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BUSINESS COMBINATION
 6 Months Ended 12 Months Ended
Jun. 30, 2021
Dec. 31, 2020
Rocket Lab USA, Inc.    
BUSINESS COMBINATION
(4)
BUSINESS COMBINATION
On April 28, 2020, the Company acquired 100% of the outstanding capital stock and voting interest of Sinclair Interplanetary (“Sinclair Interplanetary”), pursuant to a stock purchase agreement with Sinclair, dated March 6, 2020. The results of Sinclair’s operations have been included in the condensed consolidated financial statements since the acquisition close date. Sinclair Interplanetary is a leading provider of high-quality, flight- proven satellite hardware and is headquartered in Toronto, Canada. As a result of the acquisition, management expects to strengthen and expand the Company’s ability to become a one stop shop for customers who desire to design, build and launch a satellite.
Acquisition Consideration
The acquisition-date consideration transferred consisted of cash of $12,340.
The following table presents estimates of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition:
 
Description
   
Amount
  
Cash and cash equivalents
    $ 132  
Accounts receivable
      1,024  
Inventories
      718  
Prepaids and other current assets
      16  
Property and equipment
      380  
Intangible assets, net
      10,250  
Right-of-use
assets
      94  
Trade payables
      (143 ) 
Other current liabilities
      (2,494 ) 
Lease liabilities
      (94 ) 
Non-current
deferred tax liabilities
      (438 ) 
Identifiable net assets acquired
      9,445  
Goodwill
      2,895  
Total purchase price
    $ 12,340  
  
 
 
  
The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):
 
Type
   
Estimated
Life in
Years
     
Fair
Value
  
Developed technology
      7      $ 9,200  
In-process
technology
      N/A        100  
Customer relationships
      3        600  
Backlog
      0.7        50  
Trademark and tradenames
      3        100  
Non-compete
agreement
      4        200  
     
 
 
  
Total identifiable intangible assets acquired
       $ 10,250  
     
 
 
  
Goodwill of $2,895 was recorded for the Sinclair Interplanetary acquisition, representing the excess of the purchase price over the fair value of the identifiable net assets. Goodwill recognized primarily represents the future revenue and earnings potential and certain other assets which were acquired, but that do not meet the recognition criteria, such as assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.
Compensation Arrangements
In connection with the acquisition, the Company issued 272,727 shares of common stock to the seller upon closing of the acquisition. The shares are subject to a share restriction agreement which restricts the transferability of the shares and provides the Company with a right to repurchase the shares for $0 upon termination of employment of the seller. The Company’s repurchase right lapses in eight equal quarterly installments over the
two-year
period subsequent to the acquisition date as the seller continues to provide service as an employee, such that at the end of the
two-year
period following the acquisition date, the shares will be fully transferable, and the Company will no longer have a right to repurchase the shares. Therefore, the shares are accounted for as post-combination compensation expense for services as an employee over the
two-year
vesting period following the acquisition date.
Additionally, the Company agreed to issue to the seller of Sinclair Interplanetary an earnout of up to 211,416 additional shares of the Company common stock to be paid over a
two-year
period following the acquisition close date. Issuance of the earnout shares is contingent upon the acquired business meeting certain post-acquisition gross revenue and gross margin targets and the seller continuing to provide services to the Company as an employee during the earnout period. The earnout shares are divided into three tranches. The number of shares to be earned in the first tranche (between 0 and 105,708 shares) is based on revenue and gross margin of the acquired business during the first
one-year
period following acquisition. The number of shares to be earned in second tranche (between 0 and 105,708 shares) is based on revenue and gross margin of the acquired business during the second
one-year
period following acquisition. The arrangement also provides for a
make-up
share tranche, whereby the seller may earn additional shares not earned in the first
one-year
period following acquisition if the revenue and gross margin of the second
one-year
period following acquisition met certain specified thresholds. In no event will more than 211,416 shares be earned.
Due to the continuing employment requirement of the shares issued upon closing of the transaction and continuing employment requirement of the earnout shares, the costs associated with the shares are recognized as post-combination compensation expense recognized in research and development expenses in the condensed consolidated statements of operations and comprehensive loss.
The following table provides stock-based compensation expense recognized in conjunction with the Sinclair Interplanetary acquisition:
 
    
Six-Months Ended June 30,
  
Acquisition stock-based compensation
   
    2021    
     
    2020    
  
Shares issued in conjunction with the acquisition
    $  701      $  234  
Earnout share achievement
      181        —    
  
 
 
     
 
 
  
Total stock compensation related to the acquisition
      882        234  
  
 
 
     
 
 
  
4.
BUSINESS COMBINATION
On April 28, 2020, the Company acquired 100% of the outstanding capital stock and voting interest of Sinclair Interplanetary (“
Sinclair Interplanetary
”), pursuant to a stock purchase agreement with Sinclair, dated March 6, 2020. The results of Sinclair’s operations have been included in the consolidated financial statements since the acquisition close date. Sinclair Interplanetary is a leading provider of high-quality, flight-proven satellite hardware and is headquartered in Toronto, Canada. As a result of the acquisition, management expects to strengthen and expand the Company’s ability to become a one stop shop for customers who desire to design, build and launch a satellite.
Acquisition Consideration
The acquisition-date consideration transferred consisted of cash of $12,340.
The following table presents estimates of the fair value of the assets acquired and the liabilities assumed by the Company in the acquisition:
 
Description
   
Amount
  
Cash and cash equivalents
    $ 132  
Accounts receivable
      1,024  
Inventories
      718  
Prepaids and other current assets
      16  
Property and equipment
      380  
Intangible assets, net
      10,250  
Right-of-use
assets
      94  
Trade payables
      (143 ) 
Other current liabilities
      (2,494 ) 
Lease liabilities
      (94 ) 
Non-current
deferred tax liabilities
      (438 ) 
  
 
 
  
Identifiable net assets acquired
      9,445  
Goodwill
      2,895  
  
 
 
  
Total purchase price
    $ 12,340  
  
 
 
  
The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):
 
Type
   
Estimated
Life in
Years
     
Fair
Value
  
Developed technology
      7      $ 9,200  
In-process
technology
      N/A        100  
Customer relationships
      3        600  
Backlog
      0.7        50  
Trademark and tradenames
      3        100  
Non-compete
agreement
      4        200  
     
 
 
  
Total identifiable intangible assets acquired
       $ 10,250  
     
 
 
  
Goodwill of $2,895 was recorded for the Sinclair Interplanetary acquisition, representing the excess of the purchase price over the fair value of the identifiable net assets. Goodwill recognized primarily represents the future revenue and earnings potential and certain other assets which were acquired, but that do not meet the recognition criteria, such as assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.
The results of Sinclair Interplanetary operations since the acquisition date have been combined with those of the Company. The Company’s 2020 consolidated statement of operations includes revenue and net loss of $2,075 and $936, respectively, related to this acquisition.
The Company recognized $1,026 of acquisition and integration related costs that were expensed in the current period. These costs are included in the consolidated statement of operations in the line item entitled “Selling, General and Administrative Expense.”
Compensation Arrangements
In connection with the acquisition, the Company issued 272,727 shares of the Company common stock to the seller upon closing of the acquisition. The shares are subject to a share restriction agreement which restricts the transferability of the shares and provides the Company with a right to repurchase the shares for $0 upon termination of employment of the seller. The Company’s repurchase right lapses in eight equal quarterly installments over the
two-year
period subsequent to the acquisition date as the seller continues to provide service as an employee, such that at the end of the
two-year
period following the acquisition date, the shares will be fully transferable, and the Company will no longer have a right to repurchase the shares. Therefore, the shares are accounted for as post-combination compensation expense for services as an employee over the
two-year
vesting period following the acquisition date.
Additionally, the Company agreed to issue to the seller of Sinclair Interplanetary an earnout of up to 211,416 additional shares of the Company common stock to be paid over a
two-year
period following the acquisition close date. Issuance of the earnout shares is contingent upon the acquired business meeting certain post-acquisition gross revenue and gross margin targets and the seller continuing to provide services to the Company as an employee during the earnout period. The earnout shares are divided into three tranches. The number of shares to be earned in the first tranche (between 0 and 105,708 shares) is based on revenue and gross margin of the acquired business during the first
one-year
period following acquisition. The number of shares to be earned in second tranche (between 0 and 105,708 shares) is based on revenue and gross margin of the acquired business during the second
one-year
period following acquisition. The arrangement also provides for a
make-up
share tranche, whereby the seller may earn additional shares not earned in the first
one-year
period following acquisition if the revenue and gross margin of the second
one-year
period following acquisition met certain specified thresholds. In no event will more than
211,416
shares be earned.
Due to the continuing employment requirement of the shares issued upon closing of the transaction and the earnout shares, the costs associated with the shares are recognized as post-combination compensation expense recognized in selling, general and administrative expense in the consolidated statements of operations and comprehensive loss. For the year ended December 31, 2020, the Company recognized $934 in stock-based compensation expense related to the shares issued in conjunction with the acquisition. No expense has been recognized for the earnout shares as the achievement of the gross revenue and gross margin targets for the first tranche and
make-up
tranche was not considered probable of occurring as of December 31, 2020.
Unaudited Proforma Combined Financial Information
The following table presents unaudited pro forma net revenues for each of the periods presented, as if the acquisition of Sinclair Interplanetary had occurred at the beginning of fiscal year ended December 31, 2019:
 
    
2020
     
2019
  
Net revenues
    $ 35,611      $ 56,045  
It is impracticable to present pro forma net income due to the availability and reliability of the
pre-combination
financial information of the acquired business.
Pro forma net revenues have been prepared for informational purposes only and do not include pro forma adjustments. Pro forma net revenues do not assume any impact from synergies that are expected as a result of the acquisition. These unaudited pro forma net revenues are presented for illustrative purposes only and are not indicative of the net revenues that would have been achieved had the acquisitions occurred on January 1, 2019, nor does the information project results for any future period.