UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2024

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

For the transition period from to

Commission file number 000-32929

PERASO INC.

(Exact name of registrant as specified in its charter)

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

2309 Bering Drive

San Jose, California 95131

(Address of principal executive office and zip code)

(408) 418-7500

(Registrant’s telephone number, including area code)

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

Title of each class		Trading symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		PRSO		The Nasdaq Stock Market, LLC

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

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

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

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

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

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

The number of outstanding shares of the registrant’s exchangeable shares, no par value, was 87,185 as of August 9, 2024.

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 2,745,684 as of August 9, 2024.

PERASO INC.

FORM 10-Q

For the Quarterly Period Ended June 30, 2024

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION		1

Item 1.	Financial Statements (Unaudited):	1

	Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023	1

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2024 and 2023	2

	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023	3

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 4.	Controls and Procedures	33

PART II — OTHER INFORMATION		34

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

	Signatures	38

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PERASO INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

	June 30,			December 31,
	2024			2023
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	1,868		$	1,583
Accounts receivable, net		1,460			731
Inventories, net		2,606			2,606
Prepaid expenses and other		810			620
Total current assets		6,744			5,540

Property and equipment, net		807			1,156
Right-of-use lease assets		441			615
Intangible assets, net		1,647			3,280
Other		120			123
Total assets	$	9,759		$	10,714
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	2,318		$	2,448
Accrued expenses and other		2,213			611
Deferred revenue		797			1,105
Short-term lease liabilities		272			370
Total current liabilities		5,600			4,534

Long-term lease liabilities		235			349
Other long-term liabilities		261			—
Warrant liabilities		103			1,748
Total liabilities		6,199			6,631
Commitments and contingencies (Note 5)
Stockholders’ equity
Preferred stock, $0.01 par value; 20,000 shares authorized; none issued and outstanding		—			—
Series A, special voting preferred stock, $0.01 par value; one share authorized; and one share issued and outstanding at June 30, 2024 and December 31, 2023		—			—
Common stock, $0.001 par value; 120,000 shares authorized; 2,706 shares and 673 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively		3			1
Exchangeable shares, no par value; unlimited shares authorized; 87 shares and 95 shares outstanding at June 30, 2024 and December 31, 2023, respectively		—			—
Additional paid-in capital		176,405			170,474
Accumulated deficit		(172,848	)		(166,392	)
Total stockholders’ equity		3,560			4,083
Total liabilities and stockholders’ equity	$	9,759		$	10,714

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						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
Net revenue
Product	$	4,109		$	2,235		$	6,785		$	7,123
Royalty and other		129			168			269			313
Total net revenue		4,238			2,403			7,054			7,436
Cost of net revenue		1,887			1,795			3,397			4,901
Gross profit		2,351			608			3,657			2,535
Operating expenses
Research and development		2,644			3,668			5,457			7,555
Selling, general and administrative		2,141			1,977			4,243			4,219
Severance and software license obligations		2,041			—			2,063			—
Gain on license and asset sale		—			—			—			(406	)
Total operating expenses		6,826			5,645			11,763			11,368
Loss from operations		(4,475	)		(5,037	)		(8,106	)		(8,833	)
Change in fair value of warrant liabilities		54			966			1,645			1,624
Other income (expense), net		(4	)		(15	)		5			(25	)
Net loss	$	(4,425	)	$	(4,086	)	$	(6,456	)	$	(7,234	)

Other comprehensive loss, net of tax:
Net unrealized gain on available-for-sale-securities		—			7			—			21
Comprehensive loss	$	(4,425	)	$	(4,079	)	$	(6,456	)	$	(7,213	)

Net loss per share
Basic and diluted	$	(1.88	)	$	(6.68	)	$	(2.75	)	$	(12.26	)

Shares used in computing net loss per share
Basic and diluted		2,358			612			2,345			590

Note: Share and per share amounts for the three and six months ended June 30, 2023 have been adjusted to reflect the impact of a 1-for-40 reverse stock split effected in January 2024, as discussed in Note 1.

