Peraso(PRSO) - 2022 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Peraso Inc.'s unaudited condensed consolidated financial statements for the period ended March 31, 2022, including balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity (deficit), and statements of cash flows, along with detailed notes explaining significant accounting policies, business combinations, fair value measurements, and other financial details Condensed Consolidated Balance Sheets | ASSETS (in millions) | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $3.791 | $5.893 | | Short-term investments | $5.993 | $9.267 | | Total current assets | $18.861 | $23.678 | | Total assets | $41.948 | $47.951 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in millions) | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Total current liabilities | $5.097 | $5.594 | | Total liabilities | $5.508 | $5.882 | | Total stockholders' equity | $36.440 | $42.069 | - Total assets decreased from $47.951 million at December 31, 2021, to $41.948 million at March 31, 2022, primarily driven by a reduction in cash, cash equivalents, and short-term investments[7] - Total stockholders' equity decreased from $42.069 million to $36.440 million, largely due to an accumulated deficit of $(123.953) million as of March 31, 2022[7] Condensed Consolidated Statements of Operations and Comprehensive Loss | (in millions, except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Total net revenue | $3.403 | $1.101 | | Gross profit | $1.813 | $0.482 | | Total operating expenses | $8.549 | $4.094 | | Loss from operations | $(6.736) | $(3.612) | | Net loss | $(6.754) | $(4.157) | | Basic and diluted net loss per share | $(0.34) | $(0.79) | - Total net revenue increased significantly by 209% from $1.101 million in Q1 2021 to $3.403 million in Q1 2022[8] - Net loss widened to $(6.754) million in Q1 2022 from $(4.157) million in Q1 2021, primarily due to a substantial increase in operating expenses, particularly research and development[8] Condensed Consolidated Statements of Stockholders' Equity (Deficit) | (in millions) | Balance as of Dec 31, 2021 | Stock-based Compensation | Unrealized Loss on AFS Securities | Net Loss | Balance as of Mar 31, 2022 | | :------------- | :------------------------- | :----------------------- | :-------------------------------- | :------- | :------------------------- | | Total Equity | $42.069 | $1.171 | $(0.037) | $(6.754) | $36.440 | - Total stockholders' equity decreased from $42.069 million at December 31, 2021, to $36.440 million at March 31, 2022, primarily due to a net loss of $6.754 million[9] - Stock-based compensation contributed $1.171 million to additional paid-in capital during the three months ended March 31, 2022[9] Condensed Consolidated Statements of Cash Flows | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(5.740) | $(1.252) | | Net cash provided by (used in) investing activities | $3.647 | $(0.009) | | Net cash provided by (used in) financing activities | $(0.009) | $0.552 | | Net decrease in cash and cash equivalents | $(2.102) | $(0.709) | | Cash and cash equivalents at end of period | $3.791 | $1.002 | - Net cash used in operating activities increased significantly to $5.740 million in Q1 2022 from $1.252 million in Q1 2021, driven by a larger net loss[12] - Investing activities provided $3.647 million in Q1 2022, primarily from maturities of marketable securities, a reversal from $0.009 million used in Q1 2021[12] Notes to Condensed Consolidated Financial Statements Note 1. The Company and Summary of Significant Accounting Policies Peraso Inc., formerly MoSys, Inc., reincorporated in Delaware in 2000, is a fabless semiconductor company specializing in mmWave technology (60GHz and 5G products) and memory semiconductor devices. The company completed a reverse acquisition of Peraso Technologies Inc. on December 17, 2021, with Peraso Tech treated as the accounting acquirer. The financial statements are unaudited and reflect normal recurring adjustments, with operating results not necessarily indicative of future periods. Key accounting policies include fair value measurements (Level 1, 2, 3 hierarchy), inventory valuation at lower of cost or net realizable value, recognition of tax credits, amortization of intangible assets, and revenue recognition based on transfer of control for products, estimated royalties for licenses, and over time for engineering services. The company also details its stock-based compensation and foreign currency transaction policies - Peraso Inc. (formerly MoSys, Inc.) is a fabless semiconductor company focused on mmWave technology (60GHz and 5G products) and memory semiconductor devices[15] - On December 17, 2021, the company completed a reverse acquisition of Peraso Technologies Inc., with Peraso Tech treated as the accounting acquirer[16] - Revenue is primarily derived from product sales (recognized at shipment), licensing (royalties based on usage), and engineering services (recognized over time)[42][43][45][46] - The company recorded inventory write-downs of approximately $0.114 million during the three months ended March 31, 2022, compared to none in the prior year period[32] - As of December 17, 2021, Peraso Tech ceased to be a Canadian Controlled Private Corporation (CCPC) and is no longer eligible for the expenditure refund program, but is eligible for a 15% tax credit on qualified SR&ED expenditures[37] - The company is evaluating the impact of ASU No. 2016-13 (CECL model) effective for fiscal years beginning after December 15, 2022, and does not believe ASU No. 2020-06 (convertible instruments) will have a material impact[58][59][60] Note 2: Business Combination On December 17, 2021, Peraso Inc. completed the acquisition of Peraso Technologies Inc. (Peraso Tech) via a statutory plan of arrangement. Although Peraso Inc. was the legal acquirer, Peraso Tech was deemed the accounting acquirer due to its former security holders owning approximately 61% of the combined entity and appointing a majority of the board. The transaction was accounted for as a reverse acquisition, with the fair value of consideration effectively transferred determined to be $37.6 million. The purchase price was allocated to acquired net assets, including $19.064 million in cash/investments, $8.282 million in intangibles, and $9.946 million in goodwill - The acquisition of Peraso Technologies Inc. was completed on December 17, 2021, with Peraso Tech treated as the accounting acquirer in a reverse acquisition[61][62][68] - Former Peraso Tech security holders owned approximately 61% of the combined company's common stock on a fully-diluted basis and appointed a majority of the board[62][68] - The fair value of the total consideration effectively transferred was determined to be $37.6 million[69] | Acquired Assets and Liabilities (in millions) | December 31, 2021 | | :------------------------------------- | :---------------- | | Cash, cash equivalents and investments | $19.064 | | Intangibles (Developed technology, Customer relationships) | $8.282 | | Goodwill | $9.946 | | Current liabilities | $3.056 | Note 3: Fair Value of Financial Instruments The company's financial instruments, including cash equivalents and investments, are measured at fair value using a hierarchy. As of March 31, 2022, total fair value of cash and investments was $12.183 million, with an unrealized loss of $37,000. The majority of these assets are classified as Level 2, primarily consisting of corporate notes and commercial paper, with a smaller portion in Level 1 money market funds | (in millions) | March 31, 2022 Fair Value | December 31, 2021 Fair Value | | :------------- | :------------------------ | :------------------------- | | Cash and cash equivalents | $3.791 | $5.893 | | Short-term investments | $5.993 | $9.267 | | Long-term investments | $2.399 | $2.928 | | Total | $12.183 | $18.088 | - As of March 31, 2022, the company reported an unrealized loss of $0.037 million on available-for-sale securities[74] | (in millions) | March 31, 2022 Level 1 | March 31, 2022 Level 2 | December 31, 2021 Level 1 | December 31, 2021 Level 2 | | :------------- | :--------------------- | :--------------------- | :------------------------ | :------------------------ | | Money market funds | $0.041 | $0.000 | $1.159 | $0.000 | | Corporate notes and commercial paper | $0.000 | $8.392 | $0.000 | $12.195 | Note 4. Balance Sheet Detail This note provides a detailed breakdown of the company's inventory composition. As of March 31, 2022, total inventory was $4.521 million, an increase from $3.824 million at December 31, 2021, with raw materials showing the most significant increase | Inventories (in millions) | March 31, 2022 | December 31, 2021 | | :------------------------- | :------------- | :---------------- | | Raw materials | $1.408 | $0.879 | | Work-in-process | $2.327 | $2.170 | | Finished goods | $0.786 | $0.775 | | Total | $4.521 | $3.824 | - Total inventories increased by $0.697 million from December 31, 2021, to March 31, 2022, primarily driven by an increase in raw materials[76] Note 5. Commitments and Contingencies Peraso Inc. has operating