What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-13 · 91 added, 57 removed, 105 unchanged (58% of the section changed)

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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 report.

This 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 strategy, competition, expected financial performance and capital raising effort., the impacts of COVID-19 on our business, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2022 and in other reports that we file from time to time with the Securities and Exchange Commission.

This 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 strategy, competition, expected financial performance and capital raising effort., the impacts of COVID-19 on our business, the effects of the Russia/Ukraine conflict, and inflation, which could cause customers to delay or reduce purchases of our products or delay payments to us, which would adversely affect our financial results, including cash flows, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2022 and in other reports that we file from time to time with the Securities and Exchange Commission.

Any statements about our business, financial results, financial condition and operations contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements.

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For accounting purposes, the legal subsidiary, Peraso Tech, has been treated as the accounting acquirer and we, the legal parent, have been treated as the accounting acquiree.

The transaction has been accounted for as a reverse acquisition in accordance with Accounting Standards Codification (ASC) No.

805, Business Combinations (ASC 805).

The transaction has been accounted for as a reverse acquisition in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) No.

805, Business Combinations .

Accordingly, the financial condition and results of operations discussed herein are a continuation of Peraso Tech’s financial results prior to December 17, 2021 and exclude the financial results of us prior to December 17, 2021.

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A differentiating characteristic of mmWave technology is that the radio frequency amplifiers must be as close as possible to the antenna to minimize loss, and, by providing a module, we can guarantee the performance of the amplifier/antenna interface.

We also acquired a memory product line, marketed under the Accelerator Engine name and that comprises our Bandwidth Engine and Programmable HyperSpeed Engine IC products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance.

As we are not developing new memory products, from a product development perspective, we continue to leverage our current technologies and core competencies to expand our product offerings without incurring significant additional research and development (R&D) expenses.

We incurred net losses of approximately $ 6.8 million for the three months ended March 3 1 , 202 2 and $ 10.8 million for the year ended December 3 1 , 20 2 1 and had an accumulated deficit of approximately $ 124.0 million as of March 3 1 , 20 2 2 .

We also acquired a memory product line, marketed under the Accelerator Engine name, which includes our Bandwidth Engine IC products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient, serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance.

As we are not developing new memory products, from a product development

perspective, we continue to leverage our current technologies and core competencies to expand our product offerings without incurring significant additional research and development ( R&D ) expenses.

We incurred net losses of approximately $13.8 million for the six months ended June 30, 2022 and $10.9 million for the year ended December 31, 2021 and had an accumulated deficit of approximately $124.0 million as of June 30, 2022.

These and prior year losses have resulted in significant negative cash flows and have required us to raise substantial amounts of additional capital during this period.

We expect to incur operating losses and 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.

COVID-19 and Macroeconomic Factors

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S.

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We have implemented a teleworking policy for our employees and contractors to reduce on-site activity.

We remain diligent in continuing to identify and manage risks to our business given the changing uncertainties related to COVID-19.

The ultimate impact of the COVID-19 pandemic on our business and results of operations is uncertain and difficult to predict, and we are closely monitoring impacts, especially to customer programs and our supply chain.

We have and continue to experience longer lead times for certain components used to manufacture our products.

We believe that as the COVID-19 pandemic evolves, the direct and indirect impacts of the pandemic on global macroeconomic conditions, as well as conditions specific to us, are becoming more difficult to isolate or quantify.

In addition, these direct and indirect factors can make it difficult to isolate and quantify the portion of our costs that are a direct result of the pandemic and costs arising from factors that may have been influenced by the pandemic, such as supply chain constraints, rising inflation, and recessionary fears.

We expect these factors and their effects on our operations may persist for a longer period, even after the COVID-19 pandemic has subsided.

We continue to closely monitor impacts, especially to customer programs and our supply chain.

We are working internally and with suppliers on programs (i.e., new production flows, etc.) to allow us to increase our peak throughput to better handle unplanned disruptions to our supply chain.

To date, we have not experienced a material impact on our cash flows, liquidity, capital resources, cash requirements, financial position, or results of operations, attributable to the global semiconductor supply chain disruption and inflation.

We have experienced increased prices from our suppliers, and, for certain products, we have increased prices to our customers to mitigate the impacts, although to date in 2022 the impacts of these price increases have been minimal.

We have and continue to experience longer lead times for certain components used to manufacture our products, and, therefore, and, in response, we have identified second and third sources for certain components used in our module products.

Also, we have increased lead times for our customers.

We have not experienced any issues over our product quality and product development activities, as we do not rely significantly on outside vendors to manage and perform these activities for us.

