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 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, 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. 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 Item 1A of our annual report on Form 10-K for the year ended December 31, 2021 and the risk factors described below under Item 1A of this 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 We were formerly known as MoSys, Inc. (MoSys) and were incorporated in California in 1991 and reincorporated in Delaware in 2000. On September 14, 2021, we and our subsidiaries, 2864552 Ontario Inc. and 2864555 Ontario Inc., entered into an Arrangement Agreement (the Arrangement Agreement) with Peraso Technologies Inc. (Peraso Tech), a corporation existing under the laws of the province of Ontario, to acquire all of the issued and outstanding common shares of Peraso Tech (the Peraso Shares), including those Peraso Shares to be issued in connection with the conversion or exchange of secured convertible debentures and common share purchase warrants of Peraso Tech, as applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business Corporations Act (Ontario). On December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed and the Company changed its name to “Peraso Inc.” and began trading on the Nasdaq Stock Market under the symbol “PRSO.” 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 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. See Note 2 to the condensed consolidated financial statements for additional disclosure . Our strategy and primary business objective is to be a profitable, IP-rich, fabless semiconductor company offering integrated circuits (ICs), modules and related non-recurring engineering services. We specialize in the development of mmWave semiconductors, primarily in the 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 modules based on using those mmWave semiconductor devices. We have pioneered a high-volume mmWave 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 operational challenges of delivering mmWave products into high-volume markets. During 2021, we augmented our business model and began selling complete mmWave modules. The primary advantage provided by a module is the silicon and the antenna are integrated into a single device. 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 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. 26 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. government in March 2020. This has negatively affected the U.S. and global economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets. The full extent of the COVID-19 impact on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. and foreign government agencies to prevent disease spread, all of which are uncertain, out of our control, and cannot be predicted. Since March 2020, certain jurisdictions in which we operate have issued ’shelter-in-place” orders. We have complied with these orders and, when such orders were in place, minimized business activities at our facilities. We have implemented a teleworking policy for our employees and contractors to reduce on-site activity. 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. We may not be able to address these difficulties in a timely manner, which could negatively impact our business, results of operations, financial condition and cash flows. The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets. 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. During the third quarter of 2022, the U.S. Federal Reserve continued to aggressively address elevated inflation by increasing interest rates. The U.S. 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. For additional information on risks that could impact our future results, please refer to “Risk Factors” in Part II, Item 1A. of this quarterly report on Form 10-Q. Sources of Revenue Product revenue Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of our contracts have a single performance obligation to transfer products. Accordingly, we recognize revenue when title and risk of loss have been transferred to the customer, generally at the time of shipment of products. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price. We sell our products both directly to customers and through distributors generally under agreements with payment terms typically 60 days or less. 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. 27 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. We estimate its royalty revenue in the calendar quarter in which the licensee uses the licensed technology. Payments are received in the subsequent quarter. 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 Engineering and development contracts with customers generally contain a single performance obligation that is delivered over time. Revenue is recognized using an output method that is consistent with the satisfaction of the performance obligation as a measure of progress. 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 Consolidated Financial Statements” in our annual report on Form 10-K for the year ended December 31, 2021. As of September 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 Notes 1 and 5 to the condensed consolidated financial statements for a discussion of the reclassifications. Results of Operations Net Revenue September 30, Change 2022 2021 2021 to 2022 (dollar amounts in thousands) Product -three months ended $ 3,060 $ 1,389 $ 1,671 120 % Percentage of total net revenue 93 % 69 % Product -nine months ended $ 10,384 $ 3,016 $ 7,368 244 % Percentage of total net revenue 95 % 79 % 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 2022 2021 change 2022 2021 change Memory ICs $ 1,748 $ — $ 1,748 $ 5,528 $ — $ 5,528 mmWave ICs 533 1,033 (500 ) 1,699 2,651 (952 ) mmWave modules 779 292 487 3,139 292 2,847 mmWave other products — 64 (64 ) 18 73 (55 ) $ 3,060 $ 1,389 $ 1,671 $ 10,384 $ 3,016 $ 7,368 28 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, Change 2022 2021 2021 to 2022 (dollar amounts in thousands) Royalty and other -three months ended $ 234 $ 629 $ (395 ) (63 )% Percentage of total net revenue 7 % 31 % Royalty and other -nine months ended $ 597 $ 800 $ (203 ) (25 )% Percentage of total net revenue 5 % 21 % Royalty and other includes royalty, non-recurring engineering, services and licenses revenues. 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. 29 Cost of Net Revenue and Gross Profit September 30, Change 2022 2021 2021 to 2022 (dollar amounts in thousands) Cost of net revenue -three months ended $ 2,000 $ 919 $ 1,081 118 % Percentage of total net revenue 61 % 46 % Cost of net revenue -nine months ended $ 6,747 $ 1,973 $ 4,774 242 % Percentage of total net revenue 61 % 52 % September 30, Change 2022 2021 2021 to 2022 (dollar amounts in thousands) Gross profit -three months ended $ 1,294 $ 1,099 $ 195 18 % Percentage of total net revenue 39 % 54 % Gross profit -nine months ended $ 4,234 $ 1,843 $ 2,391 130 % Percentage of total net revenue 39 % 48 % 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 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 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, Change 2022 2021 2021 to 2022 (dollar amounts in thousands) R&D -three months ended $ 4,509 $ 2,696 $ 1,813 67 % Percentage of total net revenue 137 % 134 % Research and development -nine months ended $ 15,636 $ 8,375 $ 7,261 87 % Percentage of total net revenue 142 % 219 % 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 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. 30 Selling, General and Administrative September 30, Change 2022 2021 2021 to 2022 (dollar amounts in thousands) SG&A -three months ended $ 3,353 $ 1,746 $ 1,607 92 % Percentage of total net revenue 102 % 87 % SG&A -nine months ended $ 8,938 $ 4,852 $ 4,086 84 % Percentage of total net revenue 81 % 127 % 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 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 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 Cash Flows 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 $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 $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. 31 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 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; • 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. 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 $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. 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 32 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, under which we collected $3. 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. 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. Recent Accounting Pronouncements See Note 1 to the condensed consolidated financial statements for a discussion of recently-issued accounting pronouncements. 33