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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark one)
|
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
|
|
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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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction |
|
(I.R.S. Employer |
|
of Incorporation or organization) |
|
Identification Number) |
(Address of principal executive office and zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading symbol(s)
|
Name of each exchange on which registered
|
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|
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
|
Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
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☒ |
|
Smaller reporting company |
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Emerging growth company |
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|
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
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was
PERASO INC.
FORM 10-Q
June 30, 2022
|
PART I — |
3 |
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Item 1. |
3 |
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Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 |
3 |
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4 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 |
6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
26 |
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Item 4. |
33 |
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PART II — |
34 |
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Item 1. |
34 |
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Item 1A. |
34 |
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Item 6. |
36 |
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37 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
PERASO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
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June 30, |
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December 31, |
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2022 |
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2021 |
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(unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Accounts receivable, net |
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Inventories |
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Tax credits and receivables |
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Prepaid expenses and other |
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Total current assets |
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Long-term investments |
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Property and equipment, net |
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Intangible assets, net |
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Goodwill |
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Right-of-use lease asset, net |
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Other |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other |
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Deferred revenue |
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Short-term lease liability |
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Total current liabilities |
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Long-term lease liability |
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Total liabilities |
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Commitments and contingencies (Note 5) |
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Stockholders’ equity |
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Preferred stock, $ |
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Common stock, $ and |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
|
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( |
) |
|
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— |
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Accumulated deficit |
|
|
( |
) |
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|
( |
) |
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|
Total stockholders’ equity |
|
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|
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Total liabilities and stockholders’ equity |
|
$ |
|
|
|
$ |
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PERASO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share data)
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
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June 30, |
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June 30, |
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||||||||||
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2022 |
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2021 |
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2022 |
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2021 |
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||||
|
Net revenue |
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Product |
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$ |
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$ |
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$ |
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$ |
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|
Royalty and other |
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Total net revenue |
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Cost of net revenue |
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Gross profit |
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Operating expenses |
|
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Research and development |
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Selling, general and administrative |
|
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Total operating expenses |
|
|
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|
|
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Loss from operations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on available-for-sale securities |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
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|
|
|
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|
|
|
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|
Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Shares used in computing net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PERASO INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
||
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Accumulated |
|
|
|
|
|
||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Deficit |
|
|
Total |
|
||||||
|
Balance as of December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
Issuance of common stock under stock plan, net |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Unrealized loss on available-for-sale securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance as of March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Issuance of common stock under stock plan, net |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Unrealized loss on available-for-sale securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance as of June 30, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
||
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Accumulated |
|
|
|
|
|
||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Deficit |
|
|
Total |
|
||||||
|
Balance as of December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance as of March 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Issuance of common stock under stock plan, net |
|
|
|
|
|
|
— |
|
|
$ |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance as of June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
PERASO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
Six Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability |
|
|
— |
|
|
|
|
|
|
Amortization of debt discount |
|
|
— |
|
|
|
|
|
|
Accrued interest expense |
|
|
|
|
|
|
|
|
|
Amortization of lease right-of-use assets |
|
|
|
|
|
|
|
|
|
Change in operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
|
Other |
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( |
) |
|
|
|
|
|
Inventories |
|
|
( |
) |
|
|
|
|
|
Tax credits and receivables |
|
|
|
|
|
|
( |
) |
|
Prepaid expenses and other assets |
|
|
( |
) |
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
|
( |
) |
|
Deferred revenue and other liabilities |
|
|
( |
) |
|
|
|
|
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Purchases of intangible assets |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from maturities of marketable securities |
|
|
|
|
|
|
— |
|
|
Purchases of marketable securities |
|
|
( |
) |
|
|
— |
|
|
Net cash provided by (used in) investing activities |
|
|
|
|
|
|
( |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Taxes paid to net share settle equity awards |
|
|
( |
) |
|
|
— |
|
|
Payment of lease obligation |
|
|
( |
) |
|
|
— |
|
|
Proceeds from exercise of stock options |
|
|
— |
|
|
|
|
|
|
Net proceeds from loan facility |
|
|
— |
|
|
|
|
|
|
Net proceeds from convertible debenture |
|
|
— |
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
( |
) |
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
Supplemental disclosure: |
|
|
|
|
|
|
|
|
|
Recognition of right-of-use assets and lease liabilities |
|
$ |
|
|
|
$ |
— |
|
|
Unrealized loss on available-for-sale securities |
|
$ |
|
|
|
$ |
— |
|
|
Fair value of new warrants issued recognized as debt discount |
|
$ |
— |
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
PERASO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. The Company and Summary of Significant Accounting Policies
Peraso Inc., formerly known as MoSys, Inc. (the Company), was incorporated in California in 1991 and reincorporated in 2000 in Delaware. The Company is a fabless semiconductor company specializing in the development of millimeter wave (mmWave), which is generally described as the frequency band from 24 Gigahertz (GHz) to 300GHz, wireless technology. The Company derives revenue from selling its 60GHz and 5G semiconductor devices and modules, licensing of intellectual property and performance of non-recurring engineering services. The Company also manufactures and sells high-performance memory semiconductor devices for a wide range of markets and receives royalties from licensees of its memory technology.
On September 14, 2021, the Company and its subsidiaries, 2864552 Ontario Inc. (Callco) and 2864555 Ontario Inc. (Canco), entered into an Arrangement Agreement (the Arrangement Agreement) with Peraso Technologies Inc. (Peraso Tech), a corporation existing under the laws of the province of Ontario, to acquire all of the issued and outstanding common shares of Peraso Tech (the Peraso Shares), including those Peraso Shares to be issued in connection with the conversion or exchange of secured convertible debentures and common share purchase warrants of Peraso Tech, as applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business Corporations Act (Ontario). On December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed and, the Company changed its name to “Peraso Inc.” and began trading on the Nasdaq Stock Market (the Nasdaq) under the symbol “PRSO.”
For accounting purposes, the legal subsidiary, Peraso Tech, has been treated as the accounting acquirer and the Company, the legal parent, has been treated as the accounting acquiree. The transaction was accounted for as a reverse acquisition in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) No. 805, Business Combinations (ASC 805). Accordingly, these condensed consolidated financial statements are a continuation of Peraso Tech’s consolidated financial statements prior to December 17, 2021 and exclude the statements of operations and comprehensive loss, statement of stockholders’ equity and statements of cash flows of the Company prior to December 17, 2021. See Note 2 for additional disclosure.
The accompanying condensed consolidated financial statements of the Company have been prepared without audit.
The condensed consolidated balance sheet as of December 31, 2021 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, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other future period.
7
Liquidity
The Company incurred net losses of approximately $
The Company expects to continue to incur operating losses for the foreseeable future as it secures 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 new 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, further 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. The Company previously classified intangible asset amortization expense related to the developed technology and customer relationships intangibles within research and development expenses (R&D) in its condensed consolidated statements of operations and comprehensive loss. Amortization expense on the developed technology intangible asset is now classified within cost of net revenue, and amortization expense on customer relationships is now classified in selling, general and administrative expenses (SG&A). Prior period amounts have been conformed to the current period presentation. See Note 5 for additional disclosure.
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. 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.
8
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.
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 short-term and long-term investments are carried at fair value, with the unrealized holding gains and losses reported in accumulated other comprehensive income (loss). Realized gains and losses and declines in the value judged to be other-than-temporary are included in the other income, net line item in the condensed consolidated statements of operations. The cost of securities sold is based on the specific identification method.
Fair Value Measurements
The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
Level 1—Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.
Level 2—Pricing is provided by third party sources of market information obtained through the Company’s investment advisors, rather than models. The Company does not adjust for, or apply, any additional assumptions or estimates to the pricing information it receives from advisors. The Company’s Level 2 securities include cash equivalents and available-for-sale securities, which consisted primarily of certificates of deposit, corporate debt, and government agency and municipal debt securities from issuers with high-quality credit ratings. The Company’s investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities.
Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to measure fair value. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 investments and other financial instruments involves the most management judgment and subjectivity.
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable, notes 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.
9
Allowance for Doubtful Accounts
The Company establishes an allowance for doubtful accounts to ensure that its trade receivables balances are not overstated due to uncollectibility. The Company performs ongoing customer credit evaluations within the context of the industry in which it operates and generally does not require collateral from its customers. A specific allowance of up to
Inventories
The Company values its inventories at the lower of cost, which approximates actual cost on a first-in, first-out basis, or net realizable value. Costs of inventories primarily consisted of material and third party assembly costs. The Company records 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 recorded write-downs of inventory of approximately $
Tax Credits and Receivables
The Company is registered for the Canadian federal and provincial goods and services taxes. As such, the Company is obligated to collect from third parties, and is entitled to claim sales taxes paid on its expenses and capital expenditures incurred in Canada.
In addition, as a Canadian Controlled Private Corporation (CCPC), the Company is also a part of the Scientific Research and Experimental Development (SRED) Program, which uses tax incentives to encourage Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada. As a part of the program, the Company may be entitled to a receivable in the form of tax credit or incentive. The Company records refundable tax credits as a reduction of expense and receivable when the Company can reasonably estimate the amounts and it is more likely than not, they will be received.
A government refund or subsidy that is compensation for expenses or losses already incurred, or for which there are no future related costs, is recognized in the statement of operations in the period in which it becomes receivable.
As of December 17, 2021, Peraso Tech ceased to be a CCPC and is no longer eligible for the expenditure refund program. However, it is eligible for a tax credit of
Intangible and Long-lived Assets
Intangible assets are recorded at cost and amortized on a straight-line method over their estimated useful lives of
10
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.
|
|
|
June 30, 2022 |
|
|||||||||
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
||
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|||
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|||
|
Developed technology |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
December 31, 2021 |
|
|||||||||
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
||
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|||
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|||
|
Developed technology |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Developed technology primarily consisted of MoSys’ products that have reached technological feasibility and primarily relate to its memory semiconductor products and technology. The value of the developed technology was determined by discounting estimated net future cash flows of these products. The Company is amortizing the developed technology on a straight-line basis over
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 is amortizing customer relationships on a straight-line basis over an estimated life of
Amortization expense was $
11
As of June 30, 2022, estimated future amortization expense related to intangible assets was as follows (in thousands):
|
|
|
|
|
|
|
Year ending December 31, |
|
|
|
|
|
2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
Goodwill
The Company determines the amount of a potential goodwill impairment by comparing the fair value of the reporting unit with its carrying amount. To the extent the carrying value of a reporting unit exceeds its fair value, a goodwill impairment charge is recognized.
The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. As the Company uses the market approach to determine the step one fair value of the reporting unit, the price of its common stock is an important component of the fair value calculation. If the Company’s stock price experiences significant price and volume fluctuations, this will impact the fair value of the reporting unit, which can lead to potential impairment in future periods. The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform an impairment test. If the qualitative assessment warrants further analysis, the Company compares the fair value of the reporting unit to its carrying value. The fair value of the reporting unit is determined using the market approach. If the fair value of the reporting unit exceeds the carrying value of net assets of the reporting unit, goodwill is not impaired. If the carrying value of the reporting unit’s goodwill exceeds its fair value, then the Company must record an impairment charge equal to the difference.
Leases
ASC No. 842, Leases (ASC 842) requires an entity to recognize a right-of-use asset and a lease liability for all leases with terms longer than 12 months. The Company adopted ASC 842 utilizing the modified retrospective transition method. The Company elected the practical expedient afforded in ASC 842 in which the Company did not reassess whether any contracts that existed prior to adoption have or contain leases or the classification of its existing leases.
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 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.
12
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 may record an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale.
License and other
The Company’s licensing contracts typically provide for royalties based on the licensee’s use of the Company’s memory technology in its currently shipping commercial products. The Company estimates its royalty revenue in the calendar quarter in which the licensee uses the licensed technology. Payments are received in the subsequent quarter. The Company also generates revenue from licensing its technology. The Company recognizes license fees as revenue at the point of time when the control of the license has been transferred and the Company has no continuing performance obligations to the customer.
Engineering services revenue
Engineering and development contracts with customers generally contain a single performance obligation that is delivered over time. Revenue is recognized using an output method that is consistent with the satisfaction of the performance obligation as a measure of progress.
Contract liabilities – deferred revenue
The Company’s contract liabilities consist of advance customer payments and deferred revenue. The Company classifies advance customer payments and deferred revenue as current or non-current based on the timing of when the Company expects to recognize revenue. As of June 30, 2022 and December 31, 2021, contract liabilities were in a current position and included in deferred revenue.
