What changed in this filing

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Item 1. Financial Statements

2023-11-13 compared with 2023-08-14 · 603 added, 485 removed, 423 unchanged (72% of the section changed)

2 unchanged sentences

(In thousands, except par value)

September 30,

Current assets

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one share authorized;

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

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

Common stock, $ 0.001 par value;

120,000 shares authorized;

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

25,308 shares and 14,270 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

Exchangeable shares, no par value;

unlimited shares authorized;

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

5,106 shares and 9,107 shares outstanding at September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Royalty and other

8 unchanged sentences

Change in fair value of warrant liabilities

Other expense, net

Other income/(expense), net

Other comprehensive loss, net of tax:

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Comprehensive

as of December 31,

Balance as of December 31, 2022

$ ( 149,597 )

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

Exchange of exchangeable shares

Stock-based compensation

Unrealized gain on available-for-sale securities

Balance as of March 31, 2023

Exchange of exchangeable shares

Issuance of common stock under stock plan, net

Sale of common stock and warrants

Issuance of common stock upon exercise of warrants

Initial recognition of fair value of warrant liability

Stock-based compensation

Unrealized gain on available-for-sale securities

Balance as of June 30, 2023

Exchange of exchangeable shares

Issuance of common stock under stock plan, net

Issuance of common stock upon exercise of warrants

Stock-based compensation

Unrealized gain on available-for-sale securities

Balance as of September 30, 2023

$ ( 157,454 )

A Special Voting

Series A Special Voting

Preferred Stock

Exchangeable Shares

Comprehensive

as of December 31,

Balance as of December 31, 2021

$ ( 117,199 )

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

Exchange of exchangeable shares

Issuance of common stock under stock plan, net

Stock-based compensation

Unrealized loss on available-for-sale securities

Balance as of March 31, 2022

Issuance of common stock under stock plan, net

Stock-based compensation

Unrealized loss on available-for-sale securities

Balance as of June 30, 2022

Exchange of exchangeable shares

Issuance of common stock under stock plan, net

Stock-based compensation

Unrealized gain on available-for-sale securities

Balance as of September 30, 2022

$ ( 135,004 )

3 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

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Prepaid expenses and other assets

Deferred cost of net revenue

Accounts payable

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Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

Recognition of right-of-use asset and lease liability

Unrealized gain on securities

Unrealized (gain) loss on securities

The accompanying notes are an integral part of

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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).

licensees of its memory technology.

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

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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

operating results for the three and nine months ended September 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.

1 unchanged sentence

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.

$ 7.9 million for the nine months ended September 30, 2023 and $ 32.4 million for the year ended December 31, 2022 and had an accumulated

deficit of approximately $ 157.5 million as of September 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 offerings of equity and equity-linked securities, issuance of convertible notes and loans.

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.

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

the Company expects its cash expenditures to continue to exceed receipts for the foreseeable future, as its revenues will not be sufficient

to offset its operating expenses.

The Company will need to increase revenues substantially

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

doing business without raising additional capital from time to time.

As a result of the Company’s expected operating

losses and cash burn for the foreseeable future, as well as recurring losses from operations, if the Company is unable to raise sufficient

capital through additional debt or equity arrangements, there will be uncertainty regarding the Company’s ability to maintain liquidity

sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going

concern within one year from the date of issuance of these condensed consolidated financial statements.

The Company’s independent registered public

accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2022, expressed

substantial doubt about the Company’s ability to continue as a going concern.

These condensed consolidated financial statements

do not include any adjustments that might result from this uncertainty.

There can be no assurance that such additional capital, whether

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

and conditions acceptable to the Company.

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

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

The Company believes that

its existing cash and cash equivalents as of September 30, 2023, plus expected receipts associated with product sales, will provide the

Company with liquidity to fund its planned operating needs into the first quarter of 2024.

Basis of Presentation

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customer requirements, limited operating history and the volatility of public markets.

COVID-19 and World Unrest

The global outbreak of the coronavirus disease

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government in March 2020.

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.

