Stockholder ratification of the Sarbanes-Oxley Act are significantly more stringent than those that were requiredselection of usErnst & Young LLP as a private company. We will need to continue to implement additional finance, accounting, and business operating systems, procedures, and controls as we grow our business and organization and to satisfy existing reporting requirements. If we fail to maintain or implement adequate controls, if we are unable to complete the required Section 404 assessment as to the adequacy of our internal control over financial reporting in future Form 10-K filings, or if our independent registered public accounting firm is unable to provide us with an unqualified report as to the effectiveness of our internal control over financial reporting in future Form 10-K filings, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC, the Nasdaq or other regulatory authorities, which could require additional financial and management resources.
If we fail to maintain effective internal controls and remediate future control deficiencies, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.
As discussed in Item 9A “Controls and Procedures” in our Annual Report on Form 10-K/A for the year ended December 31, 2020, we identified a material weakness in our internal controls related to how we accounted for our private warrants due to a recently issued Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) by the SEC Staff. This material weakness has been remediated as of December 31, 2021.
Internal controls are important to accurately reflect our financial position and results of operations in our financial reports and there can be no assurance that similar control issues will not be identified in future periods. If we are unable to remediate any future material weaknesses or significant deficiencies in an appropriate and timely manner, or if we identify additional
control deficiencies that individually or together constitute significant deficiencies or material weaknesses, our ability to accurately record, process, and report financial information and consequently, our ability to prepare financial statements within required time periods, could be adversely affected. Failure to maintain effective internal controls could result in violations of applicable securities laws, stock exchange listing requirements, subject us to litigation and investigations, negatively affect investor confidence in our financial statements, and adversely impact our stock price and ability to access capital markets.
Our warrants are accounted for as liabilities and the changes in value of our warrants could have a material effect on our financial results.
In connection with the restatement described above, our warrants are classified as liabilities. Under this accounting treatment, we are required to measure the fair value of the warrants at the end of each reporting period and recognize changes in the fair value from the prior period in our operating results for the current period. As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate quarterly based on factors which are outside our control. We expect that we will recognize non-cash gains or losses due to the quarterly fair valuation of our warrants and that such gains or losses could be material.
Our management has limited experience in operating a public company.
Our executive officers have limited experience in the management of a publicly traded company. Mark Russell, who joined us in February 2019 and assumed the responsibilities of the Chief Executive Officer in June 2020, is the only member of our management team who has substantial prior experience as an executive officer of a public company. Our management team may not successfully or effectively manage our transition to a public company that is subject to significant regulatory oversight and reporting obligations under federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted to the management and growth of the company. We may not have adequate personnel with the appropriate level of knowledge, experience, and training in the accounting policies, practices or internal controls over financial reporting required of public companies in the United States. The development and implementation of the standards and controls necessary for the company to achieve the level of accounting standards required of a public company in the United States may require costs greater than expected. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company which will increase our operating costs in future periods.
General Risk Factors
Sales of a substantial number of shares of our common stock in the public market could cause the price of our common stock to decline.
As of December 31, 2021, we had approximately 413.3 million shares of common stock outstanding and private warrants to purchase approximately 0.8 million shares of common stock. All of the shares of our common stock are freely transferable, subject to compliance with Rule 144 by affiliates, without additional registration under the Securities Act.
We previously registered for resale up to 17,857,142 shares of common stock that we may issue or sell to Tumim under the First Tumim Purchase Agreement, 3,643,644 of which remains available for issuance under the Registration Statement, and we registered for resale up to 28,790,787 shares of common stock that we may issue or sell to Tumim under the Second Tumim Purchase Agreement. We have also registered shares of our common stock that we have issued and may in the future issue under our employee equity incentive plans. These shares may be sold freely in the public market upon issuance, subject to relevant vesting schedules, and applicable securities laws.
Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock. In addition, the sale of substantial amounts of our common stock could adversely impact its price.
We have never paid dividends on our capital stock, and we do not anticipate paying dividends in the foreseeable future.
We have never paid dividends on any of our capital stock and currently intend to retain any future earnings to fund the growth of our business. Any determination to pay dividends in the future will be at the discretion of our board of directors, and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for the foreseeable future.
Our stock price is volatile, and you may not be able to sell shares of our common stock at or above the price you paid.
The trading price of our common stock is volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. For example, the trading price of our common stock declined recently following the release of the short-seller article, which contains certain allegations against us. These factors include, but are not limited to:
•our progress on achievement of business milestones and objectives;
•actual or anticipated fluctuations in operating results;
•failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;
•issuance of new or updated research or reports by securities analysts or changed recommendations for our stock or the transportation industry in general;
•announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;
•operating and share price performance of other companies that investors deem comparable to us;
•our focus on long-term goals over short-term results;
•the timing and magnitude of our investments in the growth of our business;
•actual or anticipated changes in laws and regulations affecting our business;
•additions or departures of key management or other personnel;
•disputes or other developments related to our intellectual property or other proprietary rights, including litigation;
•our ability to market new and enhanced products and technologies on a timely basis;
•sales of substantial amounts of our common stock by our directors, executive officersBylaws or significant stockholders or the perception that such sales could occur;
•changes in our capital structure, including future issuances of securities or the incurrence of debt; and
•general economic, political and market conditions.
In addition, the stock market in general, and The Nasdaq Stock Market LLC in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.
The closing price of our common stock on Nasdaq varied from $6.97 to $79.73 following the closing of the business combination, or the Business Combination, between Nikola Corporation and VectoIQ, through February 18, 2022. In September 2020, an entity published an article containing certain allegations against us that we believe has negatively impacted the trading price of our common stock. The price of our common stock also decreased substantially following public announcements made by us. In addition, broad market and industry factors, including COVID-19, may seriously affect the market price of our common stock, regardless of our actual operating performance.
Any investment in our common stock is subject to extreme volatility and could result in the loss of your entire investment. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, which has and may in the future be instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. See Legal Proceedings in Note 14, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K and incorporated herein by reference.
If we are unable to attract and retain key employees and hire qualified management, technical and engineering personnel, our ability to compete could be harmed.
Our success depends, in part, on our ability to retain our key personnel. The unexpected loss of or failure to retain one or more of our key employees could adversely affect our business.
Our success also depends, in part, on our continuing ability to identify, hire, attract, train and develop other highly qualified personnel, including management, technical and engineering personnel. Qualified individuals are in high demand, particularly in the vehicle technology industry. Competition for individuals with experience designing, manufacturing and servicing electric vehicles is intense, and we may not be able to attract, integrate, train, motivate or retain additional highly qualified personnel in
the future. Competition for these employees can be intense, and our ability to hire, attract and retain them may depend on our ability to provide competitive compensation. We use equity awards to attract talented employees, but if the value of our common stock declines significantly, as it has in the recent past, and remains depressed, it may prevent us from recruiting and retaining qualified employees. We may not be able to attract, integrate, train or retain qualified personnel in the future. Additionally, we may not be able to hire new employees quickly enough to meet our needs. Our failure to do so could adversely affect our business and prospects, including the execution of our global business strategy.
Our Certificate of Incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our Certificate of Incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought in the Court of Chancery in the State of Delaware or, if that court lacks subject matter jurisdiction, another federal or state court situated in the State of Delaware. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our Certificate of Incorporation. In addition, our Certificate of Incorporation and our amended and restated bylaws, or our Bylaws, will provide that the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act and the Exchange Act.
In March 2020, the Delaware Supreme Court issued a decision in Salzburg et al. v. Sciabacucchi, which found that an exclusive forum provision providing for claims under the Securities Act to be brought in federals court is facially valid under Delaware law. It is unclear whether this decision will be appealed, or what the final outcome of this case will be. We intend to enforce this provision, but we do not know whether courts in other jurisdictions will agree with this decision or enforce it.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
If securities or industry analysts issue an adverse recommendation regarding our stock or do not publish research or reports about our company, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts or the content and opinions included in their reports. Securities analysts may elect not to provide research coverage of our company and such lack of research coverage may adversely affect the market price of our common stock. The price of our common stock could also decline if one or more equity research analysts downgrade our common stock, change their price targets, issue other unfavorable commentary or cease publishing reports about us or our business. For example, in September 2020, an entity published an article containing certain allegations against us that we believe has negatively impacted the trading price of our common stock. If one or more equity research analysts cease coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We own our headquarters facility located in Phoenix, Arizona, which consists of more than 150,000 square feet. We also lease office space adjacent to our headquarters.
In addition, we own an approximately 400-acre parcel of real property in Coolidge, Arizona, where we have constructed our manufacturing facility that we will continue to scale and expand.
Item 3. Legal Proceedings
For a description of our material pending legal proceedings, see Legal Proceedings in Note 14, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K and incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on The Nasdaq Stock Market LLC under the symbol "NKLA."
Holders
As of February 21, 2022, there were 96 holders of record of our common stock and 12 holders of record of our private warrants. This number excludes holders whose stock or warrant is held in "street name" by brokers.
Dividend Policy
We have not paid any cash dividends on our common stock to date. We may retain future earnings, if any, for future operations, and have no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that the board may deem relevant. In addition, our ability to pay dividends may be limited by covenants of future outstanding indebtedness we or our subsidiaries incur. We do not anticipate declaring any cash dividends in the foreseeable future.
Stock Performance Graph
The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.
The following graph shows a comparison, from June 11, 2018 through December 31, 2021, of the cumulative total return on our common stock, The NASDAQ Composite Index and The NASDAQ Clean Green Energy Index. Such returns are based on historical results and are not intended to suggest future performance. Data for The NASDAQ Composite Index and The NASDAQ Clean Green Energy Index assumes an investment of $100 on May 31, 2018 and reinvestment of dividends. We have
never declared or paid cash dividends on our common stock nor do we anticipate paying any such cash dividends in the foreseeable future.
Issuer Purchases of Securities
None.
Item 6. [Reserved]
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Annual Report on Form 10-K.
Overview
We are a technology innovator and integrator, working to develop innovative energy and transportation solutions. We are pioneering a business model that will enable corporate customers to integrate next-generation truck technology, hydrogen fueling infrastructure, and related maintenance. By creating this ecosystem, we and our strategic business partners and suppliers hope to build a long-term competitive advantage for clean technology vehicles and next generation fueling solutions.
Our expertise lies in design, innovation, and software and engineering. We assemble, integrate, and commission our vehicles in collaboration with our business partners and suppliers. Our approach has always been to leverage strategic partnerships to help lower cost, increase capital efficiency and increase speed to market.
We operate in two business units: Truck and Energy. The Truck business unit is developing and commercializing BEV and FCEV Class 8 trucks that provide environmentally friendly, cost effective solutions to the short, medium and long haul trucking sector. The Energy business unit is primarily developing and constructing a network of hydrogen fueling stations to meet hydrogen fuel demand for our FCEV customers.
Our planned hydrogen fueling ecosystem is expected to include hydrogen production and/or hydrogen procurement, hydrogen distribution, and hydrogen storage and dispensing. As part of our hydrogen strategy, on June 22, 2021, we entered into a purchase agreement ("Offtake Agreement") with Wabash Valley Resources LLC (“WVR”), pursuant to which WVR agreed to sell to us, and we agreed to purchase from WVR, hydrogen to be produced from the hydrogen production facility being developed by WVR in West Terre Haute, Indiana (the "Plant"), once completed.
During 2020, we established a joint venture with Iveco, a subsidiary of CNHI, Nikola Iveco Europe GmbH. Our joint venture with Iveco provides us with the manufacturing infrastructure to build BEV trucks for the North American market in addition to that of our greenfield manufacturing facility in Coolidge, Arizona. The operations of the joint venture commenced during the fourth quarter of 2020. During the second quarter of 2021, the joint venture completed the construction of the manufacturing facility and stated trial production for the Nikola Tre BEV on the assembly line in Ulm, Germany.
We expect both our capital and operating expenditures will increase significantly in connection with our ongoing activities, as we:
•construct manufacturing facilities and purchase related equipment;
•commercialize our heavy-duty trucks and other products;
•develop hydrogen fueling stations;
•continue to invest in our technology;
•increase our investment in marketing and advertising, sales, and distribution infrastructure for our products and services;
•maintain and improve our operational, financial and management information systems;
•hire additional personnel;
•obtain, maintain, expand, and protects our intellectual property portfolio; and
•operate as a public company, including incurring costs related to directors' and officers' liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit, compliance, and legal fees.
Recent Developments
•In December 2021, we delivered the first Nikola Tre BEVs to TTSI in California as part of a three month pilot program. Since placing the trucks into service with TTSI, the trucks have hauled multiple loads per day and logged over 4,500 miles.
•In January 2022, the first two Nikola Tre FCEV alpha trucks were driven from our headquarters to AB, a journey of approximately 350 miles. These trucks are being used in daily service within AB's Southern California distribution network during a three month pilot. This pilot program will be used to refine the production specifications and features of the Tre FCEV.
•Our joint venture manufacturing plant in Ulm, Germany, in Iveco's industrial complex has been completed with a production capacity of up to 2,000 trucks per year. In 2022, we expect to build and deliver up to 25 trucks to the Hamburg Port Authority for use in port operations.
•On January 13, 2022, we announced that the Nikola Tre BEV has been deemed eligible for the Hybrid and Zero Emissions Truck and Bus Voucher Incentive Program (HVIP) program by the California Air Resources Board. With this approval, purchasers of the Nikola Tre BEV can now qualify for an incentive valued at $120,000 per truck, or $150,000 per truck for drayage operations, helping reduce the total cost of ownership for qualified purchasers operating in the State of California.
•In January 2022, we announced a multiyear strategic partnership with Proterra to supply us with battery packs for both Nikola BEVs and FCEVs, providing a dual source strategy. The first Proterra powered Nikola Tre BEVs are expected to be produced in the fourth quarter of 2022.
Comparability of Financial Information
Our results of operations and statements of assets and liabilities may not be comparable between periods as a result of the Business Combination and becoming a public company. As a consequence of the Business Combination, we became a Nasdaq-listed company, which requires that we continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit, compliance, and legal fees.
Key Factors Affecting Operating Results
We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those set forth in the section entitled "Risk Factors."
We completed pre-series Tre BEV trucks in the fourth quarter of 2021 and began accumulating mileage on public roads with customers, but do not expect to derive revenue from our Tre BEV trucks until the second quarter of 2022. We expect to derive revenue from our Tre FCEV trucks in the second half 2023. Before start-of-production for the Tre BEV, we will be completing road mileage accumulation with pilot customers. Presently, we are experiencing supply chain shortages, including but not limited to battery cells, integrated circuits, vehicle control chips, and displays. Certain production ready components such as chipsets and displays may be delayed in arriving at our facilities, which has and may continue to cause delays in road mileage accumulation, validation, and testing for these components. This has resulted in delays and may continue to delay the availability of saleable Tre BEV trucks.
We also require substantial capital to develop our products and services and fund operations for the foreseeable future. Until we can generate sufficient revenue, we expect to finance our operations through a combination of cash on hand, debt and equity financings, strategic partnerships, and licensing arrangements. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We expect that any delays in critical parts availability, and in validation and testing will impact our ability to generate revenue.
Basis of Presentation
Currently, we conduct business through one operating segment. See Note 2 in the accompanying audited consolidated financial statements for more information.
Components of Results of Operations
Revenues
Prior to 2021, we primarily generated revenue from services related to solar installation projects that are completed in one year or less. Solar installation projects are not a part of our primary operations and were concluded in 2020.
Following the anticipated introduction of our products to the market, we expect the significant majority of our revenue to be derived from direct sales or leases of BEV trucks starting in the second quarter of 2022 and from bundled leases, or other
alternative structures, for FCEV trucks beginning in 2023. We intend for our bundled lease offering to be inclusive of the cost of the truck, hydrogen fuel and regularly scheduled maintenance.
Cost of Revenues
Prior to 2021, our cost of revenues included materials, labor, and other direct costs related to solar installation projects.
Once we have reached commercial production, cost of revenues will include direct parts, material and labor costs, manufacturing overhead, including amortized tooling costs and depreciation of our greenfield manufacturing facility, depreciation of our hydrogen fueling stations, cost of hydrogen production, shipping and logistics costs and reserves for estimated warranty expenses.
Research and Development Expense
Research and development expenses consist primarily of costs incurred for the discovery and development of our vehicles, which include:
•Fees paid to third parties such as consultants and contractors for outside development;
•Expenses related to materials, supplies and third-party services, including prototype tooling and non-recurring engineering.
•Personnel-related expenses, including salaries, benefits, and stock-based compensation expense, for personnel in our engineering and research functions;
•Depreciation for prototyping equipment and R&D facilities; and
•Expenses related to operating the Coolidge manufacturing facility until the start of commercial production.
During the years ended December 31, 2021, 2020, and 2019 our research and development expenses were primarily incurred in connection with the development of the BEV and FCEV trucks.
As a part of its in-kind investment, Iveco agreed to provide us with $100.0 million in advisory services (based on pre-negotiated hourly rates), including project coordination, drawings, documentation support, engineering support, vehicle integration, and product validation support. During the years ended December 31, 2021, 2020, and 2019 we utilized $46.3 million, $45.7 million, and $8.0 million, respectively, of advisory services which were recorded as research and development expense. As of December 31, 2021, the full amount of advisory services had been consumed. As of December 31, 2020 we had $46.3 million of prepaid in-kind advisory services remaining.
We expect our research and development costs to increase for the foreseeable future as we continue to invest to achieve our technology and product roadmap goals.
Selling, General, and Administrative Expense
Selling, general, and administrative expenses consist of personnel related expenses for our corporate, executive, finance, and other administrative functions, expenses for outside professional services, including legal, audit and accounting services, as well as expenses for facilities, depreciation, amortization, travel, and marketing costs. Personnel related expenses consist of salaries, benefits, and stock-based compensation.
We expect our selling, general, and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business.
Impairment Expense
Impairment expense consists of charges related to our Powersports business unit that was discontinued in the fourth quarter of 2020.
Interest Income (Expense), net
Interest income consists primarily of interest received or earned on our cash and cash equivalents balances. Interest expense consists of interest paid on our promissory note and finance lease liabilities.
Revaluation of Series A Redeemable Convertible Preferred Stock Warrant Liability
The revaluation of Series A redeemable convertible preferred stock warrant liability includes gains and losses from the remeasurement of our redeemable convertible preferred stock warrant liability. As of December 31, 2019, all of our outstanding
redeemable convertible preferred stock warrants were exercised, therefore, subsequent to 2019, there is no impact from the remeasurement of redeemable convertible preferred stock warrants.
Loss on Forward Contract Liability
The loss on forward contract liability includes losses from the remeasurement of the Series D redeemable convertible preferred share forward contract liability. In April 2020, we fulfilled the forward contract liability and, therefore, subsequent to December 31, 2020, there is no impact from the remeasurement of the forward contract liability.
Revaluation of Warrant Liability
The revaluation of warrant liability includes the net gains and losses from the remeasurement of the warrant liability. Warrants recorded as liabilities are recorded at their fair value and remeasured at each reporting period.
Other Income (Expense), net
Other income (expense), net consists primarily of other miscellaneous non-operating items, such as government grants, subsidies, merchandising, revaluation gains and losses on the derivative liability, foreign currency gains and losses, and unrealized gains and losses on investments.
Income Tax Expense (Benefit)
Our income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in the tax law. Due to cumulative losses, we maintain a valuation allowance against U.S. and state deferred tax assets. Cash paid for income taxes, net of refunds during the years ended December 31, 2021, 2020, and 2019 was not material.
Equity in Net Loss of Affiliates
Equity in net loss of affiliates consists of our net portion of gains and losses from equity method investments.
Results of Operations
Comparison of Year Ended December 31, 2021 to Year Ended December 31, 2020
The following table sets forth our historical operating results for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | |
| 2021 | | 2020 | | $ Change | | % Change |
| ( in thousands, except share and per share data) |
Solar revenues | $ | — | | | $ | 95 | | | $ | (95) | | | NM |
Cost of solar revenues | — | | | 72 | | | (72) | | | NM |
Gross profit | — | | | 23 | | | (23) | | | NM |
Operating expenses: | | | | | | | |
Research and development | 292,951 | | | 185,619 | | | 107,332 | | | 58 | % |
Selling, general, and administrative | 400,575 | | | 182,724 | | | 217,851 | | | 119 | % |
Impairment expense | — | | | 14,415 | | | (14,415) | | | NM |
Total operating expenses | 693,526 | | | 382,758 | | | 310,768 | | | 81 | % |
Loss from operations | (693,526) | | | (382,735) | | | (310,791) | | | 81 | % |
Other income (expense): | | | | | | | |
Interest income (expense), net | (481) | | | 202 | | | (683) | | | (338) | % |
| | | | | | | |
Loss on forward contract liability | — | | | (1,324) | | | 1,324 | | | NM |
Revaluation of warrant liability | 3,051 | | | 13,448 | | | (10,397) | | | (77) | % |
Other income (expense), net | 4,102 | | | (846) | | | 4,948 | | | (585) | % |
Loss before income taxes and equity in net loss of affiliates | (686,854) | | | (371,255) | | | (315,599) | | | 85 | % |
Income tax expense (benefit) | 4 | | | (1,026) | | | 1,030 | | | NM |
Loss before equity in net loss of affiliates | (686,858) | | | (370,229) | | | (316,629) | | | 86 | % |
Equity in net loss of affiliates | (3,580) | | | (637) | | | (2,943) | | | NM |
Net loss | (690,438) | | | (370,866) | | | (319,572) | | | 86 | % |
Premium paid on repurchase of redeemable convertible preferred stock | — | | | (13,407) | | | 13,407 | | | (100) | % |
Net loss attributable to common stockholders | $ | (690,438) | | | $ | (384,273) | | | $ | (306,165) | | | 80 | % |
| | | | | | | |
Net loss per share attributable to common stockholders: | | | | | | | |
Basic | $ | (1.73) | | | $ | (1.15) | | | $ | (0.58) | | | NM |
Diluted | $ | (1.74) | | | $ | (1.18) | | | $ | (0.56) | | | NM |
Weighted-average shares outstanding: | | | | | | | |
Basic | 398,655,081 | | | 335,325,271 | | | 63,329,810 | | | NM |
Diluted | 398,784,392 | | | 335,831,033 | | | 62,953,359 | | | NM |
Solar Revenues and Cost of Solar Revenues
Solar revenues and cost of solar revenues for the year ended December 31, 2020 were related to solar installation service projects. Solar installation projects were not related to our primary operations and were concluded in 2020. Solar revenues and costs of solar revenues were immaterial for the year ended December 31, 2020.
Research and Development
Research and development expenses increased by $107.3 million, or 58%, from $185.6 million during the year ended December 31, 2020 to $293.0 million during the year ended December 31, 2021. This increase was primarily due to $40.9 million in higher spend on purchased components and tooling as we focus primarily on building and testing our BEV truck platform, as well as continuing the development of our FCEV truck platform. In addition, personnel costs increased $31.2 million and stock-based compensation expense increased $20.6 million driven by growth in our in-house engineering headcount. Additionally, freight related to the transportation of prototype parts and components increased $7.6 million. The remaining increase was driven by depreciation and occupancy costs related to capital equipment and software dedicated to
research and development activities, professional services related to engineering activities, and an increase in travel due to easing of travel restrictions imposed during the prior year related to COVID-19, partially offset by a decrease in outside development spend.
Selling, General, and Administrative
Selling, general, and administrative expenses increased by $217.9 million, or 119%, from $182.7 million during the year ended December 31, 2020 to $400.6 million during the year ended December 31, 2021. The increase was primarily related to a $125.0 million loss related to the SEC settlement. Additionally, there was an increase in stock based compensation of $47.1 million, an increase in legal expenses of $22.3 million, and increases in personnel expenses of $14.2 million driven by growth in headcount, $5.6 million for the non-cash commitment share issuance costs related to the equity lines of credit with Tumim Stone Capital LLC, or Tumim, and higher general corporate expenses, including IT equipment, marketing and depreciation of our headquarters. These increases were partially offset by a decrease of $1.8 million for public relations and professional services and other general corporate expenses.
Impairment Expense
Impairment expense of $14.4 million during the year ended December 31, 2020 resulted from the discontinuation of the Powersports business unit in the fourth quarter of 2020, which resulted in an impairment charge on in-process R&D, trademarks and certain long-lived assets.
Interest Income (Expense), net
Interest income (expense), net decreased by $0.7 million, or 338%, from $0.2 million of income during the year ended December 31, 2020 to $0.5 million of expense during the year ended December 31, 2021. The decrease is primarily due to a lower average interest rate earned on deposits and an increase in interest expense related to finance lease liabilities and the promissory note.
Loss on Forward Contract Liability
Our loss on the forward contract liability represents recognized loss from a $1.3 million change in fair value as of the settlement date. The forward contract liability was settled in April 2020.
Revaluation of Warrant Liability
The revaluation of warrant liability decreased $10.4 million, from $13.4 million during the year ended December 31, 2020 to $3.1 million during the year ended December 31, 2021, resulting from changes in fair value of our warrant liability.
Other Income (Expense), net
Other income (expense), net increased by $4.9 million, from $0.8 million of expense during the year ended December 31, 2020 to $4.1 million of income during the year ended December 31, 2021. The increase was driven primarily by government grant income of $3.4 million, gains on foreign currency exchange and unrealized gains on investments, partially offset by a loss on sale of equipment of $1.0 million.
Income Tax Expense (Benefit)
Income tax expense (benefit) for the year ended December 31, 2021 was immaterial. Income tax expense (benefit) for the year ended December 31, 2020 was a $1.0 million benefit primarily related to changes in deferred tax liabilities to our indefinite-lived intangible which was impaired in 2020. We have cumulative net operating losses at the federal and state level and maintain a full valuation allowance against our net deferred taxes.
Equity in Net Loss of Affiliates
Equity in net loss of affiliates decreased by $2.9 million, from $0.6 million for the year ended December 31, 2020 to $3.6 million for the year endedDecember 31, 2021. The decrease was driven by additional losses in excess of gains of $3.3 million in the current period related to Nikola Iveco Europe GmbH, partially offset by a gain of $0.3 million related to WVR.
Comparison of Year Ended December 31, 2020 to Year Ended December 31, 2019
The following table sets forth our historical operating results for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | |
| 2020 | | 2019 | | $ Change | | % Change |
| ( in thousands, except share and per share data) |
Solar revenues | $ | 95 | | | $ | 482 | | | $ | (387) | | | NM |
Cost of solar revenues | 72 | | | 271 | | | (199) | | | NM |
Gross profit | 23 | | | 211 | | | (188) | | | NM |
Operating expenses: | | | | | | | |
Research and development | 185,619 | | | 67,514 | | | 118,105 | | | 175 | % |
Selling, general, and administrative | 182,724 | | | 20,692 | | | 162,032 | | | 783 | % |
Impairment expense | 14,415 | | | — | | | 14,415 | | | NM |
Total operating expenses | 382,758 | | | 88,206 | | | 294,552 | | | 334 | % |
Loss from operations | (382,735) | | | (87,995) | | | (294,740) | | | 335 | % |
Other income (expense): | | | | | | | |
Interest income, net | 202 | | | 1,456 | | | (1,254) | | | (86) | % |
Revaluation of Series A redeemable convertible preferred stock warrant liability | — | | | (3,339) | | | 3,339 | | | NM |
Loss on forward contract liability | (1,324) | | | — | | | (1,324) | | | NM |
Revaluation of warrant liability | 13,448 | | | — | | | 13,448 | | | NM |
Other income (expense), net | (846) | | | 1,373 | | | (2,219) | | | (162) | % |
Loss before income taxes and equity in net loss of affiliates | (371,255) | | | (88,505) | | | (282,750) | | | 319 | % |
Income tax expense (benefit) | (1,026) | | | 151 | | | (1,177) | | | NM |
Loss before equity in net loss of affiliates | (370,229) | | | (88,656) | | | (281,573) | | | 318 | % |
Equity in net loss of affiliates | (637) | | | — | | | (637) | | | NM |
Net loss | (370,866) | | | (88,656) | | | (282,210) | | | 318 | % |
Premium paid on repurchase of redeemable convertible preferred stock | (13,407) | | | (16,816) | | | 3,409 | | | NM |
Net loss attributable to common stockholders | $ | (384,273) | | | $ | (105,472) | | | $ | (278,801) | | | 264 | % |
| | | | | | | |
Net loss per share attributable to common stockholders: | | | | | | | |
Basic | $ | (1.15) | | | $ | (0.40) | | | $ | (0.75) | | | NM |
Diluted | $ | (1.18) | | | $ | (0.40) | | | $ | (0.78) | | | NM |
Weighted-average shares outstanding: | | | | | | | |
Basic | 335,325,271 | | | 262,528,769 | | | 72,796,502 | | | NM |
Diluted | 335,831,033 | | | 262,528,769 | | | 73,302,264 | | | NM |
Solar Revenues and Cost of Solar Revenues
Solar revenues and cost of solar revenues for the years ended December 31, 2020 and 2019 were related to solar installation service projects. Solar installation projects were not related to our primary operations and were concluded in 2020. Solar revenues and costs of solar revenues were immaterial for the years ended December 31, 2020 and 2019.
Research and Development
Research and development expenses increased by $118.1 million, or 175%, from $67.5 million during the year ended December 31, 2019 to $185.6 million in the year ended December 31, 2020. The increase was primarily due to an increase of $77.4 million in higher spend on purchased prototype components and outside engineering services as we focus primarily on the development, build, and testing of our BEV truck platform, as well as continuing development of our FCEV truck platform. In addition, we incurred increased personnel costs of $21.4 million driven by growth in our in-house engineering headcount, and higher stock-based compensation expense of $15.2 million primarily in connection with the Business Combination, higher headcount, and RSU grants made to employees during 2020. We also incurred higher depreciation and occupancy costs associated with our headquarters in Phoenix, Arizona and related capital equipment and software.
Selling, General, and Administrative
Selling, general, and administrative expenses increased by $162.0 million, or 783%, from $20.7 million during the year ended December 31, 2019 to $182.7 million during the year ended December 31, 2020. The increase was primarily related to higher stock-based compensation expense of $117.9 million for RSU grants to executive officers in connection with the Business Combination and increased headcount. In addition, there was an increase in legal expenses of $27.5 million primarily related to regulatory and legal matters incurred in connection with the short-seller analyst report from September 2020. Further, there was an increase in personnel expenses of $7.3 million driven by growth in headcount and higher general corporate expenses, professional services, travel, and depreciation of our headquarters. This was partially offset by a decrease in marketing costs due to the Nikola World event held in 2019, which was not held in 2020.
Impairment Expense
Impairment expense of $14.4 million during the year ended December 31, 2020 resulted from the discontinuation of the Powersports business unit in the fourth quarter of 2020, which resulted in an impairment charge on in-process R&D, trademarks and certain long-lived assets.
Interest Income, net
Interest income, net decreased by $1.3 million, or 86%, from $1.5 million of income during the year ended December 31, 2019 to $0.2 million of income during the year ended December 31, 2020. The decrease is primarily due to an increase in interest expense from our finance lease liability and a lower average interest rate earned on deposits. This was partially offset by a higher cash and cash equivalents balance in 2020.
Loss on Forward Contract Liability
Our loss on the forward contract liability represents recognized loss from a $1.3 million change in fair value as of the settlement date. The forward contract liability was settled in April 2020.
Revaluation of Warrant Liability
The revaluation of warrant liability represents a net remeasurement gain of $13.4 million resulting from the change in fair value of our warrant liability. The remeasurement gain includes a $12.4 million gain for the change in fair value of our warrant liability for warrants not yet exercised as of December 31, 2020, and a $1.0 million remeasurement gain for warrants exercised during 2020.
Other Income (Expense), net
Other income (expense), net decreased by $2.2 million, from $1.4 million of income during the year ended December 31, 2019 to $0.8 million of expense during the year ended December 31, 2020. The decrease was driven primarily by one-time grant income received during 2019, losses on foreign currency exchange and unrealized losses on investments during 2020.
Income Tax Expense (Benefit)
Income tax expense (benefit) for the year ended December 31, 2020 was a $1.0 million benefit, primarily related to changes in deferred tax liabilities related to our indefinite-lived intangible which was impaired in 2020. Income tax expense was immaterial for the year ended December 31, 2019. We have cumulative net operating losses at the federal and state level and maintain a full valuation allowance against our net deferred taxes.
Equity in Net Loss of Affiliates
Equity in net loss of affiliate for the year ended December 31, 2020 was $0.6 million as operations of our joint venture commenced in the fourth quarter of 2020.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, we believe the following non-GAAP measures are useful in evaluating operational performance. We use the following non-GAAP financial information to evaluate ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing operating performance.
EBITDA and Adjusted EBITDA
“EBITDA” is defined as net loss before interest income or expense, income tax expense or benefit, and depreciation and amortization. “Adjusted EBITDA” is defined as EBITDA adjusted for stock-based compensation and other items determined by
management. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors.otherwise. However, you should be aware that when evaluating EBITDA and Adjusted EBITDA we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion.
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA on a supplemental basis. You should review the reconciliation of net loss to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
The following table reconciles net loss to EBITDA and Adjusted EBITDA for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Years Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 | | 2019 |
| (in thousands) |
Net loss | $ | (159,416) | | | $ | (142,236) | | | $ | (690,438) | | | $ | (370,866) | | | $ | (88,656) | |
Interest (income) expense, net | 262 | | | 53 | | | 481 | | | (202) | | | (1,456) | |
Income tax expense (benefit) | — | | | (1,030) | | | 4 | | | (1,026) | | | 151 | |
Depreciation and amortization | 2,272 | | | 1,753 | | | 8,231 | | | 6,008 | | | 2,323 | |
EBITDA | (156,882) | | | (141,460) | | | (681,722) | | | (366,086) | | | (87,638) | |
Stock-based compensation | 53,728 | | | 46,255 | | | 205,711 | | | 137,991 | | | 4,858 | |
Revaluation of Series A redeemable convertible preferred stock warrant liability | — | | | — | | | — | | | — | | | 3,339 | |
Loss on forward contract liability | — | | | — | | | — | | | 1,324 | | | — | |
Revaluation of warrant liability | (144) | | | (4,860) | | | (3,051) | | | (13,448) | | | — | |
Revaluation of derivative liability | 215 | | | — | | | (104) | | | — | | | — | |
Equity in net loss of affiliates | 513 | | | 637 | | | 3,580 | | | 637 | | | — | |
Regulatory and legal matters(1) | 12,185 | | | 19,510 | | | 47,842 | | | 24,683 | | | — | |
Impairment expense | — | | | 14,415 | | | — | | | 14,415 | | | — | |
SEC settlement | — | | | — | | | 125,000 | | | — | | | — | |
Adjusted EBITDA | $ | (90,385) | | | $ | (65,503) | | | $ | (302,744) | | | $ | (200,484) | | | $ | (79,441) | |
(1) Regulatory and legal matters include legal, advisory and other professional service fees incurred in connection with the short-seller article from September 2020, and investigations and litigation related thereto.
Non-GAAP Net Loss and Non-GAAP Net Loss Per Share, Basic and Diluted
Non-GAAP net loss and non-GAAP net loss per share, basic and diluted are presented as supplemental measures of our performance. Non-GAAP net loss is defined as net loss attributable to common stockholders, basic and diluted adjusted for stock compensation expense and other items determined by management. Non-GAAP net loss per share, basic and diluted, is defined as non-GAAP net loss divided by weighted average shares outstanding, basic and diluted.
The following table reconciles net loss and net loss per share to non-GAAP net loss and non-GAAP net loss per share for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Years Ended December 31, |
| 2021 | | 2020 | | 2021 | | 2020 | | 2019 |
| (in thousands, except share and per share data) |
Net loss attributable to common stockholders | $ | (159,416) | | | $ | (142,236) | | | $ | (690,438) | | | $ | (384,273) | | | $ | (105,472) | |
Stock-based compensation | 53,728 | | | 46,255 | | | 205,711 | | | 137,991 | | | 4,858 | |
Premium paid on repurchase of redeemable convertible preferred stock | — | | | — | | | — | | | 13,407 | | | 16,816 | |
Revaluation of warrant liability | (144) | | | (4,860) | | | (3,051) | | | (13,448) | | | — | |
Revaluation of derivative liability | 215 | | | — | | | (104) | | | — | | | — | |
Regulatory and legal matters(1) | 12,185 | | | 19,510 | | | 47,842 | | | 24,683 | | | — | |
Impairment expense | — | | | 14,415 | | | — | | | 14,415 | | | — | |
SEC settlement | — | | | — | | | 125,000 | | | — | | | — | |
Non-GAAP net loss | $ | (93,432) | | | $ | (66,916) | | | $ | (315,040) | | | $ | (207,225) | | | $ | (83,798) | |
| | | | | | | | | |
Non-GAAP net loss per share: | | | | | | | | | |
Basic | $ | (0.23) | | | $ | (0.17) | | | $ | (0.79) | | | $ | (0.62) | | | $ | (0.32) | |
Diluted | $ | (0.23) | | | $ | (0.17) | | | $ | (0.79) | | | $ | (0.62) | | | $ | (0.32) | |
Weighted average shares outstanding: | | | | | | | | | |
Basic | 407,448,311 | | | 385,983,645 | | | 398,655,081 | | | 335,325,271 | | | 262,528,769 | |
Diluted | 407,448,311 | | | 386,323,048 | | | 398,784,392 | | | 335,831,033 | | | 262,528,769 | |
(1) Regulatory and legal matters include legal, advisory and other professional service fees incurred in connection with the short-seller article from September 2020, and investigations and litigation related thereto.
Liquidity and Capital Resources
Since inception, we financed our operations primarily from the sales of redeemable convertible preferred stock and common stock, the Business Combination, a private placement with investors (the "PIPE"), proceeds from the Tumim Purchase Agreements, and redemption of warrants. As of December 31, 2021, our principal sources of liquidity were our cash and cash equivalents in the amount of $497.2 million, which are primarily invested in money market funds. During the second quarter of 2021, we entered into a purchase agreement with Tumim (the" First Tumim Purchase Agreement") allowing us to issue shares of our common stock to Tumim for proceeds of up to $300.0 million. As of December 31, 2021 we have issued 14,213,498 shares of common stock to Tumim under the terms of the First Tumim Purchase Agreement for gross proceeds of $163.8 million, excluding the 155,703 commitment shares issued to Tumim as consideration for its irrevocable commitment to purchase shares of our common stock under the First Tumim Purchase Agreement. As of December 31, 2021, there were 3,643,644 registered shares remaining and a remaining commitment available under the First Tumim Purchase Agreement of $136.2 million.
During the third quarter of 2021, we entered into a second purchase agreement with Tumim (the "Second Tumim Purchase Agreement" and, together with the First Tumim Purchase Agreement, the "Tumim Purchase Agreements") allowing us to issue shares of our common stock to Tumim for proceeds of up to an additional $300.0 million, provided that certain conditions have been met. These conditions include effectiveness of a registration statement covering the resale of shares of common stock that have been and may be issued under the Second Tumim Purchase Agreement and termination of the First Tumim Purchase Agreement. As of December 31, 2021, we have not sold any shares of common stock to Tumim under the terms of the Second Tumim Purchase Agreement with 28,790,787 registered shares remaining and a remaining commitment of $300.0 million available.
Short-Term Liquidity Requirements
As of the date of this Annual Report on Form 10-K, we have yet to generate revenue from our core business operations. As of December 31, 2021, our current assets were $524.7 million consisting primarily of cash and cash equivalents of $497.2 million, and our current liabilities were $180.6 million comprised of accounts payable and accrued expenses.
We believe our cash and cash equivalents balance will be sufficient to continue to execute our business strategy over the next twelve month period including (i) completing the development and industrialization of the BEV truck, (ii) expanding the Coolidge manufacturing facility, (iii) completing the construction of a pilot commercial hydrogen station, (iv) validation and on-road testing of the FCEV truck and (v) hiring of additional personnel.
However, actual results could vary materially and negatively as a result of a number of factors, including:
•the costs of our greenfield manufacturing facility expansion and equipment;
•the timing and the costs involved in bringing our vehicles to market, mainly the BEV truck;
•our ability to manage the costs of manufacturing the BEV trucks;
•the scope, progress, results, costs, timing and outcomes of our research and development for our FCEV trucks;
•the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities;
•revenue received from sales of our BEV trucks;
•the costs of additional general and administrative personnel, including accounting and finance, legal and human resources, as well as costs related to litigation, investigations, or settlements;
•our ability to collect revenue; and
•other risks discussed in the section entitled "Risk Factors".
Long-Term Liquidity Requirements
Until we can generate sufficient revenue from truck sales and leases to cover operating expenses, working capital and capital expenditures, we expect to fund cash needs through a combination of equity and debt financing, including lease securitization, strategic collaborations, and licensing arrangements. If we raise funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of our common stock. The terms of debt securities or borrowings could impose significant restrictions on our operations. The credit market and financial services industry have in the past, and may in the future, experience periods of upheaval that could impact the availability and cost of equity and debt financing.
While we will need to raise additional capital in the future, if adequate funds are not available, we will need to curb our expansion plans or limit our research and development activities, which would have a material adverse impact on our business prospects and results of operations.
Summary of Cash Flows
The following table provides a summary of cash flow data:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (in thousands) |
Net cash used in operating activities | $ | (307,154) | | | $ | (150,533) | | | $ | (80,627) | |
Net cash used in investing activities | (207,481) | | | (31,141) | | | (39,302) | |
Net cash provided by financing activities | 187,598 | | | 941,120 | | | 35,805 | |
Cash Flows from Operating Activities
Our cash flows from operating activities are significantly affected by the growth of our business primarily related to research and development and selling, general, and administrative activities. Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities.
Net cash used in operating activities was $307.2 million for the year ended December 31, 2021. The most significant component of our cash used during this period was a net loss of $690.4 million, which included non-cash expenses of $205.7 million related to stock-based compensation, $46.3 million for in-kind services, $8.2 million related to depreciation and
amortization, and $5.6 million for the issuance of commitment shares to Tumim, and net cash inflows of $110.4 million from changes in operating assets and liabilities. The net cash inflows from changes in operating assets and liabilities were the result of an increase in accounts payable and accrued expenses of $96.1 million, primarily related to the liability for the SEC settlement, and increased spend on the development of our BEV and FCEV trucks, along with an increase in other long-term liabilities of $48.6 million related to the SEC settlement, partially offset by an increase in inventory and prepaid expenses and other current assets.
Net cash used in operating activities was $150.5 million for the year ended December 31, 2020. The most significant component of our cash used during this period was a net loss of $370.9 million, which included non-cash expenses of $138.0 million related to stock-based compensation, a gain of $13.4 million related to the change in fair value of our warrant liability, $45.7 million for in-kind services, $6.0 million related to depreciation and amortization, $14.4 million for impairment charges, and a loss of $1.3 million related to the change in fair value of our forward contract liability, and net cash inflows of $28.7 million from changes in operating assets and liabilities. The net cash inflows from changes in operating assets and liabilities were primarily the result of an increase in accounts payable and accrued expenses of $29.7 million, primarily related accrued expenses related to regulatory and legal matters, and increased spend on the development of our BEV and FCEV trucks, partially offset by an increase in accounts receivable, net and prepaid expenses and other current assets.
Net cash used in operating activities was $80.6 million for the year ended December 31, 2019. The most significant component of our cash used during this period was a net loss of $88.7 million, which included non-cash charges of $8.0 million for in-kind services, $4.9 million related to stock-based compensation, loss of $3.3 million related to the change in fair value of our Series A redeemable convertible preferred stock warrant liability, and $2.3 million related to depreciation and amortization expense, and net cash outflows of $10.6 million from changes in operating assets and liabilities. The net cash outflows from changes in operating assets and liabilities were primarily the result of a decrease in accounts payable and accrued expenses and other current liabilities of $9.4 million, primarily related to the completion of certain outside development projects and settlement of related liabilities.
Cash Flows from Investing Activities
We continue to experience negative cash flows from investing activities as we expand our business and build our infrastructure. Cash flows from investing activities primarily relate to capital expenditures to support our growth. Net cash used in investing activities is expected to continue to increase substantially as we build out and tool our North American truck manufacturing facility in Coolidge, Arizona, finance initial operations of our joint venture in Ulm, Germany, and develop the network of hydrogen fueling stations.
Net cash used in investing activities was $207.5 million for the year ended December 31, 2021, which was primarily due to purchases and deposits for property and equipment, including costs of construction for our Coolidge manufacturing facility and purchases of capital equipment of $179.3 million, $25.0 million in cash paid for investment in WVR, and $3.4 million paid to settle the first price differential with WVR.
Net cash used in investing activities was $31.1 million for the year ended December 31, 2020, which was primarily due to purchases and deposits for property and equipment, including construction for our Coolidge manufacturing facility and purchases of capital equipment of $22.3 million and $8.8 million in cash paid for investment in the joint venture.
Net cash used in investing activities was $39.3 million for the year ended December 31, 2019, which was primarily due to purchases and deposits on capital equipment of $21.1 million, and $18.2 million related to the construction of our headquarters.
Cash Flows from Financing Activities
Through December 31, 2021, we have financed our operations through proceeds from sales of redeemable convertible preferred stock, the Business Combination, the PIPE, and redemption of warrants.
Net cash provided by financing activities was $187.6 million for the year ended December 31, 2021, which was primarily due to proceeds from the First Tumim Purchase Agreement of approximately $163.8 million, net proceeds from issuance of the promissory note for $24.6 million, proceeds from the exercises of stock options of $4.8 million, partially offset by a $4.1 million payment of our term loan.
Net cash provided by financing activities was $941.1 million for the year ended December 31, 2020, which was primarily due to net proceeds of $616.7 million from the Business Combination and the PIPE, the proceeds from the exercise of public and private warrants of $264.5 million, proceeds from the issuance of Legacy Nikola's Series D redeemable convertible preferred stock, net of issuance costs, of $50.3 million, proceeds from the exercises of stock options of $9.7 million and proceeds from tenant allowances for the construction of our headquarters of $0.9 million, offset by payments on our finance lease liability of $1.0 million.
Net cash provided by financing activities was $35.8 million for the year ended December 31, 2019, which was primarily due to proceeds from the issuance of Series D redeemable convertible preferred stock of $65.0 million and proceeds from the exercise of the Series A redeemable convertible preferred stock warrants of $2.2 million, offset by the repurchase of Series B redeemable convertible preferred stock of $31.4 million.
Contractual Obligations and Commitments
For a description of our contractual obligations such as debt, leases, purchase and other contractual obligations, see Note 5, Leases, Note 9, Debt and Finance Lease Liabilities, and Note 14, Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
Since the date of incorporation, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments involve valuation of our stock-based compensation, including the fair value of common stock and market-based restricted stock units, the valuations of warrant liabilities, derivative liabilities, the WVR Put Right and Price Differential and redeemable convertible preferred stock tranche liability, estimates related to our lease assumptions, contingent liabilities, including litigation reserves, and inventory valuation. 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.
Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
While our significant accounting policies are described in the notes to our consolidated financial statements, we believe that the following accounting policies are most critical to understanding our financial condition and historical and future results of operations.
Stock-Based Compensation
We recognize the cost of share-based awards granted to employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. We recognize stock-based compensation costs and reverse previously recognized costs for unvested awards in the period forfeitures occur. We determine the fair value of stock options using the Black-Scholes option pricing model, which is impacted by the following assumptions:
•Expected Term—We use the simplified method when calculating the expected term due to insufficient historical exercise data.
•Expected Volatility—As our shares have limited history, the volatility is based on a benchmark of comparable companies within the automotive and energy storage industries.
•Expected Dividend Yield—The dividend rate used is zero as we have never paid any cash dividends on common stock or Legacy Nikola common stock and do not anticipate doing so in the foreseeable future.
•Risk-Free Interest Rate—The interest rates used are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.
Common Stock Valuations
The grant date fair value of Legacy Nikola common stock was determined by Legacy Nikola's board of directors with the assistance of management and an independent third-party valuation specialist. The grant date fair value of Legacy Nikola common stock was determined using valuation methodologies which utilize certain assumptions, including probability weighting of events, volatility, time to liquidation, a risk-free interest rate, and an assumption for a discount for lack of
marketability (Level 3 inputs). Based on our early stage of development and other relevant factors, we determined that an Option Pricing Model ("OPM") was the most appropriate method for allocating our enterprise value to determine the estimated fair value of Legacy Nikola common stock. Application of the OPM involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of future events. Specifically, we have historically used the OPM backsolve method to estimate the fair value of Legacy Nikola common stock, which derives the implied equity value for one type of equity security from a contemporaneous transaction involving another type of security, shares of our redeemable convertible preferred stock in this instance.
As of June 3, 2020, our stock is publicly traded and the fair value of our common stock is based on the closing price of our common stock on or around the date of grant.
Market-Based RSUs
The fair value of market based RSU awards is determined using a Monte Carlo simulation model that utilizes significant assumptions, including volatility, that determine the probability of satisfying the market condition stipulated in the award to calculate the fair value of the award. Significant judgment is required in determining the expected volatility of our common stock. Due to the limited history of trading of our common stock, we determined expected volatility based on a peer group of publicly traded companies.
Common Stock Warrants
Common stock warrants issued with debt, equity or as standalone financial instruments are recorded as either liabilities or equity in accordance with the applicable accounting guidance. Warrants recorded as equity are recorded at their fair value determined at the issuance date and are not remeasured after that. Warrants recorded as liabilities are recorded at their fair value and remeasured on each reporting date with changes in estimated fair value of common stock warrant liability in the consolidated statement of operations.
We, with the assistance of third party valuations, utilize the Black-Scholes valuation model to estimate the fair value of private warrants at each reporting date. The application of the Black-Scholes model utilizes significant assumptions, including volatility. Significant judgment is required in determining the expected volatility of our common stock. Due to the limited history of trading of our common stock, we determined expected volatility based on a peer group of publicly traded companies. Increases (decreases) in the assumptions result in a directionally similar impact to the fair value of the common stock warrant liability.
Recent Accounting Pronouncements
Note 2 to our consolidated financial statements and notes thereto, contained elsewhere in this Annual Report on the Form 10-K, provides more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market and other risks, including the effects of changes in interest rates, inflation, and foreign currency exchange rates, as well as risks to the availability of funding sources, hazard events, and specific asset risks.
Interest Rate Risk
The market risk inherent in our financial instruments and our financial position represents the potential loss arising from adverse changes in interest rates. As of December 31, 2021 and 2020, we had cash and cash equivalents of $497.2 million and $840.9 million, respectively, consisting of interest-bearing money market accounts for which the fair market value would be affected by changes in the general level of U.S. interest rates. However, due to the short-term maturities and the low-risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our cash and cash equivalents.
Foreign Currency Risk
For the year ended December 31, 2021 and 2020, we recorded a $1.4 million gain and $0.8 million loss, respectively, for foreign currency adjustments. There was no material foreign currency loss for the year ended December 31, 2019.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Nikola Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Nikola Corporation’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Nikola Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021 and our report dated February 24, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Phoenix, Arizona
February 24, 2022
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Nikola Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Nikola Corporation (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| | | | | | | | |
| | Valuation of Warrant Liability |
| | |
Description of the Matter | | The fair value of the Warrant Liability as of December 31, 2021 totaled $4.3 million. The fair value adjustments for the Warrant Liability during the year ended December 31, 2021 totaled $3.1 million. As discussed in Note 2 to the consolidated financial statements, the Warrant Liability was valued each reporting period using a Black-Scholes model that utilized various assumptions, including term, stock price, volatility, risk free rate and dividend yield, to calculate the fair value of the Warrant Liability. The volatility assumption was the most critical assumption as it had the most significant effect on the fair value of the Warrant Liability. The volatility assumption was calculated using the equity volatilities of guideline public companies, which were selected based on the similarity of their operations to that of the Company.
Auditing the fair value of the Warrant Liability was challenging due to the judgmental nature of selecting an appropriate valuation model and the model’s assumptions, especially the guideline public companies used to determine the volatility assumption.
|
| | |
How We Addressed the Matter in Our Audit | | To test the fair value of the Warrant Liability, our audit procedures included, among others, assessing the appropriateness of the use of the Black-Scholes model and accuracy of the underlying calculation, including testing the assumptions used to calculate the fair value of the Warrant Liability. We compared the term, stock price, risk free rate and dividend yield to readily available information as of the valuation dates for each reporting period. For the volatility assumption, we assessed the suitability of the guideline public companies used based on the similarity of their operations to that of the Company, compared the equity volatilities of the guideline public companies used in the estimate to actual stock price performance, and we developed an independent range of volatility based on the cumulative volatilities of the guideline public companies adjusted for the relative size of the Company as compared to the guideline public companies. We involved our specialists to assist us with evaluating the Black-Scholes model, as well as to perform comparative range calculations using the assumptions previously discussed. |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2018.
Phoenix, Arizona
February 24, 2022
NIKOLA CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 497,241 | | | $ | 840,913 | |
Restricted cash and cash equivalents | — | | | 4,365 | |
| | | |
Inventory | 11,597 | | | — | |
Prepaid in-kind services | — | | | 46,271 | |
Prepaid expenses and other current assets | 15,891 | | | 5,368 | |
Total current assets | 524,729 | | | 896,917 | |
Restricted cash and cash equivalents | 25,000 | | | 4,000 | |
Long-term deposits | 27,620 | | | 17,687 | |
Property, plant and equipment, net | 244,377 | | | 71,401 | |
| | | |
Intangible assets, net | 97,181 | | | 50,050 | |
Investment in affiliates | 61,778 | | | 8,420 | |
Goodwill | 5,238 | | | 5,238 | |
Other assets | 3,896 | | | — | |
Total assets | $ | 989,819 | | | $ | 1,053,713 | |
Liabilities and stockholders' equity | | | |
Current liabilities | | | |
Accounts payable | $ | 86,982 | | | $ | 29,364 | |
Accrued expenses and other current liabilities | 93,487 | | | 17,739 | |
Debt and finance lease liabilities, current | 140 | | | 5,170 | |
Total current liabilities | 180,609 | | | 52,273 | |
Long-term debt and finance lease liabilities, net of current portion | 25,047 | | | 13,956 | |
Operating lease liabilities | 2,263 | | | — | |
Warrant liability | 4,284 | | | 7,335 | |
Other long-term liabilities | 84,033 | | | — | |
Deferred tax liabilities, net | 11 | | | 8 | |
Total liabilities | 296,247 | | | 73,572 | |
Commitments and contingencies (Note 14) | 0 | | 0 |
Stockholders' equity | | | |
Preferred stock, $0.0001 par value, 150,000,000 shares authorized, no shares issued and outstanding as of December 31, 2021 and 2020 | — | | | — | |
Common stock, $0.0001 par value, 600,000,000 shares authorized, 413,340,550 and 391,041,347 shares issued and outstanding as of December 31, 2021 and 2020, respectively | 41 | | | 39 | |
Additional paid-in capital | 1,944,341 | | | 1,540,037 | |
Accumulated deficit | (1,250,612) | | | (560,174) | |
Accumulated other comprehensive income (loss) | (198) | | | 239 | |
Total stockholders' equity | 693,572 | | | 980,141 | |
Total liabilities and stockholders' equity | $ | 989,819 | | | $ | 1,053,713 | |
See accompanying notes to consolidated financial statements.
NIKOLA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Solar revenues | $ | — | | | $ | 95 | | | $ | 482 | |
Cost of solar revenues | — | | | 72 | | | 271 | |
Gross profit | — | | | 23 | | | 211 | |
Operating expenses: | | | | | |
Research and development | 292,951 | | | 185,619 | | | 67,514 | |
Selling, general, and administrative | 400,575 | | | 182,724 | | | 20,692 | |
Impairment expense | — | | | 14,415 | | | — | |
Total operating expenses | 693,526 | | | 382,758 | | | 88,206 | |
Loss from operations | (693,526) | | | (382,735) | | | (87,995) | |
Other income (expense): | | | | | |
Interest income (expense), net | (481) | | | 202 | | | 1,456 | |
Revaluation of Series A redeemable convertible preferred stock warrant liability | — | | | — | | | (3,339) | |
Loss on forward contract liability | — | | | (1,324) | | | — | |
Revaluation of warrant liability | 3,051 | | | 13,448 | | | — | |
Other income (expense), net | 4,102 | | | (846) | | | 1,373 | |
Loss before income taxes and equity in net loss of affiliates | (686,854) | | | (371,255) | | | (88,505) | |
Income tax expense (benefit) | 4 | | | (1,026) | | | 151 | |
Loss before equity in net loss of affiliates | (686,858) | | | (370,229) | | | (88,656) | |
Equity in net loss of affiliates | (3,580) | | | (637) | | | — | |
Net loss | (690,438) | | | (370,866) | | | (88,656) | |
Premium paid on repurchase of redeemable convertible preferred stock | — | | | (13,407) | | | (16,816) | |
Net loss attributable to common stockholders | $ | (690,438) | | | $ | (384,273) | | | $ | (105,472) | |
| | | | | |
Net loss per share attributable to common stockholders: | | | | | |
Basic | $ | (1.73) | | | $ | (1.15) | | | $ | (0.40) | |
Diluted | $ | (1.74) | | | $ | (1.18) | | | $ | (0.40) | |
Weighted-average shares outstanding: | | | | | |
Basic | 398,655,081 | | | 335,325,271 | | | 262,528,769 | |
Diluted | 398,784,392 | | | 335,831,033 | | | 262,528,769 | |
See accompanying notes to consolidated financial statements.
NIKOLA CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Net loss | $ | (690,438) | | | $ | (370,866) | | | $ | (88,656) | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustment, net of tax | (437) | | | 239 | | | — | |
Comprehensive loss | $ | (690,875) | | | $ | (370,627) | | | $ | (88,656) | |
See accompanying notes to consolidated financial statements.
NIKOLA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Convertible Preferred Stock | | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total Stockholders' Equity |
| Shares | | Amount | | | Shares | | Amount | | | | |
Balance as of December 31, 2018 | 76,817,224 | | | $ | 278,062 | | | | 60,166,667 | | | $ | 1 | | | $ | 6,742 | | | $ | (98,565) | | | $ | — | | | $ | (91,822) | |
Retroactive application of recapitalization | (76,817,224) | | | (278,062) | | | | 200,239,676 | | | 25 | | | 278,037 | | | — | | | — | | | 278,062 | |
Adjusted balance, beginning of period | — | | | — | | | | 260,406,343 | | | 26 | | | 284,779 | | | (98,565) | | | — | | | 186,240 | |
Issuance of Series D redeemable convertible preferred stock, net of $4,700 issuance costs (1) | — | | | — | | | | 6,671,998 | | | 1 | | | 60,304 | | | — | | | — | | | 60,305 | |
Issuance of Series D redeemable convertible preferred stock for in-kind contribution (1) | — | | | — | | | | 5,953,515 | | | — | | | 58,000 | | | — | | | — | | | 58,000 | |
Exercise of Series A redeemable convertible preferred stock warrants (1) | — | | | — | | | | 1,368,720 | | | — | | | 6,116 | | | — | | | — | | | 6,116 | |
Repurchase of Series B redeemable convertible preferred stock (1) | — | | | — | | | | (3,575,750) | | | — | | | (30,259) | | | (1,097) | | | — | | | (31,356) | |
Exercise of stock options | — | | | — | | | | 1,266 | | | — | | | 1 | | | — | | | — | | | 1 | |
Stock-based compensation | — | | | — | | | | — | | | — | | | 4,858 | | | — | | | — | | | 4,858 | |
Cumulative effect of ASU 2018-07 adoption | — | | | — | | | | — | | | — | | | 162 | | | (162) | | | — | | | — | |
Net loss | — | | | — | | | | — | | | — | | | — | | | (88,656) | | | — | | | (88,656) | |
Balance as of December 31, 2019 | — | | | $ | — | | | | 270,826,092 | | | $ | 27 | | | $ | 383,961 | | | $ | (188,480) | | | $ | — | | | $ | 195,508 | |
Issuance of Series D redeemable convertible preferred stock, net of $8,403 issuance costs (1) | — | | | — | | | | 6,581,340 | | 1 | | 56,249 | | | — | | | — | | | 56,250 |
Issuance of Series D redeemable convertible preferred stock for in kind contribution (1) | — | | | — | | | | 9,443,353 | | 1 | | 91,998 | | | — | | | — | | | 91,999 |
Business Combination and PIPE financing | — | | | — | | | | 72,272,942 | | 7 | | 594,515 | | | — | | | — | | | 594,522 |
Exercise of stock options | — | | | — | | | | 8,716,423 | | — | | | 9,863 | | | — | | | — | | | 9,863 |
Issuance of shares for RSU awards | — | | | — | | | | 194,306 | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | | — | | | — | | | 137,991 | | | — | | | — | | | 137,991 |
Common stock issued for warrants exercised | — | | | — | | | | 23,006,891 | | 3 | | | 265,460 | | | — | | | — | | | 265,463 |
Cumulative effect of ASU 2016-02 adoption | — | | | — | | | | — | | | — | | | — | | | (828) | | | — | | | (828) | |
Net loss | — | | | — | | | | — | | | — | | | — | | | (370,866) | | | — | | | (370,866) | |
Other comprehensive income | — | | | — | | | | — | | | — | | | — | | | — | | | 239 | | | 239 | |
Balance as of December 31, 2020 | — | | | $ | — | | | | 391,041,347 | | | $ | 39 | | | $ | 1,540,037 | | | $ | (560,174) | | | $ | 239 | | | $ | 980,141 | |
Exercise of stock options | — | | | — | | | | 3,472,267 | | | 1 | | | 4,571 | | | — | | | — | | | 4,572 | |
Issuance of shares for RSU awards | — | | | — | | | | 2,523,328 | | | — | | | — | | | — | | | — | | | — | |
Common stock issued for commitment shares | — | | | — | | | | 407,743 | | | — | | | 5,564 | | | — | | | — | | | 5,564 | |
Common stock issued for investment in affiliates, net of common stock with embedded put right | — | | | — | | | | 1,682,367 | | | — | | | 19,139 | | | — | | | — | | | 19,139 | |
Reclassification from mezzanine equity to equity after elimination of put right | — | | | — | | | | — | | | — | | | 5,532 | | | — | | | — | | | 5,532 | |
Issuance of common stock under Tumim Purchase Agreements | — | | | — | | | | 14,213,498 | | | 1 | | | 163,787 | | | — | | | — | | | 163,788 | |
Stock-based compensation | — | | | — | | | | — | | | — | | | 205,711 | | | — | | | — | | | 205,711 | |
Net loss | — | | | — | | | | — | | | — | | | — | | | (690,438) | | | — | | | (690,438) | |
Other comprehensive loss | — | | | — | | | | — | | | — | | | — | | | — | | | (437) | | | (437) | |
Balance as of December 31, 2021 | — | | | $ | — | | | | 413,340,550 | | | $ | 41 | | | $ | 1,944,341 | | | $ | (1,250,612) | | | $ | (198) | | | $ | 693,572 | |
| | | | | | | | | | | | | | | | |
(1) Issuance of redeemable convertible preferred stock and convertible preferred stock warrants have been retroactively restated to give effect to the recapitalization transaction.
See accompanying notes to consolidated financial statements.
NIKOLA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Cash flows from operating activities | | | | | |
Net loss | $ | (690,438) | | | $ | (370,866) | | | $ | (88,656) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
Depreciation and amortization | 8,231 | | | 6,008 | | | 2,323 | |
Stock-based compensation | 205,711 | | | 137,991 | | | 4,858 | |
Revaluation of Series A redeemable convertible preferred stock warrant liability | — | | | — | | | 3,339 | |
Non-cash in-kind services | 46,271 | | | 45,729 | | | 8,000 | |
Loss on forward contract liability | — | | | 1,324 | | | — | |
Impairment expense | — | | | 14,415 | | | — | |
Equity in net loss of affiliates | 3,580 | | | 637 | | | — | |
Revaluation of warrant liability | (3,051) | | | (13,448) | | | — | |
Issuance of common stock for commitment shares | 5,564 | | | — | | | — | |
Inventory write-downs | 4,927 | | | — | | | — | |
Other non-cash activity | 1,626 | | | (1,063) | | | 151 | |
Changes in operating assets and liabilities: | | | | | |
Inventory | (17,412) | | | — | | | — | |
Prepaid expenses and other current assets | (10,967) | | | (928) | | | (606) | |
Accounts payable, accrued expenses and other current liabilities | 96,144 | | | 29,668 | | | (9,366) | |
Long-term and customer deposits | (4,721) | | | — | | | — | |
Other assets | (1,216) | | | — | | | — | |
Operating lease liabilities | (50) | | | — | | | — | |
Other long-term liabilities | 48,647 | | | — | | | (670) | |
Net cash used in operating activities | (307,154) | | | (150,533) | | | (80,627) | |
Cash flows from investing activities | | | | | |
Purchases and deposits for property, plant and equipment | (179,269) | | | (22,324) | | | (21,100) | |
Investments in affiliates | (25,000) | | | (8,817) | | | — | |
Settlement of first price differential | (3,412) | | | — | | | — | |
Proceeds from sale of equipment | 200 | | | — | | | — | |
Cash paid towards build-to-suit lease | — | | | — | | | (18,202) | |
Net cash used in investing activities | (207,481) | | | (31,141) | | | (39,302) | |
Cash flows from financing activities | | | | | |
Proceeds from the exercise of Series A redeemable convertible preferred stock warrants | — | | | — | | | 2,160 | |
Repurchase of Series B redeemable convertible preferred stock from related parties, net of issuance costs paid | — | | | — | | | (31,356) | |
Proceeds from issuance of Series D redeemable convertible preferred stock, net of issuance costs paid | — | | | 50,349 | | | 65,000 | |
Business Combination and PIPE financing, net of issuance costs paid | — | | | 616,726 | | | — | |
Proceeds from the exercise of stock options | 4,785 | | | 9,650 | | | 1 | |
Proceeds from the exercise of stock warrants, net of issuance costs paid | — | | | 264,548 | | | — | |
Proceeds from issuance of shares under the Tumim Purchase Agreement | 163,788 | | | — | | | — | |
Proceeds from landlord on finance lease | — | | | 889 | | | — | |
Payments on finance lease liability | (863) | | | (1,042) | | | — | |
Proceeds from issuance of promissory note, net of issuance costs | 24,632 | | | — | | | — | |
Proceeds from note payable | — | | | 4,134 | | | — | |
Payment of note payable | (4,100) | | | (4,134) | | | — | |
Payment for issuance costs | (644) | | | — | | | — | |
Net cash provided by financing activities | 187,598 | | | 941,120 | | | 35,805 | |
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents | (327,037) | | | 759,446 | | | (84,124) | |
Cash and cash equivalents, including restricted cash and cash equivalents, beginning of period | 849,278 | | | 89,832 | | | 173,956 | |
Cash and cash equivalents, including restricted cash and cash equivalents, end of period | $ | 522,241 | | | $ | 849,278 | | | $ | 89,832 | |
See accompanying notes to consolidated financial statements.
| | | | | | | | | | | | | | | | | |
Supplemental cash flow disclosures: | | | | | |
Cash paid for interest | $ | 797 | | | $ | 884 | | | $ | 96 | |
Cash interest received | $ | 512 | | | $ | 703 | | | $ | 1,437 | |
Cash paid for income taxes, net of refunds | $ | — | | | $ | — | | | $ | 2 | |
Supplemental noncash investing and financing activities: | | | | | |
Purchases of property, plant and equipment included in liabilities | $ | 27,510 | | | $ | 6,751 | | | $ | 1,094 | |
Property acquired through build-to-suit lease | $ | — | | | $ | — | | | $ | 3,243 | |
Non-cash acquisition of license | $ | — | | | $ | — | | | $ | 50,000 | |
Accrued Series D redeemable convertible preferred stock issuance costs | $ | — | | | $ | — | | | $ | 4,695 | |
Non-cash prepaid in-kind services | $ | — | | | $ | 46,271 | | | $ | — | |
Accrued Business Combination and PIPE transaction costs | $ | — | | | $ | 285 | | | $ | — | |
Net liabilities assumed from VectoIQ | $ | — | | | $ | 21,919 | | | $ | — | |
Settlement of forward contract liability | $ | — | | | $ | 1,324 | | | $ | — | |
Stock option proceeds receivable | $ | — | | | $ | 213 | | | $ | — | |
Leased assets obtained in exchange for new finance lease liabilities | $ | 646 | | | $ | — | | | $ | — | |
Common stock issued for commitment shares | $ | 5,564 | | | $ | — | | | $ | — | |
Common stock issued for investments in affiliates, including common stock with embedded put right | $ | 32,376 | | | $ | — | | | $ | — | |
Acquired intangible assets included in liabilities | $ | 47,181 | | | $ | — | | | $ | — | |
See accompanying notes to consolidated financial statements.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
(a)Overview
Nikola Corporation ("Nikola" or the "Company") is a designer and manufacturer of heavy-duty commercial battery-electric and hydrogen-electric vehicles and energy infrastructure solutions.
On June 3, 2020 (the "Closing Date"), VectoIQ Acquisition Corp. ("VectoIQ"), consummated the previously announced merger pursuant to the Business Combination Agreement, dated March 2, 2020 (the "Business Combination Agreement"), by and among VectoIQ, VCTIQ Merger Sub Corp., a wholly-owned subsidiary of VectoIQ incorporated in the State of Delaware ("Merger Sub"), and Nikola Corporation, a Delaware corporation ("Legacy Nikola"). Pursuant to the terms of the Business Combination Agreement, a business combination between the Company and Legacy Nikola was effected through the merger of Merger Sub with and into Legacy Nikola, with Legacy Nikola surviving as the surviving company and as a wholly-owned subsidiary of VectoIQ (the "Business Combination").
On the Closing Date, and in connection with the closing of the Business Combination, VectoIQ changed its name to Nikola Corporation. Legacy Nikola was deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification ("ASC") 805. This determination was primarily based on Legacy Nikola's stockholders prior to the Business Combination having a majority of the voting interests in the combined company, Legacy Nikola's operations comprising the ongoing operations of the combined company, Legacy Nikola's board of directors comprising a majority of the board of directors is submitting the selection of the combined company, and Legacy Nikola's senior management comprising the senior management of the combined company. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy Nikola issuing stock for the net assets of VectoIQ, accompanied by a recapitalization. The net assets of VectoIQ are stated at historical cost, with no goodwill or other intangible assets recorded.
While VectoIQ was the legal acquirer in the Business Combination, because Legacy Nikola was deemed the accounting acquirer, the historical financial statements of Legacy Nikola 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 Legacy Nikola priorErnst & Young LLP to the Business Combination; (ii) the combined results of the Company and Legacy Nikola following the closing of the Business Combination; (iii) the assets and liabilities of Legacy Nikola at their historical cost; and (iv) the Company’s equity structurestockholders 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 Legacy Nikola's stockholders in connection with the recapitalization transaction. As such, the shares and corresponding capital amounts and earnings per share related to Legacy Nikola redeemable convertible preferred stock and Legacy Nikola common stock prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination Agreement. Activity within the statement of stockholders' equity for the issuances and repurchases of Legacy Nikola's redeemable convertible preferred stock, were also retroactively converted to Legacy Nikola common stock.
(b)Basis of Presentation
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").
Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes.
All dollar amounts are in thousands, unless otherwise noted. Share and per share amounts are presented on a post-conversion basis for all periods presented, unless otherwise specified.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
(c)Funding Risks and Going Concern
As an early stage growth company, the Company's ability to access capital is critical. Until the Company can generate sufficient revenue to cover its operating expenses, working capital and capital expenditures, the Company will need to raise additional capital.
Additional stock financing may not be available on favorable terms and could be dilutive to current stockholders. Debt financing, if available, may involve restrictive covenants and dilutive financing instruments.
The Company's ability to access capital when needed is not assured and, if capital is not available to the Company when, and in the amounts needed, the Company could be required to delay, scale back, or abandon some or all of its development programs and other operations, which could materially harm the Company's business, financial condition and results of operations.
These financial statements have been prepared by management in accordance with GAAP and this basis assumes that the Company will continueratification as a going concern, which contemplatesmatter of good corporate practice. If the realization of assets andstockholders fail to ratify the satisfaction of liabilities and commitments inselection, the normal course of business. These financial statements doaudit committee will reconsider whether or not include any adjustments that may result fromto retain Ernst & Young LLP. Even if the outcome of this uncertainty.
As ofselection is ratified, the date of this Annual Report on Form 10-K, the Company's existing cash resources and existing borrowing availability are sufficient to support planned operations for the next 12 months. As a result, management believes that the Company's existing financial resources are sufficient to continue operating activities for at least one year past the issuance date of the financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated.
(b)Comprehensive Loss
Comprehensive loss represents the net loss for the period adjusted for other comprehensive income (loss). Other comprehensive income (loss) is comprised of currency translation adjustments relating to the Company's equity method investment whose functional currency is not the U.S. dollar.
(c)Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. The Company's most significant estimates and judgments involve valuation of the Company's stock-based compensation, including the fair value of common stock and market-based restricted stock units, the valuations of warrant liabilities, derivative liabilities, the Put Right, Price Differential and redeemable convertible preferred stock tranche liability, estimates related to the Company's lease assumptions, contingent liabilities, including litigation reserves, and inventory valuation. 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.
(d)Segment Information
Under ASC 280, Segment Reporting, operating segments are defined 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 has 2 components, the Truck business unit and Energy business unit. The Truck business unit is developing and commercializing hydrogen-electric and battery-electric semi-trucks that provide environmentally friendly, cost effective solutions to the trucking sector. The Energy business unit is developing
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
and constructing a network of hydrogen fueling stations to meet hydrogen fuel demand for its customers. To date, the Company has not entered into production for the above-mentioned business units. Therefore, the Company's chief executive officer, who is also the CODM, makes decisions and manages the Company's operations as a single operating and reportable segment for purposes of allocating resources and evaluating financial performance.
(e)Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, and restricted cash and cash equivalents. The Company's cash is placed with high-credit-quality financial institutions and issuers, and at times exceeds federally insured limits. The Company limits its concentration of risk in cash equivalents by diversifying its investments among a variety of industries and issuers. The Company has not experienced any credit loss relating to its cash equivalents.
(f)Concentration of Supplier Risk
The Company is subject to risks related to its dependence on suppliers as some of the components and technologies used in the Company’s products are produced by a limited number of sources or contract manufacturers. The inability of these suppliers to deliver necessary components in a timely manner, at prices and quantities acceptable to the Company may cause the Company to incur transition costs to other suppliers and could have a material and adverse impact on the Company’s business, growth and financial and operating results.
(g)Cash, Cash Equivalents and Restricted Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. Additionally, the Company considers investments in money market funds with a floating net asset value to be cash equivalents. As of December 31, 2021 and 2020 the Company had $497.2 million and $840.9 million of cash and cash equivalents, which included cash equivalents of $463.9 million and $827.1 million highly liquid investments at December 31, 2021 and 2020, respectively.
As of December 31, 2021 and 2020, the Company had $25 million and $8.4 million, respectively, in current and non-current restricted cash. Restricted cash represents cash that is restricted as to withdrawal or usage and primarily consists of securitization of the Company's letter of credit and term loan, and refundable customer deposits.
The reconciliation of cash and cash equivalents and restricted cash and cash equivalents to amounts presented in the consolidated statements of cash flows are as follows:
| | | | | | | | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 | | 2019 |
Cash and cash equivalents | $ | 497,241 | | | $ | 840,913 | | | $ | 85,688 | |
Restricted cash and cash equivalents—current | — | | | 4,365 | | | — | |
Restricted cash and cash equivalents—non-current | 25,000 | | | 4,000 | | | 4,144 | |
Cash, cash equivalents and restricted cash and cash equivalents | $ | 522,241 | | | $ | 849,278 | | | $ | 89,832 | |
(h)Fair Value of Financial Instruments
The carrying value and fair value of the Company's financial instruments are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Cash equivalents—money market | $ | 463,867 | | | $ | — | | | $ | — | | | $ | 463,867 | |
| | | | | | | |
| | | | | | | |
Liabilities | | | | | | | |
Warrant liability | $ | — | | | $ | — | | | $ | 4,284 | | | $ | 4,284 | |
Derivative liability | — | | | — | | | 4,189 | | | 4,189 | |
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Cash equivalents—money market | $ | 827,118 | | | $ | — | | | $ | — | | | $ | 827,118 | |
Restricted cash equivalents—money market | 4,100 | | | — | | | — | | | 4,100 | |
| | | | | | | |
Liabilities | | | | | | | |
Warrant liability | $ | — | | | $ | — | | | $ | 7,335 | | | $ | 7,335 | |
During 2019, the Company recognized a $3.3 million loss as a component of other income (expense) on the consolidated statements of operations for the remeasurement of the Series A redeemable convertible preferred stock warrant liability. As of December 31, 2019, all Series A redeemable convertible preferred stock warrants were exercised, upon which time the Company reclassified the warrant liability to additional paid-in capital on the consolidated balance
The following table represents the significant unobservable inputs used in determining the fair value of the redeemable convertible preferred stock warrant liability:
| | | | | | | | |
| | For the Year Ended December 31, |
| | 2019 |
Risk-free interest rate | | 1.48% - 2.41% |
Expected term (in years) | | 0 - 0.75 |
Expected dividend yield | | — |
Expected volatility | | 70% |
In September 2019, Legacy Nikola entered into an agreement that required Legacy Nikola to issue, and the investor to purchase, Series D redeemable convertible preferred stock at a fixed price in April 2020 (the “Forward Contract Liability”), which was accounted for as a liability. The liability was remeasured to its fair value each reporting period and at settlement, which occurred in April 2020 with the issuance of Series D redeemable convertible preferred stock. The change in fair value was recognized in other income (expense) on the consolidated statements of operations. The change in fair value of the Forward Contract Liability was as follows:
| | | | | |
| Forward Contract Liability |
Estimated fair value at December 31, 2019 | $ | — | |
Change in estimated fair value | 1,324 | |
Settlement of forward contract liability | (1,324) | |
Estimated fair value at December 31, 2020 | $ | — | |
In determining the fair value of the Forward Contract Liability, estimates and assumptions impacting fair value included the estimated future value of the Company's Series D redeemable convertible preferred stock, discount rates and estimated time to liquidity. The following reflects the significant quantitative inputs used:
| | | | | |
| As of |
| April 10, 2020 |
Estimated future value of Series D redeemable convertible preferred stock | $ | 10.00 | |
Discount rate | — | % |
Time to liquidity (years) | 0 |
As a result of the Business Combination, the Company assumed a warrant liability (the "Warrant Liability") related to previously issued private warrants in connection with VectoIQ's initial public offering. The Warrant Liability was remeasured
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
to its fair value at each reporting period and upon settlement. The change in fair value was recognized in revaluation of warrant liability on the consolidated statements of operations. The change in fair value of the Warrant Liability was as follows:
| | | | | | | | |
| | Warrant Liability |
Estimated fair value at December 31, 2019 | | $ | — | |
Warrant liability assumed from the Business Combination | | 21,698 | |
Change in estimated fair value | | (13,448) | |
Settlement of warrant liability | | (915) | |
Estimated fair value at December 31, 2020 | | 7,335 | |
Change in fair value | | (3,051) | |
Estimated fair value at December 31, 2021 | | $ | 4,284 | |
The fair value of the warrants outstanding was estimated using the Black-Scholes model. The application of the Black-Scholes model requires the use of a number of inputs and significant assumptions including volatility. The following reflects the inputs and assumptions used:
| | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 |
Stock price | $ | 9.87 | | | $ | 15.26 | |
Exercise price | $ | 11.50 | | | $ | 11.50 | |
Remaining term (in years) | 3.42 | | 4.42 |
Volatility | 90 | % | | 75 | % |
Risk-free rate | 1.03 | % | | 0.30 | % |
Expected dividend yield | — | | | — | |
On June 22, 2021 (the "WVR Closing Date"), the Company entered into a Membership Interest Purchase Agreement (the “MIPA”) with Wabash Valley Resources LLC (“WVR”) and the sellers party thereto (collectively, the “Sellers”), pursuant to which, the Company purchased a 20% equity interest in WVR in exchange for cash and the Company’s common stock (see Note 7, Investments in Affiliates). Under the original MIPA, each Seller had a right but not the obligation,audit committee in its sole discretion to cause the Company to purchase a portion of such Seller's Shares outside the specified blackout windows, at $14.86 per share of common stock (the "Put Right") with a maximum common share repurchase of $10.0 million in aggregate. As of the WVR Closing Date, the potential cash settlement from the shares of common stock subject to the Put Right and the fair value of the embedded Put Right was recorded in temporary equity.
The fair value of the Put Right, a level 3 measurement, was estimated using a Monte Carlo simulation model. The application of the Monte Carlo simulation model requires the use of a number of inputs and significant assumptions including volatility. The fair value of the Put Right was $3.2 million as of the WVR Closing Date. The following reflects the inputs and assumptions used:
| | | | | |
| As of |
| June 22, 2021 |
Stock price | $ | 17.32 | |
Strike price | $ | 14.86 | |
Volatility | 95 | % |
Risk-free rate | 0.10 | % |
On September 13, 2021, the Company entered into an Amended Membership Interest Purchase Agreement (the "Amended MIPA") with WVR and the Sellers, pursuant to which the Seller's rights to cause the Company to purchase a portion of such Seller's shares, the Put Right, was removed in its entirety and replaced with the first price differential and second price differential (together the "Price Differential"). The first price differential is equal to $14.86 (the "Issue Price"), less the average closing price for shares of the Company's common stock for the 15 consecutive days immediately following September 20,
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2021. The second price differential is equal to the Issue Price less the average closing price for shares of the Company's common stock for the five consecutive days immediately following June 20, 2022. If the first price differential is positive, the Company is obligated to pay to each Seller an amount equal to the product of 50% of such Seller's portion of the closing stock consideration and the first price differential on October 12, 2021. If the second price differential is positive, the Company is obligated to pay to each Seller an amount equal to the product of 50% of such Seller's portion of the closing stock consideration and the second price differential on June 28, 2022. Under the Amended MIPA, the Company's maximum obligation is $10.0 million in aggregate.
As a result of the Amended MIPA, the shares of common stock with the embedded Put Right were deemed modified and $13.2 million was reclassified from temporary equity to equity on the consolidated balance sheets. The Price Differential is a freestanding financial instrument and accounted for as a derivative liability. The fair value of the derivative at modification was $7.7 million and was recognized in accrued expenses and other current liabilities on the consolidated balance sheets, resulting in a net impact of $5.5 million to equity.
The derivative liability is remeasured to its fair value at each reporting period and upon settlement. In accordance with the Amended MIPA, the first price differential with the WVR Sellers was settled for $3.4 million in the fourth quarter of 2021.
The derivative liability was remeasured at each reporting period with changes in its fair value recorded in other income (expense), net on the consolidated statements of operations. The change in fair value of the derivative liability was as follows:
| | | | | | | | |
| | Derivative Liability |
Estimated fair value at September 13, 2021 | | $ | 7,705 | |
Change in estimated fair value | | (104) | |
Settlement of first price differential | | (3,412) | |
Estimated fair value at December 31, 2021 | | $ | 4,189 | |
The fair value of the derivative liability, a level 3 measurement, was estimated using a Monte Carlo simulation model. The application of the Monte Carlo simulation model requires the use of a number of inputs and significant assumptions including volatility. The following reflects the inputs and assumptions used:
| | | | | | | | | | | |
| As of |
| December 31, 2021 | | September 13, 2021 |
Stock Price | $ | 9.87 | | | $ | 10.03 | |
Strike Price | $ | 14.86 | | | $ | 14.86 | |
Volatility | 100 | % | | 95 | % |
Risk-free rate | 0.18 | % | | 0.07 | % |
(i)Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Net realizable value is the estimated selling price of inventory in the ordinary course of business, less reasonably predictable costs to complete and transport. Additionally, the Company periodically writes-off the excess and obsolete inventory based upon damaged or impaired goods and expectations about future demand and production plans.
(j)Investments
Variable Interest Entities
The Company may enter into investments in entities that are considered variable interest entities ("VIE") under ASC 810, Consolidations. A VIE is an entity that has either insufficient equity to permit the entity to finance its activities without additional subordinated financial support or equity investors who lack the characteristics of a controlling financial interest. If the Company is a primary beneficiary of a VIE, it is required to consolidate the entity. To determine if the Company is the primary beneficiary of a VIE, the Company evaluates whether it has both the power to direct the activities that most
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the Company. If the Company is not the primary beneficiary and an ownership interest is held in the entity, the interest is accounted for under the equity method of accounting. The Company continuously assesses whether it is the primary beneficiary of a VIE as changes to existing relationships or future transactions may result in changing conclusions.
Equity Method
Investments in which the Company can exercise significant influence, but do not control, are accounted for using the equity method and are presented on the consolidated balance sheets. The Company’s share of the net earnings or losses of the investee is presented within the consolidated statements of operations. The Company evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. Distributions received from equity method investees are presented in the consolidated statements of cash flows based on the cumulative earnings approach, whereby distributions received from equity method investments are classified as cash flows from operations to the extent of equity earnings and then as cash flows from investing activities thereafter. Refer to Note 7, Investments in Affiliates,for further discussion.
(k)Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Repair and maintenance costs are expensed as incurred. Depreciation is generally computed on a straight-line basis over estimated useful life of the respective assets, except for tooling which is depreciated using the consumption method over the estimated productive life of the asset. The useful lives of the Company's assets are as follows:
| | | | | |
| |
Machinery and equipment | 5 to 20 years |
Furniture and fixtures | 7 years |
Leasehold improvements | Shorter of useful life or lease term |
Software | 3 years |
Buildings | 30 to 40 years |
Deposits on equipment are classified from long-term deposits to property and equipment upon receipt or transfer of title of the related equipment.
(l)Leases
The Company determines if an arrangement is or contains a lease at inception. This determination depends on whether the arrangement conveys the right to control the use of an explicitly or implicitly identified asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed if the Company obtains the right to direct the use of and obtains substantially all of the economic benefits from using the underlying asset. The Company classifies leases with contractual terms greater than 12 months as either operating or finance. Leases with terms of 12 months or less are not recognized as right-of-use assets or lease liabilities on the consolidated balance sheets pursuant to the short-term lease exclusion.
Lease liabilities are recognized based on the present value of lease payments, reduced by lease incentives, at the lease commencement date. The Company uses an incremental borrowing rate to determine the present value of lease payments when the rate implicit in the lease is not readily determinable. The Company's incremental borrowing rate is the rate of interest that it would have to pay to borrow an amount equal to the lease payments, on a collateralized basis and in a similar economic environment over a similar term.
Lease assets are recognized based on the related lease liabilities, plus any prepaid lease payments and initial direct costs from executing the leasing arrangement. The lease term includes the base, non-cancelable lease term, and any options to extend or terminate the lease when it is reasonably certain, at commencement, that the Company will exercise such options.
Finance lease assets are amortized on a straight-line basis over the shorter of the estimated useful life of the assets or the lease term. The interest component of a finance lease is included in “Interest income (expense), net” and recognized using the effective interest method over the lease term. Operating lease assets are amortized on a straight-line basis over the term of the
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
lease. Leases with terms of 12 months or less at commencement are expensed over the lease term. The Company has also elected not to separate lease and non-lease components within a leasing arrangement related to the Company's existing classes of assets. Non-lease components primarily include payments for maintenance and utilities.
Variable payments related to a lease are expensed as incurred. These costs often relate to payments for real estate taxes, insurance, common area maintenance, and other operating costs in addition to base rent.
(m)Goodwill
The Company records goodwill when consideration paid in a purchase acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired. Goodwill is not amortized, but rather is tested for impairment annually or more frequently if facts and circumstances warrant a review. The Company has determined that there is a single reporting unit for the purpose of the goodwill impairment test, which is performed annually. For purposes of assessing the impairment of goodwill, the Company performs a qualitative analysis on December 31, each year to determine if events or changes in circumstances indicate the fair value of the reporting unit is less than its carrying value.
Factors considered which could trigger a further impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets, the Company's overall business strategy, and significant industry or macroeconomic trends. If the qualitative analysis indicates that the carrying value of the asset may not be recoverable based on the existence of one or more of the above indicators, recoverability is determined by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate. An impairment charge would then be recognized equal to the amount by which the carrying amount exceeds the fair-market value of the asset.
There was no impairment of goodwill for the years ended December 31, 2021, 2020 and 2019.
(n)Intangible Assets with Indefinite Useful Lives
The Company's prior acquisitions resulted in value assigned to in-process R&D related to the Company's Powersports business unit. In-process R&D has an indefinite useful life until completion or abandonment of the associated R&D efforts. If abandoned, the assets would be impaired. If the activities are completed, a determination is made regarding the useful lives of the assets and the methods of amortization.
The Company is required to test its in-process R&D assets for impairment annually using the guidance for indefinite-lived intangible assets. The Company's evaluation consists of first assessing qualitative factors to determine if impairment of the asset is more likely than not. If it is more likely than not that the asset is impaired, the Company determines the fair value of the in-process R&D asset and records an impairment charge if the carrying amount exceeds the fair value.
During the fourth quarter of 2020, the Company ceased operations related to the Powersports business unit in order to focus on the Company's primary mission of commercial production of semi-trucks and construction of hydrogen fueling stations. All employees in the Powersports business unit were transferred to the Truck and Energy business units within the Company. As a result, the Company recorded impairment expense related to its in-process R&D during 2020. There were no impairments of indefinite-lived intangible assets for the years ended December 31, 2021 and 2019. See Note 6, Intangible Assets, Net, for further discussion.
For intangible assets acquired in a non-monetary exchange, the estimated fair value of the shares transferred are used to establish their recorded values.
(o)Long-Lived Assets and Finite Lived Intangibles
The Company has finite lived intangible assets for licenses. The Company reviews its long-lived assets and finite lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The events and circumstances the Company monitors and considers include significant decreases in the market price of similar assets, significant adverse changes to the extent and manner in which the asset is used, an adverse change in legal factors or business climate, an accumulation of costs that exceed the estimated cost to acquire or develop a similar asset, and continuing losses that exceed forecasted costs. The Company assesses the recoverability of these assets by comparing the carrying amount of such assets or asset group to the future undiscounted cash flow it expects the assets or asset group to generate. The Company recognizes an impairment loss if the sum of the expected long-term undiscounted cash flows that the
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
long-lived asset is expected to generate is less than the carrying amount of the long-lived asset being evaluated. An impairment charge would then be recognized equal to the amount by which the carrying amount exceeds the fair value of the asset.
During the fourth quarter of 2020, the Company ceased use of its Powersports business unit and recorded an impairment charge for certain of its long-lived assets and finite lived intangibles related to the Powersports business unit for the year ended December 31, 2020. There were no impairments of long-lived assets for the years ended December 31, 2021 and 2019. See Note 4, Balance Sheet Components, and Note 6, Intangible Assets, Net, for further discussion.
(p)Income Taxes
The Company accounts for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.
A valuation allowance is recognized when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Company's lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance as of December 31, 2021 and 2020. Uncertain tax positions taken or expected to be taken in a tax return are accounted for using the more likely than not threshold for financial statement recognition and measurement.
(q)Stock-based Compensation
The Company recognizes the cost of stock-based awards granted to employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. The Company reverses previously recognized costs for unvested awards in the period forfeitures occur. The Company determines the fair value of stock options using the Black-Scholes option pricing model, which is impacted by the fair value of common stock, expected price volatility of common stock, expected term, risk-free interest rates, and expected dividend yield. The fair value of restricted stock unit ("RSU") awards is determined using the closing price of the Company's common stock on the grant date. The fair value of market based RSU awards ("Market Based RSUs") is determined using a Monte Carlo simulation model that utilizes significant assumptions, including volatility, that determine the probability of satisfying the market condition stipulated in the award to calculate the fair value of the award.
(r)Redeemable Convertible Preferred Stock Warrant Liability
The Company has issued freestanding warrants to purchase shares of its Series A redeemable convertible preferred stock that are classified outside of permanent equity. As such these warrants were recorded at fair value, and subject to remeasurement at each balance sheet date until the earlier of the exercise of the warrants or the completion of a liquidation event, including the completion of an initial public offering. Upon exercise, the redeemable convertible preferred stock warrant liability was reclassified to additional paid-in capital.
(s)Warrant Liability
The Company may issue common stock warrants with debt, equity or as a standalone financing instruments that are recorded as either liabilities or equity in accordance with the respective accounting guidance. Warrants recorded as equity are recorded at their relative fair value determined at the issuance date and remeasurement is not required. Warrants recorded as liabilities are recorded at their fair value, within warrant liability on the consolidated balance sheets, and remeasured on each reporting date with changes recorded in "Revaluation of warrant liability" on the Company's consolidated statements of operations.
(t)Research and Development Expense
Research and development expense consist of outsourced engineering services, allocated facilities costs, depreciation, internal engineering and development expenses, materials, labor, stock-based compensation related to development of the Company's products and services, and expenses related to operating the Coolidge manufacturing plant until the start of commercial production. Research and development costs are expensed as incurred.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(u)Selling, General, and Administrative Expense
Selling, general, and administrative expense consist of personnel related expenses for corporate, executive, finance, and other administrative functions, expenses for outside professional services, including legal, audit and accounting services, as well as expenses for facilities, depreciation, amortization, travel, and marketing costs. Personnel related expenses consist of salaries, benefits, and stock-based compensation.
Advertising expense is expensed as incurred and was $1.9 million, $0.7 million and $2.5 million for the years ended December 31, 2021, 2020, and 2019, respectively.
(v)Other Income (Expense)
Other income (expense) consist of grant income received from various governmental entities, foreign currency gains and losses, unrealized gains and losses on investments, revaluation gains and losses on the derivative liability, and gains and losses on the sale of equipment. Grant income is recognized as income over the periods necessary to match the income on a systematic basis to the costs that it is intended to compensate.
For the year ended December 31, 2021 and 2020, the Company recognized a $1.4 million gain and $0.8 million loss, respectively, related to foreign currency adjustments. For the year ended December 31, 2019 foreign currency gains and losses were immaterial.
(w)Net Loss Per Share
Basic net loss per share is computed by dividing net loss for the period by the weighted-average number of common shares outstanding during the period.
Diluted net loss per share is computed by dividing net loss, adjusted for the revaluation of warrant liability, by the weighted average number of common shares outstanding for the period, adjusted for the dilutive effect of shares of common stock equivalents resulting from the assumed exercise of the warrants. The treasury stock method is used to calculate the potential dilutive effect of these common stock equivalents.
(x)Recent Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board ("FASB") issued ASU No. 2021-10, Government Assistance, to increase transparency of government assistance which requires annual disclosures about transactions with a government entity that are accounted for by applying a grant or contribution accounting model by analogy. ASU 2021-10 is effective for annual periods beginning after December 15, 2021 and early adoption is permitted. The Company plans to adopt ASU 2021-10 for the year ended December 31, 2022, and is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.
(y)Recently Adopted Accounting Pronouncements
In January 2020, the FASB issued ASU No. 2020-01, Investments – Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivative and Hedging (Topic 815), which addresses accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted the ASU on January 1, 2021 and it did not have a material impact on the Company's consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer's accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for convertible debt instruments wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share. The treasury method will no longer be available. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
fiscal years, with early adoption permitted, but only at the beginning of the year. The Company early adopted the ASU on January 1, 2021, and there was no impact to the Company's consolidated financial statements.
In December 2020, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted the ASU on January 1, 2021 and it did not have a material impact on the Company's consolidated financial statements.
3. BUSINESS COMBINATIONS
On June 3, 2020, the Company and VectoIQ consummated the merger contemplated by the Business Combination Agreement, with Legacy Nikola surviving the merger as a wholly-owned subsidiary of VectoIQ. Immediately prior to the closing of the Business Combination, all shares of outstanding redeemable convertible preferred stock of Legacy Nikola were automatically converted into shares of the Company's common stock. Upon the consummation of the Business Combination, each share of Legacy Nikola common stock issued and outstanding was canceled and converted into the right to receive 1.901 shares (the "Exchange Ratio") of the Company's common stock (the "Per Share Merger Consideration").
Upon the closing of the Business Combination, VectoIQ's certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of all classes of capital stock to 750,000,000 shares, of which 600,000,000 shares were designated common stock, $0.0001 par value per share, and of which 150,000,000 shares were designated preferred stock, $0.0001 par value per share.
In connection with the execution of the Business Combination Agreement, VectoIQ entered into separate subscription agreements (each, a "Subscription Agreement") with a number of investors (each a "Subscriber"), pursuant to which the Subscribers agreed to purchase, and VectoIQ agreed to sell to the Subscribers, an aggregate of 52,500,000 shares of the Company's common stock (the "PIPE Shares"), for a purchase price of $10.00 per share and an aggregate purchase price of $525.0 million, in a private placement pursuant to the subscription agreements (the "PIPE"). The PIPE investment closed simultaneously with the consummation of the Business Combination.
Prior to the closing of the Business Combination, Legacy Nikola repurchased 2,850,930 shares of Legacy Nikola's Series B redeemable convertible preferred stock at the price of $8.77 per share for an aggregate purchase price of $25.0 million pursuant to a Series B preferred stock repurchase agreement (the "Repurchase Agreement") with Nimbus Holdings LLC ("Nimbus"). The repurchase is retrospectively adjusted in the consolidated statements of stockholders' equity to reflect the Company’s equity structure for all periods presented.
Immediately following the Business Combination, pursuant to a redemption agreement, Nikola redeemed 7,000,000 shares of common stock from M&M Residual, LLC at a purchase price of $10.00 per share. See Note 8, Related Party Transactions, for further details on the transaction.
The Business Combination is accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, VectoIQ was treated as the "acquired" company for financial reporting purposes. See Note 1, Basis of Presentation, for further details. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy Nikola issuing stock for the net assets of VectoIQ, accompanied by a recapitalization. The net assets of VectoIQ are stated at historical cost, with no goodwill or other intangible assets recorded.
Prior to the Business Combination, Legacy Nikola and VectoIQ filed separate standalone federal, state and local income tax returns. As a result of the Business Combination, structured as a reverse acquisition for tax purposes, Legacy Nikola, which was renamed Nikola Subsidiary Corporation in connection with the Business Combination (f/k/a Nikola Corporation), became the parent of the consolidated filing group, with Nikola Corporation (f/k/a VectoIQ Acquisition Corp.) as a subsidiary.
The following table reconciles the elements of the Business Combination to the consolidated statement of cash flows and the consolidated statement of changes in equity for the period ended December 31, 2020:
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
3. BUSINESS COMBINATIONS (Continued)
| | | | | | | | | | | |
| | | Recapitalization |
Cash - VectoIQ's trust and cash (net of redemptions) | | | $ | 238,358 | |
Cash - PIPE | | | 525,000 | |
Less: transaction costs and advisory fees paid | | | (51,210) | |
Less: VectoIQ loan payoff in conjunction with close | | | (422) | |
Less: M&M Residual redemption | | | (70,000) | |
Less: Nimbus repurchase | | | (25,000) | |
Net Business Combination and PIPE financing | | | 616,726 | |
Less: non-cash net liabilities assumed from VectoIQ | | | (21,919) | |
Less: accrued transaction costs and advisory fees | | | (285) | |
Net contributions from Business Combination and PIPE financing | | | $ | 594,522 | |
The number of shares of common stock issued immediately following the consummation of the Business Combination were as follows:
| | | | | | | | |
| | Number of Shares |
Common stock, outstanding prior to Business Combination | | 22,986,574 | |
Less: redemption of VectoIQ shares | | (2,702) | |
Common stock of VectoIQ | | 22,983,872 | |
VectoIQ Founder Shares | | 6,640,000 | |
Shares issued in PIPE | | 52,500,000 | |
Less: M&M Residual redemption | | (7,000,000) | |
Less: Nimbus repurchase | | (2,850,930) | |
Business Combination and PIPE financing shares | | 72,272,942 | |
Legacy Nikola shares (1)
| | 288,631,536 | |
Total shares of common stock immediately after Business Combination | | 360,904,478 | |
| | |
(1) The number of Legacy Nikola shares was determined from the 151,831,441 shares of Legacy Nikola common stock outstanding immediately prior to the closing of the Business Combination converted at the Exchange Ratio of 1.901. All fractional shares were rounded down.
4. BALANCE SHEET COMPONENTS
Inventory
Inventory consists of the following:
| | | | | | | | |
| | As of |
| | December 31, 2021 |
Raw materials | | $ | 7,344 | |
Work-in-process | | 4,253 | |
| | |
Total inventory | | $ | 11,597 | |
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
4. BALANCE SHEET COMPONENTS (Continued)
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following at December 31, 2021 and 2020, respectively:
| | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 |
Deferred implementation costs(1) | $ | 2,443 | | | $ | 511 | |
Non-trade receivables(2) | 2,717 | | | — | |
Prepaid expenses and other current assets | 10,731 | | | 4,857 | |
Total prepaid expenses and other current assets | $ | 15,891 | | | $ | 5,368 | |
(1) The capitalized costs are amortized on a straight-line basis over the non-cancellable contract term of five years. The Company recorded an immaterial amount to amortization expense on the consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019.
(2) For the year ended December 31, 2021, the Company recognized government grant income totaling $2.4 million in connection with the Arizona Qualified Facility Tax Credit (“QFTC”). As U.S. GAAP does not contain authoritative accounting standards on this topic, the Company accounted for the QFTC by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance. Under IAS 20, the grant is recognized on a systematic basis over the periods in which the qualifying expenses are incurred when it is determined that receipt of the grant is no longer contingent. As of December 31, 2021, the Company recognized $1.2 million in "Prepaid expenses and other current assets" and $1.2 million in "Other assets" on the consolidated balance sheets.
Property, Plant and Equipment, Net
Property and equipment consist of the following at December 31, 2021 and 2020, respectively:
| | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 |
Buildings | $ | 104,333 | | | $ | — | |
Construction-in-progress | 103,515 | | | 21,218 | |
Machinery and equipment | 36,551 | | | 14,820 | |
Furniture and fixtures | 1,480 | | | 1,480 | |
Leasehold improvements | 2,883 | | | 1,488 | |
Software | 7,562 | | | 4,285 | |
Finance lease assets | 646 | | | 34,775 | |
Other | 3,914 | | | 1,750 | |
Property, plant and equipment, gross | 260,884 | | | 79,816 | |
Less: accumulated depreciation and amortization | (16,507) | | | (8,415) | |
Total property, plant and equipment, net | $ | 244,377 | | | $ | 71,401 | |
Depreciation expense for the years ended December 31, 2021, 2020 and 2019 was $8.2 million, $6.0 million and $2.3 million, respectively.
Construction-in-progress on the Company's consolidated balance sheets as of December 31, 2021 relates primarily to the continued expansion of the Company's manufacturing plant in Coolidge, Arizona, and build-out of the Company's headquarters and R&D facility in Phoenix, Arizona.
For the year ended December 31, 2020, the Company expensed $2.0 million of construction-in-progress and machinery and equipment, net of accumulated depreciation, to impairment expense on the consolidated statements of operations. These assets were related to the Powersports business unit whose operations ceased in the fourth quarter of 2020. The Company had no impairment expense for the years ended December 31, 2021 and 2019.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
4. BALANCE SHEET COMPONENTS (Continued)
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following at December 31, 2021 and 2020, respectively:
| | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 |
Settlement liability | $ | 50,000 | | | $ | — | |
Accrued purchase of intangible asset | 11,344 | | | — | |
Goods received not yet invoiced | 8,253 | | | — | |
Accrued legal expenses | 5,664 | | | 8,845 | |
Derivative liability | 4,189 | | | — | |
Accrued payroll and payroll related expenses | 2,521 | | | 1,105 | |
Accrued purchases of property, plant and equipment | 2,817 | | | 2,533 | |
Accrued outsourced engineering services | 1,134 | | | 2,514 | |
Other accrued expenses | 7,565 | | | 2,742 | |
Total accrued expenses and other current liabilities | $ | 93,487 | | | $ | 17,739 | |
5. LEASES
As of December 31, 2021 the Company leased various buildings for warehousing and office space, as well as various IT equipment under noncancellable operating and finance leases expiring at various dates through December 2026. The Company's leases as of December 31, 2021, do not contain options to renew that the Company has deemed reasonably certain to exercise. The Company's lease agreements do not contain material residual value guarantees or material restrictive covenants.
In February 2018, the Company entered into a non-cancellable lease agreement and purchase option for the headquarters and R&D facility in Phoenix, Arizona. The lease commenced in September 2018, with a term of 11.75 years. During the third quarter of 2021, the Company issued a notice indicating its intent to exercise the purchase option for $25.1 million. As of the issuance of the notice, the lease liability was remeasured resulting in a $10.5 million remeasurement adjustment to the lease liability and a corresponding increase to the finance lease asset.
During the fourth quarter of 2021, the purchase of the headquarters and R&D facility closed resulting in the derecognition of the related finance lease liability balance of $24.7 million and reclassification of the finance lease asset balance to buildings. The purchase was financed with the issuance of a $25.0 million Promissory Note, refer to Note 9, Debt and Finance Lease Liabilities.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
5. LEASES (Continued)
The following table summarizes the effects of finance and operating lease costs in the Company's consolidated statements of operations for the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| | Consolidated Statements of Operations Caption | | Year Ended December 31, |
| | 2021 | | 2020 |
Operating lease cost: | | | | | | |
Lease cost | | Research and development and Selling, general and administrative | | $ | 130 | | | $ | — | |
Variable lease cost(1) | | Research and development and Selling, general and administrative | | 26 | | | — | |
Total operating lease cost | | | | 156 | | | — | |
| | | | | | |
Short-term lease cost | | Research and development and Selling, general and administrative | | 1,155 | | | 19 | |
| | | | | | |
Finance lease cost: | | | | | | |
Amortization of right of use assets | | Research and development and Selling, general and administrative | | 2,758 | | | 3,312 | |
Interest on lease liabilities | | Interest income (expense), net | | 789 | | | 782 | |
Variable lease cost(1) | | Research and development and Selling, general and administrative | | 738 | | | 744 | |
Total finance lease cost | | | | 4,285 | | | 4,838 | |
| | | | | | |
Total lease cost | | | | $ | 5,596 | | | $ | 4,857 | |
(1)Variable lease costs were not included in the measurement of the operating and finance lease liabilities and primarily include property taxes, property insurance and common area maintenance expenses.
Supplemental balance sheet information related to leases is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Classification | | As of December 31, |
| | | 2021 | | 2020 |
Assets | | | | | | |
Finance lease assets, net | | Property, plant and equipment, net | | $ | 570 | | | $ | 31,463 | |
Operating lease assets | | Other assets | | 2,681 | | | — | |
Total lease assets | | | | $ | 3,251 | | | $ | 31,463 | |
| | | | | | |
Liabilities | | | | | | |
Current: | | | | | | |
Finance lease liabilities | | Debt and finance lease liabilities, current | | $ | 140 | | | $ | 1,070 | |
Operating lease liabilities | | Accrued expenses and other current liabilities | | 475 | | | — | |
Non-current: | | | | | | |
Finance lease liabilities | | Long-term debt and finance lease liabilities, net of current portion | | 408 | | | 13,956 | |
Operating lease liabilities | | Operating lease liabilities | | 2,263 | | | — | |
Total lease liabilities | | | | $ | 3,286 | | | $ | 15,026 | |
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
5. LEASES (Continued)
| | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 |
Weighted average remaining lease term (years) | | | |
Finance leases | 3.91 | | 9.50 |
Operating leases | 4.81 | | — | |
Weighted average discount rate | | | |
Finance leases | 4.69 | % | | 5.00 | % |
Operating leases | 4.00 | % | | — | % |
Supplemental cash flow information relates to leases is as follows:
| | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities | | | |
Operating cash flow for finance leases | $ | 789 | | | $ | — | |
Operating cash flow for operating leases | 72 | | | — | |
| | | |
Leased assets obtained in exchange for lease liabilities | | | |
Finance leases | $ | 646 | | | $ | — | |
Operating leases | 2,788 | | | — | |
Maturities of the Company's lease liabilities are as follows:
| | | | | | | | | | | | | | | | | | | | |
Years Ended December 31, | | Finance leases | | Operating leases | | Total |
2022 | | $ | 162 | | | $ | 577 | | | $ | 739 | |
2023 | | 163 | | | 625 | | | 788 | |
2024 | | 154 | | | 643 | | | 797 | |
2025 | | 69 | | | 617 | | | 686 | |
2026 | | 51 | | | 562 | | | 613 | |
Thereafter | | — | | | — | | | — | |
Total lease payments | | $ | 599 | | | $ | 3,024 | | | $ | 3,623 | |
Less: imputed interest | | 51 | | | 286 | | | 337 | |
Total lease liabilities | | $ | 548 | | | $ | 2,738 | | | $ | 3,286 | |
Less: current portion | | 140 | | | 475 | | | 615 | |
Long-term lease liabilities | | $ | 408 | | | $ | 2,263 | | | $ | 2,671 | |
6. INTANGIBLE ASSETS, NET
The gross carrying amount and accumulated amortization of separately identifiable intangible assets are as follows:
| | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Licenses: | | | | | |
S-Way Product and Platform license | $ | 50,000 | | | $ | — | | | $ | 50,000 | |
FCPM license | 47,181 | | | — | | | 47,181 | |
Total intangible assets | $ | 97,181 | | | $ | — | | | $ | 97,181 | |
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | | | | |
| As of December 31, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Licenses | $ | 50,150 | | | $ | (100) | | | $ | 50,050 | |
Total intangible assets | $ | 50,150 | | | $ | (100) | | | $ | 50,050 | |
Amortization expense for the years ended December 31, 2021, 2020, and 2019 was immaterial.
For the year ended December 31, 2020, the Company expensed $12.1 million of in-process R&D and $0.3 million of trademarks, net of accumulated amortization, previously included in intangible assets to impairment expense on the consolidated statements of operations. These assets were related to the Powersports business unit whose operations ceased in the fourth quarter of 2020. The Company had no impairment expense for the years ended December 31, 2021 and 2019.
As part of the Series D financing, the Company was granted a non-exclusive and non-transferable license to intellectual property used in the Iveco S-WAY Platform and Product, which is the cab over engine truck manufactured by Iveco S.p.A ("Iveco"), a wholly-owned subsidiary of CNH Industrial N.V. ("CNHI"). The material rights under the license agreement include the non-exclusive use of the S-WAY key technology to manufacture, distribute and service BEV and FCEV trucks and related components in the United States, and the ability to grant the use of the key technology to the Company's North American sub-suppliers. The Company intends to utilize the license solely in North America for the development of BEV and FCEV trucks. The fair value of the license was determined to be $50.0 million. In exchange for the license, the Company issued 5,132,291 shares of Series D redeemable convertible preferred stock to CNHI and its affiliates. The Company will amortize the license over a 7-year useful life, beginning at the start of commercial production, as it reflects the period over which the sales of BEV and FCEV trucks utilizing Iveco S-WAY platform are expected to contribute to the Company's cash flows. As of December 31, 2021, the Company has not started amortizing the license. The Company expects to start amortizing the license upon start of commercial production for the Tre BEV, in the first half of 2022.
During the third quarter of 2021, the Company was granted a non-exclusive and non-transferable license to intellectual property that will be used to adapt, further develop and assemble fuel cell power modules ("FCPMs") for use in the production of the Company's fuel cell electric vehicles ("FCEV"). The license was accounted for as an asset acquisition and the accumulated cost of the license was determined to be 40.0 million euros or $47.2 million. As of December 31, 2021, the Company recognized 10.0 million euros or $11.3 million in "Accrued expenses and other current liabilities" and 30.0 million euros or $34.0 million in "Other long-term liabilities" on the consolidated balance sheets, related to the payments for the license, which will be made in 4 installments from 2022 through 2023. The Company will amortize the license beginning at the start of production for FCEVs. As of December 31, 2021, the Company has not started amortizing the license.
Estimated amortization expense for all intangible assets subject to amortization in future years is expected to be:
| | | | | | | | |
Years Ended December 31, | | Amortization |
2022 | | $ | 5,357 | |
2023 | | 10,285 | |
2024 | | 13,428 | |
2025 | | 13,428 | |
2026 | | 13,428 | |
Thereafter | | 41,255 | |
Total | | $ | 97,181 | |
7. INVESTMENTS IN AFFILIATES
Investments in unconsolidated affiliates accounted for under the equity method consisted of the following:
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| Ownership | | 2021 | | 2020 |
Nikola Iveco Europe GmbH | 50 | % | | $ | 4,083 | | | $ | 8,420 | |
Wabash Valley Resources LLC | 20 | % | | 57,695 | | | — | |
| | | $ | 61,778 | | | $ | 8,420 | |
Nikola Iveco Europe GmbH
The Company and Iveco are parties to a series of agreements which established a joint venture in Europe, Nikola Iveco Europe GmbH. The operations of the joint venture are located in Ulm, Germany, and consist of manufacturing the BEV and FCEV Class 8 trucks for the European market, as well as for the North American market while the Company's greenfield manufacturing facility in Coolidge, Arizona, is being completed.
The agreements provide for a 50/50 ownership of the joint venture and a 50/50 allocation of the joint venture's production volumes and profits between Nikola and Iveco. Both parties are entitled to appoint an equal number of members to the shareholders' committee of the joint venture. Pursuant to the terms of the agreements, the Company and Iveco each contributed intellectual property licenses to their respective technology. During 2020, the Company contributed $8.8 million for a 50% interest in the joint venture, in accordance with the amended contribution agreement. The intellectual property licenses contributed to the joint venture by Nikola are related to intellectual property related to Nikola-developed BEV and FCEV technology for the use in the European market. Iveco contributed to the joint venture a license for the S-WAY technology for use in the European market.
Nikola Iveco Europe GmbH is considered a VIE due to insufficient equity to finance its activities without additional subordinated financial support. The Company is not considered the primary beneficiary as it does not have the power to direct the activities that most significantly impact the economic performance based on the terms of the agreements. Accordingly, the VIE is accounted for under the equity method.
As of December 31, 2021, the Company's maximum exposure to loss was $16.0 million, which represents the book value of the Company's equity interest and guaranteed debt obligations of $11.9 million.
Wabash Valley Resources LLC
On June 22, 2021, the Company entered into a MIPA with WVR and the Sellers, pursuant to which, the Company purchased a 20% equity interest in WVR in exchange for $25.0 million in cash and 1,682,367 shares of the Company's common stock. WVR is developing a clean hydrogen project in West Terre Haute, Indiana, including a hydrogen production facility. The common stock consideration was calculated based on the 30-day average closing stock price of the Company, or $14.86 per share, and the Company issued 1,682,367 shares of its common stock. As of the WVR Closing Date, the fair value of the stock consideration and Put Right was $32.4 million, based upon the closing price of the Company's common stock as of the WVR Closing date and fair value of the embedded Put Right (see Note 2, Summary of Significant Accounting Policies).
The Company's interest in WVR is accounted for under the equity method and is included in investment in affiliates on the consolidated balance sheets. As of the WVR Closing Date, the fair value of the Company's investment in WVR was approximately $57.4 million, which consists of the Company's cash, common stock consideration, and the Put Right. The common stock consideration subject to the Put Right was classified as temporary equity on the consolidated balance sheets for $13.2 million which includes the fair value of the embedded Put Right of $3.2 million. Subsequently, the Put Right was removed and replaced with the Price Differential. See Note 2, Summary of Significant Accounting Policies, for further details.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
Refer below for a reconciliation of the fair value of the Company's initial investment in WVR:
| | | | | | | | |
| | Initial investment in WVR |
Common stock issued for investment in affiliates including common stock subject to Put Right | | $ | 29,139 | |
Cash consideration for investment in affiliates | | 25,000 | |
Fair value of cash and common stock consideration for WVR | | 54,139 | |
Fair value of embedded Put Right | | 3,237 | |
Total investment in affiliates | | $ | 57,376 | |
Included in the initial carrying value was a basis difference of $55.5 million due to the difference between the cost of the investment and the Company's proportionate share of WVR's net assets. The basis difference is primarily comprised of property, plant, and equipment and intangible assets.
8. RELATED PARTY TRANSACTIONS
Related Party Aircraft Charter Agreement
In 2019, the Company entered into an aircraft charter arrangement with the Company’s former Executive Chairman of the board of directors of the Company and Legacy Nikola's former Chief Executive Officer to reimburse him for the flight hours incurred for Company use on his personal aircraft. These flight hours were related to business travel by the former Executive Chairman and other members of the executive team to business meetings and trade conferences, as well as the former Executive Chairman's commute between the Company’s headquarters in Phoenix, Arizona, and his residence in Utah. The Company recognized expenses of $1.6 million and $0.2 million for the years ended December 31, 2020 and 2019, respectively, for the business use of the aircraft. As of December 31, 2020 the Company had no outstanding accounts payable and accrued expenses to the former Executive Chairman for the business use of the aircraft. The aircraft charter arrangement was terminated effective October 2020.
Related Party Income and Accounts Receivable
During 2020 and 2019 the Company recorded immaterial amounts for the provision of solar installation services to the former Executive Chairman, which are billed on time and materials basis. As of December 31, 2020, the Company had no outstanding accounts receivable related to solar installation services to the former Executive Chairman. Solar installation services were terminated effective October 2020.
Related Party Stock Options
In December 2018, the former Executive Chairman issued 6,005,139 performance-based stock options to recognize the performance and contribution of specific employees, including certain executive officers, pursuant to Legacy Nikola's Founder Stock Option Plan (the "Founder Stock Option Plan"). The underlying common stock of these option awards are owned by M&M Residual, a Nevada limited liability company that is wholly-owned by the former Executive Chairman and are considered to be issued by the Company for accounting purposes. These performance-based stock options vest based on the Company's achievement of a liquidation event, such as a private sale or an initial public offering on a U.S. stock exchange. An additional award of 180,153 shares was made under the plan in May 2020, to replace a forfeited grant. The performance conditions were met upon the closing of the Business Combination and the Company recognized stock-based compensation expense related to these option awards for $7.2 million in June 2020. As of December 31, 2021 the weighted average exercise price per share is $1.39, the weighted-average grant date fair value is $1.20 per share, and the weighted-average remaining contractual term is 6.43 years for these performance-based stock options.
Related Party Redemption of Common Stock
Immediately following the Business Combination, pursuant to a redemption agreement, the Company redeemed 7,000,000 shares of common stock from M&M Residual at a purchase price of $10.00 per share, payable in immediately available funds. The number of shares to be redeemed and the redemption price were determined and agreed upon during negotiations between the various parties to the Business Combination, including the former Executive Chairman and representatives of VectoIQ, Legacy Nikola and the Subscribers.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
8. RELATED PARTY TRANSACTIONS (Continued)
Former Related Party License and Service Agreements
In September 2019, the Company entered into a Master Industrial Agreement (“CNHI Services Agreement”) and S-WAY Platform and Product Sharing Agreement (“CNHI License Agreement”) with CNHI and Iveco, a former related party, in conjunction with the Company’s Series D redeemable convertible preferred stock offering. Under these agreements, CNHI and Iveco were issued 25,661,448 shares of Legacy Nikola Series D redeemable convertible preferred stock in exchange for an intellectual property license valued at $50.0 million, $100.0 million in-kind services and $100.0 million in cash.
During 2019, the Company issued 5,953,515 shares of Series D redeemable convertible preferred stock to Iveco in exchange for the licensed Iveco technology and $8.0 million of prepaid in-kind services. Additionally, the Company issued 5,132,291 Series D preferred redeemable convertible preferred shares in exchange for $50.0 million in cash.
During 2020, the Company issued 9,443,353 shares of Series D redeemable convertible preferred stock, to Iveco, in exchange for $92.0 million of prepaid in-kind services. Additionally, the Company issued 5,132,289 shares of Series D redeemable convertible preferred stock to Iveco in exchange for $50.0 million in cash.
During 2021, 2020 and 2019, the Company recognized $46.3 million, $45.7 million and $8.0 million of in-kind services in research and development on the consolidated statements of operations, respectively. As of December 31, 2021 and 2020, zero and $46.3 million prepaid in-kind services were reflected on the consolidated balance sheets, respectively.
As of June 3, 2020, Iveco was no longer considered a related party.
Former Related Party Research and Development and Accounts Payable
During 2020 and 2019 the Company recorded research and development expenses of $15.1 million and $14.1 million, respectively, from a former related party. As of December 31, 2020, the Company had $2.8 million of accounts payable due to the former related party and $0.8 million of accrued expenses due to the former related party.
As of June 3, 2020, the entity was no longer considered a related party.
Former Related Party Stock Repurchase
In September 2019, in contemplation of the Company's proposed Series D preferred stock financing, the Company entered into an amendment of the letter agreement by and between the Company and Nimbus, dated August 3, 2018 (the “Nimbus Redemption Letter Agreement” and as amended, the “Nimbus Amendment”). Pursuant to the terms of the Amendment and the Nimbus Repurchase Agreement, the Company agreed to repurchase 3,575,750 shares of Series B redeemable convertible preferred stock held by Nimbus, a former related party, at the share price of $8.77 which is equal to 90% of the share price in the Series D redeemable convertible preferred stock financing of $9.74 per share. The number of shares to be repurchased exceeded five percent (5%) of the contemplated Series D round of financing. This was negotiated by the Company in order to reduce the total number of shares of Series B redeemable convertible preferred stock held by Nimbus, to such an extent that Nimbus would no longer be entitled to elect a member to the Company's board of directors as a result of Nimbus' Series B preferred stock holdings. The repurchase was completed in October 2019, for an aggregate repurchase amount of $31.4 million. As of December 31, 2019, the Company recorded a reduction to additional paid in capital for the repurchase price in excess of the carrying value of the redeemable convertible preferred stock of $16.8 million. The Amendment also provided Nimbus with additional redemption rights based on various capital raise thresholds, none of which were met as of December 31, 2019.
In March 2020, the Company entered into an additional letter agreement with Nimbus in which Nimbus agreed to terminate the Nimbus Redemption Letter Agreement. Concurrently, the Company entered into an agreement with Nimbus, whereby the Company agreed to repurchase an additional 2,850,930 shares of Series B preferred stock from Nimbus at a share price of $8.77 for an aggregate repurchase price of $25.0 million. The parties agreed that the repurchase price constituted the price that Nimbus would otherwise be entitled to under the Nimbus Redemption Letter Agreement. The number of shares to be repurchased was negotiated by the Company and Nimbus as a mechanism to compensate Nimbus for agreeing to relinquish its previous redemption rights granted in the Nimbus Redemption Letter Agreement.
The repurchase was contingent on completion of the Business Combination which occurred during the quarter ending June 30, 2020, and the Company repurchased the shares in conjunction with the closing of the Business Combination. The Company recorded a reduction to additional paid in capital for the repurchase price in excess of the carrying value of the redeemable convertible preferred stock of $13.4 million. The carrying value of the shares repurchased were recorded as a reduction to
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
8. RELATED PARTY TRANSACTIONS (Continued)
redeemable convertible preferred stock, which has been retrospectively adjusted in the consolidated statements of stockholders' equity to reflect the Company’s equity structure for all periods presented. For the computation of net loss per share for the year ended December 31, 2020, the repurchase price in excess of the carrying value of the redeemable convertible preferred stock of $13.4 million is reflected as an increase to net loss attributable to common stockholders (see Note 15, Net Loss per Share).
As of June 3, 2020, Nimbus was no longer considered a related party.
9. DEBT AND FINANCE LEASE LIABILITIES
A summary of debt and finance lease liabilities as of December 31, 2021 and 2020 is as follows:
| | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 |
Current: | | | |
Term note | $ | — | | | $ | 4,100 | |
Finance lease liabilities | 140 | | | 1,070 | |
Debt and finance lease liabilities, current | $ | 140 | | | $ | 5,170 | |
| | | |
Non-current: | | | |
Promissory note | $ | 24,639 | | | $ | — | |
Finance lease liabilities | 408 | | | 13,956 | |
Long-term debt and finance lease liabilities, net of current portion | $ | 25,047 | | | $ | 13,956 | |
Term Note
In January 2018, the Company entered into a term note with JP Morgan Chase, pursuant to which, the Company borrowed $4.1 million to fund equipment purchases. The term note accrued interest at 2.43% per annum and was payable on or before January 31, 2019. The term note was secured by restricted cash.
In February 2019, the Company amended the term note to extend its term by one year and increased the interest rate to 3.00% per annum. In February 2020, the Company amended the term note to extend its term for one year, to January 31, 2021. The term note accrued interest at a rate equal to the LIBOR rate for the applicable interest period multiplied by the statutory reserve rate as determined by the Federal Reserve Board. During the first quarter of 2021, the Company repaid the $4.1 million term note.
Payroll Protection Program Note
In April 2020, the Company entered into a note with JP Morgan Chase under the Small Business Administration Paycheck Program established under Section 1102 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, pursuant to which the Company borrowed $4.1 million (the "Note"). The Note accrued interest at a rate of 0.98% per annum and matured in 24 months. On April 30, 2020, the Company returned the $4.1 million in proceeds from the Note to JP Morgan Chase.
Promissory Note
During the fourth quarter of 2021, the Company closed on the purchase of its headquarters facility in Phoenix, AZ. Concurrently with the closing of the purchase, the Company, as borrower, executed a promissory note for $25.0 million at a stated interest rate of 4% (the "Promissory Note"). The Promissory Note carries a 60 month term, interest only payments for the first 12 months and a 25 year amortization thereafter, with the remaining principal balance due upon maturity. The loan is fully collateralized by the Company's headquarters.
The Company capitalized debt issuance costs of $0.4 million related to the Promissory Note. Debt issuance costs are being amortized to interest expense over the term of the Promissory Note using the effective interest method. The effective interest rate on the Promissory Note is 4.34%.
For the year ended December 31, 2021, the Company recognized $0.1 million of interest expense related to interest on the Promissory Note and amortization of debt issuance costs.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
9. DEBT (Continued)
The following table summarizes the Promissory Note maturities for each of the next five years and thereafter at December 31, 2021:
| | | | | | | | |
Years Ended December 31, | | Total |
2022 | | $ | — | |
2023 | | 594 | |
2024 | | 619 | |
2025 | | 644 | |
2026 | | 23,143 | |
Thereafter | | — | |
Total | | $ | 25,000 | |
Letter of Credit
During the fourth quarter of 2021, the Company executed an irrevocable standby letter of credit for $25.0 million in connection with the execution of a certain product supply agreement. As of December 31, 2021, no amounts have been drawn on the letter of credit.
10. CAPITAL STRUCTURE
Shares Authorized
As of December 31, 2021, the Company had authorized a total of 750,000,000 shares for issuance with 600,000,000 shares designated as common stock and 150,000,000 shares designated as preferred stock.
Warrants
As a result of the Business Combination in June 2020, the Company assumed private warrants previously issued in connection with VectoIQ's initial public offering. Each private warrant entitles the registered holder to purchase 1 share of common stock at a price of $11.50 per share, subject to adjustment, at any time commencing 30 days after the completion of the Business Combination. The exercise price and number of common shares issuable upon exercise of the private warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. However, the private warrants will not be adjusted for issuance of common stock at a price below its exercise price.
On July 22, 2020, the Company issued a notice of redemption of all of its outstanding public warrants on a cash basis which was completed in September 2020. The Company issued 22,877,806 shares of common stock pursuant to the exercise of public warrants and received approximately $263.1 million of proceeds from such exercises. The 122,194 public warrants not exercised by the end of the redemption period were redeemed for a price of $0.01 per public warrant, and subsequently cancelled by the Company. The private warrants held by the initial holders thereof or permitted transferees of the initial holders were not subject to this redemption.
Additionally, during the fourth quarter of 2020, 129,085 private warrants were exercised for total proceeds of $1.5 million.
As of December 31, 2021 and 2020, the Company had 760,915 private warrants outstanding. During 2021 and 2020, the Company recorded a $3.1 million and $13.4 million gain, respectively, for revaluation of warrant liability on the consolidated statement of operations. As of December 31, 2021 and 2020, the Company had $4.3 million and $7.3 million, respectively, for warrant liability related to the private warrants outstanding on the consolidated balance sheets.
Stock Purchase Agreements
First Purchase Agreement with Tumim Stone Capital LLC
On June 11, 2021, the Company entered into a common stock purchase agreement (the "First Tumim Purchase Agreement") and a registration rights agreement (the "Registration Rights Agreement") with Tumim Stone Capital LLC
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
10. CAPITAL STRUCTURE (Continued)
("Tumim"), pursuant to which Tumim has committed to purchase up to $300.0 million in shares of the Company's common stock, subject to certain limitations and conditions set forth in the First Tumim Purchase Agreement. The Company shall not issue or sell any shares of common stock under the First Tumim Purchase Agreement which, when aggregated with all other shares of common stock beneficially owned by Tumim, would result in beneficial ownership of more than 4.99% of the Company's outstanding shares of common stock.
Under the terms of the First Tumim Purchase Agreement, the Company has the right, but not the obligation, to sell to Tumim, shares of common stock over the period commencing on the date of the First Tumim Purchase Agreement (the “Tumim Closing Date”) and ending on the first day of the month following the 36-month anniversary of the Tumim Closing Date, provided that a registration statement covering the resale of shares of common stock that have been and may be issued under the First Tumim Purchase Agreement is declared effective by the SEC. The registration statement covering the offer and sale of up to 18,012,845 shares of common stock, including the commitment shares, to Tumim was declared effective on June 30, 2021. The purchase price will be calculated as 97% of the volume weighted average prices of the Company's common stock during normal trading hours for 3 consecutive trading days commencing on the purchase notice date.
Concurrently with the signing of the First Tumim Purchase Agreement, the Company issued 155,703 shares of its common stock to Tumim as a commitment fee ("Commitment Shares"). The total fair value of the shares issued for the commitment fee of $2.6 million was recorded in selling, general, and administrative expense on the Company's consolidated statements of operations.
During 2021, the Company sold 14,213,498 shares of common stock for proceeds of $163.8 million under the terms of the First Tumim Purchase Agreement. As of December 31, 2021, there are 3,643,644 registered shares remaining and the remaining commitment available under the First Tumim Purchase Agreement is $136.2 million.
Second Purchase Agreement with Tumim Stone Capital LLC
On September 24, 2021, the Company entered into a second common stock purchase agreement (the "Second Tumim Purchase Agreement") and a registration rights agreement with Tumim, pursuant to which Tumim has committed to purchase up to $300.0 million in shares of the Company's common stock, subject to certain limitations and conditions set forth in the Second Tumim Purchase Agreement. The Company will not issue or sell any shares of common stock under the Second Tumim Purchase Agreement which, when aggregated with all other shares of common stock beneficially owned by Tumim, would result in beneficial ownership of more than 4.99% of the Company's outstanding shares of common stock.
Under the terms of the Second Tumim Purchase Agreement, the Company has the right, but not the obligation, to sell to Tumim, shares of common stock over the period commencing on the date of the Second Tumim Purchase Agreement (the “Second Tumim Closing Date”) and ending on the first day of the month following the 36-month anniversary of the Second Tumim Closing Date, provided that certain conditions have been met. These conditions include effectiveness of a registration statement covering the resale of shares of common stock that have been and may be issued under the Second Tumim Purchase Agreement and termination of the First Tumim Purchase Agreement. The registration statement covering the offer and sale of up to 29,042,827 shares of common stock, including the commitment shares, to Tumim was declared effective on November 29, 2021. The purchase price will be calculated as 97% of the volume weighted average prices of the Company's common stock during normal trading hours for 3 consecutive trading days commencing on the purchase notice date.
Concurrently with the signing of the Second Tumim Purchase Agreement, the Company issued 252,040 shares of its common stock to Tumim as a commitment fee. The total fair value of the shares issued for the commitment fee of $2.9 million was recorded in selling, general, and administrative expense on the Company's consolidated statement of operations.
As of December 31, 2021, the Company has not sold any shares of common stock to Tumim under the terms of the Second Tumim Purchase Agreement and has a remaining commitment of $300.0 million available.
11. STOCK-BASED COMPENSATION EXPENSE
2017 and 2020 Stock Plans
Legacy Nikola's 2017 Stock Option Plan (the “2017 Plan”) provided for the grant of incentive and nonqualified options to purchase Legacy Nikola common stock to officers, employees, directors, and consultants of Legacy Nikola. Options were granted at a price not less than the fair market value on the date of grant and generally became exercisable between one and four
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
11. STOCK-BASED COMPENSATION EXPENSE (Continued)
years after the date of grant. Options generally expire ten years from the date of grant. Outstanding awards under the 2017 Plan continue to be subject to the terms and conditions of the 2017 Plan.
Each Legacy Nikola option from the 2017 Plan that was outstanding immediately prior to the Business Combination, whether vested or unvested, was converted into an option to purchase a number of shares of common stock (each such option, an "Exchanged Option") equal to the product (rounded down to the nearest whole number) of (i) the number of shares of Legacy Nikola common stock subject to such Legacy Nikola option immediately prior to the Business Combination and (ii) the Exchange Ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (A) the exercise price per share of such Legacy Nikola option immediately prior to the consummation of the Business Combination, divided by (B) the Exchange Ratio. Except as specifically provided in the Business Combination Agreement, following the Business Combination, each Exchanged Option will continue to be governed by the same terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding former Legacy Nikola option immediately prior to the consummation of the Business Combination. All stock option activity was retroactively restated to reflect the Exchanged Options.
At the Company's special meeting of stockholders held on June 2, 2020, the stockholders approved the Nikola Corporation 2020 Stock Incentive Plan (the "2020 Plan") and the Nikola Corporation 2020 Employee Stock Purchase Plan (the "2020 ESPP"). The 2020 Plan and the 2020 ESPP were previously approved, subject to stockholder approval, by the Company's board of directors on May 6, 2020. The aggregate number of shares authorized for issuance under the 2020 Plan will not exceed 42,802,865, plus the number of shares subject to outstanding awards as of the closing of the Business Combination under the 2017 Plan that are subsequently forfeited or terminated. The aggregate number of shares available for issuance under the 2020 ESPP is 4,000,000.
The 2020 Plan provides for the grant of incentive and nonqualified stock option, restricted stock units ("RSUs"), restricted share awards, stock appreciation awards, and cash-based awards to employees, outside directors, and consultants of the Company. The 2020 Plan and the 2020 ESPP became effective immediately upon the closing of the Business Combination. No offerings have been authorized to date by the Company's board of directors under the ESPP.
Common Stock Valuation
Prior to the completion of the Business Combination the fair value of Legacy Nikola common stock that underlies the stock options was determined by Legacy Nikola's board of directors based upon information available at the time of grant. Because such grants occurred prior to the exchange of Legacy Nikola common stock into the Company's common stock, Legacy Nikola's board of directors determined the fair value of Legacy Nikola common stock with assistance of periodic valuation studies from an independent third-party valuation firm. The valuations were consistent with the guidance and methods outlined in the AICPA Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or AICPA Practice Aid.
Stock Option Valuation
The Company utilizes the Black-Scholes option pricing model for estimating the fair value of options granted, which requires the input of highly subjective assumptions. The fair value of each option award at the grant date was estimated using the following assumptions:
| | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | 2020 | | 2019 |
Exercise price | | | $1.05 - $9.66 | | $1.05 - $3.58 |
Risk-free interest rate | | | 0.1% - 1.7% | | 1.4% - 2.7% |
Expected term (in years) | | | 0.2 - 6.3 | | 5.0 - 6.3 |
Expected dividend yield | | | — | | — |
Expected volatility | | | 70.0% - 85.8% | | 70.0% - 85.1% |
Stock Options
Options vest in accordance with the terms set forth in the grant letter. Time-based options generally vest ratably over a period of approximately 36 months. Changes in stock options are as follows:
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
11. STOCK-BASED COMPENSATION EXPENSE (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted Average Exercise Price Per share | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
Outstanding at December 31, 2020 | 32,529,224 | | | $ | 1.28 | | | 7.82 | | $ | 454,668 | |
Granted | — | | | — | | | | | |
Exercised | 3,472,267 | | | 1.32 | | | | | |
Cancelled | 60,797 | | | 2.95 | | | | | |
Outstanding at December 31, 2021 | 28,996,160 | | | $ | 1.28 | | | 6.87 | | $ | 249,205 | |
Vested and exercisable as of December 31, 2021 | 28,528,403 | | | $ | 1.25 | | | 6.85 | | $ | 246,048 | |
The option activity above does not include the performance based stock options issued by the related party. The weighted-average grant date fair value of stock options issued for the years ended December 31, 2020 and 2019 were $6.92 and $0.75, respectively.
There were 3,472,267, 8,716,423 and 1,266 stock options exercised during the years ended December 31, 2021, 2020 and 2019, respectively. The total intrinsic value of stock options exercised was $51.8 million and $132.7 million during 2021 and 2020, respectively. The total intrinsic value of stock options exercised in 2019 was immaterial. The fair value of stock options vested during the years ended December 31, 2020, and 2019 was $27.0 million, and $4.3 million, respectively. The fair value of stock options vested during the year ended December 31, 2021 was immaterial.
As a result of the Business Combination, vesting of certain stock options and performance-based options accelerated in accordance with terms of the related award agreements, resulting in additional stock-based compensation expense of $8.1 million in the second quarter of 2020.
Restricted Stock Units
The fair value of RSUs is based on the closing price of the Company's common stock on the grant date. The time-based RSUs generally vest semi-annually over a three year period or, in the case of executive officers, cliff-vest following the third anniversary from the date of grant. Certain RSUs awarded to key employees contain performance conditions related to achievement of strategic and operational milestones ("Performance RSUs"). As of December 31, 2021, not all of the performance conditions are probable to be achieved. Compensation expense has only been recognized for those conditions that are assumed to be probable. The Company updates its estimates related to the probability and timing of achievement of the operational milestones each period until the award either vests or is forfeited. In addition, for certain technical engineering employees the awards cliff vest after a three year period or vest on the achievement of certain operational milestones. The RSUs to directors have a vesting cliff of one year after the grant date. Changes in RSUs are as follows:
| | | | | | | | | | | | | | |
| | Number of RSUs | | Weighted-Average Grant Date Fair Value |
Balance at December 31, 2020 | | 5,026,531 | | | $ | 31.2 | |
Granted | | 10,626,906 | | | 14.7 | |
Released | | 2,523,328 | | | 26.0 | |
Cancelled | | 951,437 | | | 19.1 | |
Balance at December 31, 2021 | | 12,178,672 | | | $ | 18.7 | |
During the third quarter of 2020, the Company entered into a separation agreement with its former Executive Chairman which resulted in a modification of his time-based RSUs. Prior to the modification, the RSUs were not likely to vest and as a result $0.5 million of previously recorded stock-based compensation expense was reversed during 2020. Subsequent to modification, the RSUs were considered fully vested and the Company recorded stock-based compensation of $16.5 million during the third quarter of 2020.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
11. STOCK-BASED COMPENSATION EXPENSE (Continued)
Market Based RSUs
During 2020, in connection with the closing of the Business Combination, the Company granted market based restricted stock unit awards ("Market Based RSUs") to several executive officers of the Company. The Market Based RSUs contain a stock price index as a benchmark for vesting. These awards have 3 milestones that each vest depending upon a consecutive 20-trading day stock price target of the Company’s common stock. The Company's stock price target ranges from $25 per share to $55 per share. The shares vested are transferred to the award holders upon the completion of the requisite service period of three years, and upon achievement certification by the Company's board of directors. If the target price for the tranche is not achieved by the end of third anniversary of the grant date, the Market Based RSUs are forfeited.
The grant date fair value of the Market Based RSUs was determined using a Monte Carlo simulation model that utilizes significant assumptions, including volatility, that determine the probability of satisfying the market condition stipulated in the award to calculate the fair value of the award. The following assumptions were used to determine the grant date fair value for these Market Based RSUs:
| | | | | |
| Year Ended December 31, 2020 |
Risk-free interest rate | 0.2% - 0.3% |
Expected volatility | 70.0% - 85.0% |
The following table summarizes 2021 market-based RSU activity:
| | | | | | | | | | | | | | |
| | Number of Market Based RSUs | | Weighted-Average Grant Date Fair Value |
Balance at December 31, 2020 | | 13,317,712 | | | $ | 26.0 | |
Granted | | — | | | — | |
Released | | — | | | — | |
Cancelled | | — | | | — | |
Balance at December 31, 2021 | | 13,317,712 | | | $ | 26.0 | |
Stock-Based Compensation Expense
The following table presents the impact of stock-based compensation expense on the consolidated statements of operations for the years ending December 31, 2021, 2020 and 2019, respectively:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Research and development | $ | 36,150 | | | $ | 15,862 | | | $ | 653 | |
Selling, general, and administrative | 169,561 | | | 122,129 | | | 4,205 | |
Total stock-based compensation expense | $ | 205,711 | | | $ | 137,991 | | | $ | 4,858 | |
As of December 31, 2021, total unrecognized compensation expense and remaining weighted-average recognition period related to outstanding share-based awards were as follows:
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
11. STOCK-BASED COMPENSATION EXPENSE (Continued)
| | | | | | | | | | | |
| Unrecognized compensation expense | | Remaining weighted-average recognition period (years) |
Options | $ | 930 | | | 1.03 |
Market Based RSUs | 166,181 | | | 1.50 |
RSUs | 158,052 | | | 1.99 |
Total unrecognized compensation expense at December 31, 2021 | $ | 325,163 | | | |
12. RETIREMENT SAVINGS PLAN
The Company sponsored a savings plan available to all eligible employees, which qualifies under Section 401(k) of the Internal Revenue Code. Employees may contribute to the plan amounts of their pre-tax salary subject to statutory limitations. The Company did not offer a company match for the years ended December 31, 2020 and 2019. Beginning in 2021, the Company provided an employer matching contribution for the amount a participant contributes as salary deferrals up to 100% of the amount contributed for the first 1% of the participant’s plan compensation plus 50% for each additional 1% of compensation contributed between 1% and 6% of the participant’s plan compensation. For the year ended December 31, 2021, the Company provided $2.1 million in matching contributions.
13. INCOME TAXES
Income tax expense (benefit) of $4.0 thousand, ($1.0) million and $0.2 million has been recognized for the years ended December 31, 2021, 2020 and 2019, respectively. The income tax expense (benefit) for the years ended 2020 and 2019 related primarily to changes in indefinite-lived intangible and goodwill deferred tax liabilities.
The components of the provision for income taxes for the years ended December 31, 2021, 2020 and 2019 consisted of the following:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Current tax provision | | | | | |
Federal | $ | — | | | $ | 36 | | | $ | — | |
State | 1 | | | 1 | | | 1 | |
Total current tax provision | 1 | | | 37 | | | 1 | |
Deferred tax provision | | | | | |
Federal | 1 | | | (492) | | | 43 | |
State | 2 | | | (571) | | | 107 | |
Total deferred tax provision | 3 | | | (1,063) | | | 150 | |
Total income tax provision (benefit) | $ | 4 | | | $ | (1,026) | | | $ | 151 | |
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
13. INCOME TAXES (Continued)
The reconciliation of taxes at the federal statutory rate to the provision for income taxes for the years ended December 31, 2021, 2020 and 2019 was as follows: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Tax at statutory federal rate | $ | (144,848) | | | $ | (78,098) | | | $ | (18,586) | |
State tax, net of federal benefit | (21,212) | | | (14,052) | | | (4,649) | |
Stock-based compensation | 22,825 | | | (7,652) | | | 556 | |
Section 162(m) limitation | 2,009 | | | 1,834 | | | — | |
Research and development credits, net of uncertain tax position | (12,558) | | | (14,945) | | | (5,915) | |
Warrant revaluation | (641) | | | (2,824) | | | — | |
SEC Settlement | 26,250 | | | — | | | — | |
Other | (438) | | | 408 | | | 915 | |
Change in valuation allowance | 128,617 | | | 114,303 | | | 27,830 | |
Total income tax provision (benefit) | $ | 4 | | | $ | (1,026) | | | $ | 151 | |
Deferred tax assets and liabilities as of December 31, 2021 and 2020 consisted of the following:
| | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 |
Deferred tax assets: | | | |
Federal and state income tax credits | $ | 33,837 | | | $ | 21,279 | |
Net operating loss carryforward | 245,014 | | | 132,471 | |
Start-up costs capitalized | 1,454 | | | 1,490 | |
Stock-based compensation | 12,645 | | | 8,260 | |
Finance lease liability | 680 | | | 3,718 | |
Property, plant and equipment, net | — | | | 4,069 | |
Accrued expenses and other | 802 | | | — | |
Total deferred tax assets | 294,432 | | | 171,287 | |
Valuation allowance | (291,222) | | | (162,496) | |
Deferred tax assets, net of valuation allowance | 3,210 | | | 8,791 | |
Deferred tax liabilities: | | | |
Intangible assets | (2,116) | | | (1,020) | |
Finance lease asset | (666) | | | (7,786) | |
Property, plant and equipment, net | (439) | | | — | |
Accrued expenses and other | — | | | 7 | |
Total deferred tax liabilities | (3,221) | | | (8,799) | |
Deferred tax liabilities, net | $ | (11) | | | $ | (8) | |
In accordance with ASC 740-10, the deferred tax assets are reduced by a valuation allowance if it is not more likely than not that some portion or all the deferred tax assets will be realized. The realization of deferred tax assets can be affected by, among other things, the nature, frequency, and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, the Company's experience with utilizing operating losses and tax credit carryforwards by jurisdiction, and tax planning alternatives that may be available.
The Company performed an analysis of the reversal of the deferred tax liabilities, and then considered the overall business environment, and the outlook for future years. The Company determined that it is not more likely than not that the benefit from deferred tax assets net of the reversal of certain deferred tax liabilities will be realized. Accordingly, the Company recorded valuation allowances of $291.2 million and $162.5 million at December 31, 2021 and 2020, respectively. The increase in the
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
13. INCOME TAXES (Continued)
valuation allowance for the years ended December 31, 2021 and 2020 were primarily due to increase in net operating loss carryforwards and R&D credits.
At December 31, 2021, the Company had federal net operating loss carryforwards of $11.1 million that begin to expire in 2037 and $966.3 million that have an indefinite carryforward period. The Company has combined state net operating loss carryforwards of $992.6 million at December 31, 2021, that begin to expire in 2032. The Company conducted a change in ownership study and determined that net operating losses and credits will not expire due to ownership change rules under the Internal Revenue Code Sections 382 and 383. The Company had federal and state tax credits of $29.5 million and $19.1 million, respectively, at December 31, 2021 and 2020, which if unused will begin to expire in 2037 for federal and 2031 for state tax purposes.
The following table reflect changes in the unrecognized tax benefits:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Gross amount of unrecognized tax benefits as of the beginning of the year | $ | 7,392 | | | $ | 432 | | | $ | 140 | |
Additions based on tax positions related to the current year | 4,269 | | | 5,622 | | | 292 | |
Additions based on tax position from prior years | — | | | 1,338 | | | — | |
| | | | | |
Gross amount of unrecognized tax benefits as of the end of the year | $ | 11,661 | | | $ | 7,392 | | | $ | 432 | |
ASC 740, Income Taxes, provides that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained in a court of last resort, based on the technical merits. If more-likely-than-not, the amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination, including compromise settlements. For tax positions not meeting the more-likely-than-not threshold, no tax benefit is recorded.
As of December 31, 2021, 2020, and 2019, the Company had $11.7 million, $7.4 million, and $0.4 million, respectively, of gross unrecognized tax benefits, related to research and experimental tax credits. The Company does not expect a significant change to the amount of unrecognized tax benefits to occur within the next 12 months.
The Company's policy is to recognize interest and penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at December 31, 2021 or 2020, and has not recognized interest or penalties during the years ended December 31, 2021, 2020, and 2019, since there was no reduction in income taxes paid due to uncertain tax positions.
The Company files income tax returns in the United States, Arizona, California, Florida, Michigan, Tennessee and Utah. As of December 31, 2021, the earliest year subject to examination is 2018 for federal and state tax purposes. In addition, due to the Company's tax attribute carryforwards, tax authorities will continue to have the ability to adjust loss and tax credit carryforwards even after the statute expires on the year in which the attributes were originally claimed.
14. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is subject to legal and regulatory actions that arise from time to time. The assessment as to whether a loss is probable or reasonably possible, and as to whether such loss or a range of such loss is estimable, often involves significant judgment about future events, and the outcome of litigation is inherently uncertain. The Company expenses professional legal fees as incurred, which are included in selling, general and administrative expense on the consolidated financial statements. Other than as described below, there is no material pending or threatened litigation against the Company that remains outstanding as of December 31, 2021.
Regulatory and Governmental Investigations and Related Internal Review
In September 2020, a short seller reported on certain aspects of the Company’s business and operations. The Company and its board of directors retained Kirkland & Ellis LLP to conduct an internal review in connection with the Hindenburg article (the “Internal Review”), and Kirkland & Ellis LLP promptly contacted the Division of Enforcement of the U.S. Securities and Exchange Commission to make it aware of the commencement of the Internal Review. The Company subsequently learned that
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
the Staff of the Division of Enforcement had previously opened an investigation. During that same month, the Company and 5 of its officers and employees received subpoenas from the Staff of the Division of Enforcement as a part of a fact-finding inquiry related to aspects of the Company’s business as well as certain matters described in the short seller's article. Later that same month, the Staff of the Division of Enforcement issued additional subpoenas to another 3 of the Company’s officers and employees and to the Company’s current and former directors.
The Company and Mr. Milton also received grand jury subpoenas from the U.S. Attorney’s Office for the Southern District of New York (the “SDNY”) in September 2020. Later that same month, Mr. Milton offered to voluntarily step down from his position as Executive Chairman, as a member of the Company’s board of directors, including all committees thereof, and from all positions as an employee and officer of the Company. The board accepted his resignation and appointed Stephen Girsky as Chairman of the board of directors.
On March 24, 2021, the Staff of the Division of Enforcement issued an additional subpoena to the Company related to its projected 2021 cash flow and anticipated use of funds from 2021 capital raises.
The Company is committed to cooperating fully with the Staff of the Division of Enforcement and the SDNY. As such, the Company's counsel frequently engages with the Staff of the Division of Enforcement and the SDNY. Further, the Company has made voluminous productions of information and made witnesses available for interviews. The last such production of information was made in August 2021. The Company will continue to comply with future requests of the Staff of the Division of Enforcement and the SDNY.
The legal and other professional costs the Company incurred during fiscal years 2021 and 2020 in connection with the Internal Review and disclosed elsewhere in this Report include approximately $22.4 million and $8.1 million, respectively, expensed for Mr. Milton’s attorneys’ fees under his indemnification agreement with the Company. As of December 31, 2021 and 2020, the Company accrued approximately $22.7 million and $6.6 million, respectively, in legal and other professional costs for Mr. Milton's attorneys' fees under his indemnification agreement. The Company expects to incur additional costs associated with its continued cooperation with the Staff of the Division of Enforcement and the SDNY in fiscal year 2022, which will be expensed as incurred and which could be significant in the periods in which they are recorded.
On July 29, 2021, the U.S. Attorney for the SDNY announced the unsealing of a criminal indictment charging Mr. Milton with 2 counts of securities fraud and 1 count of wire fraud. That same day, the Securities and Exchange Commission announced charges against Mr. Milton for alleged violations of federal securities laws.
By order dated December 21, 2021, the Company and the SEC reached a settlement arising out of the SEC’s investigation of the Company. Under the terms of the settlement, without admitting or denying the SEC’s findings, the Company agreed to cease and desist from future violations of the Securities Exchange Act of 1934 and Rules 10b-5 and 13a-15(a) thereunder and Section 17(a) of the Securities Act of 1933; to certain voluntary undertakings; and to pay a $125 million civil penalty, to be paid in 5 installments over two years.The first installment was paid at the end of 2021 and the remaining installments are to be paid semiannually through 2023. The Company previously reserved the full amount of the settlement in the quarter ended September 30, 2021, as disclosed in the Company’s quarterly report on Form 10-Q for such quarter, filed with the SEC on November 4, 2021. The SEC’s cease and desist order is available on the SEC’s website.
The Company has been informed that the SDNY investigation remains ongoing but has not received any interview or document requests since the indictment of Mr. Milton was unsealed.
The Company cannot predict the ultimate outcome of the SDNY investigation or the litigation against Mr. Milton, nor can it predict whether any other governmental authorities will initiate separate investigations or litigation. The outcome of the SDNY investigation and any related legal and administrative proceedings could include a wide variety of outcomes, including the institution of administrative, civil injunctive or criminal proceedings involving the Company and/or current or former employees, officers and/or directors in addition to Mr. Milton, the imposition of fines and other penalties, remedies and/or sanctions, modifications to business practices and compliance programs and/or referral to other governmental agencies for other appropriate actions. It is not possible to accurately predict at this time when matters relating to the SDNY investigation will be completed, the final outcome of the SDNY investigation, what additional actions, if any, may be taken by the SDNY or by other governmental agencies, or the effect that such actions may have on the Company's business, prospects, operating results and financial condition, which could be material.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
The SDNY investigation, including any matters identified in the Internal Review, could also result in (1) third-party claims against the Company, which may include the assertion of claims for monetary damages, including but not limited to interest, fees, and expenses, (2) damage to the Company's business or reputation, (3) loss of, or adverse effect on, cash flow, assets, goodwill, results of operations, business, prospects, profits or business value, including the possibility of certain of the Company's existing contracts being cancelled, (4) adverse consequences on the Company's ability to obtain or continue financing for current or future projects and/or (5) claims by directors, officers, employees, affiliates, advisors, attorneys, agents, debt holders or other interest holders or constituents of the Company or its subsidiaries, any of which could have a material adverse effect on the Company's business, prospects, operating results and financial condition.
Further, to the extent that these investigations and any resulting third-party claims yield adverse results over time, such results could jeopardize the Company's operations and exhaust its cash reserves, and could cause stockholders to lose their entire investment.
The Company intends to seek reimbursement from Mr. Milton for costs and damages arising from the actions that are the subject of the government and regulatory investigations.
Shareholder Securities Litigation
Beginning on September 15, 2020, 6 putative class action lawsuits were filed against the Company and certain of its current and former officers and directors, asserting violations of federal securities laws under Section 10(b) and Section 20(a) of the Exchange Act, and, in one case, violations of the Unfair Competition Law under California law (the “Shareholder Securities Litigation”). The complaints generally allege that the Company and certain of its officers and directors made false and/or misleading statements in press releases and public filings regarding the Company's business plan and prospects. The actions are: Borteanu v. Nikola Corporation, et al. (Case No. 2:20-cv-01797-JZB), filed by Daniel Borteanu in the United States District Court of the District of Arizona on September 15, 2020; Salem v. Nikola Corporation, et al. (Case No. 1:20-cv-04354), filed by Arab Salem in the United States District Court for the Eastern District of New York on September 16, 2020; Wojichowski v. Nikola Corporation, et al. (Case No. 2:20-cv-01819-DLR), filed by John Wojichowski in the United States District Court for the District of Arizona on September 17, 2020; Malov. Nikola Corporation, et al. (Case No. 5:20-cv-02168), filed by Douglas Malo in the United States District Court for the Central District of California on October 16, 2020; and Holzmacher, et al. v. Nikola Corporation, et al. (Case No. 2:20-cv-2123-JJT), filed by Albert Holzmacher, Michael Wood and Tate Wood in the United States District Court for the District of Arizona on November 3, 2020, and Eves v. Nikola Corporation, et al. (Case No. 2:20-cv-02168-DLR), filed by William Eves in the United States District Court for the District of Arizona on November 10, 2020. In October 2020, stipulations by and among the parties to extend the time for the defendants to respond to the complaints until a lead plaintiff, lead counsel, and an operative complaint are identified were entered as orders in certain of the filed actions. On November 16, 2020 and December 8, 2020 respectively, orders in the Malo and Salem actions were entered to transfer the actions to the United States District Court for the District of Arizona.
On November 16, 2020, 10 motions both to consolidate the pending securities actions and to be appointed as lead plaintiff were filed by putative class members. On December 15, 2020, the United States District Court for the District of Arizona consolidated the actions under lead case Borteanu v. Nikola Corporation, et al., No. CV-20-01797-PXL-SPL, and appointed Angelo Baio as the “Lead Plaintiff”. On December 23, 2020, a motion for reconsideration of the Court’s order appointing the Lead Plaintiff was filed. On December 30, 2020, a petition for writ of mandamus seeking to vacate the District Court’s Lead Plaintiff order and directing the court to appoint another Lead Plaintiff was filed before the United States Court of Appeals for the Ninth Circuit, Case No. 20-73819. The motion for reconsideration was denied on February 18, 2021. On July 23, 2021, the Ninth Circuit granted in part the mandamus petition, vacated the district court’s December 15, 2020 order, and remanded the case to the District Court to reevaluate the appointment of a Lead Plaintiff. On November 18, 2021, the Court appointed Nikola Investor Group II as Lead Plaintiff and appointed Pomerantz LLP and Block & Leviton LLP as co-lead counsel. On December 10, 2021, the Court issued a scheduling order pursuant to which Lead Plaintiff’s Amended Complaint was due January 24, 2022, Defendants’ deadline to answer or otherwise respond was set for March 10, 2022 and Plaintiffs’ deadline to file any responsive memorandum was set for April 11, 2022 with any reply from Defendants due by May 11, 2022. On January 24, 2022, Lead Plaintiffs filed the Consolidated Amended Class Action Complaint. On February 5, 2022, the Court granted the parties’ joint application for an extension of the deadline for Defendants to file an answer or move to dismiss until April 8, 2022, with Plaintiffs’ opposition due 30 days following the filing of a motion to dismiss, and any reply from Defendants due 30 days following Plaintiffs’ opposition.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
Plaintiffs seek an unspecified amount in damages, attorneys’ fees, and other relief. The Company intends to vigorously defend itself. The Company is unable to estimate the potential loss or range of loss, if any, associated with these lawsuits, which could be material. On December 17, 2021, Lead Plaintiff filed a motion to lift the PSLRA stay of discovery. On January 18, 2022, Nikola filed its opposition to Lead Plaintiff’s motion to lift the PSLRA stay of discovery and on January 25, 2022, Lead Plaintiff filed its reply. The Court has not yet ruled on the motion.
Derivative Litigation
Beginning on September 23, 2020, 2 purported shareholder derivative actions were filed in the United States District Court for the District of Delaware (Byun v. Milton, et al., Case No. 1:20-cv-01277-UNA; Salguocar v. Girsky et. al., Case No. 1:20-cv-01404-UNA), purportedly on behalf of the Company, against certain of the Company's current and former directors alleging breaches of fiduciary duties, violations of Section 14(a) of the Exchange Act, and gross mismanagement. The Byun action also brings claims for unjust enrichment and abuse of control, while the Salguocar action brings a claim for waste of corporate assets. On October 19, 2020, the Byun action was stayed until 30 days after the earlier of (a) the Shareholder Securities Litigation being dismissed in their entirety with prejudice; (b) defendants filing an answer to any complaint in the Shareholder Securities Litigation; or (c) a joint request by plaintiff and defendants to lift the stay. On November 17, 2020, the Byun and Salguocar actions were consolidated as In re Nikola Corporation Derivative Litigation, Lead Case No. 20-cv-01277-CFC. The consolidated action remains stayed.
On December 18, 2020, a purported shareholder derivative action was filed in the United States District Court for the District of Arizona, Huhn v. Milton et al., Case No. 2:20-cv-02437-DWL, purportedly on behalf of the Company, against certain of the Company’s current and former directors alleging breaches of fiduciary duties, violations of Section 14(a) of the Exchange Act, unjust enrichment, and against defendant Jeff Ubben, a member of the Company’s board of directors, insider selling and misappropriation of information. On January 26, 2021, the Huhn action was stayed until 30 days after the earlier of (a) the Shareholder Securities Litigation being dismissed in its entirety with prejudice; (b) defendants filing an answer to any complaint in the Shareholder Securities Litigation; or (c) a joint request by plaintiff and defendants to lift the stay.
On January 7, 2022, Barbara Rhodes, a purported stockholder of the Company, filed her Verified Stockholder Derivative Complaint in Delaware Chancery Court captioned Rhodes v. Milton, et al. and Nikola Corp., C.A. No. 2022-0023-KSJM (the “Rhodes Action”). On January 10, 2022, Zachary BeHage and Benjamin Rowe (together, the “BeHage Rowe Plaintiffs”), purported stockholders of the Company, filed their Verified Shareholder Derivative Complaint in Delaware Chancery Court captioned BeHage v. Milton, et al. and Nikola Corp., C.A. No. 2022-0045-KSJM, (the “BeHage Rowe Action”together with the Rhodes Action, the “Related Actions”). The Related Actions are against certain of the Company’s current and former directors and allege breach of fiduciary duties, insider selling under Brophy, aiding and abetting insider selling, aiding and abetting breach of fiduciary duties, unjust enrichment, and waste of corporate assets. On January 28, 2022, Rhodes and the BeHage Rowe Plaintiffs filed a stipulation and proposed order for consolidation of the Related Actions. The proposed order states that Defendants need not answer, move, or otherwise respond to the complaints filed in the Related Actions and contemplates that counsel for Plaintiffs shall file a consolidated complaint or designate an operative complaint within fourteen days of entry of an order consolidating these actions and shall meet and confer with counsel for Defendants or any other party regarding a schedule for Defendants to respond to the operative complaint. The proposed order was granted by the Court on February 1, 2022.
The complaints seek unspecified monetary damages, costs and fees associated with bringing the actions, and reform of the Company's corporate governance, risk management and operating practices. The Company intends to vigorously defend against the foregoing complaints. The Company is unable to estimate the potential loss or range of loss, if any, associated with these lawsuits, which could be material.
In addition, on March 8, 2021, the Company received a demand letter from a law firm representing a purported stockholder of the Company alleging facts and claims substantially the same as many of the facts and claims in the filed derivative shareholder lawsuit. The demand letter requests that the board of directors (i) undertake an independent internal investigation into certain board members and management’s purported violations of Delaware and/or federal law; and (ii) commence a civil action against those members of the board and management for alleged fiduciary breaches. In April 2021, the board of directors formed a demand review committee, consisting of independent directors Bruce L. Smith, and Mary L. Petrovich, to review such demands and provide input to the Company and retained independent counsel. There can be no assurance as to whether any litigation will be commenced by or against the Company by the purported shareholder with respect to the claims set forth in the demand letter, or whether any such litigation could be material.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
Books and Record Demands Pursuant to Delaware General Corporation Law Section 220
The Company has received a number of demand letters pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”), seeking disclosure of certain of the Company’s records. The Company has responded to those demands, stating its belief that the demand letters fail to fully comply with the requirements of Section 220 of the DGCL. However, in the interest of resolution and while preserving all rights of the defendants, the Company has engaged in negotiations with the shareholders, and has provided certain information that the Company had reasonably available to it.
On January 15, 2021, Plaintiff Frances Gatto filed a complaint in Delaware Chancery Court seeking to compel inspection of books and records pursuant to Section 220 of the DGCL. On January 26, 2021, Plaintiff’s counsel and the Company filed a joint letter, notifying the Court that the parties are engaged in dialogue regarding Plaintiff’s demand, and the Company need not answer or otherwise respond to the complaint at this time. On October 20, 2021, Plaintiff dismissed the action without prejudice.
On October 8, 2021, Plaintiffs Zachary BeHage and Benjamin Rowe filed a complaint in Delaware Chancery Court seeking to compel inspection of books and records pursuant to Section 220 of the DGCL. On October 19, 2021, Plaintiffs’ counsel and the Company filed a joint letter, notifying the Court that the parties are engaged in dialogue regarding Plaintiffs’ demand, and the Company need not answer or otherwise respond to the complaint at this time. On January 14, 2022, Plaintiffs dismissed the action without prejudice.
On January 19, 2022, Plaintiff Melissa Patel filed a complaint in Delaware Chancery Court seeking to compel inspection of books and records pursuant to Section 220 of the DGCL.
AAA Arbitration Demand
On July 23, 2021, former Executive Chairman Trevor Milton filed an arbitration demand with the American Arbitration Association against the Company seeking indemnification and advancement of defense costs as well as cooperation in Mr. Milton’s defense in certain legal proceedings. The Company disputes Mr. Milton’s claims and will defend itself in arbitration. A hearing was held on January 31, 2022. No decision has been rendered.
Purchase Commitments
The Company enters into commitments under non-cancellable or partially cancellable purchase orders or vendor agreements in the normal course of business. The following table presents the Company's commitments and contractual obligations and the Company's accrued settlement to the SEC as of December 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments due by period as of December 31, 2021 |
| Total | | Less than 1 Year | | 1 - 3 Years | | 3 - 5 Years | | More than 5 Years |
Unrecorded contractual obligations: | | | | | | | | | |
Purchase obligations | $ | 504,715 | | | $ | 35,424 | | | $ | 469,291 | | | $ | — | | | $ | — | |
Recorded contractual obligations: | | | | | | | | | |
Accrued SEC settlement | 100,000 | | | 50,000 | | | 50,000 | | | — | | | — | |
FCPM License | 45,377 | | | 11,344 | | | 34,033 | | | — | | | — | |
| $ | 650,092 | | | $ | 96,768 | | | $ | 553,324 | | | $ | — | | | $ | — | |
Commitments and Contingencies
Coolidge Land Conveyance
In February 2019, the Company was conveyed 430 acres of land in Coolidge, Arizona, by PLH. The purpose of the land conveyance was to incentivize the Company to locate its manufacturing facility in Coolidge, Arizona, and provide additional jobs to the region. The Company fulfilled its requirement to commence construction, as defined within the period defined by the agreement, of the manufacturing facility within two years of February 2019 (the “Manufacturing Facility Commencement Deadline”), and is required to complete construction of the manufacturing facility within five years of February 2019 (the “Manufacturing Facility Deadline”).
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
If the Company fails to meet the Manufacturing Facility Deadline, the Company may extend the completion deadline by paying PLH $0.2 million per month, until construction is completed (the "Monthly Payment Option"). The extension of the Manufacturing Facility Deadline beyond two years will require express written consent of PLH. If the Company does not exercise the Monthly Payment Option, fails to make timely payments on the Monthly Payment Option, or fails to complete construction by the extended Manufacturing Facility Deadline, PLH is entitled to either the $4.0 million security deposit or may reacquire the land and property at the appraised value to be determined by independent appraisers selected by the Company and PLH.
FCPM License
In the third quarter of 2021, the Company entered into a FCPM license to intellectual property that will be used to adapt, further develop and assemble FCPMs. Payments for the license will be due in installments ranging from 2022 to 2023. As of December 31, 2021, the Company accrued $11.3 million in accrued expenses and other current liabilities and $34.0 million in other long-term liabilities on the consolidated balance sheets.
15. NET LOSS PER SHARE
The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders for the years ended December 31, 2021, 2020, and 2019.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Numerator: | | | | | |
Net loss | $ | (690,438) | | | $ | (370,866) | | | $ | (88,656) | |
Less: Premium on repurchase of redeemable convertible preferred stock | — | | | (13,407) | | | (16,816) | |
Net loss attributable to common shareholders, basic | $ | (690,438) | | | $ | (384,273) | | | $ | (105,472) | |
Less: revaluation of warrant liability | (3,051) | | | (13,448) | | | — | |
Net loss attributable to common stockholder, diluted | $ | (693,489) | | | $ | (397,721) | | | $ | (105,472) | |
Denominator: | | | | | |
Weighted average shares outstanding, basic | 398,655,081 | | | 335,325,271 | | | 262,528,769 | |
Dilutive effect of common stock issuable from assumed exercise of options | 129,311 | | | 505,762 | | | — | |
Weighted average shares outstanding, diluted | 398,784,392 | | | 335,831,033 | | | 262,528,769 | |
Net loss per share to common shareholders: | | | | | |
Basic | $ | (1.73) | | | $ | (1.15) | | | $ | (0.40) | |
Diluted | $ | (1.74) | | | $ | (1.18) | | | $ | (0.40) | |
Basic net loss per share is computed by dividing net loss for the period by the weighted-average number of common shares outstanding during the period.
Diluted net loss per share is computed by dividing the net loss, adjusted for the revaluation of warrant liability for the private warrants, by the weighted average number of common shares outstanding for the period, adjusted for the dilutive effect of shares of common stock equivalents resulting from the assumed exercise of the warrants. The treasury stock method was used to calculate the potential dilutive effect of these common stock equivalents.
Potentially dilutive shares were excluded from the computation of diluted net loss when their effect was antidilutive. The following outstanding common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive.
NIKOLA CORPORATION
Notes to Consolidated Financial Statements (Continued)
15. NET LOSS PER SHARE (Continued)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Stock options, including performance stock options | 28,996,160 | | | 32,529,224 | | | 40,012,825 | |
| | | | | |
Restricted stock units, including Market Based RSUs | 25,496,384 | | | 18,344,243 | | | — | |
Total | 54,492,544 | | | 50,873,467 | | | 40,012,825 | |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act") designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures under the Exchange Act as of December 31, 2021, the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Limitations on the Effectiveness of Controls
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements and projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the assessment, management has concluded that its internal control over financial reporting was effective as of December 31, 2021 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. Ourdifferent independent registered public accounting firm Ernst & Young LLP, has issued anat any time during the year if the audit report with respect to our internal control over financial reporting, which appearscommittee determines that such a change would be in Part II, Item 8 of this Annual Report on Form 10-K.
Remediation of Previously Reported Material Weakness
On April 12, 2021, the staffbest interests of the SEC issued an SEC Staff Statement (“the SEC Staff Statement”) in which they clarified their interpretations of certain generally accepted accounting principles related to warrants issued by Special Purpose Acquisition Companies (“SPACs”). Prior to the SEC Staff Statement, we believed thatCompany and our warrant accounting was consistent with generally accepted accounting principles. Our belief was supported by the fact that most other SPACs and parties who had merged with SPACs similarly interpreted the warrant accounting principles at issue. However, based on the clarifications expressed in the SEC Staff Statement, it resulted in a restatement as discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2020 and a previously reported material weakness in our disclosure controls and procedures.stockholders.
In connection with correcting our accounting for the private warrants assumed by us as part of the Business Combination, we have implemented additional review procedures, additional training and enhancements to the accounting policy related to the accounting for equity and liability instruments (including those with warrants) to determine proper accounting in accordance with U.S. GAAP (e.g., determine whether liability or equity classification and measurement is appropriate).
We have completed the implementation of the items noted above and management has concluded that this material weakness has been remediated as of December 31, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as identified in connection with the evaluation required by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act, that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.