Peraso Inc. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial statements and notes included in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which include, without limitation, statements about the market for our technology, our strategies, competition, expected financial performance and capital raising efforts. Any statements about our business, financial results, financial condition and operations contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects” or similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 and the risk factors described below under Part II, Item 1A of this Quarterly Report on Form 10-Q. We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law, even as new information becomes available or events occur in the future. Overview Our strategy and primary business objective is to be a profitable, IP-rich fabless semiconductor company offering integrated circuits, or ICs, antenna modules and related non-recurring engineering services. We specialize in the development of mmWave semiconductors, primarily in the unlicensed 60 GHz spectrum band for 802.11ad/ay-compliant devices and in the 28/39 GHz spectrum bands for 5G-compliant devices. We derive our revenue from selling semiconductor devices, as well as antenna modules based on using those mmWave semiconductor devices. We have pioneered a high-volume mmWave IC production test methodology using standard, low-cost production test equipment. It has taken us several years to refine performance of this production test methodology, and we believe this places us in a leadership position in addressing the operational challenges of delivering mmWave products into high-volume markets. We also produce and sell complete mmWave antenna modules. The primary advantage provided by our antenna modules is that our proprietary mmWave ICs and the antenna are integrated into a single device. A differentiating characteristic of mmWave technology is that the RF amplifiers must be as close as possible to the antenna to minimize loss. With our module, we can guarantee the performance of the amplifier/antenna interface and simplify customers’ radio frequency (“RF”) engineering, facilitating more opportunities for customer prospects that have not provided RF-type systems, as well as shortening the time to market for new products. We also had a memory product line comprising our Bandwidth Engine IC products. Taiwan Semiconductor Manufacturing Corporation, or TSMC, the sole foundry that manufactured the wafers used to produce our memory IC products, discontinued the foundry process used to produce such wafers. As a result, in May 2023, we initiated an end-of-life, or EOL, of our memory IC products, and we fulfilled the backlog and completed the final EOL shipments of our memory IC products in March 2025. We incurred net losses of approximately $0.5 million for the three months ended March 31, 2025 and $10.7 million for the year ended December 31, 2024, and we had an accumulated deficit of approximately $177.6 million as of March 31, 2025. These and prior year losses have resulted in significant negative cash flows and historically have required us to raise substantial amounts of additional capital. As discussed below, this raises significant doubt about our ability to continue as a going concern. 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. Recent Developments Compliance with Nasdaq Continued Listing Requirements On April 4, 2025, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the 30 consecutive business days ending on April 3, 2025, we no longer met the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until October 1, 2025, 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 we do not regain compliance within this 180-day period, we may be eligible to seek an additional compliance period of 180 calendar days provided 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 if we 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. 22 The above mentioned letter does not result in the immediate delisting of our common stock from the Nasdaq Capital Market. We are monitoring the closing bid price of our common stock and considering our available options in the event the closing bid price of our common stock remains below $1 per share. Risks and Uncertainties We are subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, pandemics, wars and acts of terrorism and the volatility of public markets. 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. For additional information on risks that could impact our future results of operations, please refer to “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these condensed consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances. Actual results may differ from these estimates and reported results could differ under different assumptions or conditions. Our significant accounting policies and estimates are disclosed in Note 1 of the “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 1 of the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2024. As of March 31, 2025, there have been no material changes to our significant accounting policies and estimates. Results of Operations Net Revenue March 31, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) Product - three months ended $ 3,800 $ 2,676 $ 1,124 42 % Percentage of total net revenue 98 % 95 % The following table details revenue by product category for the three months ended March 31, 2025 and 2024: (amounts in thousands) For the Three Months Ended March 31, Product category 2025 2024 change Memory ICs $ 2,267 $ 2,383 (116 ) mmWave ICs 975 77 898 mmWave modules 558 203 355 mmWave other products - 13 (13 ) $ 3,800 $ 2,676 $ 1,124 Product revenue increased for the three months ended March 31, 2025 compared with the same period of 2024 primarily due to the increase in shipments of our mmWave ICs and antenna modules. The decrease in memory IC product shipments during 2025 was primarily attributable to the completion of final EOL shipments. 23 We expect revenues to decrease in 2025 as compared with 2024, as we do not expect further sales of our memory IC products after March 31, 2025; however, we expect sales of our mmWave products to increase from a volume and revenue perspective during 2025, based on our current order backlog and the expected commencement of production shipments to new customers. March 31, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) Royalty and other - three months ended $ 69 $ 140 $ (71 ) -51 % Percentage of total net revenue 2 % 5 % Royalty and other revenue includes royalty, non-recurring engineering services and license revenues. The decrease in royalty and other revenue for the three months ended March 31, 2025 compared with the same period of 2024 was primarily due to a decrease in royalty revenues from licensees of our memory technology due to reduced shipments by these licensees, which we attribute to the discontinuation of the foundry process by TSMC, and decreases in non-recurring engineering services revenue related to our mmWave technology. Cost of Net Revenue and Gross Profit March 31, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) Cost of net revenue -three months ended $ 1,189 $ 1,510 $ (321 ) -21 % Percentage of total net revenue 31 % 54 % Cost of net revenue is primarily comprised of direct and indirect costs related to the sale of our products, including depreciation of production-related fixed assets and, prior to January 1, 2025, amortization of intangible assets. Cost of net revenue decreased for the three months ended March 31, 2025 when compared with the same period in 2024, primarily related to the decrease of amortization of developed technology intangible assets of approximately $0.6 million, as these assets were fully amortized as of December 31, 2024. The decrease was partially offset by an increase in cost of sales of our mmWave IC and module products attributable to increased shipments during the three months ended March 31, 2025 as compared with the prior year period. March 31, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) Gross profit -three months ended $ 2,680 $ 1,306 $ 1,374 105 % Percentage of total net revenue 69 % 46 % Gross profit increased for the three months ended March 31, 2025 compared with the same period of 2024 primarily due to an increase in sales of our mmWave IC and module products, partially offset by a decrease in royalty and other revenue and a decrease in sales of our memory IC products. During the three months ended March 31, 2025, we sold mmWave inventory with a value of approximately $94,000 that had been written down in prior periods. Research and Development March 31, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) Research and development -three months ended $ 1,583 $ 2,835 $ (1,252 ) (44 )% Percentage of total net revenue 41 % 101 % Our research and development, or R&D, expenses include costs related to the development of our products. We expense R&D costs as they are incurred. 24 The decrease for the three months ended March 31, 2025 compared with the same period of 2024 was primarily due to: i) reduced salary and consulting costs, as we implemented reductions in force in February and November 2023 and terminated consultant contracts, ii) reduced rent expense for our San Jose office as we significantly reduced the space we rent effective January 2025, and iii) reduced software license expense, as during the three months ended June 30, 2024, we accrued the value of certain of our software license obligations (see Note 4 to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q). We expect that total R&D expenses will decrease during 2025 compared with 2024, as a result of our cost reduction initiatives . Selling, General and Administrative March 31, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) SG&A -three months ended $ 1,611 $ 2,102 $ (491 ) (23 )% Percentage of total net revenue 42 % 75 % Selling, general and administrative, or SG&A, expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general management and amortization of certain intangible assets. The decrease for the three months ended March 31, 2025 compared with the same period of 2024 was primarily attributable to decreased consulting and professional services costs and decreased amortization of purchased intangible assets for customer relationships, which were fully amortized as of December 31, 2024. We expect that total SG&A expense will remain flat or slightly decrease for 2025 compared with 2024, as we continue to manage our SG&A costs. Liquidity and Capital Resources; Changes in Financial Condition Cash Flows As of March 31, 2025, we had cash and cash equivalents of $2.8 million and working capital of $3.0 million. Net cash used in operating activities was $1.0 million for the first three months of 2025, which primarily resulted from our net loss of $0.5 million, as adjusted for $0.7 million in net changes in assets and liabilities, as partially offset by non-cash charges of $0.1 million of depreciation and amortization and $0.1 million of stock based compensation. The changes in assets and liabilities primarily related to the timing of collections of receivables, purchases of inventory and other vendor payables and prepayments. Net cash used in operating activities was $2.6 million for the first three months of 2024, which primarily resulted from our net loss of $2.0 million, as adjusted for a $1.6 million non-cash gain on the change in fair value of warrant liability, $1.0 million in net changes in assets and liabilities and $0.2 million in other non-cash changes, as partially offset by non-cash charges of $1.0 million of depreciation and amortization and $1.2 million of stock based compensation. The changes in assets and liabilities primarily related to the timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments. For the three months ended March 31, 2025 and 2024, no cash was provided by or used in investing activities. Net cash provided by financing activities for the three months ended March 31, 2025 comprised $0.4 million of net proceeds from sales under our at-the market offering program, partially offset by repayment of financing lease liabilities. Net cash provided by financing activities for the three months ended March 31, 2024 comprised $3.4 million in net proceeds from a public offering of our common stock and common stock purchase warrants completed in February 2024, partially offset by repayment of financing lease liabilities. 25 Our future liquidity and capital requirements are expected to vary from quarter-to-quarter, depending on numerous factors, including: ● level of revenue; ● cost, timing and success of technology development efforts; ● inventory levels, as supply chain disruption during the COVID-19 pandemic required us to maintain higher inventory levels and place purchase orders with our suppliers longer into the future, which exposes us to additional inventory risk; ● timing of product shipments, which may be impacted by supply chain disruptions; ● length of billing and collection cycles, which may be impacted in the event of a global recession or economic downturn; ● variations in manufacturing yields, material lead time and costs and other manufacturing risks; ● costs of acquiring other businesses and integrating the acquired operations; and ● profitability of our business. Purchase Obligations Our primary purchase obligations include non-cancelable purchase orders for inventory. At March 31, 2025, we had outstanding non-cancelable purchase orders for inventory, primarily wafers and substrates, and related expenditures of approximately $2.9 million. Going Concern - Working Capital We incurred net losses of approximately $0.5 million for the three months ended March 31, 2025 and $10.7 million for the year ended December 31, 2024, and we had an accumulated deficit of approximately $177.6 million as of March 31, 2025. These and prior year losses have resulted in significant negative cash flows and have required us to raise substantial amounts of additional capital. To date, we have primarily financed our operations through loans, offerings of common stock and warrants and issuances of convertible notes. We expect to continue to incur operating losses during 2025, as we ceased shipments of our memory products in March 2025 and continue to secure new customers for and continue to invest in the development of our products. Further, we expect our cash expenditures to continue to exceed receipts for at least the next 12 months, as our revenues will not be sufficient to offset our operating expenses. We believe that our existing cash and cash equivalents as of March 31, 2025 will enable us to meet our capital needs into the third quarter of 2025. We will need to increase revenues beyond the 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 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 within one year from the date of issuance of our condensed consolidated financial statements. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2024, expressed substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements presented in Part I, Item 1 of this Quarterly Report on Form 10-Q have been prepared assuming that we will continue as a going concern, and do not include any adjustments that might result from the outcome of this uncertainty. 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. We are currently seeking additional financing in order to meet our cash requirements for the foreseeable future. If we are unsuccessful in these efforts, we will need to implement additional cost reduction strategies, which could further affect our near- and long-term business plan. These cost reduction strategies may include, but are not limited to, reducing headcount and curtailing business activities. As further discussed in Note 9 to the condensed consolidated financial statements, in November 2024, we entered into a warrant inducement offering for net proceeds of approximately $2.6 million. Additionally, as further discussed in Note 8 to the condensed consolidated financial statements, on August 30, 2024, we entered into the Sales Agreement with Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, shares of our common stock through Ladenburg as agent and/or principal (subject to the limitations of General Instruction I.B.6 of Form S-3) through an at-the-market program. During the three months ended March 31, 2025, the Company sold 328,966 shares of common stock for proceeds of approximately $433,000 (net of commissions of approximately $13,000 paid to Ladenburg) pursuant to the Sales Agreement. Further, during 2023 and 2024, we implemented reductions in our workforce and eliminated 19 full-time equivalent positions. These cost reduction actions were intended to preserve cash, as we kept capital expenditures to minimum levels in order to reduce operating costs and our short-term cash needs. 26 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 do any of these things could seriously harm our ability to execute our business strategy and may force us to curtail our existing operations. Off-Balance Sheet Arrangements We do not maintain any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity or capital resources. Indemnifications In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify the counter-party from losses relating to a breach of representations and warranties, a failure to perform certain covenants, or claims and losses arising from certain external events as outlined within the contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. We have also entered into indemnification agreements with our officers and directors. No material amounts related to these indemnifications are reflected in our condensed consolidated financial statements for the three months ended March 31, 2025. Recent Accounting Pronouncements See Note 1 to the condensed consolidated financial statements for a discussion of recently-issued accounting pronouncements.