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Item 7. Management’s Discussion and Analysis

2024-03-29 compared with 2023-03-29 · 480 added, 431 removed, 87 unchanged (91% of the section changed)

1 unchanged sentence

Condition and Results of Operations.

This Management’s Discussion and Analysis

of Financial Condition and Results of Operations should be read in conjunction with the accompanying consolidated financial statements

and notes included in this Report.

formerly known as MoSys, Inc.

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

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

and 2864555 Ontario Inc., entered into an Arrangement Agreement (the

Arrangement Agreement) with Peraso Technologies Inc.

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

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

in connection with the conversion or exchange of secured convertible debentures and common share purchase warrants of Peraso Tech, as

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

17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed and

we changed our name to “Peraso Inc.” and began trading on the Nasdaq Stock Market (the Nasdaq) under the symbol “PRSO.”

For accounting

purposes, the legal subsidiary, Peraso Tech, was treated as the accounting acquirer and we, the legal parent, have been 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).

Accordingly, the financial condition and results

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

financial results of us prior to December 17, 2021.

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

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

and related non-recurring engineering services.

We specialize in the development of mmWave semiconductors, primarily in the 60 GHz spectrum

This Management’s Discussion and Analysis of Financial Condition

and Results of Operations should be read in conjunction with the accompanying consolidated financial statements and notes included in

Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information

with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties.

should review “Risk Factors” for a discussion of important factors that could cause our actual results to differ materially

from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We were formerly known as

(“MoSys”), and we were incorporated in California in 1991 and reincorporated in 2000 in Delaware.

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

and 2864555 Ontario Inc., entered into an Arrangement Agreement (the “Arrangement

Agreement”) with Peraso Technologies Inc.

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

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

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

of Peraso Tech, as applicable, by way of a statutory plan of arrangement (the “Arrangement”) under the Business Corporations

Act (Ontario).

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

Arrangement was completed and we changed our name to “Peraso Inc.” and began trading on the Nasdaq Stock Market (the “Nasdaq”)

under the symbol “PRSO.”

Our strategy and primary business

objective is to be a profitable, IP-rich fabless semiconductor company offering integrated circuits, or ICs, antenna modules and related

non-recurring engineering services.

We specialize in the development of mmWave semiconductors, primarily in the unlicensed 60 GHz spectrum

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

We derive our revenue from selling

semiconductor devices, as well as modules based on using those mmWave semiconductor devices.

semiconductor devices, as well as antenna modules based on using those mmWave semiconductor devices.

We have pioneered a high-volume mmWave

production test methodology using standard low cost production test equipment.

It has taken us several years to refine performance of

this production test methodology, and we believe this places us in a leadership position in addressing operational challenges of delivering

IC production test methodology using standard, low-cost production test equipment.

It has taken us several years to refine performance

of this production test methodology, and we believe this places us in a leadership position in addressing operational challenges of delivering

mmWave products into high-volume markets.

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

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

A differentiating characteristic of

mmWave technology is that the RF amplifiers must be as close as possible to the antenna to minimize loss, and by providing a module, we

can guarantee the performance of the amplifier/antenna interface.

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

This memory product line comprises our Bandwidth Engine and

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

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

We incurred net losses of approximately $32.4

million and $10.9 million for the years ended December 31, 2022 and 2021, respectively, and had an accumulated deficit of approximately

$149.6 million as of December 31, 2022.

These and prior year losses have resulted in significant negative cash flows for almost a decade

and have necessitated that we raise substantial amounts of additional capital during this period.

We will need to increase revenues substantially

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

doing business without raising additional capital from time to time.

COVID-19 and Russian Invasion of Ukraine

The global outbreak of the coronavirus disease

2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S.

government in March 2020.

This has negatively affected the U.S.

and global economy, disrupted global supply chains, significantly restricted travel and transportation,

resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets.

The full extent of the COVID-19 impact on our operational and financial performance will depend on future developments, including the

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

and foreign government agencies to prevent disease spread, all

of which are uncertain, out of our control, and cannot be predicted.

Since March 2020, certain jurisdictions in which

we operate have from time to time issued “shelter-in-place” orders.

As required, we have complied with these orders and, when

such orders were in place, minimized business activities at our facilities.

We have implemented a teleworking policy for our employees

and contractors to comply with such orders.

As the COVID-19 pandemic evolves, we continue

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

We are working internally and with suppliers on

programs (i.e., new production flows, etc.) to allow us to increase our peak throughput to better handle unplanned disruptions to our

supply chain.

To date, we have not experienced a material impact on our cash flows, liquidity, capital resources, cash requirements, financial

position, or results of operations, attributable to the global semiconductor supply chain disruption and inflation.

We have experienced

increased prices from our suppliers, and, for certain products, we have increased prices to our customers to mitigate the impacts, although

during 2022 the impacts of these price increases were minimal.

We have and continue to experience longer lead times for certain components

used to manufacture our products, and, therefore, and, in response, we have identified second and third sources for certain components

used in our module products.

Also, we have increased lead times for our customers.

We have not experienced any issues over our product

quality and product development activities, as we do not rely significantly on outside vendors to manage and perform these activities

We currently have not identified any current impacts of the supply chain disruption and inflation that will affect our future

results, and it is difficult to differentiate whether higher prices are due to supply chain disruption, inflation or a mix of both.

While we believe that

our operations personnel are currently in a position to meet expected customer demand levels in the coming quarters, we recognize that

unpredictable events could create difficulties in the months ahead.

We may not be able to address these difficulties in a timely manner,

which could negatively impact our business, results of operations, financial condition and cash flows.

The continued spread

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

The Russian invasion of Ukraine in February 2022

has led to further economic disruptions.

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

During the third and fourth quarters of 2022, the U.S.

Federal Reserve continued to aggressively address elevated inflation by

increasing interest rates.

Federal Reserve increased interest rates by 75 basis points in each of its meetings held in July,

September and November 2022, with an additional increase of 50 basis points in December 2022, as inflation remains elevated.

Given current

market conditions, we may be unable to access the capital markets, and additional capital may only be available to us on terms that could

be significantly detrimental to our existing stockholders and to our business.

Critical Accounting Policies and Use of Estimates

Our consolidated financial statements are prepared

in conformity with accounting principles generally accepted in the United States of America.

Note 1 to the consolidated financial statements

included in Item 15 of this Report describes the significant accounting policies and methods used in the preparation of our consolidated

financial statements.

We have identified the accounting policies below

as some of the more critical to our business and the understanding of our results of operations.

These policies may involve estimates

and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

Although we believe our judgments and estimates

are appropriate, actual future results may differ from our estimates, and if different assumptions or conditions were to prevail, the

results could be materially different from our reported results.

We also produce and sell complete mmWave antenna modules.

The primary advantage provided by

our antenna modules is that our proprietary mmWave ICs and the antenna are integrated into a single device.

A differentiating characteristic

of mmWave technology is that the RF amplifiers must be as close as possible to the antenna to minimize loss.

With our module, we can guarantee

the performance of the amplifier/antenna interface and simplify customers’ radio frequency (“RF”) engineering, facilitating

more opportunities for customer prospects that have not provided RF-type systems, as well as shortening the time to market for new products.

We also acquired a memory

product line comprising our Bandwidth Engine IC products.

These products integrate our proprietary, 1T-SRAM high-density embedded memory

and a highly-efficient serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction

access performance.

Taiwan Semiconductor Manufacturing Corporation, or TSMC, is the sole foundry that manufactures the wafers used to

produce our memory IC products.

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

necessary to manufacture our memory ICs.

As a result, in May 2023, we initiated an end-of-life, or EOL, of our memory IC products.

notified our customers to provide purchase orders by December 22, 2023, and we commenced initial EOL shipments during the quarter ended

September 30, 2023.

We have requested customers to pay a deposit upon purchase order placement to reserve supply and provide funding for

our required inventory purchases.

In addition, we have requested customers to accelerate payments to improve our cash flows.

EOL plan, we expect shipments of our memory products to continue until at least December 31, 2024.

However, the timing of EOL shipments

will be dependent on receipt of purchase orders from customers, deliveries from our suppliers, and the delivery schedules requested by

our customers.

We incurred net losses of

approximately $16.8 million and $32.4 million for the years ended December 31, 2023 and 2022, respectively, and we had an accumulated

deficit of approximately $166.4 million as of December 31, 2023.

These and prior year losses have resulted in significant negative cash

flows and historically have required us to raise substantial amounts of additional capital.

As discussed below, this raises significant

doubt about our ability to continue as a going concern.

We will need to increase revenues substantially beyond levels that we have attained

in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional

capital from time to time.

Recent Developments

Cost Reductions

In November 2023, we implemented

a reduction in our workforce and eliminated three full-time equivalent positions, which included one employee and two consultants.

addition, we initiated a temporary lay-off in Canada of 16 positions, all intended to preserve cash while keeping capital expenditures

to minimum levels in order to reduce operating costs and our short-term cash needs.

Reverse Stock Split

On December 15, 2023, at our

annual meeting of stockholders, our stockholders approved a certificate of amendment to our Second Amended and Restated Certificate of

Incorporation (the “Charter Amendment”) to effect a reverse stock split of our outstanding shares of common stock at a ratio

to be determined by our board of directors.

On December 15, 2023, we filed the Charter Amendment with the Secretary of State of Delaware

which effected a 1-for-40 reverse stock split of our outstanding shares of common stock as of 4:01 p.m.

Eastern Time on January 2, 2024.

As a result of the reverse stock split, every forty shares of common stock were combined into one issued and outstanding share of common

stock, with no change in the $0.001 par value per share.

Holders of fractional shares received, in lieu of any fractional share, the number

of shares rounded up to the next whole number.

All equity awards outstanding and common stock reserved for issuance under our equity incentive

plans and warrants outstanding immediately prior to the reverse stock split were appropriately adjusted by dividing the number of affected

shares of common stock by 40 and, as applicable, multiplying the exercise price by 40, as a result of the reverse stock split.

shares, which can be converted to common stock at any time by their respective holders, were also adjusted to reflect the reverse stock

Compliance with Nasdaq Minimum Bid Price Requirement

On January 18, 2024, we received

a notification letter from the Listing Qualifications Department of the Nasdaq Stock Market notifying us that we had regained compliance

with the minimum bid price requirement set forth under Nasdaq Listing Rule 5550(a)(2).

Termination of Advisory Agreement Related to

Strategic Alternative Exploration

In August 2023, we

engaged an investment bank to assist with the exploration of strategic alternatives, including a merger, sale of assets or other similar

transaction, with the intention to maximize stockholder value and further our business operations.

In January 2024, we terminated such

advisory agreement.

We currently have no commitments or agreements and are not negotiating with any parties relating to a merger, sale

of assets or other similar transaction with us.

Public Offering

February 6, 2024, we entered into an underwriting agreement (the “Underwriting Agreement”) with Ladenburg Thalmann & Co.

Inc., as the sole underwriter (the “Underwriter”), relating to the issuance and sale in a public offering (the “Offering”)

(i) 480,000 shares of our common stock, (ii) pre-funded warrants to purchase up to 1,424,760 shares of our common stock, (iii) Series

A warrants to purchase up to 3,809,520 shares of our common stock, (iv) Series B warrants to purchase up to 3,809,520 shares of our common

stock, and (v) up to 285,714 additional shares of our common stock, Series A warrants to purchase up to 571,428 shares of our common stock

and Series B warrants to purchase up to 571,428 shares of our common stock, which may be purchased pursuant to a 45-day option to purchase

additional securities granted to the Underwriter by the Company.

The Underwriter partially exercised this option on February 7, 2024 for

82,500 shares of common stock, Series A warrants to purchase up to 165,000 shares of common stock and Series B warrants to purchase up

to 165,000 shares of common stock.

The combined public offering price of each share of common stock, together with the accompanying Series

A warrants and Series B warrants, was $2.10, less underwriting discounts and commissions.

The combined public offering price of each pre-funded

warrant, together with the accompanying Series A warrants and Series B warrants, was $2.099, less underwriting discounts and commissions.

Offering, including the additional shares of common stock, Series A warrants and Series B warrants sold pursuant to the partial exercise

of the Underwriter’s option, closed on February 8, 2024.

net proceeds from the Offering, including the additional shares of common stock, Series A warrants and Series B warrants sold pursuant

to the partial exercise of the Underwriter’s option, after deducting underwriting discounts and commissions and other estimated

Offering expenses payable by us and excluding any net proceeds from the exercise of the Series A warrants, Series B warrants and pre-funded

warrants, were approximately $3.4 million.

Series A warrants and Series B warrants each have an exercise price of $2.25 per share and are immediately exercisable upon issuance.

The Series A warrants expire on the five-year anniversary of the date of issuance and the Series B warrants expire on the six-month anniversary

of the date of issuance.

The pre-funded warrants have an exercise price of $0.001 per share, are exercisable immediately and may be exercised

at any time until all of the pre-funded warrants are exercised in full.

Subsequent to the closing of the Offering, as of March 18, 2024,

the holders exercised pre-funded warrants for 1,001,110 shares of common stock.

On February 8, 2024, pursuant

to the Underwriting Agreement, we issued warrants to the Underwriter to purchase up to 139,108 shares of our common stock at an exercise

price of $2.625, subject to adjustments, which are exercisable at any time and from time to time, in whole or in part, until February

8, 2029, and have substantially similar terms to the Series A warrants.

All securities issued in the

Offering (including the shares of common stock issuable from time to time upon exercise of the warrants) were offered pursuant to our

registration statement on Form S-1, as amended (File No.

333-276247), which became effective on February 6, 2024, including a prospectus

contained therein.

COVID-19 and World Unrest

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.

in March 2020.

This 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.

While the U.S.

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 our 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 our 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 economy.

Since mid-2022, at times, the U.S.

Federal Reserve has addressed elevated inflation by increasing interest

Market conditions may prevent us from accessing the capital markets, and additional capital may only be available to us on terms

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

Critical Accounting Policies and Estimates

The discussion and analysis

of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in

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

The preparation of these consolidated financial

statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

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

circumstances.

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

Our significant accounting policies and estimates are disclosed in Note 1 of the “Notes to Consolidated Financial Statements”

as of and for the years ended December 31, 2023 and 2022 included elsewhere in this Report.

As of December 31, 2023, there have been no

material changes to our significant accounting policies and estimates.

Business Combination

We allocate the fair value of purchase consideration

to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values.

The excess of

the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill to

reporting units based on the expected benefit from the business combination.

Allocation of purchase consideration to identifiable assets

and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas

any indefinite-lived intangible assets, including goodwill, are not amortized.

During the measurement period, which is not to exceed one

year from the acquisition date, our records adjustments to the assets acquired and liabilities assumed, with the corresponding offset

We allocate the fair value

of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities

is recorded as goodwill to reporting units based on the expected benefit from the business combination.

Allocation of purchase consideration

to identifiable assets and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over

the useful life, whereas any indefinite-lived intangible assets, including goodwill, are not amortized.

During the measurement period,

which is not to exceed one year from the acquisition date, our records adjustments to the assets acquired and liabilities assumed, with

the corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Acquisition-related expenses

are recognized separately from business combinations and are expensed as incurred.

Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred.

Acquired Intangibles

Acquired intangible

assets consist of developed technology and customer relationships that are measured at fair value at date of acquisition.

Acquired intangible assets

consist of developed technology and customer relationships that are measured at fair value at date of acquisition.

In valuing acquired

5 unchanged sentences

include the revenue growth rate and the discount rate.

As a result of the judgments that need to be

made, we obtain the assistance of independent valuation firms.

We complete these assessments as soon as practical after the closing dates.

Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.

As a result of the judgments

that need to be made, we obtain the assistance of independent valuation firms.

We complete these assessments as soon as practical after

the closing dates.

Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded

Revenue Recognition

We recognize revenue in accordance with FASB ASC

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

As described below, the analysis of contracts under

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

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

We generate revenue primarily from sales of integrated

circuits and 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 we expect to be entitled to receive in exchange for

We recognize revenue in accordance

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

As described below, the analysis

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

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

We generate revenue primarily

from sales of integrated circuits and 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 we expect to be entitled to

receive in exchange for those goods.

Revenue recognition is evaluated through the following five steps:

(i) identification of the contract, or contracts, with

(i) identification of the contract,

or contracts, with a customer;

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

(iii) determination of the transaction price;

(iv) allocation

of the transaction price to the performance obligations in the contract;

and (v) recognition of revenue when or as a performance obligation

is satisfied.

(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.

Product revenue

Revenue is recognized when performance obligations

under the terms of a contract with a customer are satisfied.

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

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

shipment of products.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products and

is generally based upon a negotiated, formula, list or fixed price.

We sell our products both directly to customers and through distributors

generally under agreements with payment terms typically 60 days or less.

We may record an estimated allowance, at the

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

Revenue is recognized when

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

The majority of our contracts have a single performance

obligation to transfer products.

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

generally at the time of shipment of products.

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

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

We sell our products both directly to customers

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

We may record an estimated

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

Royalty and other

Our licensing contracts typically provide for

royalties based on the licensee’s use of our memory technology in its currently shipping commercial products.

We estimate its royalty

revenue in the calendar quarter in which the licensee uses the licensed technology.

Payments are received in the subsequent quarter.

also generate revenue from licensing its technology.

We recognize License fee as revenue at the point of time when the control of the

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

Our licensing contracts typically

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

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

Payments are received in the subsequent

We also generate revenue from licensing its technology.

We recognize License fee as revenue at the point of time when the control

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

Engineering services revenue

Engineering and development contracts with customers

generally contain a single performance obligation that is delivered over time.

Revenue is recognized using an output method that is consistent

with the satisfaction of the performance obligation as a measure of progress.

Engineering and development

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

Revenue is recognized using an

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

Deferred cost of net revenue

During the year ended December 31, 2022, the Company

had $1.1 million of product shipments for which the revenue recognition criteria under ASC 606 had not been met.

Accordingly, the Company

deferred the cost of net revenue associated with these shipments, and the amount deferred has been presented as deferred cost of net revenue

in the consolidated balance sheets.

During the year ended December

31, 2022, the Company had $1.1 million of product shipments for which the revenue recognition criteria under ASC 606 had not been met.

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

cost of net revenue in the consolidated balance sheets as of December 31, 2022.

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

recognized the associated revenue and cost of net revenue.

Contract liabilities - deferred revenue

Our contract liabilities consist of advance customer

payments and deferred revenue.

We classify advance customer payments and deferred revenue as current or non-current based on the timing

of when we expect to recognize revenue.

As of December 31, 2022, contract liabilities were in a current position and included in deferred

Our contract liabilities consist

of advance customer payments and deferred revenue.

We classify advance customer payments and deferred revenue as current or non-current

based on the timing of when we expect to recognize revenue.

As of December 31, 2023 and 2022, contract liabilities were in a current position

and included in deferred revenue.

Fair Value Measurements of Financial Instruments

We measure 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, as

● 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 from investment advisors rather than models.

We do not adjust for or apply any additional assumptions or estimates

to the pricing information we receive from advisors.

Our Level 2 securities include cash equivalents and available-for-sale securities,

which consisted primarily of corporate debt, and government agency and municipal debt securities from issuers with high quality credit

Our 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 we hold are not actively traded and

have fewer observable transactions.

We consider 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.

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.

We measure the fair value

of our warrant liabilities using Level 3 inputs.

of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into

three broad levels, as follows:

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.

2-Pricing is provided by third party sources of market information obtained from investment advisors rather than models.

We do not adjust

for or apply any additional assumptions or estimates to the pricing information we receive from advisors.

Our Level 2 securities include

cash equivalents and available-for-sale securities, which consisted primarily of corporate debt, and government agency and municipal

debt securities from issuers with high quality credit ratings.

Our 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 we hold are not actively traded and have fewer observable transactions.

We consider this the most reliable information

available for the valuation of the securities.

3-Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used

to measure fair value.

These values are generally determined using pricing models for which the assumptions utilize management’s

estimates of market participant assumptions.

The determination of fair value for Level 3 investments and other financial instruments

involves the most management judgment and subjectivity.

The carrying amounts of financial

assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable, notes payable and other payables, approximate

their fair values because of the short maturity of these instruments.

The carrying values of lease obligations and long-term financing

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

measure the fair value of our warrant liabilities using Level 3 inputs.

Valuation of long-lived assets

We evaluate our long-lived assets for impairment

at least annually, or more frequently when a triggering event is deemed to have occurred.

This assessment is subjective in nature and

requires significant management judgment to forecast future operating results, projected cash flows and current period market capitalization

We evaluate our long-lived

assets for impairment at least annually, or more frequently when a triggering event is deemed to have occurred.

This assessment is subjective

in nature and requires significant management judgment to forecast future operating results, projected cash flows and current period market

capitalization levels.

If our estimates and assumptions change in the future, it could result in a material write-down of long-lived assets.

our finite-lived intangible assets, such as developed technology and patent license, on a straight-line basis over their estimated useful

lives of three to seven years.

We recognize an impairment charge as the difference between the net book value of such assets and the fair

value of the assets on the measurement date.

We amortize our finite-lived intangible assets, such as developed technology and patent license, on a straight-line basis over their estimated

useful lives of three to seven years.

We recognize an impairment charge as the difference between the net book value of such assets and

the fair value of the assets on the measurement date.

Deferred tax valuation allowance

When we prepare our consolidated financial statements,

we estimate our income tax liability for each of the various jurisdictions where we conduct business.

This requires us to estimate our

actual current tax exposure and to assess temporary differences that result from differing treatment of certain items for tax and accounting

These differences result in deferred tax assets, which we show on our consolidated balance sheet under the category of other

The net deferred tax assets are reduced by a valuation allowance if, based upon weighted available evidence, it is more likely

than not that some or all of the deferred tax assets will not be realized.

We must make significant judgments to determine our provision

for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset.

We believe that utilization of our net operating loss and tax credit carryforwards, which comprise the majority of our deferred tax assets,

may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar

state provisions.

See Note 4 to the consolidated financial statements in Item 15 of this report for an additional description of

these limitations.

When we prepare our consolidated

financial statements, we estimate our income tax liability for each of the various jurisdictions where we conduct business.

This requires

us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items

for tax and accounting purposes.

These differences result in deferred tax assets, which we show on our consolidated balance sheet under

the category of other assets.

The net deferred tax assets are reduced by a valuation allowance if, based upon weighted available evidence,

it is more likely than not that some or all of the deferred tax assets will not be realized.

We must make significant judgments to determine

our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred

We believe that utilization of our net operating loss and tax credit carryforwards, which comprise the majority of our deferred

tax assets, may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue

Code and similar state provisions.

See Note 4 to the consolidated financial statements in Item 15 of this report for an additional

description of these limitations.

Derivatives and liability-classified instruments

We account 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 FASB 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 our

stock and whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of our 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.

We account 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 FASB ASC 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging

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 our stock and whether the holders of the warrants could potentially require net cash settlement in a circumstance outside

of our 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.

Stock-based compensation

We recognize stock-based compensation for equity

awards on a straight-line basis over the requisite service period, usually the vesting period, based on the grant-date fair value.

estimate the value of employee stock options on the date of grant using the Black-Scholes option pricing model.

The determination of fair

value of share-based payment awards on the date of grant using an option pricing model is affected by our stock price, as well as assumptions

regarding a number of highly complex and subjective variables.

These variables include, but are not limited to, the expected stock price

volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

The expected term of options

granted is derived from historical data on employee exercises and post-vesting employment termination behavior.

The expected volatility

is based on the historical volatility of our stock price.

We recognize stock-based compensation

for equity awards on a straight-line basis over the requisite service period, usually the vesting period, based on the grant-date fair

We estimate the value of employee stock options on the date of grant using the Black-Scholes option pricing model.

The determination

of fair value of share-based payment awards on the date of grant using an option pricing model is affected by our stock price, as well

as assumptions regarding a number of highly complex and subjective variables.

These variables include, but are not limited to, the expected

stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

The expected term

of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior.

volatility is based on the historical volatility of our stock price.

Results of Operations

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Percentage of total net revenue

The following table details revenue by product category:

The following table details revenue by product

(amounts in thousands)

Years Ended December 31,

Year-Over-Year

Product category

1 unchanged sentence

mmWave other products

Product revenue increased for the year ended December

31, 2022 compared with the same period of 2021 primarily due to the increase in both memory IC and mmWave module sales volumes as a result

of the acquisition of the memory IC product line in December 2021 and the roll-out of the mmWave antenna module product line in the second

half of 2021.

As previously discussed in this Report, for reverse-acquisition accounting purposes, Peraso Tech, was treated as the accounting

acquirer, and MoSys was treated as the accounting acquiree.

Accordingly, the results of operations discussed herein are a continuation

of Peraso Tech’s historical financial results and exclude the results of operations of MoSys prior to December 17, 2021.

in memory IC sales volumes, which was due to the acquisition of this product line, resulted in a $7.6 million increase in revenues for

the year ended December 31, 2022, as compared with the prior year due to the significant increase in sales volumes year over year.

Additionally,

we began selling our mmWave module products during the second half of 2021 and realized a 100% increase in sales volumes in 2022, which

contributed $2.1 million of increased revenue for the year ended December 31, 2022.

We initiated price increases on certain of our module

products in 2022, however, through December 31, 2022, we had not realized any material increase in revenue as a result of those price

These revenue increases were partially offset by a decrease of $0.3 million in sales of our mmWave IC products due to a 39%

reduction in volumes shipped during the year ended December 31, 2022, compared with the same period in 2021.

Although, stand-alone mmWave

IC volumes decreased, shipments of our mmWave modules, that include the mmWave ICs, have increased and each module we ship includes two

of our mmWave ICs and an antenna.

We began shipping modules as it provides an integrated solution that we believe can shorten our revenue

cycle by enabling our customers to accelerate time to production.

In addition, we generate higher revenue from the sale of modules compared

to sales of stand-alone ICs.

Going forward, we expect sales of our mmWave ICs on a stand-alone basis to decline as a percentage of total

product revenue, as we anticipate sales of our modules to be our primary source of revenue growth.

We expect revenues to increase in 2023, as we

anticipate increased sales of our mmWave products, including the benefits of price increases implemented in 2022.

We also expect sales

of our memory products to decrease from a volume and revenue perspective over the next 12 months.

Our memory products have been in production

since 2014, and, given that we have not developed new products, the long-term outlook for these products is uncertain.

We have implemented

modest price increases on our memory products that we expect to begin taking effect in the first half of 2023.

We expect sales of our

mmWave products to increase from a volume and revenue perspective over the next 12 months, as our primary sales focus is on obtaining

new customers for our mmWave products.

Product revenue decreased

for the year ended December 31, 2023 compared with the same period of 2022 primarily due to the decrease in shipments of our mmWave ICs

and antenna modules, which was partially offset by increases in EOL shipments of our memory IC products.

We initiated price increases

on certain of our antenna module products in 2022, however, through December 31, 2023, we had not realized any material increase in revenue

as a result of those price increases.

We expect revenues to increase

in 2024, as we anticipate increased sales of our memory IC products, based on EOL purchase orders received from customers to date.

addition, we expect sales of our mmWave products to increase from a volume and revenue perspective over the next 12 months, as we expect

new customers to commence production during 2024.

Years Ended December 31,

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Percentage of total net revenue

Royalty and other includes royalty, non-recurring

engineering services and licenses revenues.

The decrease in royalty and other revenue for the year ended December 31, 2022 compared with

the same period of 2021 was primarily due to a decrease in non-recurring engineering services revenue related to our mmWave technology.

Such decrease was partially offset by a full twelve-month contribution of royalty revenues from licensees of our memory technology.

the reverse acquisition occurred on December 17, 2021, the results of operations for the year ended December 31, 2021 include approximately

$113,000 of royalty revenue from licensing of memory technology compared with $480,000 for the year ended December 31, 2022.

Royalty and other includes

royalty, non-recurring engineering services and license revenues.

The increase in royalty and other revenue for the year ended December

31, 2023 compared with the same period of 2022 was due to an increase in non-recurring engineering services revenue related to our mmWave

technology combined with a modest increase in royalties from licensees of our memory technology.

Cost of Net Revenue and Gross Profit

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Percentage of total net revenue

Cost of net revenue is primarily

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

of production-related fixed assets.

Cost of net revenue increased

for the year ended December 31, 2023 when compared with the same period in 2022, due to the increase in sales of our memory IC products

and inventory write-down charges, as partially offset by a decrease in sales of our mmWave IC and module products.

The inventory write-down

charges recorded during 2023 totaled approximately $3.5 million and comprised approximately $0.5 million related to memory IC product

inventory and $3.0 million related to mmWave product inventory.

The write-downs were primarily attributable to inventory identified as

excess and obsolete based on inventory expiration and customer purchase orders received to date and current customer forecasts.

utilization of inventory is, or if our estimates of our inventory’s potential utility become, less favorable than currently expected,

additional inventory write-downs may be required.

Years Ended December 31,

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Percentage of total net revenue

Cost of net revenue is primarily comprised of

direct and indirect costs related to the sale of our products, including amortization of intangible assets and depreciation of production-related

fixed assets.

Cost of net revenue increased for the year ended December 31, 2022 when compared with the same period of 2021, primarily

due to increased shipment volumes of our memory and mmWave ICs and antenna module products.

Our antenna module products have higher cost

of goods sold per unit and generate lower gross profit margin than our IC products.

Gross profit increased for the year ended December

31, 2022 compared with the same period of 2021 due to the increased product shipments.

The decrease in our gross profit margin for the

year ended December 31, 2022 compared with the prior year periods was primarily attributable to the increased volume shipments of our

mmWave modules, which carry lower gross margins than our IC products.

Gross profit decreased for

the year ended December 31, 2023 compared with the same period in 2022 due to inventory write-down charges and decreased mmWave product

shipments, partially offset by increases in memory IC product shipments.

The decrease in our gross profit margin for the year ended December

31, 2023 compared with the prior year periods was primarily attributable to the inventory write-down charges incurred during 2023.

Research and Development (R&D)

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Percentage of total net revenue

Our R&D expenses include costs related to

the development of our products.

Our R&D expenses include

costs related to the development of our products.

We expense R&D costs as they are incurred.

The increase for the year ended December 31, 2022 compared

with the same period of 2021 was primarily due to the inclusion of a full twelve months of expenses of $4.3 million related to the acquired

operations of MoSys, $2.1 million of amortization of acquired intangible assets from the reverse

acquisition, which closed on December 17, 2021, and recognition of $2.0 million of Canadian government refundable tax credits and

wage and rent subsidies during the twelve months ended 2021 that reduced operating expenses.

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

months ended December 31, 2022.

The reductions in R&D expense in 2023 will primarily result from lower headcount, including a reduction

of employees and consulting positions, as well as targeted reductions in expenditures for certain longer-term research and development

The decrease for the year

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

the quarter ended December 31, 2022, we began implementing cost reductions, which included a reduction of consulting positions

and the elimination of certain employee positions in February 2023, as well as targeted reductions in certain longer-term research and

development projects.

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

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

As a result of the Agreement and other

cost reductions, our memory-related R&D expenses declined by approximately $1.2 million for the year ended December 31, 2023.

during the year ended December 31, 2022, we incurred mask fabrication (i.e., tape-out) expenses of $0.7 million for one of our mmWave

ICs, and we incurred no mask fabrication costs in 2023.

In November 2023, we implemented

a reduction in our workforce and eliminated three full-time equivalent positions, which included one employee and two consultants.

addition, we initiated a temporary lay-off in Canada of 16 positions, all intended to preserve cash while keeping capital expenditures

to minimum levels in order to reduce operating costs and our short-term cash needs.

We expect that

total R&D expenses will decrease during 2024 compared with 2023, as a result of our cost reduction initiatives initiated during 2022

Selling, General and Administrative (SG&A)

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Percentage of total net revenue

SG&A expenses consist primarily of personnel

and related overhead costs for sales, marketing, finance, human resources and general management and amortization of certain intangible

The increase for the year ended December 31, 2022 compared with 2021 was primarily due to the inclusion of a year of expenses

related to the acquired operations of MoSys, which amounted to $5.7 million, and included all costs of being a publicly-traded company

as well as a recognition of $0.1 million of Canadian government wage and rent subsidies during the year ended December 31, 2021 that reduced

SG&A expense.

This increase was partially offset by a $1.1 million decrease in transaction costs incurred during 2021 related to the

reverse acquisition.

We expect that total SG&A expenses will decrease in 2023 compared with

2022, as we implemented cost reductions during the three months ended March 31, 2023.

The reductions in SG&A expense in 2023 will

primarily result from lower headcount, including a reduction of employees and reductions of other discretionary operating expenses.

Interest expense

Interest expense was primarily incurred on our

loans payable and convertible debentures, which were retired during 2021.

See Note 11 to the consolidated financial statements in Item

15 of this Report for additional disclosure.

Selling, general and administrative,

or SG&A, expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general

management and amortization of certain intangible assets.

The decrease for the year ended December 31, 2023

compared with the same period of 2022 was primarily related to cost reductions, which we initiated during the three months ended December

The reductions in SG&A expense in 2023 primarily resulted from lower headcount, including the elimination of certain employee

and consulting positions and reductions of other discretionary operating expenses.

We expect that total SG&A expense will decrease

for the remainder of 2023 compared with 2022 due to our continued cost reduction initiatives, including headcount reductions.

Liquidity and Capital Resources;

Changes in Financial Condition

At December 31, 2022, we had cash, cash equivalents

and investments totaling $2.9 million compared with cash, cash equivalents and investments of $18.1 million as of December 31, 2021.

In 2022, we used $16.0 million in cash from operating activities, which

primarily resulted from the net loss of $32.4 million and changes to operating assets and liabilities of approximately $2.4 million, adjusted

for non-cash charges and gains, including stock-based compensation expenses of $5.7 million, depreciation and amortization expenses of

$3.1 million, a $9.9 million goodwill impairment charge and $0.1 million of other changes.

The changes in assets and liabilities primarily

related to the timing of the collection of receivables from customers, payments to vendors and increases in inventory balances.

In 2021, we used $12.0 million in cash from operating

activities, which primarily resulted from the net loss of $10.9 million, changes to operating assets and liabilities of approximately

$1.4 million, and an adjustment for a non-cash gain on the change in fair value of warrant liability of $8.1 million, adjusted for non-cash

charges, including stock-based compensation expenses of $4.5 million, depreciation and amortization expenses of $1.1 million, accrued

interest of $0.7 million and amortization of debt discount of $2.1 million.

The changes in assets and liabilities primarily related to

the timing of the collection of receivables from customers, payments to vendors and increases in inventory balances.

In 2022, net cash provided from investing activities

of $10.0 million represented $11.5 million of proceeds from maturities and sales of short-term investments, partially offset by $0.5 million

purchases of short and long-term investments and $1.0 million of purchases of fixed assets and intangible assets.

In 2021, net cash provided from investing activities

of $6.6 million represented $6.5 million of proceeds from the Arrangement, $0.4 million of proceeds from maturities of short-term investments,

partially offset by $0.2 million of purchases of fixed assets and intangible assets.

In 2022, net cash provided by financing activities

was $1.9 million and consisted of $2.1 million in net proceeds from a registered direct offering of our common stock and common stock

purchase warrants completed in November 2022, partially offset by $0.1 million of taxes paid to net share settle equity awards and $0.1

million of repayment of finance lease.

In 2021, net cash provided by financing activities

was $9.6 million and consisted of $9.1 million in net proceeds received from convertible debentures and net proceeds of $1.3 million from

a loan facility, partially offset by $0.8 million for the repayment of loans.

Our future liquidity and capital requirements

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

● level of revenue;

● cost, timing and success of technology development efforts;

● inventory levels, as supply chain disruption has required

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

inventory risk;

● timing of product shipments, which may be impacted by supply

chain disruptions;

● length of billing and collection cycles, which may be impacted

in the event of a global recession or economic downturn;

● fabrication costs, including mask costs, of our ICs, currently

under development;

● variations in manufacturing yields, material lead time and

costs and other manufacturing risks;

● costs of acquiring other businesses and integrating the acquired

● profitability of our business.

At December 31, 2023, we had

cash and cash equivalents totaling $1.6 million compared with cash, cash equivalents and investments of $2.9 million as of December 31,

In 2023, we used $4.7 million

in cash from operating activities, which primarily resulted from our net loss of $16.8 million and changes to operating assets and liabilities

of approximately $2.8 million, adjusted for non-cash charges and gains, including stock-based compensation expenses of $5.2 million, and

depreciation and amortization expenses of $3.8 million, $3.6 million in inventory write-downs and $0.3 million of asset impairment charges,

partially offset by a $3.5 million non-cash gain on the change in fair value of warrant liability and $0.1 million of other changes.

changes in assets and liabilities primarily related to the timing of the collection of receivables from customers, payments to vendors

and increases in inventory balances.

In 2022, we used $16.0 million

in cash from operating activities, which primarily resulted from the net loss of $32.4 million and changes to operating assets and liabilities

of approximately $2.4 million, adjusted for non-cash charges and gains, including stock-based compensation expenses of $5.7 million, depreciation

and amortization expenses of $3.1 million, a $9.9 million goodwill impairment charge and $0.1 million of other changes.

The changes in

assets and liabilities primarily related to the timing of the collection of receivables from customers, payments to vendors and increases

in inventory balances.

In 2023, net cash provided

from investing activities of $1.0 million represented $1.1 million of proceeds from maturities and sales of short-term investments, partially

offset by $0.1 million of purchases of fixed assets.

In 2022, net cash provided

from investing activities of $10.0 million represented $11.5 million of proceeds from maturities and sales of short-term investments,

partially offset by $0.5 million purchases of short and long-term investments and $1.0 million of purchases of fixed assets and intangible

In 2023, net cash provided

by financing activities was $3.4 million and consisted of $3.6 million in net proceeds from a registered direct offering of our common

stock and common stock purchase warrants completed in June 2023, partially offset by taxes paid to net share settle equity awards and

repayment of finance lease liabilities.

In 2022, net cash provided

by financing activities was $1.9 million and consisted of $2.1 million in net proceeds from a registered direct offering of our common

stock and common stock purchase warrants completed in November 2022, partially offset by $0.1 million of taxes paid to net share settle

equity awards and $0.1 million of repayment of finance lease.

Our future liquidity and capital

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

timing and success of technology development efforts;

levels, as supply chain disruption has required us to maintain higher inventory levels and place purchase orders with our suppliers longer

into the future, which exposes us to additional inventory risk;

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

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

● fabrication

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

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

of acquiring other businesses and integrating the acquired operations;

● profitability

of our business.

Purchase Obligations

The Company’s primary

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

At December 31, 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 over 24 months.

Going Concern - Working Capital

We incurred net losses of approximately $32.4

million and $10.9 million for the years ended December 31, 2022 and 2021, respectively, and we had an accumulated deficit of approximately

$149.6 million as of December 31, 2022.

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

us to raise substantial amounts of additional capital.

To date, we have primarily financed our operations through loans, offerings of

common stock and issuance of convertible notes.

We expect to continue to incur operating losses

during 2023 as we continue to secure new customers for and continue to invest in the development of our products, and we expect our cash

expenditures to continue to exceed receipts for at least the next 12 months, as our revenues will not be sufficient to offset our operating

We will need to increase revenues beyond the levels

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

without raising additional capital from time to time.

As a result of our expected operating losses and cash burn and recurring losses

from operations, if we are unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty

We incurred net losses of

approximately $16.8 million and $32.4 million for the years ended December 31, 2023 and 2022, respectively, and we had an accumulated

deficit of approximately $166.4 million as of December 31, 2023.

These and prior year losses have resulted in significant negative cash

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

To date, we have primarily financed our operations through

loans, offerings of common stock and warrants and issuances of convertible notes.

We expect to continue to incur

operating losses during 2024, as we continue to secure new customers for and continue to invest in the development of our products.

we expect our cash expenditures to continue to exceed receipts for at least the next 12 months, as our revenues will not be sufficient

to offset our operating expenses.

We will need to increase revenues

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

doing business without raising additional capital from time to time.

As a result of our expected operating losses and cash burn and recurring

losses from operations, if we are unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty

regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt as to our ability

8 unchanged sentences

foreseeable future.

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

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

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

curtailing business activities.

As further discussed in Note 13 to the consolidated financial statements, in August 2022, we entered into

an exclusive technology license and patent assignment agreement with Intel Corporation, under which we collected $3.1 million in August

2022 and we collected $0.4 million in January 2023.

We expect this transaction to result in a reduction of operating expenses of approximately

$2.7 million on annual basis.

Further, in February 2023, we announced that we had implemented cost-reduction initiatives to reduce operating

expenses by approximately $5 million on an annualized basis.

If we were to raise additional capital through

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

If we engage in debt financing, we may

be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing

our stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could harm our business, operating

results and financial condition.

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

● develop or enhance our products;

● continue to expand our product development and sales and marketing

organizations;

● acquire complementary technologies, products or businesses;

● expand operations, in the United States or internationally;

● hire, train and retain employees;

● respond to competitive pressures or unanticipated working

capital requirements.

Our failure to do any of these things could seriously

harm our ability to execute our business strategy and may force us to curtail our existing operations.

If we are unsuccessful in these efforts, we 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.

As further discussed in Note 13 to the consolidated financial statements, in February 2024, we completed a public

offering of our common stock and warrants for net proceeds of approximately $3.3 million.

Further, in November 2023, we implemented a

reduction in our workforce and eliminated three full-time equivalent positions, which included one employee and two consultants.

we initiated a temporary lay-off in Canada of 16 positions.

The initial cost reduction benefits from the November 2023 actions began to

be realized during the three months ended December 31, 2023, and we expect annualized savings of up to approximately $2.2 million dollars,

if we do not recall the impacted employees.

These cost reduction actions are intended to preserve cash while keeping capital expenditures

to minimum levels in order to reduce operating costs and our short-term cash needs.

If we were to raise additional

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

If we engage in debt

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

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

business, operating results and financial condition.

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

be able to, among other things:

or enhance our products;

to expand our product development and sales and marketing organizations;

complementary technologies, products or businesses;

operations, in the United States or internationally;

train and retain employees;

to competitive pressures or unanticipated working capital requirements.

Our failure to do any of these

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

Off-Balance Sheet Arrangements

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Indemnifications

In the ordinary course of business, we enter into

contractual arrangements under which we may agree to indemnify the counter-party from losses relating to a breach of representations and

warranties, a failure to perform certain covenants, or claims and losses arising from certain external events as outlined within the contract,

which may include, for example, losses arising from litigation or claims relating to past performance.

Such indemnification clauses may

not be subject to maximum loss clauses.

We have also entered into indemnification agreements with our officers and directors.

amounts related to these indemnifications are reflected in our consolidated financial statements for the years ended December 31, 2022

In the ordinary course of

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

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

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

indemnification clauses may not be subject to maximum loss clauses.

We have also entered into indemnification agreements with our officers

and directors.

No material amounts related to these indemnifications are reflected in our consolidated financial statements for the years

ended December 31, 2023 or 2022.

Recent Accounting Pronouncements

See Note 1 to the consolidated financial statements

in Item 15 of this Report for a description of recent accounting pronouncements.

See Note 1 to the consolidated

financial statements in Item 15 of this Report for a description of recent accounting pronouncements.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis