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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________
FORM 10-Q
__________________________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-39283
__________________________________________________________
Lightning eMotors, Inc.
(Exact name of registrant as specified in its charter)
__________________________________________________________
Delaware84-4605714
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
815 14th Street SW
Suite A100
Loveland, Colorado
80537
(Address of Principal Executive Offices)(Zip Code)
(800) 223-0740
(Registrant’s telephone number)
__________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading symbol(s)Name of Exchange on which registered
Common Stock, par value $0.0001 per share
ZEV
New York Stock Exchange
Redeemable Warrants, each full warrant exercisable for one share of Common stock at an exercise price of $11.50 per share
ZEV.WS
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 x No o
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated filer
x
Smaller reporting company
x
Emerging growth company
x
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 x
As of November 1, 2022, there were 76,060,822 shares of the registrant’s common stock outstanding.


TABLE OF CONTENTS
Page
2

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

Lightning eMotors, Inc.
Consolidated Balance Sheets
(in thousands, except share data)

September 30,
2022
December 31,
2021
(Unaudited)
Assets
Current assets  
Cash and cash equivalents$95,795$168,538
Accounts receivable, net of allowance of $1,800 and $3,349 as of September 30, 2022 and December 31, 2021, respectively
10,3249,172
Inventories36,77214,621
Prepaid expenses and other current assets10,4187,067
Total current assets153,309199,398
Property and equipment, net10,0424,891
Operating lease right-of-use asset, net8,0468,742
Other assets1,909379
Total assets$173,306$213,410
Liabilities and stockholders’ equity  
Current liabilities  
Accounts payable$12,082$6,021
Accrued expenses and other current liabilities10,0315,045
Warrant liability3352,185
Current portion of operating lease obligation1,5441,166
Total current liabilities23,99214,417
Long-term debt, net of debt discount70,66763,768
Operating lease obligation, net of current portion8,1769,260
Derivative liability1,04817,418
Earnout liability14,78783,144
Other long-term liabilities929191
Total liabilities119,599188,198
Commitments and contingencies (Note 14)
  
Stockholders’ equity  
Preferred stock, par value $0.0001, 1,000,000 shares authorized and no shares issued and outstanding as of September 30, 2022 and December 31, 2021
Common stock, par value $0.0001, 250,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 76,003,308 and 75,062,642 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
88
Additional paid-in capital211,512206,768
Accumulated deficit(157,813)(181,564)
Total stockholders’ equity53,70725,212
Total liabilities and stockholders’ equity$173,306$213,410

See accompanying notes to Consolidated Financial Statements.
3

Lightning eMotors, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues$11,131$6,257$20,079$16,771
Cost of revenues14,5807,02627,19119,392
Gross loss(3,449)(769)(7,112)(2,621)
Operating expenses  
Research and development1,4288235,1802,214
Selling, general and administrative14,8979,29939,05529,245
Total operating expenses16,32510,12244,23531,459
Loss from operations(19,774)(10,891)(51,347)(34,080)
Other (income) expense, net  
Interest expense, net3,7583,98311,4689,534
(Gain) loss from change in fair value of warrant liabilities(536)(27)(1,850)28,108
(Gain) loss from change in fair value of derivative liability(3,728)5,023(16,370)9,290
(Gain) loss from change in earnout liability(18,054)31,788(68,357)44,164
Gain on extinguishment of debt (2,194) (2,194)
Other expense (income), net17 (3)11 (27)
Total other (income) expense, net(18,543)38,570(75,098)88,875
Net income (loss)$(1,231)$(49,461)$23,751 $(122,955)
Net income (loss) per share, basic$(0.02)$(0.67)$0.31 $(2.22)
Net income (loss) per share, diluted$(0.02)$(0.67)$0.23 $(2.22)
Weighted-average shares outstanding, basic75,745,38873,740,29475,429,44455,298,257
Weighted-average shares outstanding, diluted75,745,38873,740,29485,374,40455,298,257

See accompanying notes to Consolidated Financial Statements.
4

Lightning eMotors, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(Unaudited)

Redeemable
Convertible Preferred
Stock
Common StockAdditional
Paid-in
Capital
Stockholders’
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
SharesAmountSharesPar Value
Balance as of June 30, 2022 $ 75,610,103 $8 $209,191 $(156,582)$52,617 
Exercise of stock options— — 58,819 — 6 — 6 
Vesting of restricted stock units, net of taxes— — 34,895 — (6)— (6)
Stock-based compensation expense— — — — 1,470 — 1,470 
Common stock issued for commitment shares— — 299,491 — 851 — 851 
Net loss— — — — — (1,231)(1,231)
Balance as of September 30, 2022 $ 76,003,308 $8 $211,512 $(157,813)$53,707 
Balance as of December 31, 2021 $ 75,062,642 $8 $206,768 $(181,564)$25,212 
Exercise of stock options— — 363,823 — 129 — 129 
Vesting of restricted stock units, net of taxes— — 277,352 — (114)— (114)
Stock-based compensation expense— — — — 3,878 — 3,878 
Common stock issued for commitment shares— — 299,491 — 851 — 851 
Net income— — — — — 23,751 23,751 
Balance as of September 30, 2022 $ 76,003,308 $8 $211,512 $(157,813)$53,707 
Balance as of June 30, 2021 $ 73,248,111 $7 $193,804 $(154,289)$39,522 
Exercise of stock options  506,461 — 511 — 511 
Vesting of restricted stock units, net of taxes  17,168 — — — — 
Stock-based compensation expense  — — 1,349 — 1,349 
Conversion of convertible notes payable  1,055,388 — 10,089 10,089 
Net loss  — — — (49,461)(49,461)
Balance as of September 30, 2021 $ 74,827,128 $7 $205,753 $(203,750)$2,010 
5

Redeemable
Convertible Preferred
Stock
Common StockAdditional
Paid-in
Capital
Stockholders’
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
SharesAmountSharesPar Value
Balance as of December 31, 202030,120,057 $43,272 4,910,555 $ $10,828 $(80,795)$(69,967)
Retroactive application of recapitalization(30,120,057)(43,272)28,038,952 3 43,269 — 43,272 
Adjusted balance beginning of period  32,949,507 3 54,097 (80,795)(26,695)
Exercise of Common Warrants (1)
— — 69,232 646 — 646 
Issuance of Series C redeemable convertible preferred stock upon exercise of Series C warrants (1)
— — 1,756,525 — 14,068 — 14,068 
Business Combination and PIPE Financing— — 37,843,390 4 109,801 — 109,805 
Warrants issued in connection with the Convertible Note— — — — 14,522 — 14,522 
Issuance of common stock warrants— — — — 433 — 433 
Exercise of stock options (1)
— — 1,135,918 — 552 — 552 
Vesting of restricted stock units, net of taxes— — 17,168 — — — — 
Stock-based compensation expense— — — — 1,545 — 1,545 
Conversion of convertible notes payable— — 1,055,388 — 10,089 — 10,089 
Net loss— — — — — (122,955)(122,955)
Balance as of September 30, 2021 $ 74,827,128 $7 $205,753 $(203,750)$2,010 

(1)Share amounts have been retroactively restated to give effect to the recapitalization transaction.

See accompanying notes to Consolidated Financial Statements.
6

Lightning eMotors, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

Nine Months Ended September 30,
20222021
Cash flows from operating activities
Net income (loss)$23,751 $(122,955)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization1,279 605 
Provision for doubtful accounts2,231 142 
Provision for inventory obsolescence and write-downs1,155 98 
Loss (gain) on disposal of fixed asset58 (9)
Gain on extinguishment of debt (2,194)
Change in fair value of warrant liability(1,850)28,108 
Change in fair value of earnout liability(68,357)44,164 
Change in fair value of derivative liability(16,370)9,290 
Stock-based compensation3,878 1,545 
Amortization of debt discount6,899 4,598 
Non-cash impact of operating lease right-of-use asset849 1,453 
Issuance of common stock for commitment shares851  
Issuance of common stock warrants for services performed 433 
Changes in operating assets and liabilities:
Accounts receivable(4,793)(8,090)
Inventories(21,955)(5,116)
Prepaid expenses and other assets(4,126)(6,511)
Accounts payable6,052 1,293 
Accrued expenses and other liabilities3,462 5,184 
Net cash used in operating activities(66,986)(47,962)
Cash flows from investing activities
Purchase of property and equipment(5,694)(2,320)
Proceeds from disposal of property and equipment 9 
Net cash used in investing activities(5,694)(2,311)
Cash flows from financing activities
Proceeds from convertible notes payable, net of issuance costs paid 95,000 
Proceeds from Business Combination and PIPE Financing, net of issuance costs paid 142,796 
Proceeds from facility borrowings 7,000 
Repayments of facility borrowings (11,500)
Proceeds from the exercise of Series C redeemable convertible preferred warrants 3,100 
Proceeds from exercise of common warrants 157 
Payments on finance lease obligations(78)(54)
Proceeds from exercise of stock options129 552 
Tax withholding payment related to net settlement of equity awards(114) 
Net cash (used in) provided by financing activities(63)237,051 
Net (decrease) increase in cash(72,743)186,778 
Cash - Beginning of period
168,538 460 
Cash - End of period
$95,795 $187,238 
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Nine Months Ended September 30,
20222021
Supplemental cash flow information - Cash paid for interest
$3,536 $2,559 
Significant noncash transactions
Earnout liability at inception$— $78,960 
Warrant liability at inception— 1,253 
Derivative liability at inception— 17,063 
Conversion of short-term convertible notes for common stock— 9,679 
Conversion of convertible notes for common stock— 10,089 
Conversion of warrant liabilities for common stock— 37,580 
Property and equipment included in accounts payable and accruals879  
Finance lease right-of-use asset in exchange for a lease liability786  
Inventory repossessed for accounts receivable1,410  

See accompanying notes to Consolidated Financial Statements.
8

Lightning eMotors, Inc.
Notes to Consolidated Financial Statements
(in thousands, except share data)
(Unaudited)

Note 1 – Description of Business and Basis of Presentation

Lightning eMotors, Inc. (the “Company”, “Lightning”) is an innovative automotive manufacturing and research company based in Loveland, Colorado. The Company operates in the zero-emission vehicle (“ZEV”) market and manufactures zero-emission Class 3 to 7 Battery Electric Vehicles (“BEV”) and Fuel Cell Electric Vehicles (“FCEV”) for commercial medium duty trucks, buses, vans and motorcoach fleets. The Company also manufactures and sells charging and energy systems to enable accelerated adoption of its commercial vehicles. The Company operates predominately in the United States.

On May 6, 2021 (the “Closing Date”), GigCapital3, Inc. (“Gig”), consummated the previously announced merger pursuant to the Business Combination Agreement, dated December 10, 2020 (the “Business Combination Agreement”), by and among Project Power Merger Sub, Inc., a wholly-owned subsidiary of Gig incorporated in the State of Delaware (“Merger Sub”), and Lightning Systems, Inc., a Delaware corporation (“Lightning Systems”). Pursuant to the terms of the Business Combination Agreement, a business combination between Gig and Lightning Systems was effected through the merger of Merger Sub with and into Lightning Systems, with Lightning Systems surviving as the surviving company and as a wholly-owned subsidiary of Gig (the “Business Combination”).

On the Closing Date, and in connection with the closing of the Business Combination, Gig changed its name to Lightning eMotors, Inc. Lightning Systems was deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805, Business Combinations. This determination was primarily based on Lightning Systems stockholders prior to the Business Combination having a majority of the voting interests in the combined company, Lightning Systems operations comprising the ongoing operations of the combined company and Lightning Systems senior management comprising the senior management of the combined company. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Lightning Systems issuing stock for the net assets of Gig, accompanied by a recapitalization. The net assets of Gig are stated at historical cost, with no goodwill or other intangible assets recorded.

While Gig was the legal acquirer in the Business Combination, Lightning Systems was deemed the accounting acquirer, the historical financial statements of Lightning Systems became the historical financial statements of the combined company, upon the consummation of the Business Combination. As a result, the financial statements included in this report reflect (i) the historical operating results of Lightning Systems prior to the Business Combination; (ii) the combined results of the Company and Lightning Systems following the closing of the Business Combination; (iii) the assets and liabilities of Lightning Systems at their historical cost; and (iv) the Company’s equity structure for all periods presented.

In accordance with guidance applicable to these circumstances, the equity structure has been restated in all comparative periods up to the Closing Date, to reflect the number of shares of the Company’s common stock, $0.0001 par value per share, issued to Lightning Systems stockholders in connection with the recapitalization transaction. As such, the shares and corresponding capital amounts and earnings per share related to Lightning Systems redeemable convertible preferred stock and Lightning Systems common stock prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio of approximately 0.9406 shares (the “Exchange Ratio”) established in the Business Combination Agreement. Activity within the statement of stockholders’ equity for the issuances and repurchases of Lightning Systems convertible redeemable preferred stock, were also retroactively converted to Lightning Systems common stock. For more details on the reverse recapitalization, see Note 3 to the Company’s notes to consolidated financial statements.

The accompanying consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”). The unaudited financial information reflects, in the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the periods indicated. The results reported for the interim period presented are not necessarily indicative of results that may be expected for the full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated.

Reclassifications

Certain prior period balances in the statements of cash flows have been combined or reclassified to conform to current period presentation. Such reclassifications had no impact on net income (loss) or stockholders’ equity previously reported.

Liquidity and Capital

As of September 30, 2022, the Company had $95,795 in cash and cash equivalents. For the nine months ended September 30, 2022, the net income of the Company amounted to $23,751. Cash flow used in operating activities was $66,986 for the nine months ended September 30, 2022. The Company had positive working capital of $129,317 as of September 30, 2022, primarily as a result of the proceeds received from the Business Combination. The current and historical operating cash flows, current cash and working capital balances, and forecasted obligations of the Company were considered in connection with management’s evaluation of the Company’s ongoing liquidity. As a result of the Business Combination, the Company received net proceeds of $216,812 in cash, after paying off the outstanding working capital facilities, the secured promissory note, and unsecured facility agreements.

On August 30, 2022, the Company entered into an equity line of credit agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) (“ELOC Agreement”), pursuant to which Lincoln Park committed to purchase up to $50.0 million of shares of the Company’s common stock, subject to certain limitations and conditions set forth in the ELOC Agreement. The Company issued 299,491 shares of its common stock to Lincoln Park as a commitment fee on August 30, 2022. As of September 30, 2022, the Company has not sold any common stock to Lincoln Park under the ELOC Agreement. See Note 10 for additional information regarding the ELOC Agreement.

The Company believes its cash and cash equivalents balance will be sufficient to continue to operate its business over the next twelve-month period from the date the September 30, 2022 financial statements were issued. However, the Company may require additional capital to fund the growth and scaling of its manufacturing facility and operations; further develop its products and services, including those for orders in its order backlog; and fund possible acquisitions. Until the Company can generate sufficient cash flow from operations, the Company expects to finance its operations through a combination of the merger proceeds received from the Business Combination and issuances of common stock under the ELOC Agreement as well as from additional public offerings, debt financings or other capital markets transactions, collaborations or licensing arrangements. The amount and timing of the Company’s future funding requirements depends on many factors, including the pace and results of the Company’s development efforts and the Company’s ability to scale its operations.

The Company cannot provide any assurance that additional capital will be available on commercially acceptable terms, if at all. If the Company is unable to secure additional capital, it may be required to take additional measures to reduce costs in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations. These measures could cause significant delays in the Company’s continued efforts to grow its business, which is critical to the realization of its business plan and the future operations of the Company.

Note 2 – Summary of Significant Accounting Policies

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company’s most significant estimates and judgments involve deferred income taxes, allowance for doubtful accounts, warranty liability, write downs and write offs of obsolete and damaged inventory and valuations of share-based compensation, warrant liability, convertible note derivative liability and earnout share liability. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to the Company’s financial statements.

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Segment information

ASC 280, Segment Reporting, defines operating segments as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company operates as a single operating segment. The Company’s CODM is the Chief Executive Officer, who has ultimate responsibility for the operating performance of the Company and the allocation of resources. The CODM uses Company forecasts, a financial and operations dashboard, and cash flows as the primary measures to manage the business and does not segment the business for internal reporting or decision making.

Concentrations of credit risk

As of September 30, 2022, two customers accounted for 48% and 13% of the Company’s total accounts receivable. As of December 31, 2021, three customers accounted for 40%, 20% and 17% of total accounts receivable. The net sales to the following customers comprised more than 10% of revenues for the periods presented.

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net Sales% of Net RevenuesNet Sales% of Net RevenuesNet Sales% of Net RevenuesNet Sales% of Net Revenues
Customer A$5,920 53 %$1,326 21 %$5,923 29 %$  %
Customer B2,075 19 %  %2,075 10 %  %
Customer C1,098 10 %  %2,822 14 %  %
Customer D  %  %2,675 13 %  %
Customer E  %1,078 17 %  %  %
Customer F  %722 12 %  %6,040 36 %
Customer G  %682 11 %  %  %
Customer H  %647 10 %  %2,807 17 %
Total of customers with sales greater than 10%$9,093 82 %$4,455 71 %$13,495 66 %$8,847 53 %
Total of customers with sales less than 10%2,038 18 %1,802 29 %6,584 34 %7,924 47 %
Total Revenues$11,131 100 %$6,257 100 %$20,079 100 %$16,771 100 %

Concentrations of supplier risk

As of September 30, 2022, two suppliers accounted for 56% and 10% of the Company’s total accounts payable. As of December 31, 2021, three suppliers accounted for 20%, 19% and 11% of the Company’s total accounts payable. For the three months ended September 30, 2022, one supplier accounted for 42% of inventory purchases. For the three months ended September 30, 2021, two suppliers accounted for 24% and 13% of inventory purchases. For the nine months ended September 30, 2022, two suppliers accounted for 32% and 19% of inventory purchases. For the nine months ended September 30, 2021, two suppliers accounted for 24% and 12% of inventory purchases.

Cash and cash equivalents

Cash and cash equivalents include cash held in banks and in money market funds. The Company’s cash and cash equivalents are placed with high-credit-quality financial institutions and issuers, and at times exceed federally insured limits. To date, the Company has not experienced any credit loss relating to its cash and cash equivalents. The carrying value of the cash equivalents approximates fair value, which represents a Level 1 input.

Accounts receivable

Accounts receivable are recorded at invoiced amounts, net of discounts, and allowances. The Company grants credit in the normal course of business to its customers. The Company periodically performs credit analyses and monitors the financial condition of its customers to reduce credit risk. The Company reduces the carrying value for estimated uncollectible accounts based on a variety of factors including the length of time receivables are past due, economic trends and conditions affecting the Company’s customer base, and historical collection experience. Specific provisions are recorded for
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individual receivables when the Company becomes aware of a customer’s inability to meet its financial obligations. The Company writes off accounts receivable when they are deemed uncollectible. The following table details the change in the allowance for doubtful accounts for the periods indicated:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Balance at beginning of period$3,847$142$3,349$
Charges to expense (1)
1,7332,231142
Deductions (1)
(3,780)(3,780)
Balance at end of period$1,800$142$1,800$142

(1)The charges to expense and deductions in the allowance for doubtful accounts during the three and nine months ended September 30, 2022 were associated with one customer. The customer was unable to pay, and the Company repossessed the vehicles as collateral for the accounts receivable balance. The charges to expense represent further impairment of the receivable balance down to the net realizable value of the collateral. The deductions represent the write off of the remaining accounts receivable balance after applying the net realizable value of the collateral against the outstanding balance.

Inventories

Inventories consist of raw materials, work in progress, and finished goods and are stated at the lower of cost or net realizable value, with cost determined on the average cost method. A valuation adjustment is made to inventory for any excess, obsolete or slow-moving items based on management’s review of on-hand inventories compared to historical and estimated future sales and usage profiles.

Property and equipment

Property and equipment is stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful asset lives. Leasehold improvements are stated at cost and amortized on the straight-line basis over their estimated economic useful lives or the lease term, whichever is shorter. Costs of enhancements or modifications that substantially extend the capacity or useful life of an asset are capitalized and depreciated accordingly. Ordinary repairs and maintenance are expensed as incurred. Depreciation is included in the consolidated statements of operations in “Cost of revenues”, “Research and development” and “Selling, general and administrative”. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheets and the resulting gain or loss, if any, is reflected in “Other income, net.” The estimated useful lives of the Company’s major classes of property and equipment are as follows:

Major Class of Property and EquipmentEstimated Useful Lives
Machinery and equipment7 years
Vehicles5 years
Leasehold improvements5 years
Computer equipment3 years
Software3 years
Furniture and fixtures7 years

Impairment of long-lived assets

Long-lived assets to be held and used in the Company’s operations are evaluated for impairment when events or circumstances indicate the carrying value of a long-lived asset or asset group is less than the undiscounted cash flows from its use and eventual disposition over its remaining economic life. The Company assesses recoverability by comparing the sum of projected undiscounted cash flows from the use and eventual disposition over the remaining economic life of a long-lived asset or asset group to its carrying value, and records a loss from impairment if the carrying value is more than its undiscounted cash flows. Assets or asset groups to be abandoned or from which no future benefit is expected are written
12

down to zero in the period it is determined they will no longer be used and are removed entirely from service. There were no impairments of long-lived assets recognized during the three and nine months ended September 30, 2022 and 2021.

Redeemable convertible preferred stock

Prior to the Business Combination, the Company had redeemable preferred stock outstanding that was classified as temporary equity in the mezzanine section of the balance sheet due to the contingently redeemable nature of the preferred stock. As described in Note 1, the equity structure has been restated in all comparative periods prior to the Closing Date. For the periods in which the redeemable convertible preferred stock was outstanding, the Company did not believe that the related contingent events and the redemption of the preferred stock was probable to occur and did not accrete the preferred stock to redemption value.

Revenue recognition

Revenue Summary

The following table disaggregates revenue by major source:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
ZEVs$10,570$5,588$18,633$15,084
Zero-emission powertrains336218
Other5616691,1101,469
Total$11,131$6,257$20,079$16,771

The Company manufactures and sells medium and heavy-duty ZEVs, such as delivery trucks and buses. The Company manufactures ZEVs by removing the internal combustion engine and certain associated components (collectively, “decontented parts”) and installing and integrating its internally-developed, zero-emission powertrain into a vehicle chassis supplied by original equipment manufacturer (“OEM”) partners or from the customer. At times, the Company also installs and integrates its zero-emission powertrains into a used vehicle chassis supplied by the customer (“repower”). The Company also manufactures and sells its stand-alone, zero-emission powertrains directly to customers.

The Company recognizes revenue at a point in time when its performance obligation has been satisfied and control of the ZEV or zero-emission powertrain is transferred to the customer, which generally aligns with shipping terms. Contract shipping terms include ExWorks (“EXW”), “FOB Shipping Point” and “FOB Destination” all as defined in the Incoterms. Under EXW (meaning the seller fulfills its obligation to deliver when it makes goods available at its premises, or another specified location, for the buyer to collect), the performance obligation is satisfied and control is transferred at the point when the customer is notified that the ZEV or zero-emission powertrain is available for pickup. Under “FOB Shipping Point,” control is transferred to the customer at the time the good is transferred to the shipper and under “FOB Destination,” at the time the good is delivered to a customer’s specified delivery location. At times, the Company sells ZEVs that require additional upfitting from a third party before the final sale to the customer. The Company is acting as the principal in such transactions and revenue is recognized on a gross basis.

Other revenue primarily includes the sale of charging systems, engineering consulting services, telematics and analytics subscription services and decontented parts. Revenue for chargers and decontented parts is generally recognized based on contract shipping terms. At times, chargers may be drop shipped directly to the customer from the manufacturer, in which revenue is recognized at the time of shipment. The Company is acting as the principal in such transactions and revenue is recognized on a gross basis. Services are recognized as revenue over time as either percentage of completion (i.e. engineering service contracts) or as the service is transferred to the customer (i.e. telematics and analytics subscription services).

The Company made an accounting policy election to account for any shipping and handling costs that occur after control has transferred to the customer as fulfillment costs that are accrued to cost of revenues at the time control transfers. Shipping and handling costs billed to customers are initially recorded in deferred revenue and recognized as revenue once shipping is complete.

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The Company often applies for governmental funding programs, including California’s Hybrid and Zero Emission Truck and Bus Voucher Incentive Project (“HVIP”), on behalf of its customers for ZEV sales. Generally, as a condition of the program, the amount billed to the customer must be reduced by the amount that will be funded by the government program, and the Company will receive the funds directly from the government program. However, the discount to the customer is contingent upon the Company’s receipt of the funding. Revenue is recognized on the gross amount of the ZEV at the time substantially all of the conditions of the government program required of the Company have been met and control of the ZEV has transferred to the customer based on shipping terms.

The following economic factors affect the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows as indicated:

Type of customer: The Company’s sales are directly to commercial fleet customers, OEMs, governments and dealers.
Type of contract: Sales contracts are for goods or services. The majority of contracts are short term (i.e., less than or equal to one year in duration).

Significant Payment Terms

None of the Company’s contracts have a significant financing component. Any cash that is received prior to revenue recognition is deferred as deferred revenue (a contract liability) until the good is delivered or service is rendered.

Contract Liabilities

Contract liabilities relate to payments received in advance of performance obligations under the contract and are realized when the associated revenue is recognized under the contracts. The Company’s contract liabilities consist of customer deposits and deferred revenue, of which current amounts are included in “Accrued expenses and other current liabilities” and long-term amounts are included in “Other long-term liabilities” on the consolidated balance sheets. Changes in contract liabilities are as follows:

Balance as of December 31, 2021
$147 
Revenues recognized(2,377)
Increase due to billings2,822 
Balance as of September 30, 2022
$592 

The Company recognized revenue of $90 during the nine months ended September 30, 2022 that was included in the contract liability balance as of December 31, 2021.

Returns and Refunds

Consideration paid for goods and/or services that customers purchase from the Company are nonrefundable. Therefore, at the time revenue is recognized, the Company does not estimate expected refunds for goods or services, nor does the Company exclude any such amounts from revenue.

Transaction Price

The transaction price of a contract is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer. Transaction prices do not include amounts collected on behalf of third parties (e.g., sales taxes). Sales taxes collected on sales are recorded as a sales tax liability and are included in “Accrued expenses and other current liabilities.”

To determine the transaction price of a contract, the Company considers its customary business practices and the terms of the contract. For the purpose of determining transaction prices, the Company assumes that the goods and/or services will be transferred to the customer as promised in accordance with existing contracts and that the contracts will not be canceled, renewed, or modified. The Company’s revenue terms do not include retrospective or prospective volume discounts, rights of return, rebates, performance bonuses or other forms of variable consideration.

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The Company’s contracts with customers have fixed transaction prices that are denominated in U.S. dollars and payable in cash.

Future Performance Obligations

The Company has applied the practical expedient to exclude the value of remaining performance obligations for (i) contracts with an original term of one year or less and (ii) contracts for which the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed (i.e. analytical data subscription services).

As of September 30, 2022, the Company had remaining performance obligations related to a non-cancellable (other than for a breach by the Company) minimum-quantity purchase commitment. The customer is obligated to purchase a fixed number of ZEVs through December 31, 2023, however, the price varies based on which year the customer orders each ZEV (in 2022 or 2023). The Company estimates that the future revenues associated with this contract (based on estimated orders from the customer) to be $2,000 in 2022 and $8,800 in 2023. The timing of the revenue associated with these estimates will change if the ZEVs are commissioned and/or shipped subsequent to the year in which they were ordered, as revenue will not be recognized until control of the ZEV transfers to the customer based on the purchase order shipping terms.

As of September 30, 2022, the Company also had $206 of remaining performance obligations related to unsatisfied extended warranty performance obligations the Company expects to recognize ratably from approximately September 2027 through August 2030.

Costs to Obtain or Fulfill a Contract with a Customer

The Company has elected the practical expedient to expense contract acquisition costs, which consist of sales commissions, which are reported within “Selling, general and administrative” expenses.

Warranties

All ZEVs that customers purchase from the Company are covered by five-year and 60-thousand-mile limited product warranties. At the time revenue is recognized, the Company estimates the cost of expected future warranty claims and accrues estimated future warranty costs based upon the history of warranty claims. The Company periodically reviews the adequacy of its product warranties and adjusts, if necessary, the warranty estimate and accrued warranty liability for actual historical experience. The warranty liability is included in “Accrued expenses and other current liabilities” and the cost of warranties is included in “Cost of revenues.”

At times, the Company may sell its ZEVs with an extended product warranty, with coverage beyond the five-year and 60-thousand-mile limited standard warranty. The Company considers these extended warranties to be separate performance obligations. The consideration allocated to the extended warranty is deferred and recognized over the term of the extended warranty. The Company’s deferred revenue associated with extended warranties is currently all classified as long-term within “Other long-term liabilities.”

Fair value, measurements, and financial instruments

A fair value hierarchy was established that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels of the hierarchy and the related inputs are as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company can access at the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices 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.
Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
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An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques:

Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).
Income approach: Techniques to convert future amounts to a single present value amount based upon market expectations (including present value techniques, option pricing and excess earnings models).

The Company believes its valuation methods are appropriate and consistent with other market participants, however, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The Company’s recurring fair value measurements categorized within Level 3 discussed below contain significant unobservable inputs. A change in those significant unobservable inputs could result in a significantly higher or lower fair value measurement at the reporting date.

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, warrant liabilities, long-term debt, derivative liabilities and earnout liabilities. The carrying value of cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short-term nature of those instruments.

Long-term debt is not presented at fair value on the consolidated balance sheets, as it is recorded at carrying value, net of unamortized debt discounts. However, the 7.5% $100,000 convertible senior note (the “Convertible Note”) has an embedded conversion option accounted for as a derivative liability, which is presented at fair value on the consolidated balance sheets. The fair value of the Convertible Note, including the conversion option, was $62,874 and $76,614 as of September 30, 2022 and December 31, 2021, respectively. The Company’s term note and working capital facility (“Facility”) had an outstanding term note with a principal amount of $3,000 as of both September 30, 2022 and December 31, 2021 and a fair value of $3,146 and $4,173 as of September 30, 2022 and December 31, 2021, respectively.

The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were measured at fair value on a recurring basis in the consolidated balance sheets.

Level 1Level 2Level 3
As of September 30, 2022
Financial assets
Cash equivalents$92,762 $ $ 
Financial Liabilities  
Warrant liability$ $ $335 
Derivative liability  1,048 
Earnout liability  14,787 
As of December 31, 2021
Financial assets
Cash equivalents$150,022 $ $ 
Financial Liabilities  
Warrant liability$