Form 10-Q SES AI Corp For: Jun 30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Table of Contents
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that SES AI Corporation (the “Company”) believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements relating to expectations for future financial performance, business strategies or expectations for our business. These statements are based on the beliefs and assumptions of the management of the Company. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, it cannot provide assurance that it will achieve or realize these plans, intentions or expectations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report, words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “strive,” “target,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
You should not place undue reliance on these forward-looking statements. Should one or more of a number of known and unknown risks and uncertainties materialize, or should any of our assumptions prove incorrect, the Company’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include, but are not limited to the following risks:
● | changes in domestic and foreign business, market, financial, political and legal conditions, including but not limited to the ongoing conflict between Russia and Ukraine; |
● | risks relating to the uncertainty of the projected financial information with respect to the Company; |
● | risks related to the development and commercialization of the Company’s battery technology and the timing and achievement of expected business milestones; |
● | the effects of competition on the Company’s business; |
● | the ability of the Company to issue equity or equity-linked securities or obtain debt financing in the future; |
● | the ability of the Company to integrate its products into electric vehicles (“EVs”) |
● | the risk that delays in the pre-manufacturing development of the Company’s battery cells could adversely affect the Company’s business and prospects; |
● | potential supply chain difficulties; |
● | risks resulting from the Company’s joint development agreements (“JDAs”) and other strategic alliances, if such alliances are unsuccessful; |
● | the quickly evolving battery market; |
● | the Company’s ability to accurately estimate future supply and demand for its batteries; |
● | the Company’s ability to develop new products on an ongoing basis in a timely manner; |
● | product liability and other potential litigation, regulation and legal compliance; |
● | the Company’s ability to effectively manage its growth; |
● | the Company’s ability to attract, train and retain highly skilled employees and key personnel; |
● | the willingness of vehicle operators and consumers to adopt EVs; |
● | developments in alternative technology or other fossil fuel alternatives; |
● | the Company’s ability to meet certain motor vehicle standards; |
● | a potential shortage of metals required for manufacturing batteries; |
● | risks related to the Company’s intellectual property; |
● | risks related to the Company’s business operations outside the United States, including in China and South Korea; |
● | the uncertainty in global economic conditions and risks relating to health epidemics, including the COVID-19 pandemic and any operational interruptions; |
● | the Company has identified material weaknesses in its internal control over financial reporting and may identify material weaknesses in the future or otherwise fail to maintain an effective system of internal controls; |
● | compliance with certain health and safety laws; |
● | changes in U.S. and foreign tax laws; and |
● | the other factors disclosed in this Quarterly Report on Form 10-Q and the Company’s other filings with the Securities and Exchange Commission (the “SEC”), in particular the risks described in “Part II, Item 1A” of this |
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Quarterly Report and “Part I, Item 1A” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2021. |
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on information available as of the date of this Quarterly Report on Form 10-Q and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and should not be relied upon as representing the Company’s views as of any subsequent date. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SES AI Corporation
Condensed Consolidated Balance Sheet
(Unaudited)
(in thousands, except share and per share amounts) | June 30, 2022 |
| December 31, 2021 |
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Assets |
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Current Assets |
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Cash and cash equivalents | $ | | $ | | |||
Receivable from related party | | | |||||
Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Right-of-use assets, net | | — | |||||
Other assets |
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Total assets | $ | | $ | | |||
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity |
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Current Liabilities |
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Accounts payable | $ | | $ | | |||
Operating lease liabilities, current | | — | |||||
Accrued expenses and other current liabilities |
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Total current liabilities |
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Sponsor Earn-Out liability | | — | |||||
Operating lease liabilities, non-current | | — | |||||
Other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 8) |
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Redeemable Convertible Preferred Stock, $ |
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Stockholders’ Equity |
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Preferred stock, $ | |||||||
Common stock: |
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Additional paid-in capital |
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Accumulated other comprehensive (loss) income |
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Accumulated deficit |
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Total stockholders' equity |
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Total liabilities, redeemable convertible preferred stock, and stockholders' equity | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SES AI Corporation
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
(in thousands, except share and per share amounts) | 2022 |
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Operating expenses: |
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Research and development | $ | | $ | | $ | | $ | | |||||
General and administrative |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Gain on change of fair value of Sponsor Earn-Out liability, net | | — | | — | |||||||||
Interest income | | | | | |||||||||
Other income (expense), net | ( | ( | ( | ||||||||||
Total other income (expense), net |
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Income (loss) before income taxes |
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Provision for income taxes |
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Net income (loss) |
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Other comprehensive income (loss): |
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Foreign currency translation adjustment |
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Total comprehensive income (loss) | $ | | $ | ( | $ | ( | $ | ( | |||||
Net income (loss) per share attributable to common stockholders, basic and diluted: | $ | | $ | ( | $ | ( | $ | ( | |||||
Weighted-average shares outstanding: | |||||||||||||
Basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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SES AI Corporation
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity
(Unaudited)
Three Months Ended and Six Months Ended June 30, 2022 | |||||||||||||||||||||
Redeemable Convertible | Class A and Class B | Accumulated | Total | ||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | Other Comprehensive | Stockholders’ | ||||||||||||||||
(in thousands, except share and per share amounts) | Shares |
| Amount |
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| Paid-in-Capital |
| Deficit |
| Income (Loss) |
| Equity | ||||||
Balance – December 31, 2021 | |
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Retroactive application of reverse recapitalization upon Business Combination(1) | | — | | | ( | — | — | — | |||||||||||||
Balance — December 31, 2021, as converted | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | |||||||
Conversion of redeemable convertible preferred stock to common stock in connection with reverse recapitalization upon Business Combination | ( | ( | | | | — | — | | |||||||||||||
Business Combination and PIPE Financing, net of redemptions and transaction costs (2) | — | — | | | | — | — | | |||||||||||||
Forfeitures of Earn-Out restricted shares | — | — | ( | — | — | — | — | — | |||||||||||||
Stock-based compensation | — | — | — | — | | — | — | | |||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | | | |||||||||||||
Issuance of common stock upon exercise of stock options | — | — | | — | | — | — | | |||||||||||||
Net loss | — | — | — | — | — | ( | — | ( | |||||||||||||
Balance — March 31, 2022 | — | $ | — | | $ | | $ | | $ | ( | $ | | $ | | |||||||
Release of accrued transaction costs related to Business Combination and PIPE Financing | — | — | — | — | | — | — | | |||||||||||||
Stock-based compensation | — | — | — | — | | — | — | | |||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | ( | ( | |||||||||||||
Issuance of common stock upon exercise of stock options | — | — | | — | | — | — | | |||||||||||||
Net income | — | — | — | — | — | | — | | |||||||||||||
Balance — June 30, 2022 | — |
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Three Months Ended and Six Months Ended June 30, 2021 | |||||||||||||||||||||
Redeemable Convertible | Class A and Class B | Accumulated | Total | ||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | Other Comprehensive | Stockholders’ | ||||||||||||||||
(in thousands, except share and per share amounts) | Shares |
| Amount |
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| Deficit |
| Income |
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Balance – December 31, 2020 | |
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Retroactive application of reverse recapitalization upon Business Combination(1) | | — | | | ( | — | — | — | |||||||||||||
Balance — December 31, 2020, as converted | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | |||||||
Stock-based compensation | — | — | — | — | | — | — | | |||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | ( | ( | |||||||||||||
Net loss | — | — | — | — | — | ( | — | ( | |||||||||||||
Balance — March 31, 2021 | |
| $ | | |
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Issuance of Series D and Series D plus redeemable convertible preferred stock, net of issuance costs, retroactive application of reverse recapitalization upon Business Combination(1) | | | — | — | — | — | — | — | |||||||||||||
Stock-based compensation | — | — | — | — | | — | — | | |||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | | | |||||||||||||
Net loss | — | — | — | — | — | ( | — | ( | |||||||||||||
Balance — June 30, 2021 | |
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(1) | Included in the share number is |
(2) | Includes issuance of |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SES AI Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, | ||||||
(in thousands) | 2022 |
| 2021 |
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Cash Flows From Operating Activities |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Gain on change of fair value of Sponsor Earn-Out liability | ( | — | ||||
Stock-based compensation |
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Depreciation and amortization |
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Other | ( | — | ||||
PPP note forgiveness | — | ( | ||||
Changes in operating assets and liabilities: |
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Receivable from related party | | ( | ||||
Prepaid expenses and other assets |
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Accounts payable |
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Accrued expenses and other liabilities |
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Net cash used in operating activities |
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Cash Flows From Investing Activities |
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Purchases of property and equipment |
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Purchase of short-term investments |
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Maturities of short-term investments |
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Net cash used in investing activities |
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Cash Flows From Financing Activities |
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Proceeds from Business Combination and PIPE Financing, net of issuance costs | | — | ||||
Proceeds from stock option exercises | | — | ||||
Proceeds from issuance of Series D and D plus redeemable convertible preferred stock, net of issuance costs | — | | ||||
Net cash provided by financing activities |
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Effect of exchange rates on cash |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period (Note 4) |
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Cash, cash equivalents and restricted cash at end of period (Note 4) | $ | | $ | | ||
Supplemental Non-Cash Information: |
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Conversion of Redeemable Convertible Preferred Stock to shares of Class A Common Stock | $ | ( | $ | — | ||
Release of accrued transaction costs related to Business Combination and PIPE Financing | $ | | $ | — | ||
Accounts payable and accrued expenses related to purchases of property and equipment | $ | | $ | | ||
Liabilities of Ivanhoe acquired in the Business Combination | $ | ( | $ | — | ||
Deferred offering costs included in accounts payable and accrued expenses and other liabilities | $ | — | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SES AI Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Dollars in thousands, unless otherwise stated)
Note 1. Nature of Business
Organization
SES AI Corporation, and consolidated subsidiaries (together the “Company”) consists of SES AI Corporation (“SES”), and its wholly-owned subsidiaries: SES Holdings Pte. Ltd. (“SES Holdings” or “Old SES”), SolidEnergy Systems, LLC (the “SES LLC”), SolidEnergy (Shanghai) Co., Ltd. (the “SES Shanghai”), SolidEnergy Systems Securities Corporation (the “SES Securities”), Viking Power Systems Pte. Ltd. (the “SES Viking”), and Massachusetts Solid Energy Co., Ltd. (the “SES Korea”).
