What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-15 · 89 added, 42 removed, 154 unchanged (46% of the section changed)

25 unchanged sentences

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, 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.

We also have 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 $16.6 million for the nine months ended September 30, 2022 and $10.9 million for the year ended December 31, 2021, and we had an accumulated deficit of approximately $133.8 million as of September 30, 2022.

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

We expect to continue 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

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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.

During the third quarter of 2022, the U.S.

Federal Reserve continued to aggressively address elevated inflation by increasing interest rates.

Federal Reserve increased interest rates by 75 basis points in each of its meetings held in July, September and November 2022, with an additional increase forecasted for December 2022 as inflation remains elevated.

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.

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

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

Reclassifications

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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.

See Notes 1 and 5 to the condensed consolidated financial statements for a discussion of the reclassifications.

Results of Operations

September 30,

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

Product -six months ended

Product -nine 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.

The following table details revenue by product category for the three and nine months ended September 30, 2022 (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

Product category

mmWave modules

mmWave other products

Product revenue increased for the three months ended September 30, 2022 compared with the same period of 2021 primarily due to the increase in the memory IC sales volumes due to the acquisition of this product line in December 2021 and the increase of the mmWave module sales volumes due to the roll-out of this product line in August 2021.

As discussed elsewhere in this Report, for reverse-acquisition accounting purposes, Peraso Tech, was treated as the accounting acquirer, and MoSys was treated as the accounting acquiree.

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

The increase in memory IC sales volumes, which was due to the acquisition of this product line, resulted in a $1.7 million increase to revenue for the three months ended September 30, 2022, as compared to the prior year due to a 100% increase in sales volumes in 2022.

Additionally, we began selling our mmWave module products during the second half of 2021, representing a 119% increase in sales volumes and an additional $0.5 million in revenue for the three months ended September 30, 2022.

We have initiated price increases on certain of our module products in 2022.

However, through September 30, 2022, we had not realized any material increase in revenue as a result of those price increases.

Product revenue increased for the nine months ended September 30, 2022 compared with the same period of 2021 primarily due to increase in the memory IC sales volumes due to the acquisition of this product line in December 2021 and the increase of mmWave module sales volumes due to the roll-out of this new product line in the second half of 2021.

The increase in memory IC sales volumes resulted in a $5.5 million increase in revenues for the nine months ended September 30, 2022 as compared to prior year due to a 100% increase in sales volumes.

Additionally, we began selling our mmWave module products during the second half of 2021 and realized a 100% increase in sales volumes in 2022, which contributed $2.8 million of increased revenue for the nine months ended September 30, 2022.

We initiated price increases on certain of our module products in 2022.

However, through September 30, 2022, we had not realized any material increase in revenue as a result of those price increases.

These revenue increases were partially offset by a decrease of $1.0 million in sales of our mmWave IC products due to a 39% reduction in volumes shipped during the nine months ended September 30, 2022, compared with the same period in 2021.

Although, stand-alone mmWave IC volumes decreased, shipments of our mmWave modules that include the mmWave ICs have increased, and each module we ship includes our mmWave ICs.

We began shipping modules, which include our mmWave IC in a chipset with an antenna, as it provides an integrated solution that we believe can shorten our revenue cycle by enabling our customers to accelerate time to production.

In addition, we generate higher revenue from the sale of modules compared to sales of stand-alone ICs.

Going forward, we expect sales of our mmWave ICs on a stand-alone basis to decline as a percentage of total product revenue, as we expect sales of our modules to be our primary source of revenue growth .

We expect revenues to increase for the remainder of 2022 and in 2023, 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.

We expect sales of our memory products to increase from a volume and revenue perspective over the next 12 months.

However, our memory products have been in production since 2014, and, given that we have not developed new products, the long-term outlook for these products is uncertain.

We have implemented modest price increases on our memory products that we expect to begin taking effect in the first half of 2023, and we expect these price increases to contribute to revenue growth in 2023.

We expect sales of our mmWave modules to increase from a volume and revenue perspective over the next 12 months, as our primary sales focus is on obtaining new module customers.

Our lead module customer has provided purchase orders and forecasts, which support our expected increases in volume and revenue from module shipments.

In addition, we expect meaningful contribution in 2023 from price increases that we implemented in 2022 on our module products .

September 30,

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

Royalty and other -six months ended

Royalty and other -nine 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.

The decrease in royalty and other revenue for the three and nine months ended September 30, 2022 compared with the same period of 2021 was primarily due to a decrease in non-recurring engineering services revenue related to our mmWave technology, partially offset by full three and nine-month contributions of royalty revenues from licensees of our memory technology.

As the reverse acquisition occurred on December 17, 2021, the results of operations for the three and nine months ended September 30, 2021 exclude all royalty revenue from licensing of memory technology.

Cost of Net Revenue and Gross Profit

September 30,

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

Cost of net revenue -six months ended

Cost of net revenue -nine months ended

Percentage of total net revenue

September 30,

(dollar amounts in thousands)

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Percentage of total net revenue

Gross profit -six months ended

Gross profit -nine 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 .

Cost of net revenue increased for the three and nine months ended September 30, 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.