leases for facilities in San Jose, Toronto, and Waterloo, and entered into a new finance lease for equipment in March 2022. Total right-of-use assets were $770,000 and total lease liabilities were $833,000 as of March 31, 2022. The company also has standard indemnification agreements and product warranties, none of which have resulted in material liabilities to date. The company is not a party to any legal proceedings likely to have a material adverse effect on its financial position - The company has three facility operating leases expiring between July 2022 and December 2023, and a new 36-month finance lease for equipment initiated in March 2022[77] | (in millions) | March 31, 2022 | | :------------- | :------------- | | Right-of-use assets: Operating leases | $0.496 | | Right-of-use assets: Finance lease | $0.274 | | Total right-of-use assets | $0.770 | | Lease liabilities: Operating leases | $0.559 | | Lease liabilities: Finance lease | $0.274 | | Total lease liabilities | $0.833 | - Rent expense was approximately $0.1 million for both the three months ended March 31, 2022, and 2021[80] - The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial position or results of operations[84] Note 6. Business Segments, Concentration of Credit Risk and Significant Customers Peraso Inc. operates as a single consolidated operating segment. Revenue concentration shifted significantly in Q1 2022, with North America becoming the largest contributor at $2.375 million (up from $55,000 in Q1 2021), while Hong Kong and Taiwan revenues decreased. Customer A and Customer B accounted for 37% and 24% of total net revenue, respectively, in Q1 2022, indicating significant customer concentration - The company has determined it has one consolidated operating segment[86] | Revenue by Geographical Location (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | North America | $2.375 | $0.055 | | Hong Kong | $0.290 | $0.475 | | Taiwan | $0.312 | $0.565 | | Japan | $0.293 | $0.000 | | Rest of world | $0.133 | $0.006 | | Total net revenue | $3.403 | $1.101 | | Customers accounting for at least 10% of total net revenue | | :------------------------------------------------- | | Three Months Ended March 31, 2022: | | Customer A: 37% | | Customer B: 24% | | Three Months Ended March 31, 2021: | | Customer C: 41% | | Customer D: 51% | - Three customers accounted for 67% of accounts receivable as of March 31, 2022, indicating high concentration of credit risk[87] Note 7. Income Tax Provision The company determines deferred tax assets and liabilities based on financial statement and tax basis differences, establishing a valuation allowance when realization is unlikely. Tax returns from 2015-2020 are subject to examination by various tax authorities. As of March 31, 2022, no liability for unrecognized tax benefits related to uncertain tax positions has been recorded - The company establishes a valuation allowance for deferred tax assets where realization is not more likely than not[89] - Tax returns from 2015 to 2020 are subject to examination by U.S. federal, state, and foreign tax authorities[90] - As of March 31, 2022, no liability for unrecognized tax benefits related to uncertain tax positions has been recorded[90] Note 8. Stock-Based Compensation Peraso Inc. operates under the 2019 Stock Incentive Plan (2019 Plan), which replaced the Amended 2010 Plan, and also assumed the Peraso Technologies Inc. 2009 Share Option Plan (2009 Plan) in connection with the Arrangement. As of March 31, 2022, unamortized compensation cost for stock options was $11.4 million (expected over ~3 years) and for restricted stock units was $0.2 million (expected over ~1.6 years). No stock options were granted or exercised in Q1 2022 or Q1 2021. The number of outstanding options was 1,545,000 with a weighted average exercise price of $3.43, and 75,000 non-vested restricted stock units - The company's primary equity incentive plan is the 2019 Stock Incentive Plan, with 3,106,937 additional shares reserved for issuance approved in November 2021[92][93] - Unamortized compensation cost for stock options was approximately $11.4 million as of March 31, 2022, to be recognized over approximately 3 years[96] | Stock Options Activity (in millions) | Number of Shares | Weighted Average Exercise Prices | | :------------------------------------ | :--------------- | :------------------------------- | | Balance as of December 31, 2021 | 1.558 | $3.49 | | Options cancelled | (0.013) | $10.98 | | Balance as of March 31, 2022 | 1.545 | $3.43 | | RSU Activity (in millions) | Number