UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2022
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ______ to ______
Commission file number: 001-39755
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
(844 ) 654-2642
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
par value $0.0001 per share | ||||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
| ☒ | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable
date: 125,700,886 shares of Class A Common Stock and 0 shares of Class B Common Stock were outstanding at August 10, 2022.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. All statements other than statements of historical facts contained in this quarterly report, including statements concerning possible or assumed future actions, business strategies, events or results of operations, and any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of important risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, including risks and uncertainties relating to:
•our financial and business performance;
•our ability to realize the benefits of the Business Combination, which may be affected by, among other things, competition and our ability to grow and manage growth profitably;
•changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;
•our product development timeline and expected start of production;
•the implementation, market acceptance and success of our business model;
•our ability to scale in a cost-effective manner;
•developments relating to our competitors and industry;
•the impact of health epidemics, including the Covid-19 pandemic, on our business and the actions we may take in response thereto;
•our ability to obtain and maintain intellectual property protection, and not infringe on the rights of the intellectual property rights others;
•our status as an emerging growth company (as defined by U.S. federal law);
•our future capital requirements and sources and uses of cash;
•our ability to obtain funding for our operations;
•our business, expansion plans and opportunities;
•the outcome of any known and unknown litigation and regulatory proceedings; and
•the risks and uncertainties described in the summary below, and in our annual report on Form 10-K in the section titled “Risk Factors.”
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. Some of these risks and uncertainties may in the future be amplified by events we do not expect or cannot predict. Additionally, new risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, the forward-looking statements in this quarterly report may not prove to be accurate.
Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this quarterly report, whether as a result of any new information, future events, changed circumstances or otherwise. You should read this quarterly report completely, and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Please see the Summary of Risk Factors below and the more detailed discussion in Part I, Item 1A (Risk Factors) of our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022, for additional information about many of the risks we are exposed to in the normal course of our business.
SUMMARY OF RISK FACTORS
The below summary of risk factors provides an overview of many of the risks we are exposed to in the normal course of our business activities. As a result, the below summary risks do not contain all of the information that may be important to you, and you should read the summary risks together with the more detailed and complete discussion of risks set forth under the heading “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K.
Consistent with the foregoing, we are exposed to a variety of risks, including risks associated with the following:
Risks Related to Our Business and Operations
•Our success and future revenue depend on our ability to achieve design wins and to convince our current and prospective end customers to design our products into their product offerings.
•To date we have been successful in introducing our leading-edge GaN power IC technology in mobile charging applications, such as wall chargers and adapters for mobile phones and laptop computers, where we believe we have achieved a market-leading position in GaN power ICs. Growth in demand for our products depends on achieving similar successes in other markets where we believe our technology provides comparable advantages, including consumer electronics, data center, solar and EV. Although we believe we are on track in these efforts, no assurance can be given that we will succeed in similarly displacing legacy silicon solutions in these other target markets.
•Since we have significant operations and revenues in China, our business development plans, results of operations and financial condition may be materially and adversely affected by significant political, social and economic developments in China, including governmental or regulatory changes.
•We rely on a single third-party wafer fabrication facility for the fabrication of semiconductor wafers and on a limited number of suppliers of other materials, and the failure of this facility or any of these suppliers or additional suppliers to continue to produce wafers or other materials on a timely basis could harm our business and our financial results.
•Increased costs of wafers and materials, or shortages in wafers and materials, could increase our costs of operations and our business could be harmed. Raw material price fluctuations can increase the cost of our products, impact our ability to meet end customer commitments, and may adversely affect our results of operations.
•We are dependent on a limited number of distributors and end customers. The loss of, or a significant disruption in the relationships with any of these distributors or end customers, could significantly reduce our revenue and adversely impact our operating results. In addition, if we are unable to expand or further diversify our end customer base, our business, financial condition, and results of operations could suffer.
•Because we do not have long-term purchase commitments with our end customers, orders may be cancelled, reduced, or rescheduled with little or no notice, which in turn exposes us to inventory risk, and may cause our business, financial results and future prospects to be harmed.
•The complexity of our products could result in unforeseen delays or expenses from undetected defects, errors or bugs in hardware or software which could reduce the market adoption of our products, damage our reputation with current or prospective end customers and adversely affect our operating costs.
•We may experience difficulties in transitioning to new wafer fabrication process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased costs.
•From time to time, we may rely on strategic partnerships, joint ventures and alliances for manufacturing and research and development. However, we may not control these partnerships and joint ventures, and actions taken by any of our partners or the termination of these partnerships or joint ventures could adversely affect our business.
•We may pursue mergers, acquisitions, investments and joint ventures, which could divert our management’s attention or otherwise disrupt our operations and adversely affect our results of operations.
Tax-Related Risks
•We could be subject to domestic or international changes in tax laws, tax rates or the adoption of new tax legislation, or we could otherwise have exposure to additional tax liabilities, which could adversely affect our business, results of operations, financial condition or future profitability.
•Legacy Navitas is a tax resident of, and is subject to tax in, both the United States and Ireland. While we intend to pursue relief from double taxation under the double tax treaty between the United States and Ireland, there can be no assurance that such efforts will be successful. Accordingly, the status of Legacy Navitas as a tax resident in the U.S. and Ireland may result in an increase in our cash tax obligations and effective tax rate, which increase may be material.
•Any adjustment to the purchase price of the assets that were transferred pursuant to the restructuring of Legacy Navitas in 2020 could adversely impact our tax position.
•As a result of the plans to expand our business operations, including to jurisdictions in which tax laws may not be favorable, our obligations may change or fluctuate, become significantly more complex or become subject to greater risk of examination by taxing authorities, any of which could adversely affect our after-tax profitability and financial results.
•Our ability to use net operating loss carryforwards and other tax attributes may be limited in connection with the Business Combination or other ownership changes.
Risks Related to Intellectual Property
•We may not be able to adequately protect our intellectual property rights. If we fail to adequately enforce or defend our intellectual property rights, our business may be harmed.
•We may not be able to obtain additional patents and the legal protection afforded by any additional patents may not adequately cover the full scope of our business or permit us to gain or keep competitive advantage.
•If we infringe or misappropriate, or are accused of infringing or misappropriating, the intellectual property rights of third parties, we may incur substantial costs or be prevented from being able to commercialize new products.
•Our ability to design and introduce new products in a timely manner is dependent upon third-party IP, including third party and “open source” software.
Risks Related to Owning Our Common Stock
•Concentration of ownership among existing executive officers, directors and their affiliates, including the investment funds they represent, may prevent new investors from influencing significant corporate decisions.
•Future resales of our Class A Common Stock, including following the expiration of lock-up periods related to the Business Combination, may cause the market price of our securities to drop significantly, even if our business is doing well.
•If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.
•The issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise by us could dilute the ownership and voting power of our stockholders.
•Our management has limited public company experience. The obligations associated with being a public company involve significant expenses and require significant resources and management attention, which may divert from our business operations and if we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.
•We have identified material weaknesses in our internal control over financial reporting. If we are unable to remedy these material weaknesses, or if we fail to establish and maintain effective internal controls, we may be unable to produce timely and accurate financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our stock price.
•We may issue a substantial number of additional shares under our employee equity incentive plans.
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and par value amounts)
| June 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Inventory | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| PROPERTY AND EQUIPMENT, net | |||||||||||
| OPERATING LEASE RIGHT OF USE ASSETS | |||||||||||
| INTANGIBLE ASSETS, net | |||||||||||
| GOODWILL | |||||||||||
| OTHER ASSETS | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Accounts payable and other accrued expenses | $ | $ | |||||||||
| Accrued compensation expenses | |||||||||||
| Current operating lease liabilities | |||||||||||
| Current portion of long-term debt | |||||||||||
| Other liabilities | |||||||||||
| Total current liabilities | |||||||||||
| LONG-TERM DEBT | |||||||||||
| OPERATING LEASE LIABILITIES NONCURRENT | |||||||||||
| WARRANT LIABILITY | |||||||||||
| EARNOUT LIABILITY | |||||||||||
| OTHER LIABILITIES | |||||||||||
| Total liabilities | |||||||||||
| COMMITMENTS AND CONTINGENCIES (Note 14) | |||||||||||
| STOCKHOLDERS’ EQUITY: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying condensed notes are an integral part of these condensed consolidated financial statements
5
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| NET REVENUES | $ | $ | $ | $ | |||||||||||||||||||
| COST OF REVENUES | |||||||||||||||||||||||
| GROSS PROFIT | |||||||||||||||||||||||
| OPERATING EXPENSES: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| LOSS FROM OPERATIONS | ( | ( | ( | ( | |||||||||||||||||||
| OTHER INCOME (EXPENSE), net: | |||||||||||||||||||||||
| Interest income (expense), net | ( | ( | |||||||||||||||||||||
| Gain from change in fair value of warrants | |||||||||||||||||||||||
| Gain from change in fair value of earnout liabilities | |||||||||||||||||||||||
| Other expense | ( | ( | |||||||||||||||||||||
| Total other income (expense), net | ( | ( | |||||||||||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ( | |||||||||||||||||||||
| PROVISION FOR INCOME TAXES | |||||||||||||||||||||||
| NET INCOME (LOSS) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| NET INCOME (LOSS) PER COMMON SHARE: | |||||||||||||||||||||||
| Basic net income (loss) per share attributable to common stockholders | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Diluted net income (loss) per share attributable to common stockholders | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| WEIGHTED AVERAGE COMMON SHARES USED IN NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS: | |||||||||||||||||||||||
| Basic common shares | |||||||||||||||||||||||
| Diluted common shares | |||||||||||||||||||||||
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
6
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| NET INCOME (LOSS) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments, net of tax | ( | ( | ( | ||||||||||||||||||||
| Total other comprehensive loss | ( | ( | ( | ||||||||||||||||||||
| TOTAL COMPREHENSIVE INCOME (LOSS) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
7
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited)
(in thousands)
| Redeemable Convertible Preferred Stock | Stockholder's equity (deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| THREE AND SIX MONTHS ENDED JUNE 30, 2022 | Series A redeemable convertible preferred stock | Series B redeemable convertible preferred stock | Series B-1 redeemable convertible preferred stock | Series B-2 redeemable convertible preferred stock | Common stock | Additional paid in capital | Accumulated deficit | Notes receivable - shareholder's | Accumulated comprehensive income (loss) | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock option and stock award plans | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | — | — | — | ( | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense related to employee and non-employee stock awards | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2022 | $ | $ | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock option and stock award plans | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for business acquisition | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense related to employee and non-employee stock awards | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
8
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited)
(in thousands)
| Redeemable Convertible Preferred Stock | Stockholder's equity (deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| THREE AND SIX MONTHS ENDED JUNE 30, 2021 | Series A redeemable convertible preferred stock | Series B redeemable convertible preferred stock | Series B-1 redeemable convertible preferred stock | Series B-2 redeemable convertible preferred stock | Common stock | Additional paid in capital | Accumulated deficit | Notes receivable - shareholder's | Accumulated comprehensive income (loss) | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock option and stock award plans | — | — | — | — | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense related to employee and non-employee stock awards | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2021 | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock option and stock award plans | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rescission of common stock | — | — | — | — | — | — | — | — | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2021 | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
9
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
(in thousands)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net income (loss) | $ | $ | ( | ||||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization of intangibles | |||||||||||
| Amortization of deferred rent | ( | ||||||||||
| Non-cash lease expense | |||||||||||
| Other | ( | ||||||||||
| Stock-based compensation expense | |||||||||||
| Amortization of debt discount and issuance costs | |||||||||||
| Gain from change in fair value of warrants | ( | ||||||||||
| Gain from change in fair value of earnout liability | ( | ||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventory | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Other assets | ( | ||||||||||
| Accounts payable, accrued compensation and other liabilities | |||||||||||
| Operating lease liability | ( | ||||||||||
Net cash used in operating activities | ( | ( | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Business acquisition, net of cash acquired | ( | ||||||||||
| Asset acquisition | ( | ||||||||||
Investment in joint venture | ( | ( | |||||||||
Purchases of property and equipment | ( | ( | |||||||||
Receipts on notes receivable | |||||||||||
Net cash used in investing activities | ( | ( | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Redemption of warrants | ( | ||||||||||
| Repurchase of common stock | ( | ||||||||||
| Proceeds from issuance of common stock in connection stock option exercises | |||||||||||
| Proceeds from issuance of long-term debt | |||||||||||
| Principal payments on long-term debt | ( | ||||||||||
Net cash provided by financing activities | ( | ||||||||||
Effect of exchange rate changes on cash | ( | ||||||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | ( | ( | |||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | |||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
Cash paid for income taxes | $ | $ | |||||||||
Cash paid for interest | $ | $ | |||||||||
| Shares issued for business acquisition | $ | $ | |||||||||
| Capital expenditures in accounts payable | $ | $ | |||||||||
10
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
1. ORGANIZATION AND BASIS OF PRESENTATION
On May 6, 2021, Navitas Semiconductor Limited, a private company limited by shares organized under the laws of Ireland (“Navitas Ireland”) and domesticated in the State of Delaware as Navitas Semiconductor Ireland, LLC, a Delaware limited liability company (“Navitas Delaware” and, together with Navitas Ireland, “Legacy Navitas”), entered into a business combination agreement and plan of reorganization (the “Business Combination Agreement” or “BCA”) with Live Oak Acquisition Corp. II, a Delaware corporation (“Live Oak”). Pursuant to the BCA, among other transactions consummated on October 19, 2021 (collectively, the “Business Combination”), Live Oak acquired all of the capital stock of Navitas Ireland (other than the Navitas Ireland Restricted Shares, as defined below) by means of a tender offer, and a wholly owned subsidiary of Live Oak merged with and into Navitas Delaware, with Navitas Delaware surviving the merger. As a result, Legacy Navitas became a wholly owned subsidiary of Live Oak effective October 19, 2021. At the closing of the Business Combination, Live Oak changed its name to Navitas Semiconductor Corporation.
References to the “Company” in these financial statements refer to Legacy Navitas and its predecessors before the consummation of the Business Combination, or to Navitas Semiconductor Corporation after the Business Combination, as the context suggests.
The Company was founded in 2013 and has since been developing ultra-efficient gallium nitride (GaN) semiconductors. The Company presently operates as a product design house that contracts the manufacturing of its chips and packaging to partner suppliers. Navitas maintains its operations around the world, including the United States, Ireland, Germany, Italy, Belgium, China, Taiwan and the Philippines, with principal executive offices in El Segundo, California.
Reorganization
Navitas Semiconductor USA, Inc. (f/k/a Navitas Semiconductor, Inc., “Navitas U.S.”) was incorporated in the State of Delaware on October 25, 2013. In 2020 Navitas U.S. initiated a restructuring to streamline its worldwide legal entity structure and more efficiently align its business operations (the “Restructuring”). The Restructuring introduced wholly owned subsidiary in China as well as the addition of Legacy Navitas, an entity registered in Ireland and the U.S., as the parent of Navitas U.S. and the other Navitas subsidiaries. In connection with the Restructuring, effective September 1, 2020, Legacy Navitas acquired certain intellectual property and other intangible assets from Navitas U.S. and, after the Restructuring, contracts directly with customers. The transfer of intellectual property and other intangible assets by Navitas U.S. to Legacy Navitas in connection with the Restructuring was among entities within the same consolidated group and, as a result, did not result in any gain or loss to the Company. Legacy Navitas is treated as a corporation for U.S. federal income tax purposes and is a tax resident in both Ireland and the United States. See Note 13.
Business combination
Pursuant to the terms of the BCA, the Business Combination was consummated (the “Closing”) on October 19, 2021 (the “Closing Date”) by means of (i) a tender offer to acquire the entire issued share capital of Navitas Ireland (other than Navitas Ireland Restricted Shares (as defined below)) in exchange for the Tender Offer Consideration (as defined below) (the “Tender Offer”) and (ii) the merger of a wholly owned subsidiary of Live Oak (“Merger Sub”) with and into Navitas Delaware (the “Merger”), with Navitas Delaware surviving the Merger. See the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022 for further information.
The Business Combination was accounted for as a reverse recapitalization, in accordance with GAAP. Under this method of accounting, although Live Oak issued shares for outstanding equity interests of Legacy Navitas in the Business Combination, Live Oak was treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Legacy Navitas issuing stock for the net assets of Live Oak, accompanied by a recapitalization. The net assets of Live Oak were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Navitas.
For all periods presented, unless stated otherwise, references to Legacy Navitas common shares and options for common shares outstanding before the Closing and related per share amounts have been retroactively restated to give effect to the reverse recapitalization, specifically, the Exchange Ratio of 1.0944 shares to 1 at Closing. References to share
11
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
quantities for Legacy Navitas convertible preferred stock related to balances or activity before the Closing reflect the historical quantities and are not adjusted for the Exchange Ratio.
Acquisition of VDDTech
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 $1,859 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 included in the Company’s Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022, and were not material. The Company issued 113 restricted shares that are subject to time based vesting and issued another 151 restricted shares that are subject to time and performance based vesting over the next 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 has recorded a preliminary allocation of the purchase price to tangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. The excess of the purchase price over the fair value of tangible assets and liabilities of $1,177 was recorded as goodwill. Upon a final determination of the purchase price and the final valuation of the intangible assets acquired, primarily including developed technology, the Company will allocate the purchase price to tangible and intangible assets acquired and liabilities assumed, and adjust the excess purchase price allocated to goodwill as needed.
Basis of presentation
The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Basis of consolidation
The condensed consolidated financial statements include the accounts of the Company, its wholly owned or majority-owned subsidiaries and entities in which the Company is deemed to have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. All intercompany transactions and balances have been eliminated in consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) (“ASU 2016-02”), and also issued subsequent amendments under ASU 2019-10 and ASU 2020-05 (collectively ASC 842). On January 1, 2022, the Company adopted
12
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
ASC 842 and the related amendments. ASC 842 requires lessees to (i) recognize a right of use asset and a lease liability that is measured at the present value of the remaining lease payments, on the consolidated balance sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease related cash payments within operating and financing activities. The Company recognized approximately $1,634 of operating lease right-of-use assets and $1,685 operating lease liabilities on the consolidated balance sheets upon adoption on January 1, 2022.
Credit Losses
In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. This ASU requires entities to measure the impairment of certain financial instruments, including accounts receivable, based on expected losses rather than incurred losses. For non-public business entities, this ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, and will be effective for the Company beginning in 2023. The Company is currently evaluating the impact of the new standard on the Company’s condensed consolidated financial statements and related disclosures.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
| June 30, 2022 | December 31, 2021 | ||||||||||
Furniture and fixtures | $ | $ | |||||||||
Computers and other equipment | |||||||||||
Leasehold improvements | |||||||||||
| $ | $ | ||||||||||
Accumulated depreciation | ( | ( | |||||||||
Total | $ | $ | |||||||||
For the three and six months ended June 30, 2022, depreciation expense was $186 and $352 , respectively. For the three and six months ended June 30, 2021, depreciation expense was $86 and $166 . The depreciation method was determined using the straight-line method over the following estimated useful lives:
Furniture and fixtures | |||||
Computers and other equipment | |||||
Leasehold improvements | |||||
4. INVENTORY
Inventory consists of the following:
| June 30, 2022 | December 31, 2021 | ||||||||||
Raw materials | $ | $ | |||||||||
Work-in-process | |||||||||||
Finished goods | |||||||||||
Total | $ | $ | |||||||||
13
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
5. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The accounting guidance on fair value measurements clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices for identical assets in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
The short-term nature of the Company’s cash and cash equivalents, accounts receivable, debt and current liabilities causes each of their carrying values to approximate fair value for all periods presented. Cash equivalents classified as Level 1 instruments were $131.5 million and $159.6 million as of June 30, 2022 and December 31, 2021, respectively.
The following table presents the Company’s fair value hierarchy for financial liabilities as of June 30, 2022 :
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Earnout liability | $ | $ | $ | $ | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
The following table presents the Company’s fair value hierarchy for financial liabilities as of December 31, 2021:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Public warrants | $ | $ | $ | $ | ||||||||||||||||||||||
| Private warrants | ||||||||||||||||||||||||||
| Earnout liability | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
6. DEBT OBLIGATIONS
14
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
In connection with execution of the Term Loan, the Company issued warrants to the bank (see Note 9). The fair value of the warrants at the date of issuance was $16 and was recorded as debt discount, subject to amortization using the effective interest rate method over the term of the loan.
Amortization of debt discount and issuance costs for the three and six months ended June 30, 2022 was $2 and $6 , respectively. Amortization of debt discount and issuance costs for the three and six months ended June 30, 2021 was $3 and $6 , respectively. Amortization of debt discount and issuance costs includes the write-off of unamortized costs as of the date that the prior term loan was extinguished in 2020.
The following is a summary of the carrying value of long-term debt as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | ||||||||||
Note payable | $ | $ | |||||||||
Less: Current portion | ( | ( | |||||||||
Less: Debt discount and issuance costs | ( | ( | |||||||||
Note payable, net of current portion | $ | $ | |||||||||
As of June 30, 2022, future scheduled principal payments of debt obligations were as follows:
| Fiscal Year | |||||
| 2022 (remaining) | $ | ||||
| 2023 | |||||
| 2024 | |||||
| Thereafter | |||||
| Total | $ | ||||
7. LEASES:
The Company has entered into operating leases primarily for commercial buildings. These leases have terms which range from 0.2 to 6.4 years. There are no economic penalties for the Company to extend the lease, and it is not reasonably certain the Company will exercise the extension options. The operating leases do not contain material residual value guarantees or material restrictive covenants.
Rent expense, including short-term lease cost, was $364 and $716 for the three and six months ended June 30, 2022, respectively. Rent expense, including short-term lease cost, was $285 and $552 for the three and six months ended June 30, 2021, respectively.
Information related to the Company right-of-use assets and related operating lease liabilities were as follows:
| Six Months Ended June 30, 2022 | |||||
| Cash paid for operating lease liabilities | $ | ||||
| Operating lease cost | |||||
| Right-of-use assets obtained in exchange for lease obligations | |||||
| Weighted-average remaining lease term | |||||
| Weight-average discount rate | |||||
15
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
| Maturities of lease liabilities due in 12-month period ending June 30, | |||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| $ | |||||
| Less imputed interest | |||||
| Total lease liabilities | $ | ||||
Supplemental information for comparative periods
As of December 31, 2021 prior to the adoption of ASC 842, minimum payments under operating leases having initial or remaining non-cancelable lease terms in excess of one year were as follows:
| Operating Leases | |||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| Total minimum payments | $ | ||||
8. SHARE BASED COMPENSATION:
Equity Incentive Plans
The 2020 Equity Incentive Plan, initially adopted by the Company’s board of directors on August 5, 2020 as an amendment and restatement of the 2013 Equity Incentive Plan (“2013 Plan”), was amended and restated at the Closing of the Business Combination as the Amended and Restated Navitas Semiconductor Limited 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit (RSU) awards, stock appreciation rights, and other stock awards to employees, directors and consultants. Pursuant to the 2020 Plan, the exercise price for incentive stock options and non-statutory stock options is generally at least 100% of the fair market value of the underlying shares on the date of grant. Options generally vest over 48 months measured from the date of grant. Options generally expire no later than ten years after the date of grant, subject to earlier termination upon an optionee’s cessation of employment or service.
Under the terms of the 2020 Plan, the Company is authorized to issue 18,899,285 shares of common stock pursuant to awards under the 2020 Plan. As of October 19, 2021, the Company has issued an aggregate of 11,276,706 stock options and non-statutory options to its employees and consultants and 4,525,344 shares of restricted stock to employees, directors and consultants under the 2020 Plan. No awards have or will be issued under the 2020 Plan after October 19, 2021. Shares of Common Stock subject to awards under the 2020 Plan that are forfeited, expire or lapse after October 19, 2021 will become authorized for issuance pursuant to awards under the 2021 Plan (as defined below).
The Navitas Semiconductor Corporation 2021 Equity Incentive Plan (the “2021 Plan”) was adopted by the Company’s board of directors on August 17, 2021 and adopted and approved by the Company’s stockholders at the Special Meeting on October 12, 2021. Under the terms of the 2021 Plan, the Company is authorized to issue, pursuant to awards granted under the 2021 Plan, (a) up to 16,334,527 shares of Common Stock; plus (b) up to 15,802,050 shares of Common
16
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
Stock subject to awards under the 2020 Plan that are forfeited, expire or lapse after October 19, 2021; plus (c) an annual increase, effective as of the first day of each fiscal year up to and including January 1, 2031, equal to the lesser of (i) 4 % of the number of shares of Common Stock outstanding as of the conclusion of the Company’s immediately preceding fiscal year, or (ii) such amount, if any, as the board of directors may determine.
Stock-Based Compensation
At the Closing of the Business Combination on October 19, 2021, Legacy Navitas’ outstanding vested and unvested share-based compensation awards (as such terms are defined below) were converted into equity, RSUs or options in the Company at a ratio of 1.0944 to 1 share (the “Exchange Ratio”). Share and per share information below has been converted from historical disclosures based on the Exchange Ratio.
The Company recognizes the fair value of stock-based compensation in its financial statements over the requisite service period of the individual grants, which generally equals a four-year vesting period. The Company uses estimates of volatility, expected term, risk-free interest rate and dividend yield in determining the fair value of these awards and the amount of compensation expense to recognize. The Company uses the straight-line method to amortize stock awards granted over the requisite service period of the award, which may be explicit or derived, unless market or performance conditions result in a graded attribution.
The following table summarizes the stock-based compensation expense recognized for the three and six months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net revenues | $ | $ | $ | $ | |||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
Stock Options
Generally, stock options granted under the Plans have ten year terms and vest 1/4th on the anniversary of the vesting commencement date and 1/48th monthly thereafter. Stock options with performance vesting conditions begin to vest upon achievement of the performance condition. Expense is recognized beginning in the period in which performance is considered probable.
The fair value of incentive stock options and non-statutory stock options issued was estimated using the Black-Scholes model. The Company did not grant any awards during the six months ended June 30, 2022.
17
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
| Stock Options | Shares (In thousands) | Exercise Price Per Share | Weighted- Average Exercise Price | Remaining Weighted- Average Remaining Contractual Term (In years) | Per Share Average Intrinsic Value | ||||||||||||||||||||||||
| Outstanding at December 31, 2021 | $ | $ | $ | ||||||||||||||||||||||||||
| Granted | — | ||||||||||||||||||||||||||||
| Exercised | ( | $ | — | ||||||||||||||||||||||||||
| Forfeited or expired | ( | $ | — | ||||||||||||||||||||||||||
| Cancelled | ( | $ | — | ||||||||||||||||||||||||||
| Outstanding at June 30, 2022 | $ | $ | $ | ||||||||||||||||||||||||||
| Vested and Exercisable at June 30, 2022 | $ | $ | $ | ||||||||||||||||||||||||||
During the three and six months ended June 30, 2022, the Company recognized $120 and $245 respectively, of stock-based compensation expense for the vesting of outstanding stock options, excluding $1.4 million related to the LTIP Options described below. During the three and six months ended June 30, 2021, the Company recognized $208 and $347 , respectively, of stock-based compensation expense for the vesting of outstanding stock options. At June 30, 2022, unrecognized compensation cost related to unvested awards totaled $0.9 million. The weighted-average period over which this remaining compensation cost will be recognized is 1.9 years.
Long-term Incentive Plan Stock Options
The Company awarded a total of 6,500,000 performance stock options (“LTIP Options”) to certain members of senior management on December 29, 2021 pursuant to the 2021 Plan. These non-statutory options are intended to be the only equity awards for the recipients over the duration of the performance period. The options vest in increments subject to achieving certain performance conditions, including ten share price hurdles ranging from $15 to $60 per share, coupled with revenue and EBITDA targets, measured over a seven year performance period and expire on the tenth anniversary of the grant date. The options have an exercise price of $15.51 per share and the average fair value on the grant date was $8.13 . The weighted average contractual period remaining is 9.5 years. The Black-Scholes model and a Monte Carlo simulation incorporating 100,000 scenarios. The valuation model utilized the following assumptions:
Risk-free interest rates | % | ||||
Expected volatility rates | % | ||||
Expected dividend yield | |||||
Cost of equity (for derived service period) | % | ||||
Weighted-average grant date fair value of options | $ | ||||
The Company recognized $1.4 million and $2.8 million of stock-based compensation expense for the three month and six months ended June 30, 2022, respectively. The unrecognized compensations expense related to the LTIP Options is $50.1 million.
Restricted Stock Units
On August 25, 2021, Legacy Navitas granted an aggregate of 4,135,000 Legacy Navitas RSUs under the 2020 Plan to certain members of senior management pursuant to restricted stock unit agreements (collectively, the “RSU Agreements”). At the Closing of the Business Combination, these Legacy Navitas RSUs were assumed by the Company and converted at the Exchange Ratio into RSUs to acquire an aggregate of 4,525,344 shares of common stock. Each RSU represents the right to receive one share of common stock of the Company, subject to the vesting and other terms and conditions set forth in the RSU Agreements and the 2020 Plan. 3,830,400 of these RSU awards are subject to vesting in
18
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
A summary of RSUs outstanding as of June 30, 2022, and activity during the six months then ended, is presented below:
| Restricted Common Stock Awards | Shares (In thousands) | Weighted-Average Grant Date Fair Value Per Share | |||||||||
| Outstanding at December 31, 2021 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Outstanding at June 30, 2022 | $ | ||||||||||
During the three and six months ended June 30, 2022, the Company recognized $7.4 million and $23.3 million of stock-based compensation expense for the vesting of RSAs and RSUs. During the three and six months ended June 30, 2021, the Company recognized $12,330 and $13,772 of stock-based compensation expense for the vesting of RSAs and RSUs. As of June 30, 2022, unrecognized compensation cost related to unvested RSU awards totaled $31.3 million. The weighted-average period over which this remaining compensation cost is expected be recognized is 2.03 years.
The Company accrued $3.5 million and $2.0 million as of June 30, 2022 and December 31, 2021, respectively, related to a stock-based bonus plan that the Company plans to settle by issuing a variable number of fully-vested restricted stock units to employees. Based on the closing share price of the Company’s Class A Common Stock of $3.86 on June 30, 2022, approximately 907,954 shares would have been issued, however, the actual number of shares will be based on the share price at the date of settlement.
Unvested Earnout Shares
A portion of the earnout shares may be issued to individuals with unvested equity awards. While the payout of these shares requires achievement of the volume weighted average price of the Company's common stock, the individuals are required to complete the remaining service period associated with these unvested equity awards to be eligible to receive the earnout shares. As a result, these unvested earn-out shares are equity-classified awards and have an aggregated grant date fair value of $19.1 million (or $11.52 per share). During the six months ended June 30, 2022, the Company recognized $0.8 million of stock-based compensation expense for the vesting of earnout shares. At June 30, 2022, unrecognized compensation cost related to unvested earnout shares totaled $6.1 million. The weighted-average period over which this remaining compensation cost is expected be recognized is 0.4 years. Refer to Note 10.
9. WARRANT LIABILITY
19
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
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 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 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 business days before the notice of redemption, the Company was required to concurrently redeem the Private Placement Warrants on the same terms. In addition, in such event, holders of Warrants subject to redemption would have the right to exercise their Warrants on a “cashless” basis, whereby they would receive a fractional number of shares of Common Stock per Warrant exercised before the redemption date, based on the volume weighted average price of the Common Stock for the 10 trading days following notice of redemption (the “Redemption Fair Market Value”) and the time period between the redemption date and the original expiration of the Warrants in the absence of redemption.
On February 4, 2022, the Company issued a notice of redemption that it would redeem, at 5:00 p.m. New York City time on March 7, 2022 (the “Redemption Date”), all of the Company’s outstanding Public Warrants and Private Placement Warrants to purchase shares of the Company’s Class A Common Stock that were governed by the Warrant Agreement, dated as of December 2, 2020 (the “Warrant Agreement”), between the Company and Continental Stock Transfer & Trust Company, as warrant agent (the “Warrant Agent”), at a redemption price of $0.10 per Warrant (the “Redemption Price”). On February 22, 2022, the Company issued a notice that the “Redemption Fair Market Value,” determined in accordance with the Warrant Agreement based on the volume weighted average price of the Common Stock for the 10 trading days immediately following the date on which notice of redemption was sent, was $10.33 and, accordingly, that holders exercising Warrants on a “cashless” basis before the Redemption Date would receive 0.261 shares of Common Stock per Warrant exercised. The Warrants were exercisable by their holders until immediately before 5:00 p.m. New York City time on the Redemption Date, either (i) on a cash basis, at an exercise price of $11.50 per share of Common Stock, or (ii) on a “cashless” basis in which the exercising holder would receive 0.261 shares of Common Stock per Warrant exercised. Between December 7, 2021 (the date the Warrants became exercisable) and the Redemption Date, an aggregate of 12,722,773 Warrants were exercised (including 17,785 on a cash basis and 12,704,988 on a “cashless” basis); an aggregate of 3,333,650 shares of Common Stock were issued upon exercise of the Warrants (including 17,785 shares in respect of 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 $81,388 which resulted in a gain of $0 and $51,763 due to the decrease in the fair value of the warrant liability in the three and six months ended June 30, 2022. There were no outstanding warrants as of June 30, 2022.
10. EARNOUT LIABILITY
Certain of the Company’s stockholders are entitled to receive up to 10,000,000 Earnout Shares of the Company’s Class A common stock if the Earnout Milestones are met. The Earnout Milestones represents three independent criteria, which each entitles the eligible stockholders to 3,333,333 earn-out shares per milestone met. Each Earnout Milestone is considered met if at any time 150 days following the Business Combination and prior to October 19, 2026, the volume weighted average price of the Company’s Class A common stock is greater than or equal to $12.50 , $17.00 or $20.00 for any twenty trading days within any thirty trading day period, respectively. Further, the Earnout Milestones are also considered to be met if the Company undergoes a Sale. A Sale is defined as the occurrence of any of the following: (i) engage in a “going private” transaction pursuant to Rule 13e-3 under the Exchange Act or otherwise cease to be subject to reporting obligations under Sections 13 or 15(d) of the Exchange Act; (ii) Class A common stock cease to be listed on a national security exchange, other than for the failure to satisfy minimum listing requirements under applicable stock exchange rules; or (iii) change of ownership (including a merger or consolidation) or approval of a plan for complete liquidation or dissolution.
These earnout shares have been categorized into two components: (i) the “Vested Shares” - those associated with stockholders with vested equity at the closing of the Business Combination that will be earned upon achievement of the Earnout Milestones and (ii) the “Unvested Shares” - those associated with stockholders with unvested equity at the closing
20
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
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.
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:
| June 30, 2022 | December 31, 2021 | ||||||||||
Risk-free interest rate | % | % | |||||||||
Equity volatility rate | % | % | |||||||||
21
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
11. SIGNIFICANT CUSTOMERS AND CREDIT CONCENTRATIONS
Customer Concentration
Majority of the Company’s revenues are attributable to sales of the Company’s products to distributors of electronic components. These distributors sell the Company’s products to a range of end users, including OEMs and merchant power supply manufacturers.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| Customer | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Distributor A | % | * | * | * | ||||||||||||||||||||||
| Distributor B | % | * | % | * | ||||||||||||||||||||||
| Distributor C | % | % | % | % | ||||||||||||||||||||||
| Distributor D | % | % | % | % | ||||||||||||||||||||||
| Distributor E | * | % | * | % | ||||||||||||||||||||||
| Distributor F | * | * | * | % | ||||||||||||||||||||||
*Total customer net revenues was less than 10% of total net revenues.
Revenues by Geographic Area
The Company considers the domicile of its end customers, rather than the distributors it sells to directly, to be the basis for attributing revenues from external customers to individual countries. Revenues for the three and six months ended June 30, 2022 and 2021, were attributable to end customers in the following countries:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Country | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Europe* | % | % | |||||||||||||||||||||
China | |||||||||||||||||||||||
United States | |||||||||||||||||||||||
| Rest of Asia | |||||||||||||||||||||||
Total | % | % | % | % | |||||||||||||||||||
*Impractical to disclose the revenue percentages by individual countries within Europe and therefore Europe is presented in total.
22
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consisted principally of cash, cash equivalents and trade receivables. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. At times, such amounts may exceed federally insured limits. The Company has not experienced any losses on cash or cash equivalents held at financial institutions. The Company does not have any off-balance-sheet credit exposure related to its customers.
| Customer | June 30, 2022 | December 31, 2021 | ||||||||||||
| Distributor A | * | % | ||||||||||||
| Distributor B | * | % | ||||||||||||
| Distributor C | * | % | ||||||||||||
| Distributor D | % | * | ||||||||||||
| Distributor E | % | * | ||||||||||||
*Total customer accounts receivable was less than 10% of net account receivables.
Concentration of Supplier Risk
The Company currently relies on a single foundry to produce wafers for GaN ICs. Loss of the relationship with this supplier could have a substantial negative effect on the Company. Additionally, the Company relies on a limited number of third-party subcontractors and suppliers for testing, packaging and certain other tasks. Disruption or termination of supply sources or subcontractors, including due to the COVID-19 pandemic or natural disasters such as an earthquake or other causes, could delay shipments and could have a material adverse effect on the Company. Although there are generally alternate sources for these materials and services, qualification of the alternate sources could cause delays sufficient to have a material adverse effect on the Company. A significant amount of the Company’s third-party subcontractors and suppliers, including third-party foundries that supply wafers for GaN ICs, are located in Taiwan. A significant amount of the Company’s assembly and test operations are conducted by third-party contractors in Taiwan and the Philippines.
23
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
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 for the three and six months ended June 30:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Numerator - basic and diluted: | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Denominator | |||||||||||||||||||||||
| Weighted-average common shares - basic common stock | |||||||||||||||||||||||
| Weighted-average common shares - diluted common stock | |||||||||||||||||||||||
| Net income (loss) per share - basic common stock | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Net income (loss) per share - diluted common stock | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Denominator | |||||||||||||||||||||||
| Weighted-average common shares - basic common stock | |||||||||||||||||||||||
| Stock options and other dilutive awards | |||||||||||||||||||||||
| Weighted-average common shares - diluted common stock | |||||||||||||||||||||||
Shares excluded from diluted weighted-average shares:1, 2 | |||||||||||||||||||||||
| Redeemable convertible preferred stock shares | |||||||||||||||||||||||
| Warrants to purchase redeemable convertible preferred stock | |||||||||||||||||||||||
| Warrants to purchase common shares | |||||||||||||||||||||||
| Earnout shares (potentially issuable common shares) | |||||||||||||||||||||||
| Unvested restricted stock units and restricted stock awards | |||||||||||||||||||||||
| Stock options potentially exercisable for common shares | |||||||||||||||||||||||
| Shares excluded from diluted weighted average shares | |||||||||||||||||||||||
(1)The Company’s potentially dilutive securities, which include unexercised stock options, unvested shares, preferred shares, earnout shares, and warrants for common and preferred shares, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share for the three and six months ended June 30, 2021. For the three and six months ended June 30, 2022, potentially dilutive securities have been excluded as these securities contain performance metric(s) which have not be satisfied as of June 30, 2022. Therefore, the
24
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common shareholders is the same.
(2) Balances as of June 30, 2022 retroactively restated to give effect to the October 19, 2021 reverse recapitalization.
13. PROVISION FOR INCOME TAXES:
Income Taxes
The Company determined the income tax provision for interim periods using an estimate of the Company’s annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimated annual effective tax rate, and if the estimated annual effective tax rate changes, a cumulative adjustment is recorded in that quarter. The Company’s quarterly income tax provision and quarterly estimate of the annual effective tax rate are subject to volatility due to several factors, including our ability to accurately predict the proportion of our income (loss) before provision for income taxes in multiple jurisdictions, the tax effects of our stock-based compensation, and the effects of its foreign entity
At December 31, 2021, the Company has approximately $100,147 of federal net operating loss (“NOL”) carryforwards and approximately $82,583 of State NOL carryforwards expiring in varying amounts through 2037, with the exception of Federal NOLs arising from the years ended after December 31, 2017 that may be carried forward indefinitely. Realization of the NOL carryforwards is dependent on the Company generating sufficient taxable income prior to expiration of the NOL carryforwards and is also potentially subject to usage limitations due to changes in the Company’s ownership. As of June 30, 2022, the Company continues to maintain a valuation allowance as the Company believes that it is not more likely than not that the deferred tax assets will be fully realized.
The Company had no unrecognized tax benefits for the three and six months ended June 30,2022 and 2021. The Company recognizes interest and penalties related to unrecognized tax benefits in operating expenses. No such interest and penalties were recognized during the three and six months ended June 30, 2022 and 2021.
14. COMMITMENTS and CONTINGENCIES
Purchase Obligations
At June 30, 2022, the Company had no non-cancelable purchase obligations that were due beyond one year.
Employment agreements
The Company has entered into agreements with certain employees to provide severance payments to the employees for termination for reasons other than cause, death or disability. Aggregate payments that would be required to be made in the event of termination under the agreements are approximately $1,443 . At June 30, 2022, no terminations have occurred or are expected to occur pursuant to these arrangements and, accordingly, no termination benefits have been accrued.
Indemnifications
The Company sells products to its distributors under contracts, collectively referred to as Distributor Sales Agreements (DSA). Each DSA contains the relevant terms of the contractual arrangement with the distributor, and generally includes certain provisions for indemnifying the distributor against losses, expenses, and liabilities from damages that may be awarded against the distributor in the event the Company’s products are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party (Customer Indemnification). The DSA generally limits the scope of and remedies for the Customer Indemnification obligations in a variety of industry-standard respects, including, but not limited to, limitations based on time and geography, and a right to replace an infringing product. The Company also, from time to time, has granted a specific indemnification right to individual customers.
25
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
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 June 30, 2022. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnifications.
Legal proceedings and contingencies
From time to time in the ordinary course of business, the Company may become involved in lawsuits, or end customers and distributors may make claims against the Company. The Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company is not currently subject to any pending actions or regulatory proceedings that either individually or in the aggregate are expected to have a material impact on its condensed consolidated financial statements.
15. RELATED PARTY TRANSACTIONS
Notes Receivable
The Company has outstanding interest-bearing notes receivable from an employee. The notes have various maturity dates through May 1, 2023 and bear interest at rates ranging from 1 % to 2.76 %. As of June 30, 2022, Note 1 was forgiven for a loss of $109 and Note 2 was paid off in the amount of $88 . The Company recognized $0.3 and $0.9 of interest income from the notes for the three and six months ended June 30, 2022, respectively. The Company recognized $0.8 and $1.7 of interest income from the notes for the three and six months ended June 30, 2021.
| June 30, 2022 | December 31, 2021 | ||||||||||
Notes receivable | $ | $ | |||||||||
Joint Venture
In 2021, Navitas entered into a partnership with a manufacturer of power management ICs to develop products and technology relating to ac-dc converters. Structured as a joint venture, Navitas’ initial contribution was the commitment to sell its GaN integrated circuit die at prices representing cost plus insignificant handling fees, in exchange for a minority interest, with the right to acquire the balance of the joint venture based on the future results of the venture (among other rights and obligations). The Company accounts for the investment in the joint venture as an equity-method investment. Total related party revenues recognized by the Company as a result of arrangements with its joint venture were $45 658 4.7 million was included in other assets on the consolidated balance sheet.
For its unconsolidated joint venture investments, the Company measures and records impairment losses, and reduces the carrying value of the equity investment when indicators of impairment are present and the expected discounted cash flows related to the investment is less than the carrying value. For the six months ended June 30, 2022, the Company did not record any impairment charges.
Related Party License Revenue
26
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
16. SUBSEQUENT EVENTS
The Company evaluated material subsequent events from the consolidated balance sheet date of June 30, 2022, through August 15, 2022, the date the condensed consolidated financial statements were issued. There were no material subsequent events as of August 15, 2022, except as noted below.
Acquisition of GeneSiC Semiconductor
On August 15, 2022, the Company acquired GeneSiC Semiconductor Inc., a private Delaware corporation (“GeneSiC”), in exchange for consideration consisting of $100,000 in cash and 24,883,161 shares of Navitas common stock. The acquisition was consummated pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Gemini Acquisition LLC, a Delaware limited liability company and a wholly owned direct subsidiary of the Company (“Merger Sub”), GeneSiC, and the stockholders of GeneSiC. Pursuant to the Merger Agreement and immediately after its execution and delivery, GeneSiC merged with and into Merger Sub (the “Merger”), with Merger Sub as the surviving entity and continuing to operate the GeneSiC business after the Merger as a wholly owned subsidiary of the Company. The Merger Agreement also includes possible earn-out payments of up to $25,000 , conditioned on revenue targets for the GeneSiC business over the four fiscal quarters ending September 30, 2023.
Due to the limited time since the acquisition date, and the size and complexity of the GeneSiC acquisition, the accounting for the business combination is not yet complete.
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Unless the context otherwise requires, all references in this section to the “Company,” “we,” “us, or “our” refer to the business of Navitas and its subsidiaries. Throughout this section, unless otherwise noted, “Navitas” refers to Navitas Semiconductor Corporation and its consolidated subsidiaries.
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Summary of Risk Factors” and “Cautionary Statement About Forward-Looking Statements” sections and elsewhere in this quarterly report, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
Founded in 2013, Navitas is a U.S. based, developer of gallium nitride power integrated circuits that provide superior efficiency, performance, size and sustainability relative to existing silicon technology. Our solutions offer faster charging, higher power density and greater energy savings compared to silicon-based power systems with the same output power. By unlocking this speed and efficiency, we believe we are leading a revolution in high-frequency, high-efficiency and high-density power electronics to electrify our world for a cleaner tomorrow. We maintain operations around the world, including the United States, Ireland, Germany, Italy, Belgium, China, Taiwan and the Philippines, with principal executive offices in El Segundo, California.
We design, develop and market gallium nitride (“GaN”) power integrated circuits (“ICs”) used in power conversion and charging. Power supplies incorporating our products may be used in a wide variety of electronics products including mobile phones, consumer electronics, data centers, solar inverters and electric vehicles. We utilize a fabless business model, working with third parties to manufacture, assemble and test our designs. Our fabless model allows us to run the business today with minimal capital expenditures.
Our go-to-market strategy is based on partnering with leading manufacturers and suppliers through focused product development, addressing both mainstream and emerging applications. We consider ourselves to be a pioneer in the GaN market with a proprietary, proven GaN power IC platform that is shipping in mass production to tier-1 companies including Samsung, Dell, Lenovo, LG, Xiaomi, OPPO, Amazon, vivo and Motorola. Most of the products we ship today are used primarily as components in mobile device chargers. Charger manufacturers we ship to today are worldwide, supporting major international mobile brands. Other emerging applications will also be addressed across the world.
In support of our technology leadership, we have formed relationships with numerous Tier 1 manufacturers and suppliers over the past eight years, gaining significant traction in mobile and consumer charging applications. Navitas GaN is now in mass production with 9 of the top 10 mobile OEMs across smartphone and laptops, and is in development with 10 out of 10. In addition, our supply chain partners have committed manufacturing capacity in excess of what we consider to be necessary to support our continued growth and expansion.
A core strength of our business lies in our industry leading IP position in GaN Power ICs. Navitas invented the first commercial GaN Power ICs. Today, we have over 165 patents that are issued or pending.
In addition to our comprehensive patent portfolio, our biggest proprietary advantage is our process design kit (PDK), the ‘how-to’ guide for Navitas designers to create new GaN based device and circuits. Our GaN power IC inventions and intellectual property translate across all of our target markets from mobile, consumer, EV, enterprise, and renewables. We evaluate various complementary technologies and look to improve our PDK, in order to keep introducing newer generations of GaN technology. In 2021 and the six months ended June 30, 2022, we spent approximately 117% and 150%, respectively of our revenue on research and development. Navitas’ research and development activities are located primarily in the US and China. As of June 30, 2022, we had approximately 116 full-time personnel in our research & development team, with approximately 55% with advanced degrees (PhD and MS).
Acquisition of VDDTech
28
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 $1,859 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 included in the Company’s Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022.
We recorded a preliminary allocation of the purchase price to tangible and intangible 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 assets of $1,177 was recorded as goodwill.
Business Combination and Reverse Recapitalization
On May 6, 2021, Navitas Semiconductor Limited (“Navitas Ireland”), a private company limited by shares organized under the Laws of Ireland and domesticated in the State of Delaware as Navitas Semiconductor Ireland, LLC, (“Navitas Delaware”, and together with Navitas Ireland, “Legacy Navitas”) a Delaware limited liability company, entered into a business combination agreement and plan of reorganization (the “Business Combination Agreement” or “BCA”) with Live Oak Acquisition Corp. II, (“Live Oak”). Pursuant to the BCA, through a series of transactions, Navitas Ireland merged with and into Live Oak effective October 19, 2021 (the “Closing Date”), with Navitas Ireland’s newly formed parent, Navitas Semiconductor Corporation (“Navitas Corp” or after the Business Combination, the “Company”, formerly named Live Oak Acquisition Corp. II), surviving the transaction.
The Business Combination was accounted for as a reverse recapitalization in accordance with US GAAP. Under the guidance in ASC 805, Live Oak was treated as the “acquired” company for financial reporting purposes. We were deemed the accounting predecessor and the post-combination company is the successor SEC registrant, meaning that our financial statements for previous periods will be disclosed in our annual report Form 10-K filed with the SEC filed on June 30, 2022. The Business Combination had a significant impact on our reported financial position and results as a consequence of the reverse recapitalization. The most significant change in our reported financial position and results of operations was net cash proceeds of $298,054 from the merger transaction, which included $173,000 in gross proceeds from the PIPE financing that was consummated in conjunction with the Business Combination. The increase in cash was offset by transaction costs incurred in connection with the Business Combination of approximately $24,967. Navitas expects to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.
Results of Operations
Revenue
We design, develop and manufacture GaN ICs. Our revenue represents the sale of semiconductors through specialized distributors to original equipment manufacturers (“OEMs”), their suppliers and other end customers.
Our revenues fluctuate in response to a combination of factors, including the following:
•our overall product mix and sales volumes;
•gains and losses in market share and design win traction;
•pace at which technology is adopted in our end markets;
•the stage of our products in their respective life cycles;
•the effects of competition and competitive pricing strategies;
•availability of specialized field application engineering resources supporting demand creation and end customer adoption of new products;
•achieving acceptable yields and obtaining adequate production capacity from our wafer foundries and assembly and test subcontractors;
•market acceptance of our end customers’ products; governmental regulations influencing our markets; and
29
•the global and regional economic cycles.
Our product revenue is recognized when the customer obtains control of the product and the timing of recognition is based on the contractual shipping terms of a contract. We provide a non-conformity warranty which is not sold separately and does not represent a separate performance obligation. The vast majority of our product revenue originates from sales shipped to customer locations in Asia.
Cost of Goods Sold
Cost of goods sold consists primarily of the cost of semiconductors purchased from subcontractors, including wafer fabrication, assembly, testing and packaging, manufacturing support costs, including labor and overhead (which includes depreciation and amortization) associated with such purchases, final test and wafer level yield fallout, consumables, system and shipping costs. Cost of goods sold also includes compensation related to personnel associated with manufacturing.
Research and Development Expense
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 cash and share-based 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 design and development process.
Selling, General and Administrative Expense
Selling, general and administrative costs include employee compensation, including cash and share-based compensation and benefits for executive, finance, business operations, sales, field application engineers and other administrative personnel. In addition, it includes marketing and advertising, IT, outside legal, tax and accounting services, insurance, and occupancy costs and related overhead based on headcount. Selling, general and administrative costs are expensed as incurred.
Interest Expense
Interest expense primarily consists of interest under our term loan facility.
Income Taxes
Legacy Navitas a dual domesticated corporation for Ireland and U.S. federal income tax purposes. Refer to Note 13, Provision for Income Taxes, in our accompanying condensed consolidated financial statements elsewhere in this quarterly report.
Results of Operations
The table and discussion below present our results for the three and six months ended June 30, 2022 and 2021:
30
| Three Month Ended June 30, | Change $ | Change % | ||||||||||||||||||||||||
| (dollars in thousands) | 2022 | 2021 | ||||||||||||||||||||||||
| Revenue | $ | 8,611 | $ | 5,450 | $ | 3,161 | 58 | % | ||||||||||||||||||
| Cost of goods sold | 5,026 | 2,971 | 2,055 | 69 | % | |||||||||||||||||||||
| Gross profit | 3,585 | 2,479 | 1,106 | 45 | % | |||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Research and development | 9,606 | 6,267 | 3,339 | 53 | % | |||||||||||||||||||||
| Selling, general and administrative | 13,993 | 14,794 | (801) | (5) | % | |||||||||||||||||||||
| Total operating expenses | 23,599 | 21,061 | 2,538 | 12 | % | |||||||||||||||||||||
| Loss from operations | (20,014) | (18,582) | (1,432) | 8 | % | |||||||||||||||||||||
| Other income (expense), net: | — | — | — | % | ||||||||||||||||||||||
| Interest income (expense), net | 52 | (63) | 115 | (183) | % | |||||||||||||||||||||
| Gain (loss) from change in fair value of warrants | — | — | — | — | % | |||||||||||||||||||||
| Gain (loss) from change in fair value of earnout liabilities | 54,854 | — | 54,854 | — | % | |||||||||||||||||||||
| Other income (expense) | (785) | — | (785) | — | % | |||||||||||||||||||||
| Total other income (expense), net | 54,121 | (63) | 54,184 | (86006) | % | |||||||||||||||||||||
| Income (loss) before income taxes | 34,107 | (18,645) | 52,752 | (283) | % | |||||||||||||||||||||
| Income tax expense | 270 | 5 | 265 | 5300 | % | |||||||||||||||||||||
| Net income (loss) | $ | 33,837 | $ | (18,650) | $ | 52,487 | (281) | % | ||||||||||||||||||
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| Six Months Ended June 30, | Change $ | Change % | |||||||||||||||||||||
| (dollars in thousands) | 2022 | 2021 | |||||||||||||||||||||
| Revenue | $ | 15,351 | $ | 10,767 | $ | 4,584 | 43 | % | |||||||||||||||
| Cost of goods sold | 8,803 | 5,930 | 2,873 | 48 | % | ||||||||||||||||||
| Gross profit | 6,548 | 4,837 | 1,711 | 35 | % | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 23,019 | 10,521 | 12,498 | 119 | % | ||||||||||||||||||
| Selling, general and administrative | 38,537 | 20,163 | 18,374 | 91 | % | ||||||||||||||||||
| Total operating expenses | 61,556 | 30,684 | 30,872 | 101 | % | ||||||||||||||||||
| Loss from operations | (55,008) | (25,847) | (29,161) | 113 | % | ||||||||||||||||||
| Other income (expense), net: | — | — | % | ||||||||||||||||||||
| Interest income (expense), net | 28 | (124) | 152 | (123) | % | ||||||||||||||||||
| Gain (loss) from change in fair value of warrants | 51,763 | — | 51,763 | — | % | ||||||||||||||||||
| Gain (loss) from change in fair value of earnout liabilities | 118,260 | — | 118,260 | — | % | ||||||||||||||||||
| Other income (expense) | (1,141) | — | (1,141) | — | % | ||||||||||||||||||
| Total other income (expense), net | 168,910 | (124) | 169,034 | (136318) | % | ||||||||||||||||||
| Income (loss) before income taxes | 113,902 | (25,971) | 139,873 | (539) | % | ||||||||||||||||||
| Income tax expense | 273 | 24 | 249 | 1038 | % | ||||||||||||||||||
| Net income (loss) | $ | 113,629 | $ | (25,995) | $ | 139,624 | (537) | % | |||||||||||||||
Comparison of the Quarters ended June 30, 2022 and 2021
Revenue
Revenue for the three months ended June 30, 2022 was $8.6 million compared to $5.5 million for the three months ended June 30, 2021, an increase of $3.2 million, or 58%. The significant increase primarily reflected the Company’s customer growth trajectory, evolving from aftermarket customers to the higher volume customers and total sales volumes increasing 26%, from 5.8 million to 7.3 million units shipped, while the average selling price increased 11% to $1.06 per unit.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 2022 was $5.0 million compared to $3.0 million for the three months ended June 30, 2021, an increase of $2.1 million or 69%. The increase was primarily driven by significant revenue growth, in addition to TSMC's 20% wafer price increase which created a higher cost of goods sold.
Research and Development Expense
Research and development expense for the three months ended June 30, 2022 of $9.6 million increased by $3.3 million, or 53%, when compared to the three months ended June 30, 2021, driven by increases in stock based compensation, resulting in $1.7 million higher compensation costs, along with an increase of $1.7 million compensation costs related to growth in headcount as the Company develops products in Solar, Enterprise and EV. We expect research and development expense to continue to increase as we grow our headcount to support our expansion into new applications.
Selling, General and Administrative Expense
Selling, general and administrative expense for the three months ended June 30, 2022 of $14.0 million decreased by $(0.8) million, or (5)%, when compared to the three months ended June 30, 2021. The decrease is primarily due to a
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($3.3) million decrease in stock-based compensation issued for one-time executive stock awarded in the three months ended June 30, 2021, offset by a $2.5 million increase in compensation costs related to growth in headcount and an increase in other costs of growing the business. We expect selling, general and administrative costs to increase to support our growth and as a result of the increased costs for infrastructure required as a public company.
Other Income (Expense), net
Net interest income for the three months ended June 30, 2022 was $52 thousand compared to $(63) thousand net interest expense for the three months ended June 30, 2021, primarily due to the higher interest rate received on money markets funds.
During the three months ended June 30, 2022, we recognized $54.9 million gain from the change in fair value of our earn out liabilities and $(0.8) million loss from an equity method investment as follows:
i) Earnout liability: Subsequent to the recognition of the earnout liability upon the consummation of the Business Combination on October 19, 2021, we remeasure the fair value of this liability at each reporting date. The decrease in fair value of our earn-out liability of $54.9 million was primarily a result of the decrease of the closing price of our Class A common stock listed on the Nasdaq, resulting in the decline in the estimated fair value of the earnout shares from $8.47 as of March 31, 2022 to $1.89 as of June 30, 2022.
ii) Other expense primarily reflects our minority interest in the net loss of a joint venture.
Income Tax Expense
Income tax expenses for the three months June 30, 2022 increased by $265 thousand when compared to the three months June 30, 2021. We expect our tax rate to remain close to zero in the near term due to full valuation allowances against deferred tax assets.
Comparison of the Six Months ended June 30, 2022 and 2021
Revenue
Revenue for the six months ended June 30, 2022 was $15.4 million compared to $10.8 million for the six months ended June 30, 2021, an increase of $4.6 million, or 43%. The significant increase primarily reflected the Company’s customer growth trajectory, evolving from aftermarket customers to higher volume customers and total sales volumes increasing 29%, from 11.5 million to 14.8 million units shipped, while the average selling price remained approximately flat at $0.94 per unit.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 2022 was $8.8 million compared to $5.9 million for the six months ended June 30, 2021, an increase of $2.9 million or 48%. The increase was primarily driven by significant revenue growth, in addition to TSMC's 20% wafer price increase which created a higher cost of goods sold.
Research and Development Expense
Research and development expense for the six months ended June 30, 2022 of $23.0 million increased by $12.5 million, or 119%, when compared to the six months ended June 30, 2021, primarily driven by increases in stock based compensation, resulting in $8.9 million higher compensation costs, along with an increase of $3.6 million in non-compensation costs related to new applications and reliability expenses devoted to next generation product development and compensation costs related to growth in headcount as the Company develops products in Solar, Enterprise and EV. We expect research and development expense to continue to increase as we grow our headcount to support our expansion into new applications.
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Selling, General and Administrative Expense
Selling, general and administrative expense for the six months ended June 30, 2022 of $38.5 million increased by $18.4 million, or 91%, when compared to the six months ended June 30, 2021. The increase is primarily due to a $13 million increase in stock-based compensation, and a $5.3 million increase in compensation costs related to growth in headcount and other costs of growing the business. We expect selling, general and administrative costs to increase to support our growth and as a result of the increased costs for infrastructure required as a public company.
Other Income (Expense), net
Net interest income for the six months ended June 30, 2022 was $28 thousand compared to $(124) thousand net interest expense for the six months ended June 30, 2021, increased by 123%, primarily due to the higher interest rate received on cash equivalents.
During the six months ended June 30, 2022, we recognized $51.8 million gain from the change in fair value of our warrant liabilities, $118.3 million decrease in fair value of our earn out liabilities and $(1.1) million loss from an equity method investment, as follows:
i) Warrants: The change in fair value of our warrant liability is due to the Company issuing a notice of redemption on February 4, 2022 and the Company revaluing the liability just before the exercise and redemptions which resulted in a valuation change of $51.8 million.
ii) Earnout liability: Subsequent to the recognition of the earnout liability upon the consummation of the Business Combination on October 19, 2021, we remeasure the fair value of this liability at each reporting date. The decrease in fair value of our earn-out liability of $118.3 million was primarily a result of the decrease of the closing price of our Class A common stock listed on the Nasdaq, resulting in the decline in the estimated fair value of the earnout shares from $16.09 as of December 31, 2021 to $1.89 as of June 30, 2022.
iii) Other expense primarily reflects our minority interest in the net loss of a joint venture.
Income Tax Expense
Income tax expenses for the six months ended June 30, 2022 increased by $249 thousand when compared to the six months ended June 30, 2021. We expect our tax rate to remain close to zero in the near term due to full valuation allowances against deferred tax assets.
Liquidity and Capital Resources
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, working capital requirements related to inventory, accounts payable and accounts receivable, and selling, general and administrative expenditures. In addition, we use cash to fund our debt service obligations, and purchases of capital and software assets.
We expect to continue to incur net operating losses and negative cash flows from operations and we expect our research and development expenses, general and administrative expenses and capital expenditures will continue to increase. We expect our expenses and capital requirements to increase in connection with our ongoing initiatives to expand our operations, product offerings and end customer base.
Prior to the Business Combination, we derived our liquidity and capital resources primarily from the issuance and sale of convertible preferred stock. The term loan principal balance is payable in monthly installments beginning in September 2021.
As June 30, 2022, we had cash and cash equivalents of $240.5 million. We currently use cash to fund operations, meet working capital requirements, for capital expenditures and strategic investments. Post-Business Combination, the Company has additional access to capital resources through public market transactions and the historical focus on near-term working capital and liquidity has shifted to more strategic and forward-looking capital optimization plans. We believe
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that the influx of capital from the Business Combination is sufficient to finance our operations, working capital requirements and capital expenditures for the foreseeable future.
We expect our operating and capital expenditures to increase as we increase headcount, expand our operations and grow our end customer base. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through additional debt financing or from other sources. If we raise additional funds through the issuance of equity, the percentage ownership of our equity holders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing equity holders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.
Cash Flows
The following table summarizes our consolidated cash flows for the six months ended June 30, 2022 and 2021:
| June 30, 2022 | June 30, 2021 | ||||||||||
| (dollars in thousands) | |||||||||||
Consolidated Statements of Cash Flow Data: | |||||||||||
Net cash used in operating activities | $ | (18,383) | $ | (13,773) | |||||||
Net cash used in investing activities | $ | (8,057) | $ | (1,469) | |||||||
Net cash provided (used in) by financing activities | $ | (1,308) | $ | 222 | |||||||
We derive liquidity primarily from debt and equity financing activities. As of June 30, 2022, our balance of cash and cash equivalents was $240.5 million, which is an decrease of $27.7 million or 10% compared to December 31, 2021. Our total outstanding debt principal balance as of June 30, 2022 was $5.3 million, which is a decrease of $1.6 million from the $6.9 million of total debt outstanding at December 31, 2021.
Operating Activities
For the six months ended June 30, 2022, net cash used in operating activities was $18.4 million, which primarily reflects a net income of $113.6 million, adjusted for non-cash share-based compensation of $36.4 million, non-cash gains of $170.0 million in earnout and warrant liabilities and an aggregate cash used in operating activities of $1.0 million. Specifically, $1.1 million increase in account receivable and $2 million increase in inventory are primarily due to increased sales. $1.9 million increase in account payable is primarily due to accrued bonus and increased wages, offsetting by $0.6 million increase in operating lease liability.
For the six months ended June 30, 2021, net cash used in operating activities was $13.8 million, which reflects a net loss of $26.0 million, adjusted for non-cash share-based compensation of $14.6 million and includes an aggregate cash used in operating activities of $2.7.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2022 of $8.1 million was primarily due to $5.2 million cash funding of a joint venture, $2.3 million for purchases of fixed assets, coupled with $0.6 million business acquisition.
Net cash used in investing activities of $1.5 million for the six months ended June 30, 2021, was primarily related to the purchase of an asset acquisition and property and equipment.
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Financing Activities
Net cash used in financing activities for the six months ended June 30, 2022 of $1.3 million was primarily due to debt payments of $1.6 million and repurchase of our common stock of $0.6 million, partially offset by proceeds from stock option exercises of $0.9 million.
Net cash provided by financing activities for the six months ended June 30, 2021 of $222 thousand was primarily the result proceeds from stock option exercises.
Contractual Obligations, Commitments and Contingencies
Except for a new operating lease entered into during the quarter, there have been no significant changes to our contractual obligations as described in our annual report on Form 10-K for the year ended December 31, 2021.
Off-Balance Sheet Commitments and Arrangements
As of June 30, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Critical Accounting Policies and Estimates
The preparation of our financial statements and related disclosures in accordance with U.S. GAAP requires our management to make judgments, assumptions and estimates that affect the amounts reported in our accompanying condensed consolidated financial statements and the accompanying notes included elsewhere in this quarterly report. Our management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our condensed consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.
There have been no material changes to our critical accounting policies and estimates from the information in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our 2021 annual report on Form 10-K.
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JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies, allowing them to delay the adoption of those standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, following the Business Combination, our condensed consolidated financial statements may not be comparable to the financial statements of companies that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make common stock less attractive to investors.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer (our principal executive officer and principal financial officer, respectively), of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2022, pursuant to Exchange Act Rule 13a-15. Based upon this evaluation, our chief executive officer and chief financial officer have concluded that as of August 12, 2022, as a result of the material weaknesses in our internal control over financial reporting discussed below, and in the Company’s annual report on Form 10-K for the year ended December 31, 2021, our disclosure controls and procedures were not effective.
As disclosed in Item 9 of our annual report on Form 10-K for the year ended December 31, 2021, management concluded that we lack a sufficient number of trained professionals with technical accounting expertise to identify, evaluate, value and account for complex transactions. We also found we have insufficient accounting resources to maintain appropriate segregation of duties, including to ensure journal entries are reviewed by personnel independent of the preparer.
Management has taken steps to evaluate resources throughout the organization to determine where current resources should be reassigned and where additional resources are needed to consistently and timely execute internal control activities. During the second quarter, a new Controller and a Financial Reporting Manager was added to the accounting department, which Management believes have sufficient work experience and technical accounting knowledge. In addition for more complex transactions and to the extent there is a lack of knowledge within the current accounting team, Management plans to engage external professional firms to assist with such transactions as they arise. With the additional hires in the second quarter, Management will continue to assess segregation of duties and the journal entries process to ensure there is a separate preparer and reviewer. The material weaknesses will not be considered remediated until remediated controls operate for a sufficient period of time and management has concluded that these controls are operating effectively.
Management has concluded that, notwithstanding the material weaknesses described above, the Company’s condensed consolidated financial statements included in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the date, and for the periods presented, in conformity with U.S. GAAP.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2022, there were no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time we may be involved in various disputes and litigation matters that arise in the ordinary course of business. We are currently not a party to any material legal proceedings.
Item 1A. Risk Factors.
In addition to the Summary of Risk Factors set forth at the beginning of this report, you should carefully consider the factors discussed in Part I, Item 1A (“Risk Factors”) of our annual report on Form 10-K for the year ended December 31, 2021. The risks described herein and in our 2021 annual report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Risks Related to Our Acquisition of GeneSiC Semiconductor
We may have difficulties integrating the operations and business of GeneSiC with our own.
Our acquisition of GeneSiC is the first significant acquisition we have ever undertaken. Although GeneSiC is a stand-alone business capable of continuing operations as a separate, wholly owned subsidiary of the Company, the complexities involved in the integration and expansion of GeneSiC as part of our Company are not yet fully understood. We have devoted and expect to continue to devote a significant amount of time and attention to integrating GeneSiC into our existing operations teams.
Given our relatively small size and relative inexperience with acquisitions, we expect the challenges involved in this integration to be complex and time consuming. Among other risks that arise from the acquisition, we may not be successful in our efforts to: (1) integrate new employees with our existing staff; (2) integrate and align numerous business and work processes, including information technology and cyber security systems; (3) demonstrate that the GeneSiC acquisition will not adversely affect our ability to address the needs of existing customers, or result in the loss of attention or focus on our existing businesses; (4) coordinate and integrate research and development and engineering teams across technologies and product platforms; (5) consolidate and integrate corporate, information technology, finance and administrative processes; (6) coordinate sales and marketing efforts to effectively position our capabilities and the direction of product development; and (7) minimize diversion of management attention from important business objectives.
If we do not successfully manage these issues and the other challenges inherent in the GeneSiC acquisition, then we may not achieve the anticipated benefits of the transaction and our post-acquisition revenue, expenses, results of operations and financial condition could be materially adversely affected, any of which could materially adversely affect the trading price of our common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On June 10, 2022, in connection with the acquisition of VDDTECH srl, a private Belgian company (“VDDTech”), by Navitas Semiconductor Limited, our wholly owned subsidiary, we issued 414,207 shares of our common stock to the former shareholders of VDDTech. Consideration for all of the capital stock of VDDTech consisted of 150,616 shares and approximately $791,000 in cash. The shares were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, or Rule 506 thereunder.
Item 5. Other Information.
2022 Annual Stockholder Meeting
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We are planning to hold our 2022 annual meeting of stockholders on November 10, 2022. Although we are announcing the meeting date in this report, we have not yet given notice of the meeting. Additional details on the time and place of the meeting, including instructions to attend the meeting on-line, will be provided in the notice of meeting and proxy materials for the meeting.
For any proposal to be considered for inclusion in our proxy statement and form of proxy for submission to stockholders at our 2022 annual meeting of stockholders, it must be submitted in writing and comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934 and our bylaws. Such proposals must be received at our offices at 2101 East El Segundo Blvd., Suite 205, El Segundo, CA 90245, within a reasonable time before we begin to print and send proxy materials for the meeting. We currently expect to begin to print and send proxy materials for the meeting on or about September 15, 2022.
In addition, our amended and restated bylaws provide notice procedures for stockholders to propose business to be considered by stockholders at a meeting. To be timely, a stockholder’s notice must be received by the secretary of the company at our principal executive offices not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the annual meeting is more than 30 days before or more than 60 days after such anniversary date (or if there has been no prior annual meeting), notice by the stockholder to be timely must be so received no earlier than the close of business on the 120th day prior to such annual meeting and no later than the close of business on the later of the 90th day prior to such annual meeting or the tenth day following the day on which public announcement of the date such meeting is first made. Assuming the 2022 annual meeting of stockholders is held on November 10, 2022 as planned, this means that a stockholder’s notice to propose business at the meeting must be received by the secretary as provided above no later than August 22, 2022. The chairman of the board may refuse to acknowledge the introduction of any stockholder proposal not made in compliance with the foregoing procedures.
Further, our amended and restated bylaws provide notice procedures for stockholders to nominate a person as a director to be considered by stockholders at a meeting. To be timely, a stockholder’s notice must be received by the secretary at the principal executive offices of the company, in the case of an annual meeting not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the annual meeting is more than 30 days before or more than 60 days after such anniversary date (or if there has been no prior annual meeting), notice by the stockholder to be timely must be so received no earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting was first made. Assuming the 2022 annual meeting of stockholders is held on November 10, 2022 as planned, this means that a stockholder’s notice to nominate a person as a director must be received by the secretary as provided above no later than August 22, 2022. The chairman of the board may refuse to acknowledge the introduction of any stockholder nomination not made in compliance with the foregoing procedures.
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Item 6. Exhibits.
EXHIBIT INDEX
| Exhibit | Description | ||||||||||
10.1† | |||||||||||
| 31.1* | |||||||||||
| 31.2* | |||||||||||
| 32.1** | |||||||||||
| 32.2** | |||||||||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document | ||||||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | ||||||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||
† Management contract or compensatory arrangement.
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| NAVITAS SEMICONDUCTOR CORPORATION | ||||||||
| By: | /s/ Gene Sheridan | |||||||
| Gene Sheridan | ||||||||
| President and Chief Executive Officer | ||||||||
| Date: | August 15, 2022 | |||||||
| NAVITAS SEMICONDUCTOR CORPORATION | ||||||||
| By: | /s/ Ron Shelton | |||||||
| Ron Shelton | ||||||||
| Chief Financial Officer | ||||||||
| (principal financial and accounting officer) | ||||||||
| Date: | August 15, 2022 | |||||||
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Exhibit 10.1
 | Navitas Semiconductor USA, Inc. 2101 E. El Segundo Blvd., Suite 205 El Segundo, CA 90245 | ||||
May 17, 2022
Ron Shelton
[***]
[***]
Dear Ron:
I am very pleased to extend an offer of employment to you for the position of Senior Vice President and Chief Financial Officer of Navitas Semiconductor Corporation, reporting directly to me. This offer is conditioned on your satisfactory completion of certain requirements, as more fully explained in this letter, and your employment is subject to the terms and conditions set forth in this letter.
Duties
In your capacity as CFO, you will perform duties and responsibilities that are commensurate with those of a CFO of a public corporation, and such other duties as may be assigned to you from time to time. You agree to devote your full business time, attention and best efforts to the performance of your duties and to the furtherance of Navitas’ interests. Notwithstanding the foregoing, nothing in this letter shall preclude you from devoting reasonable periods of time to charitable and community activities, and, subject to board approval which will not be unreasonably withheld, serving on boards of other companies (public or private) not in competition with Navitas, provided that none of these activities interferes with the performance of your duties or creates a conflict of interest.
Employer; Location
You will be employed by Navitas Semiconductor USA, Inc., a Delaware corporation and wholly owned subsidiary of Navitas Semiconductor Corporation, or by a professional employer organization under contract with Navitas. Your principal place of employment will be the company’s offices in the greater Los Angeles area or your home office at your option, subject to business travel, including internationally as needed to properly fulfill your employment duties and responsibilities. We expect travel will be required over approximately 50% of your work time.
Start Date
Subject to satisfaction of all of the conditions described in this letter, your anticipated start date is May 17, 2022 on a half-time basis transitioning to full-time beginning on June 13, 2022.
_________
*** Redacted pursuant to 17 CFR § 229.601(a)(6).
Ron Shelton
May 17, 2022
Page 2
Base Salary
In consideration of your services, you will be paid an initial base salary of $350,000 per year, subject to review annually, payable semi-monthly in accordance with the standard payroll practices of the company and subject to all withholdings and deductions as required by law. Salary will be prorated during your transition to full time employment for the period from May 17 to June 13, 2022.
Annual Bonus
During your employment, you will be eligible to participate in Navitas’ annual bonus plan at a target bonus opportunity level of 50% of base salary, with a maximum payout opportunity of 70% of base salary. Actual payments will be determined based on a combination of Navitas results and individual performance against applicable performance goals established by the board of directors. Targets for the balance of 2022 will be mutually determined and agreed. Any annual bonus with respect to a particular calendar year will be paid to you in cash or in the form of fully vested restricted stock units (RSUs) under the Navitas Semiconductor Corporation 2021 Equity Incentive Plan (“Equity Plan”), as the company may determine, within 2 1/2 months following the end of the year. For 2022, your bonus would be pro-rated based on the number of days you are employed during the year. You must remain continuously employed through the end of the applicable calendar year to be eligible to receive an annual bonus for that year.
Equity Awards
As we have discussed, you will receive two equity awards as soon as practicable following your start date: (1) a grant of 375,000 RSUs, which will vest in 25% increments on the first four anniversaries of April 20, 2022 and (2) a grant of 225,000 RSUs, subject to stock price and revenue performance goals to be agreed upon separately. Both equity awards will be granted under and subject to the Equity Plan and customary award agreements entered into under the Equity Plan which are not inconsistent with this letter. The equity awards are subject to approval by the compensation committee of the board of directors.
Benefits and Perquisites
You will be eligible to participate in the employee benefit plans and programs generally available to the company’s executives, including group medical, dental, vision and life insurance, disability benefits, and other benefits, subject to the terms and conditions of such plans and programs. You will be entitled to three weeks of paid vacation in accordance with the company’s policies in effect from time to time. You will also be entitled to the fringe benefits and perquisites that are made available to other similarly situated executives, each in accordance with and subject to the eligibility and other provisions of such plans and programs. Navitas reserves the right to amend, modify or terminate any of its benefit plans or programs at any time and for any reason.
Withholding
All forms of compensation paid to you as an employee of Navitas shall be less all applicable withholdings.
At-will Employment
Your employment with Navitas will be for no specific period of time. Rather, your employment will be at-will, meaning that you or Navitas may terminate the employment relationship at any
Ron Shelton
May 17, 2022
Page 3
time, with or without cause, and with or without notice and for any reason or no particular reason. Although your compensation and benefits may change from time to time, the at-will nature of your employment may only be changed by an express written agreement signed by an authorized officer of Navitas.
Severance/Change in Control Severance
If your employment with Navitas is involuntarily terminated without cause (and other than as a result of a breach by you of the terms and conditions of this letter), then, subject to your execution and non-revocation of a release of claims in a form provided by the company, you will be eligible to receive severance in accordance with the Navitas Semiconductor Severance Plan (“Severance Plan”). As we have discussed, the Severance Plan is in the process of being finalized in consultation with, and subject to the approval of, the compensation committee of the board of directors, but in any event the final Severance Plan will provide severance benefits which are both (i) consistent with those of a public company of similar size and type as Navitas, and (ii) no less favorable to you than those set forth in the attached Severance Schedule. To the extent the Severance Plan provides for severance benefits more favorable to your position or to any other C-level executive at the company, such improved benefits will be extended to you.
Section 409A
This offer letter is intended to comply with Section 409A of the Internal Revenue Code (“Section 409A”) or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this offer letter, payments provided under this offer letter may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this offer letter that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this offer letter shall be treated as a separate payment. Any payments to be made under this offer letter upon a termination of employment shall only be made upon a “separation from service” under Section 409A. Notwithstanding the foregoing, Navitas makes no representations that the payments and benefits provided under this offer letter comply with Section 409A and in no event shall Navitas be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by you on account of non-compliance with Section 409A.
Notwithstanding any other provision of this offer letter, if any payment or benefit provided to you in connection with termination of employment is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A and you are determined to be a “specified employee” as defined in Section 409A(a)(2)(b)(i), then such payment or benefit shall not be paid until the first payroll date to occur following the six-month anniversary of your termination date (the “Specified Employee Payment Date”) or, if earlier, on the date of your death. The aggregate of any payments that would otherwise have been paid before the Specified Employee Payment Date and interest on such amounts calculated based on the applicable federal rate published by the Internal Revenue Service for the month in which your separation from service occurs shall be paid to you in a lump sum on the Specified Employee Payment Date and thereafter, any remaining payments shall be paid without delay in accordance with their original schedule.
Governing Law
This offer letter shall be governed by the laws of California, without regard to conflict of law principles.
Ron Shelton
May 17, 2022
Page 4
Contingent Offer
This offer is contingent upon:
a.Verification of your right to work in the United States, as demonstrated by your completion of an I-9 form upon hire and your submission of acceptable documentation (as noted on the I-9 form) verifying your identity and work authorization within three days of your start date. For your convenience, a copy of the I-9 Form’s List of Acceptable Documents is enclosed for your review.
b.Satisfactory completion of reference checks and completion of a background investigation, for which the required notice and consent forms will be provided to you.
c.Your execution of Navitas’ customary confidentiality and invention assignment agreement and policy acknowledgements to be executed prior to commencing work.
This offer will be withdrawn if any of the above conditions are not satisfied.
Representations
By accepting this offer, you represent that you are able to accept this job and carry out the work that it would involve without breaching any legal restrictions on your activities, such as non-competition, non-solicitation or other work-related restrictions imposed by a current or former employer. You also represent that you will inform Navitas about any such restrictions and provide Navitas with as much information about them as possible, including any agreements between you and your current or former employer describing such restrictions on your activities.
You further confirm that you will not remove or take any documents or proprietary data or materials of any kind, electronic or otherwise, with you from your current or former employer to Navitas without written authorization from your current or former employer, nor will you use or disclose any such confidential information during the course and scope of your employment with Navitas. If you have any questions about the ownership of particular documents or other information, you should discuss such questions with your former employer before removing or copying the documents or information.
[Signature Page Follows]
Ron Shelton
May 17, 2022
Page 5
I am excited at the prospect of you joining our team. If you have any questions about the above details, please call me immediately. If you wish to accept this position, please sign below and return this letter to me.
I look forward to hearing from you.
Yours very truly,
NAVITAS SEMICONDUCTOR CORPORATION
By: /s/ Gene Sheridan
Gene Sheridan
Chief Executive Officer
Acceptance of Offer
I have read and understood and I accept all the terms of the offer of employment as set forth in the foregoing letter. I have not relied on any agreements or representations, express or implied, that are not set forth expressly in the foregoing letter, and this letter supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to the subject matter of this letter.
Signed /s/ Ron Shelton
Ron Shelton
Date 5/17/22
Ron Shelton
May 17, 2022
Page 6
Severance Schedule
| Non Change of Control | Within 12 Months After Change of Control | |||||||
| Severance Amount | Base salary: 12 months | Base salary: 24 months Pro-rata bonus at target | ||||||
| Equity Award Treatment | No acceleration | All equity awards fully accelerated Performance awards are accelerated at actual performance | ||||||
| Health Benefits Continuation | 12 months | 24 months | ||||||
Exhibit 31.1
CERTIFICATION
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gene Sheridan, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2022 of Navitas Semiconductor Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
(b) (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313); and
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 15, 2022 /s/ Gene Sheridan
Gene Sheridan
President and Chief Executive Officer
(principal executive officer)
Exhibit 31.2
CERTIFICATION
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ron Shelton, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2022, of Navitas Semiconductor Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
(b) (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313); and
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 15, 2022 /s/ Ron Shelton
Ron Shelton
Chief Financial Officer
(principal financial and accounting officer)
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Navitas Semiconductor Corporation (the “Company”) for the fiscal quarter ended June 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), I, Gene Sheridan, President and Chief Executive Officer, and principal executive officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 15, 2022 /s/ Gene Sheridan
Gene Sheridan
President and Chief Executive Officer
(principal executive officer)
Exhibit 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Navitas Semiconductor Corporation (the “Company”) for the fiscal quarter ended June 30, 2022, as filed with the Securities and Exchange Commission (the “Report”), I, Ron Shelton, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 15, 2022 /s/ Ron Shelton
Ron Shelton
Chief Financial Officer
(principal financial and accounting officer)