UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark one)
For the quarterly period ended
OR
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| Incorporation or organization) | Identification Number) |
(Address of principal executive office and zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required
to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of outstanding shares of the registrant’s exchangeable shares, no par value, was 87,185 as of August 9, 2024.
The number of outstanding
shares of the registrant’s common stock, par value $0.001 per share, was
PERASO INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 2024
TABLE OF CONTENTS
i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
PERASO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use lease assets | ||||||||
| Intangible assets, net | ||||||||
| Other | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other | ||||||||
| Deferred revenue | ||||||||
| Short-term lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Warrant liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 5) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ | ||||||||
| Series A, special voting preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
PERASO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share data)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net revenue | ||||||||||||||||
| Product | $ | $ | $ | $ | ||||||||||||
| Royalty and other | ||||||||||||||||
| Total net revenue | ||||||||||||||||
| Cost of net revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Severance and software license obligations | ||||||||||||||||
| Gain on license and asset sale | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of warrant liabilities | ||||||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss, net of tax: | ||||||||||||||||
| Net unrealized gain on available-for-sale-securities | ||||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Shares used in computing net loss per share | ||||||||||||||||
Note: Share and per share amounts for the three and six months ended June 30, 2023 have been adjusted to reflect the impact of a 1-for-40 reverse stock split effected in January 2024, as discussed in Note 1.
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
PERASO INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
| Series A | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Special Voting | Exchangeable | Additional | Other | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Shares | Paid-In | Comprehensive | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Shares issued for reverse stock split | — | — | — | |||||||||||||||||||||||||||||||||||||
| Sale of common stock and warrants | — | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | — | — | ||||||||||||||||||||||||||||||||||||||
| Sale of common stock | — | — | ||||||||||||||||||||||||||||||||||||||
| Exchange of exchangeable shares | — | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock under stock plan, net | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | — | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Series A | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Special Voting | Exchangeable | Additional | Other | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Shares | Paid-In | Comprehensive | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Exchange of exchangeable shares | — | ( | ) | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Exchange of exchangeable shares | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of common stock under stock plan, net | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Sale of common stock and warrants | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | — | — | ||||||||||||||||||||||||||||||||||||||
| Initial recognition of fair value of warrant liability | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | — | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||
Note: Share and per share amounts for the three and six months ended June 30, 2023 have been adjusted to reflect the impact of a 1-for-40 reverse stock split effected in January 2024, as discussed in Note 1.
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PERASO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||
| Allowance for bad debt | ( | ) | ||||||
| Other | ( | ) | ( | ) | ||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Right-of-use assets | ||||||||
| Lease liabilities - operating | ( | ) | ( | ) | ||||
| Deferred revenue and other liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Proceeds from maturities of marketable securities | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of common stock and warrants, net | ||||||||
| Taxes paid to net share settle equity awards | ( | ) | ( | ) | ||||
| Repayment of financing leases | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure: | ||||||||
| Noncash investing and financing activities: | ||||||||
| Initial recognition of warrant liability | $ | $ | ||||||
| Unrealized gain on available-for-sale securities | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PERASO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. The Company and Summary of Significant Accounting Policies
Peraso Inc., formerly known as MoSys, Inc. (the Company), was incorporated in California in 1991 and reincorporated in 2000 in Delaware. The Company is a fabless semiconductor company specializing in the development of millimeter wave (mmWave), which is generally described as the frequency band from 24 Gigahertz (GHz) to 300GHz, wireless technology. The Company derives revenue from selling its semiconductor devices and modules and performance of non-recurring engineering services. The Company also manufactures and sells high-performance memory semiconductor devices for a wide range of markets and receives royalties from licensees of its memory technology.
On September 14, 2021, the Company and its subsidiaries, 2864552 Ontario Inc. (Callco) and 2864555 Ontario Inc. (Canco), 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 (the Nasdaq) under the symbol “PRSO.”
For accounting purposes, Peraso Tech, the legal subsidiary, was treated as the accounting acquirer and the Company, the legal parent, was treated as the accounting acquiree. The transaction was accounted for as a reverse acquisition in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations.
The accompanying condensed consolidated financial statements of the Company have been prepared without audit. The condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited consolidated financial statements at that date. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The information in this report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its most recent annual report on Form 10-K filed with the SEC.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other future period.
Liquidity and Going Concern
The Company incurred net losses of approximately $
5
The Company expects to continue to incur operating losses for the foreseeable future as it secures additional customers and continues to invest in the commercialization of its products. The Company will need to increase revenues substantially beyond levels that it has 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 the Company’s expected operating losses and cash burn for the foreseeable future, as well as recurring losses from operations, if the Company is unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial statements. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2023, expressed substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments that might result from 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 the Company. 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.
Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s fiscal year ends on December 31 of each calendar year. Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flows.
Reverse Stock Split
On December 15, 2023, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a 1-for-40 reverse stock split of the Company’s shares of common stock. Further, on January 2, 2024, Canco filed a certificate of amendment to its amended and restated certificate of incorporation under the Ontario Business Corporations Act to effect a 1-for-40 reverse stock split of the outstanding exchangeable shares. Such amendments and ratio were previously approved by the Company’s stockholders and board of directors.
As a result of the reverse
stock split, which was effective for trading purposes on January 3, 2024, every
Risks and Uncertainties
The Company is 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. The Company may be unable to access the capital markets, and additional capital may only be available to the Company on terms that could be significantly detrimental to its existing stockholders and to its business.
6
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses recognized during the reported period. Material estimates may include assumptions made in determining reserves for uncollectible receivables, inventory write-downs, impairment of long-term assets, valuation allowance on deferred tax assets, accruals for potential liabilities and assumptions made in valuing equity instruments and warrant liabilities. Actual results could differ from those estimates.
Cash Equivalents and Investments
The Company invests its cash in money market accounts, certificates of deposit, corporate debt, government-sponsored enterprise bonds and municipal bonds and considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments with original maturities greater than three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments. Management generally determines the appropriate classification of securities at the time of purchase. All securities are classified as available-for-sale. The Company’s available-for-sale short-term and long-term investments are carried at fair value, with the unrealized holding gains and losses reported in accumulated other comprehensive income (loss). Realized gains and losses and declines in the value judged to be other-than-temporary are included in the other income, net line item in the condensed consolidated statements of operations. The cost of securities sold is based on the specific identification method.
Fair Value Measurements
The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
Level 1—Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.
Level 2—Pricing is provided by third party sources of market information obtained through the Company’s investment advisors, rather than models. The Company does not adjust for, or apply, any additional assumptions or estimates to the pricing information it receives from advisors. The Company’s Level 2 securities include cash equivalents and available-for-sale securities, which consisted primarily of certificates of deposit, corporate debt, and government agency and municipal debt securities from issuers with high-quality credit ratings. The Company’s investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities.
Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to measure fair value. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 investments and other financial instruments involves the most management judgment and subjectivity.
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable, and other payables, approximate their fair values because of the short maturity of these instruments. The carrying values of lease obligations and long-term financing obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest rates. The Company measures the fair value of its warrant liabilities using Level 3 inputs.
