Exhibit 99.3
INDEX TO FINANCIAL STATEMENTS
Atieva, Inc. Audited Consolidated Financial Statements | |
F-2 | |
Consolidated Balance Sheets as of December 31, 2020 and 2019 | F-3 |
F-4 | |
F-5 | |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 | F-6 |
F-7 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders Lucid Group, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Atieva, Inc. (a Cayman Islands corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, convertible preferred shares and shareholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 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 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.
Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2020.
San Francisco, California
December 8, 2021
F-2
ATIEVA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
As of December 31, | ||||||
| 2020 |
| 2019 | |||
ASSETS | ||||||
Current assets: | ||||||
Cash | $ | | $ | | ||
Restricted cash, current portion |
| |
| | ||
Accounts receivable, net |
| |
| | ||
Short-term investments |
| |
| | ||
Inventory |
| |
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Prepaid expenses |
| |
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Other current assets |
| |
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Total current assets |
| |
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Property, plant and equipment, net |
| |
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Security deposits |
| |
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Restricted cash, less current portion |
| |
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Other noncurrent assets |
| |
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TOTAL ASSETS | $ | | $ | | ||
LIABILITIES, CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ DEFICIT | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued compensation |
| |
| | ||
Other accrued liabilities |
| |
| | ||
Other liabilities |
| |
| | ||
Total current liabilities |
| |
| | ||
Contingent forward contract liability |
| — |
| | ||
Convertible preferred share warrant liability |
| |
| | ||
Other long-term liabilities |
| |
| | ||
Income tax liabilities |
| |
| | ||
Total liabilities |
| |
| | ||
Commitments and contingencies (Note 10) | ||||||
CONVERTIBLE PREFERRED SHARES | ||||||
Convertible preferred shares, $ |
| |
| | ||
SHAREHOLDERS’ DEFICIT: | ||||||
Common shares, par value $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
Total shareholders’ deficit |
| ( |
| ( | ||
TOTAL LIABILITIES, CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ DEFICIT | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ATIEVA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
Year Ended December 31, | ||||||
| 2020 |
| 2019 | |||
Revenue | $ | | $ | | ||
Cost of revenue |
| |
| | ||
Gross profit |
| |
| | ||
Other expenses: | ||||||
Research and development |
| |
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Selling, general and administrative |
| |
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Total operating expenses |
| |
| | ||
Loss from operations |
| ( |
| ( | ||
Other income (expense), net: | ||||||
Change in fair value of forward contracts |
| ( |
| ( | ||
Change in fair value of convertible preferred share warrant liability |
| ( |
| ( | ||
Interest expense |
| ( |
| ( | ||
Other income (expense) |
| ( |
| | ||
Total other expense, net |
| ( |
| ( | ||
Loss before provision (benefit) for income taxes |
| ( |
| ( | ||
Provision (benefit) for income taxes |
| ( |
| | ||
Net loss and comprehensive loss |
| ( |
| ( | ||
Deemed contribution related to repurchase of Series B convertible preferred shares |
| |
| — | ||
Deemed contribution related to repurchase of Series C convertible preferred shares |
| |
| | ||
Net loss attributable to common shareholders | $ | ( | $ | ( | ||
Net loss per share attributable to common shareholders – basic and diluted | $ | ( | $ | ( | ||
Weighted average shares used in computing net loss per share attributable to common shareholders – basic and diluted |
| |
| |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
ATIEVA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS' DEFICIT
(In thousands, except share and per share data)
Convertible |
| Additional |
|
| Total | |||||||||||||||
Preferred Shares | Common Shares |
| Paid-In |
| Accumulated |
| Shareholders’ | |||||||||||||
| Shares |
| Amount |
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance as of January 1, 2019 |
| | $ | |
| | $ | | $ | | $ | ( | $ | ( | ||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Repurchase of Series C convertible preferred shares |
| ( |
| ( |
| — |
| — |
| ( |
| — |
| ( | ||||||
Extinguishment of Series C convertible preferred shares |
| — |
| ( |
| — |
| — |
| |
| — |
| | ||||||
Issuance of Series D convertible preferred shares |
| |
| |
| — |
| — |
| — |
| — |
| — | ||||||
Exercise of share options |
| — |
| — |
| |
| — |
| |
| — |
| | ||||||
Share-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Balance as of December 31, 2019 |
| $ | |
| | $ | | $ | | $ | ( | $ | ( | |||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Extinguishment and reclassification of Series B convertible preferred shares |
| — |
| ( |
| — |
| — |
| |
| — |
| | ||||||
Repurchase of Series C convertible preferred shares |
| ( |
| ( |
| — |
| — |
| |
| — |
| | ||||||
Issuance of Series D convertible preferred shares |
| |
| |
| — |
| — |
| — |
| — |
| — | ||||||
Settlement of Series D contingent forward contract liability |
| — |
| |
| — |
| — |
| — |
| — |
| — | ||||||
Issuance of Series E convertible preferred shares |
|
| |
| — |
| — |
| — |
| — |
| — | |||||||
Settlement of Series E contingent forward contract liability |
| — |
| |
| — |
| — |
| — |
| — |
| — | ||||||
Exercise of share options |
| — |
| — |
| |
| |
| |
| — |
| | ||||||
Share-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Balance as of December 31, 2020 |
| | $ | |
| | $ | | $ | | $ | ( | $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ATIEVA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31 | ||||||
| 2020 |
| 2019 | |||
Cash flows from operating activities | ||||||
Net loss | $ | ( |
| $ | ( | |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Depreciation and amortization |
| |
| | ||
Share-based compensation |
| |
| | ||
Loss on disposal of property and equipment |
| |
| | ||
Amortization of debt discount |
| — |
| | ||
Change in fair value of contingent forward contracts |
| |
| | ||
Change in fair value of warrants |
| |
| | ||
Changes in operating assets and liabilities: | ||||||
Accounts receivable |
| |
| | ||
Inventory |
| ( |
| ( | ||
Prepaid expenses |
| |
| ( | ||
Other current assets |
| |
| ( | ||
Other noncurrent assets and security deposit |
| |
| | ||
Accounts payable |
| ( |
| | ||
Accrued compensation |
| |
| | ||
Other current liabilities and accrued liabilities |
| |
| | ||
Net cash used in operating activities |
| ( |
| ( | ||
Cash flows from investing activities: | ||||||
Purchases of property, equipment, and software |
| ( |
| ( | ||
Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Proceeds from issuance of convertible note |
| — |
| | ||
Payment for Capital leases |
| ( |
| — | ||
Repurchase of Series C convertible preferred shares |
| ( |
| ( | ||
Proceeds from issuance of Series D convertible preferred shares |
| |
| | ||
Proceeds from issuance of Series E convertible preferred shares |
| |
| — | ||
Proceeds from exercise of share options |
| |
| | ||
Net cash provided by financing activities |
| |
| | ||
Net increase in cash, cash equivalents, and restricted cash |
| |
| | ||
Beginning cash, cash equivalents, and restricted cash |
| |
| | ||
Ending cash, cash equivalents, and restricted cash | $ | |
| $ | | |
Reconciliation of cash, cash equivalents, and restricted cash | ||||||
Cash | $ | |
| $ | | |
Restricted cash |
| |
| | ||
Total cash, cash equivalents, and restricted cash, end of period | $ | |
| $ | | |
Supplemental disclosure of cash flow information: | ||||||
Cash paid for interest | $ | |
| $ | | |
Supplemental disclosure of non-cash investing and financing activity: | ||||||
Property and equipment included in accounts payable and accrued expense | $ | |
| $ | | |
Property and equipment acquired through capital leases | $ | |
| $ | | |
Issuance of contingent forward contracts | $ | | $ | — | ||
Extinguishment of Series B convertible preferred shares included in additional paid-in capital | $ | | $ | — | ||
Extinguishment of Series B convertible preferred shares included in accrued liabilities | $ | | $ | — | ||
Settlement of Series D convertible preferred shares contingent forward contract | $ | | $ | — | ||
Settlement of Series E convertible preferred shares contingent forward contract | $ | | $ | — | ||
Convertible Notes converted into Series D convertible preferred shares | $ | — | $ | | ||
Unamortized Convertible Notes debt issuance cost and debt discount converted into Series D convertible preferred shares | $ | — | $ | ( | ||
Accrued interest of Convertible Notes converted to Series D convertible preferred shares | $ | — | $ | | ||
Deferred financing cost reclassed to convertible preferred shares | $ | — | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
NOTE 1 — DESCRIPTION OF BUSINESS
Overview
The precursor of Atieva, Inc. (DBA Lucid Motors) was originally incorporated in the state of Delaware in December 2007 (“Atieva Delaware”). Atieva Delaware designed, developed, and built energy storage systems for electric vehicles and supplied automakers with the battery pack system needed to power hybrid, plug-in, and electric vehicles. In December 2009, Atieva Delaware and a newly incorporated Cayman Islands company (“Atieva Cayman”) entered into a share exchange agreement (the “Share Exchange Agreement”). Under the Share Exchange Agreement, (a) each holder of Atieva Delaware common shares exchanged such shares for shares of Atieva Cayman’s par value $
Subsequent to the share exchange transaction, Atieva Delaware distributed
As part of the build-out of the Company’s retail stores and service centers for distribution of vehicles to customers, the Company changed Atieva Delaware’s legal name to Lucid USA, Inc., and incorporated new subsidiaries in the U.S. and Canada, including Lucid Group USA, Inc., a Delaware corporation in August 2020, and Lucid Motors Canada ULC, a British Columbia unlimited liability company and an indirect, wholly-owned subsidiary of Lucid Group USA, Inc. in December 2020. The Company is headquartered in Newark, California and has various other global office locations.
On February 22, 2021, Atieva, Inc. entered into a definitive merger agreement with Churchill Capital Corp IV (“Churchill”) in which Atieva would become a wholly owned subsidiary of Churchill. Upon the closing of the merger on July 23, 2021, Churchill was immediately renamed to “Lucid Group, Inc.”
The Merger has been accounted for as a reverse recapitalization. Under this method of accounting, Churchill has been treated as the acquired company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of the combined entity represent a continuation of the financial statements of the Company with the Merger being treated as the equivalent of the Company issuing shares for the net assets of Churchill, accompanied by a recapitalization. Accordingly, all periods included in these financial statements of the Company are prior to the Merger and have been retrospectively adjusted using the exchange ratio of
Liquidity and Going Concern
The Company devotes its efforts to business planning, research and development, recruiting of management and technical staff, acquiring operating assets, and raising capital.
From inception through December 31, 2020, the Company has incurred operating losses and negative cash flows from operating activities. For the years ended December 31, 2020 and 2019, the Company has incurred operating losses, including net losses of $
As of the end of 2020, the Company was finalizing construction of its newly built manufacturing plant in Casa Grande, Arizona (the “Arizona plant”). The Company plans to begin selling its first vehicle, the Lucid Air, in the second half of 2021, along with the continued expansion of the Arizona plant and build-out of a network of retail sales and service locations. The Company has plans for continued development of additional vehicle model types for future
F-7
release. The aforementioned activities will require considerable capital, above and beyond the expected cash inflows from the initial sales of the Lucid Air. As such, the future operating plan involves considerable risk if secure funding sources were not identified and confirmed.
The Company’s existing sources of liquidity include cash and cash equivalents. Historically, the Company has been able to obtain debt and equity financing as disclosed in these consolidated financial statements. The Company has funded operations primarily with issuances of convertible preferred shares, convertible notes, long-term debt and net proceeds from revenues. As discussed in Note 15 — Subsequent Events, upon the Closing of the Merger, the Company received $
Certain Significant Risks and Uncertainties
The Company’s current business activities consist of research and development efforts to design and develop a high-performance fully electric vehicle and advanced electric vehicle powertrain components, including battery pack systems; building of the Company’s production operations in Casa Grande, Arizona; and build-out of the Company’s retail stores and service centers for distribution of the vehicles to customers. The Company is subject to the risks associated with such activities, including the need to further develop its technology, its marketing, and distribution channels; further develop its supply chain and manufacturing; and hire additional management and other key personnel. Successful completion of the Company’s development program and, ultimately, the attainment of profitable operations are dependent upon future events, including its ability to access potential markets, and secure long-term financing.
The Company participates in a dynamic high technology industry. Changes in any of the following areas could have a material adverse impact on the Company’s future financial position, results of operations, and/or cash flows: advances and trends in new technologies; competitive pressures; changes in the overall demand for its products and services; acceptance of the Company’s products and services; litigation or claims against the Company based on intellectual property, patent, regulatory, or other factors; and the Company’s ability to attract and retain employees necessary to support its growth.
In late 2019, a novel strain of coronavirus (COVID-19) began to affect the population of China and expanded into a worldwide pandemic during 2020, leading to significant business and supply chain disruption, as well as broad-based changes in supply and demand. The Company’s operations have experienced disruptions, such as temporary closure of its offices, and those of its customers and suppliers, and product research and development. The Company was able to proceed with the construction of the Arizona plant while still meeting all COVID-19 restrictions and required safety measures. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the outbreak. Nevertheless, COVID-19 presents a material uncertainty and risk with respect to the Company, its performance, and its financial results and could adversely affect the Company’s financial position and results of operations.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Preparation
The accompanying consolidated financial statements have been prepared pursuant to generally accepted accounting principles generally accepted in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”).The consolidated financial statements as of and for the years ended December 31, 2020 and 2019 include the accounts of Atieva Cayman and its wholly owned subsidiaries. All significant intercompany balances accounts and transactions have been eliminated in the consolidated financial statements.
F-8
Segment Reporting
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company has determined that it operates in
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates, assumptions and judgments made by management include, among others, the determination of the useful lives of property and equipment, fair values of warrants, fair value of contingent forward contracts liability, fair values of common shares, accounting for income taxes, and share-based compensation expense. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original or remaining maturity at the date of purchase of three months or less to be cash equivalents.
The Company has restricted cash in current assets of $
The following table provides a reconciliation of cash and restricted cash to amounts shown in the statements of cash flows (in thousands):
December 31, | ||||||
| 2020 |
| 2019 | |||
Cash | $ | | $ | | ||
Restricted cash, current portion |
| |
| | ||
Restricted cash, less current portion |
| |
| | ||
Total cash and restricted cash | $ | | $ | |
F-9
Accounts Receivable
Accounts receivable consist of current trade receivables from a single customer. The Company records accounts receivable at their net realizable value. Management’s estimate for expected credit losses for outstanding accounts receivable are based on historical write-off experience, an analysis of the aging of outstanding receivables, customer payment patterns, and the establishment of specific reserves for customers in an adverse financial condition. Adjustments are made based upon the Company’s expectations of changes in macroeconomic conditions that may impact the collectability of outstanding receivables. The Company also considers current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. The Company reassesses the adequacy of estimated credit losses each reporting period. At December 31, 2020 and 2019, the Company did not record an allowance for doubtful accounts.
Short-Term Investments
Investments with original or remaining maturities of more than three months at the time of purchase are generally classified as short-term investments and consist of time deposits. The Company’s short-term investments consist of certificates of deposit totaling $
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents, short-term investments, and accounts receivable. The Company places its cash primarily with domestic financial institutions that are federally insured within statutory limits, but at times its deposits may exceed federally insured limits. Further, accounts receivable consists of current trade receivables from a single customer as of December 31, 2020 and 2019, and all of the Company’s revenue is from the same customer for the years ended December 31, 2020 and 2019.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less accumulated depreciation and amortization for leasehold improvements. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets. The Company generally uses the following estimated useful lives for each asset category:
Asset Category |
| Life (years) |
Machinery |
| |
Computer equipment and software |
| |
Furniture and fixtures |
| |
Capital leases |
| |
Leasehold improvements |
| Shorter of the lease term and the estimated useful lives of the assets |
Expenditures for repair and maintenance costs are expensed as incurred, and expenditures for major renewals and improvements that increase functionality of the asset are capitalized and depreciated ratably over the identified useful life. Upon disposition or retirement of property and equipment, the related cost and accumulated depreciation and amortization are removed, and any gain or loss is reflected in operations. The Company recorded a disposition loss on fixed assets of $
Inventory
Inventory, consisting of raw materials, work in progress and finished goods is stated at the lower of cost or net realizable value. Costs are computed under the standard cost method, which approximates actual costs determined on a first-in, first-out basis. Net realizable value is determined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of disposal and transportation. The cost basis of the Company’s inventory is reduced
F-10
for any products that are considered to be held in excess of demand or obsolete based upon assumptions about future demand and market conditions.
The Company also reviews the status of the inventory periodically to determine whether a lower of cost or net realizable value analysis needs to be performed based on market pricing. The Company’s inventory is associated with battery pack system projects with its customer and consists of the following (in thousands):
December 31, | ||||||
| 2020 |
| 2019 | |||
Raw materials | $ | | $ | | ||
Work in progress |
| |
| | ||
Finished goods |
| |
| | ||
Total inventory | $ | | $ | |
The Company did not adjust the cost basis of its inventory as of December 31, 2020 and 2019.
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for potential impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent the carrying amount of the underlying asset exceeds its fair value.
Foreign Currency
The US dollar is the functional currency of the Company’s consolidated subsidiaries operating outside of the US. Monetary assets and liabilities of these subsidiaries are remeasured into US dollars from the local currency at rates in effect at period-end and nonmonetary assets and liabilities are remeasured at historical rates. Expenses incurred in currencies other than the US dollar (the functional currency) are remeasured at average exchange rates in effect during each period. Foreign currency gains and losses from remeasurement are included within other income (expense) — net in the Company’s consolidated statements of operations, and the Company recorded a foreign currency loss of $
Revenue from Contracts with Customers
On January 1, 2019 the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”) using the modified retrospective method which did not result in an adjustment upon adoption.
The Company follows a five-step process in which the Company identifies the contract, identifies the related performance obligations, determines the transaction price, allocates the contract transaction price to the identified performance obligations, and recognizes revenue when (or as) the performance obligations are transferred to the customer.
The Company’s revenue consists of the sales of battery pack systems, supplies and related services for vehicles. The Company identifies the sale of battery pack systems and the related supplies as a performance obligation to be recognized at the point in time when control is transferred to the customer. Control transfers to the customer when the product is delivered to the customer as the customer can then direct the use and obtain substantially all of the remaining benefits from the asset at that point in time. Shipping and handling provided by Company is considered a fulfillment activity.
F-11
While customers generally have the right to return defective or non-conforming products, past experience has demonstrated that product returns have been immaterial. Customer remedies may include either a cash refund or an exchange of the returned product. As a result, the right of return and related refund liability for non-conforming or defective goods is estimated and recorded as a reduction in revenue, if necessary. Payment for the products sold are made upon invoice or in accordance with payment terms customary to the business. The Company’s contracts do not contain significant financing components.
Customer contracts generally do not include more than one performance obligation. If a contract were to contain more than one performance obligation, the Company shall allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data.
The Company does not have any remaining performance obligations or contract assets and liabilities as of December 31, 2020 and 2019.
Cost of Revenue
Cost of revenue includes direct parts, material and labor costs, manufacturing overhead, including amortized tooling costs, shipping and logistic costs, and reserves for estimated warranty expenses related to its battery packs. Cost of revenue also includes adjustments to warranty expense and charges to write down the carrying value of inventory when it exceeds its estimated net realizable value or to provide for obsolete and on-hand inventory in excess of forecasted demand.
Warranties
The Company provides a manufacturer’s warranty on all battery packs it sells and accrues a warranty reserve for such battery packs, as applicable. These estimates are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. Current estimates of the warranty reserve are immaterial, but changes to the Company’s historical or projected warranty experience may cause material changes to the warranty reserve in the future. The portion of the warranty reserve expected to be incurred within the next 12 months is included within accrued liabilities and other, while the remaining balance is included within other long-term liabilities in the consolidated balance sheets. The Company recorded warranty expense of
Income Taxes
The Company accounts for income taxes in accordance with FASB Accounting Standards Codification (ASC) 740, Accounting for Income Taxes, which requires an asset and liability approach. The Company utilizes the liability method under which deferred tax assets and liabilities arise from the temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements, as well as from net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will actually be paid, or refunds received, as provided for under currently enacted tax law.
The Company recognizes deferred tax assets to the extent that these assets are more likely than not to be realized. In making such a determination, all available positive and negative evidence are considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is determined that deferred tax assets would be realized in the future in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
F-12
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process which includes (1) determining whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company’s policy is to recognize interest related to unrecognized tax benefits in other income (expense) — net and to recognize penalties in general and administrative expenses in the consolidated statements of operations. Accrued interest and penalties are included within income tax liabilities in the consolidated balance sheets.
Share-Based Compensation
Share-based compensation expense related to share-based awards granted to employees is measured and recognized in the Company’s consolidated financial statements based on fair value. Share-based compensation expense, net of estimated forfeitures, is recognized on a straight-line basis over the requisite service period for each employee share option expected to vest. The fair value of each share option granted to employees and nonemployees is estimated on the grant date using the Black-Scholes option-pricing model. For nonemployee share options, the fair value is remeasured as the share options vest, and the resulting change in fair value, if any, is recognized in the consolidated statements of operations during the period the related services are rendered.
Comprehensive Income (Loss)
Comprehensive loss is composed of two components: net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders’ equity (deficit) but are excluded from net loss. For the years ended December 31, 2020 and 2019, as there are no activities that impacted comprehensive income (loss), there are no differences between comprehensive loss and net loss reported in the Company’s consolidated statements of operations.
Research and Development
Research and development expenses consist primarily of personnel-related expenses, contractor fees, engineering design and testing expenses, and allocated facilities cost. Substantially all of the Company’s research and development expenses are related to developing new products and services and improving existing products and services. Research and development expenses have been expensed as incurred and included in the consolidated statements of operations.
Selling, General, and Administrative
Selling, general and administrative expense consist of personnel and facilities costs related to marketing, sales, finance, human resources, information technology, and legal departments.
Advertising
Advertising is expensed as incurred and is included in sales and marketing expenses in the consolidated statements of operations. These costs were immaterial for the years ended December 31, 2020 and 2019, respectively.
Leases
An arrangement is or contains a lease if there are specified assets and the right to control the use of a specified asset is conveyed for a period in exchange for consideration. Upon lease inception, the Company classifies leases as either operating or capital leases. Leases are classified as capital leases when the terms of the lease transfers substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Operating leases are not recognized on the consolidated balance sheets. For capital leases, the Company recognizes capital lease assets and corresponding lease liabilities within the consolidated balance sheets at lease commencement at
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the present value of the rental payments. The Company recognizes rent expense on a straight-line basis in the statements of operations for operating leases. For capital leases, the Company recognizes interest expense associated with the capital lease liability and depreciation expense associated with the capital lease asset. For capital lease assets and leasehold improvements, the estimated useful lives are limited to the shorter of the useful life of the asset or the term of the lease.
The Company enters into operating and capital leases associated with its office space, manufacturing and retail facilities, and equipment. On certain of its operating lease agreements, the Company may receive rent holidays and other incentives, which are recognized over the lease term through rent expense. The difference between rent expense and the cash paid under the lease agreement is recorded as deferred rent. Lease incentives, including tenant improvement allowances, are also recorded as deferred rent and amortized on a straight-line basis over the lease term. The Company recorded deferred rent under other short-term and long-term liabilities in the consolidated balance sheets as of December 31, 2020 and 2019.
If the term of the lease does not exceed 12 months, the Company elects to record the rental expense in the period it is incurred, and no deferred rent will be recorded.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount within a range of loss can be reasonably estimated. When no amount within the range is a better estimate than any other amount, the Company accrues for the minimum amount within the range. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Net Loss Per Share
Basic and diluted net loss per share attributable to common shareholders is computed in conformity with the two-class method required for participating securities. The Company considers all series of its convertible preferred shares to be participating securities as the holders of such shares have the right to receive nonforfeitable dividends on a pari passu basis in the event that a dividend is paid on common shares. Under the two-class method, the net loss attributable to common shareholders is not allocated to the convertible preferred shares as the preferred shareholders do not have a contractual obligation to share in the Company’s losses.
Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted-average number of shares of common shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potentially dilutive common share equivalents to the extent they are dilutive. For purposes of this calculation, convertible preferred shares, share options, convertible and convertible preferred share warrants are considered to be common share equivalents but have been excluded from the calculation of diluted net loss per share attributable to common shareholders as their effect is anti-dilutive for all periods presented.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to update the methodology used to measure current expected credit losses (“CECL”). This ASU applies to financial assets measured at amortized cost, including loans, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments and guarantees. The Company adopted this ASU starting on January 1, 2020 using the modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The adoption of this ASU did not have impact to the consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU No. 2018-07, Compensation Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based
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payment transactions for acquiring goods and services from nonemployees, with certain exceptions. For nonpublic entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted if financial statements have not yet been issued (for public business entities) or have not yet been made available for issuance (for all other entities). The Company adopted this ASU starting on January 1, 2020. The adoption of this ASU did not have a material impact to the consolidated financial statements and related disclosures.
In August 2018, FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU No. 2018-13 modifies the disclosure requirements for fair value measurements. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption is permitted. ASU No. 2018-13 requires that certain of the amendments be applied prospectively, while other amendments should be applied retrospectively to all periods presented. ASU No. 2018-13 is effective for the Company in its fiscal year 2021. The Company adopted this ASU starting on January 1, 2020. The adoption of this ASU did not have a material impact to the consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance outlines a comprehensive model for entities to use in accounting for leases and supersedes most current lease accounting guidance, including industry-specific guidance. The core principle of the new lease accounting model is that lessees are required, among other things, to recognize lease assets and lease liabilities in the consolidated balance sheets for those leases classified as operating leases under previous authoritative guidance. The guidance also introduces new disclosure requirements for leasing arrangements. In July 2018, the FASB issued ASU No. 2018-10, Leases (Topic 842), Codification Improvements to Topic 842, Leases, and ASU No. 2018-11, Leases (Topic 842), Targeted Improvements. ASU No. 2018-11 provides a new transition method in which an entity can initially apply the new lease standards at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. These standards will be effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022 and early adoption is permitted. The Company will apply the new transition method prescribed by ASU No. 2018-11 at the adoption date. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions for recognizing deferred taxes for investments, performing intra period allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The guidance is effective for the Company beginning in the first quarter of fiscal year 2022, with early adoption permitted. The Company expects the new guidance will have an immaterial impact on its consolidated financial statements and intends to adopt the guidance when it becomes effective in the first quarter of fiscal year 2022.
In August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments, and amends existing earnings-per-share, or EPS, guidance by requiring that an entity use the if-converted method when calculating diluted EPS for convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We plan to early adopt ASU 2020-06 effective January 1, 2021 and are currently evaluating the effect ASU 2020-06 will have on our consolidated financial statements and related disclosures.
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NOTE 3 — BALANCE SHEETS COMPONENTS
Prepaid Expenses
Prepaid expenses as of December 31, 2020 and 2019 were as follows (in thousands):
December 31, | ||||||
| 2020 |
| 2019 | |||
Engineering, design, and testing | $ | | $ | | ||
Software subscriptions |
| |
| | ||
Prepayments for Arizona manufacturing equipment |
| |
| | ||
Vehicle engineering |
| |
| | ||
Other |
| |
| | ||
Total prepaid expenses | $ | | $ | |
Other Current Assets
Other current assets as of December 31, 2020 and 2019 were as follows (in thousands):
December 31, | ||||||
| 2020 |
| 2019 | |||
Tenant allowance receivable | $ | | $ | | ||
Other current assets |
| |
| | ||
Total other current assets | $ | | $ | |
Other Accrued and Long-term Liabilities
Other accrued liabilities as of December 31, 2020 and 2019 were as follows (in thousands):
December 31, | ||||||
| 2020 |
| 2019 | |||
Construction of Arizona plant | $ | | $ | | ||
Engineering, design, and testing |
| |
| | ||
Tooling |
| |
| | ||
Professional services |
| |
| | ||
Series B convertible preferred shares repurchase liability |
| |
| — | ||
Other liabilities |
| |
| | ||
Total other accrued liabilities | $ | | $ | |
Other long-term liabilities as of December 31, 2020 and 2019 were as follows (in thousands):
December 31, | ||||||
| 2020 |
| 2019 | |||
Deferred rent |
| $ | |
| $ | |
Customer deposits | | | ||||
Capital leases | | | ||||
Total other long-term liabilities |
| $ | |
| $ | |
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Property, Plant, and Equipment, net
Property, plant, and equipment as of December 31, 2020 and 2019 were as follows (in thousands):
December 31, | ||||||
| 2020 |
| 2019 | |||
Land and land improvements |
| $ | |
| $ | — |
Machinery | | | ||||
Computer equipment and software | | | ||||
Leasehold improvements | | | ||||
Furniture and fixtures | | | ||||
Capital leases | | | ||||
Construction in progress | | | ||||
Total property, plant, and equipment | | | ||||
Less accumulated depreciation and amortization | ( | ( | ||||
Property, plant, and equipment – net |
| $ | |
| $ | |
Construction in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities including tooling, which is with outside vendors. Costs classified as construction in progress include all costs of obtaining the asset and bringing it to the location in the condition necessary for its intended use.
December 31, | ||||||
| 2020 |
| 2019 | |||
Tooling |
| $ | |
| $ | |
Construction of Arizona plant | | | ||||
Leasehold improvements | | | ||||
Machinery and equipment | | | ||||
Total construction in progress |
| $ | |
| $ | |
Depreciation and amortization expense for the years ended December 31, 2020 and 2019, was approximately $
NOTE 4 — FAIR VALUE OF FINANCIAL INSTRUMENTS
The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the “exit price” that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between independent market participants on the measurement date. The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy, which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The accounting standard established a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. This hierarchy prioritizes the inputs into three broad levels as follows:
● | Level 1 — Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. |
● | Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
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● | Level 3 — Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. The sensitivity of the fair value measurement to changes in unobservable inputs might result in a significantly higher or lower measurement. |
Level 1 investments consist solely of short-term and long-term restricted cash valued at amortized cost that approximates fair value. Level 2 investments consist solely of certificate of deposits. Level 3 liabilities consist of convertible preferred share warrant liability and contingent forward contract liability, in which the fair value was measured upon issuance and is remeasured at each reporting date. The valuation methodology and underlying assumptions are discussed further in Note 6 “Contingent Forward Contracts” and Note 7 “Convertible Preferred Share Warrant Liability”.
The following table sets forth the Company’s financial assets and liabilities subject to fair value measurements on a recurring basis by level within the fair value hierarchy as of December 31, 2020 (in thousands):
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets: | ||||||||||||
Short-term investment – | ||||||||||||
Certificates of deposit |
| $ | — |
| $ | |
| $ | — |
| $ | |
Restricted cash – short term | | — | — | | ||||||||
Restricted cash – long term | | — | — | | ||||||||
Total assets |
| $ | |
| $ | |
| $ | — |
| $ | |
Liabilities: | ||||||||||||
Convertible preferred share warrant liability |
| $ | — |
| $ | — |
| $ | |
| $ | |
Total liabilities |
| $ | — |
| $ | — |
| $ | |
| $ | |
The following table sets forth the Company’s financial assets and liabilities subject to fair value measurements on a recurring basis by level within the fair value hierarchy as of December 31, 2019 (in thousands):
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets: | ||||||||||||
Short-term investment − | ||||||||||||
Certificate of deposit |
| $ | — |
| $ | |
| $ | — |
| $ | |
Restricted cash – short term | | — | — | | ||||||||
Restricted cash – long term | | — | — | | ||||||||
Total assets |
| $ | |
| $ | |
| $ | — |
| $ | |
Liabilities: | ||||||||||||
Convertible preferred share warrant liability |
| $ | — |
| $ | — |
| $ | |
| $ | |
Contingent forward contracts liability | — | — | | | ||||||||
Total liabilities |
| $ | — |
| $ | — |
| $ | |
| $ | |
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A reconciliation of the contingent forward contract liability measured and recorded at fair value on a recurring basis is as follows (in thousands):
Fair value-December 31, 2018 |
| $ | |
Change in fair value | | ||
Fair value-December 31, 2019 | | ||
Change in fair value of Series D contingent forward contract | | ||
Settlement of Series D contingent forward contract | ( | ||
Issuance of Series E contingent forward contract | | ||
Change in fair value of Series E contingent forward contract | | ||
Settlement of Series E contingent forward contract | ( | ||
Fair value-December 31, 2020 |
| $ | — |
A reconciliation of the convertible preferred share warrant liabilities measured and recorded at fair value on a recurring basis is as follows (in thousands):
Fair value-December 31, 2018 |
| $ | |
Change in fair value | | ||
Fair value-December 31, 2019 | | ||
Change in fair value | | ||
Fair value-December 31, 2020 |
| $ | |
NOTE 5 — CONVERTIBLE NOTES
In September 2018, the Company entered into a securities purchase agreement (the “Security Purchase Agreement”) of $
Along with the Convertible Notes issuance, the Company granted PIF contingent forward contracts to participate in the future Series D convertible preferred share financing. The contingent forward contracts were determined to be accounted for similar to a derivative and the initial fair value was recorded as a debt discount and contingent forward contracts liability on the Convertible Notes issuance date. The initial contingent forward contract liability fair value of $
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Per the Security Purchase Agreement, the Company was required to pay an advisory fee to the advisor who helped the Company secure the transaction with the investor no later than September 2019. The Company incurred approximately $
The Company amortized the total debt issuance cost of the Convertible Notes in the amount of $
Year Ended | |||
December 31, | |||
| 2019 | ||
Amortization of issuance costs allocated to Convertible Notes |
| $ | |
Amortization of debt discount from contingent forward contracts (Note 6) | | ||
Total interest expense |
| $ | |
After CFIUS granted approval of the investment in March 2019, the Company converted all outstanding Convertible Notes into Series D convertible preferred shares in April 2019. The conversion consists of the $
Convertible Notes issued in 2018 |
| $ | |
Debt discount and debt issuance cost incurred | ( | ||
Amortization of debt discount and issuance cost | | ||
Convertible Notes balance as of December 31, 2018 | | ||
Convertible Notes issued in 2019 | | ||
Debt discount and debt issuance cost incurred | ( | ||
Amortization of debt discount and issuance cost | | ||
Convertible Notes balance as of April 2, 2019 | | ||
Accrued interest of Convertible Notes | | ||
Convertible Notes converted to Series D convertible preferred shares |
| $ | |
The Security Purchase Agreement also required the repurchase, redemption, and cancellation of certain amounts of Series C convertible preferred shares. For the detail of the repurchase of Series C convertible preferred shares, refer to Note 8 “Convertible Preferred Shares and Shareholders’ Deficit.”
NOTE 6 — CONTINGENT FORWARD CONTRACTS
As discussed in Note 5 “Convertible Notes,” in September 2018, the Company entered into a Securities Purchase Agreement with PIF. Along with the execution of the Securities Purchase Agreement, the Company granted PIF the right to purchase the Company’s Series D convertible preferred shares in future periods. The Company determined PIF’s right to participate in future Series D convertible preferred shares financing to be freestanding similar to a derivative in the form of contingent forward contracts and recorded the initial valuation of $
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In March 2020, the Company received $
As discussed in Note 8 “Convertible Preferred Shares and Shareholders’ Deficit”, in September 2020, along with the execution of the Securities Purchase Agreement, the Company granted Ayar Third Investment Company (“Ayar”) the right to purchase the Company’s additional Series E convertible preferred shares upon the Company’s satisfaction of certain milestones in November 2020. The Company determined Ayar’s right to participate in future Series E convertible preferred share financing to be freestanding similar to a derivative in the form of contingent forward contracts and recorded the initial valuation of $
In December 2020, Ayar waived the Company’s remaining outstanding obligations, and the Company received $
The Company’s inputs used in determining the fair value of Series D contingent forward contract liability on the issuance date were as follows:
Effective date |
| 9/20/2018 | |
Coupon payment dates |
| Semi-Annual | |
Maturity date |
| 03/20/2020 | |
Initial term |
| ||
Interest rate (coupon rate) | | % | |
Yield (market rate) | | % | |
Effective interest rate | | % |
The Company’s inputs used in determining the fair value of Series D convertible preferred share contingent forward contract liability on the settlement date, were as follows:
Settlement date |
| 3/31/2020 |
| 6/30/2020 |
| ||
Expected term |
| — |
| — | |||
Contingent Series D convertible preferred shares fair value (per share) | $ | | $ | | |||
Present value factor |
| |
| | |||
Estimated probability of satisfying milestones |
| | % |
| | % |
The Company’s inputs used in determining the fair value of Series E convertible preferred share contingent forward contract liability on the issuance date and settlement date, were as follows:
Effective date |
|
| 9/22/2020 |
|
| 12/31/2020 | |
Expected term |
|
| — | ||||
Contingent Series E convertible preferred shares fair value (per share) |
| $ | |
| $ | | |
Present value factor | | | |||||
Estimated probability of satisfying milestones | | % | | % |
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Fair value of the Series D and Series E contingent forward contracts on the issuance date are valued by a third-party valuation firm using Probability-Weighted Expected Return Method (“PWERM”) framework, and the Option Pricing Method (“OPM”) to allocate the equity value in the scenarios where the Series D and Series E convertible preferred share additional tranche issuance milestones are satisfied.
NOTE 7 — CONVERTIBLE PREFERRED SHARE WARRANT LIABILITY
In March and September 2017, in connection with the Long-Term Debt to Trinity, the Company issued two convertible preferred share warrants (the “Warrants”) to purchase a total of
The fair value of the Warrants was approximately $
The Company’s assumptions used in determining the fair value of convertible preferred share warrants at December 31, 2020, and 2019 are as follows:
As of December 31, |
| ||||
| 2020 |
| 2019 | ||
Volatility |
| | % | | % |
Expected term (in years) |
|
| | ||
Risk-free rate |
| % | | % | |
Expected dividend rate |
| | % | | % |
NOTE 8 — CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ DEFICIT
Convertible Preferred Shares
Convertible preferred shares are carried at its issuance price, net of issuance costs.
In 2014 through 2020, the Company issued Series A, Series B, Series C, and Series D and Series E convertible preferred shares (“Series A,” “Series B,” “Series C,” “Series D,” “Series E,” respectively) (collectively, the “Convertible Preferred Shares”).
In September 2018, concurrent with the execution of the Security Purchase Agreement with PIF, the Company entered into a Share Repurchase Agreement (the “Repurchase Agreement”) with Blitz Technology Hong Kong Co. Limited and LeSoar Holdings, Limited (the “Sellers”) to repurchase Series C convertible preferred shares as follows:
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First Company Repurchase
Concurrent with the execution of the Security Purchase Agreement with PIF, $
Second Company Repurchase
The Company agreed to repurchase
The Company used the put option pricing model to compute the fair value of the contingent ‘Second Company Repurchase’ feature (“contingent repurchase feature”) and applied a
The key inputs used in determining the fair value of the contingent repurchase feature as of the extinguishment date in September 2018, are as follows:
Effective date |
| 9/30/2018 |
| |
Current price |
| $ | ||
Exercise price |
| $ | ||
Initial term | ||||
Volatility | % | |||
Risk free rate | % | |||
Dividend yield | % |
The fair value of the Series C preferred shares prior to extinguishment was $
Price per share |
| $ |
| |
Term | ||||
Volatility | | % | ||
Risk free rate |
The fair value of the Series C preferred shares after the extinguishment was determined as $
As the carrying amount of each share of Series C was $
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In June 2019, the Company and the Sellers amended and restated the September 2018 Repurchase Agreement related to the Second Company Repurchase. Pursuant to the terms, the Company repurchased
As the carrying amount of each share of Series C was $
The fair value of the Series C preferred shares after extinguishment in June 2019 was $
The range of inputs for the various scenarios used in determining the fair value of the Series C convertible preferred shares using OPM as of the extinguishment date, in June 2019, was as follows:
Price per share |
| $ | |
|
Term | ||||
Volatility | | % | ||
Risk free rate |
Third Company Repurchase (Series C — August 2020)
In August 2020, the Company entered into a Share Repurchase Agreement with the Sellers. Pursuant to the Share Repurchase Agreement, the Company agreed to repurchase
Fourth Company Repurchase (Series C — December 2020)
In December 2020, the Company entered into a Share Repurchase Agreement with Blitz Technology Hong Kong Co. Limited (“Blitz”).
The Company agreed to repurchase
Fifth Company Repurchase (Series B — December 2020)
On December 22, 2020, the Company entered into an agreement with JAFCO Asia Technology Fund V (“JAFCO”) whereby the Company agreed to repurchase
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As of the date of extinguishment and as of December 31, 2020 the Series B convertible preferred shares subject to repurchase are mandatorily redeemable within
Series D Preferred Share Issuance
In 2018, the Security Purchase Agreement with PIF granted PIF rights to purchase the Company’s Series D convertible shares at various tranches. The first tranche of $
In April 2019, upon CFIUS’s approval of PIF’s equity investment into the Company, the Company received the first $
In March 2020, the Company received $
See activities related to the PIF Convertible Notes and Series D convertible preferred share funding as below (in thousands):
Conversion of Convertible Notes (Note 5) |
| $ | |
Series D received in April 2019 |
| | |
Series D received in October 2019 |
| | |
Series D received in March 2020 |
| | |
Series received in June 2020 |
| | |
Contingent forward contract liability reclassified to Series D |
| | |
Total proceeds of Series D | $ | |
Series E Convertible Preferred Share Issuance
On September 21, 2020 the Company entered into an arrangement with Ayar to issue and sell Series E convertible preferred shares pursuant to a securities purchase agreement (the “SPAE”). Along with the execution of the SPAE, the Company granted Ayar the right to purchase additional Series E convertible preferred shares upon the Company’s satisfaction of certain milestones in November 2020. The Company determined Ayar’s right to participate in future Series E convertible preferred share financing to be freestanding, similar to a derivative in the form of contingent forward contracts and recorded the initial valuation of $
Immediately upon closing of the SPAE, the Company received the full first tranche of $
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milestones and received a waiver from PIF for the remaining milestones; and on December 24, 2020, the investor provided $
As of December 31, 2020, and 2019, the Company had the following convertible preferred shares, par value of $
As of December 31, 2020 | ||||||||||||||||
Conversion | ||||||||||||||||
Price Per | ||||||||||||||||
Share to | Liquidation | |||||||||||||||
Shares | Shares | Net Carrying | Common | Per Share | Liquidation | |||||||||||
Convertible Preferred Shares |
| Authorized |
| Outstanding |
| Value |
| Shares |
| Amount |
| Amount | ||||
Series A |
| |
| | $ | | $ | $ | $ | | ||||||
Series B* |
| |
| |
| |
|
|
| | ||||||
Series C |
| |
| |
| |
|
|
| | ||||||
Series D |
| |
| |
| |
|
|
| | ||||||
Series E |
| |
| |
| |
|
|
| | ||||||
Total |
| |
| | $ | |
|
| $ | |
* | As of December 31, 2020, |
As of December 31, 2019 | ||||||||||||||||
Conversion | ||||||||||||||||
Price Per | ||||||||||||||||
Share to | Liquidation | |||||||||||||||
Shares | Shares | Net Carrying | Common | Per Share | Liquidation | |||||||||||
Convertible Preferred Shares |
| Authorized |
| Outstanding |
| Value |
| Shares |
| Amount |
| Amount | ||||
Series A | | | $ | | $ | $ | $ | | ||||||||
Series B | | | | | ||||||||||||
Series C | | | | | ||||||||||||
Series D | | | | | ||||||||||||
Total | | | $ | |
| $ |
The significant rights and preferences of the outstanding convertible preferred shares are as follows:
Dividends — Holders of Series A, Series B, and Series C are entitled to receive noncumulative dividends an annual rate of $
Liquidation Preference — In the event of any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a Liquidation Event), before any distribution or payment shall be made to holders of common shares, each holder of convertible preferred shares then outstanding shall be entitled to be paid, pro rata, out of the assets of the Company available for distribution to members, whether from capital, surplus, or earnings, in the sequence of Series E, Series D, Series C, Series B and Series A, an amount equal to one and one-half times (
F-26
price per share (as adjusted for Share Split Changes), plus all declared and unpaid distributions thereon. If, upon the occurrence of such event, the assets and funds to be distributed among the holders of the convertible preferred shares shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, the holders of the convertible preferred shares shall receive a pro rata distribution of assets, on a pari passu basis, according to the amounts which would be payable in respect of the Series E and Series D convertible preferred shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full.
Upon completion of the full distribution required above, the remaining assets of the Company available for distribution to members shall be distributed pari passu among the holders of common shares pro rata based on the number of the common shares held by each member.
Voting Rights — The holders of Series A, Series B, Series C, Series D and Series E convertible preferred shares are entitled to the number of votes equal to the number of Common shares into which such convertible preferred shares are convertible, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common shares, and shall be entitled, notwithstanding any provision hereof, to notice of any shareholders’ meeting in accordance with our bylaws. The holders of convertible preferred shares and the holders of common shares shall vote together and not as separate classes.
Conversion — Each Series A, Series B, Series C, Series D and Series E convertible preferred share is convertible, at the option of the holder, into
Antidilution Adjustment — Subject to certain exceptions, if the Company issues additional common shares without consideration or for a consideration per share, less than the conversion price with respect to such series of the convertible preferred shares in effect immediately before the issuance of such additional shares, the conversion price of such series of convertible preferred shares in effect immediately before each such issuance shall automatically be adjusted. The new conversion price for such series of convertible preferred shares shall be determined by multiplying the conversion price for such series of convertible preferred shares then in effect by a fraction, the numerator of which will be the number of common shares outstanding immediately before such issuance, plus the number of shares that the aggregate consideration received by the Company for such issuance would purchase at such conversion price then in effect, and the denominator of which will be the number of common shares outstanding immediately before such issuance, plus the number of such additional common shares to be issued.
Common Shares
No dividends other than those payable solely in common shares shall be paid on any common share, unless and until (i) the dividends are paid on each outstanding share of convertible preferred share and (ii) a dividend is paid with respect to all outstanding convertible preferred shares in an amount equal to or greater than the aggregate amount of dividends, which would be payable on each convertible preferred share, if immediately prior to such payment on common shares, it had been converted into common shares.
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Common Shares Reserved for Issuance
The Company’s common shares reserved for future issuances as of December 31, 2020 and 2019, are as follows:
As of December 31, | ||||
| 2020 |
| 2019 | |
Convertible preferred shares outstanding |
| |
| |
Share options outstanding |
| |
| |
Convertible preferred share warrant |
| |
| |
Shares available for future grants |
| |
| |
Total common shares reserved |
| |
| |
NOTE 9 — SHARES-BASED AWARDS
Share Incentive Plans and Share Option Grants to Employees and Directors
In 2009, the Company adopted the 2009 Share Plan (the “2009 Plan”). In 2014, in connection with the Series C convertible preferred share financing, the Company adopted the 2014 Share Plan (the “2014 Plan”). Both the 2009 Plan and the 2014 Plan provide for the granting of incentive and non-statutory share options to directors, officers, employees, and consultants. Under the 2009 Plan and the 2014 Plan, the Company may grant options to purchase up to
As of December 31, 2020,
A summary of share option activity under the 2009 Plan and the 2014 Plan is as follows:
Outstanding Options | ||||||||||||
| Weighted- | |||||||||||
Weighted | Average | |||||||||||
Average | Remaining | Intrinsic | ||||||||||
Shares Available for | Number of | Exercise | Contractual | Value (in | ||||||||
| Grant |
| Options |
| Price |
| Term |
| thousands) | |||
Balance – January 1, 2019 |
| |
| |
| $ | |
| $ | | ||
Options granted |
| ( |
| |
| |
|
| ||||
Options exercised |
| — |
| ( |
| |
|
| ||||
Options canceled |
| |
| ( |
| |
|
| ||||
Balance – December 31, 2019 |
| |
| |
| $ | |
| $ | | ||
Options granted |
| ( |
| |
| |
|
| ||||
Options exercised |
| — |
| ( |
| |
|
| ||||
Options canceled |
| |
| ( |
| |
|
| ||||
Balance – December 31, 2020 |
| |
| |
| |
| $ | | |||
Options vested and exercisable December 31, 2020 |
| |
| $ | |
| $ | |
Aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of common shares. The aggregate intrinsic value of options exercised was approximately $
The total fair value of share options granted during the years ended December 31, 2020 and 2019, was approximately $
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approximately $
The Black-Scholes Model used to value share options incorporates the following assumptions:
Volatility — The expected share price volatilities are estimated based on the historical and implied volatilities of comparable publicly traded companies as the Company does not have sufficient history of trading its common shares.
Risk-Free Interest Rate — The risk-free interest rates are based on U.S. Treasury yields in effect at the grant date for notes over the expected option term.
Expected Life — The expected term of options granted to employees represents the period that the share-based awards are expected to be outstanding. The Company utilizes historical data when establishing the expected term assumptions. For options granted with an extended exercise term, refer to the below section for details.
Dividend Yield — The expected dividend yield assumption of zero is based on our current expectations about our anticipated dividend policy over the expected option term, and an estimate of expected forfeiture rates. Over the course of the Company’s history, it has not declared or paid any dividends to shareholders.
The Company estimates the fair value of the options utilizing the Black-Scholes option pricing model, which is dependent upon several variables, such as the expected option term, expected volatility of the Company’s share price over the expected term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. The Company believes this valuation methodology is appropriate for estimating the fair value of share options granted to employees and directors that are subject to ASC 718, Compensation — Stock Compensation, requirements. These amounts are estimates and, thus, may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants.
A summary of the assumptions the Company utilized to record compensation expense for share options granted during the years ended December 31, 2020 and 2019, is as follows:
Year Ended December 31, |
| ||||
| 2020 |
| 2019 |
| |
Weighted average volatility |
| | % | | % |
Expected term (in years) |
|
| |||
Risk-free interest rate |
| | % | | % |
Expected dividends |
| — |
| — |
The Company recognizes compensation on a straight-line basis over the requisite vesting period for each award.
During the year ended December 31, 2019, the Company granted
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Following are the assumptions used in the valuation of these options:
For the Year Ended |
| ||
| December 31, 2019 | ||
Volatility |
| | % |
Expected terms (in years) |
| ||
Risk-free interest rate |
| | % |
Expected dividends |
| — |
Total employee and nonemployee share-based compensation expense, including that related to the extended exercise terms for senior management and consultants for the years ended December 31, 2020 and 2019, is classified in the consolidated statements of operations as follows (in thousands):
Year Ended December 31, | ||||||
| 2020 |
| 2019 | |||
Cost of revenue | $ | | $ | | ||
Research and development |
| |
| | ||
Selling, general and administrative |
| |
| | ||
Total | $ | | $ | |
NOTE 10 — COMMITMENTS AND CONTINGENCIES
Operating Leases and Other Contractual Obligations
The Company has various non-cancelable operating leases for its office space, laboratory, and manufacturing and retail facilities. These leases expire at various times through 2030. Certain lease agreements contain renewal options, rent abatement, and escalation clauses. The Company recognizes rent expense on a straight-line basis over the lease term, commencing when the Company takes possession of the property. Certain of the Company’s office leases entitle the Company to receive a tenant allowance from the landlord. The Company records tenant allowance as a deferred rent credit, which the Company amortizes on a straight-line basis, as a reduction of rent expense, over the term of the underlying lease. In 2020 and in 2019, the Company invoked the right for additional tenant improvements of $
As of December 31, 2020, and 2019, the Company had $
In September 2017, the Company entered into an over
In September 2018, the Company amended that lease to also include an approximately
As of December 31, 2020, and 2019, the landlord provided a tenant improvement allowance for approximately $
In December 2018, the Company entered into a
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Company has the exclusive option to purchase the Premises (land together with any structures or improvements presently situated thereon or to be constructed thereon) at any time prior to expiration of the lease term for the purchase price to be computed in accordance with the terms and conditions as set forth in the lease agreement.
In June 2019, the Company entered into a new lease agreement for a retail location in Beverly Hills, California. The lease commenced on September 1, 2019 and will expire on August 31, 2029. Under the lease agreement, the Company will pay base rent of $
From January 2020 to September 2020, the Company entered into nine lease agreements for retail locations in Arizona, California, Florida, New York, and Virginia, with lease expiration dates ranging from March 2025 through December 2032. Base rent for these leases ranges from $
Future minimum payments as of December 31, 2020, are approximately as follows (in thousands):
Year Ending December 31: |
| ||
2021 | $ | | |
2022 | | ||
2023 | | ||
2024 | | ||
2025 | | ||
Thereafter | | ||
Total |
| $ | |
Rent expense incurred under operating leases was approximately $
During the year ended 2020, the Company entered into a non-cancellable purchase commitment with a large battery cell supplier to purchase battery cells over the next three years. Battery cell costs can fluctuate from time to time based on, among other things, supply and demand, costs of raw materials, and purchase volumes. The estimated purchase commitment as of December 31, 2020 is set as follows (in thousands):
Minimum | |||
Purchase | |||
|
| Commitment | |
Year Ending December 31: | |||
2021 |
| $ | |
2022 | | ||
2023 | | ||
Total |
| $ | |
Capital Lease
During the years ended December 31, 2019 and 2020, the Company acquired equipment under capital lease agreements with an initial term of
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Future minimum payments for the capital lease as of December 31, 2020, are approximately as follows (in thousands):
Year Ending December 31: |
| ||
2021 | $ | | |
2022 | | ||
2023 | | ||
2024 | | ||
Total capital lease obligations | | ||
Less amounts representing interest | ( | ||
Capital lease obligations, net of interest |
| $ | |
Legal Matters
From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. Management is not currently aware of any matters that could have a material adverse effect on the financial position, results of operations, or cash flows of the Company. However, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities.
Indemnification
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to customers, vendors, investors, directors, and officers with respect to certain matters, including, but not limited to, losses arising out of its breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never paid a material claim, nor has it been sued in connection with these indemnification arrangements. The Company has indemnification obligations with respect to surety bond primarily used as security against facility leases and utilities infrastructure in the amount of $
NOTE 11 — INCOME TAXES
Income taxes have been provided in accordance with ASC 740.
|
| 2020 |
|
| 2019 | |
Loss subject to domestic income taxes |
| $ | ( |
| $ | ( |
Loss subject to foreign income taxes | | ( | ||||
| $ | ( |
| $ | ( |
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The Company recorded an income tax provision/(benefit) of $(
| 2020 |
| 2019 | |||
Current | ||||||
Federal |
| $ | — |
| $ | — |
State | | | ||||
Foreign | ( | | ||||
Total current tax expense (benefit) |
| $ | ( |
| $ | |
Deferred | ||||||
Federal |
| $ | — |
| $ | — |
State | — | — | ||||
Foreign | — | — | ||||
Total deferred tax expense (benefit) |
| $ | — |
| $ | — |
Total income tax expense (benefit) |
| $ | ( |
| $ | |
The amount of income tax expense (benefit) differs from the expected benefit due to the state income taxes, foreign income taxes, and the impact of the valuation allowance.
On December 22, 2017, the US government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the US tax code, including, but not limited to, (1) reducing the US federal corporate tax rate from
The Tax Act subjects a US shareholder to current tax on global intangible low-taxed income (GILTI) earned by certain foreign subsidiaries. The FASB Staff Q&A Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company has elected to recognize the tax on GILTI as a period expense in the period the tax is incurred. The Company’s foreign income is in a net loss position and is immaterial to the provision for income taxes, thus no GILTI has been accrued for either 2019 or 2020.
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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
| 2020 |
| 2019 | |||
Deferred tax assets: | ||||||
Net operating loss carryforwards |
| $ | |
| $ | |
Tax credit carryforwards | | | ||||
Share-based compensation expense | | | ||||
Depreciation | | | ||||
Accrued compensation and vacation | | | ||||
Interest | | | ||||
Tenant improvement allowance | | | ||||
Accruals and reserves | | | ||||
Other | | — | ||||
Total deferred tax assets | | | ||||
Valuation allowance | ( | ( | ||||
Net deferred tax assets | — | — | ||||
Net deferred tax assets (liabilities) |
| $ | — |
| $ | — |
As of December 31, 2020, and 2019, the Company has
A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized in a particular tax jurisdiction. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a deferred tax asset. Judgment must be used in considering the relative impact of negative and positive evidence.
Based on the weight of the available evidence, which includes the Company’s historical operating losses, lack of taxable income, and the accumulated deficit, as of December 31, 2020 and 2019, the Company provided a full valuation allowance against its US and state deferred tax assets. The valuation allowance for deferred tax assets was $
The Company had federal and state net operating loss carryforwards of approximately $
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The reconciliation of taxes at the federal statutory rate to our provision for income taxes for the years ended December 31, 2020 and 2019 was as follows:
Year Ended December 31, |
| ||||
| 2020 |
| 2019 | ||
Statutory federal income tax rate |
| | % | | % |
Share-based compensation |
| ( |
| ( | |
Mark-to-market adjustment |
| ( |
| ( | |
Nondeductible expenses |
| ( |
| ( | |
Tax credits |
| |
| | |
Change in valuation allowance |
| ( |
| ( | |
Provision for income taxes |
| — | % | — | % |
The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses and certain credits in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses and certain credits may be limited as prescribed under Internal Revenue Code Section 382, which provide for limitations on net operating losses carryforwards and certain built in losses following ownership changes, and Section 383, which provides for special limitations on certain excess credits, etc. (collectively, “IRC Section 382”). Utilization of the carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 and similar state provisions, resulting in a reduction in the gross deferral tax assets before considering the valuation allowance.
The Company files US, state, and foreign income tax returns with varying statutes of limitations. The federal, state, and foreign returns statute of limitations remains open for tax years from 2008 and thereafter. There are currently no income tax audits underway by US, state, or foreign tax authorities.
Uncertain Tax Positions
As of December 31, 2020, and 2019, the total amount of unrecognized tax benefits was approximately $
The following table summarizes the activity related to unrecognized tax benefits for the years ended December 31, 2020 and 2019 (in thousands):
December 31, | ||||||
| 2020 |
| 2019 | |||
Unrecognized benefit – beginning of period |
| $ | |
| $ | |
Gross increases – prior-period tax positions | | | ||||
Gross decreases – prior-period tax positions | ( | — | ||||
Gross increases – current-period tax positions | | | ||||
Gross decrease – current-period tax positions | — | ( | ||||
Statute lapse | ( | — | ||||
Unrecognized benefit – end of period |
| $ | |
| $ | |
Related to the unrecognized tax benefits above, the Company recognized interest expense and penalty expense as part of income tax expenses in the consolidated statements of operations according to the following table (in thousands):
Year Ended December 31, | ||||||
| 2020 |
| 2019 | |||
Interest expense |
| $ | ( |
| $ | |
Penalty expense | ( | |
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As of December 31, 2020, the Company has recognized a liability for interest expense and penalties of $
NOTE 12 — NET LOSS PER SHARE
Basic and diluted net loss per share are calculated as follows (in thousands, except per share amounts):
Year Ended December 31, | ||||||
| 2019 |
| 2020 | |||
Basic and diluted net loss per share | ||||||
Numerator: | ||||||
Net loss |
| $ | ( |
| $ | ( |
Deemed contribution related to repurchase of Series B convertible preferred shares | | |||||
Deemed contribution related to repurchase of Series C convertible preferred shares | | | ||||
Net loss attributable to common shareholders |
| $ | ( |
| $ | ( |
Denominator: | ||||||
Weighted-average shares outstanding – basic | | | ||||
Effect of dilutive potential common shares from share options, share awards and employee share purchase plan | ||||||
Weighted-average shares outstanding – diluted | | | ||||
Net loss per share: | ||||||
Basic |
| $ | ( |
| $ | ( |
Diluted |
| $ | ( |
| $ | ( |
The following table sets forth the potential common shares as of the end of each period presented that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive:
As of December 31, | ||||
| 2020 |
| 2019 | |
Convertible preferred shares outstanding |
| |
| |
Share options outstanding |
| |
| |
Convertible preferred share warrant |
| |
| |
Total potential convertible securities to common shares |
| |
| |
NOTE 13 — EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan (the “401(k) Plan”) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating employees may elect to contribute up to
NOTE 14 — SEGMENT REPORTING
The Company has determined that it operates in
NOTE 15 — SUBSEQUENT EVENTS
In connection with the preparation of the financial statements for the year ended December 31, 2020, the Company has evaluated subsequent events, for both conditions existing and not existing at December 31, 2020, and concluded there were no subsequent events to recognize in the financial statements.
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In January 2021, the Company’s board of directors approved the 2021 Share Incentive Plan (the “2021 Plan”). The 2021 Plan will replace the 2009 Plan and 2014 Plan, and
In January through July 2021, the Company’s board of directors granted a total of
In February 2021, the Company and Ayar entered into Amendment No. 1 to the original Series E Preferred Share Purchase Agreement (“Amendment No. 1”) entered into September 2020 (refer to Note 7). Under the Amendment No. 1, Ayar and the Company agreed to enter into the third closing of additional
Amendment No. 1 also allowed the Company to provide an opportunity to all current convertible preferred shareholders other than Ayar (“Eligible Holders”) to purchase up to
Along with the execution of the Amendment No. 1, the Company also increased the authorized number of common shares and convertible preferred shares to
On February 22, 2021, Churchill announced that it had entered into a definitive agreement for a merger that would result in the Company becoming a wholly owned subsidiary of Churchill.
In February through July 2021, the Company’s board of directors granted a total of
In March 2021, the Company’s board of directors granted a total of
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during the
In April 2021, the Company issued
In May 2021, the Company completed its evaluation related to the exercise of the convertible preferred share warrant liability that was settled in its entirety in February 2021. Upon final settlement, the Company converted the warrants into $
From March 2021 through May 2021, the Company entered into new lease agreements for retail locations in various locations. The leases commenced in April 2021 and will expire on or before March 2032. Under the lease agreements, the Company will pay base rent from $
On July 23, 2021, the Company consummated the merger with Churchill (the “Merger”) and Churchill was immediately renamed to Lucid Group, Inc. (“Lucid Group”) (the “Closing”). Immediately prior to the Closing, all of the Company’s
The Merger has been accounted for as a reverse recapitalization. Accordingly, upon the Closing, the Company raised total net cash proceeds of $
In connection with the Closing,
In July 2021, Lucid Group’s board of directors adopted and the stockholders approved the 2021 Incentive Plan (the “2021 Incentive Plan”), which includes an employee stock purchase plan as an addendum (the “ESPP Addendum”). The
F-38
2021 Incentive Plan replaced the Company’s 2021 Plan. The 2021 Incentive Plan provides for the grant of restricted shares, non-qualified stock options, incentive stock options, unrestricted shares, stock appreciation rights, restricted stock units and cash awards. Shares of common stock underlying awards that are forfeited or cancelled generally are returned to the pool of shares available for issuance under the 2021 Incentive Plan.
The ESPP Addendum authorizes the issuance of shares of common stock pursuant to purchase rights granted to employees. The purchase price for each share purchased during an offering period will be the lesser of
The number of shares of common stock that were reserved for issuance upon formation of the 2021 Incentive Plan, including the ESPP Addendum, was
On September 8, 2021, Lucid Group announced that it would redeem (the “Redemption”) all of its public warrants that remained outstanding on October 8, 2021 (the “Initial Redemption Date”), for a redemption price of $
On September 29, 2021, the first earnback triggering event related to achieving a volume-weighted average trading sale price greater than or equal to $
On October 13, 2021, the public warrants were delisted from The Nasdaq Stock Market (“Nasdaq”).
On October 14, 2021, Lucid Group extended the redemption date of its public warrants to October 29, 2021. Subsequent to September 30, 2021 and prior to the conclusion of the redemption notice period on October 29, 2021, an aggregate of
In October 2021, Lucid Group repurchased an aggregate of
The Individual Sellers include Peter Rawlinson, a director of the Company and the Company’s Chief Executive Officer and Chief Technology Officer, from whom the Company repurchased
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In October 2021, the Company entered into a purchase commitment with a vendor to purchase battery cells over the next
In late October 2021, reservation holders of Lucid Air Dream Edition models began receiving their vehicles.
In early November 2021, enrollment began in the Lucid Group ESPP 2021 Employee Stock Purchase Plan.
In November 2021, our compensation committee approved the payment of annual cash bonuses for 2021 to certain executive officers in view of the successful achievement of the start of production and start of customer deliveries of the Lucid Air, as well as their respective contributions to the Company’s overall success in 2021, as follows: Mr. Rawlinson will receive $
On December 3, 2021, Lucid Group received a subpoena from the Securities and Exchange Commission (the “SEC”) requesting the production of certain documents related to an investigation by the SEC. Although there is no assurance as to the scope or outcome of this matter, the investigation appears to concern the Merger between Lucid Group and the Company and certain projections and statements.
On December 5, 2021, the first tranche of the CEO Time-Based RSUs, or
******
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