NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
(in thousands)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income (loss) | $ | 113,629 | | | $ | (25,995) | |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | | | |
| Depreciation | 352 | | | 166 | |
| Amortization of intangibles | 171 | | | 167 | |
| Amortization of deferred rent | — | | | (22) | |
| Non-cash lease expense | 480 | | | — | |
| Other | 1,155 | | | (1) | |
| Stock-based compensation expense | 36,362 | | | 14,564 | |
| Amortization of debt discount and issuance costs | 6 | | | 6 | |
| Gain from change in fair value of warrants | (51,763) | | | — | |
| Gain from change in fair value of earnout liability | (118,260) | | | — | |
| Change in operating assets and liabilities: | | | |
| Accounts receivable | (1,144) | | | (349) | |
| Inventory | (2,017) | | | (4,520) | |
| Prepaid expenses and other current assets | 926 | | | (2,230) | |
| Other assets | 418 | | | (121) | |
| Accounts payable, accrued compensation and other liabilities | 1,883 | | | 4,562 | |
| Operating lease liability | (581) | | | — | |
Net cash used in operating activities | (18,383) | | | (13,773) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
| Business acquisition, net of cash acquired | (645) | | | — | |
| Asset acquisition | — | | | (680) | |
Investment in joint venture | (5,204) | | | (150) | |
Purchases of property and equipment | (2,305) | | | (641) | |
Receipts on notes receivable | 97 | | | 2 | |
Net cash used in investing activities | (8,057) | | | (1,469) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
| Redemption of warrants | (38) | | | — | |
| Repurchase of common stock | (550) | | | — | |
| Proceeds from issuance of common stock in connection stock option exercises | 880 | | | 222 | |
| Proceeds from issuance of long-term debt | — | | | — | |
| Principal payments on long-term debt | (1,600) | | | — | |
Net cash provided by financing activities | (1,308) | | | 222 | |
Effect of exchange rate changes on cash | — | | | (1) | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | (27,748) | | | (15,021) | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 268,252 | | | 38,869 | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 240,504 | | | $ | 23,848 | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | |
Cash paid for income taxes | $ | 188 | | | $ | — | |
Cash paid for interest | $ | 132 | | | $ | 60 | |
| Shares issued for business acquisition | $ | 1,068 | | | $ | — | |
| Capital expenditures in accounts payable | $ | 873 | | | $ | 254 | |
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
1. ORGANIZATION AND BASIS OF PRESENTATION
On May 6, 2021, Navitas Semiconductor Limited, a private company limited by shares organized under the laws of Ireland (“Navitas Ireland”) and domesticated in the State of Delaware as Navitas Semiconductor Ireland, LLC, a Delaware limited liability company (“Navitas Delaware” and, together with Navitas Ireland, “Legacy Navitas”), entered into a business combination agreement and plan of reorganization (the “Business Combination Agreement” or “BCA”) with Live Oak Acquisition Corp. II, a Delaware corporation (“Live Oak”). Pursuant to the BCA, among other transactions consummated on October 19, 2021 (collectively, the “Business Combination”), Live Oak acquired all of the capital stock of Navitas Ireland (other than the Navitas Ireland Restricted Shares, as defined below) by means of a tender offer, and a wholly owned subsidiary of Live Oak merged with and into Navitas Delaware, with Navitas Delaware surviving the merger. As a result, Legacy Navitas became a wholly owned subsidiary of Live Oak effective October 19, 2021. At the closing of the Business Combination, Live Oak changed its name to Navitas Semiconductor Corporation.
References to the “Company” in these financial statements refer to Legacy Navitas and its predecessors before the consummation of the Business Combination, or to Navitas Semiconductor Corporation after the Business Combination, as the context suggests.
The Company was founded in 2013 and has since been developing ultra-efficient gallium nitride (GaN) semiconductors. The Company presently operates as a product design house that contracts the manufacturing of its chips and packaging to partner suppliers. Navitas maintains its operations around the world, including the United States, Ireland, Germany, Italy, Belgium, China, Taiwan and the Philippines, with principal executive offices in El Segundo, California.
Reorganization
Navitas Semiconductor USA, Inc. (f/k/a Navitas Semiconductor, Inc., “Navitas U.S.”) was incorporated in the State of Delaware on October 25, 2013. In 2020 Navitas U.S. initiated a restructuring to streamline its worldwide legal entity structure and more efficiently align its business operations (the “Restructuring”). The Restructuring introduced wholly owned subsidiary in China as well as the addition of Legacy Navitas, an entity registered in Ireland and the U.S., as the parent of Navitas U.S. and the other Navitas subsidiaries. In connection with the Restructuring, effective September 1, 2020, Legacy Navitas acquired certain intellectual property and other intangible assets from Navitas U.S. and, after the Restructuring, contracts directly with customers. The transfer of intellectual property and other intangible assets by Navitas U.S. to Legacy Navitas in connection with the Restructuring was among entities within the same consolidated group and, as a result, did not result in any gain or loss to the Company. Legacy Navitas is treated as a corporation for U.S. federal income tax purposes and is a tax resident in both Ireland and the United States. See Note 13.
Business combination
Pursuant to the terms of the BCA, the Business Combination was consummated (the “Closing”) on October 19, 2021 (the “Closing Date”) by means of (i) a tender offer to acquire the entire issued share capital of Navitas Ireland (other than Navitas Ireland Restricted Shares (as defined below)) in exchange for the Tender Offer Consideration (as defined below) (the “Tender Offer”) and (ii) the merger of a wholly owned subsidiary of Live Oak (“Merger Sub”) with and into Navitas Delaware (the “Merger”), with Navitas Delaware surviving the Merger. See the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022 for further information.
The Business Combination was accounted for as a reverse recapitalization, in accordance with GAAP. Under this method of accounting, although Live Oak issued shares for outstanding equity interests of Legacy Navitas in the Business Combination, Live Oak was treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Legacy Navitas issuing stock for the net assets of Live Oak, accompanied by a recapitalization. The net assets of Live Oak were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Navitas.
For all periods presented, unless stated otherwise, references to Legacy Navitas common shares and options for common shares outstanding before the Closing and related per share amounts have been retroactively restated to give effect to the reverse recapitalization, specifically, the Exchange Ratio of 1.0944 shares to 1 at Closing. References to share
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
quantities for Legacy Navitas convertible preferred stock related to balances or activity before the Closing reflect the historical quantities and are not adjusted for the Exchange Ratio.
Acquisition of VDDTech
On June 10, 2022, the Company’s wholly owned subsidiary, Navitas Semiconductor Limited, acquired all of the stock of VDDTECH srl, a private Belgian company (“VDDTech”) for approximately $1,859 in cash and stock. Based in Mont-saint-Guibert, Belgium, VDDTech creates advanced digital-isolators for next-generation power conversion. VDDTech’s net assets and operating results since the acquisition date are included in the Company’s Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022, and were not material. The Company issued 113 restricted shares that are subject to time based vesting and issued another 151 restricted shares that are subject to time and performance based vesting over the next four and three years, respectively. These restricted shares are subject to certain individuals maintaining employment with the Company and, therefore, are accounted for under ASC 718.
The Company has recorded a preliminary allocation of the purchase price to tangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. The excess of the purchase price over the fair value of tangible assets and liabilities of $1,177 was recorded as goodwill. Upon a final determination of the purchase price and the final valuation of the intangible assets acquired, primarily including developed technology, the Company will allocate the purchase price to tangible and intangible assets acquired and liabilities assumed, and adjust the excess purchase price allocated to goodwill as needed.
Basis of presentation
The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The results of operations for the three and six months ended June 30, 2022 shown in this report are not necessarily indicative of results to be expected for the full year ending December 31, 2022. In the opinion of the Company’s management, the information contained herein reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company’s results of operations, financial position, cash flows and stockholders’ equity (deficit). Certain footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Securities and Exchange Commissions (SEC) rules and regulations relating to interim financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K filed with the SEC on March 31, 2022. Except as further described below, there have been no significant changes in the Company’s accounting policies from those disclosed in its annual report on Form 10-K filed with the SEC on March 31, 2022.
Basis of consolidation
The condensed consolidated financial statements include the accounts of the Company, its wholly owned or majority-owned subsidiaries and entities in which the Company is deemed to have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. All intercompany transactions and balances have been eliminated in consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842) (“ASU 2016-02”), and also issued subsequent amendments under ASU 2019-10 and ASU 2020-05 (collectively ASC 842). On January 1, 2022, the Company adopted
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
ASC 842 and the related amendments. ASC 842 requires lessees to (i) recognize a right of use asset and a lease liability that is measured at the present value of the remaining lease payments, on the consolidated balance sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease related cash payments within operating and financing activities. The Company recognized approximately $1,634 of operating lease right-of-use assets and $1,685 operating lease liabilities on the consolidated balance sheets upon adoption on January 1, 2022.
Credit Losses
In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. This ASU requires entities to measure the impairment of certain financial instruments, including accounts receivable, based on expected losses rather than incurred losses. For non-public business entities, this ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, and will be effective for the Company beginning in 2023. The Company is currently evaluating the impact of the new standard on the Company’s condensed consolidated financial statements and related disclosures.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
| | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Furniture and fixtures | $ | 209 | | | $ | 265 | |
Computers and other equipment | 5,007 | | | 3,116 | |
Leasehold improvements | 929 | | | 577 | |
| $ | 6,145 | | | $ | 3,958 | |
Accumulated depreciation | (1,879) | | | (1,656) | |
Total | $ | 4,266 | | | $ | 2,302 | |
For the three and six months ended June 30, 2022, depreciation expense was $186 and $352, respectively. For the three and six months ended June 30, 2021, depreciation expense was $86 and $166. The depreciation method was determined using the straight-line method over the following estimated useful lives:
| | | | | |
Furniture and fixtures | 3 — 7 years |
Computers and other equipment | 2 — 5 years |
Leasehold improvements | 2 — 5 years |
4. INVENTORY
Inventory consists of the following:
| | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Raw materials | $ | 867 | | | $ | 60 | |
Work-in-process | 9,358 | | | 9,945 | |
Finished goods | 3,770 | | | 1,973 | |
Total | $ | 13,995 | | | $ | 11,978 | |
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
5. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The accounting guidance on fair value measurements clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices for identical assets in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
The short-term nature of the Company’s cash and cash equivalents, accounts receivable, debt and current liabilities causes each of their carrying values to approximate fair value for all periods presented. Cash equivalents classified as Level 1 instruments were $131.5 million and $159.6 million as of June 30, 2022 and December 31, 2021, respectively.
The following table presents the Company’s fair value hierarchy for financial liabilities as of June 30, 2022 :
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Liabilities: | | | | | | | | |
| Earnout liability | | $ | — | | | $ | — | | | $ | 15,913 | | | $ | 15,913 | |
| | | | | | | | |
| Total | | $ | — | | | $ | — | | | $ | 15,913 | | | $ | 15,913 | |
The following table presents the Company’s fair value hierarchy for financial liabilities as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Liabilities: | | | | | | | | |
| Public warrants | | $ | 52,361 | | | $ | — | | | $ | — | | | $ | 52,361 | |
| Private warrants | | — | | | 29,027 | | | — | | | 29,027 | |
| Earnout liability | | — | | | — | | | 134,173 | | | 134,173 | |
| | | | | | | | |
| Total | | $ | 52,361 | | | $ | 29,027 | | | $ | 134,173 | | | $ | 215,561 | |
The liability for the Private Warrants is a level 2 valuation because there is no active market.
6. DEBT OBLIGATIONS
On April 29, 2020, the Company entered into a loan and security agreement with a new bank (the “Term Loan”), which provides for term advances up to $8,000. The loan is divided into three term advances, First Term Advance, Second Term Advance and Third Term Advance. The First Term Advance has a maximum available amount of $6,000. The Second Term Advance has a maximum available amount of $1,000 and is subject to the Company receiving aggregate net proceeds from Series B-2 Preferred Stock of $29,800 by no later than September 30, 2020. The Third Term Advance has a maximum available amount of $1,000 and is subject to the Company receiving aggregate net proceeds from Series B-2 Preferred Stock of $39,900 by no later than September 30, 2020. The Term Loan bears interest at a rate equal to the greater of (i) US Prime Rate plus 0.75% or (ii) 5.5% and is collateralized by all assets of the Company. As of June 30, 2022, the interest rate was 5.5%. The loan is payable in monthly installments beginning September 1, 2021 with a final maturity date of January 1, 2024. Concurrent with the execution of the Term Loan, the Company paid off the outstanding principal balance and accrued interest on its then-existing long-term debt (which bore interest at 5% at December 31, 2019) with a different bank, fully satisfying its obligations. On August 1, 2021, the Company drew down $2,000, the maximum available amount under the Second Term Advance and Third Term Advance.
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
In connection with execution of the Term Loan, the Company issued warrants to the bank (see Note 9). The fair value of the warrants at the date of issuance was $16 and was recorded as debt discount, subject to amortization using the effective interest rate method over the term of the loan.
Amortization of debt discount and issuance costs for the three and six months ended June 30, 2022 was $2 and $6, respectively. Amortization of debt discount and issuance costs for the three and six months ended June 30, 2021 was $3 and $6, respectively. Amortization of debt discount and issuance costs includes the write-off of unamortized costs as of the date that the prior term loan was extinguished in 2020.
The following is a summary of the carrying value of long-term debt as of June 30, 2022 and December 31, 2021:
| | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Note payable | $ | 5,333 | | | $ | 6,933 | |
Less: Current portion | (3,200) | | | (3,200) | |
Less: Debt discount and issuance costs | (11) | | | (17) | |
Note payable, net of current portion | $ | 2,122 | | | $ | 3,716 | |
As of June 30, 2022, future scheduled principal payments of debt obligations were as follows:
| | | | | |
| Fiscal Year | |
| 2022 (remaining) | $ | 1,600 | |
| 2023 | 3,200 | |
| 2024 | 533 | |
| Thereafter | — | |
| Total | $ | 5,333 | |
7. LEASES:
The Company has entered into operating leases primarily for commercial buildings. These leases have terms which range from 0.2 to 6.4 years. There are no economic penalties for the Company to extend the lease, and it is not reasonably certain the Company will exercise the extension options. The operating leases do not contain material residual value guarantees or material restrictive covenants.
Rent expense, including short-term lease cost, was $364 and $716 for the three and six months ended June 30, 2022, respectively. Rent expense, including short-term lease cost, was $285 and $552 for the three and six months ended June 30, 2021, respectively.
Information related to the Company right-of-use assets and related operating lease liabilities were as follows:
| | | | | |
| Six Months Ended June 30, 2022 |
| Cash paid for operating lease liabilities | $ | 527 | |
| Operating lease cost | 610 | |
| Right-of-use assets obtained in exchange for lease obligations | 5,892 | |
| Weighted-average remaining lease term | 2.26 |
| Weight-average discount rate | 4.25% - 5.5% |
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
| | | | | |
| Maturities of lease liabilities due in 12-month period ending June 30, | |
| 2023 | $ | 1,502 | |
| 2024 | 1,491 | |
| 2025 | 1,146 | |
| 2026 | 1,149 | |
| 2027 | 1,183 | |
| Thereafter | 1,724 | |
| $ | 8,195 | |
| Less imputed interest | 1,206 | |
| Total lease liabilities | $ | 6,989 | |
Supplemental information for comparative periods
As of December 31, 2021 prior to the adoption of ASC 842, minimum payments under operating leases having initial or remaining non-cancelable lease terms in excess of one year were as follows:
| | | | | |
| | Operating Leases |
| 2022 | $ | 966 | |
| 2023 | 585 | |
| 2024 | 170 | |
| Total minimum payments | $ | 1,721 | |
8. SHARE BASED COMPENSATION:
Equity Incentive Plans
The 2020 Equity Incentive Plan, initially adopted by the Company’s board of directors on August 5, 2020 as an amendment and restatement of the 2013 Equity Incentive Plan (“2013 Plan”), was amended and restated at the Closing of the Business Combination as the Amended and Restated Navitas Semiconductor Limited 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit (RSU) awards, stock appreciation rights, and other stock awards to employees, directors and consultants. Pursuant to the 2020 Plan, the exercise price for incentive stock options and non-statutory stock options is generally at least 100% of the fair market value of the underlying shares on the date of grant. Options generally vest over 48 months measured from the date of grant. Options generally expire no later than ten years after the date of grant, subject to earlier termination upon an optionee’s cessation of employment or service.
Under the terms of the 2020 Plan, the Company is authorized to issue 18,899,285 shares of common stock pursuant to awards under the 2020 Plan. As of October 19, 2021, the Company has issued an aggregate of 11,276,706 stock options and non-statutory options to its employees and consultants and 4,525,344 shares of restricted stock to employees, directors and consultants under the 2020 Plan. No awards have or will be issued under the 2020 Plan after October 19, 2021. Shares of Common Stock subject to awards under the 2020 Plan that are forfeited, expire or lapse after October 19, 2021 will become authorized for issuance pursuant to awards under the 2021 Plan (as defined below).
The Navitas Semiconductor Corporation 2021 Equity Incentive Plan (the “2021 Plan”) was adopted by the Company’s board of directors on August 17, 2021 and adopted and approved by the Company’s stockholders at the Special Meeting on October 12, 2021. Under the terms of the 2021 Plan, the Company is authorized to issue, pursuant to awards granted under the 2021 Plan, (a) up to 16,334,527 shares of Common Stock; plus (b) up to 15,802,050 shares of Common
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
Stock subject to awards under the 2020 Plan that are forfeited, expire or lapse after October 19, 2021; plus (c) an annual increase, effective as of the first day of each fiscal year up to and including January 1, 2031, equal to the lesser of (i) 4% of the number of shares of Common Stock outstanding as of the conclusion of the Company’s immediately preceding fiscal year, or (ii) such amount, if any, as the board of directors may determine.
Stock-Based Compensation
At the Closing of the Business Combination on October 19, 2021, Legacy Navitas’ outstanding vested and unvested share-based compensation awards (as such terms are defined below) were converted into equity, RSUs or options in the Company at a ratio of 1.0944 to 1 share (the “Exchange Ratio”). Share and per share information below has been converted from historical disclosures based on the Exchange Ratio.
The Company recognizes the fair value of stock-based compensation in its financial statements over the requisite service period of the individual grants, which generally equals a four-year vesting period. The Company uses estimates of volatility, expected term, risk-free interest rate and dividend yield in determining the fair value of these awards and the amount of compensation expense to recognize. The Company uses the straight-line method to amortize stock awards granted over the requisite service period of the award, which may be explicit or derived, unless market or performance conditions result in a graded attribution.
The following table summarizes the stock-based compensation expense recognized for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net revenues | $ | — | | | $ | 50 | | | $ | — | | | $ | 163 | |
| Research and development | 3,037 | | 1,424 | | 10,531 | | 1,630 |
| Selling, general and administrative | 7,999 | | 11,255 | | 25,831 | | 12,771 |
| Total stock-based compensation expense | $ | 11,036 | | | $ | 12,729 | | | $ | 36,362 | | | $ | 14,564 | |
Stock Options
Generally, stock options granted under the Plans have ten year terms and vest 1/4th on the anniversary of the vesting commencement date and 1/48th monthly thereafter. Stock options with performance vesting conditions begin to vest upon achievement of the performance condition. Expense is recognized beginning in the period in which performance is considered probable.
The fair value of incentive stock options and non-statutory stock options issued was estimated using the Black-Scholes model. The Company did not grant any awards during the six months ended June 30, 2022.
A summary of stock options outstanding, excluding LTIP options as of June 30, 2022, and activity during the three months then ended, is presented below:
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | Shares
(In thousands) | | Exercise Price Per Share | | Weighted-
Average
Exercise
Price | | Remaining Weighted-
Average
Remaining
Contractual
Term
(In years) | | Per Share Average Intrinsic Value |
| Outstanding at December 31, 2021 | 11,253 | | | $.08 - $1.06 | | $ | 0.51 | | | 6.80 | | $ | 3.34 | |
| Granted | — | | | — | | | — | | | — | | | — | |
| Exercised | (3,165) | | | $.08 - $1.06 | | 0.32 | | | — | | | 3.54 | |
| Forfeited or expired | (34) | | | $1.06 | | 0.76 | | | — | | | 3.10 | |
| Cancelled | (1) | | | $1.06 | | 1.06 | | | — | | | 2.80 | |
| Outstanding at June 30, 2022 | 8,053 | | | $.08 - $1.06 | | $ | 0.60 | | | 6.88 | | $ | 3.26 | |
| Vested and Exercisable at June 30, 2022 | 5,945 | | | $.08 - $1.06 | | $ | 0.45 | | | 6.40 | | $ | 3.41 | |
During the three and six months ended June 30, 2022, the Company recognized $120 and $245 respectively, of stock-based compensation expense for the vesting of outstanding stock options, excluding $1.4 million related to the LTIP Options described below. During the three and six months ended June 30, 2021, the Company recognized $208 and $347, respectively, of stock-based compensation expense for the vesting of outstanding stock options. At June 30, 2022, unrecognized compensation cost related to unvested awards totaled $0.9 million. The weighted-average period over which this remaining compensation cost will be recognized is 1.9 years.
Long-term Incentive Plan Stock Options
The Company awarded a total of 6,500,000 performance stock options (“LTIP Options”) to certain members of senior management on December 29, 2021 pursuant to the 2021 Plan. These non-statutory options are intended to be the only equity awards for the recipients over the duration of the performance period. The options vest in increments subject to achieving certain performance conditions, including ten share price hurdles ranging from $15 to $60 per share, coupled with revenue and EBITDA targets, measured over a seven year performance period and expire on the tenth anniversary of the grant date. The options have an exercise price of $15.51 per share and the average fair value on the grant date was $8.13. The weighted average contractual period remaining is 9.5 years. The Black-Scholes model and a Monte Carlo simulation incorporating 100,000 scenarios. The valuation model utilized the following assumptions:
| | | | | |
Risk-free interest rates | 1.47 | % |
Expected volatility rates | 58 | % |
Expected dividend yield | — | |
Cost of equity (for derived service period) | 9.96 | % |
Weighted-average grant date fair value of options | $ | 8.13 | |
The Company recognized $1.4 million and $2.8 million of stock-based compensation expense for the three month and six months ended June 30, 2022, respectively. The unrecognized compensations expense related to the LTIP Options is $50.1 million.
Restricted Stock Units
On August 25, 2021, Legacy Navitas granted an aggregate of 4,135,000 Legacy Navitas RSUs under the 2020 Plan to certain members of senior management pursuant to restricted stock unit agreements (collectively, the “RSU Agreements”). At the Closing of the Business Combination, these Legacy Navitas RSUs were assumed by the Company and converted at the Exchange Ratio into RSUs to acquire an aggregate of 4,525,344 shares of common stock. Each RSU represents the right to receive one share of common stock of the Company, subject to the vesting and other terms and conditions set forth in the RSU Agreements and the 2020 Plan. 3,830,400 of these RSU awards are subject to vesting in
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
three equal installments over a three-year period, subject to the occurrence of an IPO (which includes the Business Combination) and certain valuation targets, and subject to accelerated vesting based on the satisfaction of certain stock price targets. 547,200 of these RSUs were subject to vesting on the six-month anniversary of the grant date, subject to the occurrence of an IPO (which included the Business Combination) and certain valuation targets. 57,456 of these RSUs were subject to vesting upon the occurrence of an IPO (which included the Business Combination), while the remaining 90,288 RSUs are subject to vesting as specified by an RSU Agreement over a period of approximately three years. As of October 19, 2021, the IPO performance condition had been met as a result of the completion of the Business Combination.
A summary of RSUs outstanding as of June 30, 2022, and activity during the six months then ended, is presented below:
| | | | | | | | | | | |
| Restricted Common Stock Awards | Shares
(In thousands) | | Weighted-Average Grant Date Fair Value Per Share |
| Outstanding at December 31, 2021 | 4,468 | | | $ | 9.62 | |
| Granted | 3,656 | | | 10.20 | |
| Vested | (807) | | | 9.52 | |
| Forfeited | (119) | | | 10.83 | |
| Outstanding at June 30, 2022 | 7,198 | | | $ | 9.91 | |
During the three and six months ended June 30, 2022, the Company recognized $7.4 million and $23.3 million of stock-based compensation expense for the vesting of RSAs and RSUs. During the three and six months ended June 30, 2021, the Company recognized $12,330 and $13,772 of stock-based compensation expense for the vesting of RSAs and RSUs. As of June 30, 2022, unrecognized compensation cost related to unvested RSU awards totaled $31.3 million. The weighted-average period over which this remaining compensation cost is expected be recognized is 2.03 years.
The Company accrued $3.5 million and $2.0 million as of June 30, 2022 and December 31, 2021, respectively, related to a stock-based bonus plan that the Company plans to settle by issuing a variable number of fully-vested restricted stock units to employees. Based on the closing share price of the Company’s Class A Common Stock of $3.86 on June 30, 2022, approximately 907,954 shares would have been issued, however, the actual number of shares will be based on the share price at the date of settlement.
Unvested Earnout Shares
A portion of the earnout shares may be issued to individuals with unvested equity awards. While the payout of these shares requires achievement of the volume weighted average price of the Company's common stock, the individuals are required to complete the remaining service period associated with these unvested equity awards to be eligible to receive the earnout shares. As a result, these unvested earn-out shares are equity-classified awards and have an aggregated grant date fair value of $19.1 million (or $11.52 per share). During the six months ended June 30, 2022, the Company recognized $0.8 million of stock-based compensation expense for the vesting of earnout shares. At June 30, 2022, unrecognized compensation cost related to unvested earnout shares totaled $6.1 million. The weighted-average period over which this remaining compensation cost is expected be recognized is 0.4 years. Refer to Note 10.
9. WARRANT LIABILITY
In connection with the closing of the Business Combination, holders of Live Oak Class A ordinary shares automatically received Class A Common Stock of the Company, and holders of Live Oak warrants automatically received 13,100,000 warrants of the Company with substantially identical terms (“the Warrants”). At the Closing, 8,433,333 Live Oak public warrants automatically converted into 8,433,333 warrants to purchase one share of the Company’s Class A Common Stock at $11.50 per share (the “Public Warrants”), and 4,666,667 Private Placement Warrants held by the Sponsor and certain permitted transferees, each exercisable for one Class A ordinary share of Live Oak at $11.50 per share, automatically converted into warrants to purchase one share of the Company’s Class A Common Stock at $11.50 per share with substantially identical terms as the Public Warrants. On February 4, 2022, the Company gave notice that it would redeem all of the Warrants, as further described below.
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
The Warrants were exercisable only during the period commencing December 7, 2021 (12 months after the consummation of Live Oak’s initial public offering) and ending on the earlier of October 19, 2026 (five years after the Closing of the Business Combination) or, in the event of redemption, the corresponding redemption date. The Company had the right to redeem not less than all of the outstanding Public Warrants on 30 days’ notice, at a redemption price of $0.01 per Warrant, if the reported closing price of the Common Stock was at least $18.00 per share for any 20 of 30 trading days ending three business days before the notice of redemption, subject to certain other conditions. The Company also had the right to redeem not less than all of the outstanding Public Warrants on 30 days’ notice, at a redemption price of $0.10 per Warrant, if the reported closing price of the Common Stock was at least $10.00 per share for any 20 of 30 trading days ending three business days before the notice of redemption, subject to certain other conditions. If the Company elected to exercise the latter right to redeem the Public Warrants for $0.10 per Warrant, and the reported closing price of the Common Stock was less than $18.00 per share for any 20 of 30 trading days ending three business days before the notice of redemption, the Company was required to concurrently redeem the Private Placement Warrants on the same terms. In addition, in such event, holders of Warrants subject to redemption would have the right to exercise their Warrants on a “cashless” basis, whereby they would receive a fractional number of shares of Common Stock per Warrant exercised before the redemption date, based on the volume weighted average price of the Common Stock for the 10 trading days following notice of redemption (the “Redemption Fair Market Value”) and the time period between the redemption date and the original expiration of the Warrants in the absence of redemption.
On February 4, 2022, the Company issued a notice of redemption that it would redeem, at 5:00 p.m. New York City time on March 7, 2022 (the “Redemption Date”), all of the Company’s outstanding Public Warrants and Private Placement Warrants to purchase shares of the Company’s Class A Common Stock that were governed by the Warrant Agreement, dated as of December 2, 2020 (the “Warrant Agreement”), between the Company and Continental Stock Transfer & Trust Company, as warrant agent (the “Warrant Agent”), at a redemption price of $0.10 per Warrant (the “Redemption Price”). On February 22, 2022, the Company issued a notice that the “Redemption Fair Market Value,” determined in accordance with the Warrant Agreement based on the volume weighted average price of the Common Stock for the 10 trading days immediately following the date on which notice of redemption was sent, was $10.33 and, accordingly, that holders exercising Warrants on a “cashless” basis before the Redemption Date would receive 0.261 shares of Common Stock per Warrant exercised. The Warrants were exercisable by their holders until immediately before 5:00 p.m. New York City time on the Redemption Date, either (i) on a cash basis, at an exercise price of $11.50 per share of Common Stock, or (ii) on a “cashless” basis in which the exercising holder would receive 0.261 shares of Common Stock per Warrant exercised. Between December 7, 2021 (the date the Warrants became exercisable) and the Redemption Date, an aggregate of 12,722,773 Warrants were exercised (including 17,785 on a cash basis and 12,704,988 on a “cashless” basis); an aggregate of 3,333,650 shares of Common Stock were issued upon exercise of the Warrants (including 17,785 shares in respect of cash exercises and 3,315,865 shares in respect of “cashless” exercises). A total of 377,187 Warrants remained outstanding and unexercised at the Redemption Date and were redeemed for an aggregate Redemption Price of $38. Prior to the redemption date, the warrants had an aggregate fair value of $81,388 which resulted in a gain of $0 and $51,763 due to the decrease in the fair value of the warrant liability in the three and six months ended June 30, 2022. There were no outstanding warrants as of June 30, 2022.
10. EARNOUT LIABILITY
Certain of the Company’s stockholders are entitled to receive up to 10,000,000 Earnout Shares of the Company’s Class A common stock if the Earnout Milestones are met. The Earnout Milestones represents three independent criteria, which each entitles the eligible stockholders to 3,333,333 earn-out shares per milestone met. Each Earnout Milestone is considered met if at any time 150 days following the Business Combination and prior to October 19, 2026, the volume weighted average price of the Company’s Class A common stock is greater than or equal to $12.50, $17.00 or $20.00 for any twenty trading days within any thirty trading day period, respectively. Further, the Earnout Milestones are also considered to be met if the Company undergoes a Sale. A Sale is defined as the occurrence of any of the following: (i) engage in a “going private” transaction pursuant to Rule 13e-3 under the Exchange Act or otherwise cease to be subject to reporting obligations under Sections 13 or 15(d) of the Exchange Act; (ii) Class A common stock cease to be listed on a national security exchange, other than for the failure to satisfy minimum listing requirements under applicable stock exchange rules; or (iii) change of ownership (including a merger or consolidation) or approval of a plan for complete liquidation or dissolution.
These earnout shares have been categorized into two components: (i) the “Vested Shares” - those associated with stockholders with vested equity at the closing of the Business Combination that will be earned upon achievement of the Earnout Milestones and (ii) the “Unvested Shares” - those associated with stockholders with unvested equity at the closing
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
of the Business Combination that will be earned over the remaining service period with the Company on their unvested equity shares and upon achievement of the Earnout Milestones. The Vested Shares are classified as liabilities in the consolidated balance sheet and the Unvested Shares are equity-classified share-based compensation to be recognized over time (see Note 8 - Share-based Compensation). The earnout liability was initially measured at fair value at the closing of the Business Combination and subsequently remeasured at the end of each reporting period. The change in fair value of the earn-out liability is recorded as part of Other income (expense), net in the consolidated statement of operations.
The estimated fair value of the earnout liability was determined using a Monte Carlo analysis of 20,000 simulations of the future path of the Company’s stock price over the earnout period. The assumptions utilized in the calculation are based on the achievement of certain stock price milestones including projected stock price, volatility, and risk-free rate. The valuation model utilized the following assumptions:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Risk-free interest rate | 3.00 | % | | 1.23 | % |
Equity volatility rate | 65.00 | % | | 55.00 | % |
At the closing of the Business Combination on October 19, 2021, the earnout liability had an initial fair value of $96,069, which was recorded as a long-term liability and a reduction to additional paid in capital in the consolidated balance sheet. As of June 30, 2022 and December 31, 2021, the earnout liability had a fair value of $15,913 and $134,173, respectively which resulted in a gain due to the decrease in the fair value of the earnout liability of $54,854 and $118,260 for the three and six month ended June 30, 2022, respectively.
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
11. SIGNIFICANT CUSTOMERS AND CREDIT CONCENTRATIONS
Customer Concentration
Majority of the Company’s revenues are attributable to sales of the Company’s products to distributors of electronic components. These distributors sell the Company’s products to a range of end users, including OEMs and merchant power supply manufacturers.
The following customers represented 10% or more of the Company’s net revenues for the respective three and six months ended June 30, 2022 and 2021, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| Customer | | 2022 | | 2021 | | 2022 | | 2021 |
| Distributor A | | 16 | % | | * | | * | | * |
| Distributor B | | 22 | % | | * | | 12 | % | | * |
| Distributor C | | 21 | % | | 23 | % | | 29 | % | | 19 | % |
| Distributor D | | 16 | % | | 32 | % | | 23 | % | | 21 | % |
| Distributor E | | * | | 42 | % | | * | | 38 | % |
| Distributor F | | * | | * | | * | | 20 | % |
*Total customer net revenues was less than 10% of total net revenues.
Revenues by Geographic Area
The Company considers the domicile of its end customers, rather than the distributors it sells to directly, to be the basis for attributing revenues from external customers to individual countries. Revenues for the three and six months ended June 30, 2022 and 2021, were attributable to end customers in the following countries:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| Country | 2022 | | 2021 | | 2022 | | 2021 |
| Europe* | 38 | % | | — | | | 21 | % | | — | |
China | 32 | | | 78 | | | 44 | | | 75 | |
United States | 18 | | | 13 | | | 25 | | | 16 | |
| Rest of Asia | 12 | | | 9 | | | 10 | | | 9 | |
Total | 100 | % | | 100 | % | | 100 | % | | 100 | % |
*Impractical to disclose the revenue percentages by individual countries within Europe and therefore Europe is presented in total.
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consisted principally of cash, cash equivalents and trade receivables. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. At times, such amounts may exceed federally insured limits. The Company has not experienced any losses on cash or cash equivalents held at financial institutions. The Company does not have any off-balance-sheet credit exposure related to its customers.
The following customers represented 10% or more of the Company’s accounts receivable.
| | | | | | | | | | | | | | |
| Customer | | June 30, 2022 | | December 31, 2021 |
| Distributor A | | * | | 44 | % |
| Distributor B | | * | | 14 | % |
| Distributor C | | * | | 14 | % |
| Distributor D | | 13 | % | | * |
| Distributor E | | 30 | % | | * |
*Total customer accounts receivable was less than 10% of net account receivables.
Concentration of Supplier Risk
The Company currently relies on a single foundry to produce wafers for GaN ICs. Loss of the relationship with this supplier could have a substantial negative effect on the Company. Additionally, the Company relies on a limited number of third-party subcontractors and suppliers for testing, packaging and certain other tasks. Disruption or termination of supply sources or subcontractors, including due to the COVID-19 pandemic or natural disasters such as an earthquake or other causes, could delay shipments and could have a material adverse effect on the Company. Although there are generally alternate sources for these materials and services, qualification of the alternate sources could cause delays sufficient to have a material adverse effect on the Company. A significant amount of the Company’s third-party subcontractors and suppliers, including third-party foundries that supply wafers for GaN ICs, are located in Taiwan. A significant amount of the Company’s assembly and test operations are conducted by third-party contractors in Taiwan and the Philippines.
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
12. NET INCOME (LOSS) PER SHARE:
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average shares of common stock outstanding during the period. Diluted earnings per share are calculated by dividing net income (loss) by the weighted-average shares of common stock and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares included in this calculation consist of dilutive shares issuable upon the assumed exercise of outstanding common stock options, the assumed vesting of outstanding restricted stock units and restricted stock awards, the assumed issuance of awards for contingently issuable performance-based awards, as computed using the treasury stock method. Performance-based restricted stock units and restricted stock awards are included in the number of shares used to calculate diluted earnings per share after evaluating the applicable performance criteria as of period end and under the assumption the end of the reporting period was the end of the contingency period, and the effect is dilutive. Restricted stock awards are eligible to receive all dividends declared on the Company’s common shares during the vesting period; however, such dividends are not paid until the restrictions lapse. The Company has no plans to declare dividends.
A summary of the net income (loss) per share calculation is as follows for the three and six months ended June 30:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| Numerator - basic and diluted: | 2022 | | 2021 | | 2022 | | 2021 |
| Net income (loss) | $ | 33,837 | | | $ | (18,650) | | | $ | 113,629 | | | $ | (25,995) | |
| | | | | | | |
| Denominator | | | | | | | |
| Weighted-average common shares - basic common stock | 124,030 | | | 20,900 | | | 121,827 | | | 20,324 | |
| Weighted-average common shares - diluted common stock | 132,132 | | | 20,900 | | | 130,882 | | | 20,324 | |
| | | | | | | |
| Net income (loss) per share - basic common stock | $ | 0.27 | | | $ | (0.89) | | | $ | 0.93 | | | $ | (1.28) | |
| Net income (loss) per share - diluted common stock | $ | 0.26 | | | $ | (0.89) | | | $ | 0.87 | | | $ | (1.28) | |
| | | | | | | |
| Denominator | | | | | | | |
| Weighted-average common shares - basic common stock | 124,030 | | | 20,900 | | | 121,827 | | | 20,324 | |
| Stock options and other dilutive awards | 8,102 | | | — | | | 9,055 | | | — | |
| Weighted-average common shares - diluted common stock | 132,132 | | | 20,900 | | | 130,882 | | | 20,324 | |
| | | | | | | |
Shares excluded from diluted weighted-average shares:1, 2 | | | | | | | |
| Redeemable convertible preferred stock shares | — | | | 54,449 | | | — | | | 54,449 | |
| Warrants to purchase redeemable convertible preferred stock | — | | | 176 | | | — | | | 176 | |
| Warrants to purchase common shares | — | | | 1,107 | | | — | | | 1,107 | |
| Earnout shares (potentially issuable common shares) | 10,000 | | | — | | | 10,000 | | | — | |
| Unvested restricted stock units and restricted stock awards | 6,858 | | | — | | | 6,256 | | | — | |
| Stock options potentially exercisable for common shares | 6,500 | | | 11,753 | | | 6,500 | | | 11,753 | |
| Shares excluded from diluted weighted average shares | 23,358 | | | 67,485 | | | 22,756 | | | 67,485 | |
| | | | | | | |
(1)The Company’s potentially dilutive securities, which include unexercised stock options, unvested shares, preferred shares, earnout shares, and warrants for common and preferred shares, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share for the three and six months ended June 30, 2021. For the three and six months ended June 30, 2022, potentially dilutive securities have been excluded as these securities contain performance metric(s) which have not be satisfied as of June 30, 2022. Therefore, the
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common shareholders is the same.
(2) Balances as of June 30, 2022 retroactively restated to give effect to the October 19, 2021 reverse recapitalization.
13. PROVISION FOR INCOME TAXES:
Income Taxes
The Company determined the income tax provision for interim periods using an estimate of the Company’s annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimated annual effective tax rate, and if the estimated annual effective tax rate changes, a cumulative adjustment is recorded in that quarter. The Company’s quarterly income tax provision and quarterly estimate of the annual effective tax rate are subject to volatility due to several factors, including our ability to accurately predict the proportion of our income (loss) before provision for income taxes in multiple jurisdictions, the tax effects of our stock-based compensation, and the effects of its foreign entity
At December 31, 2021, the Company has approximately $100,147 of federal net operating loss (“NOL”) carryforwards and approximately $82,583 of State NOL carryforwards expiring in varying amounts through 2037, with the exception of Federal NOLs arising from the years ended after December 31, 2017 that may be carried forward indefinitely. Realization of the NOL carryforwards is dependent on the Company generating sufficient taxable income prior to expiration of the NOL carryforwards and is also potentially subject to usage limitations due to changes in the Company’s ownership. As of June 30, 2022, the Company continues to maintain a valuation allowance as the Company believes that it is not more likely than not that the deferred tax assets will be fully realized.
The Company had no unrecognized tax benefits for the three and six months ended June 30,2022 and 2021. The Company recognizes interest and penalties related to unrecognized tax benefits in operating expenses. No such interest and penalties were recognized during the three and six months ended June 30, 2022 and 2021.
14. COMMITMENTS and CONTINGENCIES
Purchase Obligations
At June 30, 2022, the Company had no non-cancelable purchase obligations that were due beyond one year.
Employment agreements
The Company has entered into agreements with certain employees to provide severance payments to the employees for termination for reasons other than cause, death or disability. Aggregate payments that would be required to be made in the event of termination under the agreements are approximately $1,443. At June 30, 2022, no terminations have occurred or are expected to occur pursuant to these arrangements and, accordingly, no termination benefits have been accrued.
Indemnifications
The Company sells products to its distributors under contracts, collectively referred to as Distributor Sales Agreements (DSA). Each DSA contains the relevant terms of the contractual arrangement with the distributor, and generally includes certain provisions for indemnifying the distributor against losses, expenses, and liabilities from damages that may be awarded against the distributor in the event the Company’s products are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party (Customer Indemnification). The DSA generally limits the scope of and remedies for the Customer Indemnification obligations in a variety of industry-standard respects, including, but not limited to, limitations based on time and geography, and a right to replace an infringing product. The Company also, from time to time, has granted a specific indemnification right to individual customers.
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
The Company believes its internal development processes and other policies and practices limit its exposure related to such indemnifications. In addition, the Company requires its employees to sign a proprietary information and inventions agreement, which assigns the rights to its employees’ development work to the Company. To date, the Company has not had to reimburse any of its distributors or end customers for any losses related to these indemnifications and no material claims were outstanding as of June 30, 2022. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnifications.
Legal proceedings and contingencies
From time to time in the ordinary course of business, the Company may become involved in lawsuits, or end customers and distributors may make claims against the Company. The Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company is not currently subject to any pending actions or regulatory proceedings that either individually or in the aggregate are expected to have a material impact on its condensed consolidated financial statements.
15. RELATED PARTY TRANSACTIONS
Notes Receivable
The Company has outstanding interest-bearing notes receivable from an employee. The notes have various maturity dates through May 1, 2023 and bear interest at rates ranging from 1% to 2.76%. As of June 30, 2022, Note 1 was forgiven for a loss of $109 and Note 2 was paid off in the amount of $88. The Company recognized $0.3 and $0.9 of interest income from the notes for the three and six months ended June 30, 2022, respectively. The Company recognized $0.8 and $1.7 of interest income from the notes for the three and six months ended June 30, 2021.
| | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
Notes receivable | $ | — | | | $ | 206 | |
Joint Venture
In 2021, Navitas entered into a partnership with a manufacturer of power management ICs to develop products and technology relating to ac-dc converters. Structured as a joint venture, Navitas’ initial contribution was the commitment to sell its GaN integrated circuit die at prices representing cost plus insignificant handling fees, in exchange for a minority interest, with the right to acquire the balance of the joint venture based on the future results of the venture (among other rights and obligations). The Company accounts for the investment in the joint venture as an equity-method investment. Total related party revenues recognized by the Company as a result of arrangements with its joint venture were $45 and $658 for the three and six months ended June 30, 2022, respectively, and are included in Net Revenues in the Condensed Consolidated Statements of Operations. As of June 30, 2022, the investment balance of $4.7 million was included in other assets on the consolidated balance sheet.
For its unconsolidated joint venture investments, the Company measures and records impairment losses, and reduces the carrying value of the equity investment when indicators of impairment are present and the expected discounted cash flows related to the investment is less than the carrying value. For the six months ended June 30, 2022, the Company did not record any impairment charges.
Related Party License Revenue
As of June 30, 2022, Navitas entered into a Patent License Agreement with an entity under common control with the Company’s partner in the joint venture described above. In consideration of the license rights granted, the Company recorded license fee revenue of $850 during the three months ended June 30, 2022. Such amounts are included in Net Revenues in the Condensed Consolidated Statement of Operations.
NAVITAS SEMICONDUCTOR CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022 and 2021
(unaudited)
($ in thousands, except per share amounts and where noted)
16. SUBSEQUENT EVENTS
The Company evaluated material subsequent events from the consolidated balance sheet date of June 30, 2022, through August 15, 2022, the date the condensed consolidated financial statements were issued. There were no material subsequent events as of August 15, 2022, except as noted below.
Acquisition of GeneSiC Semiconductor
On August 15, 2022, the Company acquired GeneSiC Semiconductor Inc., a private Delaware corporation (“GeneSiC”), in exchange for consideration consisting of $100,000 in cash and 24,883,161 shares of Navitas common stock. The acquisition was consummated pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Gemini Acquisition LLC, a Delaware limited liability company and a wholly owned direct subsidiary of the Company (“Merger Sub”), GeneSiC, and the stockholders of GeneSiC. Pursuant to the Merger Agreement and immediately after its execution and delivery, GeneSiC merged with and into Merger Sub (the “Merger”), with Merger Sub as the surviving entity and continuing to operate the GeneSiC business after the Merger as a wholly owned subsidiary of the Company. The Merger Agreement also includes possible earn-out payments of up to $25,000, conditioned on revenue targets for the GeneSiC business over the four fiscal quarters ending September 30, 2023.
Due to the limited time since the acquisition date, and the size and complexity of the GeneSiC acquisition, the accounting for the business combination is not yet complete.