of Shares | Weighted Average Grant-Date Fair Value | | :-------------------------- | :--------------- | :------------------------------------- | | Non-vested shares as of December 31, 2021 | 0.088 | $4.84 | | Vested | (0.013) | $3.70 | | Non-vested shares as of March 31, 2022 | 0.075 | $5.67 | Note 9. Equity As of March 31, 2022, Peraso Inc. had two types of common stock warrants outstanding: 33,000 warrants with an exercise price of $47.00 expiring in January 2023, and 101,000 warrants with an exercise price of $2.40 expiring in October 2023 | Type | Number of Shares (in millions) | Exercise Price | Expiration | | :----------- | :------------------------------ | :------------- | :----------- | | Common stock | 0.033 | $47.00 | January 2023 | | Common stock | 0.101 | $2.40 | October 2023 | Note 10. Debt In 2021, Peraso Inc. raised $1.295 million (CDN$1.650 million) through SRED financing, with an interest rate of 1.6% per month. All loan balances, including interest, were repaid by December 16, 2021. Interest expense for Q1 2021 totaled $513,438, comprising amortization of debt discount, interest on convertible debt, and SRED financing interest - The company raised $1.295 million (CDN$1.650 million) from SRED financing in 2021, with an interest rate of 1.6% per month (20.98% compounded monthly)[102] - All SRED loan balances, including interest, were fully repaid by December 16, 2021[103] - Interest expense for the three months ended March 31, 2021, was $0.513 million, including $0.348 million of amortization of debt discount and $0.121 million of interest expense on convertible debt[104] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Peraso Inc.'s financial condition and operational results for the three months ended March 31, 2022. It covers the company's business strategy as a fabless semiconductor company specializing in mmWave and memory products, the impact of the reverse acquisition, and the ongoing challenges of net losses and the need for additional capital. The discussion also details revenue growth, changes in cost of revenue and operating expenses, and the company's liquidity position and future capital requirements Overview - Peraso Inc. is a fabless semiconductor company focused on mmWave (60 GHz and 5G) and memory (Accelerator Engine) ICs and modules, aiming for profitability and IP richness[108][109] - The company incurred net losses of $6.8 million for Q1 2022 and had an accumulated deficit of $124.0 million as of March 31, 2022, requiring substantial additional capital[110] - The company expects to incur operating losses and needs to substantially increase revenues to achieve sustainable operating profit and sufficient cash flows[111] COVID-19 - The COVID-19 pandemic has negatively affected the global economy, disrupted supply chains, and created financial market volatility, with the full impact on the company's performance remaining uncertain[112] - The company has experienced longer lead times for certain components and acknowledges that unpredictable events could create difficulties in meeting customer demand[114] - The pandemic could impact the company's ability to raise additional capital on favorable terms, potentially leading to detrimental effects on existing stockholders and business operations[115] Sources of Revenue - Product revenue is recognized when title and risk of loss transfer to the customer, typically at shipment, based on negotiated or fixed prices[117] - License and other revenue includes royalties from memory technology usage (estimated quarterly) and license fees recognized when control of the license is transferred with no continuing obligations[119][120] - Engineering services revenue is recognized over time using an output method consistent with the satisfaction of performance obligations[121] Critical Accounting Policies and Estimates - The company's financial statements are prepared in accordance with GAAP, requiring estimates and judgments that affect reported amounts[122] - As of March 31, 2022, there have been no material changes to the company's significant accounting policies and estimates previously disclosed in its annual report on Form 10-K[122] Results of Operations Net Revenue (in millions) | Category | March 31, 2022 | March 31, 2021 | Change (2021 to 2022) | Percentage Change | | :------- | :------------- | :------------- | :-------------------- | :---------------- | | Product | $3.204 | $1.051 | $2.153 | 205% | | License and other | $0.199 | $0.050 | $0.149 | 298% | | Total Net Revenue | $3.403 | $1.101 | $2.302 | 209% | - Product revenue