What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-15 compared with 2022-05-13 · 174 added, 69 removed, 421 unchanged (37% of the section changed)

26 unchanged sentences

20,000 shares authorized;

none issued and

one share of Series A Special Voting Preferred Stock issued and outstanding (Note 2)

Common stock, $ 0.001 par value;

1 unchanged sentence

21,832 shares

and 21,579 shares issued and outstanding at March 31, 2022 and

December 31, 2021, respectively

and 21,579 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

7 unchanged sentences

Three Months Ended

Six Months Ended

Royalty and other

24 unchanged sentences

Balance as of March 31, 2022

Issuance of common stock under stock plan, net

Stock-based compensation

Unrealized loss on available-for-sale securities

Balance as of June 30, 2022

Comprehensive

2 unchanged sentences

Balance as of March 31, 2021

Issuance of common stock under stock plan, net

Stock-based compensation

Balance as of June 30, 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

(In thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

18 unchanged sentences

Proceeds from maturities of marketable securities

Purchases of marketable securities and investments

Purchases of marketable securities

Net cash provided by (used in) investing activities

1 unchanged sentence

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 decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

1 unchanged sentence

Supplemental disclosure:

Recognition of right-of-use asset and lease liability

Unrealized loss on securities

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.

3 unchanged sentences

(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 mmWave technology, including 60GHz and 5G products, and derives revenue from selling semiconductor devices, licensing of intellectual property (IP) and performance of non-recurring engineering services (NRE).

The Company also manufactures and sells memory semiconductor devices that enable fast, intelligent data access and decision making for a wide range of markets.

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.

4 unchanged sentences

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 Accounting Standards Codification (ASC) No.

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 (deficit) and statements of cash flows of the Company prior to December 17, 2021.

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 .

4 unchanged sentences

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 months ended March 31, 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.

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.

The Company 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, the Company has primarily financed its operations through multiple offerings of common stock to investors and affiliates.

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

2 unchanged sentences

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

38 unchanged sentences

The Company grants credit only to customers deemed creditworthy in the judgment of management.

The allowance for doubtful accounts receivable was zero as of March 31, 2022 and approximately $ 61,000 as of December 31, 2021.

The allowance for doubtful accounts receivable was zero as of June 30, 2022 and approximately $ 61,000 as of December 31, 2021.

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.

4 unchanged sentences

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 $ 114,000 during the three months ended March 31, 2022, and recorded no write-downs of inventory during the three months ended March 31, 2021.

The Company recorded write-downs of inventory of approximately $ 160,000 and $ 37,000 during the six months ended June 30, 2022 and 2021, respectively.

Tax Credits and Receivables

1 unchanged sentence

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 (SR&ED) 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.

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.

2 unchanged sentences

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 15 % on qualified SR&ED expenditures.

However, it is eligible for a tax credit of 15 % on qualified SRED expenditures.

Unused tax credits can be carried back three years or forward for 20 years

1 unchanged sentence

Intangible assets are recorded at cost and amortized on a straight-line method over their estimated useful lives of three to ten years .

Amortization of developed technology and other intangibles directly related to the Company’s products is included in cost of net revenue, while amortization of customer relationships and other intangibles not associated with the Company’s products is included in SG&A in the condensed consolidated statements of operations.

The Company regularly reviews the carrying value and estimated lives of its long-lived assets and finite-lived intangible assets to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives.

1 unchanged sentence

Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the long-lived asset group over the asset’s fair value.

Purchased Intangible Assets

Intangible assets acquired in business combinations are accounted for based on the fair value of assets purchased and are amortized over the period in which economic benefit is estimated to be received.

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

June 30, 2022

Developed technology

Customer relationships

December 31, 2021

Developed technology

Customer relationships

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 four years .

Amortization related to developed technology of $ 0.3 million and $ 0.7 million for the three and six months ended June 30, 2022, respectively, has been included in cost of net revenue in the condensed consolidated statements of operations and comprehensive loss.

Customer relationships relate to the Company's ability to sell existing and future versions of products to MoSys’ customers existing at the time of the arrangement.

The fair value of the customer relationships was determined by discounting estimated net future cash flows from the customer relationships.

The Company is amortizing customer relationships on a straight-line basis over an estimated life of 4 years.

Amortization related to customer relationships of $ 0.2 million and $ 0.3 million for the three and six months ended June 30, 2022, respectively, has been included in selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

Amortization expense was $ 0.5 million and $ 1.0 million for the three and six months ended June 30, 2022, respectively.

There was no amortization expense for the three and six months ended June 30, 2021.