During the six months ended June 30, 2022, the Company recognized approximately $
See Note 6 for disaggregation of revenue by geography.
The Company does not have significant financing components, as payments from customers are typically due within
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.
Government Subsidies
A grant or subsidy that is compensation for expenses or losses already incurred, or for which there are no future related costs, is recognized in the statement of operations in the period in which it becomes receivable.
13
Starting in 2020, certain Canadian businesses, which experienced a drop in revenue during the COVID-19 pandemic, became eligible for a rent and wage subsidy from the government. The Company’s subsidiary, Peraso Tech, began receiving this subsidy on a monthly basis beginning in the fourth quarter of 2020 and ending in the fourth quarter of 2021.
During the six months ended June 30, 2021, the Company recognized payroll subsidies of $
Stock-Based Compensation
The Company periodically issues stock options and restricted stock awards to employees and non-employees. The Company accounts for such grants based on ASC No. 718, whereby the value of the award is measured on the date of grant and recognized as compensation expense on a straight-line basis over the vesting period. The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing (Black Scholes) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes model. The assumptions used in the Black-Scholes model could materially affect compensation expense recorded in future periods.
Foreign Currency Transactions
The functional currency of the Company is the U.S dollar. All foreign currency transactions are initially measured and recorded in an entity’s functional currency using the exchange rate on the date of the transaction. All monetary assets and liabilities are remeasured at the end of each reporting period using the exchange rate at that date. All non-monetary assets and related expense, depreciation or amortization are not subsequently remeasured and are measured using the historical exchange rate. An average exchange rate may be used to recognize income and expense items earned or incurred evenly over a period. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the statement of operations, except for the gains and losses arising from the conversion of the carrying amount of the foreign currency denominated convertible preferred shares into the functional currency that are presented as adjustment to the net loss to arrive at net loss attributable to common stockholders.
Per-Share Amounts
Basic net loss per share is computed by dividing net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share gives effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of incremental shares of common stock issuable upon the 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, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Escrow shares |
|
|
|
|
|
|
— |
|
|
Options to purchase common stock |
|
|
|
|
|
|
|
|
|
Unvested restricted common stock units |
|
|
|
|
|
|
— |
|
|
Convertible debt |
|
|
— |
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
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
14
update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. The Company is still evaluating the impact of this accounting guidance on its results of operations and financial position.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (ASU 2021-04). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 did not have any impact on the Company’s 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.
Note 2: Business Combination
Arrangement
As discussed in Note 1, on September 14, 2021, the Company and its newly formed subsidiaries, Callco and Canco entered into the Arrangement Agreement with Peraso Tech. Prior to the Arrangement, as a fabless semiconductor company, the Company’s primary focus was the manufacture and sale of high-performance memory semiconductor devices for a wide range of markets. Peraso Tech was also a fabless semiconductor company specializing in the development of mmWave technology, including 60GHz and 5G products, and deriving revenue from selling semiconductor devices, proprietary modules based on its semiconductor devices and performance of non-recurring engineering services. The primary reason for the business combination was to produce a larger fabless semiconductor company with greater size and scale with access to the public capital markets for the benefit of the stockholders of both companies.
On December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, including approvals from the stockholders of the Company and Peraso Tech, the Arrangement was completed.
Securities Conversion
Pursuant to the completion of the Arrangement, each Peraso Share that was issued and outstanding immediately prior to December 17, 2021 was converted into the right to receive
15
In addition, pursuant to the terms of the Arrangement Agreement, (i) certain warrants to purchase Peraso Shares outstanding immediately prior to the closing of the Arrangement were exercised in consideration for the issuance of Peraso Shares; (ii) each convertible debenture of Peraso Tech outstanding immediately prior to the closing of the Arrangement and all principal and accrued but unpaid interest thereon was converted into Peraso Shares at a conversion price equal to the conversion price set out in each such debenture; and (iii) each outstanding option to purchase Peraso Shares (each, a Peraso Option) was exchanged for a replacement option to purchase such number of shares of common stock that was equal to the product of (a) the number of Peraso Shares subject to the Peraso Options immediately before the closing of the Arrangement and (b) the Exchange Ratio, rounded down to the nearest whole number of shares of common stock.
Upon the closing of the Arrangement, an aggregate of
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. 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, to receive dividends that are economically equivalent to any dividends declared with respect to the shares of common stock.
The Exchangeable Shares, which can be converted into common stock at the option of the holder and have the same voting rights as common stock, are similar in substance to shares of common stock and, therefore, 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.
Reverse Acquisition Determination
Pursuant to ASC 805, the transaction was accounted for as a reverse acquisition because: (i) the stockholders of Peraso Tech owned the majority of the outstanding common stock of the Company after the share exchange; (ii) Peraso Tech appointed a majority of the Company’s board of directors; and (iii) Peraso Tech determined the officers of the Company.
Measuring the Consideration Transferred
In the reverse acquisition, the accounting acquirer did not issue any consideration to the accounting acquiree, rather the accounting acquiree issued its equity shares to the owners of the accounting acquirer in exchange for the accounting acquirer’s shares. The acquisition date fair value of the consideration transferred by the accounting acquirer for its interest in the accounting acquiree was calculated by Peraso Tech, as the fair value of the consideration effectively transferred. In accordance with ASC 805, the consideration effectively transferred between the Company (a public company as the accounting acquiree) and Peraso Tech (a private company as the accounting acquirer), was calculated as
16
the fair value of the Company’s equity including the fair value of its common shares outstanding and its warrants, plus the portion of the share-based award fair value allocated to the pre-combination service of the accounting acquiree’s awards.
|
|
|
|
|
|
|
Company share price (i) |
|
$ |
|
|
|
Company common shares outstanding (ii) |
|
|
|
|
|
|
|
|
|
|
|
Fair value of the Company's common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
Fair value of the Company's warrants (iii) |
|
|
|
|
|
|
|
|
|
|
|
Total fair value of the Company's share-based awards (iii) |
|
|
|
|
|
Percent related to pre-combination service |
|
|
|
% |
|
Fair value of the Company's pre-combination service share-based awards (iii) |
|
|
|
|
|
|
|
|
|
|
|
Consideration effectively transferred |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Represents the Company's share price as of December 16, 2021 |
|
|||
|
(ii) Represents the Company's outstanding shares as of December 16, 2021 |
|
|||
|
(iii) Represents the fair value of the Company's warrants outstanding and calculated as of December 16, 2021 |
|
|||
|
|
|
|
|
|
The following table summarizes the final allocation of the purchase price to the net assets acquired based on the respective fair value of the acquired assets and assumed liabilities of the accounting acquiree, which is the Company.
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
2021 |
|
|
|
Assets: |
|
(in thousands) |
|
|
|
Cash, cash equivalents and investments |
|
$ |
|
|
|
Other current assets |
|
|
|
|
|
Other assets |
|
|
|
|
|
Intangibles |
|
|
|
|
|
Developed technology |
|
|
|
|
|
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
Liabilities: |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
17
Unaudited pro forma results of operations for the three and six months ended June 30, 2021 are included below as if the business combination occurred on January 1, 2021.
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
|
(in thousands) |
|
June 30, 2021 |
|
|
June 30, 2021 |
|
||
|
Revenue |
|
$ |
|
|
|
$ |
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
Note 3: Fair Value of Financial Instruments
The estimated fair values of financial instruments outstanding were (in thousands):
|
|
|
June 30, 2022 |
|
|||||||||||||
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|||
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
||||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Short-term investments |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Long-term investments |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
December 31, 2021 |
|
|||||||||||||
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|||
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
||||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Short-term investments |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Long-term investments |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) (in thousands):
|
|
|
June 30, 2022 |
|
|||||||||||||
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
Money market funds |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Corporate notes and commercial paper |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
|
|
December 31, 2021 |
|
|||||||||||||
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
Money market funds |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Corporate notes and commercial paper |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
There were
18
Note 4. Balance Sheet Detail
Inventories
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work-in-process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Note 5. Revision of Prior Period Financial Statements
The Company previously classified amortization expense related to the developed technology and customer relationships intangible assets within R&D in its condensed consolidated statements of operations and comprehensive loss. Amortization expense on the developed technology intangible asset is now classified within cost of net revenue, and amortization expense on customer relationships is now classified in SG&A. Prior period amounts have been conformed to the current period presentation. The reclassification had
The effects of the adjustments for the three months ended March 31, 2022 were as follows (in thousands):
|
|
|
As Reported |
|
|
Adjustment |
|
|
As Revised |
|
|||
|
Condensed Consolidated Statement of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Gross profit |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Research and development |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Note 6. Commitments and Contingencies
Leases
The Company has five facility leases that it accounts for under ASC 842, and these include the operating leases for its corporate facility in San Jose, California, and facilities in Toronto, Markham and Waterloo, Ontario, Canada. The Waterloo and Toronto leases expire in
The right-to-use assets and corresponding liabilities for the 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 were
19
On March 1, 2022, the Company entered into a
The following table provides the details of right-of-use assets and lease liabilities as of June 30, 2022 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
|
Right-of-use assets: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
$ |
|
|
|
Finance lease |
|
|
|
|
|
|
|
|
Total right-of-use assets |
|
|
|
|
$ |
|
|
|
Lease liabilities: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
$ |
|
|
|
Finance lease |
|
|
|
|
|
|
|
|
Total lease liabilities |
|
|
|
|
$ |
|
|
Future minimum payments under the leases at June 30, 2022 are listed in the table below (in thousands):
|
|
|
|
|
|
Operating |
|
|
|
Year ending December 31, |
|
|
|
|
leases |
|
|
|
2022 |
|
|
|
|
$ |
|
|
|
2023 |
|
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
|
|
2027 |
|
|
|
|
|
|
|
|
Total future lease payments |
|
|
|
|
|
|
|
|
Less: imputed interest |
|
|
|
|
|
( |
) |
|
Present value of lease liabilities |
|
|
|
|
$ |
|
|
The following table provides the details of supplemental cash flow information (in thousands):
|
|
|
|
Six Months Ended |
|
|||||
|
|
|
|
June 30, |
|
|||||
|
|
|
|
2022 |
|
|
2021 |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
||
|
Operating cash flows for leases |
|
$ |
|
|
|
$ |
|
|
|
Rent expense was approximately $
20
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, 2022 and 2021 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, 2022 and 2021.
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.
Note 7. 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
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, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
North America |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Hong Kong |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Taiwan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Rest of world |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
21
Customers who accounted for at least 10% of total net revenue were:
|
|
|
Three Months Ended |
|
Six Months Ended |
||||
|
|
|
June 30, |
|
June 30, |
||||
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Customer A |
|
|
|
* |
|
|
|
* |
|
Customer B |
|
|
|
* |
|
|
|
* |
|
Customer C |
|
|
|
|
|
|
|
|
|
Customer D |
|
|
|
* |
|
|
|
* |
|
Customer E |
|
* |
|
* |
|
* |
|
|
|
* |
Represents less than 10% |
Note 8. Income Tax Provision
The Company determines deferred tax assets and liabilities based upon the differences between the financial statement and tax bases of the Company’s assets and liabilities using tax rates in effect for the year in which the Company expects the differences to affect taxable income. A valuation allowance is established for any deferred tax assets for which it is more likely than not that all or a portion of the deferred tax assets will not be realized.
The Company files U.S. federal and state and foreign income tax returns in jurisdictions with varying statutes of limitations. All tax returns from 2015 to 2020 may be subject to examination by the Internal Revenue Service, California and other states. Returns filed in foreign jurisdictions may be subject to examination for the years 2011 to 2020. As of June 30, 2022, the Company has
Note 9. 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.
In August 2019, the Company’s stockholders approved the 2019 Stock Incentive Plan (the 2019 Plan), and it replaced 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,
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
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
22
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 and became exercisable by the holder of such option in accordance with its terms, with (i) the number of shares of common stock subject to each option multiplied by the Exchange Ratio and (ii) the per share exercise price upon the exercise of each option divided by the Exchange Ratio. In connection with the Arrangement,
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 $
Valuation Assumptions and Expense Information for Stock-Based Compensation
There were
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
The following table summarizes the activity in the shares available for grant under the Plans during the six months ended June 30, 2022 (in thousands, except exercise price):
|
|
|
|
|
|
Options Outstanding |
|
|||||
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Shares |
|
|
|
|
|
Average |
|
||
|
|
|
Available |
|
Number of |
|
|
Exercise |
|
|||
|
|
|
for Grant |
|
Shares |
|
|
Prices |
|
|||
|
Balance as of December 31, 2021 |
|
|
|
|
|
|
|
|
$ |
|
|
|
Options cancelled |
|
|
— |
|
|
( |
) |
|
$ |
|
|
|
Balance as of March 31, 2022 |
|
|
|
|
|
|
|
|
$ |
|
|
|
RSUs granted |
|
|
( |
) |
|
— |
|
|
$ |
- |
|
|
RSUs cancelled and returned to the Plan |
|
|
|
|
|
— |
|
|
$ |
- |
|
|
Options cancelled |
|
|
— |
|
|
( |
) |
|
$ |
|
|
|
Balance as of June 30, 2022 |
|
|
|
|
|
|
|
|
$ |
|
|
23
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, 2021 |
|
|
|
|
|
$ |
|
|
|
Vested |
|
|
( |
) |
|
$ |
|
|
|
Non-vested shares as of March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
— |
|
|
Vested |
|
|
( |
) |
|
$ |
|
|
|
Cancelled |
|
|
( |
) |
|
|
— |
|
|
Non-vested shares as of June 30, 2022 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes significant ranges of outstanding and exercisable options as of June 30, 2022 (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 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$15.00 - $25.59 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
— |
|
|
$25.60 - $143.99 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
— |
|
|
$144.00 - $409.99 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
— |
|
|
$410.00 - $924.00 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
— |
|
|
$1.57 - $924.00 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Note 10. Equity
Warrants
As of June 30, 2022, the Company had the following warrants outstanding (share amounts in thousands):
|
|
|
|
||||||||
|
Type |
|
Number of Shares |
|
|
Exercise Price |
|
|
Expiration |
||
|
Common stock |
|
|
|
|
|
$ |
|
|
|
|
|
Common stock |
|
|
|
|
|
$ |
|
|
|
|
24
Note 11. Debt
Loan Facilities
On November 30, 2020, the Company entered into a loan agreement (the SRED Financing) to raise funds against the Company’s present and after acquired personal property. On February 5, 2021, March 5, 2021 and September 17, 2021 the Company raised additional funds from the second, third and fourth draws under the SRED financing of $
The first, second and third draws, including interest of $
Interest expense of $
Note 12. Related Party Transactions
A family member of one of the Company’s executive officers serves as a consultant to the Company. During the six months ended June 30, 2022 and 2021, the Company paid approximately $
Note 13. Subsequent Event
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 has (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 $
25
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial statements and notes included in this report. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which include, without limitation, statements about the market for our technology, our strategy, competition, expected financial performance and capital raising effort., the impacts of COVID-19 on our business, the effects of the Russia/Ukraine conflict, and inflation, which could cause customers to delay or reduce purchases of our products or delay payments to us, which would adversely affect our financial results, including cash flows, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2022 and in other reports that we file from time to time with the Securities and Exchange Commission. Any statements about our business, financial results, financial condition and operations contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects” or similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described under Item 1A of our annual report on Form 10-K for the year ended December 31, 2021 and the risk factors described below under Item 1A of this Form 10-Q. We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law, even as new information becomes available or events occur in the future.
Overview
We were formerly known as MoSys, Inc. (MoSys) and were incorporated in California in 1991 and reincorporated in Delaware in 2000. On September 14, 2021, we and our subsidiaries, 2864552 Ontario Inc. and 2864555 Ontario Inc., entered into an Arrangement Agreement (the Arrangement Agreement) with Peraso Technologies Inc. (Peraso Tech), a corporation existing under the laws of the province of Ontario, to acquire all of the issued and outstanding common shares of Peraso Tech (the Peraso Shares), including those Peraso Shares to be issued in connection with the conversion or exchange of secured convertible debentures and common share purchase warrants of Peraso Tech, as applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business Corporations Act (Ontario). On December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed and the Company changed its name to “Peraso Inc.” and began trading on the Nasdaq Stock Market under the symbol “PRSO.”
For accounting purposes, the legal subsidiary, Peraso Tech, has been treated as the accounting acquirer and we, the legal parent, have been treated as the accounting acquiree. The transaction has been accounted for as a reverse acquisition in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) No. 805, Business Combinations. Accordingly, the financial condition and results of operations discussed herein are a continuation of Peraso Tech’s financial results prior to December 17, 2021 and exclude the financial results of us prior to December 17, 2021. See Note 2 to the condensed consolidated financial statements for additional disclosure.
Our strategy and primary business objective is to be a profitable, IP-rich, fabless semiconductor company offering integrated circuits (ICs), modules and related non-recurring engineering services. We specialize in the development of mmWave semiconductors, primarily in the 60 GHz spectrum band for 802.11ad/ay compliant devices and in the 28/39 GHz spectrum bands for 5G-compliant devices. We derive our revenue from selling semiconductor devices, as well as modules based on using those mmWave semiconductor devices. We have pioneered a high-volume mmWave production test methodology using standard low cost production test equipment. It has taken us several years to refine performance of this production test methodology, and we believe this places us in a leadership position in addressing operational challenges of delivering mmWave products into high-volume markets. During 2021, we augmented our business model and began selling complete mmWave modules. The primary advantage provided by a module is the silicon and the antenna are integrated into a single device. A differentiating characteristic of mmWave technology is that the radio frequency amplifiers must be as close as possible to the antenna to minimize loss, and, by providing a module, we can guarantee the performance of the amplifier/antenna interface.
We also acquired a memory product line, marketed under the Accelerator Engine name, which includes our Bandwidth Engine IC products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient, serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance. As we are not developing new memory products, from a product development
26
perspective, we continue to leverage our current technologies and core competencies to expand our product offerings without incurring significant additional research and development (R&D) expenses.
We incurred net losses of approximately $13.8 million for the six months ended June 30, 2022 and $10.9 million for the year ended December 31, 2021 and had an accumulated deficit of approximately $124.0 million as of June 30, 2022. These and prior year losses have resulted in significant negative cash flows and have required us to raise substantial amounts of additional capital during this period. We expect to incur operating losses and will need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time.
COVID-19 and Macroeconomic Factors
The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. This has negatively affected the U.S. and global economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets. The full extent of the COVID-19 impact on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. and foreign government agencies to prevent disease spread, all of which are uncertain, out of our control, and cannot be predicted.
Since March 2020, certain jurisdictions in which we operate have issued ’shelter-in-place” orders. We have complied with these orders and, when such orders were in place, minimized business activities at our facilities. We have implemented a teleworking policy for our employees and contractors to reduce on-site activity.
We believe that as the COVID-19 pandemic evolves, the direct and indirect impacts of the pandemic on global macroeconomic conditions, as well as conditions specific to us, are becoming more difficult to isolate or quantify. In addition, these direct and indirect factors can make it difficult to isolate and quantify the portion of our costs that are a direct result of the pandemic and costs arising from factors that may have been influenced by the pandemic, such as supply chain constraints, rising inflation, and recessionary fears. We expect these factors and their effects on our operations may persist for a longer period, even after the COVID-19 pandemic has subsided. We continue to closely monitor impacts, especially to customer programs and our supply chain. We are working internally and with suppliers on programs (i.e., new production flows, etc.) to allow us to increase our peak throughput to better handle unplanned disruptions to our supply chain. To date, we have not experienced a material impact on our cash flows, liquidity, capital resources, cash requirements, financial position, or results of operations, attributable to the global semiconductor supply chain disruption and inflation. We have experienced increased prices from our suppliers, and, for certain products, we have increased prices to our customers to mitigate the impacts, although to date in 2022 the impacts of these price increases have been minimal. We have and continue to experience longer lead times for certain components used to manufacture our products, and, therefore, and, in response, we have identified second and third sources for certain components used in our module products. Also, we have increased lead times for our customers. We have not experienced any issues over our product quality and product development activities, as we do not rely significantly on outside vendors to manage and perform these activities for us. We currently have not identified any current impacts of the supply chain disruption and inflation that will affect our future results, and it is difficult to differentiate whether higher prices are due to supply chain disruption, inflation or a mix of both.
While we believe that our operations personnel are currently in a position to meet expected customer demand levels in the coming quarters, we recognize that unpredictable events could create difficulties in the months ahead. We may not be able to address these difficulties in a timely manner, which could negatively impact our business, results of operations, financial condition and cash flows.
The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets. The Russian invasion of Ukraine in February 2022 has led to further economic disruptions. Mounting inflationary cost pressures and recessionary fears have negatively impacted the global economy. The U.S. Federal Reserve increased interest rates starting in March 2022 and additional increases are expected throughout the year. 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.
27
Sources of Revenue
Product revenue
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of our contracts have a single performance obligation to transfer products. Accordingly, we recognize revenue when title and risk of loss have been transferred to the customer, generally at the time of shipment of products. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price. We sell our products both directly to customers and through distributors generally under agreements with payment terms typically 60 days or less.
We may record an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale.
Royalty and other
Our licensing contracts typically provide for royalties based on the licensee’s use of our memory technology in its currently shipping commercial products. We estimate its royalty revenue in the calendar quarter in which the licensee uses the licensed technology. Payments are received in the subsequent quarter. We also generate revenue from licensing our technology. We recognize license fees as revenue at the point of time when the control of the license has been transferred and we have no continuing performance obligations to the customer.
Engineering services revenue
Engineering and development contracts with customers generally contain a single performance obligation that is delivered over time. Revenue is recognized using an output method that is consistent with the satisfaction of the performance obligation as a measure of progress.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these condensed consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances. Actual results may differ from these estimates and reported results could differ under different assumptions or conditions. Our significant accounting policies and estimates are disclosed in Note 1 of the “Notes to Consolidated Financial Statements” in our annual report on Form 10-K for the year ended December 31, 2021. As of June 30, 2022, there have been no material changes to our significant accounting policies and estimates.
Reclassifications
We previously classified intangible asset amortization expense related to the developed technology and customer relationships intangibles within research and development expenses (R&D) in our condensed consolidated statements of operations and comprehensive loss. Amortization expense on the developed technology intangible asset is now classified within cost of net revenue, and amortization expense on customer relationships is now classified in selling, general and administrative expenses (SG&A). Prior period amounts have been conformed to the current period presentation. See Note 5 to the condensed consolidated financial statements for a discussion of the reclassifications.
28
Results of Operations
Net Revenue
|
|
|
June 30, |
|
|
Change |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2021 to 2022 |
|
|||||||
|
|
|
(dollar amounts in thousands) |
|
|||||||||||||
|
Product -three months ended |
|
$ |
4,120 |
|
|
$ |
576 |
|
|
$ |
3,544 |
|
|
|
615 |
% |
|
Percentage of total net revenue |
|
|
96 |
% |
|
|
83 |
% |
|
|
|
|
|
|
|
|
|
Product -six months ended |
|
$ |
7,324 |
|
|
$ |
1,627 |
|
|
$ |
5,697 |
|
|
|
350 |
% |
|
Percentage of total net revenue |
|
|
95 |
% |
|
|
90 |
% |
|
|
|
|
|
|
|
|
Product revenue increased for the three months ended June 30, 2022 compared with the same period of 2021 primarily due to a $1.9 million increase in revenues attributable to our memory IC products. Our results for the prior year period included no memory product sales, as we completed our business combination in December 2021. In addition, shipments of our mmWave module products increased by $1.5 million over the prior year period, as we commenced selling module products in the second half of 2021.
Product revenue increased for the six months ended June 30, 2022 compared with the same period of 2021 primarily due to a $3.8 million increase in revenues attributable to our memory IC products. Shipments of our mmWave module products increased by $2.3 million. These increases were partially offset by decreases in sales of our mmWave IC products. We expect revenues to increase for the remainder of 2022, as we expect increased sales of our mmWave products, including the benefits of price increases implemented in 2022, and will experience a full-year contribution of revenues from our memory products.
.
|
|
|
June 30, |
|
|
Change |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2021 to 2022 |
|
|||||||
|
|
|
(dollar amounts in thousands) |
|
|||||||||||||
|
Royalty and other -three months ended |
|
$ |
164 |
|
|
$ |
121 |
|
|
$ |
43 |
|
|
|
36 |
% |
|
Percentage of total net revenue |
|
|
4 |
% |
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
Royalty and other -six months ended |
|
$ |
363 |
|
|
$ |
171 |
|
|
$ |
192 |
|
|
|
112 |
% |
|
Percentage of total net revenue |
|
|
5 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
|
Royalty and other includes royalty, non-recurring engineering, services and licenses revenues. The increase in royalty and other revenue for the three and six months ended June 30, 2022 compared with the same period of 2021 was primarily due to a full six-month contribution of royalty revenues from licensees of our memory technology.