SES Holdings is a Singapore private company limited by shares formed in November 2018. SES LLC is a Delaware limited liability company formed in November 2018 as a result of the conversion from a corporation to a limited liability company by SolidEnergy Systems Corp, a Delaware corporation formed in April 2012. SES Shanghai was registered in Shanghai, China in November 2018. SES Securities was incorporated in December 2017 as a Massachusetts Security Corporation. SES Viking is a Singapore private company limited by shares formed in May 2019. SES Korea was registered in South Korea in November 2021.
The Company is engaged in the research and development of Lithium-Metal (“Li-Metal”) rechargeable batteries for electric vehicles (“EVs”). Since the Company’s founding in 2012, the Company has been committed to developing the world’s most advanced EV batteries. The Company’s Li-Metal batteries have been designed to combine the high energy density of Li-Metal with cost-effective manufacturability at scale. The Company’s headquarters are located in Boston with research and development facilities located there and in Shanghai, China. Principal operations have not yet commenced as of June 30, 2022, and the Company has not derived revenue from its principal business activities.
Prior to the closing of the Business Combination (the “Closing”), Ivanhoe migrated out of the Cayman Islands and domesticated as a Delaware corporation (the “Domestication”) and changed its name to “SES AI Corporation.” On February 3, 2022 (the “Closing Date”), Ivanhoe Capital Acquisition Corp. (“Ivanhoe”), a Cayman Islands exempted company, and Wormhole Amalgamation Sub Pte. Ltd., a Singapore private company limited by shares and a direct, wholly-owned subsidiary of Ivanhoe (“Amalgamation Sub”), consummated the previously announced Business Combination (the “Business Combination”) pursuant to which, among other things, Amalgamation Sub merged with and into Old SES, with Old SES surviving the Business Combination as a wholly-owned subsidiary of SES. See “Note 3 – Business Combination” for additional information.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting and are unaudited. Accordingly, they do not include all information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements of Old SES at that date. Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the condensed consolidated financial statements for the interim periods presented. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the full year or any other future interim or annual
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periods. All intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year ends on December 31.
These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes of Old SES as of and for the year ended December 31, 2021 included in Amendment No. 1 to SES’s Current Report on Form 8-K filed with the SEC on March 31, 2022 (the “Super 8-K Amendment”).
As a result of the Business Combination completed on February 3, 2022, prior period share and per share amounts presented in the accompanying condensed consolidated financial statements and these related notes have been retroactively converted.
Reclassification of Prior Period Amounts
Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. Restricted cash and deferred offering costs have been combined with other assets and accrued compensation has been combined with accrued expenses and other current liabilities on the consolidated balance sheet. The impact of these changes was an increase of $
Impact of Novel Coronavirus
Since the emergence of a novel strain of coronavirus (“COVID-19”) in December 2019, the COVID-19 pandemic has continued to spread globally and has led governments and other authorities around the world to impose varying degrees of measures intended to reduce its spread and address the resurgences of the COVID-19 variants as the arise. Depending on the jurisdiction, these measures have become more or less restrictive based on the changing conditions, such as the emergence of new variants, the infections and hospitalization trends, as well as public vaccinations status.
The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption worldwide. The effects and potential effects of COVID-19 include, but are not limited to, its impact on general economic conditions, trade and financing markets and changes in customer behavior, and significant uncertainty in the overall continuity in business operations. The spread of COVID-19 has also disrupted the manufacturing, delivery and overall supply chain of manufacturers and suppliers of EVs and EV batteries, and has led to a global decrease in vehicle sales in markets around the world. In particular, the COVID-19 crisis may cause a decrease in the demand for EV batteries if fleet operators delay purchases of EVs, or if fuel prices for internal combustion engine do not create enough of an incentive to accelerate the migration from internal combustion engine vehicles to EVs, an increase in costs resulting from the efforts of manufacturers of EVs or EV batteries to mitigate the effects of COVID-19 and delays in EV manufacturers’ schedules to full commercial production of EVs and disruptions to these supply chains, among other negative effects.
The recent spikes in COVID-19 cases in Shanghai resulted in government-mandated temporary shutdowns at our Shanghai location in April 2022, causing a delay of over a month in our development, testing and manufacturing efforts and in our product schedule and our ability to obtain materials from our suppliers in the affected area. The government-mandated shutdown was lifted on June 1, 2022 and the Shanghai facility has since reopened. If our workforce is unable to work effectively, including due to illness, quarantines, government actions or other restrictions in connection with COVID-19, our operations will be adversely affected. We continue to monitor closely the impact of COVID-19 on all aspects of our business and geographies, including its impact on our employees, suppliers, business partners and potential distribution channels and customers. The extent to which the COVID-19 pandemic may continue to affect our business will depend on continued developments, which are uncertain and cannot be predicted. Even after the COVID-19 pandemic has subsided, we may continue to suffer an adverse effect on our business due to possible longer-term global economic effects of COVID-19, including any economic recession. If the immediate or prolonged effects of the COVID-19 pandemic have a significant adverse impact on government finances, it would create uncertainty as to the
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continuing availability of incentives related to EV purchases and other governmental support programs. In addition, a recurrence of COVID-19 cases or an emergence of additional variants or strains could cause other widespread or more severe impacts depending on where infection rates are highest.
Liquidity
Historically, the Company’s principal sources of liquidity have been the proceeds from a series of financing transactions with investors that have provided the Company with the necessary cash and cash equivalents to support its research and development activities. On February 3, 2022, as a result of the aforementioned Business Combination and PIPE Financing (as defined below), the Company received $
Since inception, the Company has not achieved annual profitable operations or positive cash flows from operations, and it expects to incur losses in future periods. As of June 30, 2022, the Company had total cash, cash equivalents and restricted cash of $405.2 million and an accumulated deficit of $
These condensed consolidated financial statements have been prepared on a going concern basis. Management believes that the Company’s current cash and cash equivalents as of June 30, 2022 are adequate to meet its needs for the next twelve months from the issuance of these condensed consolidated financial statements.
Significant Accounting Policies
During the three and six months ended June 30, 2022, there have been no significant changes to the Company’s significant accounting policies as disclosed in “Note 2 – Basis of Presentation and Summary of Significant Accounting Policies” of the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021 included in the Super 8-K Amendment, except as described below:
Use of estimates
The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Company’s consolidated financial statements, as well as the revenues, if any, and expenses incurred during the reporting periods. Significant estimates include those related to the fair value of common stock prior to the Business Combination and other assumptions used to measure (i) stock-based compensation including certain restricted share awards with market conditions, (ii) term, volatility, risk-free interest rate and probability of change of control with respect to valuation of sponsor earn-out liability and (iii) valuation of deferred tax assets and uncertain income tax positions. The Company bases its estimates on available historical experience and on various other factors that the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results could differ materially from those estimates.
Leases
The Company determines if an arrangement includes a lease at inception. Lease arrangements generally have lease and non-lease components, which are accounted for separately. At the lease commencement date, the Company recognizes operating lease liabilities, equal to the present value of the lease payments, and operating lease assets, which represent the right to use the underlying asset for the lease term (the “ROU asset”). The Company assesses if it is reasonably certain to exercise lease options to extend or terminate the lease for inclusion or exclusion in the lease term when the Company measures the lease liability. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at lease commencement in determining the present value of lease
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payments. The Company’s incremental borrowing rate estimates a secured rate that reflects the term of the lease, the nature of the underlying asset and the economic environment. The Company excludes leases with an expected term of one year or less from recognition on the consolidated balance sheet. Operating lease assets includes lease payments made prior to lease commencement and excludes lease incentives and initial direct costs incurred. Lease expense is recognized on a straight-line basis over the lease term. Variable lease expenses, including common area maintenance, insurance, and property tax, are expensed as incurred. See “Note 7 – Leases” for additional information about the Company’s leases.
Sponsor Earn-Out Liability
On February 2, 2022, in connection with the Domestication,
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If there is a change in control of SES at a per share value of greater than $
The Sponsor Earn-Out Shares in Tranche 1 are accounted for as equity instruments because they are legally owned by the Sponsor and are subject only to transfer restrictions that lapse
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Common Stock Warrants
Prior to the Business Combination, Ivanhoe had issued
The amendments, among other things, include the following:
(i) amendments to the rights specific to the Private Warrants such that (a) the rights specific to Private Warrants are retained by the holder thereof regardless of such holder’s identity, (b) the Private Warrants are no longer subject to redemption by the Company when such warrants are trading at a price equal to or in excess of $
((ii) eliminates the Company’s ability to redeem any Public Warrants unless the Class A Common Stock is trading at a price equal to or in excess of $
(iii) removes certain language related to the treatment of Warrants in the event of a tender offer for the shares underlying such Warrants.
Subsequent to the Closing, the Company registered
Earn-Out Shares
In connection with the Business Combination, holders of Old SES common stock, redeemable convertible preferred stock, options and restricted shares received
The Earn-Out Shares and the Founder Earn-Out Shares (collectively, the “Escrowed Earn-Out Shares”) were placed into escrow at the Closing and shall vest on the date that the closing price of shares of Class A Common Stock is equal to or greater than $
The Escrowed Earn-Out Shares to be released upon achievement of the vesting condition are classified as equity instruments and recorded at fair value in stockholders’ equity as vesting is indexed to the common stock of the Company. The Earn-Out Restricted Shares are accounted for as equity awards issued to employees subject to time and market vesting conditions.
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Stock-Based Compensation
The Company measures compensation expense for all stock-based awards made to employees, directors, and non-employees, including stock options and restricted share awards based on estimated fair values as of the grant date. Non-employee stock-based awards have not been material through June 30, 2022.
Awards with only service vesting conditions:
The fair value of stock options granted is estimated using the Black-Scholes option valuation model, which requires the Company to make assumptions and judgments about the variables used in the calculation, including the fair value of the underlying common stock, the expected term of the stock option (weighted-average period of time that the options granted are expected to be outstanding), the expected volatility of the price of the Company’s common stock, the expected risk-free interest rate and the expected dividend yield of the Company’s common stock. The fair value of restricted share awards (“RSAs”) and restricted stock units (“RSUs”) are determined based upon the fair value of the underlying common stock at the date of grant. The Company expenses stock-based compensation using the straight-line method over the requisite service period of all awards, which generally is the same as the vesting term. The Company accounts for forfeitures when they occur. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop.
Awards with service vesting and market conditions:
In connection with the Business Combination, Old SES option holders and Old SES restricted shareholders received
Net Income (Loss) Per Share
Upon recapitalization, net loss per share calculations for all periods prior to the Business Combination have been retrospectively restated to the equivalent number of shares reflecting the Exchange Ratio established in the Business Combination, including the issuance of Class A Common Stock and Class B Common Stock to Old SES common stockholders. Under the two-class method, the net loss attributable to common stockholders was not allocated to the redeemable convertible preferred stock as the holders of its redeemable convertible preferred stock do not have a contractual obligation to share in the Company’s losses. As the liquidation and dividend rights of Class A Common Stock and Class B Common Stock are identical, the net loss attributable to common stockholders is allocated on a proportionate basis, and the resulting net loss per share is identical for Class A Common Stock and Class B Common Stock under the two-class method.
Basic net income or loss per share attributable to Class A Common Stock and Class B Common Stock stockholders is computed by dividing the net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The diluted net income or loss per share attributable to common stockholders is calculated by giving effect to all potentially dilutive common stock equivalents outstanding during the
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period. Potentially dilutive securities consist of redeemable convertible preferred stock, Warrants, Sponsor Earn-Out Shares, Escrowed Earn-Out Shares, Earn-Out Restricted Shares, stock options, RSAs, RSUs, and PSUs, as more fully described in “Note 12 – Net Income (Loss) Per Share”.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standard Board (the “FASB”) issued ASU No. 2016-02, Leases (Topic 842), and has since issued several updates, amendments, and technical improvements to ASU 2016-02. Topic 842 generally requires that lessees recognize operating and financing liabilities for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term.
Topic 842 also requires additional disclosures about leasing arrangements related to discount rates, lease terms, and the amount, timing, and uncertainty of cash flows arising from leases. Topic 842 is effective for financial statements issued for fiscal years beginning after December 15, 2021. The Company
The
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide disclosures on material government transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The Company’s
The Company has reviewed all other accounting pronouncements issued during the three months ended June 30, 2022 and concluded they were either not applicable or not expected to have a material impact on the Company’s condensed consolidated financial statements.
Note 3. Business Combination
On February 3, 2022 (the “Closing Date”), Ivanhoe Capital Acquisition Corp. (“Ivanhoe”), a Cayman Islands exempted company, and Wormhole Amalgamation Sub Pte. Ltd., a Singapore private company limited by shares and a direct, wholly-owned subsidiary of Ivanhoe (“Amalgamation Sub”), consummated the previously announced business combination (the “Business Combination”) pursuant to which, among other things, Amalgamation Sub merged with and into Old SES, with Old SES surviving the Business Combination as a wholly-owned subsidiary of Ivanhoe. In connection with the closing of the Business Combination (the “Closing”), Ivanhoe migrated out of the Cayman Islands and domesticated as a Delaware corporation prior to the Closing (the “Domestication”) and changed its name to “SES AI Corporation.”
The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, Ivanhoe was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Old SES with the Business Combination treated as the equivalent of Old SES issuing stock for the net assets of Ivanhoe, accompanied by a recapitalization. The net assets of Ivanhoe are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to
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the Business Combination are those of Old SES. As a result, the unaudited condensed consolidated financial statements included in this report reflect (i) the historical operating results of Old SES prior to the Business Combination; (ii) the combined results of the Company and Old SES following the Closing; (iii) the assets and liabilities of Old SES at their historical cost; and (iv) the Company’s equity structure for all periods presented as discussed below.
