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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-14 · 283 added, 107 removed, 5 unchanged (99% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Concord Acquisition Corp III.

References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsors” refer to Concord Sponsor Group III LLC and CA2 Co-Investment, LLC.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected.

All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, the business strategy, plans and objectives of management for future operations, and the impact of the coronavirus (COVID-19) pandemic on the Company’s search for a Business Combination (as defined below), are forward-looking statements.

Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements.

Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available.

A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements.

For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q filed with the U.S.

Securities and Exchange Commission (the “SEC”).

For information relating to the Business Combination Agreement (as defined below) and transactions contemplated thereunder, please see the Registration Statement on Form S-4 filed with the SEC on November 13, 2023, as may be amended from time to time.

The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov.

Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

We are a blank check company incorporated on February 18, 2021 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

We intend to effectuate our initial business combination using cash from the proceeds of our initial public offering and the sale of the private placement warrants, our capital stock, debt or a combination of cash, stock and debt.

We expect to continue to incur significant costs in the pursuit of our acquisition plans.

We cannot assure you that our plans to complete a Business Combination will be successful.

In April 2023, the Company and the Sponsor entered into Non-Redemption Agreements with a number of the Company’s stockholders in exchange for them agreeing not to redeem shares of the Company’s Class A common stock sold in the IPO (the "Non-Redeemed Shares") in connection with the special meeting of stockholders called by the Company and held on May 4, 2023 (described below).

In exchange for the foregoing commitments not to redeem such shares, the Sponsor has agreed to transfer to such stockholders an aggregate of 999,665 shares of the Company’s Class B common stock (the "Class B shares"), par value $0.0001 per share, held by the Sponsor immediately following consummation of an initial business combination.

On May 4, 2023, the Company’s stockholders approved at the special meeting of stockholders a proposal to amend the Company’s amended and restated certificate of incorporation (the “charter”) to extend the date by which the Company has to consummate a business combination from May 8, 2023 (the “Termination Date”) to November 8, 2023, or such earlier date as may be determined by the board of directors of the Company (such later date, the “Extended Date”) In connection with the votes to approve the Charter Amendment, the holders of 30,460,066 shares of Class A common stock of the Company properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.42 per share, for an aggregate redemption amount of approximately $317,000,000, leaving approximately $42,000,000 in the Trust Account.

Recent Developments

On November 2, 2023, the Company entered into a business combination agreement (the “Business Combination Agreement”) with GCT Semiconductor, Inc., a Delaware corporation (“GCT”), and Gibraltar Merger Sub Inc., a Delaware corporation and a direct, wholly-owned subsidiary of the Company (“Merger Sub”).

Pursuant to the Business Combination Agreement, the parties will, subject to the satisfaction or waiver of the conditions contained in the Business Combination Agreement, consummate a business combination transaction pursuant to which Merger Sub will merge with and into GCT, with GCT surviving the merger as a wholly-owned subsidiary of the Company (the “Merger” and, together with the other transactions contemplated by the Business Combination Agreement, the “Transactions” and the closing of the Transactions, the “Closing”).

The aggregate equity consideration to be paid to GCT’s stockholders and other equity holders in the Transactions (the “Aggregate Transaction Consideration”) will be equal to the quotient of (i) the Company Value (as defined below) divided by (ii) $10.00.

Immediately prior to the Closing, all of the outstanding principal and accrued interest under the outstanding promissory notes issued by GCT that can be converted into shares of GCT common stock will be so converted in accordance with their terms.

The “Company Value” means an amount equal to $350 million, minus the amount of indebtedness of GCT immediately prior to the Closing, plus the amount of GCT’s cash and cash equivalents immediately prior to the Closing (with standard exceptions), plus the aggregate exercise price of all “in-the-money” warrants of GCT outstanding immediately prior to the Closing.

Following the Closing, the Company will issue up to an aggregate of 20,000,000 additional shares of its common stock to the stockholders of GCT as of immediately prior to the Closing and certain other persons, including the PIPE Investors (as defined below) (collectively, the “GCT Recipients”), if the volume weighted average price (the “VWAP”) of the shares of the Company’s common stock equals or exceeds certain minimum share prices at any time during the period starting 60 days following the Closing and expiring on the fifth anniversary of the Closing (the “Earnout Period”), as follows:

(i) 6,666,667 shares if the VWAP of the shares of the common stock equals or exceeds $12.50 for any 20 trading days within a period of 30 consecutive trading days during the Earnout Period;

(ii) 6,666,666 shares if the VWAP of the shares of the common stock equals or exceeds $15.00 for any 20 trading days within a period of 30 consecutive trading days during the Earnout Period;

and (iii) 6,666,667 shares if the VWAP of the shares of the common stock equals or exceeds $17.50 for any 20 trading days within a period of 30 consecutive trading days during the Earnout Period.

Such shares will also become issuable under certain circumstances if a “change of control” of the Company occurs following the Closing but prior to the applicable earnout expiration date and the price per share in the change of control equals or exceeds the applicable price target.

Concurrently with the execution of the Business Combination Agreement, certain investors (the “PIPE Investors”) entered into subscription agreements (the “PIPE Subscription Agreements”) pursuant to which the PIPE Investors have committed to purchase in a private placement an aggregate of 4,484,854 shares of the Company’s Class A common stock (the “PIPE Shares”) at a purchase price of $6.67 per share and an aggregate purchase price of approximately $29.9 million (the “PIPE Investment”).

The purchase of the PIPE Shares is conditioned upon, among other things, the consummation of the Transactions and will be consummated immediately prior to or substantially concurrently with the Closing.

The public warrants included as part of Units sold in the IPO (the “Public Warrants”) and Private Placement Warrants include certain down-round provisions under which their exercise price may be adjusted, if (a) the Company issues additional shares of the Company’s Class A common stock or securities convertible into or exercisable or exchangeable for shares of the Company’s Class A common stock for capital raising purposes in connection with the closing of its initial business combination at an issue price or effective issue price of less than $9.20 per share of the Company’s Class A common stock (the “Newly Issued Price”), (b) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of an initial business combination on the date of the consummation of such initial business combination (net of redemptions), and (c) the volume weighted average trading price of the the Company’s Class A common stock during the twenty (20) trading day period starting on the trading day prior to the day on which the Company consummates an initial business combination (such price, the “Market Value”) is below $9.20 per share, the price per share (including in cash or by payment of warrants pursuant to a “cashless exercise,” to the extent permitted) at which shares of the Company’s Class A common stock may be purchased at the time a warrant is exercised will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger prices will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.

