# EDGAR Filing Document

**Accession Number:** 0001839132
**File Stem:** 0001193125-23-088291
**Filing Date:** 2023-3
**Character Count:** 370631
**Document Hash:** 931438e67d423256ec6ee397d539ebdd
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001193125-23-088291.hdr.sgml**: 20230331

**ACCESSION NUMBER**: 0001193125-23-088291

**CONFORMED SUBMISSION TYPE**: 8-K/A

**PUBLIC DOCUMENT COUNT**: 16

**CONFORMED PERIOD OF REPORT**: 20230210

**ITEM INFORMATION**: Completion of Acquisition or Disposition of Assets

**ITEM INFORMATION**: Financial Statements and Exhibits

**FILED AS OF DATE**: 20230331

**DATE AS OF CHANGE**: 20230331

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Movella Holdings Inc.
- **CENTRAL INDEX KEY:** 0001839132
- **STANDARD INDUSTRIAL CLASSIFICATION:** SERVICES-PREPACKAGED SOFTWARE [7372]
- **IRS NUMBER:** 000000000
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 8-K/A
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-40074
- **FILM NUMBER:** 23788956

**BUSINESS ADDRESS:**
- **STREET 1:** 3535 EXECUTIVE TERMINAL DRIVE
- **STREET 2:** SUITE 110
- **CITY:** HENDERSON
- **STATE:** NV
- **ZIP:** 89052
- **BUSINESS PHONE:** 310-481-1800

**MAIL ADDRESS:**
- **STREET 1:** 3535 EXECUTIVE TERMINAL DRIVE
- **STREET 2:** SUITE 110
- **CITY:** HENDERSON
- **STATE:** NV
- **ZIP:** 89052

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Pathfinder Acquisition Corp
- **DATE OF NAME CHANGE:** 20210106

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Arrowhead Growth Acquisition Corp
- **DATE OF NAME CHANGE:** 20210105

?xml version="1.0" encoding="utf-8" ? 8-K/A

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### UNITED STATES

### SECURITIES AND EXCHANGE COMMISSION

#### Washington, D.C. 20549

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### FORM 8-K/A

#### (AMENDMENT NO. 1)

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#### CURRENT REPORT

#### Pursuant to Section 13 or 15(d)

#### of the Securities Exchange Act of 1934

#### Date of report (Date of earliest event reported): February 10, 2023

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## Movella Holdings Inc.

#### (Exact name of registrant as specified in its charter)

------

---

| | | |
|:---|:---|:---|
| **Delaware** | **001-40074** | **98-1575384** |
| **(State or other jurisdiction**<br> **of incorporation)** | **(Commission**<br> **File Number)** | **(I.R.S. Employer**<br> **Identification No.)** |

---

---

| | |
|:---|:---|
| **Suite 110, 3535 Executive Terminal Drive Henderson, NV** | **89052** |
| **(Address of principal executive offices)** | **(Zip Code)** |

---

(310) 481-1800

#### (Registrant's telephone number, including area code)

#### Not Applicable

#### (Former name or former address, if changed since last report)

------

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

---

| | | |
|:---|:---|:---|
| **Title of each class** | **Trading**<br> **Symbol(s)** | **Name of each exchange**<br> **on which registered** |
| Common stock, $.00001 par value per share | MVLA | The Nasdaq Stock Market LLC |
| Warrants, each warrant exercisable for one share of common stock at an exercise price of $11.50 | MVLAW | The Nasdaq Stock Market LLC |

---

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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. ☐

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#### EXPLANATORY NOTE
This Amendment No. 1 on Form 8-K/A ("Amendment No. 1") amends the Current Report on Form 8-K filed by Movella Holdings Inc. and its consolidated subsidiaries (the "Company") on February 13, 2023 (the "Original Form 8-K"), in which the Company reported, among other events, the completion of the Business Combination.

This Amendment No. 1 (i) amends the financial statements provided under Item 9.01(a) in the Original Form 8-K to include the audited financial statements of Movella Inc., a Delaware corporation, and its consolidated subsidiaries ("Movella") as of and for the years ended December 31, 2022 and 2021, (ii) includes the Management's Discussion and Analysis of Financial Condition and Results of Operations of Movella for the years ended December 31, 2022 and 2021, (iii) amends the unaudited pro forma financial information provided under Item 9.01(b) in the Original Form 8-K to include the unaudited pro forma condensed combined financial information of the Company as of and for the year ended December 31, 2022, and (iv) provides updates to certain additional matters included in the Original Form 8-K.

This Amendment No. 1 does not amend any other item of the Original Form 8-K or purport to provide an update or a discussion of any developments at the Company or its subsidiaries subsequent to the filing date of the Original Form 8-K, except as indicated below. The information previously reported in or filed with the Original Form 8-K is hereby incorporated by reference to this Amendment No. 1.

Unless the context otherwise indicates or requires, references to the "Company", "New Movella," "we," "us," and "our" refer to Movella Holdings Inc., a Delaware corporation, and its consolidated subsidiaries, following the Business Combination, and "Movella" refers to Movella Inc., a Delaware corporation, and its consolidated subsidiaries, prior to the Business Combination. Certain terms used in this Amendment No. 1 not defined herein have the same meaning as set forth in the Original Form 8-K.

---

| | |
|:---|:---|
| **Item 2.01.** | **Completion of Acquisition or Disposition of Assets.** |

---

#### FORM 10 INFORMATION

#### Risk Factors
There have been no material changes with respect to the risk factors disclosed by the Company as set forth in the Proxy Statement in the section titled "[Risk Factors](http://www.sec.gov/Archives/edgar/data/1839132/000119312523009491/d271484ddefm14a.htm#tx374834_8)" beginning on page 59 of the Proxy Statement except as described below.

***We identified a material weakness in our internal controls as of December 31, 2022. If we fail to address material weaknesses in our internal controls, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our securities may be adversely affected.***

In connection with the audit of Movella's consolidated financial statements, we and our independent registered public accounting firm identified a material weakness in Movella's internal controls as of December 31, 2022. The material weakness identified related to lack of effective management review controls due to insufficient finance staff levels, which resulted in errors in financial reporting and disclosures not being timely identified.

We have begun, and will continue, to implement measures to remediate the material weakness. Remediation measures taken to address the material weakness have included the hiring of additional staff with requisite training and expertise and performing additional reviews, engaging third-party resources to supplement our internal staffing and expertise, and implementing additional control processes. However, the implementation of those measures may not fully remediate this material weakness in a timely manner. In the future, we may determine that we have additional deficiencies, or our independent registered public accounting firm may disagree with our management's assessment of the effectiveness of our internal controls. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended and anticipate that we will continue to expend significant resources, including accounting-related costs, and provide significant management oversight. Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially and adversely affect our ability to operate our business. If our internal controls are perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and New Movella's stock price could decline.

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***Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations.***

Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, could adversely affect our liquidity. For example, on March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation ("FDIC") as receiver, due to liquidity concerns, leading to large scale confusion and uncertainty around the ability to access funds and potential loss of deposits exceeding FDIC insured amounts. This was followed by the closure and appointment of the FDIC as receiver for Signature Bank, and broader uncertainties about the viability of certain banks. Factors contributing to the distress of these institutions included financial concerns as well as widespread negative reactions to news and social media coverage. The failure of other financial institutions may increase the possibility of a sustained deterioration of financial market liquidity, or illiquidity at clearing, cash management and/or custodial financial institutions. The distress or failure of one or more banks with which we have a commercial relationship could adversely affect, among other things, our ability to pursue key strategic initiatives, our ability to access funds, or our ability to borrow from financial institutions on favorable terms. In addition, our deposits will be at risk to the extent they exceed available FDIC insurance limits. If a bank with which we have a commercial relationship has failed or is otherwise distressed (including for example, as a result of large scale depositor withdrawals), or if market activity leads to threat of distress resulting in regulator control, the loss or restriction of access to our cash and liquidity resources could, among other things, adversely impact our ability to meet our operating expenses and financial obligations, or fulfill other obligations, and result in breaches of our contractual obligations or violations of federal or state wage and hour laws. Our ability to spread banking relationships among multiple institutions may be limited by practical considerations or our lender's suitability requirements for deposit and custodial account institutions. Any of these effects could have a material adverse effect on our financial condition and results of operations.

In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us, or at all. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our business, financial condition or results of operations.

#### Financial Information

#### Audited and Unaudited Financial Information
The disclosure set forth in Item 9.01 of this Amendment No. 1 is incorporated herein by reference.

#### Unaudited Pro Forma Condensed Consolidated Combined Financial Information
The disclosure set forth in Item 9.01 of this Amendment No. 1 is incorporated herein by reference.

#### Management's Discussion and Analysis of Financial Condition and Results of Operations
The disclosure set forth in Item 9.01 of this Amendment No. 1 is incorporated herein by reference.

#### Certain Relationships and Related Transactions, and Director Independence

#### Director Independence
There have been no material changes with respect to information regarding director independence since the filing of the Original Form 8-K except as described below.

The information set forth in the section titled "Form 10 Information" under the caption "Director Independence and Board Committees" in the Original Form 8-K is incorporated herein by reference.

#### Legal Proceedings
There have been no material changes with respect to information regarding legal proceedings since the filing of the Original Form 8-K except as described below.

We are not currently subject to any material litigation and no material litigation is currently threatened against us which, in the opinion of our management, is likely to materially and adversely affect our business, financial condition, or results of operations. From time to time we may become involved in legal proceedings incident to our business or related to those of the businesses we acquire, including relating to intellectual property matters, product liability claims, employee claims, tort or contract claims, federal regulatory investigations, securities class action litigation, and other legal proceedings or investigations, which could have an adverse impact on our business, financial condition, and results of operations, and divert the attention of our management from the operation of our

------

business. For example, in February 2020, Tactical Air Support ("TAS") filed a lawsuit in the California State Court in Los Angeles against our wholly-owned subsidiary, Movella Technologies N.A. Inc. (formerly Xsens North America, Inc.), alleging tort and contract-based causes of action arising from TAS purchases of allegedly defective Xsens North America inertial measurement unit devices ("IMUs"). TAS never deployed IMUs in its military aircraft. In response, Xsens North America removed the case to the California Federal District Court in Los Angeles based upon the party's diversity of citizenship. Xsens North America filed a motion to dismiss each of TAS' alleged non-contract-based claims and its prayers for damages in excess of the approximately $40,000 TAS paid for the IMUs. The motion to dismiss alleged non-contract-based claims was granted on September 3, 2020. On December 22, 2022, the parties entered into a settlement agreement, including mutual releases, and the lawsuit was dismissed. We agreed to pay a settlement amount of $0.3 million, which was accrued on the December 31, 2022 consolidated balance sheet of Movella and was paid in full in the first quarter of 2023. Although New Movella does not believe that any currently known legal matters will have a material impact to its financial statements, there can be no assurance regarding the ultimate outcome of any litigation matter. See Note 17 to the Notes to Movella's Consolidated Financial Statements as of and for the years ended December 31, 2022 and 2021 contained in Exhibit 99.1 to this Amendment No. 1. Legal or similar proceedings are subject to many uncertainties and outcomes and the outcome, costs, and other impacts and consequences of such matters are no predictable with assurance. Regardless of the outcome, the results of any current or future litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

#### Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters

#### Securities Authorized for Issuance Under Equity Compensation Plans
There have been no material changes with respect to Securities Authorized for Issuance Under Equity Compensation Plans of the Company since the filing of the Original Form 8-K except as described below.

The following table summarizes the equity compensation granted to our employees, consultants, and directors, as well as the common shares remaining available for future issuance under our existing equity compensation plans as of February 10, 2023, the date on which the Business Combination closed and our existing equity compensation plans, namely the 2022 Stock Incentive Plan (the "2022 Plan") and the 2022 Employee Stock Purchase ("ESPP"), became effective.

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| | | | |
|:---|:---|:---|:---|
|  | **Number of<br>securities to be<br>issued upon exercise of<br>outstanding<br>options, warrants<br>and rights (a)** <sup>(1)</sup> | **Weighted<br>average exercise<br>price of<br>outstanding<br>options, warrants<br>and rights (b)** <sup>(2)</sup> | **Number of<br>securities remaining<br>available for future<br>issuance under<br>equity<br>compensation plans<br>(excluding<br>securities reflected<br>in column (a))** <sup>(3)</sup> |
|  Equity compensation plan approved by security holders | 5687380 | $1.07 | 8062762 |
|  Equity compensation plans not approved by security holders |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total | 5687380 | $1.07 | 8062762 |

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(1) Amount represents stock options originally granted under Movella's 2009 Equity Incentive Plan (the "2009 Plan") and its 2019 Equity Incentive Plan (the "2019 Plan"), which rolled over into awards under the 2022 Plan on the closing of the Business Combination. No additional awards may be granted under the 2009 and 2019 Plans.

(2) As of February 10, 2023, the weighted-average exercise price of outstanding options under the 2022 Plan was $1.07.

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(3) Consists of 7,045,212 shares available for issuance under the 2022 Plan and 1,017,550 shares available for future issuance under our ESPP as of February 10, 2023. The 2022 Plan also contains an "evergreen" provision, pursuant to which the number of shares reserved for issuance pursuant to awards under such plan shall be increased on the first day of each year beginning on January 1, 2023 and ending on (and including) January 1, 2032 equal to the lesser of (x) 5% of the number of shares of common stock outstanding on the last day of the immediately preceding fiscal year or (y) such lesser amount that our Board determines for purposes of the annual increase for that fiscal year. In addition, the ESPP contains an "evergreen" provision, pursuant to which the number of shares available for purchase under such plan shall be increased on the first day of each year beginning on January 1, 2023 and ending on (and including) January 1, 2033, equal to the lesser of (x) 1% of the number of shares of common stock outstanding on such date, (y) 508,775 shares, or (z) a lesser amount determined by our Board.

#### Description of Registrant's Securities to be Registered
There have been no material changes with respect to information regarding the Company's securities since the filing of the Original Form 8-K except as described below.

On February 13, 2023, the Company's warrants began trading on Nasdaq under the symbol "MVLAW".

#### Financial Statements and Supplementary Data
The disclosure set forth in Item 9.01 of this Amendment No. 1 is incorporated herein by reference.

#### Financial Statements and Exhibits
The disclosure set forth in Item 9.01 of this Amendment No. 1 is incorporated herein by reference.

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| | |
|:---|:---|
| **Item 9.01.** | **Financial Statements and Exhibits.** |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Financial statements of businesses acquired

The audited consolidated financial statements of Movella as of and for the years ended December 31, 2022 and 2021 and the related notes thereto are filed herewith as Exhibit 99.1 and incorporated herein by reference.

Also included herewith as Exhibit 99.2 and incorporated herein by reference is the Management's Discussion and Analysis of Financial Condition and Results of Operations of Movella for the years ended December 31, 2022 and 2021.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Pro forma financial information

The unaudited pro forma condensed combined financial information of the Company as of and for the year ended December 31, 2022 is set forth in Exhibit 99.3 hereto and is incorporated herein by reference.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Exhibits

#### EXHIBIT INDEX

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| | |
|:---|:---|
| **Exhibit<br>Number** | **Description** |
| 99.1 | [Audited consolidated financial statements of Movella Inc. as of and for the years ended December 31, 2022 and 2021.](d454283dex991.htm) |
| 99.2 | [Management's Discussion and Analysis of Financial Condition and Results of Operations of Movella Inc. for the years ended December 31, 2022 and 2021.](d454283dex992.htm) |
| 99.3 | [Unaudited pro forma condensed combined financial information of the Company as of and for the year ended December 31, 2022.](d454283dex993.htm) |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |

---

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#### SIGNATURE
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 hereunto duly authorized.

Date: March 31, 2023

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| | |
|:---|:---|
| **Movella Holdings Inc.** | **Movella Holdings Inc.** |
| By: | /s/ Stephen Smith |
| Name: | Stephen Smith |
| Title: | Chief Financial Officer |

---

## Exhibit 99.1

**Exhibit 99.1** 

**Movella Inc.** 

**Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm** 

**As of and for the years ended December 31, 2022 and 2021** 

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**Movella Inc.** 

**Index to Consolidated Financial Statements** 

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| | |
|:---|:---|
|  Report of Independent Registered Public Accounting Firm | 1 |
|  Consolidated Financial Statements |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Consolidated Balance Sheets | 4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Consolidated Statements of Operations | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Consolidated Statements of Comprehensive Loss | 7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Consolidated Statements of Mezzanine Equity and Stockholders' Deficit | 8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Consolidated Statements of Cash Flows | 9 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notes to Consolidated Financial Statements | 11 |

---

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**Report of Independent Registered Public Accounting Firm** 

To the Stockholders and the Board of Directors

Movella Inc.

**Opinion on the Financial Statements** 

We have audited the accompanying consolidated balance sheets of Movella Inc. and its subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, mezzanine equity and stockholders' deficit, and cash flows for each of the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

**Adoption of New Accounting Policy** 

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases as of January 1, 2022, due to the adoption of Accounting Standards Codification No. 842, Leases.

**Basis for Opinion** 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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/s/ RSM US LLP

We have served as the Company's auditor since 2019.

San Jose, California

March 31, 2023

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**Consolidated Financial Statements** 

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**MOVELLA INC.** 

Consolidated Balance Sheets

(In thousands, except share and per share data)

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| | | |
|:---|:---|:---|
|  | **As of** | **As of** |
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cash and cash equivalents | $14334 | $11166 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accounts receivable, net of allowance for doubtful accounts of $144 and $20 at December 31, 2022 and 2021 | 6690 | 4478 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Inventories | 5164 | 4535 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Prepaid expenses and other current assets | 3274 | 2308 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Current assets from discontinued operations |  | 291 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total current assets | 29462 | 22778 |
|  Property and equipment, net | 2361 | 2734 |
|  Goodwill | 36381 | 38584 |
|  Intangible assets, net | 5807 | 20902 |
|  Non-marketable equity securities | 25285 | 25000 |
|  Right-of-use assets | 3281 |  |
|  Deferred tax assets, net | 86 |  |
|  Capitalized equity issuance costs and other assets | 4265 | 110 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total assets | $106928 | $110108 |
|  Liabilities, mezzanine equity and stockholders' deficit |  |  |
|  Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accounts payable | $5967 | $2528 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accrued expenses and other current liabilities | 7944 | 5622 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Line of credit and current portion of long-term debt | 148 | 1353 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Current portion of deferred revenue | 3334 | 2422 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred payout to Kinduct sellers | 4303 | 5954 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Current liabilities from discontinued operations |  | 357 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total current liabilities | 21696 | 18236 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Long-term portion of term debt | 25649 | 8396 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Convertible notes, net – related party (Note 16) | 6186 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred revenue, net of current portion | 1344 | 1170 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred tax liabilities, net |  | 222 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Operating lease liabilities and other non-current liabilities | 3088 | 371 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities | 57963 | 28395 |
|  Commitments and contingencies (Note 17) |  |  |
|  Mezzanine equity: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Series D-1 convertible preferred stock, $0.0001 par value. 6,562,724 shares authorized, and issued and outstanding at December 31, 2022 and 2021; liquidation preference of $30,000 as of December 31, 2022 and 2021 | 41991 | 39307 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Series A convertible preferred stock, $0.0001 par value. 10,000,000 shares authorized, and issued and outstanding at December 31, 2022 and 2021; liquidation preference of $10,000 as of December 31, 2022 and 2021 | 9950 | 9950 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Series B convertible preferred stock, $0.0001 par value. 11,791,929 shares authorized; 8,747,602 and 8,741,929 shares issued and outstanding at December 31, 2022 and 2021; liquidation preference of $24,816 and $24,800 as of December 31, 2022 and 2021 | 24680 | 24680 |

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**MOVELLA INC.** 

Consolidated Balance Sheets

(In thousands, except share and per share data)

---

| | | |
|:---|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Series C convertible preferred stock, $0.0001 par value. 13,122,055 shares authorized, and issued and outstanding at December 31, 2022 and 2021; liquidation preference of $37,226 as of December 31, 2022 and 2021 | 37032 | 37032 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Series D convertible preferred stock, $0.0001 par value. 7,470,088 shares authorized, and issued and outstanding at December 31, 2022 and 2021; liquidation preference of $31,043 as of December 31, 2022 and 2021 | 30780 | 30780 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Series E convertible preferred stock, $0.0001 par value. 18,024,809 shares authorized; 10,458,755 shares issued and outstanding at December 31, 2022 and 2021; liquidation preference of $43,463 as of December 31, 2022 and 2021 | 40750 | 40750 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total mezzanine equity | 185183 | 182499 |
|  Stockholders' deficit: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Common stock, $0.0001 par value. 95,000,000 shares authorized, 12,751,023 and 9,184,092 shares issued and outstanding at December 31, 2022 and 2021 | 1 | 1 |
|  Additional paid-in capital | 692 |  |
|  Accumulated other comprehensive (loss) income | (1646) | 1431 |
|  Accumulated deficit | (142016) | (109601) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total Movella stockholders' deficit | (142969) | (108169) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-controlling interest in subsidiaries | 6751 | 7383 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total stockholders' deficit | (136218) | (100786) |
|  Total liabilities, mezzanine equity and stockholders' deficit | $106928 | $110108 |

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The accompanying notes are an integral part of these consolidated financial statements.

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**MOVELLA INC.** 

Consolidated Statements of Operations

(In thousands, except share and per share data)

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| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** |
|  Revenues: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | $34283 | $28848 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 6183 | 5566 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total revenues | 40466 | 34414 |
|  Cost of revenues |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | 15223 | 12049 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 6071 | 4412 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total cost of revenues | 21294 | 16461 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross profit | 19172 | 17953 |
|  Operating expenses: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Research and development | 13258 | 14014 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Sales and marketing | 12324 | 10710 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; General and administrative | 14697 | 12943 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Impairment of intangible assets | 7164 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Operating expenses | 47443 | 37667 |
|  Loss from operations | (28271) | (19714) |
|  Other income (expense): |  |  |
|  Loss on debt extinguishment | (646) |  |
|  Debt issuance costs | (2389) |  |
|  Revaluation of debt | (300) |  |
|  Interest expense, net | (2167) | (1965) |
|  Other income, net | 613 | 2148 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loss from continuing operations before income taxes | (33160) | (19531) |
|  Income tax benefit | (113) | (728) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net loss from continuing operations | (33047) | (18803) |
|  Loss from discontinued operations (net of tax) |  | (156) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net loss | (33047) | (18959) |
|  Net loss attributable to non-controlling interests | (632) | (1300) |
|  Net loss attributable to Movella Inc. | $(32415) | $(17659) |
|  Deemed dividend from accretion of Series D-1 preferred stock | (2684) | (2511) |
|  Net loss attributable to common stockholders | $(35099) | $(20170) |
|  Net loss per share from continuing operations, basic and diluted | $(3.11) | $(2.20) |
|  Net loss per share from discontinued operations, basic and diluted | $— | $(0.02) |
|  Net loss per share, basic and diluted | $(3.11) | $(2.22) |
|  Weighted average shares outstanding, basic and diluted | 11285170 | 9101819 |

---

The accompanying notes are an integral part of these consolidated financial statements.

------

**MOVELLA INC.** 

Consolidated Statements of Comprehensive Loss

(In thousands)

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** |
|  Net loss | $(33047) | $(18959) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other comprehensive loss, net of tax: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Foreign currency translation adjustments, net of tax | (3077) | (1456) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Comprehensive loss | (36124) | (20415) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Comprehensive loss attributable to non-controlling interests | (632) | (1300) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Comprehensive loss attributable to Movella Inc. | $(35492) | $(19115) |

---

The accompanying notes are an integral part of these consolidated financial statements.

------

**MOVELLA INC.** 

Consolidated Statements of Mezzanine Equity and Stockholders' Deficit

(In thousands, except share data)

---

| | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Redeemable convertible**<br>**preferred stock** | **Redeemable convertible**<br>**preferred stock** | **Non-redeemable**<br>**convertible preferred**<br>**stock** | **Non-redeemable**<br>**convertible preferred**<br>**stock** | **Common stock** | **Common stock** | **Additional**<br>**paid-in**<br>**capital** | **Accumulated**<br>**other**<br>**comprehensive**<br>**income (loss)** | **Accumulated**<br>**deficit** | **Non-controlling**<br>**interests** | **Total** |
|  | **Shares** | **Amount** | **Shares** | **Amount** | **Shares** | **Amount** | **Additional**<br>**paid-in**<br>**capital** | **Accumulated**<br>**other**<br>**comprehensive**<br>**income (loss)** | **Accumulated**<br>**deficit** | **Non-controlling**<br>**interests** | **Total** |
|  **Balance, December 31, 2020** | 6562724 | $36796 | 49792827 | $143222 | 9050160 | $1 | $— | $2887 | $(90500) | $9847 | $(77765) |
|  Stock-based compensation expense |  |  |  |  |  |  | 786 |  |  |  | 786 |
|  Accretion of Series D-1 convertible preferred stock |  | 2511 |  |  |  |  | (1069) |  | (1442) |  | (2511) |
|  Issuance cost of Series E preferred stock |  |  |  | (30) |  |  |  |  |  |  |  |
|  Issuance of common stock for exercise of options |  |  |  |  | 133932 |  | 58 |  |  |  | 58 |
|  Issuance of common stock warrants to Eastward |  |  |  |  |  |  | 225 |  |  |  | 225 |
|  Foreign currency translation adjustment |  |  |  |  |  |  |  | (1456) |  |  | (1456) |
|  Dissolution of TDI entity |  |  |  |  |  |  |  |  |  | (1164) | (1164) |
|  Net loss |  |  |  |  |  |  |  |  | (17659) | (1300) | (18959) |
|  **Balance, December 31, 2021** | 6562724 | 39307 | 49792827 | 143192 | 9184092 | 1 |  | 1431 | (109601) | 7383 | (100786) |
|  Stock-based compensation expense |  |  |  |  |  |  | 1699 |  |  |  | 1699 |
|  Accretion of Series D-1 convertible preferred stock |  | 2684 |  |  |  |  | (2684) |  |  |  | (2684) |
|  Issuance of common stock for exercise of options |  |  |  |  | 3566931 |  | 1659 |  |  |  | 1659 |
|  Issuance of common stock warrants to lender |  |  |  |  |  |  | 18 |  |  |  | 18 |
|  Issuance of Series B convertible preferred stock for exercise of warrants |  |  | 5673 |  |  |  |  |  |  |  |  |
|  Foreign currency translation adjustment |  |  |  |  |  |  |  | (3077) |  |  | (3077) |
|  Net loss |  |  |  |  |  |  |  |  | (32415) | (632) | (33047) |
|  **Balance, December 31, 2022** | 6562724 | $41991 | 49798500 | $143192 | 12751023 | $1 | $692 | $(1646) | $(142016) | $6751 | $(136218) |

---

The accompanying notes are an integral part of these consolidated financial statements.

------

**MOVELLA INC.** 

Consolidated Statements of Cash Flows

(In thousands)

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** |
|  **Cash flows from operating activities:** |  |  |
|  Net loss | $(33047) | $(18959) |
|  Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Depreciation and amortization | 7919 | 7280 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stock-based compensation expense | 1699 | 786 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Provision for excess and obsolete inventories | 265 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Impairment of intangible assets | 7164 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loss on disposals of property and equipment |  | 24 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Unrealized loss (gain) on marketable securities | 58 | (67) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accretion of convertible notes, net | 369 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accretion of Kinduct deferred payout | 451 | 543 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Amortization of debt discount and debt issuance costs | 371 | 249 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gain on change in fair value of embedded derivative | (396) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred income taxes | (308) | (1037) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loss on revaluation of debt | 300 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loss on debt extinguishment | 646 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Debt issuance costs | 2389 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Unrealized gain on non-marketable equity securities | (285) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gain from dissolution of TDI entity |  | (665) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gain on forgiveness of PPP loan |  | (612) |
|  Changes in operating assets and liabilities, net of acquisition: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accounts receivable | (2351) | (1100) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Inventories | (1330) | (2185) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Government subsidy receivable | (1416) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Prepaid expenses and other assets | 182 | 3342 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other assets | (31) | 28 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other receivables |  | 1086 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accounts payable | 564 | 1157 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accrued expenses and other liabilities | 793 | (1189) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred revenue | 1431 | 401 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other liabilities | 13 | 159 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net cash used in operating activities | (14550) | (10759) |
|  **Cash flows from investing activities:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Purchase of intangibles | (153) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from licensing of IP - MEMSIC |  | 9686 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Purchases of property and equipment | (600) | (1877) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net cash (used in) provided by investing activities | (753) | 7809 |
|  **Cash flows from financing activities:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from term loans and revolving line of credit, net | 547 | 8298 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net proceeds from Pre-Close Notes | 25000 |  |

---

------

**MOVELLA INC.** 

Consolidated Statements of Cash Flows

(In thousands)

---

| | | |
|:---|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Payment of debt issuance costs | (1534) | (118) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Repayment of loans using proceeds from Pre-Close Notes | (9549) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from issuance of convertible notes | 4873 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Principal payments of loans | (346) | (14893) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Payment of deferred payout to Kinduct sellers (Note 17) | (1000) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Payment of debt extinguishment costs | (470) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Payment of equity issuance costs in advance of offering | (990) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Proceeds from the exercise of stock options | 1659 | 58 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Costs incurred on issuance of Series E preferred stock |  | (30) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net cash provided by (used in) financing activities | 18190 | (6685) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effect of foreign exchange rate changes on cash and equivalents | 281 | (40) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net increase (decrease) in cash and cash equivalents | 3168 | (9675) |
|  **Cash and cash equivalents:** |  |  |
|  Beginning of year | 11166 | 20841 |
|  End of year | $14334 | $11166 |
|  **Supplemental disclosures of cash flow information:** |  |  |
|  Cash paid for interest | $1051 | $863 |
|  Cash paid for taxes, net of refunds | 217 | 956 |
|  **Supplemental disclosure of non-cash financing activity:** |  |  |
|  Accretion of Series D-1 convertible preferred Stock | 2684 | 2511 |
|  Issuance of convertible notes in exchange for Kinduct deferred payout | 1148 |  |
|  Distribution of equity shares to TDI NCI |  | 499 |
|  Issuance of warrants to lender | 18 | 225 |
|  Right-of-use assets obtained in exchange for operating lease liabilities | 4280 |  |
|  Debt and equity issuance costs financed through accounts payable or accrued liabilities | 3989 |  |

---

The accompanying notes are an integral part of these consolidated financial statements.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

**1.** **Overview and Summary of Significant Accounting Policies** 

***Description of Business***

Movella is a global full-stack provider of integrated sensors, software, and analytics that enable the digitization of movement. Movella's solutions accelerate innovation and enable our customers, partners, and users to create extraordinary outcomes. Movella powers real-time character movement in digital environments, transforms movement into digital data that provides meaningful and actionable insights, renders digitized movement to enable the creation of sophisticated and true-to-life animated content, creates new forms of monetizable IP with unique biomechanical digital content, and provides spatial movement orientation and positioning data. Partnering with leading global brands such as Electronic Arts, EPIC Games, 20th Century Studios, Netflix, Toyota, Siemens and over 2,000 customers in total, Movella currently serves the entertainment, health and sports, and automation and mobility markets. Additionally, Movella believes it is well-positioned to provide critical enabling solutions for applications in emerging high-growth markets such as the Metaverse, next-generation gaming, live streaming, digital health, and autonomous robots with recently introduced offerings and products currently in development.

Movella Inc. (the "Company" or "Movella") was incorporated in the state of Delaware on August 14, 2009. Previously the Company was known as mCube Inc, and on September 27, 2021, the Company was renamed to Movella<sup>TM</sup>. The Company is headquartered in Henderson, Nevada and has subsidiaries in the Netherlands, Canada, United States, Taiwan, China, and India.

***Merger with Pathfinder Acquisition Corporation***

On February 10, 2023 (the "Closing Date"), Movella Holdings Inc., a Delaware corporation (formerly known as Pathfinder Acquisition Corporation ("Pathfinder")) ("New Movella"), consummated the previously announced business combination (the "Business Combination") contemplated by that certain Business Combination Agreement, dated October 3, 2022 (the "Business Combination Agreement"), by and among Pathfinder, Motion Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Pathfinder ("Merger Sub") and Movella Inc., a Delaware corporation ("Movella").

On the Closing Date, promptly following the consummation of the Domestication, Merger Sub merged with and into Movella (the "Merger"), with Movella continuing as the surviving company in the Merger and, after giving effect to the Merger, Movella became a wholly owned subsidiary of New Movella (the time that the Merger became effective being referred to as the "Effective Time"). Pathfinder's Class A ordinary shares, public warrants and the Pathfinder Units were historically quoted on The Nasdaq Stock Market LLC ("Nasdaq") under the symbols "PFDR," "PFDRW," and "PFDRU," respectively. On the Closing Date, the Pathfinder Units automatically separated into the component securities and, as a result, no longer trade as a separate security. On February 13, 2023, the New Movella Common Stock and warrants began trading on Nasdaq under the symbols "MVLA" and "MVLAW," respectively. See Note 18. *Subsequent Events* for additional information.

The Company's basis of presentation within these consolidated financial statements do not reflect any adjustments resulting from the closing of the Business Combination. The Business Combination will be accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with accounting principles generally accepted in the United States ("US GAAP"). Under this method of accounting, Movella Inc. will be treated as the accounting acquirer for financial reporting purposes.

As of December 31, 2022, the Company has incurred $6.5 million of business combination related costs which principally consisted of advisory, legal, other professional fees, debt discount and debt issuance costs. The Company has expensed $2.4 million of these costs upon execution of the Pre-Merger Senior Secured Notes (the "Pre-Close Notes") while $4.1 million of costs have been capitalized on the consolidated balance sheet within capitalized equity issuance costs and other assets. As of December 31, 2022, $2.5 million of the business combination related costs have been paid out, with $2.8 million recorded within accounts payable and $1.2 million recorded within accrued expenses and other current liabilities.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

***Basis of Presentation and Principles of Consolidation***

The information contained herein has been prepared by Movella Inc. (the "Company") in accordance with generally accepted accounting principles in the United States of America ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). The consolidated financial statements include the accounts of the Company, its wholly-owned and majority-owned subsidiaries, and joint ventures in which the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements reflect all adjustments, consisting of only normal recurring accruals, except otherwise disclosed herein, which are, in the opinion of management, necessary for a fair statement of the results of the periods presented. Certain prior period amounts were reclassified to conform to the current period presentation. These reclassifications did not affect total revenues, costs and expenses, net loss, assets, liabilities or stockholders' deficit.

On June 30, 2021, the Company dissolved its majority owned subsidiary Ten Degrees, Inc. ("TDI") subsequent to the asset sale to Inpixon on August 19, 2020.

***Liquidity***

The Company has prepared its consolidated financial statements assuming that the Company will continue as a going concern. The Company has incurred recurring losses from continuing operations and net cash used in operating activities including a net loss from continuing operations of $33.0 million and net cash used in operating activities of $14.6 million for the year ended December 31, 2022. The Company has cash and cash equivalents of $14.3 million; there are restrictions on the Company's ability to transfer cash and cash equivalents of $0.7 million held outside of the U.S. by its subsidiaries in China and $1.5 million held by its joint venture entity in China as of December 31, 2022. The continuation of the Company as a going concern is dependent upon, among other things, the continued financial support from its investors to fund operations, the ability of the Company to obtain necessary equity or debt financing, and the attainment of profitable operations.

On February 10, 2023, the Company consummated the Business Combination Agreement with Pathfinder Acquisition Corporation whereby through a series of transactions, the Company received approximately $60.3 million of net cash proceeds after transaction costs. See Note 18. *Subsequent Events* for additional details. The Note Purchase Agreement also contains a financial covenant requiring the Company and its subsidiaries to achieve positive EBITDA on a consolidated basis for the most recently ended four-quarter period, commencing with the last day of the fiscal quarter ending June 30, 2024 and as of the last day of each fiscal quarter thereafter.

With the cash on hand at December 31, 2022, and the net cash received from the consummation of the Business Combination Agreement with Pathfinder Acquisition Corporation, the Company believes the actions it has taken, and the measures it may take in the future, will provide sufficient liquidity to fund operations and capital expenditures over the next twelve months mitigating the conditions that caused there to be substantial doubt about the Company's ability to continue as a going concern.

The Company may seek to raise additional capital, which could be in the form of loans, convertible debt or equity, to fund future operating requirements and capital expenditures. The Company's liquidity is highly dependent on its ability to increase revenues, control operating costs, and raise additional capital. The Company continues to closely monitor expenses to assess whether any immediate changes are necessary to enhance its liquidity. There can be no assurance that the Company will be able to raise additional capital on favorable terms, or execute on any other means of improving liquidity as described above.

*Discontinued Operations* 

In July 2021, the Company discontinued its components business due to recurring operating losses, per the determination of management and the Company's Board of Directors. In accordance with Accounting Standards Codification ("ASC") 205-20, *Presentation of Financial Statements – Discontinued Operations*, the result of operations and financial positions of the components business have been reclassified to discontinued operations for all periods presented as the exit of the components business represents a strategic shift that had a major effect on the Company's results of operations. See Note 5. *Discontinued Operations* for more information.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

***Reclassifications***

Certain reclassifications have been made to the Company's consolidated financial statements for the year ended December 31, 2021, to conform to the current period's consolidated financial statement presentation. The reclassifications had no impact on total revenues, expenses, assets, liabilities, stockholders' deficit, cash flows from operating activities, cash flows from investing activities, or cash flows from financing activities for all periods presented.

***Use of Estimates***

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Such estimates include, but are not limited to, measurement of valuation allowances relating to accounts receivable, inventories and deferred tax assets; estimates of future payouts for customer incentives and allowances and warranties; uncertain tax positions; incremental borrowing rates; fair values of stock-based compensation, embedded derivatives, the pre-close notes, and valuation of common stock, preferred stock and warrants; estimates and assumptions used in connection with business combinations; useful lives of long-lived assets including intangible assets and property and equipment; revenue recognition; and future cash flows used to assess and test for impairment of goodwill and long-lived assets, if applicable. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Due to the Coronavirus ("COVID-19") pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require a material update to its estimates or judgments or an adjustment of the carrying value of its assets or liabilities as of December 31, 2022. However, these estimates may change as new events occur and additional information is obtained, as well as other factors related to COVID-19 that could result in material impacts to the Company's consolidated financial statements in future reporting periods.

***Significant Risks and Uncertainties***

The Company is subject to those risks common in the technology industry and also those risks common to early stage companies including, but not limited to, the possibility of not being able to successfully develop or market its products as forecasted, technological obsolescence, competition, dependence on key personnel and key external alliances, the successful protection of its proprietary technologies, compliance with government regulations, and the possibility of not being able to obtain additional financing when needed.

***Foreign Currency Translation and Transactions***

The Company predominantly uses the Euro as its functional currency and the United States Dollar as its reporting currency. Assets and liabilities denominated in non-U.S. currencies are remeasured into U.S. dollars at current exchange rates for monetary assets and liabilities and at historical exchange rates for non-monetary assets and liabilities. Revenue, costs and expenses denominated in non-U.S. currencies are recorded in U.S. dollars at the average rates of exchange prevailing during the period. The Company includes gains or losses from foreign currency remeasurement in other income, net in the consolidated statements of operations. Certain non-U.S. subsidiaries designate the local currency as their functional currency, and the Company records the translation of their assets and liabilities into U.S. dollars using the current exchange rate at the balance sheet date as translation adjustments and includes them as a component of accumulated other comprehensive income in the consolidated balance sheets.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

***Segment Reporting***

The Company's Chief Executive Officer ("CEO") is the Chief Operating Decision Maker ("CODM"). The CODM allocates resources and makes operating decisions based on financial information presented on a consolidated basis. The profitability of the Company's product group is not a determining factor in allocating resources and the CODM does not evaluate profitability below the level of the consolidated company. Accordingly, the Company has determined that it has a single reportable segment and operating segment structure.

***Cash and Cash Equivalents***

The Company's cash and cash equivalents include cash held in checking and savings accounts and highly liquid securities with original maturity dates of three months or less from the original date of purchase. Approximately $4.1 million and $5.1 million of the Company's cash and cash equivalents balance were held outside of the U.S. as of December 31, 2022 and December 31, 2021, respectively. There are restrictions on the Company's ability to transfer cash and cash equivalents of $0.7 million held outside of the U.S. by its subsidiaries in China and $1.5 million held by its joint venture entity in China as of December 31, 2022.

***Debt Instruments***

*Convertible Notes* 

The Company evaluates embedded features within convertible notes that will be settled in shares upon conversion under ASC 815 *Derivatives and Hedging* ("ASC 815") to determine whether the embedded feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If an embedded derivative is bifurcated from share-settled convertible debt, the Company records the debt component at cost less a debt discount equal to the bifurcated derivative's fair value. The Company amortizes the debt discount over the life of the debt instrument as additional non-cash interest expense utilizing the effective interest method. The convertible debt and the derivative liability are presented in total on the consolidated balance sheet. The derivative liability will be remeasured at each reporting period with changes in fair value recorded in the consolidated statements of operations in other income (expense), net.

*Pre-Close Notes* 

As permitted under ASC 825, *Financial Instruments* the Company has elected the fair value option to account for its Pre-Merger Senior Secured Notes (the "Pre-Close Notes") primarily to avoid the separate recognition of certain linked instruments in the consolidated statements of operations. In accordance with ASC 825, the Company records the Pre-Close Notes at fair value with changes in fair value recorded as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss. As a result of applying the fair value option, $2.4 million of direct costs and fees related to the issued Pre-Close Notes and unissued Venture Linked Notes were expensed upon execution of the Note Purchase Agreement in November 2022.

***Deferred Payout***

On September 23, 2020, the Company acquired 100% of the issued and outstanding equity of Kinduct Technology, Inc. ("Kinduct"), a privately held company, in the business of developing intelligent health, fitness, and sport performance software. Related to the acquisition of Kinduct the Company agreed to three deferred cash installment payments totaling $10.0 million with a fair value of $9.4 million. The deferred payout schedule was $2.0 million due on March 23, 2021, $2.0 million due on September 23, 2021, and $6.0 million due on March 23, 2022. As of December 31, 2022, the Company had paid $4.0 million for the first two deferred cash installment payments with the remaining $6.0 million of installment payments partially satisfied with an exchange of $1.1 million owed under the deferred payout for convertible notes. See Note 6. *Debt* and Note 16. *Related Party Transactions* for more information on the convertible notes. Any amounts that remain due and payable under the deferred payout agreement are accruing interest at 12% until paid in full. On December 16, 2022, the Company reached an agreement with the former owners of Kinduct to satisfy in full the remaining balance of the deferred payout, with $1.0 million paid on December 20, 2022 and quarterly installments of $0.5 million due beginning March 31, 2023 unless an Acceleration

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

Event occurs. As of December 31, 2022, the Company owed $4.3 million to the sellers of Kinduct under the deferred payout agreement. On February 10, 2023, an Acceleration Event occurred and the Company satisfied the deferred payout liability in full on February 13, 2023. Refer to Note 17. *Commitments and Contingencies* and Note 18. *Subsequent Events* for more information on the deferred payout.

***Inventories and Provision for Excess and Obsolete Inventory***

Inventory consists of raw materials, work-in-progress and finished goods representing the sensor modules, components, and motion capture systems. Inventories are stated at lower of standard cost (which approximates actual cost on a first-in, first-out basis) or net realizable value determined at an appropriate unit of account. The Company records inventory write-downs for potentially excess or obsolete inventory based on forecasted demand, usage, economic trends, technological obsolescence of its products and transition of inventory related to new product releases. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

***Property, Plant and Equipment, net***

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed for financial reporting purposes using the straight-line method over their estimated useful lives. Leasehold improvements are amortized over the shorter of their useful life or the remaining lease term. Expenditures for maintenance and repairs are charged to operations in the period in which the expense is incurred. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed, and any resulting gain or loss is recorded as a component of operating expenses in the consolidated statement of operations. The estimated useful lives of property and equipment are as follows:

---

| | |
|:---|:---|
|  | **Estimated useful lives** |
|  Office equipment | 5 years |
|  Computer hardware | 3 to 5 years |
|  Lab equipment | 5 years |
|  Furniture and fixtures | 5 years |
|  Leasehold improvements | 2 to 5 years |
|  Computer software | 3 to 5 years |
|  Production equipment | 3 years |

---

The Company evaluates the recoverability of the carrying amount of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be fully recoverable. A potential impairment charge is evaluated when the undiscounted expected cash flows derived from an asset group are less than its carrying amount. Impairment losses are measured as the amount by which the carrying value of an asset group exceeds its fair value and are recognized in operating results. Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted cash flows used to assess impairments and the fair value of the asset group.

***Goodwill***

Goodwill represents the excess of the purchase price in a business combination over the fair value of net assets acquired. Goodwill amounts are not amortized, but rather tested for impairment at least annually in the fourth quarter of each year. For the years ended December 31, 2022 and 2021, the Company performed its annual goodwill impairment assessment and concluded that there was no impairment related to goodwill.

***Acquired Intangible Assets***

The Company's intangible assets include developed technology, customer relationships, patents, trademarks and non-compete agreements. Intangible assets are stated at cost less accumulated amortization and are amortized over their estimated useful lives using the straight-line method. Acquired intangible assets and long-lived

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset group containing these assets may not be recoverable. For the years ended December 31, 2022 and 2021, the Company recognized $7.2 million and nil, respectively, of impairment losses. The estimated useful lives of intangible assets are as follows:

---

| | |
|:---|:---|
|  | **Estimated useful lives** |
|  Developed technology | 5 to 10 years |
|  Customer relationships | 2 to 3 years |
|  Patents and trademarks | 10 years |
|  Non-compete agreements | 2 years |

---

***Derivative Financial Instruments***

The Company evaluates stock warrants, debt instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for under the relevant sections of ASC 815. When contracts contain embedded derivatives that are bifurcated from host contracts, the fair value of a financial instrument is classified as a derivative financial instrument and is marked-to-market at each balance sheet date and recorded as an asset or liability. The change in fair value is recorded in the consolidated statements of operations as other income or other expense. Upon conversion, exercise or expiration of a derivative financial instrument, the instrument is marked to fair value.

***Non-marketable Equity Securities***

The Company's non-marketable equity securities primarily comprise of shares of a privately held company which the Company received in 2021 as consideration for a licensing arrangement. See Note 5. *Discontinued Operations* for more details on the licensing arrangement. The Company does not have significant influence over the privately held company and these equity securities do not have readily determinable fair values, as such the Company accounted for these equity securities using a measurement alternative in accordance with ASC 321, *Investments - Equity Securities*, which allows entities to measure these investments at cost, less any impairment, adjusted for changes from observable price changes in orderly transactions for identifiable or similar investments of the same issuer.

The Company determined that there were no transactions with observable prices related to the non-marketable equity securities, and that there were no indicators of impairment related to the non-marketable equity securities for the years ended December 31, 2022 and 2021.

***Revenue Recognition***

The Company follows the guidance in ASC 606, *Revenue from contracts with customers* ("ASC 606"). Per ASC 606, revenue is recognized when a customer obtains control of promised products and services and the Company has satisfied its performance obligations. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for the products and services. To achieve this core principle, the Company applies the five step revenue recognition model prescribed by ASC 606:

Step 1. Identification of the contract(s) with a customer;

Step 2. Identification of the performance obligations in the contract(s);

Step 3. Determination of the transaction price;

Step 4. Allocation of the transaction price to the performance obligation(s);

Step 5. Recognition of the revenue when, or as, the Company satisfies a performance obligation.

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

The Company's performance obligations are established when a customer submits a purchase order notification (in writing, electronically or verbally) for goods and services, and the Company accepts the order. The Company identifies performance obligations as the delivery of the requested product or service in appropriate quantities and to the location specified in the customer's contract and/or purchase order. The Company generally recognizes revenue upon the satisfaction of these criteria when control of the product or service has been transferred to the customer at which time it has an unconditional right to receive payment. The Company's prices are fixed and have no history of being affected by contingent events that could impact the transaction price. The Company does not offer price concessions and does not accept payment that is less than the price stated when it accepts the purchase order.

Revenue is recognized upon transfer of control of products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that may include various combinations of products and services which are generally capable of being distinct and accounted for as separate performance obligations.

***Product Revenue***

*Hardware.* Hardware revenue from the sale of the Company's Motion Capture Systems, Sensor Modules, and DOT Wearables is recognized when the Company transfers control to the customer, typically at the time when the product is delivered or shipped at which time the title passes to the customer, and there are no further performance obligations with regards to the hardware device.

*On-premise Software Licenses*. Revenue from on-premise software licenses, which are included with the Motion Capture Systems, Sensor Modules, and DOT Wearables to enable character animation, human motion analysis, sensor fusion, and software to produce useful information from raw sensor data, is recognized when the Company transfers control to the customer, typically at the time when the software is made available for use by the customer, and there are no further performance obligations with regards to the on-premise software license.

***Service Revenue***

*Support and Maintenance Services*. The Company includes 1 to 3 years of support and maintenance services with the motion capture systems hardware offerings, and also separately sells extended support and maintenance services contracts. The support and maintenance services contracts allow customers to receive software updates to their on-premise licenses as well as access to the Company's support team. The separately priced support and maintenance service contracts range from 12 months to 36 months, with the average contract length approximately 18 months. The Company typically receives payment at the inception of the contract and recognizes revenue on a straight-line basis over the term of the contract.

*Software as a Service.* Software as a Service ("SaaS") subscription revenue is primarily composed of Kinduct Human Performance Software and is recognized over time on a ratable basis over the contract term beginning on the date that the service is made available to the customer. Subscription periods range from monthly to multi-year, with the majority of contracts being one to three years and the average contract length approximately 18 months. The Company's MotionCloud platform is currently under development and available only in beta version to solicit initial customer feedback. As a result, the Company has received de minimis revenues to date from fees related to the MotionCloud platform.

*Non-recurring Engineering.* From time to time, the Company enters into special non-recurring engineering design service agreements. Revenues from non-recurring engineering design services are designed to meet specifications of a particular product, and generally do not create an asset with an alternative use. The Company generally recognizes revenue based on the achievement of certain applicable milestones and the amount of payment the Company determines it is entitled to at the time.

With respect to revenue related to third party product sales or other arrangements that involve the services of another party, for which the Company does not control the sale or service and acts as an agent to the transaction, the Company recognizes revenue on a net basis. The portion of the gross amount billed to customers that is remitted by the Company to another party is not reflected as revenue.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

*Multiple Performance Obligations* 

The Company's contracts with customers may include commitments to transfer multiple products and services to a customer. When hardware, software and services are sold in various combinations, judgment is required to determine whether each performance obligation is considered distinct and accounted for separately, or not distinct and accounted for together with other performance obligations. The Company considered the performance obligations in its contracts and determined that, for the majority of its revenue, the Company generally satisfies performance obligations at a point in time upon delivery of the hardware or on-premise software to the customer. In instances where the on-premise software license elements sold with hardware for various products are considered to be functioning together with hardware elements to provide the intended benefit to the customer, these arrangements are accounted for as a single distinct performance obligation separately from any service component.

*Standalone Selling Price* 

Judgment is required to determine the stand-alone selling price ("SSP") for each distinct performance obligation. When available, the Company maximizes observable inputs to determine SSP. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, it determines the SSP based on a cost-plus model as market and other observable inputs are seldom present based on the proprietary nature of the Company's products.

The transaction price is allocated to each performance obligation in a contract to record revenues in the amount of consideration that a provider expects to be entitled to receive in exchange for transferring goods or services. Generally, this allocation is based on the relative selling price method, where the SSP is determined for each performance obligation at contract inception and is based on observable prices. When contracts include variable consideration such as a discount, the discount is allocated proportionately to all performance obligations in the contract.

For contracts with multiple performance obligations, revenue is allocated to the hardware, on-premise software, SaaS, and support and maintenance performance obligations based on their relative SSP. Judgement is required in estimating SSP for each distinct performance obligation. Management determines SSP by maximizing observable inputs such as standalone sales where they exist. The Company performed an analysis to determine if its actual sales prices fall within a narrow band of the list price, which in conjunction with other evidence caused the Company to determine that its list prices for support and maintenance services approximated SSP and therefore may be used in the relative fair value allocation.

*Shipping and Handling Costs* 

The Company has elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods. Shipping and handling of production is recorded as cost of revenues and were $0.5 million and $0.3 million for the years ended December 31, 2022 and 2021, respectively.

***Contract Balances***

*Contract Assets* 

Under ASC 606, contract assets include amounts related to the contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced. Timing of revenue recognition may differ from the timing of invoicing to customers. If revenue recognized on a contract exceeds the billings, then the Company records an unbilled receivable for that excess amount, which is included as part of accounts receivable, net in the consolidated balance sheets. The Company had $0.2 million and nil, respectively, of contract assets as of December 31, 2022 and 2021. There were no impairment losses associated with contracts with customers for the years ended December 31, 2022 and 2021.

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

*Contract Liabilities* 

The Company's contract liabilities primarily consist of deferred revenue arising from billings and payments received in advance of revenue recognition. The Company primarily bills and collects payments in advance from customers for its SaaS subscriptions and services related to maintenance and support. The Company initially records the fees as deferred revenue and then recognizes revenue as performance obligations are satisfied over the subscription or support period. Deferred revenue to be recognized within the next twelve months is included in current deferred revenue, and the remainder is included in long-term deferred revenue in the consolidated balance sheets.

Customer deposits are recorded as other liabilities for refundable amounts that are collected in advance of the satisfaction of performance obligations and as deferred revenue for non-refundable amounts that are collected in advance of the satisfaction of performance obligations. Customer deposits represents advances paid for certain prototype testing upon signing of contract. Customer deposits become refundable upon execution of orders. Customers are given 2 years to place an order. If the customer has not placed an order after 2 years, then the customer deposits are recognized as revenue. Customer deposits amounted to $0.4 million and $0.4 million as of December 31, 2022 and 2021, respectively.

***Government Subsidies***

From time to time the Company receives government subsidies generally in the form of refundable tax credits. Government grants are recorded in the consolidated financial statements in accordance with their purpose, generally as a reduction of expense or as other income. The benefit is recorded when all conditions attached to the incentive have been met or are expected to be met and there is reasonable assurance of their receipt. For the year ended December 31, 2022, the Company recorded $1.4 million of government subsidies pursuant to the Digital Media Tax Credit ("DMTC") as a reduction in payroll expense and a related receivable, and $0.1 million in other miscellaneous government subsidies as other income, net. In connection with receipt of the DMTC subsidy, the Company incurred $0.2 million of professional services expense. The DMTC subsidy relates to payroll expenses incurred for the years ended December 31, 2021 and 2020. The Company has no further obligations with respect to the DMTC subsidy and after considering the recapture provisions, determined it would be appropriate to not raise a valuation allowance against the DMTC receivable. For the year ended December 31, 2021, the Company recorded $0.3 million of government subsidies as other income, net.

***Accounts Receivable and Allowance for Doubtful Accounts***

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In the normal course of business, the Company provides non-collateralized credit terms to its customers. The Company routinely analyzes accounts receivable and considers history, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends, and payment term changes when evaluating adequacy of the allowance for doubtful accounts. For the years ended December 31, 2022 and 2021, the allowance for doubtful accounts was $0.1 million and insignificant, respectively.

***Cost of Revenues***

Cost of revenues primarily consist of costs associated with the procurement of raw materials and manufacture of our sensor module solutions, amortization of certain acquired intangibles, hosting and delivery services for our SaaS platform to support our subscribers, personnel-related expenses associated with provision of non-recurring engineering services, manufacturing, customer support, and employees directly engaged in providing the SaaS service to our customers including salaries, benefits, and bonuses; software licensing fees, and shipping costs

***Research and Development Costs***

The Company's research and development ("R&D") efforts are focused on the development and design of sensor fusion modules and motion capture systems, as well as the continued development of advanced software

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

platforms directed to the improvement of the Company's existing technologies. The R&D organization works with the Company's manufacturing facilities, suppliers and customers to improve sensor module designs and lower manufacturing costs. Research and development costs are charged to expense as incurred.

***Software Development Costs***

Generally, the Company's external-use software products are released soon after technological feasibility has been established. As a result, costs incurred between the establishment of technological feasibility and public availability are not material. The Company's internal-use software development generally follows the agile methodology, as such the Company has determined that not enough time elapses between the Application Development stage and Operation stage to accumulate material costs for capitalization. Accordingly, the Company expenses internal-use and external-use software development costs as incurred. If material software development costs that are eligible for capitalization are incurred, they would be capitalized. Software development costs are included in R&D expense in the accompanying consolidated statements of operations.

***Non-controlling Interests***

Non-controlling interest represents the equity interest in a subsidiary that is not attributable, either directly or indirectly to the Company and is shown as a component of stockholders' equity on the consolidated balance sheets. The share of loss attributable to non-controlling interest is shown as a component of loss in the consolidated statement of operations.

***Product Warranty***

The Company's products are sold with a standard limited warranty for a period ranging from one to two years, warranting that the product conforms to specifications and is free from material defects in design, materials and workmanship. The Company estimates the costs of repairing or replacing products under warranty based on the historical average cost. The Company periodically assesses the adequacy of its recorded product warranty liabilities and adjusts the balances as required. At the time revenue is recognized, the Company establishes an accrual for estimated warranty expenses associated with its sales, recorded as a component of cost of revenues. As of both December 31, 2022 and 2021, the Company has established a warranty reserve of $0.1 million, which is included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets. Warranty expense is recorded as a component of cost of revenues in the consolidated statements of operations. The Company incurred an insignificant amount of warranty expense for the years ended December 31, 2022 and 2021.

***Stock-based Compensation***

The Company recognizes stock-based compensation expense over the requisite service period on a straight-line basis for all stock-based payments that are expected to vest to employees, non-employees, and directors. Equity-classified awards issued to employees, non-employees and directors are measured at the grant-date fair value of the award. Forfeitures are recognized as they occur. For accounting purposes, the Company estimates grant-date fair value of stock options using the Black-Scholes option-pricing model. The model requires the input of the fair value of the underlying common stock, the risk-free interest rates, the expected term of the option, the expected volatility of the price of the Company's common stock and the expected dividend yield of the Company's common stock.

***Fair Value Measurements***

The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which to transact and the market-based risk. The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. The carrying amounts reported in the consolidated financial statements approximate the fair value for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses and other current liabilities, due to their short-term nature.

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

***Income Taxes***

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts or existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment. The Company records a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not.

The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based on the merits of the position. The Company's policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit.

***Debt and Equity Issuance Costs***

Debt and equity issuance costs, which primarily consist of direct and incremental banking, legal, accounting, consulting, and printing fees relating to the merger transaction described in Note 18. *Subsequent Events*, are capitalized and allocated between the debt and equity elements of the transaction. Debt issuance costs of $2.4 million relating to the issued Pre-Close Notes and unissued Venture Linked Notes have been expensed in the year ended December 31, 2022, as the Company elected the fair value option for the Pre-Close Notes which closed on November 14, 2022, and subsequently elected the fair value option for the Venture Linked Notes. The Company has an additional $4.1 million of equity issuance costs allocated to the equity offering capitalized at December 31, 2022, within capitalized equity issuance costs and other assets on the consolidated balance sheet, and will offset this amount of equity issuance costs against proceeds received upon the consummation of the transaction which occurred in February 2023. As of December 31, 2021, the Company had not incurred such costs.

***Litigation***

The Company is, from time to time, party to various legal proceedings arising in the ordinary course of business. The Company records a loss when information indicates that a loss is both probable and estimable. Where a liability is probable and there is a range of estimated loss with no best estimate in the range, the Company records the minimum estimated liability related to the claim. As additional information becomes available, the Company assesses the potential liability related to the Company's pending litigation and revises its estimates, if necessary. The Company expenses litigation costs as incurred. Refer to Note 17. *Commitments and Contingencies*.

***Preferred Stock Redemption and Classification***

The Series D-1 convertible redeemable preferred stock (the "Series D-1 Preferred Stock") contains a liquidation preference whereby holders of the Series D-1 Preferred Stock are entitled to receive consideration equal to their original issue price plus all declared but unpaid dividends, prior to payment to the holders of other series of convertible preferred stock or the holders of common stock. As such, the holders of the Series D-1 Preferred Stock could receive cash entirely while the holders of subordinated equity instruments could receive nothing or cash plus other assets of the company, which is not the same form of consideration as the holders of the Series D-1 Preferred Stock. Likewise, the Series E Preferred Stock has a liquidation preference to the Series D Preferred Stock, Series C Preferred Stock, and Series B and Series A Preferred Stock. The Series D Preferred Stock has a liquidation preference to the Series C Preferred Stock, and Series B and Series A Preferred Stock. The Series C Preferred Stock has a liquidation preference to Series B and Series A Preferred Stock. The Series B and Series A Preferred Stock have a liquidation preference to the Common Stock.

The Series D-1 Preferred Stock is redeemable at a price per share equal to the original issue price of $4.5713 per share, plus an amount per share equal to 8% of the original issue price for each year following the original issue date, not more than 60 days after receipt of a written notice from a majority of the Series D-1 shareholders by the Company at any time on or after September 28, 2023.

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

As the preferred stockholders have the ability to control a majority of the votes of the board of directors, a deemed redemption may occur that is in the control of the preferred stockholders and outside the control of the Company, and holders of common stock may not receive the same form of consideration as the holders of the preferred stock, the Company concluded that the preferred stock is redeemable at the option of the holder and should be classified in mezzanine equity on the consolidated balance sheets.

***Lease Accounting***

The Company determines if an arrangement is a lease at inception. The Company's operating lease agreements are primarily for real estate and are included within right-of-use assets, net, accrued expenses and other current liabilities, and other long-term liabilities on the consolidated balance sheets. The Company elected the practical expedient to combine its lease and related non-lease components for all its leases. Right-of-use ("ROU") assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Variable lease payments that do not depend on an index or rate are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets also include any lease prepayments made and exclude lease incentives. Many of the Company's lease agreements include options to extend the lease, which are not included in the Company's minimum lease terms unless they are reasonably certain to be exercised. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.

***Earnings per Share***

Basic and diluted earnings per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The Company considers all series of its convertible preferred stock to be participating securities. Income or loss is attributed to common stockholders and participating securities based on their participation rights. Loss attributable to common stockholders is not allocated to the convertible preferred stock as the holders of the convertible preferred stock do not have a contractual obligation to share in any losses.

Under the two-class method, basic earnings per share attributable to common stockholders is computed by dividing net income or loss by the weighted-average number of shares of common stock outstanding during the year. Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of convertible preferred stock, stock options, preferred stock warrants and common stock warrants.

***Comprehensive Income (Loss)***

Comprehensive income (loss) includes all temporary changes in equity (net assets) during a period from non-owner sources.

***Recently Adopted Accounting Pronouncements***

In February 2016, the FASB issued ASC 842, *Leases*, ("ASC 842") a new standard requiring lessees to recognize operating and finance lease liabilities on the balance sheet, as well as corresponding right-of-use ("ROU") assets. This standard also made some changes to lessor accounting and aligns key aspects of the lessor accounting model with the revenue recognition standard. In addition, disclosures are required to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASC 842 requires adoption using the modified retrospective approach, with the option of applying the requirements of the standard either i) retrospectively to each prior comparative reporting period presented, or ii) retrospectively at the beginning of the period of adoption. The Company adopted ASC 842 on January 1, 2022, on a modified retrospective basis, and did not restate prior comparative periods.

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

In December 2019, the FASB issued ASU No. 2019-12, *Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes*. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 on January 1, 2022, which did not have a material impact on its consolidated financial statements.

In January 2020, the FASB issued ASU No. 2020-01, *Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815*. The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. The Company adopted ASU 2020-01 on January 1, 2022, which did not have a material impact on its consolidated financial statements.

In May 2021, the FASB issued ASU No. 2021-04, *Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)*. This guidance clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. Early adoption is permitted for all entities, including adoption in an interim period. The Company adopted ASU 2021-04 on January 1, 2022, which did not have a material impact on its consolidated financial statements.

***Accounting Pronouncements Not Yet Adopted***

In June 2016, the FASB issued ASU No. 2016-13, *Financial Instruments—Credit Losses (Topic 326)* to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivable and other financial instruments, including available-for-sale debt securities. The standard will be effective for the Company beginning in 2023, with early adoption permitted. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, *Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity*, which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 is effective for private companies' fiscal years beginning after December 15, 2023, respectively, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the timing of adoption and the impact of this ASU on its consolidated financial statements.

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

**2.** **Balance Sheet Components** 

**Inventories** 

Inventories consisted of the following (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Raw materials | $2758 | $2040 |
|  Work-in-progress | 1132 | 976 |
|  Finished goods | 1274 | 1519 |
|  | $5164 | $4535 |

---

The amount recorded as charges to cost of revenues, representing inventories considered obsolete and unsaleable was $0.3 million for the year ended December 31, 2022, and insignificant for the year ended December 31, 2021.

**Prepaid expenses and other current assets** 

Prepaid expenses and other current assets consist of the following (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Prepaid expenses | $1029 | $1006 |
|  Value added tax receivable | 446 | 616 |
|  Contract assets | 197 |  |
|  Government tax receivables | 1416 |  |
|  Other assets | 186 | 686 |
|  | $3274 | $2308 |

---

**Property and equipment, net** 

Property and equipment, net consists of the following (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Office equipment | $157 | $151 |
|  Computer hardware and software | 2017 | 1887 |
|  Lab equipment | 2864 | 2717 |
|  Furniture and fixtures | 545 | 529 |
|  Leasehold improvements | 1069 | 1122 |
|  Gross book value | 6652 | 6406 |
|  Less: accumulated depreciation and amortization | (4291) | (3672) |
|  | $2361 | $2734 |

---

Depreciation and amortization expense on property and equipment was $0.8 million and $0.6 million for the years ended December 31, 2022 and 2021, respectively.

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

**Accrued expenses and other current liabilities** 

Accrued expenses and other current liabilities consists of the following (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Accrued compensation and employee benefits | $2999 | $2859 |
|  Customer advances |  | 471 |
|  Accrued professional services | 1909 | 497 |
|  Accrued valued added and other taxes | 399 | 400 |
|  Accruals for purchases received | 751 | 550 |
|  Current operating lease liabilities | 593 |  |
|  Accrued TAS legal settlement (Note 17) | 325 |  |
|  Other current liabilities | 968 | 845 |
|  | $7944 | $5622 |

---

**3.** **Fair Value Measurements** 

The Company categorizes assets and liabilities recorded at fair value on the Company's consolidated balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:

• Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

• Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs other than
quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

• Level 3—Inputs are unobservable inputs based on the Company's own assumptions used to measure assets
and liabilities at fair value. The inputs require significant management judgment or estimation.

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 carrying amount of the Company's financial instruments including cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values because of their short maturities, the Pre-Close Notes are carried at fair value due to the Company's electing of the ASC 825 fair value option, while the convertible notes and the deferred payout owed to the sellers of Kinduct are carried at amortized cost, with the convertible notes adjusted for changes in fair value of the embedded derivative. It is not practicable to determine the fair value of the convertible notes or the deferred payout owed to the sellers of Kinduct due to the lack of information available to calculate the fair value of such notes. As of December 31, 2022 and 2021, the carrying amount of the Pre-Close Notes was $25.3 million and zero, respectively, while the carrying value of the convertible notes was $6.2 million and zero, respectively and the carrying amount of the deferred payout owed to the sellers of Kinduct was $4.3 million and $6.0 million, respectively. See Note 6. *Debt* for additional information on the Pre-Close Notes and convertible notes.

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

The following table sets forth the Company's financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2022 (in thousands):

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** |
|  | **Level 1** | **Level 2** | **Level 3** | **Total** |
|  **Financial Assets** |  |  |  |  |
|  Cash equivalents |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Money market funds | $11 | $— | $— | $11 |
|  Marketable equity securities | 2 |  |  | 2 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total assets | $13 | $— | $— | $13 |
|  **Financial Liabilities** |  |  |  |  |
|  Pre-Close Notes | $— | $— | $25300 | $25300 |
|  Embedded derivative in convertible notes |  |  | 60 | 60 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities | $— | $— | $25360 | $25360 |

---

The following table sets forth the Company's financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2021 (in thousands):

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Level 1** | **Level 2** | **Level 3** | **Total** |
|  **Financial Assets** |  |  |  |  |
|  Cash equivalents: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Money market funds | $11 | $&nbsp;&nbsp;&nbsp;&nbsp;— | $— | $11 |
|  Marketable equity securities | 58 |  |  | 58 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total assets | $69 | $— | $— | $69 |

---

Level 1 instruments include highly liquid money market funds classified as cash equivalents, as well as marketable equity securities. The Company utilized the market approach and Level 1 valuation inputs to value its money market mutual funds and marketable equity securities.

As of December 31, 2022 and 2021, the carrying amount of cash equivalents approximated fair value due to the short period of time to maturity. The estimated fair value of the available-for-sale marketable equity securities may not be representative of values that will be realized in the future.

Level 3 instruments include the Pre-Close Notes and an embedded derivative bifurcated from the convertible notes. The Company evaluated the convertible notes under ASC 815, *Derivatives and Hedging*, and identified an embedded derivative that required bifurcation. The derivative embedded in the convertible notes is a contingent put upon change in control that would allow the noteholder to put the convertible notes to the Company at 1.5 times the then-outstanding principal and accrued interest. The estimated fair value of the embedded derivative at December 31, 2022 was determined using significant assumptions which include management estimates on the probability of a contingent event occurring, the term of the instrument, present value of common stock, rate of return on common stock, future value of common stock, and the discount rate. Changes in the fair value of the embedded derivative totaling a gain of $0.4 million and zero for the years ended December 31, 2022 and 2021 are included in the Company's consolidated statement of operations within other income (expense), net. As of December 31, 2022, the embedded derivative had a fair value of $0.1 million. The Company elected the fair value option per ASC 825 for the Pre-Close Notes, accordingly the estimated fair value of the Pre-Close Notes at December 31, 2022 was

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

determined using significant assumptions which include management estimates on the probability of a contingent event occurring, the term of the instrument, market yield, spread, short rate volatility, and the discount rate. Changes in the fair value of the Pre-Close Notes totaling a loss of $0.3 million and zero for the years ended December 31, 2022 and 2021 are included in the Company's consolidated statement of operations within other income (expense), net within the caption "Revaluation of debt". As of December 31, 2022, the Pre-Close Notes had a fair value of $25.3 million of which $0.3 million related to a change in fair value.

There were no transfers between fair value measurement levels during any presented period.

**4.** **Joint Venture** 

On October 26, 2018, the Company, through its wholly-owned subsidiary, mCube Hong Kong, entered into an Equity Joint Venture Contract ("JV") with a Chinese entity Qingdao Microelectronics Innovation Center Co., Ltd. ("QMICC") to form Qingdao Hygealeo Technology Co. Ltd. ("Qingdao JV"). The Company contributed know-how for 70% ownership of the Qingdao JV and QMICC agreed to contribute approximately $16.5 million based on then-prevailing foreign exchange currency rates for 30% ownership. Qingdao JV is engaged in research and development, application and sale of intelligent sensor module turnkey solutions. Qingdao JV was formed and headquartered in Laoshan District, Qingdao, Shandong Province, People's Republic of China ("PRC").

On April 6, 2020, Golden Maple, Inc., a company headquartered in Zhejiang, China ("Golden Maple"), merged with Qingdao JV. Golden Maple investors exchanged its equity capital valued at approximately $8.3 million at then-prevailing foreign currency exchange rates for 14% of Qingdao JV's equity interest. Immediately following the effectiveness of the merger between both entities, the current Qingdao JV shareholders, mCube Hong Kong Limited and QMICC, own approximately 60% and 26% of the Company's subsidiary interest, respectively.

Based on the Company's analysis of the JV under ASC 810 – *Consolidation*, the Company has determined that Qingdao JV is a variable interest entity ("VIE") based on the fact the Qingdao JV does not have sufficient equity to operate without financial support from the Company. Further, the Company concluded that Movella is Qingdao JV's primary beneficiary based on two conditions. Movella occupies two of three member seats in Qingdao JV's managing committee and has majority ownership interest in Qingdao JV, therefore, has the power to direct the activities of Qingdao JV that most significantly impact its economic performance, including establishing the strategic, operating and capital decisions of Qingdao JV in the ordinary course of business. In addition, Movella has an obligation to absorb potential losses of Qingdao JV or the right to receive potential benefits from Qingdao JV in proportion to its equity interest. As the primary beneficiary, the Company consolidated the results of Qingdao JV for financial reporting purposes under the variable interest consolidation model guidance in ASC 810 for the years ended December 31, 2022 and 2021.

As of December 31, 2022, Qingdao JV had received total proceeds to date of approximately $7.9 million from QMICC which has been recorded as non-controlling interests. The cash received from QMICC is restricted for use by Qingdao JV.

During the years ended December 31, 2022 and 2021, Qingdao JV received government subsidies of $0.1 million and $0.3 million, respectively, which were recorded as other income, net in the accompanying consolidated statements of operations.

**5.** **Discontinued Operations** 

On June 8, 2020, the Company's subsidiary mCube International Limited and a privately-held company based in China, MEMSIC Semiconductor (Tianjin) Co. Ltd. ("MEMSIC") entered into a License Agreement whereby the Company granted MEMSIC and its subsidiaries an exclusive, non-transferable, worldwide, fully paid up, royalty free, irrevocable and perpetual license to certain intellectual property rights and technology assets in the field of accelerometers, gyroscopes, and other inertial sensing devices ("components business"). Under this agreement, the Company continues to retain sole ownership of the licensed intellectual property rights, and no rights

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

are granted to the MEMSIC outside of the MEMSIC licensed field. Pursuant to the agreement, MEMSIC agreed to pay Company a maximum consideration valued at $75.0 million as follows (in thousands):

---

| | | |
|:---|:---|:---|
| **Due Date** | **Consideration** | **Amount** |
|  June 2020 | Cash | $15000 |
|  June 2020 | Equity of MEMSIC | 25000 |
|  June 2021 | Cash | 10000 |
|  June 2021 | Equity of MEMSIC (maximum amount contingent achieving on targets) | 8000 |
|  June 2022 | Equity of MEMSIC (maximum amount contingent achieving on targets) | 8000 |
|  June 2023 | Equity of MEMSIC (maximum amount contingent achieving on targets) | 9000 |
|  |  | $75000 |

---

On June 8, 2020, the Company also entered an office sublease agreement and a transition service agreement with MEMSIC. The term of this Lease (the "Term") commenced on June 8, 2020 and was renewed through March 31, 2023. The transition service agreement include (1) All personnel salaries and the related overheads will be billed at costs + 3% from the Company's Hsinchu office, (2) half of the Hsinchu office lease costs at costs +3%, (3) IT and software subscription service, (4) equipment leases, (5) laboratory services at actual costs +3%, and (6) legal, administrative and accounting service at actual costs +3%.

As of December 31, 2020, the Company received the first tranche cash payment of $12.6 million which was net of withholding tax of $2.4 million, of which $0.8 million was recorded as other receivable. The Company received the remaining $10.0 million cash installment in June 2021 and received the non-marketable equity securities with an initial fair value of $25.0 million in 2021. See Note 1. *Overview and Summary of Significant Accounting Policies* for further details. The Company does not have significant influence based on its ownership percentage in MEMSIC and accounts for its investment under the cost method. The Company deemed the achievement of targets improbable at December 31, 2022 and 2021, therefore the Company did not accrue for the remaining consideration of MEMSIC equity that might be issued if performance targets were achieved. The component business licensed to MEMSIC did not achieve the minimum performance targets for the period ending June 2022 or June 2021 and accordingly, no additional equity securities were issued to the Company.

In July 2021, the Company decided to exit the remaining components business not licensed to MEMSIC due to continued operating losses incurred and a strategic decision to refocus the business. The decision supports the Company's strategy to focus on value creation for shareholders by transforming the business from a focus on hardware to a full-stack, AI-enabled SaaS software company. As a result of the Company's decision to refocus the business in July 2021, the Company reviewed the criteria set forth in ASC 205-20 and concluded that the criteria for presenting the results of the components business as a discontinued operations were met during 2021 and accordingly, the Company has classified the assets and liabilities and operating results from the components business as discontinued operations as of and for the years ended December 31, 2022 and 2021. The transition services agreement with MEMSIC ended in December 2020 and the Company has no continuing involvement in the components business as of July 2021.

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

The following table presents information related to the major classes of assets and liabilities that were classified as assets and liabilities from discontinued operations in the accompanying consolidated balance sheets (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Other receivables - MEMSIC | $— | $291 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Current assets of discontinued operations |  | 291 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total assets of discontinued operations | $— | $291 |
|  Accounts payable | $— | $357 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Current liabilities of discontinued operations |  | 357 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities of discontinued operations | $— | $357 |

---

The following table provides a summary of operating results included in discontinued operations for the years ended December 31, 2022 and 2021 (in thousands):

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** |
|  Revenue | $— | $293 |
|  Cost of revenues |  | 181 |
|  Research and development |  | 103 |
|  General and administrative |  | 135 |
|  Loss from discontinued operations |  | (126) |
|  Other expense |  | (30) |
|  Loss from discontinued operations before income taxes |  | (156) |
|  Provision for income taxes |  |  |
|  Loss from discontinued operations, net of tax | $— | $(156) |

---

**6.** **Debt** 

The following table summarizes the outstanding borrowings as of December 31, 2022 and December 31, 2021 (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Pre-Close Notes | $25300 | $— |
|  Eastward Term Loan |  | 8000 |
|  Convertible notes – related party | 6345 |  |
|  TD BCRS Line of credit |  | 1069 |
|  SVB Term Loan |  | 398 |
|  ACOA Loans | 497 | 532 |
|  Add: fair value of embedded derivative in convertible notes | 60 |  |
|  Less: unamortized debt discounts and issuance costs | (219) | (250) |
|  Total debt | $31983 | $9749 |
|  Classification: |  |  |
|  Line of credit and current portion of long-term debt | $148 | $1353 |
|  Long-term portion of term debt | $25649 | $8396 |
|  Convertible notes, net – related party | $6186 | $— |

---

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

Contractual future principal payments on outstanding debt obligations, excluding accrued interest and the convertible notes due to their mandatory conversion into common stock upon the passage of time or a capital markets transaction, as of December 31, 2022 are as follows (in thousands):

---

| | |
|:---|:---|
|  | **Year Ended December 31,** |
| 2023 | $148 |
| 2024 | 105 |
| 2025 | 25049 |
| 2026 | 49 |
| 2027 | 49 |
|  Thereafter | 97 |
|  Total | $25497 |

---

**Term loans** 

*Pre-Close Notes* 

On November 14, 2022, Movella and certain of its subsidiaries, Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent, and Credit Partners II AIV, L.P. and FP Credit Partners Phoenix II AIV, L.P., as purchasers (the "Purchasers"), entered into a Note Purchase Agreement (the "Note Purchase Agreement") pursuant to which, (a) Movella issued and sold to the Purchasers, and the Purchasers purchased, senior secured notes of Movella in an aggregate original principal amount of $25.0 million (the "Pre-Close Facility"), and (b) subject to the fulfillment of certain conditions precedent (including the consummation of the Merger), Movella agreed to issue and sell to the Purchasers, and the Purchasers agreed to purchase, on the Closing Date, senior secured venture-linked notes in an aggregate original principal amount of $75.0 million (the "VLN Facility"), in each case, for the consideration (including via a deemed sale and purchase, as applicable), as set forth in the Note Purchase Agreement.

The obligations of Movella under the Note Purchase Agreement are guaranteed by certain of its subsidiaries and secured by substantially all of Movella's and such subsidiaries' assets. Upon consummation of the Merger, New Movella will also be required to become a secured guarantor of the obligations under the Note Purchase Agreement.

The commitment to provide the VLN Facility terminates upon the earliest to occur of (i) the termination of the Business Combination Agreement in accordance with its terms prior to the Closing Date and (ii) April 30, 2023, if the Merger has not been consummated on or prior to April 30, 2023 (the "VLN Termination Date").

The proceeds of the Pre-Close Facility were used, in part, to refinance certain existing debt of Movella and its subsidiaries and to pay a portion of the transaction expenses associated with the financing arrangements contemplated by the Commitment Letter (the "FP Financing"), with the remaining proceeds available for growth and working capital and general corporate purposes. A portion of the proceeds of the VLN Facility were used on the Closing Date to refinance the Pre-Close Facility and to pay transaction expenses associated with the FP Financing. After the Closing, the remaining proceeds of the VLN Facility will be available growth and working capital and general corporate purposes.

The interest rate per annum applicable to notes under the Note Purchase Agreement is 9.25%; provided, however, if the VLN Termination Date occurs, interest on the notes evidencing the Pre-Close Facility will bear interest at Movella's option, at either an alternate base rate plus an applicable margin initially of 8.25% per annum or a term SOFR rate, plus an applicable margin initially of 9.25% per annum. The applicable margin on the notes evidencing the Pre-Close Notes increases by 0.50% in each year on the November 14 anniversary of the entry into the Note Purchase Agreement. With respect to the notes evidencing the VLN Facility, interest is paid in kind on the last business day of each calendar quarter commencing with the calendar quarter ending immediately after the first to occur of the Closing Date and the VLN Termination Date. Interest is also payable in cash on VLN Termination Date, the Closing Date and the date of any prepayment or repayment of notes (subject however, in certain cases, to the payment of a contractual return, if such contractual return is greater than the amount of all accrued and unpaid

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

interest (other than default interest, if any)). Subject to certain exceptions in connection with certain qualified refinancing events and the repayment of the Pre-Close Facility on the Closing Date, on the date of any voluntary or mandatory prepayment or acceleration of the notes under the Note Purchase Agreement, a scheduled contractual return is required to be paid, if greater than the amount of all accrued and unpaid interest (other than default interest, if any). When such contractual return is paid, such contractual return will be deemed to constitute payment of all accrued and unpaid interest (other than default interest, if any) on the principal amount of notes so prepaid, repaid or accelerated, as applicable, including all interest on the notes that was previously paid in kind. After the Closing, New Movella will have the right, subject to certain exceptions, to cause the Grantees (or their permitted assignees) to sell all or a portion of the shares purchased by such entities in the Tender Offer and the Private Placement at any time in its sole discretion over the life of the VLN Facility, and a percentage of the proceeds (which percentage is a function of when proceeds are generated, based on a predetermined schedule with a sliding scale) of any such sale shall be applied as a credit against the outstanding obligations under of the VLN Facility upon a repayment of the VLN Facility in full or a refinancing event.

As the Closing occurred on February 10, 2023, the maturity of the VLN Facility will be five years after the Closing Date on February 10, 2028. There are no regularly scheduled amortization payments on either the Pre-Close Facility or the VLN Facility until the maturity date therefor, however, there are customary mandatory prepayment events in connection with the receipt of net proceeds from extraordinary receipts and dispositions (subject, in the case of dispositions, to certain customary exceptions and customary reinvestment rights), debt issuances and upon events specified in the Note Purchase Agreement to be a change of control, and the Pre-Close Facility is required to be refinanced in full on the Closing Date with a portion of the proceeds of the VLN Facility. The Pre-Close Facility and VLN Facility may be optionally prepaid in whole or in part. All such prepayments are required to be accompanied by accrued and unpaid interest on the amount prepaid or if greater (excluding default interest, if any), payment of the contractual return.

The Company elected the fair value option to account for the Pre-Close Notes. The Company recorded the Pre-Close Notes at fair value upon issuance of $25.0 million and subsequently remeasured them to fair value at December 31, 2022 in the amount of $25.3 million. The change in fair value of the Pre-Close Notes of $0.3 million was primarily attributable to interest accretion, therefore there was an insignificant difference between the aggregate fair value and the aggregate unpaid principal and accrued interest on the Pre-Close Notes at December 31, 2022. The $0.3 million change in fair value of the Pre-Close Notes was recognized as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss within the caption "Revaluation of debt".

On February 10, 2023, the Closing occurred and the outstanding principal and accrued interest related to the Pre-Close Notes was extinguished concurrently upon issuance of the Venture Linked Notes. See Note 18. *Subsequent Events*.

*Silicon Valley Bank* 

In February 2022, the Company fully repaid the amounts owed to Silicon Valley Bank ("SVB") per the previous agreement and entered into amendments to the Loan and Security Agreement with SVB and subsequently received cash proceeds of $1.0 million and issued warrants to purchase 16,321 shares of the Company's common stock at a purchase price of $1.58 per share. The term loan was repayable over 30 months starting October 2022 and would have matured in March 2025. The term loan bore a floating interest rate equal to the greater of the prime rate plus 1.75% per annum or 5.0% payable monthly. In the third quarter of 2022, the Company was not in compliance with the adjusted quick ratio debt covenant of the SVB term loan; SVB issued a debt covenant waiver for the breach of the covenant. On November 14, 2022, the Company repaid the SVB Loan in full using a portion of the proceeds from the Pre-Close Facility.

*Eastward Fund Management, LLC* 

On December 10, 2021, the Company entered into a new loan and security agreement with Eastward in an aggregate original principal amount of $8.0 million. The proceeds were used to pay off the existing Eastward debt with the principal amount of $4.4 million and to provide working capital for business growth. The loan bore interest at prime rate plus 8.25% floating with a prime floor of 3.25%. The repayment term included the first 18 months of interest-only payments followed by 30 consecutive equal monthly installments of principal and interest payments and a final payment due upon maturity equal to 2.5% of the advance or $0.2 million. The Company had the option

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

to prepay the entirety of the debt with written notice at least 45 days prior to such prepayment. The prepayment amount includes i) the outstanding principal plus accrued and unpaid interest plus ii) the prepayment premium, plus iii) the final payment, plus iv) all other sums, including interest at the default rate with respect to any past due amounts owed. As part of the agreement, the Company issued Eastward warrants to purchase 215,054 shares of common stock at an exercise price of $0.93 per share on December 10, 2021. On November 14, 2022, the Company repaid the Eastward Loan in full using a portion of the proceeds from the Pre-Close Facility.

*Paycheck Protection Program ("PPP")* 

On May 5, 2020, the Company received loan proceeds in the amount of $0.6 million under the Paycheck Protection Program ("PPP"). On September 22, 2021, the outstanding principal balance and related accrued interest were forgiven by the lender and the Small Business Administration ("SBA"). The Company recorded the loan forgiveness as other income of $0.6 million in the consolidated statements of operations in September 2021. The related accrued interest for the PPP loan was not material.

*The Atlantic Canada Opportunities Agency loan ("ACOA" Loan)* 

Kinduct applied for non-interest bearing, unsecured term loans with a monthly installment repayment from the Atlantic Canada Opportunities Agency (ACOA) in 2011, 2013, and 2019. These three loans are scheduled to be repaid in 2024, 2024, and 2029, respectively. In 2021, Kinduct entered into an amendment to reduce the monthly repayments to $200 for these outstanding ACOA loans for the period from July 2021 to December 2022, July 2021 to December 2022, and October 2021 to December 2022, respectively. As of December 31, 2022 and 2021, the Company had recorded a total debt of $0.5 million and $0.5 million on the accompanying consolidated balance sheets related to these loans.

***Convertible notes – related party***

In March 2022, the Company entered into convertible promissory note agreements with two of its existing preferred stock investors and received aggregate cash proceeds of $4.9 million. The Company exchanged an additional $1.1 million of convertible promissory notes to the sellers of Kinduct for extinguishment of $1.1 million of the deferred payout liability owed to them. The convertible note exchange was accounted for as a troubled debt restructuring pursuant to FASB ASC Topic 470-60, *Troubled Debt Restructurings by Debtors*. As the future undiscounted cash flows of the Convertible notes were greater than their carrying amount, the carrying amount was not adjusted and no gain was recognized as a result of the modification of terms. Of the $1.1 million in convertible notes issued in exchange to the sellers of Kinduct, $1.0 million were issued to a related party. The convertible promissory notes shall bear an interest rate of 6.0% per annum. The outstanding principal amount and all accrued but unpaid interest on the notes shall be mandatorily converted into the Company's common stock at a conversion price of $4.79 per share upon the earlier of i) maturity in September 2023 or ii) the occurrence of a capital markets transaction such as an initial public offering or acquisition by a special purpose acquisition company; or upon a change of control as defined in the convertible promissory note agreements, at the discretion of the noteholder, the notes would either convert into the Company's common stock at a conversion price of $4.79 per share, or would be repayable at 1.5 times the outstanding principal amount plus all accrued and unpaid interest. The convertible notes contain an embedded derivative that is measured at fair value on a recurring basis, with changes in fair value of the embedded derivative recorded within other income (expense) on the consolidated statements of operations. The convertible notes are presented as of December 31, 2022, net of unamortized debt discount of $0.2 million and the fair value of the embedded derivative of $0.1 million within the consolidated balance sheet. At issuance of the convertible notes in March 2022 the embedded derivative was valued at $0.5 million. Refer to Note 3. *Fair Value Measurements* for additional details on the bifurcated embedded derivative. Total interest expense on the convertible notes for the year ended December 31, 2022, was $0.5 million of which $0.5 million was to related parties. Interest expense related to amortization of debt discount was $0.2 million and interest expense related to accretion of the convertible notes was $0.4 million for the year ended December 31, 2022.

On February 10, 2023, as the Company completed its acquisition by a special purpose acquisition company which qualified as a Maturity Date of the convertible notes, 100% of the outstanding principal and accrued interest on the convertible notes were mandatorily converted into 1,333,712 shares of Movella common stock at $4.79 per share per the original terms of the notes.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

***Revolving lines of credit***

*Silicon Valley Bank (SVB)* 

In February 2022, the Company entered into amendments to the SVB Loan Agreement with SVB that raised the maximum amount available under the revolving line of credit to $3.0 million. The principal amount outstanding under the revolving line of credit shall accrue interest at a floating per annum rate equal to the greater of 1% above the prime rate, or 4.25%; the rate in effect at December 31, 2022, would have been 7.25% if the Company had borrowings on the SVB revolving line of credit. The amendment modified the borrowing base. The maximum amount available for borrowing under the revolving line of credit is 65% of eligible accounts receivable of the Company, provided that total advances made against Xsens eligible accounts receivable shall not exceed $1.5 million, the portion of the borrowing base comprised of eligible foreign accounts shall not exceed 25%, and advances made against eligible foreign accounts shall not exceed $0.8 million. There were no amounts outstanding under the SVB line of credit as of December 31, 2022, or 2021. On November 14, 2022, the SVB revolving line of credit agreement was terminated concurrently with the execution of the Pre-Close Notes.

*TD BCRS Revolving Line of Credit* 

On June 9, 2020, the Company's wholly-owned subsidiary Kinduct entered into a line of credit facility with TD Ameritrade Commercial Banking, Canada. The credit limit was the lesser of $1.5 million or the previous quarter's Borrowing Base Condition. Borrowing Base Condition was calculated using the monthly recurring revenue multiplied by 5, less the amount of any statutory claims including government remittances. The interest rate was Prime Rate plus 1.55% per annum. On November 14, 2022, the Company repaid the TD BCRS Revolving Line of Credit in full using a portion of the proceeds from the Pre-Close Notes.

**7.** **Goodwill and Acquired Intangible Assets** 

***Goodwill***

The following table summarizes the activity related to the carrying value of goodwill during the years ended December 31, 2022 and 2021 (in thousands):

---

| | |
|:---|:---|
|  Balance at December 31, 2020 | $39595 |
|  Effect of change in foreign currency exchange rates | (1011) |
|  Balance at December 31, 2021 | 38584 |
|  Effect of change in foreign currency exchange rates | (2203) |
|  Balance at December 31, 2022 | $36381 |

---

The Company did not record any impairment charges for goodwill during the years ended December 31, 2022 and 2021.

***Intangibles***

Intangible assets as of December 31, 2022, consisted of the following (in thousands):

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Gross**<br>**Carrying**<br>**Value** | **Accumulated**<br>**Amortization** | **Net**<br>**Carrying**<br>**Value** | **Weighted**<br>**Average**<br>**Remaining**<br>**Life** |
|  Developed technology | $16422 | $(12537) | $3885 | 3.68 |
|  Customer relationships | 1451 | (1036) | 415 | 0.75 |
|  Trademarks | 2374 | (867) | 1507 | 6.76 |
|  | $20247 | $(14440) | $5807 |  |

---

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

The change in definite-lived intangible assets from December 31, 2021 to December 31, 2022 was primarily composed of an impairment loss of $7.2 million, amortization expense of $7.1 million, foreign currency translation adjustments of $1.0 million and acquisition of intangible assets of $0.2 million.

Intangible assets as of December 31, 2021, consisted of the following (in thousands):

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Gross**<br>**Carrying**<br>**Value** | **Accumulated**<br>**Amortization** | **Net**<br>**Carrying**<br>**Value** | **Weighted**<br>**Average**<br>**Remaining**<br>**Life** |
|  Developed technology | $30335 | $(14238) | $16097 | 3.67 |
|  Customer relationships | 5510 | (2974) | 2536 | 1.75 |
|  Trademarks | 2900 | (631) | 2269 | 7.81 |
|  | $38745 | $(17843) | $20902 |  |

---

The change in definite-lived intangible assets from December 31, 2020 to December 31, 2021 was primarily composed of amortization expense of $6.7 million and foreign currency translation adjustments of $0.2 million.

As of December 31, 2022, future amortization expense related to the intangible assets is as follows (in thousands):

---

| | |
|:---|:---|
|  | **Years ending December 31,** |
| 2023 | $1681 |
| 2024 | 1265 |
| 2025 | 1265 |
| 2026 | 989 |
| 2027 | 228 |
|  Thereafter | 379 |
|  Total | $5807 |

---

Amortization expense for intangible assets was $7.1 million and $6.7 million for the years ended December 31, 2022, and 2021, respectively, using the straight-line method. The Company recorded impairment on intangible assets of $7.2 million and nil in the years ended December 31, 2022 and 2021. The impairment recognized in the year ended December 31, 2022, related to a strategic shift in the intended use of certain acquired intangible assets and was calculated by a third party using significant assumptions provided by management that allowed for calculation of fair value of the intangible assets, which when compared to the carrying value resulted in the impairment charge. In connection with the impairment of intangible assets in the year ended December 31, 2022, the Company removed $9.2 million of accumulated amortization to establish a new cost basis for the impacted intangible assets.

The Company has recorded the amortization of developed technology as cost of revenues in the accompanying consolidated statements of operations of $5.3 million and $4.8 million for the years ended December 31, 2022 and 2021, respectively. The Company has recorded the amortization of customer relationships and trademarks assets within operating expenses of $1.8 million and $1.9 million for the years ended December 31, 2022 and 2021, respectively.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

**8.** **Revenues** 

A typical sales arrangement involves multiple elements, such as sales of the Company's inertial motion sensor units, motion capture suits, software licenses, professional services, cloud-based subscription, and subscription and support services which entitles customers to unspecified upgrades, patch releases and telephone-based support. The following table depicts the disaggregation of revenue according to revenue type (in thousands):

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** |
|  Revenues: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | $34283 | $28848 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 6183 | 5566 |
|  Total revenues | $40466 | $34414 |

---

The Company's Product revenues are generally recognized at a point in time, while Service revenues are generally recognized over time.

Revenue recognized during the year ended December 31, 2022, from deferred revenue balances as of December 31, 2021 was $2.4 million. Revenue recognized during the year ended December 31, 2021, from deferred revenue balances as of December 31, 2020 was $2.0 million.

**9.** **Stock-based Compensation** 

***Stock-based compensation expense***

Stock-based compensation expense included in the accompanying consolidated statements of operations for the years ended December 31, 2022 and 2021 are as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **Years ended December 31,** | **Years ended December 31,** |
|  | **2022** | **2021** |
|  Research and development | $398 | $143 |
|  Sales and marketing | 468 | 175 |
|  General and administrative | 833 | 468 |
|  Total stock-based compensation | $1699 | $786 |

---

***Equity incentive plan***

In August 2009, the Company adopted an equity incentive plan (the "2009 Plan"), which is a broad-based, long-term program intended to attract, retain and motivate talented employees and align stockholder and employee interests. The 2009 Plan provides for the issuance of incentive stock options or nonqualified stock options, and restricted stock units, or RSUs to employees, officers, directors, and consultants of the Company.

Under the 2009 Plan, incentive stock options can be granted with an exercise price not less than the fair value of the stock at the date of grant as determined by the Board of Directors. For incentive stock options granted to a person who, at the time of the grant, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company, the per share exercise price must be no less than 110% of the fair value on the date of the grant as determined by the Board of Directors. All awards have ten-year terms and vest and generally become fully exercisable after five years of service from the date of grant.

The 2009 Plan also allows for the issuance of restricted common stock upon early exercise of nonvested stock options subject to the repurchase right of the Company. The repurchase right lapses in accordance with the vesting schedule of the original option. Shares of restricted stock were awarded to certain senior executives of the Company and 1,348,887 restricted stock units were issued and fully vested prior to 2018.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

In September 2019, the board approved the 2019 Equity Incentive Plan (the "2019 Plan") that increased the number of shares of Common Stock that are reserved and available for issuance under the 2019 Plan by 5,500,000 shares. The 2019 Plan increases the maximum number of shares that may be issued under the 2019 Plan pursuant to the exercise of "incentive stock options" as defined in Section 422 of the Internal Revenue Code of 1986, as amended. Whereas, the Board has determined to (a) terminate the 2009 Equity Incentive Plan and (b) adopt the 2019 Plan in order to continue to provide equity incentives to attract, retain and motivate eligible service providers of the Company. Stock options previously granted under the 2009 Plan will remain outstanding until either exercised or canceled. All the remaining available shares under the 2009 Plan will be allocated to the 2019 Plan. In January 2022, the board approved an increase to the number of shares of Common Stock that are reserved and available for issuance under the 2019 plan by 1,500,000 shares.

The Company records stock-based compensation awards based on fair value of the stock-based awards as of the grant date using the Black-Scholes option-pricing model. The Company recognizes such costs as compensation expense on a straight-line basis over the employee's requisite service period, which is generally five years.

At December 31, 2022, there are 1,923,128 shares available for future grant under the 2009 and 2019 Equity Incentive Plans.

The following table summarizes the Company's stock option activity under both plans for the years ended December 31, 2022 and 2021:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Shares**<br>**Available**<br>**For Grant** | **Stock**<br>**Options**<br>**Outstanding** | **Weighted**<br>**Average**<br>**Exercise**<br>**Price** | **Weighted**<br>**Average**<br>**Remaining**<br>**Contractual**<br>**Life<br>(in years)** |
|  Balance outstanding at December 31, 2020 | 3827465 | 11941846 | $0.66 | 6.36 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Granted | (4049000) | 4049000 | 0.93 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Exercised |  | (133932) | 0.44 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Canceled | 825358 | (825358) | 0.64 |  |
|  Expired | 32500 | (32500) | 0.25 |  |
|  Balance outstanding at December 31, 2021 | 636323 | 14999056 | $0.73 | 6.54 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Increased option pool | 1500000 |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Granted | (2013000) | 2013000 | 1.65 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Exercised |  | (3566931) | 0.47 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Canceled | 1086505 | (1086505) | 0.81 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Expired | 713300 | (713300) | 0.43 |  |
|  Balance outstanding at December 31, 2022 | 1923128 | 11645320 | $1.05 | 7.34 |
|  Exercisable at December 31, 2022 |  | 6520050 | $0.89 | 6.43 |
|  Vested and expected to vest at December 31, 2022 | Vested and expected to vest at December 31, 2022 | 11645320 | $1.05 | 7.34 |

---

The weighted-average grant date fair value per share of options granted were $1.04 and $0.63 for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, total compensation cost related to unvested stock-based awards granted to employees under the Company's stock plan but not yet recognized were $3.4 million and is expected to be recognized on a straight-line basis over a weighted-average period of 2.41 years. The aggregate intrinsic value of options exercised for the years ended December 31, 2022 and 2021 was $3.9 million and $0.1 million, respectively.

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

On October 2, 2022, the Company modified 1,535,000 stock options that were granted in 2021 at an exercise price of $0.93 to a modified exercise price of $1.58 based on the results of an updated 409A valuation. The modification resulted in a reduced fair value, and the repricing was a Type 1 probable-to-probable modification and no change to the accounting for the original stock option issuance was recorded, because the initial accounting considered the updated valuation.

***Determination of Fair Value***

The following assumptions were used to calculate the fair value of the stock-based awards:

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** |
|  Fair value per share of common stock | $1.58 - $3.20 | $1.58 |
|  Expected term (years) | 5.28-10.00 | 5.52-10.00 |
|  Expected volatility | 43%-69% | 43%-45% |
|  Risk-free interest rate | 1.63%-4.20% | 0.92%-1.56% |
|  Expected dividend yield | 0% | 0% |

---

The Company records stock-based compensation awards based on fair value of the stock-based awards as of the grant date using the Black-Scholes option-pricing model. The Company recognizes such costs as compensation expense on a straight-line basis over the employee's requisite service period, which is generally five years.

**10.** **Stockholders' Equity and Mezzanine Equity** 

***Convertible Preferred Stock***

As of December 31, 2022, the Company's outstanding convertible preferred stock, both redeemable and non-redeemable, consisted of the following (in thousands, except share and purchase price per share data):

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |<br>**Shares**<br>**Authorized** | **Shares**<br>**Issued and**<br>**Outstanding** | **Aggregate**<br>**Liquidation**<br>**Value** |<br>**Carrying**<br>**Value** | **Purchase**<br>**Price**<br>**Per Share** |
|  Series A\* | 10000000 | 10000000 | $10000 | $9950 | $1.0000 |
|  Series B\* | 11791929 | 8747602 | 24816 | 24680 | 2.8369 |
|  Series C\* | 13122055 | 13122055 | 37226 | 37032 | 2.8369 |
|  Series D\* | 7470088 | 7470088 | 31043 | 30780 | 4.1557 |
|  Series D-1\*\* | 6562724 | 6562724 | 30000 | 41991 | 4.5713 |
|  Series E\* | 18024809 | 10458755 | 43463 | 40750 | 4.1557 |
|  Total | 66971605 | 56361224 | $176548 | $185183 |  |

---

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

As of December 31, 2021, the Company's outstanding convertible preferred stock, both redeemable and non-redeemable, consisted of the following (in thousands, except share and purchase price per share data):

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |<br>**Shares**<br>**Authorized** | **Shares**<br>**Issued and**<br>**Outstanding** | **Aggregate**<br>**Liquidation**<br>**Value** |<br>**Carrying**<br>**Value** | **Purchase**<br>**Price**<br>**Per Share** |
|  Series A\* | 10000000 | 10000000 | $10000 | $9950 | $1.0000 |
|  Series B\* | 11791929 | 8741929 | 24800 | 24680 | 2.8369 |
|  Series C\* | 13122055 | 13122055 | 37226 | 37032 | 2.8369 |
|  Series D\* | 7470088 | 7470088 | 31043 | 30780 | 4.1557 |
|  Series D-1\*\* | 6562724 | 6562724 | 30000 | 39307 | 4.5713 |
|  Series E\* | 18024809 | 10458755 | 43463 | 40750 | 4.1557 |
|  Total | 66971605 | 56355551 | $176532 | $182499 |  |

---

\* Convertible and non-redeemable

\*\* Convertible and redeemable

Significant terms of the outstanding convertible preferred stock series are as follows:

**Dividends** — Holders of the preferred stock are entitled to receive, pari passu but in preference to the common stockholders, when and as declared by the Board of Directors, but only out of funds that are legally available therefor, non-cumulative cash dividends at the annual rate of 8.0% of the original issue price. However, the holders of Series D-1 and Series E shall first receive dividends in full preferential amounts before any class or series of capital stock. No dividends have been declared to date.

Holders of the Series E are entitled to receive the special stock dividends which begin to accrue on a daily basis and be payable in additional shares at a rate of 7.0% of the original issue price per annum contingent on if the Company does not have an effective registration of its common stock by September 2023 as set forth in the registration rights agreement.

**Voting** — Each holder of outstanding shares of any series of preferred stock has voting rights equivalent to the number of shares of common stock into which such preferred shares could be converted. For the election of members of the Board of Directors, the number of authorized directors shall not be less than the number of directors that the holders of one or more classes or series of capital stock are entitled to elect. For so long as at least 4,800,000 shares of preferred stock is outstanding, the holders of preferred stock, exclusively and as a separate voting class on an as-converted basis, shall be entitled to elect six directors. The holders of common stock, voting as a single class, shall be entitled to elect two directors. The holders of common stock and preferred stock, voting together as a single class on an as-if converted basis, shall be entitled to elect the remaining numbers of directors.

**Liquidation** — In the event of liquidation, dissolution or winding-up of the Company, either voluntary or involuntary, the holders of the Series D-1, shall be entitled to receive, prior and in preference to any distribution to the holders of Series E, Series D, Series C, Series B, Series A or common stock, an amount per share equal to the greater of the original issue price of $4.5713 per share, plus all declared but unpaid dividends, or amount per share assuming conversion of all Series D-1 into common stock. If the distribution is insufficient to permit the payment to such holders of the full Series D-1 preference amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series D-1, in proportion to the number of shares of Series D-1 held by each.

After payment in full to the holders of the Series D-1, the holders of Series E shall be entitled to receive, prior and in preference to any distribution to the holders of Series D, Series C, Series B, Series A or common stock, an amount per share equal to the greater of the original issue price of $4.1557 per share, plus all declared but unpaid

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

dividends, or amount per share assuming conversion of all Series E into common stock. If the distribution is insufficient to permit the payment to such holders of the full Series E preference amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series E, in proportion to the number of shares of Series E held by each.

After payment in full to the holders of the Series D-1 and Series E, the holders of Series D shall be entitled to receive, prior and in preference to any distribution to the holders of Series C, Series B, Series A or common stock, an amount per share equal to the greater of the original issue price of $4.1557 per share, plus all declared but unpaid dividends, or amount per share assuming conversion of all Series D into common stock. If the distribution is insufficient to permit the payment to such holders of the full Series D preference amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series, in proportion to the number of shares of Series D held by each.

After payment in full to the holders of the Series D-1, Series E, and Series D, the holders of Series C shall be entitled to receive, prior and in preference to any distribution to the holders of Series B, Series A or common stock, an amount per share equal to the greater of the original issue price of $2.8369 per share, plus all declared but unpaid dividends, or amount per share assuming conversion of all Series D-1 into common stock. If the distribution is insufficient to permit the payment to such holders of the full Series C preference amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series C, in proportion to the number of shares of Series C held by each.

After payment in full to the holders of the Series D-1, Series E, Series D and Series C, the holders of Series B and Series A shall be entitled to receive, prior and in preference to any distribution to the holders of common stock, an amount per share equal to the greater of the original issue price of $2.8369 per share for Series B and $1.00 per share for Series A, plus all declared but unpaid dividends, or amount per share assuming conversion of all Series B and Series A into common stock. If the distribution is insufficient to permit the payment to such holders of the full Series B and Series A preference amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series B and Series A, in proportion to the number of shares of Series B and Series A held by each.

Upon completion of the distribution of proceeds to the holders of Series D-1, Series E, Series D, Series C, Series B and Series A, the remaining proceeds available for distribution shall be distributed among the holders of common stock pro rata based on the number of shares of common stock held by each.

**Redemption** — Series A, Series B, Series C, Series D, and Series E convertible preferred stocks are not redeemable.

Series D-1 convertible preferred stock is redeemable at a price per share equal to the original issue price of $4.5713 per share, plus an amount per share equal to 8% of the original issue price for each year following the original issue date, not more than 60 days after receipt of a written notice from shareholders of Series D-1 by the Company at any time on or after September 28, 2023 from the holders of at least a majority of the then outstanding shares of Series D-1. The instrument was not redeemable as of December 31, 2022 and 2021. Therefore, the Company classified the Series D-1 convertible preferred stock as mezzanine equity in the consolidated balance sheets at December 31, 2022 and 2021. The resulting changes in the estimated redemption amount are recorded within retained earnings or, in the absence of retained earnings, additional paid-in-capital. As of December 31, 2022 and 2021, the carrying amount of the Series D-1 convertible preferred stock was $42.0 million and $39.3 million. The accretion of the Series D-1 convertible preferred stock to redemption value during the years ended December 31, 2022 and 2021 was $2.7 million and $2.5 million, respectively.

**Conversion** — Each share of a series of preferred stock shall be convertible, at any time after the date of issuance, into the number of shares of fully paid and nonassessable shares of common stock as determined from dividing the original issue price for such series of preferred stock by the conversion price in effect at the time of conversion. The conversion price is subject to adjustment for certain dilutive issuances.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

Each share of a series of preferred stock shall automatically be converted into shares of common stock immediately upon the earlier of i) the Company's sale of its common stock for its own account in a firm-commitment underwritten public offering pursuant to an effective registration in which the gross proceeds equal or exceed $50.0 million or ii) the date specified by written consent or agreement of the holders of at least the majority the then outstanding shares of preferred stock voting as a single-class on an as-converted basis.

If the share price of common stock offered in such public offering is less than the original issue price per share for Series D-1, a written consent of the holders of at least a majority of the original Series D-1 is required. Upon closing of the Company's next sale of its preferred stock in a single transaction or in a series of related transactions, at a price per share of at least 1.25 times the original issue price per share of Series D-1, and which results in at least $28.0 million of gross proceeds, this consent shall immediately terminate and following such next qualified financing, no separate Series D-1 conversion approval shall be required in connection with any conversion of shares of preferred stock into shares of common stock.

***Warrants***

The Company issued warrants in prior years to purchase convertible preferred stock and common stock in conjunction with the borrowing arrangements with SVB and Eastward. The warrants are equity classified and are exercisable any time at the option of the holder and expire on the earlier of the tenth anniversary of the date of issuance or upon the closing of an acquisition of the Company in which the consideration payable for such acquisition is cash.

As of December 31, 2022, the Company's outstanding warrants are as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Class of**<br> **Shares**  | **Issuance<br>Date** | **Expiration<br>Date** | **No. of<br>Shares** | **Exercise<br>Price<br>per Share** |
|  Common Stock | 11/25/2015 | 11/25/2025 | 62500 | 0.580 |
|  Common Stock | 3/31/2016 | 3/31/2026 | 37500 | 0.580 |
|  Common Stock | 8/30/2019 | 8/30/2029 | 265060 | 0.830 |
|  Common Stock | 12/10/2021 | 12/10/2031 | 215054 | 0.930 |
|  Common Stock | 2/25/2022 | 2/25/2032 | 16321 | $1.58 |
|  |  |  | 596435 |  |

---

In connection with the Eastward term loan issued in December 2021, the Company issued Eastward a warrant to purchase 215,054 shares of the company's common stock at the exercise price of $0.93 per share on December 10, 2021, with an expiration date in December 2031. The common stock warrants were valued using the Black-Scholes model and the Company recorded the fair value of the warrants of $0.2 million within stockholders' equity as of December 31, 2021.

The following assumptions were used to calculate the fair value of the common stock warrants issued to Eastward:

---

| | |
|:---|:---|
|  Fair value per share of common stock | $1.58 |
|  Expected term (years) | 10.0 |
|  Expected volatility | 43.0% |
|  Risk-free interest rate | 1.47% |
|  Expected dividend yield | 0.0% |

---

***Common Stock***

As of December 31, 2022 and 2021, the Company was authorized to issue 95,000,000 shares of common stock, with a par value of $0.0001 per share. As of December 31, 2022 and 2021, common shares issued and outstanding were 12,751,023 and 9,184,092, respectively.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

The holders of the common stock are entitled to one vote for each share. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of convertible preferred stock outstanding, and are entitled to receive all assets available for distribution to stockholders (after distribution of any preferential amounts to preferred stockholders). There have been no dividends declared to date.

The Company's reserved shares of common stock for future issuance as of December 31, 2022 and 2021 are as follows:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Options outstanding and available for grant | 13568448 | 15635379 |
|  Conversion of preferred stock | 56361224 | 56355551 |
|  Conversion of convertible notes | 1324635 |  |
|  Warrants to purchase convertible preferred stock |  | 50000 |
|  Warrants to purchase common stock | 596435 | 580114 |
|  | 71850742 | 72621044 |

---

There were no repurchases of common stock for the years ended December 31, 2022 or 2021.

**11.** **Earnings per share** 

The following table sets forth the computation of the basic and diluted earnings per share attributable to common stockholders for the years ended December 31, 2022, and 2021 (in thousands except share and per share amounts):

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** |
|  Numerator: |  |  |
|  Net loss from continuing operations | $(33047) | $(18803) |
|  Less: Net loss from continuing operations, attributable to noncontrolling interest | 632 | 1300 |
|  Deemed dividends from accretion of Series D-1 preferred stock | (2684) | (2511) |
|  Loss from continuing operations attributable to common stockholders | (35099) | (20014) |
|  Loss from discontinued operations, net of tax |  | (156) |
|  Net loss attributable to common stockholders | $(35099) | $(20170) |
|  Denominator: |  |  |
|  Weighted-average ordinary shares outstanding, basic and diluted | 11285170 | 9101819 |
|  Basic and diluted net income (loss) per share attributable to common stockholders: |  |  |
|  Continuing operations | $(3.11) | $(2.20) |
|  Discontinued operations | $— | $(0.02) |
|  Net loss | $(3.11) | $(2.22) |

---

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

Potentially dilutive securities that were not included in the diluted per share calculations as of December 31, 2022 and 2021 because they would be anti-dilutive were as follows:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Convertible preferred stock | 56361224 | 56355551 |
|  Outstanding stock options | 11645320 | 14999056 |
|  Convertible notes<sup>(a)</sup> | 1324635 |  |
|  Common stock warrants (1:1) | 596435 | 580114 |
|  Preferred stock warrants (1:1) |  | 50000 |
|  Total | 69927614 | 71984721 |

---

*(a)* *Assumes conversion at $4.79 per share.* 

**12.** **Leases** 

The Company has leased office spaces in U.S. locations including San Jose and Los Angeles, California, and Henderson, Nevada. Outside the U.S., leased sites include offices in Netherlands, Nova Scotia Canada, Shanghai, China, Taiwan and Hong Kong. Future minimum lease payments are under non-cancelable operating leases that expire at various dates through year 2031. Rent expense is recognized using the straight-line method over the term of the lease.

The aggregate future non-cancelable minimum rental payments for the Company's operating leases, as of December 31, 2022, are as follows (in thousands):

---

| | |
|:---|:---|
|  | **Years Ended December 31,** |
| 2023 | $1010 |
| 2024 | 734 |
| 2025 | 559 |
| 2026 | 559 |
| 2027 | 559 |
|  Thereafter | 1817 |
|  Total minimum operating lease payments | $5238 |
|  Less: Amounts representing interest | (1957) |
|  Present value of net minimum operating lease payments | 3281 |
|  Less: Current portion | (593) |
|  Long-term portion of operating lease obligations | $2688 |

---

The components of the right-of-use assets and lease liabilities were as follows (in thousands):

---

| | | | |
|:---|:---|:---|:---|
|  | **Balance Sheet Classification** | **December 31,**<br>**2022** | **December 31,**<br>**2021** |
|  Right-of-use assets, net | Right-of-use assets, net | $3281 | $— |
|  Current operating lease liabilities | Accrued expenses and other current liabilities | $(593) | $— |
|  Non-current operating lease liabilities | Operating lease liabilities and other non-current liabilities | (2688) |  |
|  Total operating lease liabilities |  | $(3281) | $— |
|  Weighted average remaining lease term (in years) | Weighted average remaining lease term (in years) | 6.0 | n/a |
|  Weighted-average discount rate | Weighted-average discount rate | 14% | n/a |

---

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

The components of lease cost were as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** |
|  Operating lease costs included in operating costs and expenses: |  |  |
|  Operating leases | $1302 | $1182 |

---

Supplemental cash flow information related to leases was as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** |
|  Cash paid for amounts included in the measurement of operating lease liabilities: |  |  |
|  Operating cash flows related to operating leases | $1429 | $1471 |
|  Right-of-use assets obtained in exchange for lease liabilities: |  |  |
|  Operating leases | $4280 | n/a |

---

**13.** **Income Taxes** 

The income tax provision for the years ended December 31, 2022 and 2021 is primarily related to the profits or losses generated in foreign jurisdictions by the Company's consolidated subsidiaries.

The following table presents loss from continuing operations before income taxes for the years ended December 31, 2022 and 2021 (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Domestic | $(9734) | $(5243) |
|  Foreign | (23426) | (14288) |
|  Loss before income taxes | $(33160) | $(19531) |

---

The components of the Company's provision (benefit) for income taxes for the years ended December 31, 2022 and 2021 are as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Current |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Federal | $(18) | $43 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; State | 11 | 19 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Foreign | 202 | 312 |
|  | 195 | 374 |
|  Deferred |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Federal | 16 | (20) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; State | 4 | (7) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Foreign | (328) | (1075) |
|  | (308) | (1102) |
|  Income tax benefit | $(113) | $(728) |

---

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

The differences in the income tax benefit that would result from applying the federal statutory income tax rate to the loss from continuing operations before income taxes and the reported income tax benefit for the years ended December 31, 2022 and 2021 are as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Tax benefit at U.S statutory rate | $(6964) | $(4102) |
|  State income taxes, net of federal benefit | 12 | 11 |
|  Foreign tax differential | (4876) | (933) |
|  Change in valuation allowance | 11534 | 4448 |
|  Stock-based compensation | 155 | 39 |
|  Other items | 26 | (191) |
|  Income tax benefit | $(113) | $(728) |

---

The tax effects of temporary differences that give rise to significant components of the net deferred tax assets and liabilities as of December 31, 2022 and 2021 are as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Deferred tax assets |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accruals and reserves | $1375 | $586 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net operating losses | 26955 | 20618 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Research and development credits and other | 2643 | 2716 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Depreciation and amortization | (128) | (4) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Stock-based compensation | 397 | 298 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross deferred tax assets | 31242 | 24214 |
|  Less valuation allowance | (30156) | (18622) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total deferred tax assets | 1086 | 5592 |
|  Deferred tax liabilities |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Intangibles and other | (1000) | (5814) |
|  Gross deferred tax liabilities | (1000) | (5814) |
|  Net deferred tax assets (liabilities) | $86 | $(222) |

---

On March 27, 2020, and December 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Consolidated Appropriations Act, 2021 (CAA 2021) were signed into law. These acts include provisions and tax law changes applicable to businesses. Changes in tax law are accounted for in the period of enactment. The Company has evaluated the impact of the CARES Act and CAA 2021 act and has accounted for the impact of the tax law changes in the current year provision to the extent these provisions are applicable.

As of December 31, 2022, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $22.3 million and $15.4 million, respectively, which expire beginning in the year 2030 and 2029 respectively. As of December 31, 2022, the Company's Hong Kong subsidiary has net operating loss carryforwards of approximately $42.2 million, which are indefinite and have no expiration date.

As of December 31, 2022, the Company has federal and state research and development tax credits of $2.0 million and $1.9 million, respectively. The federal research credits will begin to expire in the year 2029, and the state research credits have no expiration date.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

As of December 31, 2022, the Company has a valuation allowance of approximately $30.2 million related primarily to its net operating losses and credit carryforwards for which it is more likely than not that the tax benefit will not be realized. The amount of the valuation allowance represented an increase of approximately $11.5 million from the amount recorded as of December 31, 2021 and was primarily due to the additional net operating losses generated in 2022.

The Company had unrecognized tax benefits of $2.7 million and $2.8 million for the years ended December 31, 2022 and 2021. The liabilities of unrecognized tax benefits of $0.3 million and $0.3 million for the years ended December 31, 2022 and 2021 respectively would affect the Company's effective tax rates if recognized. The liabilities are included within other non-current liabilities in the accompanying consolidated balance sheets. Unrecognized tax benefits are not expected to change significantly in the next 12 months.

A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits is as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
|  Beginning balance | $2783 | $2753 |
|  Increases (decreases) related to tax positions taken during prior year | (87) | 18 |
|  Increases related to tax positions taken during current year | 24 | 12 |
|  Ending balance | $2720 | $2783 |

---

The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The tax years from 2016 forward remain open to examination due to the carryover of unused net operating losses and tax credits.

**14.** **Geographic Information and Concentrations of Risk** 

***Concentrations of Risk***

*Concentration of credit risk* 

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains a substantial portion of its cash and cash equivalents in checking and savings accounts with banks. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents to the extent recorded in the balance sheets. While the Company has not experienced any losses in such accounts, the recent failure of Silicon Valley Bank (SVB), at which the Company held cash and cash equivalents in multiple accounts, potentially exposed the Company to significant credit risk prior to the completion by the Federal Deposit Insurance Corporation of the resolution of SVB in a manner that fully protected all depositors. See Note 18. *Subsequent Events* for additional details regarding SVB. The Company generally does not require collateral or other security in support of accounts receivable. The Company periodically reviews the need for an allowance by considering factors such as historical experience, credit quality, the age of the account receivable balances and current economic conditions that may affect a customer's ability to pay. ****As of December 31, 2022 and 2021, no customer represented 10% or more of the Company's accounts receivable balance.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

*Concentration of customers* 

For each of the years ended December 31, 2022 and 2021, no customer represented 10% or more of the Company's consolidated revenues.

*Concentration of suppliers* 

For the years ended December 31, 2022 and 2021, one supplier represented 23% and 22%, respectively, of the Company's inventory purchases, accounting for $6.1 million and $4.1 million in total purchases, respectively.

*Revenue concentrations* 

The Company's revenues by geographical region is as follow (in thousands):

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** |
|  United States | $10830 | $8370 |
|  China | 6645 | 5027 |
|  Asia, other | 7219 | 4833 |
|  Europe | 12694 | 12762 |
|  Other | 3078 | 3422 |
|  | $40466 | $34414 |

---

*Long-lived assets concentrations* 

The Company's long-lived assets by geographical region is as follow (in thousands):

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** |
|  United States | $104 | $114 |
|  China | 298 | 519 |
|  Asia, other | 100 |  |
|  Europe | 1708 | 1939 |
|  Other | 151 | 162 |
|  | $2361 | $2734 |

---

**15.** **Employee Benefit Plan** 

The Company has established a 401(k) tax-deferred savings plan (the 401(k) Plan), which permits participants to make contributions by salary deduction pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended. The Company is responsible for administrative costs of the 401(k) Plan and has made no contributions to the 401(k) Plan since inception.

The Company maintains non-US defined contribution pension plans to certain foreign subsidiaries. Generally, the annual funding of these obligations is equal to the minimum amount legally required in each jurisdiction in which the plans operate. The Company's pension plans are underfunded by zero and zero as of December 31, 2022 and 2021, respectively.

**16.** **Related Party Transactions** 

In March 2022, the Company entered into convertible promissory note agreements with two of its existing preferred stock investors and received aggregate cash proceeds of $4.9 million. The Company exchanged an additional $1.1 million of convertible promissory notes to the sellers of Kinduct for extinguishment of $1.1 million of the deferred payout liability owed to them. The convertible note exchange was accounted for as a troubled debt

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

restructuring pursuant to FASB ASC Topic 470-60, *Troubled Debt Restructurings by Debtors*. As the future undiscounted cash flows of the Convertible notes were greater than their carrying amount, the carrying amount was not adjusted and no gain was recognized as a result of the modification of terms. Of the $1.1 million in convertible notes issued in exchange to the sellers of Kinduct, $1.0 million were issued to a related party. The convertible promissory notes shall bear an interest rate of 6.0% per annum. For the year ended of December 31, 2022, the Company recorded $0.3 million of interest expense due to accretion of the convertible notes and $0.2 million of interest expense for the non-cash amortization of debt discount related to the convertible notes on the consolidated statements of operations. The outstanding principal amount and all accrued but unpaid interest on the notes shall be mandatorily converted into the Company's common stock at a conversion price of $4.79 per share upon the earlier of i) maturity in September 2023 or ii) the occurrence of a capital markets transaction such as an initial public offering or acquisition by a special purpose acquisition company; or upon a change of control as defined in the convertible promissory note agreements, at the discretion of the noteholder, the notes would either convert into the Company's common stock at a conversion price of $4.79 per share, or would be repayable at 1.5 times the outstanding principal amount plus all accrued and unpaid interest.

On February 10, 2023, as the Company completed its acquisition by a special purpose acquisition company which qualified as a Maturity Date of the convertible notes, 100% of the outstanding principal and accrued interest on the convertible notes were mandatorily converted into 1,333,712 shares of Movella common stock at $4.79 per share per the original terms of the notes.

**17.** **Commitments and Contingencies** 

***Litigation and Asserted Claims***

The Company accrues for contingencies when it believes that a loss is probable and that it can reasonably estimate the amount of any such loss. Although the Company is not currently subject to any material litigation, and no material litigation is currently threatened against the Company, the Company may be subject to legal proceedings, claims and litigation, including intellectual property litigation, arising in the ordinary course of business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. The Company accrues amounts that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that it believes will result in a probable loss that is reasonably estimable.

In February 2020, Tactical Air Support ("TAS") filed a lawsuit in the California State Court in Los Angeles against the Company's wholly-owned subsidiary, Xsens North America, Inc. ("Xsens North America"). In the complaint, TAS alleged tort and contract-based causes of action arising from TAS purchases of allegedly defective Xsens North America inertial measurement unit devices ("IMUs"). TAS never deployed IMUs in its military aircraft. In response, Xsens North America removed the case to the California Federal District Court in Los Angeles based upon the party's diversity of citizenship. The Company filed a Motion to dismiss each of TAS' alleged non-contract-based claims and its prayers for damages in excess of the approximately $40,000 TAS paid for the IMUs on multiple grounds, prohibiting such claims and limiting TAS' alleged damages to the purchase amount paid. The Motion to dismiss alleged non-contract-based claims was granted on September 3, 2020. On December 22, 2022, the parties entered into a settlement agreement including mutual releases and the lawsuit was dismissed. The Company agreed to a settlement agreement in the amount of $0.3 million which has been accrued on the December 31, 2022 consolidated balance sheet.

In April 2022, the Company received a demand letter concerning its alleged failure to make various payments to certain selling shareholders of Kinduct Technologies Inc. ("Kinduct Shareholders") pursuant to the Amended and Restated Share Purchase Agreement dated as of September 10, 2020 (the "Purchase Agreement"). The Kinduct Shareholders alleged that the Issuer has breached the Purchase Agreement by failing to make certain payments by March 31, 2022. On December 16, 2022, Movella and the Kinduct Shareholders reached an agreement whereby Movella paid $1.0 million on December 20, 2022, and agreed to make quarterly payments of $0.5 million commencing on March 31, 2023 unless an Acceleration Event occurred in which case payment in full would be due. The remaining amount payable to the Kinduct Shareholders at issue in the matter on December 31, 2022, is approximately $4.3 million that is recorded as a current liability in the accompanying consolidated balance sheets and such amount is accruing interest at 12% per annum, pursuant to the Purchase Agreement. On February 10, 2023, Movella completed its acquisition by a special purpose acquisition company which constituted an Acceleration Event and accordingly on February 13, 2023, Movella repaid in full the then-outstanding $4.4 million balance inclusive of principal and accrued interest owed to the former Kinduct shareholders.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

***Indemnification***

The Company has entered into agreements with its current and former executives and directors indemnifying them against certain liabilities incurred in connection with the performance of their duties. The Company's Certificate of Incorporation and Bylaws contain comparable indemnification obligations with respect to the Company's current directors and employees.

In the normal course of business, the Company periodically enters into agreements that require the Company to indemnify and defend its customers for, among other things, claims alleging that the Company's products infringe third-party patents or other intellectual property rights as well as personal injury or property damage. The Company's maximum exposure under these indemnification provisions cannot be estimated but the Company does not believe that there are any matters individually or collectively that would have a material adverse effect on its consolidated results of operations or financial condition.

**18.** **Subsequent Events** 

In preparing the consolidated financial statements as of and for the year ended December 31, 2022, subsequent events were evaluated from the balance sheet date through March 31, 2023, the date these consolidated financial statements were available to be issued.

*Business Combination Agreement* 

On February 10, 2023 (the "Closing Date"), Movella Holdings Inc., a Delaware corporation (formerly known as Pathfinder Acquisition Corporation ("Pathfinder")) (the "Company" or "New Movella"), consummated the previously announced business combination (the "Business Combination") contemplated by that certain Business Combination Agreement, dated October 3, 2022 (the "Business Combination Agreement"), by and among Pathfinder, Motion Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Pathfinder ("Merger Sub") and Movella Inc., a Delaware corporation ("Movella").

In connection with the domestication of Pathfinder as a Delaware corporation (the "Domestication"), on the Closing Date prior to the Effective Time (as defined below): (i) each issued and outstanding Class A ordinary share, $0.0001 par value per share ("Class A ordinary shares"), and each issued and outstanding Class B ordinary share, $0.0001 par value per share ("Class B ordinary shares"), of Pathfinder were converted into one share of common stock, $0.00001 par value per share, of New Movella ("New Movella Common Stock"); (ii) each issued and outstanding whole warrant to purchase Class A ordinary shares of Pathfinder was automatically converted into a warrant to purchase one share of New Movella Common Stock at an exercise price of $11.50 per share on the terms and subject to the conditions set forth in the Warrant Agreement, dated as of February 16, 2021, between Pathfinder and Continental Stock Transfer & Trust Company (the "Pathfinder Warrant Agreement"); (iii) the governing documents of Pathfinder were amended and restated and became the certificate of incorporation and the bylaws of New Movella; and (iv) Pathfinder's name changed to "Movella Holdings Inc." In connection with clauses (i) and (ii) of this paragraph, each issued and outstanding unit of Pathfinder issued in its initial public offering ("Pathfinder Units") (each Pathfinder Unit consisting of one Class A ordinary share of Pathfinder and one-fifth of one public warrant) that had not been previously separated into the underlying Class A ordinary shares of Pathfinder and the underlying warrants of Pathfinder prior to the Domestication were cancelled and entitled the holder thereof to one share of New Movella Common Stock and one-fifth of one warrant representing the right to purchase one share of New Movella Common Stock at an exercise price of $11.50 per share on the terms and subject to the conditions set forth in the Pathfinder Warrant Agreement.

On the Closing Date, promptly following the consummation of the Domestication, Merger Sub merged with and into Movella (the "Merger"), with Movella continuing as the surviving company in the Merger and, after giving effect to the Merger, Movella became a wholly owned subsidiary of New Movella (the time that the Merger became effective being referred to as the "Effective Time").

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

In accordance with the terms and subject to the conditions of the Business Combination Agreement, immediately prior to the Effective Time, (i) each share of preferred stock of Movella was converted into a number of shares of common stock, $0.01 par value per share, of Movella ("Movella Common Stock") set forth on the allocation schedule delivered in connection with Business Combination Agreement, (ii) each warrant to purchase shares of Movella Common Stock was net exercised in exchange for a number of shares of Movella Common Stock determined in accordance with the terms of the warrant agreements under which such warrants were issued; and (iii) each convertible note issued by Movella was automatically and fully converted into a number of shares of Movella Common Stock in accordance with the terms of such notes. Thereafter, at the Effective Time, each share of Movella Common Stock outstanding as of immediately prior to the Effective Time (other than any shares held by dissenting holders of shares of Movella Common Stock who demanded appraisal of such shares and complied with Section 262 of the General Corporation Law of the State of Delaware) was exchanged for shares of New Movella Common Stock and each outstanding Movella option to purchase a share of Movella Common Stock (a "Movella Option") (whether vested or unvested) was cancelled and extinguished in exchange for an option to purchase New Movella Common Stock (on an as-converted basis) in each case, under the Movella Holdings Inc. 2022 Stock Incentive Plan and subject to the same terms and conditions as applied to the Movella Option immediately prior to the Effective Time (other than those rendered inoperative by the transactions contemplated by the Business Combination Agreement), with the new number of options and exercise price as set forth therein, and based on an implied Movella pre-transaction equity value of $375 million, subject to certain adjustments.

*Sponsor Letter Agreement* 

In connection with the Business Combination Agreement, on October 3, 2022, Pathfinder Acquisition LLC (the "Sponsor"), Pathfinder, and each of Pathfinder's directors and officers (collectively, the "initial shareholders") entered into the Sponsor Letter Agreement (the "Sponsor Letter Agreement"), pursuant to which, among other things, Sponsor agreed, solely in the circumstances described in the Sponsor Letter Agreement, to forfeit 50% of its Class B ordinary shares (the "Forfeiture"), or 4,025,000 Class B ordinary shares (the "Forfeiture Shares").

*Shareholder Rights Agreement* 

Concurrently with the execution of the Business Combination Agreement, on October 3, 2022, Pathfinder, the Sponsor, Movella, FP Credit Partners, L.P. (together with certain of its affiliates, "Francisco Partners"), and certain other equityholders of Pathfinder (collectively, the "Investors") entered into a Shareholder Rights Agreement (the "Shareholder Rights Agreement") to be effective upon closing of the Business Combination (the "Closing") pursuant to which, among other things, the Investors have been granted certain customary registration rights. Pursuant to the Shareholder Rights Agreement, the Sponsor and the Legacy Pathfinder Holders (as defined in the Shareholder Rights Agreement) have agreed not to effect any sale or distribution of any equity securities of New Movella held by any of them during the period commencing on the Closing Date and ending on the earlier of (a) the date that is three hundred and sixty five (365) days following the Closing Date and (b) (i) the first date on which the closing price of the New Movella Common Stock has been greater than or equal to $12.00 per share (as adjusted for share subdivisions, share capitalizations, share consolidations, reorganizations, recapitalizations and the like) measured using the daily closing price for any 20 trading days within a 30-trading day period commencing at least one hundred and fifty (150) days after the Closing Date or (ii) the date on which New Movella completes a liquidation, merger, share exchange, reorganization or other similar transaction that results in all New Movella's stockholders having the right to exchange their New Movella Common Stock for cash, securities or other property. Except for Francisco Partners with respect to the FP Shares (as defined below), each other Investor has agreed not to effect any sale or distribution of any equity securities of New Movella held by any of them during the period commencing on the Closing Date and ending on the date that is six (6) months following the Closing Date.

Pursuant to the Shareholder Rights Agreement, Pathfinder provided certain registration rights to Francisco Partners with respect to the FP Shares and the Equity Grant Shares (as defined below). Substantially concurrently with the Merger (and, for the avoidance of doubt, after the Domestication), the sale of the FP Shares and the grant of the Equity Grant Shares were consummated and the shares were issued pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder.

------

**MOVELLA INC.** 

Notes to Consolidated Financial Statements

*Equity Grant Agreement and Subscription Agreement* 

On November 14, 2022, Pathfinder, FP Credit Partners II, L.P. and FP Credit Partners Phoenix II, L.P. (collectively, the "FP Purchasers") entered into an Equity Grant Agreement (the "Equity Grant Agreement") that provided for the issuance of 1.0 million shares of New Movella Common Stock (the "Equity Grant Shares") by New Movella to the FP Purchasers (the "Equity Grant") at the Effective Time, subject to and conditioned upon the consummation of the Merger, the full deemed funding of the VLN Facility (as defined below) and the acquisition by the FP Purchasers or its affiliates of $75.0 million of Pathfinder's Class A ordinary shares in a tender offer (the "Tender Offer") and/or shares of New Movella Common Stock in a private placement. On January 9, 2023, Pathfinder entered into a Subscription Agreement (the "Subscription Agreement") with the FP Purchasers, pursuant to which the FP Purchasers agreed to purchase 7,500,000 shares of New Movella Common Stock (the "FP Shares) at a purchase price of $10.00 per share for an aggregate purchase price of $75.0 million (the "FP Private Placement"). On the Closing Date, the Sponsor forfeited the Forfeiture Shares, New Movella issued the Equity Grant Shares to the FP Purchasers pursuant to the Equity Grant, and the FP Purchasers purchased shares of New Movella Common Stock in the FP Private Placement at a price of $10.00 per share. The FP Shares and the Equity Grant Shares were not registered with the SEC at Closing, provided, that, such shares of New Movella Common Stock became subject to registration rights pursuant to the Shareholder Rights Agreement.

Pathfinder's Class A ordinary shares, public warrants and the Pathfinder Units were historically quoted on The Nasdaq Stock Market LLC ("Nasdaq") under the symbols "PFDR," "PFDRW," and "PFDRU," respectively. On the Closing Date, the Pathfinder Units automatically separated into the component securities and, as a result, no longer trade as a separate security. On February 13, 2023, the New Movella Common Stock and warrants began trading on Nasdaq under the symbols "MVLA" and "MVLAW," respectively.

*Note Purchase Agreement* 

On November 14, 2022, Movella entered into that certain Note Purchase Agreement (the "Note Purchase Agreement"), by and among Movella, the guarantors party thereto, FP Credit Partners II AIV, L.P. and FP Credit Partners Phoenix II AIV, L.P. (the "Purchasers") and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent, pursuant to which, Movella issued and sold to the Purchasers, and the Purchasers purchased, senior secured notes of Movella in an aggregate original principal amount of $25.0 million (the "Pre-Close Facility"). On the Closing Date, the net proceeds of the FP Private Placement were received by the Company and Movella was deemed to have issued to the Purchasers, and the Purchasers were deemed to have purchased, a 5-year $75.0 million venture-linked secured note (the "VLN Facility") under the Note Purchase Agreement. A portion of the proceeds of the FP Private Placement made available through the VLN Facility was used by the Company to prepay the Pre-Close Facility in full and to pay transaction expenses associated with the financing arrangements contemplated by the Note Purchase Agreement. The remaining proceeds of the VLN Facility are available for growth and working capital and general corporate purposes.

The obligations of Movella under the Note Purchase Agreement are guaranteed by certain of its subsidiaries and secured by substantially all of Movella's and such subsidiaries' assets. New Movella is also required to become a secured guarantor of the obligations under Note Purchase Agreement.

The notes evidencing the VLN Facility (the "VLN Notes") bear interest at a per annum rate equal to 9.25% and interest is paid in kind on the last business day of each calendar quarter commencing with the first calendar quarter following the Closing Date. Interest is also payable in cash on the date of any prepayment or repayment of the VLN Notes (subject however, in certain cases, to the payment of a contractual return, if such contractual return is greater than the amount of all accrued and unpaid interest (other than default interest, if any)). Subject to certain exceptions in connection with certain qualified refinancing events, on the date of any voluntary or mandatory prepayment or acceleration of the VLN Notes, a scheduled contractual return is required to be paid, if greater than the amount of all accrued and unpaid interest (other than default interest, if any). When paid, such contractual return will be deemed to constitute payment of all accrued and unpaid interest (other than default interest, if any) on the principal amount of the VLN Notes so prepaid, repaid or accelerated, as applicable, including all interest on the VLN Notes that was previously paid in kind. The Company has the right, subject to certain exceptions, to cause the

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

FP Purchasers (or their permitted assignees) to sell all or a portion of the FP Shares at any time in its sole discretion over the life of the VLN Facility, and a percentage of the proceeds (which percentage is a function of when proceeds are generated, based on a predetermined schedule with a sliding scale) of any such sale shall be applied as a credit against the outstanding obligations under of the VLN Facility upon a repayment of the VLN Facility in full or a refinancing event.

The VLN Facility will mature on February 10, 2028. There are no regularly scheduled amortization payments on the VLN Facility until the maturity date, however, there are customary mandatory prepayment events in connection with the receipt of net proceeds from extraordinary receipts and dispositions (subject, in the case of dispositions, to certain customary exceptions and customary reinvestment rights), debt issuances and upon events specified in the Note Purchase Agreement to be a change of control. The VLN Facility may be optionally prepaid in whole or in part. All such prepayments are required to be accompanied by accrued and unpaid interest on the amount prepaid or if greater (excluding default interest, if any), payment of the contractual return.

The Note Purchase Agreement contains a number of covenants that, among other things, restrict, in each case subject to certain exceptions, the ability of the Company and its subsidiaries to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• create, assume or suffer to exist liens and indebtedness;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• make investments;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• engage in mergers or consolidations, liquidations, divisions or the disposal of all or substantially all of such
person's assets;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• make dispositions or have subsidiaries that are not wholly-owned;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• declare or make dividends or other distributions or certain restricted payments to or on account of equity
holders, or prepay indebtedness;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• make material changes to its line of business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• engage in affiliate transactions; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• with respect to New Movella, conduct or engage in any business or operations, other than in its capacity as a
holding company and activities incidental thereto.

The Note Purchase Agreement also contains a financial covenant requiring the Company and its subsidiaries to achieve positive EBITDA on a consolidated basis for the most recently ended four-quarter period, commencing with the last day of the fiscal quarter ending June 30, 2024 and as of the last day of each fiscal quarter thereafter.

The Note Purchase Agreement contains customary events of default, including nonpayment of principal, interest or other amounts; material inaccuracy of a representation or warranty; violation of specific covenants identified in the Note Purchase Agreement; cross default and cross-acceleration to material indebtedness; bankruptcy and insolvency events; unsatisfied material judgments; actual or asserted invalidity of the Note Purchase Agreement, related note documents or other material documents entered into in connection with transactions contemplated by the Note Purchase Agreement, and events specified to be a change of control.

Upon the closing of the transactions, the Company received total gross proceeds of $109.4 million, which consisted of $75.0 million from the Venture Linked Notes and $34.4 million from Pathfinder's trust. Total transaction costs were approximately $28.7 million including costs incurred by Pathfinder, of which $6.5 million was incurred by the company in the year ended December 31, 2022, which principally consisted of advisory, legal and other professional fees. Debt repayments made with the proceeds of the

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**MOVELLA INC.** 

Notes to Consolidated Financial Statements

Venture Linked Notes in February 2022, inclusive of accrued but unpaid interest, consisted of a $25.7 million repayment of the Pre-Close Notes, $4.4 million paid to the Kinduct sellers to settle the deferred payout obligation, and $1.5 million paid to settle a Pathfinder loan assumed in the business combination. The business combination will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Pathfinder will be treated as the "acquired" company for financial reporting purposes. This determination was primarily based on:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• former Company stockholders having the largest voting interest in Movella Holdings Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the board of directors of Movella Holdings Inc. having seven members, six of which were appointed by the
Company's former stockholders;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the Company's management continuing to hold executive management roles for the post-combination company and
being responsible for the day-to-day operations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the post-combination company assuming the Movella name;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Movella Holdings Inc. maintaining the pre-existing headquarters; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the intended strategy of Movella Holdings Inc. being a continuation of the Company's strategy.

Accordingly, the business combination will be treated as the equivalent of the Company issuing stock for the net assets of PFDR, accompanied by a recapitalization. The net assets of PFDR will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the business combination will be those of the Company.

On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation ("FDIC") as receiver. The Company held cash and cash equivalents in multiple accounts at SVB which potentially exposed the Company to significant credit risk. On March 12, 2023, the FDIC acted to fully protect all insured and uninsured depositors by guaranteeing all deposits, alleviating such credit risk. Subsequent to March 13, 2023, the Company currently holds substantially all of its cash and cash equivalents at multiple other financial institutions in custodial accounts in order to further alleviate its credit risk.

Management has evaluated subsequent events and transactions that occurred after the balance sheet date through the date the consolidated financial statements were available for issuance. Based upon this review, except as noted above, the Company did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

## Exhibit 99.2

**Exhibit 99.2** 

**MOVELLA'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** 

*You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and our pro forma financial statements and related notes that are included as exhibits 99.1 and 99.3, respectively, to the amendment to the current report on Form 8-K, which was originally filed with the Securities and Exchange Commission on February 13, 2023 (as originally filed, the "Original Form 8-K" and, as amended hereby, "Amendment No. 1"). This discussion contains forward-looking statements based upon current plans, expectations, and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and in other parts of the definitive proxy statement/prospectus filed by Pathfinder Acquisition Corporation on January 17, 2023 (the "Proxy Statement"), "Forward-Looking Statements" in the Original Form 8-K and elsewhere in this Amendment No.1. For purposes of this section "Movella's Management's Discussion and Analysis of Financial Condition and Results of Operations," any references to "we," "us," "our," the "Company," "Movella," or other words of similar import refer to Movella Inc., a Delaware corporation, prior to the consummation of the Business Combination.* 

**The Business Combination and Public Company Costs** 

Movella entered into the Business Combination Agreement with Pathfinder on October 3, 2022. Pursuant to the Business Combination Agreement, and assuming approval by Pathfinder's shareholders, Merger Sub will merge with and into Movella with Movella surviving the Merger as a wholly owned subsidiary of Pathfinder. Upon the consummation of the Business Combination, Pathfinder will be renamed Movella Holdings Inc. Movella will be deemed the accounting predecessor and the combined entity will be deemed the successor SEC registrant, which means that Movella's financial statements for previous periods will be disclosed in the registrant's future periodic reports filed with the SEC. We anticipate that the Business Combination will be accounted for as a reverse recapitalization as provided under GAAP. Under this method of accounting, Pathfinder will be treated as the acquired company for financial statement reporting purposes. The most significant change in the successor's future reported financial position and results are expected to be an estimated increase in cash of approximately $48.6 million, net of transaction costs and settlement of Pathfinder liabilities. Total transaction costs are estimated at approximately $28.2 million. See "*Unaudited Pro Forma Combined Financial Information*." Upon the closing of the Business Combination, New Movella (as defined below) continues to be listed on Nasdaq and trades under the new ticker symbol "MVLA." As Movella will become the successor to an SEC-registered and Nasdaq-listed company and as Movella's current management team and business operations will comprise New Movella's management and operations, New Movella will need to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect that New Movella will 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.

**Basis of Presentation** 

The Annual Consolidated Financial Statements and accompanying notes of the Company included as Exhibit 99.1 to this Amendment No. 1 include the accounts of Movella and its consolidated subsidiaries and were prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). Our Annual Consolidated Financial Statements are as of and for the years ended December 31, 2022 and 2021. Intercompany transactions and balances are eliminated in consolidation. The Annual Condensed Consolidated Financial Statements include 100% of the accounts of wholly-owned and majority-owned subsidiaries.

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The Company operates in one operating segment. The chief operating decision maker ("CODM") for the Company is the Chief Executive Officer ("CEO"). The CEO reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.

**Overview of our Business** 

Movella is a global full-stack provider of integrated sensors, software, and analytics that enable the digitization of movement. Our solutions accelerate innovation and enable our customers, partners, and users to create extraordinary outcomes. Movella powers real-time character movement in digital environments, transforms movement into digital data that provides meaningful and actionable insights, renders digitized movement to enable the creation of sophisticated and true-to-life animated content, creates new forms of monetizable intellectual property with unique biomechanical digital content, and provides spatial movement orientation and positioning data. Partnering with leading global brands such as Electronic Arts, EPIC Games, 20th Century Studios, Netflix, Toyota, and Siemens and over 2,000 customers in total, we currently serve the entertainment, health and sports, and automation and mobility markets.\* Additionally, we believe we are well-positioned to provide critical enabling solutions for applications in emerging high-growth markets such as the Metaverse, next-generation gaming, live streaming, digital health, and autonomous robots with recently introduced offerings and products currently in development.

Our full-stack product portfolio includes differentiated sensor fusion modules, motion capture systems, visualization software, and AI cloud analytics enabled by our proprietary technologies. By offering full-stack solutions, we provide our customers and partners with significant technology advantages in the areas of magnetic immunity, accuracy, and ease of use, among others. Our technologies are protected by our broad IP portfolio including 161 issued patents, 15 pending patent applications, extensive trade secrets, and decades of know-how.

We serve large and growing markets where digitized movement is critical to our customers' success. In the entertainment market, our sensors and software are used by leading global motion picture studios, video game publishers and virtual creators for 3D character animation, and other applications such as virtual concerts. In the health and sports market, our solutions are used to provide actionable movement insights for applications such as elite athlete performance and recovery, patient injury prevention and rehabilitation, and ergonomic studies. In the automation and mobility market, our sensors are used as the movement and orientation intelligence in applications such as robotics and unmanned vehicles. We believe the addressable market opportunity of our current products is approximately $14 billion today and expected to scale to $20 billion in the next five years, with emerging high-growth markets representing additional meaningful upside to that. For a description of our total addressable market, see *"Information About Movella — Total Addressable Market"* in the Proxy Statement*.*

We plan to continue to scale within our existing markets through global channel expansion and growth in our direct salesforce, further development and expansion of our independent application developer platform (which currently supports an ecosystem of 700+ third-party application developers), introductions of new products and software upgrades, enrichment of vTuber and Influencer applications, and potential new strategic partnerships.

In addition to our established markets, our solutions are a critical enabling technology for applications with significant potential in the Metaverse, next-generation gaming, live streaming, and other large, high-growth end markets. Applications include live streaming, virtual performances, monetizable "motion IP," and virtual meetings with real-time digital representation. Our technology enables the creation and control of life-like digital characters and avatars with real-time 3D human body and facial movement. According to Bloomberg Intelligence, Metaverse and next-generation gaming have the potential to become $856 billion and $457 billion markets by 2025, respectively.

We derive our revenues from the sales of our integrated suite of sensors and right-to-use software licenses. We are in the process of transitioning from a one-time license to an annual subscription model. We sell our products through our direct global sales organization and through regional channel partners around the world. In 2022, approximately 39% of revenues were from our channel partners and the rest was direct, with both sales channels contributing GAAP gross margins of approximately 50% and non-GAAP gross margins of approximately 65%. See *"— Non-GAAP Financial Measures"* for a reconciliation of non-GAAP gross margin to GAAP gross margin. We utilize an "asset-light" contract manufacturer model for the manufacturing of our sensor modules and wearable sensor systems and perform final calibration in-house to maintain consistently high quality and ensure the performance of the solutions.

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\* We believe these customers reflect those with which we are currently actively engaged in terms of our innovation and strategic opportunities across our target markets.

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Our success in developing our technologies, scaling our channel relationships globally, and expanding our applications has led to a continued track record of growth. For the years ended December 31, 2022 and 2021, our total revenues were $40.5 million and $34.4 million, respectively. We are headquartered in Henderson, Nevada with offices in Los Angeles and San Jose, California, Canada, the Netherlands, China, India and Taiwan. As of December 31, 2022, we had 221 employees worldwide.

**Factors Affecting Our Financial Condition and Results of Operations** 

As a result of multiple factors, our historical results of operations may not be comparable from period to period or going forward. Set forth below is a brief discussion of the key factors and variables that could impact our results of operations:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•  ***Customer Relationships:*** We have strong customer relationships in the markets we serve. We
derive our revenues from the sale of sensors solutions, and software licenses and subscriptions, and no individual customer represents 5% or more of our total revenues and many of our customers are reoccurring in nature.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•  ***Investment in Research and Development and New Product Introductions:*** We have a strong track
record of innovation and new product introductions (sensors and software) to maintain our position in the markets we serve. We remain committed to delivering market-leading technology that creates strong return on investment for our customers. We
believe that establishing and maintaining a leading position as a full-stack provider is imperative to our growth.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•  ***Investment in Sales and Marketing:*** Our sales and marketing efforts are a key component of our
growth strategy. Our investments in this area have enabled us to build and sustain our customer base while creating long-term customer relationships. We plan to continue to invest in our sales and marketing efforts to grow our sales capacity,
expand globally, enter new markets, scale our channel partner relationships, and advance our newer products.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•  ***Business Combination with Pathfinder:*** On February 10, 2023, the previously announced
business combination contemplated by the Business Combination Agreement, dated October 3, 2022, was consummated, pursuant to which Pathfinder domesticated as a Delaware corporation and was renamed Movella Holdings Inc. ("New
Movella"), and Merger Sub merged with and into Movella (the "Merger") with Movella surviving the Merger as a wholly owned subsidiary of New Movella. In connection with the business combination, pursuant to the Note Purchase Agreement
(as defined below), on November 14, 2022, Movella issued and sold to FP Credit Partners II AIV, L.P. and FP Credit Partners Phoenix II AIV, L.P. (the "Purchasers"), and the Purchasers purchased, senior secured notes of Movella in an
aggregate original principal amount of $25.0 million (the "Pre-Close Facility"). Upon the consummation of the business combination, FP Credit Partners II, L.P. and FP Credit Partners
Phoenix II, L.P. (collectively, the "FP Purchasers") purchased 7,500,000 shares of New Movella common stock at a purchase price of $10.00 per share for an aggregate purchase price of $75.0 million (the "FP Private
Placement"), the net proceeds of the FP Private Placement were received by New Movella and Movella was deemed to have issued to the Purchasers, and the Purchasers were deemed to have purchased, a 5-year $75.0 million venture-linked secured note in an aggregate original principal amount of $75.0 million (the "VLN Facility") under the Note Purchase Agreement. A portion of the proceeds of the FP Private Placement made available
through the VLN Facility was used by New Movella to prepay the Pre-Close Facility in full and to pay transaction expenses associated with the financing arrangements contemplated by the Note Purchase Agreement.
Upon consummation of the business combination, New Movella received approximately $48.6 million of net cash proceeds after transaction costs and payment of Pathfinder liabilities. New Movella will need to hire additional personnel and implement
procedures and processes to address public company

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regulatory requirements and customary practices. We expect New Movella 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. <br>

**Coronavirus ("<u>COVID-19</u>") Impact** 

As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees, our customers, and the communities in which we operate. Although the majority of our workforce now works remotely, there has been minimal disruption in our ability to ensure the effective operation of our software platforms and of the business overall. For more information on our operations and risks related to the COVID-19 pandemic, please see the section of the Proxy Statement entitled "*Risk Factors*."

**Components of Results of Operations** 

***Revenues***

*Product* 

Our Product revenues are primarily derived from the sale of Motion Capture Systems, Sensor Modules, and DOT Wearables. Motion Capture Systems include wearable sensors bundled with licensed software for character animation or human motion analysis. Sensor Modules include embedded algorithms and firmware for sensor fusion and software to produce useful information from raw sensor data. DOT Wearables include wearable sensors and a software development kit. Our Product revenues are generally recognized at a point in time.

*Service* 

Our Service revenues are primarily derived from support contracts that are sold with our Motion Capture Systems and licensed on-premise software that entitle the customer to receive software updates to their on-premise license as well as access to our product support, software-as-a-service subscription revenues from our Kinduct Human Performance Software, and non-recurring engineering services we provide to certain customers that is generally for customization. The average term of both our support and software-as-a-service contracts is approximately 18 months, including both new contracts and renewals. Our Service revenues are generally recognized over time. Our MotionCloud platform is currently under development and available only in beta version to solicit initial customer feedback. As a result, we have received de minimis revenues to date from fees related to our MotionCloud platform.

While we continue to focus on increasing all of our revenue streams, we currently anticipate our Service revenue to increase as a percentage of total revenues as we transition our existing on-premise software to the cloud, and add new customers and as our existing customers continue to add new services and renew their subscriptions and support contracts.

***Cost of Revenues***

*Product* 

Cost of Product revenues consist primarily of costs associated with the procurement of raw materials and manufacture of our sensor module solutions, amortization of certain acquired intangibles, shipping costs, and personnel-related expenses associated with manufacturing employees including salaries, benefits, and bonuses. Sensor hardware costs and the resultant gross margin may vary over time due to component pricing, supply chain variances, obsolescence, and product mix.

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*Service* 

Cost of Service revenues consist primarily of cost associated with hosting and delivery services for our platform to support our subscribers, software licensing fees, personnel-related expenses associated with our customer support operations, and amortization of certain acquired intangibles.

We currently expect cost of revenues, exclusive of amortization of acquired intangibles, to increase in absolute dollars as we continue to hire personnel, utilize additional cloud infrastructure, and incur higher software licensing fees in support of our revenue growth, and to fluctuate from period to period but generally decreasing over time as a percentage of revenues as we scale our business, and increase production at new lower cost third party contract manufacturers and shift to higher margin products.

***Operating Expenses***

*Research and Development* 

Research and development expense consists primarily of personnel costs and related expenses, as well as costs related to third-party tools and labor. We continue to focus our research and development efforts on adding new features and products and increasing the functionality and enhancing the ease of use of our existing products.

We expect research and development expense to generally increase in absolute dollars as we continue to dedicate substantial resources to develop, improve and expand the functionality of our solutions, and to fluctuate from period to period but decrease generally over time as a percentage of revenues.

*Sales and Marketing* 

Sales and marketing expenses consist primarily of personnel costs and related expenses, travel, advertising, marketing, promotional events and brand awareness activities.

We expect sales and marketing expenses to generally increase in absolute dollars as we continue to invest in acquiring new customers, and maintaining and growing our existing customer relationships, and to fluctuate from period to period but decrease generally over time as a percentage of revenues.

*General and Administrative* 

General and administrative expenses consist primarily of personnel costs and related expenses for our administrative, legal, human resources, information technology, finance and accounting employees, and executives. Additionally, general and administrative expenses include professional service fees, insurance premiums, and other corporate expenses that are not allocated to the above expense categories.

We plan to continue to expand our business both domestically and internationally, and we expect to increase the size of our general and administrative function to support the growth of our business. We also expect that we will incur additional general and administrative expenses as a result of being a public company. We also expect to incur increased expenses related to accounting, tax and auditing activities, directors' and officers' insurance, SEC compliance, investor relations, and internal control compliance. We expect general and administrative expenses to fluctuate from period to period but decrease generally over time as a percentage of revenues.

***Other Income (Expense)***

*Interest Expense, net* 

Interest expense, net consists primarily of cash and non-cash interest on our debt instruments, partially offset by the interest earned from our daily sweep accounts.

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*Other Income (Expense), net* 

Other Income (Expense), net, consists primarily of sale of non-core assets and government subsidies as well as gain (loss) on foreign exchange transactions consisting of currency movements on transactions settled in other currencies during the year.

*Income Tax Provision (Benefit)* 

Income tax provision (benefit) consists primarily of income taxes in the United States and incomes taxes in certain foreign jurisdictions in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to current U.S. income tax.

*Income (loss) from discontinued operations (net of tax)* 

Income (loss) from discontinued operations (net of tax) consists primarily of income or loss from our legacy components business that was licensed to MEMSIC in 2020 and exited in 2021.

*Net loss attributable to non-controlling interests* 

Net loss attributable to non-controlling interests consists primarily of losses attributable to non-controlling interests in our consolidated variable interest entity, the Qingdao Joint Venture.

**Results of Operations** 

The following table summarizes our results of operations in dollars (in thousands) and expressed as a percentage of revenues, derived from the accompanying audited consolidated financial statements for the years ended December 31, 2022 and 2021 included as Exhibit 99.1 to this Amendment No. 1. The period-to-period comparison of results is not necessarily indicative of results to be expected for future periods and the results for any interim period are not necessarily indicative of results to be expected for a full fiscal year.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2022** | **2022** | **2021** | **2021** |
|  **Statement of Operations Data:** |  |  |  |  |
|  Revenues |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | $34283 | 84.7% | $28848 | 83.8% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 6183 | 15.3% | 5566 | 16.2% |
|  Total revenues | 40466 | 100.0% | 34414 | 100.0% |
|  Cost of revenues |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | 15223 | 37.6% | 12049 | 35.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 6071 | 15.0% | 4412 | 12.8% |
|  Cost of revenues | 21294 | 52.6% | 16461 | 47.8% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross profit | 19172 | 47.4% | 17953 | 52.2% |
|  Operating expenses |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Research and development | 13258 | 32.8% | 14014 | 40.7% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Sales and marketing | 12324 | 30.5% | 10710 | 31.1% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; General and administrative | 14697 | 36.3% | 12943 | 37.6% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Impairment of intangible assets | 7164 | 17.7% |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total operating expenses | 47443 | 117.2% | 37667 | 109.5% |
|  Loss from operations | (28271) | (69.9%) | (19714) | (57.3%) |
|  Other (expense) income |  |  |  |  |
|  Loss on debt extinguishment | (646) | (1.6%) |  |  |
|  Debt issuance costs | (2389) | (5.9%) |  |  |
|  Revaluation of debt | (300) | (0.7%) |  |  |
|  Interest expense, net | (2167) | (5.4%) | (1965) | (5.7%) |
|  Other income, net | 613 | 1.5% | 2148 | 6.2% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total other (expense) income | (4889) | (12.1%) | 183 | 0.5% |
|  Loss from continuing operations before provision | (33160) | (81.9%) | (19531) | (56.8%) |

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| | | | | |
|:---|:---|:---|:---|:---|
|  Income tax benefit | (113) | (0.3%) | (728) | (2.1%) |
|  Net loss from continuing operations | (33047) | (81.7%) | (18803) | (54.6%) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loss from discontinued operations (net of tax) |  | (0%) | (156) | (0.5%) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net loss | $(33047) | (81.7%) | $(18959) | (55.1%) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net loss attributable to noncontrolling interests | (632) | (1.6%) | (1300) | (3.8%) |
|  Net loss attributable to Movella Inc. | (32415) | (80.1%) | (17659) | (51.3%) |
|  Deemed dividends from accretion of Series D-1 Preferred Stock | (2684) | (6.6%) | (2511) | (7.3%) |
|  Net loss attributable to common stockholders | (35099) | (86.7%) | (20170) | (58.6%) |
|  Loss per share from continuing operations, basic and diluted | $(3.11) |  | $(2.20) |  |
|  Loss per share from discontinued operations, basic and diluted | $— |  | $(0.02) |  |
|  Net loss per share, basic and diluted | $(3.11) |  | $(2.22) |  |
|  Weighted average shares outstanding, basic and diluted | 11285170 |  | 9101819 |  |

---

**Non-GAAP Financial Measures** 

We use the financial measures set forth below, which are non-GAAP financial measures, to help us analyze our financial results, establish budgets and operational goals for managing our business, evaluate our performance, and make strategic decisions. Accordingly, we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. In addition, we believe these measures are useful for period-to-period comparisons of our business, as it removes the effect of certain non-cash expenses and certain variable charges. We also believe that the presentation of these non-GAAP financial measures provides an additional tool for investors to use in comparing our core business and results of operations over multiple periods with other companies in our industry, many of which present similar non-GAAP financial measures to investors, and to analyze our cash performance. However, the non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated. The non-GAAP financial measures should not be considered as the sole measure of our performance and should not be considered in isolation from, or as a substitute for, comparable financial measures calculated in accordance with GAAP. The information in the table below sets forth the non-GAAP financial measures along with the most directly comparable GAAP financial measures.

*Non-GAAP Net Loss.* We define non-GAAP net loss as our net loss attributable to common stockholders, excluding the impact of deemed dividends on the Series D-1 Preferred Stock, stock-based compensation, loss from discontinued operations, loss on debt extinguishment, debt issuance costs, revaluation of debt, and impairment of intangible assets.

*Non-GAAP Gross Margin*. We define non-GAAP gross margin as our gross margin, excluding amortization of acquired intangible assets.

*EBITDA and Adjusted EBITDA*. We define EBITDA as our net loss, excluding the impact of interest expense, net, income tax expense (benefit), gain or loss from discontinued operations, and depreciation and amortization. We define Adjusted EBITDA as our net loss attributable to common stockholders, excluding the impact of deemed dividends on the Series D-1 Preferred Stock, interest expense, net, income tax expense (benefit), gain or loss from discontinued operations, depreciation and amortization, stock-based compensation, impairment of intangible assets, loss on debt extinguishment, debt issuance costs, revaluation of debt, and other income, net.

------

These non-GAAP financial measures have limitations as analytical tools, including the following:

*Non-GAAP Cost of Revenues*: The limitations of non-GAAP cost of revenues include the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The amortization of acquired intangible assets related to the purchase of Kinduct and Xsens is being excluded due
to the non-recurring nature of the transactions that capitalized the developed technology intangible assets on the balance sheet, and the non-cash nature of the amortization expense being recorded as the developed technology intangible assets are
being amortized over their useful lives. The result of the exclusion of amortization of acquired intangible assets is a decreased cost of revenues. The exclusion does not take into account the possibility that we may have to internally develop or
externally acquire developed technology in the future in order to derive revenues from such assets.

*Non-GAAP Gross Margin:* The limitations of non-GAAP gross margin include the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The amortization of acquired intangible assets related to the purchase of Kinduct and Xsens is being excluded due
to the non-recurring nature of the transactions that capitalized the developed technology intangible assets on the balance sheet, and the non-cash nature of the amortization expense being recorded as the developed technology intangible assets are
being amortized over their useful lives. The result of the exclusion of amortization of acquired intangible assets is an improved gross margin. The exclusion does not take into account the possibility that we may have to internally develop or
externally acquire developed technology in the future in order to derive revenues from such assets.

*Non-GAAP Net Loss:* The limitations of non-GAAP net loss include the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of deemed dividends from Series D-1 Preferred Stock accretion, which has been a recurring expense.
We expect that the deemed dividends on Series D-1 Preferred Stock will cease with consummation of the Business Combination Agreement and conversion of the Preferred Stock into common stock. We believe the exclusion of the deemed dividends on Series
D-1 Preferred Stock to be useful to investors as it is non-cash and not related to the core operations of the business. The result of excluding deemed dividends on Series D-1 Preferred Stock is an improvement to net income; however, the result of
the accretion of the Series D-1 Preferred Stock is expected to be additional shares granted to the holders of such Preferred Stock upon consummation of the Business Combination Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of stock-based compensation expense, which has been a recurring expense. We expect that stock-based
compensation will increase in significance in the foreseeable future, as equity awards are expected to continue to be an important component of our compensation strategy. Although stock-based compensation is an important aspect of the compensation
paid to our employees, there are multiple factors that are accounted for in determining a fair value of such compensation due to varying valuation methodologies, subjective assumptions and the difference in award types. This makes the comparison of
our current financial results to previous and future periods difficult to interpret; therefore, we believe it is useful to exclude stock-based compensation from our non-GAAP financial measures in order to highlight the performance of our core
business and to be consistent with the way many investors evaluate our performance and compare our operating results to peer companies. The result of excluding stock-based compensation is an improvement to net income; however, non-GAAP net loss does
not consider the potentially dilutive impact of stock-based compensation or other stock-settled obligations. Additionally, we expect stock-based compensation to be a part of our expenses going forward; however, the final figures are subject to
change each period;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of loss from operations of discontinued operations, which was excluded in the presentation of our
financial results due to the fact that we have exited the legacy components business and will not be incurring related expenses on a go-forward basis. We determined that excluding the impact of discontinued operations would be beneficial to
investors as they evaluate performance of our continuing operations on a historical basis. Excluding losses from discontinued operations improves net income; however, investors should note that all of the revenues from discontinued operations were
earned from MEMSIC, an entity with which we have a licensing agreement and in whose business we have an equity stake;

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of loss on debt extinguishment, which was excluded in the presentation of our financial results due
to the fact that we have extinguished our previous debt agreements with the issuance of the Pre-Close Notes. We determined that excluding the impact of loss on debt extinguishment would be beneficial to investors as they evaluate performance of our
continuing operations on a historical basis. Excluding the loss on debt extinguishment improves net income; however, investors should note that the Company may incur debt extinguishment costs in the future;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of debt issuance costs, which was excluded in the presentation of our financial results due to the
fact that such costs are expected to be non-recurring in nature after the series of transactions (Pre-Close Notes, Venture Linked Notes, and consummation of the Business Combination Agreement) is complete. We determined that excluding the impact of
debt issuance costs would be beneficial to investors as they evaluate performance of our continuing operations on a historical basis. Excluding debt issuance costs improves net income; however, investors should note that the Company expects to incur
debt issuance costs associated with closing of the Venture Linked Notes;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of revaluation of debt, which was excluded in the presentation of our financial results due to the
fact that such revaluation is non-cash in nature. We determined that excluding the impact of debt revaluation would be beneficial to investors as they evaluate performance of our continuing operations on a historical basis. Excluding debt issuance
costs improves net income; however, investors should note that the Company expects to record gains or losses associated with revaluation of debt each quarter that the Pre-Close Notes are outstanding; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of impairment of intangible assets, which was excluded in the presentation of our financial results
due to the fact that such impairment is non-cash in nature. We determined that excluding the impact of impairment of intangible assets would be beneficial to investors as they evaluate performance of our continuing operations on a historical basis.
Excluding impairment of intangible assets improves net income; however, investors should note that the Company has significant goodwill and intangible assets remaining on the balance sheet that may be subject to future impairment.

*EBITDA:* The limitations of EBITDA include the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of deemed dividends from Series D-1 Preferred Stock accretion, which has been a recurring expense.
We expect that the deemed dividends on Series D-1 Preferred Stock will cease with consummation of the Business Combination Agreement and conversion of the Preferred Stock into common stock. We believe the exclusion of the deemed dividends on Series
D-1 Preferred Stock to be useful to investors as it is non-cash and not related to the core operations of the business. The result of excluding deemed dividends on Series D-1 Preferred Stock is an improvement to net income; however, the result of
the accretion of the Series D-1 Preferred Stock is expected to be additional shares granted to the holders of such Preferred Stock upon consummation of the Business Combination Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of interest expense, net and income tax expense (benefit), which includes expenses associated with
our capital and tax structures, specifically cash and non-cash interest on our debt instruments, any offset from interest earned from our daily sweep accounts, and income taxes in the United States and certain foreign jurisdictions in which we
conduct business. Thus EBITDA and Adjusted EBITDA do not reflect the interest expense or cash requirements necessary to service interest or principal payments on our debt, nor does it reflect tax payments that may represent a reduction in cash
available to us;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of loss from discontinued operations, which was excluded in the presentation of our financial
results due to the fact that we have exited the legacy components business and will not be incurring related expenses on a go-forward basis. We determined that excluding the impact of discontinued operations would be beneficial to investors as they
evaluate the performance of our continuing operations on a historical basis. Excluding losses from discontinued operations improves EBITDA; however, investors should note that all of the revenues from discontinued operations were earned from MEMSIC,
an entity with which we have a licensing agreement and in whose business we have an equity stake; and

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of certain recurring, non-cash charges, such as depreciation of property and equipment and
amortization of intangible assets. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for these
replacements or new capital expenditure requirements.

*Adjusted EBITDA*: The limitations of Adjusted EBITDA include the foregoing limitations with respect to EBITDA, as well as the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of stock-based compensation expense, which has been a recurring expense. We expect that stock-based
compensation will increase in significance in the foreseeable future, as equity awards are expected to continue to be an important component of our compensation strategy. Although stock-based compensation is an important aspect of the compensation
paid to our employees, there are multiple factors that are accounted for in determining a fair value of such compensation due to varying valuation methodologies, subjective assumptions and the difference in award types. This makes the comparison of
our current financial results to previous and future periods difficult to interpret; therefore, we believe it is useful to exclude stock-based compensation from our non-GAAP financial measures in order to highlight the performance of our core
business and to be consistent with the way many investors evaluate our performance and compare our operating results to peer companies. The result of excluding stock-based compensation is an improvement to Adjusted EBITDA; however, Adjusted EBITDA
does not consider the potentially dilutive impact of stock-based compensation or other stock-settled obligations. Additionally, we expect stock-based compensation to be a part of our expenses going forward; however, the final figures are subject to
change each period;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of loss on debt extinguishment, which was excluded in the presentation of our financial results due
to the fact that we have extinguished our previous debt agreements with the issuance of the Pre-Close Notes. We determined that excluding the impact of loss on debt extinguishment would be beneficial to investors as they evaluate performance of our
continuing operations on a historical basis. Excluding the loss on debt extinguishment improves net income; however, investors should note that the Company may incur debt extinguishment costs in the future;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of debt issuance costs, which was excluded in the presentation of our financial results due to the
fact that such costs are expected to be non-recurring in nature after the series of transactions (Pre-Close Notes, Venture Linked Notes, and consummation of the Business Combination Agreement) is complete. We determined that excluding the impact of
debt issuance costs would be beneficial to investors as they evaluate performance of our continuing operations on a historical basis. Excluding debt issuance costs improves net income; however, investors should note that the Company expects to incur
debt issuance costs associated with closing of the Venture Linked Notes;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of revaluation of debt, which was excluded in the presentation of our financial results due to the
fact that such revaluation is non-cash in nature. We determined that excluding the impact of debt revaluation would be beneficial to investors as they evaluate performance of our continuing operations on a historical basis. Excluding debt issuance
costs improves net income; however, investors should note that the Company expects to record gains or losses associated with revaluation of debt each quarter that the Pre-Close Notes are outstanding;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of impairment of intangible assets, which was excluded in the presentation of our financial results
due to the fact that such impairment is non-cash in nature. We determined that excluding the impact of impairment of intangible assets would be beneficial to investors as they evaluate performance of our continuing operations on a historical basis.
Excluding impairment of intangible assets improves net income; however, investors should note that the Company has significant goodwill and intangible assets remaining on the balance sheet that may be subject to future impairment; and

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• The exclusion of other income (expense), net, which includes income from the sale of non-core assets and government subsidies, as well as realized and unrealized gains and losses on foreign exchange transactions consisting of currency movements on transactions settled in other currencies during the
year. Accordingly, Adjusted EBITDA does not reflect certain income and expenses not directly tied to the ongoing core operations of our business, such as legal reserves and settlements and restructuring and other related reorganization costs, if
any.

In addition, EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments or changes in, or cash requirements for, our working capital needs.

Other companies, including those in our industry, may calculate non-GAAP net loss, non-GAAP gross margin, EBITDA, and Adjusted EBITDA differently than we do, limiting the usefulness of these non-GAAP financial measures as comparative measures. Because of these limitations, you should consider non-GAAP net loss, non-GAAP gross margin, EBITDA, and Adjusted EBITDA alongside, and not in lieu of, other financial performance measures, including net loss and gross margin, and our other GAAP results. The non-GAAP financial measures presented in the exhibits to this Amendment No. 1 should not be considered as the sole measure of our performance and should not be considered in isolation from, or as a substitute for, comparable financial measures calculated in accordance with GAAP. Specifically, these non-GAAP financial measures should be considered as supplemental in nature, and are not intended, and should not be construed, as a substitute for the related financial information calculated in accordance with GAAP. A reconciliation of these non-GAAP financial measures to their corresponding GAAP measures, specifically non-GAAP net loss to net loss, non-GAAP gross margin to gross margin, and EBITDA and Adjusted EBITDA to net loss, are set forth below.

**Reconciliation of Non-GAAP Financial Measures** 

The following tables reconcile the most directly comparable GAAP financial measure to each of these non-GAAP financial measures.

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| | | |
|:---|:---|:---|
|  | **Years Ended<br>December 31,** | **Years Ended<br>December 31,** |
|  | **2022** | **2021** |
| | **(audited)** | **(audited)** |
| | **(in thousands)** | **(in thousands)** |
|  **Non-GAAP net loss:** |  |  |
|  Net loss attributable to common shareholders | $(35099) | $(20170) |
|  Deemed dividends from Series D-1 Preferred Stock | 2684 | 2511 |
|  Stock-based compensation | 1699 | 786 |
|  Loss on debt extinguishment | 646 |  |
|  Debt issuance costs | 2389 |  |
|  Revaluation of debt | 300 |  |
|  Impairment of intangible assets | 7164 |  |
|  Loss from discontinued operations |  | 156 |
|  **Non-GAAP net loss attributable to Movella Inc.** | $(20217) | $(16717) |
|  **EBITDA and Adjusted EBITDA:** |  |  |
|  Net loss attributable to common shareholders | $(35099) | $(20170) |
|  Deemed dividends from Series D-1 Preferred Stock | 2684 | 2511 |
|  Interest expense, net | 2167 | 1965 |
|  Income tax benefit | (113) | (728) |
|  Loss from discontinued operations |  | 156 |
|  Depreciation and amortization | 7919 | 7280 |

---

------

---

| | | |
|:---|:---|:---|
|  **EBITDA** | $(22442) | $(8986) |
|  Stock-based compensation | 1699 | 786 |
|  Impairment of intangible assets | 7164 |  |
|  Loss on debt extinguishment | 646 |  |
|  Debt issuance costs | 2389 |  |
|  Revaluation of debt | 300 |  |
|  Other expenses (income), net | (613) | (2148) |
|  **Adjusted EBITDA** | $(10857) | $(10348) |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Year Ended December 31, 2022** | **Year Ended December 31, 2022** | **Year Ended December 31, 2022** | **Year Ended December 31, 2022** | |
|  | | **Adjustments** | **Adjustments** | **Adjustments** | |
|  |<br>**GAAP**<br>**Financials** | **Stock-Based**<br>**Compensation** | **Amortization<br>of Intangibles** | **Impairment**<br>**of Intangibles** |<br>**Non-GAAP<br>Financials** |
|  | **(audited)** | **(unaudited)** | **(unaudited)** | **(unaudited)** | **(unaudited)** |
|  Revenues |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | $34283 |  |  |  | $34283 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 6183 |  |  |  | 6183 |
|  Total revenues | 40466 |  |  |  | 40466 |
|  Cost of revenues |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | 15223 |  | 2191 |  | 13032 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 6071 |  | 3093 |  | 2978 |
|  Total cost of revenues | 21294 |  | 5284 |  | 16010 |
|  Gross profit |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | 19060 |  |  |  | 21251 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 112 |  |  |  | 3205 |
|  Total gross profit | 19172 |  |  |  | 24456 |
|  *Gross margin* |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Product* | 55.6% |  |  |  | 62.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Service* | 1.8% |  |  |  | 51.8% |
|  *Total gross margin* | 47.4% |  |  |  | 60.4% |
|  Operating expenses |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Research and development | 13258 | 398 |  |  | 12860 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Sales and marketing | 12324 | 468 | 1441 |  | 10415 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; General and administrative | 14697 | 833 | 352 |  | 13512 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Impairment of intangible assets | 7164 |  |  | 7164 |  |
|  Total operating expenses | $47443 | $1699 | $1793 | $7164 | $36787 |
|  Total |  | $1699 | $7077 | $7164 |  |
|  Loss from operations | $(28271) |  |  |  | $(12331) |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** |
|  | | **Adjustments** | **Adjustments** | |
|  |<br>**GAAP<br>Financials** | **Stock-Based<br>Compensation** | **Amortization<br>of Intangibles** |<br>**Non-GAAP<br>Financials** |
|  | **(audited)** | **(unaudited)** | **(unaudited)** | **(unaudited)** |
|  Revenues |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | $28848 |  |  | $28848 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 5566 |  |  | 5566 |
|  Total revenues | 34414 |  |  | 34414 |
|  Cost of revenues |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | 12049 |  | 2440 | 9609 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 4412 |  | 2350 | 2062 |
|  Total cost of revenues | 16461 |  | 4790 | 11671 |

---

------

---

| | | | | |
|:---|:---|:---|:---|:---|
|  Gross profit |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | 16799 |  |  | 19239 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 1154 |  |  | 3504 |
|  Total gross profit | 17953 |  |  | 22743 |
|  *Gross margin* |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Product* | 58.2% |  |  | 66.7% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; *Service* | 20.7% |  |  | 63.0% |
|  *Total gross margin* | 52.2% |  |  | 66.1% |
|  Operating expenses |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Research and development | 14014 | 143.0 |  | 13871 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Sales and marketing | 10710 | 175.0 | 1573 | 8962 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; General and administrative | 12943 | 469.0 | 295 | 12179 |
|  Total operating expenses | $37667 | $787.0 | $1868 | $35012 |
|  Total |  | $787.0 | $6658 |  |
|  Loss from operations | $(19714) |  |  | $(12269) |

---

**Comparison of the Years Ended December 31, 2022 and 2021** 

***Revenues***

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Years Ended<br>December 31,** | **Years Ended<br>December 31,** | **Change** | **Change** |
|  | **2022** | **2021** | $**%** | **%** |
|  | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** |
|  Revenues |  |  |  |  |
|  Product | $34283 | $28848 |  | 19% |
|  Service | 6183 | 5566 |  | 11% |

---

*Product* 

Product revenue increased by $5.4 million in the year ended December 31, 2022 as compared to the corresponding period in 2021, primarily due to a $3.5 million increase from higher volume shipments of our wearable solutions product and associated license revenue which generally increases ratably with sales of the wearable solutions product, $0.8 million increased sales of our inertial sensor modules, and $1.1 million increased sales at the Qingdao Joint Venture, as well as the effect of higher average selling prices. The effect of unfavorable foreign currency exchange rates contributed to headwinds of $1.6 million to Product revenue, primarily attributable to the Euro to United States dollar currency pair. The effect of Covid-related shutdowns in certain geographies negatively impacted top-line revenues as potential customers were prevented from engaging in activities that require the use of our products, such as motion capture filing, thus temporarily reducing shipment volume in certain geographies that experienced Covid-related shutdowns.

*Service* 

Service revenue increased by $0.6 million in the year ended December 31, 2022 as compared to the corresponding period in 2021, primarily due to increased sales of support and maintenance service contracts at higher average selling prices. The effect of Covid-related shutdowns in certain geographies negatively impacted top-line revenues as potential customers were prevented from engaging in activities that require the use of our products, such as motion capture filming, thus temporarily reducing product shipment volume and the accompanying service revenue in certain geographies that experienced Covid-related shutdowns.

------

***Cost of Revenues, Gross Profit and Gross Margin***

---

| | | | |
|:---|:---|:---|:---|
|  | **Years Ended<br>December 31,** | **Years Ended<br>December 31,****Change** | **Change** |
|  | **2022** | **2021** | **%** |
|  | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** |
|  Cost of revenues |  |  |  |
|  Product | $15223 | $12049 | 26% |
|  Service | 6071 | 4412 | 38% |
|  Gross profit |  |  |  |
|  Product | 19060 | 16799 | 13% |
|  Service | 112 | 1154) | NM |

---

*Product* 

Product cost of revenues increased by $3.2 million and gross profit increased by 13% in the year ended December 31, 2022 compared to the corresponding period in 2021. The increase in Product cost of revenues was primarily due to higher volume sales of finished goods associated with the growth in revenues, as well as higher raw materials input costs. The increase in Product gross profit was primarily due to higher volume sales of our wearable solutions products and associated on-premise license revenue. The effect of COVID-related supply chain disruptions also negatively impacted our Product cost of revenues through an increase in unplanned materials cost as we sought to obtain critical components that were in short supply at inflated market prices.

*Service* 

Service cost of revenues increased $1.7 million and gross profit decreased by $1.0 million in the year ended December 31, 2022 compared to the corresponding period in 2021 due primarily to the effect of a reduction in the estimated useful life of acquired developed technology intangible assets that contributed an additional $0.7 million of non-cash expense in the year ended December 31, 2022.

***Operating Expenses***

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| | | | |
|:---|:---|:---|:---|
|  | **Years Ended<br>December 31,** | **Years Ended<br>December 31,****Change** | **Change** |
|  | **2022** | **2021** | **%** |
|  | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** |
|  Research and development | $13258 | $14014) | (5)% |
|  Sales and marketing | 12324 | 10710 | 15% |
|  General and administrative | 14697 | 12943 | 14% |
|  Impairment of intangible assets | 7164 |  | NM |

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*Research and development expense* decreased $0.8 million in the year ended December 31, 2022 compared to the corresponding period in 2021, primarily due to decreased payroll of $0.9 million as we realized the effects of our cost saving measures implemented in the second quarter, increased stock-based compensation of $0.3 million, and severance of $0.3 million as we focused our research and development efforts to our most promising projects, partially offset by a reduction in payroll expenses of $0.6 million from receipt of cash from the Digital Media Tax Credit ("DMTC") government subsidy, which we are eligible for due to activities our personnel engage in developing digital media in Nova Scotia, that was applied against payroll expenses pro rata in the year ended December 31, 2022 as compared to the year ended December 31, 2021.

*Sales and marketing expense* increased $1.6 million in the year ended December 31, 2022 compared to the corresponding period in 2021, primarily due to increased payroll of $0.6 million as our full time equivalents increased by approximately 20% in order to further build brand awareness in the marketplace, $0.6 million increased spend related to a branding project, increased stock-based compensation of $0.3 million, and severance of $0.3 million which occurred late in the second quarter as we focused our sales and marketing efforts on our most promising projects in the year ended December 31, 2022 as compared to the year ended December 31, 2021, partially offset by a reduction in payroll expenses of $0.7 million from receipt of the DMTC government subsidy, which we are eligible for due to activities our personnel engage in developing digital media in Nova Scotia, that was applied against payroll expenses pro rata.

*General and administrative expense* increased $1.8 million in the year ended December 31, 2022 compared to the corresponding period in 2021, primarily due to an increase of $1.4 million in auditing and accounting, consulting, and legal fees in preparation for the contemplated business combination transaction, such as an uplift of the auditing

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standards to PCAOB compliance, $0.6 million of increased spend related to legal matters, as well as an increase of $0.4 million in stock-based compensation expense, partially offset by a reduction in travel expenses of $0.3 million and a reduction in payroll expenses of $0.3 million as we realized the effects of our cost saving measures implemented in the second quarter reducing full time equivalents by approximately 10%, and $0.1 million from receipt of the DMTC government subsidy, which we are eligible for due to activities our personnel engage in developing digital media in Nova Scotia, that was applied against payroll expenses pro rata in the year ended December 31, 2022 as compared to the year ended December 31, 2021.

*Impairment of intangible assets* increased $7.2 million in the year ended December 31, 2022 compared to the corresponding period in 2021, primarily due to a strategic shift in the intended use of certain acquired intangible assets to reduce customer acquisition costs and target a wider spectrum of users than was previously possible due to high touch onboarding, through additional software development that allows for seamless self-service implementation, that resulted in an impairment in the year ended December 31, 2022. Such expense did not occur in the year ended December 31, 2021.

***Other Income (Expense)***

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| | | | |
|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,****Change** | **Change** |
|  | **2022** | **2021** | **%** |
|  | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** |
|  Loss on debt extinguishment | $(646) | —) | NM |
|  Debt issuance costs | (2389) | —) | NM |
|  Revaluation of debt | (300) | —) | NM |
|  Interest expense, net | (2167) | $(1965) | 10% |
|  Other income, net | 613 | 2148) | (70)% |

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*Loss on debt extinguishment* for the year ended December 31, 2022 consists of $0.4 million of prepayment fees related to the early repayment of the Eastward and SVB term loans, and $0.2 million of unamortized debt discount and issuance costs that were expensed upon extinguishment of the Eastward and SVB term loans. Such expense did not occur in the year ended December 31, 2021.

*Debt issuance costs* for the year ended December 31, 2022 consists of $2.4 million of direct and incremental costs incurred to issue the Pre-Close Notes and in advance of issuance of the Venture Linked Notes. Such expense did not occur in the year ended December 31, 2021.

*Revaluation of debt* for the year ended December 31, 2022 consists of $0.3 million of change in the fair value of the Pre-Close Notes as we elected the fair value option, primarily related to the accretion of interest. Such expense did not occur in the year ended December 31, 2021.

*Interest expense, net* consists of interest incurred from outstanding debt and notes payable. Interest expense increased $0.2 million in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily as a result of our changing debt and notes payable structure year over year, which includes entering into the Pre-Close Notes agreement and concurrent extinguishment of the Eastward and SVB term loans on November 14, 2022, issuance of the convertible notes in March 2022, and the deferred payout owed to the sellers of Kinduct which began accruing interest in March 2022.

We also earn interest income from depository accounts. Interest income was nominal in the years ended December 31, 2022 and 2021.

*Other income, net* primarily reflects recognition of government subsidies and foreign currency exchange gains and losses. The $1.5 million decrease for the year ended December 31, 2022 compared to the corresponding period in 2021 was primarily due to a $0.7 million non-cash gain on the dissolution of Ten Degrees Inc. and a $0.6 million non-cash gain on forgiveness of the Paycheck Protection Program loan in the year ended December 31, 2021 which did not occur in the year ended December 31, 2022, and a decrease in the amount of other income recognized from government subsidies for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

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***Income Tax Expense***

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| | | | |
|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** | **Change** |
|  | **2022** | **2021** | $**%** |
|  | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** |
|  Income tax benefit | $(113) | $(728) | NM |

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Our effective tax rate differs from statutory rate of 21% for U.S. federal income tax purposes due to the effects of the valuation allowance and certain permanent differences as it pertains to book-tax differences in the value of client equity securities received for services.

We file income tax returns in the United States and state and foreign jurisdictions. To the extent we have tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state or foreign tax authorities to the extent utilized in a future period.

***Income (loss) from discontinued operations (net of tax)***

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| | | | |
|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** | **Change** |
|  | **2022** | **2021** | $**%** |
|  | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** | **(audited)<br>(dollars in thousands)** |
|  Income (loss) from discontinued operations (net of tax) | $— | $(156) | NM |

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Income (loss) from discontinued operations consists primarily of the results of the discontinued operations of the legacy microelectromechanical systems business that was licensed to MEMSIC in 2020. For the year ended December 31, 2021 the loss from discontinued operations consisted primarily of efforts to fully divest and wind down the business. There was no such activity in the year ended December 31, 2022.

**Liquidity and Capital Resources** 

Since inception, we have financed our operations primarily through the net proceeds we have received from the sales of our convertible preferred stock and common stock and through payments received from customers and borrowings under our credit facilities. Since our inception, we have generated losses from our operations as reflected in our accumulated deficit of $142.0 million as of December 31, 2022 and negative cash flows from operating activities. We expect to continue to incur operating losses and generate negative cash flows from operations for the foreseeable future due to the investments we will continue to make in research and development and sales and marketing and due to additional general and administrative costs we expect to incur as a public company. As a result, we may require additional capital resources to execute strategic initiatives to grow our business.

As of December 31, 2022, we had cash and cash equivalents of $14.3 million, including $2.2 million held in China and subject to transfer and other restrictions as described below, of which $1.5 million was held by the Qingdao JV and $0.7 million was held by our wholly owned entities in China and Hong Kong, and debt outstanding of $32.0 million, as well as a deferred payout owed to the sellers of Kinduct in the amount of $4.3 million.

On February 10, 2022 we consummated the Business Combination Agreement with Pathfinder Acquisition Corporation whereby through a series of transactions, New Movella received approximately $48.6 million of net cash proceeds after transaction costs and payment of Pathfinder liabilities. The Note Purchase Agreement also contains a financial covenant requiring us to achieve positive EBITDA on a consolidated basis for the most recently ended four-quarter period, commencing with the last day of the fiscal quarter ending June 30, 2024 and as of the last day of each fiscal quarter thereafter. While there has been substantial doubt in prior periods about our ability to continue as a going concern, given the above we believe we have sufficient liquidity to continue as a going concern for at least one year from the date of issuance of these financial statements. In addition, we hold a substantial amount of non-marketable equity securities

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that could be divested in order to provide liquidity as we deem fit. Our future capital requirements will depend on many factors, including: our growth rate; the timing and extent of spending to support our research and development efforts; capital expenditures to build out new facilities and purchase hardware and software; the expansion of sales and marketing activities; and our continued investment in our IT infrastructure to support our growth. In addition, we may enter into additional strategic partnerships as well as agreements to acquire or invest in complementary products, teams and technologies, including intellectual property rights, which could increase our cash requirements. As a result of these and other factors, we may be required to seek additional equity or debt financing sooner than we currently anticipate. If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. In particular, the COVID-19 pandemic, which has caused disruption in the global financial markets, and rising interest rates may reduce our ability to access capital and negatively affect our liquidity in the future. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, and financial condition would be materially and adversely affected.

Approximately $4.1 million and $5.1 million of our cash and cash equivalents balance were held outside of the United States as of December 31, 2022 and 2021, respectively. There are restrictions on our ability to transfer cash and cash equivalents of $2.2 million held outside of the U.S. by our subsidiaries in China and Hong Kong and the Qingdao JV as of December 31, 2022. These restrictions include restrictions on the ability of these entities to pay dividends under current People's Republic of China ("PRC") laws and regulations, restrictions on foreign currency exchange, and, for the Qingdao JV, requirements that the cash held by the Qingdao JV be used solely in connection with the joint venture's operations. As of December 31, 2022, $1.5 million in cash and cash equivalents held by the Qingdao JV were subject to such requirements. In addition, the PRC government may take measures at its discretion from time to time to restrict access to cash held in our China subsidiaries and the Qingdao JV, and may take similar measures in the future with respect to cash held in our Hong Kong subsidiary. See "*Risk Factors — Risks Related to Movella's International Operations — Current or future laws, regulations, or policies enacted by the PRC government could impact our ability to access cash and cash equivalents held through our subsidiaries in China and Hong Kong, or through the Qingdao JV.*" in the Proxy Statement.

***Cash Flows***

The following table summarizes our cash flows for the years ended December 31, 2022 and 2021:

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| | | |
|:---|:---|:---|
|  | **Year Ended<br>December 31,** | **Year Ended<br>December 31,** |
|  | **2022** | **2021** |
|  | **(in thousands)** | **(in thousands)** |
|  **Statement of Cash Flows Data:** |  |  |
|  Net cash provided by (used in): |  |  |
|  Operating activities | $(14550) | $(10759) |
|  Investing activities | (753) | 7809 |
|  Financing activities | 18190 | (6685) |
|  Effect of foreign exchange rate changes on cash and cash equivalents | 281 | (40) |
|  Net increase (decrease) in cash and cash equivalents | $3168 | $(9675) |

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*Operating Activities* 

We have historically used cash in operating activities due to our net losses, adjusted for changes in our operating assets and liabilities, particularly from accounts receivable, inventories, prepaid expenses and other assets, accounts payable and accrued expenses, deferred revenue and non-cash expense items such as depreciation and amortization, stock-based compensation expense, impairment of intangible assets, and the issuance of convertible preferred stock.

For the year ended December 31, 2022 cash used in operating activities was $14.6 million which was primarily the result of a net loss of $33.0 million, partially offset by non-cash expenses such as depreciation and amortization of $7.9 million, the impairment of intangible assets of $7.2 million, debt issuance costs of $2.4 million, share-based compensation of $1.7 million, non-cash interest expense of $1.2 million, loss on debt extinguishment of $0.6 million, with cash used in working capital of $2.1 million.

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For the year ended December 31, 2021, cash used in operating activities was $10.8 million which was primarily the result of $19.0 million net loss in the period, $1.7 million cash provided by working capital, $0.6 million gain on government assistance related to the forgiveness of the PPP Loan and $0.6 million gain on dissolution of Ten Degrees Inc., partially offset by non-cash items such as $7.3 million depreciation and amortization and $0.8 million of share-based compensation.

*Investing Activities* 

Our investing activities consist of capital expenditures for property and equipment purchases and IP licenses. Our capital expenditures for property and equipment have primarily been for general business purposes, including machinery and equipment, leasehold improvements, software and computer equipment used internally, and production masks to manufacture our products.

For the year ended December 31, 2022, cash used in investing activities was $0.8 million and consisted primarily of, $0.6 million cash used to purchase property and equipment.

For the year ended December 31, 2021, cash provided by investing activities was $7.8 million and consisted primarily of $9.7 million of proceeds from the licensing of MEMSIC IP, partially offset by $1.9 million purchase of property and equipment for general business purposes.

*Financing Activities* 

Cash generated by financing activities includes proceeds from borrowings under our credit facilities, proceeds from our issuance of common stock following employee stock option exercises, and proceeds from the issuance of convertible preferred stock. Cash used in financing activities primarily includes repayment of debt under our credit facilities.

For the year ended December 31, 2022, cash provided by financing activities was $18.2 million, consisting of $25.0 million proceeds from the Pre-Close Notes, $4.9 million proceeds from the convertible notes, $1.7 million proceeds from the exercise of stock options, $0.5 million proceeds from the SVB term loan and TD BCRS revolving line of credit, partially offset by $9.5 million repayment of the Eastward and SVB term loans and TD BCRS revolving line of credit concurrent with execution of the Pre-Close Notes, $1.5 million paid for debt discount and issuance costs, $1.0 million repayment of the deferred payout owed to Kinduct sellers, $1.0 million paid for equity issuance costs in advance of an offering, $0.5 million cash paid for debt extinguishment costs, and $0.3 million principal payment of loans.

For the year ended December 31, 2021, cash used in financing activities was $6.7 million, consisting of $14.9 million principal repayments of long-term debt, partially offset by $8.3 million proceeds from a term loan.

***Debt Obligations***

As of December 31, 2022, we had the following debt obligations outstanding (in thousands):

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Lender** | **Agreement Date** | **Maturity Date** | **Annual<br>Interest Rate** | **Maximum<br>Borrowing<br>Amount<sup>(2)</sup>** | **Amount<br>Outstanding<br>at<br>December 31,<br>2022<sup>(3)</sup>** |
|  Pre-Close Notes<sup>(4)</sup> | Nov. 14, 2022 | Nov. 14, 2025 | 9.25% | $25000 | $25300 |
|  Convertible notes<sup>(1)</sup> | Mar. 12, 2022 | Sep. 1, 2023 | 6% | 6021 | 6345 |
|  ACOA | 2011, 2013, and 2019 | 2024, 2024, and 2029 | Varies | 526 | 497 |

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(1) The Convertible notes converted to common stock at $4.79 per share prior to application of the exchange ratio
upon the consummation of the Business Combination Agreement on February 10, 2023.

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(2) Maximum borrowing amount includes principal only.

(3) Amount outstanding at December 31, 2022 includes principal and accrued interest, as applicable.

(4) A portion of the proceeds of the Venture Linked Notes were used to repay in full the Pre-Close Notes on February 10, 2023 concurrent with the consummation of the Business Combination Agreement.

**Borrowings** 

***Pre-Close Notes and Venture Linked Notes***

*Pre-Close Notes* 

On November 14, 2022, we and certain of our subsidiaries, Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent, and Credit Partners II AIV, L.P. and FP Credit Partners Phoenix II AIV, L.P., as purchasers (the "Purchasers"), entered into a Note Purchase Agreement (the "Note Purchase Agreement") pursuant to which, (a) we issued and sold to the Purchasers, and the Purchasers purchased, our senior secured notes in an aggregate original principal amount of $25 million (the "Pre-Close Facility"), and (b) subject to the fulfillment of certain conditions precedent (including the consummation of the Merger), we agreed to issue and sell to the Purchasers, and the Purchasers agreed to purchase, on the Closing Date, senior secured venture-linked notes in an aggregate original principal amount of $75 million (the "VLN Facility"), in each case, for the consideration (including via a deemed sale and purchase, as applicable), as set forth in the Note Purchase Agreement.

Our obligations under the Note Purchase Agreement are guaranteed by certain of our subsidiaries and secured by substantially all of our and our subsidiaries' assets. Upon consummation of the Merger, New Movella will also be required to become a secured guarantor of the obligations under the Note Purchase Agreement.

The commitment to provide the VLN Facility terminates upon the earliest to occur of (i) the termination of the Business Combination Agreement in accordance with its terms prior to the Closing Date and (ii) April 30, 2023, if the Merger has not been consummated on or prior to April 30, 2023 (the "VLN Termination Date").

The proceeds of the Pre-Close Facility were used, in part, to refinance certain of our and our subsidiaries' existing debt and to pay a portion of the transaction expenses associated with the financing arrangements contemplated by the Commitment Letter (the "FP Financing"), with the remaining proceeds available for growth and working capital and general corporate purposes. A portion of the proceeds of the VLN Facility will be used on the Closing Date to refinance the Pre-Close Facility and to pay transaction expenses associated with the FP Financing. After the Closing, the remaining proceeds of the VLN Facility will be available for growth and working capital and general corporate purposes.

The interest rate per annum applicable to notes under the Note Purchase Agreement is 9.25%; provided, however, if the VLN Termination Date occurs, interest on the notes evidencing the Pre-Close Facility will bear interest at our option, at either an alternate base rate plus an applicable margin initially of 8.25% per annum or a term SOFR rate, plus an applicable margin initially of 9.25% per annum. The applicable margin on the notes evidencing Pre-Close Notes increases by 0.50% in each year on the November 14 anniversary of the entry into the Note Purchase Agreement. With respect to the notes evidencing the VLN Facility, interest is paid in kind on the last business day of each calendar quarter commencing with the calendar quarter ending immediately after the first to occur of the Closing Date and the VLN Termination Date. Interest is also payable in cash on the VLN Termination Date, the Closing Date and the date of any prepayment or repayment of notes (subject however, in certain cases, to the payment of a contractual return, if such contractual return is greater than the amount of all accrued and unpaid interest (other than default interest,

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if any)). Subject to certain exceptions in connection with certain qualified refinancing events and the repayment of the Pre-Close Facility on the Closing Date, on the date of any voluntary or mandatory prepayment or acceleration of the notes under the Note Purchase Agreement, a scheduled contractual return is required to be paid, if greater than the amount of all accrued and unpaid interest (other than default interest, if any). When such contractual return is paid, such contractual return will be deemed to constitute payment of all accrued and unpaid interest (other than default interest, if any) on the principal amount of notes so prepaid, repaid or accelerated, as applicable, including all interest on the notes that was previously paid in kind. After the Closing, New Movella will have the right, subject to certain exceptions, to cause the Grantees (or their permitted assignees) to sell all or a portion of the shares purchased by such entities in the Tender Offer and the Private Placement at any time in its sole discretion over the life of the VLN Facility, and a percentage of the proceeds (which percentage is a function of when proceeds are generated, based on a predetermined schedule with a sliding scale) of any such sale shall be applied as a credit against the outstanding obligations under of the VLN Facility upon a repayment of the VLN Facility in full or a refinancing event.

As the Closing occurred, the maturity of the VLN Facility is five years after the Closing Date. There are no regularly scheduled amortization payments on either the Pre-Close Facility or the VLN Facility until the maturity date therefor, however, there are customary mandatory prepayment events in connection with the receipt of net proceeds from extraordinary receipts and dispositions (subject, in the case of dispositions, to certain customary exceptions and customary reinvestment rights), debt issuances and upon events specified in the Note Purchase Agreement to be a change of control, and the Pre-Close Facility is required to be refinanced in full on the Closing Date with a portion of the proceeds of the VLN Facility. The Pre-Close Facility and VLN Facility may be optionally prepaid in whole or in part. All such prepayments are required to be accompanied by accrued and unpaid interest on the amount prepaid or if greater (excluding default interest, if any), payment of the contractual return.

*Venture Linked Notes* 

On the Closing Date, the net proceeds of the FP Private Placement were received by the Company and Movella was deemed to have issued to the Purchasers, and the Purchasers were deemed to have purchased, a 5-year $75 million venture-linked secured note (the "VLN Facility") under the Note Purchase Agreement. A portion of the proceeds of the FP Private Placement made available through the VLN Facility was used by the Company to prepay the Pre-Close Facility in full and to pay transaction expenses associated with the financing arrangements contemplated by the Note Purchase Agreement. The remaining proceeds of the VLN Facility are available for growth and working capital and general corporate purposes.

The obligations of Movella under the Note Purchase Agreement are guaranteed by certain of its subsidiaries and secured by substantially all of Movella's and such subsidiaries' assets. New Movella is also required to become a secured guarantor of the obligations under Note Purchase Agreement.

The notes evidencing the VLN Facility (the "VLN Notes") bear interest at a per annum rate equal to 9.25% and interest is paid in kind on the last business day of each calendar quarter commencing with the first calendar quarter following the Closing Date. Interest is also payable in cash on the date of any prepayment or repayment of the VLN Notes (subject however, in certain cases, to the payment of a contractual return, if such contractual return is greater than the amount of all accrued and unpaid interest (other than default interest, if any)). Subject to certain exceptions in connection with certain qualified refinancing events, on the date of any voluntary or mandatory prepayment or acceleration of the VLN Notes, a scheduled contractual return is required to be paid, if greater than the amount of all accrued and unpaid interest (other than default interest, if any). When paid, such contractual return will be deemed to constitute payment of all accrued and unpaid interest (other than default interest, if any) on the principal amount of the VLN Notes so prepaid, repaid or accelerated, as applicable, including all interest on the VLN Notes that was previously paid in kind. The Company has the right, subject to certain exceptions, to cause the FP Purchasers (or their permitted assignees) to sell all or a portion of the FP Shares at any time in its sole discretion over the life of the VLN Facility, and a percentage of the proceeds (which percentage is a function of when proceeds are generated, based on a predetermined schedule with a sliding scale) of any such sale shall be applied as a credit against the outstanding obligations under of the VLN Facility upon a repayment of the VLN Facility in full or a refinancing event.

The VLN Facility will mature on February 10, 2028. There are no regularly scheduled amortization payments on the VLN Facility until the maturity date, however, there are customary mandatory prepayment events in connection with the receipt of net proceeds from extraordinary receipts and dispositions (subject, in the case of dispositions, to certain customary exceptions and customary reinvestment rights), debt issuances and upon events specified in the

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Note Purchase Agreement to be a change of control. The VLN Facility may be optionally prepaid in whole or in part. All such prepayments are required to be accompanied by accrued and unpaid interest on the amount prepaid or if greater (excluding default interest, if any), payment of the contractual return.

The Note Purchase Agreement contains a number of covenants that, among other things, restrict, in each case subject to certain exceptions, the ability of the Company and its subsidiaries to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• create, assume or suffer to exist liens and indebtedness;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• make investments;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• engage in mergers or consolidations, liquidations, divisions or the disposal of all or substantially all of such
person's assets;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• make dispositions or have subsidiaries that are not wholly-owned;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• declare or make dividends or other distributions or certain restricted payments to or on account of equity
holders, or prepay indebtedness;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• make material changes to its line of business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• engage in affiliate transactions; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• with respect to New Movella, conduct or engage in any business or operations, other than in its capacity as a
holding company and activities incidental thereto.

The Note Purchase Agreement also contains a financial covenant requiring the Company and its subsidiaries to achieve positive EBITDA on a consolidated basis for the most recently ended four-quarter period, commencing with the last day of the fiscal quarter ending June 30, 2024 and as of the last day of each fiscal quarter thereafter.

The Note Purchase Agreement contains customary events of default, including nonpayment of principal, interest or other amounts; material inaccuracy of a representation or warranty; violation of specific covenants identified in the Note Purchase Agreement; cross default and cross-acceleration to material indebtedness; bankruptcy and insolvency events; unsatisfied material judgments; actual or asserted invalidity of the Note Purchase Agreement, related note documents or other material documents entered into in connection with transactions contemplated by the Note Purchase Agreement, and events specified to be a change of control.

***Convertible notes***

In March 2022, we entered into convertible promissory note agreements with two of our existing preferred stock investors and received aggregate cash proceeds of $4.9 million, and exchanged an additional $1.1 million of convertible promissory notes to the sellers of Kinduct for extinguishment of $1.1 million of the deferred payout liability owed to them. Of the $1.1 million in convertible notes issued in exchange to the sellers of Kinduct, $1.0 million were issued to a related party. The convertible promissory notes shall bear an interest rate of 6.0% per annum. The outstanding principal amount and all accrued but unpaid interest on the notes shall be mandatorily converted into our common stock at a conversion price of $4.79 per share upon the earlier of i) maturity in September 2023 or ii) the occurrence of a capital markets transaction such as an initial public offering or acquisition by a special purpose acquisition company; or upon a change of control as defined in the convertible promissory note agreements, at the discretion of the noteholder, the notes would either convert into our common stock at a conversion price of $4.79 per share, or would be repayable at 1.5 times the outstanding principal amount plus all accrued and unpaid interest. On February 10, 2023 concurrent with the consummation of the Business Combination Agreement, 100% of the outstanding principal and accrued interest on the convertible notes were mandatorily converted into 1,333,712 shares of Movella common stock at $4.79 per share per the original terms of the notes.

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***Atlantic Canada Opportunities Agency***

Kinduct has applied for non-interest bearing, unsecured term loans with a monthly installment repayment from the Atlantic Canada Opportunities Agency ("ACOA") in 2011, 2013, and 2019. These three loans are scheduled to be repaid in 2024, 2024, and 2029, respectively. As of December 31, 2022 and 2021, we had recorded a total debt of $0.5 million and $0.5 million related to these loans.

**Off-Balance Sheet Arrangements** 

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

**Critical Accounting Policies and Estimates** 

Our audited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our audited consolidated financial statements are described below.

**Revenue Recognition** 

We follow the guidance in ASC 606, *Revenue from contracts with customers* ("ASC 606"). Per ASC 606, revenue is recognized when a customer obtains control of promised products and services and we have satisfied our performance obligations. The amount of revenue recognized reflects the consideration which we expect to be entitled to receive in exchange for the products and services. To achieve this core principle, we apply the five step revenue recognition model prescribed by ASC 606:

Step 1. Identification of the contract(s) with a customer;

Step 2. Identification of the performance obligations in the contract(s);

Step 3. Determination of the transaction price;

Step 4. Allocation of the transaction price to the performance obligation(s);

Step 5. Recognition of the revenue when, or as, we satisfy a performance obligation.

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Our performance obligations are established when a customer submits a purchase order notification (in writing, electronically or verbally) for goods and services, and we accept the order. We identify performance obligations as the delivery of the requested product or service in appropriate quantities and to the location specified in the customer's contract and/or purchase order. We generally recognize revenue upon the satisfaction of these criteria when control of the product or service has been transferred to the customer at which time it has an unconditional right to receive payment. Our prices are fixed and have no history of being affected by contingent events that could impact the transaction price. We do not offer price concessions and does not accept payment that is less than the price stated when we accepts the purchase order.

Revenue is recognized upon transfer of control of products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that may include various combinations of products and services which are generally capable of being distinct and accounted for as separate performance obligations.

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***Product revenue***

*Hardware.* Hardware revenue from the sale of our Motion Capture Systems, Sensor Modules, and DOT Wearables is recognized when we transfer control to the customer, typically at the time when the product is delivered or shipped at which time the title passes to the customer, and there are no further performance obligations with regards to the hardware device.

*On-premise software licenses*. Revenue from on-premise software licenses, which are included with the Motion Capture Systems, Sensor Modules, and DOT Wearables to enable character animation, human motion analysis, sensor fusion, and software to produce useful information from raw sensor data, is recognized when we transfer control to the customer, typically at the time when the software is made available for use by the customer, and there are no further performance obligations with regards to the on-premise software license.

***Service revenue***

*Support and maintenance services*. We include 1 to 3 years of support and maintenance services with the motion capture systems hardware offerings, and also separately sells extended support and maintenance services contracts. The support and maintenance services contracts allow customers to receive software updates to their on-premise licenses as well as access to our support team. The separately priced support and maintenance service contracts range from 12 months to 36 months, with the average contract length approximately 18 months. We typically receive payment at the inception of the contract and recognizes revenue on a straight-line basis over the term of the contract.

*Software as a Service.* Software as a Service ("SaaS") subscription revenue is primarily composed of Kinduct Human Performance Software and is recognized over time on a ratable basis over the contract term beginning on the date that the service is made available to the customer. Subscription periods range from monthly to multi-year, with the majority of contracts being one to three years and the average contract length approximately 18 months. Our MotionCloud platform is currently under development and available only in beta version to solicit initial customer feedback. As a result, we have received de minimis revenues to date from fees related to the MotionCloud platform.

*Non-recurring engineering.* From time to time, we enter into special non-recurring engineering design service agreements. Revenues from non-recurring engineering design services are designed to meet specifications of a particular product, and generally do not create an asset with an alternative use. We generally recognize revenue based on the achievement of certain applicable milestones and the amount of payment we determine we are entitled to at the time.

With respect to revenue related to third party product sales or other arrangements that involve the services of another party, for which we do not control the sale or service and acts as an agent to the transaction, we recognize revenue on a net basis. The portion of the gross amount billed to customers that is remitted by us to another party is not reflected as revenue.

*Multiple Performance Obligations* 

Our contracts with customers may include commitments to transfer multiple products and services to a customer. When hardware, software and services are sold in various combinations, judgment is required to determine whether each performance obligation is considered distinct and accounted for separately, or not distinct and accounted for together with other performance obligations. We considered the performance obligations in our contracts and determined that, for the majority of our revenue, we generally satisfy performance obligations at a point in time upon delivery of the hardware or on-premise software to the customer. In instances where the on-premise software license elements sold with hardware for various products are considered to be functioning together with hardware elements to provide the intended benefit to the customer, these arrangements are accounted for as a single distinct performance obligation separately from any service component.

------

*Standalone selling price* 

Judgment is required to determine the stand-alone selling price ("SSP") for each distinct performance obligation. When available, we maximize observable inputs to determine SSP. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP based on a cost-plus model as market and other observable inputs are seldom present based on the proprietary nature of our products.

The transaction price is allocated to each performance obligation in a contract to record revenues in the amount of consideration that a provider expects to be entitled to receive in exchange for transferring goods or services. Generally, this allocation is based on the relative selling price method, where the SSP is determined for each performance obligation at contract inception and is based on observable prices. When contracts include variable consideration such as a discount, the discount is allocated proportionately to all performance obligations in the contract.

For contracts with multiple performance obligations, revenue is allocated to the hardware, on-premise software, SaaS, and support and maintenance performance obligations based on their relative SSP. Judgment is required in estimating SSP for each distinct performance obligation. Management determines SSP by maximizing observable inputs such as standalone sales where they exist. We performed an analysis to determine if our actual sales prices fall within a narrow band of the list price, which in conjunction with other evidence caused us to determine that our list prices for support and maintenance services approximated SSP and therefore may be used in the relative fair value allocation.

***Stock-based Compensation***

We recognize stock-based compensation expense over the requisite service period on a straight-line basis for all stock-based payments that are expected to vest to employees, non-employees, and directors. Equity-classified awards issued to employees, non-employees and directors are measured at the grant-date fair value of the award. Forfeitures are recognized as they occur. For accounting purposes, we estimate grant-date fair value of stock options using the Black-Scholes option-pricing model. The model requires the input of the fair value of the underlying common stock, the risk-free interest rates, the expected term of the option, the expected volatility of the price of our common stock and the expected dividend yield of our common stock.

***Goodwill***

Goodwill represents the excess of the purchase price in a business combination over the fair value of net assets acquired. Goodwill amounts are not amortized, but rather tested for impairment at least annually in the fourth quarter of each year.

***Acquired Intangible Assets***

Our intangible assets include developed technology, customer relationships, patents, and trademarks and non-compete agreements. Intangible assets are stated at cost less accumulated amortization and are amortized over their estimated useful lives using the straight-line method. Acquired intangible assets and long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset group containing these assets may not be recoverable. For the years ended December 31, 2022 and 2021, we recognized $7.2 million and nil, respectively, of impairment losses. The estimated useful lives of intangible assets are as follows:

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| | |
|:---|:---|
|  | **Estimated useful lives** |
|  Developed technology | 5 to 10 years |
|  Customer relationships | 2 to 3 years |
|  Patents and trademarks | 10 years |
|  Non-compete agreements | 2 years |

---

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***Income Taxes***

Deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between the financial statements carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

A tax position can be recognized only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities. We consider many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

***Debt and Equity Issuance Costs***

Debt and equity issuance costs, which primarily consist of direct and incremental banking, legal, accounting, consulting, and printing fees relating to the merger transaction are capitalized and allocated between the debt and equity elements of the transaction. Debt issuance costs of $2.4 million relating to the issued Pre-Close Notes and unissued Venture Linked Notes have been expensed in the year ended December 31, 2022, as we elected the fair value option for the Pre-Close Notes which closed on November 14, 2022, and subsequently elected the fair value option for the Venture Linked Notes. We have an additional $4.1 million of equity issuance costs allocated to the equity offering capitalized at December 31, 2022, within capitalized equity issuance costs and other assets on the consolidated balance sheet, and will offset this amount of equity issuance costs against proceeds received upon the consummation of the transaction which occurred in February 2023. As of December 31, 2021, we had not incurred such costs.

***Debt Instruments***

*Pre-Close Notes and Venture Linked Notes* 

As permitted under ASC 825, *Financial Instruments* we have elected the fair value option to account for our Pre-Merger Senior Secured Notes (the "Pre-Close Notes") primarily to avoid the separate recognition of certain linked instruments in the consolidated statements of operations. In accordance with ASC 825, we recorded the Pre-Close Notes at fair value with changes in fair value recorded as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss. As a result of applying the fair value option, $0.8 million of direct costs and fees related to the Pre-Close Notes were expensed upon execution of the Note Purchase Agreement. The Venture Linked Notes were issued on February 10, 2023 concurrent with the consummation of the Business Combination Agreement at which time we elected the fair value option for the Venture Linked Notes.

**Recently Adopted Accounting Pronouncements** 

In February 2016, the FASB issued ASC 842, *Leases*, ("ASC 842") a new standard requiring lessees to recognize operating and finance lease liabilities on the balance sheet, as well as corresponding right-of-use ("ROU") assets. This standard also made some changes to lessor accounting and aligns key aspects of the lessor accounting model with the revenue recognition standard. In addition, disclosures are required to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASC 842 requires adoption using the modified retrospective approach, with the option of applying the requirements of the standard either i) retrospectively to each prior comparative reporting period presented, or ii) retrospectively at the beginning of the period of adoption. We adopted ASC 842 on January 1, 2022, on a modified retrospective basis, and did not restate prior comparative periods.

In December 2019, the FASB issued ASU No. 2019-12, *Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes*. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. We adopted ASU 2019-12 on January 1, 2022 which did not have a material impact on its consolidated financial statements.

------

In January 2020, the FASB issued ASU No. 2020-01, *Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815*. The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. We adopted ASU 2020-01 on January 1, 2022 which did not have a material impact on its consolidated financial statements.

In May 2021, the FASB issued ASU No. 2021-04, *Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)*. This guidance clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. Early adoption is permitted for all entities, including adoption in an interim period. We adopted ASU 2021-04 on January 1, 2022 which did not have a material impact on its consolidated financial statements.

**Accounting Pronouncements Not Yet Adopted** 

In June 2016, the FASB issued ASU No. 2016-13, *Financial Instruments—Credit Losses (Topic 326)* to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We will be required to use a forward-looking expected credit loss model for accounts receivable and other financial instruments, including available-for-sale debt securities. The standard will be effective for us beginning in 2023, with early adoption permitted. We are currently evaluating the potential impact of this standard on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, *Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity*, which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. ASU 2020-06 is effective for private companies' fiscal years beginning after December 15, 2023, respectively, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the timing of adoption and the impact of this ASU on its consolidated financial statements.

**Quantitative and Qualitative Disclosures about Market Risk** 

***Concentration of Credit Risk***

We are exposed to the credit risk of our customers. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents to the extent recorded in the balance sheets. While the Company has not experienced any losses in such accounts, the recent failure of Silicon Valley Bank (SVB), at which the Company held cash and cash equivalents in multiple accounts, potentially exposed the Company to significant credit risk prior to the completion by the Federal Deposit Insurance Corporation of the resolution of SVB in a manner that fully protected all depositors. We market and sell our products worldwide and attribute revenues to the geography where product is shipped. No single direct or indirect customer accounted for 10% or more of our revenues in the year ended December 31, 2022.

------

Sales to customers in Europe accounted for approximately 31% and 37% of our revenues for the years ended December 31, 2022 and 2021, respectively. Sales to customers in the United States of America accounted for approximately 27% and 24% respectively for the years ended December 31, 2022 and 2021, respectively, while sales to customers in China accounted for approximately 16% and 15% for the years ended December 31, 2022 and 2021, respectively. Sales to customers in our Asia, other region accounted for approximately 18% and 14% respectively for the years ended December 31, 2022 and 2021, respectively. Sales to customers in our Other region accounted for approximately 8% and 10% in the years ended December 31, 2022 and 2021, respectively.

***Concentrations in the Available Sources of Supply of Materials and Product***

Although most components essential to our business are generally available from multiple sources, certain components are currently obtained from single or limited sources. We also compete for various components with other participants in the markets for motion sensing components. Therefore, many components used by us, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant commodity pricing fluctuations.

We have entered into agreements for the supply of many components; however, there can be no guarantee that we will be able to extend or renew these agreements on similar terms, or at all.

Substantially all of our hardware products are manufactured by outsourcing partners that are located primarily in Europe with second source manufacturing in Asia.

***Foreign Currency Risk***

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Substantially all of our revenues are denominated in Euros, U.S. dollars or Canadian Dollars. Our expenses are generally denominated in the currencies in which our operations are located, which are primarily in the Netherlands, United States and Canada. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchanges rates applicable to our business would have increased or decreased our revenues by approximately $3.0 million. Actual gains and losses in the future may differ materially from the hypothetical gains and losses discussed above based on changes in the timing and amount of foreign currency exchange rate movements.

***Interest Rate Risk***

We had cash and cash equivalents of $14.3 million and $11.2 million as of December 31, 2022 and 2021, respectively, consisting of bank deposits, commercial paper, U.S. government securities, corporate bonds, and money market funds. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. As of December 31, 2022, we had total outstanding debt of $32.0 million as well as a deferred payout owed to the sellers of Kinduct in the amount of $4.3 million.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. Our exposure to interest rates relates to the change in the amounts of interest we must pay on our borrowings to the extent they are subject to variable interest rates. As of December 31, 2022 none of our debt is subject to variable interest rates. The effect of a hypothetical 10% change in interest rates on the fair value of outstanding debt would not result in additional interest expense on our consolidated financial statements. In February 2023, we repaid in full Pre-Close Notes using proceeds from the Venture Linked Notes which currently bears fixed interest at 9.25%. For more information on the structure of interest rates under our debt instruments, see "*—Liquidity and Capital Resources—Debt Obligations*" above.

------

***Inflation Risk***

Our results of operations and cash flows are subject to risks from inflation. We have been able to offset increased costs as a result of inflation through price increases to date. We cannot, however, be certain that we will be able to continue to offset such higher costs as a result of inflationary pressures through price increases. Our inability to do so could harm our business, financial condition, and results of operations.

## Exhibit 99.3

**Exhibit 99.3** 

**UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION** 

*Defined terms included below have the same meaning as terms defined and included elsewhere in this Amendment No. 1.* 

The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of SEC Regulation S-X as amended by the final rule, Release No. 33-10786 "Amendments to Financial Disclosures about Acquired and Disposed Businesses" and is for informational purposes only. The combined financial information presents the pro forma effects of the following transactions, collectively referred to as the "Transactions" for purposes of this section, and certain other related events as described in Note 1 to the accompanying Notes to the unaudited pro forma condensed combined financial information.

As contemplated by the Business Combination Agreement dated October 3, 2022, following the Domestication of Pathfinder, a Cayman Islands exempted company, Merger Sub merged with and into Movella, where upon the separate existence of Merger Sub ceased and Movella is the surviving corporation and a wholly owned subsidiary of Pathfinder, and Pathfinder changed its name to "Movella Holdings Inc." ("New Movella") (referred to herein as the "Merger" or "Business Combination").

The unaudited pro forma condensed combined balance sheet of New Movella as of December 31, 2022 combines the historical consolidated balance sheet of Movella as of December 31, 2022 and the historical balance sheet of Pathfinder as of December 31, 2022, adjusted to give pro forma effect to the Business Combination on a pro forma basis as if the Transactions and the other events, summarized below, had been consummated on December 31, 2022.

The unaudited pro forma condensed combined statement of operations of New Movella for the year ended December 31, 2022 combines the historical consolidated statement of operations of Movella for the year ended December 31, 2022 and the historical statement of operations of Pathfinder for the year ended December 31, 2022, on a pro forma basis as if the Transactions and the other events, summarized below, had been consummated on January 1, 2022, the beginning of the earliest period presented.

The unaudited pro forma condensed combined financial information should be read in conjunction with the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the accompanying Notes to the unaudited pro forma condensed combined financial statements;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the historical audited financial statements of Pathfinder as of and for the year ended December 31, 2022,
included in Pathfinder's Annual Report on Form 10-K filed with the SEC on March 31, 2023;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• the historical audited consolidated financial statements of Movella as of and for the year ended
December 31, 2022 included in [Exhibit 99.1](d454283dex991.htm) to this Amendment No. 1;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;• Other information related to Pathfinder and Movella included in the Proxy Statement incorporated herein by
reference, including the Business Combination Agreement attached to the Original 8-K as Exhibit 2.1 and the description of certain terms thereof set forth under " [Proposal No. 1 – The Business Combination Proposal](http://www.sec.gov/Archives/edgar/data/1839132/000119312523009491/d271484ddefm14a.htm#tx374834_10) " beginning on page 138 of the Proxy Statement.

***Business Combination***

On October 3, 2022, Pathfinder, and its wholly owned subsidiary, Merger Sub, entered into the Business Combination Agreement, with Movella.

------

In connection with the Business Combination Agreement, Pathfinder, Merger Sub and Movella entered into the Commitment Letter with FP, pursuant to which FP committed to provide $75.0 million of financing to support the Business Combination. Under the terms of the Commitment Letter, FP committed (i) to provide the Pre-Close Notes prior to Closing, (ii) to launch the Tender Offer, and (iii) to the extent the total amount tendered and actually purchased upon expiration of the Tender Offer is less than $75.0 million, to effect the FP Private Placement, which occurred substantially concurrently with the Merger (and, for the avoidance of doubt, after the Domestication). The shares of New Movella Common Stock purchased by FP in the FP Private Placement were purchased at a price of $10.00 per share and are not registered with the SEC at Closing, subject to registration rights pursuant to the Shareholder Rights Agreement. On November 14, 2022, Movella entered into the Note Purchase Agreement with the other parties thereto, and Movella received the net proceeds from the issuance of notes under the Pre-Close Notes. If the Merger has not occurred by the earlier of (i) the termination of the Business Combination Agreement and (ii) April 30, 2023, then FP's commitment to provide the VLN Facility shall terminate, and the Pre-Close Notes shall mature on November 14, 2025. The Class A ordinary shares purchased in the Tender Offer and the shares of New Movella Common Stock purchased in the FP Private Placement are collectively referred to herein as the "FP Shares." In exchange for the entry into a transaction support agreement for the FP Shares, pursuant to which FP Credit Partners Phoenix II, L.P. and FP Credit Partners II, L.P. (collectively, the "FP Purchasers") agreed to, among other matters, refrain from redeeming the FP Shares (outside of certain circumstances), the Note Purchase Agreement provides, subject to customary conditions, that Movella will be deemed to issue and FP will be deemed to purchase notes evidencing the VLN Facility, the deemed proceeds of which shall be used to, among other things, refinance the Pre-Close Notes in its entirety. Pursuant to the VLN Facility, New Movella will have the right, subject to certain exceptions, to cause FP to sell all or a portion of the FP Shares at any time at its sole discretion over the life of the VLN Facility, and a percentage of the proceeds (which percentage is a function of when proceeds are generated, based on a predetermined schedule with a sliding scale) of any such sale shall be applied as a credit against the outstanding obligations under the VLN Facility upon a repayment of the VLN Facility in full or a refinancing event. The VLN Facility will mature five years after the Closing.

On December 5, 2022, the FP Purchasers commenced (within the meaning of Rule 14d-2 promulgated under the Exchange Act) the Tender Offer. On the terms and subject to the conditions set forth in the Offer to Purchase and Letter of Transmittal, each dated as of December 5, 2022, the Tender Offer was due to expire at the Expiration Time. Prior to the Expiration Time, on January 4, 2023, the FP Purchasers irrevocably and unconditionally terminated the Tender Offer. As a result of this termination, no Class A ordinary shares were purchased in the Tender Offer, all Class A ordinary shares previously tendered and not withdrawn were promptly returned to tendering holders and FP purchased $75.0 million of shares of New Movella Common Stock in the FP Private Placement.

Concurrently with the execution of the Business Combination Agreement, the Sponsor forfeited approximately 50.0 percent, or 4,025,000 shares of Pathfinder Class B ordinary shares held by Sponsor ("Sponsor Shares") at the closing in accordance with Sponsor Letter Agreement for no consideration.

In connection with the Note Purchase Agreement, Pathfinder and the FP Purchasers entered into an Equity Grant Agreement that provides for the issuance of 1.0 million shares of New Movella Common Stock by New Movella to the FP Purchasers at the Effective Time, subject to and conditioned upon the Merger occurring, and the full deemed funding of the VLN Facility and the acquisition by the FP Purchasers or its affiliates of $75.0 million shares of New Movella Common Stock in the FP Private Placement. In connection with the Domestication, Pathfinder ordinary shares were converted into shares of common stock of New Movella (the "Domestication Common Stock").

(i) Pathfinder became a Delaware corporation pursuant to the Domestication and, in connection with the
Domestication:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) Pathfinder's name changed to "Movella Holdings Inc.";

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) Each then-issued and outstanding Class A ordinary share, par value of $0.0001 per share, converted
automatically, on a one-for-one basis, into a share of Domestication Common Stock;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) Each then-issued and outstanding Class B ordinary share, par value of $0.0001 per share, converted
automatically, on a one-for-one basis, into a share of Domestication Common Stock;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) Each then-issued and outstanding public warrant represents a right to acquire one share of Domestication Common
Stock for $11.50 (the "Domestication Public Warrants");

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) Each then-issued and outstanding private placement warrant represents a right to acquire one share of
Domestication Common Stock for $11.50 (the "Domestication Private Warrants"); and

(ii) Following the Domestication, Merger Sub merged with and into Movella, with Movella as the surviving company in
the merger, and after giving effect to such merger, continuing as a wholly owned subsidiary of New Movella.

In connection with the Business Combination, New Movella adopted a single class stock structure pursuant to which:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) The Class A ordinary shares and the Class B ordinary shares of Pathfinder outstanding prior to the Business
Combination were converted into Domestication Common Stock;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Movella convertible notes were converted into Movella Common Stock pursuant to the terms of each of the Movella
convertible notes;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) Each Movella warrant was net exercised in exchange for Movella Common Stock pursuant to the terms of the
applicable warrant agreement; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) The shares of Movella capital stock, including the issued outstanding preferred stock and Movella Common Stock
were exchanged (including the Movella Common Stock resulting from conversion of Movella convertible notes and net exercise of the Movella warrants) at an exchange ratio (the "Exchange <u> </u> Ratio") of 0.48874 set forth in the Business
Combination Agreement, for Domestication Common Stock. The shares of Movella Series D-1 preferred stock were further adjusted based on the conversion premium of approximately 1.01.

Each Movella Option outstanding immediately prior to the Closing was assumed by New Movella and exchanged into an option exercisable for Domestication Common Stock based on the Exchange Ratio of 0.48874. Additionally, the exercise price of each converted option was determined by dividing the exercise price of the respective Movella Options by the Exchange Ratio, rounded up to the nearest whole cent.

**Accounting Treatment of the Business Combination** 

The Business Combination between Movella and Pathfinder was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with U.S. GAAP. Under this method of accounting, Pathfinder was treated as the "acquired" company for financial reporting purposes. Movella was determined to be the accounting acquirer based on a number of considerations, including but not limited to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i) Movella former management making up the majority of the management team of New Movella;

ii) Movella former management nominating or representing the majority of New Movella's board of directors; and

iii) Movella representing the majority of the continuing operations of New Movella. Management determined Movella to be the accounting predecessor entity to the Business Combination Agreement based on the same considerations listed above.

------

Accordingly, for accounting purposes, the reverse recapitalization was treated as the equivalent of Movella issuing stock for the net assets of Pathfinder, accompanied by a recapitalization. Operations prior to the reverse recapitalization are those of Movella.

**Basis of Presentation** 

The unaudited pro forma condensed combined financial statements were prepared in accordance with Article 11 of SEC Regulation S-X as amended by the final rule, Release No. 33-10786 "Amendments to Financial Disclosures about Acquired and Disposed Businesses." Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction ("Transaction<u> </u>Accounting Adjustments") and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur ("Management's Adjustments"). Pathfinder has elected not to present Management's Adjustments and only presents Transaction Accounting Adjustments in the following unaudited pro forma combined financial information to provide relevant information necessary for an understanding of the combined company upon consummation of the Business Combination.

Management has made significant estimates and assumptions in its determination of the pro forma adjustments based on information available as of the date of filing this Current Report and is subject to change as additional information becomes available and analyses are performed. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented as additional information becomes available. Management considers the basis of presentation to be reasonable under the circumstances.

The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Transactions. Movella has not had any historical relationship with Pathfinder prior to the Business Combination. Accordingly, no Transaction Accounting Adjustments were required to eliminate activities between the companies.

The unaudited pro forma condensed combined balance sheet does not purport to represent, and is not necessarily indicative of, what the actual financial condition of the combined company would have been had the Transactions taken place on December 31, 2022, nor is it indicative of the financial condition of the combined company as of any future date. The unaudited pro forma condensed combined financial information is for illustrative purposes only and is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination and certain other related events taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the combined company.

------

**UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET** 

**AS OF DECEMBER 31, 2022** 

**(in thousands)** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Movella<br>(Historical)** | **Pathfinder<br>(Historical)** | **Pro Forma Transaction<br>Accounting<br>Adjustments** | **Pro Forma<br>Combined** |
|  **Assets** |  |  |  |  |
|  Current assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cash and cash equivalents | $14334 | $76 | $328636 (A) | $62937 |
|  |  |  | 75000 (B) |  |
|  |  |  | (27257) (C) |  |
|  |  |  | (8307) (D) |  |
|  |  |  | (25300) (E) |  |
|  |  |  | (294245) (N) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accounts receivable, net | 6690 |  |  | 6690 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Inventories | 5164 |  |  | 5164 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Prepaid expenses and other assets | 3274 | 83 |  | 3357 |
|  **Total current assets** | 29462 | 159 | 48527 | 78148 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Investments held in Trust Account |  | 328636 | (328636) (A) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Property and equipment, net | 2361 |  |  | 2361 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Goodwill | 36381 |  |  | 36381 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Intangibles, net | 5807 |  |  | 5807 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-marketable equity securities | 25285 |  |  | 25285 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capitalized debt and equity issuance costs and other assets | 4265 |  | (4124) (C) | 141 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Right-of-use assets | 3281 |  |  | 3281 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred tax assets, net | 86 |  |  | 86 |
|  **Total Assets** | $106928 | $328795 | $(284233) | $151490 |
|  **Liabilities, convertible preferred stock and stockholders' equity (deficit)** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Current liabilities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accounts payable | $5967 | $301 | $(2066) (C) | $3901 |
|  |  |  | (301) (D) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accrued expenses and other current liabilities | 7944 | 6945 | (1068) (C) | 6876 |
|  |  |  | (6945) (D) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Line of credit and current portion of long-term debt | 148 |  |  | 148 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Current portion of deferred revenue | 3334 |  |  | 3334 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Payable to Kinduct sellers – current | 4303 |  |  | 4303 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Due to related party |  | 61 | (61) (D) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Note payable |  | 1000 | (1000) (D) |  |
|  **Total current liabilities** | 21696 | 8307 | (11441) | 18562 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Long-term portion of term debt | 25649 |  | (25300) (E) | 349 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Convertible notes | 6186 |  | (6186) (G) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; VLN Facility |  |  | 75000 (B) | 75000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred revenue, net of current portion | 1344 |  |  | 1344 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred tax liabilities, net |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other non-current liabilities | 3088 |  |  | 3088 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Derivative warrant liabilities |  | 2473 |  | 2473 |
|  **Total liabilities** | 57963 | 10780 | 32073 | 100816 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Commitments and contingencies |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Mezzanine Equity: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Class A ordinary shares subject to possible redemption |  | 328536 | (328536) (F) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Movella Series D-1 convertible preferred stock | 41991 |  | (41991) (H) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Movella Series A convertible preferred stock | 9950 |  | (9950) (H) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Movella Series B convertible preferred stock | 24680 |  | (24680) (H) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Movella Series C convertible preferred stock | 37032 |  | (37032) (H) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Movella Series D convertible preferred stock | 30780 |  | (30780) (H) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Movella Series E convertible preferred stock | 40750 |  | (40750) (H) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Stockholders' (deficit) equity:** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Class A ordinary shares |  |  | 3 (F) |  |
|  |  |  | (3) (K) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Class B ordinary shares |  | 1 | — (J) |  |
|  |  |  | (1) (K) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Movella Common Stock | 1 |  | 3 (H) |  |
|  |  |  | — (I) |  |
|  |  |  | (4) (M) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Domestication Common Stock |  |  | 1 (B) | 6 |
|  |  |  | 4 (K) |  |
|  |  |  | 4 (M) |  |
|  |  |  | (3) (N) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Additional paid-in capital | 692 |  | (1) (B) | 196928 |
|  |  |  | (19117) (C) |  |
|  |  |  | 328533 (F) |  |
|  |  |  | 6405 (G) |  |
|  |  |  | 185180 (H) |  |
|  |  |  | — (I) |  |
|  |  |  | — (J) |  |
|  |  |  | (10522) (L) |  |
|  |  |  | (294242) (N) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accumulated other comprehensive income | (1646) |  |  | (1646) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accumulated deficit | (142016) | (10522) | (9130) (C) | (151365) |
|  |  |  | (219) (G) |  |
|  |  |  | 10522 (L) |  |
|  Total stockholders' (deficit) equity | (142969) | (10521) | 197413 | 43923 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-controlling interest in subsidiaries | 6751 |  |  | 6751 |
|  Total stockholders' (deficit) equity | (136218) | (10521) | 197413 | 50674 |
|  **Total liabilities, mezzanine equity and stockholders' equity** | $106928 | $328795 | $(284233) | $151490 |

---

------

**UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS** 

**FOR THE YEAR ENDED DECEMBER 31, 2022** 

**(in thousands, except share and per share amounts)** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **For the Year Ended<br>December 31, 2022** | **For the Year Ended**<br>**December 31, 2022** | | **For the Year Ended**<br>**December 31, 2022** |
|  | **Movella<br>(Historical)** | **Pathfinder<br>(Historical)** |<br>**Pro Forma**<br>**Transactions**<br>**Accounting**<br>**Adjustments** | **Pro Forma<br>Combined** |
|  **Revenues** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | $34283 | $— | $— | $34283 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 6183 |  |  | 6183 |
|  Total revenues | 40466 |  |  | 40466 |
|  Cost of revenues |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Product | 15223 |  |  | 15223 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Service | 6071 |  |  | 6071 |
|  Total cost of revenues | 21294 |  |  | 21294 |
|  **Gross profit** | 19172 |  |  | 19172 |
|  **Operating expenses:** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Research and development | 13258 |  |  | 13258 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Sales and marketing | 12324 |  |  | 12324 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; General and administrative | 14697 | 8040 |  | 22737 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Impairment of intangible assets | 7164 |  |  | 7164 |
|  **Total operating expenses** | 47443 | 8040 |  | 55483 |
|  **Loss from operations** | (28271) | (8040) |  | (36311) |
|  **Other income (expense):** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loss on debt extinguishment | (646) |  | 646 (bb) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Debt issuance costs | (2389) |  |  | (2389) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Revaluation of pre-close note | (300) |  | 300 (cc) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Interest (expense) income, net | (2167) | 3608 | (3608) (aa) | (7546) |
|  |  |  | 1586 (bb) |  |
|  |  |  | (6938) (ee) |  |
|  |  |  | (27) (hh) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other income (expense), net | 613 | 346 | (9130) (dd) | (8566) |
|  |  |  | (395) (ii) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Change in fair value of derivative warrant liabilities |  | 3870 |  | 3870 |
| **(Loss) Income from continuing operations before income taxes** | (33160) | (216) | (17566) | (50942) |
|  Income tax benefit | (113) |  |  | (113) |
|  **Net (loss) income** | (33047) | (216) | (17566) | (50829) |
|  Net loss attributable to non-controlling interests | (632) |  |  | (632) |
|  **Net (loss) income attributable to controlling interests** | (32415) | (216) | (17566) | (50197) |
|  Deemed dividends from accretion of Series D-1 Preferred Stock | (2684) |  | 2684 (gg) |  |
|  **Net (loss) income attributable to common stockholders** | $(35099) | (216) | $(14882) | $(50197) |
|  Weighted average shares of Movella ordinary shares outstanding - basic and diluted | 11285170 |  |  |  |
|  Net loss per share of Movella ordinary shares - basic and diluted | $(3.11) |  |  |  |
|  Weighted average shares of Class A shares outstanding - basic and diluted |  | 32500000 |  |  |
|  Net loss per Class A ordinary share – basic and diluted |  | $(0.01) |  |  |
|  Weighted average shares of Class B ordinary shares – basic and diluted |  | 8125000 |  |  |
|  Net loss per Class B ordinary share – basic and diluted |  | $(0.01) |  |  |
|  Weighted average shares of Domestication Common Stock Outstanding, basic and diluted |  |  |  | 50877511 |
|  Net loss per share of Domestication Common Stock – basic and diluted |  |  |  | $(0.99) |

---

------

**Note 1 — Description of the Merger** 

***Merger between Pathfinder and Movella — Business Combination***

Pursuant to the Business Combination Agreement, Merger Sub merged with and into Movella (the "Company"), whereupon the separate existence of Merger Sub ceased, and Movella was the surviving corporation and a wholly owned subsidiary of New Movella.

The aggregate consideration for the Business Combination paid to holders of Movella capital stock includes Domestication Common Stock, after giving effect to the Exchange Ratio. The Exchange Ratio was equal to 0.48874. The total merger consideration is as follows:

---

| | |
|:---|:---|
| *in thousands (except share and per share data)* |  |
|  Shares transferred at Closing (1) | 38129770 |
|  Value per share (2) | $10.00 |
|  Share consideration | $381298 |

---

(1) The number of shares presently transferred to holders of Movella capital stock upon consummation of the
Business Combination include (i) 34.7 million shares of Domestication Common Stock, including shares converted from Movella preferred stock and Movella Common Stock, Movella convertible notes and Movella warrants, and (ii) 3.4 million
assumed Movella Options. In the table above, the value allocable to assumed Movella Options is determined based on the treasury stock method.

(2) Share consideration is calculated using a $10.00 reference price. The actual total value of share consideration
will be dependent on the value of the Domestication Common Stock at the Closing; however, no expected change from any change in the trading price of the Domestication Common Stock is reflected on the pro forma financial statements as the Business
Combination will be accounted for as a reverse recapitalization.

The unaudited pro forma combined information contained herein reflects Pathfinder's shareholders' approval of the Business Combination on February 8, 2023, and that Pathfinder's public shareholders holding 28,961,090 Pathfinder Class A ordinary shares elected to redeem their shares prior to the Closing. The following summarizes the pro forma Domestication Common Stock issued and outstanding immediately after the Business Combination, after giving effect to the Exchange Ratio:

---

| | | |
|:---|:---|:---|
|  | **Pro Forma Combined** | **% <br>Ownership** |
|  Movella (1)(2)(3) | 34738601 | 68.3% |
|  Holders of Class A ordinary shares | 3538910 | 7.0% |
|  Holders of Class B ordinary shares (6) | 4100000 | 8.1% |
|  FP Shares (4) | 7500000 | 14.6% |
|  New Shares to FP Purchasers (5) | 1000000 | 2.0% |
|  Pro Forma Common Stock at Closing | 50877511 |  |

---

(1) Includes 56,438,820 shares of Movella convertible preferred stock, which were exchanged for Domestication
Common Stock at the Exchange Ratio of 0.48874 pursuant to the Business Combination Agreement.

(2) Includes 1,333,712 shares of Movella Common Stock resulting from conversion of Movella convertible notes, which
were exchanged for Domestication Common Stock at the Exchange Ratio of 0.48874 pursuant to the Business Combination Agreement.

(3) Includes 546,056 shares of Movella Common Stock resulting from net exercise of Movella common and preferred
stock warrants, which were exchanged for Domestication Common Stock at the Exchange Ratio of 0.48874 pursuant to the Business Combination Agreement.

------

(4) Represents 7,500,000 shares of Pathfinder Class A Shares purchased by FP in the FP Private Placement under
the Note Purchase Agreement.

(5) Represents 1,000,000 shares of Domestication Common Stock issued to the FP Purchasers as consideration pursuant
to the Note Purchase Agreement.

(6) Includes (i) 4,025,000 Class B ordinary shares held by sponsor after giving effect to the forfeiture of
4,025,000 Class B ordinary shares held by Sponsor forfeited at Closing pursuant to the Sponsor Letter Agreement and (ii) 75,000 Class B ordinary shares held by Pathfinder's independent directors.

**Note 2 — Accounting Policies** 

Based on analysis of Movella and Pathfinder's policies, Movella and Pathfinder did not identify any differences in accounting policies that would have an impact on the unaudited pro forma condensed combined consolidated information. As a result, the unaudited pro forma condensed combined financial information does not assume any differences in accounting policies.

**Note 3 — Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet** 

The unaudited pro forma condensed combined balance sheet as of December 31, 2022 has been prepared for informational purposes only. The unaudited pro forma condensed combined balance sheet as of December 31, 2022 includes Transaction Accounting Adjustments that are directly attributable to the Business Combination and certain other related events.

The pro forma transaction accounting adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) Reflects the release of $328.6 million of investments held in the trust account that became available at
the Closing. Amounts available to New Movella were reduced as a result of redemptions by Pathfinder shareholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) Reflects the net proceeds of $75.0 million from the FP Private Placement and the issuance of 7,500,000
shares of Domestication Common Stock to FP pursuant to the Note Purchase Agreement, as well as the recognition of the liability associated with the issuance of the VLN Facility. As consideration for the financing commitment provided by FP pursuant
to the Note Purchase Agreement, New Movella issued 1,000,000 shares of the Domestication Common Stock to the FP Purchasers at the Closing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) Reflects settlements of approximately $28.2 million of acquisition-related transaction costs incurred in
connection with the Merger. These acquisition-related transaction costs are in connection with the closing and related transactions and are deemed to be direct and incremental costs of the Business Combination or acquisition of VLN Facility. The
total estimated transaction costs are $28.2 million, of which approximately $19.1 million of these total transaction costs are accounted for as equity issuance costs and the unaudited pro forma condensed balance sheet reflects these costs
as a reduction in cash with a corresponding decrease to additional paid-in-capital. The remaining transaction costs of $9.1 million were allocated to the VLN
Facility and Pathfinder Warrants, and pursuant to the Company's election of the fair value option, immediately expensed. The total transaction costs are comprised of banker fees of $8.0 million, legal expenses of $15.2 million, and
professional accounting and finance services of $5.0 million. Of the $28.2 million total transaction costs, $1.0 million were paid by Movella prior to December 31, 2022. The remaining transaction costs of $27.2 were paid
subsequent to December 31, 2022 by New Movella. In addition, reflects the elimination of $4.1 million in capitalized debt and equity issuance costs and other assets, $2.1 million in accounts payable, and $1.1 million in accrued
expenses and other current liabilities for transaction costs deferred as of December 31, 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) Reflects the settlement of Pathfinder's historical liabilities that were settled at transaction close.

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) Reflects repayment of the Pre-Close Notes received by Movella in
November 2022 pursuant to the Note Purchase Agreement with principal of approximately $25.0 million and accrued interest of approximately $0.3 million for total payment of approximately $25.3 million upon completion of the Merger.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(F) Reflects the recapitalization of Class A ordinary shares subject to possible redemption to permanent
equity at $0.0001 par value.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(G) Reflects the conversion of Movella convertible notes and related accrued interest into shares of Movella Common
Stock, and such shares were cancelled and converted into the right to receive shares of Domestication Common Stock pursuant to the Exchange Ratio concurrent with the Closing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(H) Reflects the conversion of Movella convertible preferred stock into shares of Movella Common Stock, and such
shares were cancelled and converted into the right to receive shares of Domestication Common Stock pursuant to the Exchange Ratio concurrent with the Closing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(I) Reflects the net exercise of Movella warrants into shares of Movella Common Stock, and such shares were
cancelled and converted into the right to receive shares of Domestication Common Stock pursuant to the Exchange Ratio concurrent with the Closing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(J) Reflects the retirement of approximately 4.0 million Class B ordinary shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(K) Reflects the recapitalization of Class A ordinary shares and Class B ordinary shares converted into
Domestication Common Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(L) Reflects the reclassification of Pathfinder's historical accumulated deficit to additional paid-in capital as part of the Merger.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(M) Reflects the conversion of Movella Common Stock into Domestication Common Stock upon consummation of the
Business Combination.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(N) Represents 28,961,090 Class A ordinary shares that were redeemed for $294.2 million allocated to
common stock and additional paid-in capital, using a par value of $0.0001 per share at a redemption price of approximately $10.16 per share.

**Note 4 — Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations** 

The pro forma adjustments included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 are as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(aa) Reflects elimination of interest income on Pathfinder's Trust Account.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(bb) Reflects elimination of interest expense on Movella's term loans and Movella's convertible notes, including the loss on debt extinguishment of the term loans that was recognized in the consolidated statement of operations for the year ended December 31, 2022 upon prepayment of Movella's term loans in November 2022 with proceeds received from the Pre-Close Notes.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(cc) Reflects elimination of the expense recognized upon revaluation of the Pre-Close Notes.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(dd) Reflects the transaction expense allocated to the Pathfinder Warrants and the VLN Facility.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ee) Represents the recognition of interest expense associated with the new VLN Facility issued in connection with the Business Combination, as discussed in note (B). The interest expense was calculated using the 9.25% interest rate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ff) Reflects the estimated change in fair value of VLN Facility. No adjustment to fair value was recorded, as the VLN Facility was deemed to be at $75.0 million during the periods presented.

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(gg) Reflects elimination of deemed dividends from accretion of Series D-1 redeemable convertible preferred stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(hh) Reflects elimination of gain from exchange of convertible notes.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Reflects the elimination of the change in fair value of the Movella derivative warrant liability.

Given Movella's history of net losses and valuation allowance, Movella assumed an effective tax rate of 0%. Therefore, the pro forma adjustments to the statement of operations resulted in no additional income tax adjustment to the pro forma financials. The pro forma condensed combined provision for income taxes does not necessarily reflect the amounts that would have resulted had the Company and Movella filed consolidated income tax returns during the annual period presented.

**Note 5 — Net Loss per Share** 

Represents the net loss per share calculated using the historical weighted average shares outstanding and the issuance of additional shares in connection with the Business Combination, the FP Private Placement, and certain other related events, assuming such additional shares were outstanding since January 1, 2022. The Business Combination, the FP Private Placement, and certain other related events are reflected as if they had occurred as of January 1, 2022, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes the shares issued in connection with the Business Combination, the FP Private Placement and certain other related events have been outstanding for the entire periods presented.

The unaudited pro forma combined financial information for the year ended December 31, 2022 has been prepared based on the following information:

---

| | |
|:---|:---|
|  | **For the year ended December 31, 2022** |
| *(in thousands, except share and per share data)* | **Pro Forma Combined** |
|  **Numerator:** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pro forma net loss attributable to common stockholders, basic and diluted | $(50197) |
|  **Denominator:** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Weighted average shares of Domestication Common Stock outstanding – basic and diluted | 50877511 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net loss per share of Domestication Common Stock – basic and diluted | $(0.99) |
|  **Weighted average shares of Domestication Common Stock outstanding – basic and diluted** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Movella Capital Stock | 34738601 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Holders of Class A ordinary shares | 3538910 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Holders of Class B ordinary shares | 4100000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FP Shares | 7500000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; New Shares to FP Purchasers | 1000000 |
|  **Weighted average shares of Domestication Common Stock outstanding – basic and diluted** | **50877511** |

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The following outstanding securities were excluded from the computation of pro forma net loss per share, basic and diluted, because their effect would have been anti-dilutive or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period:

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| | |
|:---|:---|
|  | **For the year ended December 31, 2022** |
|  | **Pro Forma Combined** |
|  Pathfinder warrants to purchase shares of Domestication Common Stock | 10750000 |
|  Movella Options that converted into the right to purchase shares of Domestication Common Stock (1) | 5691544 |
|  **Total** | 16441544 |

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(1) All outstanding options exercisable for shares of Movella Common Stock ("Movella Option"), whether
vested or unvested, were assumed by Pathfinder and automatically converted into an option to purchase shares of Domestication Common Stock, determined in accordance with the Exchange Ratio.