As of June 30, 2022, estimated future amortization expense related to intangible assets was as follows (in thousands):

Year ending December 31,

The Company determines the amount of a potential goodwill impairment by comparing the fair value of the reporting unit with its carrying amount.

13 unchanged sentences

Revenue Recognition

The Company recognizes revenue in accordance with Financial Accounting Standards Board ( FASB) ASC Topic 606, Revenue from Contracts with Customers, and its amendments (ASC 606).

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.

26 unchanged sentences

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 December 31, 2021, contract liabilities were in a current position and included in deferred revenue.

During the three months ended March 31, 2022, the Company recognized approximately $ 15,000 of revenue that had been included in deferred revenue as of December 31, 2021.

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 $ 61,000 of revenue that had been included in deferred revenue as of December 31, 2021.

See Note 6 for disaggregation of revenue by geography.

The Company does not have significant financing components, as payments from customers are typically due within 60 days of invoicing, and the Company has elected the practical expedient to net value financing components that are less than one year.

The Company does not have significant financing components, as payments from customers are typically due within 60 days of invoicing, and the Company has elected the practical expedient to not value financing components that are less than one year.

Shipping and handling costs are generally incurred by the customer, and, therefore, are not recorded as revenue.

Cost of Net Revenue

Cost of net revenue consists primarily of direct and indirect costs of product sales.

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

1 unchanged sentence

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.

During the three months ended March 31, 2021 , the Company recognized payroll subsidies of $ 425,525 as a reduction in the associated wage costs and rent subsidies of $ 77,780 as a reduction of operating expenses in the condensed consolidated statement of operations.

The Company’s subsidiary, Peraso Tech, began receiving this subsidy on a monthly basis beginning in the fourth quarter of 2020 and end ing in the fourth quarter of 2021 .

During the six months ended June 30, 2021, the Company recognized payroll subsidies of $ 861,352 as a reduction in the associated wage costs and rent subsidies of $ 160,865 as a reduction of operating expenses in the condensed consolidated statement of operations.

Stock-Based Compensation

27 unchanged sentences

The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss.

This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years

for smaller reporting companies.

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 August 2020, the FASB issued ASU No.

2020-06 (ASU 2020-06), Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .

The ASU will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock.

Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP.

Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that:

i) are not clearly and closely related to the host contract, ii) meet the definition of a derivative, and iii) do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital.

The ASU also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.

ASU 2020-06 will be effective for the Company January 1, 2024, and early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year.

The Company is currently evaluating what effect(s) the adoption of ASU 2020-06 may have on its financial statements, but the Company does not believe the impact of the ASU will be material to its financial position, results of operations and cash flows.

The effect will largely depend on the composition and terms of the Company’s financial instruments at the time of adoption.

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.

Business Combination

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.

8 unchanged sentences

Upon the closing of the Arrangement, an aggregate of 9,295,097 Exchangeable Shares and 3,558,151 shares of common stock were issued to the holders of Peraso Shares.

Of such shares, pursuant to the terms of the Agreement, the Company held in escrow an aggregate of 1,312,878 Exchangeable Shares and 502,567 shares of common stock

(collectively, the Escrow Shares).

Of such shares, pursuant to the terms of the Agreement, the Company held in escrow an aggregate of 1,312,878 Exchangeable Shares and 502,567 shares of common stock (collectively, the Escrow Shares).

The Escrow Shares are escrowed pursuant to the terms of an escrow agreement on a pro rata basis from the aggregate consideration received by the holders of Peraso Shares, subject to the offset by the Company for any losses in accordance with the Agreement.

4 unchanged sentences

All and any voting rights and other stockholder rights, other than with respect to dividends and distributions, with respect to the Escrow Shares are suspended until the Escrow Shares are released from escrow.

In connection with the Arrangement, on December 15, 2021, the Company filed the Certificate of Designation of Series A Special Voting Preferred Stock 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.

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

6 unchanged sentences

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 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.

The fair value of the total consideration effectively transferred was determined to be $ 37.6 million.

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.

The fair value of the total consideration effectively transferred is summarized in the following table (in thousands, except per-share amount) :

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 .

5 unchanged sentences

Current liabilities

Unaudited proforma results of operations for the three months ended March 31, 2021 are included below as if the business combination occurred on January 1, 2021.

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.

This summary of the unaudited pro forma results of operations is not necessarily indicative of what the Company’s results of operations would have been had Peraso Tech been acquired at the beginning of 2021, nor does it purport to represent results of operations for any future periods.

Three Months Ended

March 31, 2021

Six Months Ended

(in thousands)

June 30, 2021

Fair Value of Financial Instruments

The estimated fair values of financial instruments outstanding were (in thousands):

March 31, 2022

June 30, 2022

Cash and cash equivalents

6 unchanged sentences

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

March 31, 2022

June 30, 2022

Money market funds

3 unchanged sentences

Corporate notes and commercial paper

There were no transfers in or out of Level 1 and Level 2 securities during the three months ended March 31, 2022 or December 31, 2021.

There were no transfers in or out of Level 1 and Level 2 securities during the six months ended June 30, 2022 or December 31, 2021.

Balance Sheet Detail

3 unchanged sentences

Finished goods

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 no impact on the Company's net loss or cash flows for the three months ended March 31, 2022 and six months ended June 30, 2022.

The effects of the adjustments for the three months ended March 31, 2022 were as follows (in thousands):

Condensed Consolidated Statement of Operations:

Cost of net revenue

Research and development

Selling, general and administrative

Total operating expenses

Commitments and Contingencies

The Company has three 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 and Waterloo, Ontario, Canada.

The San Jose lease expires in July 2022 , and the Waterloo and Toronto leases expire in September 2022 and December 2023 , respectively.

On March 1, 2022 the Company entered into a 36 month finance lease agreement for the lease of equipment resulting in the recognition of a right-of-use asset and lease liability on the balance sheet of approximately $ 274,000 .

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 September 2022 and December 2023 , respectively.

The current San Jose lease with a sublessor expires in July 2022 , and the Company entered into a new, direct lease with the facility landlord, dated April 13, 2022, for an 18 -month term, which commenced July 15, 2022 .

In addition, on May 26, 2022, the Company entered into a new lease for a facility in Markham, Ontario with a 60 -month term, which commenced June 21, 2022 .

The Markham landlord also provided a lease incentive of approximately $ 220,000 (the Incentive), which will be payable to the Company as follows:

one-half of the Incentive payable subsequent to the completion of the improvements to the leased space and the second half-ratably on an annual basis commencing with the second year of the lease.

The right-to-use assets and corresponding liabilities for the facility leases were measured at the present value of the future minimum lease payments.

1 unchanged sentence

Lease expense is recognized on a straight-line basis over the lease term.

Future minimum payments under the leases at March 31, 2022 are listed in the table below (in thousands):

Three Months Ended

On March 1, 2022, the Company entered into a 36 -month finance lease agreement for the lease of equipment resulting in the recognition of a right-of-use asset and lease liability on the balance sheet of approximately $ 274,000 .

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:

6 unchanged sentences

Total lease liabilities

Future minimum payments under the leases at June 30, 2022 are listed in the table below (in thousands):

Year ending December 31,

2 unchanged sentences

Present value of lease liabilities

Three Months Ended

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

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for leases

Rent expense was approximately $ 0.1 million for each of the three month periods ended March 31, 2022 and 2021.

Rent expense was approximately $ 0.2 million for each of the three month periods ended June 30, 2022 and 2021.

Rent expense was approximately $ 0.4 million for the six months ended June 30, 2022 and $ 0.3 million for the six months ended June 30, 2021.

In addition to the minimum lease payments, the Company is responsible for property taxes, insurance and certain other operating costs related to the leased facilities and equipment.

3 unchanged sentences

The Company has also entered into indemnification agreements with its officers and directors.

No material amounts were reflected in the Company’s condensed consolidated financial statements for the three months ended March 31, 2022 and 2021 related to these indemnifications.

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.

3 unchanged sentences

The Company estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of net revenues.

Warranty costs were not material for the three months ended March 31, 2022 and 2021.

Warranty costs were not material for the six months ended June 30, 2022 and 2021.

Legal Matters

13 unchanged sentences

Three Months Ended

Six Months Ended

North America

3 unchanged sentences

Three Months Ended

Six Months Ended

Represents less than 10%

Three customers accounted for 67 % of accounts receivable as of March 31, 2022.

Three customers accounted for 80 % of accounts receivable as of June 30, 2022.

Three customers accounted for 96 % of accounts receivable as of December 31, 2021.

6 unchanged sentences

Returns filed in foreign jurisdictions may be subject to examination for the years 2011 to 2020.

As of March 31, 2022, the Company has no t recorded any liability for unrecognized tax benefits related to uncertain tax positions.

As of June 30, 2022, the Company has no t recorded any liability for unrecognized tax benefits related to uncertain tax positions.

Stock-Based Compensation

17 unchanged sentences

Stock-Based Compensation Expense

At March 31, 2022, the unamortized compensation cost was approximately $ 11.4 million related to stock options and is expected to be recognized as expense over a weighted average period of approximately 3 years.

The unamortized compensation cost, at March 31, 2022, was $ 0.2 million related to restricted stock units and is expected to be recognized as expense over a weighted average period of approximately 1.6 years.