Concurrently with the execution and delivery of the Business Combination Agreement, the Company entered into a sponsor support agreement (the “Sponsor Support Agreement”) with GCT, the Sponsor and CA2 Co-Investment LLC (“CA2”).

Pursuant to the Sponsor Support Agreement, the Sponsor and CA2 have, among other things, agreed to vote all of their shares of the Company’s common stock in favor of the approval of the Transactions, including the Merger, not to redeem any of their shares of the Company’s common stock and to waive their anti-dilution protections with respect to their shares of the Company’s Class B common stock.

In addition, the Sponsor and CA2 agreed that a portion of up to an aggregate of 1,920,375 shares of common stock to be issued to them at Closing (collectively,

the Sponsor Earnout Shares”) will be unvested and subject to forfeiture as of the Closing, and will only vest if certain share price trading thresholds are satisfied during a specified period of time following the Closing.

The Sponsor and CA2 further agreed that (i) 1,399,107 shares of common stock to be held by them at Closing, (ii) any portion of the Sponsor Earnout Shares not unvested and made subject to forfetiture as of the Closing and (iii) up to an aggregate of 2,820,000 Private Placement Warrants to be held by them at Closing may be allocated by GCT to the GCT Recipients, and transferred to the GCT Recipients at Closing (without any vesting conditions).

The Sponsor and CA2 also agreed (i) to forfeit up to an additional 2,820,000 Private Placement Warrants held by them at Closing, to the extent not allocated prior to the Closing to certain third parties, including prospective PIPE Investors and holders of shares of the Company’s Class A common stock who agree not to redeem their shares in connection with any extension of the Company’s deadline to consummate an initial business combination, and (ii) to forgive all amounts outstanding under the Sponsor Loans.

In connection with the execution of the Business Combination Agreement, the Company entered into a support agreement (the “Stockholder Support Agreement”) with certain stockholders of GCT pursuant to which such stockholders have, among other things, agreed to vote to adopt and approve the Business Combination Agreement and all other documents and transactions contemplated thereby and to subject their shares to certain transfer restrictions.

The foregoing descriptions of the Business Combination Agreement, PIPE Subscription Agreements, Sponsor Support Agreement, Stockholder Support Agreement, and other areements and transactions contemplated thereunder are not complete and are qualified in their entirety by reference to the respective agreements, copies of which (or the forms of which, as applicable) are respectively filed as exhibits to the Current Report on Form 8-K filed with the SEC on November 8, 2023.

In November 2023, the Company and the Sponsor entered into Non-Redemption Agreements with a number of the Company’s stockholders in exchange for them agreeing not to redeem shares of the Company’s Class A common stock sold in the IPO in connection with the special meeting of stockholders called by the Company and held on November 7, 2023 (described below).

In exchange for the foregoing commitments not to redeem such shares, the Company has agreed to allocate to such investors an aggregate of 782,001 shares of Class A common stock (the “Promote Shares”) and the Sponsor has agreed to surrender and forfeit to the Company for no consideration a number of shares of Class B common stock equal to the number of Promote Shares upon closing of an initial business combination.

On November 7, 2023, the Company’s stockholders approved at the special meeting of stockholders a proposal to amend the Company’s charter to further extend the date by which the Company has to consummate a Business Combination from the Extended Date to August 8, 2024, or such earlier date as may be determined by the board of directors of the Company (such later date, the “Current Extended Date”).

In connection with the votes to approve such a proposal, the holders of an additional 98,573 shares of Class A common stock of the Company properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.70 per share, for an aggregate redemption amount of approximately $1.1 million, leaving approximately $42.2 million in the Trust Account and 3,941,361 shares of Class A common stock subject to possible redemption outstanding immediately following these redemptions.

On March 26, 2024 (the “Closing Date” or “Closing”) , GCT Semiconductor, Inc.

(“Legacy GCT”) and Concord Acquisition Corp III, a Delaware corporation (“Concord III”), consummated the Merger pursuant to the Business Combination Agreement and Concord III changed its name to GCT Semiconductor Holding, Inc.

As a result, the financial statements of Legacy GCT are now the financial statements of GCT.

This discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2024 and related notes appearing elsewhere in this Quarterly Report and Legacy GCT’s audited consolidated financial statements as of and for the years ended December 31, 2023 and 2022 and related notes included in our Form 8-K filing with the Securities and Exchange Commission (“SEC”) on April 1, 2024.

This discussion may contain forward-looking statements including, but not limited to, our expectations or predictions of future financial or business performance or conditions.

Forward-looking statements are inherently subject to risks, uncertainties, and assumptions.

You should read the sections in this Quarterly Report titled “Risk Factors” and “Special Note of Forward-Looking Statements” of a discussion of important factors that could cause actual results to differ materially from the results described in or implied by these forward-looking statements.

Unless otherwise indicated, the terms “GCT,” “the Company,” “we,” “us,” or “our” refer to GCT Semiconductor Holding Inc., a Delaware corporation, together with our consolidated subsidiaries.

We are a fabless semiconductor company that specialize in the design, manufacturing and sale of communication semiconductors, including high-speed wireless communication technologies such as 5G/4.75G/4.5G/4G transceivers (“RF”) and modems, which are essential for a wide variety of industrial, B2B and consumer applications.

We have successfully developed and supplied communication semiconductor chipsets and modules to leading wireless operators worldwide, as well as to original design manufacturers (“ODMs”) and original equipment manufacturers (“OEMs”) for portable wireless routers (e.g., Mobile Router/MiFi), indoor and outdoor fixed wireless routers (e.g., CPE), industrial M2M applications and smartphones.

We oversee sales, marketing, and accounting operations from our headquarters in San Jose, California.