7
Derivatives and Liability-Classified Instruments
The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and the guidance provided by the Financial Accounting Standards Board (FASB) in ASC 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
Allowance for Doubtful Accounts
The Company establishes an
allowance for doubtful accounts to ensure that its trade receivables balances are not overstated due to uncollectibility. The Company
performs ongoing customer credit evaluations within the context of the industry in which it operates and generally does not require collateral
from its customers. A specific allowance of up to
Inventories
The Company values its inventories
at the lower of cost, which approximates actual cost on a first-in, first-out basis, or net realizable value. Costs of inventories primarily
consisted of material and third party assembly costs. The Company records write-downs for estimated obsolescence or unmarketable inventories
based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those expected by
management, additional adjustments to inventory valuation may be required. Charges for obsolete and slow-moving inventories are recorded
based upon an analysis of specific identification of obsolete inventory items and quantification of slow moving inventory items. The Company
determined that it had excess and obsolete inventory, primarily related to its mmWave products, and recorded write-downs of inventory
of approximately $
Intangible and Long-lived Assets
Intangible assets are recorded
at cost and amortized on a straight-line method over their estimated useful lives of
The Company regularly reviews the carrying value and estimated lives of its long-lived assets and finite-lived intangible assets to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objective. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the long-lived asset group over the asset’s fair value.
8
Purchased Intangible Assets
Intangible assets acquired
in business combinations are accounted for based on the fair value of assets purchased and are amortized over the period in which economic
benefit is estimated to be received.
| June 30, 2024 | ||||||||||||
| Gross | Net | |||||||||||
| Carrying | Accumulated | Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Developed technology | $ | $ | ( | ) | $ | |||||||
| Customer relationships | ( | ) | ||||||||||
| Other | ( | ) | ||||||||||
| Total | $ | $ | ( | ) | $ | |||||||
| December 31, 2023 | ||||||||||||||||
| Gross | Net | |||||||||||||||
| Carrying | Accumulated | Other | Carrying | |||||||||||||
| Amount | Amortization | Impairment | Amount | |||||||||||||
| Developed technology | $ | $ | ( | ) | $ | $ | ||||||||||
| Customer relationships | ( | ) | ||||||||||||||
| Other | ( | ) | ( | ) | ||||||||||||
| Total | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
Developed technology primarily consisted of MoSys’ products that
have reached technological feasibility and primarily relate to its memory semiconductor products and technology. The value of the developed
technology was determined by discounting estimated net future cash flows of these products. Amortization related to developed technology
of $
Customer relationships relate
to the Company’s ability to sell existing and future versions of its products to MoSys’ customers existing at the time of
the arrangement. The fair value of the customer relationships was determined by discounting estimated net future cash flows from the customer
relationships. Amortization related to customer relationships of $
Other amortization expense
was approximately $
At June 30, 2024, the Company has not identified any intangible asset impairments. However, current macroeconomic conditions, which have been impacted by inflation and other world unrest, could negatively impact the Company’s business and stock price and trigger the need to test for impairment. The Company will continue to evaluate for impairment indicators, as necessary, on a quarterly basis.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, and its amendments (ASC 606). As described below, the analysis of contracts under ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing that is materially consistent with the Company’s historical practice of recognizing product revenue when title and risk of loss pass to the customer.
9
The Company generates revenue primarily from sales of integrated circuits and antenna module products, performance of engineering services and licensing of its intellectual property. Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
Product revenue
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of the Company’s contracts have a single performance obligation to transfer products. Accordingly, the Company recognizes 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 the Company expects to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price. The Company sells its products both directly to customers and through distributors generally under agreements with payment terms typically 60 days or less.
The Company may record an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale.
Royalty and other
The Company’s licensing contracts typically provide for royalties based on the licensee’s use of the Company’s memory technology in its currently shipping commercial products. The Company estimates its royalty revenue in the calendar quarter in which the licensee uses the licensed technology. Payments are received in the subsequent quarter. The Company also generates revenue from licensing its technology. The Company recognizes license fees as revenue at the point of time when the control of the license has been transferred and the Company has 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.
Contract liabilities – deferred revenue
The Company’s contract liabilities consist of advance customer payments and deferred revenue. The Company classifies advance customer payments and deferred revenue as current or non-current based on the timing of when the Company expects to recognize revenue. As of June 30, 2024 and December 31, 2023, contract liabilities were in a current position and included in deferred revenue.
During the six months ended
June 30, 2024, the Company recognized approximately $
See Note 6 for disaggregation of revenue by geography.
The Company does not have significant financing components, as payments from customers are typically due within 60 days of invoicing, and the Company has elected the practical expedient to not value financing components that are less than one year. Shipping and handling costs are generally incurred by the customer, and, therefore, are not recorded as revenue.
10
Cost of Net Revenue
Cost of net revenue consists primarily of direct and indirect costs of product sales, including amortization of intangible assets and depreciation of production-related fixed assets.
Stock-Based Compensation
The Company periodically issues stock options and restricted stock units to employees and non-employees. The Company accounts for such awards based on ASC 505 and ASC 718, whereby the value of the award is measured on the date of award and recognized as compensation expense on a straight-line basis over the vesting period. The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing (Black Scholes) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes model. The assumptions used in the Black-Scholes model could materially affect compensation expense recorded in future periods.
Foreign Currency Transactions
The functional currency of the Company is the U.S. dollar. All foreign currency transactions are initially measured and recorded in an entity’s functional currency using the exchange rate on the date of the transaction. All monetary assets and liabilities are remeasured at the end of each reporting period using the exchange rate at that date. All non-monetary assets and related expense, depreciation or amortization are not subsequently remeasured and are measured using the historical exchange rate. An average exchange rate may be used to recognize income and expense items earned or incurred evenly over a period. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the statement of operations, except for the gains and losses arising from the conversion of the carrying amount of the foreign currency denominated convertible preferred shares into the functional currency that are presented as adjustment to the net loss to arrive at net loss attributable to common stockholders.
Per-Share Amounts
Basic net loss per share is computed by dividing net loss for the period by the weighted-average number of exchangeable shares and shares of common stock outstanding (WASO) during the period. In addition, the Company includes the number of shares of common stock issuable upon exercise of pre-funded warrants as outstanding. Diluted net loss per share gives effect to all potentially dilutive exchangeable and common shares outstanding during the period. Potentially dilutive common shares consist of incremental exchangeable shares and shares of common stock issuable upon the achievement of escrow terms, exercise of stock options, vesting of stock awards and exercise of warrants.
Prior to June 30, 2023, the
Company excluded shares of common stock issuable upon exercise of pre-funded warrants from the computation of WASO. The pre-funded warrant
shares are now included in the computation of WASO. Prior period amounts have been conformed to the current-period presentation. The impact
of the change reduced the previously reported loss per share by $
11
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Escrow shares - exchangeable shares | ||||||||
| Escrow shares - common stock | ||||||||
| Options to purchase common stock | ||||||||
| Unvested restricted common stock units | ||||||||
| Warrants classified as equity | ||||||||
| Warrants classified as liabilities | ||||||||
| Total | ||||||||
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. ASU No. 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and it requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact that this ASU will have on the presentation of its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that this ASU will have on the presentation of its consolidated financial statements.