For the three months ended March 31, 2022 and 2021, there were no excess tax benefits associated with the exercise of stock options due to the Company’s historical loss positions.

The Company reflected compensation costs of $ 2.2 million and $ 2.3 million related to the vesting of stock options during the six month periods ended June 30, 2022 and 2021, respectively.

At June 30, 2022, the unamortized compensation cost was approximately $ 10.2 million related to stock options and is expected to be recognized as expense over a weighted average period of approximately 2.6 years.

The Company reflected compensation costs of $ 0.7 million and zero related to the vesting of restricted stock options during the six month ended June 30, 2022 and 2021, respectively.

The unamortized compensation cost at June 30, 2022 was $ 2.8 million related to restricted stock units and is expected to be recognized as expense over a weighted average period of approximately 2.5 years.

Valuation Assumptions and Expense Information for Stock-Based Compensation

There were no stock options granted or exercised during the three months ended March 31, 2022 and 2021.

There were no stock options granted or exercised during the six months ended June 30, 2022 and 2021.

Common Stock Options and Restricted Stock

3 unchanged sentences

In addition, the 2019 Plan provides for automatic acceleration of vesting for options granted to non-employee directors upon a change of control (as defined in the 2019 Plan) of the Company.

The following table summarizes the activity in the shares available for grant under the Plans during the three months ended March 31, 2022 (in thousands, except exercise price):

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

2 unchanged sentences

Balance as of March 31, 2022

RSUs cancelled and returned to the Plan

Options cancelled

Balance as of June 30, 2022

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

1 unchanged sentence

Non-vested shares as of March 31, 2022

The following table summarizes significant ranges of outstanding and exercisable options as of March 31, 2022 (in thousands, except contractual life and exercise price):

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

7 unchanged sentences

$1.57 - $924.00

As of March 31, 2022, the Company had the following warrants outstanding (share amounts in thousands):

As of June 30, 2022, the Company had the following warrants outstanding (share amounts in thousands):

Number of Shares

1 unchanged sentence

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 $ 274,715 (CDN$ 350,000 ), $ 274,715 (CDN$ 350,000 ) and $ 745,655 (CDN$ 950,000 ) respectively, totaling year to date gross proceeds of $ 1,295,085 (CDN$ 1,650,000 ) net of financing fees of $ 32,770 (CDN$ 41,750 ).

The loan agreement for all tranches carried an interest rate of 1.6 % per month, compounded monthly ( 20.98 %).

The loan was sanctioned against the Company’s tax credit refund.

The first, second and third draws, including interest of $ 136,900 (CDN$ 174,417 ), were repaid through proceeds from the Company’s tax credit refund of $ 1,093,230 (CDN$ 1,392,831 ) and the balance of $ 184,558 (CDN$ 235,132 ) was paid from the fourth draw.

Each borrowing carried an interest rate of 1.6 % per month, compounded monthly ( 20.98 %).

The SRED financing was sanctioned against the Company’s SRED tax credit refund.

The first, second and third draws, including interest of $ 136,900 (CDN$ 174,417 ), were repaid through proceeds from the Company’s tax credit refund of $ 1,093,230 (CDN$ 1,392,831 ) received in August 2021, and the balance of $ 184,558 (CDN$ 235,132 ) was paid from the fourth draw.

The remaining loan balance, including interest, of $ 816,964 (CDN$ 1,044,177 ) was repaid on December 16, 2021.

Interest expense of $ 513,438 for the three months ended March 31, 2021 consisted of, i) $ 348,134 of amortization of debt discount and $ 120,950 of interest expense on the convertible debt and ii) $ 44,354 of interest expense on the SRED financing.

Interest expense of $ 513,438 for the three and six months ended June 30, 2021 consisted of i) $ 348,134 of amortization of debt discount, ii) $ 120,950 of interest expense on convertible debt, which was outstanding and retired in 2021, and iii) $ 44,354 of interest expense on the SRED financing.

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 $ 92,400 and $ 103,300 , respectively, to the consultant.

Additionally, a family member of one of the Company’s executive officers is an employee of the Company.

During the six months ended June 30, 2022, the Company paid approximately $ 92,400 to the employed family member , which includes the aggregate grant date fair value, as determined pursuant to FASB ASC Topic 718, of an RSU awarded in April 2022.

During the six months ended June 30, 2021, the Company paid approximately $ 46,000 to the employed family member .

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

Intel and the Company agreed to work together in good faith so as to ensure that the Release Criteria is satisfied by the Company no later than six months following the Closing.

The Company is currently evaluating the accounting for the Intel Agreement, which will be reflected in the financial statements for the three months ending September 30, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements