Navitas Semiconductor Corp 10-Q

Item 1. Financial Statements. NAVITAS SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and par value amounts) September 30, 2022 December 31, 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 124,792 $ 268,252 Accounts receivable, net 10,859 8,263 Inventory 17,044 11,978 Prepaid expenses and other current assets 3,388 2,877 Total current assets 156,083 291,370 PROPERTY AND EQUIPMENT, net 5,721 2,302 OPERATING LEASE RIGHT OF USE ASSETS 6,631 — INTANGIBLE ASSETS, net 110,461 170 GOODWILL 160,296 — OTHER ASSETS 3,976 1,759 Total assets $ 443,168 $ 295,601 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and other accrued expenses $ 9,310 $ 4,860 Accrued compensation expenses 4,923 2,639 Current operating lease liabilities 1,208 — Current portion of long-term debt 3,200 3,200 Other liabilities — 29 Total current liabilities 18,641 10,728 LONG-TERM DEBT 1,323 3,716 OPERATING LEASE LIABILITIES NONCURRENT 5,488 — WARRANT LIABILITY — 81,388 EARNOUT LIABILITY 22,611 134,173 DEFERRED TAX LIABILITIES 12,995 — OTHER LIABILITIES — 60 Total liabilities 61,058 230,065 COMMITMENTS AND CONTINGENCIES (Note 15) STOCKHOLDERS’ EQUITY: Common stock, $ 0.0001 par value, 740,000,000 shares authorized as of September 30, 2022 and December 31, 2021, and 152,015,458 and 117,750,608 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively 18 15 Additional paid-in capital 525,311 294,190 Accumulated other comprehensive loss ( 8 ) ( 2 ) Accumulated deficit ( 147,628 ) ( 228,667 ) Total stockholders’ equity of Navitas Semiconductor Corporation 377,693 65,536 Noncontrolling interest 4,417 — Total stockholders’ equity 382,110 65,536 Total liabilities and stockholders’ equity $ 443,168 $ 295,601 The accompanying condensed notes are an integral part of these condensed consolidated financial statements 6 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 NET REVENUES $ 10,243 $ 5,631 $ 25,594 $ 16,398 COST OF REVENUES 9,852 3,032 18,655 8,962 GROSS PROFIT 391 2,599 6,939 7,436 OPERATING EXPENSES: Research and development 13,343 5,804 36,362 16,325 Selling, general and administrative 24,477 3,550 63,014 23,713 Total operating expenses 37,820 9,354 99,376 40,038 LOSS FROM OPERATIONS ( 37,429 ) ( 6,755 ) ( 92,437 ) ( 32,602 ) OTHER INCOME (EXPENSE), net: Interest income (expense), net 638 ( 75 ) 666 ( 199 ) Gain from change in fair value of warrants — — 51,763 — Gain (loss) from change in fair value of earnout liabilities ( 6,098 ) — 112,162 — Other expense ( 74 ) — ( 1,215 ) — Total other income (expense), net ( 5,534 ) ( 75 ) 163,376 ( 199 ) INCOME (LOSS) BEFORE INCOME TAXES ( 42,963 ) ( 6,830 ) 70,939 ( 32,801 ) INCOME TAX (BENEFIT) PROVISION ( 10,135 ) 13 ( 9,862 ) 37 NET INCOME (LOSS) ( 32,828 ) ( 6,843 ) 80,801 ( 32,838 ) LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS ( 238 ) — ( 238 ) — NET INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTERESTS $ ( 32,590 ) $ ( 6,843 ) $ 81,039 $ ( 32,838 ) NET INCOME (LOSS) PER COMMON SHARE: Basic net income (loss) per share attributable to common stockholders $ ( 0.24 ) $ ( 0.37 ) $ 0.64 $ ( 1.67 ) Diluted net income (loss) per share attributable to common stockholders $ ( 0.24 ) $ ( 0.37 ) $ 0.58 $ ( 1.67 ) WEIGHTED AVERAGE COMMON SHARES USED IN NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS: Basic common shares 138,455 18,305 127,390 19,643 Diluted common shares 138,455 18,305 140,134 19,643 The accompanying condensed notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 NET INCOME (LOSS) $ ( 32,828 ) $ ( 6,843 ) $ 80,801 $ ( 32,838 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments, net of tax 54 2 ( 6 ) ( 1 ) Total other comprehensive income (loss) 54 2 ( 6 ) ( 1 ) COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST $ ( 32,774 ) $ ( 6,841 ) $ 80,795 $ ( 32,839 ) COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST ( 238 ) — ( 238 ) — TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST $ ( 32,536 ) $ ( 6,841 ) $ 81,033 $ ( 32,839 ) The accompanying condensed notes are an integral part of these condensed consolidated financial statements. 8 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (unaudited) (in thousands) Redeemable Convertible Preferred Stock Stockholder's equity (deficit) Series A redeemable convertible preferred stock Series B redeemable convertible preferred stock Series B-1 redeemable convertible preferred stock Series B-2 redeemable convertible preferred stock Common stock Additional paid in capital Accumulated deficit Notes receivable - shareholder's Accumulated comprehensive income (loss) Noncontrolling interest Total Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount BALANCE AT JANUARY 1, 2022 — $ — — $ — — $ — — $ — 117,751 $ 15 $ 294,190 $ ( 228,667 ) $ — $ ( 2 ) $ — $ 65,536 Issuance of common stock under employee stock option and stock award plans — — — — — — — — 2,459 — 1,305 — — — — 1,305 Repurchase of common stock — — — — — — — — ( 67 ) — ( 550 ) — — — — ( 550 ) Exercise of warrants — — — — — — — — 3,318 — 29,641 — — — — 29,641 Stock-based compensation expense related to employee and non-employee stock awards — — — — — — — — — — 24,072 — — — — 24,072 Foreign currency translation adjustment — — — — — — — — — — — — — ( 60 ) — ( 60 ) Net income — — — — — — — — — — — 79,792 — — — 79,792 BALANCE AT MARCH 31, 2022 — $ — — $ — — $ — — — 123,461 $ 15 $ 348,658 $ ( 148,875 ) $ — $ ( 62 ) $ — $ 199,736 Issuance of common stock under employee stock option and stock award plans — — — — — — — — 1,862 1 2,514 — — — — 2,515 Shares issued for business acquisition — — — — — — — — 150 — 1,068 — — — — 1,068 Stock-based compensation expense related to employee and non-employee stock awards — — — — — — — — — — 9,723 — — — — 9,723 Net income — — — — — — — — — — — 33,837 — — — 33,837 BALANCE AT JUNE 30, 2022 — $ — — $ — — $ — — $ — 125,473 $ 16 $ 361,963 $ ( 115,038 ) $ — $ ( 62 ) $ — $ 246,879 Issuance of common stock under employee stock option and stock award plans — — — — — — — — 1,489 — 1,316 — — — — 1,316 Shares issued for business acquisition — — — — — — — — 24,883 2 146,310 — — — — 146,312 Shares issued for transaction fees — — — — — — — — 170 — 1,000 — — — — 1,000 Stock-based compensation expense related to employee and non-employee stock awards — — — — — — — — — — 14,722 — — — — 14,722 Change in noncontrolling interest — — — — — — — — — — — — — — 4,655 4,655 Foreign currency translation adjustment — — — — — — — — — — — — — 54 — 54 Net loss — — — — — — — — — — — ( 32,590 ) — — ( 238 ) ( 32,828 ) BALANCE AT SEPTEMBER 30, 2022 — $ — — $ — — $ — — $ — 152,015 $ 18 $ 525,311 $ ( 147,628 ) — $ ( 8 ) $ 4,417 $ 382,110 The accompanying condensed notes are an integral part of these condensed consolidated financial statements. 9 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (unaudited) (in thousands) Redeemable Convertible Preferred Stock Stockholder's equity (deficit) Series A redeemable convertible preferred stock Series B redeemable convertible preferred stock Series B-1 redeemable convertible preferred stock Series B-2 redeemable convertible preferred stock Common stock Additional paid in capital Accumulated deficit Notes receivable - shareholder's Accumulated comprehensive income (loss) Total Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount BALANCE AT JANUARY 1, 2021 16,620 $ 14,970 14,213 $ 27,371 5,416 $ 14,786 18,199 $ 52,379 16,774 $ 2 $ 3,557 $ ( 75,982 ) $ — $ ( 1 ) $ ( 72,424 ) Issuance of common stock under employee stock option and stock award plans — — — — — — — — 5,843 1 1,405 — ( 1,183 ) — 223 Stock-based compensation expense related to employee and non-employee stock awards — — — — — — — — — — 1,835 — — — 1,835 Foreign currency translation adjustment — — — — — — — — — — — — — Net loss — — — — — — — — — — — ( 7,345 ) — — ( 7,345 ) BALANCE AT MARCH 31, 2021 16,620 $ 14,970 14,213 $ 27,371 5,416 $ 14,786 18,199 $ 52,379 22,617 $ 3 6,797 $ ( 83,327 ) $ ( 1,183 ) $ ( 1 ) $ ( 77,711 ) Issuance of common stock under employee stock option and stock award plans — — — — — — — 12,729 — — 12,729 Rescission of common stock — — — — — — — — ( 4,729 ) — ( 1,231 ) — 1,183 — ( 48 ) Foreign currency translation adjustment — — — — — — — — — — — — — ( 3 ) ( 3 ) Net loss — — — — — — — — — — — ( 18,650 ) — — ( 18,650 ) BALANCE AT JUNE 30, 2021 16,620 $ 14,970 14,213 $ 27,371 5,416 $ 14,786 18,199 $ 52,379 17,888 $ 3 18,295 $ ( 101,977 ) $ — $ ( 4 ) $ ( 83,683 ) Issuance of common stock under employee stock option and stock award plans — — — — — — — — 446 — 71 — — — 71 Stock-based compensation expense related to employee and non-employee stock awards — — — — — — — — — — 201 — — — 201 Foreign currency translation adjustment — — — — — — — — — — — — — 2 2 Net loss — — — — — — — — — — — ( 6,843 ) — — ( 6,843 ) BALANCE AT SEPTEMBER 30, 2021 16,620 $ 14,970 14,213 $ 27,371 5,416 $ 14,786 18,199 $ 52,379 18,334 $ 3 $ 18,567 $ ( 108,820 ) $ — $ ( 2 ) $ ( 90,252 ) The accompanying condensed notes are an integral part of these condensed consolidated financial statements. 10 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited) (in thousands) Nine Months Ended September 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 80,801 $ ( 32,838 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 632 278 Amortization of intangibles 2,408 253 Amortization of deferred rent — ( 35 ) Non-cash lease expense 480 — Other 2,174 50 Stock-based compensation expense 52,136 14,765 Amortization of debt discount and issuance costs 7 9 Gain from change in fair value of warrants ( 51,763 ) — Gain from change in fair value of earnout liability ( 112,162 ) — Deferred income taxes ( 10,185 ) — Change in operating assets and liabilities: Accounts receivable ( 479 ) ( 1,418 ) Inventory ( 2,731 ) ( 8,315 ) Prepaid expenses and other current assets 335 ( 101 ) Other assets 498 ( 138 ) Accounts payable, accrued compensation and other liabilities 2,778 2,639 Operating lease liability ( 466 ) — Deferred revenue — 59 Net cash used in operating activities ( 35,537 ) ( 24,792 ) CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions, net of cash acquired ( 96,355 ) — Asset acquisition — ( 680 ) Investment in joint venture ( 5,204 ) ( 634 ) Investment in preferred stock ( 1,500 ) — Purchases of property and equipment ( 3,485 ) ( 1,213 ) Receipts on notes receivable 97 2 Net cash used in investing activities ( 106,447 ) ( 2,525 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of deferred offering costs — ( 2,503 ) Redemption of warrants ( 38 ) — Repurchase of common stock ( 550 ) — Proceeds from issuance of common stock in connection stock option exercises 1,512 294 Proceeds from issuance of long-term debt — 2,000 Principal payments on long-term debt ( 2,400 ) ( 267 ) Net cash used in financing activities ( 1,476 ) ( 476 ) Effect of exchange rate changes on cash — ( 1 ) NET DECREASE IN CASH AND CASH EQUIVALENTS ( 143,460 ) ( 27,794 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 268,252 38,869 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 124,792 $ 11,075 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Deferred offering costs in other current assets and accounts payable and accrued expenses $ — $ 977 Net assets acquired through change in control of joint venture $ 6,444 $ — SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ 363 $ — Cash paid for interest $ 205 $ 60 Shares issued for business acquisition $ 147,380 $ — Capital expenditures in accounts payable $ 803 $ 254 The accompanying condensed notes are an integral part of these condensed consolidated financial statements. 11 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) 1. ORGANIZATION AND BASIS OF PRESENTATION On May 6, 2021, Navitas Semiconductor Limited, a private company limited by shares organized under the laws of Ireland (“Navitas Ireland”) and domesticated in the State of Delaware as Navitas Semiconductor Ireland, LLC, a Delaware limited liability company (“Navitas Delaware” and, together with Navitas Ireland, “Legacy Navitas”), entered into a business combination agreement and plan of reorganization (the “Business Combination Agreement” or “BCA”) with Live Oak Acquisition Corp. II, a Delaware corporation (“Live Oak”). Pursuant to the BCA, among other transactions consummated on October 19, 2021 (collectively, the “Business Combination”), Live Oak acquired all of the capital stock of Navitas Ireland (other than the Navitas Ireland Restricted Shares, as defined below) by means of a tender offer, and a wholly owned subsidiary of Live Oak merged with and into Navitas Delaware, with Navitas Delaware surviving the merger. As a result, Legacy Navitas became a wholly owned subsidiary of Live Oak effective October 19, 2021. At the closing of the Business Combination, Live Oak changed its name to Navitas Semiconductor Corporation. References to the “Company” in these financial statements refer to Legacy Navitas and its predecessors before the consummation of the Business Combination, or to Navitas Semiconductor Corporation after the Business Combination, as the context suggests. The Company was founded in 2013 and has since been developing ultra-efficient gallium nitride (GaN) semiconductors. The Company presently operates as a product design house that contracts the manufacturing of its chips and packaging to partner suppliers. Navitas maintains its operations around the world, including the United States, Ireland, Germany, Italy, Belgium, China, Taiwan, Thailand and the Philippines, with principal executive offices in Torrance, California. Reorganization Navitas Semiconductor USA, Inc. (f/k/a Navitas Semiconductor, Inc., “Navitas U.S.”) was incorporated in the State of Delaware on October 25, 2013. In 2020 Navitas U.S. initiated a restructuring to streamline its worldwide legal entity structure and more efficiently align its business operations (the “Restructuring”). The Restructuring introduced wholly owned subsidiaries in Hong Kong and China as well as the addition of Legacy Navitas, an entity registered in Ireland and the U.S., as the parent of Navitas U.S. and the other Navitas subsidiaries. In connection with the Restructuring, effective September 1, 2020, Legacy Navitas acquired certain intellectual property and other intangible assets from Navitas U.S. and, after the Restructuring, contracts directly with customers. The transfer of intellectual property and other intangible assets by Navitas U.S. to Legacy Navitas in connection with the Restructuring was among entities within the same consolidated group and, as a result, did not result in any gain or loss to the Company. Legacy Navitas is treated as a corporation for U.S. federal income tax purposes and is a tax resident in both Ireland and the United States. See Note 14, Provision for Income Taxes, for more information. Business combination Pursuant to the terms of the BCA, the Business Combination was consummated (the “Closing”) on October 19, 2021 (the “Closing Date”) by means of (i) a tender offer to acquire the entire issued share capital of Navitas Ireland (other than Navitas Ireland Restricted Shares (as defined below)) in exchange for the Tender Offer Consideration (as defined below) (the “Tender Offer”) and (ii) the merger of a wholly owned subsidiary of Live Oak (“Merger Sub”) with and into Navitas Delaware (the “Merger”), with Navitas Delaware surviving the Merger. See the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022 for further information. The Business Combination was accounted for as a reverse recapitalization, in accordance with GAAP. Under this method of accounting, although Live Oak issued shares for outstanding equity interests of Legacy Navitas in the Business Combination, Live Oak was treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Legacy Navitas issuing stock for the net assets of Live Oak, accompanied by a recapitalization. The net assets of Live Oak were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Navitas. For all periods presented, unless stated otherwise, references to Legacy Navitas common shares and options for common shares outstanding before the Closing and related per share amounts have been retroactively restated to give effect to the reverse recapitalization, specifically, the Exchange Ratio of 1.0944 shares to 1 at Closing. References to share 12 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) quantities for Legacy Navitas convertible preferred stock related to balances or activity before the Closing reflect the historical quantities and are not adjusted for the Exchange Ratio. Acquisitions In June 2022, the Company acquired VDDTech for $ 1.9 million in cash and stock , and in August 2022 the Company acquired GeneSiC for $ 246.2 million in cash and stock. S ee Note 17, Business Combinations, for more information. Basis of presentation The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The results of operations for the three and nine months ended September 30, 2022 shown in this report are not necessarily indicative of results to be expected for the full year ending December 31, 2022. In the opinion of the Company’s management, the information contained herein reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company’s results of operations, financial position, cash flows and stockholders’ equity (deficit). Certain footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Securities and Exchange Commissions (SEC) rules and regulations relating to interim financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K filed with the SEC on March 31, 2022. Except as further described below, there have been no significant changes in the Company’s accounting policies from those disclosed in its annual report on Form 10-K filed with the SEC on March 31, 2022. The consolidated financial statements include the accounts of a Former Joint Venture, an entity in which the Company has a controlling interest (see Note 18, Noncontrolling Interest). The Company reports noncontrolling interests of the consolidated entities as a component of equity separate from the Company’s equity. All material inter-company transactions between and among the Company and its consolidated subsidiaries have been eliminated in the consolidation. The Company’s net income (loss) excludes income (loss) attributable to the noncontrolling interests. Basis of consolidation The condensed consolidated financial statements include the accounts of the Company, its wholly owned or majority-owned subsidiaries and entities in which the Company is deemed to have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. All intercompany transactions and balances have been eliminated in consolidation. 13 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) 2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS Business Combinations We account for business combinations using the acquisition method of accounting, in accordance with ASC 805, Business Combinations . The acquisition method requires identifiable assets acquired and liabilities assumed be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill. The determination of estimated fair value requires us to make significant estimates and assumptions. These fair value determinations require judgment and involve the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, and asset lives, among other items. As a result, we may record adjustments to the fair values of assets acquired and liabilities assumed within the measurement period (up to one year from the acquisition date) with the corresponding offset to goodwill. Transaction costs associated with business combinations are expensed as they are incurred. Valuation of Contingent Consideration Resulting from a Business Combination In connection with certain acquisitions, we may be required to pay future consideration that is contingent upon the achievement of specified milestone events. We record contingent consideration resulting from a business combination at its fair value on the acquisition date. Each quarter thereafter, we revalue these obligations and record increases or decreases in their fair value within our Statement of Operations and Comprehensive Income (Loss) until such time as the specified milestone achievement period is complete. Increases or decreases in fair value of the contingent consideration liabilities can result from updates to assumptions such as the expected timing or probability of achieving the specified milestones. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on our results of operations in any given period. Actual results may differ from estimates. Recently Adopted Accounting Pronouncements Leases In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) (“ASU 2016-02”), and also issued subsequent amendments under ASU 2019-10 and ASU 2020-05 (collectively ASC 842). On January 1, 2022, the Company adopted ASC 842 and the related amendments. ASC 842 requires lessees to (i) recognize a right of use asset and a lease liability that is measured at the present value of the remaining lease payments, on the consolidated balance sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease related cash payments within operating and financing activities. The Company recognized approximately $ 1.6 million of operating lease right-of-use assets and $ 1.7 million operating lease liabilities on the consolidated balance sheets upon adoption on January 1, 2022. Credit Losses In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. This ASU requires entities to measure the impairment of certain financial instruments, including accounts receivable, based on expected losses rather than incurred losses. For non-public business entities, this ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, and will be effective for the Company beginning in 2023. The Company is currently evaluating the impact of the new standard on the Company’s condensed consolidated financial statements and related disclosures. 14 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) 3. PROPERTY AND EQUIPMENT, NET Property and equipment, net consist of the following (in thousands): September 30, 2022 December 31, 2021 Furniture and fixtures $ 215 $ 265 Computers and other equipment 6,549 3,116 Leasehold improvements 1,511 577 $ 8,275 $ 3,958 Accumulated depreciation ( 2,554 ) ( 1,656 ) Total $ 5,721 $ 2,302 For the three and nine months ended September 30, 2022, depreciation expense was $ 280 and $ 632 , respectively. For the three and nine months ended September 30, 2021, depreciation expense was $ 112 and $ 278 . The depreciation method was determined using the straight-line method over the following estimated useful lives: Furniture and fixtures 3 — 7 years Computers and other equipment 2 — 5 years Leasehold improvements 2 — 5 years 4. INVENTORY Inventory consists of the following (in thousands): September 30, 2022 December 31, 2021 Raw materials $ 4,217 $ 60 Work-in-process 7,837 9,945 Finished goods 4,990 1,973 Total $ 17,044 $ 11,978 5. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The accounting guidance on fair value measurements clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices for identical assets in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The short-term nature of the Company’s cash and cash equivalents, accounts receivable, debt and current liabilities causes each of their carrying values to approximate fair value for all periods presented. Cash equivalents classified as Level 1 instruments were $ 12.6 million and $ 159.6 million as of September 30, 2022 and December 31, 2021, respectively. 15 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) The following table presents the Company’s fair value hierarchy for financial liabilities as of September 30, 2022 (in thousands) : Level 1 Level 2 Level 3 Total Liabilities: Earnout liability $ — $ — $ 22,611 $ 22,611 Total $ — $ — $ 22,611 $ 22,611 The following table presents the Company’s fair value hierarchy for financial liabilities as of December 31, 2021 (in thousands): Level 1 Level 2 Level 3 Total Liabilities: Public warrants $ 52,361 $ — $ — $ 52,361 Private warrants — 29,027 — 29,027 Earnout liability — — 134,173 134,173 Total $ 52,361 $ 29,027 $ 134,173 $ 215,561 The liability for the Private Warrants is a level 2 valuation because there is no active market. 6. GOODWILL AND INTANGIBLES Goodwill and Intangible Assets Goodwill represents the excess of the consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination. Intangible assets are measured at their respective fair values as of the acquisition date and may be subject to adjustment within the measurement period, which may be up to one year from the acquisition date. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently if events or changes in circumstances indicate that it is more likely than not that the assets are impaired. The following table presents the changes in the Company’s goodwill balance (in thousands): VDDTech GeneSiC Former Joint Venture Total Balance at June 30, 2022 $ 1,177 $ — $ — $ 1,177 Additions to goodwill — 157,429 2,867 160,296 Impairment of goodwill — — — — Purchase accounting adjustment ( 1,177 ) — — ( 1,177 ) Balance at September 30, 2022 $ — $ 157,429 $ 2,867 $ 160,296 Refer to Note 17, Business Combinations, for further details. 16 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) . The following table presents the Company’s intangible asset balance (in thousands): Intangible Asset Cost Accumulated Amortization Net Book Value Amortization Method Useful Life Trade Names $ 900 $ ( 56 ) $ 844 Straight line 2 years Developed Technology 49,100 ( 1,534 ) 47,566 Straight line 4 years In-process R&D 1,177 — 1,177 Indefinite N/A Patents 34,900 ( 299 ) 34,601 Straight line 5 - 15 years Customer Relationships 24,300 ( 304 ) 23,996 Straight line 10 years Non-Competition Agreements 1,900 ( 47 ) 1,853 Straight line 5 years Other 683 ( 259 ) 424 Straight line 5 years Total $ 112,960 $ ( 2,499 ) $ 110,461 The amortization expense was $ 2.2 million and $ 2.4 million for the three months and nine months ended September 30, 2022, respectively. There were no impairment charges as of September 30, 2022. 7. DEBT OBLIGATIONS On April 29, 2020, the Company entered into a loan and security agreement with a new bank (the “Term Loan”), which provides for term advances up to $ 8.0 million . The loan is divided into three term advances, First Term Advance, Second Term Advance and Third Term Advance. The First Term Advance has a maximum available amount of $ 6.0 million . The Second Term Advance has a maximum available amount of $ 1.0 million and is subject to the Company receiving aggregate net proceeds from Series B-2 Preferred Stock of $ 29.8 million by no later than September 30, 2020. The Third Term Advance has a maximum available amount of $ 1.0 million and is subject to the Company receiving aggregate net proceeds from Series B-2 Preferred Stock of $ 39.9 million by no later than September 30, 2020. The Term Loan bears interest at a rate equal to the greater of (i) US Prime Rate plus 0.75 % or (ii) 5.5 % and is collateralized by all assets of the Company. As of September 30, 2022, the interest rate wa s 6.3 %. T he loan is payable in monthly installments beginning September 1, 2021 with a final maturity date of January 1, 2024. Concurrent with the execution of the Term Loan, the Company paid off the outstanding principal balance and accrued interest on its then-existing long-term debt (which bore interest at 5 % at December 31, 2019) with a different bank, fully satisfying its obligations. On August 1, 2021, the Company drew down $ 2.0 million , the maximum available amount under the Second Term Advance and Third Term Advance. In connection with execution of the Term Loan, the Company issued warrants to the bank (see Note 10, Warrant Liability). The fair value of the warrants at the date of issuance was $ 16 and was recorded as debt discount, subject to amortization using the effective interest rate method over the term of the loan. Amortization of debt discount and issuance costs for the three and nine months ended September 30, 2022 was $ 3 and $ 7 , respectively. Amortization of debt discount and issuance costs for the three and nine months ended September 30, 2021 was $ 3 and $ 9 , respectively. Amortization of debt discount and issuance costs includes the write-off of unamortized costs as of the date that the prior term loan was extinguished in 2020. 17 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) The following is a summary of the carrying value of long-term debt as of September 30, 2022 and December 31, 2021 (in thousands): September 30, 2022 December 31, 2021 Note payable $ 4,533 $ 6,933 Less: Current portion ( 3,200 ) ( 3,200 ) Less: Debt discount and issuance costs ( 10 ) ( 17 ) Note payable, net of current portion $ 1,323 $ 3,716 As of September 30, 2022, future scheduled principal payments of debt obligations were as follows (in thousands): Fiscal Year 2022 (remaining) $ 800 2023 3,200 2024 533 Thereafter — Total $ 4,533 8. LEASES: The Company has entered into operating leases primarily for commercial buildings. These leases have terms which range from 0.2 to 6.4 years. There are no economic penalties for the Company to extend the lease, and it is not reasonably certain the Company will exercise the extension options. The operating leases do not contain material residual value guarantees or material restrictive covenants. Rent expense, including short-term lease cost, was $ 657 and $ 1.4 million for the three and nine months ended September 30, 2022, respectively. Rent expense, including short-term lease cost, was $ 372 and $ 923 for the three and nine months ended September 30, 2021, respectively. In addition to rent payments, the Company’s leases include real estate taxes, common area maintenance, utilities, and management fees, which are not fixed. The Company accounts for these cost as variable payment and does not include such costs as a lease component. Total variable expense was $ 50 and $ 129 f or the three and nine months ended September 30, 2022, respectively. Information related to the Company right-of-use assets and related operating lease liabilities were as follows (in thousands): Nine Months Ended September 30, 2022 Cash paid for operating lease liabilities $ 425 Operating lease cost $ 573 Right-of-use assets obtained in exchange for lease obligations $ 5,805 Weighted-average remaining lease term 2.26 Weight-average discount rate 4.25 % - 5.5 % 18 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) Maturities of lease liabilities (in thousands) due in 12-month period ending September 30, 2023 $ 1,557 2024 1,360 2025 1,138 2026 1,157 2027 1,192 Thereafter 1,370 $ 7,774 Less imputed interest 1,078 Total lease liabilities $ 6,696 Supplemental information for comparative periods As of December 31, 2021 prior to the adoption of ASC 842, minimum payments under operating leases having initial or remaining non-cancelable lease terms in excess of one year were as follows (in thousands): Operating Leases 2022 $ 966 2023 585 2024 170 Total minimum payments $ 1,721 9. SHARE BASED COMPENSATION: Equity Incentive Plans The 2020 Equity Incentive Plan, initially adopted by the Company’s board of directors on August 5, 2020 as an amendment and restatement of the 2013 Equity Incentive Plan (“2013 Plan”), was amended and restated at the Closing of the Business Combination as the Amended and Restated Navitas Semiconductor Limited 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit (RSU) awards, stock appreciation rights, and other stock awards to employees, directors and consultants. Pursuant to the 2020 Plan, the exercise price for incentive stock options and non-statutory stock options is generally at least 100% of the fair market value of the underlying shares on the date of grant. Options generally vest over 48 months measured from the date of grant. Options generally expire no later than ten years after the date of grant, subject to earlier termination upon an optionee’s cessation of employment or service. Under the terms of the 2020 Plan, the Company is authorized to issue 18,899,285 shares of common stock pursuant to awards under the 2020 Plan. As of October 19, 2021, the Company has issued an aggregate of 11,276,706 stock options and non-statutory options to its employees and consultants and 4,525,344 shares of restricted stock to employees, directors and consultants under the 2020 Plan. No awards have or will be issued under the 2020 Plan after October 19, 2021. Shares of Common Stock subject to awards under the 2020 Plan that are forfeited, expire or lapse after October 19, 2021 will become authorized for issuance pursuant to awards under the 2021 Plan (as defined below). The Navitas Semiconductor Corporation 2021 Equity Incentive Plan (the “2021 Plan”) was adopted by the Company’s board of directors on August 17, 2021 and adopted and approved by the Company’s stockholders at the Special Meeting on October 12, 2021. Under the terms of the 2021 Plan, the Company is authorized to issue, pursuant to awards granted under the 2021 Plan, (a) up to 16,334,527 shares of Common Stock; plus (b) up to 15,802,050 shares of Common 19 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) Stock subject to awards under the 2020 Plan that are forfeited, expire or lapse after October 19, 2021; plus (c) an annual increase, effective as of the first day of each fiscal year up to and including January 1, 2031, equal to the lesser of (i) 4 % of the number of shares of Common Stock outstanding as of the conclusion of the Company’s immediately preceding fiscal year, or (ii) such amount, if any, as the board of directors may determine. Stock-Based Compensation At the Closing of the Business Combination on October 19, 2021, Legacy Navitas’ outstanding vested and unvested share-based compensation awards (as such terms are defined below) were converted into equity, RSUs or options in the Company at a ratio of 1.0944 to 1 share (the “Exchange Ratio”). Share and per share information below has been converted from historical disclosures based on the Exchange Ratio. The Company recognizes the fair value of stock-based compensation in its financial statements over the requisite service period of the individual grants, which generally equals a four-year vesting period. The Company uses estimates of volatility, expected term, risk-free interest rate and dividend yield in determining the fair value of these awards and the amount of compensation expense to recognize. The Company uses the straight-line method to amortize stock awards granted over the requisite service period of the award, which may be explicit or derived, unless market or performance conditions result in a graded attribution. The following table summarizes the stock-based compensation expense recognized for the three and nine months ended September 30, 2022 and 2021: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Cost of revenues $ — $ — $ — $ 163 Research and development 5,227 68 15,758 1,698 Selling, general and administrative 10,547 133 36,378 12,904 Total stock-based compensation expense $ 15,774 $ 201 $ 52,136 $ 14,765 Stock Options Generally, stock options granted under the Plans have ten year terms and vest 1/4th on the anniversary of the vesting commencement date and 1/48th monthly thereafter. Stock options with performance vesting conditions begin to vest upon achievement of the performance condition. Expense is recognized beginning in the period in which performance is considered probable. The fair value of incentive stock options and non-statutory stock options issued was estimated using the Black-Scholes model. The Company did not grant any awards during the nine months ended September 30, 2022. 20 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) A summary of stock options outstanding, excluding LTIP options as of September 30, 2022, and activity during the nine months then ended, is presented below: Shares (In thousands) Exercise Price Per Share Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (In years) Per Share Average Intrinsic Value Outstanding at December 31, 2021 11,253 $ .08 - $ 1.06 $ 0.51 6.80 $ 3.34 Granted — — — — — Exercised ( 4,103 ) $ .08 - $ 1.06 0.37 — 4.25 Forfeited or expired ( 75 ) $ 1.06 0.91 — — Cancelled ( 1 ) $ 1.06 1.06 — 2.80 Outstanding at September 30, 2022 7,074 $ .08 - $ 1.06 $ 0.60 6.60 $ 4.25 Vested and Exercisable at September 30, 2022 5,301 $ .08 - $ 1.06 $ 0.46 6.11 $ 4.39 During the three and nine months ended September 30, 2022, the Company recognized $ 117 and $ 363 respectively, of stock-based compensation expense for the vesting of outstanding stock options, excluding $ 1.4 million related to the LTIP Options described below. During the three and nine months ended September 30, 2021, the Company recognized $ 145 and $ 492 , respectively, of stock-based compensation expense for the vesting of outstanding stock options. At September 30, 2022, unrecognized compensation cost related to unvested awards totaled $ 736 . The weighted-average period over which this remaining compensation cost will be recognized is 1.6 years. Long-term Incentive Plan Stock Options The Company awarded a total of 6,500,000 performance stock options (“LTIP Options”) to certain members of senior management on December 29, 2021 pursuant to the 2021 Plan. These non-statutory options are intended to be the only equity awards for the recipients over the duration of the performance period. The options vest in increments subject to achieving certain performance conditions, including ten share price hurdles ranging from $ 15 to $ 60 per share, coupled with revenue and EBITDA targets, measured over a seven year performance period and expire on the tenth anniversary of the grant date. The options have an exercise price of $ 15.51 per share and the average fair value on the grant date was $ 8.13 . The weighted average contractual period remaining is 9.9 years . T he Black-Scholes model and a Monte Carlo simulation incorporated 100,000 scenarios. The valuation model utilized the following assumptions: Risk-free interest rates 1.47 % Expected volatility rates 58 % Expected dividend yield — Cost of equity (for derived service period) 9.96 % Weighted-average grant date fair value of options $ 8.13 The Company recognized $ 1.4 million and $ 4.2 million of stock-based compensation expense for the three month and nine months ended September 30, 2022, respectively. The unrecognized compensation expense related to the LTIP Options is $ 48.6 million as of September 30, 2022, a compensation expense will be recognized over 3.7 years. The Company awarded a total of 3,250,000 performance stock options (“LTIP Options”) to a member of senior management on August 15, 2022 pursuant to the 2021 Plan. The options vest in increments subject to achieving certain performance conditions, including ten share price hurdles ranging from $ 15 to $ 60 per share, coupled with revenue and EBITDA targets, measured over a seven year performance period and expire on the tenth anniversary of the grant date. The options have an exercise price of $ 15.51 per share and the average fair value on the grant date was $ 2.51 . The 21 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) weighted average contractual period remaini ng is 9.9 years. T he Black-Scholes model and a Monte Carlo simulation incorporated 100,000 scenarios. The valuation model utilized the following assumptions: Risk-free interest rates 2.82 % Expected volatility rates 63 % Expected dividend yield — Cost of equity (for derived service period) 14.64 % Weighted-average grant date fair value of options $ 2.51 The Company recognized $ 119 and $ 119 of stock-based compensation expense for the three and nine months ended September 30, 2022, respectively. The unrecognized compensation expense related to the LTIP Options is $ 8.0 million as of September 30, 2022, and compensation expense will be recognized over 4.3 years. Restricted Stock Units On August 25, 2021, Legacy Navitas granted an aggregate of 4,135,000 Legacy Navitas RSUs under the 2020 Plan to certain members of senior management pursuant to restricted stock unit agreements (collectively, the “RSU Agreements”). At the Closing of the Business Combination, these Legacy Navitas RSUs were assumed by the Company and converted at the Exchange Ratio into RSUs to acquire an aggregate of 4,525,344 shares of common stock. Each RSU represents the right to receive one share of common stock of the Company, subject to the vesting and other terms and conditions set forth in the RSU Agreements and the 2020 Plan. 3,830,400 of these RSU awards are subject to vesting in three equal installments over a three-year period, subject to the occurrence of an IPO (which includes the Business Combination) and certain valuation targets, and subject to accelerated vesting based on the satisfaction of certain stock price targets. 547,200 of these RSUs were subject to vesting on the six-month anniversary of the grant date, subject to the occurrence of an IPO (which included the Business Combination) and certain valuation targets. 57,456 of these RSUs were subject to vesting upon the occurrence of an IPO (which included the Business Combination), while the remaining 90,288 RSUs are subject to vesting as specified by an RSU Agreement over a period of approximately three years . As of October 19, 2021, the IPO performance condition had been met as a result of the completion of the Business Combination. A summary of RSUs outstanding as of September 30, 2022 , and activity during the nine months then ended, is presented below: Shares (In thousands) Weighted-Average Grant Date Fair Value Per Share Outstanding at December 31, 2021 4,468 $ 9.62 Granted 8,379 8.36 Vested ( 1,409 ) 4.91 Forfeited ( 183 ) 10.60 Outstanding at September 30, 2022 11,255 $ 5.54 During the three and nine months ended September 30, 2022 , the Company recognized $ 8.7 million and $ 32.4 million of stock-based compensation expense for the vesting of RSUs, respectively. During the three and nine months ended September 30, 2021 , the Company recogniz ed $ 501 and $ 14.3 million of stock-based compensation expense for the vesting of RSUs, respectively. As of September 30, 2022, unrecognized compensation cost related to unvested RSU awards totale d $ 58.4 million. The weighted-average period over which this remaining compensation cost is expected be recognized is 2.6 years. The Company accrued $ 3.8 million an d $ 2.0 million as of September 30, 2022 and December 31, 2021, respectively, related to a stock-based bonus plan that the Company plans to settle by issuing a variable number of fully-vested restricted stock units to employees. The $ 3.8 million accrued as of September 30, 2022 is for the eligible employee’s included the Company’s 2022 annual bonus plan and is expected to be settled during the first quarter of 2023. The $ 2.0 million accrued as of December 31, 2021 was for the Company’s 2021 annual bonus plan and no balance is 22 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) accrued as of September 30, 2022. Based on the closing share price of the Company’s Class A Common Stock of $ 4.85 on September 30, 2022, approximately 783,505 shares would have been issued, however, the actual number of shares will be based on the share price at the date of settlement . Unvested Earnout Shares A portion of the earnout shares may be issued to individuals with unvested equity awards. While the payout of these shares requires achievement of the volume weighted average price of the Company's common stock, the individuals are required to complete the remaining service period associated with these unvested equity awards to be eligible to receive the earnout shares. As a result, these unvested earn-out shares are equity-classified awards and have an aggregated grant date fair value of $ 19.1 million or $ 11.52 per share. During the three and nine months ended September 30, 2022, the Company recog nized $ 4.3 million and $ 11.5 million of s tock-based compensation expense for the vesting of earnout shares, respectively. At September 30, 2022, unrecognized compensation cost related to unvested earnout shares total ed $ 1.8 million. The weighted-average period over which this remaining compensation cost is expected be recognize d is 0.5 years. Ref er to Note 11, Earnout Liability. 10. WARRANT LIABILITY In connection with the closing of the Business Combination, holders of Live Oak Class A ordinary shares automatically received Class A Common Stock of the Company, and holders of Live Oak warrants automatically received 13,100,000 warrants of the Company with substantially identical terms (“the Warrants”). At the Closing, 8,433,333 Live Oak public warrants automatically converted into 8,433,333 warrants to purchase one share of the Company’s Class A Common Stock at $ 11.50 per share (the “Public Warrants”), and 4,666,667 Private Placement Warrants held by the Sponsor and certain permitted transferees, each exercisable for one Class A ordinary share of Live Oak at $ 11.50 per share, automatically converted into warrants to purchase one share of the Company’s Class A Common Stock at $ 11.50 per share with substantially identical terms as the Public Warrants. On February 4, 2022, the Company gave notice that it would redeem all of the Warrants, as further described below. The Warrants were exercisable only during the period commencing December 7, 2021 ( 12 months after the consummation of Live Oak’s initial public offering) and ending on the earlier of October 19, 2026 ( five years after the Closing of the Business Combination) or, in the event of redemption, the corresponding redemption date. The Company had the right to redeem not less than all of the outstanding Public Warrants on 30 days’ notice, at a redemption price of $ 0.01 per Warrant, if the reported closing price of the Common Stock was at least $ 18.00 per share for any 20 of 30 trading days ending three business days before the notice of redemption, subject to certain other conditions. The Company also had the right to redeem not less than all of the outstanding Public Warrants on 30 days’ notice, at a redemption price of $ 0.10 per Warrant, if the reported closing price of the Common Stock was at least $ 10.00 per share for any 20 of 30 trading days ending three business days before the notice of redemption, subject to certain other conditions. If the Company elected to exercise the latter right to redeem the Public Warrants for $ 0.10 per Warrant, and the reported closing price of the Common Stock was less than $ 18.00 per share for any 20 of 30 trading days ending three business days before the notice of redemption, the Company was required to concurrently redeem the Private Placement Warrants on the same terms. In addition, in such event, hold ers of Warrants subject to redemption would have the right to exercise their Warrants on a “cashless” basis, whereby they would receive a fractional number of shares of Common Stock per Warrant exercised before the redemption date, based on the volume weighted average price of the Common Stock for the 10 trading days following notice of redemption (the “Redemption Fair Market Value”) and the time period between the redemption date and the original expiration of the Warrants in the absence of redemption. On February 4, 2022, the Company issued a notice of redemption that it would redeem, at 5:00 p.m. New York City time on March 7, 2022 (the “ Redemption Date ”), all of the Company’s outstanding Public Warrants and Private Placement Warrants to purchase shares of the Company’s Class A Common Stock that were governed by the Warrant Agreement, dated as of December 2, 2020 (the “ Warrant Agreement ”), between the Company and Continental Stock Transfer & Trust Company, as warrant agent (the “Warrant Agent”), at a redemption price of $ 0.10 per Warrant (the “ Redemption Price ”). On February 22, 2022, the Company issued a notice that the “Redemption Fair Market Value,” determined in accordance with the Warrant Agreement based on the volume weighted average price of the Common Stock for the 10 trading days immediately following the date on which notice of redemption was sent, was $ 10.33 and, accordingly, that holders exercising Warrants on a “cashless” basis before the Redemption Date would receive 0.261 shares of Common Stock per Warrant exercised. The Warrants were exercisable by their holders until immediately before 5:00 p.m. New York City time on the Redemption Date, either (i) on a cash basis, at an exercise price of $ 11.50 per share of Common Stock, or (ii) on a 23 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) “cashless” basis in which the exercising holder would receive 0.261 shares of Common Stock per Warrant exercised. Between December 7, 2021 (the date the Warrants became exercisable) and the Redemption Date, an aggregate of 12,722,773 Warrants were exercised (including 17,785 on a cash basis and 12,704,988 on a “cashless” basis); an aggregate of 3,333,650 shares of Common Stock were issued upon exercise of the Warrants (including 17,785 shares in respect of cash exercises and 3,315,865 shares in respect of “cashless” exercises). A total of 377,187 Warrants remained outstanding and unexercised at the Redemption Date and were redeemed for an aggregate Redemption Price of $ 38 . Prior to the redemption date, the warrants had an aggregate fair value of $ 81.4 million which resulted in a gain of $ 0 and $ 51.8 million due to the decrease in the fair value of the warrant liability in the three and nine months ended September 30, 2022. There were no outstanding warrants as of September 30, 2022. 11 . EARNOUT LIABILITY Certain of the Company’s stockholders are entitled to receive up to 10,000,000 Earnout Shares of the Company’s Class A common stock if the Earnout Milestones are met. The Earnout Milestones represents three independent criteria, which each entitles the eligible stockholders to 3,333,333 earn-out shares per milestone met. Each Earnout Milestone is considered met if at any time 150 days following the Business Combination and prior to October 19, 2026, the volume weighted average price of the Company’s Class A common stock is greater than or equal to $ 12.50 , $ 17.00 or $ 20.00 for any twenty trading days within any thirty trading day period, respectively. Further, the Earnout Milestones are also considered to be met if the Company undergoes a Sale. A Sale is defined as the occurrence of any of the following: (i) engage in a “going private” transaction pursuant to Rule 13e-3 under the Exchange Act or otherwise cease to be subject to reporting obligations under Sections 13 or 15(d) of the Exchange Act; (ii) Class A common stock cease to be listed on a national security exchange, other than for the failure to satisfy minimum listing requirements under applicable stock exchange rules; or (iii) change of ownership (including a merger or consolidation) or approval of a plan for complete liquidation or dissolution. These earnout shares have been categorized into two components: (i) the “Vested Shares” - those associated with stockholders with vested equity at the closing of the Business Combination that will be earned upon achievement of the Earnout Milestones and (ii) the “Unvested Shares” - those associated with stockholders with unvested equity at the closing of the Business Combination that will be earned over the remaining service period with the Company on their unvested equity shares and upon achievement of the Earnout Milestones. The Vested Shares are classified as liabilities in the consolidated balance sheet and the Unvested Shares are equity-classified share-based compensation to be recognized over time (see Note 9, Share-based Compensation). The earnout liability was initially measured at fair value at the closing of the Business Combination and subsequently remeasured at the end of each reporting period. The change in fair value of the earn-out liability is recorded as part of Other income (expense), net in the consolidated statement of operations. The estimated fair value of the earnout liability was determined using a Monte Carlo analysis of 20,000 simulations of the future path of the Company’s stock price over the earnout period. The assumptions utilized in the calculation are based on the achievement of certain stock price milestones including projected stock price, volatility, and risk-free rate. The valuation model utilized the following assumptions: September 30, 2022 December 31, 2021 Risk-free interest rate 4.15 % 1.23 % Equity volatility rate 62.50 % 55.00 % At the closing of the Business Combination on October 19, 2021, the earnout liability had an initial fair value of $ 96,069 , which was recorded as a long-term liability and a reduction to additional paid in capital in the consolidated balance sheet. As of September 30, 2022 and December 31, 2021, the earnout liability had a fair va lue of $ 22.6 million a nd $ 134.2 million , respectively which resulted in a loss in the fair value of the earnout liability of $ 6.1 million for the three months ended September 30, 2022 due to the increase in the fair value of the earnout liability during the third quarter of 2022 and a gain due to the decrease in the fair value of the earnout liability of $ 112.2 million for the nine months ended September 30, 2022. GeneSiC Earnout Liability In connection with the merger agreement of GeneSiC Semiconductor as discussed in Note 17, the Company will pay additional contingent consideration of up to $ 25.0 million , in the form of cash earnout payments to the Sellers and certain employees of GeneSiC, conditioned on the achievement of substantial revenue and gross profit margin targets for the GeneSiC business over the four fiscal quarters beginning on October 1, 2022 and ending on September 30, 2023. The estimated fair value of the earnout liability was determined using a Monte Carlo analysis of 20,000 simulations assuming that GeneSiC’s revenue and gross profit margins follow a geometric Browian motion over the earnout period. The valuation model utilized an assumption on the risk-free interest rate of 3.1 % and equity volatility rate of 99.9 %. As of September 30, 2022, the GeneSiC Earnout liability was $ 0.6 million and is recorded in Earnout Liability on the Company’s Condensed Consolidated Balance Sheets. 12. SIGNIFICANT CUSTOMERS AND CREDIT CONCENTRATIONS Customer Concentration Majority of the Company’s revenues are attributable to sales of the Company’s products to distributors of electronic components. These distributors sell the Company’s products to a range of end users, including OEMs and merchant power supply manufacturers. The following customers represented 10% or more of the Company’s net revenues for the respective three and nine months ended September 30, 2022 and 2021, respectively: Three Months Ended September 30, Nine Months Ended September 30, Customer 2022 2021 2022 2021 Distributor A 34 % * 20 % * Distributor B 15 % 19 % 21 % 19 % Distributor C 15 % * * * Distributor D * 21 % 15 % 20 % *Total customer net revenues was less than 10% of total net revenues. Revenues by Geographic Area The Company considers the domicile of its end customers, rather than the distributors it sells to directly, to be the basis for attributing revenues from external customers to individual countries. Revenues for the three and nine months ended September 30, 2022 and 2021, were attributable to end customers in the following countries: Three Months Ended September 30, Nine Months Ended September 30, Country 2022 2021 2022 2021 Europe* 47 % — % 31 % — % China 20 72 34 74 United States 28 18 27 19 Rest of Asia 3 10 7 7 Other 2 — 2 1 — Total 100 % 100 % 100 % 100 % *Impractical to disclose the revenue percentages by individual countries within Europe and therefore Europe is presented in total. 24 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consisted principally of cash, cash equivalents and trade receivables. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. At times, such amounts may exceed federally insured limits. The Company has not experienced any losses on cash or cash equivalents held at financial institutions. The Company does not have any off-balance-sheet credit exposure related to its customers. The following customers represented 10% or more of the Company’s accounts receivable. Customer September 30, 2022 December 31, 2021 Distributor A 25 % 44 % Distributor B 16 % 14 % Distributor C 16 % 14 % *Total customer accounts receivable was less than 10% of net account receivables. Concentration of Supplier Risk The Company currently relies on a single foundry to produce wafers for GaN ICs and a separate single foundry to produce SiC MOSFETs. Loss of the relationship with either of these suppliers could have a substantial negative effect on the Company. Additionally, the Company relies on a limited number of third-party subcontractors and suppliers for testing, packaging and certain other tasks. Disruption or termination of supply sources or subcontractors, including due to the COVID-19 pandemic or natural disasters such as an earthquake or other causes, could delay shipments and could have a material adverse effect on the Company. Although there are generally alternate sources for these materials and services, qualification of the alternate sources could cause delays sufficient to have a material adverse effect on the Company. A significant amount of the Company’s third-party subcontractors and suppliers, including third-party foundry that supply wafers for GaN ICs, are located in Taiwan. A significant amount of the Company’s assembly and test operations are conducted by third-party contractors in Taiwan, Thailand and the Philippines. 25 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) 13. NET INCOME (LOSS) PER SHARE: Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average shares of common stock outstanding during the period. Diluted earnings per share are calculated by dividing net income (loss) by the weighted-average shares of common stock and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares included in this calculation consist of dilutive shares issuable upon the assumed exercise of outstanding common stock options, the assumed vesting of outstanding restricted stock units and restricted stock awards, the assumed issuance of awards for contingently issuable performance-based awards, as computed using the treasury stock method. Performance-based restricted stock units and restricted stock awards are included in the number of shares used to calculate diluted earnings per share after evaluating the applicable performance criteria as of period end and under the assumption the end of the reporting period was the end of the contingency period, and the effect is dilutive. Restricted stock awards are eligible to receive all dividends declared on the Company’s common shares during the vesting period; however, such dividends are not paid until the restrictions lapse. The Company has no plans to declare dividends. A summary of the net income (loss) per share calculation is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Numerator - basic and diluted: 2022 2021 2022 2021 Net income (loss) attributable to controlling interests $ ( 32,590 ) $ ( 6,843 ) $ 81,039 $ ( 32,838 ) Denominator Weighted-average common shares - basic common stock 138,455 18,305 127,390 19,643 Weighted-average common shares - diluted common stock 138,455 18,305 140,134 19,643 Net income (loss) per share - basic common stock $ ( 0.24 ) $ ( 0.37 ) $ 0.64 $ ( 1.67 ) Net income (loss) per share - diluted common stock $ ( 0.24 ) $ ( 0.37 ) $ 0.58 $ ( 1.67 ) Denominator Weighted-average common shares - basic common stock 138,455 18,305 127,390 19,643 Stock options and other dilutive awards — — 12,744 — Weighted-average common shares - diluted common stock 138,455 18,305 140,134 19,643 Shares excluded from diluted weighted-average shares: 1, 2 Redeemable convertible preferred stock shares — 54,449 — 54,449 Warrants to purchase redeemable convertible preferred stock — 176 — 176 Warrants to purchase common shares — 1,107 — 1,107 Earnout shares (potentially issuable common shares) 10,000 — 10,000 — Unvested restricted stock units and restricted stock awards 10,995 — 225 — Stock options potentially exercisable for common shares 9,750 11,753 9,750 11,753 Shares excluded from diluted weighted average shares 30,745 67,485 19,975 67,485 (1) The Company’s potentially dilutive securities, which include unexercised stock options, unvested shares, preferred shares, earnout shares, and warrants for common and preferred shares, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share for the three months ended September 30, 2022 and three and nine months ended September 30, 2021. F or the nine months ended September 30, 2022, potentially dilutive securities have been excluded as these securities contain performance metric(s) which have not be satisfied as of September 30, 2022. (2) Balances as of September 30, 2022 r etroactively restated to give effect to the October 19, 2021 reverse recapitalization. 