Supplemental Prospectus - Form 424B3

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1. Organization and Liquidity

Description of Business

GCT Semiconductor Holding, Inc. (formerly known as Concord Acquisition Corp III) and its wholly owned subsidiaries (collectively "GCT" or the "Company") is headquartered in San Jose, California with international offices in South Korea, China, Taiwan, and Japan. The Company is a fabless semiconductor company that specializes in the design, manufacturing, and sale of communication semiconductors, including high-speed wireless communication technologies such as 5G/4.75G/4.5G/4G transceivers and modems, which are essential for a wide variety of industrial, B2B and consumer applications.

On March 26, 2024 (the "Closing Date" or "Closing"), Concord Acquisition Corp III ("Concord III"), a Delaware corporation, consummated a series of transactions that resulted in the combination of Gibraltar Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Concord III ("Merger Sub"), and GCT Semiconductor, Inc. ( "Legacy GCT"), pursuant to a Business Combination Agreement, dated November 2, 2023 (as amended, the "Business Combination Agreement"), by and among Concord III, Merger Sub and Legacy GCT. Pursuant to the terms of the Business Combination Agreement, Merger Sub merged with and into Legacy GCT, with Legacy GCT surviving the merger as a wholly-owned subsidiary of Concord III (the "Business Combination"). On the Closing Date, Concord III changed its name from Concord III to "GCT Semiconductor Holding, Inc."

The Business Combination was accounted for as a reverse recapitalization with Legacy GCT being the accounting acquirer and Concord III identified as the acquired company for accounting purposes. Accordingly, all historical financial information presented in the unaudited condensed consolidated financial statements represent the accounts of Legacy GCT. Subsequent to the Business Combination, the shares and net loss per common share information prior to the Closing have been retroactively restated as shares reflecting the exchange ratio established in the Closing of approximately 0.1868.

Prior to the Business Combination, Concord III's public shares and public redeemable warrants were listed on the New York Stock Exchange ("NYSE") under the symbols "CNDB.U," "CNDB," and "CNDB.WS," respectively. On March 27, 2024, the Company's common stock and public warrants began trading on the NYSE under the symbols "GCTS" and "GCTSW," respectively. In connection with the Closing, Concord III's Class A common stock and Class B common stock were recapitalized into a single class of common stock. See Note 3 for additional information.

Liquidity

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business. Through September 30, 2024, the Company has incurred operating losses and negative cash flows from operating activities and had an accumulated deficit of $557.1 million as of September 30, 2024. The Company's existing sources of liquidity as of September 30, 2024 include cash and cash equivalents of $1.8 million. The Company has historically funded operations primarily with issuances of capital stock and the incurrence of debt.

In March 2024, the Company received $17.2 million in cash proceeds from the reverse recapitalization and PIPE Financing (as defined in Note 3), net of transaction costs. In April 2024, the Company executed a common stock purchase agreement ("Purchase Agreement") with B. Riley Principal Capital II, LLC ("B. Riley"). Pursuant to the Purchase Agreement, the Company has the right, but not the obligation, to sell, from time to time, B. Riley up to $50.0 million worth of shares of the Company's common stock at its request, at any time prior to June 2026, subject to compliance with the required conditions and limitations. Through September 30, 2024, the Company received $7.8 million in net proceeds under the Purchase Agreement.

Management believes that the available financing under the Purchase Agreement and other capital resources available to the Company, including future sales of products and services, will be sufficient to fund the Company's operations for at least 12 months after the filing date of this Quarterly Report on Form 10-Q. To fund its operations over the longer term, the Company will need to start generating positive cash flows, renegotiate its existing debt obligations and raise additional capital through debt or equity financing. There can be no assurance that such additional debt or equity financing will be available on terms acceptable to the Company or at all.

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

2. Summary of Significant Accounting Policies and Basis of Presentation

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

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Notes to Unaudited Condensed Consolidated Financial Statements

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Recent Accounting Pronouncements Adopted

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 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 ("ASU 2020-06"). ASU 2020-06 reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification. The Company adopted this guidance effective January 1, 2024 and noted no material impact on the Company's unaudited condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which provides an exception to fair value measurement for contract assets and contract liabilities related to revenue contracts acquired in a business combination. ASU 2021-08 requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The Company adopted this guidance effective January 1, 2024 and noted no material impact on the Company's unaudited condensed consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ("ASU 2022-03"). ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security should not be considered in measuring the fair value of the equity security and cannot be recognized as a separate unit of account. ASU 2022-03 also requires the investor to disclose the fair value of equity securities subject to contractual sale restrictions, the nature and remaining duration of the restrictions, and the circumstances that could cause a lapse in the restrictions. ASU 2022-03 is effective for annual and interim periods beginning after December 15, 2024, with early adoption permitted. The Company retrospectively adopted this guidance effective July 1, 2024 and noted no material impact on the Company's unaudited condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 and for interim periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect of the adoption of ASU 2023-07 on its unaudited condensed consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which requires companies to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, companies are required to disclose additional information about income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The standard is required to be adopted on a prospective basis; however, retrospective application is permitted. The Company is currently evaluating the effect of the adoption of ASU 2023-09 on its unaudited condensed consolidated financial statements.

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

3. Reverse Recapitalization

In connection with the Business Combination described in Note 1, Concord III completed the acquisition of Legacy GCT and acquired 100% of Legacy GCT's common stock. Legacy GCT received net proceeds of $17.1 million from the PIPE Financing (as defined below). Concord III incurred total direct transaction costs of $13.1 million, which were expensed by Concord III, and of which $0.9 million related to the PIPE Financing. Legacy GCT incurred transaction costs of $8.9 million, consisting of legal, accounting, and other professional fees, which were recorded as additional paid-in capital. Each share of Legacy GCT capital stock received a deemed value of $10.00 per share after giving effect to the applicable exchange ratio of 0.1868. Upon Closing of the Business Combination, the following occurred:

The Business Combination was accounted for as a reverse recapitalization under U.S. GAAP because Legacy GCT was determined to be the accounting acquirer, and Concord III was identified as the accounting acquiree for financial reporting purposes. Accordingly, the consolidated financial statements of the Company represent a continuation of the consolidated financial statements of Legacy GCT, with the Business Combination treated as the equivalent of Legacy GCT issuing its common stock for the net assets of Concord III, accompanied by a recapitalization, and the net assets of Concord III were recorded at historical cost, with no goodwill or other intangible assets recorded. The results of operations prior to the Business Combination are those of Legacy GCT.

Legacy GCT was determined to be the accounting acquirer based the following facts and circumstances:

PIPE Financing

Concurrent with the execution of the Business Combination Agreement, certain investors entered into agreements and committed to purchase in a private placement an aggregate of 4,529,967 shares of the Company's common stock (the "PIPE Shares") at a purchase price of $6.67 per share for an aggregate purchase price of $30.2 million (the "PIPE Financing") upon the Business Combination Closing. The PIPE Financing was consummated immediately prior to the Closing and resulted in net proceeds of $17.1 million to the Company.

Private Placement Warrants and Public Warrants

In November 2021, Concord III issued warrants to purchase shares of Concord III's common stock that were assumed by the Company at the Closing of the Business Combination on the same terms and conditions: (i) 9,400,000 warrant shares that were issued in a private placement and held by the sponsor and another company (the "Private Placement Warrants") and (ii) 17,250,000 warrant shares that were issued in connection with the initial public offering of Concord III (the "Public Warrants").

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The Private Placement Warrants were reallocated at the Closing of the Business Combination as follows: (i) 4,492,650 warrants were vested and retained by the sponsor parties, (ii) 2,087,350 warrants were reallocated from the sponsor parties to certain recipients at Legacy GCT's discretion to incentivize investment, and (iii) 2,820,000 were forfeited by the sponsor parties.

Subsequent to the Closing, the outstanding Private Placement Warrants and Public Warrants remained liability-classified as the applicable provisions precluding classification in equity did not change as a result of the Business Combination.

Legacy GCT Earnout Shares

At the Closing of the Business Combination, former Legacy GCT stockholders and other investors of Legacy GCT have the right to receive up to 20,000,000 shares of Company common stock ("Legacy GCT Earnout Shares"). The Legacy GCT Earnout Shares may vest between May 2024 and March 2029 if the volume-weighted average price ("VWAP") of the Company's common stock for any 20 trading days within 30 consecutive trading day periods exceeds the following amounts per share ("VWAP Threshold"): (i) one-third of the shares based on the $12.50 per share VWAP Threshold, (ii) one-third of the shares based on the $15.00 per share VWAP Threshold, and (iii) one-third of the shares based on the $17.50 per share VWAP Threshold.

In the event of a future transaction that results in a change in control in which shares of the Company common stock are converted into the right to receive cash or other consideration having a value equal to or in excess of a triggering event, then the Legacy GCT Earnout Shares subject to the applicable triggering event that have not been previously issued will be issued to the Legacy GCT stockholders effective as of immediately prior to the consummation of such transaction. In the event of a transaction that results in a change in control in which shares of Company common stock are converted into the right to receive cash or other consideration having a value less than a triggering event, then the Legacy GCT Earnout Shares subject to the applicable triggering event that have not been previously issued will be forfeited.

The Legacy GCT Earnout Shares were recognized at a fair value of approximately $108.8 million upon the Closing and classified within the stockholders' deficit as they are indexed solely to the Company's common stock and are otherwise not precluded from equity classification based on their settlement provisions. Under the reverse recapitalization method of accounting, the fair value of the Legacy GCT Earnout Shares was treated as a deemed dividend and, in the absence of retained earnings, credited to additional paid-in capital without any impact on the stockholders' deficit balances.

Sponsor Earnout Shares

Concurrently with entering into the Business Combination Agreement, the sponsor parties and the Company entered into that certain sponsor support agreement, as amended, modified, or supplemented (the "Sponsor Support Agreement"). Pursuant to the terms of the Sponsor Support Agreement, the sponsor parties have the right to receive up to 1,920,375 shares of the Company's common stock ("Sponsor Earnout Shares"). The Sponsor Earnout Shares are legally outstanding and remain unvested through September 30, 2024. The Sponsor Earnout Shares may vest between September 2024 and March 2029 if the VWAP of the Company's common stock for any 20 trading days within 30 consecutive trading day periods exceeds the following VWAP Thresholds: (i) one-third of the shares based on the $12.50 per share VWAP Threshold, (ii) one-third of the shares based on the $15.00 per share VWAP Threshold, and (iii) one-third of the shares based on the $17.50 per share VWAP Threshold.

The Sponsor Earnout Shares were recognized at a fair value of approximately $10.4 million upon the Closing and classified within the stockholders' deficit as they are indexed solely to the Company's common stock and are otherwise not precluded from equity classification based on their settlement provisions. Under the reverse recapitalization method of accounting, the fair value of the Sponsor Earnout Shares was treated as a deemed dividend and, in the absence of retained earnings, credited to additional paid-in capital without any impact on the stockholders' deficit balances.

In July 2024, the number of Sponsor Earnout Shares subject to the market-based vesting condition was reduced to 570,796 shares of the Company's common stock, as the sponsor parties did not meet the required performance condition for the entire grant. The remaining 1,349,579 shares previously included in the outstanding common stock were forfeited. No adjustments to the stockholders' deficit are required upon the forfeiture of the share-based awards that contain market conditions.

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

4. Disaggregation of Revenue

Contract Assets and Liabilities

Net revenues recognized during the nine months ended September 30, 2024 and 2023 for the amounts included in the contract liabilities balance at the beginning of the respective annual periods are less than $0.1 million and $0.7 million, respectively.

As of September 30, 2024 and December 31, 2023, the contract assets were $5.1 million and $3.4 million, respectively. The balances of contract liabilities related to contract fulfillment were $0.5 million and immaterial as of September 30, 2024 and December 31, 2023.

5. Fair Value of Measurements

Recurring Fair Value Measurements

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Valuation techniques and the inputs

As of September 30, 2024, the key inputs for the convertible promissory notes valuation using the DCF model were as follows: remaining term ranging from 0.08 to 0.25 years and a discount rate of 10.07%. As of September 30, 2024, the key inputs for the convertible promissory notes, net of current, using the BLM were as follows: stock price of $3.35, volatility of 35.5%, remaining term of 1.4 years, risk-free rate of 3.85%, and credit spread of 5.6%.

As of September 30, 2024, the key inputs for the common stock forward valuation using the DCF model were as follows: a remaining term of 1.6 years and future risk-free rate estimates ranging from 3.78 to 4.93% for this period.

As of September 30, 2024, the key inputs for the private placement warrants using the BSM were as follows: exercise price of $11.50 per share, term to expiration of 4.5 years, volatility of 35.5%, and a risk-free rate of 3.55%. As of September 30, 2024, the key inputs for the public warrants using the BLM were as follows: exercise price of $11.50 per share and term to expiration of 4.5 years. As of September 30, 2024, the key inputs for the other warrant liabilities using the BSM were as follows: an exercise price of $10.00 per share, or $18.75 per share, term to expiration ranging from 1.41 years to 2.1 years, volatility ranging from 38.1% to 39.0%, and a risk-free rate ranging from 3.62% to 3.81%.

As of December 31, 2023, the PWERM was used as Legacy GCT was a private company. After the Closing, and as of September 30, 2024, the valuation techniques used reflect that the Business Combination was consummated.

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table sets forth a summary of the changes in the fair value of the warrant liabilities (in thousands):

The following table sets forth a summary of the changes in the fair value of the common stock forward liability (in thousands):

6. Balance Sheet Components

Inventory

There were no inventory write-downs during the nine months ended September 30, 2024 and 2023.

Prepaid expenses and other assets

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Accrued and other current liabilities

7. Debt

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Convertible Promissory Notes

Historical Convertible Promissory Notes

Between 2017 and 2022, the Company issued convertible promissory notes to various investors with maturity dates ranging from October 2020 to April 2025. The annual interest rates varied between 4.0% and 7.0%. In November 2023, the Company entered into an amendment with certain convertible promissory noteholders to modify the conversion terms such that these notes were automatically convertible upon a special purpose acquisition company ("SPAC") transaction. In March 2024, upon the Closing of the Business Combination, an aggregate principal and interest amount of $32.1 million converted into 4,258,223 shares of common stock at a conversion price of $10.00. In April 2024, the Company repaid one of the convertible promissory notes that was issued in 2021 with a principal amount of $0.6 million. In August and September 2024, the Company repaid one of the convertible promissory notes that was issued in 2017 with a principal amount of $1.0 million. As of September 30, 2024, the remaining principal and interest amount of $5.9 million was outstanding and related to one noteholder where conversion is at the noteholder's discretion and at a conversion price of $3.50 per share.

2023 and 2024 Convertible Promissory Notes

In November 2023, February 2024 and March 2024, the Company issued convertible promissory notes to certain investors (the "CVT Investors"), pursuant to which the CVT Investors agreed to lend to the Company an aggregate principal amount of $13.3 million. These notes had maturity dates ranging from November 2026 to March 2027, bore an interest rate of 5.0%, and were automatically convertible upon IPO or SPAC transaction. In March 2024, upon the Closing of the Business Combination, an aggregate principal and interest amount of $13.4 million converted into 2,004,535 shares of common stock at a conversion price of $6.67. As of September 30, 2024, none of the notes issued to CVT Investors remain outstanding.

In February 2024, the Company issued a convertible promissory note to a strategic investor for a principal amount of $5.0 million, which matures in February 2026 and bears an interest rate of 5.0% per annum. On or after the earlier of (i) six months from the issuance date of the convertible promissory note and (ii) the Closing of the Business Combination, the noteholder may demand that the Company convert all principal and interest due under the convertible promissory note into shares of Company's common stock, at a conversion price of $10.00 per share. This note includes customary representations, warranties, and events of default, as well as a covenant relating to the performance of obligations by the Company related to the Company's 5G activity. As of September 30, 2024, the remaining principal and interest amount of $5.1 million was outstanding.

Borrowings Pursuant to Term Loan and Security Agreements

The amounts in Korean Won ("KRW") presented below were converted into US dollars based on the applicable historical exchange rates.

KEB Hana Bank

In July 2016, the Company entered into an unsecured term loan agreement with KEB Hana Bank, pursuant to which it borrowed 9.0 billion in KRW ($6.7 million), bearing a variable interest rate (initial annual interest rate of 2.6% and interest ranging between 3.5-5.2% as of June 30, 2024), paid monthly, and maturing in July 2017. The terms of such unsecured term loan agreement have been extended annually for additional one-year terms since 2017, and the maturity date was July 2024. In April 2024, the Company executed an amendment to extend the maturity date to April 2025 for the principal amount of KRW 1.0 billion ($0.7 million) with an interest rate of 3.5%. In July 2024, the Company executed an amendment to extend the maturity date to July 2025 for the principal amount of KRW 8.0 billion ($6.0 million) with an interest rate of 4.9%. Anapass, Inc., a related party, provided certificates of deposit as collateral to KEB Hana Bank to secure the Company's obligations under this loan (see Note 8).

IBK Industrial Bank

In January 2017, the Company entered into a term loan agreement with IBK Industrial Bank, pursuant to which the Company borrowed KRW 9.2 billion ($6.8 million). The term loan has a maturity date in November 2024 and bears an annual interest rate of 4.9%.

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note Payable (One Individual Investor)

In June 2021, the Company entered into a note payable agreement with an individual investor, pursuant to which the Company borrowed $1.0 million. The note had a maturity date of June 2024 and bears an annual interest rate of 4.0%. In April 2022, the Company entered into an amendment with this one individual investor to remove the conversion right from the note payable. In June 2024, the Company executed an amendment with the individual investor to extend the maturity date from June 2024 to August 2024. In August 2024, the Company repaid this note.

M-Venture Investment, Inc.

In October 2021, the Company entered into a term loan and security agreement with M-Venture Investment, Inc. pursuant to which the Company borrowed KRW 5.0 billion ($3.7 million) and repaid KRW 0.6 billion ($0.4 million) and KRW 0.4 billion ($0.3 million) in 2021 and 2022, respectively, such that KRW 4.0 billion ($3.0 million) remained outstanding. The term loan bears an annual interest rate of 6.5%. In April 2024, the Company executed an amendment with M-Venture Investment, Inc., pursuant to which the Company repaid KRW 2.0 billion ($1.5 million) in April 2024. In May 2024, the Company repaid the term loan in full.

In April 2022, the Company entered into a term loan and security agreement with M-Venture Investment, Inc., pursuant to which the Company borrowed amounts in two draws of KRW 1.0 billion ($0.7 million) and KRW 5.0 billion ($3.7 million), respectively. The term loan had a maturity date in April 2024, and each respective draw bears an annual interest rate of 6.5% and 8.7%. In April 2024, the Company executed an amendment with M-Venture Investment, Inc., pursuant to which the maturity date for both draws were amended. The maturity date for the principal amount of KRW 1.0 billion ($0.7 million) was extended from April 2024 to June 2024. The maturity date for the principal amount of KRW 5.0 billion ($3.7 million) was extended from April 2024 to July 2024. In July 2024, the Company partially repaid the loan of KRW 1.0 billion ($0.7 million) and transferred the remaining balance ("M-Venture Loan") as further discussed below.

Mujin Electronics Co., Ltd.

In July 2024, the Company executed agreement with M-Venture Investment, Inc. and Mujin Electronics Co., Ltd., in which Mujin Electronics Co., Ltd. fully assumed the remaining M-Venture Loan with the same principal amount of KRW 5.0 billion ($3.7 million). The maturity date of assumed loan is January 2025, with an interest rate of 6.8%.

Anapass, Inc., Related Party

In July 2016, the Company entered into a loan agreement with Anapass, Inc. pursuant to which the Company borrowed KRW 6.0 billion ($4.5 million) in a term loan. Interest only payments are due monthly at 5.5% per annum and the principal amount of the term loan is due on the maturity date of July 2024. In July 2024, the Company and Anapass, Inc. amended the loan agreement to extend the maturity date from July 2024 to July 2025. The loan is collateralized by the Company's assets as described under the Assets Pledged as Collateral (see Note 8).

In May and September 2022, the Company entered into two term loan agreements with Anapass, Inc. pursuant to which the Company borrowed KRW 3.0 billion ($2.2 million) and KRW 4.0 billion ($3.0 million). The term loans had respective maturity dates in May 2024 and September 2024 and both bear an annual interest rate of 5.5%. In May 2024, the Company executed an amendment with Anapass, Inc., to extend the maturity date from May 2024 to May 2025 for the term loan entered in May 2022. In September 2024, the Company executed an amendment with Anapass, Inc., to extend the maturity date from September 2024 to September 2025 for the term loan entered in September 2022.

i Best Investment Co., Ltd

Between 2022 and 2023, the Company entered into multiple term loans and security agreements with i Best Investment Co., Ltd pursuant to which it borrowed principal amounts in six draws with an aggregate principal balance of KRW 14.0 billion ($10.3 million). All of the term loans had a maturity date in June 2024 and bear an annual interest rate of 6.5%. In June 2024, the Company executed an amendment with the I Best Investment Co., Ltd to extend the maturity date from June 2024 to August 2024 for its first draw, fifth draw and sixth draw. In December 2023, the Company made a $0.8 million repayment of the outstanding principal and interest on its second draw. In March 2024, the Company repaid $2.3 million of the outstanding principal and interest amount of its fourth draw. In June 2024, the Company repaid in full of the term loans with a principal amount of $1.4 million outstanding on its third draw. In July 2024, the Company executed an amendment with i Best Investment Co., Ltd. to extend the maturity date from August 2024 to February 2025 for its first draw, fifth draw and sixth draw.

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Kyeongho Lee, Related Party

Between 2017 and 2021, the Company entered into multiple promissory note and term loan agreements with Kyeongho Lee pursuant to which the Company borrowed (a) KRW 500.0 million ($0.4 million), and KRW 500.0 million ($0.4 million) in promissory notes, and (b) KRW 1.0 billion ($0.7 million) and KRW 110.0 million ($0.1 million) in term loans. The promissory notes have a maturity date in November 2024 and bear an annual interest rate varying from 7.5% and 9.0%. In March 2024, the Company repaid to Kyeongho Lee the term loan of KRW 1.0 billion ($0.7 million). The outstanding term loan had a maturity date in May 2024 and bears no interest. In May 2024, the Company executed an amendment with Kyeongho Lee to extend the maturity date from May 2024 to November 2024 for its term loan.

8. Commitments and Contingencies

Litigations

The Company is subject to various claims arising in the ordinary course of business. Although no assurance can be given, the Company believes that it is not a party to any litigation of which the outcome, if determined adversely, would individually, or in the aggregate, be reasonably expected to have a material adverse effect on the business, consolidated operating results, cash flows or financial position of the Company as of September 30, 2024.

Third parties have from time to time claimed, and others may claim in the future, that the Company has infringed their past, current or future intellectual property rights. These claims, whether meritorious or not, could be time-consuming, result in costly litigation, require expensive changes in the Company's methods of doing business or could require the Company to enter into costly royalty or licensing agreements, if available. As a result, these claims could harm the Company's business, consolidated operating results, cash flows, and financial position.

Purchase Commitments

The Company has certain commitments for outstanding purchase orders related to the manufacture of certain wafers utilized by the Company and other services that, once the wafers are placed into production, are noncancelable. Otherwise, these production agreements are cancellable at any time with the Company required to pay all costs incurred through the cancellation date. However, the Company does not have a history of cancelling these agreements once production has started. As of September 30, 2024, the Company had outstanding noncancelable purchase commitments for these production agreements of $0.2 million.

Samsung Agreement Liability Release

In July 2020, the Company entered into a research and development agreement with Samsung Electronics Co., Ltd ("Samsung"). According to the agreement, the Company would design 5G chip products and Samsung would provide development and intellectual property support, mass production set up support including mask sets for manufacturing and engineering sample chip supply to the Company for a specific product. The total fee amount for the research and development ("R&D") services pursuant to the agreement was $21.1 million. The Company bore the risk of R&D failure and was obligated to pay the $21.1 million total fee based on milestones defined in the agreement, of which $11.7 million was due based on development milestones and $9.4 million of additional NRE ("non-recurring engineering") was to be paid within a maximum of 4 years after the planned product first shipment date. The Company recognized R&D expenses based on an estimate of the percentage completion of services provided by Samsung during the respective financial reporting period. In the first quarter of 2024, Samsung agreed to unconditionally release the Company from payment for work Samsung had completed to date because it had not met certain of the development milestones and due to a change in Samsung's business strategy. As a result, the Company recognized a gain of $14.6 million upon such unconditional release of its liability to Samsung. During the period ended March 31, 2024, the parties mutually agreed that the agreement had expired and there were no remaining obligations of either party under the agreement.

Alpha Foundry Product Development Agreement

In February 2024, the Company and Alpha Holdings Co., Ltd. ("Alpha") entered into a foundry product development agreement related to 5G chip development for a total fee of $7.6 million. The Company bears the risk of R&D failure and is obligated to pay the fee based on milestones defined in the agreement. The Company recognizes R&D expenses based on an estimate of the percentage completion of services provided by Alpha during the respective financial reporting period. For the three and nine months ended September 30, 2024, the Company recorded $1.2 million and $6.0 million in R&D expenses related to services provided by Alpha. The aggregate unpaid amount related to this agreement was $4.9 million as of September 30, 2024.

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Notes to Unaudited Condensed Consolidated Financial Statements

Assets Pledged as Collateral

The Company has provided collateral to Anapass, Inc., a related party (see Note 14), for borrowings from KEB Hana Bank, IBK Industrial Bank and Anapass, Inc. in the amount of $6.8 million, $7.0 million and $9.9 million, respectively, as of September 30, 2024, and $7.0 million, $7.1 million and $10.1 million, respectively, as of December 31, 2023 (see Note 7).

9. Common Stock

B. Riley Purchase Agreement

Pursuant to the Purchase Agreement, the Company has the right, but not the obligation, to sell to B. Riley, from time to time, up to $50.0 million worth of shares of its common stock ("Commitment Amount"), subject to certain limitations and conditions at the Company's sole discretion. The price per share payable by B. Riley on each trading day represents an amount equal to 98% of the VWAP of the Company's common stock for the applicable pricing period. The Purchase Agreement requires settlement in registered shares. In May 2024, the Company filed a registration statement on Form S-1 with the SEC, which became effective on June 6, 2024 ("Registration Statement"). The Company may sell shares of its common stock to B. Riley through June 2026 up to the Commitment Amount so long that it remains in compliance with the Purchase Agreement.

The Purchase Agreement was determined to be an equity-linked contract that contains a purchased put option on the Company's common stock and variable share forward. These freestanding instruments are precluded from equity classification since the Purchase Agreement requires shareholder approval for the issuance of shares in excess of the applicable ownership limitation caps, which is not an input in a fixed-for-fixed option or forward on equity shares.

As of April 2024, the Company determined that the fair value of the put option was nominal due to the short settlement period of one day or less, and the Company recognized a liability of $0.6 million related to the freestanding common stock forward contract. The fair value of the common stock forward liability represents the probability-adjusted present value of the discount to be granted to B. Riley with respect to the sales of its common stock under the Purchase Agreement compared to the VWAP of the company's common stock for the applicable pricing period.

In connection with the Purchase Agreement, the Company issued 56,818 shares of its common stock ("Commitment Shares"), which included a make-whole provision requiring the Company to reimburse B. Riley in cash if the fair value of these shares is less than $0.25 million. The Company recognized this amount as a liability which remained outstanding as of September 30, 2024 since the Commitment Shares remained unsold by B. Riley.

During the three months ended June 30, 2024, the Company sold an aggregate of 678,462 shares of common stock for $3.3 million, of which $0.5 million was withheld by B. Riley against the outstanding amounts payable, and $2.8 million was received by the Company in cash.

During the three months ended September 30, 2024, the Company sold an aggregate of 1,421,715 shares of common stock for $5.5 million. B. Riley withheld an additional $0.5 million from the aggregate proceeds against the outstanding amounts payable, and $5.0 million was received by the Company in cash.

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Issuance of Common Stock to Underwriter

In April 2024, the Company authorized the issuance of 110,000 shares of its common stock to an underwriter previously involved in activities leading to the Business Combination, contingent on the Registration Statement's effectiveness. The Company determined that its obligation to issue the underwriter shares met the criteria for equity classifications, and the underlying shares of common stock were issued in June 2024. Based on the timing of approval, the Company recognized $0.7 million in charges to equity and included this amount in general and administrative expenses for the three months ended June 30, 2024.

Private Placement

In September 2024, the Company executed a securities purchase agreement with Anapass, Inc, and issued 741,603 shares of common stock ("Anapass Shares") and 148,320 equity-classified common stock warrants ("Anapass Warrants") in exchange for $2.2 million in cash ("Private Placement"). The Company allocated the proceeds based on the relative fair value of the securities issued, including $2.0 million to the Anapass Shares and $0.2 million to the Anapass Warrants. The Anapass Warrants are immediately exercisable at $3.02 per share and will expire five years following the issuance date. Anapass, Inc. remains subject to a lock-up and market stand-off agreement for any shares and share-based instruments issued to it by the Company through March 2025.

Common Stock Reserved for Issuance

Upon the Closing of the Business Combination in March 2024, the Company increased its total number of authorized shares to 440,000,000 shares, consisting of 400,000,000 shares of common stock and 40,000,000 shares of preferred stock. The Company has reserved shares of common stock for issuance as follows (in thousands):

10. Warrants

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

11. Stock-Based Compensation

2011 Incentive Compensation Plan

Legacy GCT's 2011 Incentive Compensation Plan (the "2011 Plan") permitted the grant of options, stock awards, and RSUs. In connection with the Closing of the Business Combination, the 2011 Plan was terminated, the remaining unallocated shares reserved under the 2011 Plan were cancelled. In March 2024, each award of Legacy GCT stock options and RSUs were converted into equivalent Company stock options and RSUs with the same terms and conditions under the plan described below.

2024 Incentive Compensation Plan

In March 2024, the Company adopted the 2024 Omnibus Incentive Compensation Plan (the "2024 Plan"), under which 3,983,334 shares of common stock were initially reserved for issuance. The 2024 Plan permits the grant of stock options, stock appreciation rights, stock awards, RSUs, dividend equivalent rights, cash awards, and other awards to employees and non-employees, including members of the board of directors, consultants, or advisors.

No options were granted during the nine months ended September 30, 2024. As of September 30, 2024, unrecognized compensation cost related to stock options was nominal. The aggregate intrinsic value of 117,670 options exercised during the three months ended September 30, 2024 was $0.3 million.

Founder Awards to Board of Directors

In 2021, an aggregate of 90,000 shares of common stock were transferred to three members of Concord III's board of directors ("Founder Shares"). The Founder Shares contained double-trigger vesting, which required continuous service and a liquidity event for any shares to vest. As the required conditions were met upon the Closing, the Company recognized $0.9 million of stock-based compensation upon the Closing in March 2024.

Restricted Stock Units

In December 2023, various employees and directors of Legacy GCT were granted 392,000 RSUs that contain both a performance condition based upon a liquidity event and a service vesting condition such that (subject to the liquidity event condition being satisfied) the RSUs vest in four equal annual installments from the grant date ("2023 RSUs"). The liquidity condition was met upon the Closing.

In June 2024, the Company granted to the members of its board of directors certain share-based awards with a fixed monetary amount of $0.7 million equally allocated among six grantees ("2024 RSUs"). The number of shares issuable to each grantee under the 2024 RSUs is calculated by dividing one-fourth of the allocated fixed monetary amount by the closing price of the Company's common stock at the end of each fiscal quarter between April 1, 2024 and March 31, 2025. The RSUs will vest on March 31, 2025, subject to the grantees' continuous service to the Company and will be settled in common stock on various dates in 2026 and 2027. The 2024 RSUs are initially classified as a liability and reclassified to equity up to the monetary amount for which the number of shares to be issued becomes determinable. Through September 30, 2024, this determination was made for 80,916 shares based on the closing price of the Company's common stock as of each fiscal quarter-end after the grant date.

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GCT SEMICONDUCTOR HOLDING, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

In August 2024, the Company granted various employees 140,000 RSUs that vest in four equal annual installments subject to continuous service.

The Company recognized $0.6 million and $1.2 million of stock-based compensation during the three and nine months ended September 30, 2024, respectively, related to the outstanding RSUs. As of September 30, 2024, there was $2.3 million of unrecognized compensation cost related to RSUs, which is expected to be recognized on a straight-line basis over a weighted average period of 3.0 years. Any unvested RSUs are forfeited upon separation from the Company. Forfeitures are accounted for as they occur.

Stock-Based Compensation

12. Income Taxes

For financial reporting purposes, the Company's effective tax rate used for the interim periods is based on the estimated full-year income tax rate. For the three and nine months ended September 30, 2024, the Company's effective tax rate differs from the statutory rate primarily due to the valuation allowance recorded against the net deferred tax asset balance.

For the nine months ended September 30, 2024 and 2023, the Company recorded income tax of $0.2 million and $0.1 million, respectively. The effective tax rate is (2.6)% and (1.0)% for nine months ended September 30, 2024 and 2023, respectively. Through September 30, 2024, the Company was not under examination by any taxing authority.

As of September 30, 2024 the Company had unrecognized tax benefits of $3.1 million of which $1.7 million would currently affect the Company's effective tax rate if recognized due to the Company's deferred tax assets being fully offset by a valuation allowance. The Company does not anticipate that the amount of unrecognized tax benefits relating to tax positions existing as of September 30, 2024 will significantly increase or decrease within the next twelve months. There was no interest expense or penalties related to unrecognized tax benefits recorded as of September 30, 2024.

A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the most likely outcome. The Company adjusts these reserves, as well as the related interest, considering changing facts and circumstances.

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Notes to Unaudited Condensed Consolidated Financial Statements

13. Employee Benefit Plans

Under Korean law, the Company is required to make severance payments to Korean employees leaving their employment. The Company's severance pay liability to its Korean employees, which is a function of the employee's salary, years of employment, and severance factor, is reflected in the accompanying unaudited condensed consolidated balance sheets as the net defined benefit liabilities on an accrual basis. The net liability for severance payments was as follows (in thousands):

14. Related Party Transactions

For each of the three and nine months ended September 30, 2024, the Company recorded $0.1 million and $0.4 million, respectively, of interest expense with Anapass, Inc. in the unaudited condensed consolidated statements of operations. For each of the three and nine months ended September 30, 2023, the Company recorded $0.1 million and $0.4 million, respectively, of interest expense with Anapass, Inc. in the unaudited condensed consolidated statements of operations. Interest expense related to the Company's arrangements with Kyeongho Lee was immaterial during the three and nine months ended September 30, 2024 and 2023.

15. Segments and Information