Cost of Net Revenue and Gross Profit
|
|
|
June 30, |
|
|
Change |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2021 to 2022 |
|
|||||||
|
|
|
(dollar amounts in thousands) |
|
|||||||||||||
|
Cost of net revenue -three months ended |
|
$ |
2,799 |
|
|
$ |
435 |
|
|
$ |
2,364 |
|
|
|
543 |
% |
|
Percentage of total net revenue |
|
|
65 |
% |
|
|
62 |
% |
|
|
|
|
|
|
|
|
|
Cost of net revenue -six months ended |
|
$ |
4,747 |
|
|
$ |
1,054 |
|
|
$ |
3,693 |
|
|
|
350 |
% |
|
Percentage of total net revenue |
|
|
62 |
% |
|
|
59 |
% |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Change |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2021 to 2022 |
|
|||||||
|
|
|
(dollar amounts in thousands) |
|
|||||||||||||
|
Gross profit -three months ended |
|
$ |
1,485 |
|
|
$ |
262 |
|
|
$ |
1,223 |
|
|
|
467 |
% |
|
Percentage of total net revenue |
|
|
35 |
% |
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
Gross profit -six months ended |
|
$ |
2,940 |
|
|
$ |
744 |
|
|
$ |
2,196 |
|
|
|
295 |
% |
|
Percentage of total net revenue |
|
|
38 |
% |
|
|
41 |
% |
|
|
|
|
|
|
|
|
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.
29
Cost of net revenue increased for the three and six months ended June 30, 2022 when compared with the same period in 2021, primarily due to increased shipment volumes of our LineSpeed and Bandwidth Engine IC and mmWave module products. Our module products have higher cost of goods sold per unit and generate lower gross profit margin than our IC products.
Gross profit increased for the three and six months ended June 30, 2022 compared with the same period of 2021 due to the increased product shipments. The decrease in our gross profit margin for the three and six months ended June 30, 2022 compared with the prior year periods was primarily attributable to the increased volume shipments of our mmWave modules, which carry lower gross margins than our IC products.
Research and Development
|
|
|
June 30, |
|
|
Change |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2021 to 2022 |
|
|||||||
|
|
|
(dollar amounts in thousands) |
|
|||||||||||||
|
R&D -three months ended |
|
$ |
5,643 |
|
|
$ |
2,892 |
|
|
$ |
2,751 |
|
|
|
95 |
% |
|
Percentage of total net revenue |
|
|
132 |
% |
|
|
415 |
% |
|
|
|
|
|
|
|
|
|
Research and development -six months ended |
|
$ |
11,127 |
|
|
$ |
5,679 |
|
|
$ |
5,448 |
|
|
|
96 |
% |
|
Percentage of total net revenue |
|
|
145 |
% |
|
|
316 |
% |
|
|
|
|
|
|
|
|
Our R&D expenses include costs related to the development of our products. We expense R&D costs as they are incurred.
The increase for the three and six months ended June 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of a full six months of expenses related to the former operations of MoSys, amortization of intangible assets in the first six months of 2022 and recognition of government wage and rent subsidies in the first quarter of 2021 that reduced operating expenses. We expect that total research and development expenses will increase in 2022 compared with 2021, as we will include the operations related to our memory products and increase development of our mmWave products and technologies, including our new 5G products. In addition, we do not expect to receive any government subsidies in 2022 to reduce our expenses.
Selling, General and Administrative
|
|
|
June 30, |
|
|
Change |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2021 to 2022 |
|
|||||||
|
|
|
(dollar amounts in thousands) |
|
|||||||||||||
|
SG&A -three months ended |
|
$ |
2,878 |
|
|
$ |
1,799 |
|
|
$ |
1,079 |
|
|
|
60 |
% |
|
Percentage of total net revenue |
|
|
67 |
% |
|
|
258 |
% |
|
|
|
|
|
|
|
|
|
SG&A -six months ended |
|
$ |
5,585 |
|
|
$ |
3,106 |
|
|
$ |
2,479 |
|
|
|
80 |
% |
|
Percentage of total net revenue |
|
|
73 |
% |
|
|
173 |
% |
|
|
|
|
|
|
|
|
SG&A expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general management and amortization of intangible assets.
The increase for the three and six months ended June 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of a full quarter of expenses related to our memory product line.
Interest expense
Interest expense incurred during the six months ended June 30, 2021 related to our convertible debt and loans payable, which were repaid and/or converted into equity during 2021.
30
Liquidity and Capital Resources; Changes in Financial Condition
Cash Flows
As of June 30, 2022, we had cash, cash equivalents and investments of $6.0 million and working capital of $9.9 million.
Net cash used in operating activities was $11.6 million for the first six months of 2022, which primarily resulted from our net loss of $13.8 million and $2.4 million in net changes in assets and liabilities, partially offset by non-cash charges of $1.5 million of depreciation and amortization, $2.9 million of stock based compensation and a $0.2 million other non-cash items. The changes in assets and liabilities primarily related to the timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments.
Net cash used in operating activities was $5.7 million for the first six months of 2021, which primarily resulted from our net loss of $9.6 million and $0.5 million in net changes in assets and liabilities, which was offset by non-cash charges of $2.3 million of stock-based compensation, $0.5 million of depreciation and amortization expenses, $0.9 million amortization of debt discount, $0.4 million of accrued interest and a $0.3 million other non-cash items. The changes in assets and liabilities primarily related to the timing of accounts receivable collections and other vendor payables and prepayments.
Net cash provided by investing activities of $8.6 million for the six months ended June 30, 2022 represented $9.4 million in proceeds from maturities of short-term investments, partially offset by $0.5 million purchases of short and long-term investments and $0.3 million of purchases of property and equipment. Net cash used in investing activities for the six months ended June 30, 2021 represented approximately $52,000 of purchases of property and equipment and $95,000 of intangible assets.