The Company conducts product design, development, and customer support through our wholly owned subsidiaries located in South Korea, one of which serves as our research and development center.

In addition, we utilize separate sales offices for local technical support and sales in Taiwan, China, and Japan.

Our current product portfolio includes RF and modem chipsets based on 4 th generation (“4G”), known as Long Term Evolution (“LTE”), technology offering a variety of chipsets differentiated by speed and functionality.

These include 4G LTE, 4.5G LTE Advanced (twice the speed of LTE), and 4.75G LTE Advanced-Pro (four times the speed of LTE) chipsets.

The Company also develops and sells cellular Internet of Things (“IoT”) chipsets for low-speed mobile networks such as eMTC/NB- IOT/Sigfox, and other network protocols.

To date, our operations have been funded by the Business Combination and primarily through the issuance of historical convertible promissory notes, borrowings, and capital stock.

Business Combination

On the Closing Date, Concord III, a Delaware corporation, consummated a series of transactions that resulted in the combination of Gibraltar Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Concord III (“Merger Sub”), and Legacy GCT, pursuant to a Business Combination Agreement, dated November 2, 2023 (the “Business Combination Agreement”), by and among Concord III, Merger Sub and Legacy GCT.

Pursuant to the terms of the Business Combination Agreement, Merger Sub merged with and into Legacy GCT, with Legacy GCT surviving the merger as a wholly-owned subsidiary of Concord III (the “Business Combination”).

On the Closing Date, Concord III changed its name from Concord III to “GCT Semiconductor Holding, Inc.”

The Business Combination was accounted for as a reverse recapitalization, with Legacy GCT being the accounting acquirer and Concord III being the acquired company for financial reporting purposes.

As a result, Legacy GCT’s consolidated financial statements for historical periods will be included in GCT’s future periodic reports filed with the SEC.

The Company received $17.2 million cash proceeds from the reverse recapitalization and private investment from public equity financing (“PIPE Financing”), net of transaction costs.

Total direct and incremental transaction costs of Concord III and Legacy GCT

were $22.0 million and treated as a reduction of the cash proceeds, of which $8.9 million was deducted from additional paid-in capital for underwriting, accounting, legal and other fees, and the remaining balance of $13.1 million was expensed in the period incurred by Concord III.

Key Factors Affecting Our Performance

We believe that our future success and financial performance depend on a number of factors that present significant opportunities for our business but also pose risks and challenges, including those in the section titled “Risk Factors” of this Quarterly Report.

Commercial Deployment of 4G LTE and 5G Market

Our business depends upon the continued commercial deployment of 4G and 5G wireless communications equipment, products, and services based on GCT’s technology.

Deployment of new networks by wireless carriers requires significant capital expenditures well in advance of any revenue from such networks.

If the rate of deployment of new networks by wireless carriers is slower than our expectation, this will reduce the sales of its products and could cause OEMs and ODMs to hold excess inventory.

This would harm our revenues and our financial results.

The worldwide commercial deployment and adoption of the narrow band LTE variants, Cat M and Cat NB, are expected to expand further the markets for Internet of Things devices.

If deployments of the Cat M or Cat NB standards are delayed or if competing standards for Internet of Things devices become favored by wireless carriers, we may not be able to successfully increase sales of our Cat M and Cat NB products, which would harm our revenues and financial results.

Development of New Products

The markets in which we and our customers compete or plan to compete are characterized by rapidly changing technologies, industry standards, and technological obsolescence.

Our ability to compete successfully depends on our ability to design, develop, market, and support new products and enhancements on a timely and cost-effective basis.

A fundamental shift in technologies in any of our target markets, such as the 5G wireless communications markets, could harm our competitive position within these markets.

Our failure to anticipate these shifts, develop new technologies, or react to changes in existing technologies could delay our development of new products, which could result in product obsolescence, decreased revenue, and loss of design wins.

The success of our new products will depend on accurate forecasts of long-term market demand, customer and consumer requirements, and future technological developments, as well as a variety of specific implementation factors, including:

● accurate prediction of the size and growth of the 4G and 5G markets;

● accurate prediction of the growth of the Internet of Things markets and the timing of commercial availability of 4G and 5G networks;

● accurate prediction of changes in device manufacturer requirements, technology, industry standards or consumer expectations, demands, and preferences;

● timely and efficient completion of product design and transfer to manufacturing, assembly and test, and securing sufficient manufacturing capacity to allow us to continue to timely and efficiently deliver products to our customers;

● market acceptance, adequate consumer demand, and commercial production of the products in which our mobile and wireless broadband semiconductor solutions are incorporated;

● the quality, performance, and reliability of the product as compared to competing products and technologies;

● effective marketing, sales, and service;

● the ability to obtain licenses to use third-party technology to support the development of our products.

If we fail to introduce new products that meet the demands of our customers or our target markets, or if we fail to penetrate new markets, our revenue will likely decrease over time, and our financial condition could suffer.

Semiconductor and Communications Industry

The semiconductor industry has historically exhibited a pattern of cyclicality, which at various times has included significant downturns in customer demand.

Cyclical downturns can result in substantial declines in semiconductor demand, production overcapacity, high inventory levels, and accelerated erosion of average selling prices.

Such downturns result from a variety of market forces, including

constant and rapid technological change, quick product obsolescence, price erosion, evolving standards, short product life cycles, and wide fluctuations in product supply and demand.

Recently, downturns in the semiconductor industry have been attributed to a variety of factors, including the COVID-19 pandemic, ongoing trade disputes between the United States and China, weakness in demand and pricing for semiconductors across applications, and excess inventory.

In addition, since the end of 2022, the semiconductor industry has experienced a downturn due to inventory corrections and reduced consumer demands.

These downturns have directly impacted GCT’s business, suppliers, distributors, and end customers.

While we expect a gradual recovery of the broader semiconductor markets in the remainder of 2024, there is no guarantee that such recovery will occur or that the extent of recovery will be at a pace as initially anticipated.

Because a significant portion of our expenses are fixed in the near term or are incurred in advance of anticipated sales, we may not be able to reduce our expenses rapidly enough to offset any unanticipated shortfall in revenue.

If this situation were to occur, it could adversely affect our operating results, cash flow, and financial condition.

In addition, the semiconductor industry has periodically experienced increased demand and production constraints.

As a fabless semiconductor company, we rely exclusively on third-party foundries, including certain major semiconductor foundries such as UMC, Alpha and TSMC, for the manufacturing and supplies of its wafers and products.

We do not have any formal foundry agreements that guarantee a minimum level of manufacturing capacity.

In times of significant increasing demand for capacity, these foundries may experience production shortages and may not allocate sufficient manufacturing capacity to us.

If this happens, we may not be able to produce sufficient quantities of our products to meet the increased demand.

Any disruption in our supply chain can make it more difficult for us to obtain sufficient wafer, assembly, and test resources from our subcontract manufacturers.

Any factor adversely affecting the semiconductor industry in general, or the particular segments of the industry that our products target, may adversely affect our ability to generate revenue and impact our operating results.

In addition, a shortage of manufacturing capacity can also impact the product development strategies of our major customers, which may, in turn, affect our business operations.

For example, in 2022, the supply shortage caused our largest customer to change its priority on product development from 4G to the next generation of 5G products, which resulted in the reduction of 4G activity and a decline in demand for our products.

Our business is expected to increase again with this customer after the launch of 5G products and the recovery of 4G business in 2024 as supply and inventory return to a more normal level.

In the past, the wireless communications industry has experienced pronounced downturns, and these cycles may continue in the future.

A future decline in global economic conditions could have adverse, wide-ranging effects on demand for our products and for the products of our customers, particularly wireless communications equipment manufacturers or other members of the wireless industry, such as wireless network operators.

Inflation, deflation, and economic recessions that adversely affect the global economy and capital markets also adversely affect our customers and our end consumers.

For example, our customers’ ability to purchase or pay for our products and services, obtain financing, and upgrade wireless networks could be adversely affected, which may lead to many networking equipment providers slowing their research and development activities, canceling, or delaying new product development, reducing their inventories, and taking a cautious approach to acquiring our products, which would have a significant negative impact on our business.

If this situation were to occur, it could adversely affect our operating results, cash flow, and financial condition.

In the future, any of these trends may also cause our operating results to fluctuate significantly from year to year, which may increase the volatility of our stock price.

Public Company Costs

As a result of the Business Combination, we became the successor to an SEC-registered and NYSE-listed company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.

We have incurred, and expect to continue to incur, additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance premiums, which are substantial, director fees, and additional internal and external accounting, legal and administrative resources.

Key Components of Results of Operations

The timing of revenue recognition and the amount of revenue recognized in each case depends on various factors, including the specific terms of each arrangement and the nature of the underlying performance obligations.

Our net revenues are comprised of product and service revenues.

Product Revenues

Our product sales are generated from the sale of mobile semiconductor products.

Product revenues are recognized at a point in time once control has been transferred to a customer, which is generally at the time of shipment.

Service Revenues

Our service revenues are generated from the sale of mobile semiconductor platform solutions aimed at the 4G LTE and 5G industries, development services and technical advice and maintenance services.

Service revenues are generally recognized over time as the customer obtains control of the promised services.

Cost of Net Revenues

Our cost of net revenues consists of product and service costs.

The cost of product net revenues consists of direct and indirect costs related to the manufacturing of our products.

Direct costs include wafer costs and costs of assembly and testing performed by third-party contract manufacturers.

Indirect costs consist of provisions for excess and obsolete inventory, royalties, allocated overhead for employee costs and facility costs, warranty, and the amortization of our production mask sets and certain intangible assets.

Shipping and handling costs incurred for inventory purchases related to the units sold and costs of product shipments are also recorded in the cost of net product revenues.

Service costs consist of non-recurring engineering costs for service projects.

Operating Expenses

Research and Development Expenses

Our research and development (“R&D”) expenses consist of costs incurred to develop our products and services.

These expenses consist of personnel costs, including salaries, employee benefit costs, and stock-based compensation for employees engaged in R&D activities, software costs, computing costs, hardware and experimental supplies, and expenses for outside engineering consultants.

We expense all R&D costs in the periods in which they are incurred.

Sales and Marketing Expenses

Our sales and marketing (“S&M”) expenses consist of employee-related expenses, including salaries, commissions, employee benefits costs, and stock-based compensation for all employees engaged in marketing, sales, and sales support.

S&M expenses also include local and centralized advertising costs and the infrastructure required to support our marketing efforts.

We expense S&M costs in the periods in which they are incurred.

General and Administrative Expenses

Our general and administrative (“G&A”) expenses consist of various components not related to R&D or S&M, such as personnel costs, regulatory fees, promotion expenses, costs associated with maintaining and filing intellectual property, meals and entertainment expenses, travel expenses, insurance expenses, and other expenditures related to external professional services including legal, engineering, marketing, human resources, audit, and accounting services.

Personnel costs include salaries, benefits, and stock-based compensation.

As we continue to grow and expand our workforce and operations, and considering the increased costs associated with operating as a public company, we anticipate that our G&A expenses will increase in the foreseeable future.

Gain on Extinguishment of Liability

Gain on extinguishment of liability relates to the release by a vendor due to a contract termination during the period of amounts payable by us for research and development services received in prior years.

Interest Expense

Interest expense primarily consists of interest and amortization of related debt issuance costs related to our borrowings and convertible promissory notes.

Other (Expenses), Income, Net

Other income, net consists of foreign currency gains and losses, changes in fair value of convertible promissory notes, gains and losses associated with the redemption of convertible notes, and other miscellaneous income (expense).

Results of Operations

We have neither engaged in any operations nor generated any revenues to date.

Our only activities since inception have been organizational activities and those necessary for our initial public offering (“IPO”) and activities related to seeking and consummating a business combination with an acquisition target.

We do not expect to generate any operating revenues until after completion of our initial business combination.

Until such time that a business combination occurs, we will generate non-operating income in the form of investment income on cash and cash equivalents in the form of specified U.S.

government treasury bills or specified money market funds after the IPO and non-operating income or expense from the changes in the fair value of warrant liabilities and Sponsor loans.

There has been no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited financial statements.

Until the completion of our initial business combination, we expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

For the three months ended September 30, 2023, we had net loss of $1,107,189 which consisted of operating costs of $500,148, a change in the fair value of the warrant liability and sponsor loans of $1,057,000 and income taxes of $106,318, partially offset by income from investments held in Trust Account of $555,280 and income from operating bank account of $997.

For the three months ended September 30, 2022, we had net income of $3,200,859 which consisted of a change in the fair value of the warrant liability and sponsor loans of $2,222,000 and income from investments held in the Trust Account of $1,588,513 partially offset by operating costs of $286,566 and income taxes of $323,088.

For the nine months ended September 30, 2023, we had net income of $762,879 which consisted of income from investments held in Trust Account of $6,289,385 and income from operating bank account of $3,205, partially offset by operating costs of $3,788,909, a change in the fair value of the warrant liability and sponsor loans of $450,800 and income taxes of $1,290,002.

For the nine months ended September 30, 2022, we had net income of $18,757,827 which consisted of a change in the fair value of the warrant liability and sponsor loans of $17,918,000 and income from investments held in Trust Account of $2,116,670 partially offset by operating costs of $895,786 and income taxes of $381,057.

The following tables set forth our results of operations for the periods indicated.

The period-to-period comparison of financial results is not necessarily indicative of future results.

The following table sets forth our historical results for the periods indicated and the changes between periods (in thousands):

Three Months Ended March 31,

Net revenues:

Total net revenues

Cost of net revenues:

Total cost of net revenues

Operating expenses:

Research and development

Sales and marketing

General and administrative

Gain on extinguishment of liability

Total operating expenses

Income (loss) from operations

Interest expense

Other (expenses) income, net

Income (loss) before provision for income taxes

Provision for income taxes

Net income (loss)

Net revenues increased by $0.2 million, or 7%, to $3.3 million for the three months ended March 31, 2024 from $3.1 million for the three months ended March 31, 2023.

The increase was primarily due to an increase of $3.1 million in LTE platform sales and service revenue, and were partially offset by a reduction in LTE sales and service revenue due to customers transitioning from 4G to 5G and the conclusion of several large service projects during the three months ended March 31, 2023.

Product sales increased by $1.8 million, or 297%, to $2.4 million for the three months ended March 31, 2024 from $0.6 million for the three months ended March 31, 2023.

The increase was primarily due to a $2.3 million increase in platform product sales, primarily 4.75G and 5G reference development platforms and boards that began being sold in the second quarter of 2023.

This increase was partially offset by a $0.5 million decrease in sales of certain of our products, including 4G and 4.5G units.

The reduction in certain of our product sales in 2024 was primarily due to our largest customer changing its priority on product development from 4G to the next generation 5G products during 2023, which resulted in the reduction of 4G activity and decline for demand during the three months ended March 31, 2024.

Our net revenues are expected to increase with this customer after we launch our 5G products.

Service revenues decreased by $1.6 million, or 64%, to $0.9 million for the three months ended March 31, 2024 from $2.5 million for the three months ended March 31, 2023.

The decrease was primarily due to a $2.4 million reduction in LTE related service revenues due to several large projects nearing completion.

This decrease was partially offset mainly by an increase of service revenues related to

platform product sales, primarily 4.75G and 5G reference development platforms and boards that began being sold in the second quarter of 2023.

Cost of Net Revenues

Cost of net revenues decreased by $0.2 million, or 15%, to $1.3 million for the three months ended March 31, 2024 from $1.5 million for the three months ended March 31, 2023.

These decreases were primarily due to lower sales of LTE units which was partially offset by an increase in sales of the LTE platform.

Product costs decreased by $0.3 million, or 33%, to $0.7 million for the three months ended March 31, 2024 from $1.0 million for the three months ended March 31, 2023.

The decrease was primarily driven by a $0.3 million decrease in direct product costs as we sold fewer units and a $0.4 million decrease in royalty related costs.

This decrease was partially offset by a $0.3 million increase in direct and indirect costs related to LTE platform sales, which began in the second quarter of 2023.

Service costs increased by $0.1 million, or 17%, to $0.7 million for the three months ended March 31, 2024 from $0.6 million for the three months ended March 31, 2023.

The increase was primarily due to an increase of $0.5 million in service costs recognized in relation to new projects, which was partially offset by a $0.4 million decrease in service costs related to projects nearing conclusion.

Our gross margin improved to 60% for the three months ended March 31, 2024 from 50% for the three months ended March 31, 2023 primarily due to the increase in higher margin platforms sales.

This change in mix was the primary factor that improved our product gross margin to 72% in 2024 from (63)% in 2023.

Our service gross margins fell to 26% in 2024 compared to 77% in 2023 due to increased service costs related to new projects.

Research and Development Expenses

Research and development expenses increased by $4.6 million, or 512%, to $5.5 million for the three months ended March 31, 2024 from $0.9 million for the three months ended March 31, 2023.

This increase was primarily due to a $2.4 million increase in research and development expenses mainly related to services provided by Alpha to design 5G chip products, $1.1 increase in expensed intellectual property (“IP”) costs related to services provided by Alpha to design 5G chip products, $0.7 million increase in expensed IP costs related to our LTE platform for which sales began in the second quarter of 2023 and a $0.4 million increase in R&D personnel costs due to our heavier focus on research and development activities as sales of our LTE platform continued to increase.

Sales and Marketing Expenses

Sales and marketing expenses increased by $0.2 million, or 19%, to $1.0 million for the three months ended March 31, 2024 from $0.8 million for the three months ended March 31, 2023.

The $0.2 million increase was primarily due to several immaterial increases in various costs for the three months ended March 31, 2024.

General and Administrative Expenses

General and administrative expenses increased by $1.4 million, or 92%, to $2.8 million for the three months ended March 31, 2024 from $1.5 million for the three months ended March 31, 2023.

The increase was primarily due to a $1.0 million increase in stock-based compensation related to the vesting of equity awards after performance conditions were met on the closure of the merger and a $0.2 million increase in other expenses related to debt fees.

Gain on Extinguishment of Liability

Gain on extinguishment of liability was $14.6 million for the three months ended March 31, 2024 due to the release by a vendor in the three months ended March 31, 2024 of amounts payable by us for research and development services received in prior years.

There was no similar transaction that took place during the three months ended March 31, 2023.

Interest Expense

Interest expense increased by $1.1 million, or 123%, to $2.1 million for the three months ended March 31, 2024 from $0.9 million for the three months ended March 31, 2023.

The increase of $1.1 million was primarily due to new debt acquired during the fourth quarter of 2023 and the first quarter of 2024 as well as interest rate increases in the first quarter of 2024 for existing debt agreements.

Other (Expenses) Income, Net

Other (expenses) income, net decreased by $5.6 million, or 437%, to $4.3 million other expenses, net for the three months ended March 31, 2024 from $1.3 million other income, net for the three months ended March 31, 2023.

The $5.6 million decrease was primarily due to the loss in fair value remeasurement of our warrants and convertible promissory notes recognized during the three months ended March 31, 2024.

Liquidity and Capital Resources

Until the consummation of the IPO, as described below, our only source of liquidity was an initial purchase of ordinary shares by the sponsors and loans from our Sponsor.

The Company also executed promissory notes with the Sponsors (the “Sponsors Loans”), evidencing loans to the Company in the aggregate amount of $6,900,000.

The Sponsor Loans shall be repaid or converted into warrants (“Sponsor Loan Warrants”) at a conversion price of $1.00 per warrant, at the Sponsors’ discretion.

The Sponsor Loan Warrants will be identical to the Private Placement Warrants.

As of September 30, 2023, we had available to us $212,936 of cash held outside the Trust Account (which included $203,663 of cash withdrawn by the Company from the Trust Account to pay taxes yet to be paid and excluding excise taxes).

We will use these funds primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate and complete a business combination, and to pay taxes to the extent the interest earned on the Trust Account is not sufficient to pay our taxes.

If the estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate our business prior to a Business Combination.

Moreover, the Company may need to obtain additional financing either to complete a Business Combination or because the Company becomes obligated to redeem a significant number of public shares upon consummation of a Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination.

Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of a Business Combination.

If the Company is unable to complete a Business Combination because it does not have sufficient funds available, the Company will be forced to cease operations and liquidate the Trust Account.

In addition, following a Business Combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations.

The Company has until the Current Extended Date to consummate a Business Combination.

If a Business Combination is not consummated by this date and any additional extension(s) are not obtained, there will be a mandatory liquidation and subsequent dissolution of the Company.

Although the Company intends to consummate a Business Combination on or before the Current Extended Date, it is uncertain whether the Company will be able to consummate a Business Combination by this time.

In connection with the Company’s assessment of going concern considerations in accordance with ASC Subtopic 205-40, “Presentation of Financial Statements – Going Concern”, Management has determined that the mandatory liquidation, should a Business Combination not occur, and an additional extension is not obtained, and potential subsequent dissolution, as well as the potential for the Company to have insufficient funds available to operate its business prior to a Business Combination, raise substantial doubt about the Company’s ability to continue as a going concern.

No adjustments have been made to the carrying amounts and classification of assets or liabilities should the Company be required to liquidate after the Current Extended Date.

Off-Balance Sheet Arrangements;

Since inception, we have financed our operations primarily through cash receipts from customers, the issuance of convertible promissory notes, borrowings, issuance of capital stock and the exercise of stock options.

Except for the three months ended March 31, 2024, we have incurred and expect that we will continue to incur significant operating losses.

For the three months ended March 31, 2024 and 2023, we had a net income of $0.8 million and a net loss of $1.4 million, respectively.

For the three months ended March 31, 2024 and 2023, we had cash used in operating activities of $14.4 million and $1.5 million, respectively.

As of March 31, 2024, we had an accumulated deficit of $548.9 million.

Our condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary if we are unable to obtain adequate financing in the future.

We received $17.2 million in cash proceeds from the reverse recapitalization and PIPE Financing, net of transaction costs.

As a result of the cash proceeds received in connection with the Business Combination and other capital resources available to us, including sales of our products and services and the Purchase Agreement (as defined below), we believe we have sufficient cash to fund our operations for at least the next 12 months from the filing of this Quarterly Report on Form 10-Q.

In April 2024, we entered into a common stock purchase agreement (the “Purchase Agreement”) and a related registration rights agreement (the “Registration Rights Agreement”) with B.

Riley Principal Capital II, LLC (“B.

Riley Principal Capital II”) to provide for an “equity line of credit” Pursuant to the Purchase Agreement and subject to the satisfaction of certain conditions, including the effectiveness of a resale registration statement, we have the right, in our sole discretion, to sell to B.

Riley Principal Capital II, from time to time, up to $50.0 million in aggregate gross purchase price of shares of our common stock, subject to certain limitations contained in the Purchase Agreement, during the term of 24 months.

Pursuant to the Registration Rights Agreement, the Company is required to file a registration statement on Form S-1 to register the resale of shares of common stock that are sold to B.

Riley Principal Capital II under the Purchase Agreement.

Sales of common stock by the Company to B.

Riley Principal Capital II pursuant to the Purchase Agreement, and the timing of any such sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B.

Riley Principal Capital II under the Purchase Agreement.

In addition, we have outstanding convertible promissory notes and borrowings as of March 31, 2024 for a total principal amount of $50.5 million, of which $45.5 million is contractually due within 12 months of the balance sheet date.

While a portion of the cash proceeds received in connection with the Business Combination was expended to support our 5G activity and fund other operational expenses, management expects that further and significant ongoing operating expenditures will be necessary to successfully implement our business plan and market our products.

With the start of manufacturing, shipments and commercialization of our first 5G chipset expected during 2024, we anticipate significant related expenditures in the form of production-related costs, including mask sets, wafers, and design service fees, and most such costs will be incurred prior to the commencement of manufacturing and production.

If we do not have sufficient funds to make such payments, or if we cannot extend the terms of our existing commercial loans or to raise additional capital, the payments can be delayed, which may adversely affect our business operations and financial performance.

For a more detailed description of such risks, please see the section entitled “Risk Factors” disclosed in our Registration Statement on Form S-1 filed with the SEC on April 19, 2024.

We intend to mitigate the risk of any working capital deficit by continuing to seek and execute appropriate actions to secure funding as a publicly traded company, including extension and refinancing of existing loans, securing equity line of credit, and public or private equity offerings, debt financings, and other means.

We have historically been able to raise capital through the issuance and sale of equity and equity-linked instruments, such as redeemable convertible preferred stock, convertible promissory notes, and borrowings, although no assurance can be provided that we would continue to be successful in doing so in the future.

We expect to use such additional liquidity and the cash and cash equivalents available to us after the Closing to finance the following activities:

● Cost of mass production of 5G and other products, including masks, wafers and design house fees;

● Acquisition of IP and tool enhancement to develop next generation of product;

● Hiring of additional personnel in engineering and sales and marketing functions;

● Improvement of engineering equipment.

While we believe that we have a reasonable basis for our expectation and we will be available to raise additional funds, we cannot provide assurance that we will be able to complete additional financing in a timely manner.

Should we enter into definitive collaboration and/or joint venture agreements or engage in business combinations in the future, we may be required to seek additional financing.

Cash flow Comparison for the Three Months Ended March 31, 2024 and 2023

The following table summarizes our cash flows for the periods indicated (in thousands):

Three Months Ended March 31,

Cash used in operating activities

Cash used in investing activities

Cash provided by financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash

Operating Activities

Cash used in operating activities of $14.4 million during the three months ended March 31, 2024 was primarily attributable to our net income of $0.8 million, offset by $7.0 million in non-cash adjustments and $8.2 million change in our operating assets and liabilities.

Non-cash adjustments consisted primarily of $14.6 million gain from the extinguishment of a liability, partially offset by $4.6 million loss from the change in fair value of warrant liabilities, $1.2 million loss from the change in fair value of convertible promissory notes, $1.2 million in stock-based compensation, $0.2 million in depreciation and amortization charges, $0.2 million in operating lease right-of-use amortization and $0.2 million in provision for credit losses.

The change in our operating assets and liabilities primarily resulted from a decrease of $4.1 million in our accounts payable, accrued and other current liabilities and other liabilities due to the payment of costs incurred related to our Business Combination, an increase of $2.3 million in our prepaid expenses and other current assets related to timing of payments for inventory and manufacturing of wafers, an increase of $0.9 million in our contract assets due to unbilled services provided under certain projects, an increase of $0.5 million in our accounts receivable primarily due to slower collections from certain customers, an increase of $0.3 million in our inventory due to lower sales, and a decrease of $0.2 million in our lease liabilities.

Cash used in operating activities of $1.5 million during the three months ended March 31, 2023 was primarily attributable to our net loss of $1.4 million and $0.2 million in non-cash adjustments, partially offset by $0.1 million change in our operating assets and liabilities.

Non-cash adjustments consisted primarily of $0.5 million gain from the change in fair value of convertible promissory notes, partially offset by $0.2 million in depreciation and amortization and $0.2 million operating lease right-of-use amortization.

The change in our operating assets and liabilities primarily resulted from a decrease of $2.1 million in our accounts receivable corresponding to lower revenues and an increase of $0.8 million in our accounts payable, accrued and other current liabilities and other liabilities related to the timing of payments, partially offset by an increase of $1.8 million in our contract assets due to unbilled services provided under certain projects, an increase of $0.7 million in inventory due to lower sales, and a decrease of $0.7 million in our contract liabilities due to the provision of our services under certain projects.

Investing Activities

There was no activity related to investing activities during the three months ended March 31, 2024.

Cash used in investing activities of $0.1 million during the three months ended March 31, 2023 related to the purchases of property and equipment.

Financing Activities

Cash provided by financing activities of $30.3 million during the three months ended March 31, 2024 consisted of $17.2 million from proceeds received from the reverse recapitalization and PIPE Financing, net of transaction costs, $16.3 million in proceeds from the issuance of convertible promissory notes, partially offset by $3.2 million repayment of our bank borrowings.

Cash provided by financing activities of $0.6 million during the three months ended March 31, 2023 primarily related to net proceeds from bank borrowings.

Commitments and Contractual Obligations

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements as of September 30, 2023.

We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Contractual Obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee of $20,000 for office space, administrative and support services.

We began incurring these fees on November 3, 2021 and will continue to incur these fees monthly until the earlier of the completion of our initial Business Combination and our liquidation.

Further, on May 3, 2022, the Sponsor agreed to loan the Company up to $350,000 to be used to pay operating expenses.

This loan is non-interest bearing, unsecured, is not convertible into warrants or any other securities, and due at the closing of a business combination.

The Company had not borrowed any amount under the promissory note.

There was no balance outstanding as of both September 30, 2023 and December 31, 2022.

Additionally, our underwriters are entitled to a deferred underwriting discount of $12,075,000 of the gross proceeds of the IPO held in the Trust Account upon the completion of the Company’s initial Business Combination subject to the terms of the underwriting agreement.

On March 29, 2023, the Company engaged a capital markets advisor in connection with seeking an extension for completing a business combination, a possible acquisition of a third party by merger, consolidation, acquisition of stock or assets or other business combination, and as a placement agent in connection with a private placement of debt, equity, equity-linked or convertible securities.

The Company agreed to pay the capital markets advisor a transaction fee in connection with the services provided, payable upon and subject to the Company’s consummation of an initial business combination.

The fee consists of a fixed and determinable portion and a variable portion contingent upon certain future events expected to take place upon completion of a business combination.

As of September 30, 2023, $2,500,000 was accrued for the fee as the amount was fixed and determinable.

These costs may be paid for using the proceeds of the cash available once a business combination is complete.

Critical Accounting Policies and Significant Judgments and Estimates

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America.

The preparation of financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related disclosures.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

Actual results could differ significantly from the estimates made by our management.

There have been no material changes to our critical accounting policies and estimates from those disclosed in our financial statements and the related notes and other financial information included in our Form 10-K for the year ended December 31, 2022, on file with the SEC, except as noted below:

Non-Redemption Agreements

In April 2023, the Sponsor and certain investors (“Investors”) of the Company’s Class A common stock entered into Non-Redemption Agreements.

The Non-Redemption Agreements provide for the assignment of economic interest of an aggregate of 999,665 shares of Class B common stock of the Company held by the Sponsor to the Investors in exchange for such Investors agreeing to hold and not redeem their Class A common stock at the special meeting of stockholders held on May 4, 2023.

Pursuant to the Non-Redemption Agreements, the Sponsor has agreed to transfer to such Investors an aggregate of 999,665 Class B common stock upon the consummation of an initial Business Combination.

The Company estimated the aggregate fair value of the shares attributable to the Investors to be $884,554 or $0.88 per share.

The Company complies with the requirements of SEC Staff Accounting Bulletin (“SAB”) Topic 5(A) – “Expenses of Offering” and SAB Topic 5(T):

Miscellaneous Accounting - Accounting for Expenses or Liabilities Paid by Principal Stockholder(s).

As such, the value of the Class B common stock assigned to the Investors are recognized as offering costs and charged to shareholders’ deficit.

The value of the Class B common stock contributed by the Sponsors is reported as an increase to shareholders’ deficit.

We have material commitments and contractual obligations including leases, purchase commitments, and research and development agreements.

We have various operating leases, under which we lease office equipment and office space.

The operating leases have various expiration dates through 2026.

We have certain commitments for outstanding purchase orders related to the manufacture of certain wafers utilized by the Company and other services, and we have entered into a material research and development agreement.

See Note 8, to our unaudited condensed consolidated financial statements included in herein for more information regarding our additional commitments and contractual obligations.

We have certain debt agreements in place related to convertible promissory notes and borrowings.

See Note 7, to our unaudited condensed consolidated financial statements included in herein for more information regarding our debt arrangements.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements and the related notes thereto included herein are prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and related disclosures in our condensed consolidated financial statements and accompanying notes.

We base our estimates on historical experience and various other factors that we believe to be reasonable under the circumstances, which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions due to the inherent uncertainty involved in making those estimates, and any such differences may be material.

There have been no material changes to our critical accounting estimates from those described under in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Judgements and Estimates disclosed in our Form 8-K filing with the SEC on April 1, 2024, , except that from the Closing we have certain contracts in our own equity that are subject to liability classification and remeasurement each reporting periods.

Revenue Recognition

Our revenues are generated by the sale of mobile semiconductor solutions consisting of products and platform solutions aimed at the LTE and 5G industries, development services, and technical advice and maintenance services.

Revenues from sales of our products are recognized upon transfer of control to the customer, which is generally at the time of shipment.

Service revenues from development services, technical advice, and maintenance services are generally recognized over time as these performance obligations are satisfied.

We make estimates of potential future returns and sales allowances related to current period product revenue.

We analyze historical return rates and changes in customer demand when evaluating the adequacy of returns and sales allowances.

Although we believe we have a reasonable basis for our estimates, such estimates may differ from actual returns and sales allowances.

These differences may materially impact reported net product revenues and amounts ultimately collected on accounts receivable.

Provision for Credit Losses

Accounts receivable balances are primarily derived from revenues earned from customers located in the United States, China, Korea, Japan, and Taiwan.

We perform ongoing credit evaluations of the financial conditions of our customers and distributors, and generally do not require collateral from our customers.

We continuously monitor collections and payments from customers and maintain a provision for credit losses based upon the collectability of our customer accounts.

We review the provision by considering certain factors such as historical experience, industry data, credit quality, age of balances and current economic conditions that may affect a customer’s ability to pay.

Uncollectible receivables are written off when all efforts to collect have been exhausted and recoveries are recognized when they are recovered.

While such credit losses have historically been minimal, within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we had in the past.

A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectability of our accounts receivable and our future operating results.

The provision for credit losses was $1.9 million and $1.6 million as of March 31, 2024 and December 31, 2023, respectively.

Fair Value of Convertible Promissory Notes

We have made an election to account for our convertible promissory notes under the fair value option, the convertible promissory notes are recorded at their initial fair value on the date of issuance and then are adjusted to fair value upon any modification and at each balance sheet date thereafter.

Changes in the estimated fair value of the convertible promissory notes are recognized as non-cash gains or losses in the condensed consolidated statements of operations within other income, net.

Our convertible promissory notes are valued using a discounted cash flow (“DCF”) model or binomial lattice model (“BLM”) and prior to the Business Combination were valued using a combination of an option pricing model and Probability-Weighted Expected Return Method (“PWERM”), which are considered to be a Level 3 fair value measurements.

Significant assumptions used in the DCF include the remaining term and discount rate.

Significant assumptions used in the BLM include volatility, remaining term, risk-free rate and credit spread.

The PWERM is a scenario-based methodology that estimates the fair value based using an analysis of future values for the Company that assumes various outcomes.

The value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available.

The future value under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability-weighted to arrive at an indication of value.

Significant assumptions used in the PWERM include volatility, discount rate, and the probability of a future liquidity event.

Contracts in Own Equity – Fair Value of Warrants

We classify contracts in equity, including warrants to purchase shares of the Company’s common stock, that do not meet the indexation guidance as liabilities.

At the end of each reporting period, these liability-classified instruments are remeasured using an option pricing model or BLM.

Significant assumptions are used in determining the fair value of our warrants and include volatility and the risk-free rate.

Recent Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements included herein for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition and results of operations.

JOBS Act Accounting Smaller Reporting Company Elections

We are 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 those standards apply to private companies.

We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

As a result, our condensed consolidated financial statements may or may not be comparable to companies that comply with new or revised accounting pronouncements as of public companies’ effective dates.

We are also a “smaller reporting company,” as defined in the Exchange Act.

We may continue to be a smaller reporting company even after we are no longer an emerging growth company.

We have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies, and will be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non- affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

We are a smaller reporting company, as defined by Rule 12b-2 under the Securities and Exchange Act of 1934, as amended (the Exchange Act) and in Item 10(f)(1) of Regulation S-K and are not required to provide the information under this item.

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 2. Management’s Discussion and Analysis