increased by 205% due to a full quarter contribution from memory IC products and increased shipments of mmWave module products[123] - License and other revenue increased by 298% primarily due to a full quarter contribution of royalty revenues from memory technology licensees[124] Cost of Net Revenue and Gross Profit (in millions) | Category | March 31, 2022 | March 31, 2021 | Change (2021 to 2022) | Percentage Change | | :------- | :------------- | :------------- | :-------------------- | :---------------- | | Cost of net revenue | $1.590 | $0.619 | $0.971 | 157% | | Gross profit | $1.813 | $0.482 | $1.331 | 276% | | Gross profit percentage | 53% | 44% | 9 percentage points | | - Cost of net revenue increased by 157% due to higher shipment volumes of LineSpeed, Bandwidth Engine IC, and mmWave module products, with modules having higher cost of goods sold and lower gross profit margins[126] Operating Expenses (in millions) | Category | March 31, 2022 | March 31, 2021 | Change (2021 to 2022) | Percentage Change | | :------- | :------------- | :------------- | :-------------------- | :---------------- | | Research and development | $6.003 | $2.787 | $3.216 | 115% | | Selling, general and administrative | $2.546 | $1.307 | $1.239 | 95% | - R&D expenses increased by 115% primarily due to the full inclusion of former MoSys operations, amortization of intangible assets, and the absence of government wage and rent subsidies received in Q1 2021[129] - SG&A expenses increased by 95% primarily due to the full inclusion of expenses related to the former operations of MoSys[131] Liquidity and Capital Resources; Changes in Financial Condition - As of March 31, 2022, the company had $12.2 million in cash, cash equivalents, and investments, and $13.7 million in working capital[133] - Net cash used in operating activities was $5.7 million for Q1 2022, primarily due to a net loss of $6.8 million and changes in assets and liabilities[134] - Net cash provided by investing activities was $3.6 million for Q1 2022, mainly from maturities of short-term investments[137] - The company expects cash expenditures to exceed receipts in 2022 and will need to raise additional capital, with no assurance of favorable terms or availability[139][140] - Failure to raise capital could force reductions in operating costs, personnel, and R&D, potentially harming business strategy and growth opportunities[141][142] Off-Balance Sheet Arrangements - The company does not maintain any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect on its financial condition, results of operations, liquidity, or capital resources[143] Recent Accounting Pronouncements - Information regarding recent accounting pronouncements is discussed in Note 1 to the condensed consolidated financial statements[144] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of Peraso Inc.'s disclosure controls and procedures as of March 31, 2022, concluding they were effective. There were no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[148] - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2022[149] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company's legal matters are discussed in Note 4 of the Notes to Condensed Consolidated Financial Statements, which states that Peraso Inc. is not a party to any legal proceeding likely to have a material adverse effect on its financial position or results of operations - The company is not a party to any legal proceeding that is likely to have a material adverse effect on its condensed consolidated financial position or results of operations[84][150] Item 1A. Risk Factors Peraso Inc. faces significant business risks, but there have been no material changes to the risk factors disclosed in its annual report on Form 10-K for the year ended December 31, 2021 - There have been no material changes to the risk factors disclosed in the company's annual report on Form 10-K for the year ended December 31, 2021[151] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including Rule 13a-14 and Section 1350 certifications, and financial information formatted in Inline Extensible Business Reporting Language (Inline XBRL) - Exhibits include Rule 13a-14 and Section 1350 certifications, and financial information formatted in Inline XBRL[153] Signatures The report is duly signed on behalf of Peraso Inc. by Ronald Glibbery, Chief Executive Officer, and James W. Sullivan, Chief Financial Officer, as of May 13, 2022 - The report was signed by Ronald Glibbery, Chief Executive Officer, and James W. Sullivan, Chief Financial Officer, on May 13, 2022[158]