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.

national emergency expired in May 2023 and substantially all closures and “shelter-in-place” orders have ended, there

can be no assurance that the COVID-19 pandemic will not impact the Company’s operational and financial performance in the future,

as the duration and spread of the pandemic and related actions taken by U.S.

and foreign government agencies to prevent disease spread

are uncertain, out of the Company’s control, and cannot be predicted.

World unrest due to wars and terrorist attacks

have led to further economic disruptions.

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

Since mid-2022, the U.S.

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

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

available to the Company on terms that could be significantly detrimental to the Company’s existing stockholders and to the Company’s

Use of Estimates

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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.

write-downs, impairment of long-term assets, valuation allowance on deferred tax assets, accruals for potential liabilities and assumptions

made in valuing equity instruments.

Actual results could differ from those estimates.

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deemed creditworthy in the judgment of management.

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

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

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

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

$ 793,000 and $ 420,000 during the nine months ended September 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 required.

Intangible and Long-lived Assets

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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

other intangibles not associated with the Company’s products is included in selling, general and administrative expense in the condensed

consolidated statements of operations.

The Company regularly reviews the carrying value

12 unchanged sentences

in thousands):

June 30, 2023

September 30, 2023

Developed technology

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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.

technology of $ 0.6 million and $ 1.4 million for the three and nine months ended September 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

ability to sell existing and future versions of its products to MoSys’ customers existing at the time of the arrangement.

value of the customer relationships was determined by discounting estimated net future cash flows from the customer relationships.

Company has revised the amortization period to conclude on December 31, 2024, as a result of the end-of-life announcement on May 1, 2023

(see Note 11).

Amortization related to customer relationships of $ 0.2 million and $ 0.6 million for the three and nine months ended September

30, 2023, respectively, has been included in selling, general and administrative expense in the condensed consolidated statements of operations

and comprehensive loss.

Other amortization expense was approximately $ 6,000

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

As of June 30, 2023, estimated future amortization

and $ 20,000 for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2023, estimated future amortization

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

Year ending December 31,

To date, as of September 30, 2023, the Company

has not identified any intangible asset impairments.

However, current macroeconomic conditions, which have been impacted by inflation

and other world unrest, could negatively impact our business and stock price and trigger the Company to test for impairment.

will continue to evaluate for impairment indicators, as necessary, on a quarterly basis.

Revenue Recognition

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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.

the cost of net revenue of $ 600,000 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

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

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

As of September 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.

During the nine months ended September 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.

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that were excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive (in thousands):

September 30,

Escrow shares - exchangeable shares

4 unchanged sentences

Recently Issued Accounting Pronouncements

In June 2016, the FASB

issued Accounting Standards Update (ASU) No.

2016-13, Financial Instruments—Credit Losses .

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.

Management does not believe that there are currently

any 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

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):

September 30, 2023

Money market funds (1)

Corporate notes and commercial paper

December 31, 2022

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Corporate notes and commercial paper

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

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

The following tables represents the Company’s

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

June 30, 2023

September 30, 2023

Cash and cash equivalents

Short-term investments

December 31, 2022

2 unchanged sentences

Balance Sheet Detail

September 30,

(in thousands)

3 unchanged sentences

Commitments and Contingencies

Company has facility leases that it accounts for under ASC 842, including the operating leases for its corporate headquarters facility

in San Jose, California, and facilities in Toronto and Markham Ontario, Canada.

The San Jose and Toronto leases expire in January 2024

and December 2023, respectively.

In May 2022, the Company entered into a new lease for the facility in Markham with a 60-month term,

which commenced June 21, 2022.

The Markham landlord also provided a lease incentive of approximately $ 220,000 (the Incentive), which

will be payable to the Company as follows:

one-half of the Incentive payable subsequent to the completion of the improvements to the

leased space and the second half-ratably on an annual basis commencing with the second year of the lease.

initial right-of-use assets and corresponding liabilities of approximately $ 1.0 million for the San Jose and Markham facility leases

were measured at the present value of the future minimum lease payments.

The discount rate used to measure the lease assets and liabilities

March 1, 2022, the Company entered into a 36-month finance lease agreement for the lease of equipment resulting in the recognition of

a right-of-use asset and lease liability of approximately $ 274,000 .

November 1, 2022, the Company entered into a 36-month finance lease agreement for the lease of equipment resulting in the recognition

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 June 30, 2023 (in thousands):

The Company has facility

leases that it accounts for under ASC 842, including the operating leases for its corporate headquarters facility in San Jose, California,

and facilities in Toronto and Markham Ontario, Canada.

The San Jose and Toronto leases expire in January 2024 and December 2023, respectively.

In May 2022, the Company entered into a new lease for the facility in Markham with a 60-month term, which commenced June 21, 2022.

Markham landlord also provided a lease incentive of approximately $ 220,000 (the Incentive), which will be payable to the Company as follows:

one-half of the Incentive payable subsequent to the completion of the improvements to the leased space and the second half-ratably on

an annual basis commencing with the second year of the lease.

The initial right-of-use

assets and corresponding liabilities of approximately $ 1.0 million for the San Jose and Markham facility leases were measured at the present

value of the future minimum lease payments.

The discount rate used to measure the lease assets and liabilities was 8 %.

On March 1, 2022, the

Company entered into a 36-month finance lease agreement for the lease of equipment resulting in the recognition of a right-of-use asset

and lease liability of approximately $ 274,000 .

On November 1, 2022,

the Company entered into a 36-month finance lease agreement for the lease of equipment resulting in the recognition of a right-of-use

asset of approximately $ 124,000 and lease liability of approximately $ 117,000 .

The following table provides

the details of right-of-use assets and lease liabilities as of September 30, 2023 (in thousands):

Nine Months Ended

September 30,

Right-of-use assets:

Operating leases

Finance lease

Total right-of-use assets

Lease liabilities:

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

ending December 31,

future lease payments

Operating leases

Finance lease

Total lease liabilities

Future minimum payments under the leases at September

30, 2023 are listed in the table below (in thousands):

Operating and Finance

Year ending December 31,

Remainder of 2023

Total future lease payments

imputed interest

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.

Present value of lease liabilities

The following table provides the details of supplemental

cash flow information (in thousands):

Nine Months Ended

September 30,

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

Operating cash flows for leases

Rent expense was approximately $ 0.2 million for

each of the three-month periods ended September 30, 2023 and 2022.

Rent expense was approximately $ 0.6 million for each of the nine-month

periods ended September 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

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.

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.

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 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

of an operating segment and does not include the aggregation of multiple operating segments.

Company recognized revenue from shipments of product, licensing of its technologies and performance of services to customers by geographical

location as follows (in thousands):

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

in thousands)

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 nine months ended September 30, 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 nine months ended September 30, 2023

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.

Purchase Obligations

The Company’s primary

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

At September 30, 2023,

the Company had outstanding non-cancelable purchase orders for inventory, primarily wafers and substrates, and related expenditures of

approximately $ 2.3 million and non-cancelable purchase orders for CAD software of $ 3.1 million.

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

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’s reporting segment meets the definition of an operating segment and does not

include the aggregation of multiple operating segments.

The Company recognized revenue from shipments

of product, licensing of its technologies and performance of services to customers by geographical location as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

United States

Rest of world

Total net revenue

The following is a breakdown of product revenue

by category (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Product category

mmWave antenna modules

other products

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

mmWave other products

Customers who accounted for at least 10 % of total

net revenue were:

Three Months Ended

Nine Months Ended

September 30,

* Represents less than 10 %

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.

As of September 30, 2023, two customers accounted

for 82 % of accounts receivable.

Four customers accounted for 79 % of accounts receivable as of December 31, 2022.

Stock-Based Compensation

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.

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.

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.

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

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

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 awards will be made under the 2009

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 $ 3.1

million and $ 3.4 million related to the vesting of stock options during each of the nine-month periods ended September 30, 2023 and 2022,

respectively.

At September 30, 2023, the unamortized compensation cost was approximately $ 4.4 million related to stock options and is

expected to be recognized as expense over a weighted average period of approximately 1.2 years.

The Company reflected compensation costs

of $ 0.8 million and $ 1.0 million related to the vesting of restricted stock during the nine months ended September 30, 2023 and 2022,

respectively.