14. PROVISION FOR INCOME TAXES: Income Taxes The Company determined the income tax provision for interim periods using an estimate of the Company’s annual effective tax rate, adjusted for discrete items arising during the quarter. The Company’s effective tax rate for the three months ended September 30, 2022 and 2021 was ( 98.9 )% and 0.2 %, respectively. The Company’s effective tax rate for the nine months ended September 30, 2022 and 2021 was ( 38.5 )% and 0.2 %, respectively. The effective tax rates for 2022 differ from the prior year primarily as a result of the valuation allowance release described below. In each quarter, the Company updates its estimated annual effective tax rate, and if the estimated annual effective tax rate changes, a cumulative adjustment is recorded in that quarter. The Company’s quarterly income tax provision and quarterly estimate of the annual effective tax rate are subject to volatility due to several factors, including our ability to accurately predict the proportion of our income (loss) before provision for income taxes in multiple jurisdictions, the tax effects of our stock-based compensation, and the effects of its foreign entities. At December 31, 2021, the Company had approximately $ 100.1 million of federal net operating loss (“NOL”) carryforwards and approximately $ 82,583 of State NOL carryforwards expiring in varying amounts through 2037, with the exception of Federal NOLs arising from the years ended after December 31, 2017 that may be carried forward indefinitely. Realization of the NOL carryforwards is dependent on the Company generating sufficient taxable income prior to expiration of the NOL carryforwards and is also potentially subject to usage limitations due to changes in the Company’s ownership. As of December 31, 2021 and through the second quarter of 2022, the Company had a full valuation allowance on its net deferred tax assets. As a result of the GeneSiC Semiconductor Inc. acquisition, (see Note 17, Business Combinations), the Company released $ 9.9 million of U.S. valuation allowance during the three months ended September 30, 2022. The release was attributable to a preliminary estimate of $ 23.2 million of net deferred tax liabilities recorded on GeneSiC’s opening balance sheets that offset certain U.S. net deferred tax assets of Navitas. As of September 30, 2022, the Company continues to maintain a valuation allowance on the remaining deferreds as the Company believes that it is not more likely than not that the deferred tax assets will be fully realized. The Company had no unrecognized tax benefits for the three and nine months ended September 30, 2022 and 2021. The Company recognizes interest and penalties related to unrecognized tax benefits in operating expenses. No such interest and penalties were recognized during the three and nine months ended September 30, 2022 and 2021. 15. COMMITMENTS and CONTINGENCIES Purchase Obligations At September 30, 2022, the Company had no non-cancelable purchase obligations that were due beyond one year. Employment agreements The Company has entered into agreements with certain employees to provide severance payments to the employees for termination for reasons other than cause, death or disability. Aggregate payments that would be required to be made in the event of termination under the agreements are approximat ely $ 2.1 million. At September 30, 2022, no terminations have occurred or are expected to occur pursuant to these arrangements and, accordingly, no termination benefits have been accrued. Indemnifications The Company sells products to its distributors under contracts, collectively referred to as Distributor Sales Agreements (DSA). Each DSA contains the relevant terms of the contractual arrangement with the distributor, and generally includes certain provisions for indemnifying the distributor against losses, expenses, and liabilities from damages 26 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) that may be awarded against the distributor in the event the Company’s products are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party (Customer Indemnification). The DSA generally limits the scope of and remedies for the Customer Indemnification obligations in a variety of industry-standard respects, including, but not limited to, limitations based on time and geography, and a right to replace an infringing product. The Company also, from time to time, has granted a specific indemnification right to individual customers. The Company believes its internal development processes and other policies and practices limit its exposure related to such indemnifications. In addition, the Company requires its employees to sign a proprietary information and inventions agreement, which assigns the rights to its employees’ development work to the Company. To date, the Company has not had to reimburse any of its distributors or end customers for any losses related to these indemnifications and no material claims were outstanding as of September 30, 2022. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnifications. Legal proceedings and contingencies From time to time in the ordinary course of business, the Company may become involved in lawsuits, or end customers and distributors may make claims against the Company. The Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company is not currently subject to any pending actions or regulatory proceedings that either individually or in the aggregate are expected to have a material impact on its condensed consolidated financial statements. 16. RELATED PARTY TRANSACTIONS Notes Receivable The Company has outstanding interest-bearing notes receivable from an employee. The notes have various maturity dates through May 1, 2023 and bear interest at rates ranging from 1 % to 2.76 %. As of September 30, 2022, Note 1 was forgiven for a loss of $ 109 and Note 2 was paid off in the amount of $ 88 . The Company recognized $ 0 and $ 0.9 of interest income from the notes for the three and nine months ended September 30, 2022, respectively. The Company recognized $ 0 and $ 2 of interest income from the notes for the three and nine months ended September 30, 2021. September 30, 2022 December 31, 2021 Notes receivable $ 21 $ 206 Joint Venture In 2021, Navitas entered into a partnership with a manufacturer of power management ICs to develop products and technology relating to AC/DC converters. Structured as a joint venture, Navitas’ initial contribution was the commitment to sell its GaN integrated circuit die at prices representing cost plus insignificant handling fees, in exchange for a minority interest, with the right to acquire the balance of the joint venture based on the future results of the venture (among other rights and obli gat ions). The Company accounted for the investment in the joint venture as an equity-method investment. Total related party revenues recognized by the Company as a result of arrangements with its joint venture were $ 21 and $ 678 for the three and nine months ended September 30, 2022 , respectively, and are included in Net Revenues in the Condensed Consolidated Statements of Operations. See Note 18, Noncontrolling Interest, for more information. Related Party License Revenue During the second quarter of 2022, Navitas entered into a Patent License Agreement with an entity under common control with the Company’s partner in the joint venture described above. In consideration of the license rights granted, the Company recorded license fee revenue of $ 0 and $ 850 during the three and nine months ended September 30, 2022, respectively. Such amounts are included in Net Revenues in the Condensed Consolidated Statement of Operations. 27 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) Related Party Investment During the third quarter of 2022, Navitas ma de a $ 1.5 million inv estment in preferred interests of an entity under common control with the Company’s partner in the joint venture described above. Such investment is included in Other Assets in the condensed consolidated balance sheet as of September 30, 2022 and will be accounted for as an equity investment under ASC 321 Investments - Equity Securities . The Company also entered into a Patent License Agreement with this entity as described above under related party license revenue. Related Party Advance During the third quarter of 2022, Navitas made a $ 1.0 million to its p artner in the joint venture described above in order to facilitate orders of raw materials. Such amounts are included in Prepaid Expenses and Other Current Assets as of September 30, 2022. 17. BUSINESS COMBINATIONS Acquisition of VDDTech srl On June 10, 2022, the Company’s wholly owned subsidiary, Navitas Semiconductor Limited, acquired all of the stock of VDDTECH srl, a private Belgian company (“VDDTech”) for approximately $ 1.9 million in cash and stock. Based in Mont-saint-Guibert, Belgium, VDDTech creates advanced digital-isolators for next-generation power conversion. VDDTech’s net assets and operating results since the acquisition date are inc luded in the Company’s Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2022, and were not material. Among shares issued in the transaction, the Company issued approximately 113,000 restricted shares that are subject to time based vesting and issued approximately 151,000 restricted shares that are subject to time and performance based vesting over the next four and three years , respectively. These restricted shares are subject to certain individuals maintaining employment with the Company and, therefore, are accounted for under ASC 718. The Company recorded a preliminary allocation of the purchase price to tangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. The excess of the purchase price over the fair value of tangible assets and liabilities of $ 1.2 million was recorded as goodwill as of June 30, 2022. Subsequent to June 30, 2022, a preliminary valuation of the intangible assets acquired was calculated at $ 1.2 million . During the three months ended September 30, 2022, the Company reclassed the goodwill to an intangible asset. Upon a final determination of the purchase price and the final valuation of the intangible assets acquired, primarily including in-process R&D, the Company will allocate the purchase price to tangible and intangible assets acquired and liabilities assumed, and adjust the excess purchase price allocated to goodwill as needed. The fair value of the in-process R&D was estimated using the multi-period excess earnings method, an income approach (Level 3), which converts projected revenues and costs into cash flows. To reflect the fact that certain other assets contribute to the cash flows generated, the returns for these contributory assets were removed to arrive at estimated cash flows solely attributable to the acquired technology, which were discounted at a rate of 18 % to determine the fair value. Acquisition of GeneSiC Semiconductor Inc. On August 15, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire 100 % of the outstanding shares of GeneSiC Semiconductor Inc. for approximately $ 146.3 million of equity, $ 99.3 million of cash consideration, and potential future cash earn-out payments of up to an aggregate of $ 25.0 million. GeneSiC is a silicon carbide (“SiC”) pioneer with deep expertise in SiC power device design and process, based in Dulles, Virginia. The future earn-out payments were fair valued at $ 0.6 million, for a total merger consideration of $ 246.2 million. The acquisition was accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). The Company has determined preliminary fair values of the assets acquired and liabilities assumed. These values are subject to change as the Company performs additional reviews of the assumptions used. 28 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain tangible assets and liabilities acquired, certain legal matters, amounts for income taxes including deferred tax accounts, amounts for uncertain tax positions, and net operating loss carryforwards inclusive of associated limitations and valuation allowances, the determination of identifiable intangible assets and the final allocation of purchase price to goodwill. Additionally, finalized fair values associated with deferred tax accounts could have a material effect on the Company's estimated reversal of its consolidated U.S. valuation allowances recognized during the three month period ended December 31, 2022. See Note 14, Provision for Income Taxes, for further information. The Company expects to continue to obtain information to assist it in determining the fair values of the net assets acquired at the acquisition date during the measurement period. The following tables summarize the preliminary purchase consideration and the preliminary purchase price allocation to estimated fair values of the identifiable assets acquired and liabilities assumed (in thousands): Merger Consideration Fair Value Cash consideration at closing $ 99,291 Equity consideration at closing 146,314 Contingent earn-out 600 Total $ 246,205 Preliminary estimate of purchase price allocation Cash and cash equivalents $ 951 Accounts receivable 823 Inventory 1,538 Fixed assets 226 Other assets 7 Intangible assets 110,100 Goodwill 157,429 Total assets acquired $ 271,074 Liabilities assumed: Interest bearing debt 16 Other current liabilities 1,673 Deferred tax liabilities 23,180 Total liabilities acquired 24,869 Estimated fair value of net assets acquired $ 246,205 Goodwill represents the excess of the merger price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed, the final amount of the goodwill recorded could differ materially from the amount presented. Goodwill is primarily attributable to assembled workforce, market and expansion capabilities, expected synergies from integration and streamlining operational activities and other factors. Goodwill is not expected to be deductible for income tax purposes. 29 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) The preliminary fair values of the identifiable intangible assets acquired at the date of Acquisition are as follows (in thousands): Intangible Asset Fair Value Amortization Method Useful Life Trade Names $ 900 Straight line 2 years Developed Technology 49,100 Straight line 4 years Patents 33,900 Straight line 15 years Customer Relationships 24,300 Straight line 10 years Non-Competition Agreements 1,900 Straight line 5 years Total Intangibles $ 110,100 The valuations of intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows. The Company recognized approximately $ 5.4 million of transaction costs in the three and nine months ended September 30, 2022. These costs are recorded in “Selling, general and administrative expense” in the consolidated statements of operations. The financial results of GeneSiC have been included in the Company's consolidated financial statements since the date of the acquisition. The fair value of developed technology was estimated using the multi-period excess earnings method, an income approach (Level 3), which converts projected revenues and costs into cash flows. To reflect the fact that certain other assets contribute to the cash flows generated, the returns for these contributory assets were removed to arrive at estimated cash flows solely attributable to the acquired technology, which were discounted at a rate of 15 % to determine the fair value. The fair value of customer relationships was estimated using the distributor method, an income level approach (Level 3), which estimates the value of an asset based upon costs avoided through ownership of the asset. Estimated costs on projected revenues, excluding acquired contract backlog, were made using historical data pertaining to sales to new and existing customers. The cash flow impact of projected cost savings, primarily avoidance of legal costs pertaining to new customers and lower commission rates applicable to existing customers than new customers, were discounted at a rate of 16 % to determine the fair value. The fair value of the trade name and trademarks was estimated using the relief from royalty method, an income approach (Level 3), because of the licensing appeal of these assets, the Company estimated the benefit of the ownership as the relief form the royalty expense that would be incurred in the absence of ownership A royalty rate was applied to the projected revenues associated with the intangible asset to determine the amount of savings, which was at a rate of 16 % to determine the fair value. The fair value of the patents was estimated using the relief from royalty method, an income approach (Level 3), because of the licensing appeal of these assets, the Company estimated the benefit of the ownership as the relief form the royalty expense that would be incurred in the absence of ownership. A royalty rate was applied to the projected revenues associated with the intangible asset to determine the amount of savings, which was at a rate of 16 % to determine the fair value. The value of the non-competition agreement was estimated using the lost income method (Level 3), because the non-competition agreement prohibits the covenantor from competing with the Company, the fair value of the non-competition agreement can be determined by estimating cash flows that would be lost if the covenantors were to compete, we estimated a discount rate of 16 % to determine the fair value. Discount rates for each respective intangible asset were determined by accounting for the risk associated with each asset, including required technology development and customer acquisition required to support respective projections, the uncertainty of market success and the risk inherent with projected financial results. The estimated useful lives were determined by evaluating the expected economic and useful lives of the assets and of similar intangible assets from previous business combinations and adjusting accordingly after taking into account circumstances that may be unique to GeneSiC. Net tangible assets and intangibles assets assumed as well as goodwill recognized are presented as continuing operations in the consolidated balance sheets. 30 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ($ in thousands, except per share amounts and where noted) The following unaudited pro forma financial information presented in the table below is provided for illustrative purposes only and is based on the historical financial statements of the Company and presents the Company’s results as if the business combination had occurred as of January 1, 2021 (in thousands): UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2021 Revenue $ 38,145 Net loss $ ( 162,744 ) Basic net loss per share $ ( 2.54 ) Diluted net loss per share $ ( 2.54 ) The unaudited pro forma financial information may not be indicative of the results of operations that the Company would have attained had the business combination occurred as of January 1, 2021, nor is the pro forma financial information indicative of the results of operations that may occur in the fut ure. 18. NONCONTROLLING INTEREST In July 2021, the Company formed a joint venture for the purpose of conducting research and development on technology in the area of AC/DC converters for chargers and adapters. On August 19, 2022, the Company obtained control of the joint venture, no consideration was paid pursuant to the Change of Control Agreement. The Company consolidated the fair value of the net assets of the joint venture as of August 19, 2022, and the Company reports noncontrolling interests of the joint venture as a component of equity separate from the Company’s equity. The fair value of the net assets is based on preliminary estimates. The Company’s net income (loss) excludes income (loss) attributable to the noncontrollling interests. The fair value of the joint venture was determined based on a multiple of future annual revenues with a discount rate of 30 %. In connection with the consolidation, the Company reacquired a patent license, which was fair valued at $ 1.0 million based on comparable transactions during the year, and will be amortized over a five year term. The carrying value of the non-controlling interest as of September 30, 2022 (in thousands): Entity Carrying Value of Non-Controlling Interest as of August 19, 2022 Net loss Attributable to the Non-Controlling Interest Carrying Value of Non-Controlling Interest as of September 30, 2022 Former Joint Venture $ 4,655 $ ( 238 ) $ 4,417 19. SUBSEQUENT EVENTS The Company evaluated material subsequent events from the consolidated balance sheet date of September 30, 2022, through November 14, 2022, the date the condensed consolidated financial statements were issued. There were no material subsequent events as of November 14, 2022. 31 Table of Contents