What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-15 · 173 added, 87 removed, 508 unchanged (34% of the section changed)

2 unchanged sentences

(In thousands, except par value)

September 30,

Current assets

3 unchanged sentences

Tax credits and receivables

Deferred cost of net revenue

Prepaid expenses and other

17 unchanged sentences

20,000 shares authorized

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

Series A special voting preferred stock, $ 0.01 par value;

one share authorized;

and one share issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Common stock, $ 0.001 par value;

120,000 shares authorized;

21,832 shares

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

12,757 shares and 12,284 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Exchangeable shares, no par value;

unlimited shares authorized;

and 9,295 shares outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Royalty and other

4 unchanged sentences

Selling, general and administrative

Gain on license and asset sale

Total operating expenses

3 unchanged sentences

Other comprehensive loss, net of tax:

Net unrealized loss on available-for-sale securities

Net unrealized gain (loss) on available-for-sale securities

Comprehensive loss

6 unchanged sentences

(In thousands)

Series A Special Voting

Accumulated Other

Exchangeable Shares

Comprehensive

Balance as of December 31, 2021

Exchange of exchangeable shares

Issuance of common stock under stock plan, net

6 unchanged sentences

Balance as of June 30, 2022

Exchange of exchangeable shares

Issuance of common stock under stock plan, net

Stock-based compensation

Unrealized gain on available-for-sale securities

Balance as of September 30, 2022

Series A Special Voting

Accumulated Other

Exchangeable Shares

Comprehensive

5 unchanged sentences

Balance as of June 30, 2021

Issuance of common stock under stock plan, net

Stock-based compensation

Balance as of September 30, 2021

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

1 unchanged sentence

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

2 unchanged sentences

Stock-based compensation

Allowance for doubtful accounts

Change in fair value of warrant liability

7 unchanged sentences

Prepaid expenses and other assets

Deferred cost of net revenue

Accounts payable

9 unchanged sentences

Taxes paid to net share settle equity awards

Payment of lease obligation

Repayment of loans

Proceeds from exercise of stock options

2 unchanged sentences

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

Unrealized loss on available-for-sale securities

Settlement of loan facility against tax receivables

Fair value of new warrants issued recognized as debt discount

5 unchanged sentences

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 derives revenue from selling its 60GHz and 5G semiconductor devices and modules and performance of non-recurring engineering services.

The Company also manufactures and sells high-performance memory semiconductor devices for a wide range of markets and receives royalties from licensees of its memory technology.

4 unchanged sentences

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.

For accounting purposes, Peraso Tech, the legal subsidiary, 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.

7 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 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 operating results for the three and nine months ended September 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 $ 17.8 million for the nine months ended September 30, 2022 and $ 10.9 million for the year ended December 31, 2021 and had an accumulated deficit of approximately $ 135.0 million as of September 30, 2022.

These and prior year losses have resulted in significant negative cash flows and have required the Company to raise substantial amounts of additional capital.

To date, the Company has primarily financed its operations through multiple offerings of common stock and issuance of convertible notes and loans to investors and affiliates.

The Company expects to continue to incur operating losses for the foreseeable future as it secures additional customers and continues to invest in the commercialization of its products.

The Company will need to increase revenues substantially beyond levels that it has attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time.

2 unchanged sentences

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.

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

If the Company is unsuccessful in these efforts, it will need to implement additional cost reduction strategies, which could further affect its near- and long-term business plan.

These efforts may include, but are not limited to, further reducing headcount and curtailing business activities.

These efforts may include, but are not limited to, 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.

Certain prior year amounts have been reclassified for consistency with the current period presentation.

These reclassifications had no effect on the reported results of operations or cash flows.

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.

42 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 June 30, 2022 and approximately $ 61,000 as of December 31, 2021.

The allowance for doubtful accounts receivable was approximately $ 683,000 as of September 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 $ 160,000 and $ 37,000 during the six months ended June 30, 2022 and 2021, respectively.

The Company recorded write-downs of inventory of approximately $ 420,000 and $ 56,000 during the nine months ended September 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 (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.

The Company participated in the Canadian government’s Scientific Research and Experimental Development (SRED) Program, which uses tax incentives to encourage Canadian businesses 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 credits or incentives.

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, the credit 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.

As of December 17, 2021, Peraso Tech ceased to be a Canadian Controlled Private Corporation, as defined by the government of Canada, and the Company is no longer eligible for the expenditure refund program.

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

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

Intangible and Long-lived Assets

7 unchanged sentences

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

June 30, 2022

September 30, 2022

Developed technology

6 unchanged sentences

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.

Amortization related to developed technology of $ 0.4 million and $ 1.1 million for the three and nine months ended September 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.

1 unchanged sentence

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):

Amortization related to customer relationships of $ 0.2 million and $ 0.5 million for the three and nine months ended September 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 $ 1.6 million for the three and nine months ended September 30, 2022, respectively.

There was no material amortization expense for the three and nine months ended September 30, 2021.

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

Year ending December 31,

10 unchanged sentences

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.

To date, as of September 30, 2022, the Company has no t identified any goodwill impairment.

However, current macroeconomic conditions, which have been impacted by the COVID-19 pandemic and inflation, could negatively impact our business and stock price and trigger the Company to test for impairment.

The Company will continue to evaluate for impairment indicators, as necessary, on a quarterly basis.

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.

19 unchanged sentences

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

Royalty and other

The Company’s licensing contracts typically provide for royalties based on the licensee’s use of the Company’s memory technology in its currently shipping commercial products.

6 unchanged sentences

Revenue is recognized using an output method that is consistent with the satisfaction of the performance obligation as a measure of progress.

Deferred Cost of Net Revenue

During the three months ended September 30, 2022, the Company had $ 1.1 million of product shipments for which the revenue recognition criteria under ASC 606 had not been met.

Accordingly, the Company has deferred the cost of net revenue associated with these shipments, and the amount deferred has been presented as deferred cost of net revenue in the condensed consolidated balance sheets.

Contract liabilities – deferred revenue

1 unchanged sentence

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

As of September 30, 2022 and December 31, 2021, contract liabilities were in a current position and included in deferred revenue.

During the nine months ended September 30, 2022, the Company recognized approximately $ 156,000 of revenue that had been included in deferred revenue as of December 31, 2021.

See Note 7 for disaggregation of revenue by geography.

5 unchanged sentences

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.

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 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.

Starting in 2020, certain Canadian businesses, which experienced a drop in revenue during the COVID-19 pandemic, became eligible for rent and wage subsidies from the Canadian government.

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

During the nine months ended September 30 , 2021 , the Company recognized payroll subsidies of $ 1,102,616 as a reduction in the associated wage costs and rent subsidies of $ 195,995 as a reduction of operating expenses in the condensed consolidated statement of operations.

Stock-Based Compensation

13 unchanged sentences

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.

Basic net loss per share is computed by dividing net loss for the period by the weighted-average number of exchangeable shares and shares of common stock outstanding during the period.

Diluted net loss per share gives effect to all potentially dilutive exchangeable and common shares outstanding during the period.

Potentially dilutive common shares consist of incremental exchangeable shares and shares of common stock issuable upon the achievement of escrow terms, exercise of stock options, vesting of stock awards and exercise of warrants.

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

Escrow shares

September 30,

Escrow shares - exchangeable shares

Escrow shares - common stock

Options to purchase common stock

1 unchanged sentence

Convertible debt

Common stock warrants

Recently Issued Accounting Pronouncements

4 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.

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.

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

The Company does not expect that the adoption of ASU No.

2016-13 will have a significant impact on the Company's consolidated financial statements .

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.

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).

24 unchanged sentences

(b) the date of any sale of all or substantially all of the assets or shares of the Company;

or (c) the date of any bankruptcy, insolvency, restructuring, receivership, administration, wind-up, liquidation, dissolution, or similar event involving the Company.

or (c) the date of any bankruptcy,

insolvency, restructuring, receivership, administration, wind-up, liquidation, dissolution, or similar event involving the Company.

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

The Exchangeable Share structure is commonly used for cross-border transactions of this nature so as to provide non-tax-exempt Canadian shareholders with the same economic rights and benefits as holders of the Company’s shares into which the Exchangeable Shares are exchangeable, while allowing those Canadian shareholders to benefit from the tax-rollover available on the issuance of the Exchangeable Shares.

In general terms, by choosing to acquire Exchangeable Shares from Canco, such a former Peraso Tech shareholder was able to rely on a rollover rule in the Income Tax Act (Canada) in order to defer any capital gain that he/she/it would have otherwise realized.

Callco was incorporated to exercise the call rights, while Canco was incorporated to acquire the shares of Peraso Tech from Canadian shareholders that wished to receive Exchangeable Shares as consideration, so it was a tax deferred transaction for such Canadian shareholders.

The use of a separate entity, Callco, helps maximize cross border paid-up capital, which represents the amount that can generally be distributed free of Canadian withholding tax.

The call rights also allow Callco to “purchase” the Exchangeable Shares rather than having them redeemed by Canco on a redemption or retraction or in connection with a liquidity event, thus avoiding the adverse deemed dividend tax consequences to shareholders that may arise from a redemption or retraction of Exchangeable Shares.

Holders of Exchangeable Shares have the right at any time (the Retraction Right) to retract or redeem any or all of the Exchangeable Shares owned by them for an amount per share equal to the market price of a share of the Company’s common stock plus the full amount of all declared and unpaid dividends on such Exchangeable Share (the Exchangeable Share Purchase Price).

The Exchangeable Share Purchase Price is payable only by the Company delivering or causing to be delivered to the relevant holder one share of the Company’s common stock for each Exchangeable Share purchased plus a cash amount equal to the amount of any accrued and unpaid dividends on such Exchangeable Share.

The Company and Callco each have an overriding right, in the event that a holder of Exchangeable Shares exercises its Retraction Right, to redeem from such holder all, but not less than all, of the Exchangeable Shares tendered for redemption.

The Exchangeable Shares are subject to redemption by the Company, Callco and Canco at the Exchangeable Share Purchase Price, on the “Redemption Date,” which date shall be no earlier than the seventh anniversary of the date on which Exchangeable Shares are first issued, unless:

(a) less than 10 % of the aggregate number of Exchangeable Shares issued remain outstanding;

(b) there is a change in control of the Company (defined generally as (i) any merger, amalgamation, arrangement, takeover bid or tender offer, material sale of shares or rights or interests that results in the holders of outstanding voting securities of the Company directly or indirectly owning, or exercising control or direction over, voting securities representing less than 50 % of the total voting power of all of the voting securities of the surviving entity;

or (ii) any sale or disposition of all or substantially of the Company’s assets), and (c) upon the occurrence of certain other events.

In the event of the liquidation, dissolution or winding-up of Canco, holders of Exchangeable Shares have the right to receive in respect of each Exchangeable Share held by such holder, an amount per share equal to the Exchangeable Share Purchase Price, which shall be satisfied in full by Canco by delivering to such holder one Company Share, plus an amount equal to the Dividend Amount.

The Company and Callco each have an overriding right to purchase from all holders all but not less than all of the Exchangeable Shares upon the occurrence of such events.

In addition, the Company and Callco have the right to purchase all outstanding Exchangeable Shares at the Exchangeable Share Purchase Price if there is a change of law that permits holders of Exchangeable Shares to exchange their Exchangeable Shares for shares of common stock on a basis that will not require holders to recognize any gain or loss or any actual or deemed dividend for Canadian tax purposes.

The holders of Exchangeable Shares have an “automatic exchange right” in the event of any insolvency, liquidation, dissolution or winding-up or in general, related proceedings, of the Company for an amount per share equal to the Exchangeable Share Purchase Price.

It is expected that Callco will exercise its call rights, as that is more beneficial to the holders of the Exchangeable Shares.

Once Callco acquires the Exchangeable Shares from a holder, it (Callco and the Company) is obligated to deliver the Company shares to the holder.

Callco discharges this obligation by arranging for the Company to issue and deliver those shares to the holders on behalf of Callco.

As consideration for satisfying the delivery obligation, Callco would issue its own shares to the Company.

There are no cash redemption features, as all redemption and exchange scenarios are payable in a share of the Company’s common stock.

Neither Canco, Callco , or the Company assume any tax liabilities of a former Peraso Tech shareholder who acquired Exchangeable Shares under the plan of arrangement .

The purchase price computed upon the exercise of rights pertaining to retraction, redemption, or liquidation, or otherwise giving rise to a purchase or cancellation of an Exchangeable Share, will, in all cases, consist of a 1:1 exchange involving the Company’s common stock, regardless of the market price of a share of the Company’s common stock .

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.

Each Exchangeable Share is exchangeable for one share of common stock of the Company and while outstanding, the Special Voting Share enables holders of Exchangeable Shares to cast votes on matters for which holders of the common stock are entitled to vote, and by virtue of the share terms relating to the Exchangeable Shares, enable the Exchangeable Shares to receive dividends that are economically equivalent to any dividends declared with respect to the shares of common stock.

As the Special Voting Share does not participate in dividends (only the Exchangeable Shares participate in dividends) and is not entitled to participate in the residual interest of the Company, it is not classified as an equity instrument in the Company’s financial statements.

The Exchangeable Shares, which can be converted into common stock at the option of the holder and have the same voting and dividend rights as common stock, are similar in substance to shares of common stock.

Further, Canco and Callco are non-substantive entities, which are looked through with the Exchangeable Shares being, in substance, common stock of the Company.

Therefore, the Exchangeable Shares have been included in the determination of outstanding common stock.

The Special Voting Share was issued to a third-party administrative agent (the Agent) solely to facilitate the exercise of rights by holders of Exchangeable Shares, The rights of the Agent, as holder of the Special Voting Share, are limited to effecting the rights of the holders of the Exchangeable Shares;

9 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.

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.

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 is summarized in the following table (in thousands, except per-share amount):

17 unchanged sentences

Current liabilities

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.

Unaudited pro forma results of operations for the three and nine months ended September 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

Six Months Ended

Nine Months Ended

(in thousands)

June 30, 2021

September 30, 2021

Fair Value of Financial Instruments

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

June 30, 2022

September 30, 2022

Cash and cash equivalents

Short-term investments

Long-term investments

December 31, 2021

3 unchanged sentences

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

June 30, 2022

September 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 six months ended June 30, 2022 or December 31, 2021.

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

Balance Sheet Detail

September 30,

(in thousands)

3 unchanged sentences

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.

Prior to April 1, 2022, the Company 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 reclassification had no impact on the Company's net loss or cash flows for the three months ended March 31, 2022 and nine months ended September 30, 2022.

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

15 unchanged sentences

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

The following table provides the details of right-of-use assets and lease liabilities as of September 30, 2022 (in thousands):

Nine Months Ended

September 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):

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

Year ending December 31,

3 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

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

Operating cash flows for leases

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.

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

Rent expense was approximately $ 0.5 million for the nine months ended September 30, 2022 and $ 0.3 million for the nine months ended September 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 six months ended June 30, 2022 and 2021 related to these indemnifications.

No material amounts were reflected in the Company’s condensed consolidated financial statements for the nine months ended September 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 six months ended June 30, 2022 and 2021.

Warranty costs were not material for the nine months ended September 30, 2022 and 2021.

Legal Matters

13 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

North America

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Represents less than 10%

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

As of September 30, 2022, two customers accounted for 60 % of accounts receivable, and the Company recorded a provision for doubtful accounts of $ 683,000 against one of the customer’s receivables.

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

As of September 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

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.

The Company reflected compensation costs of $ 3.4 million and $ 3.5 million related to the vesting of stock options during the nine-month periods ended September 30, 2022 and 2021, respectively.

At September 30, 2022, the unamortized compensation cost was approximately $ 8.9 million related to stock options and is expected to be recognized as expense over a weighted average period of approximately 2.3 years.

The Company reflected compensation costs of $ 1.0 million and zero related to the vesting of restricted stock options during the nine months ended September 30, 2022 and 2021, respectively.

The unamortized compensation cost at September 30, 2022 was $ 2.3 million related to restricted stock units and is expected to be recognized as expense over a weighted average period of approximately 2.3 years.

Valuation Assumptions and Expense Information for Stock-Based Compensation

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

There were no stock options granted or exercised during the nine months ended September 30, 2022.

There were no stock options granted and stock options were exercised for 452 shares of common stock during the nine months ended September 30, 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 six months ended June 30, 2022 (in thousands, except exercise price):

The following table summarizes the activity in the shares available for grant under the Plans during the nine months ended September 30, 2022 (in thousands, except exercise price):

Options Outstanding

5 unchanged sentences

Balance as of June 30, 2022

RSUs cancelled and returned to the Plan

Options cancelled

Balance as of September 30, 2022

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

2 unchanged sentences

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):

Non-vested shares as of September 30, 2022

The following table summarizes significant ranges of outstanding and exercisable options as of September 30, 2022 (in thousands, except contractual life and exercise price):

Options Outstanding

7 unchanged sentences

$1.57 - $924.00

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

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

Number of Shares

7 unchanged sentences

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 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.

Interest expense of $ 870,212 for the three months ended September 30, 2021 consisted of i) $ 625,913 of amortization of debt discount, ii) $ 212,971 of interest expense on convertible debt, which was outstanding and retired in 2021, and iii) $ 31,328 of interest expense on the SRED financing.

Interest expense of $ 2,170,059 for the nine months ended September 30, 2021 consisted of i) $ 1,510,368 of amortization of debt discount, ii) $ 522,274 of interest expense on convertible debt, which was outstanding and retired in 2021, and iii) $ 137,417 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.

During the nine months ended September 30, 2022 and 2021, the Company paid approximately $ 126,800 and $ 153,100 , 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);

During the nine months ended September 30, 2022, the Company paid approximately $ 127,500 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 nine months ended September 30, 2021, the Company paid approximately $ 69,000 to the employed family member .

License and Asset Sale Transaction

On August 5, 2022, the Company entered into a Technology License and Patent Assignment Agreement (the Intel Agreement) with Intel Corporation (Intel), pursuant to which Intel:

(i) licensed from the Company, on an exclusive basis, certain software and technology assets related to the Company’s Stellar packet classification intellectual property, including its graph memory engine technology, and any roadmap variant, in the form existing as of the date of the Agreement (the Licensed Technology);

(ii) acquired from the Company certain patent applications and patents owned by the Company;

and (iii) assumed a professional services agreement, dated March 24, 2020, between Fabulous Inventions AB (Fabulous) and the Company (the Fabulous Agreement), pursuant to which, among other things, the Company licensed from Fabulous certain technology incorporated into the Licensed Technology.

As consideration for the Company to enter into the Agreement, Intel agreed to pay the Company $ 3,062,500 at the closing of the transaction (the Closing) and $ 437,500 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).

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

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.

The Company determined that the license and asset sale did not qualify as a sale of a business, but as a sale of a non-financial asset, with the resultant gain recorded as income from operations in accordance with ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets .

During the three months ended September 30, 2022, the Company recognized a $ 2.6 million gain on this transaction, net of transaction costs, which was recorded as a reduction of operating expenses in the condensed consolidated statements of operations and comprehensive loss.

Any gain related to the Holdback will be recorded when the Release Criteria have been satisfied, which is expected to be within six months of August 5, 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