# Navitas Semiconductor Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Navitas Semiconductor Corp](/companies/nvts.md) (CIK 1821769)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 22:26 ET
- Period: 2023-09-30
- Accession: 0001821769-23-000176
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1821769/000182176923000176/nvts-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1821769/000182176923000176/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $22.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $53.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $14.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $33.3m | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $16.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $50.7m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $14.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $46.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$28.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$91.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $23.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | −$13.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $7.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$112.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.04 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.68 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.04 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.68 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 185,626,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 165,719,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$17.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $3.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $176.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $214.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $493.9m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $45.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $90.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $403.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,559 characters.

*Unless the context otherwise requires, all references in this section to the “Company,” “we,” “us, or “our” refer to the business of Navitas and its subsidiaries. Throughout this section, unless otherwise noted, “Navitas” refers to Navitas Semiconductor Corporation and its consolidated subsidiaries.*

*You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Summary of Risk Factors” and “Cautionary Statement About Forward-Looking Statements” sections and elsewhere in this quarterly report, our actual results may differ materially from those anticipated in these forward-looking statements.*

### Overview

Founded in 2013, Navitas is a U.S. based developer of gallium nitride and silicon carbide power semiconductor devices that provide superior efficiency, performance, size and sustainability relative to existing silicon technology. Our solutions offer faster charging, higher power density and greater energy savings compared to silicon-based power systems with the same output power. By unlocking this speed and efficiency, we believe we are leading a revolution in high-frequency, high-efficiency and high-density power electronics to electrify our world for a cleaner tomorrow. We maintain operations around the world, including the United States, Ireland, Germany, Italy, Belgium, China, Taiwan, Thailand and the Philippines, with principal executive offices in Torrance, California.

We design, develop and market next-generation power semiconductors including gallium nitride (“GaN”) power integrated circuits (“ICs”, silicon carbide (“SiC”) and associated high-speed silicon system controllers, and digital isolators used in power conversion and charging. Power supplies incorporating our products may be used in a wide variety of electronics products including mobile phones, consumer electronics, data centers, solar inverters and electric vehicles. We utilize a fabless business model, working with third parties to manufacture, assemble and test our designs. Our fabless model allows us to run the business today with minimal capital expenditures.

Our go-to-market strategy is based on partnering with leading manufacturers and suppliers through focused product development, addressing both mainstream and emerging applications. We consider ourselves to be a pioneer in the GaN market with a proprietary, proven GaN power IC platform that is shipping in mass production to tier-1 companies including Samsung, Dell, Lenovo, LG, Xiaomi, OPPO, Amazon, vivo and Motorola. Most of the products we ship today are used primarily as components in mobile device chargers. Charger manufacturers we ship to today are worldwide, supporting major international mobile brands. Other emerging applications will also be addressed across the world.

In support of our technology leadership, we have formed relationships with numerous Tier 1 manufacturers and suppliers over the past eight years, gaining significant traction in mobile and consumer charging applications. Navitas GaN is now in mass production with 10 of the top 10 world-wide mobile OEMs across smartphone and laptops in development with 10 out of 10. In addition, our supply chain partners have committed manufacturing capacity in excess of what we consider to be necessary to support our continued growth and expansion.

A core strength of our business lies in our industry leading IP position. In addition to our comprehensive patent portfolio, our biggest proprietary advantage is our process design kit (PDK), the ‘how-to’ guide for Navitas designers to create new GaN based devices and circuits. Our GaN power IC inventions and intellectual property translate across all of our target markets from mobile, consumer, EV, enterprise, and renewables. We evaluate various complementary technologies and look to improve our PDK, in order to keep introducing newer generations of GaN technology. In the nine months ended September 30, 2023 and 2022, we spent approximately 95% and 134%, respectively, of our revenue on research and development. Navitas’ research and development activities are located primarily in the US and China.

