Item 1. Financial Statements
Item 1. Financial Statements.
GCT SEMICONDUCTOR HOLDING, INC.
Condensed Consolidated Balance Sheets
( in thousands, except per share data)
March 31, 2024
December 31, 2023
(unaudited)
Assets
Current assets:
Cash and cash equivalents
$
16,122
$
258
Accounts receivable, net
5,103
4,920
Inventory
1,784
1,486
Contract assets
4,313
3,439
Prepaid expenses and other current assets
5,466
2,906
Total current assets
32,788
13,009
Property and equipment, net
644
772
Operating lease right-of-use assets
1,343
1,521
Intangibles, net
187
245
Other assets
857
881
Total assets
$
35,819
$
16,428
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable
$
1,242
$
17,814
Contract liabilities
35
48
Accrued and other current liabilities
25,152
23,956
Borrowings
39,840
44,509
Convertible promissory notes, current
5,645
27,794
Operating lease liabilities, current
679
680
Total current liabilities
72,593
114,801
Convertible promissory notes, net of current
4,672
6,239
Net defined benefit liabilities
7,488
7,689
Long-term operating lease liabilities
674
850
Income taxes payable
2,096
2,178
Warrant liabilities
10,584
—
Other liabilities
72
108
Total liabilities
98,179
131,865
Commitments and contingencies (Note 8)
Stockholders’ deficit:
Preferred stock, par value $ 0.0001 per share; 40,000 and 82,352 shares authorized as of March 31, 2024 and December 31, 2023, respectively; no shares issued and outstanding as of March 31, 2024 and December 31, 2023
—
—
Common stock, par value $ 0.0001 per share; 400,000 and 200,000 shares authorized as of March 31, 2024 and December 31, 2023, respectively; 45,833 and 24,166 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively (1)
5
3
Additional paid-in capital (1)
487,006
435,752
Accumulated other comprehensive loss
( 474 )
( 1,538 )
Accumulated deficit
( 548,897 )
( 549,654 )
Total stockholders’ deficit
( 62,360 )
( 115,437 )
Total liabilities and stockholders’ deficit
$
35,819
$
16,428
(1) Amounts as of December 31, 2023 differ from those in prior year consolidated financial statements as they were retrospectively adjusted as a result of the accounting for the Business Combination (as defined in the Notes to the Unaudited Condensed Consolidated Financial Statements.)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GCT SEMICONDUCTOR HOLDING, INC.
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)
Three Months Ended
March 31,
2024
2023
Net revenues:
Product
$
2,378
$
599
Service
887
2,463
Total net revenues
3,265
3,062
Cost of net revenues:
Product
654
978
Service
658
563
Total cost of net revenues
1,312
1,541
Gross profit
1,953
1,521
Operating expenses:
Research and development
5,521
902
Sales and marketing
996
836
General and administrative
2,836
1,477
Gain on extinguishment of liability
( 14,636 )
—
Total operating (income) expenses
( 5,283 )
3,215
Income (loss) from operations
7,236
( 1,694 )
Interest expense
( 2,082 )
( 935 )
Other (expenses) income, net
( 4,338 )
1,286
Income (loss) before provision for income taxes
816
( 1,343 )
Provision for income taxes
59
50
Net income (loss)
757
( 1,393 )
Net income (loss) per common share (1) :
Basic
$
0.03
$
( 0.06 )
Diluted
$
0.03
$
( 0.06 )
Weighted-average shares used in computing net income (loss) per common shares (1) :
Basic
25,468
23,862
Diluted
26,257
23,862
(1) Amounts as of December 31, 2023 and before that date differ from those in prior year consolidated financial statements as they were retrospectively adjusted as a result of the accounting for the Business Combination (as defined in the Notes to the Unaudited Condensed Consolidated Financial Statements).
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GCT SEMICONDUCTOR HOLDING, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited, in thousands)
Three Months Ended
March 31,
2024
2023
Comprehensive income (loss), net of taxes:
Net income (loss)
$
757
$
( 1,393 )
Foreign currency translation adjustment
1,064
674
Comprehensive income (loss)
$
1,821
$
( 719 )
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GCT SEMICONDUCTOR HOLDING, INC.
Condensed Consolidated Statements of Stockholders’ Deficit
(unaudited, in thousands)
Accumulated
Additional
Other
Total
Common Stock
Paid-In
Comprehensive
Accumulated
Stockholders’
Shares
Amount
Capital
Income (Loss)
Deficit
Deficit
Balance as of December 31, 2023
129,396
$
129
$
435,626
$
( 1,538 )
$
( 549,654 )
$
( 115,437 )
Reverse recapitalization
( 105,230 )
( 126 )
126
—
—
—
Balance as of December 31, 2023 (1)
24,166
3
435,752
( 1,538 )
( 549,654 )
( 115,437 )
Reverse recapitalization transaction, net of transaction costs and acquired liabilities
21,667
2
50,031
—
—
50,033
Stock-based compensation
—
—
1,223
—
—
1,223
Foreign currency translation adjustment
—
—
—
1,064
—
1,064
Net income
—
—
—
—
757
757
Balance as of March 31, 2024
45,833
$
5
$
487,006
$
( 474 )
$
( 548,897 )
$
( 62,360 )
Accumulated
Additional
Other
Total
Common Stock
Paid-In
Comprehensive
Accumulated
Stockholders’
Shares
Amount
Capital
Income (Loss)
Deficit
Deficit
Balance as of December 31, 2022
127,761
$
128
$
433,990
$
( 1,862 )
$
( 527,185 )
$
( 94,929 )
Reverse recapitalization
( 103,900 )
( 126 )
126
—
—
—
Balance as of December 31, 2022 (1)
23,861
2
434,116
( 1,862 )
( 527,185 )
( 94,929 )
Issuance of common stock upon exercise of stock options (1)
5
—
1
—
—
1
Stock-based compensation (1)
—
—
2
—
—
2
Foreign currency translation adjustment
—
—
—
674
—
674
Net loss
—
—
—
—
( 1,393 )
( 1,393 )
Balance as of March 31, 2023 (1)
23,866
$
2
$
434,119
$
( 1,188 )
$
( 528,578 )
$
( 95,645 )
(1) Amounts as of December 31, 2023 and before that date differ from those in prior year consolidated financial statements as they were retrospectively adjusted as a result of the accounting for the Business Combination (as defined in the Notes to the Unaudited Condensed Consolidated Financial Statements).
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GCT SEMICONDUCTOR HOLDING, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
Three Months Ended March 31,
2024
2023
Operating activities:
Net income (loss)
$
757
$
( 1,393 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization
206
225
Operating lease right-of-use amortization
176
168
Finance lease right-of-use amortization
—
4
Stock-based compensation
1,223
2
Provision for credit losses
247
—
Gain on extinguishment of liability
( 14,636 )
—
Change in valuation of convertible promissory notes
1,203
( 549 )
Change in valuation of warrant liabilities
4,626
—
Changes in operating assets and liabilities:
Accounts receivable
( 501 )
2,144
Inventory
( 298 )
( 651 )
Contract assets
( 874 )
( 1,769 )
Prepaid expenses and other current assets
( 2,292 )
102
Other assets
24
35
Accounts payable
( 2,713 )
133
Contract liabilities
( 13 )
( 650 )
Accrued and other current liabilities
( 1,067 )
1,048
Net defined benefit liabilities
109
186
Income tax payable
( 83 )
—
Lease liabilities
( 177 )
( 170 )
Other liabilities
( 330 )
( 345 )
Net cash used in operating activities
( 14,413 )
( 1,480 )
Investing activities:
Purchases of property and equipment
—
( 118 )
Net cash used in investing activities
—
( 118 )
Financing activities:
Proceeds from exercise of stock options
—
1
Proceeds from bank borrowings
—
582
Proceeds from issuance of convertible promissory notes
16,290
—
Proceeds from reverse recapitalization and PIPE Financing, net of transaction costs
17,238
—
Repayment of bank borrowings
( 3,254 )
( 31 )
Net cash provided by financing activities
30,274
552
Effect of exchange rate changes on cash and cash equivalents
3
( 52 )
Net increase (decrease) in cash and cash equivalents
15,864
( 1,098 )
Cash and cash equivalents at beginning of year
258
1,398
Cash and cash equivalents cash at end of year
$
16,122
$
300
Supplemental disclosure of cash flow information:
Cash paid for interest
$
1,183
$
368
Cash paid for income taxes
$
3
$
3
Cash paid for amounts included in the measurement of operating leases
$
192
$
195
Issuance of common stock from conversion of convertible promissory notes and accrued interest
$
41,209
$
—
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization and Liquidity
Description of Business
GCT Semiconductor Holdings, Inc. (formerly known as Concord Acquisition Corp III) and its wholly owned subsidiaries (collectively “GCT”, or the “Company”) is headquartered in San Jose, California with international offices in Korea, China, Taiwan, and Japan. The Company is a fabless semiconductor company that specializes in the design, manufacturing and sale of communication semiconductors, including high-speed wireless communication technologies such as 5G/4.75G/4.5G/4G transceivers and modems, which are essential for a wide variety of industrial, B2B and consumer applications.
On March 26, 2024 (the “Closing Date” or “Closing”), Concord Acquisition Corp III (“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 GCT Semiconductor, Inc. (hereinafter referred to as “Legacy GCT”), pursuant to a Business Combination Agreement, dated November 2, 2023 (as amended, 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 as the acquired company for accounting purposes. Accordingly, all historical financial information presented in the unaudited condensed consolidated financial statements represent the accounts of Legacy GCT. Pursuant to the Business Combination Agreement, the shares and net loss per common share prior to the Closing have been retroactively restated as shares reflecting the exchange ratio established in the Closing of approximately 0.1868 .
Prior to the Business Combination, Concord III’s public shares, and public redeemable warrants, were listed on the New York Stock Exchange (“NYSE”) under the symbols “CNDB.U,” “CNDB” and “CNDB.WS,” respectively. On March 27, 2024, the Company’s common stock and public warrants began trading on the NYSE, under the symbols “GCTS” and “GCTSW,” respectively. See Note 3 for additional information. In connection with the Closing, Concord III’s Class A common stock and Class B common stock were recapitalized into a single class of common stock.
Liquidity
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business. Prior to March 31, 2024, the Company has incurred operating losses and negative cash flows from operating and had an accumulated deficit of $ 548.9 million as of March 31, 2024. The Company’s existing sources of liquidity as of March 31, 2024 include cash and cash equivalents of $ 16.1 million. The Company has historically funded operations primarily with issuances of capital stock and the incurrence of debt.
The Company received $ 17.2 million in cash proceeds from the reverse recapitalization and PIPE Financing (as defined in Note 3), net of transaction costs. The Company believes the proceeds received in connection with the Business Combination and other capital resources available to the Company , including sales of products and services and the Purchase Agreement (as defined in Note 17), will be sufficient to fund the Company’s operations for at 12 months after the filing date of this Quarterly Report on Form 10-Q. Over the longer term, the Company will need to raise additional capital through debt or equity financing to fund future operations until it generates positive cash flows from profitable operations. There can be no assurance that such additional debt or equity financing will be available on terms acceptable to the Company, or at all.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Summary of Significant Accounting Policies and Basis of Presentation
Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements and accompanying notes include the accounts of the Company and its wholly owned subsidiaries, after elimination of intercompany balances and transactions. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2023, which are included in the Company’s Form 8-K filed with the SEC on April 1, 2024. The information as of December 31, 2023 included in the condensed consolidated balance sheets was derived from those audited consolidated financial statements.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial information. The condensed consolidated results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other future annual or interim period.
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates, and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. These judgments, estimates and assumptions are used for but not limited to revenue recognition, provision for credit losses, inventory obsolescence, recoverability of long-lived assets, certain accrued expenses, stock-based compensation, determination of fair value of the Company’s convertible promissory notes, common stock (prior to the reverse recapitalization), warrant labilities and stock options, and deferred income taxes including related valuation allowances. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. However, actual results could differ from these estimates, and these differences may be material.
Fair Value of Financial Instruments
The carrying amount of certain financial instruments held by the Company, such as cash equivalents, accounts receivable, contract assets and liabilities, accounts payable, and accrued and other current liabilities, approximate fair value due to their short maturities. The carrying amount of the liabilities for the convertible promissory notes represents their fair value. The carrying amounts of the Company’s bank borrowings and lease liabilities approximate fair value due to the market interest rates that these obligations bear and interest rates available to the Company.
Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2
Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The Company’s Level 3 financial instruments consist of convertible promissory notes and warrant liabilities. These financial instruments were valued using valuation techniques that are considered to be a Level 3 fair value measurement .
Risk and Uncertainties
The Company is subject to certain risks and uncertainties and believes changes in any of the following areas could have a material adverse effect on the Company’s future financial position or results of operations or cash flows: new product development, including market receptivity, the ability to satisfy obligations under development agreements with major partners, litigation or claims against the Company based on intellectual property, patent, product regulation or other factors, competition from other products, general economic conditions, the ability to attract and retain qualified employees and ultimately to sustain profitable operations.
The semiconductor industry is characterized by rapid technological change, competition, competitive pricing pressures and cyclical market patterns. The Company’s financial results are affected by a wide variety of factors, such as general economic conditions specific to the semiconductor industry and the Company’s particular market, the timely implementation of new products, new manufacturing process technologies and the ability to safeguard patents and intellectual property in a rapidly evolving market. In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns. As a result, the Company may experience significant period-to-period fluctuations in condensed consolidated operating results due to the factors mentioned above or other factors.
The Company’s revenue may be impacted by its ability to obtain adequate wafer supplies from foundries and back-end production capacity from the Company’s test and assembly subcontractors. The foundries with which the Company currently has arrangements may not be willing or able to satisfy all of the Company’s manufacturing requirements on a timely basis and/or at favorable prices. The Company is also subject to the risks of service disruptions, raw material shortages and price increases by its foundries. Such disruptions, shortages and price increases could harm the Company’s consolidated operating results.
Provision for Credit Losses
The provision for credit losses is based on the Company’s assessment of the collectability of its customer accounts. The Company reviews the provision for credit losses 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. The Company determined that provisions for credit losses of approximately $ 1.9 million and $ 1.6 million were necessary as of March 31, 2024 and December 31, 2023, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to the concentration of credit risk consist of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents primarily with one financial institution located in the United States and another financial institution located in Korea where amounts deposited may exceed Federal Deposit Insurance Corporation or Korea Deposit Insurance Corporation limits.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The Company’s accounts receivable balances are primarily derived from revenues earned from customers located in the United States, China, Korea, Japan and Taiwan. The Company performs ongoing credit evaluations of its customers’ and distributors’ financial condition and generally does not require collateral from its customers.
The Company’s net revenue and accounts receivable are concentrated among a few significant customers, which could expose the Company to financial risk in the event of adverse developments with these customers. Four customers accounted for approximately 28 percent, 19 percent, 18 percent and 13 percent of the Company’s gross accounts receivable as of March 31, 2024. Four customers accounted for approximately 27 percent, 19 percent, 14 percent and 10 percent of the Company’s gross accounts receivable as of December 31, 2023. Two customers accounted for approximately 61 percent and 24 percent of the Company’s total net revenues for the three months ended March 31, 2024. Four customers accounted for approximately 28 percent, 28 percent, 25 percent, and 10 percent of the Company’s total net revenues for the three months ended March 31, 2023.
Management closely monitors the creditworthiness and performance of these key customers and has established credit limits and terms to mitigate potential credit risks. The Company also continues to diversify its customer base and explore opportunities to reduce its reliance on a few major customers.
Foreign Currency
Financial statements of foreign subsidiaries that use the local currency as their functional currency are translated into U.S. dollars at the end-of-period exchange rates or at historical exchange rates for purposes of consolidation. Revenues and expenses are translated using average exchange rates during the period. Translation adjustments are included in accumulated other comprehensive loss within stockholders’ deficit. Gains and losses resulting from transactions denominated in a currency other than the functional currency are included in other income, net in the condensed consolidated statements of operations. The Company recognized $ 1.1 million and $ 0.7 million foreign currency exchange gains for the three months ended March 31, 2024 and 2023, respectively.
Convertible Promissory Notes
The Company has elected the fair value option to account for its outstanding convertible promissory notes. Under the fair value option, the convertible promissory notes must be recorded at their initial fair value on the date of issuance, any modification, and at the end of each reporting period end date thereafter. Changes in the estimated fair value of the convertible promissory notes are recognized as non-cash gains or losses in other income, net in the condensed consolidated statements of operations.
Contracts in Equity
The Company classifies 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, such liability classified instruments are remeasured and changes in fair value during the reporting period are recognized within the condensed consolidated statements of operations until the earlier of the exercise, settlement, or expiration.
The Company classifies contracts in equity, including the Legacy GCT Earnouts and Sponsor Earnouts (discussed in Note 3), that meet the indexation and equity classification guidance as a component of stockholders’ deficit and are not subject to fair value remeasurements.
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS” Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Recent Accounting Pronouncements Adopted
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) : Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification. The Company adopted this guidance effective January 1, 2024, and noted no material impact on the Company’s condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) : Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides an exception to fair value measurement for contract assets and contract liabilities related to revenue contracts acquired in a business combination. The ASU requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The Company adopted this guidance effective January 1, 2024, and noted no material impact on the Company’s condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) : Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU clarifies that a contractual restriction on the sale of an equity security should not be considered in measuring the fair value of the equity security and cannot be recognized as a separate unit of account. The ASU also requires the investor to disclose the fair value of equity securities subject to contractual sale restrictions, the nature and remaining duration of the restriction(s), and the circumstances that could cause a lapse in the restriction(s). The ASU is effective for annual and interim periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect the adoption of ASU 2022-03 will have on its condensed consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) : Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The ASU is effective for annual periods beginning after December 15, 2023 and for interim periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect the adoption of ASU 2023-07 will have on its condensed consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) : Improvements to Income Tax Disclosures, which requires companies to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, companies are required to disclose additional information about income taxes paid. The ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The standard is required to be adopted on a prospective basis; however, retrospective application is permitted. The Company is currently evaluating the effect the adoption of ASU 2023-09 will have on its condensed consolidated financial statements.
3. Reverse Recapitalization
In connection with the Business Combination described in Note 1, Concord III completed the acquisition of Legacy GCT and acquired 100 % of Legacy GCT’s common stock. Legacy GCT received net proceeds of $ 17.1 million from the PIPE Financing (as defined below). Concord III incurred total direct transaction costs of $ 13.1 million, which were expensed by Concord III, and of which $ 0.9 million related to the PIPE Financing. Legacy GCT incurred transaction costs of $ 8.9 million, consisting of legal, accounting, and other professional fees, which were recorded as additional paid-in capital. Each share of Legacy GCT capital stock received a deemed value of $ 10.00 per share after giving effect to the applicable exchange ratio of 0.1868 . Upon Closing of the Business Combination, the following occurred:
● Each share of Legacy GCT common stock issued and outstanding prior to the Closing was cancelled and converted into the right to receive a number of shares of the Company common stock at the exchange ratio of 0.1868 .
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
● Each outstanding instrument of Legacy GCT stock options, restricted stock units (“RSUs”) and warrant shares were converted into equivalent Company stock options, RSUs and warrant shares with the same terms and conditions and at the exchange ratio of 0.1868 .
● Certain GCT convertible promissory notes, including the CVT Financing (see Note 7), were automatically converted into the right to receive a number of shares of the Company common stock at the conversion price of $ 6.67 per share (see Note 7).
The number of shares of common stock issued and outstanding immediately following consummation of the Business Combination was (in thousands):
Shares
Common stock of Concord III outstanding prior to the Business Combination
3,941
Less: redemption of Concord III’s common stock
( 3,766 )
Sponsor earnout common stock outstanding prior to the Business Combination
8,625
Common stock of Concord III issued and outstanding
8,800
Common stock issued in PIPE Financing
4,530
Legacy GCT common stock
32,503
Total common stock issued and outstanding
45,833
The Business Combination was accounted for as a reverse recapitalization under U.S. GAAP because Legacy GCT was determined to be the accounting acquirer under the FASB’s Accounting Standards Codification (“ASC”) Topic 805, Business Combinations . Under this method of accounting, Concord III was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the consolidated financial statements of the Company represent a continuation of the consolidated financial statements of Legacy GCT, with the Business Combination treated as the equivalent of Legacy GCT issuing stock for the net assets of Concord III, accompanied by a recapitalization. The net assets of Concord III were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Legacy GCT.
Legacy GCT was determined to be the accounting acquirer based on evaluation of the following facts and circumstances:
● Legacy GCT stockholders comprise a relative majority of the voting power of GCT;
● Legacy GCT stockholders have the ability to nominate a majority of the members of the board of directors of GCT;
● Legacy GCT’s operations prior to the Business Combination will comprise the only ongoing operations of GCT;
● Legacy GCT’s senior management comprises the senior management of GCT;
● GCT substantially assuming the Legacy GCT name;
● Legacy GCT’s headquarters will become GCT’s headquarters; and
● Concord III did not meet the definition of a business.
PIPE Financing
Concurrent 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 had committed to purchase in a private placement an aggregate of 4,529,967 shares of Company’s Common Stock (the “PIPE Shares”) at a purchase price of $ 6.67 per share for an aggregate purchase price of $ 30.2 million (the “PIPE Financing”). The purchase of the PIPE Shares was conditioned upon the consummation of the Business Combination. The PIPE Financing was consummated immediately prior to the Closing. The Company received net proceeds of $ 17.1 million from the PIPE Financing.
Private Placement Warrants and Public Warrants
In November 2021, Concord III issued warrants to purchase shares of Concord III’s common stock that were assumed by the Company at the Closing of the Business Combination on the same terms and conditions: (i) 9,400,000 warrant shares that were issued in a private placement and held by the sponsor and another company (the “private placement warrants”) and (ii) 17,250,000 warrant shares that were issued in connection with the initial public offering of Concord III (the “public warrants”). Collectively these warrant shares are referred to as “private and public warrants” and included settlement provisions that precluded equity classification.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The private placement warrants were reallocated at the Closing of the Business Combination as follows: (i) 4,492,650 warrants were vested and retained by the sponsor parties, (ii) 2,087,350 warrants were reallocated from the sponsor parties to certain recipients at Legacy GCT’s discretion to incentivize investment, and (iii) 2,820,000 were forfeited by the sponsor parties.
The Company has historically accounted for the private and public warrants as liability-classified financial instruments. This conclusion is based on the applicable provisions of the private and public warrants, including their settlement terms upon a change in control or similar transactions that precluded equity classification. After the Closing, the private and public warrants remained liability-classified as the applicable provisions did not change and apply to future operations of the Company.
Legacy GCT Earnout Shares
At the Closing of the Business Combination, former Legacy GCT stockholders and other investors of Legacy GCT have the right to receive up to an aggregate of 20,000,000 shares of Company common stock (“Earnout Shares”), if at any time during the period starting 60 trading days following the Closing and expiring on the 5 th anniversary of the Closing Date: (i) with respect to 6,666,667 of the Earnout Shares, the volume weighted average price (“VWAP”) of the Company’s common stock equals or exceeds $ 12.50 per share for any 20 trading days within a period of 30 consecutive trading days, (ii) with respect to 6,666,666 of the Earnout Shares, the VWAP of the Company’s common stock equals or exceeds $ 15.00 per share for any 20 trading days within a period of 30 consecutive trading days, and (iii) with respect to 6,666,667 of the Earnout Shares, the VWAP of the Company’s common stock equals or exceeds $ 17.50 per share for any 20 trading days within a period of 30 consecutive trading days.
In the event of a future transaction that results in a change in control in which shares of Company common stock are converted into the right to receive cash or other consideration having a value equal to or in excess of a triggering event, then the Legacy GCT Earnout Shares subject to the applicable triggering event that have not been previously issued will be issued to the Legacy GCT stockholders effective as of immediately prior to the consummation of such transaction. In the event of a transaction that results in a change in control in which shares of Company common stock are converted into the right to receive cash or other consideration having a value less than a triggering event, then the Earnout Shares subject to the applicable triggering event that have not been previously issued will be forfeited.
The Legacy GCT Earnout shares have been recognized at fair value of approximately $ 108.8 million upon the Closing and classified within stockholders’ deficit as the Legacy GCT Earnout shares are indexed to the common stock and are otherwise not precluded from equity classification based on their settlement provisions. The fair value of the Legacy GCT Earnout Shares was determined based on a valuation using a Monte Carlo simulation with key inputs and assumptions such as stock price, term, dividend yield, risk-free rate, and volatility. Due to the fact that the Business Combination is accounted for as a reverse recapitalization, the Legacy GCT Earnout shares are treated as a deemed dividend. Due to the fact that the Company does not have any retained earnings, the Company recorded the corresponding entries to additional paid-in capital and therefore have a net nil impact on stockholders’ deficit during the period ended March 31, 2024. In future reporting periods, the Company will monitor that the Legacy GCT Earnout shares meet the equity classification criteria until expiration or settlement.
Sponsor Earnout Shares
Concurrently with entering into the Business Combination Agreement, the sponsor parties and the Company entered into that certain sponsor support agreement, as amended, modified or supplemented (the “Sponsor Support Agreement”). Pursuant to the terms of the Sponsor Support Agreement, the sponsor parties have the right to receive an aggregate of 1,920,375 shares of the Company common stock multiplied by the Sponsor Earnout Ratio (as defined in the Sponsor Support Agreement) (“Sponsor Earnout Shares”), if at any time during the period starting 6 months following the Closing and expiring on the 5 th anniversary of the Closing Date: (i) with respect to one -third of the Sponsor Earnout Shares, the VWAP of the Company’s common stock equals or exceeds $ 12.50 per share for any 20 trading days within a period of 30 consecutive trading days, (ii) with respect to one -third of the Sponsor Earnout Shares, the VWAP of the Company’s common stock equals or exceeds $ 15.00 per share for any 20 trading days within a period of 30 consecutive trading days, and (iii) with respect to one -third of the Sponsor Earnout Shares, the VWAP of the Company’s common stock equals or exceeds $ 17.50 per share for any 20 trading days within a period of 30 consecutive trading days. Notwithstanding the foregoing, in no event shall the number of Sponsor Earnout Shares be less than 570,796 .
The Sponsor Earnout Shares have been recognized at fair value of approximately $ 10.4 million upon the Closing and classified within stockholders’ deficit as the Sponsor Earnout Shares are indexed to the common stock and are otherwise not precluded from equity
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
classification based on their settlement provisions. The fair value of the Sponsor Earnout Shares was determined based on a valuation using a Monte Carlo simulation with key inputs and assumptions such as stock price, term, dividend yield, risk-free rate, and volatility. Since the Business Combination is accounted for as a reverse recapitalization, the issuance of the Sponsor Earnout Shares are treated as a deemed dividend. Since the Company does not have retained earnings, the issuance of the Sponsor Earnout Shares at the Closing is recorded within additional paid-in capital and has a net nil impact on stockholders’ deficit during the period ended March 31, 2024. In future reporting periods, the Company will monitor that the Sponsor Earnout shares meet the equity classification criteria until expiration or settlement.
4. Disaggregation of Revenue
Disaggregation of revenues from contracts with customers is as follows (in thousands):
Three Months Ended March 31, 2024
Product Revenues
Service Revenues
Total
Timing of revenue recognition
At a point in time
$
2,378
$
—
$
2,378
Over time
—
887
887
Total
$
2,378
$
887
$
3,265
Three Months Ended March 31, 2023
Product Revenues
Service Revenues
Total
Timing of revenue recognition
At a point in time
$
599
$
—
$
599
Over time
—
2,463
2,463
Total
$
599
$
2,463
$
3,062
Net revenues categorized by customer location are as follows (in thousands):
Three Months Ended March 31,
2024
2023
Korea
$
2,000
$
—
Germany
796
—
United States
389
1,968
China
80
1,094
Total
$
3,265
$
3,062
Contract Assets and Liabilities
Details of contract assets and liabilities is as follows (in thousands):
March 31, 2024
December 31, 2023
Contract assets
$
4,313
$
3,439
Assets recognized for costs incurred to fulfill a contract (*)
13
12
Contract liabilities
35
48
(*)
The balances are included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Net revenues recognized in relation to contract liabilities are as follows as of the periods indicated (in thousands):
March 31, 2024
March 31, 2023
Net revenues recognized that were included in the contract liabilities balance at the beginning of the period
$
12
$
650
5. Fair Value of Measurements
Fair value hierarchy classifications of the financial instruments that are measured at fair value on a recurring basis are as follows (in thousands):
March 31, 2024
Level 1
Level 2
Level 3
Total
Convertible promissory notes
$
—
$
—
$
10,317
$
10,317
Warrant liabilities
—
—
10,584
10,584
December 31, 2023
Level 1
Level 2
Level 3
Total
Convertible promissory notes
$
—
$
—
$
34,033
$
34,033
Valuation techniques and the inputs
The table below presents valuation techniques and inputs used in the fair value measurement categorized within Level 3 of the fair value hierarchy (in thousands):
Valuation techniques
Inputs
March 31, 2024
December 31, 2023
Convertible promissory notes, current
Discounted Cash Flow Model (“DCF”)
Discount rate, risk-free rate, credit spread, contractual cash flows
$
5,645
PWERM (“Probability-Weighted Expected Return Method”)
Scenario of initial public offering (“IPO”) and merger & acquisition (“M&A”)
$
27,794
Convertible promissory notes, net of current
Binomial Lattice Model (“BLM”)
Stock price, volatility, remaining term, risk-free rate, credit spread
4,672
PWERM
Scenario of initial public offering (“IPO”) and merger & acquisition (“M&A”)
6,239
Warrant liabilities – private and public warrants
Black Scholes Merton Model (“BSM”) or BLM
Exercise price, term to expiration, volatility, risk-free rate
9,150
—
Warrant liabilities - other
1,434
—
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
As of March 31, 2024, the key inputs for the convertible promissory notes, current using the DCF were as follows: remaining term of 0.25 years and a discount rate of 10.2 %. As of March 31, 2024, the key inputs for the convertible promissory notes, net of current using the BLM were as follows: stock price of $ 6.58 , volatility of 32.2 %, remaining term of 1.9 years, risk-free rate of 4.6 %, and credit spread of 5.0 %.
As of March 31, 2024, the key inputs for the private placement warrants using the BSM were as follows: exercise price of $ 11.50 per share, term to expiration of 5 years, volatility range of 19.4 % and a risk-free rate of 4.2 %. As of March 31, 2024, the key inputs for the public warrants using the BLM were as follows: exercise price of $ 11.50 per share and term to expiration of 5.0 years. As of March 31, 2024, the key inputs for the warrant liabilities – other using the BSM were as follows: an exercise price of $ 5.00 per share, or $ 10.00 per share or $ 18.75 per share, term to expiration ranging from 0.4 years to 2.6 years, volatility ranging from 29.5 % to 32.7 %, and a risk-free rate ranging from 4.4 % to 5.4 %.
As of December 31, 2023, the PWERM was used as Legacy GCT was a private company. After the Closing, and as of March 31, 2024, the valuation techniques used reflect that the Business Combination was consummated.
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):
Three Months Ended March 31,
2024
2023
Convertible promissory notes fair value - beginning of period
$
34,033
$
31,166
Change in fair value of convertible promissory notes
1,203
( 549 )
Conversion of convertible promissory notes
( 41,209 )
—
Borrowing of convertible promissory notes
16,290
—
Convertible promissory notes fair value - end of period
$
10,317
$
30,617
Three Months Ended March 31,
2024
2023
Warrant Liabilities Fair value - beginning of period
$
—
$
—
Private and public warrants assumed at Closing
5,958
—
Change in fair value of warrant liabilities
4,626
—
Warrant Liabilities Fair value - end of period
$
10,584
$
—
The gains and losses from fair value re-measurement of Level 3 financial liabilities are recorded as other income, net in the condensed consolidated statements of operations.
6. Balance Sheet Components
Inventory
Inventories consists of the following (in thousands):
March 31,
December 31,
2024
2023
Raw materials
$
414
$
448
Work-in-process
498
601
Finished goods
872
437
Total inventory
$
1,784
$
1,486
There were no write-downs of inventory into cost of net revenues for the three months ended March 31, 2024 and 2023.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Prepaid expenses and other assets
Prepaid expenses and other assets consist of the following (in thousands):
March 31,
December 31,
2024
2023
Prepaid expenses
$
3,345
$
433
Prepaid inventory
1,429
279
Lease deposit
413
434
Other receivables and current assets
279
117
IPO expenses
—
1,643
Prepaid expenses and other current assets
$
5,466
$
2,906
Accrued and other current liabilities
Accrued and other current liabilities consist of the following (in thousands):
March 31,
December 31,
2024
2023
Payroll and related expenses
$
9,830
$
9,880
Accrued payables
7,853
6,319
Other taxes payable
3,399
158
Current portion of interest payable
3,395
6,915
Professional fees
444
499
Royalty and license fee
60
58
Product warranty
64
55
Other
107
72
Accrued and other current liabilities
$
25,152
$
23,956
7. Debt
The Company’s outstanding debt was as follows (in thousands):
March 31,
December 31,
2024
2023
Principal
Fair Value
Principal
Fair Value
Convertible promissory notes:
Historical convertible promissory notes
$
5,630
$
5,645
$
35,347
$
34,033
2023 & 2024 convertible promissory notes
5,000
4,672
—
—
Borrowings:
KEB Hana Bank
6,682
6,682
6,980
6,980
IBK Industrial Bank
6,831
6,831
7,135
7,135
Note payable (one individual investor)
1,000
1,000
1,000
1,000
M-Venture Investment, Inc.
7,425
7,425
7,756
7,756
Anapass, Inc, related party
9,653
9,653
10,082
10,082
i Best Investment Co., Ltd
7,425
7,425
10,082
10,082
Kyeongho Lee, related party
824
824
1,474
1,474
Total debt
$
50,470
50,157
$
79,856
78,542
Less: current portion
( 45,485 )
( 72,303 )
Debt, net of current portion
$
4,672
$
6,239
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The Company elected the fair value option for the 2023 & 2024 convertible promissory notes and the historical convertible promissory notes (see Note 5). The Company’s other borrowings approximate their fair value because interest rates are at prevailing market rates and/or the short-term nature of the remaining obligations. See Note 14 for additional information on related parties.
Expected future minimum principal payments under the Company’s total debt is as follows as of March 31, 2024 (in thousands):
Convertible
Notes
Years
Payable
Borrowing
Total
2024, remainder
$
5,630
$
39,840
$
45,470
2025
—
—
—
2026
5,000
—
5,000
Total debt
$
10,630
$
39,840
$
50,470
Convertible Promissory Notes
Historical Convertible Promissory Notes
Between 2017 and 2022, the Company issued convertible promissory notes to various investors with maturity dates ranging from October 2020 to April 2025. The annual interest rates varied between 4.0 % and 7.0 %. In November 2023, the Company entered into an amendment with certain convertible promissory noteholders to modify the conversion terms such that these notes were automatically convertible upon a special purpose acquisition company (“SPAC”) transaction. In March 2024, upon the Closing of the Business Combination, an aggregate principal and interest amount of $ 32.1 million converted into 4,258,223 shares of common stock at a conversion price of $ 10.00 . As of March 31, 2024, the remaining principal and interest amount of $ 7.9 million was outstanding and related to two noteholders where conversion is at each noteholder’s discretion and at a conversion price of $ 3.50 per share. In April 2024, the Company repaid one of the convertible promissory notes (see Note 17).
2023 & 2024 Convertible Promissory Notes
In November 2023, February 2024 and March 2024, the Company issued convertible promissory notes to certain investors (the “CVT Investors”), pursuant to which the CVT Investors agreed to lend to the Company an aggregate principal amount of $ 13.3 million. These notes had maturity dates ranging from November 2026 to March 2027, bore an interest rate of 5.0 % and were automatically convertible upon IPO or SPAC transaction. In March 2024, upon the Closing of the Business Combination, an aggregate principal and interest amount of $ 13.4 million converted into 2,004,535 shares of common stock at a conversion price of $ 6.67 . As of March 31, 2024, none of the notes issued to CVT Investors remain outstanding.
In February 2024, the Company issued a convertible promissory note to a strategic investor for a principal amount of $ 5.0 million, which matures in February 2026 and bears an interest rate of 5.0 % per annum. On or after the earlier of (i) six months from the issuance date of the convertible promissory note and (ii) the Closing of the Business Combination, the noteholder may demand that the Company convert all principal and interest due under the convertible promissory note into shares of Company’s common stock, at a conversion price of $ 10.00 per share. This note includes customary representations, warranties, and events of default, as well as a covenant relating to the performance of obligations by the Company related to the Company’s 5G activity. As of March 31, 2024, the remaining principal and interest amount of $ 5.0 million was outstanding.
Borrowings Pursuant to Term Loan and Security Agreements
KEB Hana Bank
In July 2016, the Company entered into an unsecured term loan agreement with KEB Hana Bank pursuant to which it borrowed KRW 9.0 billion ($ 6.7 million), bearing a variable interest rate ( 2.6 % initial annual interest rate and 5.2 % as of March 31, 2024), paid monthly, and maturing in July 2017. The terms of such unsecured term loan agreement have been extended annually for additional one-year terms since 2017, and the maturity date is July 2024. Anapass, Inc., a related party, provided certificates of deposit as collateral to KEB Hana
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Bank to secure the Company’s obligations under this loan (see Note 8). As of March 31, 2024, the remaining principal and interest amount of $ 6.7 million was outstanding.
IBK Industrial Bank
In January 2017, the Company entered into a term loan agreement with IBK Industrial Bank pursuant to which the Company borrowed KRW 9.2 billion ($ 6.8 million). The term loan has a maturity date in November 2024 and bears an annual interest rate of 4.9 %. As of March 31, 2024, the remaining principal and interest amount of $ 6.8 million was outstanding.
Note Payable (One Individual Investor)
In June 2021, the Company entered into a note payable agreement with an individual investor pursuant to which the Company borrowed $ 1.0 million. The note has a maturity date in June 2024 and bears an annual interest rate of 4.0 %. In April 2022, the Company entered into an amendment with this one individual investor to remove the conversion right from the note payable. As of March 31, 2024, the remaining principal and interest amount of $ 1.1 million was outstanding.
M-Venture Investment, Inc.
In October 2021, the Company entered into a term loan and security agreement with M-Venture Investment, Inc. pursuant to which the Company borrowed KRW 5.0 billion ($ 3.7 million) and repaid KRW 0.6 billion ($ 0.4 million) and KRW 0.4 billion ($ 0.3 million) in 2021 and 2022, respectively, such that KRW 4.0 billion ($ 3.0 million) remained outstanding. The term loan has a maturity date in October 2024 and bears an annual interest rate of 6.5 %. As of March 31, 2024, the remaining principal and interest amount of $ 3.1 million was outstanding.
In April 2022, the Company entered into a term loan and security agreement with M-Venture Investment, Inc. pursuant to which the Company borrowed amounts in two draws of KRW 1.0 billion ($ 0.7 million) and KRW 5.0 billon ($ 3.7 million), respectively. The term loan has a maturity date in April 2024 and each respective draw bears an annual interest rate of 6.5 % and 8.7 %. As of March 31, 2024, the remaining principal and interest amount of $ 4.8 million was outstanding.
In April 2024, the Company executed amendments with M-Venture Investment, Inc. (see Note 17).
Anapass, Inc., Related Party
In July 2016, the Company entered into a loan agreement with Anapass, Inc. pursuant to which the Company borrowed KRW 6.0 billion ($ 4.5 million) in a term loan. Interest only payments are due monthly at 5.5 % per annum and the principal amount of the term loan is due on the maturity date of July 2024. The loan is collateralized by the Company’s assets as described under the Assets Pledged as Collateral (see Note 8). As of March 31, 2024, the remaining principal and interest amount of $ 4.5 million was outstanding.
In May and September 2022, the Company entered into two term loan agreements with Anapass, Inc. pursuant to which the Company borrowed KRW 3.0 billion ($ 2.2 million) and KRW 4.0 billion ($ 3.0 million) in term loans. The term loans have respective maturity dates in May 2024 and September 2024 and both bear an annual interest rate of 5.5 %. As of March 31, 2024, the remaining principal and interest amount of $ 5.2 million was outstanding.
i Best Investment Co., Ltd
From 2022 and 2023, the Company entered into multiple term loans and security agreements with i Best Investment Co., Ltd pursuant to which it borrowed principal amounts in six draws with an aggregate principal balance of KRW 14.0 billion ($ 10.3 million). All of the term loans have a maturity date in June 2024 and bear an annual interest rate of 6.5 %. In December 2023, the Company made a $ 0.8 million repayment of the outstanding principal and interest on its second draw. In March 2024, the Company made a $ 2.3 million repayment of the outstanding principal and interest amount of its fourth draw. As of March 31, 2024, the remaining principal and interest amounts outstanding were as follows: $ 3.3 million outstanding on its first draw, $ 1.6 million outstanding on its third draw, $ 2.3 million outstanding on its fifth draw and $ 0.8 million on its sixth draw.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Kyeongho Lee, Related Party
From 2017 and 2021, the Company entered into multiple promissory note and term loan agreements with Kyeongho Lee pursuant to which the Company borrowed (a) KRW 500.0 million ($ 0.4 million), and KRW 500.0 million ($ 0.4 million) in promissory notes, and (b) KRW 1.0 billion ($ 0.7 million) and KRW 110.0 million ($ 0.1 million) in term loans. The promissory notes have a maturity date in November 2024 and bear an annual interest rate varying from 7.5 % and 9.0 %. During the three months ended March 31, 2024, the Company repaid in full one of the term loans. The term loan has a maturity date in May 2024 and bears an annual interest rate of 0.0 %. As of March 31, 2024, the remaining principal and interest amount of $ 0.7 million and $ 82,000 was outstanding as it related to the promissory notes and a term loan, respectively.
8. Commitments and Contingencies
Litigation
The Company is subject to various claims arising in the ordinary course of business. Although no assurance can be given, the Company believes that it is not a party to any litigation of which the outcome, if determined adversely, would individually, or in the aggregate, be reasonably expected to have a material adverse effect on the business, consolidated operating results, cash flows or financial position of the Company as of March 31, 2024.
Third parties have from time to time claimed, and others may claim in the future, that the Company has infringed their past, current or future intellectual property rights. These claims, whether meritorious or not, could be time consuming, result in costly litigation, require expensive changes in the Company’s methods of doing business or could require the Company to enter into costly royalty or licensing agreements, if available. As a result, these claims could harm the Company’s business, consolidated operating results, cash flows, and financial position.
Purchase Commitment
The Company has certain commitments for outstanding purchase orders related to the manufacture of certain wafers utilized by the Company and other services that, once the wafers are placed into production, are noncancelable. Otherwise, these production agreements are cancellable at any time with the Company required to pay all costs incurred through the cancellation date. However, the Company has rarely cancelled these agreements once production has started. As of March 31, 2024, the Company had no outstanding noncancelable purchase commitments for these production agreements.
In July 2020, the Company entered into a research and development agreement with Samsung Electronics Co., Ltd (“Samsung”). According to the agreement, the Company would design 5G chip products and Samsung would provide development and intellectual property support, mass production set up support including mask sets for manufacturing and engineering sample chip supply to the Company for a specific product. The total fee amount for the research and development (“R&D”) services pursuant to the agreement was $ 21.1 million. The Company bore the risk of R&D failure and was obligated to pay the $ 21.1 million total fee based on milestones defined in the agreement, of which $ 11.7 million was due based on development milestones and $ 9.4 million of additional NRE (“non-recurring engineering”) was to be paid within a maximum of 4 years after the planned product first shipment date. The Company recognized R&D expenses based on an estimate of the percentage completion of services provided by Samsung during the respective financial reporting period. In the first quarter 2024, Samsung agreed to unconditionally release the Company from payment for work Samsung had completed to date because it had not met certain of the development milestones and due to a change in Samsung’s business strategy. As a result, the Company recognized a gain of $ 14.6 million upon such unconditional release of its liability to Samsung. During the period ended March 31, 2024, the parties mutually agreed that the agreement had expired and there were no remaining obligations of either party under the agreement.
In February 2024, the Company and Alpha Holdings Co., Ltd. (“Alpha”) entered into a foundry product development agreement related to 5G chip development for a total fee of $ 7.6 million. The Company bears the risk of R&D failure and is obligated to pay the fee based on milestones defined in the agreement. The Company recognizes R&D expenses based on an estimate of the percentage completion of services provided by Alpha during the respective financial reporting period. For the three months ended March 31, 2024, the Company recorded $ 3.5 million in R&D expenses related to services provided by Alpha. The aggregate unpaid amount related to this agreement is $ 5.0 million as of March 31, 2024.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Assets Pledged as Collateral
The Company has provided collateral to Anapass, Inc., a related party (see Note 14), for borrowings from KEB Hana Bank, IBK Industrial Bank and Anapass, Inc. in the amount of $ 6.7 million, $ 6.8 million and $ 9.7 million, respectively, as of March 31, 2024, and $ 7.0 million, $ 7.1 million and $ 10.1 million, respectively, as of December 31, 2023 (see Note 7).
The following table includes a summary of the collateral provided to Anapass, Inc. (in thousands):
March 31,
December 31,
Secured
2024
2023
Creditor
Cash and cash equivalents
$
16,122
$
254
Accounts receivable
5,118
4,920
Inventory
1,784
1,486
Anapass, Inc.
Property and equipment
1,988
352
Intangible assets and others
187
199
9. Common Stock
In connection with the Closing of the Business Combination, the Company increased its total number of authorized shares to 440,000,000 shares, consisting of 400,000,000 shares of common stock and 40,000,000 shares of preferred stock.
The Company has reserved shares of common stock for issuance as follows (in thousands):
March 31
December 31
2024
2023
Warrants
26,724
2,894
Shares available for future grant from 2024 plan
3,983
—
Convertible promissory notes
800
1,835
Options issued and outstanding
668
668
Shares available for future grant from 2024 ESPP
600
—
RSUs outstanding
392
392
Shares available for future grant from 2011 plan
—
113
Total
33,167
5,902
10. Warrants
The following table represents a summary of warrants to purchase shares of the Company’s common stock that are outstanding (in thousands, except for exercise price):
Issue Date
March 31, 2024
Exercise Price
Expiration
August 2021
299
$ 10.00 - $ 18.75
(1)
September 2021
300
$ 5.00
(1)
February 2023 - June 2023
2,115
$ 10.00 - $ 18.75
(1)
July 2023
80
$ 10.00
(1)
October 2023
100
$ 10.00
(1)
Private and public warrants
23,830
$ 11.50
March 26, 2029
Tota l
26,724
(1) Within 3 years from the date of issuance.
See Note 3 with respect to further details on the private and public warrants and Note 5 with respect to valuation techniques and assumptions because the warrants are all liability-classified and subject to fair value measurement each reporting period.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
11. Stock-Based Compensation
2011 Incentive Compensation Plan
Legacy GCT’s 2011 Incentive Compensation Plan (the “2011 Plan”) permitted the grant of options, stock awards, and RSUs. In connection with the Closing of the Business Combination, the 2011 Plan was terminated, the remaining unallocated shares reserved under the 2011 Plan were cancelled and no new awards will be granted under the 2011 Plan.
Each award of Legacy GCT stock options and RSUs were converted into equivalent Company stock options and RSUs with the same terms and conditions under the plan described below.
2024 Incentive Compensation Plan
In connection with the Closing of the Business Combination, the Company adopted the 2024 Incentive Compensation Plan (the “2024 Plan”) under which 3,983,334 shares of common stock were initially reserved for issuance, subject to approval by the Company’s boards of directors. The 2024 Plan permits the grant of stock options, stock appreciation rights, stock awards, restricted stock units, dividend equivalent right, cash awards and other awards to employees, non-employee directors, non-employee members of the board of directors, or consultants or independent advisors.
Stock options outstanding under the 2024 Plan were as follows (in thousands, except per share amounts and years):
Weighted
Average
Number of
Weighted-
Remaining
Options
Average
Contractual Life
Aggregated
Outstanding
Exercise Price
(in Years)
Intrinsic Value
Balance as of December 31, 2023
3,579
$
0.02
5.5
$
4,405
Reverse recapitalization
( 2,911 )
0.09
—
—
Balance as of December 31, 2023 (1)
668
$
0.11
5.5
4,405
Granted
—
—
—
—
Exercised
—
—
—
—
Cancelled
—
—
—
—
Balance as of March 31, 2024
668
0.11
5.3
5,543
Vested as of March 31, 2024
667
$
0.11
5.3
5,532
Exercisable as of March 31, 2024
634
$
0.11
5.1
5,256
(1) Amounts as of December 31, 2023 differ from those in prior year consolidated financial statements as they were retrospectively adjusted as a result of the accounting for the Business Combination (see Note 3).
There were no options granted during the three months ended March 31, 2024 and 2023. As of March 31, 2024, unrecognized compensation cost related to stock options was nominal.
Founder Awards to Board of Directors
In 2021, an aggregate of 90,000 founder shares of common stock were transferred to three members of Concord III’s board of directors. The shares contained both a performance condition based upon a liquidity event and a service vesting condition. As the liquidity and services conditions were met upon the Closing of the Business Combination, the Company recognized $ 0.9 million of stock-based compensation during the three months ended March 31, 2024.
Restricted Stock Units
In December 2023, various employees and directors of Legacy GCT were granted RSUs that contain both a performance condition based upon a liquidity event and a service vesting condition such that the RSUs vest in four equal annual installments from the grant
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
date. Any unvested RSUs are forfeited upon separation from the Company. The liquidity condition was met upon the Closing of the Business Combination and the Company recognized $ 0.3 million of stock-based compensation.
RSUs outstanding under the 2024 Plan were as follows (in thousands, except per share amounts):
Weighted
Number of RSUs
Average Grant
Outstanding
Date Fair Value
Balance as of December 31, 2023
2,100
$
1.15
Reverse recapitalization
( 1,708 )
5.01
Balances as of December 31, 2023 (1)
392
$
6.16
Granted
—
—
Vested
—
—
Cancelled
—
—
Balance as of March 31, 2024
392
$
6.16
(1) Amounts as of December 31, 2023 differ from those in prior year consolidated financial statements as they were retrospectively adjusted as a result of the accounting for the Business Combination (see Note 3).
As of March 31, 2024, there was $ 2.1 million of unrecognized compensation cost related to RSUs, which is expected to be recognized on a straight-line basis over a weighted average period of 3.7 years.
12. Income Taxes
For the three months ended March 31, 2024 and 2023, the Company recorded income tax expense of $ 59,000 and $ 50,000 , respectively. The effective tax rate is 7.2 % and 3.7 % for the three months ended March 31, 2024 and 2023, respectively.
For financial reporting purposes, the Company’s effective tax rate used for the interim periods is based on the estimated full-year income tax rate. For the three months ended March 31, 2024, the Company’s effective tax rate differs from the statutory rate primarily due to the valuation allowance recorded against the net deferred tax asset balance.
As of March 31, 2024 the Company had unrecognized tax benefits of $ 3.1 million of which $ 1.7 million would currently affect the Company’s effective tax rate if recognized due to the Company’s deferred tax assets being fully offset by a valuation allowance. The Company does not anticipate that the amount of unrecognized tax benefits relating to tax positions existing as of March 31, 2024 will significantly increase or decrease within the next twelve months. There was no interest expense or penalties related to unrecognized tax benefits recorded as of March 31, 2024.
A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the most likely outcome. The Company adjusts these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position could require the use of cash.
Currently the Company is not under examination by any taxing authority.
13. Employee Benefit Plans
Under Korean law, the Company is required to make severance payments to Korean employees leaving its employment. The Company’s severance pay liability to its Korean employees, which is a function of the salary of each employee’s years of employment and severance factor, is reflected in the accompanying condensed consolidated balance sheets as the net defined benefit liabilities on an accrual basis.
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The net liability for severance payments as of (in thousands):
March 31, 2024
December 31, 2023
Liability for severance payments, beginning
$
7,764
$
7,997
Deposit
( 276 )
( 308 )
Liability for severance payments, ending
$
7,488
$
7,689
14. Related Party Transactions
A summary of balances and transactions with the related parties who are stockholders of the Company were as follows as of (in thousands):
March 31, 2024
December 31, 2023
Anapass
Kyeongho Lee
Anapass
Kyeongho Lee
Borrowings
$
9,653
$
824
$
10,082
$
1,474
Other current liabilities
106
87
212
182
For each of the three months ended March 31, 2024 and 2023, the Company recorded $ 0.1 million of interest expense with Anapass, Inc. in the condensed consolidated statements of operations. During the three months ended March 31, 2024 and 2023, the Company recorded $ 22,000 and $ 26,000 , respectively, of interest expense with Kyeongho Lee in the condensed consolidated statements of operations.
15. Segments and Information
The Company operates in one segment. Revenue information by geographic region is presented in Note 4 to these condensed consolidated financial statements. Long-lived assets by geographic region were as follows as of (in thousands):
March 31, 2024
December 31, 2023
South Korea
$
1,170
$
1,363
United States
817
930
Total long-lived assets
$
1,987
$
2,293
16. Net Income (Loss) Per Share
The following table summarizes the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):
Three Months Ended March 31,
2024
2023
Numerator:
Net income (loss), basic and diluted
$
757
$
( 1,393 )
Denominator:
Weighted-average common shares outstanding, basic
25,468
23,862
Add: effect of dilutive securities
789
—
Weighted-average common shares outstanding, diluted
26,257
23,862
Net income (loss) per share, basic and diluted
Basic
$
0.03
$
( 0.06 )
Diluted
$
0.03
$
( 0.06 )
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GCT SEMICONDUCTOR HOLDING, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The following outstanding potentially dilutive common stock equivalents were excluded from the computation of diluted net income (loss) per share for the periods indicated because including them would have been antidilutive (in thousands):
March 31,
2024
2023
Warrants
26,724
995
Convertible promissory notes
5,543
1,809
Options
—
885
Total
32,267
3,689
17. Subsequent Events
Purchase Agreement and Registration Rights Agreement
In April 2024, the Company 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”). Upon the terms and subject to the satisfaction of the conditions set forth in the Purchase Agreement, the Company has the right, in its 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 the Company’s 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.
M-Venture Investment, Inc.
In April 2024, the Company executed an amendment with M-Venture Investment, Inc. for the KRW 4.0 billion ($ 3.0 million) term loan outstanding, pursuant to which the Company repaid KRW 2.0 billion ($ 1.5 million) in April 2024 and extended the maturity date from October 2024 to May 2024 (see Note 7).
In April 2024, the Company executed an amendment with M-Venture Investment, Inc. for the KRW 6.0 billion ($ 4.4 million) term loan outstanding, pursuant to which the maturity date for both draws were amended. The maturity date for the principal amount of KRW 1.0 billion ($ 0.7 million) was extended from April 2024 to June 2024. The maturity date for the principal amount of KRW 5.0 billion ($ 3.7 million) was extended from April 2024 to July 2024 (see Note 7).
Historical Convertible Promissory Notes
In April 2024, the Company repaid in full a historical convertible promissory note that was issued in 2021 with a principal amount of $ 0.6 million (see Note 7).
Share Reserve
In May 2024, the board of directors of the Company approved 3,983,334 shares as the maximum number of shares of Common stock that may be issued pursuant to 2024 Plan, and 600,000 shares as reserved share amount of 2024 Employee Stock Purchase Plan.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.