The unamortized compensation cost at September 30, 2023 was $ 1.3 million related to restricted stock units and is expected

to be recognized as expense over a weighted average period of approximately 1.3 years.

There were no stock options granted or exercised

during the nine months ended September 30, 2023 and 2022.

Common Stock Options and Restricted Stock

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 nine months ended September 30, 2023 (in thousands, except exercise price):

Options Outstanding

Balance as of December 31, 2022

RSUs cancelled and returned to the Plans

Options cancelled

Balance as of March 31, 2023

RSUs cancelled and returned to the Plans

Options cancelled

Balance as of June 30, 2023

RSUs cancelled and returned to the Plans

Options cancelled

Balance as of September 30, 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

Non-vested shares as of June 30, 2023

Non-vested shares as of September 30, 2023

The following table summarizes significant ranges

of outstanding and exercisable options as of September 30, 2023 (in thousands, except contractual life and exercise price):

Options Outstanding

Options Exercisable

Range of Exercise Price

$ 1.57 - $ 14.99

3 unchanged sentences

$ 1.57 - $ 924.00

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,

the Arrangement was completed.

Pursuant to the completion of the Arrangement, each Peraso Share that was issued and outstanding immediately

prior to December 17, 2021 was converted into either newly issued shares of common stock of the Company or shares of Canco, which are

exchangeable for shares of the Company’s common stock (Exchangeable Shares), at the election of each former Peraso Tech stockholder.

Of the shares issued to the holders of Peraso Tech Shares, pursuant to the terms of the Agreement, the Company held in escrow an aggregate

of 1,312,878 Exchangeable Shares and 502,567 shares of common stock (collectively, the Escrow Shares).

The Escrow Shares are escrowed

pursuant to the terms of an escrow agreement on a pro rata basis from the aggregate consideration received by the holders of Peraso Shares,

subject to the offset by the Company for any losses in accordance with the Agreement.

Such Escrow Shares shall be released, subject to

any offset claim, upon the satisfaction of the earlier of:

(a) any date following the first anniversary of December 17, 2021 and prior

to December 17, 2024 where the volume weighted average price of the common stock for any 20 trading days within a period of 30 consecutive

trading days is at least $ 8.57 per share, subject to adjustment for stock splits or other similar transactions;

(b) the date of any sale

of all or substantially all of the assets or shares of the Company;

or (c) the date of any bankruptcy, insolvency, restructuring, receivership,

administration, wind-up, liquidation, dissolution, or similar event involving the Company.

All and any voting rights and other stockholder

rights, other than with respect to dividends and distributions, with respect to the Escrow Shares are suspended until the Escrow Shares

are released from escrow.

Exchangeable Share structure is commonly used for cross-border transactions of this nature so as to provide non-tax-exempt Canadian shareholders

with the same economic rights and benefits as holders of the Company’s shares into which the Exchangeable Shares are exchangeable,

while allowing those Canadian shareholders to benefit from the tax-rollover available on the issuance of the Exchangeable Shares.

general terms, by choosing to acquire Exchangeable Shares from Canco, such a former Peraso Tech shareholder was able to rely on a rollover

rule in the Income Tax Act (Canada) in order to defer any capital gain that he/she/it would have otherwise realized.

was incorporated to exercise the call rights, while Canco was incorporated to acquire the shares of Peraso Tech from Canadian shareholders

that wished to receive Exchangeable Shares as consideration, so it was a tax deferred transaction for such Canadian shareholders.

use of a separate entity, Callco, helps maximize cross border paid-up capital, which represents the amount that can generally be distributed

free of Canadian withholding tax.

The call rights also allow Callco to “purchase” the Exchangeable Shares rather than having

them redeemed by Canco on a redemption or retraction or in connection with a liquidity event, thus avoiding the adverse deemed dividend

tax consequences to shareholders that may arise from a redemption or retraction of Exchangeable Shares.

of Exchangeable Shares have the right at any time (the Retraction Right) to retract or redeem any or all of the Exchangeable Shares owned

by them for an amount per share equal to the market price of a share of the Company’s common stock plus the full amount of all

declared and unpaid dividends on such Exchangeable Share (the Exchangeable Share Purchase Price).

