Peraso Inc

Previous wording

We also acquired a memory product line comprising our Bandwidth Engine IC products. These products 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. Taiwan Semiconductor Manufacturing Corporation, or TSMC, is the sole foundry that manufactures the wafers used to produce our memory IC products. TSMC has informed us that it would be discontinuing the foundry process used to produce wafers, in turn, necessary to manufacture our memory ICs. As a result, in May 2023, we initiated an end-of-life, or EOL, of our memory IC products, and we commenced initial EOL shipments during the quarter ended September 30, 2023. We have requested customers to pay a deposit upon purchase order placement to reserve supply and provide funding for our required inventory purchases. In addition, we have requested customers to accelerate payments to improve our cash flows. Under our EOL plan, we expect shipments of our memory products to continue through March 31, 2025. However, the timing of EOL shipments will be dependent on receipt of purchase orders from customers, deliveries from our suppliers, and the delivery schedules requested by our customers.

Current wording

We also acquired a memory product line comprising our Bandwidth Engine IC products. These products 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. Taiwan Semiconductor Manufacturing Corporation, or TSMC, is the sole foundry that manufactures the wafers used to produce our memory IC products. TSMC has informed us that it would be discontinuing the foundry process used to produce wafers, in turn, necessary to manufacture our memory ICs. As a result, in May 2023, we initiated an end-of-life, or EOL, of our memory IC products, and we commenced initial EOL shipments during the quarter ended September 30, 2023. We have requested customers to pay a deposit upon purchase order placement to reserve supply and provide funding for our required inventory purchases. In addition, we have requested customers to accelerate payments to improve our cash flows. Under our EOL plan, we expect to complete shipments of our memory products by June 30, 2025. However, the timing of EOL shipments will be dependent on the potential receipt of additional purchase orders from customers, deliveries from our suppliers, and the delivery schedules requested by our customers.

Previous wording

We incurred net losses of approximately $2.0 million for the three months ended March 31, 2024 and $16.8 million for the year ended December 31, 2023, and we had an accumulated deficit of approximately $168.4 million as of March 31, 2024. These and prior year losses have resulted in significant negative cash flows and historically have required us to raise substantial amounts of additional capital. As discussed below, this raises significant doubt about our ability to continue as a going concern. We will need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time.

Current wording

We incurred net losses of approximately $6.5 million for the six months ended June 30, 2024 and $16.8 million for the year ended December 31, 2023, and we had an accumulated deficit of approximately $173 million as of June 30, 2024. These and prior year losses have resulted in significant negative cash flows and historically have required us to raise substantial amounts of additional capital. As discussed below, this raises significant doubt about our ability to continue as a going concern. We will need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time.

Previous wording

World unrest due to wars and terrorist attacks have led to further economic disruptions. Mounting inflationary cost pressures and recessionary fears have negatively impacted the global economy. Since mid-2022, at times, the U.S. Federal Reserve has addressed elevated inflation by increasing interest rates, 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.

Current wording

We are subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, pandemics, wars and acts of terrorism and the volatility of public markets. We may be unable to access the capital markets, and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business.

Previous wording

The following table details revenue by product category for the three months ended March 31, 2024 and 2023:

Current wording

The following table details revenue by product category for the three and six months ended June 30, 2024 and 2023:

Previous wording

Product revenue decreased for the three months ended March 31, 2024 compared with the same period of 2023 primarily due to the decrease in shipments of our mmWave ICs and antenna modules, which was partially offset by increases in EOL shipments of our memory IC products. We initiated price increases on certain of our antenna module products in 2022, however, through March 31, 2024, we had not realized any material increase in revenue as a result of those price increases.

Current wording

Product revenue increased for the three months ended June 30, 2024 compared with the same period of 2023 primarily due to increases in EOL shipments of our memory IC products. Product revenue decreased for the six months ended June 30, 2024 compared with the same period of 2023 primarily due to the decrease in shipments of our mmWave ICs and antenna modules, which was partially offset by increases in EOL shipments of our memory IC products. We initiated price increases on certain of our antenna module products in 2022, however, through June 30, 2024, we had not realized any material increase in revenue as a result of those price increases.

Previous wording

Taiwan Semiconductor Manufacturing Corporation (TSMC) is the sole foundry that manufactures the wafers used to produce our memory IC products. TSMC has informed us that TSMC is discontinuing the foundry process used to produce wafers, in turn, necessary to manufacture our memory ICs. As a result, in May 2023, we informed our customers that we would be initiating an end-of-life (EOL) of our memory IC products. As of March 31, 2024, we had a non-cancelable purchase order backlog for our memory IC products of approximately $12.6 million. We expect to fulfill this backlog and complete final shipments of our memory IC products by March 31, 2025.

Current wording

Taiwan Semiconductor Manufacturing Corporation (TSMC) is the sole foundry that manufactures the wafers used to produce our memory IC products. TSMC has informed us that TSMC is discontinuing the foundry process used to produce wafers, in turn, necessary to manufacture our memory ICs. As a result, in May 2023, we informed our customers that we would be initiating an end-of-life (EOL) of our memory IC products. As of June 30, 2024, we had a non-cancelable purchase order backlog for our memory IC products of $9.1 million. We expect to fulfill this backlog and complete final shipments of our memory IC products by March 31, 2025.

Previous wording

Royalty and other includes royalty, non-recurring engineering services and license revenues. The decrease in royalty and other revenue for the three months ended March 31, 2024 compared with the same period of 2023 was primarily due to a decrease in royalty revenues from licensees of our memory technology due to reduced shipments by these licensees and partially offset by an increase in non-recurring engineering services revenue related to our mmWave technology.

Current wording

Royalty and other includes royalty, non-recurring engineering services and license revenues. The decrease in royalty and other revenue for the three and six months ended June 30, 2024 compared with the same periods of 2023 was primarily due to a decrease in royalty revenues from licensees of our memory technology due to reduced shipments by these licensees, as partially offset by an increase in non-recurring engineering services revenue related to our mmWave technology.

Previous wording

Cost of net revenue decreased for the three months ended March 31, 2024 when compared with the same period in 2023, primarily due to the combined effect of i) a decrease in sales of our mmWave IC and module products, partially offset by an increase in shipments of our memory IC products in 2024, and ii) increased amortization of developed technology of approximately $0.2 million.

Current wording

Cost of net revenue increased slightly for the three months ended June 30, 2024 when compared with the same period in 2023, primarily due to the combined effect of i) an increase in shipments of our memory IC products and ii) increased amortization of developed technology of approximately $0.2 million. Cost of net revenue decreased for the six months ended June 30, 2024 when compared with the same period in 2023, primarily due to the combined effect of i) a decrease in sales of our mmWave IC and module products, partially offset by an increase in shipments of our memory IC products in 2024, and ii) increased amortization of developed technology of approximately $0.3 million.

Previous wording

Gross profit decreased for the three months ended March 31, 2024 compared with the same period of 2023 primarily due to the decrease in shipment volumes of our mmWave products. The increase in our gross profit margin percentage for the three months ended March 31, 2024 compared with the prior year period was primarily attributable to the increase in shipments of our memory products, which carry higher gross margins than our mmWave products.

Current wording

Gross profit increased for the three and six months ended June 30, 2024 compared with the same periods of 2023 primarily due to the increase in shipment volumes of our memory IC products. The increase in our gross profit margin percentage for the three and six months ended June 30, 2024 compared with the prior year period was primarily attributable to the increase in shipments of our memory products, which carry higher gross margins than our mmWave products. During the three months ended June 30, 2024, we sold inventory with a value of $81,000 that had been written down in 2023.

Previous wording

The decrease for the three months ended March 31, 2024 compared with the same period of 2023 was primarily due to reduced salary and consulting costs, as we implemented reductions on force in February and November 2023 and terminated consultant contracts. Most recently, in November 2023, we implemented a reduction in our workforce and eliminated three full-time equivalent positions, which included one employee and two consultants. In addition, we initiated a temporary lay-off in Canada of 16 positions, all intended to preserve cash while keeping capital expenditures to minimum levels in order to reduce operating costs and our short-term cash needs.

Current wording

The decrease for the three and six months ended June 30, 2024 compared with the same periods of 2023 was primarily due to reduced salary and consulting costs, as we implemented reductions in force in February and November 2023 and terminated consultant contracts.

Previous wording

The decrease for the three months ended March 31, 2024 compared with the same period of 2023 was primarily attributable tolower headcount, including the elimination of certain employee and consulting positions and reductions of other discretionary operating expenses during 2023. We expect that total SG&A expense will remain flat or slightly decrease for the remainder of 2024 compared with 2023 due to our continued cost reduction initiatives.

Current wording

The increase for the three and six months ended June 30, 2024 compared with the same periods of 2023 was primarily attributable to increased consulting and professional services costs and increased amortization of purchased intangible assets for customer relationships, as we reduced the estimated life of these intangibles during 2023 due to the EOL of our memory IC products. These increases were partially offset bythe impact of headcount reductions initiated in 2023, including the elimination of certain employee and consulting positions and reductions of other discretionary operating expenses during 2023. We expect that total SG&A expense will remain flat or slightly decrease for the remainder of 2024 compared with 2023 due to our continued cost reduction initiatives.

Previous wording

As of March 31, 2024, we had cash and cash equivalents of $2.4 million and working capital of $3.1 million.

Current wording

As of June 30, 2024, we had cash and cash equivalents of $1.9 million and working capital of $1.1 million.

Previous wording

Net cash used in operating activities was $1.4 million for the first three months of 2023, which primarily resulted from our net loss of $3.1 million, as adjusted for a $0.7 million non-cash gain on the change in fair value of warrant liability and $0.2 million of other non-cash changes, as partially offset by non-cash charges of $0.8 million of depreciation and amortization, $1.3 million of stock based compensation, and $0.5 million in net changes in assets and liabilities. The changes in assets and liabilities primarily related to the timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments.

Current wording

Net cash used in operating activities was $3.2 million for the first six months of 2024, which primarily resulted from our net loss of $6.5 million, as adjusted for a $1.6 million non-cash gain on the change in fair value of warrant liability, as partially offset by non-cash charges of $2.0 million of depreciation and amortization, $2.4 million of stock based compensation and $0.5 million in net changes in assets and liabilities. The changes in assets and liabilities primarily related to the timing of accounts receivable collections, accruals for software license obligations, accrued severance benefits and other vendor payables and prepayments.

Previous wording

Net cash used in operating activities was $2.6 million for the first three months of 2024, which primarily resulted from our net loss of $2.0 million, as adjusted for a $1.6 million non-cash gain on the change in fair value of warrant liability, $1.0 million in net changes in assets and liabilities and $0.2 million in other non-cash changes, as partially offset by non-cash charges of $1.0 million of depreciation and amortization and $1.2 million of stock based compensation. The changes in assets and liabilities primarily related to the timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments.

Current wording

Net cash used in operating activities was $3.6 million for the first six months of 2023, which primarily resulted from our net loss of $7.2 million, as adjusted for a $1.6 million non-cash gain on the change in fair value of warrant liability and $0.2 million of other non-cash changes, as partially offset by non-cash charges of $1.7 million of depreciation and amortization, $2.6 million of stock based compensation, and $1.1 million in net changes in assets and liabilities. The changes in assets and liabilities primarily related to the timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments.

Previous wording

Net cash provided by investing activities of $0.4 million for the three months ended March 31, 2023 represented $0.5 million in proceeds from maturities of short-term investments, partially offset by $0.1 million of purchases of property and equipment. For the three months ended March 31, 2024, no cash was provided by or used in investing activities.

Current wording

Net cash provided by investing activities of $0.4 million for the six months ended June 30, 2023 represented $0.5 million in proceeds from maturities of short-term investments, partially offset by $0.1 million of purchases of property and equipment. For the six months ended June 30, 2024, no cash was provided by or used in investing activities.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2024 comprised $3.4 million in net proceeds from a public offering of our common stock and common stock purchase warrants completed in February 2024, partially offset by repayment of financing lease liabilities.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2023 consisted of $3.5 million, primarily comprised $3.6 million in net proceeds from a registered direct offering of our common stock and common stock purchase warrants completed in June 2023, partially offset by taxes paid to net share settle equity awards and repayment of finance lease liabilities.

Previous wording

Our primary purchase obligations include non-cancelable purchase orders for inventory and computer-aided-design (CAD) software. At March 31, 2024, we had outstanding non-cancelable purchase orders for inventory, primarily wafers and substrates, and related expenditures of approximately $3.2 million and non-cancelable purchase orders for CAD software of $2.2 million, which extend through approximately September 2025.

Current wording

Our primary purchase obligations include non-cancelable purchase orders for inventory. At June 30, 2024, we had outstanding non-cancelable purchase orders for inventory, primarily wafers and substrates, and related expenditures of approximately $2.9 million. As disclosed above and in Note 4 to the condensed consolidated financial statements, we recorded liabilities of approximately $1.6 million for non-cancelable license commitments for computer-aided design software. We expect to pay these license fees through September 30, 2025.

Previous wording

We incurred net losses of approximately $2.0 million for the three months ended March 31, 2024 and $16.8 million for the year ended December 31, 2023, and we had an accumulated deficit of approximately $168.4 million as of March 31, 2024. 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 offerings of equity and equity-linked securities, issuance of convertible notes and loans.

Current wording

We incurred net losses of approximately $6.5 million for the six months ended June 30, 2024 and $16.8 million for the year ended December 31, 2023, and we had an accumulated deficit of approximately $173 million as of June 30, 2024. 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 offerings of equity and equity-linked securities, issuance of convertible notes and loans.

Previous wording

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.

Current wording

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 beyond the levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time.

Previous wording

As a result of our expected operating losses and cash burn and recurring losses from operations, if we are unable to raise sufficient capital through additional equity or debt 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 Part I, 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 equity or debt 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 additional 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. In February 2023, we announced that we had implemented cost-reduction initiatives to reduce operating expenses by approximately $5 million on an annualized basis. Most recently, in November 2023, we initiated a temporary lay-off in Canada of 16 positions, and eliminated three full-time equivalent positions in the U.S. and Canada. We have the ability to recall the employees subject to temporary lay-off, however such recalls would be dependent on improvements in business conditions and our financial condition, which we are unable to predict. If we do not recall any of the affected employees in Canada, we would achieve annual total savings of approximately $2.8 million from these reductions, excluding the impacts of any severance and related termination payments.

Current wording

As a result of our expected operating losses and cash burn and recurring losses from operations, if we are unable to raise sufficient capital through additional equity or debt 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 Part I, 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 equity or debt financing, will be sufficient or available and, if available, that such capital will be offered on terms and conditions acceptable to us. We are currently seeking additional financing in order to meet our cash requirements for the foreseeable future. If we are unsuccessful in these efforts, we will need to implement additional cost reduction strategies, which could further affect our near- and long-term business plan. These efforts may include, but are not limited to, reducing headcount and curtailing business activities. In 2023, we implemented cost-reduction initiatives, including headcount reductions, to reduce operating expenses.

Previous wording

We believe that our existing cash and cash equivalents as of March 31, 2024, plus expected receipts associated with forecasted product sales, will provide us with liquidity to fund our planned operating needs into the first half of 2025. Variability in our operating forecast, driven primarily by (i) product sales and collections, (ii) potential customer licensing and non-recurring engineering (NRE) transactions, (iii) timing of operating expenditures, and (iv) unanticipated changes in net working capital, will impact our cash runway. Likewise, we may decide to revise our financial priorities and operating plans, depending on the level of customer shipments, licensing and NRE arrangements and timing of related collections. This could impact our ability to enter into strategic arrangements and to access additional capital.

Current wording

We believe that our existing cash and cash equivalents as of June 30, 2024, plus expected receipts associated with forecasted product sales, will provide us with liquidity to fund our planned operating needs into the fourth quarter of 2024. Variability in our operating forecast, driven primarily by (i) product sales and collections, (ii) potential customer licensing and non-recurring engineering (NRE) transactions, (iii) timing of operating expenditures, and (iv) unanticipated changes in net working capital will impact our cash runway. Likewise, we may decide to revise our financial priorities and operating plans, depending on the level of customer shipments, licensing and NRE arrangements and timing of related collections. This could impact our ability to enter into strategic arrangements and to access additional capital.

Previous wording

In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify the counter-party from losses relating to a breach of representations and warranties, a failure to perform certain covenants, or claims and losses arising from certain external events as outlined within the contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. We have also entered into indemnification agreements with our officers and directors. No material amounts related to these indemnifications are reflected in our condensed consolidated financial statements for the three months ended March 31, 2024.

Current wording

In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify the counter-party from losses relating to a breach of representations and warranties, a failure to perform certain covenants, or claims and losses arising from certain external events as outlined within the contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. We have also entered into indemnification agreements with our officers and directors. No material amounts related to these indemnifications are reflected in our condensed consolidated financial statements for the three and six months ended June 30, 2024.