Navitas Semiconductor Corp 10-K

Item 8. Financial Statements and Supplementary Data. Report of Independent Registered Public Accounting Firm (PCAOB ID 34 ) F- 2 Consolidated Balance Sheets F- 3 Consolidated Statements of Operations F- 4 Consolidated Statements of Comprehensive Income (Loss) F- 5 Consolidated Statements of Stockholders’ Equity (Deficit) F- 6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F- 9 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Navitas Semiconductor Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Navitas Semiconductor Corporation and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Los Angeles, CA April 3, 2023 We have served as the Company's auditor since 2021 . F-2 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except shares and par value) December 31, 2022 December 31, 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 110,337 $ 268,252 Accounts receivable, net 9,127 8,263 Inventories 19,061 11,978 Prepaid expenses and other current assets 3,623 2,877 Total current assets 142,148 291,370 PROPERTY AND EQUIPMENT, net 6,532 2,302 OPERATING LEASE RIGHT OF USE ASSETS 6,381 — INTANGIBLE ASSETS, net 105,620 170 GOODWILL 161,527 — NOTES RECEIVABLE — 206 OTHER ASSETS 3,054 1,553 Total assets $ 425,262 $ 295,601 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and other accrued expenses $ 14,653 $ 4,860 Accrued compensation expenses 3,907 2,639 Operating lease liabilities, current 1,305 — Current portion of long-term debt — 3,200 Other liabilities 486 29 Total current liabilities 20,351 10,728 LONG-TERM DEBT — 3,716 OPERATING LEASE LIABILITIES NONCURRENT 5,263 — WARRANT LIABILITY — 81,388 EARNOUT LIABILITY 13,064 134,173 DEFERRED TAX LIABILITIES 1,824 — OTHER LIABILITIES — 60 Total liabilities 40,502 230,065 COMMITMENTS AND CONTINGENCIES (Note 15) STOCKHOLDERS’ EQUITY: Common stock, $ 0.0001 par value, 750,000,000 and 740,000,000 shares authorized as of December 31, 2022 and 2021, respectively, 153,628,838 and 117,750,608 shares issued and outstanding at December 31, 2022 and 2021, respectively 18 15 Additional paid-in capital 535,875 294,190 Accumulated other comprehensive loss ( 7 ) ( 2 ) Accumulated deficit ( 154,754 ) ( 228,667 ) Total stockholders’ equity of Navitas Semiconductor Corporation 381,132 65,536 Noncontrolling interest 3,628 — Total stockholders’ equity 384,760 65,536 Total liabilities and stockholders' equity $ 425,262 $ 295,601 The accompanying notes are an integral part of these consolidated financial statements F-3 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year e ded December 31, (In thousands, except per share amounts) 2022 2021 NET REVENUES (including $1,528 and $435 of related party revenues) $ 37,943 $ 23,736 COST OF REVENUES (exclusive of amortization of intangibles included below) 25,996 13,050 OPERATING EXPENSES: Research and development 50,318 27,475 Selling, general and administrative 78,353 51,374 Amortization of intangible assets 6,913 345 Total operating expenses 135,584 79,194 LOSS FROM OPERATIONS ( 123,637 ) ( 68,508 ) OTHER INCOME (EXPENSE), net: Interest income (expense), net 1,387 ( 257 ) Gain (loss) from change in fair value of warrants 51,763 ( 45,625 ) Gain (loss) from change in fair value of earnout liabilities 121,709 ( 38,105 ) Other income (expense) ( 1,147 ) ( 143 ) Total other income (expense), net 173,712 ( 84,130 ) INCOME (LOSS) BEFORE INCOME TAXES 50,075 ( 152,638 ) INCOME TAX (BENEFIT) PROVISION ( 22,812 ) 47 NET INCOME (LOSS) $ 72,887 $ ( 152,685 ) LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS $ ( 1,026 ) $ — NET INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTERESTS $ 73,913 $ ( 152,685 ) NET INCOME (LOSS) PER COMMON SHARE: Basic net income (loss) per share attributable to common stockholders $ 0.55 $ ( 3.90 ) Diluted net income (loss) per share attributable to common stockholders $ 0.51 $ ( 3.90 ) WEIGHTED AVERAGE COMMON SHARES USED IN NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS: Basic common shares 133,668 39,167 Diluted common shares 145,743 39,167 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year e ded December 31, (In thousands) 2022 2021 Net loss $ 72,887 $ ( 152,685 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments, net of tax ( 5 ) ( 1 ) Total other comprehensive income (loss) ( 5 ) ( 1 ) COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST 72,882 ( 152,686 ) COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST ( 1,026 ) — TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST $ 73,908 $ ( 152,686 ) The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) Redeemable Convertible Preferred Stock Stockholder's equity (deficit) (in thousands) 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) Non-controlling Interest Total Shares Amount Shares Amount Shares Amount Shares Amount Shares 1 Amount Balance at December 31, 2020 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 — — — — — — — 6,331 1 1,699 — ( 1,183 ) — — 517 Reverse recapitalization on October 19, 2021 ( 16,620 ) ( 14,970 ) ( 14,213 ) ( 27,371 ) ( 5,416 ) ( 14,786 ) ( 18,199 ) ( 52,379 ) 99,375 12 250,761 — — — — 250,773 Stock-based compensation expense related to employee and non-employee stock awards — — — — — — — — — — 39,404 — — — — 39,404 Rescission of common stock awards — — — — — — — — ( 4,729 ) — ( 1,231 ) — 1,183 — — ( 48 ) Foreign currency translation adjustment — — — — — — — — — — — — — ( 1 ) — ( 1 ) Net (loss) income — — — — — — — — — — — ( 152,685 ) — — — ( 152,685 ) Balance at December 31, 2021 — $ — — $ — — $ — — — 117,751 $ 15 $ 294,190 $ ( 228,667 ) $ — $ ( 2 ) $ — $ 65,536 Issuance of common stock under employee stock option and stock award plans — — — — — — — — 7,423 1 3,780 — — — — 3,781 Stock-based compensation expense related to employee and non-employee stock awards — — — — — — — — — — 60,436 — — — — 60,436 Repurchase of common stock — — — — — — — — ( 66 ) — ( 550 ) — — — — ( 550 ) Exercise of warrants — — — — — — — — 3,318 — 29,641 — — — — 29,641 Shares issued for business acquisitions — — — — — — — — 25,033 2 147,378 — — — — 147,380 Shares issued for transaction fees — — — — — — — — 170 — 1,000 — — — — 1,000 Change in noncontrolling interest — — — — — — — — — — — — — — 4,654 4,654 Foreign currency translation adjustment — — — — — — — — — — — — — ( 5 ) — ( 5 ) Net (loss) income — — — — — — — — — — — 73,913 — — ( 1,026 ) 72,887 Balance at December 31 ,2022 — $ — — $ — — $ — — $ — 153,629 $ 18 $ 535,875 $ ( 154,754 ) $ — $ ( 7 ) $ 3,628 $ 384,760 The accompanying notes are an integral part of these consolidated financial statements. 