#### May 2023 Public Offering

On May 26, 2023, the Company completed an underwritten public offering (the “May 2023 Public Offering”) of 10,000.000 shares of its Class A Common Stock at a public offering price of $8.00 per share, before deducting underwriting discounts and commissions. In connection with the May 2023 Public Offering, the Company granted the underwriters of the offering a 30-day option to purchase up to an additional 1,500,000 shares of the Company’s Class A Common Stock (the “Option Shares”) from the Company at the same public offering price. On June 1, 2023, the underwriters exercised in full their option to purchase the Option Shares. The sale of the Option Shares closed on June 5, 2023. After deducting underwriting discounts and commissions and before deducting offering expenses payable by the Company, the Company received net proceeds of $75.6 million and $11.3 million from the May 2023 Public Offering and sale of the Option Shares, respectively. The total net proceeds received by the Company after deducting offering expenses was $86.5 million. The Company intends to use the net proceeds for working capital and other general corporate purposes, including potential acquisitions or strategic manufacturing investments.

#### Buyout of Elevation Semiconductor

On January 19, 2023, the Company announced an agreement to acquire the remaining minority interest in its silicon control IC joint venture as well as rights to certain intellectual property from Halo Microelectronics for a total purchase price of $22.4 million in Navitas stock. As Navitas was already the majority shareholder, financial results from the joint venture have already been reflected in Navitas’ historical financial statements. The transaction was completed on February 13, 2023. In connection with the purchase of intellectual property, the Company recognized an intangible asset at its estimated fair value of $4.4 million related to acquired intellectual property.

#### Acquisition of GeneSiC

On August 15, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire 100% of the outstanding shares of GeneSiC Semiconductor Inc. (“GeneSiC”) for $146.3 million of equity, $97.1 million of cash consideration, and potential future earn-out payments of up to an aggregate of $25.0 million in cash. GeneSiC is a silicon carbide (“SiC”) pioneer with deep expertise in SiC power device design and process, based in Dulles, Virginia. The future earn-out payments were fair valued at $0.6 million, for a total merger consideration of $244.0 million.

During the Company’s second quarter of 2023, the Company received information regarding products shipped by GeneSiC to a distributor prior to the Company’s acquisition of GeneSiC. GeneSiC had the option, but not the obligation, to accept returns sold to the distributor. The Company determined that a $1.7 million return liability should have been recorded as of the close of the acquisition on August 15, 2022. The Company recorded the return liability as a purchase price adjustment as of June 30, 2023, resulting in an increase to goodwill and accounts payable and other accrued expenses of $1.7 million.

#### Acquisition of VDDTech

On June 10, 2022, the Company’s wholly owned subsidiary, Navitas Semiconductor Limited, acquired all of the stock of VDDTECH srl, a private Belgian company (“VDDTech”), for approximately $1.9 million in cash and stock. Based in Mont-saint-Guibert, Belgium, VDDTech creates advanced digital-isolators for next-generation power conversion.

### Results of Operations

### Revenue

We design, develop and market next-generation power semiconductors including gallium nitride (“GaN”) power integrated circuits (“ICs”, silicon carbide (“SiC”) and associated high-speed silicon system controllers, and digital isolators used in power conversion and charging. Our revenue represents the sale of semiconductors through specialized distributors to original equipment manufacturers (“OEMs”), their suppliers and other end customers.

Our revenues fluctuate in response to a combination of factors, including the following:

- our overall product mix and sales volumes;
- gains and losses in market share and design win traction;
- pace at which technology is adopted in our end markets;
- the stage of our products in their respective life cycles;
- the effects of competition and competitive pricing strategies;
- availability of specialized field application engineering resources supporting demand creation and end customer adoption of new products;
- achieving acceptable yields and obtaining adequate production capacity from our wafer foundries and assembly and test subcontractors;
- market acceptance of our end customers’ products; governmental regulations influencing our markets; and
- the global and regional economic cycles.

Our product revenue is recognized when the customer obtains control of the product and the timing of recognition is based on the contractual shipping terms of a contract. We provide a non-conformity warranty which is not sold separately and does not represent a separate performance obligation. Our product revenue is well diversified across the United States, Europe, and Asia.

### Cost of Revenues

Cost of Revenues consists primarily of the cost of semiconductors purchased from subcontractors, including wafer fabrication, assembly, testing and packaging, manufacturing support costs, including labor and overhead (which includes depreciation and amortization) associated with such purchases, final test and wafer level yield fallout, inventory impairments, consumables, system and shipping costs. Cost of revenues also includes compensation related to personnel associated with manufacturing.

### Research and Development Expense

Costs related to research, design, and development of our products are expensed as incurred. Research and development expense consists primarily of pre-production costs related to the design and development of our products and technologies, including costs related to cash and share-based employee compensation, benefits and related costs of sustaining our engineering teams, project material costs, third party fees paid to consultants, prototype development expenses, and other costs incurred in the product design and development process.

### Selling, General and Administrative Expense

Selling, general and administrative costs include employee compensation, including cash and share-based compensation and benefits for executive, finance, business operations, sales, field application engineers and other administrative personnel. In addition, it includes marketing and advertising, IT, outside legal, tax and accounting services, insurance, and occupancy costs and related overhead based on headcount. Selling, general and administrative costs are expensed as incurred.

### Interest Income

Interest income primarily consists of interest earned from our cash on hand.

### Interest Expense

Interest expense primarily consists of interest under our term loan facility, held during the fiscal year 2022.

### Income Taxes

Legacy Navitas is a dual domesticated corporation for Ireland and U.S. federal income tax purposes. Refer to Note 14, Provision for Income Taxes, in our accompanying condensed consolidated financial statements elsewhere in this quarterly report.

### Results of Operations

The tables and discussion below present our results for the three and nine months ended September 30, 2023 and 2022 (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: |
| Net revenues | $21,978 | $10,243 | $11,735 | 115% |
| Cost of revenues (exclusive of amortization of intangible assets included below) | 14,878 | 9,852 | 5,026 | 51% |
| Operating expenses: |  |  |  |  |
| Research and development | 16,553 | 11,526 | 5,027 | 44% |
| Selling, general and administrative | 14,419 | 24,053 | (9,634) | (40)% |
| Amortization of intangible assets | 4,774 | 2,241 | 2,533 | 113% |
| Total operating expenses | 35,746 | 37,820 | (2,074) | (5)% |
| Loss from operations | (28,646) | (37,429) | 8,783 | (23)% |
| Other income (expense), net: |  |  |  |  |
| Interest income, net | 1,695 | 638 | 1,057 | 166% |
| Gain (loss) from change in fair value of earnout liabilities | 34,473 | (6,098) | 40,571 | (665)% |
| Other income (expense) | 20 | (74) | 94 | (127)% |
| Total other income (expense), net | 36,188 | (5,534) | 41,722 | (754)% |
| Income (loss) before income taxes | 7,542 | (42,963) | 50,505 | (118)% |
| Income tax (benefit) provision | 23 | (10,135) | 10,158 | (100)% |
| Net income (loss) | 7,519 | (32,828) | 40,347 | (123)% |
| Less: Net loss attributable to noncontrolling interests | — | (238) | 238 | —% |
| Net income (loss) attributable to controlling interests | $7,519 | $(32,590) | 40,109 | (123)% |

31

|  | Nine Months Ended September 30, 2023 | 2022 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: |
| Net revenues | $53,399 | $25,594 | $27,805 | 109% |
| Cost of revenues (exclusive of amortization of intangible assets included below) | 33,322 | 18,655 | 14,667 | 79% |
| Operating expenses: |  |  |  |  |
| Research and development | 50,740 | 34,373 | 16,367 | 48% |
| Selling, general and administrative | 46,629 | 62,590 | (15,961) | (26)% |
| Amortization of intangible assets | 14,046 | 2,413 | 11,633 | 482% |
| Total operating expenses | 111,415 | 99,376 | 12,039 | 12% |
| Loss from operations | (91,338) | (92,437) | 1,099 | (1)% |
| Other income (expense), net: |  |  |  |  |
| Interest income, net | 3,405 | 666 | 2,739 | 411% |
| Gain from change in fair value of warrants | — | 51,763 | (51,763) | (100)% |
| Gain (loss) from change in fair value of earnout liabilities | (25,503) | 112,162 | (137,665) | (123)% |
| Other income (expense) | 50 | (1,215) | 1,265 | (104)% |
| Total other income (expense), net | (22,048) | 163,376 | (185,424) | (113)% |
| Income (loss) before income taxes | (113,386) | 70,939 | (184,325) | (260)% |
| Income tax (benefit) provision | (13) | (9,862) | 9,849 | (100)% |
| Net income (loss) | (113,373) | 80,801 | (194,174) | (240)% |
| Less: Net loss attributable to noncontrolling interests | (518) | (238) | (280) | —% |
| Net income (loss) attributable to controlling interests | $(112,855) | $81,039 | (193,894) | (239)% |

### Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

### Revenue

Revenue for the three months ended September 30, 2023 was $22.0 million compared to $10.2 million for the three months ended September 30, 2022, an increase of $11.7 million, or 115%. The increase primarily reflects a combination of the Company’s customer growth trajectory, evolving from aftermarket customers to higher volume customers, and the accretive revenue impact from the acquisition of GeneSiC.

### Cost of Revenues

Cost of revenues for the three months ended September 30, 2023 was $14.9 million compared to $9.9 million for the three months ended September 30, 2022, an increase of $5.0 million or 51%. The increase was primarily driven by significant revenue growth, acquisition of GeneSiC, in addition to TSMC’s 20% wafer price increase which created a higher cost of revenues, coupled with an inventory reserve of $2.0 million in the three months ended September 30, 2023 primarily related to the exit of product lines.

### Research and Development Expense

Research and development expense for the three months ended September 30, 2023 of $16.6 million increased by $5.0 million, or 44%, when compared to the three months ended September 30, 2022, primarily driven by an increase of $1.7 million in compensation costs related to growth in headcount, $1.0 million toward the expansion of new products, and

$0.8 million in stock based compensation. We expect research and development expense to continue to increase as we grow our headcount to support our expansion into new applications.

### Selling, General and Administrative Expense

Selling, general and administrative expense for the three months ended September 30, 2023 of $14.4 million decreased by $9.6 million, or 40%, when compared to the three months ended September 30, 2022, primarily driven by decreases of $5.2 million in transaction expenses and $4.9 million in stock based compensation, offset by an increase of $1.0 million in headcount costs. We expect selling, general and administrative costs to increase to support our growth and as a result of the increased costs for infrastructure required as a public company.

### Amortization of Intangible Assets

Amortization of intangible assets for the three months ended September 30, 2023 of $4.8 million increased by $2.5 million, or 113%, when compared to the three months ended September 30, 2022. The increase is primarily due to business acquisitions that occurred during the fiscal year ended December 31, 2022, resulting in amortization of these intangible assets for only one half of a quarter during the three months ended September 30, 2022, compared to a full quarter of amortization during the three months ended September 30, 2023.

### Other Income (Expense), net

Net interest income for the three months ended September 30, 2023 was $1.7 million compared to $0.6 million net interest income for the three months ended September 30, 2022, primarily due to the higher interest rate received on money markets funds.

During the three months ended September 30, 2023, we recognized a $34.5 million gain from the change in fair value of our earn-out liabilities. Subsequent to the recognition of the earnout liability upon the consummation of the Business Combination on October 19, 2021, we remeasure the fair value of this liability at each reporting date. The increase in fair value of our earn-out liability of $34.5 million was primarily a result of the decrease of the closing price of our Class A common stock listed on the Nasdaq, resulting in the decrease in the estimated fair value of the earnout shares from $8.58 as of June 30, 2023 to $4.53 as of September 30, 2023.

### Income Tax (Benefit) Provision

Income tax provision for the three months ended September 30, 2023 increased $10.2 million when compared to the income tax benefit of $10.1 million three months ended September 30, 2022. As a result of the GeneSiC Semiconductor Inc. acquisition during the three months ended September 30, 2022, the Company released $9.9 million of U.S. valuation allowance. The release was attributable to a preliminary estimate of $23.2 million of net deferred tax liabilities recorded on GeneSiC’s opening balance sheets that offset other U.S. net deferred tax assets. We expect our tax rate to remain close to zero in the near term due to full valuation allowances against deferred tax assets.

### Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

### Revenue

Revenue for the nine months ended September 30, 2023 was $53.4 million compared to $25.6 million for the nine months ended September 30, 2022, an increase of $27.8 million, or 109%. The increase for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was due to the same factors discussed above for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

### Cost of Revenues

Cost of revenues for the nine months ended September 30, 2023 was $33.3 million compared to $18.7 million for the nine months ended September 30, 2022, an increase of $14.7 million or 79%. The increase for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was due to the same factors discussed above for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

### Research and Development Expense

Research and development expense for the nine months ended September 30, 2023 of $50.7 million increased by $16.4 million, or 48%, when compared to the nine months ended September 30, 2022, driven by an increase of $8.3 million in compensation costs related to growth in headcount and $2.4 million toward the expansion of new products, in addition to an increase of $3.9 million in stock based compensation. We expect research and development expense to continue to increase as we grow our headcount to support our expansion into new applications.

### Selling, General and Administrative Expense

Selling, general and administrative expense for the nine months ended September 30, 2023 of $46.6 million decreased by $16.0 million, or 26%, when compared to the nine months ended September 30, 2022, driven by decreases of $15.3 million in stock based compensation, $3.8 million lower transaction expense, and $0.3 million in professional fees, partially offset by an increase of $4.1 million in headcount costs We expect selling, general and administrative costs to increase to support our growth and as a result of the increased costs for infrastructure required as a public company.

### Amortization of Intangible Assets

Amortization of intangible assets for the nine months ended September 30, 2023 of $14.0 million increased by $11.6 million, or 482%, when compared to the nine months ended September 30, 2022. The increase is primarily due to business acquisitions that occurred during the second-half of fiscal year ended December 31, 2022.

### Other Income (Expense), net

Net interest income for the nine months ended September 30, 2023 was $3.4 million compared to $0.7 million net interest income for the nine months ended September 30, 2022, primarily due to the higher interest rate received on money markets funds.

During the nine months ended September 30, 2023, we recognized a $25.5 million loss from the change in fair value of our earn-out liabilities. Subsequent to the recognition of the earnout liability upon the consummation of the Business Combination on October 19, 2021, we remeasure the fair value of this liability at each reporting date. The increase in fair value of our earn-out liability of $25.5 million was primarily a result of the increase of the closing price of our Class A common stock listed on the Nasdaq, resulting in the increase in the estimated fair value of the earnout shares from $1.47 as of December 31, 2022 to $4.53 as of September 30, 2022.

### Income Tax (Benefit) Provision

Income tax benefit for the nine months ended September 30, 2023 increased by $9.8 million when compared to the nine months ended September 30, 2022. The change for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was due to the same factors discussed above for the three month ended September 30, 2023 compared to the three months ended September 30, 2022.

### Liquidity and Capital Resources

Our primary use of cash is to fund our operating expenses, working capital requirements, and outlays for strategic investments and acquisitions. In addition, we use cash to conduct research and development, incur capital expenditures, and fund our debt service obligations.

We expect to continue to incur net operating losses and negative cash flows from operations and we expect our research and development expenses, general and administrative expenses and capital expenditures will continue to increase. We expect our expenses and capital requirements to increase in connection with our ongoing initiatives to expand our operations, product offerings and end customer base.

As of September 30, 2023, we had cash and cash equivalents of $176.7 million. We currently expect to fund our cash requirements through the use of cash on hand. We believe that our current levels of cash and cash equivalents are sufficient to finance our operations, working capital requirements and capital expenditures for the foreseeable future.

We expect our operating and capital expenditures to increase as we increase headcount, expand our operations and grow our end customer base. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through additional equity or debt financing or from other sources. If we raise additional funds through the issuance of equity, the percentage ownership of our equity holders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing equity holders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.

### Cash Flows

The following table summarizes our consolidated cash flows for the nine months ended September 30, 2023 and 2022 (in thousands):

| Consolidated Statements of Cash Flow Data: | September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(17,442) | $(35,537) |
| Net cash used in investing activities | $(4,410) | $(106,447) |
| Net cash provided by (used in) financing activities | $88,213 | $(1,476) |

We derive liquidity primarily from debt and equity financing activities. As of September 30, 2023, our balance of cash and cash equivalents was $176.7 million, which is an increase of $66.4 million or 60% compared to December 31, 2022.

### Operating Activities

For the nine months ended September 30, 2023, net cash used in operating activities was $17.4 million, which primarily reflects a net loss of $113.4 million. This decrease to operating cash flows are partially offset by adjustments for non-cash share-based compensation of $41.8 million, non-cash losses of $25.5 million in earnout liabilities, amortization of intangible assets of $14.0 million, and an aggregate cash provided by operating assets and liabilities of $11.5 million. Specifically, increases in deferred revenue of $13.3 million, accrued compensation expense of $12.2 million, increases in accrued expenses of $3.2 million, and increases in account payable of $2.5 million, partially offset by a $8.4 million increase in account receivable and $1.6 million increase in other assets, a $0.9 million increase in prepaid expenses and other, and a decrease in operating lease liabilities of $1.5 million.

### Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2023 of $4.4 million was primarily due to $1.0 million cash funding of a joint venture and $3.4 million for purchases of fixed assets.

### Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2023 of $88.2 million was primarily due to proceeds from the issuance of common stock in May 2023 of $86.9 million and proceeds from stock option exercises of $1.8 million, offset by the payment of May 2023 public offering costs of $0.5 million.

### Contractual Obligations, Commitments and Contingencies

In the ordinary course of business, we enter into contractual arrangements that may require future cash payments. As of September 30, 2023, our non-cancellable contractual arrangements consisted entirely of lease obligations. Refer to Note 8 - Leases for further information.

### Off-Balance Sheet Commitments and Arrangements

As of September 30, 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

### Critical Accounting Policies and Estimates

The preparation of our financial statements and related disclosures in accordance with U.S. GAAP requires our management to make judgments, assumptions and estimates that affect the amounts reported in our accompanying condensed consolidated financial statements and the accompanying notes included elsewhere in this quarterly report. Our management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our condensed consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.

There have been no material changes to our critical accounting policies and estimates from the information in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our 2022 annual report on Form 10-K.

### JOBS Act Accounting Election

We are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies, allowing them to delay the adoption of those standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, following the Business Combination, our condensed consolidated financial statements may not be comparable to the financial statements of companies that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make common stock less attractive to investors. Since the value of our public float exceeded $700 million as of September 30, 2023, we have ceased to be an emerging growth company as of the end of fiscal year 2023 and will become a large accelerated filer, as defined by applicable regulations, effective as of January 1, 2024.

## Market risk

As filed, 215 characters.

We are a smaller reporting company, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.

## Controls and procedures

As filed, 3,149 characters.

### Evaluation of Disclosure Controls and Procedures

Our management carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer (our principal executive officer and principal financial officer, respectively), of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2023, pursuant to Exchange Act Rule 13a-15. Based upon this evaluation, our chief executive officer and chief financial officer have concluded that, as of September 30, 2023, as a result of the material weaknesses in our internal control over financial reporting discussed below and in the Company’s annual report on Form 10-K for the year ended December 31, 2022, our disclosure controls and procedures were not effective.

As disclosed in Item 9 of our annual report on Form 10-K for the year ended December 31, 2022, management concluded that we lack a sufficient number of trained professionals with technical accounting expertise to identify, evaluate, value and account for complex and non-routine transactions, including revenue and stock-based compensation. We also found we have insufficient accounting resources to maintain appropriate segregation of duties, including to ensure journal entries are reviewed by personnel independent of the preparer.

Management has taken steps to evaluate resources throughout the organization to determine where current resources should be reassigned and where additional resources are needed to consistently and timely execute internal control activities. During the first quarter of 2023, an SEC reporting manger was added to the accounting department and management plans to hire additional accounting staff during the remainder of the year. For more complex transactions and to the extent there is a lack of knowledge within the current accounting team, management plans to engage external professional firms to assist with such transactions as they arise, and to make additional hires and consulting arrangements as necessary. During the second quarter, management hired a consulting firm to act as the Company’s co-sourced internal audit department and assist with the Company’s SOX 404(b) readiness. During the third quarter, the Company continued its’ documentation of key business processes and key controls. During this process, the Company identified and implemented additional internal controls to mitigate material weaknesses identified from the prior year.The material weaknesses will not be considered remediated until remediated controls operate for a sufficient period of time and management has concluded that these controls are operating effectively.

Management has concluded that, notwithstanding the material weaknesses described above, the Company’s condensed consolidated financial statements included in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the date, and for the periods presented, in conformity with U.S. GAAP.

## Risk factors

As filed, 10,754 characters.

In addition to the risk factors disclosed in Part I—Item 1A, “Risk Factors,” in our annual report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on April 3, 2023, the following risks could also materially adversely affect our operating results, financial condition or future business.

**Our management has broad discretion as to the use of the proceeds from our recent follow-on equity offering and may not use the proceeds effectively.**

Our management has broad discretion in the application of the net proceeds from this our recently completed follow-on equity offering, described in Note 1 to our consolidated financial statements included in this report. Because of the number and variability of factors that will determine our use of the net proceeds from the offering, their ultimate use may vary substantially from their currently intended use. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield returns that enhance stockholder value. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

**We have identified material weaknesses in our internal control over financial reporting. If we are unable to remedy these material weaknesses, or if we fail to establish and maintain effective internal controls, we may be unable to produce timely and accurate financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our stock price.**

As previously disclosed in our annual report on Form 10-K for the year ended December 31, 2021, in connection with the audit of our consolidated financial statements for the year ended December 31, 2021, we identified material weaknesses in our internal control over financial reporting, as described above in Part I, Item 4, Controls and Procedures. In 2022, we began implementing and are continuing to implement measures designed to improve our internal control over financial reporting to remediate these material weaknesses, specifically by hiring additional accounting personnel to augment existing technical expertise as well as to provide the staffing necessary to maintain effective segregation of duties. As previously disclosed in our annual report on Form 10-K for the year ended December 31, 2022, in connection with the audit of our consolidated financial statements for the year ended December 31, 2022, we identified that these material weaknesses continue to exist as of December 31, 2022. And as disclosed above in Part I, Item 4, Controls and Procedures, we identified that these material weaknesses continue to exist as of September 30, 2023.

Our remediation efforts are ongoing, and we will continue our initiatives to implement and document policies and procedures and strengthen our internal control environment. Remediation of the identified material weaknesses and strengthening our internal control environment will require a substantial effort throughout the remainder of 2023. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. In addition, it is possible that certain controls we plan to implement in 2023 will not have operated for a sufficient period of time in 2023 to test their operating effectiveness as part of our evaluation of internal control over financial reporting as of December 31, 2023 and may extend to the following year.

To remediate the material weaknesses described above, we have pursued the following remediation steps:

- We have added an SEC reporting manager to the accounting team with technical accounting experience.
- We have outsourced complex technical accounting matters to an external third party to provide assistance to us when such accounting matters arise.
- We have identified a system generated report from our accounting system that identifies if edits were made to journal entries and posted without review. On at least a quarterly basis, our management will review this report to ensure journal entries are valid.

If through our continued remediation efforts we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or if we identify additional material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable Nasdaq listing requirements. Investors may lose confidence in our reported financial information as a result, which would likely have a negative effect on the trading price of our stock. We also could become subject to investigations by Nasdaq, the SEC or other regulatory authorities.

**Investments in or by us may be subject to foreign investment regulation and review in the United States and elsewhere, which may result in material restrictions, conditions, prohibitions or penalties on us or our investors related to any such investments. Semiconductor technologies generally, and GaN and SiC semiconductors specifically, may be subject to heightened regulatory scrutiny.**

Our industry is subject to foreign direct investment (“FDI”) regulations in many countries, including the United States. Our ability to invest in companies or operations in, and our ability to raise capital from investors affiliated with, those jurisdictions may be subject to review or approval requirements, restrictions, conditions, or prohibitions. Any review and approval of an investment or transaction by an FDI regulator may have outsized impacts on transaction certainty, timing, feasibility, and cost, among other things. FDI regulatory policies and practices are rapidly evolving, and in the event that an FDI regulator reviews one or more proposed or existing investments, there can be no assurances that we will be able to maintain, or proceed with, such investments on terms acceptable to us. We may be unable to complete commercially desirable acquisitions in such jurisdictions or be subject to material costs or restrictions in connection with such acquisitions. While we strive to comply with all applicable laws and regulations, the application of FDI regulations could also in some circumstances result in financial or other penalties or required divestments, which could have a material impact on us.

In the United States, certain investments that involve the acquisition of, or investment in, a U.S. business by an investor subject to foreign control (a “foreign person”) may be subject to review and approval by the Committee on Foreign Investment in the United States (“CFIUS”). Whether CFIUS has jurisdiction to review an acquisition or investment transaction depends on, among other factors, the nature and structure of the transaction, including the level of beneficial ownership interest and the nature of any information or governance rights involved, and the nature of the technology possessed by the U.S. business. For example, investments that result in “control” of a U.S. business, which may include governance rights falling well short of majority control, by a foreign person always are subject to CFIUS jurisdiction. CFIUS’s jurisdiction also extends to investments that do not result in control of a U.S. business by a foreign person but afford certain foreign investors certain information or governance rights in a U.S. business that has a nexus to, among other things, “critical technologies,” and transactions involving companies that develop, produce, or test critical technologies may be subject to mandatory filing requirements. In addition, recent U.S. regulatory initiatives have classified certain semiconductor technologies as “critical to national security,” including compound semiconductors and wide-bandgap semiconductors. Both gallium nitride (GaN) and silicon carbide (SiC) are compound semiconductors and wide-bandgap semiconductors. As a result, our company’s exclusive focus on GaN- and SiC-based products, together with our global presence in rapidly growing markets, including China, may subject our company to additional regulatory restrictions or scrutiny, including by CFIUS, in connection with past or future transactions that involve investments in us or by us. Whether or not our business is deemed to involve “critical technologies,” CFIUS could choose to review proposed or past investments in us by foreign persons. In the case of such review, CFIUS could prohibit or impose conditions on the relevant investment. Such conditions might include limitations or obligations on our operations that could result in material costs or disruptions of our current or future operations. The prospect of CFIUS review, or any such prohibitions or conditions, could result in material costs or disruptions in our current or future operations or plans, and could also have a negative impact on our stock price. Furthermore, we have had recent communications with CFIUS with respect to our products, investors and acquisitions, and may have additional communications in the future with respect to these or other matters. Any future communications with CFIUS or other similar regulatory agency with authority over FDI, if not satisfactorily resolved, may result in material restrictions, conditions, prohibitions or penalties on us or our investors.

Finally, U.S. authorities have publicly announced plans to institute an outbound investment review regime, and various legislative proposals to implement such a regime are also pending. For example, on August 9, 2023, the U.S. Treasury Department issued an Advance Notice of Proposed Rulemaking announcing a proposed program that would prohibit certain types of investments by U.S. companies into certain Chinese entities with capabilities or activities related to specified semiconductor technologies, including integrated circuits manufactured from a gallium-based compound semiconductor. The final scope and content of this program remain to be defined through public comment and further rulemaking. There can be no assurance that any such regime will not restrict our ability to engage in commercially desirable investments in jurisdictions outside the United States, particularly China, or that any such restrictions will not impose material costs or competitive disadvantages on us.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001821769-23-000176. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.