| The Company and Summary of Significant Accounting Policies | Note 1. The Company and Summary of Significant Accounting Policies Peraso Inc.,
formerly known as MoSys, Inc. (the Company), 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). , 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 (ASC 805) Liquidity and Going Concern The Company incurred net losses of approximately
$32.4 million and $10.9 million for the years ended December 31, 2022 and December 31, 2021, respectively, and had an accumulated deficit
of approximately $149.6 million as of December 31, 2022. These and prior year losses have resulted in significant negative cash flows
and have required the Company to raise substantial amounts of additional capital. To date, the Company has primarily financed its operations
through multiple offerings of common stock and issuance of convertible notes and loans to investors and affiliates. The Company expects to continue to incur operating
losses for the foreseeable future as it secures additional customers and continues to invest in the commercialization of its products.
The Company will need to increase revenues substantially beyond levels that it has attained in the past in order to generate sustainable
operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time. 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 consolidated financial statements.
These 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 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
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. 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 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. 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) Derivatives and Hedging (ASC 815) 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 $183,000 and $61,000
as of December 31, 2022 and December 31, 2021, respectively. 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
$420,000 during the year ended December 31, 2022. The Company recorded no 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. The Company participates in the Canadian government’s
Scientific Research and Experimental Development (SRED) Program, which uses tax incentives to encourage Canadian businesses to conduct
research and development (R&D) in Canada. As a part of the program, the Company may be entitled to a receivable in the form of tax
credits or incentives. The Company records refundable tax credits as a reduction of expense and receivable when the Company can reasonably
estimate the amounts and it is more likely than not, the credit will be received. A government refund or subsidy that is compensation
for expenses or losses already incurred, or for which there are no future related costs, is recognized in the statement of operations
in the period in which it becomes receivable. On December 17, 2021, Peraso Tech ceased to be
a Canadian Controlled Private Corporation, as defined by the government of Canada, and the Company was no longer eligible for the expenditure
refund program. However, it is eligible for a tax credit of 15% on qualified SRED expenditures. Unused SRED tax credits can be carried
back three years or forward for 20 years. Property and Equipment Property and equipment are originally recorded
at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to six
years. Depreciation is recorded in cost of sales and operating expenses in the consolidated statements of operations and comprehensive
loss. Leasehold improvements and assets acquired through capital leases are amortized over the shorter of their estimated useful life
or the lease term, and related amortization is recorded in operating expenses in the consolidated statements of operations. 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 expenses in the
consolidated statements of operations and comprehensive loss. 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):
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
December 31, 2021
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
Developed technology $ 5,726 $ (60 ) $ 5,666
Customer relationships 2,556 (27 ) 2,529
Other 165 (5 ) 160
Total $ 8,447 $ (92 ) $ 8,355 Developed technology primarily consisted of MoSys’
products that have reached technological feasibility and primarily relate to its memory semiconductor products and technology. The value
of the developed technology was determined by discounting estimated net future cash flows of these products. The Company is amortizing
the developed technology on a straight-line basis over four years. Amortization related to developed technology of approximately $1,431,000
and $60,000 for the years ended December 31, 2022 and 2021, respectively, has been included in cost of net revenue in the consolidated
statements of operations and comprehensive loss. Customer relationships relate to the Company’s
ability to sell existing and future versions of products to MoSys’ customers existing at the time of the arrangement. The fair value
of the customer relationships was determined by discounting estimated net future cash flows from the customer relationships. The Company
is amortizing customer relationships on a straight-line basis over an estimated life of four years. Amortization related to customer relationships
of approximately $639,000 and $27,000 for the years ended December 31, 2022 and 2021, respectively, has been included in selling, general
and administrative expenses in the consolidated statements of operations and comprehensive loss. Other amortization expense was approximately $28,000
and $5,000 for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, estimated future amortization
expense related to intangible assets was (in thousands):
Year ending December 31,
2023 $ 2,099
2024 2,099
2025 2,011
2026 28
2027 10
Thereafter 31
$ 6,278 Business Combinations The Company allocates the fair value of purchase
consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values.
The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as
goodwill to reporting units based on the expected benefit from the business combination. Allocation of purchase consideration to identifiable
assets and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over the useful life,
whereas any indefinite-lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to
exceed one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding
offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Acquisition-related
expenses are recognized separately from business combinations and are expensed as incurred. Goodwill The Company determines the amount of a potential
goodwill impairment by comparing the fair value of the reporting unit with its carrying amount. To the extent the carrying value of a
reporting unit exceeds its fair value, a goodwill impairment charge is recognized. 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, the price of its common stock is an important component 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. The fair value of the reporting unit is determined using 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. During
the three months ended December 31, 2022, the Company concluded a triggering event had occurred due to the sustained decrease in the price
per share of its common stock and related reduced market capitalization. The Company performed a test for goodwill impairment, and, due
to the decrease in the price per share of its common stock, the test results indicated the goodwill carrying value was greater than its
implied fair value. As a result of the impairment test, the Company recorded a non-cash impairment charge totaling $9.9 million, and the
Company’s goodwill balance was reduced to zero as of December 31, 2022. Leases ASC 842, Leases Revenue Recognition The Company recognizes revenue in accordance with
ASC Topic 606, Revenue from Contracts with Customers, The Company generates revenue primarily from sales
of integrated circuits and 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. Deferred cost of net revenue During the year ended December 31, 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 has been presented as deferred cost of net revenue
in the consolidated balance sheets. 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 December 31, 2022 and December 31, 2021, contract
liabilities were in a current position and included in deferred revenue. During the year ended December 31, 2022, the Company
recognized approximately $243,000 of revenue that had been included in deferred revenue as of December 31, 2021. See Note 7 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. Advertising Costs Advertising costs are expensed as incurred. Advertising
costs were not significant for the years ended December 31, 2022 and 2021. 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 rent and wage subsidies from the Canadian government.
The Company’s subsidiary, Peraso Tech, was eligible for and received the Covid-program subsidies on a monthly basis beginning in
the fourth quarter of 2020 and ending in the fourth quarter of 2021. During the year ended December 31, 2021, the Company
recognized payroll subsidies of $1,120,475 as a reduction in the associated wage costs and rent subsidies of $199,235 as a reduction of
operating expenses in the consolidated statement of operations. Research and Development Engineering costs are recorded as research and
development expense in the period incurred. Stock-Based Compensation The Company periodically issues stock options
and restricted stock awards to employees and non-employees. The Company accounts for such grants based on ASC No. 718, whereby the value
of the award is measured on the date of grant 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 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):
December 31,
2022 2021
Escrow Shares - exchangeable shares 1,313 1,313
Escrow Shares - common stock 502 502
Options to purchase common stock 1,499 1,558
Unvested restricted common stock units 1,057 88
Common stock warrants 4,959 134
Total 9,330 3,595 Income Taxes 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. The 2015 through 2020 tax years generally remain subject to
examination by U.S. federal and state tax authorities, and the 2011 through 2020 tax years generally remain subject to examination by
foreign tax authorities. At December 31, 2022, the Company did not have
any material unrecognized tax benefits nor expect its unrecognized tax benefits to change significantly over the next 12 months. The Company
recognizes interest related to unrecognized tax benefits as income tax expense and penalties related to unrecognized tax benefits as other
income and expense. During the years ended December 31, 2022 and 2021, the Company did not recognize any interest or penalties related
to unrecognized tax benefits. Recently Issued Accounting Pronouncements In June 2016, the FASB
issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses does not expect that the adoption of ASU No. 2016-13 will have
a significant impact on the Company’s consolidated financial statements In May 2021, the FASB
issued ASU No. 2021-04 , Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation
— Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40):
Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (ASU 2021-04) Management does not believe
that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the
Company’s financial statement presentation or disclosures. |