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

PERASO INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

	Series A																Accumulated
	Special 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, 2023		—	$	—		673	$	1		95		$	—	$	170,474		$	—	$	(166,392	)	$	4,083
Shares issued for reverse stock split		—		—		52		—		—			—		—			—		—			—
Sale of common stock and warrants		—		—		563		—		—			—		3,431			—		—			3,431
Issuance of common stock upon exercise of warrants		—		—		1,001		1		—			—		—			—		—			1
Stock-based compensation		—		—		—		—		—			—		1,222			—		—			1,222
Net loss		—		—		—		—		—			—		—			—		(2,031	)		(2,031	)
Balance as of March 31, 2024		—		—		2,289		2		95			—		175,127			—		(168,423	)		6,706
Issuance of common stock upon exercise of warrants		—		—		307		1		—			—		—			—		—			1
Sale of common stock		—		—		100		—		—			—		127			—		—			127
Exchange of exchangeable shares		—		—		8		—		(8	)		—		—			—		—			—
Issuance of common stock under stock plan, net		—		—		2		—		—			—		(4	)		—		—			(4	)
Stock-based compensation		—		—		—		—		—			—		1,155			—		—			1,155
Net loss		—		—		—		—		—			—		—			—		(4,425	)		(4,425	)
Balance as of June 30, 2024		—	$	—		2,706	$	3		87		$	—	$	176,405		$	—	$	(172,848	)	$	3,560

	Series A																Accumulated
	Special 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		—	$	—		357	$	—		228		$	—	$	164,879		$	(25	)	$	(149,597	)	$	15,257
Exchange of exchangeable shares		—		—		8		—		(8	)		—		—			—			—			—
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		—	$	—		365	$	—		220		$	—	$	166,186		$	(11	)	$	(152,745	)	$	13,430
Exchange of exchangeable shares		—		—		77		—		(77	)		—		(3	)		—			—			(3	)
Issuance of common stock under stock plan, net		—		—		4		—		—			—		(36	)		—			—			(36	)
Sale of common stock and warrants		—		—		56		—		—			—		3,546			—			—			3,546
Issuance of common stock upon exercise of warrants		—		—		53		—		—			—		19			—			—			19
Initial recognition of fair value of warrant liability		—		—		—		—		—			—		(3,162	)		—			—			(3,162	)
Stock-based compensation		—		—		—		—		—			—		1,319			—			—			1,319
Unrealized gain on available-for-sale securities		—		—		—		—		—			—		—			7			—			7
Net loss		—		—		—		—		—			—		—			—			(4,086	)		(4,086	)
Balance as of June 30, 2023		—	$	—		555	$	—		143		$	—	$	167,869		$	(4	)	$	(156,831	)	$	11,034

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

PERASO INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended
	June 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(6,456	)	$	(7,234	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,983			1,713
Stock-based compensation		2,377			2,626
Change in fair value of warrant liabilities		(1,645	)		(1,624	)
Allowance for bad debt		—			(154	)
Other		(7	)		(7	)
Changes in assets and liabilities
Accounts receivable		(729	)		1,900
Inventories		—			189
Prepaid expenses and other assets		(187	)		485
Accounts payable		(130	)		(702	)
Right-of-use assets		174			332
Lease liabilities - operating		(144	)		(285	)
Deferred revenue and other liabilities		1,555			(813	)
Net cash used in operating activities		(3,209	)		(3,574	)
Cash flows from investing activities:
Purchases of property and equipment		—			(91	)
Proceeds from maturities of marketable securities		—			500
Net cash provided by investing activities		—			409
Cash flows from financing activities:
Proceeds from sale of common stock and warrants, net		3,559			3,570
Taxes paid to net share settle equity awards		(4	)		(36	)
Repayment of financing leases		(61	)		(51	)
Net cash provided by financing activities		3,494			3,483
Net increase in cash and cash equivalents		285			318
Cash and cash equivalents at beginning of period		1,583			1,828
Cash and cash equivalents at end of period	$	1,868		$	2,146

Supplemental disclosure:
Noncash investing and financing activities:
Initial recognition of warrant liability	$	—		$	3,162
Unrealized gain on available-for-sale securities	$	—		$	21

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., formerly known as MoSys, Inc. (the Company), was incorporated in California in 1991 and reincorporated in 2000 in Delaware. The Company is a fabless semiconductor company specializing in the development of millimeter wave (mmWave), which is generally described as the frequency band from 24 Gigahertz (GHz) to 300GHz, wireless technology. The Company derives revenue from selling its semiconductor devices and modules and performance of non-recurring engineering services. The Company also manufactures and sells high-performance memory semiconductor devices for a wide range of markets and receives royalties from licensees of its memory technology.

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

For accounting purposes, Peraso Tech, the legal subsidiary, was treated as the accounting acquirer and the Company, the legal parent, was treated as the accounting acquiree. The transaction was accounted for as a reverse acquisition in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations.

The accompanying condensed consolidated financial statements of the Company have been prepared without audit. The condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited consolidated financial statements at that date. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The information in this report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its most recent annual report on Form 10-K filed with the SEC.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other future period.

Liquidity and Going Concern

The Company incurred net losses of approximately $6.5 million for the six months ended June 30, 2024 and $16.8 million for the year ended December 31, 2023 and had an accumulated deficit of approximately $173 million as of June 30, 2024. 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 its equity and equity-linked securities and the issuance of convertible notes and loans to investors and affiliates. As disclosed in Note 8, in February 2024, the Company completed a public offering of its common stock and common stock purchase warrants for net proceeds of $3.4 million.