The Exchangeable Share Purchase Price

is payable only by the Company delivering or causing to be delivered to the relevant holder one share of the Company’s common stock

for each Exchangeable Share purchased plus a cash amount equal to the amount of any accrued and unpaid dividends on such Exchangeable

The Company and Callco each have an overriding right, in the event that a holder of Exchangeable Shares exercises its Retraction

Right, to redeem from such holder all, but not less than all, of the Exchangeable Shares tendered for redemption.

Exchangeable Shares are subject to redemption by the Company, Callco and Canco at the Exchangeable Share Purchase Price, on the “Redemption

Date,” which date shall be no earlier than the seventh anniversary of the date on which Exchangeable Shares are first issued, unless:

(a) less than 10 % of the aggregate number of Exchangeable Shares issued remain outstanding;

(b) there is a change in control of the Company

(defined generally as (i) any merger, amalgamation, arrangement, takeover bid or tender offer, material sale of shares or rights or interests

that results in the holders of outstanding voting securities of the Company directly or indirectly owning, or exercising control or direction

over, voting securities representing less than 50 % of the total voting power of all of the voting securities of the surviving entity;

or (ii) any sale or disposition of all or substantially of the Company’s assets), and (c) upon the occurrence of certain other

The Exchangeable Share Purchase Price is payable only by the Company delivering or causing to be delivered to the relevant holder

one share of the Company’s common stock for each Exchangeable Share purchased plus a cash amount equal to the amount of any accrued

and unpaid dividends on such Exchangeable Share.

the event of the liquidation, dissolution or winding-up of Canco, holders of Exchangeable Shares have the right to receive in respect

of each Exchangeable Share held by such holder, an amount per share equal to the Exchangeable Share Purchase Price, which shall be satisfied

in full by Canco by delivering to such holder one Company Share, plus an amount equal to the Dividend Amount.

The Company and Callco

each have an overriding right to purchase from all holders all but not less than all of the Exchangeable Shares upon the occurrence of

addition, the Company and Callco have the right to purchase all outstanding Exchangeable Shares at the Exchangeable Share Purchase Price

if there is a change of law that permits holders of Exchangeable Shares to exchange their Exchangeable Shares for shares of common stock

on a basis that will not require holders to recognize any gain or loss or any actual or deemed dividend for Canadian tax purposes.

holders of Exchangeable Shares have an “automatic exchange right” in the event of any insolvency, liquidation, dissolution

or winding-up or in general, related proceedings, of the Company for an amount per share equal to the Exchangeable Share Purchase Price.

is expected that Callco will exercise its call rights, as that is more beneficial to the holders of the Exchangeable Shares.

acquires the Exchangeable Shares from a holder, it (Callco and the Company) is obligated to deliver the Company shares to the holder.

Callco discharges this obligation by arranging for the Company to issue and deliver those shares to the holders on behalf of Callco.

As consideration for satisfying the delivery obligation, Callco would issue its own shares to the Company.

are no cash redemption features, as all redemption and exchange scenarios are payable in a share of the Company’s common stock.

Neither Canco, Callco, or the Company assume any tax liabilities of a former Peraso Tech shareholder who acquired Exchangeable Shares

under the plan of arrangement.

The purchase price computed upon the exercise of rights pertaining to retraction, redemption, or liquidation,

or otherwise giving rise to a purchase or cancellation of an Exchangeable Share, will, in all cases, consist of a 1:1 exchange involving

the Company’s common stock, regardless of the market price of a share of the Company’s common stock.

connection with the Arrangement, on December 15, 2021, the Company filed the Certificate of Designation of Series A Special Voting Preferred

Stock (the Certificate) with the Secretary of State of the State of Delaware to designate Series A Special Voting Preferred Stock (the

Special Voting Share) in accordance with the terms of the Arrangement Agreement in order to enable the holders of Exchangeable Shares

to exercise their voting rights.

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

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.

Each Exchangeable Share is exchangeable for one

share of common stock of the Company and while outstanding, the Special Voting Share enables holders of Exchangeable Shares to cast votes

on matters for which holders of the common stock are entitled to vote, and by virtue of the share terms relating to the Exchangeable

Shares, enable the Exchangeable Shares to receive dividends that are economically equivalent to any dividends declared with respect to

the shares of common stock.

As the Special Voting Share does not participate in dividends (only the Exchangeable Shares participate in

dividends) and is not entitled to participate in the residual interest of the Company, it is not classified as an equity instrument in

the Company’s financial statements.

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.

Exchangeable Shares and Preferred Stock

As discussed in Note 1, on December 17, 2021,

following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed.

the completion of the Arrangement, each Peraso Share that was issued and outstanding immediately prior to December 17, 2021 was converted

into either newly issued shares of common stock of the Company or shares of Canco, which are exchangeable for shares of the Company’s

common stock (Exchangeable Shares), at the election of each former Peraso Tech stockholder.

Of the shares issued to the holders of Peraso

Tech Shares, pursuant to the terms of the Agreement, the Company held in escrow an aggregate of 1,312,878 Exchangeable Shares and 502,567

shares of common stock (collectively, the Escrow Shares).

The Escrow Shares are escrowed pursuant to the terms of an escrow agreement

on a pro rata basis from the aggregate consideration received by the holders of Peraso Shares, subject to the offset by the Company for

any losses in accordance with the Agreement.

Such Escrow Shares shall be released, subject to any offset claim, upon the satisfaction

of the earlier of:

(a) any date following the first anniversary of December 17, 2021 and prior to December 17, 2024 where the volume weighted

average price of the common stock for any 20 trading days within a period of 30 consecutive trading days is at least $ 8.57 per share,

subject to adjustment for stock splits or other similar transactions;

(b) the date of any sale of all or substantially all of the assets

or shares of the Company;

or (c) the date of any bankruptcy, insolvency, restructuring, receivership, administration, wind-up, liquidation,

dissolution, or similar event involving the Company.

All and any voting rights and other stockholder rights, other than with respect to

dividends and distributions, with respect to the Escrow Shares are suspended until the Escrow Shares are released from escrow.

The Exchangeable Share structure is commonly used

for cross-border transactions of this nature so as to provide non-tax-exempt Canadian shareholders with the same economic rights and benefits

as holders of the Company’s shares into which the Exchangeable Shares are exchangeable, while allowing those Canadian shareholders

to benefit from the tax-rollover available on the issuance of the Exchangeable Shares.

In general terms, by choosing to acquire Exchangeable

Shares from Canco, such a former Peraso Tech shareholder was able to rely on a rollover rule in the Income Tax Act (Canada) in order to

defer any capital gain that he/she/it would have otherwise realized.

Callco was incorporated to exercise the call rights,

while Canco was incorporated to acquire the shares of Peraso Tech from Canadian shareholders that wished to receive Exchangeable Shares

as consideration, so it was a tax deferred transaction for such Canadian shareholders.

The use of a separate entity, Callco, helps maximize

cross border paid-up capital, which represents the amount that can generally be distributed free of Canadian withholding tax.

rights also allow Callco to “purchase” the Exchangeable Shares rather than having them redeemed by Canco on a redemption or

retraction or in connection with a liquidity event, thus avoiding the adverse deemed dividend tax consequences to shareholders that may

arise from a redemption or retraction of Exchangeable Shares.

Holders of Exchangeable Shares have the right

at any time (the Retraction Right) to retract or redeem any or all of the Exchangeable Shares owned by them for an amount per share equal

to the market price of a share of the Company’s common stock plus the full amount of all declared and unpaid dividends on such Exchangeable

Share (the Exchangeable Share Purchase Price).

The Exchangeable Share Purchase Price is payable only by the Company delivering or causing

to be delivered to the relevant holder one share of the Company’s common stock for each Exchangeable Share purchased plus a cash

amount equal to the amount of any accrued and unpaid dividends on such Exchangeable Share.

The Company and Callco each have an overriding

right, in the event that a holder of Exchangeable Shares exercises its Retraction Right, to redeem from such holder all, but not less

than all, of the Exchangeable Shares tendered for redemption.

The Exchangeable Shares are subject to redemption

by the Company, Callco and Canco at the Exchangeable Share Purchase Price, on the “Redemption Date,” which date shall be no

earlier than the seventh anniversary of the date on which Exchangeable Shares are first issued, unless:

(a) less than 10 % of the aggregate

number of Exchangeable Shares issued remain outstanding;

(b) there is a change in control of the Company (defined generally as (i) any

merger, amalgamation, arrangement, takeover bid or tender offer, material sale of shares or rights or interests that results in the holders

of outstanding voting securities of the Company directly or indirectly owning, or exercising control or direction over, voting securities

representing less than 50 % of the total voting power of all of the voting securities of the surviving entity;

or (ii) any sale or disposition

of all or substantially of the Company’s assets), and (c) upon the occurrence of certain other events.

The Exchangeable Share Purchase

Price is payable only by the Company delivering or causing to be delivered to the relevant holder one share of the Company’s common

stock for each Exchangeable Share purchased plus a cash amount equal to the amount of any accrued and unpaid dividends on such Exchangeable

In the event of the liquidation, dissolution or

winding-up of Canco, holders of Exchangeable Shares have the right to receive in respect of each Exchangeable Share held by such holder,

an amount per share equal to the Exchangeable Share Purchase Price, which shall be satisfied in full by Canco by delivering to such holder

one Company Share, plus an amount equal to the Dividend Amount.

The Company and Callco each have an overriding right to purchase from

all holders all but not less than all of the Exchangeable Shares upon the occurrence of such events.

In addition, the Company and Callco have the right

to purchase all outstanding Exchangeable Shares at the Exchangeable Share Purchase Price if there is a change of law that permits holders

of Exchangeable Shares to exchange their Exchangeable Shares for shares of common stock on a basis that will not require holders to recognize

any gain or loss or any actual or deemed dividend for Canadian tax purposes.

The holders of Exchangeable Shares have an “automatic

exchange right” in the event of any insolvency, liquidation, dissolution or winding-up or in general, related proceedings, of the

Company for an amount per share equal to the Exchangeable Share Purchase Price.

It is expected that Callco will exercise its call

rights, as that is more beneficial to the holders of the Exchangeable Shares.

Once Callco acquires the Exchangeable Shares from a holder,

it (Callco and the Company) is obligated to deliver the Company shares to the holder.

Callco discharges this obligation by arranging for

the Company to issue and deliver those shares to the holders on behalf of Callco.

As consideration for satisfying the delivery obligation,

Callco would issue its own shares to the Company.

There are no cash redemption features, as all

redemption and exchange scenarios are payable in a share of the Company’s common stock.

Neither Canco, Callco, or the Company assume

any tax liabilities of a former Peraso Tech shareholder who acquired Exchangeable Shares under the plan of arrangement.

The purchase price

computed upon the exercise of rights pertaining to retraction, redemption, or liquidation, or otherwise giving rise to a purchase or cancellation

of an Exchangeable Share, will, in all cases, consist of a 1:1 exchange involving the Company’s common stock, regardless of the

market price of a share of the Company’s common stock.

In connection with the Arrangement, on December

15, 2021, the Company filed the Certificate of Designation of Series A Special Voting Preferred Stock (the Certificate) with the Secretary

of State of the State of Delaware to designate Series A Special Voting Preferred Stock (the Special Voting Share) in accordance with the

terms of the Arrangement Agreement in order to enable the holders of Exchangeable Shares to exercise their voting rights.

Voting Share was issued to a third-party administrative agent (the Agent) solely to facilitate the exercise of rights by holders of Exchangeable

The rights of the Agent, as holder of the Special Voting Share, are limited to effecting the rights of the holders of the Exchangeable

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.

Each Exchangeable Share is exchangeable for one share of common stock of the Company and while outstanding,

the Special Voting Share enables holders of Exchangeable Shares to cast votes on matters for which holders of the common stock are entitled

to vote, and by virtue of the share terms relating to the Exchangeable Shares, enable the Exchangeable Shares to receive dividends that

are economically equivalent to any dividends declared with respect to the shares of common stock.

