Navitas Semiconductor Corp 10-K

Item 8. Financial Statements and Supplementary Data. Report of Independent Registered Public Accounting Firms (Moss Adams, LLP, PCAOB ID 659 and Deloitte & Touche LLP, PCAOB ID 34 ) F-2 Consolidated Balance Sheets F-5 Consolidated Statements of Operations F-6 Consolidated Statements of Comprehensive Income (Loss) F-7 Consolidated Statements of Stockholders’ Equity (Deficit) F-8 Consolidated Statements of Cash Flows F-9 Notes to Consolidated Financial Statements F-11 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Navitas Semiconductor Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheet of Navitas Semiconductor Corporation (the “Company”) as of December 31, 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit) and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the consolidated results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting 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 audit 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 consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidate financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. F-2 Table of Contents Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Inventory As described in Notes 2 and 3 to the consolidated financial statements, the Company’s inventory balance was $23.2 million as of December 31, 2023. The Company values inventory at 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. The potential obsolescence is subjective and primarily dependent on the estimates of future demand and market conditions for a particular product. Changes in assumptions of product demand could have a significant impact on the amount of write-down recorded. The valuation of inventory requires management to make significant assumptions and subjective judgments about the future salability of the inventory and the value of obsolete and unmarketable inventory. These assumptions include the assessment of market conditions and trends, sales forecasts, historic usage, expected demand, anticipated sales price, the stage in the product life cycle of its customers’ products, new product development schedules, the effect new products might have on the sale of existing products, product obsolescence, customer design activity, customer concentrations, and product merchantability. We identified the valuation of inventory, in particular the estimate for potential obsolescence to reduce inventory to net realizable value, as a critical audit matter, because of the significant assumptions and subjective judgments used by management, which involved significant audit effort and the use of especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures. The primary procedures we performed to address this critical audit matter included: • Evaluating management’s process used in developing the estimate by: • Evaluating the methodology used. • Evaluating the reasonableness of the significant assumptions used, including but not limited to - ◦ Performing inquiries with non-financial personnel regarding slow-moving, obsolete or discontinued inventory items; and ◦ Examining purchase orders or other audit evidence of future demand. • Testing the completeness, accuracy, and relevance of the underlying data used. • Testing the mathematical accuracy of management’s calculations. • Evaluating audit evidence from transactions occurring after year-end. /s/ Moss Adams LLP Los Angeles, CA March, 6, 2024 We have served as the Company’s auditor since 2023. F-3 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Navitas Semiconductor Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Navitas Semiconductor Corporation and subsidiaries (the "Company") as of December 31, 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity (deficit), and cash flows, for the year then ended, 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 the results of its operations and its cash flows for the year then ended 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 audit. 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Los Angeles, CA April 3, 2023 We began serving as the Company’s auditor in 2021. In 2023, we became the predecessor auditor. F-4 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except shares and par value) December 31, 2023 December 31, 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 152,839 $ 110,337 Accounts receivable, net 25,858 9,127 Inventories 23,166 19,061 Prepaid expenses and other current assets 6,619 3,623 Total current assets 208,482 142,148 PROPERTY AND EQUIPMENT, net 9,154 6,532 OPERATING LEASE RIGHT OF USE ASSETS 8,268 6,381 INTANGIBLE ASSETS, net 91,099 105,620 GOODWILL 163,215 161,527 OTHER ASSETS 5,328 3,054 Total assets $ 485,546 $ 425,262 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and other accrued expenses $ 26,637 $ 14,653 Accrued compensation expenses 10,902 3,907 Operating lease liabilities, current 1,892 1,305 Deferred revenue 10,953 486 Total current liabilities 50,384 20,351 OPERATING LEASE LIABILITIES NONCURRENT 6,653 5,263 EARNOUT LIABILITY 46,852 13,064 DEFERRED TAX LIABILITIES 1,040 1,824 Total liabilities 104,929 40,502 COMMITMENTS AND CONTINGENCIES (Note 14) STOCKHOLDERS’ EQUITY: Common stock, $ 0.0001 par value, 750,000,000 shares authorized as of December 31, 2023 and 2022, 179,196,418 and 153,628,838 shares issued and outstanding at December 31, 2023 and 2022, respectively 21 18 Additional paid-in capital 680,790 535,875 Accumulated other comprehensive loss ( 7 ) ( 7 ) Accumulated deficit ( 300,187 ) ( 154,754 ) Total stockholders’ equity of Navitas Semiconductor Corporation 380,617 381,132 Noncontrolling interest — 3,628 Total stockholders’ equity 380,617 384,760 Total liabilities and stockholders' equity $ 485,546 $ 425,262 The accompanying notes are an integral part of these consolidated financial statements F-5 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, (In thousands, except per share amounts) 2023 2022 NET REVENUES (including $0 and $1,528 of related party revenues) $ 79,456 $ 37,943 COST OF REVENUES (exclusive of amortization of intangibles included below) 48,392 25,996 OPERATING EXPENSES: Research and development 68,825 50,318 Selling, general and administrative 61,551 78,353 Amortization of intangible assets 18,820 6,913 Total operating expenses 149,196 135,584 LOSS FROM OPERATIONS ( 118,132 ) ( 123,637 ) OTHER INCOME (EXPENSE), net: Interest income 5,368 1,387 Gain from change in fair value of warrants — 51,763 Gain (loss) from change in fair value of earnout liabilities ( 33,788 ) 121,709 Other income (expense) 84 ( 1,147 ) Total other income (expense), net ( 28,336 ) 173,712 INCOME (LOSS) BEFORE INCOME TAXES ( 146,468 ) 50,075 INCOME TAX BENEFIT ( 517 ) ( 22,812 ) NET INCOME (LOSS) $ ( 145,951 ) $ 72,887 LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST $ ( 518 ) $ ( 1,026 ) NET INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST $ ( 145,433 ) $ 73,913 NET INCOME (LOSS) PER COMMON SHARE: Basic net income (loss) per share attributable to common stockholders $ ( 0.86 ) $ 0.55 Diluted net income (loss) per share attributable to common stockholders $ ( 0.86 ) $ 0.51 WEIGHTED AVERAGE COMMON SHARES USED IN NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS: Basic common shares 168,927 133,668 Diluted common shares 168,927 145,743 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, (In thousands) 2023 2022 Net (loss) income $ ( 145,951 ) $ 72,887 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments, net of tax — ( 5 ) Total other comprehensive income (loss) — ( 5 ) COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST ( 145,951 ) 72,882 COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST ( 518 ) ( 1,026 ) TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST $ ( 145,433 ) $ 73,908 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) Stockholder's equity (deficit) (In thousands) Common stock Additional paid in capital Accumulated deficit Accumulated comprehensive income (loss) Non-controlling Interest Total Shares Amount 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 Issuance of common stock under employee stock option and stock award plans 9,835 — 5,904 5,904 Stock-based compensation expense related to employee and non-employee stock awards 45,043 45,043 Shares issued in public offering 11,500 3 86,459 86,462 Shares issued in connection with buyout agreement 4,232 7,509 ( 3,110 ) 4,399 Net loss ( 145,433 ) ( 518 ) ( 145,951 ) Balance at December 31, 2023 179,196 $ 21 $ 680,790 $ ( 300,187 ) $ ( 7 ) $ — $ 380,617 The accompanying notes are an integral part of these consolidated financial statements. F-8 Table of Contents NAVITAS SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (In thousands) 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 145,951 ) $ 72,887 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 2,160 980 Amortization of intangibles 18,820 6,859 Non-cash lease expense 2,036 1,207 Other 85 4,350 Stock-based compensation expense 54,028 63,288 Amortization of debt discount and issuance costs — 17 Gain from change in fair value of warrants — ( 51,763 ) (Gain) loss from change in fair value of earnout liability 33,788 ( 121,709 ) Deferred income taxes ( 784 ) ( 23,294 ) Change in operating assets and liabilities: Accounts receivable ( 16,731 ) 1,253 Inventory ( 4,105 ) ( 4,748 ) Prepaid expenses and other current assets ( 2,996 ) 100 Other assets ( 1,173 ) ( 448 ) Accounts payable, accrued compensation and other expenses 12,204 7,138 Operating lease liability ( 1,946 ) ( 1,071 ) Deferred revenue 10,467 457 Net cash used in operating activities ( 40,098 ) ( 44,497 ) CASH FLOWS FROM INVESTING ACTIVITIES: Investment purchase ( 1,000 ) — Business acquisitions, net of cash acquired — ( 96,357 ) Investment in joint venture — ( 5,204 ) Investment in preferred stock — ( 1,500 ) Purchases of property and equipment ( 4,782 ) ( 4,644 ) Receipts on notes receivable — 97 Net cash used in investing activities ( 5,782 ) ( 107,608 ) CASH FLOWS FROM FINANCING ACTIVITIES: Redemption of warrants — ( 38 ) Repurchase of common stock — ( 550 ) Proceeds from issuance of common stock in connection with stock option exercises 1,923 1,711 Proceeds from issuance of common stock in May 2023 public offering 86,941 — Payment of May 2023 public offering costs ( 482 ) — Principal payments on long-term debt — ( 6,933 ) Net cash provided by (used in) financing activities 88,382 ( 5,810 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 42,502 ( 157,915 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 110,337 268,252 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 152,839 $ 110,337 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Net assets acquired through change in control of joint venture $ — $ 3,813 Shares issued for business acquisition $ — $ 147,380 F-9 Table of Contents Shares issued for transaction fees $ — $ 1,000 Capital expenditures in accounts payable $ 499 $ 22 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ 160 $ 193 Cash paid for interest $ — $ 290 The accompanying notes are an integral part of these consolidated financial statements. F-10 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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 2014 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, South Korea and the Philippines, with principal executive offices in Torrance, California. Acquisitions In February 2023, the Company acquired the remaining minority interest in its silicon control IC joint venture from Halo Microelectronics for a purchase price of $ 22.4 million in Navitas stock. See Note 18, Noncontrolling Interest, for more information. In June 2022, the Company acquired VDDTech for $ 1.9 million in cash and stock, and in August 2022 the Company acquired GeneSiC for $ 246.2 million in cash and stock. See Note 17, 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. 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. F-11 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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, and, earnout shares. Such 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 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 F-12 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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 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. The opening and closing balances of our receivables and contract liabilities from our contracts with customers are as follows (in thousands): January 1, 2022 December 31, 2022 December 31, 2023 Accounts receivable, net $ 8,263 $ 9,127 $ 25,858 Deferred revenue $ 29 $ 486 $ 10,953 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. F-13 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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 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. F-14 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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. 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, 2023 and 2022. 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, 2023 and 2022. 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, 2023 and 2022, 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. F-15 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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. 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, 2023, and 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, 2023, 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 currency transaction net loss of $ 0.4 million and $ 0.1 million in 2023 and 2022, respectively. 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. F-16 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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. They are no t material in 2023 and $ 0.1 million in 2022. 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. Recently Adopted Accounting Standards Credit Losses In June 2016, the Financial Accounting Standards Board (“FASB”) amended guidance related to impairment of financial instruments as part of Accounting Standards Update (ASU) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaced 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. This ASU was effective for the Company beginning in 2023. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures. We pool financial assets based on their risk characteristics, which include class of customer, geographic location of the customer, contractual life of the financial asset, and age of the open receivable balance. The allowance for credit losses pool is estimated based on historical credit loss rates adjusted for management’s reasonable and supportable expectations of future economic conditions, which consider macroeconomic, industry and market trends that could impact future credit loss rates. Additions to the allowance are charged to general and administrative expenses in the consolidated statements of operations. Accounts receivables are written off against the allowance when the probability of collection of an account balance is deemed remote. Recently Issued Accounting Standards In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, titled Income Taxes (Topic 740): Improvements to Income Tax Disclosures. These amendments address investor requests for enhanced transparency regarding income tax information. Specifically, they improve income tax disclosures related to rate reconciliation and income taxes paid. ASU 2023-09 becomes effective for fiscal years beginning after December 15, 2024, with early adoption permitted. While we are currently assessing the impact of this standard, we anticipate it will result in disclosure changes only. F-17 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 3. INVENTORY Inventory consisted of the following (in thousands): December 31, 2023 December 31, 2022 Raw materials $ 7,743 $ 4,314 Work-in-process 10,863 9,166 Finished goods 4,560 5,581 Total $ 23,166 $ 19,061 4. PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following (in thousands): December 31, 2023 December 31, 2022 Furniture and fixtures $ 244 $ 215 Computers and other equipment 10,339 7,251 Leasehold improvements 2,360 2,054 Construction in Progress 1,114 — 14,057 9,520 Accumulated depreciation ( 4,903 ) ( 2,988 ) Total $ 9,154 $ 6,532 For the years ended December 31, 2023 and 2022, depreciation expense was $ 2.2 million and $ 1.0 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 was $ 139.0 million for December 31, 2023 and not material for 2022. F-18 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 The following table presents the Company’s fair value hierarchy for financial liabilities as of December 31, 2023 (in thousands): Level 1 Level 2 Level 3 Total Liabilities: Earnout liability $ — $ — $ 46,852 $ 46,852 Total $ — $ — $ 46,852 $ 46,852 The following table presents the Company’s fair value hierarchy for financial liabilities as of December 31, 2022: Level 1 Level 2 Level 3 Total Liabilities: Earnout liability $ — $ — $ 13,064 $ 13,064 Total $ — $ — $ 13,064 $ 13,064 The Company did not transfer any investments between level 1 and level 2 of the fair value hierarchy in the years ended December 31, 2023 and 2022. The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands): Fair Value Measurements Using Significant Unobservable Inputs Balance at December 31, 2022 $ 13,064 Fair value adjustment 33,788 Balance at Balance at December 31, 2023 $ 46,852 6. GOODWILL AND INTANGIBLES The following table presents the changes in the Company’s goodwill balance (in thousands): Goodwill Balance at December 31, 2022 $ 161,527 Purchase price adjustment 1,688 Balance at December 31, 2023 $ 163,215 Refer to Note 17, Business Combinations, for further details. F-19 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 The following table presents the Company’s intangible asset balance by asset class for the fiscal year ended December 31, 2023 (in thousands): Intangible Asset Cost Accumulated Amortization Net Book Value Amortization Method Useful Life Trade Names $ 900 $ ( 619 ) $ 281 Straight line 2 years Developed Technology 53,500 ( 17,703 ) 35,797 Straight line 4 years In-process R&D 1,177 — 1,177 Indefinite N/A Patents 34,900 ( 3,424 ) 31,476 Straight line 5 - 15 years Customer Relationships 24,300 ( 3,341 ) 20,959 Straight line 10 years Non-Competition Agreements 1,900 ( 523 ) 1,377 Straight line 5 years Other 658 ( 626 ) 32 Straight line 5 years Total $ 117,335 $ ( 26,236 ) $ 91,099 F-20 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 The following table presents the Company’s intangible asset balance by asset class for the fiscal year ended December 31, 2022 (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 tables presents the changes in the Company’s intangible asset balance for the fiscal year ended December 31, 2023 and December 31, 2022 (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 Additions to intangible assets 4,299 Amortization expense ( 18,820 ) Balance at December 31, 2023 $ 91,099 The amortization expense was $ 18.8 million for the fiscal year ended December 31, 2023 and was $ 6.9 million for the fiscal year ended December 31, 2022. Total future amortization expense of intangible assets is estimated to be as follows (in thousands): Fiscal Year Ending December 31, Total 2024 $ 18,926 2025 18,645 2026 14,042 2027 5,336 2028 4,690 Thereafter 28,301 Total $ 89,940 There were no impairment charges during the years ended December 31, 2023 and 2022. 7. LEASES: F-21 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 The Compa ny has entered into operating leases primarily for commercial buildings. These leases have terms which range from 0.3 to 5.8 years. A s of December 31, 2023 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, 2023 , 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 $ 3.2 million in additional right-of-use assets in exchange for lease obligations during the fiscal year ended December 31, 2023. 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 $ 2.7 million and $ 2.1 million for the fiscal years ended December 31, 2023 and 2022, respectively. In addition to rent payments, the Company’s leases include real estate taxes, common area maintenance, utilities, and management fees, which are not fixed. The Company accounts for these costs as variable payments and does not include such costs as a lease component. Total variable expense was $ 0.1 million and $ 0.2 million for the fiscal years ended December 31, 2023 and 2022, respectively. Information related to the Company right-of-use assets and related operating lease liabilities were as follows (in thousands): December 31, 2023 December 31, 2022 Cash paid for operating lease liabilities $ 1,919 $ 1,166 Operating lease cost $ 2,036 $ 1,610 Non-cash right-of-use assets obtained in exchange for new operating lease obligations $ 3,230 $ 5,883 Weighted-average remaining lease term 4.88 5.41 Weight-average discount rate 3.5 % - 9.3 % 4.25 % - 5.5 % Maturities of lease liabilities (in thousands) due in the 12-month period ending December 31, 2024 $ 2,139 2025 1,863 2026 1,766 2027 1,772 2028 1,687 Thereafter 419 $ 9,646 Less imputed interest $ 1,101 Total lease liabilities $ 8,545 F-22 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 8. SHARE BASED COMPENSATION Equity Incentive Plans The 2020 Equity Incentive Plan (“2020 Plan”) provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit (RSU) awards, stock appreciation rights, and other stock awards to employees, directors and consultants. Pursuant to the 2020 Plan, the exercise price for incentive stock options and non-statutory stock options is generally at least 100% of the fair market value of the underlying shares on the date of grant. Options generally vest over 48 months measured from the date of grant. Options generally expire no later than ten years after the date of grant, subject to earlier termination upon an optionee’s cessation of employment or service. Under the terms of the 2020 Plan, the Company is authorized to issue 18,899,285 shares of common stock pursuant to awards under the 2020 Plan. As of October 19, 2021, the Company 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, 2023, the Company has issued 9,750,000 n on-statutory stock options under the 2021 Plan. Stock-Based Compensation 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, 2023 and 2022: Years Ended December 31, (In thousands) 2023 2022 Research and development $ 26,806 $ 19,853 Selling, general and administrative 27,222 43,435 Total stock-based compensation expense $ 54,028 $ 63,288 F-23 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Stock Options Generally, stock options granted under the Plans have ten year terms and vest 1/4th on the anniversary of the vesting commencement date and 1/48th monthly thereafter. Stock options with performance vesting conditions begin to vest upon achievement of the performance condition. Expense is recognized beginning in the period in which performance is considered probable. The fair value of incentive stock options and non-statutory stock options issued was estimated using the Black-Scholes model. The Company did not grant any stock option awards during the years ended December 31, 2023 or 2022, except as discussed below under Long-term Incentive Plan Stock Options. A summary of stock options outstanding as of December 31, 2023, and activity during the two years then ended, is presented below: Stock Options Shares (In thousands) Weighted- Average Exercise Price Weighted-Average Remaining Contractual Term (In years) Outstanding at December 31, 2021 11,253 $ 0.51 6.8 Exercised ( 4,356 ) 0.39 Forfeited or expired ( 122 ) 0.97 Outstanding at December 31, 2022 6,775 $ 0.59 6.2 Exercised ( 3,899 ) 0.49 Forfeited or expired ( 219 ) 1.06 Outstanding at December 31, 2023 2,657 $ 0.72 5.7 Vested and exercisable at December 31, 2023 2,314 $ 0.67 5.5 During the years ended both December 31, 2023 and 2022, the Company recognized $ 0.5 million of stock-based compensation expense for the vesting of outstanding stock options, excludi ng $ 7.9 million and $ 6.0 million, respectively, related to the LTIP Options described below. At December 31, 2023, unrecognized compensation cost related to unvested options totaled $ 0.1 million. T he weighted-average period over which this remaining compensation cost will be recognized i s 0.6 years. Long-term Incentive Plan Stock Options The Company awarded a total of 6,500,000 performance stock options (“2021 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 8.0 years. The Company utilized the services of a professional valuation firm to finalize these assumptions during the fiscal year ended December 31, 2023. The valuation model utilized the following assumptions: F-24 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Risk-free interest rate 1.47 % Expected volatility rates 67.33 % Expected dividend yield — Cost of equity (for derived service period) 11.77 % Weighted-average grant date fair value of options $ 9.14 In connection with the “2021 LTIP Options”, the Company recognized $ 6.9 million and $ 5.7 million of stock-based compensation expense for the years ended December 31, 2023, and 2022 respectively. The unrecognized compensation expense related to these 2021 LTIP Options is $ 46.9 million as of December 31, 2023, and compensation expense will be recognized over 2.4 years. The Company awarded a total of 3,250,000 performance stock options (“2022 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 8.6 years. The Black-Scholes model and a Monte Carlo simulation incorporated 100,000 scenarios. The Company utilized the services of a professional valuation firm to finalize these assumptions during the fiscal year ended December 31, 2023 . The valuation model utilized the following assumptions: Risk-free interest rates 2.82 % Expected volatility rates 68.48 % Expected dividend yield — Cost of equity (for derived service period) 14.64 % Weighted-average grant date fair value of options $ 2.89 In connection with 2022 LTIP Options, the Company recognized $ 1.1 million and $ 0.4 million of stock-based compensation expense for the years ended December 31, 2023 and 2022, respectively. The unrecognized compensation expense related to the 2022 LTIP Options is $ 7.9 million as of December 31, 2023, and compensation expense will be recognized over 3.0 years. Restricted Stock Units On August 25, 2021, the Company granted an aggregate of 4,135,000 RSUs 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 2020 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. F-25 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 The Company regularly grants RSUs to employees as a component of their compensation. A summary of RSUs outstanding as of December 31, 2023, 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 ) 13.85 Outstanding at December 31, 2022 11,606 $ 5.93 Granted 6,184 6.30 Vested ( 4,811 ) 5.76 Forfeited ( 107 ) 7.47 Outstanding at December 31, 2023 12,872 $ 6.70 During the years ended December 31, 2023 and 2022, the Company recognized $ 31.5 million and $ 41.9 million, respectively, of stock-based compensation expense for the vesting of RSUs. At December 31, 2023, unrecognized compensation cost related to unvested RSU awards totaled $ 71.2 million. The weighted-average period over which this remaining compensation cost is expected to be recognized is 2.4 years. The Company implemented a yearly stock-based bonus plan in 2021 and plans to settle accrued bonus liabilities of $ 7.9 million related to fiscal year 2023 (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 $ 8.07 on December 31, 2023, approximately 976,723 shares would be issued, however the actual number of shares will be based on the share price at the date of settlement. 2022 Employee Stock Purchase Plan In August 2022, the Company’s board of directors adopted the Company’s 2022 Employee Stock Purchase Plan (the “2022 ESPP”), subject to stockholder approval. The 2022 ESPP was approved by stockholders at the Company’s annual stockholders meeting held November 10, 2022. The Company authorized the issuance of 3,000,000 shares of common stock under the 2022 ESPP. Under the 2022 ESPP, eligible employees are granted the right to purchase shares of common stock at the lower of 85 % of the fair value at the time of offering or 85 % of the fair value at the time of purchase, generally over a six-month period. The first offering period under the 2022 ESPP commenced in February 2023 and the second offering in September 2023. For the year ended December 31, 2023, employees who elected to participate in the ESPP purchased 257,963 shares of common stock under the 2022 ESPP, resulting in cash proceeds to the Company of $ 1.3 million. The purchase price was $ 4.96 , which was 15 % of the fair market value in August 2023. As of December 31, 2023 the Company had 2,742,037 remaining authorized shares available for purchase. As the plan was adopted in 2023, there were no shares issued as of December 31, 2022. During the year ended December 31, 2023 and 2022, the Company recognized $ 1.2 million and $ 0.0 million of stock-based compensation expense for the ESPP, respectively. Other Share Awards In connection with the acquisition of the remaining minority interest of a silicon control IC joint venture, as described in Note 16, the Company issued 841,729 fully vested shares to certain former employees of the joint venture with a grant date fair value totaling $ 4.5 million. Such amount has been recognized as stock-based compensation expense during the year ended December 31, 2023. F-26 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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. 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 recognized $ 0.9 million and $ 0.1 million of stock-based compensation expense related to the vesting of these shares during the year ended December 31, 2023 and 2022, respectively. 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 share). During the year ended December 31, 2023, the Company recognized $ 0.3 million of stock-based compensation expense for the vesting of earnout shares. As of the beginning of the second quarter of fiscal year 2023, these earnout shares had fully vested. At December 31, 2023, there was no remaining compensation cost related to unvested earnout shares. During the year ended December 31, 2022, the Company recognized $ 11.9 million of stock-based compensation expense for the vesting of earnout shares. Refer to Note 10, Earnout Liability. 9. 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 F-27 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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 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 or December 31, 2023. 10. EARNOUT LIABILITY Certain of the Company’s stockholders are entitled to receive an aggregate of up to 10,000,000 Earnout Shares of the Company’s Class A common stock if the Earnout Milestones are met. The Earnout Milestones represent three independent criteria, each of which entitles the eligible stockholders to an aggregate of up to 3,333,333 Earnout Shares per milestone met. Each Earnout Milestone is considered met if at any time between March 18, 2022 (150 days following the Business Combination) and 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 employee 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 8 - 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. F-28 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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, 2023 December 31, 2022 Risk-free interest rate 4.05 % 4.13 % Equity volatility rate 70 % 65 % As of December 31, 2023 and December 31, 2022, the earnout liability had a fair value of $ 46.9 million and $ 13.1 million, respectively which resulted in a loss in the fair value of the earnout liability of $ 33.8 million and a gain in the fair value of the earnout liability of $ 121.7 million for the year ended December 31, 2023 and 2022, respectively, due to the fluctuations in the fair value of the earnout liability. GeneSiC Earnout Liability In connection with the merger agreement of GeneSiC Semiconductor as discussed in Note 17, the Company will pay additional contingent consideration of up to $ 25.0 million, in the form of cash earnout payments to the Sellers and certain employees of GeneSiC, conditioned on the achievement of substantial revenue and gross profit margin targets for the GeneSiC business over the four fiscal quarters beginning on October 1, 2022 and ending on September 30, 2023. The estimated fair value of the earnout liability was determined using a Monte Carlo analysis of 20,000 simulations assuming that GeneSiC’s revenue and gross profit margins follow a geometric Browian motion over the earnout period. The valuation model utilized an assumption on the risk-free interest rate of 3.1 % and equity volatility rate of 99.9 %. As of December 31, 2023, the GeneSiC Earnout was not achieved, and no liability was recorded in earnout liability on the Company’s Consolidated Balance Sheets. As of December 31, 2022, a liability of $ 0.6 million was recorded in Earnout Liability on the Company’s Consolidated Balance Sheets related to the GeneSiC Earnout. 11. 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 Ended December 31, Customer 2023 2022 Distributor A 45 % * Distributor B * 21 % Distributor C * 16 % Distributor D * 14 % Distributor E * 12 % * Total customer net revenues was less than 10% of total net revenues. F-29 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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, 2023 and 2022, were attributable to end customers in the following countries: Year Ended December 31, Country 2023 2022 China 62 % 38 % Europe* 17 % 32 % United States 13 % 24 % Asia excluding China 8 % 5 % All others — % 1 % Total 100 % 100 % *Impractical to disclose revenue percentages by individual countries within Europe and therefore 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 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 2023 2022 Distributor A 77 % * Distributor B * 25 % Distributor C * 19 % *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. F-30 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 12. NET INCOME (LOSS) PER SHARE: Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average shares of common stock outstanding during the period. Diluted earnings per share are calculated by dividing net income (loss) by the weighted-average shares of common stock and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares included in this calculation consist of dilutive shares issuable upon the assumed exercise of outstanding common stock options, the assumed vesting of outstanding restricted stock units and restricted stock awards, the assumed issuance of awards for contingently issuable performance-based awards, as computed using the treasury stock method. Performance-based restricted stock units and restricted stock awards are included in the number of shares used to calculate diluted earnings per share after evaluating the applicable performance criteria as of period end and under the assumption the end of the reporting period was the end of the contingency period, and the effect is dilutive. Restricted stock awards are eligible to receive all dividends declared on the Company’s common shares during the vesting period; however, such dividends are not paid until the restrictions lapse. The Company has no plans to declare dividends. A summary of the net income (loss) per share calculation is as follows (in thousands, except per share amounts): Year Ended December 31, 2023 2022 Weighted-average common shares - basic common stock 168,927 133,668 Stock options and other dilutive awards — 12,075 Weighted-average common shares - diluted common stock 168,927 145,743 Shares excluded from diluted weighted-average shares: ¹ Dilutive shares excluded ² 9,809 — Earnout shares (potentially issuable common shares) 10,000 10,000 Unvested restricted stock units and restricted stock awards 250 376 Stock options potentially exercisable for common shares 9,750 9,750 Shares excluded from diluted weighted average shares 29,809 20,126 ¹ The Company’s potentially dilutive securities, which include unexercised stock options, unvested shares, and earnout 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, 2023. ² We exclude the impact of restricted stock from the calculation of diluted net loss per common share in periods where we have a net loss or when their inclusion would be antidilutive. 13. 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. F-31 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 U.S. and foreign components of income (loss) before income taxes were (in thousands): Year Ended December 31, 2023 2022 U.S. operations $ ( 56,198 ) $ 125,500 Foreign operations ( 90,270 ) ( 75,425 ) Total income (loss) before income taxes $ ( 146,468 ) $ 50,075 The components of the provision (benefit) for income taxes are as follows (in thousands): Year Ended December 31, 2023 2022 Current provision (benefit): Federal $ — $ — State 47 335 Foreign 226 154 $ 273 $ 489 Deferred provision (benefit): Federal $ ( 1,149 ) $ ( 21,666 ) State 232 ( 1,603 ) Foreign 127 ( 32 ) $ ( 790 ) $ ( 23,301 ) Total $ ( 517 ) $ ( 22,812 ) 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 Ended December 31, 2023 2022 Provision computed at Federal statutory rate 21.0 % 21.0 % Change in valuation allowance ( 19.0 ) % 15.6 % Return to provision adjustments — % ( 7.6 ) % Foreign income tax rate and benefit 7.7 % ( 18.8 ) % Effect of permanent differences ( 0.1 ) % 0.2 % Non deductible executive compensation ( 2.3 ) % 3.9 % Non deductible expenses - mark to market liabilities ( 4.8 ) % ( 72.8 ) % Stock based compensation 0.3 % 8.9 % State tax, net of federal ( 2.7 ) % 3.3 % Other 0.2 % 0.7 % Total 0.3 % ( 45.6 ) % F-32 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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, 2023 and 2022, deferred tax assets and liabilities consisted of the following (in thousands): December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 59,953 $ 50,084 Benefit of tax credit carry-forwards 207 208 Start up costs 1,262 1,457 Capitalized software 11,629 2,029 Stock compensation 9,005 6,625 Lease Liabilities 1,602 — Other 2,315 1,654 Valuation allowance ( 66,663 ) ( 40,177 ) $ 19,310 $ 21,880 Deferred tax liabilities: Right of Use Asset ( 1,528 ) — Depreciation $ ( 178 ) $ ( 231 ) Intangibles ( 18,644 ) ( 23,473 ) $ ( 20,350 ) $ ( 23,704 ) Net deferred tax balance $ ( 1,040 ) $ ( 1,824 ) During the fiscal years ended December 31, 2023 and 2022, the valuation allowance increased b y $ 26.5 million and $ 7.8 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 $ 165.0 million and $ 146.9 million of federal net operating loss (“NOL”) carryforwards and approximately $ 0.2 million an d $ 4.6 million of tax-effected state NOL carryforwards as of December 31, 2023 and 2022, 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, 2023, 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 17, 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, 2023, 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 $ 199.7 million and $ 111.9 million F-33 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 as of December 31, 2023 and 2022, respectively. Of the foreign NOLs, $ 198.6 million are in Ireland and the deferred tax asset has a full valuation allowance as a result of the historical losses in the country. The Company had no unrecognized tax benefits for the years ended December 31, 2023 or December 31, 2022. 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, 2023 and 2022. The Company is treated as a corporation for U.S. federal income tax purposes and is a tax resident in both Ireland and the United States. 14. COMMITMENTS and CONTINGENCIES Purchase Obligations At December 31, 2023, the Company had no non-cancellable contractual agreements that were due beyond one year apart from lease obligations. 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, 2023. 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. 15. 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 F-34 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 an established threshold. For the fiscal years ended December 31, 2023 and 2022, the Company made $ 0.6 million an d $ 0.5 million, resp ectively, in matching contributions to the 401(k) plan. 16. 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, 2023 or 2022. Joint Venture In 2021, Navitas entered into a silicon control IC joint venture with Halo Microelectronics Co., Ltd. (“Halo”), a manufacturer of power management ICs, to develop products and technology relating to AC/DC converters. Navitas’ initial contribution to the joint venture 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). On January 19, 2023, the Company announced an agreement to acquire the remaining minority interest in the joint venture as well as rights to certain intellectual property from Halo and its U.S. affiliate for a total purchase price of $ 22.4 million in Navitas stock. Total related party revenues recognized by the Company as a result of arrangements with its joint venture were $ 0.0 million f or year ended December 31, 2023 , and $ 0.7 million and for the year ended December 31, 2022, respectively, and are included in Net Revenues in the Condensed Consolidated Statements of Operations. See Note 18, Noncontrolling Interest, for more information. Related Party License Revenue During the second quarter of 2022, Navitas entered into a Patent License Agreement with an entity under common control with the Company’s partner in the joint venture described above. In consideration of the license rights granted, the Company recorded license fee revenue of $ 0.9 million during the fiscal year ended December 31, 2022. Such amounts are included in Net Revenues in the Consolidated Statement of Operations. There was no license fee revenue during the fiscal year ended December 31, 2023. 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 (“Related Party Investment”). During the first quarter of 2023 the Company made an additional investment of $ 1.0 million in the entity. The Related Party Investment was $ 2.5 million and $ 1.5 million as of December 31, 2023 and December 31, 2022, respectively, and is included in Other Assets in the Condensed Consolidated Balance Sheets. The Related Party Investment is accounted fo r 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. 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. There was no outstanding amount as of December 31, 2023. F-35 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Related Party Lease The Company leases certain property from an entity that it is owned by an executive of the Company, which expired in September 2023 and is now a month to month lease. Rental payments in relation to this lease was $ 0.1 million and $ 36 thousand for the years ended December 31, 2023 and December 31, 2022, respectively. These payments were made at standard market rates in the ordinary course of business. The Company leases certain property from the family member of a senior executive of the Company, which expires in March 2024. During the year 2023, the Co mpany 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, 2023 was $ 11 thousand through M arch 31, 2024. 17. BUSINESS COMBINATIONS Acquisition of VDDTech srl On June 10, 2022, the Company’s wholly owned subsidiary, Navitas Semiconductor Limited, acquired all of the stock of VDDTECH srl, a private Belgian company (“VDDTech”) for approximately $ 1.9 million in cash and stock. Based in Mont-saint-Guibert, Belgium, VDDTech creates advanced digital-isolators for next-generation power conversion. VDDTech’s net assets and operating results since the acquisition date are inc luded in the Company’s 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 an 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. 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 accounted for as a business combination in accordance with ASC 805, “Business Combinations” . The Company has determined fair values of the assets acquired and liabilities assumed. F-36 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 The following tables summarize the purchase consideration and the purchase price allocation to estimated fair values of the identifiable assets acquired and liabilities assumed (in thousands) at acquisition date: 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 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 During the Company’s second quarter of 2023, the Company received information regarding products shipped by GeneSiC to a distributor prior to the Company’s acquisition of GeneSiC. GeneSiC had the option, but not the obligation, to accept returns sold to the distributor. The Company determined that a $ 1.7 million return liability should have been recorded as of the close of the acquisition on August 15, 2022. The Company recorded the return liability as a purchase price adjustment as of June 30, 2023, resulting in an increase to goodwill and accounts payable and other accrued expenses of $ 1.7 million. 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. The Company’s cumulative purchase price allocation adjustment through December 31, 2023 was $ 1.6 million, primarily due to sales returns discussed above, inventory reserve, working capital adjustment and employee bonuses. F-37 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 The 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-38 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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, 2022 (in thousands): UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, 2022 Revenue $ 48,615 Net income (loss) $ 72,279 Basic net income (loss) per share $ 0.54 Diluted net income (loss) per share $ 0.50 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, 2022, nor is the pro forma financial information indicative of the results of operations that may occur in the fut ure. 18. NONCONTROLLING INTEREST In July 2021, the Company formed a joint venture for the purpose of conducting research and development on technology in the area of AC/DC converters for chargers and adapters. On August 19, 2022, the Company obtained control of the joint venture, 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 estimates. The Company’s net income (loss) excludes income (loss) attributable to the noncontrolling interests. The fair value of the joint venture was determined based on a multiple of future annual revenues with a discount rate of 30 %. In connection with the consolidation, the Company reacquired a patent license, which was fair valued at $ 1.0 million based on comparable transactions during the year, and is amortized over a five year term. Goodwill of $ 3.1 million was recorded in connection with this transaction. On January 19, 2023, the Company completed the acquisition of the remaining minority interest in the joint venture as well as rights to certain intellectual property from Halo and its U.S. affiliate for a total purchase price of $ 22.4 million in Navitas stock. In connection with the purchase of intellectual property, the Company recognized developed technology as an intangible asset at its estimated fair value o f $ 4.4 million . As a result of this transaction, the Company recorded a net increase to additional paid in capital of $ 7.5 million representing the difference between the fair value of share consideration related to the acquisition of the remaining noncontrolling interest and the carrying value of the noncontrolling interest at the date of the transaction. F-39 NAVITAS SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 The fair value of the developed technology was estimated using the relief from royalty method, an income approach (Level 3), because of the licensing appeal of these assets The Company estimated the benefit of the ownership as the relief form the royalty expense that would be incurred in the absence of ownership. A royalty rate was applied to the projected revenues associated with the intangible asset to determine the amount of savings, which was at a rate of 10 % to determine the fair value. 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 19. SUBSEQUENT EVENTS On January 3, 2024, the Company made an additional investment of $ 2.5 million in preferred interests of an entity under common control with the Company’s partner in the joint venture as discussed in Note 16, Related Party Transactions. The Company’s new ownership percentage increased to 15.48 %. There were no other material subsequent events as of March 6, 2024. F-40 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures. None.