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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 325 added, 195 removed, 48 unchanged (92% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial statements and notes included in this report.

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which include, without limitation, statements about the market for our technology, our strategy, competition, expected financial performance and capital raising effort., the impacts of COVID-19 on our business, the effects of the Russia/Ukraine conflict, and inflation, which could cause customers to delay or reduce purchases of our products or delay payments to us, which would adversely affect our financial results, including cash flows, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2022 and in other reports that we file from time to time with the Securities and Exchange Commission.

Any statements about our business, financial results, financial condition and operations contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing, the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects” or similar expressions are intended to identify forward-looking statements.

Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described under Item 1A of our annual report on Form 10-K for the year ended December 31, 2021 and the risk factors described below under Item 1A of this Form 10-Q.

We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law, even as new information becomes available or events occur in the future.

We were formerly known as MoSys, Inc.

(MoSys) and were incorporated in California in 1991 and reincorporated in Delaware in 2000.

This Management’s

Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed

consolidated financial statements and notes included in this report.

This Form 10-Q contains forward-looking statements within the

meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as

amended, which include, without limitation, statements about the market for our technology, our strategy, competition, expected financial

performance and capital raising effort, the impacts of COVID-19 on our business, the effects of the Russia/Ukraine conflict, and inflation,

which could cause customers to delay or reduce purchases of our products or delay payments to us, which would adversely affect our financial

results, including cash flows, and other aspects of our business identified in our most recent annual report on Form 10-K filed

with the Securities and Exchange Commission on March 29, 2023 and in other reports that we file from time to time with the Securities

and Exchange Commission.

Any statements about our business, financial results, financial condition and operations contained in this Form 10-Q

that are not statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing, the words

“believes,” “anticipates,” “expects,” “intends,” “plans,” “projects”

or similar expressions are intended to identify forward-looking statements.

Our actual results could differ materially from those expressed

or implied by these forward-looking statements as a result of various factors, including the risk factors described under Item 1A of

our annual report on Form 10-K for the year ended December 31, 2022 and the risk factors described below under Item 1A of this

We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law, even

as new information becomes available or events occur in the future.

were formerly known as MoSys, Inc.

(MoSys) and were incorporated in California in 1991 and reincorporated

in 2000 in Delaware.

On September 14, 2021, we and our subsidiaries, 2864552 Ontario Inc.

and 2864555 Ontario Inc., entered into an Arrangement Agreement (the Arrangement Agreement) with Peraso Technologies Inc.

(Peraso Tech), a corporation existing under the laws of the province of Ontario, to acquire all of the issued and outstanding common shares of Peraso Tech (the Peraso Shares), including those Peraso Shares to be issued in connection with the conversion or exchange of secured convertible debentures and common share purchase warrants of Peraso Tech, as applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business Corporations Act (Ontario).

On December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed and the Company changed its name to “Peraso Inc.” and began trading on the Nasdaq Stock Market under the symbol “PRSO.”

For accounting purposes, the legal subsidiary, Peraso Tech, has been treated as the accounting acquirer and we, the legal parent, have been treated as the accounting acquiree.

The transaction has been accounted for as a reverse acquisition in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) No.

805, Business Combinations .

Accordingly, the financial condition and results of operations discussed herein are a continuation of Peraso Tech’s financial results prior to December 17, 2021 and exclude the financial results of us prior to December 17, 2021.

See Note 2 to the condensed consolidated financial statements for additional disclosure .

Our strategy and primary business objective is to be a profitable, IP-rich, fabless semiconductor company offering integrated circuits (ICs), modules and related non-recurring engineering services.

We specialize in the development of mmWave semiconductors, primarily in the 60 GHz spectrum band for 802.11ad/ay compliant devices and in the 28/39 GHz spectrum bands for 5G-compliant devices.

We derive our revenue from selling semiconductor devices, as well as modules based on using those mmWave semiconductor devices.

We have pioneered a high-volume mmWave production test methodology using standard low cost production test equipment.

It has taken us several years to refine performance of this production test methodology, and we believe this places us in a leadership position in addressing operational challenges of delivering mmWave products into high-volume markets.

During 2021, we augmented our business model and began selling complete mmWave modules.

The primary advantage provided by a module is the silicon and the antenna are integrated into a single device.

A differentiating characteristic of mmWave technology is that the radio frequency amplifiers must be as close as possible to the antenna to minimize loss, and, by providing a module, we can guarantee the performance of the amplifier/antenna interface.

We also have a memory product line, marketed under the Accelerator Engine name, which includes our Bandwidth Engine IC products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient, serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance.

As we are not developing new memory products, from a product development perspective, we continue to leverage our current technologies and core competencies to expand our product offerings without incurring significant additional research and development (R&D) expenses.

We incurred net losses of approximately $16.6 million for the nine months ended September 30, 2022 and $10.9 million for the year ended December 31, 2021, and we had an accumulated deficit of approximately $133.8 million as of September 30, 2022.

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

We expect to continue to incur operating losses and will need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time.

COVID-19 and Macroeconomic Factors

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.

Ontario Inc., entered into an Arrangement Agreement (the Arrangement Agreement) with Peraso Technologies Inc.

(Peraso Tech), a corporation

existing under the laws of the province of Ontario, to acquire all of the issued and outstanding common shares of Peraso Tech (the Peraso

Shares), including those Peraso Shares to be issued in connection with the conversion or exchange of secured convertible debentures and

common share purchase warrants of Peraso Tech, as applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business

Corporations Act (Ontario).

On December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement

Agreement, the Arrangement was completed and we changed our name to “Peraso Inc.”

and began trading on the Nasdaq Stock Market (the Nasdaq) under the symbol “PRSO.”

strategy and primary business objective is to be a profitable, IP-rich fabless semiconductor company offering integrated circuits, or

ICs, antenna modules and related non-recurring engineering services.

We specialize in the development of mmWave semiconductors, primarily

in the unlicensed 60 GHz spectrum band for 802.11ad/ay compliant devices and in the 28/39 GHz spectrum bands for 5G-compliant devices.

We derive our revenue from selling semiconductor devices, as well as antenna modules based on using those mmWave semiconductor devices.

We have pioneered a high-volume mmWave production test methodology using standard low cost production

test equipment.

It has taken us several years to refine performance of this production test methodology, and we believe this places us

in a leadership position in addressing operational challenges of delivering mmWave products into high-volume markets.

The primary advantage

provided by an antenna module is the silicon and the antenna are integrated into a single device.

A differentiating characteristic of

mmWave technology is that the radio frequency amplifiers must be as close as possible to the antenna to minimize loss, and by providing

a module, we can guarantee the performance of the amplifier/antenna interface.

also acquired a memory product line marketed under the Accelerator Engine name.

This memory product line comprises our Bandwidth Engine

and Quad Partition Rate IC products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient serial

interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance.

We incurred net

losses of approximately $3.1 million for the three months ended March 31, 2023 and $32.4 million for the year ended December 31,

2022, and we had an accumulated deficit of approximately $152.7 million as of March 31, 2023.

These and prior year losses have

resulted in significant negative cash flows and historically have required us to raise substantial amounts of additional capital.

discussed below, this raises significant doubt about our ability to continue as a going concern.

We will need to increase revenues substantially

beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue

doing business without raising additional capital from time to time.

Memory IC Product End-of-Life

Semiconductor Manufacturing Corporation, or TSMC, is the sole foundry that manufactures the wafers used to produce our memory IC products.

TSMC recently informed us that it would be discontinuing the foundry process used to produce wafers, in turn, necessary to manufacture

our memory ICs.

As a result, we have informed our memory IC customers that we are initiating an end-of-life, or EOL, of our memory IC

We have notified our customers to provide purchase orders during 2023 that we expect to fulfill during 2024.

We are requiring

customers to pay a deposit upon purchase order placement to reserve supply and provide funding for our required inventory purchases.

Under our EOL plan, we intend to complete all shipments of our memory products during 2024, and, as a result, we do not anticipate any

shipments of our memory products after December 31, 2024.

However, the timing of EOL shipments will be dependent on deliveries from our

suppliers, as well as the delivery schedules requested by our customers.

COVID-19 and Russian Invasion

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 our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S.

Since March 2020, from time to time, this has negatively affected the U.S.

and global economy, disrupted global

supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place”

and created significant disruption of the financial markets.

The full extent of the COVID-19 impact on our operational and financial

performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S.

and foreign government agencies to prevent disease spread, all of which are uncertain, out of our control, and cannot be predicted.

Since March 2020, certain jurisdictions in which we operate have issued ’shelter-in-place” orders.

We have complied with these orders and, when such orders were in place, minimized business activities at our facilities.

We have implemented a teleworking policy for our employees and contractors to reduce on-site activity.

We believe that as the COVID-19 pandemic evolves, the direct and indirect impacts of the pandemic on global macroeconomic conditions, as well as conditions specific to us, are becoming more difficult to isolate or quantify.

In addition, these direct and indirect factors can make it difficult to isolate and quantify the portion of our costs that are a direct result of the pandemic and costs arising from factors that may have been influenced by the pandemic, such as supply chain constraints, rising inflation, and recessionary fears.

We expect these factors and their effects on our operations may persist for a longer period, even after the COVID-19 pandemic has subsided.

We continue to closely monitor impacts, especially to customer programs and our supply chain.

We are working internally and with suppliers on programs (i.e., new production flows, etc.) to allow us to increase our peak throughput to better handle unplanned disruptions to our supply chain.

To date, we have not experienced a material impact on our cash flows, liquidity, capital resources, cash requirements, financial position, or results of operations, attributable to the global semiconductor supply chain disruption and inflation.

We have experienced increased prices from our suppliers, and, for certain products, we have increased prices to our customers to mitigate the impacts, although to date in 2022 the impacts of these price increases have been minimal.

We have and continue to experience longer lead times for certain components used to manufacture our products, and, therefore, and, in response, we have identified second and third sources for certain components used in our module products.

Also, we have increased lead times for our customers.

We have not experienced any issues over our product quality and product development activities, as we do not rely significantly on outside vendors to manage and perform these activities for us.

We currently have not identified any current impacts of the supply chain disruption and inflation that will affect our future results, and it is difficult to differentiate whether higher prices are due to supply chain disruption, inflation or a mix of both.

While we believe that our operations personnel are currently in a position to meet expected customer demand levels in the coming quarters, we recognize that unpredictable events could create difficulties in the months ahead.

We may not be able to address these difficulties in a timely manner, which could negatively impact our business, results of operations, financial condition and cash flows.

The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets.

The Russian invasion of Ukraine in February 2022 has led to further economic disruptions.

Mounting inflationary cost pressures and recessionary fears have negatively impacted the global economy.

During the third quarter of 2022, the U.S.

Federal Reserve continued to aggressively address elevated inflation by increasing interest rates.

Federal Reserve increased interest rates by 75 basis points in each of its meetings held in July, September and November 2022, with an additional increase forecasted for December 2022 as inflation remains elevated.

Given current market conditions, we may be unable to access the capital markets, and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business.

For additional information on risks that could impact our future results, please refer to “Risk Factors” in Part II, Item 1A.

of this quarterly report on Form 10-Q.

Sources of Revenue

The continued spread

of COVID-19 has also led to disruption and volatility in the global capital markets.

The Russian invasion of Ukraine in February 2022

has led to further economic disruptions.

Mounting inflationary cost pressures and recessionary fears have negatively impacted the global

Since mid-2022, the U.S.

Federal Reserve has addressed elevated inflation by increasing interest rates, as inflation remains

Given current market conditions, we may be unable to access the capital markets, and additional capital may only be available

to us on terms that could be significantly detrimental to our existing stockholders and to our business.

For additional

information on risks that could impact our future results, please refer to “Risk Factors” in Part II, Item 1A.

of this quarterly

report on Form 10-Q.

Revenue Recognition

We recognize revenue

in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers, and its amendments (ASC 606).

As described below,

the analysis of contracts under ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing

that is materially consistent with our historical practice of recognizing product revenue when title and risk of loss pass to the customer.

We generate revenue

primarily from sales of integrated circuits and antenna module products, performance of engineering services and licensing of its intellectual

Revenues are recognized when control is transferred to customers in amounts that reflect the consideration we expect to be

entitled to receive in exchange for those goods.

Revenue recognition is evaluated through the following five steps:

(i) identification

of the contract, or contracts, with a customer;

(ii) identification of the performance obligations in the contract;

(iii) determination

of the transaction price;

(iv) allocation of the transaction price to the performance obligations in the contract;

and (v) recognition

of revenue when or as a performance obligation is satisfied.

Product revenue

Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied.

The majority of our contracts have a single performance obligation to transfer products.

Accordingly, we recognize revenue when title and risk of loss have been transferred to the customer, generally at the time of shipment of products.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price.

We sell our products both directly to customers and through distributors generally under agreements with payment terms typically 60 days or less.

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

Revenue is recognized

when performance obligations under the terms of a contract with a customer are satisfied.

The majority of our contracts have a single

performance obligation to transfer products.

Accordingly, we recognize revenue when title and risk of loss have been transferred to the

customer, generally at the time of shipment of products.

Revenue is measured as the amount of consideration we expect to receive in exchange

for transferring products and is generally based upon a negotiated, formula, list or fixed price.

We sell our products both directly

to customers and through distributors generally under agreements with payment terms typically 60 days or less.

We may record an

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

Royalty and other

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

We estimate its royalty revenue in the calendar quarter in which the licensee uses the licensed technology.

Payments are received in the subsequent quarter.

Our licensing contracts

typically provide for royalties based on the licensee’s use of our memory technology in the licensee’s commercial products.

We estimate royalty revenue in the calendar quarter in which the licensee uses the licensed technology.

Payments are received in the

subsequent quarter.

We also generate revenue from licensing our technology.

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

We recognize license fees as revenue at the point of time

when the control of the license has been transferred and we have no continuing performance obligations to the customer.

Engineering services revenue

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.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).

The preparation of these condensed consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

On an ongoing basis we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances.

Actual results may differ from these estimates and reported results could differ under different assumptions or conditions.

Our significant accounting policies and estimates are disclosed in Note 1 of the “Notes to Consolidated Financial Statements” in our annual report on Form 10-K for the year ended December 31, 2021.

As of September 30, 2022, there have been no material changes to our significant accounting policies and estimates.

Reclassifications

We previously classified intangible asset amortization expense related to the developed technology and customer relationships intangibles within research and development expenses (R&D) in our condensed consolidated statements of operations and comprehensive loss.

Amortization expense on the developed technology intangible asset is now classified within cost of net revenue, and amortization expense on customer relationships is now classified in selling, general and administrative expenses (SG&A).

Prior period amounts have been conformed to the current period presentation.

See Notes 1 and 5 to the condensed consolidated financial statements for a discussion of the reclassifications.

Engineering and

development contracts with customers generally contain a single performance obligation that is delivered over time.

Revenue is recognized

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

Deferred cost of net revenue

During the three

months ended September 30, 2022, the Company had $1.1 million of product shipments for which the revenue recognition criteria under ASC

606 had not been met.

Accordingly, the Company deferred the cost of net revenue associated with these shipments, and the amount deferred

was presented as deferred cost of net revenue in the condensed consolidated balance sheets.

During the three months ended March 31, 2023,

the Company recognized the associated revenue and cost of net revenue.

Contract liabilities - deferred revenue

Our contract liabilities

generally consist of advance customer payments and deferred revenue.

We classify advance customer payments and deferred revenue as current

or non-current based on the timing of when we expect to recognize revenue.

As of March 31, 2023, contract liabilities were in a current

position and included in deferred revenue.

Critical Accounting Policies and

The discussion

and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which

have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).

The preparation of these

condensed consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets,

liabilities, revenues and expenses.

On an ongoing basis we make these estimates based on our historical experience and on assumptions

that we consider reasonable under the circumstances.

Actual results may differ from these estimates and reported results could differ

under different assumptions or conditions.

Our significant accounting policies and estimates are disclosed in Note 1 of the “Notes

to Consolidated Financial Statements” in our annual report on Form 10-K for the year ended December 31, 2022.

31, 2023, there have been no material changes to our significant accounting policies and estimates.

Results of Operations

September 30,

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

Product -nine months ended

Percentage of total net revenue

The following table details revenue by product category for the three and nine months ended September 30, 2022 (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

The following table

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

(amounts in thousands)

Months Ended March 31,

Product category

mmWave modules

mmWave antenna modules

mmWave other products

Product revenue increased for the three months ended September 30, 2022 compared with the same period of 2021 primarily due to the increase in the memory IC sales volumes due to the acquisition of this product line in December 2021 and the increase of the mmWave module sales volumes due to the roll-out of this product line in August 2021.

As discussed elsewhere in this Report, for reverse-acquisition accounting purposes, Peraso Tech, was treated as the accounting acquirer, and MoSys was treated as the accounting acquiree.

Accordingly, the results of operations discussed herein are a continuation of Peraso Tech’s historical financial results and exclude the results of operations of MoSys prior to December 17, 2021.

The increase in memory IC sales volumes, which was due to the acquisition of this product line, resulted in a $1.7 million increase to revenue for the three months ended September 30, 2022, as compared to the prior year due to a 100% increase in sales volumes in 2022.

Additionally, we began selling our mmWave module products during the second half of 2021, representing a 119% increase in sales volumes and an additional $0.5 million in revenue for the three months ended September 30, 2022.

We have initiated price increases on certain of our module products in 2022.

However, through September 30, 2022, we had not realized any material increase in revenue as a result of those price increases.

Product revenue increased for the nine months ended September 30, 2022 compared with the same period of 2021 primarily due to increase in the memory IC sales volumes due to the acquisition of this product line in December 2021 and the increase of mmWave module sales volumes due to the roll-out of this new product line in the second half of 2021.

The increase in memory IC sales volumes resulted in a $5.5 million increase in revenues for the nine months ended September 30, 2022 as compared to prior year due to a 100% increase in sales volumes.

Additionally, we began selling our mmWave module products during the second half of 2021 and realized a 100% increase in sales volumes in 2022, which contributed $2.8 million of increased revenue for the nine months ended September 30, 2022.

We initiated price increases on certain of our module products in 2022.

However, through September 30, 2022, we had not realized any material increase in revenue as a result of those price increases.

These revenue increases were partially offset by a decrease of $1.0 million in sales of our mmWave IC products due to a 39% reduction in volumes shipped during the nine months ended September 30, 2022, compared with the same period in 2021.

Although, stand-alone mmWave IC volumes decreased, shipments of our mmWave modules that include the mmWave ICs have increased, and each module we ship includes our mmWave ICs.

We began shipping modules, which include our mmWave IC in a chipset with an antenna, as it provides an integrated solution that we believe can shorten our revenue cycle by enabling our customers to accelerate time to production.

In addition, we generate higher revenue from the sale of modules compared to sales of stand-alone ICs.

Going forward, we expect sales of our mmWave ICs on a stand-alone basis to decline as a percentage of total product revenue, as we expect sales of our modules to be our primary source of revenue growth .

We expect revenues to increase for the remainder of 2022 and in 2023, as we expect increased sales of our mmWave products, including the benefits of price increases implemented in 2022, and will experience a full-year contribution of revenues from our memory products.

We expect sales of our memory products to increase from a volume and revenue perspective over the next 12 months.

However, our memory products have been in production since 2014, and, given that we have not developed new products, the long-term outlook for these products is uncertain.

We have implemented modest price increases on our memory products that we expect to begin taking effect in the first half of 2023, and we expect these price increases to contribute to revenue growth in 2023.

We expect sales of our mmWave modules to increase from a volume and revenue perspective over the next 12 months, as our primary sales focus is on obtaining new module customers.

Our lead module customer has provided purchase orders and forecasts, which support our expected increases in volume and revenue from module shipments.

In addition, we expect meaningful contribution in 2023 from price increases that we implemented in 2022 on our module products .

September 30,

Product revenue

increased for the three months ended March 31, 2023 compared with the same period of 2022 primarily due to recognition of revenue of

approximately $1.1 million for shipments during the three months ended September 30, 2022 upon payment by the customer and satisfaction

of the revenue recognition criteria.

We initiated price increases on certain of our antenna module products in 2022, however, through

March 31, 2023, we had not realized any material increase in revenue as a result of those price increases.

The increase in memory IC

sales was mainly due to larger shipments to one customer.

In late 2022, we implemented modest price increases on our memory products,

and, during the three months ended March 31, 2023, contributed $0.1 million to the revenue increase.

sales of our mmWave products to increase from a volume and revenue perspective over the remainder of 2023, as compared with 2022, as

our primary sales focus is on obtaining new mmWave customers.

We expect sales of our memory products to decrease from a volume and

revenue perspective during the remainder of 2023, as compared with 2022, based on current customer forecasts.

Given the planned EOL

discussed above, we do not expect revenue from these products beyond 2024.

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

Royalty and other -nine months ended

Percentage of total net revenue

Royalty and other includes royalty, non-recurring engineering, services and licenses revenues.

The decrease in royalty and other revenue for the three and nine months ended September 30, 2022 compared with the same period of 2021 was primarily due to a decrease in non-recurring engineering services revenue related to our mmWave technology, partially offset by full three and nine-month contributions of royalty revenues from licensees of our memory technology.

As the reverse acquisition occurred on December 17, 2021, the results of operations for the three and nine months ended September 30, 2021 exclude all royalty revenue from licensing of memory technology.

Cost of Net Revenue and Gross Profit

September 30,

Royalty and other

includes royalty, non-recurring engineering, services and licenses revenues.

The decrease in royalty and other revenue for the three

months ended March 31, 2023 compared with the same period of 2022 was primarily due to a decrease in non-recurring engineering services

revenue related to our mmWave technology, partially offset by royalty revenues from licensees of our memory technology.

Cost of Net Revenue and

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

Cost of net revenue -nine months ended

Percentage of total net revenue

September 30,

Cost of net revenue

is primarily comprised of direct and indirect costs related to the sale of our products, including amortization of intangible assets

and depreciation of production-related fixed assets.

Cost of net revenue

increased for the three months ended March 31, 2023 when compared with the same period in 2022, primarily due to increased shipment volumes

of our memory and mmWave products.

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

Gross profit -nine months ended

Percentage of total net revenue

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

Cost of net revenue increased for the three and nine months ended September 30, 2022 when compared with the same period in 2021, primarily due to increased shipment volumes of our LineSpeed and Bandwidth Engine IC and mmWave module products.

Our module products have higher cost of goods sold per unit and generate lower gross profit margin than our IC products.

Gross profit increased for the three and nine months ended September 30, 2022 compared with the same period of 2021 due to the increased product shipments.

The decrease in our gross profit margin for the three and nine months ended September 30, 2022 compared with the prior year periods was primarily attributable to the increased volume shipments of our mmWave modules, which carry lower gross margins than our IC products.

Research and Development

September 30,

Gross profit increased

for the three months ended March 31, 2023 compared with the same period of 2022 due to the increased product shipments.

in our gross profit margin percentage for the three months ended March 31, 2023 compared with the prior year period was primarily attributable

to the increased volume shipments of our mmWave products, which carry lower gross margins than our memory products.

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

Research and development -nine months ended

Percentage of total net revenue

Our R&D expenses include costs related to the development of our products.

Our R&D expenses

include costs related to the development of our products.

We expense R&D costs as they are incurred.

The increase for the three months ended September 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of a full three months of expenses of $0.9 million related to the former operations of MoSys, amortization of acquired intangible assets from the reverse acquisition of $0.5 million, which closed on December 17, 2021, for the three and nine months ended September 30, 2022 and recognition of $0.5 million of Canadian government refundable tax credits and wage and rent subsidies during the first nine months of 2021 that reduced operating expenses.

The increase for the nine months ended September 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of a full nine months of expenses of $3.8 million related to the former operations of MoSys, amortization of acquired intangible assets from the reverse acquisition of $1.5 million, which closed on December 17, 2021, and recognition of $1.8 million of Canadian government refundable tax credits and wage and rent subsidies during the first nine months of 2021 that reduced operating expenses.

We expect that total R&D expenses will increase in 2022 compared with 2021, as we will include the operations related to MoSys and increased development of our mmWave products and technologies, including our new 5G mmWave products.

In addition, we do not expect to receive any Canadian government subsidies in 2022 that would reduce our R&D expenses.

The decrease for

the three months ended March 31, 2023 compared with the same period of 2022 was primarily due to reduced salary and consulting costs.

During the quarter ended December 31, 2022, we began implementing cost reductions including

a reduction of employees and full-time-equivalent consulting positions, as well as targeted reductions in certain longer-term research

and development projects.

In August 2022, we entered into a Technology License and Patent Assignment Agreement, or the Agreement, with

Intel Corporation, or Intel, and as a result we transferred certain employees and consultants to Intel.

As a result of the Agreement

and other cost reductions, our memory-related R&D expenses declined by approximately $1.0 million.

In addition, during the three

months ended March 31, 2022, we incurred a tape-out expense of $0.7 million for one of our mmWave ICs.

expect that total R&D expenses will decrease in 2023 compared with 2022, as we began implementing cost reductions during the three

months ended December 31, 2022.

The reductions in R&D expense in 2023 will primarily result from our cost reduction initiatives.

Selling, General and Administrative

September 30,

(dollar amounts in thousands)

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Percentage of total net revenue

SG&A -nine months ended

Percentage of total net revenue

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

The increase for the three months ended September 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of $1.4 million of expense, which represented the inclusion of a full three months of expenses related to related to the former operations of MoSys, as a result of the reverse acquisition that closed in December 2021.

The increases were partially offset by a $0.5 million decrease in costs incurred during the three months ended September 30, 2021 related to the reverse acquisition.

The increase for the three and nine months ended September 30, 2022 compared with the same period of 2021 was primarily due to the inclusion of $4.2 million of expense, which represented the inclusion of a full nine months of expenses related to related to the former operations of MoSys, and recognition of Canadian government wage and rent subsidies during the first nine months of 2021 that reduced operating expenses.

The increases were partially offset by a $1.1 million decrease in costs incurred during the nine months ended September 30, 2021 related to the reverse acquisition.

We expect that total SG&A expenses will increase in 2022 compared with 2021, as we will include the operations related to MoSys, and, in addition, we do not expect to receive any Canadian government subsidies in 2022 that would reduce our R&D expenses.

Interest expense

Interest expense incurred during the nine months ended September 30, 2021 related to our convertible debt and loans payable, which were repaid and/or converted into equity during 2021.

SG&A expenses

consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general management and amortization

of intangible assets.

The decrease for

the three months ended March 31, 2023 compared with the same period of 2022 was primarily related to cost

reductions, which we initiated during the three months ended December 31, 2022 .

that total SG&A expense will decrease for the remainder of 2023 compared with 2022 due to our cost reductions.

The reductions in

SG&A expense in 2023 will primarily result from lower headcount, including a reduction of employees and reductions of other discretionary

operating expenses.

Liquidity and Capital Resources;

Changes in Financial Condition

As of September 30, 2022, we had cash, cash equivalents and investments of $3.9 million and working capital of $9.0 million.

Net cash used in operating activities was $13.4 million for the first nine months of 2022, which primarily resulted from our net loss of $17.8 million and $3.1 million in net changes in assets and liabilities, partially offset by non-cash charges of $2.3 million of depreciation and amortization, $4.4 million of stock based compensation, $0.7 million of allowance for doubtful accounts and $0.1 million for other non-cash items.

The changes in assets and liabilities primarily related to the timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments.

Net cash used in operating activities was $7.1 million for the first nine months of 2021, which primarily resulted from our net loss of $13.4 million and a $0.1 million other non-cash items, which was offset by non-cash charges of $3.5 million of stock-based compensation, $0.8 million of depreciation and amortization expenses, $1.5 million amortization of debt discount, and $0.6 million of accrued interest.

The changes in assets and liabilities primarily related to the timing of accounts receivable collections and other vendor payables and prepayments.

Net cash provided by investing activities of $10.4 million for the nine months ended September 30, 2022 represented $11.5 million in proceeds from maturities of short-term investments, partially offset by $0.5 million purchases of short and long-term investments and $0.6 million of purchases of property and equipment.

Net cash used in investing activities for the nine months ended September 30, 2021 represented approximately $57,000 of purchases of property and equipment and $95,000 of intangible assets.

Net cash used in financing activities for the nine months ended September 30, 2022 consisted of taxes paid to net share settle equity awards.

Net cash provided by financing activities for the nine months ended September 30, 2021 consisted of net proceeds received from an unsecured loan.

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

of March 31, 2023, we had cash, cash equivalents and investments of $1.4 million and working capital of $6.3 million.

cash used in operating activities was $1.4 million for the first three months of 2023, which primarily resulted from our net loss of

$3.1 million, as adjusted for a $0.7 million non-cash gain on the change in fair value of warrant liability and $0.2 million of other

non-cash changes, and partially offset by non-cash charges of $0.8 million of depreciation and amortization, $1.3 million of stock based

compensation, and $0.5 million in net changes in assets and liabilities.

The changes in assets and liabilities primarily related to the

timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments.

cash used in operating activities was $5.7 million for the first three months of 2022, which primarily resulted from our net loss of

$6.8 million and $1.1 million in net changes in assets and liabilities, partially offset by non-cash charges of $0.8 million of depreciation

and amortization, $1.2 million of stock based compensation and a $0.2 million other non-cash changes.

The changes in assets and liabilities

primarily related to the timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments.

Net cash provided

by investing activities of $0.4 million for the three months ended March 31, 2023 represented $0.5 million in proceeds from maturities

of short-term investments, partially offset by $0.1 million of purchases of property and equipment.

Net cash provided

by investing activities of $3.6 million for the three months ended March 31, 2022 represented $4.2 million in proceeds from maturities

of short-term investments, partially offset by $0.5 million of purchases of short and long-term investments and $0.1 million of purchases

of property and equipment.

Net cash used in

financing activities for the three months ended March 31, 2023 consisted of repayment of financing lease liabilities.

Net cash provided

by financing activities for the three months ended March 31, 2022 consisted of taxes paid to net share settle equity awards.

Our future liquidity

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

level of revenue;

cost, timing and success of technology development efforts;

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

inventory levels, as supply chain disruption has required us to maintain

higher inventory levels and place purchase orders with our suppliers longer into the future, which exposes us to additional inventory

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

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

length of billing and collection cycles, which may be impacted in the

event of a global recession or economic downturn;

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

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

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

manufacturing risks;

costs of acquiring other businesses and integrating the acquired operations;

profitability of our business.

As of September 30, 2022, we had outstanding accounts receivable of $1.6 million, which included $0.7 million collectible from WeLink Communications LLC (WeLink), a customer that represented 28% of our revenue for the nine months ended September 30, 2022.

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

Accordingly, we deferred the cost of net revenue of $0.6 million associated with these shipments, and the amount deferred has been presented as deferred cost of net revenue in our condensed consolidated balance sheets.

Historically, we have collected all amounts due from WeLink, although generally not within contractual payment terms.

As of September 30, 2022, we determined that an allowance for doubtful accounts of $0.7 million was warranted on the outstanding receivables from WeLink due to the delays in collecting from WeLink.

The longer collection times have negatively impacted our liquidity and working capital.

No assurances can be given that we will be able to collect the receivables from WeLink in a timely manner, if at all.

Recognition of additional bad debt expense, further delays in collecting accounts receivable or our inability to recognize the deferred cost of net revenues could have a material adverse effect on our financial condition, cash flows and results of operations.

During the three

months ended March 31, 2023, we collected approximately $2.0 million of amounts past due from a large customer of our mmWave products.

The amounts collected included approximately $0.9 million of accounts receivable outstanding at September 30, 2022, for which we had

established a $0.2 million allowance for doubtful accounts, and $1.1 million for shipments in September 2022 for which we had deferred

revenue recognition.

Going Concern - Working Capital

We incurred net losses of approximately $17.8 million for the nine months ended September 30, 2022 and $10.9 million for the year ended December 31, 2021, and we had an accumulated deficit of approximately $135.0 million as of September 30, 2022.

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

To date, we have primarily financed our operations through multiple offerings of common stock and issuance of convertible notes and loans to investors and affiliates.

We expect to continue to incur operating losses for the foreseeable future as we continue to secure new customers for and continue to invest in the development of our products, and we expect our cash expenditures to continue to exceed receipts for the foreseeable future, as our revenues will not be sufficient to offset our operating expenses.

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

As a result of our expected operating losses and cash burn for the foreseeable future and recurring losses from operations, if we are unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt as to our ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial statements.

The condensed consolidated financial statements presented in Item 1 of this Report have been prepared assuming that we will continue as a going concern, and do not include any adjustments that might result from the outcome of this uncertainty.

There can be no assurance that such 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 us.

We are currently seeking additional financing in order to meet our cash requirements for the foreseeable future.

If the Company is unsuccessful in these efforts, it will need to implement 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.

As further discussed in Note 11 to the condensed consolidated financial statements, in August 2022, we entered into an exclusive technology license and patent assignment agreement with Intel Corporation, under which we collected $3.

1 million in August 2022 and expect to collect $0.4 million by early 2023.

We expect this transaction to result in a reduction of operating expenses of approximately $2.7 million on annual basis.

If we were to raise additional capital through sales of our equity securities, our stockholders would suffer dilution of their equity ownership.

If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing our stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could harm our business, operating results and financial condition.

If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

We incurred net

losses of approximately $3.1 million for the three months ended March 31, 2023 and $32.4 million for the year ended December 31, 2022,

and we had an accumulated deficit of approximately $152.7 million as of March 31, 2023.

These and prior year losses have resulted in

significant negative cash flows and have required us to raise substantial amounts of additional capital.

To date, we have primarily financed

our operations through offerings of equity and equity-linked securities, issuance of convertible notes and loans.

We expect to continue

to incur operating losses for the foreseeable future as we continue to secure new customers for and continue to invest in the development

of our products, and we expect our cash expenditures to continue to exceed receipts for the foreseeable future, as our revenues will

not be sufficient to offset our operating expenses.

to increase revenues beyond the levels that we have attained in the past in order to generate sustainable operating profit and

sufficient cash flows to continue doing business without raising additional capital from time to time.

As a result of our expected

operating losses and cash burn and recurring losses from operations, if we are unable to raise sufficient capital through additional

equity or debt arrangements, there will be uncertainty regarding our ability to maintain liquidity sufficient to operate our

business effectively, which raises substantial doubt as to our ability to continue as a going concern within one year from the date

of issuance of these condensed consolidated financial statements.

The condensed consolidated financial statements presented in Part

I, Item 1 of this Report have been prepared assuming that we will continue as a going concern, and do not include any adjustments

that might result from the outcome of this uncertainty.

There can be no assurance that such additional capital, whether in the form

of equity or debt financing, will be sufficient or available and, if available, that such capital will be offered on terms

and conditions acceptable to us.

We are currently seeking additional financing in order to meet our cash requirements for the

foreseeable future.

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.

In August 2022, we entered into an exclusive technology license and patent assignment

agreement with Intel Corporation, under which we collected $3.1 million in August 2022 and $0.4 million in January 2023.

this transaction to result in a reduction of operating expenses of approximately $2.7 million on annual basis.

In November 2022, we

completed a registered direct offering of common stock and warrants for net proceeds to us of approximately $2.1 million.

in February 2023, we announced that we had implemented cost-reduction initiatives to reduce operating expenses by approximately $5

million on an annualized basis.

If we were to raise

additional capital through sales of our equity securities, our stockholders would suffer dilution of their equity ownership.

in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying

dividends, repurchasing our stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could

harm our business, operating results and financial condition.

If we need additional capital and cannot raise it on acceptable terms,

we may not be able to, among other things:

develop or enhance our products;

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respond to competitive pressures or unanticipated working capital requirements.

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

Our failure to

do any of these things could seriously harm our ability to execute our business strategy and may force us to curtail our existing operations.

Off-Balance Sheet Arrangements

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

We do not maintain

any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect on our financial

condition, results of operations, liquidity or capital resources.

Indemnifications

In the ordinary

course of business, we enter into contractual arrangements under which we may agree to indemnify the counter-party from losses relating

to a breach of representations and warranties, a failure to perform certain covenants, or claims and losses arising from certain external

events as outlined within the contract, which may include, for example, losses arising from litigation or claims relating to past performance.

Such indemnification clauses may not be subject to maximum loss clauses.

We have also entered into indemnification agreements with our

officers and directors.

No material amounts related to these indemnifications are reflected in our condensed financial statements for

the three months ended March 31, 2023.

Recent Accounting Pronouncements

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

See Note 1 to the

condensed consolidated financial statements for a discussion of recently-issued accounting pronouncements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis