(C) ProPublica.
This unaltered story was originally published at ProPublica.org. [1]
Licensed under creative commons by-nc-nd/3.0 [2]
vldr-20210630
Author Name, ProPublica
2021-06-30 00:00:00
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________to ___________________
Commission file number: 001-38703
VELODYNE LIDAR, INC.
(Exact name of registrant as specified in its charter)
Delaware 83-1138508 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
5521 Hellyer Avenue San Jose , CA 95138 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: ( 669 ) 275-2251
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered Common stock, par value $0.0001 per share VLDR The Nasdaq Stock Market LLC Warrants, each exercisable for three-quarters of one share of common stock VLDRW The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 30, 2021, the registrant had 195,558,910 shares of common stock, $0.0001 par value per share, outstanding.
VELODYNE LIDAR, INC. AND SUBSIDIARIES
Table of Contents
1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws and particularly in Item 2: “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. These statements are based on the expectations and beliefs of management of Velodyne Lidar, Inc. (Velodyne) in light of historical results and trends, current conditions and potential future developments, and are subject to a number of factors and uncertainties that could cause actual results to differ materially from forward-looking statements. These forward-looking statements include statements about the future performance and opportunities of Velodyne; statements of the plans, strategies and objectives of management for future operations of Velodyne; and statements regarding future market opportunities, economic conditions or performance. Forward-looking statements may contain words such as “will be,” “will,” “expect,” “anticipate,” “continue,” “project,” “believe,” “plan,” “could,” “estimate,” “forecast,” “guidance,” “intend,” “may,” “possible,” “potential,” “predict,” “pursue,” “should,” “target,” “likely” or similar expressions, and include the assumptions that underlie such statements .
The following factors, among others, could cause actual results to differ materially from forward-looking statements:
• Velodyne’s future performance, including Velodyne’s revenue, costs of revenue, gross profit or gross margin, and operating expenses;
• the sufficiency of Velodyne’s cash and cash equivalents to meet its operating requirements;
• Velodyne’s ability to sell its products to new customers;
• the success of Velodyne’s customers in developing and commercializing products using Velodyne’s solutions, and the market acceptance of those products;
• the amount and timing of future sales;
• Velodyne’s future market share;
• competition from existing or future businesses and technologies;
• the impact of the COVID-19 pandemic on Velodyne’s business and the business of its customers;
• the market for and adoption of lidar and related technology;
• Velodyne’s ability to effectively manage its growth and future expenses;
• Velodyne’s ability to compete in a market that is rapidly evolving and subject to technological developments;
• Velodyne’s ability to maintain, protect, and enhance its intellectual property;
• Velodyne’s ability to comply with modified or new laws and regulations applying to its business;
• the attraction and retention of qualified employees and key personnel;
• Velodyne’s ability to introduce new products that meet its customers’ requirements and to continue successfully transitioning the manufacturing of its products to third-party manufacturers;
• Velodyne’s anticipated investments in and results from sales and marketing and research and development; and
• the increased expenses associated with Velodyne being a public company.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other risk factors herein discussed under Item 1A: “Risk Factors.” Forward-looking statements reflect current views about Velodyne’s plans, strategies and prospects, which are based on information available as of the date of this Quarterly Report on Form 10-Q. Except to the extent required by applicable law, Velodyne undertakes no obligation (and expressly disclaims any such obligation) to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not place undue reliance on those statements, which speak only as of the date of this Quarterly Report on Form 10-Q.
2
PART I. Financial Information
Item 1. Consolidated Financial Statements
VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30, December 31, 2021 2020 (Unaudited) Assets Current assets: Cash and cash equivalents $ 76,084 $ 204,648 Short-term investments 277,546 145,636 Accounts receivable, net 9,473 13,979 Inventories, net 16,675 18,132 Prepaid and other current assets 10,231 22,319 Total current assets 390,009 404,714 Property, plant and equipment, net 14,652 16,805 Goodwill 1,189 1,189 Intangible assets, net 434 627 Contract assets 10,378 8,440 Other assets 19,935 937 Total assets $ 436,597 $ 432,712 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 5,940 $ 7,721 Accrued expense and other current liabilities 25,280 50,349 Contract liabilities 8,736 7,323 Total current liabilities 39,956 65,393 Long-term tax liabilities 570 569 Other long-term liabilities 30,378 25,927 Total liabilities 70,904 91,889 Commitments and contingencies (Note 15) Stockholders’ equity: Preferred stock — — Common stock 20 18 Additional paid-in capital 800,040 656,717 Accumulated other comprehensive loss ( 216 ) ( 230 ) Accumulated deficit ( 434,151 ) ( 315,682 ) Total stockholders’ equity 365,693 340,823 Total liabilities and stockholders’ equity $ 436,597 $ 432,712
See accompanying notes to unaudited condensed consolidated financial statements.
3
VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue: Product $ 11,970 $ 11,427 $ 22,563 $ 27,849 License and services 1,626 16,959 8,759 17,568 Total revenue 13,596 28,386 31,322 45,417 Cost of revenue: Product 19,210 14,419 34,839 29,545 License and services 170 81 349 384 Total cost of revenue 19,380 14,500 35,188 29,929 Gross profit (loss) ( 5,784 ) 13,886 ( 3,866 ) 15,488 Operating expenses: Research and development 17,009 14,591 35,387 29,118 Sales and marketing 47,176 3,373 54,251 8,672 General and administrative 19,133 5,630 36,169 16,363 Restructuring — ( 3 ) — 1,043 Total operating expenses 83,318 23,591 125,807 55,196 Operating loss ( 89,102 ) ( 9,705 ) ( 129,673 ) ( 39,708 ) Interest income 109 5 212 117 Interest expense ( 41 ) ( 32 ) ( 77 ) ( 38 ) Other income (expense), net 10,136 22 10,119 ( 143 ) Loss before income taxes ( 78,898 ) ( 9,710 ) ( 119,419 ) ( 39,772 ) Provision for (benefit from) income taxes 339 17 635 ( 6,660 ) Net loss $ ( 79,237 ) $ ( 9,727 ) $ ( 120,054 ) $ ( 33,112 ) Net loss per share: Basic and diluted $ ( 0.41 ) $ ( 0.07 ) $ ( 0.63 ) $ ( 0.24 ) Weighted-average shares used in computing net loss per share: Basic and diluted 193,002,807 139,863,194 191,123,251 138,887,585
See accompanying notes to unaudited condensed consolidated financial statements.
4
VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net loss $ ( 79,237 ) $ ( 9,727 ) $ ( 120,054 ) $ ( 33,112 ) Other comprehensive income (loss), net of tax: Changes in unrealized gain on available for sale securities 22 — 11 — Foreign currency translation adjustments 14 ( 32 ) 3 ( 34 ) Total other comprehensive income (loss), net of tax 36 ( 32 ) 14 ( 34 ) Comprehensive loss $ ( 79,201 ) $ ( 9,759 ) $ ( 120,040 ) $ ( 33,146 )
See accompanying notes to unaudited condensed consolidated financial statements.
5
VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share data)
(Unaudited)
Series A Convertible Preferred Stock
(Pre-Combination) Series B Convertible Preferred Stock
(Pre-Combination) Series B-1 Convertible Preferred Stock
(Pre-Combination) Common Stock
(Pre-Combination) Common Stock
(Post-Combination) Additional Paid in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at December 31, 2020 — $ — — $ — — $ — — $ — 175,912,194 $ 18 $ 656,717 $ ( 230 ) $ ( 315,682 ) $ 340,823 Issuance of common stock under warrant exercises — — — — — — — — 6,973,882 1 80,199 — — 80,200 Issuance of common stock under employee stock award plans, net of taxes — — — — — — — — 6,798,504 — ( 37 ) — — ( 37 ) Share-based compensation — — — — — — — — — — 11,530 — — 11,530 Other comprehensive loss, net of tax — — — — — — — — — — — ( 22 ) — ( 22 ) Adjustment for previously issued warrants (Note 9) — — — — — — — — — — ( 1,585 ) — 1,585 — Net loss — — — — — — — — — — — — ( 40,817 ) ( 40,817 ) Balance at March 31, 2021 — — — — — — — — 189,684,580 19 746,824 ( 252 ) ( 354,914 ) 391,677 Issuance of common stock under warrant exercises — — — — — — — — 1,929 — 22 — — 22 Issuance of common stock under employee stock award plans, net of taxes — — — — — — — — 5,541,305 1 ( 1 ) — — — Share-based compensation — — — — — — — — — — 53,195 — — 53,195 Other comprehensive loss, net of tax — — — — — — — — — — — 36 — 36 Net loss — — — — — — — — — — — — ( 79,237 ) ( 79,237 ) Balance at June 30, 2021 — $ — — $ — — $ — — $ — 195,227,814 $ 20 $ 800,040 $ ( 216 ) $ ( 434,151 ) $ 365,693
6
Series A Convertible Preferred Stock
(Pre-Combination) Series B Convertible Preferred Stock
(Pre-Combination) Series B-1 Convertible Preferred Stock
(Pre-Combination) Common Stock
(Pre-Combination) Common Stock
(Post-Combination) Additional Paid in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at December 31, 2019, as previously reported 8,772,852 $ 1 1,375,440 $ — 1,375,440 $ — 34,252,578 $ 3 — $ — $ 240,474 $ ( 216 ) $ ( 164,016 ) $ 76,246 Retroactive application of the recapitalization ( 8,772,852 ) ( 1 ) ( 1,375,440 ) — ( 1,375,440 ) — ( 34,252,578 ) ( 3 ) 137,911,975 14 ( 10 ) — — — Balance at December 31, 2019, as adjusted — — — — — — — — 137,911,975 14 240,464 ( 216 ) ( 164,016 ) 76,246 Share-based compensation — — — — — — — — — — 21 — — 21 Other comprehensive loss, net of tax — — — — — — — — — — — ( 2 ) — ( 2 ) Net loss — — — — — — — — — — — — ( 23,385 ) ( 23,385 ) Balance at March 31, 2020 — — — — — — — — 137,911,975 14 240,485 ( 218 ) ( 187,401 ) 52,880 Issuance of Series B-1 convertible preferred stock at $ 10.25 per share on April 1, 2020, net of issuance cost of $ 81 — — — — — — — — 1,951,219 — 19,919 — — 19,919 Share-based compensation — — — — — — — — — — 135 — — 135 Other comprehensive loss, net of tax — — — — — — — — — — — ( 32 ) — ( 32 ) Net loss — — — — — — — — — — — — ( 9,727 ) ( 9,727 ) Balance at June 30, 2020 — $ — — $ — — $ — — $ — 139,863,194 $ 14 260,539 $ ( 250 ) $ ( 197,128 ) $ 63,175
See accompanying notes to unaudited condensed consolidated financial statements.
7
VELODYNE LIDAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 120,054 ) $ ( 33,112 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 4,114 4,251 Reduction in carrying amount of ROU assets 1,533 — Stock-based compensation 64,725 156 Provision for doubtful accounts 2,425 509 Gain from forgiveness of notes payable ( 10,124 ) — Other 550 70 Changes in operating assets and liabilities: Accounts receivable, net 2,082 ( 23,914 ) Inventories, net 1,457 2,195 Prepaid and other current assets 3,512 2,939 Contract assets ( 2,438 ) ( 8,439 ) Other assets 6 264 Accounts payable ( 1,680 ) 645 Accrued expenses and other liabilities ( 9,161 ) ( 9,506 ) Contract liabilities 264 11,397 Net cash used in operating activities ( 62,789 ) ( 52,545 ) Cash flows from investing activities: Purchase of property, plant and equipment ( 1,779 ) ( 1,723 ) Proceeds from sales of short-term investments 2,000 — Proceeds from maturities of short-term investments 55,943 2,200 Purchase of short-term investments ( 190,376 ) — Investment in notes receivable ( 750 ) — Net cash provided by (used in) investing activities ( 134,962 ) 477 Cash flows from financing activities: Proceeds from issuance of preferred stock, net of issuance costs — 19,919 Payment of transaction costs related to Business Combination ( 20,005 ) — Proceeds from warrant exercises 89,244 — Tax withholding payment for vested equity awards ( 37 ) — Cash paid for IPO costs — ( 1,196 ) Proceeds from notes payable — 10,000 Net cash provided by financing activities 69,202 28,723 Effect of exchange rate fluctuations on cash and cash equivalents ( 15 ) ( 30 ) Net decrease in cash and cash equivalents ( 128,564 ) ( 23,375 ) Beginning cash and cash equivalents 204,648 60,004 Ending cash and cash equivalents $ 76,084 $ 36,629 Supplemental disclosures of cash flow information: Cash paid for interest $ 77 $ 38 Cash paid for (received from) income taxes, net 682 ( 7,811 ) Cash paid for operating leases 2,256 — Supplemental disclosure of noncash investing and financing activities: Changes in accrued purchases of property, plant and equipment $ 5 $ 97 Assets held for sale reclassification — 4,746 ROU assets obtained in exchange for new operating lease liabilities 340 — Transaction costs included in accrued liabilities 5,000 1,186
See accompanying notes to unaudited condensed consolidated financial statements.
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VELODYNE LIDAR, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business, Background and Nature of Operations
Velodyne Lidar, Inc. (the Company, Velodyne or Velodyne Lidar) provides smart vision solutions that are advancing the development of safe automated systems throughout the world. The Company’s technology, which is used in various automotive and non- automotive applications, is empowering the autonomous revolution by allowing machines to see their surroundings in real-time and in 3D.
Graf Industrial Corp. (Graf), the Company’s predecessor, was originally incorporated in Delaware as a special purpose acquisition company (SPAC). On September 29, 2020 (the Closing Date), Graf consummated a business combination (the Business Combination) with Velodyne Lidar, Inc. (the pre-combination Velodyne). Immediately upon the consummation of the Business Combination, Graf merged into the pre-combination Velodyne, with the pre-combination Velodyne surviving as a wholly-owned subsidiary of the Company. Graf changed its name to Velodyne Lidar, Inc. and the pre-combination Velodyne changed its name to Velodyne Lidar USA, Inc.
On September 30, 2020, Velodyne Lidar’s common stock and warrants began trading on the Nasdaq Global Select Market under the symbol “VLDR” and “VLDRW,” respectively. Unless the context otherwise requires, “we,” “us,” “our,” “Velodyne,” “Velodyne Lidar” and the “Company” refers to Velodyne Lidar Inc., the combined company and its subsidiaries following the Business Combination. Refer to Note 2 for further discussion of the Business Combination.
The Company has evaluated how it is organized and managed and has identified only one operating segment.
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States ( GAAP) for interim financial information. All intercompany transactions and balances have been eliminated in consolidation. The financial information included herein is unaudited, and reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for the fair presentation of the company’s financial position, results of operations, comprehensive loss, cash flows and stockholders’ equity for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for any future annual or interim period. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes contained in its amended Annual Report on Form 10-K for the year ended December 31, 2020.
The Business Combination is accounted for as a reverse recapitalization as the pre-combination Velodyne was determined to be the accounting acquirer under Financial Accounting Standards Board (FASB)’s Accounting Standards Codification Topic 805, Business Combinations (ASC 805). In connection with the Business Combination, outstanding capital stock of the pre-combination Velodyne was converted into common stock of the Company, par value $ 0.0001 per share, representing a recapitalization, and the net assets of the Company were acquired at historical cost, with no goodwill or intangible assets recorded. The pre-combination Velodyne was deemed to be the predecessor of the Company, and the consolidated assets and liabilities and results of operations prior to the Closing Date are those of the pre-combination Velodyne. The shares and corresponding capital amounts and net loss per share available to common stockholders, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement. The number of shares of preferred stock was also retroactively restated in shares reflecting the exchange ratio, and the carrying amounts of preferred stock are based on the fair value of its redemption amount on each reporting date. All preferred stock was converted into shares of the Company’s common stock on the Closing Date. Refer to Note 9, Stockholders’ Equity, and Note 11, Net Loss Per Share, for further discussion of the recapitalization and share adjustments.
Liquidity
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The Company has funded its operations primarily through the Business Combination, PIPE offering, private placements of the pre-combination Velodyne convertible preferred stock and sales to customers. As of June 30, 2021, the Company’s existing sources of liquidity included cash, cash equivalents and short-term investments of $ 353.6 million and available borrowing capacity of $ 25.0 million under a revolving credit facility. The Company has incurred losses and negative cash flows from operations. If the Company incurs additional losses in the future, it may need to raise additional capital through issuances of equity and debt. There can be no assurance that the Company would be able to raise such capital. However, management believes that the Company’s existing sources of liquidity are adequate to fund its operations for at least twelve months from the date the unaudited condensed consolidated financial statements for the quarter ended June 30, 2021 were available for issuance.
Emerging Growth Company
As of December 31, 2020, the Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the Securities Act), as modified by the Jumpstart Our Business Startups Act of 2012 (the JOBS Act), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has opted to take advantage of such extended transition period available to emerging growth companies which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Based on the Company’s aggregate worldwide market value of voting and non-voting common equity held by non-affiliates as of June 30, 2021, the Company will become a “large accelerated filer” and lose its emerging growth company status upon the filing of its Annual Report on Form 10-K for the year ending December 31, 2021.
Concentration of Risk Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. The Company maintains its cash and cash equivalents, and short-term investments with high-quality financial institutes with investment-grade ratings. A majority of the cash balances are with U.S. banks and are insured to the extent defined by the Federal Deposit Insurance Corporation. The Company’s accounts receivable are derived from customers located both inside and outside the U.S. The Company mitigates its credit risks by performing ongoing credit evaluations of its customers’ financial conditions and requires customer advance payments in certain circumstances. The Company does not require collateral.
The Company’s concentration of risk related to accounts receivable and accounts payable was as follows:
June 30, December 31, 2021 2020 Number of customers accounted for 10% or more of accounts receivable 1 3 Number of vendors accounted for 10% or more of accounts payable 1 3
One customer accounted for 29 % of the Company’s accounts receivable as of June 30, 2021. Two customers accounted for a total of 47 %, of the Company’s accounts receivable as of December 31, 2020. One vendor accounted for 45 % and 34 %, respectively, of accounts payable as of June 30, 2021 and December 31, 2020.
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Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include standalone selling price (SSP) for each distinct performance obligation in its customer contracts, total estimated future patents and their corresponding estimated development costs, total estimated costs and related progress towards complete satisfaction of performance obligation in certain services arrangements, allowances for doubtful accounts, inventory reserves, warranty reserves, valuation allowance for deferred tax assets, stock-based compensation, useful lives of property, plant, and equipment and intangible assets, income tax uncertainties, and other loss contingencies. The Company bases its estimates on historical experience and also on assumptions that it believes are reasonable. Actual results could differ from those estimates, and such differences could be material to the Company’s consolidated financial condition and results of operations.
Significant Accounting Policies Except for the change in certain policies upon adoption of the accounting standards described below, there have been no material changes to the Company's significant accounting policies, compared to the accounting policies described in Note 1, Description of Business and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Annual Report on Form 10-K for the year ended December 31, 2020.
Allowance for Doubtful Accounts
The Company’s allowance for doubtful accounts includes estimated losses that result from uncollectible accounts receivable. The Company determines the allowance by considering a number of factors, including the length of time trade accounts receivable are past due, its customer’s current financial condition and payment history, the condition of the general economy and the industry as a whole, and other relevant facts and circumstances. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon the aforementioned factors and any specific customer collection issues that have been identified. Significant changes in one or more of these considerations may require adjustments affecting the net income (loss) and net carrying value of the account receivable. Provisions for the estimated allowance for doubtful accounts are recorded in general and administrative expense at the end of each reporting period.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), which supersedes FASB Accounting Standards Codification Topic 840, Leases (Topic 840), and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. Among its provisions, this standard requires lessees to recognize right-of-use (ROU) assets and lease liabilities on the balance sheets for operating leases, and also requires additional qualitative and quantitative disclosures about lease arrangements. The Company adopted the new standard in the first quarter of 2021 using the modified retrospective method, under which the Company applies Topic 842 to existing and new leases as of January 1, 2021, but prior periods are not restated and continue to be reported under Topic 840 guidance in effect during those periods. Upon adoption, the Company recorded net ROU assets of $ 19.4 million and lease liabilities of $ 20.4 million and there were no cumulative effect adjustments as of January 1, 2021. The standard did not have a material effect on the Company’s condensed consolidated statements of operations and the condensed consolidated statement of cash flows. See Note 6. “Leases” for further information.
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In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by, among other things, eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted the new standard on January 1, 2021. The adoption of this new standard did not have a significant effect on our consolidated financial statements.
Leases
The Company determines if an arrangement is a lease at inception. The Company evaluates classification of leases at commencement and, as necessary, at modification. As of June 30, 2021, all leases are classified as operating leases except for certain immaterial equipment finance leases. Operating leases, consisting primarily office leases, are included in operating lease ROU assets, other current liabilities, and operating lease liabilities on the Company's Condensed Consolidated Balance Sheets. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.
Operating lease ROU assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made prior to lease commencement and excludes lease incentives. Variable lease payments not dependent on an index or a rate, are expensed as incurred and are not included within the ROU asset and lease liability calculation. Variable lease payments primarily include reimbursements of costs incurred by lessors for common area maintenance and utilities. The Company's lease terms are the noncancelable period, including any rent-free periods provided by the lessor, and include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. At lease inception, and in subsequent periods as necessary, the Company estimates the lease term based on its assessment of extension and termination options that are reasonably certain to be exercised. As the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments over the lease term. The incremental borrowing rate is a hypothetical rate based on the Company's understanding of what its credit rating would be for a secured borrowing where the lease was executed. Lease costs are recognized on a straight-line basis over the lease term.
The Company does not recognize ROU assets and lease liabilities for short-term leases, which have a lease term of twelve months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.
Note 2. Business Combination and Related Transactions
On September 29, 2020, the Company consummated a business combination with the pre-combination Velodyne. Pursuant to ASC 805, for financial accounting and reporting purposes, the pre-combination Velodyne was deemed the accounting acquirer and the Company was treated as the accounting acquiree, and the Business Combination was accounted for as a reverse recapitalization. Accordingly, the Business Combination was treated as the equivalent of the pre-combination Velodyne issuing stock for the net assets of Graf, accompanied by a recapitalization. Under this method of accounting, the consolidated financial statements of the Company are the historical financial statements of the pre-combination Velodyne. The net assets of Graf were stated at historical costs, with no goodwill or other intangible assets recorded, and are consolidated with the pre-combination Velodyne's financial statements on the Closing date. The shares and net income (loss) per share available to holders of the Company’s common stock, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement.
In connection with the Business Combination, Graf entered into subscription agreements with certain investors (the PIPE Investors), whereby it issued 15,000,000 shares of common stock at $ 10.00 per share (the Private Placement Shares) for an aggregate purchase price of $ 150.0 million (the Private Placement), which closed simultaneously with the consummation of the Business Combination. Upon the closing of the Business Combination, the Private Placement Shares were automatically converted into shares of the Company's common stock on a one-for-one basis.
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The aggregate consideration for the Business Combination and proceeds from the Private Placement was approximately $ 1.8 billion, consisting of (i) $ 222.1 million in cash at the closing of the Business Combination, net of transaction expenses, and (ii) 150,277,532 shares of common stock valued at $ 10.25 per share, totaling $ 1,540.3 million. The common stock consideration consists of up to (1) 143,575,763 shares of Company common stock, including shares issuable in respect of vested equity awards of the pre-combination Velodyne, plus (2) 2,000,000 shares of Company common stock earned due to the satisfaction of the Earnout Condition on July 30, 2020, including 187,861 Earnout RSUs, which are subject to a six-month service condition and are not legally issued and outstanding shares of Company common stock at Closing, plus (3) 4,702,304 shares of Company common stock that were issued to Velodyne equity holders that did not opt to have their respective shares repurchased by the pre-combination Velodyne for cash in a pre-closing tender offer conducted by the pre-combination Velodyne (the Pre-Closing Tender Offer). The Company used $ 1.8 million of the proceeds to repurchase and retire 175,744 shares of Company common stock from certain stockholders in the Pre-Closing Tender Offer.
In connection with the Business Combination, the Company incurred direct and incremental costs of approximately $ 29.1 million related to the equity issuance, consisting primarily of investment banking, legal, accounting and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds. As of June 30, 2021, the Company has $ 5.0 million of accrued transaction costs, consisting primarily of investment banking fees, in accrued expenses on the consolidated balance sheet.
Note 3. Revenue
Disaggregation of Revenues The Company disaggregates its revenue from contracts with customers by geographic region based on the shipping location of the customer, type of good or service and timing of transfer of goods or services to customers (point-in-time or over time), as it believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors. Total revenue based on the disaggregation criteria described above is as follows (dollar in thousands):
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 % of Revenue % of Revenue % of Revenue % of Revenue Revenue Revenue Revenue Revenue Revenue by geography: North America $ 5,271 38 % $ 4,650 16 % $ 10,315 33 % $ 13,903 30 % Asia Pacific 5,255 39 % 20,150 71 % 14,761 47 % 25,774 57 % Europe, Middle East and Africa 3,070 23 % 3,586 13 % 6,246 20 % 5,740 13 % Total $ 13,596 100 % $ 28,386 100 % $ 31,322 100 % $ 45,417 100 % Revenue by products and services: Products $ 11,970 88 % $ 11,427 40 % $ 22,563 72 % $ 27,849 61 % License and services 1,626 12 % 16,959 60 % 8,759 28 % 17,568 39 % Total $ 13,596 100 % $ 28,386 100 % $ 31,322 100 % $ 45,417 100 % Revenue by timing of recognition: Goods transferred at a point in time $ 12,272 90 % $ 28,198 99 % $ 28,942 92 % $ 44,922 99 % Goods and services transferred over time 1,324 10 % 188 1 % 2,380 8 % 495 1 % Total $ 13,596 100 % $ 28,386 100 % $ 31,322 100 % $ 45,417 100 %
In June 2020, the Company entered into a patent cross-license agreement related to its litigation settlement with a customer in Asia Pacific. Under the terms of the arrangement, the customer agreed to make a one-time license payment upon settlement, will make annual fixed royalty payments through 2023, and thereafter, will make product sales royalty payments through February 2030. In September 2020, Velodyne entered into another patent cross-license agreement related to its litigation with a different customer in Asia Pacific. The Company recorded license revenue of $ 0.9 million and $ 7.3 million, respectively, related to these patent cross-license agreements for the three and six months ended June 30, 2021. As of June 30, 2021 and December 31, 2020, the Company recorded $ 3.5 million and $ 3.4 million, respectively, in current deferred revenue, and $ 13.0 million and $ 13.7 million, respectively, in long-term deferred revenue associated with the rights granted as part of these patent cross-license agreements to receive future patents as they represent stand ready obligations. As of
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June 30, 2021 and December 31, 2020, the Company also recorded $ 13.7 million and $ 11.3 million, respectively, of contract assets related to these patent cross-license agreements.
Contract Assets and Contract Liabilities Contract assets primarily relates to unbilled accounts receivable. Unbilled amounts arise when the timing of billing differs from the timing of revenue recognized, such as when revenue recognized on the guaranteed minimums at the inception of the contract when there is not yet a right to invoice in accordance with contract terms. Unbilled amounts are recorded as a contract asset when the revenue associated with the contract is recognized prior to billing and reclassified to accounts receivable when billed in accordance with the terms of the contract. Contract liabilities consist of deferred revenue, customer advanced payments and customer deposits. Deferred revenue includes billings in excess of revenue recognized related to product sales, licenses, extended warranty and other services revenue, and is recognized as revenue when the Company performs under the contract. The long-term portion of deferred revenue, mostly related to obligations under license arrangements and extended warranty, is classified as non-current contract liabilities and is included in other long-term liabilities in the Company’s consolidated balance sheets. Customer advanced payments represent required customer payments in advance of product shipments according to customer’s payment term. Customer advance payments are recognized as revenue when control of the performance obligation is transferred to the customer. Customer deposits represent consideration received from a customer which can be applied to future product or service purchases, or refunded. Contract assets and contract liabilities consisted of the following as of June 30, 2021 and December 31, 2020 (in thousands):
June 30, December 31, 2021 2020 Contract assets, current Unbilled accounts receivable $ 3,313 $ 2,813 Contract assets, long-term Unbilled accounts receivable 10,378 8,440 Total contract assets $ 13,691 $ 11,253 Contract liabilities, current Deferred revenue, current $ 8,573 $ 7,143 Customer advance payment 163 180 Total 8,736 7,323 Contract liabilities, long-term Deferred revenue, long-term 13,583 14,732 Total contract liabilities $ 22,319 $ 22,055
The following table shows the significant changes in contract assets and contract liabilities balances (in thousands):
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Six Months Ended June 30, 2021 2020 Contract assets: Beginning balance $ 11,253 $ — Transferred to receivables from contract assets recognized at the beginning of the period ( 2,813 ) — Increase due to unbilled and recognized as revenue in excess of billings during the period, net of amounts transferred to receivables 5,251 8,439 Ending balance $ 13,691 $ 8,439 Contract liabilities: Beginning balance $ 22,055 $ 19,164 Revenue recognized that was included in the contract liabilities beginning balance ( 5,972 ) ( 750 ) Increase due to cash received and not recognized as revenue and billings in excess of revenue recognized during the period 6,236 18,231 Customer deposits reclassified to refund liabilities — ( 6,083 ) Ending balance $ 22,319 $ 30,562 During the six months ended June 30, 2020, the Company reclassified customer deposit of $ 6.1 million to refund liabilities and refunded the entire amount to a customer.
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Note 4. Fair Value Measurement
The Company categorizes assets and liabilities recorded at fair value on the consolidated balance sheet based on the level of judgment associated with inputs used to measure their fair value. For assets and liabilities measured at fair value, fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the Company would transact, and the Company considers assumptions that market participants would use when pricing the asset or liability. The three levels of inputs that may be used to measure fair value are: • Level 1 — Quoted prices in active markets for identical assets or liabilities. • Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities in active markets or quoted prices in less active market. All significant inputs used in the valuations are observable or can be directly or indirectly through market corroboration, for substantially the full term of the assets or liabilities. • Level 3 — Unobservable inputs are based on assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation. The Company monitors and review the inputs to ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.
The following table summarize the Company’s assets measured at fair value on a recurring basis, by level, within the fair value hierarchy (in thousands): June 30, 2021 Level 1 Level 2 Level 3 Total Cash equivalents: Money market fund $ 41,270 $ — $ — $ 41,270 Total cash equivalents 41,270 — — 41,270 Short-term investments: Commercial paper — 164,651 — 164,651 Corporate debt securities — 112,895 — 112,895 Total short-term investments — 277,546 — 277,546 Total assets measured at fair value $ 41,270 $ 277,546 $ — $ 318,816
December 31, 2020 Level 1 Level 2 Level 3 Total Cash equivalents: Money market fund $ 74,107 $ — $ — $ 74,107 Treasury bill and U.S. government and agency securities 19,999 — — 19,999 Corporate debt securities — 2,003 — 2,003 Commercial paper — 33,295 — 33,295 Total cash equivalents 94,106 35,298 — 129,404 Short-term investments: Commercial paper — 122,265 — 122,265 Corporate debt securities — 23,371 — 23,371 Total short-term investments — 145,636 — 145,636 Total assets measured at fair value $ 94,106 $ 180,934 $ — $ 275,040
Cash equivalents consist primarily of money market funds with original maturities of three months or less at the time of purchase, and the carrying amount is a reasonable estimate of fair value. Short-term investments represent highly liquid commercial paper and corporate debt securities with maturities greater than 90 days at the date of purchase. Marketable securities with maturities greater than one year are classified as current assets because management considers all marketable securities to be available for current operations.
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Note 5. Balance Sheet Components
Accounts Receivables, Net Accounts receivables, net consist of the following (in thousands): June 30, December 31, 2021 2020 Accounts receivable $ 12,773 $ 14,855 Allowance for doubtful accounts ( 3,300 ) ( 876 ) Accounts receivable, net $ 9,473 $ 13,979
Inventories, Net Inventories, net of reserve, consist of the following (in thousands):
June 30, December 31, 2021 2020 Raw materials $ 5,539 $ 6,876 Work-in-process 2,960 4,347 Finished goods 8,176 6,909 Total inventories $ 16,675 $ 18,132
Prepaid and Other Current Assets Prepaid and other current assets consist of the following (in thousands): June 30, December 31, 2021 2020 Prepaid expenses and deposits $ 3,927 $ 5,698 Due from contract manufacturers and vendors 1,504 2,944 Prepaid taxes 58 1,612 Contract assets 3,313 2,813 Receivable from warrant exercises — 9,074 Other 1,429 178 Total prepaid and other current assets $ 10,231 $ 22,319
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Property, Plant and Equipment, Net Property, plant and equipment, at cost, consist of the following (in thousands): June 30, December 31, 2021 2020 Machinery and equipment $ 33,884 $ 32,688 Leasehold improvements 5,921 5,905 Furniture and fixtures 1,481 1,479 Vehicles 360 360 Software 1,360 1,357 Assets under construction 976 641 43,982 42,430 Less: accumulated depreciation and amortization ( 29,330 ) ( 25,625 ) Property, plant and equipment, net $ 14,652 $ 16,805 Finance lease equipment $ 888 $ 888 Less: accumulated depreciation ( 470 ) ( 381 ) Finance lease equipment, net $ 418 $ 507
The aggregate depreciation and amortization related to property, plant and equipment was as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Depreciation and amortization on property, plant and equipment $ 1,964 $ 1,984 $ 3,921 $ 4,059 Depreciation on finance lease equipment 44 44 89 89
Intangible Assets, Net Intangible assets, net, consist of the following (in thousands): Gross Carrying Amount Accumulated Amortization Net Book Value As of June 30, 2021: Developed technology $ 1,200 $ 766 $ 434 As of December 31, 2020: Developed technology $ 1,200 $ 573 $ 627
Amortization of intangible assets is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Amortization of intangible assets $ 97 $ 96 $ 193 $ 192
Other Assets Other assets, non-current, consist of the following (in thousands): June 30, December 31, 2021 2020 Operating lease ROU assets $ 18,254 $ — Notes receivable 750 — Other 931 937 Total other assets $ 19,935 $ 937
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In May 2021, the Company entered into a convertible note receivable agreement (the Note) with a borrower wherein Velodyne agreed to lend $ 750,000 at an interest rate of 0 % per annum as a nonrecourse investment. The Note is convertible into equity at the election of the borrower or the Company upon occurrence of certain new financing or corporate transactions. The maturity date of the Note is May 11, 2024.
Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands):
June 30, December 31, 2021 2020 Accrued payroll expenses $ 8,812 $ 11,877 Accrued manufacturing costs 1,849 8,003 Accrued transaction costs 5,000 25,057 Accrued professional and consulting fees 2,519 965 Accrued warranty costs 1,153 2,204 Accrued taxes 1,000 1,074 Lease liabilities 2,819 — Legal proceedings accrual 800 75 Other 1,328 1,094 Total accrued expense and other current liabilities $ 25,280 $ 50,349
Long-Term Liabilities Long-term liabilities consisted of the following (in thousands): June 30, December 31, 2021 2020 PPP Loan $ — $ 10,000 Contract liabilities, long-term 13,583 14,732 Lease liabilities, long-term 16,380 — Other 415 1,195 Total long-term liabilities $ 30,378 $ 25,927
Note 6. Leases
The Company leases real estate, equipment and automobiles in the U.S. and internationally. The Company leases office facilities under non-cancelable operating leases that expire on various dates through December 2027, including office and manufacturing space in San Jose, California used as its corporate headquarters. The lessor entity is owned by one of the Company’s former officers. Please see Note 17, Related Party Transactions. The leases do not contain any material residual value guarantees or restrictive covenants.
Lease cost, which consisted primarily of operating lease cost, was $ 1.1 million and $ 2.2 million, respectively, for the three and six months ended June 30, 2021. Under ASC 840, the previous lease standard, total rent expense under operating leases during the three and six months ended June 30, 2020 was $ 1.1 million and $ 2.2 million, respectively.
Other information related to leases were as follows (in thousands, except years and percentages):
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Six Months Ended June 30, 2021 Supplemental cash flow information: Cash paid for operating leases included in operating cash flows $ 2,256 ROU assets obtained in exchange for new operating lease liabilities $ 340 June 30, 2021 Supplemental balance sheet information: Other assets $ 18,254 Total operating ROU assets $ 18,254 Other current liabilities $ 2,819 Other long-term liabilities 16,380 Total lease liabilities $ 19,199 Weighted average remaining lease term (years) 6.30 Weighted average discount rate 6.36 %
As of June 30, 2021, maturities of lease liabilities were as follows: Years Ending December 31, Finance Leases Operating Leases 2021 (remaining six months) $ 92 $ 2,102 2022 14 3,466 2023 — 3,358 2024 — 3,459 2025 — 3,563 Thereafter — 7,450 Total lease payments 106 $ 23,398 Less amount representing interest ( 2 ) ( 4,199 ) Present value of lease liabilities $ 104 $ 19,199
Note 7. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss was comprised of the following as of June 30, 2021 and December 31, 2020 (in thousands): June 30, December 31, 2021 2020 Foreign currency translation loss $ ( 167 ) $ ( 170 ) Unrealized loss on investments ( 49 ) ( 60 ) Total accumulated other comprehensive loss $ ( 216 ) $ ( 230 )
During the three and six months ended June 30, 2021 and June 30, 2020, there were no significant amounts related to foreign currency translation loss or realized gains or loss on investments reclassified to net loss from accumulated other comprehensive loss.
Note 8. Credit Facilities and Notes Payable
In January 2020, the Company entered into a loan and security agreement with a financial institution (the 2020 Revolving Line), as amended in September 2020, December 2020 and March 2021, which provides a revolving line of credit
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of $ 25.0 million, with an option to increase the credit limit up to additional $ 15.0 million with the bank’s approval. As part of the Revolving Line, there is a letters of credit sub-limit of $ 5.0 million. The advances under the Revolving Line bear interest at a rate per annum equal to prime rate plus an applicable margin of 1.5 % for prime rate advances, or LIBOR rate plus an applicable margin of 2.5 % for LIBOR advances. Unused revolving line facility fee is 0.15 % per annum of average unused portion of the Revolving Line. In addition, there is a $ 50,000 non-refundable commitment fee if the Company exercises the Incremental Revolving Line option. The Revolving Line is secured by certain assets of the Company. The 2020 Revolving Line expired on February 27, 2021 and was extended to February 26, 2022. The Company had no outstanding borrowings and was in compliance with the financial covenants associated with the facility as of June 30, 2021. On April 8, 2020, the Company received loan proceeds of $ 10.0 million under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Paycheck Protection Program (PPP). The principal and accrued interest are forgivable after 24 weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels and that approval is received from the relevant government entity. The unforgiven portion of the PPP loan is payable in two years at an interest rate of 1% per annum, with a deferral of interest payments for ten months after the expiration of the 24-week covered period. The Company filed for the forgiveness of the PPP loan and was approved for forgiveness of such loan and interest on June 30, 2021. The Company recorded a $ 10.1 million gain from the forgiveness of the PPP loan in other income for the three months ended June 30, 2021.
Note 9. Stockholders’ Equity
Common Stock
On September 30, 2020, Velodyne Lidar’s common stock and warrants began trading on the Nasdaq Global Select Market under the symbol “VLDR” and “VLDRW,” respectively. As discussed in Note 2, Business Combination, the Company has retroactively adjusted the pre-combination common and preferred shares issued and outstanding prior to September 29, 2020 to give effect to the exchange ratio established in the Merger Agreement to determine the number of shares of common stock into which they were converted.
The Company is authorized to issue up to 2,250,000,000 shares of common stock, each with a par value of $ 0.0001 per share. The following summarizes the Company’s common stock outstanding as of June 30, 2021 and December 31, 2020:
June 30, December 31, 2021 2020 Converted pre-combination Velodyne common stock outstanding 89,164,440 101,849,247 Converted pre-combination Velodyne preferred stock outstanding 24,772,759 24,772,759 Graf Founder shares 412,641 2,575,000 Other stockholders 80,877,974 46,715,188 Total common stock issued and outstanding 195,227,814 175,912,194
Preferred Stock
The Company is authorized to issue up to 25,000,000 shares of preferred stock, each with a par value of $ 0.0001 per share. As of June 30, 2021, no shares of preferred stock were issued and outstanding.
Warrants
Upon the closing of the Business Combination, there were 24,876,512 outstanding warrants to purchase shares of the Company’s common stock that were issued by Graf prior to the Business Combination. Each whole warrant entitles the holder to purchase three-quarters of one share of the Company’s common stock at a price of $ 11.50 per share, subject to adjustments. The warrants are exercisable at any time commencing 30 days after the completion of the Business Combination and expire five years after the completion of the Business Combination. The Company may redeem the outstanding warrants in whole and not in part at a price of $ 0.01 per warrant at any time after they become exercisable, provided that the last sale price of the Company’s common stock equals or exceeds $ 18.00 per share, subject to adjustments, for any 20 -trading days within a 30 -trading day period ending three business days prior to the date on which the Company sends the notice of redemption to the warrant holders.
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In connection with the Business Combination, on October 19, 2020, the Company registered the issuance of an aggregate of up to 18,657,384 shares of its common stock that are issuable upon the exercise of its warrants including up to 375,000 shares of its common stock issuable upon exercise of its working capital warrants issued to Graf LLC. The exercise price of the warrants is $ 11.50 per share. The following summarizes the Company’s common stock issuance related to the warrant exercises:
June 30, December 31, 2021 2020 Warrants outstanding upon Closing 24,876,512 24,876,512 Warrants exercised to date 18,899,642 9,598,538 Warrants outstanding 5,976,870 15,277,974 Aggregated common shares issuable upon exercise of warrants 18,657,384 18,657,384 Common shares issued upon exercise of warrants 14,174,709 7,198,898 Remaining common shares issuable upon exercise of warrants 4,482,675 11,458,486
On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the Securities and Exchange Commission (the SEC) issued a statement regarding accounting and reporting considerations for warrants issued by SPACs. In light of the issues raised by the SEC, the Company re-evaluated its accounting position for the warrants and concluded that certain warrants should have been classified as a liability measured at fair value for the 30-day period from September 29, 2020 to October 29, 2020.
Accounting for these warrants as a liability instead of equity would have reduced non-operating expense and net loss by $ 1.6 million for the year ended December 31, 2020. Additionally, a corresponding $ 1.6 million adjustment would have been made to reduce its accumulated deficit with an offsetting adjustment to additional paid in capital in its equity accounts at December 31, 2020. Accounting for these warrants as a liability instead of equity would not have any effect on Velodyne’s previously reported revenues, assets, liabilities, total equity, or cash flows for the year ended December 31, 2020. Velodyne has concluded the effects of accounting for the warrants as a liability instead of equity were immaterial to the previously issued financial statements. The Company has made an immaterial adjustment to its equity accounts for the effects of the accounting for the warrants in its condensed consolidated statement of stockholders’ equity and balance sheet at March 31, 2021 by decreasing its accumulated deficit by $ 1.6 million with an offsetting decrease to its additional paid in capital.
Dividends
The Company has not paid any cash dividends on the common stock to date. The Company may retain future earnings, if any, for future operations, expansion and debt repayment and has no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will depend on, among other things, the Company’s results of operations, financial condition, cash requirements, contractual restrictions and other factors that the Board may deem relevant. In addition, the Company’s ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness the Company or its subsidiaries incur.
Note 10. Stock-Based Compensation
2020 Equity Incentive Plans
2020 Equity Plan
In connection with the Business Combination, on September 29, 2020, the Company's stockholders approved the 2020 Equity Plan. The 2020 Equity Plan provides for the grant of stock options, stock appreciation rights, restricted stock units (RSUs) and other stock or cash-based awards. The Company initially reserved 27,733,888 , approximately 16 % of the number of shares of its common stock outstanding upon the Closing, as the “Initial Limit” for the issuance of awards under the 2020 Equity Plan. The number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2021 and ending on (and including) January 1, 2030, by a number equal to the least of (a) 5 % of the total number of Common Shares actually issued and outstanding on the last day of the preceding fiscal year, (b) 10,000,000 Common Shares, or (c) a number of Common Shares determined by the Board. This limit is subject to adjustment
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in the event of a stock split, stock dividend or other change in the Company’s capitalization. The number of shares reserved was 36,738,678 and the remaining shares available for issuance under the 2020 Equity Plan was 17,433,350 as of June 30, 2021.
In January 2021, the Company adopted the sell-to-cover method as the tax withholding method for stock awards upon settlement, pursuant to which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the holder of the awards to cover the tax withholding liability and the cash proceeds from such sales are remitted by the Company to taxing authorities.
2020 Employee Stock Purchase Plan
In connection with the Business Combination, on September 29, 2020, the Company's stockholders approved the 2020 Employee Stock Purchase Plan (the 2020 ESPP). Under the 2020 ESPP, 3,492,097 authorized but unissued or reacquired shares of common stock were initially reserved for issuance. Beginning on January 1, 2021, an additional number of shares will be reserved annually on the first day of each fiscal year for a period of not more than 20 years in an amount equal to the least of (i) 1 % of the outstanding shares of our common stock on such date, (ii) 2,500,000 shares of our common stock or (iii) a lesser amount determined by the Compensation Committee or the Board.
The ESPP is implemented by overlapping, twelve-month offering periods and each offering period may contain up to two purchase periods of six months each. At any one time, there may be up to two offering periods under the ESPP. In general, a new twelve-month offering period commences on each June 1st and December 1st of a calendar year.
Common stock may be purchased under the ESPP at a price equal to 85 % of the fair market value of our common stock on either the date of purchase or the first day of an offering period, whichever is lower. Eligible employees may elect to withhold up to 15 % of their compensation through payroll deductions during an offering period for the purchase of stock. The ESPP contains a reset provision whereby if the price of our common stock on the first day of a new offering period is less than the price on the first day of any preceding offering period, all participants in a preceding offering period with a higher first day price will be automatically withdrawn from such offering periods and re-enrolled in the new offering period. The reset feature, when triggered, will be accounted for as a modification to the original offering period, resulting in incremental expense to be recognized over the twelve-month period of the new offering.
The ESPP limits the maximum number of shares that may be purchased by any one participant in an offering period to 3,000 shares. In addition, the Internal Revenue Code limits purchases under an ESPP to $ 25,000 worth of stock in any one calendar year, valued as of the first day of an offering period. As of June 30, 2021, 5,293,055 shares of common stock were reserved and available for future purchase.
2020 Phantom Stock Incentive Plan
In March 2021, the Board adopted the 2020 Phantom Stock Incentive Plan, which provides for the granting of up to 7,635,000 phantom stock units to certain employees that settle, or are expected to settle, with cash payments upon vesting. Like equity-settled awards, phantom stock units are awarded with vesting conditions and are subject to certain forfeiture provisions prior to vesting. Phantom stock unit activity for the six months ended June 30, 2021 was not significant.
Stock Incentive Awards
As of June 30, 2021, the Company has certain equity incentive awards outstanding, which include stock options, RSAs, RSUs and phantom stock units under its stock incentive plans. In the six months ended June 30, 2021, the Company granted RSUs to certain employees and directors pursuant to its 2020 Stock Plan. The RSUs are subject to time-based vesting criteria and vest on a quarterly basis over a four-year period, or 25 % upon the one-year anniversary date from initial vesting date, with the remainder vesting quarterly over the following three years .
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A summary of stock option activities is as follows: Shares
Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value (Yea
[END]
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