience difficulties in transitioning to new wafer
fabrication process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields,
delays in product deliveries and increased costs.
We aim to use the most advanced manufacturing
process technology appropriate for our solutions that is available from our foundries. As a result, we periodically evaluate the benefits
of migrating our solutions to other technologies in order to improve performance and reduce costs. These ongoing efforts require us from
time to time to modify the manufacturing processes for our products and to redesign some products, which in turn may result in delays
in product deliveries. We are dependent on our foundries to support the production of wafers for future versions of our IC. Such production
may require changes to the foundry’s existing process technology. If the foundry elects to not alter their process technology to
support future versions of our ICs, we would need to identify a new foundry.
For example, our 1T-SRAM technology used in our
Accelerator Engine products is not available at process nodes below 40 nanometers. To date, we have not developed any memory products
below the 40-nanometer process node and have no plans to continue the product roadmap for our Accelerator Engine products. We do not consider
this to adversely affect our current product offerings, but our inability to continue our product roadmap can adversely affect, and has
in the past affected, our efforts to win new customers for these products, secure additional design wins and grow our future revenues.
If Taiwan Semiconductor Manufacturing, or TSMC,
which is the sole foundry for producing our memory ICs were to discontinue the foundry process used to produce our Accelerator Engine
products, we would not be in a position to transition production of these products to a new foundry and continue to manufacture our products.
This would require us to discontinue production of these products and would negatively impact our future revenues, results of operations
and cash flows.
To date, we have not achieved the anticipated benefits of a fabless
semiconductor company.
Our primary goal has been to increase our total
available market by creating high-performance ICs and modules for mmWave applications using our proprietary technology and design expertise.
Historically, this development effort required that we add headcount and design resources, such as expensive software tools, which increased
our losses from, and cash used in, operations. Our efforts to increase our revenue and expand our markets have been subject to various
risks and uncertainties, including, but not limited to:
● a lack of working capital;
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● customer acceptance;
● difficulties and delays in our product development, manufacturing,
testing and marketing activities;
● timeliness of new product introductions;
● the anticipated costs and technological risks of developing
and bringing our products to market;
● the willingness of our manufacturing partners to assist successfully
with fabrication;
● our ability to qualify our products for mass production and
achieve wafer yield levels and the final test results necessary to be price competitive;
● the availability of quantities of our products supplied by
our manufacturing partners at a competitive cost;
● our ability to generate the desired gross margin percentages
and return on our product development investment;
● competition from established competitors;
● the adequacy of our IP protection for our proprietary IC designs
and technologies;
● customer concerns over our financial condition and viability
to be a long-term profitable supplier; and
● the vigor and growth of markets served by our current and
prospective customers.
If we experience significant delays in bringing
our products to market, if customer adoption of our products is delayed or if our customers’ products that include our products
are not successful, this could have a material adverse effect on our anticipated revenues in upcoming years due to the potential loss
of design wins and future revenues.
Our main objective is the development and sale of our technologies
to service providers, cloud networking, security, test and video system providers and their subsystem and component vendors and, if demand
for these products does not grow, we may not achieve revenue growth and our strategic objectives.
We market and sell our products and technology
to mmWave, cloud networking, communications, data center and other equipment providers and their subsystem and component vendors. We believe
our future business and financial success depends on market acceptance and increasing sales of these products. To meet our growth and
strategic objectives, networking infrastructure OEMs must incorporate our products into their systems and the demand for their systems
must grow as well. We cannot provide assurance that sales of our products to these OEMs will increase substantially in the future or that
the demand for our customers’ systems will increase. Our future revenues from these products may not increase in accordance with
our growth and strategic objectives if, instead, our OEM customers modify their product designs, select products sold by our competitors
or develop their own proprietary technologies. Moreover, demand for their products that incorporate our technologies may not grow or result
in significant sales of such products due to factors affecting the customers and their business such as industry downturns, declines in
capital spending in the enterprise and carrier markets or unfavorable macroeconomic conditions. Thus, the future success of our business
depends in large part on factors outside our control, and sales of our products may not meet our revenue growth and strategic objectives.
Our failure to continue to develop new products and enhance our
products on a timely basis could diminish our ability to attract and retain customers.
The existing and potential markets for our products
are characterized by ever-increasing performance requirements, evolving industry standards, rapid technological change and product obsolescence.
These characteristics lead to periodic changes in customer requirements, shorter product life cycles and changes in industry demands and
mandate new product introductions and enhancements to maintain customer engagements and design wins. In order to attain and maintain a
significant position in the market, we will need to continue to enhance and evolve our products and the underlying proprietary technologies
in anticipation of these market trends although we do not have a large engineering staff.
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Our future performance depends on a number of
factors, including our ability to:
● identify target markets and relevant emerging technological
trends;
● develop and maintain competitive technology by improving performance
and adding innovative features that differentiate our products from alternative technologies;
● enable the incorporation of our products into customers’
products on a timely basis and at competitive prices; and
● respond effectively to new technological developments or new
product introductions by others.
Our failure to enhance our existing products and
develop future products that achieve broad market acceptance will harm our competitive position and impede our future growth.
Our products have a lengthy sales cycle, which makes it difficult
to predict success in this market and the timing of future revenue.
Our products have a lengthy sales cycle, ranging
from six to 24 months from the date of our initial proposal to a prospective customer until the date on which the customer confirms that
it has designed our product into its system. An even lengthier period could ensue before we would know the volume of products that such
customer will, or is likely to, order. A number of factors can contribute to the length of the sales cycle including technical evaluations
of our products by the customers, the design process required to integrate our products into the customers’ products and the timing
of the customers’ new product announcements. In anticipation of product orders, we may incur substantial costs before the sales
cycle is complete and before we receive any customer payments. As a result, in the event that a sale is not completed or is cancelled
or delayed, we may have incurred substantial expenses, making it more difficult for us to become profitable or otherwise negatively impacting
our financial results. Furthermore, because of this lengthy sales cycle, the recording of revenues from our selling efforts may be substantially
delayed, our ability to forecast our future revenue may be more limited and our revenue may fluctuate significantly from quarter to quarter.
We cannot provide any assurances that our efforts to build a strong and profitable business based on the sale of ICs will succeed. If
these efforts are not successful, in light of the substantial resources that we have invested, our future operating results and cash flows
could be materially and adversely affected.
The semiconductor industry is cyclical in nature and subject
to periodic downturns, which can negatively affect our revenue.
The semiconductor industry is cyclical and has
experienced pronounced downturns for sustained periods of up to several years. To respond to any downturn, many semiconductor manufacturers
and their customers will slow their research and development activities, cancel or delay new product developments, reduce their workforces
and inventories and take a cautious approach to acquiring new equipment and technologies. As a result, our business has been in the past
and could be adversely affected in the future by an industry downturn which could negatively impact our future revenue and profitability.
Also, the cyclical nature of the semiconductor industry may cause our operating results to fluctuate significantly from year-to-year.
Our revenue has been highly concentrated among a small number
of customers, and our results of operations could be harmed if we lose a key revenue source and fail to replace it.
Our overall revenue has been highly concentrated,
with a few customers accounting for a significant percentage of our total revenue. For the year ended December 31, 2022, our three largest
customers represented approximately 74% of total revenue. We expect that a relatively small number of customers will continue to account
for a substantial portion of our revenue for the foreseeable future.
As a result of this revenue concentration, our
results of operations could be adversely affected by the decision of a single key customer to cease using our technology or products or
by a decline in the number of products that incorporate our technology that are sold by a single licensee or customer or by a small group
of licensees or customers.
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Our revenue concentration may also pose credit risks which could
negatively affect our cash flow and financial condition.
We might also face credit risks associated with
the concentration of our revenue among a small number of licensees and customers. At December 31, 2022, four customers represented approximately
79% of total trade receivables. Our failure to collect receivables from any customer that represents a large percentage of receivables
on a timely basis, or at all, could adversely affect our cash flow or results of operations.
Our products must meet exact specifications and defects and failures
may occur, which may cause customers to return or stop buying our products.
Our customers generally establish demanding specifications
for quality, performance and reliability that our products must meet. However, our products are highly complex and may contain defects
and failures when they are first introduced or as new versions are released. If defects and failures occur in our products during the
design phase or after, we could experience lost revenues, increased costs, including warranty and customer support expenses and penalties
for non-performance stipulated in customer purchase agreements, delays in or cancellations or rescheduling of orders or shipments, product
returns or discounts, diversion of management resources or damage to our reputation and brand equity, and in some cases consequential
damages, any of which would harm our operating results. In addition, delays in our ability to fill product orders as a result of quality
control issues may negatively impact our relationship with our customers. We cannot assure you that we will have sufficient resources
to satisfy any asserted claims. Furthermore, any such defects, failures or delays may be particularly damaging to us as we attempt to
establish our reputation as a reliable provider of IC and module products.
Because we sell our products on a purchase order basis and rely
on estimated forecasts of our customers’ needs, inaccurate forecasts could adversely affect our business.
We sell our products pursuant to individual purchase
orders rather than long-term purchase commitments. Therefore, we will rely on estimated demand forecasts, based upon input from our customers,
to determine how much product to manufacture. Because our sales are based primarily on purchase orders, our customers may cancel, delay
or otherwise modify their purchase commitments with little or no notice to us. For these reasons, we will generally have limited visibility
regarding our customers’ product needs. In addition, the product design cycle for our customers can be lengthy and it may be difficult
for us to accurately anticipate when they will commence commercial shipments of products that include our ICs or modules.
Furthermore, if we experience substantial warranty
claims, our customers may cancel existing orders or cease to place future orders. Any cancellation, delay or other modification in our
customers’ orders could significantly reduce our revenue, cause our operating results to fluctuate from period to period and make
it more difficult for us to predict our revenue. In the event of a cancellation or reduction of an order, we may not have enough time
to reduce operating expenses to mitigate the effect of the lost revenue on our business.
If we overestimate customer demand for our products,
we may purchase products from our manufacturers that we cannot sell. Conversely, if we underestimate customer demand or if sufficient
manufacturing and testing capacity are unavailable, we would forego revenue opportunities and could lose market share in the markets served
by our products and could incur penalty payments under our customer purchase agreements. In addition, our inability to meet customer requirements
for our products could lead to delays in product shipments, force customers to identify alternative sources and otherwise adversely affect
our ongoing relationships with our customers.
We depend on contract manufacturers for a significant portion
of our revenue from the sale of our products.
Many of our current and prospective OEM customers
use third party contract manufacturers to manufacture their systems and these contract manufacturers purchase our products directly from
us on behalf of the OEMs. Although we expect to work with our OEM customers in the design and development phases of their systems, these
OEMs often give contract manufacturers some authority in product purchasing decisions. If we cannot compete effectively for the business
of these contract manufacturers, or if any of the contract manufacturers that work with our OEM customers experience financial or other
difficulties in their businesses, our revenue and our business could be adversely affected. For example, if a contract manufacturer becomes
subject to bankruptcy proceedings, we may not be able to obtain our products held by the contract manufacturer or recover payments owed
to us by the contract manufacturer for products already delivered to the contract manufacturer. If we are unable to persuade contract
manufacturers to purchase our products, or if the contract manufacturers are unable to deliver systems with our products to OEMs on a
timely basis, our business would be adversely affected.
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We rely on independent foundries and contractors for the manufacture,
assembly, testing and packaging of our integrated circuits and modules, and the failure of any of these third parties to deliver products
or otherwise perform as requested could damage our relationships with our customers and harm our sales and financial results.
As a fabless semiconductor company, we rely on
third parties for substantially all of our manufacturing operations. We depend on these parties to supply us with material in a timely
manner that meets our standards for yield, cost and quality. We do not have long-term supply contracts with any of our suppliers or manufacturing
service providers, and therefore they are not obligated to manufacture products for us for any specific period, in any specific quantity
or at any specified price except as may be provided in a particular purchase order. Any problems with our manufacturing supply chain,
including disruptions due to the COVID-19 global pandemic, could adversely impact our ability to ship our products to our customers on
time and in the quantity required which in turn could damage our customer relationships and impede market acceptance of our IC products.
Our third-party wafer foundry and testing and assembly vendors
are located in regions at high risk for earthquakes and other natural disasters and adverse consequences related to the outbreak
of contagious diseases such as COVID-19. Any disruption to the operations of these foundries and vendors resulting from earthquakes or
other natural disasters could cause significant delays in the development, production, shipment and sales of our IC products.
Certain vendors that we utilize to manufacture
our products are located in Asia, as are other foundries we may use in the future. Our vendors that provide substrates and wafer sorting
and handle the testing of our products are headquartered in either Asia or the San Francisco Bay Area of California. The risk of an earthquake
in the Pacific Rim region is significant due to the proximity of major earthquake fault lines. The occurrence of earthquakes or other
natural disasters could result in the disruption of the wafer foundry or assembly and test capacity of the third parties that supply these
services to us and may impede our research and development efforts as well as our ability to market and sell our products. We may not
be able to obtain alternate capacity on favorable terms, if at all.
The COVID-19 global pandemic, along with outbreaks
of new contagious diseases or the resurgence of existing diseases that significantly affect the Asia-Pacific region could disrupt the
operations of our key suppliers and manufacturing partners.
Disruptions in our supply chain due to shortages in the global
semiconductor supply chain could cause delays for customers and impact revenue.
We have and may continue to experience disruptions
in our global semiconductor supply chain, with suppliers increasing lead times or placing products on allocation, including procuring
necessary components, wafers, substrates and assembly services in a timely fashion. As a result of these supply chain disruptions, we
have had to increase customer order lead times, and we may be required some products on allocation. We may be unable to satisfy all of
the demand for our products, which may adversely affect customer relationships and impact revenue.
Price increases from our supply chain can adversely impact revenue
or reduce margins.
Our suppliers can increase the price of products
and services provided to us. Finding and qualifying alternate or additional suppliers in response to increased pricing from suppliers
can be a lengthy process and can lead to production delays or additional costs, and such alternatives are sometimes not available. If
we are unable to increase the price of our products to our customers in response to increased costs, we would face reduced margins.
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Any claim that our products or technology infringe third party
IP rights could increase our costs of operation and distract management and could result in expensive settlement costs or the discontinuance
of our technology licensing or product offerings. In addition, we may incur substantial litigation expense which would adversely affect
our profitability.
The semiconductor industry is characterized by
vigorous protection and pursuit of IP rights or positions which has resulted in often protracted and expensive litigation. We are not
aware of any third party IP that our products or technology would infringe. However, like many companies of our size with limited resources,
we have not searched for all potentially applicable IP in the public databases. It is possible that a third party now has, or may in the
future obtain, patents or other intellectual property rights that our products or technology may now, or in the future, infringe. Our
licensees and IC customers, or we, might, from time to time, receive notice of claims that we have infringed patents or other IP rights
of others. Litigation against us can result in significant expense and divert the efforts of our technical and management personnel whether
or not the litigation has merit or results in a determination adverse to us.
The discovery of defects in our technology and products could
expose us to liability for damages.
The discovery of a defect in our technologies
and products could lead our customers to seek damages from us. Many of our agreements with customers include provisions waiving implied
warranties regarding our technology and products and limiting our liability to our customers. We cannot be certain, however, that the
waivers or limitations of liability contained in our agreements with customers will be enforceable.
We might not be able to protect and enforce our IP rights which
could impair our ability to compete and reduce the value of our technology.
Our technology is complex and is intended for
use in complex systems. For example, our licensees’ products utilize our embedded memory and/or interface technology and a large
number of companies manufacture and market these products. Because of these factors, policing the unauthorized use of our IP is difficult
and expensive. We cannot be certain that we will be able to detect unauthorized use of our technology or prevent other parties from designing
and marketing unauthorized products based on our technology. In the event we identify any past or present infringement of our patents,
copyrights or trademarks, or any violation of our trade secrets, confidentiality procedures or licensing agreements, we cannot assure
you that the steps taken by us to protect our proprietary information will be adequate to prevent misappropriation of our technology.
Our inability to adequately protect our IP would reduce significantly the barriers of entry for directly competing technologies and could
reduce the value of our technology. Furthermore, we might initiate claims or litigation against third parties for infringement of our
proprietary rights or to establish the validity of our proprietary rights. Litigation by us could result in significant expense and divert
the efforts of our technical and management personnel whether or not such litigation results in a determination favorable to us.
Our existing patents might not provide us with sufficient protection
of our IP, and our patent applications might not result in the issuance of patents, either of which could reduce the value of our core
technology and harm our business.
We rely on a combination of patents, trademarks,
trade secret laws and confidentiality procedures to protect our IP rights. We cannot be sure that any patents will be issued from any
of our pending applications or that any claims allowed from pending applications will be of sufficient scope or strength, or issued in
all countries where our products can be sold, to provide meaningful protection or any commercial advantage to us. Failure of our patents
or patent applications to provide meaningful protection might allow others to utilize our technology without any compensation to us.
If our intangible assets become impaired,
we would be required to record a charge to earnings.
We review our intangible
assets for impairment when events or changes in circumstances, such as a decline in our stock price and/or market capitalization, indicate
the carrying value may not be recoverable. If our intangible assets are deemed to be impaired, an impairment loss equal to the amount
by which the carrying amount exceeds the fair value of the assets would be recognized. We would be required to record an impairment charge
in our financial statements during the period in which any impairment of our intangible assets is determined, which would negatively affect
our results of operations.
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If we fail to retain key personnel, our business and growth could
be negatively affected.
Our business has been dependent to a significant
degree upon the services of a small number of executive officers and technical employees. The loss of key personnel could negatively impact
our technology development efforts, our ability to deliver products under our existing agreements, maintain strategic relationships with
our partners and obtain new customers. We generally have not entered into employment or non-competition agreements with any of our employees
and do not maintain key-man life insurance on the lives of any of our key personnel.
Our ability to utilize our net operating loss carryforwards is
limited as a result of an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended.
As of December 31, 2022, we had over $238 million
of net operating loss, or NOL, carryforwards for U.S. federal tax purposes. Under U.S. federal income tax law, we generally can use our
NOL carryforwards (and certain related tax credits) to offset ordinary taxable income, thereby reducing our U.S. federal income tax liability,
for up to 20 years from the year in which the losses were generated, after which time they will expire. Our California NOL carryforwards
(and certain related tax credits) generally may be used to offset future state taxable income for 20 years from the year in which the
losses are generated, depending on the state, after which time they will expire. The rate at which we can utilize our NOL carryforwards
is limited (which could result in NOL carryforwards expiring prior to their use) each time we experience an “ownership change,”
as determined under Section 382 of the Internal Revenue Code. A Section 382 ownership change generally occurs if a shareholder or a group
of shareholders who are deemed to own at least 5% of our common stock increase their ownership by more than 50 percentage points over
their lowest ownership percentage within a rolling three-year period. If an ownership change occurs, Section 382 generally would impose
an annual limit on the amount of post-ownership change taxable income that may be offset with pre-ownership change NOL carryforwards equal
to the product of the total value of our outstanding equity immediately prior to the ownership change (reduced by certain items specified
in Section 382) and the U.S. federal long-term tax-exempt interest rate in effect at the time of the ownership change. A number of special
and complex rules apply in calculating this Section 382 limitation. While the complexity of Section 382 makes it difficult to determine
whether and when an ownership change has occurred, and a formal study has not been performed, we believe that a Section 382 ownership
change occurred as a result of our business combination with Peraso Technologies Inc. in 2021. The Company believes this Section 382 limitation
will result in substantially all of our federal and state NOLs federal tax credit carryforwards incurred prior to December 2021 expiring
before they can be utilized. In addition, our ability to use our NOL carryforwards will be limited to the extent we fail to generate enough
taxable income in the future before they expire. Existing and future Section 382 limitations and our inability to generate enough taxable
income in the future could result in a substantial portion of our NOL carryforwards expiring before they are used. We have recorded a
full valuation allowance for our deferred tax assets.