1 Retroactively restated to give effect to the October 19, 2021 reverse recapitalization. F-6 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year e ded December 31, (In thousands) 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 72,887 $ ( 152,685 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 980 410 Amortization of intangibles 6,859 345 Amortization of deferred rent — ( 48 ) Non-cash lease expense 1,207 — Other 4,350 ( 53 ) Stock-based compensation expense 63,288 41,404 Amortization of debt discount and issuance costs 17 12 (Gain) loss from change in fair value of warrants ( 51,763 ) 45,625 (Gain) loss from change in fair value of earnout liability ( 121,709 ) 38,105 Deferred income taxes ( 23,294 ) — Change in operating assets and liabilities: Accounts receivable 1,253 ( 4,111 ) Inventory ( 4,748 ) ( 8,574 ) Prepaid expenses and other current assets 100 ( 2,355 ) Other assets ( 448 ) ( 165 ) Accounts payable, accrued compensation and other expenses 7,138 361 Operating lease liability ( 1,071 ) — Deferred revenue 457 29 Net cash used in operating activities ( 44,497 ) ( 41,700 ) CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions, net of cash acquired ( 96,357 ) — Asset acquisition — ( 680 ) Investment in joint venture ( 5,204 ) ( 724 ) Investment in preferred stock ( 1,500 ) — Purchases of property and equipment ( 4,644 ) ( 2,068 ) Receipts on notes receivable 97 6 Net cash used in investing activities ( 107,608 ) ( 3,466 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from reverse recapitalization — 298,066 Payment of stock issuance costs — ( 24,967 ) Redemption of warrants ( 38 ) — Repurchase of common stock ( 550 ) — Proceeds from issuance of common stock in connection stock option exercises 1,711 517 Proceeds from issuance of long-term debt — 2,000 Principal payments on long-term debt ( 6,933 ) ( 1,067 ) Net cash provided by (used in) financing activities ( 5,810 ) 274,549 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 157,915 ) 229,383 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 268,252 38,869 CASH AND CASH EQUIVALENTS AT END OF PERIOD 110,337 $ 268,252 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: F-7 Table of Contents Net assets acquired through change in control of joint venture $ 3,813 $ — Payable for investment contribution $ — $ 704 Recognition of earn-out consideration $ — $ 96,069 Recognition of warrant liabilities $ — $ 35,763 Conversion of preferred stock $ — $ 109,506 Shares issued for business acquisition $ 147,380 $ — Shares issued for transaction fees $ 1,000 $ — Capital expenditures in accounts payable $ 22 $ — SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ 193 $ 32 Cash paid for interest $ 290 $ 265 The accompanying notes are an integral part of these consolidated financial statements. F-8 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 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 ("Navitas"). 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 next-generation power semiconductors including gallium nitride (GaN) power integrated circuits (ICs), silicon carbide (SiC) and associated high-speed silicon system controllers and digital isolators used in power conversion and charging. 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. F-9 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 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 quantities for Legacy Navitas convertible preferred stock and warrants 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 2 022 the Company acquired GeneSiC for $ 246.2 million in cash and stock. See Note 18, Business Combinations, for more information. Basis of Consolidation The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The 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. The consolidated financial statements include the accounts of a former Joint Venture, an entity in which the Company has a controlling interest (see Note 19, Noncontrolling Interest). The Company reports noncontrolling interests of the consolidated entities as a component of equity separate from the Company’s equity. All material intercompany 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. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. On an ongoing basis, management evaluates the assumptions used in making estimates, including those related to (i) the collectability of accounts receivable; (ii) write-down for excess and obsolete inventory; (iii) warranty obligations; (iv) the value assigned to and estimated useful lives of long-lived assets; (v) the realization of tax assets and estimates of tax liabilities and tax reserves; (vi) recoverability of intangible assets; (vii) the computation of share-based compensation; (viii) accrued compensation and other expenses; and (ix) the recognition of revenue. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company engages third-party valuation specialists to assist with estimates related to the valuation of intangible assets, stock options, restricted common stock awards, Earnout Shares and warrants. Such F-10 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 estimates often require the selection of appropriate valuation methodologies and models, and significant judgment in evaluating ranges of assumptions and financial inputs. Actual results could differ from those estimates. 2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS Significant Accounting Policies and Estimates Segment Reporting The Company is organized and operates as one reportable segment, the design, development, manufacture and marketing of integrated circuits and related components for use primarily in mobile device and other markets. The Company’s Chief Operating Decision Maker, the Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. Revenue Recognition The Company recognizes revenue under the core principle of depicting the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. Product revenues consist of sales to distributors, original equipment manufacturers, or OEMs, and merchant power supply manufacturers. The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. In situations where sales are to a distributor, the Company has concluded that its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of its consideration of the contract, the Company evaluates certain factors including the customer’s ability to pay (or credit risk). If the Company concludes that the customer has the ability to pay, a contract has been established. For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. As the Company’s standard payment terms are less than one year, the Company has elected the practical expedient to not assess whether a contract has a significant financing component. The Company has entered into warrant agreements for preferred and common stock with certain investors who are downstream users of the Company’s products. The Company considers the warrants, which are subject to the achievement of revenue-based performance incentives, to be a form of consideration payable to customers. Accordingly, any value attributable to the warrants is accounted for as a reduction of the transaction price. The Company allocates the transaction price to each distinct performance obligation based on their relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment. Further, in determining whether control has transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. When the Company receives orders for products to be delivered over multiple dates that may extend across several reporting periods, the Company invoices for each delivery upon shipment and recognizes revenues for each distinct product F-11 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 delivered. The Company has also elected the practical expedient to expense commissions when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year. The majority of sales to international customers that are shipped from the Company’s or its vendor’s facility outside of the United States are pursuant to EX Works, or EXW, shipping terms, meaning that control of the product transfers to the customer upon shipment from the Company’s or its vendors’ foreign warehouse. Sales to most distributors are made under terms allowing certain limited rights of return (known as “stock rotation”) of the Company’s products held in their inventory or upon sale to their end customers. Revenue from sales to distributors is recognized upon the transfer of control to the distributor. Stock rotation rights grant the distributor the ability to return certain specified amounts of inventory. Stock rotation adjustments are a form of variable consideration and are estimated using the expected value method based on historical return rates. Historically, distributor stock rotation adjustments have been insignificant. The Company generally provides an assurance warranty that its products will substantially conform to the published specifications for twelve months from the date of shipment. The Company’s liability is limited to either a credit equal to the purchase price or replacement of the defective part. Returns under warranty have historically not been material. As such, the Company does not record a specific warranty reserve. Revenue received from customers in advance of the Company shipping the related product is considered a contract liability and is included in deferred revenue on the Company’s consolidated balance sheets. Business Combinations We account for business combinations using the acquisition method of accounting, in accordance with Accounting Standards Codification (“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 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 F-12 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 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. Inventory Inventory (which consist of costs associated with the purchases of wafers from foundries and of packaged components from offshore assembly manufacturers, as well as internal labor and overhead, including depreciation and amortization, associated with the testing of both wafers and packaged components) are stated at the lower of cost (first-in, first-out) or market. The Company periodically reviews inventory for potential obsolescence based upon an aging analysis of the inventory on hand, specifically known inventory-related risks, and assumptions about future demand and market conditions. Inventory items determined to be impaired are reduced to their net realizable values. Stock-based compensation The Company measures and recognizes compensation expense for all stock-based awards based on the grant date fair value of the awards. The Company recognizes compensation expense over the requisite service period in the consolidated statements of operations for restricted stock awards. The fair value of restricted stock unit grants is typically determined using the Monte Carlo simulation method. The fair value of stock option awards to employees and to non-employees with service based vesting conditions is estimated using the Black-Scholes option pricing model. The value of an award is recognized as expense over the requisite service period in the consolidated statements of operations. The option pricing model requires management to make assumptions and to apply judgment in determining fair value of the awards. The most significant assumptions and judgments include the expected volatility, risk-free interest rate, expected dividend rate and expected term of the award. The expected volatility of the awards is typically based on historical volatility of selected public companies within the Company’s industry. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury notes with a term approximately equal to the expected term of the awards. The expected dividend rate is zero as the Company currently has no history or expectation of cash dividends on its common stock. The Company has adopted the practical expedient for determining the expected term of stock option awards, which is the midpoint between the end of the vesting term and the expiration of the award. The Company has elected to account for forfeitures as they occur. The Company elected to treat share-based payment awards with graded vesting schedules and time-based service conditions as a single award and recognize compensation expense on a straight-line basis over the requisite service period. Debt issuance costs and debt discounts The Company records debt issuance costs and debt discounts, net of accumulated amortization, as direct deductions from the principal balance of its long-term debt to which they relate. Amortization is reported as a component of interest expense and is computed using the effective interest method. Income Taxes Current income tax expense is an estimate of current income taxes payable or refundable in the current fiscal year based on reported income before income taxes. Deferred income taxes reflect the effect of temporary differences and carry-forwards that are recognized for financial reporting and income tax purposes. F-13 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, utilizing the tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company recognizes valuation allowances to reduce any deferred tax assets to the amount that it estimates will more likely than not be realized based on available evidence and management’s judgment. In the event that the Company determines, based on available evidence and management judgment, that all or part of the net deferred tax assets will not be realized in the future, it would record a valuation allowance in the period the determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on the Company’s results of operations and financial position. The Company has no unrecognized tax benefits at December 31, 2022 and 2021. The Company’s federal and state income tax returns since inception are open and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. When necessary, the Company recognizes interest and penalties associated with tax matters as part of the income tax provision and includes accrued interest and penalties with the related tax liability in the balance sheet. The Company had no accrued interest and penalties at December 31, 2022 and 2021. Accounts receivable Accounts receivable are reported as the amount management expects to collect from outstanding balances. Management performs an analysis of the current status of each individual customer account to determine the appropriate level for the allowance for doubtful accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off against the allowance for doubtful accounts. As of December 31, 2022 and 2021, all receivables were considered collectible. Fair Value Measurements ASC 820, “Fair Value Measurements and Disclosures” , defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes its financial assets and liabilities measured at fair value into a hierarchy that categorizes fair value measurements into the following three levels based on the types of inputs used in measuring their fair value: Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities; Level 2: Observable market-based inputs or observable inputs that are corroborated by market data; and Level 3: Unobservable inputs reflecting the Company’s own assumptions. In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. Derivative Liabilities The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815, “Derivatives and Hedging” . The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. F-14 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 The 8,433,333 warrants issued in connection with Live Oak’s Initial Public Offering (the “Public Warrants”), the 4,666,667 Private Placement Warrants and the Earnout Shares associated with Vested Shares are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant instruments and earnout shares as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised. The Public Warrant quoted market price was used as the fair value for the Public Warrants and the Private Placement Warrants as of each relevant date. The Earnout shares were valued using a Monte Carlo analysis. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of significant current assets or require the creation of current liabilities. There were no outstanding warrants as of December 31, 2022. Intangible Assets Long-lived assets, such as property and equipment and intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Goodwill Goodwill represents the excess of the purchase price over the fair value of tangible and intangible assets acquired. The carrying value of goodwill is reviewed for possible impairment in accordance with the authoritative guidance on goodwill, intangibles and other. The Company assesses possible impairments to goodwill at least annually, or more frequently when events or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying value. Cash and Cash Equivalents The Company considers cash invested in highly liquid financial instruments with maturities of three months or less at the date of purchase to be cash equivalents . Foreign Currency Risk and Foreign Currency Translation As of December 31, 2021, the Company’s primary transactional currency was U.S. Dollars. Gains and losses arising from the remeasurement of non-functional currency balances are recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations. The Company realized a foreign exchange transaction net loss of $ 0.1 million in both 2022 and 2021. The functional currencies of the Company’s non-U.S. subsidiaries are the U.S. Dollar. Accordingly, all monetary assets and liabilities are translated into U.S. Dollars at the current exchange rates as of the applicable balance sheet date. Non-monetary assets and liabilities into U.S. Dollars at the applicable historical rates. Revenues and expenses are translated at either the average exchange rate prevailing during the period or historical rates as applicable. Advertising Advertising costs, which are included in selling, general and administrative expenses, are expensed as incurred and amounted to $ 0.1 million and $ 0.3 million in 2022 and 2021, respectively. F-15 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 Research and Development Costs related to research, design, and development of our products are expensed as incurred. Research and development expense consists primarily of pre-production costs related to the design and development of our products and technologies, including costs related to contracted non-recurring engineering services. These expenses include employee compensation, benefits and related costs of sustaining our engineering teams, project material costs, third party fees paid to consultants, prototype development expenses, and other costs incurred in the product and technology design and development processes. Emerging Growth Company On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” under the JOBS Act and are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We elected to delay the adoption of new or revised accounting standards and, as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Recently Adopted Accounting Standards In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases” under ASC 842, and also issued subsequent amendments under ASU No. 2019-10 and ASU No. 2020-05 (collectively ASC 842), which supersedes lease accounting and disclosure requirements in ASC 840. 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. Upon adoption, the Company elected practical expedients to: (i) not separate lease components from nonlease components for real estate; and (ii) exclude leases with an initial term of 12 months or less (“short-term” leases) from the consolidated balance sheets and will recognize related lease payments in the consolidated statements of operations on a straight-line basis over the lease term . See Note 7 – L eases for additional information and incremental disclosures related to the adoption of this standard. Recently Issued Accounting Standards In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU No. 2016-13, “ Financial Instruments — Credit Losses” under ASC 326, 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 consolidated financial statements and related disclosures. F-16 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 3. INVENTORY Inventory consisted of the following (in thousands): December 31, 2022 December 31, 2021 Raw materials $ 4,314 $ 60 Work-in-process 9,166 9,945 Finished goods 5,581 1,973 Total $ 19,061 $ 11,978 4. PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following (in thousands): December 31, 2022 December 31, 2021 Furniture and fixtures $ 215 $ 265 Computers and other equipment 7,251 3,116 Leasehold improvements 2,054 577 9,520 3,958 Accumulated depreciation ( 2,988 ) ( 1,656 ) Total $ 6,532 $ 2,302 For the years ended December 31, 2022 and 2021, depreciation expense was $ 1.0 million and $ 0.4 million, respectively, and 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 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 no t material for December 31, 2022 and $ 159.6 million as of and December 31, 2021. F-17 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 The following table presents the Company’s fair value hierarchy for financial liabilities as of December 31, 2022 (in thousands): Level 1 Level 2 Level 3 Total Liabilities: Earnout liability $ — $ — $ 13,064 $ 13,064 Total $ — $ — $ 13,064 $ 13,064 The following table presents the Company’s fair value hierarchy for financial liabilities as of December 31, 2021: 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 Company did not transfer any investments between level 1 and level 2 of the fair value hierarchy in the years ended December 31, 2022 and 2021. 6. GOODWILL AND INTANGIBLES The following table presents the changes in the Company’s goodwill balance (in thousands): Goodwill Balance at December 31, 2021 $ — Additions to goodwill 161,527 Impairment of goodwill — Balance at December 31, 2022 $ 161,527 Refer to Note 18, Business Combinations, for further details. F-18 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 The following table presents the Company’s intangible asset balance by asset class (in thousands): Intangible Asset Cost Accumulated Amortization Net Book Value Amortization Method Useful Life Trade Names $ 900 $ ( 169 ) $ 731 Straight line 2 years Developed Technology $ 49,100 $ ( 4,603 ) $ 44,497 Straight line 4 years In-process R&D $ 1,177 $ — $ 1,177 Indefinite N/A Patents $ 33,900 $ ( 848 ) $ 33,052 Straight line 5 - 15 years Customer Relationships $ 24,300 $ ( 911 ) $ 23,389 Straight line 10 years Non-Competition Agreements $ 1,900 $ ( 143 ) $ 1,757 Straight line 5 years Other $ 1,842 $ ( 825 ) $ 1,017 Straight line 5 years Total $ 113,119 $ ( 7,499 ) $ 105,620 The following table presents the changes in the Company’s intangible asset balance (in thousands): Intangible Assets, net Balance at December 31, 2021 $ 170 Additions to intangible assets $ 112,309 Amortization expense $ ( 6,859 ) Balance at December 31, 2022 $ 105,620 The amortization expense was $ 6.9 million for the fiscal years ended December 31, 2022 and was not material the fiscal year ended December 31 2021. There were no impairmen t charges for the fiscal years ended December 31, 2022 or 2021. 7. LEASES: The Compa ny has entered into operating leases primarily for commercial buildings. These leases have terms which range from 0.7 to 5.9 years. A s of December 31, 2022 no operating lease agreements contain economic penalties for the Company to extend the lease, and it is not reasonably certain the Company will exercise these extension options. Additionally, these operating lease agreements do not contain material residual value guarantees or material restrictive covenants. As of December 31, 2022, finance leases were not significant and all leases recorded on the Company’s consolidated balance sheets were operating leases. Upon adoption of ASC 842 on January 1, 2022, the Company recorded operating lease assets of $ 1.6 million and lease liabilities of $ 1.7 million in the Company’s consolidated balance sheets. The adoption of this standard did not have a material impact on retained earnings, the co nsolidated statement of operations, or cash flows. The Company obtained $ 5.9 million in additional right-of-use assets in exchange for lease obligations during the fiscal year ended December 31, 2022. The Company has made the accounting policy election to use certain ongoing practical expedients made available by ASC 842 to: (i) not separate lease components from nonlea se components for real estate; and (ii) exclude leases with an initial term of 12 months or less (“short-term” leases) from the consolidated balance sheets and will recognize related lease payments in the consolidated statements of operations on a straight-line basis over the lease term. For leases that do not have a readily determinable implicit rate, the Company uses its estimated secured incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments. Rent expense, including short-term lease cost, was $ 2.1 million and $ 1.3 million for the fiscal years ended December 31, 2022 and 2021, respectively. In addition to rent payments, the Company’s leases include real estate taxes, common area F-19 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 maintenance, utilities, and management fees, which are not fixed. The Company accounts for these costs as variable payments and does not include such costs as a lease component. Total variable expense was $ 0.2 million for the fiscal year ended December 31, 2022. There were no leases that had not yet commenced as of December 31, 2022, that will create significant additional rights and obligations for the Company. Information related to the Company right-of-use assets and related operating lease liabilities were as follows (in thousands): December 31, 2022 Cash paid for operating lease liabilities $ 1,166 Operating lease cost 1,610 Non-cash right-of-use assets obtained in exchange for new operating lease obligations 5,883 Weighted-average remaining lease term 5.41 Weight-average discount rate 4.25 % - 5.5 % Right-of-use assets and lease liabilities consisted of the following (in thousands): December 31, 2022 Assets: Operating lease right-of-use assets 6,381 Liabilities: Operating lease liabilities - current 1,305 Operating lease liabilities - noncurrent 5,263 Total lease liabilities $ 6,568 Maturities of lease liabilities (in thousands) due in 12-month period ending December 31, 2023 $ 1,632 2024 1,297 2025 1,149 2026 1,184 2027 1,220 Thereafter 1,126 $ 7,608 Less imputed interest $ 1,040 Total lease liabilities $ 6,568 F-20 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 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 8. DEBT OBLIGATIONS On April 29, 2020, the Company entered into a loan and security agreement with a new bank (the “Term Loan”), which provided for term advances up to $ 8.0 million. As of December 31, 2022, this loan had been paid in full. 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 not material and was recorded as debt discount, subject to amortization using the effective interest rate method over the term of the loan. All warrants were redeemed by December 31, 2022, and amortization of debt discount and issuance costs was not significant for the years ended December 31, 2022 or 2021. The following is a summary of the carrying value of long-term debt as of December 31, 2022 and 2021 (in thousands): 2022 2021 Note payable $ — $ 6,933 Less: Current portion — ( 3,200 ) Less: Debt discount and issuance costs — ( 17 ) Note payable, net of current portion $ — $ 3,716 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 F-21 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 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 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. As of December 31, 2022, the Company has issued 9,750,000 n on-statutory stock options under the 2021 Plan. 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, except for Long-Term Incentive Plan Stock Options discussed below. 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 years ended December 31, 2022 and 2021: Years ended December 31, (In thousands) 2022 2021 Cost of revenues $ — $ 163 Research and development 19,853 6,624 Selling, general and administrative 43,435 34,617 Total stock-based compensation expense $ 63,288 $ 41,404 F-22 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 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 Company did not grant any stock options during the fiscal year ended December 31, 2022, except for Long-term Incentive Plan Stock Options discussed below. The fair value of incentive stock options and non-statutory stock options issued was estimated using the Black-Scholes model with the following weighted-average assumptions used during the year ended December 31, 2021: December 31, 2021 Risk-free interest rates 0.42 % Expected volatility rates 44 % Expected dividend yield — % Expected term (in years) 6.0 Weighted-average grant date fair value of options $ 0.48 A summary of stock options outstanding as of December 31, 2022, and activity during the two years then ended, is presented below: Shares (In thousands) Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (In years) Outstanding at December 31, 2019 9,932 $ 0.17 7.9 Granted 4,359 1.06 Exercised ( 205 ) 0.13 Forfeited or expired ( 1,105 ) 0.17 Outstanding at December 31, 2020 12,981 $ 0.47 7.8 Granted 208 1.06 Exercised ( 1,611 ) 0.16 Forfeited or expired ( 81 ) 0.89 Cancelled ( 244 ) 0.72 Outstanding at December 31, 2021 11,253 $ 0.51 6.8 Granted — — Exercised ( 4,356 ) 0.39 Forfeited or expired ( 122 ) 0.97 Cancelled — — Outstanding at December 31, 2022 6,775 $ 0.59 6.2 Vested and exercisable at December 31, 2022 5,331 $ 0.47 5.8 During the years ended both December 31, 2022 and 2021, the Company recognized $ 0.6 million of stock-based compensation expense for the vesting of outstanding stock options, excluding $ 6.0 million and $ 0.1 million, respectively, related to the LTIP Options described below. At December 31, 2022, unrecognized compensation cost related to unvested F-23 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 awards totaled $ 0.8 million. T he weighted-average period over which this remaining compensation cost will be recognized i s 1.4 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 market and 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 based on the Black-Scholes model and a Monte Carlo simulation incorporating 500,000 scenarios. The weighted average contractual period remaining is 9.0 years. The Company utilized the services of a professional valuation firm to finalize these assumptions during the fiscal year ended December 31, 2022. The valuation model utilized the following assumptions: Risk-free interest rate 1.47 % Expected volatility rates 58 % Expected dividend yield 0.00 % Cost of equity (for derived service period) 9.96 % Weighted-average grant date fair value of options $ 8.13 The Company recognized $ 5.7 million and $ 0.1 million of stock-based compensation expense for the years ended December 31, 2022 and 2021, respectively. The unrecognized compensation expense related to these LTIP options is $ 47.2 million as of December 31, 2022, compensation expense will be recognized over 3.4 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 market and 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 $ 10.00 per share and the average fair value on the grant date was $ 2.51 . The weighted average contractual period remaining is 9.6 years. The 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 $ 0.4 million of stock-based compensation expense for the fiscal year ended December 31, 2022. The unrecognized compensation expense related to these LTIP Options is $ 7.8 million as of December 31, 2022, and compensation expense will be recognized over 4.0 years. F-24 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 Restricted Common Stock In 2020, the Company awarded 531,834 common shares to an investor as consideration for consulting services. The Company recognized no expense and $ 0.3 million of stock-based compensation expense for vesting during the years ended December 31, 2022 and 2021, respectively, based on grant date fair value per share of $ 1.06 . As of December 31, 2021, the awards were fully vested. Restricted Stock Units On August 25, 2021, the Company granted an aggregate of 4,135,000 Legacy Navitas RSU’s under the 2020 Plan to certain members of senior management pursuant to restricted stock unit agreements (collectively, the “RSU Agreements”). 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 Plan. Up to 3,500,000 of these RSU awards vest 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, subject to an accelerated vesting schedule based on the satisfaction of certain stock price targets. Up to 500,000 RSUs vest on the six-month anniversary of the grant date, subject to the occurrence of an IPO and certain valuation targets. Up to 52,500 RSUs vest upon the occurrence of an IPO, while the remaining 82,500 RSUs vest 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 due to the Business Combination. Additionally, the Company regularly grants RSUs to employees as a component of their compensation. A summary of RSUs outstanding as of December 31, 2022, and activity during the year then ended, is presented below: Restricted Stock Unit Awards Shares (In thousands) Weighted-Average Grant Date Fair Value Per Share Outstanding at December 31, 2021 4,525 $ 9.62 Granted 10,118 7.71 Vested ( 2,801 ) 2.93 Forfeited ( 236 ) — Outstanding at December 31, 2022 11,606 $ 5.93 During the years ended December 31, 2022 and 2021, the Company recognized $ 41.9 million and $ 35.0 million, respectively, of stock-based compensation expense for the vesting of RSUs. At December 31, 2022, unrecognized compensation cost related to unvested RSU awards totaled $ 64.8 million. The weighted-average period over which this remaining compensation cost is expected be recognized is 2.8 years. The Company implemented a yearly stock-based bonus plan in 2021 and plans to settle accrued bonus liabilities of $ 2.8 million related to fiscal year 2022 (included in accrued compensation expense liability on the balance sheet), by issuing a variable number of fully-vested restricted stock units to its employees in 2023. Based on the closing share price of the Company’s Class A Common Stock of $ 3.51 on December 31, 2022, approximately 785,442 shares would be 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 release of these shares require achievement of the Earn-out Milestones, 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 F-25 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 share). During the years ended December 31, 2022 and 2021, the Company recognized $ 11.9 million and $ 5.2 million, respectively, of stock-based compensation expense for the vesting of earnout shares. At December 31, 2022, unrecognized compensation cost related to unvested earnout shares totaled $ 0.3 million. The weighted-average period over which this remaining compensation cost is expected be recognized is 0.2 years. 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 by the terms of the Public Warrants 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 “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 F-26 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 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 $ 51.8 million due to the decrease in the fair value of the warrant liability in fiscal year ended December 31, 2022. There were no outstanding warrants as of December 31, 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, each of which 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: December 31, 2022 December 31, 2021 Risk-free interest rate 4.13 % 1.23 % Equity volatility rate 65.00 % 55.00 % At the closing of the Business Combination on October 19, 2021, the earnout liability had an initial fair value of $ 96.1 million, which was recorded as a long-term liability and a reduction to additional paid in capital in the consolidated balance sheet. As of December 31, 2022 and 2021, the earnout liability had a fair value of $ 12.5 million and $ 134.2 million, respectively, which resulted in a gain in the fair value of the earnout liability of $ 121.7 million during the fiscal year ended December 31, 2022 due to the decrease in the fair value of the earnout liability during fiscal year 2022. GeneSiC Earnout Liability In connection with the merger agreement of GeneSiC Semiconductor as discussed in Note 18, 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 F-27 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 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 December 31, 2022, the GeneSiC Earnout probability is considered remote, and a liability of $ 0.6 million is recorded in Earnout Liability on the Company’s Consolidated Balance Sheets. 12. SIGNIFICANT CUSTOMERS AND CREDIT CONCENTRATIONS Customer Concentration A 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 (in thousands): Year e ded December 31, Customer 2022 2021 Distributor A 21 % * Distributor B 16 % 21 % Distributor C 14 % * Distributor D 12 % * Distributor E * 19 % Distributor F * 16 % Distributor G * 15 % * 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 twelve months ended December 31, 2022 and 2021, were attributable to end customers in the following countries: Year e ded December 31, Country 2022 2021 China 38 % 74 % Europe* 32 % — % United States 24 % 18 % Rest of Asia 5 % 8 % All others 1 % — % Total 100 % 100 % *Impractical to disclose the revenue percentages by individual countries within Europe and therefore Europe is presented in total. 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 F-28 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 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: as of December 31 Customer 2022 2021 Distributor A 25 % * Distributor B 19 % * Distributor C * 44 % Distributor D * 14 % Distributor E * 14 % *Total customer accounts receivable was less than 10% of total net accounts receivable. 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 the third-party foundry that supplies 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 and the Philippines. 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. F-29 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021 and 2020 A summary of the net income (loss) per share calculation is as follows (in thousands, except per share amounts): Year e ded December 31, 2022 2021 Basic and diluted income (loss) per common share: (1) Net income (loss) $ 73,913 $ ( 152,685 ) Weighted-average basic common shares 133,668 39,167 Weighted-average diluted common shares 145,743 39,167 Basic net income (loss) per share attributable to common stockholders $ 0.55 $ ( 3.90 ) Diluted net income (loss) per share attributable to common stockholders $ 0.51 $ ( 3.90 ) (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 fiscal year ended December 31, 2021. Shares excluded from diluted weighted-average shares (in thousands): Year e ded December 31, 2022 2021 Warrants to purchase common shares — 13,085 Earnout shares (potentially issuable common shares) 10,000 10,000 Unvested restricted stock units and stock options 376 4,525 Stock options potentially exercisable for common shares 9,750 17,753 20,126 45,363 14. PROVISION FOR INCOME TAXES Income Taxes Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, utilizing the tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. U.S. and foreign components of income (loss) before income taxes were (in thousands): Year e ded December 31, 2022 2021 U.S. operations $ 125,500 $ ( 101,146 ) Foreign operations ( 75,425 ) ( 51,492 ) Total income (loss) before income taxes $ 50,075 $ ( 152,638 ) F-30 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 The components of the provision (benefit) for income taxes are as follows (in thousands): December 31, 2022 2022 2021 Current provision (benefit): Federal $ — $ — State 335 19 Foreign 154 28 $ 489 $ 47 Deferred provision (benefit): Federal $ ( 21,666 ) $ — State ( 1,603 ) — Foreign ( 32 ) — $ ( 23,301 ) $ — Total $ ( 22,812 ) $ 47 The provision (benefit) for income taxes differs from the amount that would result by applying the applicable federal income tax rate to income before income taxes, as follows: Year e ded December 31, 2022 2021 Provision computed at Federal statutory rate 21.0 % 21.0 % Change in valuation allowance 15.6 % ( 8.5 ) % Return to provision adjustments ( 7.6 ) % 1.0 % Foreign income tax rate and benefit ( 18.8 ) % 0.1 % Effect of permanent differences 0.2 % 0.4 % Non deductible executive compensation 3.9 % — % Non deductible expenses - mark to market liabilities ( 72.8 ) % ( 11.5 ) % Stock based compensation 8.9 % ( 5.5 ) % State tax, net of federal 3.3 % 2.7 % Deferred tax asset and liability adjustment — % 0.4 % Other 0.7 % ( 0.1 ) % Total ( 45.6 ) % — % F-31 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 2022 and 2021, deferred tax assets and liabilities consisted of the following (in thousands): December 31, 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 50,084 $ 28,052 Benefit of tax credit carry-forwards 208 207 Start up costs 1,457 2,009 Capitalized software 2,029 — Stock compensation 6,625 2,183 Other 1,654 184 Valuation allowance ( 40,177 ) ( 32,382 ) $ 21,880 $ 253 Deferred tax liabilities: Depreciation $ ( 231 ) $ ( 253 ) Intangibles ( 23,473 ) — $ ( 23,704 ) $ ( 253 ) Net deferred tax balance $ ( 1,824 ) $ — During the fiscal years ended December 31, 2022 and 2021, the valuation allowance increased by $ 7.8 million and $ 13.0 million, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income. In the event that the Company determines, based on available evidence and management judgment, that all or part of the net deferred tax assets will not be realized in the future, the Company would record a valuation allowance in the period the determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with the Company’s expectations could have a material impact on its results of operations and financial position. The Company has approximately $ 146.9 million and $ 100.1 million of federal net operating loss (“NOL”) carryforwards and approximately $ 4.6 million an d $ 5.8 million of tax-effected state NOL carryforwards as of December 31, 2022 and 2021, respectively, expiring in varying amounts through 2038, with th e exception 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 these NOLs could also potentially be subject to usage limitations to the extent there are future changes in the Company’s ownership. As of December 31, 2021, the Company had a full valuation allowance on its net deferred tax assets. As a result of the 2022 acquisition of GeneSiC Semiconductor Inc. (see Note 18, Business Combinations), during 2022, the Company released $ 20.5 million of its U.S. federal valuation allowance. The release was primarily attributable to the $ 23.1 million of net federal deferred tax liability recorded on GeneSiC’s opening balance sheets that is available to offset most of the U.S. federal deferred tax assets of Navitas. As of December 31, 2022, the Company continues to maintain a valuation allowance on the remaining deferred tax assets as the Company believes that it is not more likely than not that the deferred tax assets will be fully realized. The Company also has foreign net operating loss carry forwards of $ 111.9 million and $ 4.8 million as of December 31, 2022 and 2021, respectively. Of the foreign NOLs, $ 111.7 million are in Ireland and the deferred tax asset has a full valuation allowance as a result of the historical losses in the country. F-32 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 The Company had no unrecognized tax benefits for the years ended December 31, 2022 or December 31, 2021. The Company recognizes interest and penalties related to unrecognized tax benefits in operating expenses. No such interest and penalties were recognized during the years ended December 31, 2022 and 2021. 15. COMMITMENTS and CONTINGENCIES Purchase Obligations At Decem ber 31, 2022, the Company’s non-cancellable contractual arrangements consisted entirely of a contract to guarantee future production capacity, of which $ 1.6 million remains outstanding as of year end, and lease obligations. 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. Aggregat e payments that would be required to be made in the event of termination under the agreements are approximately $ 2.1 million. At December 31, 2022 and 2021, no terminations have occurred or are expected to occur pursuant to the se arrangements and, accordingly, no termination benefits have been accrued. Indemnification 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 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 December 31, 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, distributors, suppliers or other third parties 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 consolidated financial statements. F-33 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 16. EMPLOYEE BENEFIT PLAN The Company sponsors a 401(k) tax-deferred savings plan for all employees in the United States who meet certain eligibility requirements. Participants may contribute up to the amount allowable as a deduction for federal income tax purposes. The Company contributes a certain percentage of employee annual salaries on a discretionary basis, not to exceed an established threshold. For the fiscal years ended December 31, 2022 and 2021, the Company made $ 0.5 million an d $ 0.3 million, respectively, in matching contributions to the 401(k) plan. 17. RELATED PARTY TRANSACTIONS Notes Receivable The Company had outstanding interest-bearing notes receivable from an employee. The notes had various maturity dates through May 1, 2023 and bore interest at rates ranging from 1 % to 2.76 %. As of December 31, 2022, Note 1 has been forgiven for a loss of $ 0.1 million and Note 2 has been paid off in the amount of $ 0.1 million. The Company did not recognize significant interest income from the notes for the fiscal years ended December 31, 2022 or 2021. December 31, 2022 December 31, 2021 Notes receivable $ — $ 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 $ 0.7 million and $ 0.4 million for the fiscal years ended De cember 31, 2022 and 2021 , respectively, and are included in Net Revenues in the Consolidated Statements of Operations. See Note 19, 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 $ 0.9 million during the fiscal year ended December 31, 2022. Such amounts are included in Net Revenues in the Consolidated Statement of Operations. 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 consolidated balance sheet as of December 31, 2022 and is accounted for as an equity investment under ASC 321 “Investments - Equity Securities” . In accordance with ASC 321, the Company elected to use the measurement alternative to measure such investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. The Company also entered into a Patent License Agreement with this entity as described above under related party license revenue. F-34 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 Related Party Advance During the third quarter of 2022, Navitas made a $ 1.0 million advance to its partner in the joint venture described above in order to facilitate orders of raw materials. The outstanding amount of $ 0.5 million is included in Prepaid Expenses and Other Current Assets as of December 31, 2022. Related Party Lease The Company leases certain property from an entity that it is owned by an executive of the Company, which expires in September 2023. During the year 2022, the Company paid an immaterial amount in rental payments in relation to this lease. These payments were made at standard market rates in the ordinary course of business. The total rent obligation as of December 31, 2022 was $ 0.1 million through September 30, 2023. 18. 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 Consolidated Statement of Operations for the fiscal year ended December 31, 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 third quarter of fiscal year 2022 the Company reclassed t he 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., a silicon carbide (“SiC”) pioneer with deep expertise in SiC power device design and process, based in Dulles, Virginia. Total merger consideration was $ 244.0 million and consisted of approximately $ 146.3 million of common stock, $ 97.1 million of cash consideration, and potential future cash earn-out payments of up to an aggregate of $ 25.0 million which were fair valued at $ 0.6 million. The acquisition was F-35 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 accounted for as a business combination in accordance with ASC 805, “Business Combinations” . 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. 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. 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 ( in thousands) Cash consideration at closing $ 97,116 Equity consideration at closing 146,314 Contingent earn-out 600 Total $ 244,030 Preliminary estimate of purchase price allocation Cash and cash equivalents $ 951 Accounts receivable 823 Inventory 1,539 Fixed assets 226 Other assets 5 Intangible assets 110,100 Goodwill 157,699 Total assets acquired $ 271,343 Liabilities assumed: Interest bearing debt 16 Other current liabilities 2,749 Deferred tax liabilities 24,548 Total liabilities acquired 27,313 Estimated fair value of net assets acquired $ 244,030 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. F-36 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 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 $ 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 $ 5.9 million of transaction costs in the fiscal year ended December 31, 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 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 from 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 1% 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 from 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 5% 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. Based on this method 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 F-37 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 and 2021 comparable 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. 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 Year e ded December 31, 2022 2021 Revenue $ 48,615 $ 38,145 Net income (loss) $ 72,279 $ ( 162,744 ) Basic net income (loss) per share $ 0.54 $ ( 2.54 ) Diluted net income (loss) per share $ 0.50 $ ( 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. 19. 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, and 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 noncontrolling interest and net assets is based on preliminary estimates. The Company’s net income (loss) excludes income (loss) attributable to the noncontrolling interests. The preliminary 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. Goodwill of $ 3.1 million was recorded in connection with this transaction. The carrying value of the non-controlling interest as of December 31 , 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 December 31, 2022 Former Joint Venture $ 4,654 $ ( 1,026 ) $ 3,628 20. SUBSEQUENT EVENTS On January 19, 2023, the Company announced an agreement to acquire the remaining minority interest in its silicon control IC joint venture from Halo Microelectronics for a purchase price of $ 20 million in Navitas stock (see Note 19, F-38 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021 and 2020 ($ in thousands, except per share amounts and where noted) Noncontrolling Interest) . As Navitas was already the majority shareholder, financial results from the joint venture have already been reflected in Navitas’ historical financial statements. The transaction was completed on February 13, 20 23. F-39 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures. None.