As the Special Voting Share does not

participate in dividends (only the Exchangeable Shares participate in dividends) and is not entitled to participate in the residual interest

of the Company, it is not classified as an equity instrument in 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.

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.

June 2023 Registered Direct Offering

On 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.

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

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.

The 2023 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 967,286 of the 2023 PF Warrants, and in September

2023, the remaining 2,497,000 of the 2023 PF Warrants were exercised by the Investor .

connection with the execution of the SPA, the Company and the Investor entered into an amendment (the Amendment) to the 2022 Purchase

Pursuant to the terms of the Amendment, the 2022 Purchase Warrant (as defined below) was amended to reduce the exercise price

per share from $ 1.36 to $ 1.00 , effective as of June 2, 2023.

In 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

The 2023 Purchase Warrant was immediately exercisable at an exercise price of $ 0.70 per share with a five-year term.

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

Fair value of the warrant at the date of issuance was determined

to be $ 3,162,401 and was accounted for as a cost of the offering.

November 2022 Registered Direct Offering

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):

The purchase price of each pre-funded warrant

was $ 0.99 , and the exercise price of each pre-funded warrant was $ 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.

In 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 initial exercise price of $ 1.36 per share,

which was subsequently reduced to $ 1.00 per share per the Amendment, and expires on May 29, 2028.

As discussed in Note 8, the 2022

Purchase Warrant is accounted for as a liability.

As of September 30, 2023, the Company had the

following equity-classified warrants outstanding (share amounts in thousands):

Number of Shares

Exercise Price

Balance as of December 31, 2022

Warrants expired

Balance as of March 31, 2023

Pre-funded warrants issued

warrants exercised

Pre-funded warrants exercised

Balance as of June 30, 2023

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.

Pre-funded warrants exercised

Balance as of September 30, 2023

As of December 31, 2022, the Company had the following

equity-classified warrants outstanding (share amounts in thousands):

Number of Shares

Exercise Price

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

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

The 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.

On June 2, 2023, the

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

liability was reduced to $ 634,828 .

As a result, the Company recorded a gain $ 2,527,572 for the nine months ended September 30, 2023 for

the change in fair value of the 2023 Purchase Warrant.

The Company also recorded a gain of $ 1,711,527 for the nine months ended September

30, 2023 for the change in the fair value of the warrant liability for the 2022 Purchase Warrant.

The fair value of the

Purchase Warrants at September 30, 2023 was determined using the Black Scholes model with the following assumptions:

(i) 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.

As of September 30, 2023, the Company had the

following liability-classified warrants outstanding (amounts in thousands):

on 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

Recognition of warrant liability

Change in fair value of warrants

Balance as of June 30, 2023

Change in fair value of warrants

Balance as of September 30, 2023

9 Related Party Transactions

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 .

A family member of one of the Company’s

executive officers served as a consultant to the Company during 2022.

During the nine months ended September 30, 2022, the Company incurred

consulting expenses of approximately $ 126,800 for the family member.

Additionally, a family member of one of the Company’s executive

officers is an employee of the Company.

During the nine months ended September 30, 2023 and 2022, the Company recorded compensation expense

of approximately $ 83,800 and $ 127,500 , respectively, for the employed family member .

License and Asset Sale Transaction

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.

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:

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

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 Criteria).

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 Assets .

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

nine months ended September 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 (TSMC), is the sole foundry that manufactures the wafers used to produce the Company’s

memory IC products.

TSMC has informed the Company that TSMC would be discontinuing the foundry process used to produce wafers, in turn,

necessary to manufacture the Company’s memory ICs.

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.

Taiwan Semiconductor

Manufacturing Corporation (TSMC) is the sole foundry that manufactures the wafers used to produce the Company’s memory IC products.

TSMC has informed the Company that TSMC is discontinuing the foundry process used to produce wafers, in turn, necessary to manufacture

the Company’s memory ICs.

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.

During the three months ended September 2023, the Company commenced initial shipments of EOL orders and

expects shipments to extend until at least December 31, 2024.

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