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Peraso Inc. - Quarter Report: 2023 June (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                to              

 

Commission file number 000-32929

 

PERASO INC.

(Exact name of registrant as specified in its charter)

 

Delaware   77-0291941
(State or other jurisdiction of   (I.R.S. Employer
Incorporation or organization)   Identification Number)

 

2309 Bering Drive

San Jose, California 95131

(Address of principal executive office and zip code)

 

(408) 418-7500

(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 
Common Stock, par value $0.001 per share   PRSO   The Nasdaq Stock Market, LLC

 

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. Yes ☒ NO ☐

 

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). Yes ☒ NO ☐

 

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 
Non-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 5,461,324 as of August 10, 2023.

 

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 22,439,012 as of August 10, 2023.

 

 

 

 

 

  

PERASO INC.

 

FORM 10-Q

 

June 30, 2023

 

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION 1
     
Item 1. Financial Statements (Unaudited): 1
     
  Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 1
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2023 and 2022 2
     
  Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 3
     
  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 4
     
  Notes to Condensed Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
     
Item 4. Controls and Procedures 28
     
PART II — OTHER INFORMATION 29
     
Item 1. Legal Proceedings 29
     
Item 1A. Risk Factors 29
     
Item 6. Exhibits 31
     
  Signatures 32

 

i

 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

PERASO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

 

   June 30,   December 31, 
   2023   2022 
   (unaudited)     
ASSETS        
Current assets        
Cash and cash equivalents  $2,146   $1,828 
Short-term investments   594    1,078 
Accounts receivable, net   1,497    3,244 
Inventories   5,160    5,348 
Deferred cost of net revenue   
    600 
Prepaid expenses and other   729    615 
Total current assets   10,126    12,713 
           
Property and equipment, net   1,850    2,225 
Intangible assets, net   5,031    6,278 
Right-of-use lease assets, net   820    1,147 
Other   123    123 
Total assets  $17,950   $22,486 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable  $1,142   $1,844 
Accrued expenses and other   1,161    1,817 
Deferred revenue   175    332 
Short-term lease liabilities   464    687 
Total current liabilities   2,942    4,680 
           
Long-term lease liabilities   349    470 
Warrant liabilities   3,618    2,079 
Total liabilities   6,909    7,229 
           
Commitments and contingencies (Note 4)   
 
    
 
 
Stockholders’ equity          
Preferred stock, $0.01 par value; 20,000 shares authorized; none issued and outstanding   
    
 
Series A, special voting preferred stock, $0.01 par value; one share authorized; and one share issued and  outstanding at June 30, 2023 and December 31, 2022, respectively   
    
 
Common stock, $0.001 par value; 120,000 shares authorized; 22,170 shares and 14,270 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively   22    14 
Exchangeable shares, no par value; unlimited shares authorized; 5,731 shares and 9,107 shares outstanding at June 30, 2023 and December 31, 2022, respectively   
    
 
Additional paid-in capital   167,854    164,865 
Accumulated other comprehensive loss   (4)   (25)
Accumulated deficit   (156,831)   (149,597)
Total stockholders’ equity   11,041    15,257 
Total liabilities and stockholders’ equity  $17,950   $22,486 

 

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, 
   2023   2022   2023   2022 
Net revenue                
Product  $2,235   $4,120   $7,123   $7,324 
Royalty and other   168    164    313    363 
Total net revenue   2,403    4,284    7,436    7,687 
Cost of net revenue   1,795    2,799    4,901    4,747 
Gross profit   608    1,485    2,535    2,940 
Operating expenses                    
Research and development   3,668    5,643    7,555    11,127 
Selling, general and administrative   1,977    2,878    4,219    5,585 
Gain on license and asset sale   
    
    (406)   
 
Total operating expenses   5,645    8,521    11,368    16,712 
Loss from operations   (5,037)   (7,036)   (8,833)   (13,772)
Change in fair value of warrant liabilities   966    
    1,624    
 
Other expense, net   (15)   (7)   (25)   (25)
Net loss  $(4,086)  $(7,043)  $(7,234)  $(13,797)
                     
Other comprehensive loss, net of tax:                    
Net unrealized gain (loss) on available-for-sale securities   7    (4)   21    (41)
Comprehensive loss  $(4,079)  $(7,047)  $(7,213)  $(13,838)
                     
                     
Net loss per share                    
Basic and diluted
  $(0.17)  $(0.33)  $(0.32)  $(0.64)
Shares used in computing net loss per share                    
Basic and diluted
   24,338    21,636    22,442    21,610 

 

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 Special Voting              Additional   Accumulated
Other
         
   Preferred Stock   Common Stock   Exchangeable Shares   Paid-In   Comprehensive   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Loss   Deficit   Total 
Balance as of December 31,
2022
    —   $          —    14,270   $14    9,107   $      —   $164,865   $              (25)  $(149,597)  $15,257 
Exchange of exchangeable shares   
 
    
 
    310    1    (310)   
 
    (1)   
 
    
 
     
Stock-based compensation                           1,307            1,307 
Unrealized gain on available-for-sale securities                               14        14 
Net loss                                   (3,148)   (3,148)
Balance as of March 31, 2023           14,580    15    8,797        166,171    (11)   (152,745)   13,430 
Exchange of exchangeable shares           3,066    3    (3,066)       (3)            
Issuance of common stock under stock plan, net           157                (36)           (36)
Sale of common stock and warrants           2,250    2            3,546            3,548 
Issuance of common stock upon exercise of warrants           2,117    2            19            21 
Initial recognition of fair value of warrant liability                           (3,162)           (3,162)
Stock-based compensation                           1,319            1,319 
Unrealized gain on available-for-sale securities                               7        7 
Net loss                                   (4,086)   (4,086)
Balance as of June 30, 2023      $    22,170   $22    5,731   $   $167,854   $(4)  $(156,831)  $11,041 

 

   Series A Special Voting                   Additional   Accumulated
Other
         
   Preferred Stock   Common Stock   Exchangeable Shares   Paid-In   Comprehensive   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Loss   Deficit   Total 
Balance as of December 31,
2021
      $      —    12,284   $12    9,295   $      —   $159,256   $           —   $(117,199)  $42,069 
Issuance of common stock under stock plan, net           9                (9)           (9)
Stock-based compensation                           1,171            1,171 
Unrealized loss on available-for-sale securities                               (37)       (37)
Net loss                                   (6,754)   (6,754)
Balance as of March 31, 2022           12,293    12    9,295        160,418    (37)   (123,953)   36,440 
Issuance of common stock under stock plan, net           244                (50)           (50)
Stock-based compensation                           1,738            1,738 
Unrealized loss on available-for-sale securities                               (4)       (4)
Net loss                                   (7,043)   (7,043)
Balance as of June 30, 2022      $    12,537   $12    9,295   $   $162,106   $(41)  $(130,996)  $31,081 

 

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, 
   2023   2022 
Cash flows from operating activities:          
Net loss  $(7,234)  $(13,797)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   1,713    1,540 
Stock-based compensation   2,626    2,909 
Change in fair value of warrant liabilities   (1,624)   
 
Allowance for bad debt   (154)   
 
Accrued interest   (12)   13 
Other   5    154 
Changes in assets and liabilities:          
Accounts receivable   1,900    (791)
Inventories   189    (561)
Prepaid expenses and other assets   485    (331)
Accounts payable   (702)   474 
Right-of-use assets   332    256 
Lease liabilities - operating   (285)   (242)
Deferred revenue and other liabilities   (813)   (1,186)
Net cash used in operating activities   (3,574)   (11,562)
Cash flows from investing activities:          
Purchases of property and equipment   (91)   (342)
Purchases of intangible assets   
    (21)
Proceeds from maturities of marketable securities   500    9,434 
Purchases of marketable securities   
    (497)
Net cash provided by investing activities   409    8,574 
Cash flows from financing activities:          
Proceeds from sale of common stock, net   3,570    
 
Taxes paid to net share settle equity awards   (36)   (59)
Repayment of financing leases   (51)   (26)
Net cash provided by (used in) financing activities   3,483    (85)
Net increase (decrease) in cash and cash equivalents   318    (3,073)
Cash and cash equivalents at beginning of period   1,828    5,893 
Cash and cash equivalents at end of period  $2,146   $2,820 
Supplemental disclosure:          
Initial recognition of warrant liability  $3,162   $
 
Recognition of right-of-use asset and lease liability  $
   $995 
Unrealized gain on securities  $21   $41 

 

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. (the Company), formerly known as MoSys, Inc. (MoSys), was incorporated in California in 1991 and reincorporated in 2000 in Delaware. The Company is a fabless semiconductor company and derives revenue from selling its semiconductor devices and antenna modules, performance of non-recurring engineering services and licensing of its technologies. The Company specializes in the development of millimeter wave (mmWave), which is generally described as the frequency band from 24 Gigahertz (GHz) to 300GHz, wireless technology. In addition, 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 (see Note 10).

 

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, 2022 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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or for any other future period.

 

Liquidity and Going Concern

 

The Company incurred net losses of approximately $7.2 million for the six months ended June 30, 2023 and $32.4 million for the year ended December 31, 2022 and had an accumulated deficit of approximately $156.8 million as of June 30, 2023. These and prior year losses have resulted in significant negative cash flows and have required the Company to raise substantial amounts of additional capital. To date, the Company has primarily financed its operations through multiple offerings of common stock and issuance of convertible notes and loans to investors and affiliates.

 

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. 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. The Company’s primary focus is producing and selling its products. 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.

 

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 and the volatility of public markets.

 

COVID-19

 

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020.  Since March 2020, from time to time, this has negatively affected the U.S. and global economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets. The full extent of the COVID-19 impact on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by U.S. and foreign government agencies to prevent disease spread, all of which are uncertain, out of the Company’s control, and cannot be predicted.

 

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, purchase price allocations, valuation allowance on deferred tax assets, accruals for potential liabilities and assumptions made in valuing equity instruments. Actual results could differ from those estimates.

 

6

 

 

Cash Equivalents and Investments

 

The Company has invested its excess 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 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.

 

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.

 

7

 

 

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 100% of the invoice value is provided for any problematic customer balances. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The Company grants credit only to customers deemed creditworthy in the judgment of management. The allowance for doubtful accounts receivable was approximately $30,000 as of June 30, 2023 and approximately $183,000 as of December 31, 2022.

 

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 inventory reserves for estimated obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions. Once a reserve is established, it is maintained until the product to which it relates is sold or otherwise disposed of. If actual market conditions are less favorable than those expected by management, additional adjustment 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 $629,000 and $160,000 during the six months ended June 30, 2023 and 2022, respectively. If the Company’s recognition of excess or obsolete inventory is, or if its estimates of inventory’s potential utility become, less favorable than currently expected, additional inventory write-downs may be required.

 

Intangible and Long-lived Assets

 

Intangible assets are recorded at cost and amortized on a straight-line method over their estimated useful lives of three to ten years. Amortization of developed technology and other intangibles directly related to the Company’s products is included in cost of net revenue, while amortization of customer relationships and other intangibles not associated with the Company’s products is included in SG&A in the condensed consolidated statements of operations.

 

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.

 

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. Intangible assets subject to amortization, including those acquired in business combinations were as follows (amounts in thousands):

 

   June 30, 2023 
   Gross       Net 
   Carrying   Accumulated   Carrying 
   Amount   Amortization   Amount 
Developed technology  $5,726   $(2,344)  $3,382 
Customer relationships   2,556    (1,046)   1,510 
Other   186    (47)   139 
Total  $8,468   $(3,437)  $5,031 

 

   December 31, 2022 
   Gross       Net 
   Carrying   Accumulated   Carrying 
   Amount   Amortization   Amount 
Developed technology  $5,726   $(1,491)  $4,235 
Customer relationships   2,556    (666)   1,890 
Other   186    (33)   153 
Total  $8,468   $(2,190)  $6,278 

8

 

 

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. The Company has revised the remaining estimated life to 18 months as a result of the end of life for our memory products (see Note 11). Amortization related to developed technology of $0.4 million and $0.9 million for the three and six months ended June 30, 2023, respectively, has been included in cost of net revenue in the condensed consolidated statements of operations and comprehensive loss.

 

Customer relationships relate to the Company’s ability to sell existing and future versions of 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. The Company has revised the remaining estimated life to 18 months as a result of the end of life announcement on May 1, 2023 (see Note 11). Amortization related to customer relationships of $0.2 million and $0.4 million for the three and six months ended June 30, 2023, respectively, has been included in selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

 

Other amortization expense was approximately $7,000 and $14,000 for the three and six months ended June 30, 2023, respectively.

 

As of June 30, 2023, estimated future amortization expense related to intangible assets was as follows (in thousands):

 

Year ending December 31,    
2023  $1,645 
2024   3,289 
2025   28 
2026   28 
2027   10 
Thereafter   31 
   $5,031 

 

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.

 

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.

 

9

 

 

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.

 

Deferred cost of net revenue

 

As of December 31, 2022, the Company had $1.1 million of product shipments for which the revenue recognition criteria under ASC 606 had not been met. Accordingly, the Company deferred the cost of net revenue associated with these shipments, and the amount deferred was presented as deferred cost of net revenue in the condensed consolidated balance sheets. During the six months ended June 30, 2023, the Company recognized the associated revenue and cost of net revenue.

