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, or 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 $2.3 million for the six months ended June 30, 2025 and $10.7 million for the year ended December 31, 2024, and we had an accumulated deficit of approximately $179.4 million as of June 30, 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 Minimum Bid Price Requirement 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). On June 18, 2025, we received a notification letter from Nasdaq notifying us that we had regained compliance with the minimum bid price requirement. 24 Unsolicited, Non-binding Proposal from Mobix Labs, Inc.; Update on Strategic Review Process and Capital Strategy On June 27, 2025, we confirmed in a public press release the receipt of an unsolicited, non-binding proposal from Mobix Labs, Inc. (“Mobix”) to acquire all of the Company’s issued and outstanding equity securities in exchange for newly issued shares of Mobix common stock, with a fixed exchange ratio based on the average daily closing price of the Company’s common stock over the 30 calendar days ending on June 11, 2025, plus a 20% premium, or approximately $1.20 per share (the “Mobix Proposal”). On July 11, 2025, we announced that our board of directors (the “Board”) has authorized the exploration of strategic alternatives, including a merger, sale of assets or other similar transaction, all intended to maximize stockholder value and further our business operations. We retained Craig-Hallum Capital Group LLC as our financial advisor to assist with the exploration process. As part of this process, the Board is evaluating the Mobix Proposal. In addition, management is pursuing a wide variety of potential funding arrangements to address our short-term cash needs and provide the capital necessary to support our operations, while at the same time conserving cash by delaying or deferring certain expenditures. There can be no assurance that the exploration process will result in any strategic alternative, or as to its outcome or timing. Additionally, there can be no assurance that we will secure any financing arrangement or complete any capital transaction, that we will enter into negotiations with Mobix or any third party, that the Mobix Proposal or any strategic alternative will result in a formal offer, or that any such offer or alternative will ultimately lead to a completed transaction. 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 June 30, 2025, there have been no material changes to our significant accounting policies and estimates. 25 Results of Operations Net Revenue June 30, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) Product - three months ended $ 2,218 $ 4,109 $ (1,891 ) (46 )% Percentage of total net revenue 100 % 97 % Product - six months ended $ 6,018 $ 6,785 $ (767 ) (11 )% Percentage of total net revenue 99 % 96 % The following table details revenue by product category for the three and six months ended June 30, 2025 and 2024: (amounts in thousands) For the Three Months Ended June 30, Product category 2025 2024 change Memory ICs $ — $ 3,428 $ (3,428 ) mmWave ICs 1,318 127 1,191 mmWave modules 886 553 333 mmWave other products 14 1 13 $ 2,218 $ 4,109 $ (1,891 ) (amounts in thousands) Six Months Ended June 30, Product category 2025 2024 change Memory ICs $ 2,267 $ 5,811 $ (3,544 ) mmWave ICs 2,293 204 2,089 mmWave modules 1,444 757 687 mmWave other products 14 13 1 $ 6,018 $ 6,785 $ (767 ) Product revenue decreased for the three and six months ended June 30, 2025 compared with the same periods of 2024 primarily due to the decrease in our memory IC product shipments attributable to the completion of final EOL shipments in March 2025. The decrease was partially offset by an increase in shipments of our mmWave ICs and antenna modules. 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. June 30, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) Royalty and other - three months ended $ 2 $ 129 $ (127 ) (98 )% Percentage of total net revenue — 3 % Royalty and other - six months ended $ 71 $ 269 $ (198 ) (74) % Percentage of total net revenue 1 % 4 % Royalty and other revenue includes royalty, non-recurring engineering services and license revenues. The decrease in royalty and other revenue for the three and six months ended June 30, 2025 compared with the same periods 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. 26 Cost of Net Revenue and Gross Profit June 30, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) Cost of net revenue -three months ended $ 1,147 $ 1,887 $ (740 ) (39 )% Percentage of total net revenue 52 % 45 % Cost of net revenue -six months ended $ 2,336 $ 3,397 $ (1,061 ) (31 )% Percentage of total net revenue 38 % 48 % 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 June 30, 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 June 30, 2025 as compared with the prior year period. Cost of net revenue decreased for the six months ended June 30, 2025 when compared with the same period in 2024, primarily related to the decrease of amortization of developed technology intangible assets of approximately $1.1 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 six months ended June 30, 2025 as compared with the prior year period. June 30, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) Gross profit -three months ended $ 1,073 $ 2,351 $ (1,278 ) (54 )% Percentage of total net revenue 48 % 55 % Gross profit -six months ended $ 3,753 $ 3,657 $ 96 3 % Percentage of total net revenue 62 % 52 % Gross profit decreased for the three months ended June 30, 2025 compared with the same period of 2024 primarily due to decreases in product and royalty revenues, and product revenue mix, as we had no sales of our memory IC products during the three months ended June 30, 2025, which historically had higher profit margins than our mmWave IC and module products. During the three months ended June 30, 2025, we sold mmWave inventory with a cost of approximately $0.2 million that had been written down in prior periods. Gross profit increased for the six months ended June 30, 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 sales of our memory IC products and a decrease in royalty revenue. During the six months ended June 30, 2025, we sold mmWave inventory with a cost of approximately $0.3 million that had been written down in prior periods. 27 Research and Development June 30, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) Research and development -three months ended $ 1,662 $ 2,644 $ (982 ) (37 )% Percentage of total net revenue 75 % 62 % Research and development -six months ended $ 3,245 $ 5,457 $ (2,212 ) (41 )% Percentage of total net revenue 53 % 77 % 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. The decrease for the three and six months ended June 30, 2025 compared with the same periods 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 and six 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 June 30, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) SG&A-three months ended $ 1,411 $ 2,141 $ (730 ) (34 )% Percentage of total net revenue 64 % 51 % SG&A months ended $ 3,022 $ 4,243 $ (1,221 ) (29 )% Percentage of total net revenue 50 % 60 % 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 June 30, 2025 compared with the same period of 2024 was primarily attributable to reductions in expenses for facilities, stock based compensation and amortization of purchased intangible assets for customer relationships of approximately $0.3 million, which were fully amortized as of December 31, 2024. The decrease for the six months ended June 30, 2025 compared with the same period of 2024 was primarily attributable to reductions in expenses for facilities, stock based compensation and amortization of purchased intangible assets for customer relationships of approximately $0.5 million, which were fully amortized as of December 31, 2024. These decreases were partially offset by increases in consulting and professional services costs. We expect that total SG&A expense will remain flat or slightly decrease for the remainder of 2025 compared with 2024, as we continue to manage our SG&A costs. Severance and Software License Obligations June 30, Change 2025 2024 2024 to 2025 (dollar amounts in thousands) Severance and software license obligations -three months ended $ (223 ) $ 2,041 $ (2,264 ) (111 )% Percentage of total net revenue (10 )% 48 % Severance and software license obligations -six months ended $ (223 ) $ 2,063 $ (2,286 ) (111 )% Percentage of total net revenue (4 )% 29 % 28 In November 2023, we implemented an employee lay-off and terminated certain consulting positions (the “Reductions”) to reduce operating expenses and cash burn, as we prioritized business activities and projects that we believe will have a higher return on investment. As part of the Reductions, we implemented a temporary lay-off that impacted 16 employees (the “Employees”) of Peraso Tech. During the six months ended June 30, 2024, we determined that we would not recall any of the 11 Employees that remained on our payroll and commenced notifying the remaining Employees that their employment would be terminated. As a result, we recorded severance charges of approximately $0.4 million for each of the three and six months ended June 30, 2024. The remaining severance liabilities of approximately $10,000 as of June 30, 2025 were paid in July 2025. As a result of the decision to not recall the Employees, we determined that it was probable that a number of our non-cancelable licenses for computer-aided design software would not be utilized during the remaining license terms. During the three months ended June 30, 2024, we expensed the value of the remaining contractual liabilities and recorded liabilities of approximately $1.6 million. During the three months ended June 30, 2025, a licensor terminated one of the license agreements and initiated a refund of approximately $56,300 for amounts previously paid by us. As a result, we reversed approximately $222,600 of expense and approximately $166,300 of the related contractual liabilities for this licensor during the three months ended June 30, 2025. As of June 30, 2025, the remaining contractual liabilities of approximately $0.2 million and $0.2 million were included in accrued expenses and other (see Note 3 to the condensed consolidated financial statements) and accounts payable, respectively, which are expected to be paid by September 30, 2025. Liquidity and Capital Resources; Changes in Financial Condition Cash Flows As of June 30, 2025, we had cash and cash equivalents of $1.8 million and working capital of $2.4 million. Net cash used in operating activities was $3.0 million for the first six months of 2025, which primarily resulted from our net loss of $2.3 million, as adjusted for $1.1 million in net changes in assets and liabilities, as partially offset by non-cash charges of $0.1 million of depreciation and amortization and $0.3 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 $3.2 million for the first six months of 2024, which primarily resulted from our net loss of $6.5 million, as adjusted for a $1.6 million non-cash gain on the change in fair value of warrant liability, as partially offset by non-cash charges of $2.0 million of depreciation and amortization, $2.4 million of stock based compensation and $0.5 million in net changes in assets and liabilities. The changes in assets and liabilities primarily related to the timing of accounts receivable collections, accruals for software license obligations, accrued severance benefits and other vendor payables and prepayments. Net cash used in investing activities was approximately $45,000 for the first six months of 2025, which was attributable to the purchase of fixed assets. For the six months ended June 30, 2024, no cash was provided by or used in investing activities. Net cash provided by financing activities for the six months ended June 30, 2025 comprised $1.5 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 of $3.5 million for the six months ended June 30, 2024 primarily comprised $3.4 million in net proceeds from a public offering of our common stock and common stock purchase warrants completed in February 2024 and a $0.1 million sale of unregistered common stock to a member of our board of directors. 29 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 June 30, 2025, we had outstanding non-cancelable purchase orders for inventory, primarily wafers and substrates, and related expenditures of approximately $3.1 million. Going Concern - Working Capital We incurred net losses of approximately $2.3 million for the six months ended June 30, 2025 and $10.7 million for the year ended December 31, 2024, and we had an accumulated deficit of approximately $179.4 million as of June 30, 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. In addition, we may incur substantial costs related to the Mobix Proposal and our strategic alternative exploration process, which costs may include the fees of our financial and legal advisors. We believe that our existing cash and cash equivalents as of June 30, 2025 will enable us to meet our capital needs into the fourth 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. 30 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 six months ended June 30, 2025, we sold 1,270,158 shares of common stock for proceeds of approximately $1,512,000 (net of commissions of approximately $47,000 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. 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 and six months ended June 30, 2025. 31 Recent Accounting Pronouncements See Note 1 to the condensed consolidated financial statements for a discussion of recently-issued accounting pronouncements.