In connection with the Business Combination, the Company received $
At Closing, the following occurred:
● | Each share of Old SES common stock, excluding shares held by the SES Founder Group, and each redeemable convertible preferred share that was outstanding immediately prior to the Closing was cancelled and converted into a number of fully paid and nonassessable shares of Class A Common Stock equal to the Exchange Ratio, rounded down to the nearest whole number; |
● | Each share of Old SES common stock held by the SES Founder Group that was outstanding immediately prior to the Closing was cancelled and converted into a number of fully paid and nonassessable shares of Class B Common Stock equal to the Exchange Ratio, rounded down to the nearest whole number; |
● | Each Old SES restricted share that was granted and subject to restrictions (including vesting) immediately prior to the Closing was assumed by the Company and converted into a number of shares of restricted Class A Common Stock equal to the Exchange Ratio, rounded down to the nearest whole number, which remain subject to the same terms and conditions as were applicable prior to the Closing; and |
● | Each Old SES option that was outstanding immediately prior to the Closing, whether vested or unvested, was assumed by the Company and converted into an option to acquire Class A Common Stock with the same terms as were applicable prior to the Closing, except for the number of shares exercisable and the exercise price, each of which was adjusted using the Exchange Ratio, rounded down to the nearest whole number. |
Additionally, (i) in connection with the Domestication on February 2, 2022,
In connection with the Business Combination, the Company incurred $
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The following table reconciles the elements of the Business Combination to the condensed consolidated statement of cash flows and the condensed consolidated statements of redeemable convertible preferred stock and stockholders’ equity as of the date of closing:
Cash - Ivanhoe's trust and cash, net of redemptions | $ | |
Cash - PIPE Financing | | |
Less: Non-Transaction costs relating to Ivanhoe in conjunction with Closing | ( | |
Less: Transaction costs and advisory fees paid | ( | |
Net proceeds from Business Combination and PIPE Financing at Closing | | |
Less: Transaction costs paid post Closing | ( | |
Financing cash inflow from Business Combination and PIPE Financing | | |
Add: Transaction costs expensed relating to liabilities assumed upon the Business Combination | | |
Less: Transactions costs paid on or before December 31, 2021 | ( | |
Less: Sponsor Earn-Out liability | ( | |
Less: Liabilities assumed from Ivanhoe | ( | |
Less: Accrued transaction costs | ( | |
Net contributions from Business Combination and PIPE Financing | $ | |
The number of shares of common stock issued immediately following the consummation of the Business Combination:
Number of Shares | ||
Ivanhoe Class A common stock, outstanding prior to Business Combination | | |
Less: Redemption of Ivanhoe Class A common stock | ( | |
Ivanhoe Class A common stock, net of redemptions | | |
Ivanhoe Class B ordinary shares, converted to Class A Common Stock upon Closing | | |
Total Ivanhoe Class A Common Stock | | |
PIPE Investors — Class A Common Stock | | |
Old SES common and preferred shares (other than SES Founder Group) converted to Class A Common Stock | | |
Old SES Restricted Shares converted to restricted shares of Class A Common Stock | | |
SES Founder Group shares of common stock converted to shares of Class B Common Stock | | |
Founder Earn-Out Shares (Class B Common Stock) | | |
Earn-Out Shares (Class A Common Stock) | | |
Earn-Out Restricted Shares (Class A Common Stock) | | |
Total | | |
Less: Shares of Old SES outstanding prior to Business Combination and PIPE Financing | ( | |
Business Combination and PIPE Financing Shares | |
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Note 4. Cash and Cash Equivalents
Cash, cash equivalents, and restricted cash consisted of the following:
(in thousands) | June 30, 2022 |
| December 31, 2021 |
| ||
Cash | $ | | $ | | ||
Money market funds |
| |
| | ||
Total cash and cash equivalents | | | ||||
| |
| | |||
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows | $ | | $ | |
Note 5. Fair Value
The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:
(in thousands) | Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
June 30, 2022 | |||||||||||
Assets |
|
|
|
|
|
|
| ||||
Cash equivalents in money market funds | $ | | $ | — | $ | — | $ | | |||
Restricted cash in certificates of deposit | — | | — | | |||||||
Total | $ | | $ | | $ | — | $ | | |||
Liabilities | |||||||||||
Sponsor Earn-Out liability | $ | — | $ | — | $ | | $ | | |||
December 31, 2021 | |||||||||||
Assets | |||||||||||
Cash equivalents in money market funds | $ | | $ | — | $ | — | $ | | |||
Restricted cash in certificates of deposit | — | | — | | |||||||
Total | $ | | $ | | $ | — | $ | |
There were
The following table provides a reconciliation of the beginning and ending balances for the Sponsor Earn-Out Shares liability:
(in thousands) | ||
Balance as of December 31, 2021 | $ | |
Additions during the period |
| |
Change in fair value |
| ( |
Balance as of June 30, 2022 | $ |
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Valuation of the Sponsor Earn-Out Liability
The estimated fair value of the Sponsor Earn-Out Shares was determined using a Monte Carlo simulation valuation model using the following assumptions:
June 30, 2022 | February 3, 2022 | ||||
Stock price | $ | $ | |||
Expected volatility | |||||
Risk free rate | |||||
Contractual term (in years) | |||||
Expected dividends |
Expected stock price: The price of Class A Common Stock as of the valuation date was simulated from the Closing Date through the end of the earn-out period following Geometric Brownian Motion.
Expected volatility: The volatility rate was determined by using an average of historical volatilities of selected industry peers deemed to be comparable to the Company’s business corresponding to the expected term of the awards.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve for zero-coupon U.S. Treasury notes with maturities corresponding to the expected
Expected term: The expected term is the
Expected dividend yield: The expected dividend rate is
Note 6. Accrued Expenses and Other Current Liabilities
The components of accrued expenses and other current liabilities consisted of the following:
(in thousands) | June 30, 2022 |
| December 31, 2021 |
| ||
Advance payments received under joint development agreements | $ | | $ | | ||
Accruals for construction of property and equipment | | | ||||
Income taxes payable |
| |
| | ||
Accrued professional services |
| |
| | ||
Other |
| |
| | ||
Accrued expenses and other current liabilities | $ | | $ | |
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Note 7. Leases
The Company’s operating leases consist primarily of leases for office and plant spaces. Certain of the Company’s operating leases include escalating rental payments, some of which include the
The Company’s total operating lease cost was $
The following table summarizes the future minimum undiscounted lease payments under operating leases as of June 30, 2022:
Years Ending December 31, | (in thousands) | |
2022 (remaining) | $ | |
2023 | ||
2024 | ||
2025 | ||
2026 | ||
Thereafter | ||
Total future minimum lease payments | ||
Less: imputed interest | ( | |
Total future minimum lease payments | $ |
As of June 30, 2022, the weighted average remaining lease term for operating leases was
Note 8. Commitments and Contingencies
Commitments
The Company has entered into multiple Joint Development Agreements (each a “JDA” and collectively referred to as the “JDAs”) with strategic original equipment manufacturers of automotives (“OEM Partners”) to develop A-Sample battery cells over the next
In March 2022, the Company entered into a construction and fit-out agreement with a landlord to build a pre-production facility in South Korea and expects to incur approximately $
Legal Contingencies
From time-to-time, the Company may be subject to claims arising in the ordinary course of business or become involved in litigation or other legal proceedings. While the outcome of such claims or other proceedings cannot be predicted with certainty, the Company’s management expects that any such liabilities, to the extent not provided for by insurance or otherwise, would not have a material effect on the Company’s financial condition, results of operations or cash flows.
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Indemnifications
The Company enters into indemnification provisions under agreements with other companies in the ordinary course of business, including, but not limited to, partnerships, landlords, vendors, and contractors. Pursuant to these arrangements, the Company agrees to indemnify, defend, and hold harmless the indemnified party for certain losses suffered or incurred by the indemnified party as a result of the Company’s activities. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification provisions. In addition, the Company indemnifies its officers, directors, and certain key employees against claims made with respect to matters that arise while they are serving in their respective capacities as such, subject to certain limitations set forth under applicable law, and applicable indemnification agreements. The Company maintains insurance, including commercial general liability insurance, product liability insurance, and directors and officers insurance to offset certain potential liabilities under these indemnification provisions. To date, there have been no claims under these indemnification provisions.
Note 9. Income Taxes
The Company’s effective tax rate for the three and six months ended June 30, 2022 was
The Company’s deferred tax assets principally result from U.S. net operating loss carryforwards and research credits. Utilization of these attributes is dependent upon future levels of taxable income and may be subject to annual limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code. Such limitations may result in the expiration of these attributes before their utilization. The Company is evaluating the impact of the equity transactions that have occurred during the three and six months ended June 30, 2022, however it does not believe there will be a material impact to the attributes.
As of June 30, 2022, there were no significant changes to the total amount of unrecognized tax benefits.
Note 10. Stock-Based Compensation
Old SES established its initial share incentive plan in 2013 (the “2013 Plan”), which was subsequently replaced with a new share incentive plan in 2018 (the “2018 Plan”). Under the terms of the 2013 Plan and 2018 Plan certain shares were reserved for the issuance of incentive stock options (“ISOs”) and non-statutory stock options (“NSOs”) to employees, officers, directors, consultants and advisors. On March 30, 2021, the Company amended the 2018 Plan with the SES Holdings Pte. Ltd. 2021 Share Incentive Plan (the “2021 Plan”) and increased the total shares reserved for future issuance by
In connection with the Business Combination, the 2021 Plan was terminated and the remaining unallocated share reserve was cancelled and no new awards will be granted under the 2021 Plan.
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SES AI Corporation 2021 Plan
In connection with the Business Combination, the Company adopted the SES AI Corporation 2021 Incentive Award Plan (the “SES AI Corporation 2021 Plan”) under which
During the three months ended June 30, 2022, the Company granted
Earn-Out Restricted Shares
In connection with the Business Combination,
The estimated fair value of the Earn-Out Restricted Shares is determined using Monte Carlo simulation model and the effect of the market condition is reflected in the grant date fair value of the award. The aggregate grant date fair value of the Earn-Out Restricted Shares is $
Restricted Earn-Out Shares | |||
Expected stock price | $ | ||
Expected volatility | |||
Risk-free rate | |||
Expected term (in years) |
Expected stock price: The price of Class A Common Stock as of the valuation date was simulated from the Closing Date through the end of the earn-out period following Geometric Brownian Motion.
Expected volatility: The volatility rate was determined by using an average of historical volatilities of selected industry peers deemed to be comparable to SES’s business corresponding to the expected term of the awards.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of issuance for zero-coupon U.S. Treasury notes with maturities corresponding to the expected
Expected term: The expected term is the
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Stock-based Compensation Expense
The Company’s stock-based compensation included in its condensed consolidated statements of operations and comprehensive loss was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(in thousands) | 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Research and development | $ | | $ | | $ | | $ | | ||||
General and administrative |
| |
| |
| |
| | ||||
Total stock-based compensation (1) | $ | | $ | | $ | | $ | |
(1) | Includes $ |
Note 11. Stockholders’ Equity
Common Stock
On February 4, 2022, the Class A Common Stock and Warrants began trading on the New York Stock Exchange under the ticker symbols “SES” and “SES WS,” respectively.
Pursuant to the Company’s certificate of incorporation, the Company is authorized to issue
As of June 30, 2022, the Company had
Below is a reconciliation of shares of common stock issued and outstanding:
June 30, 2022 | ||
Total shares of common stock legally issued and outstanding | ||
Less: Shares subject to future vesting: | ||
Escrowed Earn-Out Shares | ( | |
Sponsor Earn-Out Shares | ( | |
Earn-Out Restricted Shares | ( | |
RSAs | ( | |
Total shares issued and outstanding |
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Prior to the Business Combination, Old SES had outstanding shares of Series A, Series B, Series C, Series C plus, Series D, and Series D plus redeemable convertible preferred stock. Upon the Closing, holders of these outstanding redeemable convertible preferred stock received shares of the Company’s common stock in an amount determined by application of the Exchange Ratio, as discussed in “Note 3 — Business Combination.”
The rights of holders of Class A Common Stock and Class B Common Stock are identical, except with respect to voting. The
Class A Common Stock and Class B Common Stock are referred to as Common Stock throughout the notes to these financial statements, unless otherwise noted.
Preferred Stock
Pursuant to the Company’s certificate of incorporation, the Company is authorized to issue
Dividends
Common stock is entitled to dividends when and if declared by the Company’s board of directors, subject to the rights of all classes of stock outstanding having priority rights to dividends. The Company has not paid any cash dividends on common stock to date. The Company may retain future earnings, if any, for the further development and expansion of its business and has no current plans to pay cash dividends for the foreseeable future.
Common Stock Warrants
Prior to the Business Combination, Ivanhoe issued
Public Warrants
Public Warrants have an exercise price of $
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The Public Warrants became exercisable
Under certain circumstances, the Company may elect to redeem the Public Warrants at a redemption price of $
As of June 30, 2022, the Company had outstanding Public Warrants to purchase
Private Warrants
The Private Warrants have similar terms to the Public Warrants, except that the Private Warrants are not redeemable. As of June 30, 2022, the Company had outstanding Private Warrants to purchase
The Company has the following shares of common stock available for future issuance on an as-if converted basis:
June 30, 2022 |
| December 31, 2021 |
| |
Shares reserved for issuance under the SES AI Corporation 2021 Plan | | | ||
Common stock options outstanding | | | ||
Public Warrants | | — | ||
Private Warrants | | — | ||
RSUs | | — | ||
PSUs | | — | ||
Redeemable convertible preferred stock | — | | ||
Restricted stock awards | — | | ||
Total common stock available for future issuance | | |
Note 12. Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing net income (loss), as adjusted for changes in fair value recognized in earnings from equity contracts classified as liabilities, by the weighted average number of common shares outstanding and, when dilutive, common share equivalents from outstanding stock options and restricted stock units (using the treasury-stock method). The weighted-average number of common shares used in the computation of basic and diluted net income per share were as follows:
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(in thousands, except share and per share amounts) | 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Numerator: |
|
|
|
| ||||||||
Net income (loss) attributable to common stockholders - basic | $ | | $ | ( | $ | ( | $ | ( | ||||
Denominator: | ||||||||||||
Weighted average shares of common stock outstanding - basic and diluted | |
| |
| |
| | |||||
Net loss per share attributable to common stockholders - basic and diluted | $ | | $ | ( | $ | ( | $ | ( | ||||
The number of common stock equivalents excluded from the computation of diluted net loss per share because either the effect would have been anti-dilutive, or the performance criteria related to such shares and awards had not been met, were as follows:
| As of June 30, | ||||
| 2022 |
| 2021 |
| |
Escrowed Earn-Out Shares | — | ||||
Options to purchase common stock | |||||
Public Warrants | — | ||||
Sponsor Earn-Out Shares | — | ||||
Private Warrants | — | ||||
Unvested RSUs | — | ||||
Unvested RSAs | — | ||||
Unvested PSUs | — | ||||
Earn-Out Restricted Shares | — | ||||
Redeemable convertible preferred stock | — |
| |||
Total |
|
|
Note 13. Related-Party Transactions
As of June 30, 2022 and December 31, 2021, General Motors Company and its affiliates (“GM”) were considered a related party due to their board representation and the board member’s employment position at GM, as well as GM holding more than
In February 2021, the Company executed a JDA with GM Global Technology Operations LLC (“GM Technology”) and General Motors Holdings LLC (“GM Holdings”), to jointly Research and Develop (“R&D”) an A-Sample battery cell and build-out a prototype manufacturing line for GM Technology. GM Technology is an affiliate of GM Ventures and a subsidiary of GM Holdings, both stockholders of the Company. GM Holdings is also a subsidiary of GM. During the three and six months ended June 30, 2022, the Company recorded $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The following discussion and analysis should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements as of and for the three and six months ended June 30, 2022 and the related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020 and the related notes contained in Exhibit 99.1 of Amendment No. 1 to the Current Report on Form 8-K filed with the SEC on March 31, 2022 (the “Super 8-K Amendment”). This Quarterly Report on Form 10-Q includes forward-looking statements. These forward-looking statements within the meaning of the federal securities law are based on our current expectations and beliefs concerning future developments and their potential effects on us. These forward-looking statements are not statements of historical fact and may include statements regarding possible or assumed future results of operations. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Factors that might cause or contribute to such forward-looking statements include, but are not limited to, those set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022 (the “2021 Annual Report”). Unless the context otherwise requires, references in this section to “the Company”, “we”, “us” and “our” refer to the business and operations of SES Holdings Pte. Ltd. (“Old SES”) and its consolidated subsidiaries prior to the Business Combination and to SES AI Corporation and its consolidated subsidiaries following the Closing. References in this section to our future plans that indicate the timing of when we expect such plans to be completed by a certain year mean at any point during that year.
Overview
SES is engaged in the development and production of high-performance, Lithium-Metal (“Li-Metal”) rechargeable battery technology for EVs and other applications. Since our founding in 2012, we have been committed to developing the world’s most advanced EV batteries. Our Li-Metal batteries have been designed to combine the high energy density of Li-Metal with cost-effective, large-scale manufacturability of conventional Lithium-ion batteries.
We are a pre-commercialization stage company with no revenue to date. During the three and six months ended June 30, 2022, the Company spent $11.3 million and $17.2 million on research and development activities, respectively, of which $4.1 million and $5.9 million, respectively, is reimbursable by original equipment manufacturers of automotives (“OEM Partners”) under our JDAs (defined below).
We have incurred the following operating results for the periods noted:
● | $9.0 million net income for the three months ended June 30, 2022; and $6.6 million net loss for the three months ended June 30, 2021 |
● | $18.0 million net loss for the six months ended June 30, 2022; and $10.2 million net loss for the six months ended June 30, 2021 |
● | We have an accumulated deficit of approximately $112.3 million from our inception through June 30, 2022. |
Business Combination
On February 3, 2022 (the “Closing Date”), Ivanhoe Capital Acquisition Corp. (“Ivanhoe”), a Cayman Islands exempted company, and Wormhole Amalgamation Sub Pte. Ltd., a Singapore private company limited by shares and a direct, wholly-owned subsidiary of Ivanhoe (“Amalgamation Sub”), consummated the previously announced business combination (the “Business Combination”) pursuant to which, among other things, Amalgamation Sub merged with and into Old SES, with Old SES surviving the Business Combination as a wholly-owned subsidiary of Ivanhoe. In connection with the closing of the Business Combination (the “Closing”), Ivanhoe migrated out of the Cayman Islands and
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domesticated as a Delaware corporation prior to the Closing (the “Domestication”) and changed its name to “SES AI Corporation.” See “Note 3 – Business Combination” for additional information about the business combination.
Key Trends, Opportunities and Uncertainties
As a pre-commercialization stage company, we believe that our performance and future success depend on several factors that present significant opportunities for us but also pose significant risks and challenges, including those discussed below, and the Risk Factors set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of the 2021 Annual Report.
Partnering with Industry-Leading OEMs
We have maintained a strong partnership with General Motors (“GM”) since 2015, when GM led our Series B financing, and since then, GM has invested approximately $70.0 million in our Company, including its investment in the PIPE Financing. GM is one of the world’s largest car companies, and has voiced its desire to be a leader in EVs. GM has announced plans to launch more than 30 new EV models by 2025 and only sell zero-emission vehicles by 2035. Our collaboration initially involved close technical and research and development collaboration on SES’s battery technology. In February 2021, we entered into a joint development agreement (“JDA”) with GM, valued at over $50.0 million, under which we will work with GM to develop an A-Sample battery cell with a capacity of almost 100 Ah.
We have also fostered a partnership with Hyundai, another global automobile leader. In December 2020, we entered into a pre-A Sample JDA with Hyundai. In May 2021, Hyundai made an investment of $50.0 million in our Series D plus funding round and signed an A-Sample JDA, under which we and Hyundai are collaborating to develop an A-Sample battery cell. We believe the Hyundai JDAs align our interests with those of Hyundai and will facilitate further collaboration in designing and developing our technology and products. Hyundai has also purchased $50.0 million of our Class A Common Stock in the PIPE Financing.
In December 2021, Honda became the third global automobile leader to enter into an A-Sample JDA with us. Honda purchased $75.0 million of our Class A Common Stock in the PIPE Financing as the single largest PIPE Financing investor.
The JDAs with GM, Hyundai and Honda do not represent commitments by these manufacturers to purchase our Li-Metal battery cells and are focused only on development. Although the JDAs have set timeframes for the attainment of certain development milestones, these timeframes are objectives only and may be subject to ongoing elaboration and change by the parties. The JDAs also do not prohibit GM, Hyundai, Honda or SES from entering into new agreements with other automobile or battery companies.
We believe that our products will experience swift market adoption due to our current strategic partnerships with global leading OEMs GM, Hyundai and Honda. We plan to collaborate with other OEMs to expedite such adoption and increase market acceptance of our Li-Metal battery over time. We expect to form strategic joint ventures with one or more battery makers or OEMs to support the build-out of our Expansion I Facility (as defined below).
Product and Manufacturing Process Development
Our product development activities concentrate on making further improvements to our battery technology, including improvements to battery performance and cost. Major development efforts include, but are not limited to:
● | Scale-up: Our design is further being customized with and validated by several OEMs. Based on our collaborations with OEMs, we believe that a roughly 100 Ah cell-size manufactured at GWh scale (five to seven cells-per-minute) is needed to achieve commercialization in EVs at a large, global scale. We are developing processes and equipment to scale up the manufacturing of current cell design from three to nine Ah capacity to approximately 100 Ah. |
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● | Module and pack design: Li-Metal cells must be integrated into modules and packs as part of their integration into vehicles. We have active development in integration of our Li-Metal cells in modules to ensure that our Li-Metal cells perform as intended once they are integrated into modules and vehicles. |
● | Advanced artificial intelligence (“AI”) software and battery management systems (“BMS”): Software is critical to ongoing monitoring of battery health and safety. We continue to develop advanced AI algorithms to diagnose battery cell-related health issues, develop advanced control algorithms and charging methods to enhance cycle life and safety, and port such software on to a BMS that could be integrated into a battery pack. |
● | Advanced materials and coatings: We continue to research and develop advanced electrolyte and anodes to further improve cycle life and safety. In addition, we also continue to develop novel methods of laminating or depositing lithium metal anode that can be deployed at commercial GWh scale. |
● | Cathode materials and design: We develop our Li-Metal cells for a variety of different cathode materials, cathode design and cathode processing methods that can provide ultra-high energy density and/or significant cost-reduction. |
● | Lithium metal recycling: Along with other battery components that are already being recycled today, Li-Metal foil will also need to be recycled in the future. We continue to explore methods of recycling that are productive and cost-effective. |
With 62 granted patents and 57 pending patent applications as of June 30, 2022 and ten years of research and development experience, we have a history of technological innovation. We have a strong research and development team, including employees with expertise in all aspects of the development process, including materials science, chemistry, engineering and software. We intend to make significant investments in research and development and the recruitment of top technical and engineering talent to improve our battery technology. As we grow our team and the size of our proposed 1 GWh pilot facility in China that is expected to be completed by 2023 and operational by 2024 (the “Pilot Facility”), our materials consumption and the rate of cash utilization as a function of time will also increase significantly.
Commercialization
We are currently working to develop and produce A-Sample batteries with specifications required by OEMs for their EVs, with the goal of enabling commercial production in 2025. As of the date of this Quarterly Report, Phase I of our Pilot Facility has been completed and is ready-to-use. We will continue to enhance our production processes to enable volume manufacturing in a cost-effective manner. We expect to complete our 1 GWh Pilot Facility and South Korea facility by 2023, followed by a 10 GWh joint venture plant, which is expected to be built in 2023 and 2024 and operational by 2025 and to ramp up to 30 GWh by 2027 (our “Expansion I Facility”). Additionally, we expect to complete a 30 GWh facility in 2026 that will ramp to 70 GWh by 2028 (our “Expansion II Facility”), which would represent an additional expansion of our existing facilities. In total, we expect to have more than 100 GWh of capacity by 2028.
Competition
The battery market, like the EV market it services, is fast-growing, extremely competitive and driven by the innovation of both large incumbents and emerging entrants like SES. We acknowledge that the incumbents and other emerging entrants may have greater resources to invest in advancing their technologies, access to more potential customers, or strategic relationships with OEMs (or other third parties) that may give them a competitive edge. We further acknowledge that these disparities, where they exist, have the potential to harm our business, results of operations or financial condition.
Capital Needs
We have incurred net losses and negative cash flows from operations since our inception. Assuming we experience no significant delays in the research and development of our Li-Metal battery, we believe that our cash resources are sufficient
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to fund the completion of our Pilot Facility and creation of our Expansion I Facility. For more information, see “Liquidity and Capital Resources” below.
Government Regulation and Compliance
There are government regulations pertaining to battery safety, transportation of batteries, use of batteries in vehicles, factory safety and disposal of hazardous materials. We will ultimately have to comply with these regulations to sell our batteries into the market.
Impact of COVID-19
Since the emergence of a novel strain of coronavirus (“COVID-19”) in December 2019, the COVID-19 pandemic has caused general business disruption throughout the United States and worldwide. The effects and potential effects of COVID-19, include, but are not limited to, its impact on general economic conditions, trade and financing markets, changes in customer behavior and has created significant uncertainty in the overall continuity in business operations, generally. The spread of COVID-19 has also disrupted the manufacturing, delivery and overall supply chain of EVs and EV batteries, and has led to a global decrease in vehicle sales in markets around the world. In particular, the COVID-19 crisis may cause a decrease in demand for EV batteries if fleet operators delay purchases of EVs or if fuel prices for internal combustion engine vehicles do not create enough of an incentive to accelerate the migration from internal combustion engine vehicles to EVs, an increase in costs resulting from efforts of manufacturers of EVs or EV batteries to mitigate the effects of COVID-19, delays in EV manufacturers’ schedule to full commercial production of EVs, as well as disruptions to these supply chains, among other negative effects.
The pandemic has resulted in government authorities implementing many measures to contain the spread of COVID-19, including travel bans and restrictions, quarantines, shelter-in-place and stay-at-home orders, and business shutdowns. We have also previously been, and are being, affected by temporary manufacturing closures, employment and compensation adjustments, and impediments to administrative activities supporting our start-up and manufacturing plans.
Following the re-opening of non-essential businesses and the easing of restrictions on non-essential in-person work, since January 1, 2021, we have ramped up research and development hiring and increased our investment in in-person work. Currently, we anticipate that research and development expenses will increase significantly for the foreseeable future as a result of additional hiring of scientists, engineers and technicians and investment in additional plant and equipment for product development, building prototypes and testing of battery cells. Spikes in COVID-19 cases in Shanghai resulted in government-mandated temporary shutdowns at our Shanghai location in April 2022, causing a delay of over a month in our development, testing and manufacturing efforts and in our product schedule and our ability to obtain materials from our suppliers in the affected area. The government-mandated shutdown was lifted on June 1, 2022 and the Shanghai facility has since re-opened. If our workforce is unable to work effectively, including due to illness, quarantines, government actions or other restrictions in connection with COVID-19, our operations will be adversely affected.
We continue to monitor closely the impact of COVID-19 on all aspects of our business and geographies, including its impact on our employees, suppliers, business partners and potential distribution channels and customers. The extent to which the COVID-19 pandemic may continue to affect our business will depend on continued developments, which are uncertain and cannot be predicted. Even after the COVID-19 pandemic has subsided, we may continue to suffer an adverse effect to our business due to possible longer-term global economic effects of COVID-19, including any economic recession. If the immediate or prolonged effects of the COVID-19 pandemic have a significant adverse impact on government finances, it would create uncertainty as to the continuing availability of incentives related to EV purchases and other governmental support programs. In addition, a recurrence of COVID-19 cases or an emergence of additional variants or strains could cause other widespread or more severe impacts depending on where infection rates are highest.
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Components of Results of Operations
We are an early-stage growth company in the pre-commercialization stage of development, and conduct our business through one operating segment. We have not generated any revenue from sales to customers, and our historical results may not be indicative of our future results for reasons that may be difficult to anticipate. Our ability in the future to generate revenue sufficient to achieve profitability will depend largely on the successful development of our products. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical results of operations.
Research and Development
Research and development expenses consist primarily of costs incurred for salaries and personnel-related expenses, including stock-based compensation expense, for scientists, experienced engineers and technicians, expenses for materials and supplies used in product research and development, process engineering efforts and testing, as well as payments to consultants, patent related legal costs, depreciation, and allocated facilities and information technology costs. As we attempt to develop a battery cell with acceptable performance, yields and costs, we anticipate that research and development and related expenses will increase significantly for the foreseeable future as a result of additional hiring of scientists, engineers and technicians and investment in additional plant and equipment for product development, building prototypes and testing of battery cells.
General and Administrative
General and administrative expenses consist primarily of costs incurred for salaries and personnel-related expenses, including stock-based compensation expense, for our finance, legal and human resource functions, expenses for director and officer insurance, outside contractor and professional service fees, audit and compliance expenses, legal, accounting and other advisory services, as well as allocated facilities and information technology costs including depreciation. We continue to rapidly expand our personnel headcount to support our growth and operations as a public company. Accordingly, we expect our general and administrative expenses to increase significantly in the near term and for the foreseeable future. Upon commencement of commercial operations, we also expect to incur customer and sales support and advertising costs.
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Results of Operations
The following table sets forth our historical operating results for the periods indicated:
Operating Expenses
Three Months Ended June 30, | $ | % | |||||||||
(in thousands) | 2022 | 2021 | Change | Change | |||||||
Research and development | $ | 7,192 | $ | 3,508 | $ | 3,684 | 105 | % | |||
General and administrative | 11,867 | 3,049 | 8,818 | 289 | % | ||||||
Total operating expenses | $ | 19,059 | $ | 6,557 | $ | 12,502 | 191 | % |
Six Months Ended June 30, | $ | % | |||||||||
(in thousands) | 2022 | 2021 | Change | Change | |||||||
Research and development | $ | 11,259 | $ | 6,491 | $ | 4,768 | 73 | % | |||
General and administrative | 26,997 | 4,505 | 22,492 | 499 | % | ||||||
Total operating expenses | $ | 38,256 | $ | 10,996 | $ | 27,260 | 248 | % |
Research and Development
Research and development expenses for the three months ended June 30, 2022 increased $3.7 million, or 105%, to $7.2 million, compared with $3.5 million the three months ended June 30, 2021. The increase primarily resulted from a $1.9 million increase in personnel costs mainly attributable to our growth in headcount in support of our ongoing research and development efforts for battery cell development, which included $1.7 million of stock-based compensation expense, of which $0.8 million relates to restricted earnout shares issued as part of the Business Combination transaction in February 2022. Further, there was a $1.9 million increase in software development costs related to our advanced AI software and BMS and a $0.9 million increase in expenses for lab consumables and material supplies. The remainder of the increase was attributable to immaterial other spend. These increases were partly offset by $1.3 million of reimbursements received against the JDAs.
Research and development expenses for the six months ended June 30, 2022 increased $4.8 million, or 73%, to $11.3 million, compared with $6.5 million for the six months ended June 30, 2021. The increase primarily resulted from a $2.8 million increase in personnel costs mainly attributable to our growth in headcount in support of our ongoing research and development efforts for battery cell development, which included $2.3 million of stock-based compensation expense, of which $1.3 million relates to restricted earnout shares issued as part of the Business Combination transaction in February 2022. Further, there was a $1.9 million increase in software development costs related to our advanced AI software and BMS and a $1.6 million increase in expenses for lab consumables and material supplies. The remainder of the increase was attributable to immaterial other spend. These increases were partly offset by $1.7 million of reimbursements received against the JDAs.
General and Administrative
General and administrative expenses for the three months ended June 30, 2022 increased $8.8 million, or 289%, to $11.9 million, compared with $3.0 million for the three months ended June 30, 2021. This increase primarily resulted from a $5.6 million increase in personnel costs mainly attributable to our growth in headcount to support our operations as a public company, which included $3.8 million of stock-based compensation expense, of which $1.1 million relates to restricted earnout shares issued as part of the Business Combination transaction in February 2022. Further, there was a $2.0 million increase in insurance expense to cover potential liabilities under our indemnification obligations to our directors and certain officers of the Company and a $0.9 million increase in professional fees and outside services associated with external consulting, legal, audit and accounting services. The remainder of the increase was attributable to immaterial other spend.
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General and administrative expenses for the six months ended June 30, 2022 increased $22.5 million, or 499%, to $27.0 million, compared with $4.5 million for the six months ended June 30, 2021. This increase primarily resulted from a $9.2 million increase in personnel costs mainly attributable to our growth in headcount to support our operations as a public company, which included $6.5 million of stock-based compensation expense, of which $2.3 million relates to restricted earnout shares issued as part of the Business Combination transaction in February 2022. Further, there was a $4.6 million increase due to deferred offering costs associated with the Sponsor Earn-Out liability, a $3.3 million increase in insurance expense to cover potential liabilities under our indemnification obligations to our directors and certain officers of the Company, a $2.2 million increase in professional fees and outside services associated with external consulting, legal, audit and accounting services, a $1.5 million increase in fees related to marketing and public relations for the Company, and a $1.4 million increase in expenses primarily related to our offices in the U.S. and South Korea. The remainder of the increase was attributable to immaterial other spend.
Non-Operating Items
Interest Income
Interest income for both the three and six months ended June 30, 2022 increased $0.5 million, respectively, compared with an immaterial amount in the prior year periods due to an increased investment in money market funds.
Gain on Change of Fair Value of Earn-Out Liability, Net
During three and six months ended June 30, 2022, we incurred a $29.0 million gain and a $21.3 million gain, respectively, associated with the change in fair value of the Sponsor Earn-Out liability. This change in the fair value, which is a non-cash gain that was recorded within other (expense) income, net on the condensed consolidated statement of operations and comprehensive loss, caused the Company to report a net income for the three months ended June 30, 2022. With the fair value of the Sponsor Earn-Out liability tied to the Company’s stock price, continued volatility in the stock price could result in further gains or losses resulting from the change in fair value. Refer to “Note 5 – Fair Value” to the condensed consolidated financial statements for additional information.
Other (Expense) Income, Net
During the three months ended June 30, 2022, we had other expense of $1.2 million, compared with other expense of $0.1 million for the three months ended June 30, 2021. The $1.1 million increase in other expense was primarily the result of the accounting for certain postemployment benefits partially offset by unrealized and realized foreign currency gains primarily due to the strengthening of the U.S. dollar compared with the Chinese renminbi (RMB) and South Korean won (KRW).
During the six months ended June 30, 2022, we had other expense of $1.3 million, compared with other income of $0.8 million for the six months ended June 30, 2021. The $2.1 million increase in other expense was primarily the result of the accounting for certain postemployment benefits and a gain recorded in the prior year from the forgiveness of the PPP loan received in 2020, partially offset by unrealized and realized foreign currency gains primarily due to the strengthening of the U.S. dollar compared with the Chinese renminbi (RMB) and South Korean won (KRW).
Provision for Income Taxes
The provision for income taxes for the three and six months ended June 30, 2022 and 2021 was immaterial.
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Liquidity and Capital Resources
On February 3, 2022, as a result of the aforementioned Business Combination and PIPE Financing, we raised $282.9 million in net proceeds. Prior to that, since our inception we raised approximately $269.9 million of funding through the sales of our redeemable convertible preferred stock. As of June 30, 2022, we had total cash, cash equivalents and restricted cash of $405.2 million and an accumulated deficit of $112.3 million. As an early-stage growth company in the pre-commercialization stage of development, the net operating losses we have incurred since inception are consistent with our strategy and budget. We believe that our cash on hand will be sufficient to meet our working capital and capital expenditure requirements for a period of at least the next 12 months, and also sufficient to fund the completion of our Pilot Facility and creation of our Expansion I Facility. However, additional funding may be required for a variety of reasons, including delays in expected development.
The proceeds raised from Business Combination and PIPE Financing will be used in future research and development activities and are sufficient for the building of manufacturing prototyping lines to facilitate the production of pre-manufacturing batteries by 2024. We have yet to generate any revenue from our business operations, and since inception, we have not achieved profitable operations or positive cash flows from our operations.
We plan to finance our operations with a combination of proceeds from the Business Combination, capital from investors, and if required in the future, loans from financial institutions, as well as anticipated future revenue from product sales. Our ability to successfully develop our products, commence commercial operations and expand our business will depend on many factors, including our working capital needs, the availability of equity and/or debt financing and, over time, our ability to generate positive cash flows from operations.
