GCT Semiconductor Holding Inc

Previous wording

On March 26, 2024(the “Closing Date” or “Closing”), GCT Semiconductor, Inc. (“Legacy GCT”) and Concord Acquisition Corp III, a Delaware corporation (“Concord III”), consummated the Merger pursuant to the Business Combination Agreement and Concord III changed its name to GCT Semiconductor Holding, Inc. (“GCT”). As a result, the financial statements of Legacy GCT are now the financial statements of GCT. This discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2024 and related notes appearing elsewhere in this Quarterly Report and Legacy GCT’s audited consolidated financial statements as of and for the years ended December 31, 2023 and 2022 and related notes included in our Form 8-K filing with the Securities and Exchange Commission (“SEC”) on April 1, 2024.

Current wording

On March 26, 2024(the “Closing Date” or “Closing”), GCT Semiconductor, Inc. (“Legacy GCT”) and Concord Acquisition Corp III, a Delaware corporation (“Concord III”), consummated the Merger pursuant to the Business Combination Agreement and Concord III changed its name to GCT Semiconductor Holding, Inc. (“GCT”). As a result, the financial statements of Legacy GCT are now the financial statements of GCT. This discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2024 and related notes appearing elsewhere in this Quarterly Report and Legacy GCT’s audited consolidated financial statements as of and for the years ended December 31, 2023 and 2022 and related notes included in our Form 8-K filing with the Securities and Exchange Commission (“SEC”) on April 1, 2024.

Previous wording

This discussion may contain forward-looking statements including, but not limited to, our expectations or predictions of future financial or business performance or conditions. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. You should read the sections in this Quarterly Report titled “Risk Factors” and “Special Note of Forward-Looking Statements” of a discussion of important factors that could cause actual results to differ materially from the results described in or implied by these forward-looking statements.* *Unless otherwise indicated, the terms “GCT,” “the Company,” “we,” “us,” or “our” refer to GCT Semiconductor Holding Inc., a Delaware corporation, together with our consolidated subsidiaries.

Current wording

This discussion may contain forward-looking statements including, but not limited to, our expectations or predictions of future financial or business performance or conditions. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. You should read the sections in this Quarterly Report titled “Risk Factors” and “Special Note of Forward-Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by these forward-looking statements.* *Unless otherwise indicated, the terms “GCT,” “the Company,” “we,” “us,” or “our” refer to GCT Semiconductor Holding Inc., a Delaware corporation, together with our consolidated subsidiaries.

Previous wording

We are a fabless semiconductor company that specialize in the design, manufacturing and sale of communication semiconductors, including high-speed wireless communication technologies such as 5G/4.75G/4.5G/4G transceivers (“RF”) and modems, which are essential for a wide variety of industrial, B2B and consumer applications. We have successfully developed and supplied communication semiconductor chipsets and modules to leading wireless operators worldwide, as well as to original design manufacturers (“ODMs”) and original equipment manufacturers (“OEMs”) for portable wireless routers (e.g., Mobile Router/MiFi), indoor and outdoor fixed wireless routers (e.g., CPE), industrial M2M applications and smartphones.

Current wording

We are a fabless semiconductor company that specializes in the design, manufacturing and sale of communication semiconductors, including high-speed wireless communication technologies such as 5G/4.75G/4.5G/4G transceivers (“RF”) and modems, which are essential for a wide variety of industrial, B2B and consumer applications. We have successfully developed and supplied communication semiconductor chipsets and modules to leading wireless operators worldwide, as well as to original design manufacturers (“ODMs”) and original equipment manufacturers (“OEMs”) for portable wireless routers (e.g., Mobile Router/MiFi), indoor and outdoor fixed wireless routers (e.g., CPE), industrial M2M applications and smartphones.

Previous wording

The Company received $17.2 million cash proceeds from the reverse recapitalization and private investment from public equity financing (“PIPE Financing”), net of transaction costs. Total direct and incremental transaction costs of Concord III and Legacy GCT

Current wording

The Company received $17.2 million cash proceeds from the Business Combination and private investment from public equity financing (“PIPE Financing”), net of transaction costs. Total direct and incremental transaction costs of Concord III and Legacy GCT were $22.0

Previous wording

were $22.0 million and treated as a reduction of the cash proceeds, of which $8.9 million was deducted from additional paid-in capital for underwriting, accounting, legal and other fees, and the remaining balance of $13.1 million was expensed in the period incurred by Concord III.

Current wording

million and treated as a reduction of the cash proceeds, of which $8.9 million was deducted from additional paid-in capital for underwriting, accounting, legal and other fees, and the remaining balance of $13.1 million was expensed in the period incurred by Concord III.

Previous wording

Recently, downturns in the semiconductor industry have been attributed to a variety of factors, including the COVID-19 pandemic, ongoing trade disputes between the United States and China, weakness in demand and pricing for semiconductors across applications, and excess inventory. In addition, since the end of 2022, the semiconductor industry has experienced a downturn due to inventory corrections and reduced consumer demands. These downturns have directly impacted GCT’s business, suppliers, distributors, and end customers. While we expect a gradual recovery of the broader semiconductor markets in the remainder of 2024, there is no guarantee that such recovery will occur or that the extent of recovery will be at a pace as initially anticipated.

Current wording

Downturns in the semiconductor industry have been attributed to a variety of factors, including the COVID-19 pandemic, ongoing trade disputes between the United States and China, weakness in demand and pricing for semiconductors across applications, and excess inventory. In addition, from the end of 2022, the semiconductor industry experienced a downturn due to inventory corrections and reduced consumer demands. These downturns have directly impacted GCT’s business, suppliers, distributors, and end customers. More recently the semiconductor industry has normalized however there have been lingering effects that continue to effect certain segments including that for 4G LTE, where channel inventories continue to exist and where demand has been reduced due to expedited customer transition from 4G LTE to 5G. While we expect a continued recovery of the broader semiconductor markets in the remainder of 2024, there is no guarantee that such recovery will occur or that the extent of recovery will be at a pace as initially anticipated.

Previous wording

As a result of the Business Combination, we became the successor to an SEC-registered and NYSE-listed company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have incurred, and expect to continue to incur, additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance premiums, which are substantial, director fees, and additional internal and external accounting, legal and administrative resources.

Current wording

As a result of the Business Combination, we became the successor to an SEC-registered and NYSE-listed company, which requires us to hire additional personnel and implement procedures and processes to address and comply with public company regulatory requirements and customary practices. We have incurred, and expect to continue to incur, additional expenses as a public company including directors’ and officers’ liability insurance premiums, director fees, and additional internal and external accounting, legal and administrative costs.

Previous wording

Our service revenues are generated from the sale of mobile semiconductor platform solutions aimed at the 4G LTE and 5G industries, development services and technical advice and maintenance services. Service revenues are generally recognized over time as the customer obtains control of the promised services.

Current wording

Our service revenues are generated from the sale of mobile semiconductor platform solutions aimed at the 4G LTE and 5G industries, development services, technical advice, and maintenance services. Service revenues are generally recognized over time as the customer obtains control of the promised services.

Previous wording

Our sales and marketing (“S&M”) expenses consist of employee-related expenses, including salaries, commissions, employee benefits costs, and stock-based compensation for all employees engaged in marketing, sales, and sales support. S&M expenses also include local and centralized advertising costs and the infrastructure required to support our marketing efforts. We expense S&M costs in the periods in which they are incurred.

Current wording

Our sales and marketing (“S&M”) expenses consist of employee-related expenses, including salaries, commissions, employee benefits costs, and stock-based compensation for all marketing, sales, and sales support employees. S&M expenses also include local and centralized advertising costs and the infrastructure required to support our marketing efforts. We expense S&M costs in the periods in which they are incurred.

Previous wording

Other income, net consists of foreign currency gains and losses, changes in fair value of convertible promissory notes, gains and losses associated with the redemption of convertible notes, and other miscellaneous income (expense).

Current wording

Other income (expenses), net consists of foreign currency gains and losses, changes in fair value of convertible promissory notes, gains and losses associated with the redemption of convertible notes, and other miscellaneous income and expenses.

Previous wording

The following tables set forth our results of operations for the periods indicated. The period-to-period comparison of financial results is not necessarily indicative of future results. The following table sets forth our historical results for the periods indicated and the changes between periods (in thousands):

Current wording

This section discusses the results of our operations for the periods indicated. The period-to-period comparison of financial results is not necessarily indicative of future results.

Previous wording

The reduction in certain of our product sales in 2024 was primarily due to our largest customer changing its priority on product development from 4G to the next generation 5G products during 2023, which resulted in the reduction of 4G activity and decline for demand during the three months ended March 31, 2024. Our net revenues are expected to increase with this customer after we launch our 5G products.

Current wording

Product sales decreased from $4.0 million for the three months ended June 30, 2023 to an insignificant amount for the three months ended June 30, 2024. The decrease was due to excess LTE channel inventory and our largest customers changing their priorities on product development from 4G to the next generation 5G products during 2023, which resulted in the reduction of 4G activity and decline for demand during the three months ended June 30, 2024. Our net revenues are expected to increase with these customers after the launch of our 5G products.

Previous wording

Product costs decreased by $0.3 million, or 33%, to $0.7 million for the three months ended March 31, 2024 from $1.0 million for the three months ended March 31, 2023. The decrease was primarily driven by a $0.3 million decrease in direct product costs as we sold fewer units and a $0.4 million decrease in royalty related costs. This decrease was partially offset by a $0.3 million increase in direct and indirect costs related to LTE platform sales, which began in the second quarter of 2023.

Current wording

Cost of net revenues decreased by $0.9 million, or 63%, to $0.5 million for the three months ended June 30, 2024 from $1.5 million for the three months ended June 30, 2023. Product costs decreased by $0.8 million from $1.0 million for the three months ended June 30, 2023 to $0.2 million for the three months ended June 30, 2024. The change was primarily driven by a decrease in direct product costs as we sold fewer units. Service costs remained comparable for the three months ended June 30, 2024 and 2023.

Previous wording

Sales and marketing expenses increased by $0.2 million, or 19%, to $1.0 million for the three months ended March 31, 2024 from $0.8 million for the three months ended March 31, 2023. The $0.2 million increase was primarily due to several immaterial increases in various costs for the three months ended March 31, 2024.

Current wording

Sales and marketing expenses increased by $0.2 million, or 29%, from $0.8 million for the three months ended June 30, 2023 to $1.0 million for the three months ended June 30, 2024. This increase was primarily due to personnel-related costs.

Previous wording

Research and development expenses increased by $4.6 million, or 512%, to $5.5 million for the three months ended March 31, 2024 from $0.9 million for the three months ended March 31, 2023. This increase was primarily due to a $2.4 million increase in research and development expenses mainly related to services provided by Alpha to design 5G chip products, $1.1 increase in expensed intellectual property (“IP”) costs related to services provided by Alpha to design 5G chip products, $0.7 million increase in expensed IP costs related to our LTE platform for which sales began in the second quarter of 2023 and a $0.4 million increase in R&D personnel costs due to our heavier focus on research and development activities as sales of our LTE platform continued to increase.

Current wording

Research and development expenses increased by $4.8 million, or 98% from $4.9 million for the six months ended June 30, 2023 to $9.7 million for the six months ended June 30, 2024, primarily in connection with our development projects. This increase was primarily due to a $2.7 million increase in research and development expenses mainly related to services provided by Alpha to design 5G chip products, and a $2.0 million increase in expensed intellectual property costs related to our new 5G chip products.

Previous wording

General and administrative expenses increased by $1.4 million, or 92%, to $2.8 million for the three months ended March 31, 2024 from $1.5 million for the three months ended March 31, 2023. The increase was primarily due to a $1.0 million increase in stock-based compensation related to the vesting of equity awards after performance conditions were met on the closure of the merger and a $0.2 million increase in other expenses related to debt fees.

Current wording

General and administrative expenses increased by $1.6 million, or 39%, from $4.1 million for the six months ended June 30, 2023 to $5.7 million for the six months ended June 30, 2024. The change was primarily due to a $1.2 million increase in stock-based compensation related to the vesting of equity awards with performance conditions met upon the closing of the Business Combination, and a $1.2 million increase in professional expenses related to the public company operations, partially offset by a net decrease of $0.5 million in provision for credit losses.

Previous wording

Gain on extinguishment of liability was $14.6 million for the three months ended March 31, 2024 due to the release by a vendor in the three months ended March 31, 2024 of amounts payable by us for research and development services received in prior years. There was no similar transaction that took place during the three months ended March 31, 2023.

Current wording

Gain on extinguishment of liability was $14.6 million for the six months ended June 30, 2024 due to the release by a vendor of amounts payable by us for research and development services received in prior years. There was no similar transaction that took place during the comparable period of 2023.

Previous wording

Except for the three months ended March 31, 2024, we have incurred and expect that we will continue to incur significant operating losses. For the three months ended March 31, 2024 and 2023, we had a net income of $0.8 million and a net loss of $1.4 million, respectively. For the three months ended March 31, 2024 and 2023, we had cash used in operating activities of $14.4 million and $1.5 million, respectively. As of March 31, 2024, we had an accumulated deficit of $548.9 million.

Current wording

With limited exceptions, we have incurred and expect that we will continue to incur significant operating losses. For the three and six months ended June 30, 2024, we had a net loss of $1.0 million and $0.3 million, respectively. For the six months ended June 30, 2024 and 2023, we had cash used in operating activities of $24.1 million and $6.4 million, respectively. As of June 30, 2024, we had an accumulated deficit of $549.9 million. Our unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary if we are unable to obtain adequate financing in the future.

Previous wording

We received $17.2 million in cash proceeds from the reverse recapitalization and PIPE Financing, net of transaction costs. As a result of the cash proceeds received in connection with the Business Combination and other capital resources available to us, including sales of our products and services and the Purchase Agreement (as defined below), we believe we have sufficient cash to fund our operations for at least the next 12 months from the filing of this Quarterly Report on Form 10-Q.

Current wording

In March 2024, we received $17.2 million in cash proceeds from the reverse recapitalization and PIPE Financing, net of transaction costs in connection with the closing of the Business Combination. As a result of the cash proceeds received in connection with the Business Combination and other capital resources available to us, including sales of our products and services and the Purchase

Previous wording

In April 2024, we entered into a common stock purchase agreement (the “Purchase Agreement”) and a related registration rights agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital II, LLC (“B. Riley Principal Capital II”) to provide for an “equity line of credit” Pursuant to the Purchase Agreement and subject to the satisfaction of certain conditions, including the effectiveness of a resale registration statement, we have the right, in our sole discretion, to sell to B. Riley Principal Capital II, from time to time, up to $50.0 million in aggregate gross purchase price of shares of our common stock, subject to certain limitations contained in the Purchase Agreement, during the term of 24 months. Pursuant to the Registration Rights Agreement, the Company is required to file a registration statement on Form S-1 to register the resale of shares of common stock that are sold to B. Riley Principal Capital II under the Purchase Agreement. Sales of common stock by the Company to B. Riley Principal Capital II pursuant to the Purchase Agreement, and the timing of any such sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to B. Riley Principal Capital II under the Purchase Agreement.

Current wording

In April 2024, we entered into a common stock purchase agreement (the “Purchase Agreement”) and a related registration rights agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital II, LLC (“B. Riley”). Pursuant to the Purchase Agreement, we have the right but not the obligation, to sell, from time to time, to B. Riley up to $50.0 million in aggregate gross purchase price of shares of our common stock in our sole discretion, subject to certain conditions and limitations, during the term of 24 months. Pursuant to the Registration Rights Agreement, the Company filed a registration statement on Form S-1 to register the resale of shares of common stock to be sold to B. Riley, which became effective on June 6, 2024. Through June 30, 2024, we sold an aggregate of 678,462 shares of our common stock and received net proceeds of $2.8 million under the Purchase Agreement and $0.5 million was withheld by B. Riley against the outstanding amounts payable.

Previous wording

In addition, we have outstanding convertible promissory notes and borrowings as of March 31, 2024 for a total principal amount of $50.5 million, of which $45.5 million is contractually due within 12 months of the balance sheet date.

Current wording

As of June 30, 2024, we have outstanding convertible promissory notes and borrowings with a total principal amount of $43.6 million, of which $38.6 million is contractually due within 12 months from this reporting date. During July 2024, we were able to renegotiate the timing of payments for some of the obligations that initially were due in the third fiscal quarter of 2024. However, our existing debt obligations largely remain due within one year from June 30, 2024. We will need to start generating positive cash flows, renegotiate our existing debt obligations and raise additional capital through debt or equity financing. There can be no assurance that such additional debt or equity financing will be available on terms acceptable to us or at all.

Previous wording

While a portion of the cash proceeds received in connection with the Business Combination was expended to support our 5G activity and fund other operational expenses, management expects that further and significant ongoing operating expenditures will be necessary to successfully implement our business plan and market our products. With the start of manufacturing, shipments and commercialization of our first 5G chipset expected during 2024, we anticipate significant related expenditures in the form of production-related costs, including mask sets, wafers, and design service fees, and most such costs will be incurred prior to the commencement of manufacturing and production. If we do not have sufficient funds to make such payments, or if we cannot extend the terms of our existing commercial loans or to raise additional capital, the payments can be delayed, which may adversely affect our business operations and financial performance. For a more detailed description of such risks, please see the section entitled “Risk Factors” disclosed in our Registration Statement on Form S-1 filed with the SEC on April 19, 2024.

Current wording

While a portion of the cash proceeds received in connection with the Business Combination was expended to support our 5G activity and fund other operational expenses, we expect that further and significant ongoing operating expenditures will be necessary to successfully implement our business plan and market our products. With the start of manufacturing, shipments and commercialization of our first 5G chipset expected during the first half of 2025, we anticipate significant related expenditures in the form of production-related costs, including mask sets, wafers, and design service fees, and most such costs will be incurred prior to the commencement of manufacturing and production. If we do not have sufficient funds to make such payments, or if we cannot extend the terms of our existing commercial loans or to raise additional capital, the payments can be delayed, which may adversely affect our business operations and financial performance. For a more detailed description of such risks, please see the section entitled “Risk Factors” disclosed in our Registration Statement on Form S-1 filed with the SEC on April 19, 2024.

Previous wording

We intend to mitigate the risk of any working capital deficit by continuing to seek and execute appropriate actions to secure funding as a publicly traded company, including extension and refinancing of existing loans, securing equity line of credit, and public or private equity offerings, debt financings, and other means. We have historically been able to raise capital through the issuance and sale of equity and equity-linked instruments, such as redeemable convertible preferred stock, convertible promissory notes, and borrowings, although no assurance can be provided that we would continue to be successful in doing so in the future.

Current wording

We intend to mitigate the risk of any working capital deficit by continuing to seek and execute appropriate actions to secure funding as a publicly traded company, including extension and refinancing of existing loans, executing public or private equity offerings, debt financings, and other means. We have historically been able to raise capital through the issuance and sale of equity and equity-linked instruments, such as redeemable convertible preferred stock, convertible promissory notes, and borrowings, although no assurance can be provided that we would continue to be successful in doing so in the future.

Previous wording

While we believe that we have a reasonable basis for our expectation and we will be available to raise additional funds, we cannot provide assurance that we will be able to complete additional financing in a timely manner. Should we enter into definitive collaboration and/or joint venture agreements or engage in business combinations in the future, we may be required to seek additional financing.

Current wording

While we believe that we have a reasonable basis for our expectation and we will be available to raise additional funds, we cannot provide assurance that we will be able to complete additional financing in a timely manner. In addition, the sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and may include operating and financial covenants that would restrict our operations. We cannot be certain that any financing will be available in the amounts we need or on terms acceptable to us, if at all. Should we enter into definitive collaboration and/or joint venture agreements or engage in business combinations in the future, we may be required to seek additional financing.

Previous wording

Cash flow Comparison for the Three Months Ended March 31, 2024 and 2023

Current wording

Cash flow Comparison for the Six Months Ended June 30, 2024 and 2023

Previous wording

Cash used in operating activities of $14.4 million during the three months ended March 31, 2024 was primarily attributable to our net income of $0.8 million, offset by $7.0 million in non-cash adjustments and $8.2 million change in our operating assets and liabilities. Non-cash adjustments consisted primarily of $14.6 million gain from the extinguishment of a liability, partially offset by $4.6 million loss from the change in fair value of warrant liabilities, $1.2 million loss from the change in fair value of convertible promissory notes, $1.2 million in stock-based compensation, $0.2 million in depreciation and amortization charges, $0.2 million in operating lease right-of-use amortization and $0.2 million in provision for credit losses. The change in our operating assets and liabilities primarily resulted from a decrease of $4.1 million in our accounts payable, accrued and other current liabilities and other liabilities due to the payment of costs incurred related to our Business Combination, an increase of $2.3 million in our prepaid expenses and other current assets related to timing of payments for inventory and manufacturing of wafers, an increase of $0.9 million in our contract assets due to unbilled services provided under certain projects, an increase of $0.5 million in our accounts receivable primarily due to slower collections from certain customers, an increase of $0.3 million in our inventory due to lower sales, and a decrease of $0.2 million in our lease liabilities.

Current wording

Cash used in operating activities of $24.1 million during the six months ended June 30, 2024 was primarily attributable to our net loss of $0.3 million, non-cash adjustments of $12.5 million, and net change in our operating assets and liabilities of $11.3 million. Non-cash adjustments consisted primarily of $14.6 million gain from the extinguishment of a liability, $2.0 million gain from the change in fair value of warrant liabilities and $0.5 million change in provision for credit loss, partially offset by $1.5 million in stock-based compensation, $1.2 million loss from the change in fair value of convertible promissory notes, $0.7 million in non-cash expense related to the issuance of common stock to underwriter, $0.6 million loss from the initial recognition of common stock forward liability, $0.4 million in depreciation and amortization charges and $0.3 million in operating lease right-of-use amortization. The change in our operating assets and liabilities of $11.3 million primarily resulted from a decrease of $7.8 million in our accounts payable and accrued and other current liabilities due to the payment of costs incurred related to our Business Combination, an increase of $1.7 million in our prepaid expenses and other current assets related to timing of payments for inventory and manufacturing of wafers, an increase of $1.2 million in our contract assets due to unbilled services provided under certain projects, and an increase of $0.5 million in our inventory due to lower sales.

Previous wording

Cash used in operating activities of $1.5 million during the three months ended March 31, 2023 was primarily attributable to our net loss of $1.4 million and $0.2 million in non-cash adjustments, partially offset by $0.1 million change in our operating assets and liabilities. Non-cash adjustments consisted primarily of $0.5 million gain from the change in fair value of convertible promissory notes, partially offset by $0.2 million in depreciation and amortization and $0.2 million operating lease right-of-use amortization. The change in our operating assets and liabilities primarily resulted from a decrease of $2.1 million in our accounts receivable corresponding to lower revenues and an increase of $0.8 million in our accounts payable, accrued and other current liabilities and other liabilities related to the timing of payments, partially offset by an increase of $1.8 million in our contract assets due to unbilled services provided under certain projects, an increase of $0.7 million in inventory due to lower sales, and a decrease of $0.7 million in our contract liabilities due to the provision of our services under certain projects.

Current wording

Cash used in operating activities of $6.4 million during the six months ended June 30, 2023 was primarily attributable to our net loss of $8.0 million, partially offset by $0.5 million in non-cash adjustments and $1.1 million change in our operating assets and liabilities. Non-cash adjustments consisted primarily of $0.8 million net loss from provision for credit losses, $0.4 million in depreciation and amortization charges and $0.4 million in operating lease right-of-use amortization, partially offset by $1.1 million gain from the change in fair value of convertible promissory notes. The change in our operating assets and liabilities of $1.1 million primarily resulted from an increase of $4.3 million in our accounts payable and accrued and other current liabilities related to the timing of payments, partially offset by an increase of $1.9 million in our contract assets due to unbilled services provided under certain projects, a decrease of $0.6 million in our contract liabilities due to the provision of our services under certain projects, an increase of $0.5 million in accounts receivable primarily due to slower collections from certain customers, and an increase of $0.2 million in inventory due to lower sales.

Previous wording

Cash used in investing activities of $0.1 million during the three months ended March 31, 2023 related to the purchases of property and equipment.

Current wording

Cash used in investing activities during the six months ended June 30, 2024 and 2023 was related solely to the purchases of property and equipment.

Previous wording

Cash provided by financing activities of $30.3 million during the three months ended March 31, 2024 consisted of $17.2 million from proceeds received from the reverse recapitalization and PIPE Financing, net of transaction costs, $16.3 million in proceeds from the issuance of convertible promissory notes, partially offset by $3.2 million repayment of our bank borrowings.

Current wording

Cash provided by financing activities of $27.9 million during the six months ended June 30, 2024 consisted of $17.2 million from proceeds received from the reverse recapitalization and PIPE Financing, net of transaction costs, $16.3 million in proceeds from the issuance of convertible promissory notes and $2.8 million proceeds received from issuance of common stock to B. Riley under the Purchase Agreement, partially offset by $7.9 million repayment of our bank borrowings and $0.6 million repayment of convertible promissory notes.

Previous wording

Cash provided by financing activities of $0.6 million during the three months ended March 31, 2023 primarily related to net proceeds from bank borrowings.

Current wording

Cash provided by financing activities of $6.8 million during the six months ended June 30, 2023 primarily related to net proceeds from bank borrowings.

Previous wording

We have certain commitments for outstanding purchase orders related to the manufacture of certain wafers utilized by the Company and other services, and we have entered into a material research and development agreement. See Note 8, to our unaudited condensed consolidated financial statements included in herein for more information regarding our additional commitments and contractual obligations.

Current wording

We have certain commitments for outstanding purchase orders related to the manufacture of certain wafers utilized by the Company and other services, and we have entered into a material research and development agreement. See Note 8 to our unaudited condensed consolidated financial statements included in this Form 10-Q for more information regarding our additional commitments and contractual obligations.

Previous wording

We have certain debt agreements in place related to convertible promissory notes and borrowings. See Note 7, to our unaudited condensed consolidated financial statements included in herein for more information regarding our debt arrangements.

Current wording

We have certain debt agreements in place related to convertible promissory notes and borrowings. See Note 7, to our unaudited condensed consolidated financial statements included in this Form 10-Q for more information regarding our debt arrangements.

Previous wording

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements and the related notes thereto included herein are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and related disclosures in our condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and various other factors that we believe to be reasonable under the circumstances, which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions due to the inherent uncertainty involved in making those estimates, and any such differences may be material.

Current wording

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and related disclosures. We base our estimates on historical experience and various other factors that we believe to be reasonable under the circumstances, which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions due to the inherent uncertainty involved in making those estimates, and any such differences may be material.

Previous wording

There have been no material changes to our critical accounting estimates from those described under in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Judgements and Estimates disclosed in our Form 8-K filing with the SEC on April 1, 2024, , except that from the Closing we have certain contracts in our own equity that are subject to liability classification and remeasurement each reporting periods.

Current wording

There have been no material changes to our critical accounting estimates from those described in “Management’s Discussion and Analysis of Financial Condition,” “Results of Operations – Critical Accounting Policies,” and “Significant Judgements and Estimates” disclosed in our Form 8-K filing with the SEC on April 1, 2024, except that from the Closing we have certain contracts in our own equity that are subject to liability classification and remeasurement each reporting periods.

Previous wording

Accounts receivable balances are primarily derived from revenues earned from customers located in the United States, China, Korea, Japan, and Taiwan. We perform ongoing credit evaluations of the financial conditions of our customers and distributors, and generally do not require collateral from our customers. We continuously monitor collections and payments from customers and maintain a provision for credit losses based upon the collectability of our customer accounts. We review the provision by considering certain factors such as historical experience, industry data, credit quality, age of balances and current economic conditions that may affect a customer’s ability to pay. Uncollectible receivables are written off when all efforts to collect have been exhausted and recoveries are recognized when they are recovered. While such credit losses have historically been minimal, within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we had in the past. A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectability of our accounts receivable and our future operating results. The provision for credit losses was $1.9 million and $1.6 million as of March 31, 2024 and December 31, 2023, respectively.

Current wording

Accounts receivable balances are primarily derived from revenues earned from customers located in the United States, China, South Korea, Japan, and Taiwan. We perform ongoing credit evaluations of the financial conditions of our customers and distributors, and generally do not require collateral from our customers. We continuously monitor collections and payments from customers and maintain a provision for credit losses based upon the collectability of our customer accounts. We review the provision by considering certain factors such as historical experience, industry data, credit quality, age of balances and current economic conditions that may affect a customer’s ability to pay. Uncollectible receivables are written off when all efforts to collect have been exhausted and recoveries are recognized when they are recovered. While such credit losses have historically been minimal, we cannot guarantee that we will continue to experience the same credit loss rates that we had in the past. A significant change in the liquidity or financial position of any of our

Previous wording

We have made an election to account for our convertible promissory notes under the fair value option, the convertible promissory notes are recorded at their initial fair value on the date of issuance and then are adjusted to fair value upon any modification and at each balance sheet date thereafter. Changes in the estimated fair value of the convertible promissory notes are recognized as non-cash gains or losses in the condensed consolidated statements of operations within other income, net.

Current wording

We have made an election to account for our convertible promissory notes under the fair value option, the convertible promissory notes are recorded at their initial fair value on the date of issuance and then are adjusted to fair value upon any modification and at each balance sheet date thereafter. Changes in the estimated fair value of the convertible promissory notes are recognized as non-cash gains or losses in the unaudited condensed consolidated statements of operations within other income (expenses), net.

Previous wording

Our convertible promissory notes are valued using a discounted cash flow (“DCF”) model or binomial lattice model (“BLM”) and prior to the Business Combination were valued using a combination of an option pricing model and Probability-Weighted Expected Return Method (“PWERM”), which are considered to be a Level 3 fair value measurements. Significant assumptions used in the DCF include the remaining term and discount rate. Significant assumptions used in the BLM include volatility, remaining term, risk-free rate and credit spread. The PWERM is a scenario-based methodology that estimates the fair value based using an analysis of future values for the Company that assumes various outcomes. The value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available. The future value under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability-weighted to arrive at an indication of value. Significant assumptions used in the PWERM include volatility, discount rate, and the probability of a future liquidity event.

Current wording

Our convertible promissory notes are valued using a discounted cash flow (“DCF”) model or binomial lattice model (“BLM”), and, prior to the Business Combination, were valued using a combination of an option pricing model and Probability-Weighted Expected Return Method (“PWERM”), which are a Level 3 fair value measurements. Significant assumptions used in the DCF include the remaining term and discount rate. Significant assumptions used in the BLM include volatility, remaining term, risk-free rate, and credit spread. The PWERM is a scenario-based methodology that estimates the fair value based using an analysis of future values for the Company that assumes various outcomes. The value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available. The future value under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability-weighted to arrive at an indication of value. Significant assumptions used in the PWERM include volatility, discount rate, and the probability of a future liquidity event.

Previous wording

See Note 2 to our condensed consolidated financial statements included herein for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition and results of operations.

Current wording

See Note 2 to our unaudited condensed consolidated financial statements included herein for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition and results of operations.

Previous wording

JOBS Act Accounting Smaller Reporting Company Elections

Current wording

JOBS Act Accounting and Smaller Reporting Company Elections

Previous wording

We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our condensed consolidated financial statements may or may not be comparable to companies that comply with new or revised accounting pronouncements as of public companies’ effective dates.

Current wording

We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our unaudited condensed consolidated financial statements may or may not be comparable to companies that comply with new or revised accounting pronouncements as of public companies’ effective dates.