We currently have not identified any current impacts of the supply chain disruption and inflation that will affect our future results, and it is difficult to differentiate whether higher prices are due to supply chain disruption, inflation or a mix of both.

While we believe that our operations personnel are currently in a position to meet expected customer demand levels in the coming quarters, we recognize that unpredictable events could create difficulties in the months ahead.

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The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets.

Our ability to raise additional capital to support operations in the future may be impacted, and 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 .

The Russian invasion of Ukraine in February 2022 has led to further economic disruptions.

Mounting inflationary cost pressures and recessionary fears have negatively impacted the global economy.

Federal Reserve increased interest rates starting in March 2022 and additional increases are expected throughout the year.

Given current market conditions, 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, please refer to “Risk Factors” in Part II, Item 1A.

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We may record an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale.

License and other

Royalty and other

Our licensing contracts typically provide for royalties based on the licensee’s use of our memory technology in its currently shipping commercial products.

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Payments are received in the subsequent quarter.

We also generate revenue from licensing

our technology.

We recognize l icense fee s as revenue at the point of time when the control of the license has been transferred and we ha ve no continuing performance obligations to the customer.

We also generate revenue from licensing our technology.

We recognize license fees as revenue at the point of time when the control of the license has been transferred and we have no continuing performance obligations to the customer.

Engineering services revenue

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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 GAAP.

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.

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Our significant accounting policies and estimates are disclosed in Note 1 of the “Notes to Consolidated Financial Statements” in our annual report on Form 10-K for the year ended December 31, 2021.

As of March 31, 2022, there have been no material changes to our significant accounting policies and estimates.

As of June 30, 2022, there have been no material changes to our significant accounting policies and estimates.

Reclassifications

We previously classified intangible asset amortization expense related to the developed technology and customer relationships intangibles within research and development expenses (R&D) in our condensed consolidated statements of operations and comprehensive loss.

Amortization expense on the developed technology intangible asset is now classified within cost of net revenue, and amortization expense on customer relationships is now classified in selling, general and administrative expenses (SG&A).

Prior period amounts have been conformed to the current period presentation.

See Note 5 to the condensed consolidated financial statements for a discussion of the reclassifications.

Results of Operations

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Percentage of total net revenue

Product revenue increased for the three months ended March 31, 2022 compared with the same period of 2021 primarily due to a full quarter contribution of revenues from our memory IC products and increased shipments of our mmWave module products.

We commenced selling our module products in the second quarter of 2021.

We expect revenues to increase in 2022, as we expect increased sales of our mmWave products and full-year contribution of revenues from our memory products.

Product -six months ended

Percentage of total net revenue

Product revenue increased for the three months ended June 30, 2022 compared with the same period of 2021 primarily due to a $1.9 million increase in revenues attributable to our memory IC products.

Our results for the prior year period included no memory product sales, as we completed our business combination in December 2021.

In addition, shipments of our mmWave module products increased by $1.5 million over the prior year period, as we commenced selling module products in the second half of 2021.

Product revenue increased for the six months ended June 30, 2022 compared with the same period of 2021 primarily due to a $3.8 million increase in revenues attributable to our memory IC products.

Shipments of our mmWave module products increased by $2.3 million.

These increases were partially offset by decreases in sales of our mmWave IC products.

We expect revenues to increase for the remainder of 2022, as we expect increased sales of our mmWave products, including the benefits of price increases implemented in 2022, and will experience a full-year contribution of revenues from our memory products.

(dollar amounts in thousands)

License and other -three months ended

Royalty and other -three months ended

Percentage of total net revenue

License and other includes royalty, non-recurring engineering (NRE), services and licenses revenues.

The increase in license and other revenue for the three months ended March 31, 2022 compared with the same period of 2021 was primarily due to a full quarter contribution of royalty revenues from licensees of our memory technology.

Royalty and other -six months ended

Percentage of total net revenue

Royalty and other includes royalty, non-recurring engineering, services and licenses revenues.

The increase in royalty and other revenue for the three and six months ended June 30, 2022 compared with the same period of 2021 was primarily due to a full six-month contribution of royalty revenues from licensees of our memory technology.

Cost of Net Revenue and Gross Profit

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Percentage of total net revenue

Cost of net revenue -six months ended

Percentage of total net revenue

(dollar amounts in thousands)

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Percentage of total net revenue

Cost of net revenue is primarily comprised of direct and indirect costs related to the sale of our products.

Cost of net revenue increased for the three months ended March 31, 2022 when compared with the same period in 2021, primarily due to increased shipment volumes of our LineSpeed and Bandwidth Engine IC and mmWave module products.

Gross profit -six months ended

Percentage of total net revenue

Cost of net revenue is primarily comprised of direct and indirect costs related to the sale of our products, including amortization of intangible assets and depreciation of production-related fixed assets.

Cost of net revenue in creased for the three and six months ended June 30 , 20 2 2 when compared with the same period in 202 1 , primarily due to in creased shipment volumes of our LineSpeed and Bandwidth Engine IC and mmWave module products .

Our module products have higher cost of goods sold per unit and generate lower gross profit margin than our IC products .

Gross profit decreased for the three months ended March 31, 2022 compared with the same period of 2021 due to the increased product shipments.

Gross profit increased for the three and six months ended June 30, 2022 compared with the same period of 2021 due to the increased product shipments.

The decrease in our gross profit margin for the three and six months ended June 30, 2022 compared with the prior year periods was primarily attributable to the increased volume shipments of our mmWave modules, which carry lower gross margins than our IC products.

Research and Development

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Percentage of total net revenue

Research and development -six months ended

Percentage of total net revenue

Our R&D expenses include costs related to the development of our products.

We expense R&D costs as they are incurred.

The increase for the three months ended March 31, 2022 compared with the same period of 2021 was primarily due to the inclusion of a full quarter of expenses related to the former operations of MoSys, amortization of intangible assets in the first quarter of 2022 and recognition of government wage and rent subsidies in the first quarter of 2021 that reduced operating expenses.

We expect that total research and development expenses will increase in 2022 compared with 2021, as we will include the operations of MoSys and increase development of our mmWave products and technologies.

In addition, we do not expect to receive any government subsidies in 2022 that would reduce our expenses.

The increase for the three and six months ended June 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of a full six months of expenses related to the former operations of MoSys, amortization of intangible assets in the first six months of 2022 and recognition of government wage and rent subsidies in the first quarter of 2021 that reduced operating expenses.

We expect that total research and development expenses will increase in 2022 compared with 2021, as we will include the operations related to our memory products and increase development of our mmWave products and technologies, including our new 5G products.

In addition, we do not expect to receive any government subsidies in 2022 to reduce our expenses.

Selling, General and Administrative

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Percentage of total net revenue

Selling, general and administrative (SG&A), expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general management.

SG&A -six months ended

Percentage of total net revenue

SG&A expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general management and amortization of intangible assets.

The increase for the three and six months ended June 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of a full quarter of expenses related to our memory product line.

Interest expense

Interest expense incurred during the quarter ended March 31, 2021 related to our loans payable, which were repaid during 2021.

Interest expense incurred during the six months ended June 30, 2021 related to our convertible debt and loans payable, which were repaid and/or converted into equity during 2021.

Liquidity and Capital Resources;

Changes in Financial Condition

As of March 31, 2022, we had cash, cash equivalents and investments of $12.2 million and working capital of $13.7 million.

We believe that cash generated from our liquidity sources will be sufficient to meet both our short-term and long-term working capital and capital expenditure needs for at least the next twelve months.

Net cash used in operating activities was $5.7 million for the first three months of 2022, which primarily resulted from our net loss of $6.8 million and $1.0 million in net changes in assets and liabilities, partially offset by non-cash charges of $0.8 million of depreciation and amortization, $1.2 million of stock based compensation and a $0.1 million

loss o n disposal of property and equipment .

As of June 30, 2022, we had cash, cash equivalents and investments of $6.0 million and working capital of $9.9 million.

Net cash used in operating activities was $11.6 million for the first six months of 2022, which primarily resulted from our net loss of $13.8 million and $2.4 million in net changes in assets and liabilities, partially offset by non-cash charges of $1.5 million of depreciation and amortization, $2.9 million of stock based compensation and a $0.2 million other non-cash items.

The changes in assets and liabilities primarily related to the timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments.

Net cash used in operating activities was $1.3 million for the first three months of 2021, which primarily resulted from our net loss of $4.2 million, which was partially offset by $0.9 million in net changes in assets and liabilities and non-cash charges of $1.2 million of stock-based compensation, $0.3 million of depreciation and amortization expenses, $0.3 million amortization of debt discount and $0.2 million of accrued interest.

Net cash used in operating activities was $5.7 million for the first six months of 2021, which primarily resulted from our net loss of $9.6 million and $0.5 million in net changes in assets and liabilities, which was offset by non-cash charges of $2.3 million of stock-based compensation, $0.5 million of depreciation and amortization expenses, $0.9 million amortization of debt discount, $0.4 million of accrued interest and a $0.3 million other non-cash items.

The changes in assets and liabilities primarily related to the timing of accounts receivable collections and other vendor payables and prepayments.

Net cash provided by investing activities of $3.6 million for the three months ended March 31, 2022 represented $4.2 million in proceeds from maturities of short-term investments, partially offset by $0.5 million purchases of short and long-term investments and $0.1 million of purchases of property and equipment.

Net cash used in investing activities for the three months ended March 31, 2021 represented approximately $9,000 of purchases of property and equipment.

Net cash used in financing activities for the three months ended March 31, 2022 consisted of taxes paid to net share settle equity awards.

Net cash provided by financing activities for the three months ended March 31, 2021 consisted of net proceeds received from an unsecured loan.

Net cash provided by investing activities of $8.6 million for the six months ended June 30, 2022 represented $9.4 million in proceeds from maturities of short-term investments, partially offset by $0.5 million purchases of short and long-term investments and $0.3 million of purchases of property and equipment.

Net cash used in investing activities for the six months ended June 30, 2021 represented approximately $52,000 of purchases of property and equipment and $95,000 of intangible assets.

Net cash used in financing activities for the six months ended June 30, 2022 consisted of taxes paid to net share settle equity awards.

Net cash provided by financing activities for the six months ended June 30, 2021 consisted of net proceeds received from an unsecured loan.

Our future liquidity and capital requirements are expected to vary from quarter-to-quarter, depending on numerous factors, including:

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cost, timing and success of technology development efforts;

inventory levels, timing of product shipments and length of billing and collection cycles;

inventory levels, as supply chain disruption has 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;

fabrication costs, including mask costs, of our ICs, currently under development;

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profitability of our business.

Working Capital

Our primary need for liquidity is to fund working capital requirements of our businesses, capital expenditures and for general corporate purposes.

We expect our cash expenditures to exceed receipts in 2022, as we do not expect our revenues will be sufficient to offset our working capital requirements.

We incurred a net loss of approximately $6.8 million for the three months ended March 31, 2022 and had an accumulated deficit of approximately $124.0 million as of March 31, 2022.

These and prior year losses have resulted in significant negative cash flows and have required us to raise substantial amounts of additional capital during this period.

To date, we have primarily financed our operations through multiple equity offerings, issuances of convertible debentures, utilization of loan facilities and government subsidies and credits.

However, there can be no assurance that our capital is sufficient to fund operations until such time as we begin to achieve positive cash flows.

We have an effective shelf registration statement under which we could sell additional securities without advance notice.

We may need to raise additional capital, but there can be no assurance that such funding will be available to us on favorable terms, if at all.

The failure to raise capital when needed could have a material adverse effect on our business and financial condition.

We may not be able to obtain additional financing as needed on acceptable terms, or at all, which may require us to reduce our operating costs and other expenditures, including reductions of personnel, salaries and capital expenditures.

Alternatively, or in addition to such potential measures, we may elect to implement additional cost reduction actions as we may determine are necessary and in our best interests.

Any such actions undertaken might limit our opportunities to realize plans for revenue growth and we might not be able to reduce our costs in amounts sufficient to achieve break-even or profitable operations.

Going Concern - Working Capital

We incurred net losses of approximately $13.8 million for the six months ended June 30, 2022 and $10.8 million for the year ended December 31, 2021 and had an accumulated deficit of approximately $131.0 million as of June 30, 2022.

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 multiple offerings of common stock and issuance of convertible notes and loans to investors and affiliates.

We expect to continue to incur operating losses for the foreseeable future as we continue to secure new customers for and continue to invest in the development of our products, and we expect our cash expenditures to continue to exceed receipts for the foreseeable future, as our revenues will not be sufficient to offset our operating expenses.

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 within one year from the date of issuance of these condensed consolidated financial statements.

The condensed consolidated financial statements presented in Item 1 of this Report 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 the Company is unsuccessful in these efforts, it will need to implement cost reduction strategies, which could further affect its near- and long-term business plan.

These efforts may include, but are not limited to, reducing headcount and curtailing business activities.

As further discussed in Note 11 to the condensed consolidated financial statements, in August 2022, we entered into an exclusive technology license and patent assignment agreement with Intel Corporation, which is expected to generate gross proceeds to us of $3.5 million over the next six months and result in a reduction of operating expenses of approximately $2.7 million on annual basis.

If we were to raise additional capital through sales of our equity securities, our stockholders would suffer dilution of their equity ownership.

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develop or enhance our products;

expand our product development and sales and marketing organizations;

continue to expand our product development and sales and marketing organizations;

acquire complementary technologies, products or businesses;

expand operations;

expand operations, in the United States or internationally;

hire, train and retain employees;

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 or R&D plans.

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis