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Item 1. Financial Statements

2023-08-14 compared with 2023-05-15 · 637 added, 622 removed, 271 unchanged (82% of the section changed)

Financial Statements

CONSOLIDATED BALANCE SHEETS

(In thousands,

except par value)

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

Current assets

7 unchanged sentences

Intangible assets, net

Right-of-use lease asset, net

Right-of-use lease assets, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

6 unchanged sentences

Long-term lease liabilities

Warrant liability

Warrant liabilities

Total liabilities

6 unchanged sentences

one share authorized;

and one share issued and outstanding at March 31, 2023 and December 31, 2022, respectively

and one share issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Common stock, $ 0.001 par value;

120,000 shares authorized;

14,580 shares and 14,270 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

22,170 shares and 14,270 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Exchangeable shares, no par value;

unlimited shares authorized;

8,797 shares and 9,107 shares outstanding at March 31, 2023 and December 31, 2022, respectively

5,731 shares and 9,107 shares outstanding at June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

2 unchanged sentences

Total stockholders’ equity

Total liabilities and stockholders’

The accompanying

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

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands,

except per share data)

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of

these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(In thousands, except per share data)

Three Months Ended

Six Months Ended

Royalty and other

7 unchanged sentences

Loss from operations

Change in fair value of warrant liability

Change in fair value of warrant liabilities

Other expense, net

Other comprehensive loss, net of tax:

Net unrealized gain (loss) on

available-for-sale securities

Net unrealized gain (loss) on available-for-sale securities

Comprehensive loss

3 unchanged sentences

Basic and diluted

The accompanying

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Series A Special

The accompanying notes are an integral part of

these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In thousands)

Series A Special Voting

Preferred Stock

Exchangeable Shares

Comprehensive

Balance as of December 31, 2022

as of December 31,

$ ( 149,597 )

Exchange of exchangeable shares

Stock-based compensation

Unrealized gain on available-for-sale securities

Balance as of March 31, 2023

of exchangeable shares

gain on available-for-sale securities

as of March 31, 2023

of exchangeable shares

of common stock under stock plan, net

of common stock and warrants

of common stock upon exercise of warrants

recognition of fair value of warrant liability

gain on available-for-sale securities

as of June 30, 2023

$ ( 156,831 )

Series A Special

A Special Voting

Preferred Stock

Comprehensive

Balance as of December 31, 2021

as of December 31,

$ ( 117,199 )

Issuance of common stock under stock plan, net

Stock-based compensation

Unrealized loss on available-for-sale securities

Balance as of March 31, 2022

of common stock under stock plan, net

loss on available-for-sale securities

as of March 31, 2022

of common stock under stock plan, net

loss on available-for-sale securities

as of June 30, 2022

$ ( 130,996 )

The accompanying

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of

these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used

in operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Stock-based compensation

Change in fair value of warrant liability

Change in fair value of warrant liabilities

Allowance for bad debt

15 unchanged sentences

Cash flows from financing activities:

Proceeds from sale of common stock, net

Taxes paid to net share settle equity awards

Repayment of financing lease

Net cash used in financing activities

Net decrease in cash and cash equivalents

Repayment of financing leases

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

1 unchanged sentence

Supplemental disclosure:

Initial recognition of warrant liability

Recognition of right-of-use asset and lease liability

Unrealized gain/(loss) on securities

The accompanying

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

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company and Summary

of Significant Accounting Policies

Unrealized gain on securities

The accompanying notes are an integral part of

these condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company and Summary of Significant Accounting Policies

(the Company), formerly known as MoSys, Inc.

(MoSys), was incorporated in California in 1991

and reincorporated in 2000 in Delaware.

The Company is a fabless semiconductor company specializing in the development of millimeter

wave (mmWave), which is generally described as the frequency band from 24 Gigahertz (GHz) to 300GHz, wireless technology.

also manufactures and sells high-performance memory semiconductor devices for a wide range of markets and receives royalties from licensees

of its memory technology.

The Company derives revenue from selling its semiconductor devices and antenna modules, performance of non-recurring

engineering services and licensing of its technologies.

September 14, 2021, the Company and its subsidiaries, 2864552 Ontario Inc.

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

The Company is a fabless semiconductor company and derives revenue from selling its semiconductor devices and antenna modules, performance

of non-recurring engineering services and licensing of its technologies.

The Company specializes in the development of millimeter wave

(mmWave), which is generally described as the frequency band from 24 Gigahertz (GHz) to 300GHz, wireless technology.

In addition, the

Company also manufactures and sells high-performance memory semiconductor devices for a wide range of markets and receives royalties from

licensees of its memory technology (see Note 10).

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

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

the Arrangement Agreement, the Arrangement was completed and , the Company changed its name

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

accounting purposes, Peraso Tech, the legal subsidiary, was treated as the accounting acquirer and the Company, the legal parent, was

treated as the accounting acquiree.

The transaction was accounted for as a reverse acquisition in accordance with Financial Accounting

Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations (ASC 805) .

The accompanying

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

The condensed consolidated balance sheet

as of December 31, 2022 has been derived from the audited consolidated financial statements at that date.

Certain information and disclosures

normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP)

have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (SEC).

information in this report should be read in conjunction with the Company’s consolidated financial statements and notes thereto

included in its most recent annual report on Form 10-K filed with the SEC.

In the opinion

of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal

recurring adjustments) necessary to summarize fairly the Company’s financial position, results of operations and cash flows for

the interim periods presented.

The operating results for the three months ended March 31, 2023 are not necessarily indicative of the

results that may be expected for the year ending December 31, 2023 or for any other future period.

(Canco), entered into an Arrangement

Agreement (the Arrangement Agreement) with Peraso Technologies Inc.

(Peraso Tech), a corporation existing under the laws of the province

of Ontario, to acquire all of the issued and outstanding common shares of Peraso Tech (the Peraso Shares), including those Peraso Shares

to be issued in connection with the conversion or exchange of secured convertible debentures and common share purchase warrants of Peraso

Tech, as applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business Corporations Act (Ontario).

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

completed and , the Company changed its name to “Peraso Inc.” and began trading

on the Nasdaq Stock Market (the Nasdaq) under the symbol “PRSO.” For accounting purposes,

Peraso Tech, the legal subsidiary, was treated as the accounting acquirer and the Company, the legal parent, was treated as the accounting

The transaction was accounted for as a reverse acquisition in accordance with Financial Accounting Standards Board (FASB) Accounting

Standards Codification (ASC) 805, Business Combinations .

The accompanying condensed consolidated financial

statements of the Company have been prepared without audit.

The condensed consolidated balance sheet as of December 31, 2022 has been

derived from the audited consolidated financial statements at that date.

Certain information and disclosures normally included in financial

statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted

in accordance with the rules and regulations of the Securities and Exchange Commission (SEC).

The information in this report should

be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its most recent annual

report on Form 10-K filed with the SEC.

In the opinion of management, the accompanying

unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary

to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods presented.

operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected

for the year ending December 31, 2023 or for any other future period.

Liquidity and Going Concern

The Company incurred

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

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

These and prior year losses have resulted in

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

To date, the Company

has primarily financed its operations through multiple offerings of common stock and issuance of convertible notes and loans to investors

and affiliates.

The Company expects

to continue to incur operating losses for the foreseeable future as it secures additional customers and continues to invest in the commercialization

of its products.

The Company will need to increase revenues substantially beyond levels that it has attained in the past in order to

generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time

As a result of the Company’s expected operating losses and cash burn for the foreseeable future, as well as recurring

losses from operations, if the Company is unable to raise sufficient capital through additional debt or equity arrangements, there will

be uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises

substantial doubt as to the Company’s ability to continue as a going concern within one year from the date of issuance of these

condensed consolidated financial statements.

These condensed consolidated financial statements do not include any adjustments that might

result from this uncertainty.

There can be no assurance that such additional capital, whether in the form of debt or equity financing,

will be sufficient or available and, if available, that such capital will be offered on terms and conditions acceptable to the Company.

The Company’s primary focus is producing and selling its products.

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

to implement additional cost reduction strategies, which could further affect its near- and long-term business plan.

These efforts may

include, but are not limited to, reducing headcount and curtailing business activities.

The Company incurred net losses of approximately

$ 7.2 million for the six months ended June 30, 2023 and $ 32.4 million for the year ended December 31, 2022 and had an accumulated deficit

of approximately $ 156.8 million as of June 30, 2023.

These and prior year losses have resulted in significant negative cash flows and

have required the Company to raise substantial amounts of additional capital.

To date, the Company has primarily financed its operations

through multiple offerings of common stock and issuance of convertible notes and loans to investors and affiliates.

The Company expects to continue to incur operating

losses for the foreseeable future as it secures additional customers and continues to invest in the commercialization of its products.

The Company will need to increase revenues substantially beyond levels that it has attained in the past in order to generate sustainable

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

of the Company’s expected operating losses and cash burn for the foreseeable future, as well as recurring losses from operations,

if the Company is unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty regarding

the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to

the Company’s ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial

These condensed consolidated financial statements do not include any adjustments that might result from this uncertainty.

There can be no assurance that such additional capital, whether in the form of debt or equity financing, will be sufficient or available

and, if available, that such capital will be offered on terms and conditions acceptable to the Company.

The Company’s primary focus

is producing and selling its products.

If the Company is unsuccessful in these efforts, it will need to implement additional cost reduction

strategies, which could further affect its near- and long-term business plan.

These efforts may include, but are not limited to, reducing

headcount and curtailing business activities.

Basis of Presentation

condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

All significant intercompany

transactions and balances have been eliminated in consolidation.

The Company’s fiscal year ends on December 31 of each calendar

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.

The condensed consolidated financial statements

include the accounts of the Company and its wholly-owned subsidiaries.

All significant intercompany transactions and balances have been

eliminated in consolidation.

The Company’s fiscal year ends on December 31 of each calendar year.

Certain prior year amounts have

been reclassified for consistency with the current period presentation.

These reclassifications had no effect on the reported results

of operations or cash flows.

Risks and Uncertainties

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.

global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency

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.

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.

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

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.

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

and global economy, disrupted global supply chains, significantly

restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant

disruption of the financial markets.

The full extent of the COVID-19 impact on the Company’s operational and financial performance

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

and foreign government

agencies to prevent disease spread, all of which are uncertain, out of the Company’s control, and cannot be predicted.

Use of Estimates

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.

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

Company has invested its excess cash in money market accounts, certificates of deposit, corporate debt, government-sponsored enterprise

bonds and municipal bonds and considers all highly liquid debt instruments purchased with an original maturity of three months or less

to be cash equivalents.

Investments with original maturities greater than three months and remaining maturities less than one year are

classified as short-term investments.

Investments with remaining maturities greater than one year are classified as long-term investments.

Management generally determines the appropriate classification of securities at the time of purchase.

All securities are classified as

available-for-sale.

The Company’s available-for-sale short-term and long-term investments are carried at fair value, with the unrealized

holding gains and losses reported in accumulated other comprehensive income (loss).

Realized gains and losses and declines in the value

judged to be other-than-temporary are included in the other income, net line item in the condensed consolidated statements of operations.

The 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.

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

investments are carried at fair value, with the unrealized holding gains and losses reported in accumulated other comprehensive income

Realized gains and losses and declines in the value judged to be other-than-temporary are included in the other income, net line

item in the condensed consolidated statements of operations.

The cost of securities sold is based on the specific identification method.

Fair Value Measurements

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

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 liability using Level 3 inputs.

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

Level 1—Inputs used to measure fair value are

unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.

Level 2—Pricing is provided by third party sources

of market information obtained through the Company’s investment advisors, rather than models.

The Company does not adjust for, or

apply, any additional assumptions or estimates to the pricing information it receives from advisors.

The Company’s Level 2

securities include cash equivalents and available-for-sale securities, which consisted primarily of certificates of deposit, corporate

debt, and government agency and municipal debt securities from issuers with high-quality credit ratings.

The Company’s investment

advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation,

and rely on comparable pricing of other securities because the Level 2 securities are not actively traded and have fewer observable

transactions.

The Company considers this the most reliable information available for the valuation of the securities.

Level 3—Unobservable inputs that are supported

by little or no market activity and reflect the use of significant management judgment are used to measure fair value.

These values are

generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

The determination of fair value for Level 3 investments and other financial instruments involves the most management judgment and

subjectivity.

The carrying amounts of financial assets and liabilities,

such as cash and cash equivalents, accounts receivable, accounts payable, and other payables, approximate their fair values because of

the short maturity of these instruments.

The carrying values of lease obligations and long-term financing obligations approximate their

fair values because interest rates on these obligations are based on prevailing market interest rates.

The Company measures the fair value

of its warrant liabilities using Level 3 inputs.

and Liability-Classified Instruments

Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of

the specific terms of the warrants and the guidance provided by the Financial Accounting Standards Board (FASB) in ASC 480 , Distinguishing

Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815) .

The assessment considers whether the warrants

are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the

requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and

whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control,

among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the

time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the specific

terms of the warrants and the guidance provided by the Financial Accounting Standards Board (FASB) in ASC 480 , Distinguishing Liabilities

from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815) .

The assessment considers whether the warrants are freestanding

financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for

equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders

of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions

for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance

and as of each subsequent quarterly period end date while the warrants are outstanding.

Allowance for Doubtful Accounts

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

Delinquent account balances are written off after management has determined that the likelihood of collection is remote.

Company grants credit only to customers deemed creditworthy in the judgment of management.

The allowance for doubtful accounts receivable

was approximately zero as of March 31, 2023 and approximately $ 183,000 as of December 31, 2022.

Company values its inventories at the lower of cost, which approximates actual cost on a first-in, first-out basis, or net realizable

Costs of inventories primarily consisted of material and third party assembly costs.

The Company records inventory reserves for

estimated obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions.

Once a reserve is

established, it is maintained until the product to which it relates is sold or otherwise disposed of.

If actual market conditions are

less favorable than those expected by management, additional adjustment to inventory valuation may be required.

Charges for obsolete

and slow-moving inventories are recorded based upon an analysis of specific identification of obsolete inventory items and quantification

of slow moving inventory items.

The Company recorded write-downs of inventory of approximately $ 361,000 and $ 114,000 during the three

months ended March 31, 2023 and 2022, respectively.

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 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.

The Company establishes an allowance for doubtful

accounts to ensure that its trade receivables balances are not overstated due to uncollectibility.

The Company performs ongoing customer

credit evaluations within the context of the industry in which it operates and generally does not require collateral from its customers.

A specific allowance of up to 100 % of the invoice value is provided for any problematic customer balances.

Delinquent account balances

are written off after management has determined that the likelihood of collection is remote.

The Company grants credit only to customers

deemed creditworthy in the judgment of management.

The allowance for doubtful accounts receivable was approximately $ 30,000 as of June

30, 2023 and approximately $ 183,000 as of December 31, 2022.

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 determined that it had excess and obsolete inventory, primarily related

to its mmWave products, and recorded write-downs of inventory of approximately $ 629,000 and $ 160,000 during the six months ended

June 30, 2023 and 2022, respectively.

If the Company’s recognition of excess or obsolete inventory is, or if its estimates of

inventory’s potential utility become, less favorable than currently expected, additional inventory write-downs may be

Intangible and Long-lived Assets

Intangible assets

are recorded at cost and amortized on a straight-line method over their estimated useful lives of three to ten years .

Amortization of

developed technology and other intangibles directly related to the Company’s products is included in cost of net revenue, while

amortization of customer relationships and other intangibles not associated with the Company’s products is included in SG&A

in the condensed consolidated statements of operations.

The Company regularly

reviews the carrying value and estimated lives of its long-lived assets and finite-lived intangible assets to determine whether indicators

of impairment may exist which warrant adjustments to carrying values or estimated useful lives.

The determinants used for this evaluation

include management’s estimate of the asset’s ability to generate positive income from operations and positive cash flow in

future periods as well as the strategic significance of the assets to the Company’s business objective.

Should an impairment exist,

the impairment loss would be measured based on the excess of the carrying amount of the long-lived asset group over the asset’s

Intangible assets are recorded at cost and amortized

on a straight-line method over their estimated useful lives of three to ten years .

Amortization of developed technology and other intangibles

directly related to the Company’s products is included in cost of net revenue, while amortization of customer relationships and

other intangibles not associated with the Company’s products is included in SG&A in the condensed consolidated statements of

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

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):

Intangible assets acquired in business combinations

are accounted for based on the fair value of assets purchased and are amortized over the period in which economic benefit is estimated

to be received.

Intangible assets subject to amortization, including those acquired in business combinations were as follows (amounts

in thousands):

June 30, 2023

Developed technology

Customer relationships

December 31, 2022

Developed technology

Customer relationships

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 $ 0.4 million for the three months ended March 31, 2023 has been included in cost of net revenue in the condensed

consolidated statements of operations and comprehensive loss.

Customer relationships

relate to the Company’s ability to sell existing and future versions of products to MoSys’ customers existing at the time

of the 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 4 years.

Amortization related to customer relationships of $ 0.2 million for the three months ended March 31, 2023 has been included in selling,

general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

Other amortization

expense was approximately $ 7,000 for the three months ended March 31, 2023.

As of March 31,

2023, estimated future amortization expense related to intangible assets was as follows (in thousands):

Developed technology primarily consisted of MoSys’

products that have reached technological feasibility and primarily relate to its memory semiconductor products and technology.

of the developed technology was determined by discounting estimated net future cash flows of these products.

The Company has revised the

remaining estimated life to 18 months as a result of the end of life for our memory products (see Note 11).

Amortization related to developed

technology of $ 0.4 million and $ 0.9 million for the three and six months ended June 30, 2023, respectively, has been included in cost

of net revenue in the condensed consolidated statements of operations and comprehensive loss.

Customer relationships relate to the Company’s

ability to sell existing and future versions of 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.

has revised the remaining estimated life to 18 months as a result of the end of life announcement on May 1, 2023 (see Note 11).

related to customer relationships of $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2023, respectively, has

been included in selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive

Other amortization expense was approximately $ 7,000

and $ 14,000 for the three and six months ended June 30, 2023, respectively.

As of June 30, 2023, estimated future amortization

expense related to intangible assets was as follows (in thousands):

Year ending December 31,

Revenue Recognition

The Company recognizes

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

As described below,

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

that is materially consistent with the Company’s historical practice of recognizing product revenue when title and risk of loss

pass to the customer.

The Company generates

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

its intellectual property.

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

the Company expects to be entitled to receive in exchange for those goods.

Revenue recognition is evaluated through the following five

(i) identification of the contract, or contracts, with a customer;

The Company recognizes revenue in accordance with

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

As described below, the analysis of contracts

under ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing that is materially consistent

with the Company’s historical practice of recognizing product revenue when title and risk of loss pass to the customer.

The Company generates revenue primarily from sales

of integrated circuits and antenna module products, performance of engineering services and licensing of its intellectual property.

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;

(iii) determination of the transaction

(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.

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.

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

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.

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

The Company estimates its royalty revenue in the calendar quarter in which the licensee uses the licensed technology.

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.

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

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

As of 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 was presented as deferred cost of net revenue in the

condensed consolidated balance sheets.

During the six months ended June 30, 2023, the Company recognized the associated revenue and cost

of net revenue.

During the three

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

606 had not been met.

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

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

During the three months ended March 31, 2023,

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

Contract liabilities

– deferred revenue

The Company’s

contract liabilities consist of advance customer payments and deferred revenue.

The Company classifies advance customer payments and

deferred revenue as current or non-current based on the timing of when the Company expects to recognize revenue.

As of March 31, 2023

and December 31, 2022, contract liabilities were in a current position and included in deferred revenue.

During the three

months ended March 31, 2023, the Company recognized approximately $ 88,000 of revenue that had been included in deferred revenue as of

December 31, 2022.

See Note 5 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

Contract liabilities – deferred revenue

The Company’s contract liabilities consist

of advance customer payments and deferred revenue.

The Company classifies advance customer payments and deferred revenue as current or

non-current based on the timing of when the Company expects to recognize revenue.

As of June 30, 2023 and December 31, 2022, contract

liabilities were in a current position and included in deferred revenue.

During the six months ended June 30, 2023, the

Company recognized approximately $ 157,000 of revenue that had been included in deferred revenue as of December 31, 2022.

See Note 5 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

consists primarily of direct and indirect costs of product sales, including amortization of intangible assets and depreciation of production-related

fixed assets.

Cost of net revenue consists primarily of direct

and indirect costs of product sales, including amortization of intangible assets and depreciation of production-related fixed assets.

Stock-Based Compensation

The Company periodically

issues stock options and restricted stock units to employees and non-employees.

The Company accounts for such awards based on ASC 718,

whereby the value of the award is measured on the date of award and recognized as compensation expense on a straight-line basis over

the vesting period.

The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing (Black

Scholes) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the options,

and future dividends.

The Company periodically issues stock options

and restricted stock units to employees and non-employees.

The Company accounts for such awards based on ASC 505 and ASC 718, whereby

the value of the award is measured on the date of award and recognized as compensation expense on a straight-line basis over the vesting

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

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.

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.

The functional currency of the Company is the

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):

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.

In addition, the Company includes the number of shares of common stock issuable under pre-funded warrants as outstanding.

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):

Escrow shares - exchangeable shares

3 unchanged sentences

Common stock warrants

Issued Accounting Pronouncements

June 2016, the FASB issued Accounting Standards Update (ASU) No.

Recently Issued Accounting Pronouncements

In June 2016, the FASB

issued Accounting Standards Update (ASU) No.

2016-13, Financial Instruments—Credit Losses .

added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred

Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies to most debt

instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments.

The CECL model does not

have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that

have a low risk of loss.

This update is effective for fiscal years beginning after December 15, 2022, including interim periods within

those fiscal years for smaller reporting companies.

The adoption of ASU 2016-13 did not have a significant impact on the Company’s

condensed consolidated financial statement presentation or disclosures.

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.

Fair Value of Financial

following table represents the Company’s assets and liabilities measured at fair value on a recurring basis and the basis for that

measurement (in thousands):

This ASU added a new impairment

model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses.

new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies to most debt instruments, trade

receivables, lease receivables, financial guarantee contracts, and other loan commitments.

The CECL model does not have a minimum threshold

for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss.

This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller

reporting companies.

The Company adopted ASU No.

2016-13 effective January 1, 2023, and the adoption did not have a significant impact

on the Company’s condensed consolidated financial statement presentation or disclosures.

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.

Fair Value of Financial Instruments

The following table represents

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

June 30, 2023

Money market funds (1)

Corporate notes and commercial paper

December 31, 2022

Money market funds (1)

1 unchanged sentence

are included in cash and cash equivalents on the condensed consolidated balance sheets.

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

(in thousands):

The following tables represents the Company’s

determination of fair value for its financial assets (cash equivalents and investments) (in thousands):

June 30, 2023

Cash and cash equivalents

Short-term investments

December 31, 2022

Cash and cash equivalents

Short-term investments

Warrant Classified as Liability

warrant to purchase shares of our common stock at an exercise price of $ 1.00 per share (the Purchase Warrant) was issued on November

30, 2022 in conjunction with a registered direct offering to an institutional investor.

purchase agreement governing the Purchase Warrant provides for a value calculation for the Purchase Warrant using the Black Scholes model

in the event of certain fundamental transactions (as defined in the stock purchase agreement).

The fair value calculation provides for

a floor on the volatility amount utilized in the value calculation at 100 % or greater.

The Company has determined this provision introduces

leverage to the holder of the Purchase Warrant that could result in a value that would be greater than the settlement amount of a fixed-for-fixed

option on the Company’s own equity shares.

Therefore, pursuant to ASC 815, the Company has classified the Purchase Warrant as a

liability in its condensed consolidated balance sheets.

The classification of the Purchase Warrant, including whether the Purchase Warrant

should be recorded as liability or as equity, is evaluated at the end of each reporting period with changes in the fair value reported

in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

fair value of the Purchase Warrant at March 31, 2023 was determined using the Black Scholes model with the following assumptions:

expected term based on the contractual term of 5.4 years, (ii) risk-free interest rate of 4.00 %, which was based on a comparable US Treasury

5-year bond, (iii) expected volatility of 114 % and (iv) an expected dividend of zero .

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

common shares

Balance as of December 31, 2021

Recognition of warrant liability

Change in fair value of warrant

Balance as of December 31, 2022

Change in fair value of warrant

Balance as of March 31, 2023

Balance Sheet Detail

21 unchanged sentences

of a right-of-use asset of approximately $ 124,000 and lease liability of approximately $ 117,000 .

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

following table provides the details of right-of-use assets and lease liabilities as of June 30, 2023 (in thousands):

right-of-use assets

Operating leases

Finance lease

Total right-of-use assets

lease liabilities

Operating leases

Finance lease

Total lease liabilities

Future minimum

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

Year ending December 31,

Total future lease payments

minimum payments under the leases at June 30, 2023 are listed in the table below (in thousands):

ending December 31,

future lease payments

imputed interest

Present value of lease liabilities

The following table

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

Three Months Ended

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

Operating cash flows for leases

Rent expense was

approximately $ 0.2 million for the three-month period ended March 31, 2023.

Rent expense was approximately $ 0.1 million for the three

months ended March 31, 2022.

In addition to the minimum lease payments, the Company is responsible for property taxes, insurance and

certain other operating costs related to the leased facilities and equipment.

value of lease liabilities

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

Cash paid for amounts included in the measurement of

lease liabilities:

cash flows for leases

expense was approximately $ 0.2 million for each of the three-month periods ended June 30, 2023 and 2022.

Rent expense was approximately

$ 0.4 million for each of the six-month periods ended June 30, 2023 and 2022.

In addition to the minimum lease payments, the Company is

responsible for property taxes, insurance and certain other operating costs related to the leased facilities and equipment.

Indemnification

In the ordinary

course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counterparties from any

losses incurred relating to breach of representations and warranties, failure to perform certain covenants, or claims and losses arising

from certain events as outlined within the particular contract, which may include, for example, losses arising from litigation or claims

relating to past performance.

the ordinary course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counterparties

from any losses incurred relating to breach of representations and warranties, failure to perform certain covenants, or claims and losses

arising from certain events as outlined within the particular contract, which may include, for example, losses arising from litigation

or claims relating to past performance.

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

The Company has also entered into

indemnification agreements with its officers and directors.

No material amounts were reflected in the Company’s condensed consolidated

financial statements for the three months ended March 31, 2023 and 2022 related to these indemnifications.

The Company has

not estimated the maximum potential amount of indemnification liability under these agreements due to the limited history of prior claims

and the unique facts and circumstances applicable to each particular agreement.

To date, the Company has not made any payments related

to these indemnification agreements.

Product Warranties

The Company warrants

certain of its products to be free of defects generally for a period of three years.

The Company estimates its warranty costs based on

historical warranty claim experience and includes such costs in cost of net revenues.

Warranty costs were not material for the three

months ended March 31, 2023 and 2022.

Legal Matters

The Company is

not a party to any legal proceeding that the Company believes is likely to have a material adverse effect on its condensed consolidated

financial position or results of operations.

From time to time the Company may be subject to legal proceedings and claims in the ordinary

course of business.

These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion

of management efforts.

Business Segments, Concentration

of Credit Risk and Significant Customers

The Company determined

its reporting units in accordance with ASC 280, Segment Reporting (ASC 280).

Management evaluates a reporting unit by first identifying

its operating segments under ASC 280.

The Company then evaluates each operating segment to determine if it includes one or more components

that constitute a business.

If there are components within an operating segment that meet the definition of a business, the Company evaluates

those components to determine if they must be aggregated into one or more reporting units.

If applicable, when determining if it is appropriate

to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating

segments are aggregated.

Management has

determined that the Company has one consolidated operating segment.

The Company’s reporting segment reflects the manner in which

its chief operating decision maker reviews results and allocates resources.

The Company has also

entered into indemnification agreements with its officers and directors.

No material amounts were reflected in the Company’s condensed

consolidated financial statements for the six months ended June 30, 2023 and 2022 related to these indemnifications.

Company has not estimated the maximum potential amount of indemnification liability under these agreements due to the limited history

of prior claims and the unique facts and circumstances applicable to each particular agreement.

To date, the Company has not made any

payments related to these indemnification agreements.

Company warrants certain of its products to be free of defects generally for a period of three years.

The Company estimates its warranty

costs based on historical warranty claim experience and includes such costs in cost of net revenues.

Warranty costs were not material

for the six months ended June 30, 2023 and 2022.

Company is not a party to any legal proceeding that the Company believes is likely to have a material adverse effect on its condensed

consolidated financial position or results of operations.

From time to time the Company may be subject to legal proceedings and claims

in the ordinary course of business.

These claims, even if not meritorious, could result in the expenditure of significant financial resources

and diversion of management efforts.

Company’s primary purchase obligations include non-cancelable purchase orders for inventory and computer-aided-design (CAD) software.

At June 30, 2023, the Company had outstanding non-cancelable purchase orders for inventory, primarily wafers and substrates, and related

expenditures of approximately $ 2.2 million and non-cancelable purchase orders for CAD software of $ 2.9 million.

Business Segments, Concentration of Credit Risk and Significant Customers

Company determined its reporting units in accordance with ASC 280, Segment Reporting (ASC 280).

Management evaluates a reporting

unit by first identifying its operating segments under ASC 280.

The Company then evaluates each operating segment to determine if it

includes one or more components that constitute a business.

If there are components within an operating segment that meet the definition

of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units.

If applicable,

when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically

similar and, if so, the operating segments are aggregated.

has determined that the Company has one consolidated operating segment.

The Company’s reporting segment reflects the manner in

which its chief operating decision maker reviews results and allocates resources.

The Company’s reporting segment meets the definition

2 unchanged sentences

location as follows (in thousands):

Three Months Ended

United States

Rest of world

Total net revenue

The following is

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

(amounts in thousands)

Months Ended March 31,

Product category

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

in thousands)

mmWave antenna modules

mmWave other products

Customers who accounted

for at least 10 % of total net revenue were:

Three Months Ended

other products

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

* Represents less than 10 %

As of March 31,

2023, three customers accounted for 77 % of accounts receivable.

Four customers accounted for 79 % of accounts receivable as of December

of June 30, 2023, one customer accounted for 74 % of accounts receivable.

Four customers accounted for 79 % of accounts receivable as of

December 31, 2022.

Stock-Based Compensation

Common Stock Equity Plans

In 2010, the Company

adopted the 2010 Equity Incentive Plan and later amended it in 2014, 2017 and 2018 (the Amended 2010 Plan).

The Amended 2010 Plan was

terminated in August 2019 and remains in effect as to outstanding equity awards granted prior to the date of expiration.

No new awards

may be made under the Amended 2010 Plan.

In August 2019,

the Company’s stockholders approved the 2019 Stock Incentive Plan (the 2019 Plan) to replace the Amended 2010 Plan.

The 2019 Plan

authorizes the board of directors or the compensation committee of the board of directors to grant a broad range of awards including

stock options, stock appreciation rights, restricted stock, performance-based awards, and restricted stock units.

Under the 2019 Plan,

182,500 shares were initially reserved for issuance.

In November 2021, in connection with the approval of the Arrangement, the Company’s

stockholders approved an amendment increasing the number of shares reserved for issuance under the 2019 Plan by 3,106,937 shares.

Under the 2019

Plan, the term of all incentive stock options granted to a person who, at the time of grant, owns stock representing more than 10 % of

the voting power of all classes of the Company’s stock may not exceed five years .

The exercise price of stock options granted under

the 2019 Plan must be at least equal to the fair market value of the shares on the date of grant.

Generally, awards under the 2019 Plan

will vest over a three to four-year period, and options will have a term of 10 years from the date of grant.

In addition, the 2019 Plan

provides for automatic acceleration of vesting for options granted to non-employee directors upon a change of control of the Company.

In connection with

the Arrangement, the Company assumed the Peraso Technologies Inc.

2009 Share Option Plan (the 2009 Plan) and all outstanding options

granted pursuant to the terms of the 2009 Plan.

Each outstanding, unexercised and unexpired option under the 2009 Plan, whether vested

or unvested, was assumed by the Company and converted into options to purchase shares of the Company’s common stock No further

Stock Equity Plans

2010, the Company adopted the 2010 Equity Incentive Plan and later amended it in 2014, 2017 and 2018 (the Amended 2010 Plan).

2010 Plan was terminated in August 2019 and remains in effect as to outstanding equity awards granted prior to the date of expiration.

No new awards may be made under the Amended 2010 Plan.

August 2019, the Company’s stockholders approved the 2019 Stock Incentive Plan (the 2019 Plan) to replace the Amended 2010 Plan.

The 2019 Plan authorizes the board of directors or the compensation committee of the board of directors to grant a broad range of awards

including stock options, stock appreciation rights, restricted stock, performance-based awards, and restricted stock units.

2019 Plan, 182,500 shares were initially reserved for issuance.

In November 2021, in connection with the approval of the Arrangement,

the Company’s stockholders approved an amendment increasing the number of shares reserved for issuance under the 2019 Plan by 3,106,937

the 2019 Plan, the term of all incentive stock options granted to a person who, at the time of grant, owns stock representing more than

10 % of the voting power of all classes of the Company’s stock may not exceed five years .

The exercise price of stock options granted

under the 2019 Plan must be at least equal to the fair market value of the shares on the date of grant.

Generally, awards under the 2019

Plan will vest over a three to four-year period, and options will have a term of 10 years from the date of grant.

In addition, the 2019

Plan provides for automatic acceleration of vesting for options granted to non-employee directors upon a change of control of the Company.

connection with the Arrangement, the Company assumed the Peraso Technologies Inc.

2009 Share Option Plan (the 2009 Plan) and all outstanding

options granted pursuant to the terms of the 2009 Plan.

Each outstanding, unexercised and unexpired option under the 2009 Plan, whether

vested or unvested, was assumed by the Company and converted into options to purchase shares of the Company’s common stock No further

awards will be made under the 2009 Plan.

The 2009 Plan,

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

Stock-Based Compensation Expense

The Company reflected

compensation costs of $ 1.1 million related to the vesting of stock options during each of the three-month periods ended March 31, 2023

and 2022, respectively.

At March 31, 2023, the unamortized compensation cost was approximately $ 6.6 million related to stock options

and is expected to be recognized as expense over a weighted average period of approximately 1.6 years.

The Company reflected compensation

costs of $ 0.2 million and $ 0.1 million related to the vesting of restricted stock during the three months ended March 31, 2023 and 2022,

respectively.

The unamortized compensation cost at March 31, 2023 was $ 1.8 million related to restricted stock units and is expected

to be recognized as expense over a weighted average period of approximately 1.8 years.

There were no stock options granted or exercised

during the three months ended March 31, 2023 and 2022.

Common Stock Options and Restricted

The term of all

incentive stock options granted to a person who, at the time of grant, owns stock representing more than 10 % of the voting power of all

classes of the Company’s stock may not exceed five years.

The exercise price of stock options granted under the 2019 Plan must

be at least equal to the fair market value of the shares on the date of grant.

Generally, options granted under the 2019 Plan will vest

over a three to four-year period and have a term of 10 years from the date of grant.

In addition, the 2019 Plan provides for automatic

acceleration of vesting for options granted to non-employee directors upon a change of control (as defined in the 2019 Plan) of the Company.

The following table

summarizes the activity in the shares available for grant under the Plans during the three months ended March 31, 2023 (in thousands,

except exercise price):

Balance as of December 31, 2022

RSUs cancelled and returned to the Plans

Options cancelled

Balance as of March 31, 2023

A summary of RSU

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

Non-vested shares as of December 31, 2022

Non-vested shares as of March 31, 2023

The following table

summarizes significant ranges of outstanding and exercisable options as of March 31, 2023 (in thousands, except contractual life and

exercise price):

Range of Exercise Price

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

Compensation Expense

Company reflected compensation costs of $ 2.1 million and $ 2.2 million related to the vesting of stock options during each of the six-month

periods ended June 30, 2023 and 2022, respectively.

At June 30, 2023, the unamortized compensation cost was approximately $ 5.6 million

related to stock options and is expected to be recognized as expense over a weighted average period of approximately 1.4 years.

reflected compensation costs of $ 0.5 million and $ 0.7 million related to the vesting of restricted stock during the six months ended

June 30, 2023 and 2022, respectively.

The unamortized compensation cost at June 30, 2023 was $ 1.6 million related to restricted stock

units and is expected to be recognized as expense over a weighted average period of approximately 1.6 years.

There were no stock options

granted or exercised during the six months ended June 30, 2023 and 2022.

Stock Options and Restricted Stock

term of all incentive stock options granted to a person who, at the time of grant, owns stock representing more than 10 % of the voting

power of all classes of the Company’s stock may not exceed five years.

The exercise price of stock options granted under the 2019

Plan must be at least equal to the fair market value of the shares on the date of grant.

Generally, options granted under the 2019 Plan

will vest over a three to four-year period and have a term of 10 years from the date of grant.

In addition, the 2019 Plan provides for

automatic acceleration of vesting for options granted to non-employee directors upon a change of control (as defined in the 2019 Plan)

of the Company.

following table summarizes the activity in the shares available for grant under the Plans during the six months ended June 30, 2023 (in

thousands, except exercise price):

as of December 31, 2022

cancelled and returned to the Plans

as of March 31, 2023

cancelled and returned to the Plans

as of June 30, 2023

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

shares as of December 31, 2022

shares as of March 31, 2023

shares as of June 30, 2023

following table summarizes significant ranges of outstanding and exercisable options as of June 30, 2023 (in thousands, except contractual

life and exercise price):

of Exercise Price

$ 1.57 - $ 14.99

4 unchanged sentences

$ 1.57 - $ 924.00

Exchangeable Shares and Preferred

Shares and Preferred Stock

discussed in Note 1, on December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement,

90 unchanged sentences

the Company’s financial statements.

The Exchangeable

Shares, which can be converted into common stock at the option of the holder and have the same voting and dividend rights as common stock,

are similar in substance to shares of common stock.

Further, Canco and Callco are non-substantive entities, which are looked through

with the Exchangeable Shares being, in substance, common stock of the Company.

Therefore, the Exchangeable Shares have been included

in the determination of outstanding common stock.

The Special Voting Share was issued to a third-party administrative agent (the Agent)

solely to facilitate the exercise of rights by holders of Exchangeable Shares, The rights of the Agent, as holder of the Special Voting

Share, are limited to effecting the rights of the holders of the Exchangeable Shares;

the Special Voting Share does not confer any independent

rights to the Agent.

Under the Certificate, when all of the Exchangeable shares have been converted into shares of the Company’s

common stock, the Special Voting Share shall be automatically cancelled and shall not be reissued.

As of March 31,

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

Exchangeable Shares, which can be converted into common stock at the option of the holder and have the same voting and dividend rights

as common stock, are similar in substance to shares of common stock.

Further, Canco and Callco are non-substantive entities, which are

looked through with the Exchangeable Shares being, in substance, common stock of the Company.

Therefore, the Exchangeable Shares have

been included in the determination of outstanding common stock.

The Special Voting Share was issued to a third-party administrative agent

(the Agent) solely to facilitate the exercise of rights by holders of Exchangeable Shares, The rights of the Agent, as holder of the

Special Voting Share, are limited to effecting the rights of the holders of the Exchangeable Shares;

the Special Voting Share does not

confer any independent rights to the Agent.

Under the Certificate, when all of the Exchangeable shares have been converted into shares

of the Company’s common stock, the Special Voting Share shall be automatically cancelled and shall not be reissued.

2023 Registered Direct Offering

May 31, 2023, the Company entered into a securities purchase agreement (the SPA) with an institutional investor (the Investor), pursuant

to which the Company sold to the Investor, in a registered direct offering that closed on June 2, 2023, an aggregate of 2,250,000 shares

of common stock at a purchase price of $ 0.70 per share.

The Company also offered and sold to the Investor pre-funded warrants to purchase

up to 3,464,286 shares of common stock (the 2023 PF Warrants).

Each pre-funded warrant is exercisable for one share of common stock.

The purchase price of each pre-funded warrant was $ 0.69 , and the exercise price of each pre-funded warrant is $ 0.01 per share.

PF Warrants were immediately exercisable and may be exercised at any time until all of such pre-funded warrants are exercised in full.

In June 2023, the Investor exercised a portion of the 2023 PF Warrants and purchased 967,286 shares of common stock.

Net proceeds to

the Company from the registered direct offering, after offering costs, were approximately $ 3.6 million.

In connection with the execution

of the SPA, the Company and the Investor entered into an amendment (the Amendment) to the 2022 Purchase Warrant.

Pursuant to the terms

of the Amendment, the 2022 Purchase Warrant was amended to reduce the exercise price per share from $ 1.36 to $ 1.00 , effective as of June

a concurrent private placement that closed on June 2, 2023, the Company also sold to the Investor a warrant to purchase up to 5,714,286

shares of common stock (the 2023 Purchase Warrant).

The 2023 Purchase Warrant was immediately exercisable at an exercise price of $ 0.70

per share and has a five-year term.

As discussed in Note 8, the 2023 Purchase Warrant is accounted for as a liability.

Fair value of

the warrants at the date of issuance was determined to be $ 3,162,401 and was accounted for as a cost of the offering.

2022 Registered Direct Offering

November 28, 2022, the Company entered into a securities purchase agreement with the Investor, pursuant to which the Company sold to

the Investor, in a registered direct offering that closed on November 30, 2022, an aggregate of 1,300,000 shares of common

stock at a negotiated purchase price of $ 1.00 per share.

The Company also offered and sold to the investor pre-funded warrants to

purchase up to 1,150,000 shares of common stock.

Each pre-funded warrant was exercisable for one share of common stock.

purchase price of each pre-funded warrant was $ 0.99 , and the exercise price of each pre-funded warrant is $ 0.01 per share.

The pre-funded

warrants were exercised in full by the Investor in April 2023.

Net proceeds to the Company from the registered direct offering, after

offering costs, were approximately $ 2.1 million.

a concurrent private placement, the Company also sold to the Investor a warrant to purchase up to 3,675,000 shares of common

stock (the 2022 Purchase Warrant).

The 2022 Purchase Warrant became exercisable on May 29, 2023 at an exercise price of $ 1.36 per

share and will expire on the five-year anniversary of that date.

discussed in Note 8, the 2022 Purchase Warrant is accounted for as a liability.

of June 30, 2023, the Company had the following equity-classified warrants outstanding (share amounts in thousands):

Balance as of December 31, 2022

Balance as of March 31, 2023

Pre-funded warrants issued

warrants exercised

Balance as of June 30,

unexercised 2,497,000 shares of the 2023 PF Warrant were included in the weighted average shares outstanding calculation for the three

and six months ended June 30, 2023.

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

the six months ended June 30, 2023, approximately 33,000 warrants expired.

Warrants Classified as Liabilities

2023 Purchase Warrant and the 2022 Purchase Warrant (collectively, the Purchase Warrants) provide for a value calculation using the Black

Scholes model in the event of certain fundamental transactions, as defined in the Purchase Warrants.

The fair value calculation provides

for a floor on the volatility amount utilized in the value calculation at 100 % or greater.

The Company has determined that this provision

introduces leverage to the holder(s) of the Purchase Warrants that could result in a value that would be greater than the settlement

amount of a fixed-for-fixed option on the Company’s own equity shares.

Therefore, pursuant to ASC 815, the Company has classified

the Purchase Warrants as liabilities in its condensed consolidated balance sheets.

The classification of the Purchase Warrants, including

whether the Purchase Warrants should be recorded as liabilities or as equity, is evaluated at the end of each reporting period with changes

in the fair value reported in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

June 2, 2023, the 2023 Purchase Warrant was initially recorded at a fair value at $ 3,162,401 , and, as of June 30, 2023, the fair value

of the warrant liability was reduced to $ 2,246,365 .

As a result, the Company recorded a gain for the three months ended June 30, 2023

for the change in fair value of the 2023 Purchase Warrant.

fair value of the Purchase Warrants at June 30, 2023 was determined using the Black Scholes model with the following assumptions:

expected term based on the remaining contractual terms, (ii) risk-free interest rate of 4.16%, which was based on a comparable US Treasury

5-year bond, (iii) expected volatility of 118% and (iv) an expected dividend of zero.

of June 30, 2023, the Company had the following liability-classified warrants outstanding (amounts in thousands):

common shares

as of December 31, 2021

2022, the Company had the following equity-classified warrants outstanding (share amounts in thousands):

During the three

months ended March 31, 2023, approximately 33,000 warrants expired.

of warrant liability

in fair value of warrant

as of December 31, 2022

in fair value of warrant

as of March 31, 2023

of warrant liability

in fair value of warrants

as of June 30, 2023

9 Related Party Transactions

A family member

of one of the Company’s executive officers served as a consultant to the Company during 2022.

During the three months ended March

31, 2022, the Company incurred consulting expenses of approximately $ 46,700 for the family member.

Additionally, a family member of one

of the Company’s executive officers is an employee of the Company.

During the three months ended March 31, 2023 and 2022, the Company

recorded compensation expense of approximately $ 27,800 and $ 25,600 , respectively, for the employed family member .

family member of one of the Company’s executive officers served as a consultant to the Company during 2022.

During the six months

ended June 30, 2022, the Company incurred consulting expenses of approximately $ 92,200 for the family member.

Additionally, a family

member of one of the Company’s executive officers is an employee of the Company.

During the six months ended June 30, 2023 and

2022, the Company recorded compensation expense of approximately $ 55,800 and $ 69,700 , respectively, for the employed family member .

License and Asset Sale Transaction

On August 5, 2022,

the Company entered into a Technology License and Patent Assignment Agreement (the Intel Agreement) with Intel Corporation (Intel), pursuant

to which Intel:

(i) licensed from the Company, on an exclusive basis, certain software and technology assets related to the Company’s

Stellar packet classification intellectual property, including its graph memory engine technology, and any roadmap variant, in the form

existing as of the date of the Agreement (the Licensed Technology);

(ii) acquired from the Company certain patent applications and patents

owned by the Company;

and (iii) assumed a professional services agreement, dated March 24, 2020, between Fabulous Inventions AB (Fabulous)

and the Company (the Fabulous Agreement), pursuant to which, among other things, the Company licensed from Fabulous certain technology

incorporated into the Licensed Technology.

As consideration

for the Company to enter into the Agreement, Intel agreed to pay the Company $ 3,062,500 at the closing of the transaction (the Closing)

and $ 437,500 (the Holdback) upon the satisfaction by the Company, as mutually agreed upon by the parties in good faith, of certain release

criteria set forth in the Agreement relating to various due diligence activities of Intel regarding the Licensed Technology (the Release

The Company determined

that the license and asset sale did not qualify as a sale of a business, but as a sale of a non-financial asset, with the resultant gain

recorded as income from operations in accordance with ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial

During the year ended December 31, 2022, the Company recognized a $ 2.6 million gain on this transaction, net of transaction

During the three months ended March 31, 2023, Intel paid the Holdback, and the Company recognized a $ 0.4 million gain, net of

transaction costs, which was recorded as a reduction of operating expenses in the condensed consolidated statements of operations and

comprehensive loss.

Subsequent Events

Warrant Exercise

In April 2023,

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

per share of common stock.

August 5, 2022, the Company entered into a Technology License and Patent Assignment Agreement (the Intel Agreement) with Intel Corporation

(Intel), pursuant to which Intel:

(i) licensed from the Company, on an exclusive basis, certain software and technology assets related

to the Company’s Stellar packet classification intellectual property, including its graph memory engine technology, and any roadmap

variant, in the form existing as of the date of the Agreement (the Licensed Technology);

(ii) acquired from the Company certain patent

applications and patents owned by the Company;

and (iii) assumed a professional services agreement, dated March 24, 2020, between Fabulous

Inventions AB (Fabulous) and the Company (the Fabulous Agreement), pursuant to which, among other things, the Company licensed from Fabulous

certain technology incorporated into the Licensed Technology.

consideration for the Company to enter into the Agreement, Intel agreed to pay the Company $ 3,062,500 at the closing of the transaction

(the Closing) and $ 437,500 (the Holdback) upon the satisfaction by the Company, as mutually agreed upon by the parties in good faith,

of certain release criteria set forth in the Agreement relating to various due diligence activities of Intel regarding the Licensed Technology

(the Release Criteria).

Company determined that the license and asset sale did not qualify as a sale of a business, but as a sale of a non-financial asset, with

the resultant gain recorded as income from operations in accordance with ASC 610-20, Other Income - Gains and Losses from the Derecognition

of Nonfinancial Assets .

During the year ended December 31, 2022, the Company recognized a $ 2.6 million gain on this transaction,

net of transaction costs.

During the six months ended June 30, 2023, Intel paid the Holdback, and the Company recognized a $ 0.4 million

gain, net of transaction costs, which was recorded as a reduction of operating expenses in the condensed consolidated statements of operations

and comprehensive loss.

Memory IC Product End-of-Life

Semiconductor Manufacturing Corporation, or TSMC, is the sole foundry that manufactures the wafers used to produce the Company’s

Semiconductor Manufacturing Corporation (TSMC), is the sole foundry that manufactures the wafers used to produce the Company’s

memory IC products.

1 unchanged sentence

necessary to manufacture the Company’s memory ICs.

As a result, effective May 1, 2023, the Company began informing its memory IC

customers that the Company would be initiating an end-of-life, or EOL, of its memory IC products.

The Company has notified its customers

to provide purchase orders during 2023 that the Company expects to fulfill during 2024.

However, the timing of EOL shipments will be

dependent on deliveries from the Company’s suppliers, as well as the delivery schedules requested by customers.

As a result, in May 2023, the Company informed its customers that the Company

would be initiating an end-of-life (EOL) of its memory IC products.

The Company has notified its customers to provide purchase orders

during 2023 that the Company expects to fulfill during 2024 and into 2025.

However, the timing of EOL shipments will be dependent on

receipt of customer purchase orders, deliveries from the Company’s suppliers and the delivery schedules requested by customers.

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 1. Financial Statements