| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for
interim financial information. Accordingly, certain information and footnote disclosures normally included in consolidated financial statements
in accordance with GAAP have been omitted. In the opinion of management, all adjustments considered necessary for a fair presentation
have been included. All significant intercompany
balances and transactions have been eliminated in consolidation. The condensed consolidated balance
sheet at December 31, 2023 has been derived from the audited consolidated financial statements at that date, but does not include all
disclosures, including notes, required by GAAP for complete financial statements. The unaudited interim condensed consolidated financial
statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company’s
Annual Report on Form S-1 for its year ended December 31, 2023.
Basis of Accounting The accompanying condensed consolidated
financial statements have been prepared on the accrual basis in accordance with accounting principles generally accepted under GAAP.
Use of Estimates Management of the Company is required
to make certain estimates, judgments, and assumptions during the preparation of its condensed consolidated financial statements in accordance
with GAAP. The Company believes that these estimates, judgments and assumptions are reasonable under the circumstances. These estimates,
judgments, and assumptions impact the reported amounts of assets, liabilities, revenue, and expenses, and the related disclosure of contingent
assets and liabilities. Actual results could differ from these estimates. Changes in such estimates could affect amounts reported in future
periods. On an ongoing basis, the Company evaluates its estimates and judgments including those related to: liquidity and going concern,
the useful lives and recoverability of property and equipment and definite-lived intangible assets; the recoverability of goodwill and
indefinite-lived intangible assets; the carrying value of accounts receivable, including the determination of the allowance for credit
losses; inventory, including the determination of allowances for estimated excess or obsolescence; the fair value of warrants; the fair
value of acquisition- related contingent consideration arrangements; unrecognized tax benefits; legal contingencies; the incremental borrowing
rate for the Company’s leases; and the valuation of stock-based compensation, among others. Reclassification Certain amounts from prior period financial
statements have been reclassified to align with the presentation used in the current condensed consolidated financial statements for comparative
purposes. These reclassifications had no material effect on the Company’s previously issued financial statements. Emerging Growth Company Status The Company is an emerging growth company,
as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued
subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to
use this extended transition period for complying with new or revised accounting standards that have different effective dates for public
and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively
and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be
comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Segment Information The Company operates as a single operating
segment. The chief operating decision maker is the Company’s Chief Executive Officer, who makes resource allocation decisions and
assesses performance based on financial information presented on a consolidated basis, accompanied by disaggregated revenue information.
Accordingly, the Company has determined that it has a single reportable segment and operating segment. Fair Value Measurement Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction
between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs
and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered
observable and the last is considered unobservable:
Level 1 Observable
inputs obtained from independent sources, such as quoted market prices for identical assets
and liabilities in active markets.
Level 2 Other inputs,
which are observable directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets, quoted
market prices for identical or similar assets or liabilities in markets that are not active, and inputs that are derived principally
from or corroborated by observable market data.
Level 3 Unobservable
inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information
available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities. The
Company issued preferred stock warrants and common stock warrants classified as equity securities which do not require recurring fair
value measurement. Refer to Note 9 – Incentive Plans . Recurring Fair Value Measurements The following methods and assumptions
were used to estimate the fair value of each class of financial assets and liabilities for which it is practicable to estimate fair value: Money market funds — The carrying
amount of money market funds approximates fair value and is classified within Level 1 because the fair value is determined through quoted
market prices. Private Warrants – The carrying
value of the warrants is classified within Level 2 because the fair value is determined through quoted market prices, which are valued
using the closing market price of the public warrants as the private placement warrants have terms and provisions that are identical to
those of the public warrants. Contingent Financing Asset – The
initial measurement of the Contingent Financing Asset is classified within Level 1 because the fair value is determined through quoted
market prices. Convertible Note Option Liability -
The initial measurement and carrying value of the conversion option is classified within Level 3 because the fair value is determined
through an option pricing model. Earn-Out - The initial measurement and
carrying value is classified within Level 3 because the fair value is determined through Monte Carlo simulation. The Company’s remaining financial
instruments that are measured at fair value on a recurring basis consist primarily of cash, accounts receivable, accounts payable, accrued
expenses, and other current liabilities. The Company believes their carrying values are representative of their fair values due to their
short-term maturities. Business Combinations The Company evaluates whether acquired
net assets should be accounted for as a business combination or an asset acquisition by first applying a screen test to determine whether
substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable
assets. If so, the transaction is accounted for as an asset acquisition. If not, the Company applies its judgement to determine whether
the acquired net assets meets the definition of a business by considering if the set includes an acquired input, process, and the ability
to create outputs. The Company accounts for business combinations
using the acquisition method when it has obtained control. The Company measures goodwill as the fair value of the consideration transferred
including the fair value of any non-controlling interest recognized, less the net recognized amount of the identifiable assets acquired
and liabilities assumed, all measured at their fair value as of the acquisition date. Transaction costs, other than those associated with
the issuance of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred. Any contingent consideration (i.e., Earn-out liabilities) is measured at fair value at the acquisition date. For contingent consideration that do not meet all the criteria
for equity classification, such contingent consideration are required to be recorded at their initial fair value at the acquisition date,
and on each balance sheet date thereafter. Changes in the estimated fair value of liability-classified contingent consideration are recognized
on the consolidated statements of operations in the period of change. When the initial accounting for a business
combination has not been finalized by the end of the reporting period in which the transaction occurs, the Company reports provisional
amounts. Provisional amounts are adjusted during the measurement period, which does not exceed one year from the acquisition date. These
adjustments, or recognition of additional assets or liabilities, reflect new information obtained about facts and circumstances that existed
at the acquisition date that, if known, would have affected the amounts recognized at that date. Cash and Cash Equivalents Cash balances are held in U.S. and
European banks. Cash balances held in the U.S. are insured by the Federal Deposit Insurance Corporation subject to certain limitations.
The Company maintains its cash balances in highly rated financial institutions. At times, cash balances may exceed federally insurable
limits. Restricted Cash The Company is not subject to any
contractual agreement that contains restrictions on the Company’s use or withdrawal of its cash or cash equivalents. Revenue Recognition The Company recognizes revenue based
on the satisfaction of distinct obligations to transfer goods and services to customers. The Company generates revenue from hardware sales
and the sale of licenses and subscriptions. The Company applies a five-step approach as defined in ASC 606, Revenue from Contracts with
Customers, in determining the amount and timing of revenue to be recognized: (1) identify the contract with a customer; (2) identify the
performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations
in the contract; and (5) recognize revenue when a corresponding performance obligation is satisfied. Most contracts with customers are
to provide distinct products or services within a single contract. However, if a contract is separated into more than one performance
obligation, the total transaction price is allocated to each performance obligation in an amount based on the estimated relative standalone
selling price. The Company earns revenue from the
sale of its VeeaHub® devices, licenses and subscriptions. The Company generated revenue of $50,683 and $9,009,254 for the three months
ended September 30, 2024 and 2023, respectively. The Company generated revenue of $108,264 and $9,040,359 for the nine months ended September
30, 2024 and 2023, respectively. Other than $9 million of revenue generated from the license of AdEdge™ in 2023, revenue has been
immaterial for all periods presented and represented revenue earned from paid pilots for our VeeaHub® devices. For licenses of technology, recognition
of revenue is dependent upon whether the Company has delivered rights to the technology, and whether there are future performance obligations
under the contract. Revenue from non-refundable upfront payments is recognized when the license is transferred to the customer and the
Company has no other performance obligations. Revenue for licenses delivered under a subscription model having terms between one and twelve-months
are recognized over-time. Subscription revenue is generated through sales of monthly subscriptions. Customers pay in advance for the licenses
and subscriptions. Revenue is initially deferred and is recognized using the straight-line method over the term of the applicable subscription
period. Revenue from hardware sales is recognized
at a point-in-time, which is generally at the point in time when products have been shipped, right to payment has been obtained and risk
of loss has been transferred. Certain of the Company’s product performance obligations include proprietary operating system software,
which typically is not considered separately identifiable. Therefore, sales of these products and the related software are considered
one performance obligation. Revenue from all sale types is recognized
at the transaction price, the amount management expects to be entitled to in exchange for transferring goods or providing services. Transaction
price is calculated as selling price net of variable consideration which may include estimates for future returns, price protection, warranties,
and other customer incentive programs based upon the Company’s expectation and historical experience. The Company contracts with customers
under non-cancellable arrangements. While customers, including resellers, may cancel master purchase agreements under certain circumstances,
customers may not cancel or modify purchase orders placed under the terms of such master purchase agreements. Each purchase order is therefore
a contract with the customer, i.e., the purchase of a quantity of any given, single product; further, purchase orders do not commit the
customer to purchase any further volumes over time. Contract modifications do not carry revenue recognition implications as no revenue
is recognized until control over products, or intellectual property, as applicable, has transferred to the customer. The Company has service arrangements
where net sales are recognized over time. These arrangements include a variety of post-contract support service offerings, which are generally
recognized over time as the services are provided, including maintenance and support services, and professional services to help customers
maximize their utilization of deployed systems. A contract liability for deferred
revenue is recorded when consideration is received or is unconditionally due from a customer prior to transferring control of goods or
services to the customer under the terms of a contract. Deferred revenue balances typically result from advance payments received from
customers for product contracts or from billings in excess of revenue recognized on services arrangements. Deferred revenue balances were
not significant as of September 30, 2024 and December 31, 2023. Warranties The
Company accrues the estimated cost of product warranties at the time of recognizing revenue. The Company’s standard product warranty
terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period of
time. The Company actively monitors and evaluates the quality of its component suppliers. The estimated warranty obligation is based
on contractual warranty terms, repair costs, and the Company’s baseline experience. The Company’s standard warranty terms
are twelve months. Warranty expense was not significant for the three and nine months ended September 30, 2024 and 2023. Accounts Receivable Trade accounts receivable are recognized
and carried at billed amounts less an allowance for credit losses. The Company adopted the Current Expected Credit Losses (“CECL”)
guidance effective January 1, 2023. The Company maintains the allowance for estimated losses resulting from the inability of the Company’s
customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining
duration of existing accounts receivable considering current market conditions and supportable forecasts when appropriate. The estimate
is a result of the Company’s ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses,
and future expectations. Credit loss expense and allowance for credit losses were not significant as of September 30, 2024 and December
31, 2023, and for the three and nine months ended September 30, 2024 and 2023. Inventory The Company values inventory at the
lower of cost or net realizable value. Cost is computed using standard cost which approximates actual cost on a first-in, first-out basis.
At each reporting period, the Company assesses the value of its inventory and writes down the cost of inventory to its net realizable
value if required, for estimated excess or obsolescence. Factors influencing these adjustments include changes in future demand forecasts,
market conditions, technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration,
and quality issues. The write down for excess or obsolescence is charged to the provision for inventory, which is a component of Cost
of Goods Sold in the Company’s consolidated statements of operations and comprehensive loss. At the point of the loss recognition,
a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration
or increase in that newly established cost basis. Cost of Goods Sold Cost of goods sold consists primarily
of the cost of finished goods, components purchased for manufacturing and freight. Cost of goods sold also includes third-party vendor
costs related to cloud hosting fees. Shipping and Handling The Company considers shipping and
handling to customers to represent activities performed in fulfilling the contract with the customer. When shipping is charged to the
customer, the Company nets such charges against actual shipping costs incurred. Tax Collected from Customers Taxes imposed by governmental authorities
on the Company’s revenue producing activities, such as sales taxes, are excluded from net sales. Research and Development Research and development (“R&D”)
costs that do not meet the criteria for capitalization are expensed as incurred. R&D costs primarily consist of employee compensation,
employee benefits, stock-based compensation related to technology developers and product management employees, as well as fees paid for
outside services and materials. Sales and Marketing Sales and marketing costs consist
of compensation and other employee related costs for personnel engage in selling and marketing, and sales support functions. Selling expenses
also include marketing, and the costs associated with customer evaluations. The Company does not incur advertising costs. General and Administrative Expense General
and administrative expense consists of compensation expense (including stock-based compensation expense), executive management, finance,
legal, tax, and human resources. General and administrative expense also include transaction costs, expenses associated with facilities,
information technology, external professional services, legal costs and settlement of legal claims, unrealized foreign currency transaction
gain/loss and other administrative expenses. Property and Equipment, net Property and equipment, net is stated
at cost and depreciated on a straight-line basis of five to seven years for furniture and fixtures and five years for computer equipment.
Leasehold improvements are capitalized and amortized over the shorter of their useful lives or remaining lease term. Repair and maintenance
costs are charged to operations in the periods incurred. Upon retirement or sale, costs and related accumulated depreciation or amortization
are removed from the balance sheets and the resulting gain or loss is included in operating expense in the Company’s consolidated
statements of operations and comprehensive loss. Goodwill Goodwill represents the excess of
the aggregate purchase consideration over the fair value of the net assets acquired. Goodwill is reviewed for impairment on an annual
basis, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. In conducting
its annual impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair
value of the reporting unit is less than its carrying amount. If factors indicate that the fair value of the reporting unit is less than
its carrying amount, the Company performs a quantitative assessment, and the fair value of the reporting unit is determined by analyzing
the expected present value of future cash flows. If the carrying value of the reporting unit continues to exceed its fair value, the fair
value of the reporting unit’s goodwill is calculated and an impairment loss equal to the excess is recorded. The Company’s
goodwill was recorded in connection with an acquisition consummated in June 2018. The Company considers goodwill to have an indefinite
life and is not amortized. As of September 30, 2024 and December 31, 2023, no events have occurred that would require impairment of goodwill. Impairment of Long-Lived Assets Long-lived assets with finite lives
consist primarily of property and equipment, operating lease right-of-use assets, and intangible assets which are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future net cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Stock-Based Compensation The Company accounts for stock-based
compensation expense in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718 Income Taxes Effective June 8, 2018, the Company
converted from an S Corporation to a C Corporation for federal and state income tax purposes. Accordingly, prior to the conversion to
a C corporation, the Company did not record deferred tax assets or liabilities or have any net operating loss carryforwards. The Company
is required to file tax returns in the U.S. federal jurisdiction and various states and local municipalities. Veea Systems Ltd. is governed
by, and is required to file tax returns under, the Income Tax Law of the U.K. with a statutory income tax rate of 19%. In 2021, the Company
established Veea SAS, a French entity with a statutory income tax rate of 25%. Significant
judgment is required in determining the Company’s uncertain tax positions. It is not expected that there will be a significant
change in uncertain tax positions for the nine months ended September 30, 2024 and for the year ended December 31, 2023, respectively. Foreign Operations and Foreign Currency
Translation The currency of the primary economic
environment in which the operations of the Company and its U.S. subsidiaries are conducted is the United States dollar (“USD”).
Accordingly, the Company and all of its U.S. subsidiaries use USD as their functional currency. The results of the Company’s non-U.S.
subsidiaries, whose functional currency are the local currencies of the economic environment in which they operate, are translated into
USD in accordance with GAAP. Assets and liabilities are translated at year-end exchange rates, while
revenues and expenses are translated at average exchange rates during the year. Differences resulting from translation are presented in
equity as accumulated other comprehensive loss. Transaction gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the results of operations as incurred. Foreign currency transaction
(gain) loss, mainly related to intercompany transactions, is included in the consolidated statements of operations. For the three months
ended September 30, 2024 and September 30, 2023 transactions (gain) loss were $(1,831,743) and $926,965, respectively. For the nine months
ended September 30, 2024 and September 30, 2023 such amounts were $(1,343,640) and $(86,019), respectively. Comprehensive Loss Comprehensive loss consists of two components,
net loss and other comprehensive income (loss), net. Other comprehensive income (loss), net is defined as revenue, expenses, gains, and
losses that under GAAP are recorded as an element of stockholders’ deficit but are excluded from net loss. The Company’s other
comprehensive loss consists of foreign currency translation adjustments that result from the consolidation of its foreign subsidiaries
and is reported net of tax effects. Investments The Company holds non-marketable equity
and other investments (“privately held investments”) which are included in noncurrent assets in the Company’s consolidated
balance sheet. The Company monitors these investments for impairments and makes adjustments in carrying values if management determines
that an impairment charge is required based primarily on the financial condition and near-term prospects of these investments. Concentration of Risks Financial instruments that potentially
subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents, and accounts receivable.
Cash balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000. The Company has not
experienced any losses in such accounts. Earnings per Share, recasted Basic net loss per share is calculated
by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the
year. Diluted net loss per share is based upon the diluted weighted-average number of shares outstanding during the year. Diluted net
loss per share gives effect to all potentially dilutive common share equivalents, including stock options, and warrants, to the extent
they are dilutive. Refer to Note 14 – Earnings Per Share Convertible Note Payable When the Company issues convertible
debt, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine (1) whether the instrument
should be classified as a liability under ASC 480, Distinguishing Liabilities from Equity, and (2) whether the conversion feature
should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument would be separated
from the convertible instrument and classified as a derivative liability if the conversion feature, were it a standalone instrument, meets
the definition of a “derivative” in ASC 815, Derivatives and Hedging. When a conversion feature meets the definition
of an embedded derivative, it would be separated from the host instrument and classified as a derivative liability carried on the consolidated
balance sheet at fair value, with any changes in its fair value recognized currently in the consolidated statements of operations. See
Note 7 “Debt” for further information. Contingent Financing Asset The
Company recorded a contingent financing asset on the condensed consolidated balance sheets for the fair value of the Transferred Shares
issued to Investors for the unfunded portion of the Convertible Notes Payable. See Note 7 “Debt” for further information. Warrants The Company accounts for warrants as
either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable
authoritative guidance in FASB Accounting Standards Codification 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 whether the warrants meet all of the requirements for
equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether
the warrant holders 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. For issued or modified warrants that
meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital
at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are
required to be recorded at their initial fair value on the date of issuance, and at their fair value on each balance sheet date thereafter.
Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss in the Company’s consolidated statements
of operations. The Company accounts for the Public
and Private warrants in accordance with guidance contained in ASC 815-40. Such guidance provides that because the Public warrants meet
the criteria for equity treatment. Such guidance provides that because the Private warrants do not meet the criteria for equity treatment
thereunder, each warrant must be recorded as a liability See Note 10 “Warrants” for further information. Accounting Pronouncements Recently
Adopted In June 2016, the FASB issued ASU
2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends
the FASB’s guidance on the impairment of financial instruments. Topic 326 adds to GAAP an impairment model (known as the “current
expected credit loss model”) that is based on expected losses rather than incurred losses. ASU 2016-13 is effective for the Company’s
annual and interim periods beginning after December 15, 2022 with early adoption permitted. The Company adopted ASU 2016-13 beginning
January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated financial statements. In October 2021, the FASB issued ASU
2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,”
which requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination
as if it had originated the contracts. The standard is effective for public companies for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2022. We adopted the ASU on January 1, 2023 and will apply the guidance prospectively for future
acquisitions. In
September 2022, the FASB issued ASU 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier
Finance Program Obligations,” which requires entities that use supplier finance programs in connection with the purchase of goods
and services to disclose sufficient information about the program. The amendments do not affect the recognition, measurement or financial
statement presentation of obligations covered by supplier finance programs. The standard is effective for public companies for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2022, except for the amendment on roll-forward information,
which is effective for fiscal years beginning after December 15, 2023. We adopted the ASU on January 1, 2023, and the adoption did not
have a material impact on the Company’s condensed consolidated financial statements. Recent Accounting Pronouncements
Not Yet Adopted In December 2023, the FASB issued
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires that an entity disclose specific categories
in the effective tax rate reconciliation as well as reconciling items that meet a quantitative threshold. Further, the ASU requires additional
disclosures on income tax expense and |