 

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, 2023 and December 31, 2022, contract liabilities were in a current position and included in deferred revenue.

 

During the six months ended June 30, 2023, the Company recognized approximately $157,000 of revenue that had been included in deferred revenue as of December 31, 2022.

 

See Note 5 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.

 

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.

 

10

 

 

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 during the period. In addition, the Company includes the number of shares of common stock issuable under 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.  

 

The following table sets forth securities outstanding that were excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive (in thousands):

 

   June 30, 
   2023   2022 
Escrow shares - exchangeable shares   1,313    1,313 
Escrow shares - common stock   502    502 
Options to purchase common stock   1,473    1,537 
Unvested restricted common stock units   942    1,303 
Common stock warrants   9,490    134 
Total   13,720    4,789 

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses. This ASU added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. The Company adopted ASU No. 2016-13 effective January 1, 2023, and the adoption did not have a significant impact on the Company’s condensed consolidated financial statement presentation or disclosures.

 

Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

 

11

 

 

Note 2: Fair Value of Financial Instruments

 

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis and the basis for that measurement (in thousands):

 

   June 30, 2023 
   Fair Value   Level 1   Level 2   Level 3 
Assets:                
Money market funds (1)  $82   $
   $
   $
 
Corporate notes and commercial paper  $594   $
   $594   $
 
                     
Liabilities:                    
Warrant  $3,618   $
   $
   $3,618 

 

   December 31, 2022 
   Fair Value   Level 1   Level 2   Level 3 
Assets:                
Money market funds (1)  $73   $
   $
   $
 
Corporate notes and commercial paper  $1,078   $
   $1,078   $
 
                     
Liabilities:                    
Warrants  $2,079   $
   $
   $2,079 

 

(1)Amounts are included in cash and cash equivalents on the condensed consolidated balance sheets.

 

The following tables represents the Company’s determination of fair value for its financial assets (cash equivalents and investments) (in thousands):

 

   June 30, 2023 
       Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Cash and cash equivalents  $2,146   $
   $
   $2,146 
Short-term investments   580    14    
    594 
   $2,726   $    14   $
   $2,740 

 

   December 31, 2022 
       Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Cash and cash equivalents  $1,828   $
   $
   $1,828 
Short-term investments   1,103    
    (25)   1,078 
   $2,931   $
    —
   $(25)  $2,906 

 

Note 3. Balance Sheet Detail

 

Inventories

 

   June 30,   December 31, 
   2023   2022 
   (in thousands) 
Inventories:        
Raw materials  $617   $1,279 
Work-in-process   2,448    2,595 
Finished goods   2,095    1,474 
   $5,160   $5,348 

 

12

 

 

Note 4. Commitments and Contingencies

 

Leases

 

The Company has facility leases that it accounts for under ASC 842, including the operating leases for its corporate headquarters facility in San Jose, California, and facilities in Toronto and Markham Ontario, Canada. The San Jose and Toronto leases expire in January 2024 and December 2023, respectively. In May 2022, the Company entered into a new 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 $220,000 (the Incentive), which will be payable to the Company as follows: one-half of the Incentive payable subsequent to the completion of the improvements to the leased space and the second half-ratably on an annual basis commencing with the second year of the lease.

 

The initial right-of-use assets and corresponding liabilities of approximately $1.0 million for the San Jose and Markham facility leases were measured at the present value of the future minimum lease payments. The discount rate used to measure the lease assets and liabilities was 8%.

 

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 $274,000.

 

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 $124,000 and lease liability of approximately $117,000.

 

The following table provides the details of right-of-use assets and lease liabilities as of June 30, 2023 (in thousands):

 

   June 30,
2023
 
Right-of-use assets:     
Operating leases  $562 
Finance lease   258 
Total right-of-use assets  $820 
Lease liabilities:     
Operating leases  $554 
Finance lease   259 
Total lease liabilities  $813 

 

Future minimum payments under the leases at June 30, 2023 are listed in the table below (in thousands):

 

   Operating 
Year ending December 31,  leases 
2023  $283 
2024   265 
2025   166 
2026   110 
2027   83 
Total future lease payments   907 
Less: imputed interest   (94)
Present value of lease liabilities  $813 

 

The following table provides the details of supplemental cash flow information (in thousands):

 

   Six Months Ended 
   June 30, 
   2023   2022 
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows for leases  $403   $283 

 

Rent expense was approximately $0.2 million for each of the three-month periods ended June 30, 2023 and 2022. Rent expense was approximately $0.4 million for each of the six-month periods ended June 30, 2023 and 2022. In addition to the minimum lease payments, the Company is responsible for property taxes, insurance and certain other operating costs related to the leased facilities and equipment.

 

13

 

 

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 six months ended June 30, 2023 and 2022 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. 

 

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 six months ended June 30, 2023 and 2022.

 

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 and computer-aided-design (CAD) software. At June 30, 2023, the Company had outstanding non-cancelable purchase orders for inventory, primarily wafers and substrates, and related expenditures of approximately $2.2 million and non-cancelable purchase orders for CAD software of $2.9 million.

 

Note 5. 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 one consolidated operating segment. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments.

 

14

 

 

The Company recognized revenue from shipments of product, licensing of its technologies and performance of services to customers by geographical location as follows (in thousands):

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2023   2022   2023   2022 
United States  $1,421   $3,127   $4,510   $5,503 
Taiwan   562    204    1,991    515 
China   147    587    293    879 
Japan   2    245    14    537 
Rest of world   271    121    628    253 
Total net revenue  $2,403   $4,284   $7,436   $7,687 

 

The following is a breakdown of product revenue by category (in thousands):

 

(amounts in thousands)  Three Months Ended
June 30,
   Six Months Ended
June 30,
 
Product category  2023   2022   2023   2022 
Memory ICs  $1,616   $1,872   $3,798   $3,781 
mmWave ICs   559    678    2,038    1,165 
mmWave antenna modules   60    1,552    1,283    2,360 
mmWave other products   -    18    4    18 
   $2,235   $4,120   $7,123   $7,324 

 

Customers who accounted for at least 10% of total net revenue were:

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2023   2022   2023   2022 
Customer A   46%   *    27%   * 
Customer D   23%   *    26%   * 
Customer B   *    36%   15%   31%
Customer C   *    14%   *    11%
Customer E   *    *    12%   * 

 

* Represents less than 10%

 

As of June 30, 2023, one customer accounted for 74% of accounts receivable. Four customers accounted for 79% of accounts receivable as of December 31, 2022.

 

Note 6. 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.

 

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, 182,500 shares were initially reserved for issuance. In November 2021, in connection with the approval of the Arrangement, the Company’s stockholders approved an amendment increasing the number of shares reserved for issuance under the 2019 Plan by 3,106,937 shares.

 

15

 

 

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 10% of the voting power of all classes of the Company’s stock may not exceed five years. The exercise price of stock options granted under the 2019 Plan must be at least equal to the fair market value of the shares on the date of grant. Generally, awards under the 2019 Plan will vest over a three to four-year period, and options will have a term of 10 years from the date of grant. In addition, the 2019 Plan provides for automatic acceleration of vesting for options granted to non-employee directors upon a change of control of the Company.

 

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 $2.1 million and $2.2 million related to the vesting of stock options during each of the six-month periods ended June 30, 2023 and 2022, respectively. At June 30, 2023, the unamortized compensation cost was approximately $5.6 million related to stock options and is expected to be recognized as expense over a weighted average period of approximately 1.4 years. The Company reflected compensation costs of $0.5 million and $0.7 million related to the vesting of restricted stock during the six months ended June 30, 2023 and 2022, respectively. The unamortized compensation cost at June 30, 2023 was $1.6 million related to restricted stock units and is expected to be recognized as expense over a weighted average period of approximately 1.6 years. There were no stock options granted or exercised during the six months ended June 30, 2023 and 2022. 

 

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 10% of the voting power of all classes of the Company’s stock may not exceed five years. The exercise price of stock options granted under the 2019 Plan must be at least equal to the fair market value of the shares on the date of grant. Generally, options granted under the 2019 Plan will vest over a three to four-year period and have a term of 10 years from the date of grant. In addition, the 2019 Plan provides for automatic acceleration of vesting for options granted to non-employee directors upon a change of control (as defined in the 2019 Plan) of the Company.

 

The following table summarizes the activity in the shares available for grant under the Plans during the six months ended June 30, 2023 (in thousands, except exercise price):

 

       Options Outstanding 
           Weighted 
   Shares       Average 
   Available   Number of   Exercise 
   for Grant   Shares   Prices 
Balance as of December 31, 2022   1,556    1,499   $3.32 
RSUs granted   (80)      $ 
RSUs cancelled and returned to the Plans   51       $ 
Options cancelled       (17)  $6.76 
Balance as of March 31, 2023   1,527    1,482   $3.28 
RSUs granted   (69)      $ 
RSUs cancelled and returned to the Plans   3       $ 
Options cancelled       (9)  $2.92 
Balance as of June 30, 2023   1,461    1,473   $3.22 

 

16

 

 

A summary of RSU activity under the Plans is presented below (in thousands, except for fair value):

 

       Weighted 
       Average 
   Number of   Grant-Date 
   Shares   Fair Value 
Non-vested shares as of December 31, 2022   1,057   $2.06 
Granted   80   $0.99 
Vested   (51)  $2.07 
Non-vested shares as of March 31, 2023   1,086   $1.98 
Granted   69   $0.52 
Vested   (210)  $2.16 
Cancels   (3)  $2.15 
Non-vested shares as of June 30, 2023   942   $1.84 

 

The following table summarizes significant ranges of outstanding and exercisable options as of June 30, 2023 (in thousands, except contractual life and exercise price):

 

   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 
$1.57 - $14.99   1,464    7.18   $2.64    987   $2.59   $ 
$15.00 - $25.59   4    0.24   $15.00    4   $15.00   $ 
$25.60 - $143.99   1    1.18   $50.00    1   $50.00   $ 
$144.00 - $409.99   3    2.89   $144.00    3   $144.00   $ 
$410.00 - $924.00   1    1.20   $410.00    1   $410.00   $ 
$1.57 - $924.00   1,473    7.14   $3.22    996   $3.45   $ 

 

Note 7. 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 1,312,878 Exchangeable Shares and 502,567 shares of common stock (collectively, the Escrow Shares). The Escrow Shares are escrowed pursuant to the terms of an escrow agreement on a pro rata basis from the aggregate consideration received by the holders of Peraso Shares, subject to the offset by the Company for any losses in accordance with the Agreement. Such Escrow Shares shall be released, subject to any offset claim, upon the satisfaction of the earlier of: (a) any date following the first anniversary of December 17, 2021 and prior to December 17, 2024 where the volume weighted average price of the common stock for any 20 trading days within a period of 30 consecutive trading days is at least $8.57 per share, subject to adjustment for stock splits or other similar transactions; (b) the date of any sale of all or substantially all of the assets or shares of the Company; or (c) the date of any bankruptcy, insolvency, restructuring, receivership, administration, wind-up, liquidation, dissolution, or similar event involving the Company. All and any voting rights and other stockholder rights, other than with respect to dividends and distributions, with respect to the Escrow Shares are suspended until the Escrow Shares are released from escrow.

 

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.

 

17

 

 

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 10% of the aggregate number of Exchangeable Shares issued remain outstanding; (b) there is a change in control of the Company (defined generally as (i) any merger, amalgamation, arrangement, takeover bid or tender offer, material sale of shares or rights or interests that results in the holders of outstanding voting securities of the Company directly or indirectly owning, or exercising control or direction over, voting securities representing less than 50% of the total voting power of all of the voting securities of the surviving entity; or (ii) any sale or disposition of all or substantially of the Company’s assets), and (c) upon the occurrence of certain other events. 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.

 

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.

 

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.

 

18

 

 

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.

 

June 2023 Registered Direct Offering

 

On May 31, 2023, the Company entered into a securities purchase agreement (the SPA) with an institutional investor (the Investor), pursuant to which the Company sold to the Investor, in a registered direct offering that closed on June 2, 2023, an aggregate of 2,250,000 shares of common stock at a purchase price of $0.70 per share. The Company also offered and sold to the Investor pre-funded warrants to purchase up to 3,464,286 shares of common stock (the 2023 PF Warrants). Each pre-funded warrant is exercisable for one share of common stock. The purchase price of each pre-funded warrant was $0.69, and the exercise price of each pre-funded warrant is $0.01 per share. The 2023 PF Warrants were immediately exercisable and may be exercised at any time until all of such pre-funded warrants are exercised in full. In June 2023, the Investor exercised a portion of the 2023 PF Warrants and purchased 967,286 shares of common stock. Net proceeds to the Company from the registered direct offering, after offering costs, were approximately $3.6 million. In connection with the execution of the SPA, the Company and the Investor entered into an amendment (the Amendment) to the 2022 Purchase Warrant. Pursuant to the terms of the Amendment, the 2022 Purchase Warrant was amended to reduce the exercise price per share from $1.36 to $1.00, effective as of June 2, 2023.

 

In a concurrent private placement that closed on June 2, 2023, the Company also sold to the Investor a warrant to purchase up to 5,714,286 shares of common stock (the 2023 Purchase Warrant). The 2023 Purchase Warrant was immediately exercisable at an exercise price of $0.70 per share and has a five-year term. As discussed in Note 8, the 2023 Purchase Warrant is accounted for as a liability. Fair value of the warrants at the date of issuance was determined to be $3,162,401 and was accounted for as a cost of the offering.

 

November 2022 Registered Direct Offering

 

On November 28, 2022, the Company entered into a securities purchase agreement with the Investor, pursuant to which the Company sold to the Investor, in a registered direct offering that closed on November 30, 2022, an aggregate of 1,300,000 shares of common stock at a negotiated purchase price of $1.00 per share. The Company also offered and sold to the investor pre-funded warrants to purchase up to 1,150,000 shares of common stock. Each pre-funded warrant was exercisable for one share of common stock. The purchase price of each pre-funded warrant was $0.99, and the exercise price of each pre-funded warrant is $0.01 per share. The pre-funded warrants were exercised in full by the Investor in April 2023. Net proceeds to the Company from the registered direct offering, after offering costs, were approximately $2.1 million.

 

19

 

 

In a concurrent private placement, the Company also sold to the Investor a warrant to purchase up to 3,675,000 shares of common stock (the 2022 Purchase Warrant). The 2022 Purchase Warrant became exercisable on May 29, 2023 at an exercise price of $1.36 per share and will expire on the five-year anniversary of that date. As discussed in Note 8, the 2022 Purchase Warrant is accounted for as a liability.

 

Warrants

 

As of June 30, 2023, the Company had the following equity-classified warrants outstanding (share amounts in thousands):

 

Warrant Type  Number of Shares   Exercise Price   Expiration 
Balance as of December 31, 2022   1,284          
Warrants expired   (33)  $47.00   January 2023  
Balance as of March 31, 2023   1,251          
Pre-funded warrants issued   3,464   $0.01    
Pre-funded warrants exercised   (2,117)  $0.01    
Balance as of June 30, 2023   2,598          

 

The unexercised 2,497,000 shares of the 2023 PF Warrant were included in the weighted average shares outstanding calculation for the three and six months ended June 30, 2023.

 

As of December 31, 2022, the Company had the following equity-classified warrants outstanding (share amounts in thousands):

 

Warrant Type  Number of Shares   Exercise Price   Expiration 
Common stock   33   $47.00   January 2023 
Common stock   101   $2.40   October 2023  
Common stock   1,150   $0.01    
    1,284          

 

During the six months ended June 30, 2023, approximately 33,000 warrants expired.

 

Note 8. Warrants Classified as Liabilities

 

The 2023 Purchase Warrant and the 2022 Purchase Warrant (collectively, the Purchase Warrants) provide for a value calculation using the Black Scholes model in the event of certain fundamental transactions, as defined in the Purchase Warrants. The fair value calculation provides for a floor on the volatility amount utilized in the value calculation at 100% or greater. The Company has determined that this provision introduces leverage to the holder(s) of the Purchase Warrants that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Therefore, pursuant to ASC 815, the Company has classified the Purchase Warrants as liabilities in its condensed consolidated balance sheets. The classification of the Purchase Warrants, including whether the Purchase Warrants should be recorded as liabilities or as equity, is evaluated at the end of each reporting period with changes in the fair value reported in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

 

On June 2, 2023, the 2023 Purchase Warrant was initially recorded at a fair value at $3,162,401, and, as of June 30, 2023, the fair value of the warrant liability was reduced to $2,246,365. As a result, the Company recorded a gain for the three months ended June 30, 2023 for the change in fair value of the 2023 Purchase Warrant.

 

The fair value of the Purchase Warrants at June 30, 2023 was determined using the Black Scholes model with the following assumptions: (i) expected term based on the remaining contractual terms, (ii) risk-free interest rate of 4.16%, which was based on a comparable US Treasury 5-year bond, (iii) expected volatility of 118% and (iv) an expected dividend of zero.

 

20

 

 

As of June 30, 2023, the Company had the following liability-classified warrants outstanding (amounts in thousands):

 

   Number of warrants     
   on common shares   Amount 
Balance as of December 31, 2021      $ 
Recognition of warrant liability   3,675    3,674 
Change in fair value of warrant       (1,595)
Balance as of December 31, 2022   3,675    2,079 
Change in fair value of warrant       (658)
Balance as of March 31, 2023   3,675    1,421 
Recognition of warrant liability   5,714    3,163 
Change in fair value of warrants       (966)
Balance as of June 30, 2023   9,389   $3,618 

 

Note. 9 Related Party Transactions

 

A family member of one of the Company’s executive officers served as a consultant to the Company during 2022. During the six months ended June 30, 2022, the Company incurred consulting expenses of approximately $92,200 for the family member. Additionally, a family member of one of the Company’s executive officers is an employee of the Company. During the six months ended June 30, 2023 and 2022, the Company recorded compensation expense of approximately $55,800 and $69,700, respectively, for the employed family member.

 

Note 10. 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 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 (the Fabulous Agreement), pursuant to which, among other things, the Company licensed from Fabulous certain technology incorporated into the Licensed Technology.

 

As consideration for the Company to enter into the Agreement, Intel agreed to pay the Company $3,062,500 at the closing of the transaction (the Closing) and $437,500 (the Holdback) upon the satisfaction by the Company, as mutually agreed upon by the parties in good faith, of certain release criteria set forth in the Agreement relating to various due diligence activities of Intel regarding the Licensed Technology (the Release Criteria).

 

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 $2.6 million gain on this transaction, net of transaction costs. During the six months ended June 30, 2023, Intel paid the Holdback, and the Company recognized a $0.4 million gain, net of transaction costs, which was recorded as a reduction of operating expenses in the condensed consolidated statements of operations and comprehensive loss.

 

Note 11. 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 would be 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. The Company has notified its customers to provide purchase orders during 2023 that the Company expects to fulfill during 2024 and into 2025. However, the timing of EOL shipments will be dependent on receipt of customer purchase orders, deliveries from the Company’s suppliers and the delivery schedules requested by customers.

 

21

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial statements and notes included in this report. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which include, without limitation, statements about the market for our technology, our strategy, competition, expected financial performance and capital raising effort, the impacts of COVID-19 on our business, the effects of the Russia/Ukraine conflict, and inflation, which could cause customers to delay or reduce purchases of our products or delay payments to us, which would adversely affect our financial results, including cash flows, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2023 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, 2022 and the risk factors described below under Item 1A of this Form 10-Q. We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law, even as new information becomes available or events occur in the future.

 

Overview

 

We were formerly known as MoSys, Inc. (MoSys) and were incorporated in California in 1991 and reincorporated in 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 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. The primary advantage provided by an antenna module is the silicon and the antenna are integrated into a single device. A differentiating characteristic of mmWave technology is that the radio frequency amplifiers must be as close as possible to the antenna to minimize loss, and by providing a module, we can guarantee the performance of the amplifier/antenna interface.

 

We also acquired a memory product line marketed under the Accelerator Engine name. This memory product line comprises our Bandwidth Engine products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance. Taiwan Semiconductor Manufacturing Corporation, or TSMC, is the sole foundry that manufactures the wafers used to produce our memory IC products. TSMC recently 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, we have informed our customers that we are initiating an end-of-life, or EOL, of our memory IC products. We have notified our customers to provide purchase orders during 2023 that we expect to fulfill during 2024 and 2025. We are requiring customers to pay a deposit upon purchase order placement to reserve supply and provide funding for our required inventory purchases. Under our EOL plan, we intend to complete all shipments of our memory products during 2025, and, as a result, we do not anticipate any shipments of our memory products after that. However, the timing of EOL shipments will be dependent on receipt of purchase orders from customers, deliveries from our suppliers, and the delivery schedules requested by our customers.

 

We incurred net losses of approximately $7.2 million for the six months ended June 30, 2023 and $32.4 million for the year ended December 31, 2022, and we had an accumulated deficit of approximately $156.8 million as of June 30, 2023. 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.

 

22

 

 

Exploring Strategic Alternatives

 

We recently engaged an investment bank to assist with the exploration of strategic alternatives, including a merger, sale of assets or other similar transaction, with the intention to maximize stockholder value and further our business operations. There can be no assurance that the exploration process will result in any strategic alternative, or as to its outcome or timing. We have neither set a timetable for completion of this process, nor have we made any decisions related to strategic alternatives at this time. If a strategic process is unsuccessful and we are unable to raise additional capital, we may be unable to continue our operations at planned levels and be forced to further reduce or terminate our operations. These factors raise substantial doubt about our ability to continue as a going concern, as discussed below.

 

COVID-19 and Russian Invasion of Ukraine

 

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. Since March 2020, from time to time, this has negatively affected the U.S. and global economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets. The full extent of the COVID-19 impact on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. and foreign government agencies to prevent disease spread, all of which are uncertain, out of our control, and cannot be predicted.

 

The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets. The Russian invasion of Ukraine in February 2022 has led to further economic disruptions. Mounting inflationary cost pressures and recessionary fears have negatively impacted the global economy. Since mid-2022, the U.S. Federal Reserve has addressed elevated inflation by increasing interest rates, as inflation remains elevated. Given current market conditions, we may be unable to access the capital markets, and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business.

 

For additional information on risks that could impact our future results, please refer to “Risk Factors” in Part II, Item 1A. of this quarterly report on Form 10-Q.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these condensed consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances. Actual results may differ from these estimates and reported results could differ under different assumptions or conditions. Our significant accounting policies and estimates are disclosed in Note 1 of the “Notes to Consolidated Financial Statements” in our annual report on Form 10-K for the year ended December 31, 2022. As of June 30, 2023, there have been no material changes to our significant accounting policies and estimates.

 

Results of Operations

 

Net Revenue

 

   June 30,   Change 
   2023   2022   2022 to 2023 
   (dollar amounts in thousands) 
Product -three months ended  $2,235   $4,120   $(1,885)   (46)%
Percentage of total net revenue   93%   96%          
Product -six months ended  $7,123   $7,324   $(201)   (3)%
Percentage of total net revenue   96%   95%          

 

The following table details revenue by product category for the three and six months ended June 30, 2023 and 2022:

 

(amounts in thousands)  Three Months Ended
June 30,
   Six Months Ended
June 30,
 
Product category  2023   2022   change   2023   2022   change 
Memory ICs  $1,616   $1,872   $(256)  $3,798   $3,781   $17 
mmWave ICs   559    678    (119)   2,038    1,165    873 
mmWave antenna modules   60    1,552    (1,492)   1,283    2,360    (1,077)
mmWave other products   -    18    (18)   4    18    (14)
   $2,235   $4,120   $(1,885)  $7,123   $7,324   $(201)

 

Product revenue decreased for the three months ended June 30, 2023 compared with the same period of 2022 primarily due to a reduction in shipments of our antenna modules, combined with year-over year decreases in shipments of our memory and mmWave ICs.

 

23

 

 

Product revenue decreased for the six months ended June 30, 2023 compared with the same period of 2022 primarily due to a reduction in shipments of our antenna modules, partially offset by an increase in shipments of our mmWave ICs. The increase in mmWave IC sales was mainly due to shipments to one customer. We initiated price increases on certain of our antenna module products in 2022, however, through June 30, 2023, we had not realized any material increase in revenue as a result of those price increases. In late 2022, we implemented modest price increases on our memory products, and, during the six months ended June 30, 2023, these price increases contributed approximately $0.1 million to product revenue.

 

   June 30,   Change 
   2023   2022   2022 to 2023 
   (dollar amounts in thousands) 
Royalty and other -three months ended  $168   $164   $4    2%
Percentage of total net revenue   7%   4%          
Royalty and other -six months ended  $313   $363   $(50)   (14)%
Percentage of total net revenue   4%   5%          

 

Royalty and other includes royalty, non-recurring engineering, services and licenses revenues. The increase in royalty and other revenue for the three months ended June 30, 2023 compared with the same period of 2022 was primarily due to an increase in non-recurring engineering, or NRE, services revenue related to our mmWave technology, offset by a decrease in our royalty revenues from licensees of our memory technology due to reduced shipments by these licensees.

 

The decrease in royalty and other revenue for the six months ended June 30, 2023 compared with the same period of 2022 was primarily due to a decrease in NRE services revenue related to our mmWave technology and a decrease in royalty revenues from licensees of our memory technology due to reduced shipments by these licensees.

 

Cost of Net Revenue and Gross Profit

 

   June 30,   Change 
   2023   2022   2022 to 2023 
   (dollar amounts in thousands) 
Cost of net revenue -three months ended  $1,795   $2,799   $(1,004)   (36)%
Percentage of total net revenue   75%   65%          
Cost of net revenue -six months ended  $4,901   $4,747   $154    3%
Percentage of total net revenue   66%   62%          

 

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 decreased for the three months ended June 30, 2023 when compared with the same period in 2022, primarily due to the combined effect of i) decreased shipment volumes of our memory and mmWave products in 2023 and ii) inventory write-down charges of approximately $0.3 million primarily for mmWave product inventory due to its determination that it had excess and obsolete inventory.

 

Cost of net revenue increased for the six months ended June 30, 2023 when compared with the same period in 2022, despite the reduction in product revenues primarily due to a change in revenue composition, as sales of our mmWave products represented a higher percentage of our product sales. In addition, we incurred inventory write-down charges of $0.6 million primarily for mmWave product inventory, as we identified excess and obsolete inventory. If our utilization of inventory is, or if our estimates of our inventory’s potential utility become, less favorable than currently expected, additional inventory write-downs may be required. Cost of net revenue represents a higher percentage of revenue for our mmWave products, as compared to our memory products.

 

   June 30,   Change 
   2023   2022   2022 to 2023 
   (dollar amounts in thousands) 
Gross profit -three months ended  $608   $1,485   $(877)   (59)%
Percentage of total net revenue   25%   35%          
Gross profit -six months ended  $2,535   $2,940   $(405)   (14)%
Percentage of total net revenue   34%   38%          

 

Gross profit decreased for the three months ended June 30, 2023 compared with the same period of 2022 primarily due to the decrease in shipment volumes of our memory and mmWave products. The decrease in our gross profit margin percentage for the six months ended June 30, 2023 compared with the prior year period was primarily attributable to the decreased volume shipments of our mmWave products, which carry lower gross margins than our memory products.

 

24

 

 

Gross profit decreased for the six months ended June 30, 2023 compared with the same period of 2022 due to the decreased shipments of our mmWave antenna modules combined with the increase in cost of net revenues.

 

Research and Development

 

   June 30,   Change 
   2023   2022   2022 to 2023 
   (dollar amounts in thousands) 
R&D -three months ended  $3,668   $5,643   $(1,975)   (35)%
Percentage of total net revenue   153%   132%          
Research and development -six months ended  $7,555   $11,127   $(3,572)   (32)%
Percentage of total net revenue   102%   145%          

 

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, 2023 compared with the same periods of 2022 was primarily due to reduced salary and consulting costs. During the quarter ended December 31, 2022, we began implementing cost reductions, which included a reduction of consulting positions and the elimination of certain employee positions in February 2023, as well as targeted reductions in certain longer-term research and development projects. In August 2022, we entered into a Technology License and Patent Assignment Agreement, or the Agreement, with Intel Corporation, or Intel, and as a result we transferred certain employees and consultants to Intel. As a result of the Agreement and other cost reductions, our memory-related R&D expenses declined by approximately $0.6 million and $1.2 million for the three and six months ended June 30, 2023, respectively. In addition, during the six months ended June 30, 2022, we incurred mask fabrication (i.e., tape-out) expenses of $0.7 million for one of our mmWave ICs, and we incurred no mask fabrication costs in 2023.

 

We expect that total R&D expenses will decrease in 2023 compared with 2022, as a result of our cost reduction initiatives.

 

Selling, General and Administrative

 

   June 30,   Change 
   2023   2022   2022 to 2023 
   (dollar amounts in thousands) 
SG&A -three months ended  $1,977   $2,878   $(901)   (31)%
Percentage of total net revenue   82%   67%          
SG&A -six months ended  $4,219   $5,585   $(1,366)   (24)%
Percentage of total net revenue   57%   73%          

 

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 decrease for the three and six months ended June 30, 2023 compared with the same period of 2022 was primarily related to cost reductions, which we initiated during the three months ended December 31, 2022. The reductions in SG&A expense in 2023 primarily resulted from lower headcount, including the elimination of certain employee and consulting positions and reductions of other discretionary operating expenses. We expect that total SG&A expense will decrease for the remainder of 2023 compared with 2022 due to our cost reduction initiatives, including lower headcount.

 

Liquidity and Capital Resources; Changes in Financial Condition

 

Cash Flows

 

As of June 30, 2023, we had cash, cash equivalents and investments of $2.7 million and working capital of $8.0 million.

 

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, and was 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.

 

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

 

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

 

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.

 

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

 

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

 

level of revenue;

 

cost, timing and success of technology development efforts;

 

inventory levels, as supply chain disruption has required us to maintain higher inventory levels and place purchase orders with our suppliers longer into the future, which exposes us to additional inventory risk;

 

timing of product shipments, which may be impacted by supply chain disruptions;

 

length of billing and collection cycles, which may be impacted in the event of a global recession or economic downturn;

 

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

 

variations in manufacturing yields, material lead time and costs and other manufacturing risks;

 

costs of acquiring other businesses and integrating the acquired operations; and

 

profitability of our business.

 

During the six months ended June 30, 2023, we collected approximately $2.0 million of amounts past due from a large customer of our mmWave products. The amounts collected included approximately $0.9 million of accounts receivable outstanding at September 30, 2022, for which we had established a $0.2 million allowance for doubtful accounts, and $1.1 million for shipments in September 2022 for which we had deferred revenue recognition.

 

Purchase Obligations

 

Our primary purchase obligations include non-cancelable purchase orders for inventory and computer-aided-design (CAD) software. At June 30, 2023, we had outstanding non-cancelable purchase orders for inventory, primarily wafers and substrates, and related expenditures of approximately $2.2 million and non-cancelable purchase orders for CAD software of $2.9 million.

 

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Going Concern - Working Capital

 

We incurred net losses of approximately $7.2 million for the six months ended June 30, 2023 and $32.4 million for the year ended December 31, 2022, and we had an accumulated deficit of approximately $156.8 million as of June 30, 2023. 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.

 

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 the Company is unsuccessful in these efforts, it will need to implement additional cost reduction strategies, which could further affect its near- and long-term business plan. These efforts may include, but are not limited to, reducing headcount and curtailing business activities. In February 2023, we announced that we had implemented cost-reduction initiatives to reduce operating expenses by approximately $5 million on an annualized basis. In June 2023, we completed a registered direct offering of common stock and warrants for net proceeds to us of approximately $3.6 million.

 

If we were to raise additional capital through sales of our equity securities, our stockholders would suffer dilution of their equity ownership. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing our stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could harm our business, operating results and financial condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

 

develop or enhance our products;

 

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

 

acquire complementary technologies, products or businesses;

 

expand operations, in the United States or internationally;

 

hire, train and retain employees; or

 

respond to competitive pressures or unanticipated working capital requirements.

 

Discontinuing 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, cash equivalents and short-term investments as of June 30, 2023, plus expected receipts associated with product sales, will provide us with liquidity to fund our planned operating needs into the fourth quarter of 2023. Variability in our operating forecast, driven primarily by (i) product sales and collections, (ii) potential customer licensing and 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 operating plans, depending on the level of customer shipments, licensing and NRE arrangements and timing of related collections, our ability to enter into strategic arrangements and to access additional capital, as well as our financial priorities.

 

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 2023. 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.

 

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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 financial statements for the six months ended June 30, 2023.

 

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, 2023, our disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting. During the six months ended June 30, 2023, 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 4 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, 2022, which we filed with the SEC on March 29, 2023.

 

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 will be 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, we have informed our customers that we are initiating an end-of-life, or EOL, of our memory IC products. We expect to fulfill product EOL orders during 2024 and 2025. Our memory IC products represented over 50% of our revenues for the year ended December 31, 2022 and over 40% of our revenues for the six months ended June 30, 2023. The discontinuation of the production and sale of our memory IC products will negatively impact our future revenues, results of operations and cash flows.

 

Our gross profit may fluctuate due to a variety of factors, which could negatively impact our results of operations and our financial condition.

 

Our gross profit may fluctuate due to a number of factors, including customer and product mix, market acceptance of our new products, yield, wafer pricing, packaging and testing costs, competitive pricing dynamics, charges for inventory write-downs and geographic and market pricing strategies. To the extent we may offer or be contractually obligated to offer certain customers favorable prices, it would decrease our average selling prices and likely impact our gross profit. In the possible event our customers, including our larger customers, exert more pressure with respect to pricing and other terms, it could put downward pressure on our profit.

 

Because we do not operate our own wafer fabrication, assembly, or testing facilities, we may not be able to reduce our costs as rapidly as companies that operate their own facilities, and in fact, our costs may even increase, which could further reduce our gross profit. We seek yield improvements and volume-based cost reductions to enable cost reductions. To the extent that such cost reductions do not occur at a sufficient level and in a timely manner, our business, financial condition, and results of operations could be adversely affected and may vary from our estimates.

 

In addition, we maintain an inventory of our products at various stages of production as well as an inventory of finished goods. As we are generally a sole-source supplier, we hold these inventories in anticipation of customer orders. If those customer purchase orders do not materialize in a timely manner or customers do not honor those purchase orders, we can have excess or obsolete inventory which we would have to write-down, and our gross profit and results of operations would be adversely affected.

  

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If we are unable to satisfy the continued listing requirements of The Nasdaq Stock Market, our common stock could be delisted and the price and liquidity of our common stock may be adversely affected.

 

Our common stock may lose value and could be delisted from The Nasdaq Stock Market (“Nasdaq”) due to several factors or a combination of such factors. While our common stock is currently listed on Nasdaq, there can be no assurance that we will be able to maintain such listing. To maintain the listing of our common stock on Nasdaq, we are required to meet certain listing requirements, including, among others, a requirement to maintain a minimum closing bid price of $1.00 per share. If our common stock trades below the $1.00 minimum closing bid price requirement for 30 consecutive business days or if we do not meet other listing requirements, we may be notified by Nasdaq of non-compliance.

 

On February 1, 2023, we received a notice from Nasdaq, indicating that, based upon the closing bid price of our common stock for the previous 30 business days, we no longer meet the requirement to maintain a minimum bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we had a compliance period of 180 calendar days, or until July 31, 2023 (the “Compliance Period”) in which to regain compliance with the Minimum Bid Price Rule. We did not regain compliance with the Minimum Bid Price Rule during the first 180-calendar-day Compliance Period and submitted a written request to Nasdaq to afford us an additional 180-day compliance period to cure the deficiency. On August 1, 2023, we received written notification from the Listing Qualifications Department of Nasdaq, granting our request for a 180-day extension to regain compliance with the Minimum Bid Price Rule. We now have until January 29, 2024 to meet the requirement. If at any time prior to January 29, 2024, the bid price of our common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, we will regain compliance with the Minimum Bid Price Rule.

 

If we do not regain compliance with the Minimum Bid Price Rule during the additional 180-day extension, Nasdaq will provide written notification to us that our common stock will be delisted. At that time, we may appeal the relevant delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules. However, there can be no assurance that, if we do appeal the delisting determination by Nasdaq to the hearings panel, that such appeal would be successful. Nor is there any assurance that we would obtain a further extension of time to meet this requirement. We intend to actively monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options to regain compliance with the Minimum Bid Price Rule.

 

If we were to be delisted, we would expect our common stock to be traded in the over-the-counter market which could adversely affect the liquidity of our common stock. Additionally, we could face significant material adverse consequences, including:

 

a limited availability of market quotations for our common stock;

 

a decreased ability to issue additional securities or obtain additional financing in the future;
  
reduced liquidity for our stockholders;
  
potential loss of confidence by customers, collaboration partners and employees; and
  
loss of institutional investor interest.

 

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ITEM 6. Exhibits

 

(a) Exhibits

 

4.1(1)   Form of Pre-Funded Warrant
4.2(2)   Form of Purchase Warrant
4.3(3)   Form of Placement Agent Warrant
10.1(4)   Form of Securities Purchase Agreement
10.2(5)   Form of Registration Rights Agreement
10.3(6)+   Amendment to offer of employment between the Company and Alex Tomkins dated April 19, 2023
10.4(7)+   Amendment to offer of employment between the Company and Ronald Glibbery dated April 19, 2023
10.5(8)+   Second Amendment to offer of employment between the Company and Brad Lynch dated April 19, 2023
10.6(9)   Amendment No. 1 to Peraso Inc. Common Stock Purchase Warrant
31.1*   Rule 13a-14 certification
31.2*   Rule 13a-14 certification
32.1**   Section 1350 certifications
101*   The following financial information from Peraso Inc.’s quarterly report on Form 10-Q for the period ended June 30, 2023, filed with the SEC on August 14, 2023, 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, 2023 and 2022, (ii) the Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022, (iii) the Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022, and (v) Notes to Condensed Consolidated Financial Statements.
104*   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

(1) Incorporated by reference to Exhibit 4.1 to Form 8-K filed by the Company on June 02, 2023 (Commission File No. 000-32929).
(2) Incorporated by reference to Exhibit 4.2 to Form 8-K filed by the Company on June 02, 2023 (Commission File No. 000-32929).
(3) Incorporated by reference to Exhibit 4.3 to Form 8-K filed by the Company on June 02, 2023 (Commission File No. 000-32929).
(4) Incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Company on June 02, 2023 (Commission File No. 000-32929).
(5) Incorporated by reference to Exhibit 10.2 to Form 8-K filed by the Company on June 02, 2023 (Commission File No. 000-32929).
(6) Incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form S-1 filed on June 16, 2023 (Commission File No. 333-272729).
(7) Incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form S-1 filed on June 16, 2023 (Commission File No. 333-272729).
(8) Incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-1 filed on June 16, 2023 (Commission File No. 333-272729).
   
(9) Incorporated by reference to Exhibit 10.3 to Form 8-K filed by the Company on June 02, 2023 (Commission File No. 000-32929).

 

+ Management contract, compensatory plan or arrangement.
* Filed herewith.
** Furnished herewith.

 

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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 14, 2023 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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