Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, references in this section to “we”, “us” and “our” refer to the business and operations of Innventure LLC and its consolidated subsidiaries prior to the Business Combination, which became the business of the Company and its subsidiaries following the consummation of the Business Combination. Unless otherwise indicated, all dollar amounts (“$”) are expressed in thousands.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other information included elsewhere in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below in this section and those discussed in the sections titled “Risk Factors” and “Cautionary Statement Regarding Forward–Looking Statements” included elsewhere in this Form 10-K. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
Innventure founds, funds, and operates companies with a focus on transformative, sustainable technology solutions acquired or licensed from MNCs with the intent to maximize values for investors and other stakeholders through positive cash flow generated through holding long term positions in our Operating Companies. Refer to Item 1. “Business” of this Form 10-K for a detailed discussion of our business activities.
Segments
Based on the allocation of resources and assessment of financial performance by our Chief Executive Officer (who has been determined to be our Chief Operating Decision Maker), we have identified one reportable segment: Technology. The Company’s remaining operations are not reportable segments and are classified as “Other”. “Other” primarily includes the Company’s remaining operations consisting of Innventure’s original platform business, service activities, Refinity and equity method investment activities.
The Business Combination
On October 24, 2023, Learn CW and Innventure LLC entered into a Business Combination Agreement with Holdco, LCW Merger Sub and Innventure Merger Sub. On September 30, 2024, the stockholders of Learn CW approved the Business Combination, and the Business Combination closed on the Closing Date. The Business Combination has been accounted for using the acquisition method of accounting. The Company determined the accounting acquirer to be Holdco. Accordingly, the Company recorded assets acquired, liabilities assumed and non-controlling interest at their acquisition date fair values and recognized goodwill.
As a consequence of the Business Combination, Innventure, Inc. is the successor to an SEC-registered and Nasdaq listed company which will require Innventure to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. Innventure expects to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.
Innventure’s future results of consolidated operations and financial position may not be comparable to historical results as a result of the Business Combination.
Financial Summary
Highlights
The year ended December 31, 2024 includes the following highlights:
47
•Innventure’s Technology segment began generating revenue related to its cooling systems for data centers.
•Total operational expenses of approximately $10,506 and $12,517, respectively, relate to increased costs associated with public readiness activities connected with the Business Combination and the subsequent reporting requirements related to being a public entity for the Successor (as defined below) period from October 2, 2024 through December 31, 2024 and the Predecessor (as defined below) period from January 1, 2024 through October 1, 2024.
•Cash inflows from equity raises were approximately $19,552 and $26,981, respectively, for the Successor period from October 2, 2024 through December 31, 2024 and the Predecessor period from January 1, 2024 through October 1, 2024. These cash inflows from equity raises are compared to net cash outflows related to operating, investing and remaining financing activity of $8,478 and $13,345, respectively, for the Successor period from October 2, 2024 through December 31, 2024 and the Predecessor period from January 1, 2024 through October 1, 2024.
•As a result of the Business Combination, $187,500 of intangible assets and $667,936 of goodwill were recognized. Overall, $147,515 of net identifiable assets were acquired.
Results of Operations for the Years Ended December 31, 2024 and 2023 (in thousands, except as otherwise noted)
To reflect the application of different bases of accounting as a result of the Business Combination, the tables provided below separate the Company’s results via a black line into two distinct periods as follows: (1) up to and including the Closing Date (labeled “Predecessor”) and (2) the period after that date (labeled “Successor”). The periods after October 1, 2024 are the “Successor” period while the periods before October 2, 2024 are the “Predecessor” periods.
Management believes reviewing our operating results for the twelve-months ended December 31, 2024 by combining the results of the Predecessor and Successor periods (“S/P Combined”) is more useful in discussing our overall operating performance when compared to the same period in the prior year. The combined results of operations included in our discussion below are not considered to be prepared in accordance with U.S. GAAP and have not been prepared as pro forma results under applicable regulations, may not reflect the actual results we would have achieved had the Business Combination occurred at the beginning of fiscal 2024 and should not be viewed as a substitute for the results of operations of the Predecessor and Successor periods presented in accordance with GAAP. Accordingly, in addition to presenting our results of operations as reported in our consolidated financial statements in accordance with GAAP, the tables below present the non-GAAP combined results for the year.
48
Successor Predecessor S/P Combined (Non-GAAP) Predecessor Non-GAAP
($) ($) ($) ($) ($) (%)
Operating Expenses
Non-operating (Expense) and Income
Loss on conversion of promissory notes — (1,119) (1,119) — (1,119) nil
Miscellaneous other expense (57) (64) (121) — (121) nm*
Less: net loss attributable to
Other comprehensive income, net of taxes:
Total other comprehensive loss, net of taxes 909 62 $ 971 — 971 nil
Less: comprehensive income attributable to
__________________
*not meaningful
49
Revenue
Revenue was $456 for the Successor period from October 2, 2024 through December 31, 2024, $764 for Predecessor period from January 1, 2024 through October 1, 2024 and $1,117 for the Predecessor year ended December 31, 2023. Revenue for the combined twelve months ended December 31, 2024 was $1,220, an increase of $103, or 9.2%, over the comparable period for the Predecessor year ended December 31, 2023. The increase was primarily due to new product sales within the Technology segment during the combined twelve months ended December 31, 2024. The increase was partially offset by non-recurring consulting revenue provided to certain third parties for the Predecessor year ended December 31, 2023.
Cost of sales
Cost of sales was $3,752 for the Successor period from October 2, 2024 through December 31, 2024, $777 for Predecessor period from January 1, 2024 through October 1, 2024 and nil for the Predecessor year ended December 31, 2023. Cost of sales for the combined twelve months ended December 31, 2024 was $4,529, an increase of $4,529, over the comparable period for the Predecessor year ended December 31, 2023. The increase was due to the fact that the Technology segment was pre-revenue for the Predecessor year ended December 31, 2023 and started generating revenue from product sales during the combined twelve months ended December 31, 2024. Cost of sales relate to those costs incurred to generate the new product sale revenue as well as the amortization expense of $2,065 associated with the recognition of intangibles of the Technology segment as part of the Business Combination.
General and administrative
General and administrative expense was $29,652 for the Successor period from October 2, 2024 through December 31, 2024, $26,608 for Predecessor period from January 1, 2024 through October 1, 2024 and $17,589 for the Predecessor year ended December 31, 2023. General and administrative expense for the combined twelve months ended December 31, 2024 was $56,260, an increase of $38,671, or 219.9%, over the comparable period for the Predecessor year ended December 31, 2023. The increase in expenditure was primarily attributed to an increase in professional services, legal fees and consulting fees related to the Business Combination of $17,600. The remaining increase in expenditure was due to increased employee costs associated with increased bonuses and stock based compensation grants.
Sales and marketing
Sales and marketing expense was $2,009 for the Successor period from October 2, 2024 through December 31, 2024, $4,178 for Predecessor period from January 1, 2024 through October 1, 2024 and $3,205 for the Predecessor year ended December 31, 2023. Sales and marketing expense for the combined twelve months ended December 31, 2024 was $6,187, an increase of $2,982, or 93.0%, over the comparable period for the Predecessor year ended December 31, 2023. The increase was primarily due to increased compensation costs as a result of increased headcount across the business and increases in advertising and marketing related events and expenses associated with the commercialization phase of the Technology segment.
Research and development
Research and Development (“R&D”) expense was $5,340 for the Successor period from October 2, 2024 through December 31, 2024, $5,978 for Predecessor period from January 1, 2024 through October 1, 2024 and $4,001 for the Predecessor year ended December 31, 2023. R&D expense for the combined twelve months ended December 31, 2024 was $11,318, an increase of $7,317, or 182.9%, over the comparable period for the Predecessor year ended December 31, 2023. The increase was primarily due to an increase in employee-related costs in the Technology segment and an increase in new product development costs.
Interest expense, net
Interest expense, net was $1,132 for the Successor period from October 2, 2024 through December 31, 2024, $1,300 for Predecessor period from January 1, 2024 through October 1, 2024 and $1,224 for the Predecessor year ended
50
December 31, 2023. Interest expense, net for the combined twelve months ended December 31, 2024 was $2,432, an increase of $1,208, or 98.7%, over the comparable period for the Predecessor year ended December 31, 2023. The increase was primarily due to an increase in facilities and borrowings between the periods as well as the increased cost of borrowing experienced during the Successor period.
Net gain (loss) from investments
Net gain on investments was nil for the Successor period from October 2, 2024 through December 31, 2024, $11,547 for Predecessor period from January 1, 2024 through October 1, 2024 and net loss on investments was $6,448 for the Predecessor year ended December 31, 2023. Net gain on investments for the combined twelve months ended December 31, 2024 was $11,547, an increase of $17,995, or 279.1%, over the comparable period for the Predecessor year ended December 31, 2023. The increase was due to the unrealized gain on investment in PCT owned stock via Class PCTA Units for the year ended December 31, 2024. The PCTA associated assets were not recognized as part of the Business Combination.
Net (loss) gain on investments - due to related parties
Net loss on investments – due to related parties was nil for the Successor period from October 2, 2024 through December 31, 2024, $468 for Predecessor period from January 1, 2024 through October 1, 2024 and net gain on investments was $232 for the Predecessor year ended December 31, 2023. Net loss on investments – due to related parties for the combined twelve months ended December 31, 2024 was $468, a decrease of $700, or 301.7%, over the comparable period for the Predecessor year ended December 31, 2023. The decrease was primarily due to an increase in fair value of liability - PCT stock owed to others. The PCTA associated liabilities were not recognized as part of the Business Combination.
Change in fair value of financial liabilities
The fair value of financial liabilities increased by $20,946 for the Successor period from October 2, 2024 through December 31, 2024, increased by $478 for Predecessor period from January 1, 2024 through October 1, 2024, and decreased by $766 for the Predecessor year ended December 31, 2023. The fair value of financial liabilities for the combined twelve months ended December 31, 2024 increased by $21,424, an increase of $22,190, or 2,896.9%, over the comparable period for the Predecessor year ended December 31, 2023. The increase was primarily due to increases in fair value adjustments for warrants and earnout liabilities, which were offset by adjustments in the fair value of embedded derivative liabilities.
Equity method investment (loss) income
Equity method investment loss was $902 for the Successor period from October 2, 2024 through December 31, 2024, equity method investment gain was $893 for Predecessor period from January 1, 2024 through October 1, 2024 and equity method investment loss was $632 for the Predecessor year ended December 31, 2023. Equity method investment loss for the combined twelve months ended December 31, 2024 was $9, a decrease of $623, or 98.6%, over the comparable period for the Predecessor year ended December 31, 2023. The loss in 2023 of $632 recognized represented nonrecurring allocated losses from the ESG Fund and AeroFlexx. The gain in 2024 was primarily due to a non-recurring allocated gain from the ESG Fund offset by a non-recurring allocated loss from investment of AeroFlexx.
Loss on conversion of promissory notes
Loss on conversion of promissory notes was nil for the Successor period from October 2, 2024 through December 31, 2024, $1,119 for Predecessor period from January 1, 2024 through October 1, 2024 and nil for the Predecessor year ended December 31, 2023. Loss on conversion of promissory notes for the combined twelve months ended December 31, 2024 was $1,119, an increase of $1,119, over the comparable period for the Predecessor year ended December 31, 2023. This was due to the automatic conversion of promissory notes in the first quarter of 2024 into equity instruments which was treated as an extinguishment thereby generating a loss. There was no equivalent transaction in 2023.
51
Write-off of loan commitment fee asset
Write-off of loan commitment fee asset was $10,041 for the Successor period from October 2, 2024 through December 31, 2024, nil for Predecessor period from January 1, 2024 through October 1, 2024 and nil for the Predecessor year ended December 31, 2023. Write-off of loan commitment fee asset for the combined twelve months ended December 31, 2024 was $10,041, an increase of $10,041, over the comparable period for the Predecessor year ended December 31, 2023. The increase was due to a one-time write-off of loan commitment fees related to the WTI Fund loan and security agreement where the Company was unable to draw down subsequent loan tranches because it had not met certain revenue and net loss targets set by the lender. These fees included warrants and fees incurred in securing the WTI loans.
Loss attributable to non-redeemable non-controlling interests
Loss attributable to non-redeemable non-controlling interests was $8,339 for the Successor period from October 2, 2024 through December 31, 2024, $11,762 for Predecessor period January 1, 2024 through October 1, 2024 and $139 for the Predecessor year ended December 31, 2023. Loss attributable to non-redeemable non-controlling interests for the combined twelve months ended December 31, 2024 was $20,101, an increase of $19,962, or 14,361.2%, over the comparable period for the Predecessor year ended December 31, 2023. This was due to the increase in Accelsius loss subject to allocable percentage during the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Unrealized gain on available-for-sale debt securities - related party
Unrealized gain on available-for-sale debt securities - related party, was a gain of $909 for the Successor period from October 2, 2024 through December 31, 2024, a loss of $62 for Predecessor period January 1, 2024 through October 1, 2024 and nil for the Predecessor year ended December 31, 2023. Unrealized gain (loss) on available-for-sale debt securities - related party for the combined twelve months ended December 31, 2024 was $971, an increase of $971, over the comparable period for the Predecessor year ended December 31, 2023. The increase was due to the conversion of working capital advances to investments in debt securities which are classified as available-for-sale.
Non-GAAP Financial Measures
We use certain financial measures that are not calculated in accordance with generally accepted accounting principles in the U.S. (GAAP) to supplement our consolidated financial statements. These non-GAAP financial measures provide additional information to investors to facilitate comparisons of past and present operating results, identify trends in our underlying operating performance, and offer greater transparency on how we evaluate our business activities. These measures are integral to our processes for budgeting, managing operations, making strategic decisions, and evaluating our performance.
Our primary non-GAAP financial measures are EBITDA and Adjusted EBITDA. We define EBITDA as net income before interest, income taxes, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain non-cash items, non-recurring expenses, and other items that are not indicative of our core operating activities. These may include stock-based compensation, acquisition costs, and other financial items. We believe Adjusted EBITDA is valuable for investors and analysts as it provides additional insight into our operational performance, excluding the impacts of certain financing, investing, and other non-operational activities. This measure helps in comparing our current operating results with prior periods and with those of other companies in our industry. It is also used internally for allocating resources efficiently, assessing the economic outcomes of acquisitions and strategic decisions, and evaluating the performance of our management team.
There are limitations to Adjusted EBITDA, including its exclusion of cash expenditures, future requirements for capital expenditures and contractual commitments, and changes in or cash requirements for working capital needs. Adjusted EBITDA also omits significant interest expenses and related cash requirements for interest and payments. While depreciation and amortization are non-cash charges, the associated assets will often need to be replaced in the future, and Adjusted EBITDA does not reflect the cash required for such replacements. Additionally, Adjusted EBITDA does not account for income or other taxes or necessary cash tax payments.
52
Investors should use caution when comparing our non-GAAP measure to similar metrics used by other companies, as definitions can vary. Adjusted EBITDA should not be considered in isolation or as a substitute for GAAP financial measures.
In presenting Adjusted EBITDA, we aim to provide investors with an additional tool for assessing the operational performance of our business. It serves as a useful complement to our GAAP results, offering a more comprehensive understanding of our financial health and operational efficiencies.
The following table provides a reconciliation from Net Loss to EBITDA and Adjusted EBITDA for the specified periods:
Successor Predecessor S/P Combined (Non-GAAP) Predecessor
(1) Interest expense, net – For the combined twelve months ended December 31, 2024, interest expense, net includes interest incurred on our various borrowing facilities and the amortization of debt issuance costs. Additional debt issuance cost associated with a loan commitment fee asset in the amount of $10,041 was written off in combined twelve months ended December 31, 2024 and has also been included in this adjustment. This amount is representative of the asset associated with the second and third tranches of the WTI facility. When it became known that we would not be able to draw on these subsequent tranches based on certain metrics contained within the WTI Facility agreement, we immediately wrote this asset off. For the Predecessor year ended December 31, 2023, this balance is comprised entirely of interest incurred on our various borrowing facilities.
(2) Transaction and other related costs – For the combined twelve months ended December 31, 2024 and for the Predecessor year ended December 31, 2023 this is comprised entirely of consulting, legal, and other professional fees related to the business combination with Learn CW Investment Corporation (the “Business Combination”).
(3) Change in fair value of financial liabilities – For the combined twelve months ended December 31, 2024 the change in fair value of financial liabilities primarily consists of the change in fair value of the warrant liability, change in fair value of the earnout liability, and the change in the fair value of the embedded derivative associated with convertible notes prior to extinguishment. For the Predecessor year ended December 31, 2023, this is comprised entirely of the change in fair value of the embedded derivative associated with the convertible notes.
(4) Stock based compensation – For the combined twelve months ended December 31, 2024 stock based compensation primarily consisted of awards in the 2024 Equity and Incentive Plan entered into on October 2, 2024 subsequent to the Business Combination. These awards consisted of Stock Options, Restricted Stock Units, and Stock Appreciation Rights. Further, a portion of this expense was related to share based payment employee incentive plans in existence at Innventure LLC and other subsidiaries. For the Predecessor year ended December 31, 2023, stock based compensation was comprised wholly of share based payment employee incentive plans in existence at Innventure LLC and other subsidiaries.
Liquidity and Capital Resources (in thousands, except as otherwise noted)
Sources of Liquidity
In assessing liquidity, we monitor and analyze cash on hand and operating expenditure commitments. Our liquidity needs are to meet working capital requirements and operating expense obligations. To date we have financed our operations primarily through cash flows from investing and financing activities.
The following is a summary of the components of our current liquidity:
53
Successor Predecessor
Restricted cash — 100
Our future liquidity requirements will depend on many factors, including funding required by our Operating Companies, funding needed to support other business opportunities and expenditures, and funding for working capital and general corporate purposes. Based on current expectations, we estimate we will require at least $50,000 to meet our liquidity requirements for the next 12 months.
We expect to satisfy our liquidity requirements through cash on hand, cash generated from the operations of our Operating Companies, the SEPA with Yorkville (maximum remaining availability of approximately $72,000), the Convertible Debentures to be issued to Yorkville, as well as proceeds from additional financings completed by us or our Operating Companies. During the year ended December 31, 2024, the Technology segment raised approximately $18,898 of additional equity financing, in comparison to approximately $250 during the year ended December 31, 2023. In connection with our current business strategy, we intend to conduct additional fundraising of up to $25,000 to fund capital expenditures and other expenses to support the growth of the business.
Bridge Financing
On August 20, 2024, the Company entered into unsecured promissory notes with two related parties for principal amounts of $10,000 and $2,000, respectively. The Company entered into amended and restated agreements to amend the terms of these unsecured promissory notes on October 1, 2024. As per the original agreements, the note with the first party contained a loan fee of $1,000 which was payable with the repayment of the principal amount of the note and the note with the second party contained interest at the rate of 11.50% per annum. The principal amounts, loan fees and accrued interest were repayable at the earlier of October 15, 2024 and the first business day following the date of consummation of the Business Combination.
As per the amended note with the first party, the maturity date was extended to the earlier of (i) January 31, 2025 and (ii) the first business day following the date on which the Company has sufficient capital to be able to repay all amounts outstanding under the note and otherwise meet its expected working capital needs as determined by the Company in its reasonable discretion. The loan fee of $1,000, required under the original agreement, became due on or around the amendment date but as of December 31, 2024 has not yet been paid and interest will accrue at the rate of 15.99% per annum until paid. The amendment was accounted for as a troubled debt restructuring as the Company was provided a concession through a decrease in the effective interest rate. However, no gain or loss was recognized as a result.
As per the amended note with the second party, the maturity date was extended to January 31, 2025 and the interest rate was increased to 13.50% per annum. Additionally, $1,000 of the principal amount became due on or around the amendment date but as of December 31, 2024 has not yet been paid.
On March 20, 2025, the Company entered into agreements to convert and repay the aggregate principal amount of these unsecured promissory notes with the two related parties and, on March 24, 2025, issued shares of the Company’s Series C preferred stock, par value $0.0001 per share (the “Series C Preferred Stock”) and paid cash to settle these unsecured promissory notes with the two unrelated parties. See Item 13. Certain Relationship and Related Transactions, and Director Independence for more information.
54
Series B Preferred Stock
The Company is authorized to issue 25,000,000 shares of preferred stock with a par value of $0.0001 per share, of which, 3,000,000 of the shares of preferred stock are designated as Series B Preferred Stock. Immediately following the Business Combination, Innventure issued 1,102,000 of Series B Preferred Stock at a purchase price of $10.00 per share (the “Original Issue Price”) for a total amount of $11,020. See further discussion of the Series B Preferred Stock in Note 13. Stockholders' Equity within the notes to the consolidated financial statements.
Series C Preferred Stock
5,000,000 shares of preferred stock are designated as Series C Preferred Stock. On March 24, 2025, the Company agreed to issue an aggregate of up to 275,000 shares of the Series C Preferred Stock in a private placement, at a price of $10.00 per share of Series C Preferred Stock, resulting in an aggregate purchase price of approximately $2,750 before deducting fees and other estimated offering expenses. In connection with the preferred stock purchase agreements, the Company received an aggregate amount of $1,500 in advanced funds. In consideration of these funds, the Company issued 150,000 shares of Series C Preferred Stock to the respective parties.
Additionally, on March 24, 2025, the Company issued 578,294 shares of Series C Preferred Stock in exchange for the termination of a related party loan with Glockner Family Venture Fund, LP and issued 1,392,059 shares of Common Stock in exchange for the termination of another related party loan between AeroFlexx Packaging Company, LLC and Auto Now Acceptance Co., LLC. Further, on March 24, 2025, the Company issued an aggregate of 300,000 shares of Series C Preferred Stock for financial advisory and merchant banking services rendered. See further discussion of the Series C Preferred Stock in the sub-section titled “Bridge Financing” above and in Note 21. Subsequent Events within the notes to the consolidated financial statements.
Convertible Debentures
On March 25, 2025, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) to the issuance and sale of convertible debentures (the “Convertible Debentures”) with an aggregate principal amount of up to $30,000. These Convertible Debentures will be convertible into shares of Common Stock (as converted, the “Conversion Shares”). On the first business day after certain closing conditions are met, including the timely filing of this Form 10-K, the Company will issue $20,000 in aggregate principal amount of Convertible Debentures (the “First Closing Date”). Additionally, the Company will issue an additional $10,000 in aggregate principal amount of Convertible Debentures after both (i) the registration statement filed with the SEC registering the resale of the Conversion Shares is declared effective by the SEC and (ii) the Company receives stockholder approval. The Convertible Debentures will not bear interest unless an event of default occurs, in which case the Convertible Debentures will bear interest at an annual rate of 18%. The Convertible Debentures will mature 15 months after the First Closing Date and can be converted into shares of Common Stock at a conversion price to be determined. The Convertible Debentures were issued at an original issue discount of 10%. In connection with this agreement, the Company agreed to issue warrants to purchase up to 300,000 shares of Common Stock to the WTI Lenders. These warrants serve as consideration for the WTI Lenders’ consent to the transaction. The warrants have an exercise price of $0.01 per share and are exercisable until March 31, 2035, with additional customary rights and protections. See further discussion of the Convertible Debentures in Note 21. Subsequent Events within the notes to the consolidated financial statements.
Cash Flows
Cash flows associated with operating, investing and financing activities for the years ended December 31, 2024 and 2023 are summarized as follows:
55
Successor Predecessor S/P Combined 2024 Predecessor Change
Net Cash Used in Operating Activities
Cash flows used in operating activities were $48,062 for the combined twelve months ended December 31, 2024, as compared to $19,476 for the year ended December 31, 2023, an increase of $28,586, or 146.8%. The increase is primarily related to change additional costs incurred in connection with the Business Combination, increased employee compensation costs associated with increased headcount. In addition, there was an increase in R&D costs at the Technology segment.
Net Cash Provided (Used in) by Investing Activities
Cash flows provided by in investing activities were $865 for the combined twelve months ended December 31, 2024, as compared to cash flows used in investing activities of $4,667 for the year ended December 31, 2023, an increase of $5,532 or 118.5%. The increase is primarily related cash withdrawn from the trust as a result of the Business Combination offset by to loans to an equity method investee and acquisitions of property, plant and equipment.
Net Cash Provided by Financing Activities
Cash flows provided by financing activities were $71,907 for the year ended December 31, 2024, as compared to $19,174 for the year ended December 31, 2023, an increase of $52,733 or 275.0%. The increase is primarily related to proceeds from issuance of equity and debt financing, partially offset by increased repayment of debt.
Indebtedness
Refer to Note 5. Borrowings to our consolidated financial statements for the years ended December 31, 2024 and 2023 included in Item 8 of this Form 10-K for a discussion of our indebtedness.
Contractual Obligations
The following table presents a summary of our contractual obligations, including payments due by period, as of December 31, 2024:
Going Concern
We have experienced recurring losses from operations and negative cash flows from operating activities. In addition, we had, and may potentially continue to have, an ongoing need to raise additional cash from outside sources to fund our growth plans and related operations. We believe the successful transition to attaining profitable operations is
56
dependent upon achieving a level of revenues from our Operating Companies adequate to support our cost structure. In connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that these conditions raise substantial doubt about our ability to continue as a going concern within one year after the date of the consolidated financial statements included in Item 8 of this Form 10-K. If we are unable to realize our assets, obtain adequate capital from the SEPA or otherwise generate sufficient revenues to support our cost structure within the normal operating cycle of a twelve (12) month period, we may have to consider supplementing our available sources of funds through the following sources:
•other available sources of financing from banks and other financial institutions;
•capital financing; or
•financial support from our related parties and shareholders.
We can make no assurances that required financings will be available for the amounts needed, or on terms commercially acceptable to us, if at all. If one or all of these events does not occur or subsequent capital raises are insufficient to bridge financial and liquidity shortfalls (or both), there would likely be a material adverse effect on our business and financial condition that would materially adversely affect our ability to continue as a going concern. See “Item 1A. Risk Factors – Risks Related to Innventure’s Business – There is uncertainty regarding Innventure’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt about its ability to continue as a going concern.”
The consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty.
Critical Accounting Policies and Use of Estimates
Refer to Note 2. Accounting Policies to our consolidated financial statements for the years ended December 31, 2024 and 2023 included in Item 8 of this Form 10-K for a discussion of our critical accounting policies.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act, for this reporting period and are not required to provide the information required under this item.
57
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Consolidated Financial Statements Page No.
Consolidated Balance Sheets as of December 31, 2024 and 2023 61
Notes to Consolidated Financial Statements 68
58
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Innventure, Inc.
Orlando, FL
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Innventure, Inc. and Subsidiaries (the “Company”) as of December 31, 2024, (“Successor”) and Innventure, LLC and Subsidiaries as of December 31, 2023 (“Predecessor”), the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for the period from October 2, 2024 through December 31, 2024 (“Successor”), and the consolidated statements of operations and comprehensive income (loss), changes in mezzanine capital, stockholders’ equity, and cash flows for the period January 1, 2024 through October 1, 2024 (“Predecessor”) and the year ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 (“Successor”) and 2023 (“Predecessor”), and the results of its operations and its cash flows for the period from October 2, 2024 through December 31, 2024 (Successor), the period from January 1 2024 through October 1, 2024 (“Predecessor”) and the year ended December 31, 2023 (“Predecessor”), in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has working capital deficiencies that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
59
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, P.C.
We have served as the Company's auditor since 2022.
Raleigh, North Carolina
April 14, 2025
60
Table of Contents
Innventure, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
Successor Predecessor
Assets
Cash, cash equivalents and restricted cash $ 11,119 $ 2,575
Accounts receivable 283 —
Prepaid expenses and other current assets 3,170 487
Property, plant and equipment, net 1,414 637
Intangible assets, net 182,153 —
Liabilities and Stockholders' Deficit
Related party payables — 347
Related party notes payable - current 14,000 1,000
Notes payable - current 625 912
Patent installment payable - current 1,225 775
Obligation to issue equity 4,158 —
Warrant liability 34,023 —
Other current liabilities 317 253
Notes payable, net of current portion 13,654 999
Convertible promissory note, net — 1,120
Convertible promissory note due to related party, net — 3,381
Embedded derivative liability — 1,994
Earnout liability 14,752 —
Stock-based compensation liability 1,160 —
Patent installment payable, net of current 12,375 13,075
Deferred income taxes 27,353 —
Commitments and Contingencies (Note 19)
Mezzanine Capital
Stockholders' Equity / Unitholders' Deficit
Additional paid-in capital 502,865 —
Accumulated other comprehensive gain (loss) 909 —
Total Stockholders' Equity/ Unitholders' Deficit 766,293 (18,486)
Total Liabilities, Mezzanine Capital and Equity $ 905,289 $ 21,564
See accompanying notes to consolidated financial statements.
61
Table of Contents
Innventure, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except share and per share amounts)
Successor Predecessor
Operating Expenses
Non-operating (Expense) and Income
Net gain (loss) from investments — 11,547 (6,448)
Net (loss) gain on investments - due to related parties — (468) 232
Change in fair value of financial liabilities (20,946) (478) 766
Equity method investment (loss) income (902) 893 (632)
Loss on conversion of promissory notes — (1,119) —
Write-off of loan commitment fee asset (10,041) — —
Miscellaneous other expense (57) (64) —
Income tax expense (benefit) (3,282) 432 —
Less: net loss attributable to
Non-redeemable non-controlling interest (8,339) (11,762) (139)
Basic and diluted loss per share $ (1.41)
Basic and diluted weighted average common shares 43,951,279
Other comprehensive income, net of taxes:
Unrealized gain on available-for-sale debt securities - related party 909 62 —
Total other comprehensive loss, net of taxes 909 62 —
Less: comprehensive income attributable to
Non-redeemable non-controlling interest (8,339) (11,762) (139)
See accompanying notes to consolidated financial statements.
62
Table of Contents
Innventure, Inc. and Subsidiaries
Consolidated Statements of Changes in Mezzanine Capital (Predecessor)
(in thousands, except share and per share amounts)
Class I Amount Class PCTA Amount Total
Proceeds from capital calls to unitholders 130 — 130
Accretion of redeemable units to redemption value (202) (5,164) (5,366)
See accompanying notes to consolidated financial statements.
63
Table of Contents
Innventure, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(in thousands, except share and per share amounts)
Non-controlling interest acquired — — — — — — 337 337
Issuance of units, net of issuance costs 17,319 — — — — — — 17,319
Distributions to unitholders — — — — (241) — — (241)
Accretion of redeemable units to redemption value — — — — 5,366 — — 5,366
Other comprehensive loss, net of taxes — — — — — 62 — 62
Units issued to non-controlling interest — — — — — — 13,921 13,921
Issuance of units, net of issuance costs 13,561 — — — — — — 13,561
Accretion of redeemable units to redemption value — — — — (11,950) — — (11,950)
See accompanying notes to consolidated financial statements.
64
Table of Contents
Innventure, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(in thousands, except share and per share amounts)
Series B Preferred Stock Common Stock
Reclassification of warrants from liability to equity — — — — 1,265 — — — 1,265
Issuance of common shares, net of issuance costs — — 160,000 — 2,083 — — — 2,083
Issuance of common shares from warrant exercises — — 259,309 — 2,982 — — — 2,982
Other comprehensive gain, net of taxes — — — — — — 909 — 909
Non-controlling interest acquired — — — — — — — 4,129 4,129
Distributions to Stockholders — — — — — (663) — — (663)
Vesting of contingent at risk sponsor shares — — 587,995 — — — — — —
Accrued preferred dividends — — — — (217) — — — (217)
See accompanying notes to consolidated financial statements.
65
Table of Contents
Innventure, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands, except share and per share amounts)
Successor Predecessor
Cash Flows Used in Operating Activities
Interest income on debt securities - related party (106) (110) —
Change in fair value of financial liabilities 20,946 478 (766)
Change in fair value of payables due to related parties — 468 (232)
Write-off of loan commitment fee asset 10,041 — —
Non-cash interest expense on notes payable 248 351 487
Net (gain) loss on investments — (11,547) 6,448
Equity method investment gain (loss) 902 (893) 632
Loss on conversion of promissory notes — 1,119 —
Depreciation and amortization 5,455 146 8
Payment of patent installment — (250) —
Accrued unpaid interest on note payable 69 930 —
Changes in operating assets and liabilities:
Accounts receivable (166) (117) —
Prepaid expenses and other current assets (1,301) (1,353) (218)
Stock-based compensation liability 1,160 — —
Other current liabilities (77) (146) (155)
Cash Flows Provided by (Used in) Investing Activities
Purchase of shares in equity method investee — — (2,000)
Contributions to equity method investee — — (130)
Investment in debt securities - equity method investee — (7,400) (2,600)
Advances to equity method investee (4,240) (135) —
Acquisition of property, plant and equipment (266) (736) (645)
Acquisition of intangible assets (30) — —
Proceeds from sale of investments — 2,314 708
Cash withdrawn from trust as a result of business combination 11,342 — —
Net Cash Provided by (Used in) Investing Activities 6,822 (5,957) (4,667)
Cash Flows Provided by Financing Activities
Proceeds from issuance of equity, net of issuance costs 15,383 13,122 16,009
Proceeds from the issuance of convertible promissory note — — 2,000
Proceeds from issuance of debt securities, net of issuance costs 19,455 — —
Receipt of Capital from Class I Unitholder — — 130
Distributions to Stockholders (663) — (241)
Proceeds from the issuance of promissory notes to related parties — 12,000 1,004
Repayment of promissory note (4,628) — —
Cash, Cash Equivalents and Restricted Cash Beginning of period 45 2,575 7,544
66
Table of Contents
Innventure, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands, except share and per share amounts)
Successor Predecessor
Supplemental Cash Flow Information
Supplemental Disclosure of Noncash Financing Information
Accretion of redeemable units to redemption value — 11,950 5,366
Debt discount and embedded derivative upon issuance — — 1,119
Initial recognition of loan commitment fee 16,190 — —
Transfer of loan commitment fee asset 6,694 — —
See accompanying notes to consolidated financial statements.
67
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
Note 1. Nature of Business
Unless the context otherwise requires, references herein to "Innventure", "we", "us", "our" and "the Company" refer to the business and operations of Innventure LLC and its consolidated subsidiaries (the “Predecessor”) for all periods prior to the Closing (as defined below) and to the business and operations of Innventure, Inc. and its consolidated subsidiaries (the “Successor”) for all periods after Closing.
Innventure founds, funds, and operates companies with a focus on transformative, sustainable technology solutions that we acquire or license from technology innovators, which are typically Multinational Corporations (‘‘MNCs’’). As owner-operators, our goal is to take what we believe to be breakthrough technologies from evaluation to scaled commercialization utilizing an approach designed to help mitigate risk in collaboration with the MNCs (our channel partner(s)), as we build disruptive companies that we believe have the potential to achieve a target enterprise value of at least $1 billion. We define ‘‘disruptive’’ as innovations that, in our opinion, have the ability to significantly change the way businesses, industries, markets, and/or consumers operate. Innventure, Inc., is headquartered in Orlando, Florida.
Business Combination
On October 24, 2023, Learn SPAC HoldCo, Inc. (“Holdco”), a Delaware corporation and direct, wholly-owned subsidiary of Learn CW Investment Corporation (“Learn CW”), a Cayman Islands exempted company, LCW Merger Sub, Inc. (“LCW Merger Sub”), a Delaware corporation and direct, wholly-owned subsidiary of Holdco, and Innventure Merger Sub, LLC (“Innventure Merger Sub” and together with LCW Merger Sub, the “Merger Subs”), a Delaware limited liability company and direct, wholly-owned subsidiary of Holdco entered into a Business Combination Agreement (the “Business Combination Agreement”) with Innventure LLC, a Delaware limited liability company.
As further discussed below and in Note 8. Business Combinations, on October 2, 2024 (the “Closing Date” or “Closing”), Learn CW and Innventure LLC consummated a business combination (the “Business Combination”) pursuant to the terms of the Business Combination Agreement. Following the Closing, both Learn CW and Innventure LLC became subsidiaries of Holdco, Holdco changed its name to “Innventure, Inc.” and became a publicly traded company. Holdco was determined to be the accounting acquirer.
Both Learn CW and Holdco, a direct wholly-owned subsidiary of Learn CW prior to the Business Combination, were created for the purpose of consummating a business combination. Innventure, Inc. and its subsidiaries is the successor to Innventure LLC following the Business Combination and is a Delaware corporation, whose common stock is listed and traded on the Nasdaq Global Market (“Nasdaq”). Following the Business Combination, the Company continues the business of Innventure LLC. The information provided in this Annual Report on Form 10-K reflects two distinct periods, the period up to the Closing Date labeled as the Predecessor and the period including and after that date labeled as the Successor. The Business Combination was accounted for using the acquisition method of accounting and the Successor financial statements reflect a new basis of accounting that is based on the fair value of the net assets acquired. As a result of the application of the acquisition method of accounting as of the Closing Date, the accompanying Consolidated Financial Statements include a black line division which indicates that the Predecessor and Successor reporting entities shown are presented on a different basis and are therefore, not comparable.
Note 2. Accounting Policies
Basis of Presentation
The consolidated financial statements of the Company are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The Successor consolidated financial statements include the accounts of the Company, its wholly owned or majority-owned subsidiaries and entities in which the Company is deemed to have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. The
68
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
Predecessor consolidated financial statements include all amounts of Innventure LLC and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Reclassifications
Certain amounts reported previously have been reclassified to conform to the current year presentation with no effect on total stockholders' deficit, or net income as previously reported.
Going Concern
As of December 31, 2024, the Company had cash balance of $11,119, accumulated deficit of $78,262 and a working capital deficit of $45,061. During the year ended December 31, 2024, the Company incurred a net loss of $70,093 for the Successor period from October 2, 2024 through December 31, 2024 and $28,198 for Predecessor period from January 1, 2024 through October 1, 2024. Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional capital or debt financing to proceed with its business plans. Additionally, the future value of investments held is unpredictable and subject to market events outside of the Company’s control.
Subsequent to December 31, 2024, the Company secured additional gross proceeds of $925 through Common Stock issuances as part of the Company’s Standby Equity Purchase Agreement. The Company entered into preferred stock purchase agreements (each, a “Series C Purchase Agreement”, and collectively, the “Series C Purchase Agreements”) on March 24, 2025 to receive gross proceeds of $2,750. Additionally, the Company converted Related party notes into Series C equity, with aggregate principal of $14,000, as discussed in Note 5. Borrowings. The conversion was not determined to be a trouble debt restructuring. Further, the Company entered into a financing agreement on March 25, 2025 to receive up to $30,000 in exchange for convertible debentures, contingent upon certain reporting requirements. For further details on these events, refer to Note 21. Subsequent Events.
In connection with the Company’s assessment of going concern considerations, management has determined that in order to maintain its current level of operations, the Company will require additional working capital from cash flows from operations, the sale of its capital and/or issuance of debt. The Company intends to obtain additional financing in the future to proceed with its business plans. If the Company is unable to acquire additional working capital, it will be required to significantly reduce its current level of operations.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern within one year after the date of the accompanying consolidated financial statements are issued; however, the above conditions raise substantial doubt about the Company’s ability to do so. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will improve our operating results.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management bases its estimates on historical experience and on various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Accordingly, actual results could differ from those estimates.
Fair Value Measurements
The Company measures the fair value of assets and liabilities on a recurring and nonrecurring basis according to a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The Company
69
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs that are supported by little or no market activity and reflect management’s best estimate of what market participants would use in pricing the asset or liability. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
Investments
Equity Method Investments
Equity method investments are investments where the Company does not consolidate the investee, but can exert significant influence over the financial and operating policies of the investee.
The carrying value of our equity method investments is determined based on amounts invested by the Company, adjusted for the Company’s share in the earnings or losses of each investee, after consideration of contractual arrangements that govern allocations of income or loss, less distributions received. For investments where the specified allocations of income or loss are different from the allocation of cash from operations and on liquidation, the Company utilizes the hypothetical liquidation book value method to allocate income or loss from the equity method investment. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.
Cash distributions received as a result of the Company’s share of cumulative earnings are classified as operating activities. Cash distributions, if any, received that are in excess of the Company’s share of cumulative earnings or losses are classified as investing activities.
Exchange-traded Investments
Exchange-traded equity investments are generally carried at fair value on the consolidated balance sheets with changes in the fair value recorded through net income (“FVTNI”) within non-operating income (expense).
Variable Interest and Voting Interest Entities
The Company performs an analysis of its investments to determine if they are either a Variable Interest Entity (“VIE”) or a Voting Interest Entity (“VOE”). Factors considered in this analysis include the entity’s legal organization; the entity’s capital structure and sufficiency of equity at risk; the rights of equity investment holders; the Company’s contractual involvement with, and economic interest in, the entity; and any related party or de facto agent implications of the Company’s involvement with the entity. Entities that are determined to be VIEs are consolidated if the Company is the primary beneficiary (“PB”) of the entity. If the Company is not deemed to be the PB of a VIE, the Company accounts for the investment or other variable interests in a VIE as either an equity method investment or other investment, as applicable. VOEs are typically consolidated if the Company holds the majority voting interest.
Upon the occurrence of certain events (such as changes in the investment or the governance structure), management reviews and reconsiders its previous conclusion regarding the status of an entity as a VIE or VOE, and when applicable, whether the Company continues to qualify as the PB of a VIE. Refer to Note 3. Investments for further discussion on investments in VIEs.
Impairments of Investments
70
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
Management periodically assesses equity method investments for impairment. If impairment exists, an impairment charge would be recorded for the excess of the carrying amount of the investment over its estimated fair value in the consolidated statements of operations and comprehensive income (loss).
Impairment evaluation considers qualitative factors, including the financial conditions and specific events related to an investee, that may indicate the fair value of the investment is less than its carrying value.
Available-for-Sale Investments
Available-for-sale (“AFS”) debt securities are generally reported at estimated fair value, with unrealized gains and losses recorded in accumulated other comprehensive loss which is included within stockholders’ deficit. AFS debt securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is caused by expected credit losses. Allowance for credit losses on AFS debt securities are recognized as a charge in other loss on our consolidated statements of income, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders' equity.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents primarily consist of cash, money market funds and short-term highly liquid investments with original maturities of three months or less. The Company has concentrated credit risk for cash and cash equivalents by maintaining deposits in banks, which may, at times, exceed amounts covered by insurance provided by the US Federal Deposit Insurance Corporation and management continues to monitor the financial condition of the major financial institutions where these funds are held.
Cash that is restricted and not available for general operations is considered restricted cash. The Company's restricted cash is related to cash received through the Company's Class B Preferred Units capital raise and held in escrow prior to finalization of the Class B Preferred Units investment. As of December 31, 2024 and 2023, the Company had restricted cash related to the capital raise of $— and $100, respectively.
Additionally, the Company maintains certain compensating balances that may be withdrawn, but the availability of short-term lines of credit is dependent upon the maintenance of such compensating balances. As of December 31, 2024 and 2023, the Company had compensating balances of $100 and $300, respectively.
Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is determined principally under the average cost method.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost less accumulated depreciation. The Company depreciates the cost of property, plant and equipment using the straight-line method with depreciable lives of 10 years for Machinery & equipment, 3 years for Computers & office equipment and the lesser of useful life or lease terms for Leasehold improvements. The Company expenses normal maintenance and repair costs as incurred.
Impairment of Long-Lived Assets
The Company assesses its property, plant and equipment and other long lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. In the event such an asset is considered impaired, the impairment to be recognized is measured by the amount by which the carrying value of the asset exceeds the estimated fair value of the asset. If such assets are not impaired, but their useful lives have decreased, the remaining net book value is
71
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
depreciated over the revised useful life. Assets to be disposed of are reported at the lower of the carrying value of estimated fair value less estimated costs to sell.
Intangible Assets
Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment whenever events or other changes in circumstances indicate that the carrying amount may not be recoverable.
If required, recoverability of these assets is determined by comparison of their carrying value to the estimated future undiscounted cash flows the assets are expected to generate over their remaining estimated useful lives. If such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the carrying value of the assets exceeds their estimated fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique.
Goodwill
Goodwill reflects the excess purchase price over the fair value of net tangible and intangible assets acquired in a business combination.
Goodwill is evaluated for impairment annually, or more frequently if circumstances indicate a possible impairment. The Company compares the fair value of its reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of its reporting unit, the Company would record an impairment loss equal to the difference. The Company operates in one operating segment which the Company considers to be its only reporting unit. There were no impairments of goodwill recognized for the year ended December 31, 2024.
Stock and Warrants
Stock may be classified as a liability, temporary capital (i.e., mezzanine capital) or permanent stockholders' equity. In order to determine the appropriate classification, an evaluation of the cash redemption and other features is required. Where there exists an absolute right of redemption presently or in the future, the units in question would be classified as a liability. If units are contingently redeemable upon the occurrence of an event that is outside of the issuer’s control, the units are classified as mezzanine capital. The probability that the redemption event will occur is irrelevant. If no redemption features exist, or if a contingent redemption feature is within the Company’s control, the capital unit would be considered permanent stockholders' equity.
The Company accounts for warrants to acquire stock as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms. In order to determine the appropriate classification, consideration is given as to whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions. This assessment requires the use of judgement and is conducted at the time of warrant issuance and as of each reconsideration and balance sheet date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for stockholders' equity classification, the warrants are recorded as a component of additional paid-in capital at fair value at the time of issuance. For issued or modified warrants that do not meet all of the criteria for stockholders' equity classification, the warrants are recorded as a liability at their initial fair value on the date of issuance and remeasured at fair value as of each reconsideration and balance sheet date thereafter. The change in fair value is recognized in the Company’s consolidated statements of operations and comprehensive income (loss).
Revenue Recognition
The Company’s product sales arrangements contain performance obligations satisfied at a point in time when control of the product transfers to the customer, based on the contractual terms. This typically occurs when title and risk and rewards of ownership have transferred to the customer. Revenue is recorded net of sales taxes, discounts, and expected returns. Sales discounts and other incentives are treated as variable consideration when estimating the revenue to be recognized.
72
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
The Company earns management fees, consulting revenue and carried interest allocations from investment advisory services it provides to its customers. The Company considers the investment advisory services represent a single performance obligation. Management fees, generally 1-2% of capital committed to the ESG Fund I, L.P. (the “ESG Fund”), are recognized over time using the time-elapsed method, resulting in straight-line revenue recognition over the performance period. These fees are calculated and paid quarterly in advance based on the capital commitments at the start of each quarter. Management fees are considered variable consideration but are typically fully recognized at the end of each reporting period as they are not subject to clawback. Carried interest allocations, typically 10-20%, are recognized based on cumulative fund performance and are subject to achieving minimum return levels, usually 8%. These allocations are considered variable consideration and are recognized when a significant reversal is no longer probable.
Stock-Based Compensation
The Company participates in multiple stock-based compensation plans which are further discussed in Note 14. Stock-based Compensation.
The fair value of stock-based awards is measured on the grant date of the award and recognized as compensation expense over the period of service that generally coincides with the vesting period of the award. Service-based awards vest over the period defined in each individual grant agreement. For equity awards with a graded vesting schedule, compensation cost is recognized on a straight-line basis over the requisite service period of the entire award.
Expense related to grants of stock-based awards is included in the respective expense category in which the employee serves in the consolidated statements of operations and comprehensive income (loss). The Company recognizes forfeitures as they occur.
Income Taxes
Prior to the Business Combination, Innventure LLC qualified as a partnership for federal income tax purposes that consolidated financial results with corporate subsidiaries within the financial statements. Consequently, federal income taxes were not payable or provided by Innventure LLC but various corporate subsidiaries were subject to corporate federal, state, and local taxes. There was no federal income tax recorded by Innventure LLC for the year ended December 31, 2023, but corporate income taxes were recorded for the period from January 1, 2024 through October 1, 2024.
On October 2, 2024, the Business Combination occurred which merged Innventure LLC into Innventure Merger Sub, LLC, a wholly owned subsidiary of the Company. The Company became a publicly traded entity and is being taxed as a corporation. The Company accounts for income taxes pursuant to the asset and liability method of ASC 740, Income Taxes, which requires the recognition of current tax liabilities or receivables for the amount of taxes that are estimated as payable or refundable for the current year, and deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.
The Company follows the provisions of ASC 740-10 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740-10 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be
73
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
taken in income tax returns. The benefit of tax positions taken or expected to be taken in our income tax returns is recognized in the financial statements if such positions are more likely than not of being sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”. A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10. Interest costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable. As of December 31, 2024 and 2023, no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in unrecognized tax benefits in the next year.
Recently Adopted Accounting Pronouncements
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ("ASU 2022-03"). ASU 2022-03 clarifies that contractual sale restrictions should not be considered in measuring the fair value of equity securities. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods therein, with early adoption permitted. The Company adopted this ASU on January 1, 2024, and the adoption did not have a material impact on the Company’s consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which enhances prior reportable segment disclosure requirements in part by requiring entities to disclose significant expenses related to their reportable segments. The amendments in ASU 2023-07 are effective on a retrospective basis for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company has made the required disclosures related to this ASU within Note 20. Business Segment Data.
Recently Issued But Not Yet Adopted Accounting Standards
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”). This standard modifies the disclosure or presentation requirements of a variety of topics and aligns requirements with the SEC’s existing disclosure requirements. ASU 2023-06 is effective on the date each amendment is removed from Regulation S-X or Regulation S-K with early adoption prohibited. The Company will monitor the removal of various requirements from the current regulations in order to determine when to adopt the related amendments, but does not anticipate the adoption of the new guidance will have a material impact on the Company’s consolidated financial statements. The Company will continue to evaluate the impact of this guidance on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU are effective for annual periods beginning after December 15, 2024 on a prospective basis. The Company is currently evaluating the impact that the adoption of this accounting standard will have on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"). In January 2025, the FASB issued Clarifying the Effective Date (“ASU 2025-01”) to add some clarity around the effective date of the guidance. ASU 2024-03 requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. The new standard is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either prospectively, to financial statements issued after the effective date, or retrospectively, to all prior periods presented. The Company is currently evaluating the impact that the adoption of this accounting standard will have on its consolidated financial statements.
74
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
Note 3. Investments
Successor Predecessor
Exchange-traded investments at fair value — 9,685
Investment in debt securities - AFS 11,187 —
Equity-method investments
ESG Fund
During the Predecessor period, the Company’s equity-method investment in the ESG Fund reflects the Company’s general partner interest which represents approximately 5% of the ESG Fund’s total capital commitments and limited partner interests which were received in exchange for shares of Innventure LLC and Accelsius Holdings LLC prior to October 1, 2024. As of December 31, 2024, the Company’s equity-method investment in the ESG Fund solely reflects interests held by the Company as a limited partner due to the deconsolidation of certain SILOs as further discussed in Note 8. The Predecessor period general partner interest is not consolidated because the ESG Fund is not considered a VIE and the Company does not hold a controlling financial interest in the ESG Fund under the VOE model. The ESG Fund is an investment company that follows a specialized basis of accounting established by GAAP. The Company’s partnership interests in the ESG Fund are substantially illiquid. While the ESG Fund’s holdings are accounted for at fair value, the equity-method investment in the ESG Fund is adjusted to reflect the fair value of the underlying investments of the ESG Fund as of December 31, 2024 and 2023. The fair value of the underlying investments in the ESG Fund is based on the Company’s assessment, which takes into account expected cash flows, earnings multiples and/or comparisons to similar market transactions, among other factors. Valuation adjustments reflecting consideration of credit quality, concentration risk, sales restrictions and other liquidity factors are integral to valuing these instruments.
AeroFlexx
The Company determined that AeroFlexx has insufficient equity at risk to fund its operations, as of December 31, 2024 and therefore will meet the definition of a VIE. The Company does not have power to direct AeroFlexx's operations. AeroFlexx’s core operations are not closely associated with the Company and it was not created specifically to provide substantially all benefits to Innventure. Therefore, the Company is not considered the primary beneficiary and does not consolidate AeroFlexx as a VIE. The Company accounts for its investments in AeroFlexx under the equity method and held a 34% and 31% interest in AeroFlexx as of December 31, 2024 and 2023, respectively.
The Company’s carrying amounts and maximum exposure relating to AeroFlexx, were as follows:
Successor Predecessor
Investments in debt securities - AFS 11,187 11,187 — —
75
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
Summarized financial information:
Balance sheets
ESG Fund AeroFlexx
December 31, December 31,
Statements of operation
ESG Fund AeroFlexx
Years ended December 31, Years ended December 31,
Exchange-traded investments
The Company previously invested in PureCycle Technologies (“PCT”) as the first company formed in partnership with a multinational corporation. In 2021, PCT merged with a special purpose acquisition company and became a publicly-traded entity. The shares of PCT's common stock held by the Company are classified as an Exchange-traded investment at FVTNI. During the Predecessor period from January 1, 2024 through October 1, 2024, the Company sold 400,000 PCT shares for aggregate net proceeds of $2,302. The PCT shares were measured at their fair value immediately prior to the transactions. All remaining PCT shares were derecognized as a result of the Business Combination.
Investment in debt securities - AFS
On July 1, 2024, the Company entered into a loan agreement with AeroFlexx under which the Company will lend up to $10,000 to AeroFlexx. As of July 1, 2024, the aggregate outstanding principal of working capital interest-free advances to AeroFlexx, amounting to $7,635 were included as outstanding term loans under this agreement. During the Predecessor period from January 1, 2024 through October 1, 2024, the Company lent AeroFlexx the remaining principal balance of $2,365 under this agreement.
The term loans and any unpaid accrued interest are required to be repaid by the maturity date, which is the earlier of (i) December 31, 2026 or (ii) the date of the sale, transfer or other disposition all of AeroFlexx’s assets or AeroFlexx's stock. After any full or partial repayment of the term loans, AeroFlexx may borrow additional funds up to the $10,000 limit until the maturity date. The loans bear interest at the applicable federal rate published by the Internal Revenue Service and is adjusted on a quarterly basis.
The Company has an option to convert the outstanding principal amount of the term loans and any unpaid accrued interest into shares or units in connection with the next issuance of equity securities by AeroFlexx, at a price equal to 100% of the price per share or unit and on the same terms and conditions as apply to such issuance.
If, by January 1, 2025, AeroFlexx has not raised equity financing equal to or more than a target of $10,000, then on January 2, 2025, the outstanding principal and any unpaid accrued interest on the term loans will automatically convert into Class D preferred units of AeroFlexx at the same price per unit and on the same terms and conditions as the Class D preferred unit of AeroFlexx purchased by the Company prior to the date of this loan agreement, up to the amount necessary to reach the $10,000 target.
76
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
The Company accounted for the loans as an investment in debt securities and classified them as available for sale debt securities. Based on the AFS classification, the Company records this investment at fair value at each reporting date and as such recorded the changes in fair value of these loans (including the adjustment to fair value at inception date) in Other Comprehensive Income ("OCI").
The amortized cost, gross unrealized gains and losses, and fair value of AFS debt securities as of December 31, 2024 is represented in the table below:
Amortized cost Gross unrealized gains Fair value
At December 31, 2024, there was no allowance for credit loss related to the available for sale securities portfolio. Accrued interest receivable on available for sale debt securities totaled $216 at December 31, 2024.
The amortized cost and fair value of debt securities, by contractual maturity, as of December 31, 2024 is shown below. Expected maturities can differ from contractual maturities.
Amortized cost Fair value
Due within one year $ — $ —
Due after one year through five years 10,278 11,187
Due after five years — —
As the contractual maturity of the loan is in 2026, it is included in the non-current line item Investments of the consolidated balance sheets. The change in fair value of this investment in debt securities of $909 for the Successor period from October 2, 2024 through December 31, 2024 is included as Unrealized gain on available-for-sale debt securities - related party in the consolidated statements of operations and comprehensive income (loss). As this investment was acquired at fair value as part of the Business Combination there is no activity for the Predecessor periods.
Note 4. Fair Value
Fair Value Hierarchy
The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 (Successor) and December 31, 2023 (Predecessor):
77
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
Assets:
Investment in debt security - AFS $ — $ — $ 11,187 $ 11,187
Liabilities:
Private placement warrant liability — 16,793 — 16,793
Assets:
Exchange-traded investments at FVTNI $ 9,685 $ — $ — $ 9,685
Liabilities:
Embedded derivative liability $ — $ — $ 1,994 $ 1,994
Related party payables 347 — — 347
Gains and losses for such assets and liabilities categorized within the Level 3 table set forth may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
Changes in the estimated fair value of Level 3 financial assets and liabilities that are measured on a recurring basis for the Successor period from October 2, 2024 through December 31, 2024, the Predecessor period from January 1, 2024 through October 1, 2024 and the Predecessor year ended December 31, 2023, respectively, are as follows:
78
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
Balance as of January 1, 2023 (Predecessor) $ — $ 1,641 $ — $ — $ —
Additions — 1,119 — — —
Change in fair value — (766) — — —
Balance as of December 31, 2023 (Predecessor) $ — $ 1,994 $ — $ — $ —
Settlement — (2,472) — — —
Change in fair value — 478 62 — —
Balance as of October 1, 2024 (Predecessor) — — 10,172 — —
Settlement (99) — — — —
There were no transfers in or out of levels during the Successor period from October 2, 2024 through December 31, 2024, the Predecessor period from January 1, 2024 through October 1, 2024, or for the Predecessor year ended December 31, 2023.
Standby Equity Purchase Agreement
On October 24, 2023, the Company entered into the Standby Equity Purchase Agreement (“SEPA”) with Yorkville, as further described in Note 13. Stockholders' Equity with applicable terms defined. The SEPA became effective concurrently with the Business Combination. The SEPA includes two components subject to fair value measurement: the Purchased Put Option and Forward Contract. These are considered freestanding financial instruments not indexed to the Company’s stock.
The Purchased Put Option is accounted for as a derivative asset, initially measured at fair value upon Closing and subsequently measured at fair value each reporting period with changes in fair value recorded in the consolidated statements of operations and comprehensive income (loss). The Purchased Put Option fair value is considered de minimis upon Closing due to the exercise price being at a discount to market prices and remains de minimis as of December 31, 2024.
The Forward Contract is initially measured at fair value upon any Advance Notice and subsequently remeasured with changes in fair value recorded in the consolidated statements of operations and comprehensive income (loss). A derivative liability or asset will be recorded when there is an Advance Notice outstanding as of a reporting period. There were no outstanding Advance Notices as of December 31, 2024.
Derivative Liabilities
Embedded derivative liabilities contained within the 2025 Notes (as defined and further described in Note 5. Borrowings) are stated at fair value. Fair value is determined utilizing discounted cash flows, using unobservable market data inputs, and an option pricing model based on a probability-weighted expected outcome with respect to a
79
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
financing or a change of control. The derivatives associated with the 2025 Notes were settled in March 2024 due to conversion of the 2025 Notes in a qualified financing. A summary of the significant unobservable inputs utilized to estimate the fair value is as follows:
Probability of Expected Outcomes
Change in control — % 3 %
Other — % 2 %
Probability of Expected Outcomes
Change in control — % 3 %
Other — % 2 %
Significant increases or decreases to any of these inputs would result in a significantly higher or lower liability.
Investment in debt securities - AFS
The investment in debt securities is stated at fair value as described in Note 3. Investments. The terms of the securities are such that they are highly likely to convert into Class D Units of AeroFlexx. The fair value of the debt securities is estimated on an as-converted basis using a Black-Scholes model incorporating breakpoints upon which each tranche of AeroFlexx equity participates in distributions.
Time to liquidity 2 years 2 years
Discount for lack of marketability 18.00 % 31.00 %
Weighted average cost of capital 45.00 % 45.00 %
Earnout Shares
Upon Closing of the Business Combination, Earnout Shares were issued to previous Innventure Members and contingently issued to Sponsors (as defined and further described in Note 10. Earnout Shares). The fair value of the Earnout Shares was determined using a Monte Carlo valuation model that utilizes significant assumptions, including expected volatility, expected term, and risk-free rate, to determine the probability of achieving common share price and revenue milestones. The shares may vest upon either the achievement of the common share price milestone or revenue or event-based milestone specific to each of three tranches. Specifically, the future stock price of the Company and revenues of Accelsius and AeroFlexx are simulated assuming a Geometric Brownian Motion (GBM) in a risk-neutral framework. The Earnout Share payoff is calculated based on the contractual terms, and then discounted at the term-matched risk-free rate. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the Earnout Shares. Discounting conventions of revenue-based milestones are mid-period assuming annual revenue forecasts are earned
80
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
on average at the mid-period of the forecast period. The value of the Earnout Shares is calculated as the average present value over all future modeled payoffs.
The inputs used in simulating the Company’s stock price include, the term, stock price, volatility, risk-free rate and dividend yield. Prior to the Business Combination, the Company never paid or declared dividends, thus the dividend yield is estimated to be 0% as of December 31, 2024. The following table summarizes the inputs used in simulating the Company’s stock price for purposes of valuing the Earnout Shares:
Term 7 years 6.8 years
Dividend Yield — % — %
The Milestone One and Milestone Two Earnout Shares are equity classified and the Milestone Three Earnout Shares are liability classified, as further described in Note 10. Earnout Shares. The assumptions used in measuring fair value of Milestone One and Milestone Three are considered Level 3 inputs, which include weighted average cost of capital risk premium, operational leverage ratio, revenue risk premium and revenue volatility.
Milestone One
The following table summarizes the unobservable inputs used in estimating the fair value of the Earnout Shares based on revenue for Accelsius (Milestone One):
Revenue risk premium 6.10 %
Revenue volatility 44.00 %
Milestone Two
Milestone Two is contingent on the Company’s formation of a new subsidiary, in partnership with an MNC, as determined using the Innventure LLC's “DownSelect” process, within the Vesting Period. The probability of achievement based on the Company’s analysis was 98% on October 2, 2024.
Milestone Three
The following table summarizes the unobservable inputs used in estimating the fair value of the Earnout Shares based on revenue for AeroFlexx (Milestone Three):
For further information on the Earnout Shares, refer to Note 10. Earnout Shares.
Warrants
The Company issued freestanding warrants to the WTI Lenders in connection with the WTI Facility (as defined and further described in Note 5. Borrowings and Note 11. Warrants). The fair value measurement of WTI Warrants is based on unobservable inputs (Level 3 fair value measurement).
81
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
The fair value of the WTI Warrants was determined using a Monte Carlo valuation model in which the future stock price is simulated assuming a GBM in a risk-neutral framework. The model utilizes significant assumptions including stock price, stock price volatility, and credit spread. The credit spread relates to estimated counterparty credit risk of Innventure being able to make payments related to the WTI Lenders’ put right, in which the WTI Lenders may exchange the WTI Warrants for a total cash payment of $15,000 after the four-year anniversary of issuance. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve.
Other
Our financial instruments that are not re-measured at fair value include prepaid expenses and other current assets, due from related parties, other assets, accounts payable, accrued expenses, accrued employee benefits, other current liabilities and other liabilities as the carrying amounts approximate fair value due to the short maturity terms of these instruments.
Note 5. Borrowings
Successor Predecessor
Maturities December 31, 2024 Interest Rates December 31, 2023 Interest Rates
Convertible promissory notes — 6,634 8%
Less: unamortized debt discount (6,446) (2,133)
Less: current portion of related party notes payable (14,000) (1,000)
Less: current portion of notes payable (625) (912)
The Company's debt is carried on a historical cost basis net of unamortized discounts and premiums. Costs associated with acquiring debt are presented in the consolidated balance sheets as a direct deduction from the carrying amount of the debt as a debt discount. Discounts on debt are amortized over the contractual life of the related debt instrument using the effective interest method (unless otherwise specified below) and are included in Interest expense, net in the consolidated statements of operations and comprehensive income (loss).
The Company’s notes payable, excluding debt issuance costs, and notes payable to related parties mature as follows:
82
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
Year Ending December 31, Amount
Series 1 Promissory Notes
In 2018, the Company authorized the issuance and sale of unsecured promissory notes to investors up to $35,000. From 2018 to 2021, the Company issued promissory notes with a total principal amount of $4,936. The notes require monthly interest payments, have an original maturity period of 36-48 months, and bear interest at 9%-12% per annum. The notes contain two term extension options, at the Company’s election, which can extend the notes’ maturity period to 60 months in total. If the Company elects its first term extension option, the note will bear interest at 12% for months 36 through 48. If the Company elects its second term extension option, the notes will bear interest at 15% for months 48 through 60.
In the event of a change of control or a portfolio company sale, the notes are required to be repaid. In the event of a default, noteholders may elect to convert notes into common units of the Company equal to two times the unpaid principal balance plus accrued but unpaid interest at the time of conversion at a pre-money valuation agreed to by a majority of the converting noteholders. If the Company is in default due to lack of payment and the noteholders do not elect repayment, notes will accrue interest at the default rate. During the first 36 months, the default interest rate is 12% and increases to 18% thereafter.
Noteholders converted their Series 1 promissory notes into Class B Preferred Units as follows:
Successor Predecessor
The conversion rate was based on the Class B Preferred Unit issuance price of $9.6992 per unit. The noteholders elected to receive the last interest payment due and waive the prepayment fee, if applicable, in connection with the transaction. The Company accounted for the conversion of promissory notes as an extinguishment of debt, the impact of which is immaterial to the Company’s financial statements. Upon Closing of the Business Combination, the option for noteholders to convert their Series 1 promissory notes into Class B Preferred Units is no longer available.
Extensions on Series 1 promissory notes were as follow:
Successor Predecessor
Principal amount of 1st extension promissory notes 12% $ 122 $ 829
Principal amount of 2nd extension promissory notes 15% $ 603 $ 890
Interest expense on Series 1 promissory notes was as follows:
83
Table of Contents
Innventure, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share or per share data)
Successor Predecessor
Interest attributable to contractual interest $ 29 $ 138 $ 297
Interest attributable to amortization of issuance costs — — 32
Related Party Notes
The Company entered into unsecured promissory notes with two related parties, the first on August 20, 2024, for a principal amount of $10,000, and the second on August 22, 2024, for a principal amount of $2,000. The Company entered into amended and restated agreements to amend the terms of these unsecured promissory notes on October 1, 2024. As per the original agreements, the note with the first party contained a loan fee of $1,000 which was payable with the repayment of the principal amount of the note and the note with the second party contained interest at the rate of 11.50% per annum. The principal amounts, loan fees and accrued interest were repayable at the earlier of October 15, 2024 and the first business day following the date of consummation of the Business Combination.
As per the amended note with the first party, the maturity date was extended to the earlier of (i) January 31, 2025 and (ii) the first business day following the date on which the Company has sufficient capital to be able to repay all amounts outstanding under the note and otherwise meet its expected working capital needs as determined by the Company in its reasonable discretion. The loan fee of $1,000, required under the original agreement, became due on or around the amendment date but as of December 31, 2024 has not yet been paid and interest will accrue at the rate of 15.99% per annum until paid. The amendment was accounted for as a troubled debt restructuring as the Company was provided a concession through a decrease in the effective interest rate. However, no gain or loss was recognized as a result.