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

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.

Gross profit increased for the three and nine months ended September 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 nine months ended September 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

September 30,

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

Research and development -six months ended

Research and development -nine months ended

Percentage of total net revenue

1 unchanged sentence

We expense R&D costs as they are incurred.

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.

The increase for the three months ended September 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of a full three months of expenses of $0.9 million related to the former operations of MoSys, amortization of acquired intangible assets from the reverse acquisition of $0.5 million, which closed on December 17, 2021, for the three and nine months ended September 30, 2022 and recognition of $0.5 million of Canadian government refundable tax credits and wage and rent subsidies during the first nine months of 2021 that reduced operating expenses.

The increase for the nine months ended September 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of a full nine months of expenses of $3.8 million related to the former operations of MoSys, amortization of acquired intangible assets from the reverse acquisition of $1.5 million, which closed on December 17, 2021, and recognition of $1.8 million of Canadian government refundable tax credits and wage and rent subsidies during the first nine months of 2021 that reduced operating expenses.

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

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

Selling, General and Administrative

September 30,

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

SG&A -six months ended

SG&A -nine 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.

The increase for the three months ended September 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of $1.4 million of expense, which represented the inclusion of a full three months of expenses related to related to the former operations of MoSys, as a result of the reverse acquisition that closed in December 2021.

The increases were partially offset by a $0.5 million decrease in costs incurred during the three months ended September 30, 2021 related to the reverse acquisition.

The increase for the three and nine months ended September 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of $4.2 million of expense, which represented the inclusion of a full nine months of expenses related to related to the former operations of MoSys, and recognition of Canadian government wage and rent subsidies during the first nine months of 2021 that reduced operating expenses.

The increases were partially offset by a $1.1 million decrease in costs incurred during the nine months ended September 30, 2021 related to the reverse acquisition.

We expect that total SG&A expenses will increase in 2022 compared with 2021, as we will include the operations related to MoSys, and, in addition, we do not expect to receive any Canadian government subsidies in 2022 that would reduce our R&D expenses.

Interest expense

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.

Interest expense incurred during the nine months ended September 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 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.

As of September 30, 2022, we had cash, cash equivalents and investments of $3.9 million and working capital of $9.0 million.

Net cash used in operating activities was $13.4 million for the first nine months of 2022, which primarily resulted from our net loss of $17.8 million and $3.1 million in net changes in assets and liabilities, partially offset by non-cash charges of $2.3 million of depreciation and amortization, $4.4 million of stock based compensation, $0.7 million of allowance for doubtful accounts and $0.1 million for 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 $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.

Net cash used in operating activities was $7.1 million for the first nine months of 2021, which primarily resulted from our net loss of $13.4 million and a $0.1 million other non-cash items, which was offset by non-cash charges of $3.5 million of stock-based compensation, $0.8 million of depreciation and amortization expenses, $1.5 million amortization of debt discount, and $0.6 million of accrued interest.

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 $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.

Net cash provided by investing activities of $10.4 million for the nine months ended September 30, 2022 represented $11.5 million in proceeds from maturities of short-term investments, partially offset by $0.5 million purchases of short and long-term investments and $0.6 million of purchases of property and equipment.

Net cash used in investing activities for the nine months ended September 30, 2021 represented approximately $57,000 of purchases of property and equipment and $95,000 of intangible assets.

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

Net cash provided by financing activities for the nine months ended September 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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profitability of our business.

As of September 30, 2022, we had outstanding accounts receivable of $1.6 million, which included $0.7 million collectible from WeLink Communications LLC (WeLink), a customer that represented 28% of our revenue for the nine months ended September 30, 2022.

During the three months ended September 30, 2022, we had $1.1 million of product shipments to WeLink for which the revenue recognition criteria under ASC 606 had not been met.

Accordingly, we deferred the cost of net revenue of $0.6 million associated with these shipments, and the amount deferred has been presented as deferred cost of net revenue in our condensed consolidated balance sheets.

Historically, we have collected all amounts due from WeLink, although generally not within contractual payment terms.

As of September 30, 2022, we determined that an allowance for doubtful accounts of $0.7 million was warranted on the outstanding receivables from WeLink due to the delays in collecting from WeLink.

The longer collection times have negatively impacted our liquidity and working capital.

No assurances can be given that we will be able to collect the receivables from WeLink in a timely manner, if at all.

Recognition of additional bad debt expense, further delays in collecting accounts receivable or our inability to recognize the deferred cost of net revenues could have a material adverse effect on our financial condition, cash flows and results of 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.

We incurred net losses of approximately $17.8 million for the nine months ended September 30, 2022 and $10.9 million for the year ended December 31, 2021, and we had an accumulated deficit of approximately $135.0 million as of September 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.

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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.

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.

1 million in August 2022 and expect to collect $0.4 million by early 2023.

We expect this transaction to 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.

11 unchanged sentences

Recent Accounting Pronouncements

See Note 1 to the condensed consolidated financial statements for a discussion of recent accounting policies.

See Note 1 to the condensed consolidated financial statements for a discussion of recently-issued accounting pronouncements.

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