NAVITAS SEMICONDUCTOR CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations. (Form 10-Q)

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.
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Insight

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, 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. The majority of
charger manufacturers we ship to today are in China, supporting major
international mobile brands. Other emerging applications will be addressed in
China, other parts of Asia, and worldwide.

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.

The core strength of our business lies in our industry leading IP position in
GaN Power ICs. Navitas invented the first commercial GaN Power ICs and along the
way we patented many fundamental circuit elements which are needed in most power
systems from 10 W to 100 kW. Today, we have over 151 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 three months
ended March 31, 2022, we spent approximately 117% and 143%, respectively of our
revenue on research and development. Navitas' research and development
activities are located primarily in the US and China. As of March 31, 2022, we
had approximately 103 full-time personnel in our research & development team,
with approximately 59% with advanced degrees (PhD and MS).

Business combinations 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 has been accounted for as a reverse recapitalization under US GAAP. Per ASC 805 guidelines, Live Oak has been treated as the “acquired” company for financial reporting purposes. We were famous

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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 March 31,
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 integrated circuits. Our revenue represents the sale of semiconductors through specialty 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 range and sales volumes;

•gains and losses of market share and win traction design;

•the rate 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 application engineering resources in the field supporting the creation of demand and the adoption of new products by end customers;

•achieve acceptable yields and obtain adequate production capacities from our wafer foundries and our assembly and test subcontractors;

• market acceptance of our end customers’ products; government regulations affecting our markets; and

•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 costs

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.
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Selling, general and administrative expenses

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 charges

Interest expense consists primarily of interest under our term loan facility.

Income taxes

Legacy Navitas a dual domesticated company for Ireland and WE for federal income tax purposes. See Note 13, Provision for Income Taxes, in our accompanying condensed consolidated financial statements elsewhere in this quarterly report.

Operating results

The table and discussion below present our results for the three months ended
March 31, 2022 and 2021:

                                                        Three Months Ended
                                                            March 31,                     Change              Change
($ in thousands)                                     2022                2021                $                   %
Revenue                                          $    6,740          $   5,317          $  1,423                    27  %
Cost of goods sold                                    3,777              2,959               818                    28  %
Gross profit                                          2,963              2,358               605                    26  %
Operating expenses:
Research and development                             13,413              4,254             9,159                   215  %
Selling, general and administrative                  24,544              5,369            19,175                   357  %
Total operating expenses                             37,957              9,623            28,334                   294  %
Loss from operations                                (34,994)            (7,265)          (27,729)                  382  %
Other income (expense), net:
Interest expense, net                                   (24)               (61)               37                   (61) %
Gain from change in fair value of warrants           51,763                  -            51,763                     -  %
Gain from change in fair value of earnout
liabilities                                          63,406                  -            63,406                     -  %
Other expense                                          (356)                 -              (356)                    -  %
Total other income (expense), net                   114,789                (61)          114,850                     -  %
Income (loss) before income taxes                    79,795             (7,326)           87,121                     -  %
Income tax expense                                        3                 19               (16)                  (84) %
Net income (loss)                                $   79,792          $  (7,345)         $ 87,135                 (1186) %



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Comparison of quarters ended March 31, 2022 and 2021

Revenue

Revenue for the three months ended March 31, 2022 was $6.7 million compared to
$5.3 million for the three months ended March 31, 2021, an increase of $1.4
million, or 27%. The significant increase primarily reflected the Company's
customer growth trajectory, evolving from aftermarket customers to the top
mobile companies and total sales volumes increasing 32%, from 5.7 million to 7.5
million units shipped, while the average selling price declined 15% to $0.82 per
unit.

Cost of Goods Sold

Cost of goods sold for the three months ended March 31, 2022 was $3.8 million
compared to $3.0 million for the three months ended March 31, 2021, an increase
of $0.8 million or 28%. The increase was primarily driven by significant revenue
growth, partially offset by lower costs on third generation ("Gen 3") products
launched in the second half of 2021.

Research and development costs

Research and development expense for the three months ended March 31, 2022 of
$13.4 million increased by $9.2 million, or 215%, when compared to the three
months ended March 31, 2021, primarily driven by increases in stock based
compensation, resulting in $7.3 million higher compensation costs, along with an
increase of $1.9 million in non-compensation costs related to new applications
and reliability expenses devoted to next generation product development. 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 expenses

Selling, general and administrative expense for the three months ended March 31,
2022 of $24.5 million increased by $19.2 million, or 357%, when compared to the
three months ended March 31, 2021. The increase is primarily due to an $16.3
million increase in stock-based compensation, a $1.6 million increase in
compensation costs related to growth in headcount and a $1.3 million 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 (expenses), net

Net interest expense, net for the three months ended March 31, 2022 of $24,000 decreased by (61%) compared to the quarter ended March 31, 2021mainly due to lower outstanding debt and interest income on cash equivalents.

During the three months ended March 31, 2022, we recognized gain from the change
in fair value of our warrant liabilities, earn out liabilities and an equity
method investment of $51.8 million, $63.4 million and ($0.4) million,
respectively, 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 $63.4 million was primarily a result
of the decrease of the closing price of our Class A common stock listed on the
Nasdaq from $17.01 per share on December 31, 2021 to $10.28 per share on March
31, 2022.

(iii) Other expense reflects our minority interest in the net loss of a joint venture.

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income tax expense

Income tax expenses for the three months March 31, 2022 decreased by ($16)
thousand when compared to the three March 31, 2021. We expect our tax rate to
remain close to zero in the near term due to full valuation allowances against
deferred tax assets.

Cash 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 March 31, 2022, we had cash and cash equivalents of $253.8 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 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 equityholders could be significantly diluted,
and these newly issued securities may have rights, preferences or privileges
senior to those of existing equityholders. 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.

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