UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

☒

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

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

For the quarterly period ended March 31, ~~2022~~2023

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

☐

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

For the transition period from to

Commission file number 000-32929

PERASO INC.

(Exact name of registrant as specified in its charter)

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

2309 Bering Drive

San Jose, California 95131

(Address of principal executive office and zip code)

(408) 418-7500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

~~PRSO~~

PRSO

The Nasdaq Stock Market, LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes ☒NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒

The number of outstanding shares of the registrant’s exchangeable shares, no par value, was 8,796,791 as of May 8, 2023.

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was ~~21,607,633~~15,730,175 as of May ~~9, 2022.~~8, 2023.

PERASO INC.

FORM 10-Q

March 31, ~~2022~~2023

TABLE OF CONTENTS

PART I —		FINANCIAL INFORMATION	3 1

Item 1.	Financial Statements (Unaudited):	3 1

	Condensed Consolidated Balance Sheets as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022	3 1

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022	4 2

	Condensed Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~ for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022	5 3

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022	6 4

	Notes to Condensed Consolidated Financial Statements	7 5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22 21

Item 4.	Controls and Procedures	28

PART II —		OTHER INFORMATION	28 29

Item 1.	Legal Proceedings	28 29

Item 1A.	Risk Factors	28 29

Item 6.	Exhibits	29 30

	Signatures	30 31

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PERASO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

March 31,

December 31,

2022

2021

(unaudited)

ASSETS

Current assets

Cash and cash equivalents

$
3,791

$
5,893

Short-term investments

5,993

9,267

Accounts receivable, net

2,106

2,436

Inventories

4,521

3,824

Tax credits and receivables

1,117

1,099

Prepaid expenses and other

1,333

1,159

Total current assets

18,861

23,678

Long-term investments

2,399

2,928

Property and equipment, net

2,042

2,349

Intangible assets, net

7,852

8,355

Goodwill

9,946

9,946

Right-of-use lease asset, net

770

617

Other

78

78

Total assets

$
41,948

$
47,951

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

$
1,941

$
1,937

Accrued expenses and other

2,373

2,903

Deferred revenue

361

375

Short-term lease liability

422

379

Total current liabilities

5,097

5,594

Long-term lease liability

411

288

Total liabilities

5,508

5,882

Commitments and contingencies (Note 5)

Stockholders’ equity

Preferred stock, $0.01 par value; 20,000 shares authorized; NaN issued and
   outstanding

—

—

Common stock, $0.001 par value; 120,000 shares authorized; 21,588 shares
   and 21,579 shares issued and outstanding at March 31, 2022 and
   December 31, 2021, respectively

22

22

Additional paid-in capital

160,408

159,246

Accumulated other comprehensive loss

(37
)

—

Accumulated deficit

(123,953
)

(117,199
)
Total stockholders’ equity

36,440

42,069

Total liabilities and stockholders’ equity

$
41,948

$
47,951

	March 31,			December 31,
	2023			2022
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	805		$	1,828
Short-term investments		587			1,078
Accounts receivable, net		2,881			3,244
Inventories		4,853			5,348
Deferred cost of net revenue		—			600
Prepaid expenses and other		742			615
Total current assets		9,868			12,713

Property and equipment, net		2,078			2,225
Intangible assets, net		5,754			6,278
Right-of-use lease asset, net		986			1,147
Other		122			123
Total assets	$	18,808		$	22,486

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,364		$	1,844
Accrued expenses and other		1,366			1,817
Deferred revenue		244			332
Short-term lease liabilities		579			687
Total current liabilities		3,553			4,680

Long-term lease liabilities		404			470
Warrant liability		1,421			2,079
Total liabilities		5,378			7,229

Commitments and contingencies (Note 4)
Stockholders’ equity
Preferred stock, $0.01 par value; 20,000 shares authorized; none issued and outstanding		—			—
Series A, special voting preferred stock, $0.01 par value; one share authorized; and one share issued and outstanding at March 31, 2023 and December 31, 2022, respectively		—			—
Common stock, $0.001 par value; 120,000 shares authorized; 14,580 shares and 14,270 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		15			14
Exchangeable shares, no par value; unlimited shares authorized; 8,797 shares and 9,107 shares outstanding at March 31, 2023 and December 31, 2022, respectively		—			—
Additional paid-in capital		166,171			164,865
Accumulated other comprehensive loss		(11	)		(25	)
Accumulated deficit		(152,745	)		(149,597	)
Total stockholders’ equity		13,430			15,257
Total liabilities and stockholders’ equity	$	18,808		$	22,486

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

PERASO INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share data)

Three Months Ended

March 31,

2022

2021

Net revenue

Product

$
3,204

$
1,051

Royalty and other

199

50

Total net revenue

3,403

1,101

Cost of net revenue

1,590

619

Gross profit

1,813

482

Operating expenses

Research and development

6,003

2,787

Selling, general and administrative

2,546

1,307

Total operating expenses

8,549

4,094

Loss from operations

(6,736
)

(3,612
)
Interest expense

—

(513
)
Other expense, net

(18
)

(32
)
Net loss

$
(6,754
)

$
(4,157
)

Other comprehensive loss, net of tax:

Net unrealized loss on available-for-sale securities

(37
)

—

Comprehensive loss

$
(6,791
)

$
(4,157
)

Net loss per share

Basic and diluted

$
(0.34
)

$
(0.79
)
Shares used in computing net loss per share

Basic and diluted

19,769

5,241

	Three Months Ended
	March 31,
	2023			2022
Net revenue
Product	$	4,888		$	3,204
Royalty and other		145			199
Total net revenue		5,033			3,403
Cost of net revenue		3,106			1,948
Gross profit		1,927			1,455
Operating expenses
Research and development		3,887			5,486
Selling, general and administrative		2,242			2,705
Gain on license and asset sale		(406	)		—
Total operating expenses		5,723			8,191
Loss from operations		(3,796	)		(6,736	)
Change in fair value of warrant liability		658			—
Other expense, net		(10	)		(18	)
Net loss	$	(3,148	)	$	(6,754	)

Other comprehensive loss, net of tax:
Net unrealized gain (loss) on available-for-sale securities		14			(37	)
Comprehensive loss	$	(3,134	)	$	(6,791	)

Net loss per share
Basic and diluted	$	(0.15	)	$	(0.34	)
Shares used in computing net loss per share
Basic and diluted		21,561			19,769

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

PERASO INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ~~(DEFICIT)~~

(Unaudited)

(In thousands)

Accumulated

Additional

Other

Common Stock

Paid-In

Comprehensive

Accumulated

Shares

Amount

Capital

Loss

Deficit

Total

Balance as of December 31, 2021

21,579

$
22

$
159,246

$
—

$
(117,199
)

$
42,069

Issuance of common stock under stock plan, net

9

—

(9
)

—

—

(9
)
Stock-based compensation

—

—

1,171

—

—

1,171

Unrealized loss on available-for-sale securities

—

—

—

(37
)

—

(37
)
Net loss

—

—

—

—

(6,754
)

(6,754
)
Balance as of March 31, 2022

21,588

$
22

$
160,408

$
(37
)

$
(123,953
)

$
36,440

Accumulated

Additional

Other

Common Stock

Paid-In

Comprehensive

Accumulated

Shares

Amount

Capital

Loss

Deficit

Total

Balance as of December 31, 2020

5,241

$
5

$
102,361

$
—

$
(106,287
)

$
(3,921
)
Stock-based compensation

—

—

1,177

—

—

1,177

Net loss

—

—

—

—

(4,157
)

(4,157
)
Balance as of March 31, 2021

5,241

$
5

$
103,538

$
—

$
(110,444
)

$
(6,901
)

	Series A Special																Accumulated
	Voting								Exchangeable					Additional			Other
	Preferred Stock				Common Stock				Shares					Paid-In			Comprehensive			Accumulated
	Shares		Amount		Shares		Amount		Shares			Amount		Capital			Loss			Deficit			Total
Balance as of December 31, 2022		—	$	—		14,270	$	14		9,107		$	—	$	164,865		$	(25	)	$	(149,597	)	$	15,257
Exchange of exchangeable shares						310		1		(310	)				(1	)								—
Stock-based compensation		—		—		—		—		—			—		1,307			—			—			1,307
Unrealized gain on available-for-sale securities		—		—		—		—		—			—		—			14			—			14
Net loss		—		—		—		—		—			—		—			—			(3,148	)		(3,148	)
Balance as of March 31, 2023		—	$	—		14,580	$	15		8,797		$	—	$	166,171		$	(11	)	$	(152,745	)	$	13,430

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

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

PERASO INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three Months Ended

March 31,

2022

2021

Cash flows from operating activities:

Net loss

$
(6,754
)

$
(4,157
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

776

277

Stock-based compensation

1,171

1,177

Change in fair value of warrant liability

—

39

Amortization of debt discount

—

348

Accrued interest expense

—

165

Amortization of lease right-of-use assets

121

60

Change in operating lease liabilities

(107
)

(58
)
Other

152

9

Changes in assets and liabilities:

Accounts receivable

331

688

Inventories

(698
)

155

Tax credits and receivables

(17
)

(246
)
Prepaid expenses and other assets

(175
)

121

Accounts payable

4

133

Deferred revenue and other liabilities

(544
)

37

Net cash used in operating activities

(5,740
)

(1,252
)
Cash flows from investing activities:

Purchases of property and equipment

(76
)

(9
)
Purchases of intangible assets

(20
)

—

Proceeds from maturities of marketable securities

4,240

—

Purchases of marketable securities and investments

(497
)

—

Net cash provided by (used in) investing activities

3,647

(9
)
Cash flows from financing activities:

Taxes paid to net share settle equity awards

(9
)

—

Net proceeds from loan facility

—

552

Net cash provided by (used in) financing activities

(9
)

552

Net decrease in cash and cash equivalents

(2,102
)

(709
)
Cash and cash equivalents at beginning of period

5,893

1,711

Cash and cash equivalents at end of period

$
3,791

$
1,002

Supplemental disclosure:

Recognition of right-of-use asset and lease liability

$
274

$
—

Unrealized loss on securities

$
37

$
—

	Three Months Ended
	March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(3,148	)	$	(6,754	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		755			776
Stock-based compensation		1,307			1,171
Change in fair value of warrant liability		(658	)		—
Allowance for bad debt		(183	)		—
Accrued interest		(6	)		22
Other		5			130
Changes in assets and liabilities:
Accounts receivable		546			331
Inventories		495			(698	)
Prepaid expenses and other assets		474			(192	)
Accounts payable		(480	)		4
Right-of-use assets		165			121
Lease liabilities - operating		(147	)		(107	)
Deferred revenue and other liabilities		(539	)		(544	)
Net cash used in operating activities		(1,414	)		(5,740	)
Cash flows from investing activities:
Purchases of property and equipment		(84	)		(76	)
Purchases of intangible assets		—			(20	)
Proceeds from maturities of marketable securities		500			4,240
Purchases of marketable securities		—			(497	)
Net cash provided by investing activities		416			3,647
Cash flows from financing activities:
Taxes paid to net share settle equity awards		—			(9	)
Repayment of financing lease		(25	)		—
Net cash used in financing activities		(25	)		(9	)
Net decrease in cash and cash equivalents		(1,023	)		(2,102	)
Cash and cash equivalents at beginning of period		1,828			5,893
Cash and cash equivalents at end of period	$	805		$	3,791
Supplemental disclosure:
Recognition of right-of-use asset and lease liability	$	—		$	274
Unrealized gain/(loss) on securities	$	14		$	(37	)

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

PERASO INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. The Company and Summary of Significant Accounting Policies

Peraso Inc. (the Company), formerly known as MoSys, Inc. ~~(the Company)~~(MoSys), 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~~millimeter wave (mmWave), which is generally described as the frequency band from ~~selling semiconductor devices, licensing of intellectual property (IP) and performance of non-recurring engineering services (NRE).~~24 Gigahertz (GHz) to 300GHz, wireless technology. The Company also manufactures and sells high-performance memory semiconductor devices ~~that enable fast, intelligent data access and decision making~~ for a wide range of ~~markets.~~markets and receives royalties from licensees of its memory technology. The Company derives revenue from selling its semiconductor devices and antenna modules, performance of non-recurring engineering services and licensing of its technologies.

On September 14, 2021, the Company and its subsidiaries, 2864552 Ontario Inc. (Callco) and 2864555 Ontario Inc. (Canco), entered into an Arrangement Agreement (the Arrangement Agreement) with Peraso Technologies Inc. (Peraso Tech), a corporation existing under the laws of the province of Ontario, to acquire all of the issued and outstanding common shares of Peraso Tech (the Peraso Shares), including those Peraso Shares to be issued in connection with the conversion or exchange of secured convertible debentures and common share purchase warrants of Peraso Tech, as applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business Corporations Act (Ontario).On December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed and,, the Company changed its name to “Peraso Inc.” and began trading on the Nasdaq Stock Market (the Nasdaq) under the symbol “PRSO.”

For accounting purposes, Peraso Tech, the legal subsidiary, ~~Peraso Tech, has been~~was treated as the accounting acquirer and the Company, the legal parent, ~~has been~~was treated as the accounting acquiree. The transaction was accounted for as a reverse acquisition in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) ~~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. See Note 2 for additional disclosure.

The accompanying condensed consolidated financial statements of the Company have been prepared without audit.

The condensed consolidated balance sheet as of December 31, ~~2021~~2022 has been derived from the audited consolidated financial statements at that date. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The information in this report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its most recent annual report on Form 10-K filed with the SEC.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The operating results for the three months ended March 31, ~~2022~~2023 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2022~~2023 or for any other future period.

Liquidity and Going Concern

The Company incurred net losses of approximately $3.1 million for the three months ended March 31, 2023 and $32.4 million for the year ended December 31, 2022 and had an accumulated deficit of approximately $152.7 million as of March 31, 2023. These and prior year losses have resulted in significant negative cash flows and have required the Company to raise substantial amounts of additional capital. To date, the Company has primarily financed its operations through multiple offerings of common stock and issuance of convertible notes and loans to investors and affiliates.

The Company expects to continue to incur operating losses for the foreseeable future as it secures additional customers and continues to invest in the commercialization of its products. The Company will need to increase revenues substantially beyond levels that it has attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time. As a result of the Company’s expected operating losses and cash burn for the foreseeable future, as well as recurring losses from operations, if the Company is unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial statements. These condensed consolidated financial statements do not include any adjustments that might result from this uncertainty. There can be no assurance that such additional capital, whether in the form of debt or equity financing, will be sufficient or available and, if available, that such capital will be offered on terms and conditions acceptable to the Company. The Company’s primary focus is producing and selling its products. If the Company is unsuccessful in these efforts, it will need to implement additional cost reduction strategies, which could further affect its near- and long-term business plan. These efforts may include, but are not limited to, reducing headcount and curtailing business activities.

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s fiscal year ends on December 31 of each calendar year. Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flows.

Risks and Uncertainties

The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history and the volatility of public markets.

COVID-19

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

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses recognized during the reported period. Material estimates may include assumptions made in determining reserves for uncollectible receivables, inventory write-downs, impairment of long-term assets, purchase price allocations, valuation allowance on deferred tax assets, accruals for potential liabilities and assumptions made in valuing equity instruments. Actual results could differ from those estimates.

Cash Equivalents and Investments

The Company has invested its excess cash in money market accounts, certificates of deposit, corporate debt, government-sponsored enterprise bonds and municipal bonds and considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments with original maturities greater than three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments. Management generally determines the appropriate classification of securities at the time of purchase. All securities are classified as available-for-sale. The Company’s available-for-sale short-term and long-term investments are carried at fair value, with the unrealized holding gains and losses reported in accumulated other comprehensive income (loss). Realized gains and losses and declines in the value judged to be other-than-temporary are included in the other income, net line item in the condensed consolidated statements of operations. The cost of securities sold is based on the specific identification method.

Fair Value Measurements

The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

Level 1—Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.

Level 2—Pricing is provided by third party sources of market information obtained through the Company’s investment advisors, rather than models. The Company does not adjust for, or apply, any additional assumptions or estimates to the pricing information it receives from advisors. The Company’s Level 2 securities include cash equivalents and available-for-sale securities, which consisted primarily of certificates of deposit, corporate debt, and government agency and municipal debt securities from issuers with high-quality credit ratings. The Company’s investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities.

Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to measure fair value. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 investments and other financial instruments involves the most management judgment and subjectivity.

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these instruments. The carrying values of lease obligations and long-term financing obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest ~~rates~~.rates. The Company measures the fair value of its warrant liability using Level 3 inputs.

Derivatives and Liability-Classified Instruments

The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and the guidance provided by the Financial Accounting Standards Board (FASB) in ASC 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful accounts to ensure that its trade receivables balances are not overstated due to uncollectibility. The Company performs ongoing customer credit evaluations within the context of the industry in which it operates and generally does not require collateral from its customers. A specific allowance of up to 100% of the invoice value is provided for any problematic customer balances. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The Company grants credit only to customers deemed creditworthy in the judgment of management. The allowance for doubtful accounts receivable was 0approximately zero as of March 31, ~~2022~~2023 and approximately ~~$61,000~~$183,000 as of December 31, ~~2021.~~2022.

Inventories

The Company values its inventories at the lower of cost, which approximates actual cost on a first-in, first-out basis, or net realizable value. Costs of inventories primarily consisted of material and third party assembly costs. The Company records inventory reserves for estimated obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions. Once a reserve is established, it is maintained until the product to which it relates is sold or otherwise disposed of. If actual market conditions are less favorable than those expected by management, additional adjustment to inventory valuation may be required. Charges for obsolete and slow-moving inventories are recorded based upon an analysis of specific identification of obsolete inventory items and quantification of slow moving inventory items. The Company recorded write-downs of inventory of approximately $361,000 and $114,000 during the three months ended March 31, 2023 and 2022, ~~and recorded 0 write-downs of inventory during the three months ended March 31, 2021.~~respectively.

Tax Credits ~~and Receivables~~

The Company is registered for the Canadian federal and provincial goods and services taxes. As such, the Company is obligated to collect from third parties and is entitled to claim sales taxes paid on its expenses and capital expenditures incurred in Canada.

~~In addition, as a~~

The Company participates in the Canadian ~~Controlled Private Corporation (CCPC), the Company is also a part of the~~government’s Scientific Research and Experimental Development ~~(SR&ED)~~(SRED) Program, which uses tax incentives to encourage Canadian businesses ~~of all sizes and in all sectors~~ to conduct research and development (R&D) in Canada. As a part of the program, the Company may be entitled to a receivable in the form of tax credit or incentive. The Company records refundable tax credits as a reduction of expense and receivable when the Company can reasonably estimate the amounts and it is more likely than not, they will be received.

A government refund or subsidy that is compensation for expenses or losses already incurred, or for which there are no future related costs, is recognized in the statement of operations in the period in which it becomes receivable.

~~As of December 17, 2021, Peraso Tech ceased to be a CCPC and is no longer eligible for the expenditure refund program. However, it is~~ eligible for a tax credit of 15% on qualified ~~SR&ED~~SRED expenditures. Unused SRED tax credits can be carried back three years or forward for 20 ~~years~~years.

Intangible and Long-lived Assets

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

The Company regularly reviews the carrying value and estimated lives of its long-lived assets and finite-lived intangible assets to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objective. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount of the long-lived asset group over the asset’s fair value.

~~Goodwill~~

Purchased Intangible Assets

~~The Company determines the amount of a potential goodwill impairment by comparing~~

Intangible assets acquired in business combinations are accounted for based on the fair value of assets purchased and are amortized over the ~~reporting unit with~~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):

	March 31, 2023
	Gross					Net
	Carrying		Accumulated			Carrying
	Amount		Amortization			Amount
Developed technology	$	5,726	$	(1,849	)	$	3,877
Customer relationships		2,556		(825	)		1,731
Other		186		(40	)		146
Total	$	8,468	$	(2,714	)	$	5,754

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

Developed technology primarily consisted of MoSys’ products that have reached technological feasibility and primarily relate to its ~~carrying amount. To the extent the carrying value of a reporting unit exceeds its fair value, a goodwill impairment charge is recognized.~~

memory semiconductor products and technology. The ~~Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. As the Company uses the market approach to determine the step one fair~~ value of the ~~reporting unit,~~developed technology was determined by discounting estimated net future cash flows of these products. The Company is amortizing the ~~price~~developed technology on a straight-line basis over four years. Amortization related to developed technology of ~~its common stock is an important component~~$0.4 million for the three months ended March 31, 2023 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 fair value calculation. If the Company’s stock price experiences significant price and volume fluctuations, this will impact the fair value of the reporting unit, which can lead to potential impairment in future periods. The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform an impairment test. If the qualitative assessment warrants further analysis, the Company compares the fair value of the reporting unit to its carrying value.arrangement. The fair value of the ~~reporting unit is~~customer relationships was determined ~~using~~by discounting estimated net future cash flows from the market approach. If the fair value of the reporting unit exceeds the carrying value of net assets of the reporting unit, goodwill is not impaired. If the carrying value of the reporting unit’s goodwill exceeds its fair value, then the Company must record an impairment charge equal to the difference.

~~Leases~~

~~ASC No. 842,~~ ~~Leases~~ ~~(ASC 842) requires an entity to recognize a right-of-use asset and a lease liability for all leases with terms longer than 12 months.~~customer relationships. The Company ~~adopted ASC 842 utilizing~~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 for the ~~modified retrospective transition method. The Company elected~~three months ended March 31, 2023 has been included in selling, general and administrative expense in the ~~practical expedient afforded in ASC 842 in which~~condensed consolidated statements of operations and comprehensive loss.

Other amortization expense was approximately $7,000 for the ~~Company did not reassess whether any contracts that existed prior~~three months ended March 31, 2023.

As of March 31, 2023, estimated future amortization expense related to ~~adoption have or contain leases or the classification of its existing leases.~~intangible assets was as follows (in thousands):

Year ending December 31,
2023	$	1,575
2024		2,099
2025		2,011
2026		28
2027		10
Thereafter		31
	$	5,754

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). As described below, the analysis of contracts under ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing that is materially consistent with the Company’s historical practice of recognizing product revenue when title and risk of loss pass to the customer.

The Company generates revenue primarily from sales of integrated circuits and antenna module products, performance of engineering services and licensing of its intellectual property. Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.

Product revenue

Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of the ~~Company's~~Company’s contracts have a single performance obligation to transfer products. Accordingly, the Company recognizes revenue when title and risk of loss have been transferred to the customer, generally at the time of shipment of products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price. The Company sells its products both directly to customers and through distributors generally under agreements with payment terms typically 60 days or less.

The Company may record an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale.

~~License~~

Royalty and other

The Company’s licensing contracts typically provide for royalties based on the licensee’s use of the Company’s memory technology in its currently shipping commercial products. The Company estimates its royalty revenue in the calendar quarter in which the licensee uses the licensed technology. Payments are received in the subsequent quarter. The Company also generates revenue from licensing its technology. The Company recognizes license fees as revenue at the point of time when the control of the license has been transferred and the Company has no continuing performance obligations to the customer.

Engineering services revenue

Engineering and development contracts with customers generally contain a single performance obligation that is delivered over time. Revenue is recognized using an output method that is consistent with the satisfaction of the performance obligation as a measure of progress.

Deferred cost of net revenue

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 deferred the cost of net revenue associated with these shipments, and the amount deferred was presented as deferred cost of net revenue in the condensed consolidated balance sheets. During the three months ended March 31, 2023, the Company recognized the associated revenue and cost of net revenue.

Contract liabilities – deferred revenue

The Company’s contract liabilities consist of advance customer payments and deferred revenue. The Company classifies advance customer payments and deferred revenue as current or non-current based on the timing of when the Company expects to recognize revenue. As of March 31, 2023 and December 31, ~~2021,~~2022, contract liabilities were in a current position and included in deferred revenue.

During the three months ended March 31, ~~2022,~~2023, the Company recognized approximately ~~$15,000~~$88,000 of revenue that had been included in deferred revenue as of December 31, ~~2021.~~2022.

See Note 65 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~~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.~~sales, including amortization of intangible assets and depreciation of production-related fixed assets.

~~Government Subsidies~~

A grant or subsidy that is compensation for expenses or losses already incurred, or for which there are no future related costs, is recognized in the statement of operations in the period in which it becomes receivable.

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.Stock-Based Compensation

~~Stock-Based Compensation~~

The Company periodically issues stock options and restricted stock ~~awards~~units to employees and non-employees. The Company accounts for such ~~grants~~awards based on ASC ~~No.~~ 718, whereby the value of the award is measured on the date of ~~grant~~award and recognized as compensation expense on a straight-line basis over the vesting period. The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing (Black Scholes) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes model. The assumptions used in the Black-Scholes model could materially affect compensation expense recorded in future periods.

Foreign Currency Transactions

The functional currency of the Company is the U.S dollar. All foreign currency transactions are initially measured and recorded in an entity’s functional currency using the exchange rate on the date of the transaction. All monetary assets and liabilities are remeasured at the end of each reporting period using the exchange rate at that date. All non-monetary assets and related expense, depreciation or amortization are not subsequently remeasured and are measured using the historical exchange rate. An average exchange rate may be used to recognize income and expense items earned or incurred evenly over a period. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the statement of operations, except for the gains and losses arising from the conversion of the carrying amount of the foreign currency denominated convertible preferred shares into the functional currency that are presented as adjustment to the net loss to arrive at net loss attributable to common stockholders.

~~Per Share~~

Per-Share Amounts

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

March 31,

2022

2021

Escrow shares

1,815

—

Options to purchase common stock

1,545

1,042

Unvested restricted common stock units

75

—

Convertible debt

—

3,272

Warrants

134

375

Total

3,569

4,689

	March 31,
	2023		2022
Escrow shares - exchangeable shares		1,313		1,313
Escrow shares - common stock		502		502
Options to purchase common stock		1,482		1,545
Unvested restricted common stock units		1,086		75
Common stock warrants		4,926		134
Total		9,309		3,569

Recently Issued Accounting Pronouncements

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

for smaller reporting companies. The ~~Company 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~~2016-13 did not have a significant impact on ~~its~~the Company’s condensed consolidated financial ~~statements, but the Company~~statement presentation or disclosures.

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

~~Note 2: Business Combination~~

~~Arrangement~~

~~As discussed in Note 1, on September 14, 2021, the Company and its newly formed subsidiaries Callco and Canco entered into the Arrangement Agreement with Peraso Tech.~~

On December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, including approvals from the stockholders of the Company and Peraso Tech, the Arrangement was completed.

~~Securities Conversion~~

Pursuant to the completion of the Arrangement, each Peraso Share that was issued and outstanding immediately prior to December 17, 2021 was converted into the right to receive 0.045239122387267 (the Exchange Ratio) newly issued shares of common stock of the Company or shares of Canco, which are exchangeable for shares of the Company’s common stock (Exchangeable Shares) at the election of each former Peraso Tech stockholder. In addition, all of Peraso Tech’s outstanding stock options and other securities exercisable or exchangeable for, or convertible into, and any other rights to acquire Peraso Shares were exchanged for securities exercisable or exchangeable for, or convertible into, or other rights to acquire the Company’s common stock. Immediately following the completion of the Arrangement, the former security holders of Peraso Tech owned approximately 61%, on a fully-diluted basis, of the Company’s common stock, and the former shareholders of Peraso Tech, as a group, obtained control of the Company. While the Company was the legal acquirer of Peraso Tech, Peraso Tech was deemed to be the acquirer for accounting purposes.

In addition, pursuant to the terms of the Arrangement Agreement, (i) certain warrants to purchase Peraso Shares outstanding immediately prior to the closing of the Arrangement were exercised in consideration for the issuance of Peraso Shares; (ii) each convertible debenture of Peraso Tech outstanding immediately prior to the closing of the Arrangement and all principal and accrued but unpaid interest thereon was converted into Peraso Shares at a conversion price equal to the conversion price set out in each such debenture; and (iii) each outstanding option to purchase Peraso Shares (each, a Peraso Option) was exchanged for a replacement option to purchase such number of shares of common stock that was equal to the product of (a) the number of Peraso Shares subject to the Peraso Options immediately before the closing of the Arrangement and (b) the Exchange Ratio, rounded down to the nearest whole number of shares of common stock.

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

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. 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.

~~Reverse Acquisition Determination~~

Pursuant to ASC 805, the transaction was accounted for as a reverse acquisition because: (i) the stockholders of Peraso Tech owned the majority of the outstanding common stock of the Company after the share exchange; (ii) Peraso Tech appointed a majority of the Company’s board of directors; and (iii) Peraso Tech determined the officers of the Company.

~~Measuring the Consideration Transferred~~

In the reverse acquisition, the accounting acquirer did not issue any consideration to the accounting acquiree, rather the accounting acquiree issued its equity shares to the owners of the accounting acquirer in exchange for the accounting acquirer’s shares. The acquisition date fair value of the consideration transferred by the accounting acquirer for its interest in the accounting acquiree was calculated by Peraso Tech, as the fair value of the consideration effectively transferred. In accordance with ASC 805, the consideration effectively transferred between the Company (a public company as the accounting acquiree) and Peraso Tech (a private company as the accounting acquirer), was calculated as 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 following table summarizes the final allocation of the purchase price to the net assets acquired based on the respective fair value of the acquired assets and assumed liabilities of the accounting acquiree, which is the Company.

December 31,

2021

Assets:

(in thousands)

Cash, cash equivalents and investments

$
19,064

Other current assets

2,558

Other assets

833

Intangibles

Developed technology

5,726

Customer relationships

2,556

8,282

Goodwill

9,946

Liabilities:

Current liabilities

3,056

$
37,627

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. 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

(in thousands)

Revenue

$
2,439

Net loss

$
(5,526
)

Note 3:2: Fair Value of Financial Instruments

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

March 31, 2022

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

Cash and cash equivalents

$
3,791

$
0

$
0

$
3,791

Short-term investments

6,001

0

(8
)

5,993

Long-term investments

2,428

0

(29
)

2,399

$
12,220

$
0

$
(37
)

$
12,183

December 31, 2021

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

Cash and cash equivalents

$
5,893

$
0

$
0

$
5,893

Short-term investments

9,276

0

(9
)

9,267

Long-term investments

2,935

0

(7
)

2,928

$
18,104

$
0

$
(16
)

$
18,088

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

	March 31, 2023
	Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds (1)	$	81	$	—	$	—	$	—
Corporate notes and commercial paper	$	587	$	—	$	587	$	—

Liabilities:
Warrant	$	1,421	$	—	$	—	$	1,421

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

Liabilities:
Warrant	$	2,079	$	—	$	—	$	2,079

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

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

March 31, 2022

Fair Value

Level 1

Level 2

Level 3

Money market funds

$
41

$
41

$
—

$
—

Corporate notes and commercial paper

$
8,392

$
—

$
8,392

$
—

$
8,433

$
41

$
8,392

$
—

	March 31, 2023
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Cash and cash equivalents	$	805	$	—	$	—	$	805
Short-term investments		573		14		—		587
	$	1,378	$	14	$	—	$	1,392

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

Warrant Classified as Liability

December 31, 2021

Fair Value

Level 1

Level 2

Level 3

Money market funds

$
1,159

$
1,159

$
—

$
—

Corporate notes and commercial paper

$
12,195

$
—

$
12,195

$
—

A warrant to purchase shares of our common stock at an exercise price of $1.00 per share (the Purchase Warrant) was issued on November 30, 2022 in conjunction with a registered direct offering to an institutional investor. The stock purchase agreement governing the Purchase Warrant provides for a value calculation for the Purchase Warrant using the Black Scholes model in the event of certain fundamental transactions (as defined in the stock purchase agreement). The fair value calculation provides for a floor on the volatility amount utilized in the value calculation at 100% or greater. The Company has determined this provision introduces leverage to the holder of the Purchase Warrant that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Therefore, pursuant to ASC 815, the Company has classified the Purchase Warrant as a liability in its condensed consolidated balance sheets. The classification of the Purchase Warrant, including whether the Purchase Warrant should be recorded as liability or as equity, is evaluated at the end of each reporting period with changes in the fair value reported in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

~~There were 0 transfers in or out~~

The fair value of ~~Level 1 and Level 2 securities during~~ the ~~three months ended~~Purchase Warrant at March 31, ~~2022 or December~~2023 was determined using the Black Scholes model with the following assumptions: (i) expected term based on the contractual term of 5.4 years, (ii) risk-free interest rate of 4.00%, which was based on a comparable US Treasury 5-year bond, (iii) expected volatility of 114% and (iv) an expected dividend of zero.

As of March 31, ~~2021.~~2023, the Company had the following liability-classified warrant outstanding (amounts in thousands):

	Number of warrants on
	common shares		Amount
Balance as of December 31, 2021		—	$	—
Recognition of warrant liability		3,675		3,674
Change in fair value of warrant		—		(1,595	)
Balance as of December 31, 2022		3,675		2,079
Change in fair value of warrant		—		(658	)
Balance as of March 31, 2023		3,675	$	1,421

Note 4.3. Balance Sheet Detail

March 31,

December 31,

2022

2021

(in thousands)

Inventories:

Raw materials

$
1,408

$
879

Work-in-process

2,327

2,170

Finished goods

786

775

$
4,521

$
3,824

Inventories

	March 31,		December 31,
	2023		2022
	(in thousands)
Inventories:
Raw materials	$	1,568	$	1,279
Work-in-process		1,228		2,595
Finished goods		2,057		1,474
	$	4,853	$	5,348

Note 5.4. Commitments and Contingencies

Leases

The Company has ~~three~~ facility leases that it accounts for under ASC 842, ~~and these include~~including the operating leases for its corporate headquarters facility in San Jose, California, and facilities in Toronto and ~~Waterloo,~~Markham Ontario, Canada. The San Jose ~~lease expires in July 2022, and the Waterloo~~ and Toronto leases expire in ~~September 2022~~January 2024 and December 2023, respectively. ~~On March 1,~~In May 2022, the Company entered into a ~~36 month finance~~new lease ~~agreement~~ for the facility in Markham with a 60-month term, which commenced June 21, 2022. The Markham landlord also provided a lease ~~of equipment resulting in the recognition of a right-of-use asset and lease liability on the balance sheet~~incentive of approximately ~~$274,000.~~$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~~initial right-of-use assets and corresponding liabilities of approximately $1.0 million for the San Jose and Markham facility leases were measured at the present value of the future minimum lease payments. The discount rate used to measure the lease assets and liabilities ~~were~~was 8%. ~~Lease expense is recognized on~~

On March 1, 2022, the Company entered into a ~~straight-line basis over~~36-month finance lease agreement for the lease ~~term.~~of equipment resulting in the recognition of a right-of-use asset and lease liability of approximately $274,000.

On November 1, 2022, the Company entered into a 36-month finance lease agreement for the lease of equipment resulting in the recognition of a right-of-use asset of approximately $124,000 and lease liability of approximately $117,000.

The following table provides the details of right-of-use assets and lease liabilities as of March 31, 2023 (in thousands):

	Three Months Ended
	March 31, 2023
Right-of-use assets:
Operating leases	$	696
Finance lease		290
Total right-of-use assets	$	986
Lease liabilities:
Operating leases	$	692
Finance lease		291
Total lease liabilities	$	983

Future minimum payments under the leases at March 31, ~~2022~~2023 are listed in the table below (in thousands):

Year ending December 31,	Operating leases
2023	$	477
2024		263
2025		164
2026		107
2027		81
Total future lease payments		1,092
Less: imputed interest		(109	)
Present value of lease liabilities	$	983

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

Three Months Ended

March 31,

2022

Right-of-use assets:

Operating leases

$
496

Finance lease

274

Total right-of-use assets

$
770

Lease liabilities:

Operating leases

$
559

Finance lease

274

Total lease liabilities

$
833

	Three Months Ended
	March 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for leases	$	199	$	129

Operating

Year ending December 31,

leases

2022

$
292

2023

305

Total future lease payments

597

Less: imputed interest

(38
)
Present value of lease liabilities

$
559

Three Months Ended

March 31,

2022

2021

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

Operating cash flows for leases

$
129

$
71

Rent expense was approximately $0.2 million for the three-month period ended March 31, 2023. Rent expense was approximately $0.1 million for ~~each of~~ the three ~~month periods~~months ended March 31, ~~2022 and 2021.~~2022. In addition to the minimum lease payments, the Company is responsible for property taxes, insurance and certain other operating costs related to the leased facilities and equipment.

Indemnification

In the ordinary course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counterparties from any losses incurred relating to breach of representations and warranties, failure to perform certain covenants, or claims and losses arising from certain events as outlined within the particular contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. The Company has also entered into indemnification agreements with its officers and directors. No material amounts were reflected in the Company’s condensed consolidated financial statements for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 related to these indemnifications.

The Company has not estimated the maximum potential amount of indemnification liability under these agreements due to the limited history of prior claims and the unique facts and circumstances applicable to each particular agreement. To date, the Company has not made any payments related to these indemnification agreements.

Product ~~warranties~~Warranties

The Company warrants certain of its products to be free of defects generally for a period of three years. The Company estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of net revenues. Warranty costs were not material for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022.

Legal Matters

The Company is not a party to any legal proceeding that the Company believes is likely to have a material adverse effect on its condensed consolidated financial position or results of operations. From time to time the Company may be subject to legal proceedings and claims in the ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.

Note 6. 5. Business Segments, Concentration of Credit Risk and Significant Customers

The Company determined its reporting units in accordance with ASC 280, Segment Reporting (ASC 280). Management evaluates a reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated.

Management has determined that the Company has 1one consolidated operating segment. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments.

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

	Three Months Ended
	March 31,
	2023		2022
United States	$	3,089	$	2,375
Taiwan		1,429		312
China		146		290
Japan		12		293
Rest of world		357		133
Total net revenue	$	5,033	$	3,403

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

(amounts in thousands)	Three Months Ended March 31,
Product category	2023		2022		change
Memory ICs	$	2,181	$	1,908		273
mmWave ICs		1,479		488		991
mmWave antenna modules		1,224		808		416
mmWave other products		4		-		4
	$	4,888	$	3,204	$	1,684

Three Months Ended

March 31,

2022

2021

North America

$
2,375

$
55

Hong Kong

290

475

Taiwan

312

565

Japan

293

—

Rest of world

133

6

Total net revenue

$
3,403

$
1,101

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

Three Months Ended

March 31,

2022

2021
Customer A

37%

*
Customer B

24%

*
Customer C

*

41%
Customer D

*

51%

	Three Months Ended
	March 31,
	2023			2022
Customer A		27	%		*
Customer B		25	%		36	%
Customer C		21	%		24	%
Customer D		13	%		*

*	Represents less than 10%

~~NaN~~As of March 31, 2023, three customers accounted for ~~67%~~77% of accounts ~~receivable as of March 31, 2022. NaN~~receivable. Four customers accounted for ~~96%~~79% of accounts receivable as of December 31, ~~2021.~~2022.

~~Note 7. Income Tax Provision~~

The Company determines deferred tax assets and liabilities based upon the differences between the financial statement and tax bases of the Company’s assets and liabilities using tax rates in effect for the year in which the Company expects the differences to affect taxable income. A valuation allowance is established for any deferred tax assets for which it is more likely than not that all or a portion of the deferred tax assets will not be realized.

The Company files U.S. federal and state and foreign income tax returns in jurisdictions with varying statutes of limitations. All tax returns from 2015 to 2020 may be subject to examination by the Internal Revenue Service, California and other states. Returns filed in foreign jurisdictions may be subject to examination for the years 2011 to 2020. As of March 31, 2022, the Company has 0t recorded any liability for unrecognized tax benefits related to uncertain tax positions.

Note 8.6. Stock-Based Compensation

Common Stock Equity Plans

In 2010, the Company adopted the 2010 Equity Incentive Plan and later amended it in 2014, 2017 and 2018 (the Amended 2010 Plan). The Amended 2010 Plan was terminated in August 2019 and remains in effect as to outstanding equity awards granted prior to the date of expiration. ~~NaN~~No new awards may be made under the Amended 2010 Plan.

In August 2019, the Company’s stockholders approved the 2019 Stock Incentive Plan (the 2019 Plan)~~, and it replaced~~ to replace the Amended 2010 Plan. The 2019 Plan authorizes the board of directors or the compensation committee of the board of directors to grant a broad range of awards including stock options, stock appreciation rights, restricted stock, performance-based awards, and restricted stock units. Under the 2019 Plan, 182,500 shares were initially reserved for issuance.

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

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

In connection with the Arrangement, the Company assumed the Peraso Technologies Inc. 2009 Share Option Plan (the 2009 Plan) and all outstanding options granted pursuant to the terms of the 2009 Plan. Each outstanding, unexercised and unexpired option under the 2009 Plan, whether vested or unvested, was assumed by the Company and converted into options to purchase shares of the Company’s common stock and became exercisable by the holder of such option in accordance with its terms, with (i) the number of shares of common stock subject to each option multiplied by the Exchange Ratio and (ii) the per share exercise price upon the exercise of each option divided by the Exchange Ratio. In connection with the Arrangement, 0No further awards will be made under the 2009 Plan.

The 2009 Plan, the Amended 2010 Plan and the 2019 Plan are referred to collectively as the “Plans.”

Stock-Based Compensation Expense

The Company reflected compensation costs of $1.1 million related to the vesting of stock options during each of the three-month periods ended March 31, 2023 and 2022, respectively. At March 31, ~~2022,~~2023, the unamortized compensation cost was approximately ~~$11.4~~$6.6 million related to stock options and is expected to be recognized as expense over a weighted average period of approximately 31.6 years. The Company reflected compensation costs of $0.2 million and $0.1 million related to the vesting of restricted stock during the three months ended March 31, 2023 and 2022, respectively. The unamortized compensation cost at March 31, ~~2022,~~2023 was ~~$0.2~~$1.8 million related to restricted stock units and is expected to be recognized as expense over a weighted average period of approximately ~~1.6~~1.8 years.

~~For the three months ended March 31, 2022 and 2021, there were 0 excess tax benefits associated with the exercise of stock options due to the Company’s historical loss positions.~~

~~Valuation Assumptions and Expense Information for Stock-Based Compensation~~

There were 0no stock options granted or exercised during the three months ended March 31, ~~2022~~2023 and ~~2021.~~ 2022.

Common Stock Options and Restricted Stock

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

The following table summarizes the activity in the shares available for grant under the Plans during the three months ended March 31, ~~2022~~2023 (in thousands, except exercise price):

Options Outstanding

Weighted

Average

Number of

Exercise

Shares

Prices

Balance as of December 31, 2021

1,558

$
3.49

Options cancelled

(13
)

$
10.98

Balance as of March 31, 2022

1,545

$
3.43

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

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

Weighted

Average

Number of

Grant-Date

Shares

Fair Value

Non-vested shares as of December 31, 2021

88

$
4.84

Vested

(13
)

$
3.70

Non-vested shares as of March 31, 2022

75

$
5.67

				Weighted
				Average
	Number of			Grant-Date
	Shares			Fair Value
Non-vested shares as of December 31, 2022		1,057		$	2.06
Granted		80		$	0.99
Vested		(51	)	$	2.07
Non-vested shares as of March 31, 2023		1,086		$	1.98

The following table summarizes significant ranges of outstanding and exercisable options as of March 31, ~~2022~~2023 (in thousands, except contractual life and exercise price):

Options Outstanding

Options Exercisable

Weighted

Average

Remaining

Weighted

Weighted

Contractual

Average

Average

Aggregate

Number

Life

Exercise

Number

Exercise

Intrinsic

Range of Exercise Price

Outstanding

(in Years)

Price

Exercisable

Price

value

$1.57 - $14.99

1,534

8.18

$
2.65

621

$
2.50

$
84

$15.00 - $25.59

4

1.49

$
15.00

4

$
15.00

$
—

$25.60 - $143.99

1

2.42

$
50.00

1

$
50.00

$
—

$144.00 - $409.99

5

4.40

$
144.00

5

$
144.00

$
—

$410.00 - $924.00

1

3.00

$
410.00

1

$
410.00

$
—

$1.57 - $924.00

1,545

8.15

$
3.43

632

$
4.42

$
84

	Options Outstanding						Options Exercisable
			Weighted
			Average
			Remaining		Weighted				Weighted
			Contractual		Average				Average		Aggregate
	Number		Life		Exercise		Number		Exercise		Intrinsic
Range of Exercise Price	Outstanding		(in Years)		Price		Exercisable		Price		value
$1.57 - $14.99		1,472		7.41	$	2.64		920	$	2.60	$	—
$15.00 - $25.59		4		0.49	$	15.00		4	$	15.00	$	—
$25.60 - $143.99		1		1.43	$	50.00		1	$	50.00	$	—
$144.00 - $409.99		4		3.19	$	144.00		4	$	144.00	$	—
$410.00 - $924.00		1		1.45	$	410.00		1	$	410.00	$	—
$1.57 - $924.00		1,482		7.38	$	3.28		930	$	3.60	$	—

Note 7. Equity

Exchangeable Shares and Preferred Stock

As discussed in Note 1, on December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed. Pursuant to the completion of the Arrangement, each Peraso Share that was issued and outstanding immediately prior to December 17, 2021 was converted into either newly issued shares of common stock of the Company or shares of Canco, which are exchangeable for shares of the Company’s common stock (Exchangeable Shares), at the election of each former Peraso Tech stockholder. Of the shares issued to the holders of Peraso Tech Shares, pursuant to the terms of the Agreement, the Company held in escrow an aggregate of 1,312,878 Exchangeable Shares and 502,567 shares of common stock (collectively, the Escrow Shares). The Escrow Shares are escrowed pursuant to the terms of an escrow agreement on a pro rata basis from the aggregate consideration received by the holders of Peraso Shares, subject to the offset by the Company for any losses in accordance with the Agreement. Such Escrow Shares shall be released, subject to any offset claim, upon the satisfaction of the earlier of: (a) any date following the first anniversary of December 17, 2021 and prior to December 17, 2024 where the volume weighted average price of the common stock for any 20 trading days within a period of 30 consecutive trading days is at least $8.57 per share, subject to adjustment for stock splits or other similar transactions; (b) the date of any sale of all or substantially all of the assets or shares of the Company; or (c) the date of any bankruptcy, insolvency, restructuring, receivership, administration, wind-up, liquidation, dissolution, or similar event involving the Company. All and any voting rights and other stockholder rights, other than with respect to dividends and distributions, with respect to the Escrow Shares are suspended until the Escrow Shares are released from escrow.

The Exchangeable Share structure is commonly used for cross-border transactions of this nature so as to provide non-tax-exempt Canadian shareholders with the same economic rights and benefits as holders of the Company’s shares into which the Exchangeable Shares are exchangeable, while allowing those Canadian shareholders to benefit from the tax-rollover available on the issuance of the Exchangeable Shares. In general terms, by choosing to acquire Exchangeable Shares from Canco, such a former Peraso Tech shareholder was able to rely on a rollover rule in the Income Tax Act (Canada) in order to defer any capital gain that he/she/it would have otherwise realized.

Callco was incorporated to exercise the call rights, while Canco was incorporated to acquire the shares of Peraso Tech from Canadian shareholders that wished to receive Exchangeable Shares as consideration, so it was a tax deferred transaction for such Canadian shareholders. The use of a separate entity, Callco, helps maximize cross border paid-up capital, which represents the amount that can generally be distributed free of Canadian withholding tax. The call rights also allow Callco to “purchase” the Exchangeable Shares rather than having them redeemed by Canco on a redemption or retraction or in connection with a liquidity event, thus avoiding the adverse deemed dividend tax consequences to shareholders that may arise from a redemption or retraction of Exchangeable Shares.

Holders of Exchangeable Shares have the right at any time (the Retraction Right) to retract or redeem any or all of the Exchangeable Shares owned by them for an amount per share equal to the market price of a share of the Company’s common stock plus the full amount of all declared and unpaid dividends on such Exchangeable Share (the Exchangeable Share Purchase Price). The Exchangeable Share Purchase Price is payable only by the Company delivering or causing to be delivered to the relevant holder one share of the Company’s common stock for each Exchangeable Share purchased plus a cash amount equal to the amount of any accrued and unpaid dividends on such Exchangeable Share. The Company and Callco each have an overriding right, in the event that a holder of Exchangeable Shares exercises its Retraction Right, to redeem from such holder all, but not less than all, of the Exchangeable Shares tendered for redemption.

The Exchangeable Shares are subject to redemption by the Company, Callco and Canco at the Exchangeable Share Purchase Price, on the “Redemption Date,” which date shall be no earlier than the seventh anniversary of the date on which Exchangeable Shares are first issued, unless: (a) less than 10% of the aggregate number of Exchangeable Shares issued remain outstanding; (b) there is a change in control of the Company (defined generally as (i) any merger, amalgamation, arrangement, takeover bid or tender offer, material sale of shares or rights or interests that results in the holders of outstanding voting securities of the Company directly or indirectly owning, or exercising control or direction over, voting securities representing less than 50% of the total voting power of all of the voting securities of the surviving entity; or (ii) any sale or disposition of all or substantially of the Company’s assets), and (c) upon the occurrence of certain other events. The Exchangeable Share Purchase Price is payable only by the Company delivering or causing to be delivered to the relevant holder one share of the Company’s common stock for each Exchangeable Share purchased plus a cash amount equal to the amount of any accrued and unpaid dividends on such Exchangeable Share.

In the event of the liquidation, dissolution or winding-up of Canco, holders of Exchangeable Shares have the right to receive in respect of each Exchangeable Share held by such holder, an amount per share equal to the Exchangeable Share Purchase Price, which shall be satisfied in full by Canco by delivering to such holder one Company Share, plus an amount equal to the Dividend Amount. The Company and Callco each have an overriding right to purchase from all holders all but not less than all of the Exchangeable Shares upon the occurrence of such events.

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

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

It is expected that Callco will exercise its call rights, as that is more beneficial to the holders of the Exchangeable Shares. Once Callco acquires the Exchangeable Shares from a holder, it (Callco and the Company) is obligated to deliver the Company shares to the holder. Callco discharges this obligation by arranging for the Company to issue and deliver those shares to the holders on behalf of Callco. As consideration for satisfying the delivery obligation, Callco would issue its own shares to the Company.

There are no cash redemption features, as all redemption and exchange scenarios are payable in a share of the Company’s common stock. Neither Canco, Callco, or the Company assume any tax liabilities of a former Peraso Tech shareholder who acquired Exchangeable Shares under the plan of arrangement. The purchase price computed upon the exercise of rights pertaining to retraction, redemption, or liquidation, or otherwise giving rise to a purchase or cancellation of an Exchangeable Share, will, in all cases, consist of a 1:1 exchange involving the Company’s common stock, regardless of the market price of a share of the Company’s common stock.

In connection with the Arrangement, on December 15, 2021, the Company filed the Certificate of Designation of Series A Special Voting Preferred Stock (the Certificate) with the Secretary of State of the State of Delaware to designate Series A Special Voting Preferred Stock (the Special Voting Share) in accordance with the terms of the Arrangement Agreement in order to enable the holders of Exchangeable Shares to exercise their voting rights. The Special Voting Share was issued to a third-party administrative agent (the Agent) solely to facilitate the exercise of rights by holders of Exchangeable Shares. The rights of the Agent, as holder of the Special Voting Share, are limited to effecting the rights of the holders of the Exchangeable Shares; the Special Voting Share does not confer any independent rights to the Agent. Under the Certificate, when all of the Exchangeable shares have been converted into shares of the Company’s common stock, the Special Voting Share shall be automatically cancelled and shall not be reissued. Each Exchangeable Share is exchangeable for one share of common stock of the Company and while outstanding, the Special Voting Share enables holders of Exchangeable Shares to cast votes on matters for which holders of the common stock are entitled to vote, and by virtue of the share terms relating to the Exchangeable Shares, enable the Exchangeable Shares to receive dividends that are economically equivalent to any dividends declared with respect to the shares of common stock. As the Special Voting Share does not participate in dividends (only the Exchangeable Shares participate in dividends) and is not entitled to participate in the residual interest of the Company, it is not classified as an equity instrument in the Company’s financial statements.

The Exchangeable Shares, which can be converted into common stock at the option of the holder and have the same voting and dividend rights as common stock, are similar in substance to shares of common stock. Further, Canco and Callco are non-substantive entities, which are looked through with the Exchangeable Shares being, in substance, common stock of the Company. Therefore, the Exchangeable Shares have been included in the determination of outstanding common stock. The Special Voting Share was issued to a third-party administrative agent (the Agent) solely to facilitate the exercise of rights by holders of Exchangeable Shares, The rights of the Agent, as holder of the Special Voting Share, are limited to effecting the rights of the holders of the Exchangeable Shares; the Special Voting Share does not confer any independent rights to the Agent. Under the Certificate, when all of the Exchangeable shares have been converted into shares of the Company’s common stock, the Special Voting Share shall be automatically cancelled and shall not be reissued.

Warrants

As of March 31, 2023, the Company had the following equity-classified warrants outstanding (share amounts in thousands):

Warrant Type	Number of Shares		Exercise Price		Expiration
Common stock		101	$	2.40		October 2023
Common stock		1,150	$	0.01		—

~~Note 9. Equity~~

~~Warrants~~

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

Type

Number of Shares

Exercise Price

Expiration
Common stock

33

$
47.00

January 2023
Common stock

101

$
2.40

October 2023

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

~~Note 10. Debt~~

~~Loan Facilities~~

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. 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~~During the three months ended March 31, ~~2021 consisted~~2023, approximately 33,000 warrants expired.

Note 8. Related Party Transactions

A family member of ~~i) $348,134~~one of ~~amortization~~the Company’s executive officers served as a consultant to the Company during 2022. During the three months ended March 31, 2022, the Company incurred consulting expenses of ~~debt discount~~approximately $46,700 for the family member. Additionally, a family member of one of the Company’s executive officers is an employee of the Company. During the three months ended March 31, 2023 and ~~$120,950~~2022, the Company recorded compensation expense of ~~interest expense~~approximately $27,800 and $25,600, respectively, for the employed family member.

Note 9. 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 ~~convertible debt~~Company’s Stellar packet classification intellectual property, including its graph memory engine technology, and ~~ii) $44,354~~any roadmap variant, in the form existing as of ~~interest expense~~the date of the Agreement (the Licensed Technology); (ii) acquired from the Company certain patent applications and patents owned by the Company; and (iii) assumed a professional services agreement, dated March 24, 2020, between Fabulous Inventions AB (Fabulous) and the Company (the Fabulous Agreement), pursuant to which, among other things, the Company licensed from Fabulous certain technology incorporated into the Licensed Technology.

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

The Company determined that the license and asset sale did not qualify as a sale of a business, but as a sale of a non-financial asset, with the resultant gain recorded as income from operations in accordance with ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets. During the year ended December 31, 2022, the Company recognized a $2.6 million gain on this transaction, net of transaction costs. During the ~~SRED financing.~~ three months ended March 31, 2023, Intel paid the Holdback, and the Company recognized a $0.4 million gain, net of transaction costs, which was recorded as a reduction of operating expenses in the condensed consolidated statements of operations and comprehensive loss.

Note 10. Subsequent Events

Warrant Exercise

In April 2023, a warrant holder exercised its warrant and purchased 1,150,000 shares of the Company’s common stock at an exercise price of $0.01 per share of common stock.

Memory IC Product End-of-Life

Taiwan Semiconductor Manufacturing Corporation, or TSMC, is the sole foundry that manufactures the wafers used to produce the Company’s memory IC products. TSMC has informed the Company that TSMC would be discontinuing the foundry process used to produce wafers, in turn, necessary to manufacture the Company’s memory ICs. As a result, effective May 1, 2023, the Company began informing its memory IC customers that the Company would be initiating an end-of-life, or EOL, of its memory IC products. The Company has notified its customers to provide purchase orders during 2023 that the Company expects to fulfill during 2024. However, the timing of EOL shipments will be dependent on deliveries from the Company’s suppliers, as well as the delivery schedules requested by customers.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial statements and notes included in this report. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which include, without limitation, statements about the market for our technology, our strategy, competition, expected financial performance and capital raising ~~effort.,~~effort, the impacts of COVID-19 on our business, the effects of the Russia/Ukraine conflict, and inflation, which could cause customers to delay or reduce purchases of our products or delay payments to us, which would adversely affect our financial results, including cash flows, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March ~~31, 2022~~29, 2023 and in other reports that we file from time to time with the Securities and Exchange Commission. Any statements about our business, financial results, financial condition and operations contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects” or similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described under Item 1A of our annual report on Form 10-K for the year ended December 31, ~~2021~~2022 and the risk factors described below under Item 1A of this Form 10-Q. We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law, even as new information becomes available or events occur in the future.

Overview

We were formerly known as MoSys, Inc. (MoSys) and were incorporated in California in 1991 and reincorporated in ~~Delaware~~2000 in ~~2000.~~Delaware. On September 14, 2021, we and our subsidiaries, 2864552 Ontario Inc. and 2864555 Ontario Inc., entered into an Arrangement Agreement (the Arrangement Agreement) with Peraso Technologies Inc. (Peraso Tech), a corporation existing under the laws of the province of Ontario, to acquire all of the issued and outstanding common shares of Peraso Tech (the Peraso Shares), including those Peraso Shares to be issued in connection with the conversion or exchange of secured convertible debentures and common share purchase warrants of Peraso Tech, as applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business Corporations Act (Ontario). On December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed and ~~the Company~~we changed ~~its~~our 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 we, the legal parent, have been treated as the accounting acquiree. The transaction has been accounted for as a reverse acquisition in accordance with Accounting Standards Codification (ASC) No. 805, ~~Business Combinations~~ (ASC 805). Accordingly, the financial condition and results of operations discussed herein are a continuation of Peraso Tech’s financial results prior to December 17, 2021 and exclude the financial results of us prior to December 17, 2021. See Note 2 to the condensed consolidated financial statements for additional disclosure.

Our strategy and primary business objective is to be a profitable, IP-rich fabless semiconductor company offering integrated circuits, ~~(ICs),~~or ICs, antenna modules and related non-recurring engineering services. We specialize in the development of mmWave semiconductors, primarily in the unlicensed 60 GHz spectrum band for 802.11ad/ay compliant devices and in the 28/39 GHz spectrum bands for 5G-compliant devices. We derive our revenue from selling semiconductor devices, as well as antenna modules based on using those mmWave semiconductor devices. We have pioneereda high-volumemmWaveproductiontestmethodologyusingstandardlow costproductiontestequipment.Ithas takenusseveralyearsto refineperformanceof thisproductiontestmethodology,and we believe this places us in a leadershippositionin addressingoperationalchallengesof deliveringmmWaveproductsintohigh-volume markets. ~~During 2021,~~ we~~augmented ourbusinessmodeland began sellingcompletemmWavemodules.~~The primary advantageprovidedby aan antenna moduleisthesiliconand theantennaareintegratedintoa singledevice.A differentiatingcharacteristicof mmWavetechnologyisthattheradio frequencyamplifiersmustbe as closeas possibleto the antennato minimizeloss, and by providinga module,wecan guaranteetheperformanceof the amplifier/antenna interface.

We also acquired a memory product line marketed under the Accelerator Engine ~~name and that~~name. This memory product line comprises our Bandwidth Engine and ~~Programmable HyperSpeed Engine~~Quad Partition Rate IC products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance.As we are not developing new memory products, from a product development perspective, we continue to leverage our current technologies and core competencies to expand our product offerings without incurring significant additional research and development (R&D) expenses.

We incurred net losses of approximately ~~$6.8~~$3.1 million for the three months ended March 31, ~~2022~~2023 and ~~$10.8~~$32.4 million for the year ended December 31, ~~2021~~2022, and we had an accumulated deficit of approximately ~~$124.0~~$152.7 million as of March 31, ~~2022.~~ 2023. These and prior year losses have resulted in significant negative cash flows and historically have required us to raise substantial amounts of additional ~~capital during~~capital. As discussed below, this ~~period.~~

~~We expect~~raises significant doubt about our ability to ~~incur operating losses and~~continue as a going concern. We will need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time.

Memory IC Product End-of-Life

Taiwan Semiconductor Manufacturing Corporation, or TSMC, is the sole foundry that manufactures the wafers used to produce our memory IC products. TSMC recently informed us that it would be discontinuing the foundry process used to produce wafers, in turn, necessary to manufacture our memory ICs. As a result, we have informed our memory IC customers that we are initiating an end-of-life, or EOL, of our memory IC products. We have notified our customers to provide purchase orders during 2023 that we expect to fulfill during 2024. We are requiring customers to pay a deposit upon purchase order placement to reserve supply and provide funding for our required inventory purchases. Under our EOL plan, we intend to complete all shipments of our memory products during 2024, and, as a result, we do not anticipate any shipments of our memory products after December 31, 2024. However, the timing of EOL shipments will be dependent on deliveries from our suppliers, as well as the delivery schedules requested by our customers.

COVID-19 and Russian Invasion of Ukraine

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

Since March 2020, certain jurisdictions in which we operate have issued ’shelter-in-place” orders. We have complied with these orders and, when such orders were in place, minimized business activities at our facilities. We have implemented a teleworking policy for our employees and contractors to reduce on-site activity.

We remain diligent in continuing to identify and manage risks to our business given the changing uncertainties related to COVID-19. The ultimate impact of the COVID-19 pandemic on our business and results of operations is uncertain and difficult to predict, and we are closely monitoring impacts, especially to customer programs and our supply chain. We have and continue to experience longer lead times for certain components used to manufacture our products. While we believe that our operations personnel are currently in a position to meet expected customer demand levels in the coming quarters, we recognize that unpredictable events could create difficulties in the months ahead. We may not be able to address these difficulties in a timely manner, which could negatively impact our business, results of operations, financial condition and cash flows.

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

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

~~Sources~~

Revenue Recognition

We recognize revenue in accordance with FASB 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 our historical practice of recognizing product revenue when title and risk of loss pass to the customer.

We generate revenue primarily from sales of integrated circuits and antenna module products, performance of engineering services and licensing of its intellectual property. Revenues are recognized when control is transferred to customers in amounts that reflect the consideration we expect to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.

Product revenue

Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of our contracts have a single performance obligation to transfer products. Accordingly, we recognize revenue when title and risk of loss have been transferred to the customer, generally at the time of shipment of products. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price. We sell our products both directly to customers and through distributors generally under agreements with payment terms typically 60 days or less.

We may record an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale.

~~License~~

Royalty and other

Our licensing contracts typically provide for royalties based on the licensee’s use of our memory technology in ~~its currently shipping~~the licensee’s commercial products. We estimate ~~its~~ royalty revenue in the calendar quarter in which the licensee uses the licensed technology. Payments are received in the subsequent quarter. We also generate revenue from licensing

our technology. We recognize license fees as revenue at the point of time when the control of the license has been transferred and we have no continuing performance obligations to the customer.

Engineering services revenue

Deferred cost of net revenue

Contract liabilities - deferred revenue

Our contract liabilities generally consist of advance customer payments and deferred revenue. We classify advance customer payments and deferred revenue as current or non-current based on the timing of when we expect to recognize revenue. As of March 31, 2023, contract liabilities were in a current position and included in deferred revenue.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with ~~GAAP.~~accounting principles generally accepted in the United States (GAAP). The preparation of these condensed consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances. Actual results may differ from these estimates and reported results could differ under different assumptions or conditions. Our significant accounting policies and estimates are disclosed in Note 1 of the “Notes to Consolidated Financial Statements” in our annual report on Form 10-K for the year ended December 31, ~~2021.~~2022. As of March 31, ~~2022,~~2023, there have been no material changes to our significant accounting policies and estimates.

Results of Operations

Net Revenue

March 31,

Change

2022

2021

2021 to 2022

(dollar amounts in thousands)

Product -three months ended

$
3,204

$
1,051

$
2,153

205
%
Percentage of total net revenue

94
%

95
%

	March 31,						Change
	2023			2022			2022 to 2023
	(dollar amounts in thousands)
Product -three months ended	$	4,888		$	3,204		$	1,684	53	%
Percentage of total net revenue		97	%		94	%

The following table details revenue by product category for the three months ended March 31, 2023 and 2022:

(amounts in thousands)	Three Months Ended March 31,
Product category	2023		2022		change
Memory ICs	$	2,181	$	1,908		273
mmWave ICs		1,479		488		991
mmWave antenna modules		1,224		808		416
mmWave other products		4		-		4
	$	4,888	$	3,204	$	1,684

Product revenue increased for the three months ended March 31, ~~2022~~2023 compared with the same period of ~~2021~~2022 primarily due to ~~a full quarter contribution~~recognition of ~~revenues from our memory IC products~~revenue of approximately $1.1 million for shipments during the three months ended September 30, 2022 upon payment by the customer and ~~increased shipments~~satisfaction of the revenue recognition criteria. We initiated price increases on certain of our ~~mmWave module products. We commenced selling our~~antenna module products in ~~the second quarter of 2021. We expect revenues to~~2022, however, through March 31, 2023, we had not realized any material increase in revenue as a result of those price increases. The increase in memory IC sales was mainly due to larger shipments to one customer. In late 2022, as we implemented modest price increases on our memory products, and, during the three months ended March 31, 2023, contributed $0.1 million to the revenue increase.

We expect ~~increased~~ sales of our mmWave products to increase from a volume and ~~full-year contribution~~revenue perspective over the remainder of ~~revenues from~~2023, as compared with 2022, as our primary sales focus is on obtaining new mmWave customers. We expect sales of our memory ~~products.~~

products to decrease from a volume and revenue perspective during the remainder of 2023, as compared with 2022, based on current customer forecasts. Given the planned EOL discussed above, we do not expect revenue from these products beyond 2024.

March 31,

Change

2022

2021

2021 to 2022

(dollar amounts in thousands)

License and other -three months ended

$
199

$
50

$
149

298
%
Percentage of total net revenue

6
%

5
%

~~License~~

	March 31,						Change
	2023			2022			2022 to 2023
	(dollar amounts in thousands)
Royalty and other -three months ended	$	145		$	199		$	(54	)	(27	)%
Percentage of total net revenue		3	%		6	%

Royalty and other includes royalty, non-recurring engineering, ~~(NRE),~~ services and licenses revenues. The ~~increase~~decrease in ~~license~~royalty and other revenue for the three months ended March 31, ~~2022~~2023 compared with the same period of ~~2021~~2022 was primarily due to a ~~full quarter contribution of~~decrease in non-recurring engineering services revenue related to our mmWave technology, partially offset by royalty revenues from licensees of our memory technology.

Cost of Net Revenue and Gross Profit

March 31,

Change

2022

2021

2021 to 2022

(dollar amounts in thousands)

Cost of net revenue -three months ended

$
1,590

$
619

$
971

157
%
Percentage of total net revenue

47
%

56
%

	March 31,						Change				March 31,						Change
	2022			2021			2021 to 2022				2023			2022			2022 to 2023
	(dollar amounts in thousands)										(dollar amounts in thousands)
Gross profit -three months ended	$	1,813		$	482		$	1,331	276	%
Cost of net revenue -three months ended											$	3,106		$	1,948		$	1,158	59	%
Percentage of total net revenue		53	%		44	%						62	%		57	%

Cost of net revenue is primarily comprised of direct and indirect costs related to the sale of our ~~products.~~products, including amortization of intangible assets and depreciation of production-related fixed assets.

Cost of net revenue increased for the three months ended March 31, ~~2022~~2023 when compared with the same period in ~~2021,~~2022, primarily due to increased shipment volumes of our ~~LineSpeed and Bandwidth Engine IC~~memory and mmWave ~~module~~ products. ~~Our module products have higher cost of goods sold per unit and generate lower gross profit margin than our IC products.~~

	March 31,						Change
	2023			2022			2022 to 2023
	(dollar amounts in thousands)
Gross profit -three months ended	$	1,927		$	1,455		$	472	32	%
Percentage of total net revenue		38	%		43	%

Gross profit ~~decreased~~increased for the three months ended March 31, ~~2022~~2023 compared with the same period of ~~2021~~2022 due to the increased product shipments. The decrease in our gross profit margin percentage for the three months ended March 31, 2023 compared with the prior year period was primarily attributable to the increased volume shipments of our mmWave products, which carry lower gross margins than our memory products.

Research and Development

	March 31,						Change				March 31,						Change
	2022			2021			2021 to 2022				2023			2022			2022 to 2023
	(dollar amounts in thousands)										(dollar amounts in thousands)
R&D -three months ended	$	6,003		$	2,787		$	3,216	115	%	$	3,887		$	5,486		$	(1,599	)	(29	)%
Percentage of total net revenue		176	%		253	%						77	%		161	%

Our R&D expenses include costs related to the development of our products. We expense R&D costs as they are incurred.

The ~~increase~~decrease for the three months ended March 31, ~~2022~~2023 compared with the same period of ~~2021~~2022 was primarily due to reduced salary and consulting costs. During the ~~inclusion~~quarter ended December 31, 2022, we began implementing cost reductions including a reduction of employees and full-time-equivalent consulting positions, as well as targeted reductions in certain longer-term research and development projects. In August 2022, we entered into a ~~full quarter~~Technology License and Patent Assignment Agreement, or the Agreement, with Intel Corporation, or Intel, and as a result we transferred certain employees and consultants to Intel. As a result of the Agreement and other cost reductions, our memory-related R&D expenses ~~related to~~declined by approximately $1.0 million. In addition, during the ~~former operations~~three months ended March 31, 2022, we incurred a tape-out expense of ~~MoSys, amortization~~$0.7 million for one of ~~intangible assets in the first quarter of 2022 and recognition of government wage and rent subsidies in the first quarter of 2021 that reduced operating expenses.~~ our mmWave ICs.

We expect that total ~~research and development~~R&D expenses will ~~increase~~decrease in ~~2022~~2023 compared with ~~2021,~~2022, as we began implementing cost reductions during the three months ended December 31, 2022. The reductions in R&D expense in 2023 will ~~include the operations of MoSys and increase development of~~primarily result from our ~~mmWave products and technologies. In addition, we do not expect to receive any government subsidies in 2022 that would reduce our expenses.~~ cost reduction initiatives.

Selling, General and Administrative

March 31,

Change

2022

2021

2021 to 2022

(dollar amounts in thousands)

SG&A -three months ended

$
2,546

$
1,307

$
1,239

95
%
Percentage of total net revenue

75
%

119
%

~~Selling, general and administrative (SG&A),~~

	March 31,						Change
	2023			2022			2022 to 2023
	(dollar amounts in thousands)
SG&A -three months ended	$	2,242		$	2,705		$	(463	)	(17	)%
Percentage of total net revenue		45	%		79	%

SG&A expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general ~~management.~~ management and amortization of intangible assets.

The ~~increase~~decrease for the three months ended March 31, ~~2022~~2023 compared with the same period of ~~2021~~2022 was primarily related to cost reductions, which we initiated during the three months ended December 31, 2022. We expect that total SG&A expense will decrease for the remainder of 2023 compared with 2022 due to ~~the inclusion~~our cost reductions. The reductions in SG&A expense in 2023 will primarily result from lower headcount, including a reduction of ~~a full quarter~~employees and reductions of ~~expenses related to the former operations of MoSys.~~other discretionary operating expenses.

~~Interest expense~~

~~Interest expense incurred during the quarter ended March 31, 2021 related to our loans payable, which were repaid during 2021.~~

Liquidity and Capital Resources; Changes in Financial Condition

Cash Flows

As of March 31, ~~2022,~~2023, we had cash, cash equivalents and investments of ~~$12.2~~$1.4 million and working capital of ~~$13.7~~$6.3 million. ~~We believe that~~

Net cash ~~generated~~used in operating activities was $1.4 million for the first three months of 2023, which primarily resulted from our ~~liquidity sources will be sufficient~~net loss of $3.1 million, as adjusted for a $0.7 million non-cash gain on the change in fair value of warrant liability and $0.2 million of other non-cash changes, and partially offset by non-cash charges of $0.8 million of depreciation and amortization, $1.3 million of stock based compensation, and $0.5 million in net changes in assets and liabilities. The changes in assets and liabilities primarily related to ~~meet both our short-term~~the timing of accounts receivable collections, purchases of inventory and ~~long-term working capital~~other vendor payables and ~~capital expenditure needs for at least the next twelve months.~~prepayments.

Net cash used in operating activities was $5.7 million for the first three months of 2022, which primarily resulted from our net loss of $6.8 million and ~~$1.0~~$1.1 million in net changes in assets and liabilities, partially offset by non-cash charges of $0.8 million of depreciation and amortization, $1.2 million of stock based compensation and a ~~$0.1~~$0.2 million

~~loss on disposal of property and equipment.~~ other non-cash changes. The changes in assets and liabilities primarily related to the timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments.

Net cash ~~used in operating~~provided by investing activities ~~was $1.3~~of $0.4 million for the ~~first~~ three months ended March 31, 2023 represented $0.5 million in proceeds from maturities of ~~2021, which primarily resulted from our net loss of $4.2 million, which was~~short-term investments, partially offset by ~~$0.9 million in net changes in assets and liabilities and non-cash charges of $1.2~~$0.1 million of ~~stock-based compensation, $0.3 million~~purchases of ~~depreciation~~property and amortization expenses, $0.3 million amortization of debt discount and $0.2 million of accrued interest. The changes in assets and liabilities primarily related to the timing of accounts receivable collections and other vendor payables and prepayments.equipment.

Net cash provided by investing activities of $3.6 million for the three months ended March 31, 2022 represented $4.2 million in proceeds from maturities of short-term investments, partially offset by $0.5 million of purchases of short and long-term investments and $0.1 million of purchases of property and equipment.

Net cash used in ~~investing~~financing activities for the three months ended March 31, ~~2021 represented approximately $9,000~~2023 consisted of ~~purchases~~repayment of ~~property and equipment.~~financing lease liabilities.

Net cash ~~used in~~provided by financing activities for the three months ended March 31, 2022 consisted of taxes paid to net share settle equity awards.

~~Net cash provided by financing activities for the three months ended March 31, 2021 consisted of net proceeds received from an unsecured loan.~~

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

●•

level of revenue;

●•

cost, timing and success of technology development efforts;

●•

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

●

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

●

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

●•

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

●•

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

●•

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

●•

profitability of our business.

~~Working Capital~~

~~Our primary need for liquidity is to fund working capital requirements~~During the three months ended March 31, 2023, we collected approximately $2.0 million of amounts past due from a large customer of our ~~businesses, capital expenditures~~mmWave products. The amounts collected included approximately $0.9 million of accounts receivable outstanding at September 30, 2022, for which we had established a $0.2 million allowance for doubtful accounts, and $1.1 million for ~~general corporate purposes.~~ shipments in September 2022 for which we had deferred revenue recognition.

Going Concern - Working Capital

We ~~expect our cash expenditures to exceed receipts in 2022, as we do not expect our revenues will be sufficient to offset our working capital requirements. We~~incurred a net ~~loss~~losses of approximately ~~$6.8~~$3.1 million for the three months ended March 31, 2023 and $32.4 million for the year ended December 31, 2022, and we had an accumulated deficit of approximately ~~$124.0~~$152.7 million as of March 31, ~~2022.~~ 2023. These and prior year losses have resulted in significant negative cash flows and have required us to raise substantial amounts of additional ~~capital during this period.~~ capital. To date, we have primarily financed our operations through ~~multiple~~offerings of equity ~~offerings, issuances~~and equity-linked securities, issuance of convertible ~~debentures, utilization~~notes and loans.

We expect to continue to incur operating losses for the foreseeable future as we continue to secure new customers for and continue to invest in the development of ~~loan facilities~~our products, and ~~government subsidies and credits.~~ ~~However, there can~~we expect our cash expenditures to continue to exceed receipts for the foreseeable future, as our revenues will not be ~~no assurance that our capital is~~ sufficient to ~~fund operations until such time as we begin to achieve positive cash flows.~~ offset our operating expenses.

We ~~have an effective shelf registration statement under which we could sell additional securities without advance notice.~~

~~We may~~will need to ~~raise~~increase revenues beyond the levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital ~~but~~from time to time. As a result of our expected operating losses and cash burn and recurring losses from operations, if we are unable to raise sufficient capital through additional equity or debt arrangements, there will be uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt as to our ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial statements. The condensed consolidated financial statements presented in Part I, Item 1 of this Report have been prepared assuming that we will continue as a going concern, and do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that such ~~funding~~additional capital, whether in the form of equity or debt financing, will be sufficient or available and, if available, that such capital will be offered on terms and conditions acceptable to ~~us on favorable terms, if at all. The failure to raise capital when needed could have a material adverse effect on our business and financial condition.~~ us. We ~~may not be able to obtain~~are currently seeking additional financing ~~as needed on acceptable terms, or at all, which may require us~~in order to ~~reduce~~meet our ~~operating costs and other expenditures, including reductions of personnel, salaries and capital expenditures. Alternatively, or~~cash requirements for the foreseeable future. If the Company is unsuccessful in ~~addition to such potential measures, we may elect~~these efforts, it will need to implement additional cost reduction ~~actions as~~strategies, which could further affect its near- and long-term business plan. These efforts may include, but are not limited to, reducing headcount and curtailing business activities. In August 2022, we ~~may determine are necessary~~entered into an exclusive technology license and patent assignment agreement with Intel Corporation, under which we collected $3.1 million in ~~our best interests. Any such actions undertaken might limit our opportunities~~August 2022 and $0.4 million in January 2023. We expect this transaction to ~~realize plans~~result in a reduction of operating expenses of approximately $2.7 million on annual basis. In November 2022, we completed a registered direct offering of common stock and warrants for ~~revenue growth and~~net proceeds to us of approximately $2.1 million. Further, in February 2023, we ~~might not be able~~announced that we had implemented cost-reduction initiatives to reduce ~~our costs in amounts sufficient to achieve break-even or profitable operations.~~operating expenses by approximately $5 million on an annualized basis.

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

●•

develop or enhance our products;

●•

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

●•

acquire complementary technologies, products or businesses;

●•

expand ~~operations;~~operations, in the United States or internationally;

●•

hire, train and retain employees; or

●•

respond to competitive pressures or unanticipated working capital requirements.

Our failure to do any of these things could seriously harm our ability to execute our business strategy and may force us to curtail our existing ~~operations or R&D plans.~~operations.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity or capital resources.

Indemnifications

In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify the counter-party from losses relating to a breach of representations and warranties, a failure to perform certain covenants, or claims and losses arising from certain external events as outlined within the contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. We have also entered into indemnification agreements with our officers and directors. No material amounts related to these indemnifications are reflected in our condensed financial statements for the three months ended March 31, 2023.

Recent Accounting Pronouncements

See Note 1 to the condensed consolidated financial statements for a discussion of ~~recent~~recently-issued accounting ~~policies.~~pronouncements.

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures. Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, our management concluded that, as of March 31, ~~2022,~~2023, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting. During the three months ended March 31, ~~2022,~~2023, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

The discussion of legal matters in Note 46 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report under the heading “Legal Matters” is incorporated by reference in response to this Part II, Item 1.

ITEM 1A. Risk Factors

We face many significant risks in our business, some of which are unknown to us and not presently foreseen. These risks could have a material adverse impact on our business, financial condition and results of operations in the future. ~~There~~Other than as set forth below, there have been no material changes with respect to the risk factors disclosed under Item 1A of our annual report on Form 10-K for the year ended December 31, ~~2021,~~2022, which we filed with the SEC on March 29, 2022.

We intend to discontinue the production of our memory products

Taiwan Semiconductor Manufacturing Corporation, or TSMC, is the sole foundry that manufactures the wafers used to produce our memory IC products. TSMC has informed us that it will be discontinuing the foundry process used to produce the wafers necessary to produce our memory ICs. We are not in a position to transition wafer production to a new foundry and continue to manufacture these products. As a result, we have informed our customers that we are initiating an end-of-life, or EOL, of our memory IC products. We expect to fulfill product EOL orders during 2024, and we do not expect to ship any memory products after December 31, ~~2022.~~2024. Our memory IC products represented over 50% of our revenues for the year ended December 31, 2022 and over 40% of our revenues for the three months ended March 31, 2023. The discontinuation of the production and sale of our memory IC products will negatively impact our future revenues, results of operations and cash flows.

ITEM 6. Exhibits

(a) Exhibits

~~(a)~~ 31.1*	~~Exhibits~~
	31.1*	Rule 13a-14 certification
31.2*	31.2*	Rule 13a-14 certification
32.1**	32.1**	Section 1350 ~~certification~~certificationss
101*	101*	The following financial information from Peraso Inc.’s quarterly report on Form 10-Q for the period ended March 31, ~~2022,~~2023, filed with the SEC on May ~~13, 2022,~~15, 2023, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, (ii) the Condensed Consolidated Balance Sheets as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, (iii) the Condensed Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~ for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, and (v) Notes to Condensed Consolidated Financial Statements.
104*	104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith.

**Furnished herewith.

*	Filed herewith.

**	Furnished herewith.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 15, 2023			PERASO INC.
~~Dated: May 13, 2022~~		~~PERASO INC.~~
	By:
	~~By:~~	/s/ Ronald Glibbery
		Ronald Glibbery
			Chief Executive Officer (Principal Executive Officer)

	By:	/s/ James W. Sullivan
		James W. Sullivan
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

3031

iso4217:USD xbrli:shares

	Three Months Ended
	March 31, 2021
	(in thousands)
Revenue	$	2,439
Net loss	$	(5,526	)

	March 31, 2022
			Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Cash and cash equivalents	$	3,791	$	0	$	0		$	3,791
Short-term investments		6,001		0		(8	)		5,993
Long-term investments		2,428		0		(29	)		2,399
	$	12,220	$	0	$	(37	)	$	12,183

	December 31, 2021
			Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Cash and cash equivalents	$	5,893	$	0	$	0		$	5,893
Short-term investments		9,276		0		(9	)		9,267
Long-term investments		2,935		0		(7	)		2,928
	$	18,104	$	0	$	(16	)	$	18,088

	Operating
Year ending December 31,	leases
2022	$	292
2023		305
Total future lease payments		597
Less: imputed interest		(38	)
Present value of lease liabilities	$	559


Type	Number of Shares		Exercise Price		Expiration
Common stock		33	$	47.00	January 2023
Common stock		101	$	2.40	October 2023