What changed in this filing

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Item 1. Financial Statements

2024-05-14 compared with 2023-11-13 · 772 added, 771 removed, 255 unchanged (86% of the section changed)

2 unchanged sentences

(In thousands, except par value)

September 30,

Current assets

Cash and cash equivalents

Short-term investments

Accounts receivable, net

Deferred cost of net revenue

Inventories, net

Tax credits and receivables

Prepaid expenses and other

1 unchanged sentence

Property and equipment, net

Right-of-use lease assets

Intangible assets, net

Right-of-use lease assets, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

15 unchanged sentences

one share authorized;

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

and one share issued and outstanding at March 31, 2024 and December 31, 2023

Common stock, $ 0.001 par value;

120,000 shares authorized;

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

2,289 shares and 673 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

Exchangeable shares, no par value;

unlimited shares authorized;

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

95 shares outstanding at March 31, 2024 and December 31, 2023

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

7 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Royalty and other

10 unchanged sentences

Other comprehensive loss, net of tax:

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

Net unrealized gain on available-for-sale-securities

Comprehensive loss

3 unchanged sentences

Basic and diluted

Share and per share amounts for the three

months ended March 31, 2024 and 2023 have been adjusted to reflect the impact of a 1-for-40 reverse stock split effected in January 2024,

as discussed in Note 1.

The accompanying notes are an integral part of

2 unchanged sentences

(In thousands)

Series A Special Voting

Special Voting

Preferred Stock

Exchangeable Shares

Comprehensive

1 unchanged sentence

$ ( 166,392 )

Exchange of exchangeable shares

Shares issued for reverse

Sale of common stock and

Issuance of common stock

upon exercise of warrants

Stock-based compensation

Unrealized gain on available-for-sale securities

Balance as of March 31,

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

$ ( 168,423 )

Series A Special Voting

Special Voting

Preferred Stock

Exchangeable Shares

Comprehensive

2 unchanged sentences

Exchange of exchangeable shares

Issuance of common stock under stock plan, net

Stock-based compensation

Unrealized loss on available-for-sale securities

Unrealized gain on available-for-sale

Balance as of March 31,

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

$ ( 152,745 )

Share and per share amounts for the three

months ended March 31, 2024 and 2023 have been adjusted to reflect the impact of a 1-for-40 reverse stock split effected in January 2024,

as discussed in Note 1.

The accompanying notes are an integral part of

2 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

3 unchanged sentences

Change in fair value of warrant liabilities

Inventory write-downs

Allowance for bad debt

Accrued interest

Accrued interest on debt obligation

Changes in assets and liabilities

1 unchanged sentence

Prepaid expenses and other assets

Deferred cost of net revenue

Tax credits and receivables

Accounts payable

5 unchanged sentences

Purchases of property and equipment

Purchases of intangible assets

Proceeds from maturities of marketable securities

Purchases of marketable securities

Net cash provided by investing activities

Cash flows from financing activities:

Proceeds from sale of common stock, net

Taxes paid to net share settle equity awards

Repayment of financing leases

Proceeds from sale of common stock and warrants, net

Repayment of financing lease

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

1 unchanged sentence

Supplemental disclosure:

Initial recognition of warrant liability

Recognition of right-of-use asset and lease liability

Unrealized (gain) loss on securities

Noncash investing and financing activities:

Unrealized gain on available-for-sale securities

The accompanying notes are an integral part of

2 unchanged sentences

The Company and Summary of Significant Accounting Policies

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

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

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

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

The Company specializes in the development of millimeter wave

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

In addition, the

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

licensees of its memory technology.

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

Inc., formerly known as MoSys, Inc.

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

The Company is a fabless semiconductor company specializing in the development of millimeter wave (mmWave), which is generally described

as the frequency band from 24 Gigahertz (GHz) to 300GHz, wireless technology.

The Company derives revenue from selling its semiconductor

devices and modules and performance of non-recurring engineering services.

The Company also manufactures and sells high-performance memory

semiconductor devices for a wide range of markets and receives royalties from licensees of its memory technology.

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

(Callco) and 2864555 Ontario Inc.

(Canco), entered into an Arrangement

Agreement (the Arrangement Agreement) with Peraso Technologies Inc.

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

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

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

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

(Canco), entered into an

Arrangement Agreement (the Arrangement Agreement) with Peraso Technologies Inc.

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

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

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

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

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

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

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

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

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

Standards Codification (ASC) 805, Business Combinations .

The accompanying condensed consolidated financial

statements of the Company have been prepared without audit.

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

derived from the audited consolidated financial statements at that date.

Certain information and disclosures normally included in financial

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

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

The information in this report should

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

report on Form 10-K filed with the SEC.

In the opinion of management, the accompanying

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

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

operating results for the three and 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.

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

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

treated as the accounting acquiree.

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

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

The accompanying condensed

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

The condensed consolidated balance sheet as of December

31, 2023 has been derived from the audited consolidated financial statements at that date.

Certain information and disclosures normally

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

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

The information

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

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

In the opinion of management,

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

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

The operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for

the year ending December 31, 2024 or for any other future period.

Liquidity and Going Concern

The Company incurred net losses of approximately

$ 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 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.

The Company incurred net losses

of approximately $ 2.0 million for the three months ended March 31, 2024 and $ 16.8 million for the year ended December 31, 2023 and had

an accumulated deficit of approximately $ 168.4 million as of March 31, 2024.

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.

As disclosed in Note 7, in February 2024, the Company completed a public offering of its common stock and common stock purchase warrants

for net proceeds of $ 3.4 million.

The Company expects

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

of its products.

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

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

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

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

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

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

financial statements.

In addition, the Company’s independent registered public accounting firm, in its report on the Company’s

consolidated financial statements for the year ended December 31, 2023, 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 plan.

These efforts may include, but are not limited

to, reducing headcount and curtailing business activities.

Basis of Presentation

The condensed consolidated financial statements

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

All significant intercompany transactions and balances have been

eliminated in consolidation.

The condensed consolidated

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

All significant intercompany transactions

and balances have been eliminated in consolidation.

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

Certain prior year amounts have

been reclassified for consistency with the current period presentation.

These reclassifications had no effect on the reported results

of operations or cash flows.

prior year amounts have been reclassified for consistency with the current period presentation.

These reclassifications had no effect

on the reported results of operations or cash flows.

Reverse Stock Split

On December 15, 2023, the

Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State

of Delaware to effect a 1-for-40 reverse stock split of the Company’s shares of common stock.

Further, on January 2, 2024, Canco

filed a certificate of amendment to its amended and restated certificate of incorporation under the Ontario Business Corporations Act

to effect a 1-for-40 reverse stock split of the outstanding exchangeable shares.

Such amendments and ratio were previously approved by

the Company’s stockholders and board of directors.

As a result of the reverse

stock split, which was effective for trading purposes on January 3, 2024, every 40 shares of the Company’s pre-reverse split outstanding

common stock and exchangeable shares were combined and reclassified into one share of common stock.

Proportionate voting rights and other

rights of holders of common stock and exchangeable shares were not affected by the reverse stock split.

Any fractional shares of common

stock and exchangeable shares resulting from the reverse stock split were rounded up to the nearest whole share.

All stock options and

restricted stock units outstanding and common stock reserved for issuance under the Company’s equity incentive plans and warrants

outstanding immediately prior to the reverse stock split were 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.

All share and per-share amounts in these

condensed consolidated financial statements have been restated to reflect the reverse stock split as if it had occurred at the beginning

of the earliest period presented.

Risks and Uncertainties

The Company is subject to risks from, among other

things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing

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

The Company is subject to

risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity

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

COVID-19 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.

government in March 2020.

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

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

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 COVID-19 will not impact the Company’s operational and financial performance in the future,

as 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 economy.

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

Federal Reserve has addressed elevated inflation by increasing interest

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 current stockholders and to the Company’s

Use of Estimates

The preparation of financial statements in accordance

with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses recognized

during the reported period.

Material estimates may include assumptions made in determining reserves for uncollectible receivables, inventory

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

made in valuing equity instruments.

The preparation of financial

statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and

liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues

and expenses recognized during the reported period.

Material estimates may include assumptions made in determining reserves for uncollectible

receivables, inventory write-downs, impairment of long-term assets, valuation allowance on deferred tax assets, accruals for potential

liabilities and assumptions made in valuing equity instruments and warrant liabilities.

Actual results could differ from those estimates.

Cash Equivalents and Investments

The Company has invested its excess cash in money

market accounts, certificates of deposit, corporate debt, government-sponsored enterprise bonds and municipal bonds and considers all

highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Investments with original

maturities greater than three months and remaining maturities less than one year are classified as short-term investments.

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

Management generally determines the appropriate

classification of securities at the time of purchase.

The Company has invested its

excess cash in money market accounts, certificates of deposit, corporate debt, government-sponsored enterprise bonds and municipal bonds

and considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

with original maturities greater than three months and remaining maturities less than one year are classified as short-term investments.

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

Management generally determines the

appropriate classification of securities at the time of purchase.

All securities are classified as available-for-sale.

The Company’s available-for-sale

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

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

item in the condensed consolidated statements of operations.

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

The Company’s

available-for-sale short-term and long-term investments are carried at fair value, with the unrealized holding gains and losses reported

in accumulated other comprehensive income (loss).

Realized gains and losses and declines in the value judged to be other-than-temporary

are included in the other income, net line item in the condensed consolidated statements of operations.

The cost of securities sold is

based on the specific identification method.

Fair Value Measurements

The Company measures the fair value of financial

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

Level 1—Inputs used to measure fair value are

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

Level 2—Pricing is provided by third party sources

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

The Company does not adjust for, or

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

The Company’s Level 2

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

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

The Company’s investment

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

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

transactions.

The Company measures the fair

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

into three broad levels:

Level 1—Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.

Level 2—Pricing is provided by third party sources of market information obtained through the Company’s investment advisors, rather than models.

The Company does not adjust for, or apply, any additional assumptions or estimates to the pricing information it receives from advisors.

The Company’s Level 2 securities include cash equivalents and available-for-sale securities, which consisted primarily of certificates of deposit, corporate debt, and government agency and municipal debt securities from issuers with high-quality credit ratings.

The Company’s investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities are not actively traded and have fewer observable transactions.

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

Level 3—Unobservable inputs that are supported

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

These values are

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

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

subjectivity.

The carrying amounts of financial assets and liabilities,

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

the short maturity of these instruments.

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

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

The Company measures the fair value

of its warrant liabilities using Level 3 inputs.

and Liability-Classified Instruments

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

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

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

The assessment considers whether the warrants are freestanding

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

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

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

for equity classification.

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

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

Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to measure fair value.

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

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

The carrying amounts of financial assets

and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable, and other payables, approximate their fair

values because of the short maturity of these instruments.

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

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

The Company measures

the fair value of its warrant liabilities using Level 3 inputs.

Derivatives and Liability-Classified

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

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

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

The assessment considers whether the warrants

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

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

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

among other conditions for equity classification.

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

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

Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful

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

The Company performs ongoing customer

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

The Company establishes an

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

performs ongoing customer credit evaluations within the context of the industry in which it operates and generally does not require collateral

from its customers.

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

Delinquent account balances

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

The Company grants credit only to customers

deemed creditworthy in the judgment of management.

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

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

The Company grants credit

only to customers deemed creditworthy in the judgment of management.

The allowance for doubtful accounts receivable was approximately

$ 30,000 as of March 31, 2024 and December 31, 2023.

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 write-downs 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.

If actual market conditions are less favorable than those expected by

management, additional adjustments 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.

determined that it had excess and obsolete inventory, primarily related to its mmWave products, and recorded write-downs of inventory

of approximately $ 369 ,000 during the three months ended March 31, 2023.

No material write-downs of inventory were recorded during the

three months ended March 31, 2024.

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

Intangible assets are recorded at cost and amortized

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

Amortization of developed technology and other intangibles

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

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

consolidated statements of operations.

The Company regularly reviews the carrying value

and estimated lives of its long-lived assets and finite-lived intangible assets to determine whether indicators of impairment may exist

which warrant adjustments to carrying values or estimated useful lives.

The determinants used for this evaluation include management’s

estimate of the asset’s ability to generate positive income from operations and positive cash flow in future periods as well as

the strategic significance of the assets to the Company’s business objective.

Should an impairment exist, the impairment loss would

be measured based on the excess of the carrying amount of the long-lived asset group over the asset’s fair value.

Intangible assets are recorded

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

Amortization of developed technology

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

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

expense in the condensed consolidated statements of operations.

The Company regularly reviews

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

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

The determinants used for this evaluation

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

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

Should an impairment exist,

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

Purchased Intangible Assets

Intangible assets acquired in business combinations

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

to be received.

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

in thousands):

September 30, 2023

Intangible assets acquired

in business combinations are accounted for based on the fair value of assets purchased and are amortized over the period in which economic

benefit is estimated to be received.

Intangible assets subject to amortization, including those acquired in business combinations were

as follows (amounts in thousands):

March 31, 2024

Developed technology

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Customer relationships

Developed technology primarily consisted of MoSys’

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

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

The Company has revised the

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

Amortization related to developed

technology of $ 0.6 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 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 $ 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

Developed technology primarily

consisted of MoSys’ products that have reached technological feasibility and primarily relate to its memory semiconductor products

and technology.

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

Amortization related to developed technology of $ 0.6 million for the three months ended March 31, 2024 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 its 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.

Amortization related to customer relationships of $ 0.2 million for the three months ended March 31, 2024 has been included

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

Other amortization expense

was approximately $ 1,000 for the three months ended March 31, 2024.

At March 31, 2024, the Company

has not identified any intangible asset impairments.

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Revenue Recognition

The Company recognizes revenue in accordance with

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

As described below, the analysis of contracts

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

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

The Company generates revenue primarily from sales

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

are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to

receive in exchange for those goods.

The Company recognizes revenue

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

As described below, the

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

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

to the customer.

The Company generates revenue

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

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

to be entitled to receive in exchange for those goods.

Revenue recognition is evaluated through the following five steps:

(i) identification of the contract,

or contracts, with a customer;

(i) identification

of the contract, or contracts, with a customer;

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

(iii) determination of the transaction

(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.

and (v) recognition

of revenue when or as a performance obligation is satisfied.

Product revenue

Revenue is recognized when performance obligations

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

The majority of the Company’s contracts have a single performance obligation

to transfer products.

Accordingly, the Company recognizes revenue when title and risk of loss have been transferred to the customer, generally

at the time of shipment of products.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for

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

The Company sells its products both directly

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

The Company may record an estimated allowance,

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

Revenue is recognized when

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

The majority of the Company’s contracts have

a single performance obligation to transfer products.

Accordingly, the Company recognizes revenue when title and risk of loss have been

transferred to the customer, generally at the time of shipment of products.

Revenue is measured as the amount of consideration the Company

expects to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price.

sells its products both directly to customers and through distributors generally under agreements with payment terms typically 60 days

The Company may record an

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

Royalty and other

The Company’s licensing contracts typically

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

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

are received in the subsequent quarter.

The Company’s licensing

contracts typically provide for royalties based on the licensee’s use of the Company’s memory technology in its currently

shipping commercial products.

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

Payments are received in the subsequent quarter.

The Company also generates revenue from licensing its technology.

The Company recognizes license

fees as revenue at the point of time when the control of the license has been transferred and the Company has no continuing performance

obligations to the customer.

recognizes license fees as revenue at the point of time when the control of the license has been transferred and the Company has no continuing

performance obligations to the customer.

Engineering services revenue

Engineering and development contracts with customers

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

Revenue is recognized using an output method that is consistent

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

Deferred cost of net revenue

As of December 31, 2022, the Company had $ 1.1

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

Accordingly, the Company deferred

the cost of net revenue 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.

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.

Contract liabilities – deferred revenue

The Company’s contract liabilities consist

of advance customer payments and deferred revenue.

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

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

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

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

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.

The Company’s contract

liabilities consist of advance customer payments and deferred revenue.

The Company classifies advance customer payments and deferred revenue

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

As of March 31, 2024 and December 31,

2023, contract liabilities were in a current position and included in deferred revenue.

During the three months ended

March 31, 2024, the Company recognized approximately $ 201,800 of revenue that had been included in deferred revenue as of December 31,

See Note 5 for disaggregation of revenue by geography.

The Company does not have significant financing

components, as payments from customers are typically due within 60 days of invoicing, and the Company has elected the practical expedient

to not value financing components that are less than one year.

Shipping and handling costs are generally incurred by the customer, and,

therefore, are not recorded as revenue.

The Company does not have

significant financing components, as payments from customers are typically due within 60 days of invoicing, and the Company has elected

the practical expedient to not value financing components that are less than one year.

Shipping and handling costs are generally incurred

by the customer, and, therefore, are not recorded as revenue.

Cost of Net Revenue

Cost of net revenue consists primarily of direct

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

Cost of net revenue consists

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

fixed assets.

Stock-Based Compensation

The Company periodically issues stock options

and restricted stock units to employees and non-employees.

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

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

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

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

The Company periodically issues

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

The Company accounts for such awards based on ASC 505 and ASC

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

the vesting period.

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

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

and future dividends.

Compensation expense is recorded based upon the value derived from the Black-Scholes model.

The assumptions used in the Black-Scholes

model could materially affect compensation expense recorded in future periods.

The assumptions used

in the Black-Scholes model could materially affect compensation expense recorded in future periods.

Foreign Currency Transactions

The functional currency of the Company is the

All foreign currency transactions are initially measured and recorded in an entity’s functional currency using the exchange

rate on the date of the transaction.

All monetary assets and liabilities are remeasured at the end of each reporting period using the

exchange rate at that date.

All non-monetary assets and related expense, depreciation or amortization are not subsequently remeasured

and are measured using the historical exchange rate.

An average exchange rate may be used to recognize income and expense items earned

or incurred evenly over a period.

The functional currency of

the Company is the U.S dollar.

All foreign currency transactions are initially measured and recorded in an entity’s functional currency

using the exchange rate on the date of the transaction.

All monetary assets and liabilities are remeasured at the end of each reporting

period using the exchange rate at that date.

All non-monetary assets and related expense, depreciation or amortization are not subsequently

remeasured and are measured using the historical exchange rate.

An average exchange rate may be used to recognize income and expense items

earned or incurred evenly over a period.

Foreign exchange gains and losses resulting from the settlement of such transactions are recognized

3 unchanged sentences

Per-Share Amounts

Basic net loss per share is computed by dividing

net loss for the period by the weighted-average number of exchangeable shares and shares of common stock outstanding during the period.

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

loss per share gives effect to all potentially dilutive exchangeable and common shares outstanding during the period.

Potentially dilutive

common shares consist of incremental exchangeable shares and shares of common stock issuable upon the achievement of escrow terms, exercise

of stock options, vesting of stock awards and exercise of warrants.

The following table sets forth securities outstanding

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

September 30,

Basic net loss per share is

computed by dividing net loss for the period by the weighted-average number of exchangeable shares and shares of common stock outstanding

(WASO) during the period.

In addition, the Company includes the number of shares of common stock issuable upon exercise of pre-funded

warrants as outstanding.

Diluted net loss per share gives effect to all potentially dilutive exchangeable and common shares outstanding

during the period.

Potentially dilutive common shares consist of incremental exchangeable shares and shares of common stock issuable upon

the achievement of escrow terms, exercise of stock options, vesting of stock awards and exercise of warrants.

Prior to June 30, 2023, the

Company excluded shares of common stock issuable upon exercise of pre-funded warrants from the computation of WASO.

The pre-funded warrant

shares are now included in the computation of WASO.

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

of the change reduced the previously reported loss per share by $ 0.30 , and increased WASO by approximately 29,000 shares for the three

months ended March 31, 2023.

The reclassification had no impact on the Company’s net loss or cash flows for the three months ended

March 31, 2024.

The following table sets forth

securities outstanding that were excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive

(in thousands):

Escrow shares - exchangeable shares

2 unchanged sentences

Unvested restricted common stock units

Common stock warrants

Warrants classified as equity

Warrants classified as liabilities

Recently Issued Accounting Pronouncements

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.

In November 2023, the FASB

issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires disclosure

of incremental segment information on an annual and interim basis.

2023-07 is effective for fiscal years beginning after December

15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and it requires retrospective application to all

prior periods presented in the financial statements.

The Company is currently evaluating the impact that this ASU will have on the presentation

of its consolidated financial statements.

In December 2023, the FASB

issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which expands disclosures in an entity’s

income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S.

and foreign jurisdictions.

will be effective for annual periods beginning after December 15, 2024.

The Company is currently evaluating the impact that this ASU will

have on the presentation of its consolidated financial statements.

Other recent authoritative guidance issued by the

FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the Securities and Exchange

Commission (the SEC) did not, or is not expected to, have a material impact on the Company’s consolidated financial statements and

related 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):

September 30, 2023

The following tables represent

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

March 31, 2024

Money market funds (1)

Warrant liabilities

December 31, 2023

Money market funds (1)

Corporate notes and commercial paper

Warrant liabilities

(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):

September 30, 2023

The following tables represent

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

March 31, 2024

Cash and cash equivalents

1 unchanged sentence

Cash and cash equivalents

Short-term investments

Balance Sheet Detail

September 30,

(in thousands)

3 unchanged sentences

Commitments and Contingencies

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.

Company has operating leases for its corporate headquarters facility in San Jose, California and facilities in Toronto and Markham Ontario,

Canada and recognizes lease expense on a straight-line basis over the respective lease terms.

November 2023, the Company renewed the San Jose facility lease for a one-year term, which commenced January 15, 2024 (the Renewal Term),

and, effective with the commencement of the Renewal Term, the Company ceased accounting for the lease under ASC 842.

In December 2023,

the Company renewed the Toronto office lease for a reduced amount of square footage for a one-year term, which commenced January 1, 2024.

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

landlord also provided a lease incentive of approximately $ 286,200 (the Incentive).

In 2023, the Company received payment of $ 143,100

from the Markham landlord of the first installment of the Incentive.

The remaining balance of the Incentive is paid to the Company in

the form of an adjustment to rent during the last three months of each year during the remaining lease term.

During 2023, a credit of

$ 35,775 was made against the rent during the three months ended December 31, 2023.

As of March 31, 2024, the pending Incentive to be received

was $ 107,325 .

Upon the renewal of the Toronto

lease in December 2023, the Company recognized a right-of-use asset of approximately $ 137,700 .

The discount rate used to measure the lease

assets and liabilities for the renewal was 8 %.

initial right-of-use asset and corresponding liability of approximately $ 1.0 million for the Markham facility lease 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,

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 March 31, 2024 (in thousands):

Three Months Ended

Right-of-use assets:

6 unchanged sentences

Total lease liabilities

Future minimum payments under the leases at September

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

Operating and Finance

Future minimum payments under

the leases at March 31, 2024 are listed in the table below (in thousands):

Year ending December 31,

Remainder of 2023

Total future lease payments

1 unchanged sentence

Present value of lease liabilities

The following table provides the details of supplemental

cash flow information (in thousands):

Nine Months Ended

September 30,

The following table provides

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

Three Months Ended

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

Operating cash flows for leases

Rent expense was approximately $ 0.2 million for

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.

Rent expense was approximately

$ 0.2 million for each of the three-month periods ended March 31, 2024 and 2023.

In addition to the minimum lease payments, the Company

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

Indemnification

In the ordinary course of business, the Company

enters into contractual arrangements under which it may agree to indemnify the counterparties from any losses incurred relating to breach

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

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

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 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.

The Company has also entered into indemnification

agreements with its officers and directors.

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

statements for the three months ended March 31, 2024 and 2023 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

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

The Company warrants certain

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

The Company estimates its warranty costs based on historical

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

Warranty costs were not material for the three months ended

March 31, 2024 and 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.

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

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

management efforts.

Purchase Obligations

1 unchanged sentence

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

At September 30, 2023,

At March 31, 2024,

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

2 unchanged sentences

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):

The Company determined its

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

Management evaluates a reporting unit by first identifying

its operating segments under ASC 280.

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

that constitute a business.

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

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

If applicable, when determining if it is appropriate

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

are aggregated.

Management has determined

that the Company has one consolidated operating segment.

The Company’s reporting segment reflects the manner in which its chief

operating decision maker reviews results and allocates resources.

The Company’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

1 unchanged sentence

Total net revenue

The following is a breakdown of product revenue

by category (in thousands):

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

mmWave modules

mmWave other products

Customers who accounted for at least 10 % of total

net revenue were:

Three Months Ended

Nine Months Ended

September 30,

The following lists significant

customers that represented more than 10% of the Company’s total revenue and/or net accounts receivable balance, as applicable, at

each respective balance sheet date:

Accounts Receivable

For the Three Months Ended

The following lists significant

vendors that represented more than 10% of the Company’s total accounts payable balance at each respective balance sheet date:

Accounts Payable

* Represents less than 10%

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

Common Stock Equity Plans

In 2010, the Company adopted the 2010 Equity Incentive

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

The Amended 2010 Plan was terminated in August 2019 and remains

in effect as to outstanding equity awards granted prior to the date of expiration.

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

In August 2019, the Company’s stockholders

approved the 2019 Stock Incentive Plan (the 2019 Plan) to replace the Amended 2010 Plan.

The 2019 Plan authorizes the board of directors

or the compensation committee of the board of directors to grant a broad range of awards including stock options, stock appreciation rights,

restricted stock, performance-based awards, and restricted stock units.

Under the 2019 Plan, 182,500 shares were initially reserved for

In 2010, the Company adopted

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

The Amended 2010 Plan was terminated

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

No new awards may be made

under the Amended 2010 Plan.

In August 2019, the Company’s

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

The 2019 Plan authorizes the board

of directors or the compensation committee of the board of directors to grant a broad range of awards including stock options, stock appreciation

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

Under the 2019 Plan, 4,563 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 77,674 shares.

Under the 2019 Plan, the term of all incentive

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 Plan.

The 2009 Plan, the Amended

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

Stock-Based Compensation Expense

The Company reflected compensation

costs of $ 1.0 million and $ 1.1 million related to the vesting of stock options during each of the three-month periods ended March 31,

2024 and 2023, respectively.

At March 31, 2024, the unamortized compensation cost was approximately $ 2.2 million related to stock options

and is expected to be recognized as expense over a weighted average period of approximately 0.8 years.

The Company reflected compensation

costs of $ 0.2 million related to the vesting of restricted stock during each of the three months ended March 31, 2024 and 2023.

The unamortized

compensation cost at March 31, 2024 was $ 0.7 million related to restricted stock units and is expected to be recognized as expense over

a weighted average period of approximately 0.9 years.

There were no stock options granted or exercised during the three months ended

March 31, 2024 and 2023.

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

2 unchanged sentences

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.

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 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):

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

The following table summarizes

the activity in the shares available for grant under the Plans during the three months ended March 31, 2024 and options outstanding as

of March 31, 2024 (in thousands, except exercise price):

Options Outstanding

Balance as of December 31, 2023

RSUs cancelled and returned to the Plans

RSUs cancelled and returned to the 2019 Plan

Options cancelled

Balance as of March 31, 2024

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):

A summary of RSU activity

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

Non-vested shares as of December 31, 2023

Non-vested shares as of March 31, 2024

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):

The following table summarizes

significant ranges of outstanding and exercisable options as of March 31, 2024 (in thousands, except contractual life and exercise price):

Options Outstanding

4 unchanged sentences

$ 0.00 - $ 599.60

$ 410.00 - $ 924.00

$ 1.57 - $ 924.00

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

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.

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 32,822 Exchangeable

Shares and 12,564 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

$ 342.80 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

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.

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.

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:

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 Share.

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.

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.

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

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;

2 unchanged sentences

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.

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):

February 2024 Public Offering

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

as the sole underwriter (the Underwriter), relating to the issuance and sale in a public offering (the Offering) of:

(i) 480,000 shares

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

3,809,520 shares of common stock, (iv) Series B warrants to purchase up to 3,809,520 shares of common stock, and (v) up to 285,714 additional

shares of common stock, Series A warrants to purchase up to 571,428 shares of common stock and Series B warrants to purchase up to 571,428

shares of common stock that 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.

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 the Company and excluding any 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 were 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, were exercisable immediately and may be exercised

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

The exercise price and number of shares of common stock issuable

upon exercise of the warrants is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar

events affecting the common stock and the exercise price.

Subject to limited exceptions, a holder may not exercise any portion of its

warrants to the extent that the holder would beneficially own more than 9.99 % or 4.99 % (at the election of the holder) of the Company’s

outstanding common stock after exercise.

On February 8, 2024, pursuant

to the Underwriting Agreement, the Company issued Series A warrants to the Underwriter to purchase up to 139,108 shares of 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.

Warrants Classified as Equity

As of March 31, 2024, the

Company had the following equity-classified common stock purchase warrants outstanding (share amounts in thousands):

Number of Shares

1 unchanged sentence

Balance as of December 31, 2023

Warrants expired

Balance as of March 31, 2023

June 28, 2023

Pre-funded warrants issued

Pre-funded warrants exercised

Balance as of June 30, 2023

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

Series A warrants issued

February 8, 2029

Series A warrants issued

February 8, 2029

Series B warrants issued

August 8, 2024

Balance as of March 31, 2024

During the three months ended

March 31, 2024, holders exercised warrants for an aggregate of 674,920 shares of common stock based on the exercise price of $ 0.001 per

share for aggregate proceeds of approximately $ 675 .

Also, during the three months ended March 31, 2024, holders exercised warrants for

an aggregate of 326,190 shares of common stock on a cashless basis and surrendered 127 shares of common stock as payment of the aggregate

exercise price.

Warrants Classified as Liabilities

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.

In November 2022 and June

2023, the Company completed registered direct offerings and sold shares of its common stock and common stock purchase warrants (the “Purchase

The securities purchase agreements governing the Purchase Warrants provide for a value calculation for such warrants

using the Black Scholes model in the event of certain fundamental transactions.

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

The Company has determined this provision introduces leverage

to the holders 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.

3 unchanged sentences

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

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

of March 31, 2024 and December 31, 2023, the Company had the following liability-classified warrants outstanding (amounts in thousands):

Shares Exercise

Price Expiration

Warrants issued - November 2022 92 $ 40.00 May 28, 2028

Warrants issued - June 2023 143 $ 28.00 June 2, 2028

Balance as of December 31, 2023

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

Balance as of March 31, 2024

The fair value of the Purchase

Warrants at March 31, 2024 was determined using the Black Scholes model with the assumptions in the following table.

The table also includes

the total fair value determined at the valuation date based on these assumptions.

Expected term based on contractual term

Interest rate (risk-free rate)

Expected volatility

Expected dividend yield

Fair value of warrants (in thousands)

The fair value of the Purchase

Warrants at December 31, 2023 was determined using the Black Scholes model with the assumptions in the following table.

The table also

includes the total fair value determined at valuation date based on these assumptions.

Expected term based on contractual term

Interest rate (risk-free rate)

Expected volatility

Expected dividend yield

Fair value of warrants (in thousands)

Related Party Transactions

A family member of one of the Company’s

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

During the 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 .

A family member of one of

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

The Company recorded compensation expense of approximately $ 27,800

for the employed family member for each of the three months ended March 31, 2024 and 2023 .

License and Asset Sale Transaction

On August 5, 2022, the Company entered into a

Technology License and Patent Assignment Agreement (the Intel Agreement) with Intel Corporation (Intel), pursuant to which Intel:

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,

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

(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 Intel 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, pursuant to which, among other things, the Company licensed from Fabulous certain technology incorporated into the Licensed

As consideration for the Company

to enter into the Intel 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 Intel Agreement relating to various due diligence activities of Intel regarding the Licensed Technology.

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 .

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

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

which was recorded as a reduction of operating expenses in the condensed consolidated statements of operations and comprehensive loss.

Memory IC Product End-of-Life

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.

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

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.

As of March 31, 2024, the Company had a non-cancelable purchase order backlog for its

memory IC products of approximately $ 12.6 million.

The Company expects to fulfill this backlog and complete final shipments of its memory

IC products by March 31, 2025.

Subsequent Events

to March 31, 2024, the holders of the pre-funded warrants issued in the Offering exercised warrants for an additional 307,460 shares of

common stock.

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