NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except unit and share amounts and per unit and per share amounts)
(Unaudited)
1. Nature of the Business and Basis of Presentation
indie Semiconductor, Inc. (“indie”) and its predecessor for accounting purposes, Ay Dee Kay, LLC, a California limited liability company (“ADK LLC”) are collectively referred to herein as the “Company”. The Company offers highly innovative automotive semiconductors and software solutions for Advanced Driver Assistance Systems (“ADAS”), light detection and ranging (“LiDAR”), connected car, user experience and electrification applications. These functions represent the core underpinnings of both electric and autonomous vehicles, while the advanced user interfaces are transforming the in-cabin experience to mirror and seamlessly connect to the mobile platforms we rely on every day. indie is an approved vendor to Tier 1 automotive suppliers and its platforms can be found in marquee automotive manufacturers around the world. Headquartered in Aliso Viejo, California, indie has design centers and sales offices in Austin, Texas; Boston, Massachusetts; Detroit, Michigan; San Francisco and San Jose, California; Budapest, Hungary; Dresden, Germany; Edinburgh, Scotland and several locations throughout China. The Company engages subcontractors to manufacture its products. The majority of these subcontractors are located in Asia.
Reverse Recapitalization with Thunder Bridge Acquisition II
On June 10, 2021 (the “Closing Date”), the Company completed a series of transactions (the “Transaction”) with Thunder Bridge Acquisition II, Ltd. (“TB2”) pursuant to the Master Transactions Agreement dated December 14, 2020, as amended on May 3, 2021. In connection with the Transaction, Thunder Bridge Acquisition II Surviving Pubco, Inc, a Delaware corporation (“Surviving Pubco”), was formed to be the successor public company to TB2, and TB2 was domesticated into a Delaware corporation and merged with and into a merger subsidiary of Surviving Pubco. Immediately prior to the closing of the Transaction (the “Closing”), shareholders of TB2 redeemed an aggregate of 9,877,106 common shares of TB2 and the outstanding common shares and warrants of TB2 were converted into 24,622,894 Class A common shares of Surviving Pubco and 17,250,000 warrants to purchase Class A common shares of Surviving Pubco. The outstanding common shares and warrants of TB2 sponsors were converted into 8,625,000 shares of Class A common shares and 8,650,000 private placement warrants. In addition, TB2 issued 1,500,000 working capital warrants to an affiliate of the sponsor in satisfaction of a working capital promissory note (see Note 7 - Warrant Liability). Concurrent with the Closing, TB2 raised $150,000 in a Private Investment in Public Entity (“PIPE”) financing, pursuant to which Surviving Pubco issued 15,000,000 Class A common shares. On the Closing Date, Surviving PubCo changed its name to indie Semiconductor, Inc., and listed its shares of Class A common stock, par value $0.0001 per share (“Common Stock”) on the Nasdaq under the symbol “INDI”.
Immediately prior to the Transaction, (i) the Company’s existing warrants to purchase the Company’s Class G units were net exercised and 10,019 Class G units of the Company were issued to the holders of the warrants; (ii) the SAFEs were converted into an aggregate of 284,925 Class A units; (iii) the Embry notes and the interest accrued thereunder were converted into 185,000 Class A units and 100,000 Class C units; and (iv) all 1,251,566 Class C, D, E, F and G units of the Company were converted into Class A units as per their rights and preferences. Immediately thereafter, each outstanding Class A unit and Class B unit was split into approximately 27.8 Class A units and Class B units, respectively (the “Exchange Ratio”). Following the split, 77,497,793 Class A units were exchanged for 43,670,422 Class A common shares and 33,827,371 Class V common shares in indie and 9,564,150 Class B units were exchanged for 9,564,150 Class A common shares in indie (1,791,147 of such shares were subject to vesting conditions).
The closing Exchange Ratio was determined by dividing (i) a number of shares of the Company’s Class A common stock equal to (A) the Closing Merger Consideration (as defined below), divided by (B) $10.00 per share, by (ii) the total number of ADK LLC membership units outstanding immediately prior to the Closing. The “Closing Merger Consideration” of $894,628 was determined by taking $900,000 of merger consideration less applicable adjustments of $5,372.
3,450,000 Class A common shares of indie were issued and held in escrow (“Escrow Shares”) for the potential future release to the sponsors of TB2 in the event the earn-out milestones are met. Additionally, the former owners of ADK LLC may be entitled to receive up to 10,000,000 earn-out shares of the Company’s Class A common stock if the earn-out milestones are met. See Note 8 for the milestones details.
Immediately following the Closing, the Company’s board of directors consisted of nine directors, seven of whom were designated by the Company. A majority of the directors qualified as independent directors under rules of Nasdaq.
The Transaction was accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Under the guidance in Accounting Standards Codifications (“ASC”) Topic 805, indie is treated as the “acquirer” for financial reporting purposes. As such, the Company is deemed the accounting predecessor of the combined business and is the successor registrant for U.S. Securities and Exchange Commission (“SEC”) purposes, meaning that the Company’s financial statements for previous periods will be disclosed in the registrant’s future periodic reports filed with the SEC. The most significant change in our reported financial position and results of operations was gross cash proceeds of $399,511 from the merger transaction, which includes $150,000 in gross proceeds from the PIPE financing that was consummated in conjunction with the Transaction. The increase in cash was offset by transaction costs incurred in connection with the Transaction of approximately $44,523 plus the retirement of indie’s long-term debt of $15,607. Approximately $29,770 of the transaction costs and all of indie’s long-term debt were paid as of June 30, 2021. Approximately $21,848 of the transaction costs paid as of June 30, 2021 were paid by TB2 as part of the Closing. The remainder transaction costs are expected to be paid in the third quarter of 2021.
The table below summarizes the shares of Class A and Class V common stock issued immediately after the closing of the Transaction as well as the impact of the Transaction on the condensed consolidated statement of stockholders’ equity as of June 10, 2021:
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Class A Common Stock
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|
Class V Common Stock
|
|
Additional Paid in Capital
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
Redemption of Class H units
|
|
(125,101)
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
(900)
|
|
|
Embry notes conversion
|
|
8,023,072
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
4,118
|
|
|
Warrants net settlement conversion
|
|
278,533
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SAFEs conversion
|
|
7,466,891
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|
|
1
|
|
|
454,077
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|
|
—
|
|
|
86,099
|
|
|
PIPE and SPAC financing
|
|
44,797,894
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
377,654
|
|
|
Earn-out liability
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(119,759)
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|
|
Transaction expenses
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,675)
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|
|
Warrants liability
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(74,408)
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|
|
Reverse recapitalization on June 10, 2021
|
|
60,441,289
|
|
|
$
|
6
|
|
|
454,077
|
|
|
$
|
—
|
|
|
$
|
250,129
|
|
Impact of COVID-19
The COVID-19 pandemic (the “Pandemic”) and efforts to control its spread have significantly curtailed the movement of people, goods, and services worldwide. The duration and extent of the Pandemic depends on future developments that cannot be accurately predicted at this time, including the duration and severity of the Pandemic, the severity and transmission rates of new and more contagious and/or vaccine-resistant variants of COVID-19, and the actions taken to contain it or treat COVID-19, including the availability, distribution, rate of public acceptance and efficacy of vaccines for COVID-19, as well as the economic impact on local, regional, national and international customers and markets. The Pandemic has already had an adverse effect on the global economy, and the ultimate societal and economic impact of the Pandemic remains unknown.
The Company experienced a decrease in customer demand and product shipments in the second quarter of fiscal year 2020. This decrease was primarily the result of closures or reduced capacity at customer manufacturing facilities in China. During the second half of fiscal year 2020, customer manufacturing facilities re-opened and demand increased. As customer demand increased during the second half of fiscal year 2020 and the first quarter of 2021, the semiconductor industry, and automotive semiconductors in particular, experienced material shortages and supply constraints. Given the Company’s reliance on third-party manufacturing suppliers, these industry dynamics have resulted in certain instances of extended production lead times, increased production and expedite costs, and delays in meeting increasing customer demand for its products, which if unabated, present a significant risk to the Company. In certain circumstances, the Company has increased order lead times, and placed purchase orders with suppliers based on its anticipated demand requirements in efforts to secure production capacity allocation. However, the Company cannot predict the duration or magnitude of the Pandemic or the full impact that it may have on the Company’s financial condition, operations, and workforce. The Company will continue to actively monitor the rapidly evolving situation related to the Pandemic and may take further actions that alter the Company’s operations, including those that may be required by federal, state or local authorities, or that the Company determines are in the best interests of its employees and other third parties with whom the Company does business.
Basis of Presentation
The condensed consolidated financial statements are prepared in accordance with U.S. GAAP and the rules and regulations of the SEC. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the ASC and Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board (“FASB”). The condensed consolidated financial statements include the consolidated accounts of the Company’s majority-owned subsidiary, ADK LLC, of which 74% was owned by indie as of June 30, 2021. ADK LLC’s consolidated financial statements include its wholly-owned subsidiaries Indie Services Corporation, indie LLC and Indie City LLC, all California entities, Ay Dee Kay Limited, a private limited company incorporated under the laws of Scotland, indie GmbH, a private limited liability company incorporated under the laws of Germany, indie Kft, a limited liability company incorporated under the laws of Hungary, its majority owned subsidiary, Wuxi indie Microelectronics Ltd. (“Wuxi”), a Chinese entity 50% owned by the Company as of June 30, 2021 and Wuxi’s wholly-owned subsidiaries, indie Semiconductor HK, Ltd and Shanghai Ziying Microelectronics Co., Ltd.
All significant intercompany accounts and transactions of the subsidiaries have been eliminated in consolidation. The noncontrolling interest attributable to the Company’s less-than-wholly-owned subsidiaries is presented as a separate component from stockholders’ deficit in the condensed consolidated balance sheets, and a noncontrolling interest in the condensed consolidated statements of operations and condensed consolidated statements of stockholders’ deficit and noncontrolling interest.
Unaudited Interim Financial Information
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of its financial position and its results of operations, changes in stockholders’ equity (deficit) and cash flows. The condensed consolidated balance sheet at December 31, 2020, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2020.
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) permits an emerging growth company (“EGC”) to delay complying with new or revised financial accounting standards that do not yet apply to private companies (that is, those that have not had a registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”), declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company qualifies as an EGC. The JOBS Act provides that an EGC can elect to opt-out of the extended transition period and comply with the requirements that apply to non-EGCs, but any such election to opt-out is irrevocable. The Company has elected not to opt-out of such an extended transition period. As a result, when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an EGC, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This different adoption timing may make a comparison of the Company’s financial statements with other public companies difficult or impossible because of the potential differences in accounting standards used.
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), whereby lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. A modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the condensed consolidated financial statements must be applied. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. The FASB issued ASU 2019-10-Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates in November 2019 and ASU 2020-05-Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities in June 2020. The ASUs change some effective dates for ASU 2016-02 on leasing. After applying ASU 2019-10 and 2020-05, ASU 2016-02 is effective for annual periods beginning after
December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The adoption of the new standard is expected to result in the recognition of additional lease liabilities and right-of-use assets as of January 1, 2022. The Company is currently evaluating the impact of the new standard on the Company’s condensed consolidated financial statements and related disclosures.
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. 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.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. This guidance eliminates Step 2 from the goodwill impairment test and instead requires that an entity measure the impairment of goodwill assigned to a reporting unit if the carrying value of assets and liabilities assigned to the reporting unit, including goodwill, exceed the reporting unit's fair value. The new guidance must be adopted for annual and interim goodwill tests by the Company beginning on January 1, 2022. After the adoption of this standard, which will be applied prospectively, the Company will follow a one-step model for goodwill impairment. The Company does not anticipate this pronouncement will have a significant impact on the Company’s consolidated financial statements upon adoption.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of ASC 740, Income Taxes. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 (and December 15, 2021 for nonpublic companies) and early adoption is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective, or prospective basis. The Company is currently assessing the impact that this standard will have on its condensed consolidated financial statements and related disclosures.
2. Business Combinations
Acquisition of City Semiconductor, Inc.
On May 13, 2020, the Company acquired certain assets and liabilities of City Semiconductor, Inc. (“City Semi”), which had developed technology related to analog and mixed-signal integrated circuitry, with a focus on high-speed analog-to-digital converters and digital-to-analog intellectual property cores. The Company accounted for the acquisition as a business combination. The transaction costs associated with the acquisition were not material and were expensed as incurred. The acquisition date fair value of the consideration transferred for City Semi was approximately $2,029, which consisted of the following:
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|
|
|
|
|
|
Fair Value
As of May 13, 2020
|
|
|
|
|
Class H units issued
|
$
|
711
|
|
|
Contingent consideration
|
1,180
|
|
|
Cash consideration to be transferred at a later date
|
138
|
|
|
Total
|
$
|
2,029
|
|
The maximum contingent consideration payable in connection with the acquisition is $2,000. The acquisition date fair value of the contingent consideration was determined based on the Company’s assessment of the probability of achieving the performance targets that ultimately obligate the Company to transfer additional consideration to the seller. The contingent consideration is comprised of two tranches. The first tranche is payable, up to a maximum of $500, upon the achievement of cash collection targets within twelve months of the acquisition, and this target was achieved in May 2021. The second tranche is payable, up to a maximum of $1,500 upon the shipment of a product incorporating the acquired developed technology. The fair value of any outstanding contingent consideration liabilities will be remeasured as of the end of each reporting period with any resulting remeasurement gains or losses recognized in the condensed consolidated statement of operations. The fair value of the first and second tranche contingent consideration liabilities was $500 and $1,000, respectively, as of June 30, 2021, and $500
and $900, respectively, as of December 31, 2020. The fair value of the first tranche contingent consideration liability is reflected in Other current liabilities within the condensed consolidated balance sheet and the fair value of the second tranche contingent consideration liability is reflected in Other long-term liabilities.
In connection with this acquisition, the two existing employees of City Semi, including the founder and sole shareholder of City Semi, entered into employment agreements with the Company. As there is a service condition associated with these agreements, the related compensation expense is accounted for separately from the acquisition. The Company recognizes the related compensation expense as research and development expense in the condensed consolidated statement of operations on a straight-line basis over the requisite service period.
The following table summarizes the fair values of assets acquired and liabilities assumed as of the date of acquisition:
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|
|
|
|
Fair Value
As of May 13, 2020
|
|
|
|
|
Intangible asset – Software license
|
$
|
139
|
|
|
Intangible asset - Developed technology
|
369
|
|
|
Goodwill
|
1,739
|
|
|
Deferred revenue
|
(41)
|
|
|
Accrued expenses
|
(177)
|
|
|
Net assets acquired
|
$
|
2,029
|
|
The Company estimates that the useful life of the acquired developed technology intangible asset is seven years and the useful life of the acquired software license intangible asset is approximately one year, which represents the remaining duration of the software license. The excess of purchase consideration over the fair value of net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce. None of the goodwill recognized is expected to be deductible for income tax purposes.
There are no amounts of revenue or earnings of City Semi included in the Company’s condensed consolidated statement of operations for the three months ended March 31, 2021.
The unaudited pro forma financial information shown below summarizes the combined results of operations for the Company and City Semi as if the closing of the acquisition had occurred on January 1, 2020.
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2020
|
|
Six Months Ended
June 30, 2020
|
|
|
|
|
|
|
Combined revenue
|
$
|
4,316
|
|
|
$
|
8,979
|
|
|
Combined net loss before income taxes
|
(7,218)
|
|
|
(12,598)
|
|
The unaudited pro forma financial information includes adjustments that are directly attributable to the business combination and are factually supportable. The adjustments primarily reflect the amortization of acquired developed technology and compensation expense related to consideration to be transferred to the founder upon the second anniversary of his employment. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been realized if the acquisition had taken place on January 1, 2020.
On June 10, 2021, in connection with the closing of the Transaction, the Company paid $900 to redeem the Class H units previously issued.
3. Inventory, Net
Inventory, net consists of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
Work-in-process
|
$
|
3,691
|
|
|
$
|
4,277
|
|
|
Finished goods
|
468
|
|
|
882
|
|
|
Inventory, gross
|
4,159
|
|
|
5,159
|
|
|
Less: Inventory reserves
|
796
|
|
|
2,259
|
|
|
Inventory, net
|
$
|
3,363
|
|
|
$
|
2,900
|
|
During the six months ended June 30, 2021 and 2020, the Company recognized write-downs in the value of inventory of $65 and $322, respectively. Write-downs in the value of inventory were de minimis for the three months ended June 30, 2021 and 2020.
4. Intangible Assets, Net
Intangible assets, net consist of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
Weighted
Average
Remaining
Useful Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Weighted
Average
Remaining
Useful Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Software licenses
|
3.0
|
|
$
|
16,545
|
|
|
$
|
(4,425)
|
|
|
$
|
12,120
|
|
|
0.6
|
|
$
|
4,391
|
|
|
$
|
(3,759)
|
|
|
$
|
632
|
|
|
Intellectual property licenses
|
1.9
|
|
1,736
|
|
|
(1,668)
|
|
|
68
|
|
|
1.7
|
|
1,736
|
|
|
(1,614)
|
|
|
122
|
|
|
Developed technology
|
5.8
|
|
369
|
|
|
(61)
|
|
|
308
|
|
|
6.4
|
|
369
|
|
|
(35)
|
|
|
334
|
|
|
Total
|
|
|
$
|
18,650
|
|
|
$
|
(6,154)
|
|
|
$
|
12,496
|
|
|
|
|
$
|
6,496
|
|
|
$
|
(5,408)
|
|
|
$
|
1,088
|
|
The Company obtained software licenses which it uses for its research and development efforts related to its products.
Amortization of intangible assets for the three months ended June 30, 2021 and 2020 was $353 and $408, respectively. Amortization of intangible assets for the six months ended June 30, 2021 and 2020 was $764 and $802, respectively. Amortization of intangible assets is included in research and development expense in the condensed consolidated statements of operations.
Based on the amount of intangible assets subject to amortization as of June 30, 2021, amortization expense for each of the next five fiscal years is expected to be as follows:
|
|
|
|
|
|
|
|
2021 (remaining six months)
|
$
|
1,777
|
|
|
2022
|
3,805
|
|
|
2023
|
4,570
|
|
|
2024
|
2,221
|
|
|
2025
|
53
|
|
|
Thereafter
|
70
|
|
|
|
$
|
12,496
|
|
5. Goodwill
There was no change in goodwill recorded between June 30, 2021 and December 31, 2020.
6. Debt
The following table sets forth the components of debt as of June 30, 2021 and December 31, 2020:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
Principal
Outstanding
|
|
Unamortized
Discount
and
Issuance Cost
|
|
Carrying
Amount
|
|
Principal
Outstanding
|
|
Unamortized
Discount
and
Issuance Cost
|
|
Carrying
Amount
|
|
Trinity term loan, due 2022
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,000
|
|
|
$
|
(665)
|
|
|
$
|
11,335
|
|
|
Short term loans, due 2021
|
619
|
|
|
—
|
|
|
619
|
|
|
459
|
|
|
—
|
|
|
459
|
|
|
PPP Loan, due 2022
|
—
|
|
|
—
|
|
|
—
|
|
|
1,868
|
|
|
—
|
|
|
1,868
|
|
|
Tropez loan, due 2021
|
—
|
|
|
—
|
|
|
—
|
|
|
2,000
|
|
|
—
|
|
|
2,000
|
|
|
Total term loans
|
619
|
|
|
—
|
|
|
619
|
|
|
16,327
|
|
|
(665)
|
|
|
15,662
|
|
|
Revolving line of credit
|
1,675
|
|
|
—
|
|
|
1,675
|
|
|
1,675
|
|
|
—
|
|
|
1,675
|
|
|
Embry convertible notes, due 2021
|
—
|
|
|
—
|
|
|
—
|
|
|
3,606
|
|
|
(110)
|
|
|
3,496
|
|
|
Total debt
|
$
|
2,294
|
|
|
$
|
—
|
|
|
$
|
2,294
|
|
|
$
|
21,608
|
|
|
$
|
(775)
|
|
|
$
|
20,833
|
|
The outstanding debt as of June 30, 2021 and December 31, 2020 is classified in the condensed consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Current liabilities - Current debt obligations
|
$
|
2,294
|
|
|
$
|
8,488
|
|
|
Noncurrent liabilities - Long-term debt, net of current maturities
|
—
|
|
|
12,345
|
|
|
|
$
|
2,294
|
|
|
$
|
20,833
|
|
Embry Convertible Subordinated Notes Payable
On December 4, 2012, the Company entered into two convertible note and exchange agreements with an investor (“Embry”), pursuant to which the entire outstanding principal of $3,500 and corresponding accrued interest of $107 held under existing loan agreements were exchanged for two convertible subordinated notes with aggregate principal amounts of $2,604 and $1,003. The convertible subordinated notes bore interest of 0.93% per annum, which was compounded annually. The aggregate principal and all accrued and unpaid interest were due in full on December 4, 2017. On December 3, 2017, the Company entered into a 12-month extension of these two convertible notes and exchange agreements.
On December 3, 2018, the Company entered into a 36-month extension of these two convertible note and exchange agreements. The interest rate on the 36-month extension was amended to 3.07% per annum. The Company recorded a discount on this convertible debt extension and a corresponding increase in additional paid-in capital related to the enhanced value of the embedded conversion options. The Company amortized the discount to interest expense over the 36-month extension period.
The amendments to extend the maturity date were treated as modifications of the debt.
The convertible subordinated notes with aggregate principal of $2,604 and $1,003 were convertible into an aggregate 185,000 Class A units and 100,000 Class C units, respectively, at the investors’ discretion prior to the maturity date or automatically upon a liquidity event, as defined in the loan agreement. The Company determined that the embedded conversion options should not be bifurcated from their host instruments.
In December 2020, Embry assigned the notes to its affiliate, Cézanne Investments Ltd. (“Cézanne”). At December 31, 2020, the total carrying value of such convertible subordinated notes payable, net of unamortized discount, was $3,496. Total accrued interest as of December 31, 2020 was $458, and is included in Accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets. On June 10, 2021, Cézanne exercised its right to convert at the closing of the Transaction and the Embry convertible notes were converted to equity at their carrying value of $4,119, inclusive of $3,607 principal balance and accrued interest of $512.
PacWest Term Loan and Revolving Line of Credit
The Company entered into a loan and security agreement with Pacific Western Bank (“PacWest”, formerly Square 1 Bank) in January 2015, that provided a term loan of up to $10,000 with a maturity date of September 2020. The term loan bore interest equal to the greater of one percent above the prime rate in effect, or 4.5% on outstanding borrowings. In addition, the loan and security agreement provided for a revolving line of credit. The revolving line of credit bore interest equal to the greater of seventy-five basis points above the prime rate in effect, or 4.25% on outstanding borrowings. The terms of the loan and security agreement have been amended from time to time, with the most recent amendment dated June 8, 2021. The amendments have, among other things, extended the maturity date of the loan and adjusted the financial covenants’ borrowing limits. In August 2017 and as part of an amendment to the loan and security agreement, the Company issued a warrant to PacWest to purchase 3,388 Class G units. On June 10, 2021, these warrants were net exercised and ultimately converted into 82,187 shares of indie Class A common stock.
During 2020, the Company entered into three amendments to the PacWest loan agreement. Pursuant to the terms of the amendments, $889, the full amount of unpaid principal and interest was transferred from the PacWest term loan to the revolving line of credit as of January 30, 2020. In addition, the amendments modified certain financial covenants, including that the Company maintain a minimum cash balance of $2,300 and adjusted the borrowing limits to $2,000. On June 8, 2021, the maturity date of the revolving line of credit was amended to July 20, 2021.
As of June 30, 2021 and December 31, 2020, the Company had no outstanding balance on the term loan.
As of June 30, 2021 and December 31, 2020, the revolving line of credit had an outstanding balance of $1,675. The Company’s borrowings under the term loan and revolving line of credit were subject to an aggregate borrowing limit of $2,000 as of June 30, 2021 and December 31, 2020. Total borrowings at any given time under the line of credit are limited to a percentage of domestic accounts receivables less than 90 days past due and other factors.
This loan and the revolving line of credit are subject to debt covenants which, if violated, could result in the outstanding balance becoming immediately due. The Company has complied with or obtained waivers for all such covenants as of the date these financial statements were issued.
Trinity Term Loan
In June 2018, the Company entered into a term loan agreement with Trinity Capital Fund (“Trinity”) to borrow $15,000 at a rate of 11.25% per annum. In connection with such loan, the Company issued a warrant to Trinity to acquire 6,250 Class G units at an exercise price per unit of $35.42.
In October 2020, the Company entered into a new loan agreement with Trinity, which replaced the March 2018 agreement. The new loan had a principal of $12,000, which was exchanged for the old loan’s principal balance of $11,325, lender fees of $474 and a cash payment to the Company of $194. In addition, the Company issued to Trinity 1,844 additional warrants to purchase the Company’s Class G Units, which had a fair value of $405. The new loan agreement was treated as a modification for accounting purposes. The unamortized discount from the old loan was treated as additional debt discount on the new loan along with the lender fees paid to and additional warrants issued to Trinity in October 2020. On June 10, 2021, these warrants were net exercised and ultimately converted into 196,346 shares of indie Class A common stock.
The new loan had a maturity date of October 1, 2024 and interest equal to the greater of 10.75% or the Prime Rate plus 7.5%. The term loan may be prepaid by paying the principal and interest plus a prepayment fee ranging from 4.0% to 1.0% of the principal being repaid, depending on the length of time between the effective date and the prepayment date. Upon final repayment, an end-of-term fee of $720 must be paid by the Company to Trinity. The term loan was collateralized by substantially all of the Company’s assets to the extent they were not already securing the senior debt of PacWest.
As of December 31, 2020, the Company had $11,335 outstanding under the Trinity Term loans, net of the unamortized discount and issuance cost generated as a result of the warrant issuance described in Note 11 – Members’ Equity. The debt discount and issuance costs were being amortized through interest expense over the term of the loan using the effective interest method. The old loan required monthly interest only payments of $141 until November 2019 when repayment of principal began, and payments increased to $493 per month. The new loan required interest only payments of $108 until October 2021 when repayment of principal begins, and payments increased to $391 per month with an effective interest rate of 15.8%.
On June 21, 2021, the Company fully repaid the outstanding loan balance and the accrued interest of $13,261, including principal of $12,000, end-of-term fee and early termination fee of $1,200 and accrued interest of $61. As a result of the repayment, the Company recognized a loss from extinguishment of debt for $1,585, which included (i) the remaining
unamortized discount and debt issuance cost of $577 and (ii) end-of-term fee and early termination fee paid not previously accrued of $1,008, in the condensed consolidated statement of operations for the three and six months ended June 30, 2021.
Short Term Loans
On November 13, 2019, Wuxi entered into a short term loan agreement with CITIC Group Corporation Ltd. with aggregate principal balance of CNY 2,000, or approximately $285, and bearing interest of 4.785% per annum. The principal balance is denominated in Chinese Yuan and the outstanding balance is adjusted for changes in foreign currency exchange rates at each reporting period. On November 13, 2020, the terms of the agreement were extended for twelve months, and the principal and interest are due on November 15, 2021. On October 15, 2020, Wuxi entered into a short term loan agreement with Netherlands China Business Council (“NCBC”) with aggregate principal balance of CNY1,000 or approximately $151 and bearing interest of 4.785%. On April 29, 2021, Wuxi increased its short term loan principal with NCBC by CNY1,000 or approximately $155 to a total principal balance of CNY4,000. As of June 30, 2021 and December 31, 2020, the aggregate outstanding principal balance of the short term loans was $619 and $459, respectively.
Tropez Note
On January 31, 2020, the Company entered into a convertible loan agreement with Tropez Fund Limited (“Tropez”) with principal amount of $2,000 and subject to interest of 12% per annum. The terms of the loan provide for a renewable 180-day period for a maximum term of twelve months. The Company renewed the loan on July 29, 2020 for the additional 180-day period. The note was amended on January 21, 2021 to extend the maturity date to the earlier of December 31, 2021 or the closing of the Transaction. Additionally, the January 21, 2021 amendment removed the conversion rights associated with the loan. On June 17, 2021, the Company fully repaid the outstanding loan balance and the accrued interest of $2,346 and the loan was terminated.
Paycheck Protection Program
In April 2020, the Company applied for a loan pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act as administered by the U.S. Small Business Administration (the “SBA”). In May 2020, the loan was approved, and the Company received gross proceeds from the loan in the amount of $1,868 (the “PPP Loan”). The PPP Loan took the form of a promissory note that matures two years after the date of the note and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below). The PPP Loan provides for customary events of default, including, among others, those relating to failure to make payments thereunder. The Company may prepay the principal of the PPP Loan at any time without incurring any prepayment penalties. The PPP Loan is non-recourse against any individual shareholder, except to the extent that such party uses the loan proceeds for an unauthorized purpose.
On May 10, 2021, the entire balance of the PPP Loan was forgiven by the SBA and lender. As a result, the Company recorded a gain on extinguishment of debt of $1,889, which represented the principal balance of $1,868 and accrued interest of $21, in the condensed consolidated statement of operations for the three and six months ended June 30, 2021.
The table below sets forth the components of interest expense for the three and six months ended as of June 30, 2021 and June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Interest expense on Trinity Term Loan:
|
|
|
|
|
|
Contractual interest
|
324
|
|
|
388
|
|
|
719
|
|
|
807
|
|
|
Amortization of discount and issuance cost
|
66
|
|
|
13
|
|
|
138
|
|
|
27
|
|
|
|
390
|
|
|
401
|
|
|
857
|
|
|
834
|
|
|
Interest expense on other debt obligations:
|
|
|
|
|
|
Contractual interest
|
109
|
|
|
112
|
|
|
233
|
|
|
197
|
|
|
Amortization of discount and issuance cost
|
31
|
|
|
38
|
|
|
60
|
|
|
72
|
|
|
|
140
|
|
|
150
|
|
|
293
|
|
|
269
|
|
|
Total interest expense
|
$
|
530
|
|
|
$
|
551
|
|
|
$
|
1,150
|
|
|
$
|
1,103
|
|
7. Warrant Liability
In connection with the closing of the Transaction, holders of TB2 Class A ordinary shares automatically received Class A common stock of indie, and holders of TB2 warrants automatically received 17,250,000 warrants of indie with substantively identical terms (“Public Warrants”). At the Closing, 8,625,000 Class B ordinary shares of TB2 owned by the Sponsor, automatically converted into 8,625,000 shares of indie Class A common stock, and 8,650,000 private placement warrants held by the sponsor, each exercisable for one Class A ordinary share of TB2 at $11.50 per share, automatically converted into warrants to purchase one share of indie Class A common stock at $11.50 per share with substantively identical terms (“the “Private Placement Warrants”). Also at the Closing, TB2 issued 1,500,000 working capital warrants to an affiliate of the Sponsor in satisfaction of a working capital promissory note of $1,500 (the “Working Capital Warrants” and, together with the Private Placement Warrants, the “Private Warrants”). These Working Capital Warrants have substantially identical terms to the Private Placement Warrants.
The warrants may be exercised only during the period commencing on July 10, 2021 (30 days after the closing of the Transaction) through June 10, 2026. The Company may redeem the Public Warrants at a price of $0.01 per warrant upon 30 days’ notice, only in the event that the last sale price of the Class A common stock is at least $18.00 per share for any 20 trading days within a 30-trading day period ending on the third day prior to the date on which notice of redemption is given, provided there is an effective registration statement and current prospectus in effect with respect to the Class A common stock underlying such warrants during the 30 day redemption period. If the Company redeems the warrants as described above, management will have the option to require all holders to exercise warrants on a “cashless basis.”
In accordance with the warrant agreement relating to the Public Warrants, the Company is only required to use its best efforts to maintain the effectiveness of the registration statement covering the warrants. If a registration statement is not effective within 90 days following the consummation of a business combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act, as amended. In the event that a registration statement is not effective at the time of exercise or no exemption is available for a cashless exercise, the holder of such warrant shall not be entitled to exercise such warrant for cash and in no event (whether in the case of a registration statement being effective or otherwise) will the Company be required to net cash settle the warrant exercise.
The terms of the Private Warrants are identical to the Public Warrants as described above, except that the Private Warrants are not redeemable so long as they are held by the sponsor or its permitted transferees.
The Company has reviewed the terms of warrants to purchase its Class A common stock to determine whether warrants should be classified as liabilities or stockholders’ equity in its consolidated balance sheet. In order for a warrant to be classified in stockholders’ equity, the warrant must be (a) indexed to the Company’s equity and (b) meet the conditions for equity classification in ASC 815-40, Derivatives and Hedging – Contracts in an Entity’s Own Equity. If a warrant does not meet the conditions for equity classification, it is carried on the consolidated balance sheet as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in the statement of operations as change in fair value of warrants in Other income (expense), net. The Company determined that all warrants are required to be carried as a liability in the condensed consolidated balance sheet at fair value, with changes in fair value recorded in the condensed consolidated statement of operations (see Note 10). At the closing of the Transaction on June 10, 2021, the warrants had an initial fair value of $74,408, which was recorded as liability and a reduction to additional paid in capital in the condensed consolidated balance sheet.
The following table is a summary of the number of shares of the Company’s Class A common stock issuable upon exercise of warrants outstanding at June 30, 2021 (there were no warrants outstanding at December 31, 2020):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Exercise
Price
|
|
Redemption Price
|
|
Expiration Date
|
|
Classification
|
|
Initial Fair Value
|
|
Public Warrants
|
17,250,000
|
|
|
$
|
11.50
|
|
|
$
|
18.00
|
|
|
June 10, 2026
|
|
Liability
|
|
$
|
42,435
|
|
|
Private Warrants
|
10,150,000
|
|
|
$
|
11.50
|
|
|
N/A
|
|
June 10, 2026
|
|
Liability
|
|
$
|
31,973
|
|
8. Earn-Out Liability
Earn-Out Milestones
Certain of indie’s stockholders are entitled to receive up to 10,000,000 earn-out shares of the Company’s Class A common stock if the Earn-Out Milestones are met. The Earn-Out Milestones represents two independent criteria, which each entitles the eligible stockholders to 5,000,000 earn-out shares per milestone met. Each Earn-Out Milestone is considered met if at anytime following the Transaction and prior to December 31, 2027, the volume weighted average price of indie’s Class A common stock is greater than or equal to $12.50 or $15.00 for any twenty trading days within any thirty trading day period, respectively. Further, the Earn-Out Milestones are also considered to be met if indie undergoes a Sale. A Sale is defined as the occurrence of any of the following for indie: (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 earn-out shares have been categorized into two components: (i) those associated with stockholders with vested equity at the closing of the Transaction that will be earned upon achievement of the Earn-out Milestones (the “Vested Shares”) and (ii) those associated with stockholders with unvested equity at the closing of the Transaction that will be earned over the remaining service period with the Company on their unvested equity shares and upon achievement of the Earn-out Milestones (the “Unvested Shares”). The Vested Shares are classified as liabilities in the condensed consolidated balance sheet and the Unvested Shares are equity-classified share-based compensation to be recognized over time (see Note 14 - Share-based Compensation). The earn-out liability was initially measured at fair value at the closing of the Transaction 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 condensed consolidated statement of operations.
The estimated fair value of the earn-out liability was determined using a Monte Carlo simulation that simulated the future path of the Company’s stock price over the earn-out 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.
Escrow Shares
3,450,000 Class A common shares of indie were placed in escrow for the potential future release to the sponsors of TB2 in the event the earn-out milestones are met. The earn-out milestones for the Escrow Shares are identical to those of the earn-out shares. Achievement of each milestone entitles the shareholders to 50% of the total Escrow Shares. The Escrow Shares have been accounted for as a liability and remeasured to fair value each reporting period.
At the closing of the Transaction on June 10, 2021, the earn-out liability had an initial fair value of $119,759, which was recorded as a long-term liability and a reduction to additional paid in capital in the condensed consolidated balance sheet.
9. Simple Agreement for Future Equity (“SAFEs”)
During the year ended December 31, 2020, the Company entered into SAFEs with existing investors and third-party investors for total proceeds of $25,765. The SAFEs require that the Company issue equity to the SAFE holders in exchange for their investment upon an equity raise of at least $35,000. During April 2021, the Company entered into SAFEs with a third-party investor for a total purchase amount of $5,000. The SAFEs require that the Company issue equity to the SAFE holders in exchange for their investment upon an equity financing (including a SPAC transaction) with an aggregate purchase price of at least $35,000.
In connection with the closing of the Transaction on June 10, 2021, all SAFEs converted into Class A membership units in ADK LLC, and then into 7,466,891 shares of Class A common stock and 454,077 shares of Class V common stock of indie. At the time of conversion, the SAFEs had a fair value of $86,100, which was recorded as a reduction of additional paid in capital in the condensed consolidated balance sheet. The fair value of the SAFEs was $102,700 as of December 31, 2020. The change in fair value between the last measurement date and the conversion date was recorded in Other income (expense), net in the condensed consolidated statement of operations.
10. Fair Value Measurements
The Company’s debt instruments are recorded at their carrying values in its condensed consolidated balance sheets, which may differ from their respective fair values. The fair values of the Company’s convertible notes are estimated using the valuation of
the securities into which the debt is convertible, external pricing data, based on interest rates and credit ratings for similar issuances with the same remaining term as the Company’s outstanding borrowings. The fair value of the Embry convertible notes was determined using valuation inputs categorized as Level 3. The fair values of the Company’s term loans and Tropez note generally approximate their carrying values.
The following table presents the Company’s fair value hierarchy for financial assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2021
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Warrant Liability
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
63,092
|
|
|
$
|
63,092
|
|
|
Contingent Earn-Outs - First Milestone
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
54,120
|
|
|
$
|
54,120
|
|
|
Contingent Earn-Outs - Second Milestone
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
47,701
|
|
|
$
|
47,701
|
|
|
First tranche contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
500
|
|
|
Second tranche contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 10, 2021
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
SAFEs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
86,100
|
|
|
$
|
86,100
|
|
|
Warrant Liability
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
74,408
|
|
|
$
|
74,408
|
|
|
Contingent Earn-Outs - First Milestone
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
63,426
|
|
|
$
|
63,426
|
|
|
Contingent Earn-Outs - Second Milestone
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56,333
|
|
|
$
|
56,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
SAFEs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
102,700
|
|
|
$
|
102,700
|
|
|
First tranche contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
500
|
|
|
Second tranche contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
900
|
|
|
$
|
900
|
|
As of June 30, 2021 and December 31, 2020, the Company’s cash and cash equivalents were all held in cash or level 1 instruments whereas the fair values approximates the carrying values.
Level 3 Disclosures
SAFEs
The SAFEs were valued using a probability-weighted expected return method (“PWERM”) valuation approach aligned to the SAFEs provisions, including (i) conversion through qualified equity financing, (ii) conversion through acquisition of a special purpose acquisition company, (iii) no conversion through equity or acquisition prior to December 31, 2021, (iv) a liquidation event, and (v) a dissolution event. Determining the fair value of the SAFEs using the PWERM requires assumptions and estimates for both the probability of each scenario and the fair value determined under each scenario. The SAFEs were valued through each scenario using an appropriate valuation approach, including calculations based on the terms of the SAFEs and a Monte Carlo simulation, which utilized the Geometric Brownian Motion formula to simulate the conversion and payout of the SAFEs. The significant unobservable inputs include the discount rate, constant volatility factor and the Geometric Brownian Motion. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement.
Warrants
Warrants were valued using the Black-Scholes-Merton formula and a Monte Carlo Simulations analysis. Calculating the fair value of warrants requires the input of subjective assumptions. Other reasonable assumptions could provide differing results. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the
liability’s estimated value.
Contingent Earn-Outs
Contingent earn-outs were valued using a Monte Carlo analysis in order to simulate the future path of the Company’s stock price over the earn-out period. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability’s estimated value.
The following table presents the significant unobservable inputs assumed for each of the fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
June 10, 2021
|
|
December 31, 2020
|
|
|
Input
|
|
Input
|
|
Input
|
|
Liabilities:
|
|
|
|
|
|
|
SAFEs
|
|
|
|
|
|
|
Discount rate
|
—
|
%
|
|
—
|
%
|
|
75
|
%
|
|
Constant volatility factor
|
—
|
%
|
|
—
|
%
|
|
40
|
%
|
|
Geometric Brownian Motion
|
—
|
|
|
—
|
|
|
0.98
|
|
|
Warrants
|
|
|
|
|
|
|
Expected volatility
|
35.1
|
%
|
|
34.1
|
%
|
|
—
|
%
|
|
First tranche contingent consideration
|
|
|
|
|
|
|
Discount rate
|
7.5
|
%
|
|
—
|
%
|
|
10.3
|
%
|
|
Second tranche contingent consideration
|
|
|
|
|
|
|
Discount rate
|
7.5
|
%
|
|
—
|
%
|
|
10.3
|
%
|
|
Contingent Earn-Outs - First Milestone
|
|
|
|
|
|
Constant volatility factor
|
35
|
%
|
|
35
|
%
|
|
—
|
%
|
|
Contingent Earn-Outs - Second Milestone
|
|
|
|
|
|
Constant volatility factor
|
35
|
%
|
|
35
|
%
|
|
—
|
%
|
11. Stockholders’ Equity
Post Transaction Stockholders’ Equity
In connection with the closing of the Transaction on June 10, 2021, all of the historical members’ equity in ADK LLC that was issued and outstanding at the Closing were converted to either Class A or Class V common stock of the Company per its rights and privileges as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 10, 2021
|
|
Member Units
|
Outstanding
|
|
Class A Common Stock
|
|
Class V Common Stock
|
|
Class A
|
1,381,424
|
|
|
12,612,470
|
|
|
25,791,473
|
|
|
Class B
|
293,221
|
|
|
9,564,150
|
|
|
—
|
|
|
Class C
|
400,000
|
|
|
11,520,101
|
|
|
—
|
|
|
Class D
|
236,521
|
|
|
1,568,565
|
|
|
5,806,776
|
|
|
Class E
|
112,916
|
|
|
1,309,971
|
|
|
2,229,122
|
|
|
Class F
|
492,110
|
|
|
16,380,782
|
|
|
—
|
|
|
Class G
|
10,019
|
|
|
278,533
|
|
|
—
|
|
|
Total
|
2,926,211
|
|
|
53,234,572
|
|
|
33,827,371
|
|
Class H units were redeemed for a cash payment of $900.
Pre-Merger Members’ Equity
The table and information set forth below reflects information about the historical ADK LLC members’ equity immediately prior to the closing as of June 10, 2021 and as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 10, 2021
|
|
As of December 31, 2020
|
|
Member Units
|
Authorized
|
|
Issued
|
|
Outstanding
|
|
Authorized
|
|
Issued
|
|
Outstanding
|
|
Class A
|
3,136,518
|
|
|
1,381,424
|
|
|
1,381,424
|
|
|
3,136,518
|
|
|
911,500
|
|
|
911,500
|
|
|
Class B
|
513,846
|
|
|
367,395
|
|
|
293,221
|
|
|
513,846
|
|
|
367,927
|
|
|
229,732
|
|
|
Class C
|
400,000
|
|
|
400,000
|
|
|
400,000
|
|
|
400,000
|
|
|
300,000
|
|
|
300,000
|
|
|
Class D
|
236,521
|
|
|
236,521
|
|
|
236,521
|
|
|
236,521
|
|
|
236,521
|
|
|
236,521
|
|
|
Class E
|
112,916
|
|
|
112,916
|
|
|
112,916
|
|
|
112,916
|
|
|
112,916
|
|
|
112,916
|
|
|
Class F
|
492,110
|
|
|
492,110
|
|
|
492,110
|
|
|
492,110
|
|
|
492,110
|
|
|
492,110
|
|
|
Class G
|
11,482
|
|
|
10,019
|
|
|
10,019
|
|
|
11,482
|
|
|
—
|
|
|
—
|
|
|
Class H
|
5,000
|
|
|
4,500
|
|
|
4,500
|
|
|
5,000
|
|
|
4,500
|
|
|
4,500
|
|
|
Total
|
4,908,393
|
|
|
3,004,885
|
|
|
2,930,711
|
|
|
4,908,393
|
|
|
2,425,474
|
|
|
2,287,279
|
|
In connection with its formation on February 9, 2007, the Company issued 911,500 Class A Units to the four initial members. On December 28, 2012, the Company issued 300,000 Class C Units to an investor at an original issue price of $10 per unit for total consideration of $3,000.
The Company reserved 185,000 Class A units and 100,000 Class C Units in connection with the convertible note described in Note 6 — Debt. These units are not issued or outstanding until conversion of the outstanding principal in accordance with the terms of the notes.
The Fifth Amended and Restated LLC Agreement authorized an increase of Class B Units from 243,000 units to 513,846 units. The Class B Units are profit interests issued to employees, directors, and consultants. See Note 14 – Share-based Compensation.
On July 24, 2015, the Company issued 221,739 Class D units to an investor at an original issue price of $33.82 per unit for cash consideration of approximately $7,215, net of issuance costs of $285. On August 28, 2015, the Company issued an additional 14,782 Class D units to an existing investor at an original issue price of $33.82 per unit for cash consideration of $500.
On July 25, 2017, the Company issued 112,916 Class E units to investors at an original issue price of $35.42 per unit for cash consideration of $3,963, net of issuance costs of $37.
The Company has issued warrants to purchase Class G Units as part of amendments to the terms of debt agreements with Trinity and PacWest, see Note 6 – Debt. In connection with entering into the term loan agreement with Trinity in March 2018, the Company issued an aggregate of 6,250 warrants with a strike price of $35.42 to purchase Class G Units. In April 2018, as part of an amendment to the loan and security agreement, the Company issued warrants to PacWest to purchase 3,388 Class G Units with a strike price of $35.42. On October 1, 2020, in connection with the new loan agreement with Trinity, the Company issued additional warrants to Trinity to purchase 1,844 Class G units at a strike price of $35.42 under the same terms and features as previously issued Class G warrants.
Following the Company’s announcement of the Master Transactions Agreement (“MTA”), PacWest issued a letter dated February 3, 2021 to the Company demanding 52,632 warrants in satisfaction of the provisions contained in the August 9, 2017 credit facility amendment. On June 8, 2021, the Company and PacWest entered into a settlement agreement and mutual release where both parties acknowledged and agreed that the original 3,388 warrants issued were in full compliance of the credit facility amendment.
In June 2018, the Company issued 492,110 Class F units to investors at an issue price of $54.87 per unit for cash consideration of $26,790, net of issuance costs of $210.
In May 2020, the Company issued 4,500 Class H units to the owners of City Semi as part of the business combination, see Note 2 – Acquisition of City Semiconductor.
12. Noncontrolling Interest
In connection with the closing of the Transaction on June 10, 2021, certain members of ADK LLC (the “ADK Minority Holders”) retained approximately 26% membership interest in ADK LLC. As a result, the Company’s ownership of ADK LLC, was approximately 74% as of June 30, 2021. The ADK Minority Holders may from time to time, after December 10, 2021, exchange with indie, such holders’ units in ADK LLC for an equal number of shares of indie’s Class A common stock. As a result, indie’s ownership interest in ADK LLC will increase. The ADK Minority Holders’ ownership interests are accounted for as noncontrolling interests in the Company’s condensed consolidated financial statements.
In connection with the Transaction, the Company issued to certain members of ADK LLC an aggregate of 33,827,371 shares of Class V common stock of indie (the “Class V Holders”). The shares of Class V common stock provides no economic rights in indie to the holder thereof; however, each Class V Holder is entitled to vote with the holders of Class A common stock of indie, with each share of Class V common stock entitling the holder to one (1) vote per share of Class V common stock at the time of such vote (subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications).
ADK LLC held 50% ownership in Wuxi as of June 30, 2021 and December 31, 2020. From time to time, Wuxi has sold equity ownership and the transactions have reduced ADK LLC’s controlling interest in Wuxi on the condensed consolidated balance sheets. As of June 30, 2021, ADK LLC maintained its controlling ownership and financial interest in Wuxi. Accordingly, Wuxi’s financial statements are consolidated with those of ADK LLC and its other wholly-owned subsidiaries. Minority interests held in Wuxi are accounted for as non-controlling interests in the Company’s condensed consolidated financial statements.
13. Revenue
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers by geographic region, as the Company’s management believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The following tables present revenue disaggregated by geography of the customer’s shipping location for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
United States
|
$
|
2,300
|
|
|
$
|
607
|
|
|
$
|
3,877
|
|
|
$
|
1,445
|
|
|
Greater China
|
5,222
|
|
|
2,596
|
|
|
10,209
|
|
|
5,320
|
|
|
Rest of North America
|
623
|
|
|
194
|
|
|
1,227
|
|
|
358
|
|
|
South America
|
294
|
|
|
84
|
|
|
595
|
|
|
269
|
|
|
Rest of Asia Pacific
|
136
|
|
|
79
|
|
|
575
|
|
|
713
|
|
|
Europe
|
605
|
|
|
148
|
|
|
811
|
|
|
266
|
|
|
Total revenue
|
$
|
9,180
|
|
|
$
|
3,708
|
|
|
$
|
17,294
|
|
|
$
|
8,371
|
|
Contract Balances
Certain assets or liabilities are recorded depending on the timing of revenue recognition, billings and cash collections on a contract-by-contract basis. Contract liabilities primarily relate to deferred revenue, including advance consideration received from customers for contracts prior to the transfer of control to the customer, and therefore revenue is recognized upon delivery of products and services or as the services are performed. The Company also recorded unbilled revenue of $0 and $55 at June 30, 2021 and December 31, 2020, respectively, as part of its Prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets.
The following table presents the liabilities associated with the engineering services contracts as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
|
|
|
|
|
Deferred revenue
|
$
|
927
|
|
|
$
|
1,665
|
|
As of June 30, 2021 and December 31, 2020, contract liabilities were included as Deferred revenue and classified as current liabilities in the condensed consolidated balance sheets.
During the three months ended June 30, 2021 and 2020, the Company recognized $206 and $371, respectively, of revenue related to amounts that were previously included in deferred revenue at the beginning of the period. During the six months ended June 30, 2021 and 2020, the Company recognized $819 and $809, respectively, of revenue related to amounts that were previously included in deferred revenue at the beginning of the period. Deferred revenue fluctuates overtime due to changes in the timing of payments received from customers and revenue recognized for services provided.
Revenue related to remaining performance obligations represents the amount of contracted development arrangements that has not been recognized, which includes deferred revenue on the unaudited condensed consolidated balance sheet and unbilled amounts that will be recognized as revenue in future periods. As of June 30, 2021, the amount of performance obligations that have not been recognized as revenue was $1,842, of which approximately 74% is expected to be recognized as revenue over the next twelve months and the remainder thereafter. This amount excludes the value of remaining performance obligations for contracts with an original expected length of one year or less. Variable consideration that has been constrained is excluded from the amount of performance obligations that have not been recognized.
Concentrations
As identified below, some of our customers accounted for more than 10% of our total revenue for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Customer A
|
38.5
|
%
|
|
51.0
|
%
|
|
45.8
|
%
|
|
62.6
|
%
|
|
Customer B
|
12.6
|
%
|
|
17.9
|
%
|
|
12.5
|
%
|
|
16.6
|
%
|
|
Customer C
|
10.9
|
%
|
|
—
|
%
|
|
5.8
|
%
|
|
—
|
%
|
The loss of these customers would have a material impact on the Company’s condensed consolidated financial results.
The three largest customers represented 31%, 14% and 13% of accounts receivable as of June 30, 2021 and the two largest customers represented 35% and 12% of accounts receivable as of December 31, 2020. No other individual customer represented more than 10% of accounts receivable at either June 30, 2021 or December 31, 2020.
14. Share-Based Compensation
At the closing of the Transaction on June 10, 2021, ADK LLC’s share-based compensation awards (as such terms are defined below) were converted into equity in indie at the Exchange Ratio of 27.80. Share and per share information below have been converted from historical disclosure based on the Exchange Ratio.
Profit Interests
Historically, per ADK LLC’s operating agreement, ADK LLC issued Class B Units (“Profits Interests” or “Class B Units”) to employees, directors and consultants. Class B Units entitle the holders of such units to a share of ADK LLC’s profits and distributions of ADK’s assets to the extent their capital accounts are positive. Holders of Class B Units do not have voting rights except to the extent required by law.
The board of directors authorized 14,284,919 shares (or 513,846 units prior to the exchange) for grant under the operating agreement. The Class B Units generally have a four-year vesting schedule, in which 25% of units vest after 12 months and the remaining 75% vest monthly over the following three-year period.
These Profit Interests are equity-classified awards. No compensation cost was recognized historically until the closing of the Transaction.
Phantom Units
On January 29, 2021, the Company issued Phantom Units that give employees rights to receive, upon vesting, either 1,751,360 shares of Class A common stock (or 62,998 Phantom Units prior to giving effect to the Exchange Ratio) or the equivalent in cash at the election of the Company (the “Phantom Units”). These Phantom Units had a grant date fair value of $6.83 per share of Class A common stock. The Phantom Units generally have a four-year vesting schedule, in which 25% of units vest after 12 months and the remaining 75% vest monthly over the following three-year period. Certain awards vest based on specific performance conditions. Notwithstanding the foregoing, no Phantom Units vest until December 10, 2021.
These Phantom Units are equity-classified awards. No compensation cost was recognized historically until the closing of the Transaction.
Unvested Earn-out Shares
A portion of the earn-out shares may be issued to individuals with unvested equity awards. While the payout of these shares require achievement of the Earn-out Milestones, the individuals are required to complete the remaining service period associated with these unvested equity awards to be eligible to receive the earn-out shares. As a result, these unvested earn-out shares are equity-classified awards and have an aggregated grant date fair value of $3,919 (or $9.20 per share).
Accounting Policy
The Company accounts for share-based compensation arrangements with employees in accordance with ASC 718-10, Compensation — Stock Compensation, which requires the Company to account for the compensation expense related to all equity awards on a fair value based method.
Prior to the consummation of the Transaction, the grant date fair value of the Class B Units were determined using the Monte Carlo simulation. The significant assumptions used in valuation include the constant risk-free rate, constant volatility factor and the Geometric Brownian Motion. The following table presents the weighted average assumptions used in the valuations for grants in the six months ended June 30, 2021 (there were no grants in the three months ended June 30, 2021):
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Constant risk free rate
|
0.8
|
%
|
|
Constant volatility factor
|
40.0
|
%
|
|
Geometric Brownian Motion
|
0.981
|
|
The grant date fair value of the Phantom Units was determined by dividing the expected equity value of the Company upon a Transaction by the Company’s expected capitalization structure at the time of the grant.
The grant date fair value of the earn-out shares was valued based on the fair value of the earn-out liability at inception divided by total shares subject to earn-out liability.
For all Class B Units and Phantom Units, the consummation of the Transaction is considered to be a qualifying liquidation event, such that all historically vested units are now considered to have value. As a result, the Company recognized the expenses pro-rata over the term of the vesting period or per the satisfaction of performance conditions.
Expenses related to all unvested shares will be recognized pro-rata through the remainder of the vesting period or when the performance conditions become probable in accordance with ASC 718.
Stock compensation expense is recorded in research and development and general and administrative expenses based on the classification of the work performed by the grantees.
The following table sets forth the share-based compensation for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Research and development
|
2,598
|
|
|
—
|
|
|
2,598
|
|
|
—
|
|
|
Selling, general, and administrative
|
5,371
|
|
|
—
|
|
|
5,371
|
|
|
—
|
|
|
Total
|
$
|
7,969
|
|
|
$
|
—
|
|
|
$
|
7,969
|
|
|
$
|
—
|
|
The following table sets forth the changes in our outstanding equity awards during the six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
Nonvested shares as of December 31, 2020
|
3,868,225
|
|
|
$
|
2.72
|
|
|
Granted
|
1,751,360
|
|
|
$
|
6.83
|
|
|
Vested
|
(1,821,998)
|
|
|
$
|
3.58
|
|
|
Forfeited
|
(41,217)
|
|
|
$
|
5.57
|
|
|
Nonvested shares as of June 30, 2021
|
3,756,370
|
|
|
$
|
6.67
|
|
As of June 30, 2021, there was $19,493 of total unrecognized share-based compensation costs related to all unvested shares.
15. Net Income (Loss) per Common Share
Basic and diluted net income (loss) per common share was calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2020
|
|
Six Months Ended
June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
12,988
|
|
|
$
|
(6,992)
|
|
|
$
|
23,349
|
|
|
$
|
(12,372)
|
|
|
Less: Net income (loss) attributable to noncontrolling interest
|
6,839
|
|
|
(134)
|
|
|
6,385
|
|
|
(393)
|
|
|
Net income (loss) attributable to common shareholders - basic
|
$
|
6,149
|
|
|
$
|
(6,858)
|
|
|
$
|
16,964
|
|
|
$
|
(11,979)
|
|
|
|
|
|
|
|
|
|
|
|
Less: Change in fair value of SAFEs
|
2,500
|
|
|
—
|
|
|
21,600
|
|
|
—
|
|
|
Net income (loss) attributable to common shareholders - dilutive
|
$
|
3,649
|
|
|
$
|
(6,858)
|
|
|
$
|
(4,636)
|
|
|
$
|
(11,979)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
47,058,489
|
|
|
31,139,900
|
|
|
39,712,251
|
|
|
31,055,003
|
|
|
|
|
|
|
|
|
|
|
|
Effect of conversion of SAFEs
|
5,976,258
|
|
|
—
|
|
|
6,523,975
|
|
|
—
|
|
|
Effect of potentially dilutive Phantom Units
|
379,721
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Effect of potentially dilutive Class V common stock
|
7,434,587
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Effect of potentially dilutive unvested Class B units
|
2,798,003
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Weighted average common shares outstanding—diluted
|
63,647,057
|
|
|
31,139,900
|
|
|
46,236,226
|
|
|
31,055,003
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common shares— basic
|
$
|
0.13
|
|
|
$
|
(0.22)
|
|
|
$
|
0.43
|
|
|
$
|
(0.39)
|
|
|
Net income (loss) per share attributable to common shares— diluted
|
$
|
0.06
|
|
|
$
|
(0.22)
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.39)
|
|
On June 10, 2021, the Company completed a series of business transactions with TB2 pursuant to the MTA. The Transaction materially impacted the number of shares outstanding. Weighted average shares outstanding in the table above have been retroactively restated to give effect to the reverse recapitalization. See Note 1 - Nature of Business and Basis of Presentation for more information regarding the Transaction.
The Company’s potentially dilutive securities, which include SAFEs, unvested Class B Units, preferred units, warrants for Class A units, warrants for Class G units, and convertible debt, have been excluded from the computation of diluted net income (loss) per unit as the effect would be to reduce the net loss per unit. In the three and six months ended June 30, 2020, the weighted average number of shares outstanding used to calculate both basic and diluted net loss per share attributable to common shares is the same because the Company reported a net loss for each of these periods and the effect of inclusion would be antidilutive. The Company excluded the following potential shares, presented based on amounts outstanding at each period
end, from the computation of diluted net loss per share attributable to shareholders for the periods indicated because including them would have had an antidilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
SAFEs
|
—
|
|
|
1,219,951
|
|
|
—
|
|
|
1,219,951
|
|
|
Unvested Class B units
|
—
|
|
|
1,123,214
|
|
|
2,027,508
|
|
|
1,123,214
|
|
|
Unvested Phantom units
|
—
|
|
|
—
|
|
|
1,727,730
|
|
|
—
|
|
|
Convertible preferred units
|
—
|
|
|
35,935,292
|
|
|
—
|
|
|
35,935,292
|
|
|
Warrants to purchase Class G units
|
—
|
|
|
267,939
|
|
|
—
|
|
|
267,939
|
|
|
Convertible debt into Class A and preferred units
|
—
|
|
|
285,000
|
|
|
—
|
|
|
285,000
|
|
|
Convertible Class V common shares
|
—
|
|
|
—
|
|
|
33,827,371
|
|
|
—
|
|
|
Public warrants for the purchase of Class A common shares
|
17,250,000
|
|
|
—
|
|
|
17,250,000
|
|
|
—
|
|
|
Private warrants for the purchase of Class A common shares
|
10,150,000
|
|
|
—
|
|
|
10,150,000
|
|
|
—
|
|
|
Earn-out Shares
|
10,000,000
|
|
|
—
|
|
|
10,000,000
|
|
|
—
|
|
|
Escrow Shares
|
3,450,000
|
|
|
—
|
|
|
3,450,000
|
|
|
—
|
|
|
|
40,850,000
|
|
|
38,831,396
|
|
|
78,432,609
|
|
|
38,831,396
|
|
16. Income Taxes
We are subject to U.S. federal and state taxes with respect to our allocable share of any taxable income or loss of ADK, LLC, as well as any stand-alone income or loss we generate. ADK, LLC is treated as a partnership for U.S. income tax purposes and for most applicable state and local income tax purposes and generally does not pay income taxes in most jurisdictions. Instead, ADK, LLC’s taxable income or loss is passed through to its members, including us. Despite its partnership treatment, ADK, LLC is liable for income taxes for subsidiaries in foreign jurisdictions in which it operates, primarily within the United Kingdom.
Our effective tax rate in 2021 differ from the U.S. federal statutory rate primarily due to changes in valuation allowance and taxes in foreign jurisdictions.
Based primarily on our limited operating history and ADK LLC’s historical losses, we believe there is a significant uncertainty as to when we will be able to use our deferred tax assets (“DTAs”). Therefore, we have recorded a valuation allowance against the DTAs for which we have concluded it is more likely than not that they will not be realized.
As part of reverse capitalization, the Company entered into Tax Receivable Agreements (“TRAs”) with certain shareholders that will represent approximately 85% of the calculated tax savings based on the portion of basis adjustments on future exchanges of ADK, LLC units and other carryforward attributes assumed that we anticipate to be able to utilize in future years. We have determined it is more likely than not we will be unable to utilize our DTAs subject to the TRAs; therefore, we have not recorded a liability under the TRAs.
The Company recorded a provision for income taxes of $57 and $19 for the three months ended June 30, 2021 and 2020, respectively. The Company recorded a provision for income taxes of $70 and $22 for the six months ended June 30, 2021 and 2020, respectively. Income taxes are primarily related to the Company’s operations in the UK.
17. Commitments and Contingencies
Litigation
The Company may be a party to routine claims or litigation incidental to its business. The Company does not believe that it is a party to any pending legal proceeding that is likely to have a material adverse effect on its business, financial condition or results of operations or cash flows.
Lease Commitments
In July 2015, the Company entered into a five-year operating lease for its 14,881 square foot headquarters in Aliso Viejo, California, which is payable monthly with periodic rent adjustments over the lease term. The lease requires a security deposit of $30, which is recorded in other assets on the Company’s condensed consolidated balance sheets as well as a tiered, time-based letter of credit that has now reached its lowest tier of $200. Subsequently, the lease was extended through the end of June 2023.
In October 2015, the Company entered into a five-year operating lease for its Scotland Design Center in Edinburgh, Scotland, which is payable monthly with periodic rent adjustments over the lease term. The lease expired in October 2020. During 2019, the Company entered into a sub-lease agreement with a third party for the Scotland Design Center facility. Separately, effective January 2020, the Company entered into a lease for a property in Scotland. The lease agreement has a term through December 2022 and monthly rent of approximately $19.
In August 2017, the Company entered into a lease assignment and assumption agreement for its design center in Austin, Texas. Rent for the associated office is payable monthly with periodic rent adjustments over the lease term, which expired in April 2021 and is currently on a month-to-month basis.
In October 2017, the Company entered into a 26-month operating lease for its Wuxi sales and design center. Rent for the associated office is payable monthly with periodic rent adjustments over the lease term. The lease was subsequently extended through December 2021.
In April 2020, the Company entered into a lease for a location in Shanghai, China. The lease expires in February 2022. Rent is approximately $3 per month.
In June 2020, the Company entered into a month-to-month lease for a location in San Francisco for approximately $1 a month.
In April 2021, the Company entered into a three-year operating lease for a location in Budapest, Hungary, which is payable monthly for approximately $6 a month.
In May 2021, the Company entered into a seven-year operating lease for a location in Detroit, Michigan, which is payable monthly with periodic rent adjustments over the lease term. The lease will expire in 2028 with an initial monthly rent of approximately $22 a month.
Rent expense is recognized on a straight-lined basis over the lease term and is included in the condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
$
|
202
|
|
|
$
|
200
|
|
|
$
|
400
|
|
|
$
|
370
|
|
|
Selling, general, and administrative
|
49
|
|
|
31
|
|
|
87
|
|
|
73
|
|
|
|
$
|
251
|
|
|
$
|
231
|
|
|
$
|
487
|
|
|
$
|
443
|
|
The following table summarizes the future minimum lease payments due under operating leases as of June 30, 2021:
|
|
|
|
|
|
|
|
2021 (remaining six months)
|
$
|
483
|
|
|
2022
|
1,009
|
|
|
2023
|
583
|
|
|
2024
|
316
|
|
|
2025
|
286
|
|
|
Thereafter
|
817
|
|
|
|
$
|
3,494
|
|
Tax Distributions
To the extent the Company has funds legally available, the board of directors will approve distributions to each member, prior to March 15 of each year, in an amount per unit that, when added to all other distributions made to such member with respect to the previous calendar year, equals the estimated federal and state income tax liabilities applicable to such member as the result of its, his or her ownership of the units and the associated net taxable income allocated with respect to such units for the previous calendar year. There were no distributions approved by the board of directors or paid by the Company during the six months ended June 30, 2021 and 2020.