Net cash used in financing activities for the six months ended June 30, 2022 consisted of taxes paid to net share settle equity awards.
Net cash provided by financing activities for the six months ended June 30, 2021 consisted of net proceeds received from an unsecured loan.
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. |
31
Going Concern - Working Capital
We incurred net losses of approximately $13.8 million for the six months ended June 30, 2022 and $10.8 million for the year ended December 31, 2021 and had an accumulated deficit of approximately $131.0 million as of June 30, 2022. These and prior year losses have resulted in significant negative cash flows and have required us to raise substantial amounts of additional capital. To date, we have primarily financed our operations through multiple offerings of common stock and issuance of convertible notes and loans to investors and affiliates.
We expect to continue to incur operating losses for the foreseeable future as we continue to secure new customers for and continue to invest in the development of our products, and we expect our cash expenditures to continue to exceed receipts for the foreseeable future, as our revenues will not be sufficient to offset our operating expenses.
We will need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time. As a result of our expected operating losses and cash burn for the foreseeable future and recurring losses from operations, if we are unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt as to our ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial statements. The condensed consolidated financial statements presented in Item 1 of this Report have been prepared assuming that we will continue as a going concern, and do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that such additional capital, whether in the form of debt or equity financing, will be sufficient or available and, if available, that such capital will be offered on terms and conditions acceptable to us. We are currently seeking additional financing in order to meet our cash requirements for the foreseeable future. If the Company is unsuccessful in these efforts, it will need to implement cost reduction strategies, which could further affect its near- and long-term business plan. These efforts may include, but are not limited to, reducing headcount and curtailing business activities. As further discussed in Note 11 to the condensed consolidated financial statements, in August 2022, we entered into an exclusive technology license and patent assignment agreement with Intel Corporation, which is expected to generate gross proceeds to us of $3.5 million over the next six months and result in a reduction of operating expenses of approximately $2.7 million on annual basis.
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:
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develop or enhance our products; |
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continue to expand our product development and sales and marketing organizations; |
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acquire complementary technologies, products or businesses; |
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expand operations, in the United States or internationally; |
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hire, train and retain employees; or |
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respond to competitive pressures or unanticipated working capital requirements. |
Our failure to do any of these things could seriously harm our ability to execute our business strategy and may force us to curtail our existing operations.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity or capital resources.
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Recent Accounting Pronouncements
See Note 1 to the condensed consolidated financial statements for a discussion of recent accounting policies.
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, 2022, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting. During the six months ended June 30, 2022, 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, 2021, which we filed with the SEC on March 31, 2022.
We might not be able to continue as a going concern.
Our unaudited condensed consolidated financial statements as of June 30, 2022 have been prepared under the assumption that we will continue as a going concern for the next twelve months. As of June 30, 2022, we had cash and cash equivalents of $6.0 million and an accumulated deficit of $131.0 million. We do not believe that our cash, cash equivalents and investments are sufficient for the next 12 months. We will need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time. As a result of our expected operating losses and cash burn for the foreseeable future and recurring losses from operations, if we are unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt as to our ability to continue as a going concern. If we cannot continue as a viable entity, our stockholders would likely lose most or all of their investment in us.
If we are unable to generate sustainable operating profit and sufficient cash flows, then our future success will depend on our ability to raise capital. We are seeking additional financing and evaluating financing alternatives in order to meet our cash requirements for the next 12 months. We cannot be certain that raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to us or, if available, will be on terms acceptable to us. If we issue additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of our common stock, and our current stockholders may experience dilution. If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current product development programs, cut operating costs, forego future development and other opportunities or even terminate our operations.
We have a history of losses, and we will need to raise additional capital.
We recorded net losses of approximately $7.0 million and $10.9 million for the six months ended June 30, 2022 and year ended December 31, 2021, respectively. These and prior-year losses have resulted in significant negative cash flows. To remain competitive and expand our product offerings to customers, 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. Given our history of fluctuating revenues and operating losses, and the challenges we face in securing customers for our products, we cannot be certain that we will be able to achieve and maintain profitability on either a quarterly or annual basis in the future. As a result, we will need to raise additional capital to meet our cash requirements for the next 12 months, which may or may not be available to us at all or only on unfavorable terms.
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The invasion of Ukraine by Russia could negatively impact our business.
Russia’s recent military invasion of Ukraine has led to, and may lead to, additional sanctions being levied by the United States, European Union and other countries against Russia. Russia’s military invasion and the resulting sanctions have had an adverse effect on global markets. We cannot predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond our control. Prolonged unrest, intensified military activities, or more extensive sanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on the operations, results of operations, financial condition, liquidity and business outlook of our business.
Sustained inflation could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Inflation rates in the markets in which we operate have increased and may continue to rise. Inflation over the last several months has led us to experience higher costs, including higher labor costs, wafer and other costs for materials from suppliers, and transportation costs. Our suppliers have raised their prices and may continue to raise prices, and, although we have made minimal price increases thus far, in the competitive markets in which we operate, we may not be able to make corresponding price increases to preserve our gross margins and profitability. In addition, inflationary pressures could cause customers to delay or reduce purchases of our products or delay payments to us. If inflation rates continue to rise or remain elevated for a sustained period of time, they could have a material adverse effect on our business, financial condition, results of operations and liquidity.
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ITEM 6. Exhibits
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Exhibits |
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10.1*+ |
Amendment to offer of employment between the Company and Daniel Lewis dated April 25, 2022 |
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10.2*+ |
Amendment to offer of employment between the Company and James Sullivan dated April 25, 2022 |
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10.3*+ |
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31.1* |
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31.2* |
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32.1** |
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101* |
The following financial information from Peraso Inc.’s quarterly report on Form 10-Q for the period ended June 30, 2022, filed with the SEC on August 15, 2022, 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, 2022 and 2021, (ii) the Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, (iii) the Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2022 and 2021, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021, and (v) Notes to Condensed Consolidated Financial Statements. |
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104* |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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*Filed herewith.
**Furnished herewith.
+Management contract, compensatory plan or arrangement.
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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.
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Dated: August 15, 2022 |
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PERASO INC. |
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By: |
/s/ Ronald Glibbery |
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Ronald Glibbery |
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Chief Executive Officer (Principal Executive Officer) |
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By: |
/s/ James W. Sullivan |
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James W. Sullivan |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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