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. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2023, expressed substantial doubt about the Company’s ability to continue as a going concern. 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. 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.

Reverse Stock Split

On December 15, 2023, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a 1-for-40 reverse stock split of the Company’s shares of common stock. Further, on January 2, 2024, Canco filed a certificate of amendment to its amended and restated certificate of incorporation under the Ontario Business Corporations Act to effect a 1-for-40 reverse stock split of the outstanding exchangeable shares. Such amendments and ratio were previously approved by the Company’s stockholders and board of directors.

As a result of the reverse stock split, which was effective for trading purposes on January 3, 2024, every 40 shares of the Company’s pre-reverse split outstanding common stock and exchangeable shares were combined and reclassified into one share of common stock. Proportionate voting rights and other rights of holders of common stock and exchangeable shares were not affected by the reverse stock split. Any fractional shares of common stock and exchangeable shares resulting from the reverse stock split were rounded up to the nearest whole share. All stock options and restricted stock units outstanding and common stock reserved for issuance under the Company’s equity incentive plans and warrants outstanding immediately prior to the reverse stock split were adjusted by dividing the number of affected shares of common stock by 40 and, as applicable, multiplying the exercise price by 40, as a result of the reverse stock split. All share and per-share amounts in these condensed consolidated financial statements have been restated to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented.

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, pandemics, wars and acts of terrorism and the volatility of public markets. The Company may be unable to access the capital markets, and additional capital may only be available to the Company on terms that could be significantly detrimental to its existing stockholders and to its business.

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

Cash Equivalents and Investments

The Company invests its 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, and other payables, approximate their fair values because of the short maturity of these instruments. The carrying values of lease obligations and long-term financing obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest rates. The Company measures the fair value of its warrant liabilities using Level 3 inputs.

Derivatives and Liability-Classified Instruments

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

Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful accounts to ensure that its trade receivables balances are not overstated due to uncollectibility. The Company performs ongoing customer credit evaluations within the context of the industry in which it operates and generally does not require collateral from its customers. A specific allowance of up to 100% of the invoice value is provided for any problematic customer balances. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The Company grants credit only to customers deemed creditworthy in the judgment of management. The allowance for doubtful accounts receivable was approximately $30,000 as of June 30, 2024 and December 31, 2023.

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 write-downs for estimated obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those expected by management, additional adjustments to inventory valuation may be required. Charges for obsolete and slow-moving inventories are recorded based upon an analysis of specific identification of obsolete inventory items and quantification of slow moving inventory items. The Company determined that it had excess and obsolete inventory, primarily related to its mmWave products, and recorded write-downs of inventory of approximately $629,000 during the six months ended June 30, 2023. No material write-downs of inventory were recorded during the six months ended June 30, 2024. If the Company’s recognition of excess or obsolete inventory is, or if its estimates of potential utility become, less favorable than currently expected, additional inventory write-downs may be required. During the three and six months ended June 30, 2024, the Company sold inventory with a value of approximately $81,000 that had been written down in 2023.

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 selling, general and administrative expense in the condensed consolidated statements of operations.

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

Purchased Intangible Assets

Intangible assets acquired in business combinations are accounted for based on the fair value of assets purchased and are amortized over the period in which economic benefit is estimated to be received. Intangible assets subject to amortization, including those acquired in business combinations were as follows (amounts in thousands):

	June 30, 2024
	Gross					Net
	Carrying		Accumulated			Carrying
	Amount		Amortization			Amount
Developed technology	$	5,726	$	(4,599	)	$	1,127
Customer relationships		2,556		(2,052	)		504
Other		186		(170	)		16
Total	$	8,468	$	(6,821	)	$	1,647

	December 31, 2023
	Gross								Net
	Carrying		Accumulated			Other			Carrying
	Amount		Amortization			Impairment			Amount
Developed technology	$	5,726	$	(3,471	)	$	—		$	2,255
Customer relationships		2,556		(1,550	)		—			1,006
Other		186		(61	)		(106	)		19
Total	$	8,468	$	(5,082	)	$	(106	)	$	3,280

Developed technology primarily consisted of MoSys’ products that have reached technological feasibility and primarily relate to its memory semiconductor products and technology. The value of the developed technology was determined by discounting estimated net future cash flows of these products. Amortization related to developed technology of $0.6 million and $1.1 million for each of the three and six-month periods ended June 30, 2024, respectively, has been included in cost of net revenue in the condensed consolidated statements of operations and comprehensive loss.

