10-Q 1 qs-20220331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39345

 

 

QUANTUMSCAPE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

85-0796578

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

1730 Technology Drive

San Jose, CA

95110

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (408) 452-2000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol (s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

 

QS

 

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

The number of shares of the registrant’s Class A Common Stock, par value $0.0001 per share outstanding was 338,722,209, and the number of shares of the registrant’s Class B Common Stock, par value $0.0001 per share outstanding was 91,723,206, as of April 27, 2022.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

3

 

Condensed Consolidated Statements of Redeemable Non-Controlling Interest and Stockholders’ Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

51

Item 5.

Other Information

51

Item 6.

Exhibits

52

Signatures

54

 

 

 

 

i


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Unless the context otherwise requires, all references to “QuantumScape,” “we,” “us,” “our,” or the “Company” in this Quarterly Report on Form 10-Q (this “Report”) refer to the current QuantumScape Corporation and its subsidiaries.

The Company makes forward-looking statements in this Report and in documents incorporated herein by reference. All statements, other than statements of present or historical fact included in or incorporated by reference in this Report, regarding the Company’s future financial performance, as well as the Company’s strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Report, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would,” the negative of such terms, and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations, assumptions, hopes, beliefs, intentions and strategies regarding future events and are based on currently available information as to the outcome and timing of future events. The Company cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of the Company and incident to its business.

These forward-looking statements are based on information available as of the date of this Report, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements in this Report and in any document incorporated herein by reference should not be relied upon as representing the Company’s views as of any subsequent date, and the Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable laws.

As a result of a number of known and unknown risks and uncertainties, the Company’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include the below and those which we discuss in greater detail in the section titled “Risk Factors” in this Report:

delays in or the inability to achieve our technology development objectives, delays in delivering battery cell samples to our customers, delays in achieving high volume production of battery cells at commercial size with acceptable quality, consistency, throughput and cost for successful commercialization of our technologies;
delays in implementing or the inability to successfully implement the manufacturing processes, related automation, and technologies necessary for development efforts, volume production and successful commercialization of our technologies;
the inability to establish supply relationships for necessary components or being required to pay higher than anticipated supply costs;
our relationship with Volkswagen, including our ability to meet Volkswagen’s time, cost, performance and volume requirements, and our ability to commercialize solid-state batteries from our joint development relationship with Volkswagen and as a potential customer;
the failure of our batteries to perform as expected;
delays in starting up the expected operations of our current and planned facilities, including the addition of a pre-pilot line (“QS-0”) facility in California, a 1GWh pilot-production line (“QS-1”), and subsequently the expansion to the full 21GWh target (“QS-1 Expansion”);
the inability to attract and retain customers during the development stage or for high volume commercial production;
the Company’s future financial and business performance, including financial projections and business metrics;
changes in the Company’s strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;
the Company’s ability to scale in a cost-effective manner;
the Company’s ability to raise capital;
developments relating to the Company’s competitors and industry;
the outcome of any known and unknown litigation and regulatory proceedings; and any changes to regulations;
the impact of worldwide economic, political, industry, and market conditions, including the continued effects of the global COVID-19 pandemic; and
the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting and the implementation of our new enterprise resource planning system.

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

QuantumScape Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(In Thousands, Except per Share Amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents ($3,382 as of March 31, 2022 and December 31, 2021, for joint venture)

 

$

283,013

 

 

$

320,700

 

Marketable securities

 

 

1,065,440

 

 

 

1,126,975

 

Prepaid expenses and other current assets

 

 

13,789

 

 

 

15,757

 

Total current assets

 

 

1,362,242

 

 

 

1,463,432

 

Property and equipment, net

 

 

200,744

 

 

 

166,183

 

Right-of-use assets - finance lease

 

 

30,168

 

 

 

30,886

 

Right-of-use assets - operating lease

 

 

57,729

 

 

 

36,913

 

Other assets

 

 

18,121

 

 

 

18,234

 

Total assets

 

$

1,669,004

 

 

$

1,715,648

 

Liabilities, redeemable non-controlling interest and stockholders’ equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

10,123

 

 

$

14,182

 

Accrued liabilities

 

 

8,823

 

 

 

6,078

 

Accrued compensation and benefits

 

 

7,830

 

 

 

9,119

 

Operating lease liability, short-term

 

 

1,253

 

 

 

1,209

 

Finance lease liability, short-term

 

 

20

 

 

 

19

 

Total current liabilities

 

 

28,049

 

 

 

30,607

 

Operating lease liability, long-term

 

 

58,822

 

 

 

36,760

 

Finance lease liability, long-term

 

 

39,978

 

 

 

39,378

 

Other liabilities

 

 

5,768

 

 

 

315

 

Total liabilities

 

 

132,617

 

 

 

107,060

 

Commitments and contingencies (see Note 7)

 

 

 

 

 

 

Redeemable non-controlling interest

 

 

1,692

 

 

 

1,693

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock- $0.0001 par value; 100,000 shares authorized; none issued and outstanding as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock - $0.0001 par value; 1,250,000 shares authorized (1,000,000 Class A and 250,000 Class B); 338,661 Class A and 91,723 Class B shares issued and outstanding as of March 31, 2022, 332,869 Class A and 95,450 Class B shares issued and outstanding as of December 31, 2021

 

 

43

 

 

 

43

 

Additional paid-in-capital

 

 

3,664,433

 

 

 

3,634,665

 

Accumulated other comprehensive loss

 

 

(15,824

)

 

 

(4,208

)

Accumulated deficit

 

 

(2,113,957

)

 

 

(2,023,605

)

Total stockholders’ equity

 

 

1,534,695

 

 

 

1,606,895

 

Total liabilities, redeemable non-controlling interest and stockholders’ equity

 

$

1,669,004

 

 

$

1,715,648

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


 

QuantumScape Corporation

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(In Thousands, Except per Share Amounts)

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

Research and development

$

61,345

 

 

$

29,465

 

General and administrative

 

29,312

 

 

 

15,210

 

Total operating expenses

 

90,657

 

 

 

44,675

 

Loss from operations

 

(90,657

)

 

 

(44,675

)

Other (loss) income:

 

 

 

 

 

Interest expense

 

(600

)

 

 

 

Interest income

 

816

 

 

 

247

 

Change in fair value of assumed common stock warrant liabilities

 

 

 

 

(30,764

)

Other income

 

88

 

 

 

103

 

Total other income (loss)

 

304

 

 

 

(30,414

)

Net loss

 

(90,353

)

 

 

(75,089

)

Less: Net loss attributable to non-controlling interest, net of tax of $0

 

(1

)

 

 

(10

)

Net loss attributable to common stockholders

$

(90,352

)

 

$

(75,079

)

Net loss

$

(90,353

)

 

$

(75,089

)

Other comprehensive income (loss):

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

(11,616

)

 

 

174

 

Total comprehensive loss

 

(101,969

)

 

 

(74,915

)

Less: Comprehensive loss attributable to non-controlling interest

 

(1

)

 

 

(10

)

Comprehensive loss attributable to common stockholders

$

(101,968

)

 

$

(74,905

)

 

 

 

 

 

 

Basic and Diluted net loss per share

$

(0.21

)

 

$

(0.20

)

Basic and Diluted weighted-average common shares outstanding

 

429,335

 

 

 

368,784

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

QuantumScape Corporation

Condensed Consolidated Statements of Redeemable Non-Controlling Interest and Stockholders’ Equity (Unaudited)

(In Thousands, Except per Share Amounts)

 

 

Redeemable
 Non-
Controlling

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

Three Months Ended March 31, 2022

Interest

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance as of December 31, 2021

$

1,693

 

 

 

 

428,319

 

 

$

43

 

 

$

3,634,665

 

 

$

(2,023,605

)

 

$

(4,208

)

 

$

1,606,895

 

Exercise of stock option

 

 

 

 

 

870

 

 

 

 

 

 

1,287

 

 

 

 

 

 

 

 

 

1,287

 

Shares issued upon vesting of restricted stock units

 

 

 

 

 

1,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

28,481

 

 

 

 

 

 

 

 

 

28,481

 

Net loss

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

(90,352

)

 

 

 

 

 

(90,352

)

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,616

)

 

 

(11,616

)

Balance as of March 31, 2022

$

1,692

 

 

 

 

430,384

 

 

$

43

 

 

$

3,664,433

 

 

$

(2,113,957

)

 

$

(15,824

)

 

$

1,534,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable
 Non-
Controlling

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

Three Months Ended March 31, 2021

Interest

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance as of December 31, 2020

$

1,704

 

 

 

 

363,994

 

 

$

36

 

 

$

2,329,406

 

 

$

(1,977,639

)

 

$

(31

)

 

$

351,772

 

Exercise of stock option

 

 

 

 

 

2,884

 

 

 

1

 

 

 

879

 

 

 

 

 

 

 

 

 

880

 

Shares issued upon vesting of restricted stock units

 

 

 

 

 

1,444

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of warrants

 

 

 

 

 

9,490

 

 

 

1

 

 

 

541,556

 

 

 

 

 

 

 

 

 

541,557

 

Issuance of common stock, net of issuance costs of $15.5 million

 

 

 

 

 

11,960

 

 

 

1

 

 

 

462,925

 

 

 

 

 

 

 

 

 

462,926

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

11,676

 

 

 

 

 

 

 

 

 

11,676

 

Net loss

 

(10

)

 

 

 

 

 

 

 

 

 

 

 

 

(75,079

)

 

 

 

 

 

(75,079

)

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

174

 

 

 

174

 

Balance as of March 31, 2021

$

1,694

 

 

 

 

389,772

 

 

$

39

 

 

$

3,346,442

 

 

$

(2,052,718

)

 

$

143

 

 

$

1,293,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

QuantumScape Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In Thousands)

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

 

$

(90,353

)

 

$

(75,089

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

4,724

 

 

 

2,050

 

Amortization of right-of-use assets and non-cash lease expense

 

 

 

1,792

 

 

 

371

 

Amortization of premiums and accretion of discounts on marketable securities

 

 

 

2,185

 

 

 

2,410

 

Stock-based compensation expense

 

 

 

28,481

 

 

 

11,676

 

Change in fair value of assumed common stock warrant liabilities

 

 

 

 

 

 

30,764

 

Other

 

 

 

560

 

 

 

(104

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

 

2,082

 

 

 

2,479

 

Accrued compensation

 

 

 

(1,289

)

 

 

2,964

 

Accounts payable and accrued liabilities

 

 

 

3,957

 

 

 

1,288

 

Operating lease liability and other

 

 

 

460

 

 

 

(345

)

Net cash used in operating activities

 

 

 

(47,401

)

 

 

(21,536

)

Investing activities

 

 

 

 

 

 

 

Purchases of property and equipment, net

 

 

 

(39,294

)

 

 

(13,161

)

Proceeds from maturities of marketable securities

 

 

 

218,500

 

 

 

111,000

 

Proceeds from sales of marketable securities

 

 

 

13,113

 

 

 

 

Purchases of marketable securities

 

 

 

(183,892

)

 

 

 

Net cash provided by investing activities

 

 

 

8,427

 

 

 

97,839

 

Financing activities

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

 

1,287

 

 

 

880

 

Proceeds from exercise of warrants

 

 

 

 

 

 

109,133

 

Payment of Business Combination share issuance costs

 

 

 

 

 

 

(1,016

)

Proceeds from issuance of common stock, net of issuance costs paid

 

 

 

 

 

 

463,825

 

Net cash provided by financing activities

 

 

 

1,287

 

 

 

572,822

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

 

(37,687

)

 

 

649,125

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

 

338,223

 

 

 

115,409

 

Cash, cash equivalents and restricted cash at end of period

 

 

$

300,536

 

 

$

764,534

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Purchases of property and equipment, not yet paid

 

 

$

7,754

 

 

$

8,944

 

Common stock issuance costs, accrued but not paid

 

 

$

 

 

$

899

 

Fair value of assumed common stock warrants exercised

 

 

$

 

 

$

432,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following presents the Company’s cash, cash equivalents and restricted cash by category in the Company’s Condensed Consolidated Balance Sheets (Unaudited):

 

 

As of March 31,

 

 

 

2022

 

 

2021

 

Cash and cash equivalents

 

$

283,013

 

 

$

762,341

 

Other assets

 

 

17,523

 

 

 

2,193

 

Total cash, cash equivalents and restricted cash

 

$

300,536

 

 

$

764,534

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

 

QuantumScape Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2022

Note 1. Organization

The original QuantumScape Corporation, now named QuantumScape Battery, Inc. (“Legacy QuantumScape”) was founded in 2010 with the mission to revolutionize energy storage to enable a sustainable future.

On November 25, 2020 (the “Closing Date”), Kensington Capital Acquisition Corp. (“Kensington”), a special purpose acquisition company, consummated the Business Combination Agreement (the “Business Combination Agreement”) dated September 2, 2020, by and among Kensington, Kensington Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of Kensington (“Merger Sub”), and Legacy QuantumScape.

Pursuant to the terms of the Business Combination Agreement, a business combination between Kensington and Legacy QuantumScape was effected through the merger of Merger Sub with and into Legacy QuantumScape, with Legacy QuantumScape surviving as the surviving company and as a wholly-owned subsidiary of Kensington (the “Merger” and, collectively with the other transactions described in the Business Combination Agreement, the “Business Combination”). On the Closing Date, Kensington changed its name to QuantumScape Corporation (the “Company”).

The Company is focused on the development and commercialization of its solid-state lithium-metal batteries. Planned principal operations have not yet commenced. As of March 31, 2022, the Company had not derived revenue from its principal business activities.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. 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”). Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes.

On November 25, 2020, the Company consummated the Business Combination Agreement dated September 2, 2020, with Legacy QuantumScape surviving the merger as a wholly owned subsidiary of the Company. At the effective time of the Merger, and subject to the terms and conditions of the Business Combination Agreement, each share of Legacy QuantumScape Class A common stock, par value $0.0001 per share, and each share of the Legacy QuantumScape Preferred Stock that was convertible into a share of Legacy QuantumScape Class A Common Stock, was canceled and converted into the right to receive the number of shares of the Company’s Class A Common Stock, $0.0001 par value per share (the “Class A Common Stock”), equal to 4.02175014920 (the “Exchange Ratio”), and each share of Legacy QuantumScape Class B Common Stock, par value $0.0001 per share, and each share of the Legacy QuantumScape Preferred Stock that was convertible into a share of Legacy QuantumScape Class B Common Stock was canceled and converted into the right to receive the number of shares of the Company’s Class B Common Stock, $0.0001 par value per share equal to the Exchange Ratio.

Pursuant to the Business Combination Agreement, the merger between Merger Sub and Legacy QuantumScape was accounted for as a reverse recapitalization in accordance with U.S. GAAP (the “Reverse Recapitalization”). Under this method of accounting, Kensington was treated as the “acquired” company and Legacy QuantumScape was treated as the acquirer for financial reporting purposes.

Legacy QuantumScape was determined to be the accounting acquirer based on the following predominant factors:

Legacy QuantumScape’s shareholders have the largest portion of voting rights in the Company;
the Company’s Board of Directors (the “Board”) and management are primarily composed of individuals associated with Legacy QuantumScape; and
Legacy QuantumScape was the larger entity based on historical operating activity and Legacy QuantumScape has the larger employee base at the time of the Business Combination.

Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Legacy QuantumScape issuing stock for the net assets of Kensington, accompanied by a recapitalization. The net assets of Kensington were stated at historical cost, with no goodwill or other intangible assets recorded.

 

6


 

 

Principles of Consolidation

The Company’s policy is to consolidate all entities that it controls by ownership of a majority of the outstanding voting stock. In addition, the Company consolidates entities that meet the definition of a variable interest entity (“VIE”) for which the Company is the related party most closely associated with and is the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third party’s holding of an equity interest is presented as redeemable non-controlling interests in the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Redeemable Non-Controlling Interest and Stockholders’ Equity. The portion of net earnings (loss) attributable to the redeemable non-controlling interests is presented as net income (loss) attributable to non-controlling interests in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss.

The Company was a single-legal entity prior to becoming a partner with Volkswagen in QSV Operations LLC (“QSV”). As noted in the section titled “Joint Venture and Redeemable Non-Controlling Interest” below, the Company determined QSV was a VIE for which it was required to consolidate the operations upon its formation in 2018. The Company continued to consolidate the operations of QSV in the three months ended March 31, 2022 as the determination of the VIE has not changed.

All significant intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements as well as reported amounts of expenses during the reporting periods. Estimates made by the Company include, but are not limited to, those related to the valuation of common stock prior to the Business Combination, valuation of awards under the Extraordinary Performance Award Program (the “EPA Program”), and valuation of Assumed Common Stock Warrants among others. The Company bases these estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying interim Condensed Consolidated Balance Sheet as of March 31, 2022, the interim Condensed Consolidated Statements of Operations and Comprehensive Loss, the interim Condensed Consolidated Statements of Redeemable Non-Controlling Interest and Stockholders’ Equity, and the interim Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in management’s opinion, include all adjustments consisting of only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of March 31, 2022 and its results of operations and cash flows for the three months ended March 31, 2022 and 2021. The financial data and the other financial information disclosed in the notes to these condensed consolidated financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full fiscal year or any other period.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s audited annual consolidated financial statements for the year ended December 31, 2021 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 28, 2022 (the “Annual Report”).

Joint Venture and Redeemable Non-Controlling Interest

On June 18, 2018, QSV was incorporated as a limited liability company. Volkswagen Group of America, Inc. (“VWGoA”), Volkswagen Group of America Investments, LLC (“VGA”) and QuantumScape executed a Joint Venture Agreement (“JVA”), effective September 2018, with the goal of jointly establishing a manufacturing facility to produce the pilot line of the Company’s product through QSV. In connection with this agreement, the parties also have entered into two operating agreements: (i) the Limited Liability Company Agreement of QSV to govern the respective rights and obligations as members of QSV and (ii) the Common IP License Agreement for the Company to license certain intellectual property rights pertaining to automotive battery cells as defined in the JVA to VWGoA, VGA and QSV.

7


 

 

Volkswagen is a related party stockholder (approximately 19.8% voting interest holder of the Company as of March 31, 2022 and December 31, 2021). Upon the effectiveness of the JVA, each party contributed $1.7 million in cash to capitalize QSV in exchange for 50% equity interests.

The joint venture is considered a VIE with a related party and therefore the related party whose business is more closely related to the planned operations of the joint venture is required to consolidate the operations.

The Company determined its operations were most closely aligned with the operations of the joint venture and therefore has consolidated the results of QSV’s operations in its Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Comprehensive Loss, and Condensed Consolidated Statements of Redeemable Non-Controlling Interest and Stockholders’ Equity. QSV had minimal operations through March 31, 2022.

The Company classifies non-controlling interests with redemption features that are not solely within the control of the Company within temporary equity on the Company’s Condensed Consolidated Balance Sheet in accordance with ASC 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities (“ASC 480-10-S99-3A”). The non-controlling interest was recorded outside of stockholders’ equity because the non-controlling interest provides the holder with put rights in the event of, amongst others, (i) the failure by the Company to meet specified development milestones within certain timeframes, (ii) the parties to the JVA cannot agree to certain commercial terms within certain timeframes, or (iii) a change of control of the Company, which such events are considered not solely within the Company’s control. The Company adjusts redeemable non-controlling interests for the portion of net earnings attributable to the redeemable non-controlling interests.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and marketable securities. As of March 31, 2022 and December 31, 2021, approximately $219.1 million and $227.8 million of our total cash and cash equivalents and marketable securities are held in U.S. money market funds, and $694.7 million and $722.3 million are invested in U.S. government and agency securities, respectively. The Company seeks to mitigate its credit risk with respect to cash and cash equivalents and marketable securities by making deposits with large, reputable financial institutions and investing in high credit rated shorter-term instruments.

Cash and Cash Equivalents and Restricted Cash

Management considers all highly liquid investments with an insignificant interest rate risk and original maturities of three months or less to be cash equivalents.

Restricted cash is maintained under an agreement that legally restricts the use of such funds and is reported within other assets as the date of availability or disbursement for all restricted cash is more than one year from March 31, 2022.

Restricted cash is comprised of $17.5 million as of both March 31, 2022 and December 31, 2021, all of which is pledged as a form of security for the Company’s lease agreements for its headquarters and pre-pilot manufacturing facilities.

Marketable Securities

The Company’s investment policy is consistent with the definition of available-for-sale securities. The Company does not buy and hold securities principally for the purpose of selling them in the near future. The Company’s policy is focused on the preservation of capital, liquidity, and return. From time to time, the Company may sell certain securities, but the objectives are generally not to generate profits on short-term differences in price.

These securities are carried at estimated fair value with unrealized holding gains and losses included in other comprehensive loss in stockholders’ equity until realized. Gains and losses on marketable security transactions are reported on the specific-identification method. Dividend and interest income are recognized when earned.

8


 

 

Fair Value Measurement

The Company applies fair value accounting for all financial assets and liabilities measured on a recurring and nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The accounting guidance established a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, used to determine the fair value of its financial instruments. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Level 1 – Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

Property and Equipment

Property and equipment are recorded at historical cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the related asset. Improvements that increase functionality of the fixed asset are capitalized and depreciated over the asset’s remaining useful life. Construction-in-progress are not depreciated until the asset is placed in service. Fully depreciated assets are retained in property and equipment, net, until removed from service.

The estimated useful lives of assets are generally as follows:

 

Computers and hardware

 

3 years

Furniture and fixtures

 

7 years

Lab equipment

 

5 years

Leasehold improvements

 

Shorter of the lease term (including estimated renewals) or the estimated useful lives of the improvements

Impairment of Long-Lived Assets

The Company evaluates the carrying value of long-lived assets when indicators of impairment exist. The carrying value of a long-lived asset is considered impaired when the estimated separately identifiable, undiscounted cash flows from such an asset are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the estimated cash flows discounted at a rate commensurate with the risk involved. There were no material impairment charges in any of the periods presented.

Leases

The Company classifies arrangements meeting the definition of a lease as operating or financing leases, and leases are recorded on the Consolidated Balance Sheet as both a right-of-use (“ROU”) asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate which is the rate incurred to borrow on a collateralized basis over a similar term. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is reduced over the lease term. For operating leases, interest on the lease liability and the non-cash lease expense result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the ROU asset results in front-loaded expense over the lease term. Variable lease expenses, including common maintenance fees, insurance and property tax, are recorded when incurred.

In calculating the right-of-use asset and lease liability, the Company elects to combine lease and non-lease components for all classes of assets. The Company excludes short-term leases having initial terms of 12 months or less as an accounting policy election, and instead recognizes rent expense on a straight-line basis over the lease term.

9


 

 

Assumed Common Stock Warrants Liability

The Company assumed 11,499,989 Public Warrants and 6,650,000 Private Placement Warrants (the "Assumed Common Stock Warrants") upon the Business Combination, all of which were issued in connection with Kensington’s initial public offering (other than 75,000 Private Placement Warrants that were issued in connection with the closing of the Business Combination, which are referred to as the Working Capital Warrants) and entitled each holder to purchase one share of Class A Common Stock at an exercise price of $11.50 per share.

The Company evaluated the Assumed Common Stock Warrants under ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity (“ASC 815-40”) and concluded they did not meet the criteria to be classified in stockholders’ equity. Specifically, the exercise of the Assumed Common Stock Warrants could have been settled in cash upon the occurrence of a tender offer or exchange that involves 50% or more of our Class A stockholders. Because not all of the voting stockholders need to participate in such tender offer or exchange to trigger the potential cash settlement and the Company does not control the occurrence of such an event, the Company concluded that the Assumed Common Stock Warrants did not meet the conditions to be classified in equity. Since the Assumed Common Stock Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as liabilities on the Condensed Consolidated Balance Sheets at fair value, with subsequent changes in their respective fair values recognized in the change in fair value of Assumed Common Stock Warrant liabilities within the Consolidated Statement of Operations and Comprehensive Income (Loss) at each reporting date prior to exercise or redemption. The Public Warrants were publicly traded and thus had an observable market price to estimate fair value, and the Private Placement Warrants were effectively valued similar to the Public Warrants when the Public Warrants were publicly traded, and consistent with the intrinsic value of the Company’s common stock subsequent to the redemption of the Public Warrants.

As described in Note 8 below, all Public Warrants and Private Placement Warrants were exercised or redeemed during the year ended December 31, 2021.

Segments

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 one operating segment and one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

Research and Development Cost

Costs related to research and development are expensed as incurred.

General and Administrative Expenses

General and administrative expenses represent costs incurred by the Company in managing the business, including salary, benefits, incentive compensation, marketing, insurance, professional fees and other operating costs associated with the Company’s non-research and development activities.

Stock-Based Compensation

The Company measures and recognizes compensation expense for all stock-based awards made to employees, directors, and non-employees, including stock options, restricted share units and restricted shares, based on estimated fair values recognized over the requisite service period.

The fair values of options granted with only service conditions are estimated on the grant date using the Black-Scholes option pricing model. This valuation model for stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation, including the expected term (weighted-average period of time that the options granted are expected to be outstanding), the volatility of the Company’s common stock, and an assumed risk-free interest rate. The Company accounts for forfeitures when they occur.

The fair values of options granted with performance (e.g. business milestone) and market conditions (e.g. stock price target) are estimated at the grant date using a Monte Carlo simulation model. The model determined the grant date fair value of each vesting tranche and the future date when the market condition for such tranche is expected to be achieved. The Monte Carlo valuation requires the Company to make assumptions and judgements about the variables used in the calculation including the expected term, volatility of the Company's common stock, an assumed risk-free interest rate, and cost of equity.

10


 

 

For performance-based awards with a vesting schedule based entirely on the attainment of both performance and market conditions, each quarter the Company assesses whether it is probable that it will achieve each performance condition that has not previously been achieved or deemed probable of achievement and if so, the future time when the Company expects to achieve that business milestone, or its “expected business milestone achievement time.” When the Company first determines that a business milestone has become probable of being achieved, the Company allocates the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected vesting date.” The “expected vesting date” at any given time is generally the later of (i) the expected time when the performance condition will be achieved (if the related performance condition has not yet been achieved) and (ii) the expected time when the market condition will be achieved (if the related market condition has not yet been achieved). The Company immediately recognizes a cumulative catch-up expense for all accumulated expense for the quarters from the grant date through the quarter in which the performance condition was first deemed probable of being achieved. Each quarter thereafter, the Company recognizes the prorated portion of the then-remaining expense for the tranche based on the number of quarters between such quarter and the then-applicable expected vesting date, except that upon vesting of a tranche, all remaining expense for that tranche is immediately recognized. The Company accounts for forfeitures when they occur.

The Company estimates the fair value of restricted stock units based on the closing price of the Company’s Class A Common Stock on the date of grant.

The Company’s 2020 Employee Stock Purchase Plan (“ESPP”) is compensatory in accordance with ASC 718-50-25. The Company measures and recognizes compensation expense for shares to be issued under the ESPP based on estimated grant date fair value recognized on a straight-line basis over the offering period.

The ESPP provides eligible employees with the opportunity to purchase shares of the Company’s Class A Common Stock at a discount through payroll deductions. A participant may purchase a maximum of 1,000 shares of Class A Common Stock during each six-month offering period. As of March 31, 2022, 11.8 million shares of Class A Common Stock were reserved for future issuance under the ESPP. There were no shares purchased under the ESPP during the three months ended March 31, 2022.

Income Taxes

The Company accounts for income taxes under an asset and liability approach. 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 and operating loss carryforwards, measured by applying currently enacted tax laws. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized.

The Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due when such estimates are more likely than not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

The Company has no provision for income taxes for the three months ended March 31, 2022 and 2021. The Company has no current tax expense from losses and no deferred expense from the valuation allowance. The Company’s effective tax rate differs from the U.S. statutory rate primarily due to a valuation allowance against its net deferred tax assets as it is more likely than not that some or all of the deferred tax assets will not be realized.

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Note 3. Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 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 accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2021 and adoption must be as of the beginning of the Company’s annual fiscal year. The Company adopted this guidance in the three months ended March 31, 2022 with no impact on its condensed consolidated financial statements as the Company does not have any convertible instruments as of March 31, 2022.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide disclosures on material government transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The ASU is effective for financial statements issued for annual periods beginning after December 15, 2021, with early adoption permitted. The Company adopted this guidance in the three months ended March 31, 2022 with no impact on the Company's condensed consolidated financial statements and related disclosures.

Note 4. Fair Value Measurement

The Company’s financial assets subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows (amounts in thousands):

 

 

 

Fair Value Measured as of March 31, 2022