Other recent authoritative guidance issued by the FASB (including technical corrections to the ASCs), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (the SEC) did not, or is not expected to, have a material impact on the Company’s consolidated financial statements and related disclosures.
Note 2. Fair Value of Financial Instruments
| June 30, 2024 | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Money market funds (1) | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liabilities | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Money market funds (1) | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liabilities | $ | $ | $ | $ | ||||||||||||
| (1) |
12
| June 30, 2024 | ||||||||||||||||
| Unrealized | Unrealized | Fair | ||||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| Unrealized | Unrealized | Fair | ||||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
Note 3. Balance Sheet Detail
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Inventories: | ||||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Accrued Expenses and Other: | ||||||||
| Accrued wages and employee benefits | $ | $ | ||||||
| Professional fees, legal and consulting | ||||||||
| Software license obligations (see Note 4) | ||||||||
| Severance benefits (see Note 4) | ||||||||
| Warranty accrual | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Note 4. Severance and Software License Obligations
On November 7, 2023, the Company implemented an employee lay-off and
terminated certain consulting positions (the “Reductions”) to reduce operating expenses and cash burn, as the Company prioritized
business activities and projects that it believes will have a higher return on investment. As part of the Reductions, the Company implemented
a temporary lay-off that impacted 16 employees (the “Employees”) of Peraso Tech. The employment of one Employee was terminated
during the three months ended March 31, 2024. During the three months ended June 30, 2024, the Company determined that it would not recall
any of the 10 Employees that remained on the Company’s payroll and commenced notifying the remaining Employees that their employment
would be terminated. As a result of the terminations, the Company recorded severance charges of approximately $
13
As a result of the decision to not recall the Employees, the Company
determined that it was probable that a number of its non-cancelable licenses for computer-aided design software would not be utilized
during the remaining license terms. During the three months ended June 30, 2024, the Company expensed the value of the remaining contractual
liabilities and certain prepaid amounts totaling approximately $
Note 5. Commitments and Contingencies
Leases
The Company has operating leases for its corporate headquarters facility in San Jose, California and facilities in Toronto and Markham, Ontario, Canada and recognizes lease expense on a straight-line basis over the respective lease terms.
In November 2023, the Company renewed the San Jose facility lease for
a one-year term, which commenced January 15, 2024 (the Renewal Term), and, effective with the commencement of the Renewal Term, the Company
ceased accounting for the lease under ASC 842. In December 2023, the Company renewed the Toronto office lease for a reduced amount of
square footage for a one-year term, which commenced January 1, 2024. In May 2022, the Company entered into a lease for the facility in
Markham with a 60-month term, which commenced June 21, 2022. The Markham landlord also provided a lease incentive of approximately $
Upon the renewal of the Toronto
lease in December 2023, the Company recognized a right-of-use asset of approximately $
The
initial right-of-use asset and corresponding liability of approximately $
On
March 1, 2022, the Company entered into a 36-month finance lease agreement for the lease of equipment resulting in the recognition of
a right-of-use asset and lease liability of approximately $
On
November 1, 2022, the Company entered into a 36-month finance lease agreement for the lease of equipment resulting in the recognition
of a right-of-use asset of approximately $
14
| Right-of-use assets: | ||||
| Operating leases | $ | |||
| Finance leases | ||||
| Total right-of-use assets | $ | |||
| Lease liabilities: | ||||
| Operating leases | $ | |||
| Finance leases | ||||
| Total lease liabilities | $ | |||
| Year ending December 31, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total future lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows for leases | $ | $ | ||||||
Rent expense was approximately
$
Indemnification
In the ordinary course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counterparties from any losses incurred relating to breach of representations and warranties, failure to perform certain covenants, or claims and losses arising from certain events as outlined within the particular 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. The Company has also entered into indemnification agreements with its officers and directors. No material amounts were reflected in the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 related to these indemnifications.
The Company has not estimated the maximum potential amount of indemnification liability under these agreements due to the limited history of prior claims and the unique facts and circumstances applicable to each particular agreement. To date, the Company has not made any payments related to these indemnification agreements.
15
Product Warranties
The Company warrants certain of its products to be free of defects generally for a period of three years. The Company estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of net revenues. Warranty costs were not material for the three and six months ended June 30, 2024 and 2023.
Legal Matters
The Company is not a party to any legal proceeding that the Company believes is likely to have a material adverse effect on its condensed consolidated financial position or results of operations. From time to time the Company may be subject to legal proceedings and claims in the ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.
Purchase Obligations
The Company’s primary
purchase obligations include non-cancelable purchase orders for inventory. At June 30, 2024, the Company had outstanding non-cancelable
purchase orders for inventory, primarily wafers and substrates, and related expenditures of approximately $
Note 6. Business Segments, Concentration of Credit Risk and Significant Customers
The Company determined its reporting units in accordance with ASC 280, Segment Reporting (ASC 280). Management evaluates a reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated.
Management has determined
that the Company has
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Hong Kong | ||||||||||||||||
| Taiwan | ||||||||||||||||
| Rest of world | ||||||||||||||||
| Total net revenue | $ | $ | $ | $ | ||||||||||||
16
| Three months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| Product category | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Memory ICs | $ | $ | $ | $ | ||||||||||||
| mmWave ICs | ||||||||||||||||
| mmWave modules | ||||||||||||||||
| mmWave other products | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Customer A | % | % | % | |||||||||||||
| Customer B | % | % | % | % | ||||||||||||
| Customer C | % | |||||||||||||||
| Customer D | % | % | ||||||||||||||
| Customer E | % | |||||||||||||||
The following table lists significant customers that represented more than 10% of the Company’s net accounts receivable balance at each respective balance sheet date:
| Accounts Receivable | ||||||||
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
| Customer C | % | |||||||
| Customer D | % | |||||||
| Accounts Payable | ||||||||
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Vendor A | % | % | ||||||
| Vendor B | % | % | ||||||
| * |
Note 7. Stock-Based Compensation
Common Stock Equity Plans
In 2010, the Company adopted the 2010 Equity Incentive Plan and later amended it in 2014, 2017 and 2018 (the Amended 2010 Plan). The Amended 2010 Plan was terminated in August 2019 and remains in effect as to outstanding equity awards granted prior to the date of expiration. No new awards may be made under the Amended 2010 Plan.
17
In August 2019, the Company’s
stockholders approved the 2019 Stock Incentive Plan (the 2019 Plan) to replace the Amended 2010 Plan. The 2019 Plan authorizes the board
of directors or the compensation committee of the board of directors to grant a broad range of awards including stock options, stock appreciation
rights, restricted stock, performance-based awards, and restricted stock units. Under the 2019 Plan,
Under the 2019 Plan, the term
of all incentive stock options granted to a person who, at the time of grant, owns stock representing more than
In connection with the Arrangement, the Company assumed the Peraso Technologies Inc. 2009 Share Option Plan (the 2009 Plan) and all outstanding options granted pursuant to the terms of the 2009 Plan. Each outstanding, unexercised and unexpired option under the 2009 Plan, whether vested or unvested, was assumed by the Company and converted into options to purchase shares of the Company’s common stock. No further awards will be made under the 2009 Plan.