Acquisitions or other business combinations that we pursue in
the future, whether or not consummated, could result in other operating and financial difficulties.
In the future we may seek to acquire additional
product lines, technologies or businesses in an effort to increase our growth, enhance our ability to compete, complement our product
offerings, enter new and adjacent markets, obtain access to additional technical resources, enhance our IP rights or pursue other competitive
opportunities. If we seek acquisitions or other business combinations, we may not be able to identify suitable candidates at prices we
consider appropriate. We cannot readily predict the timing or size of our future acquisitions or combinations, or the success of any such
transactions.
To the extent that we consummate acquisitions,
combinations or investments, we may face financial risks as a result, including increased costs associated with merged or acquired operations,
increased indebtedness, economic dilution to gross and operating profit and earnings per share, or unanticipated costs and liabilities.
Acquisitions may involve additional risks, including:
● the acquired product lines, technologies or businesses may
not improve our financial and strategic position as planned;
● we may determine we have overpaid for the product lines, technologies
or businesses, or that the economic conditions underlying our acquisition have changed;
18
● we may have difficulty integrating the operations and personnel
of the acquired company;
● we may have difficulty retaining the employees with the technical
skills needed to enhance and provide services with respect to the acquired product lines or technologies;
● the acquisition may be viewed negatively by customers, employees,
suppliers, financial markets or investors;
● we may have difficulty incorporating the acquired product
lines or technologies with our existing technologies;
● we may encounter a competitive response, including price competition
or IP litigation;
● we may become a party to product liability or IP infringement
claims as a result of our sale of the acquired company’s products;
● we may incur one-time charges, such as for acquired in-process
research and development costs, and restructuring charges;
● we may acquire goodwill and other intangible assets that are
subject to impairment tests, which could result in future impairment charges;
● our ongoing business and management’s attention may
be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises;
and
● our due diligence process may fail to identify significant
existing issues with the target business.
From time to time, we may enter into negotiations
for acquisitions or investments that are not ultimately consummated. These negotiations could result in significant diversion of management
time, as well as substantial out-of-pocket costs, any of which could have a material adverse effect on our business, operating results
and financial condition.
Provisions of our certificate of incorporation and bylaws or
Delaware law might delay or prevent a change-of-control transaction and depress the market price of our stock.
Various provisions of our certificate of incorporation
and bylaws might have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting
to acquire, control of our company. These provisions could limit the price that certain investors might be willing to pay in the future
for shares of our common stock. Certain of these provisions eliminate cumulative voting in the election of directors, limit the right
of stockholders to call special meetings and establish specific procedures for director nominations by stockholders and the submission
of other proposals for consideration at stockholder meetings.
We are also subject to provisions of Delaware
law that could delay or make more difficult a merger, tender offer or proxy contest involving our company. In particular, Section 203
of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested
stockholder for a period of three years unless specific conditions are met. Any of these provisions could have the effect of delaying,
deferring or preventing a change in control, including without limitation, discouraging a proxy contest or making more difficult the acquisition
of a substantial block of our common stock.
Under our certificate of incorporation, our board
of directors may issue up to 20,000,000 shares of preferred stock, potentially without stockholder approval on such terms as the board
might determine. The rights of the holders of common stock will be subject to, and might be adversely affected by, the rights of the holders
of any preferred stock that might be issued in the future.
Potential volatility of the price of our common stock could negatively
affect your investment.
We cannot assure you that there will continue
to be an active trading market for our common stock. Historically, the stock market, as well as our common stock, has experienced significant
price and volume fluctuations. Market prices of securities of technology companies have been highly volatile and frequently reach levels
that bear no relationship to the operating performance of such companies. These market prices generally are not sustainable and are subject
to wide variations. If our common stock trades to unsustainably high levels, it is likely that the market price of our common stock will
thereafter experience a material decline.
In the past, securities class action litigation
has often been brought against a company following periods of volatility in the market price of its securities. We could be the target
of similar litigation in the future. Securities litigation could cause us to incur substantial costs, divert management’s attention
and resources, harm our reputation in the industry and the securities markets and negatively impact our operating results.