Customer relationships relate to the Company’s ability to sell existing and future versions of its products to MoSys’ customers existing at the time of the arrangement. The fair value of the customer relationships was determined by discounting estimated net future cash flows from the customer relationships. Amortization related to customer relationships of $0.2 million and $0.5 million for each of the three and six month-periods ended June 30, 2024, respectively, has been included in selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

Other amortization expense was approximately $1,000 and $2,000 for each of the three and six-month periods ended June 30, 2024, respectively.

At June 30, 2024, the Company has not identified any intangible asset impairments. However, current macroeconomic conditions, which have been impacted by inflation and other world unrest, could negatively impact the Company’s business and stock price and trigger the need to test for impairment. The Company will continue to evaluate for impairment indicators, as necessary, on a quarterly basis.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, and its amendments (ASC 606). As described below, the analysis of contracts under ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing that is materially consistent with the Company’s historical practice of recognizing product revenue when title and risk of loss pass to the customer.

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

Product revenue

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

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

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.

Contract liabilities – deferred revenue

The Company’s contract liabilities consist of advance customer payments and deferred revenue. The Company classifies advance customer payments and deferred revenue as current or non-current based on the timing of when the Company expects to recognize revenue. As of June 30, 2024 and December 31, 2023, contract liabilities were in a current position and included in deferred revenue.

During the six months ended June 30, 2024, the Company recognized approximately $513,000 of revenue that had been included in deferred revenue as of December 31, 2023.

See Note 6 for disaggregation of revenue by geography.

The Company does not have significant financing components, as payments from customers are typically due within 60 days of invoicing, and the Company has elected the practical expedient to not value financing components that are less than one year. Shipping and handling costs are generally incurred by the customer, and, therefore, are not recorded as revenue.

Cost of Net Revenue

Cost of net revenue consists primarily of direct and indirect costs of product sales, including amortization of intangible assets and depreciation of production-related fixed assets.

Stock-Based Compensation

The Company periodically issues stock options and restricted stock units to employees and non-employees. The Company accounts for such awards based on ASC 505 and ASC 718, whereby the value of the award is measured on the date of award and recognized as compensation expense on a straight-line basis over the vesting period. The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing (Black Scholes) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes model. The assumptions used in the Black-Scholes model could materially affect compensation expense recorded in future periods.

Foreign Currency Transactions

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

Per-Share Amounts

Basic net loss per share is computed by dividing net loss for the period by the weighted-average number of exchangeable shares and shares of common stock outstanding (WASO) during the period. In addition, the Company includes the number of shares of common stock issuable upon exercise of pre-funded warrants as outstanding. Diluted net loss per share gives effect to all potentially dilutive exchangeable and common shares outstanding during the period. Potentially dilutive common shares consist of incremental exchangeable shares and shares of common stock issuable upon the achievement of escrow terms, exercise of stock options, vesting of stock awards and exercise of warrants.

Prior to June 30, 2023, the Company excluded shares of common stock issuable upon exercise of pre-funded warrants from the computation of WASO. The pre-funded warrant shares are now included in the computation of WASO. Prior period amounts have been conformed to the current-period presentation. The impact of the change reduced the previously reported loss per share by $0.04, and increased WASO by approximately 4,000 shares for the three months ended June 30, 2023. The impact of the change reduced the previously reported loss per share by $0.63, and increased WASO by approximately 29,000 shares for the six months ended June 30, 2023, respectively. The reclassification had no impact on the Company’s net loss or cash flows for the three and six months ended June 30, 2023.

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

	June 30,
	2024		2023
Escrow shares - exchangeable shares		33		33
Escrow shares - common stock		13		13
Options to purchase common stock		34		37
Unvested restricted common stock units		10		24
Warrants classified as equity		8,094		—
Warrants classified as liabilities		235		237
Total		8,419		344

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. ASU No. 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and it requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact that this ASU will have on the presentation of its consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that this ASU will have on the presentation of its consolidated financial statements.

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASCs), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (the SEC) did not, or is not expected to, have a material impact on the Company’s consolidated financial statements and related disclosures.

Note 2. Fair Value of Financial Instruments

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

	June 30, 2024
	Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds (1)	$	1	$	—	$	—	$	—

Liabilities:
Warrant liabilities	$	103	$	—	$	—	$	103

	December 31, 2023
	Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds (1)	$	1	$	—	$	—	$	—

Liabilities:
Warrant liabilities	$	1,748	$	—	$	—	$	1,748

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

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

	June 30, 2024
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Cash and cash equivalents	$	1,868	$	—	$	—	$	1,868

	December 31, 2023
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Cash and cash equivalents	$	1,583	$	—	$	—	$	1,583

SEC Form 10-Q filed by Peraso Inc.