The 2009 Plan, the Amended 2010 Plan and the 2019 Plan are referred to collectively as the “Plans.”
Stock-Based Compensation Expense
The Company reflected compensation
costs of $
Common Stock Options and Restricted Stock
The term of all incentive
stock options granted to a person who, at the time of grant, owns stock representing more than
18
| Options Outstanding | ||||||||||||
| Weighted | ||||||||||||
| Shares | Average | |||||||||||
| Available | Number of | Exercise | ||||||||||
| for Grant | Shares | Prices | ||||||||||
| Balance as of December 31, 2023 | $ | |||||||||||
| RSUs granted | ( | ) | ||||||||||
| RSUs cancelled and returned to the 2019 Plan | ||||||||||||
| Options cancelled | ( | ) | $ | |||||||||
| Balance as of March 31, 2024 | $ | |||||||||||
| RSUs granted | ||||||||||||
| RSUs cancelled and returned to the 2019 Plan | ||||||||||||
| Options cancelled | ( | ) | $ | |||||||||
| Balance as of June 30, 2024 | $ | |||||||||||
| Weighted | ||||||||
| Average | ||||||||
| Number of | Grant-Date | |||||||
| Shares | Fair Value | |||||||
| Non-vested shares as of December 31, 2023 | $ | |||||||
| Granted | $ | |||||||
| Cancelled | ( | ) | $ | |||||
| Non-vested shares as of March 31, 2024 | $ | |||||||
| Vested | ( | ) | $ | |||||
| Non-vested shares as of June 30, 2024 | $ | |||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||
| Average | ||||||||||||||||||||||||
| Remaining | Weighted | Weighted | ||||||||||||||||||||||
| Contractual | Average | Average | Aggregate | |||||||||||||||||||||
| Number | Life | Exercise | Number | Exercise | Intrinsic | |||||||||||||||||||
| Range of Exercise Price | Outstanding | (in Years) | Price | Exercisable | Price | value | ||||||||||||||||||
| $ | $ | | $ | $ | ||||||||||||||||||||
| $ | | $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||
Note 8. Equity
Exchangeable Shares and Preferred Stock
As discussed in Note 1, on
December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed.
Pursuant to the completion of the Arrangement, each Peraso Share that was issued and outstanding immediately prior to December 17, 2021
was converted into either newly issued shares of common stock of the Company or shares of Canco, which are exchangeable for shares of
the Company’s common stock (Exchangeable Shares), at the election of each former Peraso Tech stockholder. Of the shares issued to
the holders of Peraso Tech Shares, pursuant to the terms of the Agreement, the Company held in escrow an aggregate of
19
The Exchangeable Share structure is commonly used for cross-border transactions of this nature so as to provide non-tax-exempt Canadian shareholders with the same economic rights and benefits as holders of the Company’s shares into which the Exchangeable Shares are exchangeable, while allowing those Canadian shareholders to benefit from the tax-rollover available on the issuance of the Exchangeable Shares. In general terms, by choosing to acquire Exchangeable Shares from Canco, such a former Peraso Tech shareholder was able to rely on a rollover rule in the Income Tax Act (Canada) in order to defer any capital gain that he/she/it would have otherwise realized.
Callco was incorporated to exercise the call rights, while Canco was incorporated to acquire the shares of Peraso Tech from Canadian shareholders that wished to receive Exchangeable Shares as consideration, so it was a tax deferred transaction for such Canadian shareholders. The use of a separate entity, Callco, helps maximize cross border paid-up capital, which represents the amount that can generally be distributed free of Canadian withholding tax. The call rights also allow Callco to “purchase” the Exchangeable Shares rather than having them redeemed by Canco on a redemption or retraction or in connection with a liquidity event, thus avoiding the adverse deemed dividend tax consequences to shareholders that may arise from a redemption or retraction of Exchangeable Shares.
Holders of Exchangeable Shares have the right at any time (the Retraction Right) to retract or redeem any or all of the Exchangeable Shares owned by them for an amount per share equal to the market price of a share of the Company’s common stock plus the full amount of all declared and unpaid dividends on such Exchangeable Share (the Exchangeable Share Purchase Price). The Exchangeable Share Purchase Price is payable only by the Company delivering or causing to be delivered to the relevant holder one share of the Company’s common stock for each Exchangeable Share purchased plus a cash amount equal to the amount of any accrued and unpaid dividends on such Exchangeable Share. The Company and Callco each have an overriding right, in the event that a holder of Exchangeable Shares exercises its Retraction Right, to redeem from such holder all, but not less than all, of the Exchangeable Shares tendered for redemption.
The Exchangeable Shares are
subject to redemption by the Company, Callco and Canco at the Exchangeable Share Purchase Price, on the “Redemption Date,”
which date shall be no earlier than the seventh anniversary of the date on which Exchangeable Shares are first issued, unless: (a) less
than
In the event of the liquidation, dissolution or winding-up of Canco, holders of Exchangeable Shares have the right to receive in respect of each Exchangeable Share held by such holder, an amount per share equal to the Exchangeable Share Purchase Price, which shall be satisfied in full by Canco by delivering to such holder one Company Share, plus an amount equal to the Dividend Amount. The Company and Callco each have an overriding right to purchase from all holders all but not less than all of the Exchangeable Shares upon the occurrence of such events.
20
In addition, the Company and Callco have the right to purchase all outstanding Exchangeable Shares at the Exchangeable Share Purchase Price if there is a change of law that permits holders of Exchangeable Shares to exchange their Exchangeable Shares for shares of common stock on a basis that will not require holders to recognize any gain or loss or any actual or deemed dividend for Canadian tax purposes.
The holders of Exchangeable Shares have an “automatic exchange right” in the event of any insolvency, liquidation, dissolution or winding-up or in general, related proceedings, of the Company for an amount per share equal to the Exchangeable Share Purchase Price.
It is expected that Callco will exercise its call rights, as that is more beneficial to the holders of the Exchangeable Shares. Once Callco acquires the Exchangeable Shares from a holder, it (Callco and the Company) is obligated to deliver the Company shares to the holder. Callco discharges this obligation by arranging for the Company to issue and deliver those shares to the holders on behalf of Callco. As consideration for satisfying the delivery obligation, Callco would issue its own shares to the Company.
There are no cash redemption features, as all redemption and exchange scenarios are payable in a share of the Company’s common stock. Neither Canco, Callco, or the Company assume any tax liabilities of a former Peraso Tech shareholder who acquired Exchangeable Shares under the plan of arrangement. The purchase price computed upon the exercise of rights pertaining to retraction, redemption, or liquidation, or otherwise giving rise to a purchase or cancellation of an Exchangeable Share, will, in all cases, consist of a 1:1 exchange involving the Company’s common stock, regardless of the market price of a share of the Company’s common stock.
In connection with the Arrangement, on December 15, 2021, the Company filed the Certificate of Designation of Series A Special Voting Preferred Stock (the Certificate) with the Secretary of State of the State of Delaware to designate Series A Special Voting Preferred Stock (the Special Voting Share) in accordance with the terms of the Arrangement Agreement in order to enable the holders of Exchangeable Shares to exercise their voting rights. The Special Voting Share was issued to a third-party administrative agent (the Agent) solely to facilitate the exercise of rights by holders of Exchangeable Shares. The rights of the Agent, as holder of the Special Voting Share, are limited to effecting the rights of the holders of the Exchangeable Shares; the Special Voting Share does not confer any independent rights to the Agent. Under the Certificate, when all of the Exchangeable Shares have been converted into shares of the Company’s common stock, the Special Voting Share shall be automatically cancelled and shall not be reissued. Each Exchangeable Share is exchangeable for one share of common stock of the Company and while outstanding, the Special Voting Share enables holders of Exchangeable Shares to cast votes on matters for which holders of the common stock are entitled to vote, and by virtue of the share terms relating to the Exchangeable Shares, enable the Exchangeable Shares to receive dividends that are economically equivalent to any dividends declared with respect to the shares of common stock. As the Special Voting Share does not participate in dividends (only the Exchangeable Shares participate in dividends) and is not entitled to participate in the residual interest of the Company, it is not classified as an equity instrument in the Company’s financial statements.
The Exchangeable Shares, which can be converted into common stock at the option of the holder and have the same voting and dividend rights as common stock, are similar in substance to shares of common stock. Further, Canco and Callco are non-substantive entities, which are looked through with the Exchangeable Shares being, in substance, common stock of the Company. Therefore, the Exchangeable Shares have been included in the determination of outstanding common stock. The Special Voting Share was issued to a third-party administrative agent (the Agent) solely to facilitate the exercise of rights by holders of Exchangeable Shares. The rights of the Agent, as holder of the Special Voting Share, are limited to effecting the rights of the holders of the Exchangeable Shares; the Special Voting Share does not confer any independent rights to the Agent. Under the Certificate, when all of the Exchangeable Shares have been converted into shares of the Company’s common stock, the Special Voting Share shall be automatically cancelled and shall not be reissued.
21
February 2024 Public Offering
On
February 6, 2024, the Company entered into an underwriting agreement (the Underwriting Agreement) with Ladenburg Thalmann & Co. Inc.,
as the sole underwriter (the Underwriter), relating to the issuance and sale in a public offering (the Offering) of: (i)
The Offering, including the additional shares of common stock, Series A warrants and Series B warrants sold pursuant to the partial exercise of the Underwriter’s option, closed on February 8, 2024.
The
net proceeds from the Offering, including the additional shares of common stock, Series A warrants and Series B warrants sold pursuant
to the partial exercise of the Underwriter’s option, after deducting underwriting discounts and commissions and other estimated
Offering expenses payable by the Company and excluding any proceeds from the exercise of the Series A warrants, Series B warrants and
pre-funded warrants, were approximately $
The Series A warrants and Series
B warrants each have an exercise price of $
On February 8, 2024, pursuant to the Underwriting Agreement, the Company
issued Series A warrants to the Underwriter to purchase up to
June 2024 Private Sale
On June 11, 2024, the Company
entered into a Stock Purchase Agreement (the Purchase Agreement) with a member of the Company’s board of directors, pursuant to
which the Company sold and the board member purchased
22
Warrants Classified as Equity
| Number of Shares | Exercise Price | Expiration | ||||||||
| Balance as of December 31, 2023 | $ | |||||||||
| Pre-funded warrants issued | $ | |||||||||
| Pre-funded warrants exercised | ( | ) | $ | |||||||
| Series A warrants issued | $ | |||||||||
| Series A warrants issued | $ | |||||||||
| Series B warrants issued | $ | |||||||||
| Balance as of March 31, 2024 | ||||||||||
| Pre-funded warrants exercised | ( | ) | $ | |||||||
| Balance as of June 30, 2024 | ||||||||||
During the three months ended June 30, 2024, holders exercised warrants
for an aggregate of
Note 9. Warrants Classified as Liabilities
In November 2022 and June
2023, the Company completed registered direct offerings and sold shares of its common stock and common stock purchase warrants (the “Purchase
Warrants”). The securities purchase agreements governing the Purchase Warrants provide for a value calculation for such warrants
using the Black Scholes model in the event of certain fundamental transactions. The fair value calculation provides for a floor on the
volatility amount utilized in the value calculation at
| Number of Shares | Exercise Price | Expiration Date | ||||||||
| Warrants issued - November 2022 | $ | |||||||||
| Warrants issued - June 2023 | $ | |||||||||
23
| Number of Shares | Fair Value | |||||||
| Balance as of December 31, 2023 | $ | |||||||
| Change in fair value of warrants | ( | ) | ||||||
| Balance as of March 31, 2024 | ||||||||
| Change in fair value of warrants | ( | ) | ||||||
| Balance as of June 30, 2024 | $ | |||||||
| 2022 Purchase Warrant | 2023 Purchase Warrant | |||||||
| Expected term based on contractual term | | | ||||||
| Interest rate (risk-free rate) | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | ||||||||
| Fair value of warrants (in thousands) | $ | $ | ||||||
| 2022 Purchase Warrant | 2023 Purchase Warrant | |||||||
| Expected term based on contractual term | ||||||||
| Interest rate (risk-free rate) | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | ||||||||
| Fair value of warrants (in thousands) | $ | $ | ||||||
Note 10. Related Party Transactions
A family member of one of
the Company’s executive officers is an employee of the Company. The Company recorded compensation expense of approximately $
See Note 8 for a discussion of the Company’s sale of common stock to a member of the Company’s board of directors in June 2024.
Note 11. License and Asset Sale Transaction
On August 5, 2022, the Company entered into a Technology License and Patent Assignment Agreement (the Intel Agreement) with Intel Corporation (Intel), pursuant to which Intel: (i) licensed from the Company, on an exclusive basis, certain software and technology assets related to the Company’s Stellar packet classification intellectual property, including its graph memory engine technology, and any roadmap variant, in the form existing as of the date of the Intel Agreement (the Licensed Technology); (ii) acquired from the Company certain patent applications and patents owned by the Company; and (iii) assumed a professional services agreement, dated March 24, 2020, between Fabulous Inventions AB (Fabulous) and the Company, pursuant to which, among other things, the Company licensed from Fabulous certain technology incorporated into the Licensed Technology.
24
As consideration for the Company
to enter into the Intel Agreement, Intel agreed to pay the Company $
The Company determined that the license and asset sale did not qualify
as a sale of a business, but as a sale of a non-financial asset, with the resultant gain recorded as income from operations in accordance
with ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets. During the year ended December
31, 2022, the Company recognized a $
Note 12. Memory IC Product End-of-Life
Taiwan Semiconductor Manufacturing
Corporation (TSMC) is the sole foundry that manufactures the wafers used to produce the Company’s memory IC products. TSMC has informed
the Company that TSMC is discontinuing the foundry process used to produce wafers, in turn, necessary to manufacture the Company’s
memory ICs. As a result, in May 2023, the Company informed its customers that the Company would be initiating an end-of-life (EOL) of
its memory IC products. As of June 30, 2024, the Company had a non-cancelable purchase order backlog for its memory IC products of approximately
$
Note 13. Subsequent Events
On August 6, 2024, the Company extended the expiration date of the Series B warrants issued in the Offering (the “Series B Warrants”) to 5:00 p.m. (New York City time) on October 7, 2024, by entering into an amendment to the Warrant Agency Agreement dated as of February 8, 2024 by and between the Company and the warrant agent, Equiniti Trust Company, LLC. The Series B Warrants would otherwise have expired on August 8, 2024. See Note 8 for additional information about the Series B Warrants and the Offering.
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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, 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 29, 2024 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, 2023 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 we were incorporated in California in 1991 and reincorporated in 2000 in Delaware. 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 we changed our name to “Peraso Inc.” and began trading on the Nasdaq Stock Market (the “Nasdaq”) under the symbol “PRSO.”
Our strategy and primary business objective is to be a profitable, IP-rich fabless semiconductor company offering integrated circuits, or ICs, antenna modules and related non-recurring engineering services. We specialize in the development of mmWave semiconductors, primarily in the unlicensed 60 GHz spectrum band for 802.11ad/ay- compliant devices and in the 28/39 GHz spectrum bands for 5G-compliant devices. We derive our revenue from selling semiconductor devices, as well as antenna modules based on using those mmWave semiconductor devices. We have pioneered a high-volume mmWave IC production test methodology using standard, low-cost production test equipment. It has taken us several years to refine performance of this production test methodology, and we believe this places us in a leadership position in addressing operational challenges of delivering mmWave products into high-volume markets. We also produce and sell complete mmWave antenna modules. The primary advantage provided by our antenna modules is that our proprietary mmWave ICs and the antenna are integrated into a single device. A differentiating characteristic of mmWave technology is that the RF amplifiers must be as close as possible to the antenna to minimize loss. With our module, we can guarantee the performance of the amplifier/antenna interface and simplify customers’ radio frequency (“RF”) engineering, facilitating more opportunities for customer prospects that have not provided RF-type systems, as well as shortening the time to market for new products.
We also 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.
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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.
Reverse Stock Split
On December 15, 2023, at our annual meeting of stockholders, our stockholders approved a certificate of amendment to our Second Amended and Restated Certificate of Incorporation (the “Charter Amendment”) to effect a reverse stock split of our outstanding shares of common stock at a ratio to be determined by our board of directors. On December 15, 2023, we filed the Charter Amendment with the Secretary of State of Delaware which effected a 1-for-40 reverse stock split of our outstanding shares of common stock as of 4:01 p.m. Eastern Time on January 2, 2024. As a result of the reverse stock split, every forty shares of common stock were combined into one issued and outstanding share of common stock, with no change in the $0.001 par value per share. Holders of fractional shares received, in lieu of any fractional share, the number of shares rounded up to the next whole number. All equity awards outstanding and common stock reserved for issuance under our equity incentive plans and warrants outstanding immediately prior to the reverse stock split were appropriately adjusted by dividing the number of affected shares of common stock by 40 and, as applicable, multiplying the exercise price by 40, as a result of the reverse stock split. Exchangeable shares, which can be converted to common stock at any time by their respective holders, were also adjusted to reflect the reverse stock split.
Risks and Uncertainties
We are subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, pandemics, wars and acts of terrorism and the volatility of public markets. We may be unable to access the capital markets, and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business.
For additional information on risks that could impact our future results of operations, please refer to “Risk Factors” in Part II, Item 1A. of this quarterly report on Form 10-Q.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these condensed consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances. Actual results may differ from these estimates and reported results could differ under different assumptions or conditions. Our significant accounting policies and estimates are disclosed in Note 1 of the “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1 of this report and Note 1 of the “Notes to Consolidated Financial Statements” in our annual report on Form 10-K for the year ended December 31, 2023. As of June 30, 2024, there have been no material changes to our significant accounting policies and estimates.
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Results of Operations
Net Revenue
| June 30, | Change | |||||||||||||||
| 2024 | 2023 | 2023 to 2024 | ||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Product - three months ended | $ | 4,109 | $ | 2,235 | $ | 1,874 | 84 | % | ||||||||
| Percentage of total net revenue | 97 | % | 93 | % | ||||||||||||
| Product - six months ended | $ | 6,785 | $ | 7,123 | $ | (338 | ) | (5 | )% | |||||||
| Percentage of total net revenue | 96 | % | 96 | % | ||||||||||||
The following table details revenue by product category for the three and six months ended June 30, 2024 and 2023:
| Three months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| Product category | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Memory ICs | $ | 3,428 | $ | 1,616 | $ | 5,811 | $ | 3,831 | ||||||||
| mmWave ICs | 127 | 559 | 204 | 2,004 | ||||||||||||
| mmWave modules | 553 | 60 | 757 | 1,284 | ||||||||||||
| mmWave other products | 1 | — | 13 | 4 | ||||||||||||
| $ | 4,109 | $ | 2,235 | $ | 6,785 | $ | 7,123 | |||||||||
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.
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.
We expect revenues to increase in 2024 as compared with 2023, as we anticipate increased sales of our memory IC products, based on EOL purchase orders received from customers. In addition, we expect sales of our mmWave products to increase from a volume and revenue perspective over the next 12 months, as we expect new customers to commence production during 2024.
| June 30, | Change | |||||||||||||||
| 2024 | 2023 | 2023 to 2024 | ||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Royalty and other - three months ended | $ | 129 | $ | 168 | $ | (39 | ) | -23 | % | |||||||
| Percentage of total net revenue | 3 | % | 7 | % | ||||||||||||
| Royalty and other - six months ended | $ | 269 | $ | 313 | $ | (44 | ) | -14 | % | |||||||
| Percentage of total net revenue | 4 | % | 4 | % | ||||||||||||
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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.
Cost of Net Revenue and Gross Profit
| June 30, | Change | |||||||||||||||
| 2024 | 2023 | 2023 to 2024 | ||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Cost of net revenue -three months ended | $ | 1,887 | $ | 1,795 | $ | 92 | 5 | % | ||||||||
| Percentage of total net revenue | 45 | % | 75 | % | ||||||||||||
| Cost of net revenue -six months ended | $ | 3,397 | $ | 4,901 | $ | (1,504 | ) | -31 | % | |||||||
| Percentage of total net revenue | 48 | % | 66 | % | ||||||||||||
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 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.
| June 30, | Change | |||||||||||||||
| 2024 | 2023 | 2023 to 2024 | ||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Gross profit -three months ended | $ | 2,351 | $ | 608 | $ | 1,743 | 287 | % | ||||||||
| Percentage of total net revenue | 55 | % | 25 | % | ||||||||||||
| Gross profit -six months ended | $ | 3,657 | $ | 2,535 | $ | 1,122 | 44 | % | ||||||||
| Percentage of total net revenue | 52 | % | 34 | % | ||||||||||||
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.
Research and Development
| June 30, | Change | |||||||||||||||
| 2024 | 2023 | 2023 to 2024 | ||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Research and development -three months ended | $ | 2,644 | $ | 3,668 | $ | (1,024 | ) | (28 | )% | |||||||
| Percentage of total net revenue | 62 | % | 153 | % | ||||||||||||
| Research and development -six months ended | $ | 5,457 | $ | 7,555 | $ | (2,098 | ) | (28 | )% | |||||||
| Percentage of total net revenue | 77 | % | 102 | % | ||||||||||||
Our research and development, or R&D, expenses include costs related to the development of our products. We expense R&D costs as they are incurred.
The decrease for the three and six months ended June 30, 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.
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We expect that total R&D expenses will decrease during 2024 compared with 2023, as a result of our cost reduction initiatives initiated during 2023.
Selling, General and Administrative
| June 30, | Change | |||||||||||||||
| 2024 | 2023 | 2023 to 2024 | ||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| SG&A -three months ended | $ | 2,141 | $ | 1,977 | $ | 164 | 8 | % | ||||||||
| Percentage of total net revenue | 51 | % | 82 | % | ||||||||||||
| SG&A -six months ended | $ | 4,243 | $ | 4,219 | $ | 24 | 1 | % | ||||||||
| Percentage of total net revenue | 60 | % | 57 | % | ||||||||||||
Selling, general and administrative, or SG&A, expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general management and amortization of certain intangible assets.
The 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 by the 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.
Severance and Software License Obligations
| June 30, | Change | |||||||||||||||
| 2024 | 2023 | 2023 to 2024 | ||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| Severance and software license obligations -three months ended | $ | 2,041 | $ | — | $ | 2,041 | — | |||||||||
| Percentage of total net revenue | 48 | % | — | |||||||||||||
| Severance and software license obligations -six months ended | $ | 2,063 | $ | — | $ | 2,063 | — | |||||||||
| Percentage of total net revenue | 29 | % | — | |||||||||||||
On November 7, 2023, we implemented an employee lay-off and terminated certain consulting positions (the “Reductions”) to reduce operating expenses and cash burn, as we prioritized business activities and projects that we believe will have a higher return on investment. As part of the Reductions, we implemented a temporary lay-off that impacted 16 employees (the “Employees”) of Peraso Tech. The employment of one Employee was terminated during the three months ended March 31, 2024. During the three months ended June 30, 2024, we determined that we would not recall any of the 10 Employees that remained on our payroll and commenced notifying the remaining Employees that their employment would be terminated. As a result, we recorded severance charges of approximately $424,000 and $446,000 for the three and six months ended June 30, 2024, respectively.
As a result of the decision to not recall the Employees, we determined that it was probable that a number of our non-cancelable licenses for computer-aided design software would not be utilized during the remaining license terms. During the three months ended June 30, 2024, we expensed the value of the remaining contractual liabilities and certain prepaid amounts totaling approximately $1,617,000 and recorded liabilities totaling approximately $1,533,000, which are expected to be paid through September 30, 2025. As of June 30, 2024, the current portion of the remaining contractual liabilities of $257,000 and $1,015,000 are included in accounts payable and accrued expenses and other, respectively (see Note 3), and the non-current portion of $261,000 is included in other long-term liabilities.
Liquidity and Capital Resources; Changes in Financial Condition
Cash Flows
As of June 30, 2024, we had cash and cash equivalents of $1.9 million and working capital of $1.1 million.
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.
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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.
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.
Net cash provided by financing activities of $3.5 million for the six months ended June 30, 2024 primarily comprised $3.4 million in net proceeds from a public offering of our common stock and common stock purchase warrants completed in February 2024 and a $0.1 million sale of unregistered stock to a member of our board of directors.
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.
Our future liquidity and capital requirements are expected to vary from quarter-to-quarter, depending on numerous factors, including:
| ● | level of revenue; |
| ● | cost, timing and success of technology development efforts; |
| ● | inventory levels, as supply chain disruption during the COVID-19 pandemic required us to maintain higher inventory levels and place purchase orders with our suppliers longer into the future, which exposes us to additional inventory risk; |
| ● | timing of product shipments, which may be impacted by supply chain disruptions; |
| ● | length of billing and collection cycles, which may be impacted in the event of a global recession or economic downturn; |
| ● | 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. |
Purchase Obligations
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.
Going Concern - Working Capital
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.
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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.
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.
As discussed in Note 8 of the “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1 of this report, in February 2024, we completed a public offering of common stock and common stock purchase warrants for net proceeds to us of approximately $3.4 million. If we were to raise additional capital through the exercise of the common stock purchase warrants issued in February 2024 or other 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. |
Discontinuing any of the above-mentioned activities could seriously harm our ability to execute our business strategy and may force us to curtail our existing operations.
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.
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We will need additional funding to continue our operating activities beyond those activities currently included in our operating forecast and related cash projection. Therefore, we will need to secure additional capital or financing and/or significantly delay, defer or reduce our cash expenditures before the end of 2024. There can be no assurance that we will be able to obtain additional capital or financing on terms acceptable to us, on a timely basis or at all.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity or capital resources.
Indemnifications
In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify the counter-party from losses relating to a breach of representations and warranties, a failure to perform certain covenants, or claims and losses arising from certain external events as outlined within the contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. We have also entered into indemnification agreements with our officers and directors. No material amounts related to these indemnifications are reflected in our condensed consolidated financial statements for the three and six months ended June 30, 2024.
Recent Accounting Pronouncements
See Note 1 to the condensed consolidated financial statements for a discussion of recently-issued accounting pronouncements.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures. Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, our management concluded that, as of June 30, 2024, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting. During the three months ended June 30, 2024, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. Legal Proceedings
The discussion of legal matters in Note 5 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report under the heading “Legal Matters” is incorporated by reference in response to this Part II, Item 1.
ITEM 1A. Risk Factors
We face many significant risks in our business, some of which are unknown to us and not presently foreseen. These risks could have a material adverse impact on our business, financial condition and results of operations in the future. Other than as set forth below, there have been no material changes with respect to the risk factors disclosed under Item 1A of our annual report on Form 10-K for the year ended December 31, 2023, which we filed with the SEC on March 29, 2024.
We might not be able to continue as a going concern.
Our consolidated financial statements as of June 30, 2024 have been prepared under the assumption that we will continue as a going concern for the next twelve months. As of June 30, 2024, we had cash and cash equivalents of $1.9 million and an accumulated deficit of $173 million. In February 2024, we completed a public offering of our common stock and common stock purchase warrants for net proceeds of approximately $3.4 million. We believe that our existing cash and cash equivalents as of June 30, 2024, plus expected receipts associated with forecasted product sales, will enable us to meet our capital needs until the fourth quarter of 2024.
Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to achieve sustainable revenues and profitable operations. 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. If we cannot continue as a viable entity, our stockholders would likely lose most or all of their investment in us.
If we are unable to generate sustainable operating profit and sufficient cash flows, then our future success will depend on our ability to raise capital. We cannot be certain that raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to us or, if available, will be on terms acceptable to us. If we issue additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of our common stock, and our current stockholders may experience dilution. If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current product development programs, cut operating costs, forego future development and other opportunities or even terminate our operations.
Our forecast of the period of time through which our financial resources will be adequate to support our operating requirements is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section and in Item 1A of our annual report on Form 10-K for the year ended December 31, 2023. We have based this estimate on a number of assumptions that may prove to be wrong and changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate. Our inability to obtain additional funding when we need it could seriously harm our business.
We intend to discontinue the production of our memory products.
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 is discontinuing the foundry process used to produce the wafers necessary to produce our memory ICs. We are not in a position to transition wafer production to a new foundry and continue to manufacture these products. As a result, in May 2023, we initiated an end-of-life, or EOL, of our memory IC products. We expect to fulfill EOL product purchase orders by March 31, 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. Our memory IC products represented over 60% of our revenues for the year ended December 31, 2023 and over 80% of our revenues for the six months ended June 30, 2024. The discontinuation of the production and sale of our memory IC products will negatively impact our future revenues, gross margins, results of operations and cash flows.
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Our recent reduction in force undertaken to significantly reduce our ongoing operating expenses may not result in our intended outcomes and may yield unintended consequences and additional costs.
On November 7, 2023, we implemented an employee lay-off and terminated certain consulting positions (the “Reductions”) to reduce operating expenses and cash burn, as we prioritized business activities and projects that we believe will have a higher return on investment. As part of the Reductions, we implemented a temporary lay-off that impacted 16 employees (the “Employees”) of Peraso Tech. The employment of one Employee was terminated during the three months ended March 31, 2024. During the three months ended June 30, 2024, we determined that we would not recall any of the 10 Employees that remained on our payroll and commenced notifying the remaining Employees that their employment would be terminated. As a result, we recorded severance charges of approximately $424,000 and $446,000 for the three and six months ended June 30, 2024, respectively, and a liability for severance costs of $419,000 as of June 30, 2024. The severance costs are expected to be paid over the next 13 months.
As a result of the decision to not recall the Employees, we determined that it was probable that a number of our non-cancelable licenses for computer-aided design software would not be utilized during the remaining license terms. During the three months ended June 30, 2024, we expensed the value of the remaining contractual liabilities and recorded liabilities of approximately $1,533,000. We expect to pay these license fees through September 30, 2025.
In addition to the costs associated with the non-cancelable license commitments for computer-aided design software, the Reductions may result in other unintended consequences and costs, such as the loss of institutional knowledge and expertise, attrition beyond the intended number of employees, decreased morale among our remaining employees, and the risk that we may not achieve the anticipated benefits of the Reductions. In addition, while positions have been eliminated, certain functions performed by those positions and necessary to our operations remain, and we may be unsuccessful in distributing the duties and obligations of departed employees among our remaining employees. We may also be unsuccessful in negotiating any desired strategic alternative or partnership relating to such functions on a timely basis, on acceptable terms, or at all. The Reductions could also make it difficult for us to pursue, or prevent us from pursuing, new opportunities and initiatives due to insufficient personnel, or require us to incur additional and unanticipated costs to hire new personnel to pursue such opportunities or initiatives. Further, inflationary pressure may increase our costs, including employee compensation costs, or result in employee attrition to the extent our compensation does not keep up with inflation, particularly if our competitors’ compensation does. If we are unable to realize the anticipated benefits from the Reductions, if we experience significant adverse consequences from the reduction in force, or if we are otherwise unable to retain our employees, our business, financial condition, and results of operations may be materially adversely affected.
We currently maintain and may expand operations outside of the United States which exposes us to significant risks.
The success of our business depends, in large part, on our ability to operate successfully from geographically disparate locations and to further expand our international operations and sales. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic, and political risks that are different from those we face in the United States. We cannot be sure that further international expansion will be successful. In addition, we face risks in doing business internationally that could expose us to reduced demand for our products, lower prices for our products or other adverse effects on our operating results. The success and profitability, as well as the expansion, of our international operations are subject to numerous risks and uncertainties, many of which are outside of our control, such as the following:
| ● | public health issues, such as pandemics and epidemics, which can result in varying impacts to our business, employees, partners, customers, distributors or suppliers internationally; |
| ● | difficulties, inefficiencies and costs associated with staffing and managing foreign operations; |
| ● | longer and more difficult customer qualification and credit checks; |
| ● | greater difficulty collecting accounts receivable and longer payment cycles; |
| ● | the need for various local approvals to operate in some countries; |
| ● | difficulties in entering some foreign markets without larger-scale local operations; |
| ● | changes in import/export laws, trade restrictions, regulations and customs and duties and tariffs (foreign and domestic); |
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| ● | compliance with local laws and regulations; |
| ● | unexpected changes in regulatory requirements; |
| ● | reduced protection for intellectual property rights in some countries; |
| ● | adverse tax consequences, including potential additional tax exposure if we are deemed to have established a permanent establishment outside of the United States; |
| ● | the effectiveness of our policies and procedures designed to ensure compliance with the US Foreign Corrupt Practices Act of 1977 and similar regulations; |
| ● | fluctuations in currency exchange rates, which could increase the prices of our products to customers outside of the United States, increase the expenses of our international operations by reducing the purchasing power of the U.S. dollar and expose us to foreign currency exchange rate risk if, in the future, we denominate our international sales in currencies other than the U.S. dollar; |
| ● | new and different sources of competition; |
| ● | political, economic, and social instability; |
| ● | terrorism and acts of war, which could have a negative impact on the operations of our business or the businesses of our customers and vendors; and |
| ● | US Department of Commerce regulations or restrictions on exports of certain semiconductor products and technologies. |
Our failure to manage any of these risks successfully could harm our operations and reduce our revenue.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Except as disclosed below, during the period covered by this Quarterly Report on Form 10-Q, the Company has not sold any equity securities that were not registered under the Securities Act that were not previously reported in a Current Report on Form 8-K.
On May 1, 2024, the Company entered into a consulting agreement with a service provider, pursuant to which the Company agreed to issue to the service provider, as partial compensation, 40,000 unregistered shares of common stock 90 days thereafter. The Company issued the shares to the service provider in August 2024 in reliance on an exemption from registration provided by Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act. The service provider represented in the consulting agreement that it was an “accredited investor” as defined in Rule 501(a) of Regulation D under the Securities Act. The shares are subject to transfer restrictions, and the book-entry records evidencing the shares contain an appropriate legend stating that such shares have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom.
ITEM 5. Other Information
None of the Company’s
directors or officers
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ITEM 6. Exhibits
(a) Exhibits
| Reference | Filed or | |||||||||||
| Exhibit No. | Exhibit Description | Form | File No. | Form Exhibit | Filing Date | Furnished Herewith | ||||||
| 10.1 | Stock Purchase Agreement dated as of June 11, 2024 | 8-K | 000-32929 | 10.1 | June 13, 2024 | |||||||
| 31.1 | Rule 13a-14 Certification | X | ||||||||||
| 31.2 | Rule 13a-14 Certification | X | ||||||||||
| 32.1 | Section 1350 Certification | X | ||||||||||
| 101 | The following financial information from Peraso Inc.’s quarterly report on Form 10-Q for the period ended June 30, 2024, filed with the SEC on August 13, 2024, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2024 and 2023, (ii) the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023, (iii) the Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023, and (v) Notes to Condensed Consolidated Financial Statements | X | ||||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | X | ||||||||||
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: August 13, 2024 |
PERASO INC. | |
| By: | /s/ Ronald Glibbery | |
| Ronald Glibbery | ||
|
Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ James Sullivan | |
| James Sullivan | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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