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Certain of our
common stock warrants are accounted for as a warrant liability and recorded at fair value with changes in fair value each period reported
in earnings, which may have an adverse effect on the market price of our common stock.
In accordance with generally
accepted accounting principles in the United States (“GAAP”), we are required to evaluate our common stock warrants to determine
whether they should be accounted for as a warrant liability or as equity. At each reporting period (1) the warrants will be reevaluated
for proper accounting treatment as a liability or equity and (2) the fair value of the liability of the warrants will be re-measured.
The change in the fair value of the liability will be recorded as other income (expense) in our statement of operations and comprehensive
loss. This accounting treatment may adversely affect the market price of our securities, as we may incur additional expense. In addition,
changes in the inputs and assumptions for the valuation model we use to determine the fair value of such liability may have a material
impact on the estimated fair value of the warrant liability. As a result, our financial statements and results of operations will fluctuate
quarterly, based on various factors, many of which are outside of our control, including the share price of our common stock. We expect
that we will recognize non-cash gains or losses on our warrants or any other similar derivative instruments in each reporting period and
that the amount of such gains or losses could be material. The impact of changes in fair value on earnings may have an adverse effect
on the market price of our common stock.
If we are unable to satisfy the continued listing requirements
of The Nasdaq Stock Market, our common stock could be delisted and the price and liquidity of our common stock may be adversely affected.
Our common stock may lose value and our common
stock could be delisted from Nasdaq due to several factors or a combination of such factors. While our common stock is currently listed
on Nasdaq, there can be no assurance that we will be able to maintain such listing. To maintain the listing of our common stock on Nasdaq,
we are required to meet certain listing requirements, including, among others, a requirement to maintain a minimum closing bid price of
$1.00 per share. If our common stock trades below the $1.00 minimum closing bid price requirement for 30 consecutive business days or
if we do not meet other listing requirements, we may be notified by Nasdaq of non-compliance. On February 1, 2023, we received a notice
from Nasdaq, indicating that, based upon the closing bid price of our common stock for the previous 30 business days, we no longer meet
the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Notice”).
In accordance with Nasdaq Listing Rule 5810(c)(3)(A),
we have been provided a period of 180 calendar days, or until July 31, 2023, in which to regain compliance. In order to regain compliance
with the minimum bid price requirement, the closing bid price of our common Stock must be at least $1 per share for a minimum of ten consecutive
business days during this 180-day period. In the event that we do not regain compliance within this 180-day period, we may be eligible
to seek an additional compliance period of 180 calendar days if we meet the continued listing requirement for market value of publicly
held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and
provide written notice to Nasdaq of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock
split, if necessary. However, if it appears to the Nasdaq Staff that we will not be able to cure the deficiency, or if we are otherwise
not eligible, Nasdaq will provide notice to us that our common stock will be subject to delisting.
The above mentioned notice does not result in the
immediate delisting of our common stock from the Nasdaq Capital Market. We intend to monitor the closing bid price of our common stock
and consider our available options in the event that the closing bid price of our common stock remains below $1 per share. There can be
no assurance that we will be able to regain compliance with the minimum bid price requirement or maintain compliance with the other listing
requirements. As of the date of this Report, we have not regained compliance. There can be no assurance that we would pursue a reverse
stock split or be able to obtain the approvals necessary to effect a reverse stock split. In addition, there can be no assurance that,
following any reverse stock split, the per share trading price of our common stock would remain above $1.00 per share or that we would
be able to continue to meet other listing requirements. If we were to be delisted, we would expect our common stock to be traded in the
over-the-counter market which could adversely affect the liquidity of our common stock. Additionally, we could face significant material
adverse consequences, including:
●
a limited availability of market quotations for our common stock;
●
a reduced amount of analyst coverage;
●
a decreased ability to issue additional securities or obtain additional financing in the future;
●
reduced liquidity for our stockholders;
●
potential loss of confidence by customers, collaboration partners and employees; and
●
loss of institutional investor interest.
Holders of exchangeable shares are expected to experience a delay
in receiving shares of our common stock from the date they request an exchange, which may affect the value of the shares the holder receives
in an exchange.
Holders of exchangeable shares who request to
receive shares of our common stock in exchange for their exchangeable shares will not receive shares of our common stock until several
business days after the applicable request is received. During this period, the market price of our common stock may increase or decrease.
Any such increase or decrease would affect the value of the consideration to be received by such holder of exchangeable shares upon a
subsequent sale of the common stock received in the exchange
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We are a “smaller reporting company” and, as a result
of the reduced disclosure and governance requirements applicable to smaller reporting companies, our common stock may be less attractive
to investors.
We are a “smaller reporting company,”
and are subject to lesser disclosure obligations in our SEC filings compared to other issuers. Specifically, “smaller reporting
companies” are able to provide simplified executive compensation disclosures in their filings, are exempt from the provisions of
Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on
the effectiveness of internal control over financial reporting and have certain other decreased disclosure obligations in their SEC filings,
including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures
in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our operating
results and financial prospects.
The invasion of Ukraine by Russia could
negatively impact our business.
Russia’s military invasion of Ukraine in
2022 has led to, and may lead to, additional sanctions being levied by the United States, European Union and other countries against Russia.
Russia’s military invasion and the resulting sanctions have had an adverse effect on global markets. We cannot predict the progress
or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond our control. Prolonged
unrest, intensified military activities, or more extensive sanctions impacting the region could have a material adverse effect on the
global economy, and such effect could in turn have a material adverse effect on the operations, results of operations, financial condition,
liquidity and business outlook of our business.
Sustained inflation could have a material
adverse effect on our business, financial condition, results of operations and liquidity.
Inflation rates in the markets in which we operate
have increased and may continue to rise. Inflation over the last several months has led us to experience higher costs, including, among
others, labor, wafer and transportation. Our suppliers have raised their prices and may continue to raise prices, and, although we have
made minimal price increases thus far, in the competitive markets in which we operate, we may not be able to make corresponding price
increases to preserve our gross margins and profitability. In addition, inflationary pressures could cause customers to delay or reduce
purchases of our products or delay payments to us. If inflation rates continue to rise or remain elevated for a sustained period of time,
they could have a material adverse effect on our business, financial condition, results of operations and liquidity.
The full effects of COVID-19 and other potential future public
health crises, epidemics, pandemics or similar events are uncertain and could have a material and adverse effect on our business, financial
condition, operating results and cash flows.
The global outbreak of the coronavirus disease
2019, or COVID-19, was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020.
This has negatively affected the world economy, disrupted global supply chains, significantly restricted travel and transportation, resulted
in mandated closures and orders to “shelter-in-place” from time to time and created significant disruption of the financial
markets. The extent of the impact on our operational and financial performance will depend on future developments, including the duration
and spread of the pandemic and related actions U.S. and foreign government agencies continue to take to prevent disease spread, all of
which are uncertain, out of our control and cannot be predicted.
As required,
we have complied with state and county orders, and we have implemented a teleworking policy for our employees and contractors when such
orders were in place. However, a facility closure, work slowdowns or temporary stoppage at one of our suppliers could occur, which could
have a longer-term impact and could delay our prototype production and ability to conduct business.
If our workforce is unable to work effectively,
including because of illness, quarantines, absenteeism, government actions, facility closures, travel restrictions or other restrictions
in connection with the COVID-19 pandemic, our operations will be negatively impacted. We may be unable to produce and sell our IC products,
and our costs may increase as a result of the COVID-19 outbreak. The impacts could worsen if there is an extended duration of any COVID-19
outbreak or a resurgence of COVID-19 infection in affected regions after they have begun to experience improvement.
The continued spread of COVID-19 has also led to occasional disruption
and volatility in the global capital markets. While we were able to access the capital markets in November 2022, we may be unable to access
the capital markets, and additional capital may only be available to us on terms that could be significantly detrimental to our existing
stockholders and to our business.
Item 1B. Unresolved Staff Comments
None.