As a result of the capital-intensive nature of our business, we expect to sustain substantial operating expenses without generating sufficient revenues to cover expenditures for a number of years. Over time, we expect that we will need to raise additional funds through a variety of possible methods, including, but not limited to, entry into joint ventures or other strategic arrangements, the issuance of equity, equity- related or debt securities or through obtaining credit from financial institutions. These funds are expected to finance our principal sources of liquidity, ongoing costs such as research and development relating to our batteries and the construction of manufacturing facilities, including the creation of our Expansion I Facility and Expansion II Facility.
If we were to require additional funding or otherwise determine it was beneficial to seek additional sources of financing or enter into other arrangements as described above, we believe that our debt-free balance sheet would enable us to access financing on reasonable terms. However, there can be no assurance that such additional capital would be available on attractive terms, if at all, when needed, which could be dilutive to stockholders. We may be forced to decrease our level of investment in product development or scale back our operations. Furthermore, the cost of debt could be higher than anticipated. There can also be no assurance that positive cash flow from operations can be achieved or sustained.
Summary of Cash Flows
The following table provides a summary of our cash flow data for the periods indicated:
Six Months Ended June 30, | |||||
(in thousands) | 2022 | 2021 | |||
Cash (used in) provided by: | |||||
Operating activities | $ | (28,155) | $ | (15,141) | |
Investing activities | (10,041) | (140,747) | |||
Financing activities | 282,982 | 187,897 | |||
Effect of exchange rate changes on cash | (676) | 72 | |||
Net increase in cash, cash equivalents and restricted cash | $ | 244,110 | $ | 32,081 |
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Operating Activities
Our cash flows used in operating activities to date have been primarily comprised of payroll, consumables and supplies related to research and development, expenditures and reimbursements related to our JDAs, and facilities expense and professional services for general and administrative activities. As we continue to ramp up hiring for research and development headcount to accelerate our engineering efforts, we expect our cash used in operating activities to increase significantly before we start to generate any material cash inflows from our operations.
Net cash used in operating activities of $28.2 million for the six months ended June 30, 2022 was primarily attributable to net loss of $18.0 million as adjusted for a gain on change in fair value of Sponsor Earn-Out liability of $21.3 million, stock-based compensation expense of $8.7 million, and depreciation and amortization of $1.0 million, partially offset by a $2.0 million working capital cash inflow. The working capital cash inflow was driven by a $2.5 million decrease in receivable from related party, a $2.3 million increase in accounts payable, and a $1.3 million increase in accrued expenses and other liabilities, partially offset by a $4.1 million increase in prepaids and other assets. The decrease in receivable from related party was driven by activity from the JDAs. The increase in accounts payable was primarily due to transaction costs related to the Business Combination and PIPE Financing. The increase in accrued expenses and other liabilities was primarily due to the accounting of certain postemployment benefits. The increase in prepaids and other assets was primarily due to insurance costs to cover potential liabilities under our indemnification obligations to our directors and certain officers.
Net cash used in operating activities of $15.1 million for the six months ended June 30, 2021 was primarily attributable to net loss of $10.2 million, as adjusted for depreciation and amortization of $0.9 million, gain on the forgiveness of the PPP note payable of $0.8 million, and stock-based compensation expense of $0.2 million, partially offset by a $5.1 million working capital outflow. The working capital outflow was primarily driven by a $5.0 million increase in receivable from related party and was partially offset by a $0.2 million decrease in accrued expenses and other liabilities. The increase in receivable from related party was primarily attributable to a JDA and the decrease in accrued expenses and other liabilities was primarily attributable to the payout of accrued bonuses in April 2021.
Investing Activities
Net cash used in investing activities of $10.0 million for the six months ended June 30, 2022 was attributable to purchases of property, plant and equipment related to our facilities in Shanghai and South Korea. We expect capital expenditures for the rest of 2022 to increase compared with the corresponding period in 2021 as we continue to invest in the build out of our manufacturing Pilot Facility.
Net cash used in investing activities of $140.7 million for the six months ended June 30, 2021 was attributable to the purchase of short-term investments of $150.8 million and the purchase of property and equipment of $3.0 million, partially offset by the proceeds from maturities of short-term investments of $13.1 million.
Financing Activities
Net cash provided by financing activities of $283.0 million for the six months ended June 30, 2022 was primarily attributable to proceeds received from the Business Combination and PIPE Financing, net of transaction costs.
Net cash provided by financing activities of $187.9 million for the six months ended June 30, 2021 related to proceeds received from the issuance of Series D redeemable convertible preferred stock.
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Debt
In April 2020, we applied for and received $0.8 million in the PPP loan. We received full forgiveness of all our debt under the terms of the program in February 2021 and recorded a gain of $0.8 million in other income in our consolidated statement of operations and comprehensive loss for the year ended December 31, 2021. As of the date of this filing, we have no debt obligations outstanding.
Contractual Obligations and Commitments
The following table summarizes our material contractual obligations for cash expenditures as of June 30, 2022, and the periods in which these obligations are due:
Short Term | Long Term | Total | ||||||
Purchase obligations(1) | $ | 12,287 | $ | 1,915 | $ | 14,202 |
(1) | Purchase obligations include commitments under the construction and fit-out agreement to build a preproduction facility in South Korea. These commitments are derived from purchase orders and supplier contracts. |
Off-Balance Sheet Arrangements
As of June 30, 2022, we had various letters of credit issued by a financial institution totaling $0.5 million. The letters of credit relate to deposits the Company is required to maintain under its operating leases agreements. We have restricted cash that serves as collateral for these outstanding letters of credit that are included in other current assets and other assets on our consolidated balance sheet. No amounts have been drawn under the letters of credit.
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Critical Accounting Estimates and Judgments
Our financial statements have been prepared in accordance with U.S. GAAP. In the preparation of these unaudited condensed consolidated financial statements, we are required to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the unaudited condensed financial statements, as well as the reported expenses incurred during the reporting periods.
We consider an accounting estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on the unaudited condensed financial statements. Our significant accounting policies are described in Note 2 – Basis of Presentation of our accompanying unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2022 included in this Quarterly Report on Form 10-Q. We consider the following to be our critical accounting estimates as described below.
Stock-Based Compensation | ||
Description | Judgments and Uncertainties | Effect if Results Differ From Assumptions |
We record stock-based compensation expense according to the provisions of ASC Topic 718 – Stock Compensation. ASC Topic 718 requires all share-based awards to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. Prior to the Business Combination, the grant date fair value of Old SES common stock was historically determined by its board of directors with the assistance of management and an independent valuation. | Under the provisions of ASC Topic 718, we determine the appropriate fair value model to be used for valuing share-based issuances and the amortization method for recording compensation cost, which can be impacted by the following assumptions: ● expected term ● expected volatility ● expected dividend yield ● risk-free interest rate | If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of stock-based compensation expense reported |
Earn-Out Restricted Shares | ||
Description | Judgments and Uncertainties | Effect if Results Differ From Assumptions |
The Earn-Out Restricted Shares are accounted for as a single tranche equity award issued to employees subject to time and share price vesting hurdle. These Earn-Out Restricted Shares have a share price vesting hurdle and are also subject to forfeiture if a recipient’s service terminates prior to the vesting. Pursuant to ASC 718 – Stock Compensation, we recognize stock-based compensation based on the fair value determined as of Closing with the assistance of management and an independent valuation. | Under the provisions of ASC Topic 718, we determine the appropriate fair value model to be used for valuing share-based issuances and the amortization method for recording compensation cost, which can be impacted by the following assumptions: ● expected term ● expected volatility ● expected dividend yield ● risk-free interest rate ● probability of change of control | If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of earn out reported in stockholder’s equity. |
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Sponsor Earn-out Liability | ||
Description | Judgments and Uncertainties | Effect if Results Differ From Assumptions |
Certain Sponsor Earn-Out Shares are accounted for as a derivative liability measured at fair value, with changes in fair value recorded in the condensed consolidated statement of operations and comprehensive loss at each reporting period, because the earn-out events that determine the number of Sponsor Earn-Out Shares to be earned back by the Sponsor include events that are not solely indexed to the common stock of the Company. The fair value of our common stock, which is publicly traded, is used in determining the fair value of the derivative liability at each valuation date with the assistance of management and an independent valuation. | We determine the appropriate fair value model to be used for valuing the derivative liability to record the change in fair value in our condensed consolidated statement of operations and comprehensive loss, which may be impacted by the following assumptions: ● expected volatility ● risk free rate ● expected term ● probability of change of control | If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of earn out liability reported. |
Leases | ||
Description | Judgments and Uncertainties | Effect if Results Differ From Assumptions |
We adopted ASC 842, Leases, with an initial application date of January 1, 2022, using the modified retrospective method with certain optional transition relief. At the lease commencement date, we recognized a right-of-use (“ROU”) asset and a lease liability for all leases, except short-term leases with an original term of 12 months or less. The ROU asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. Lease payments included in the measurement of lease liabilities consist of (1) fixed lease payments for the noncancelable lease term, (2) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised, and (3) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. Certain of the Company’s real estate lease agreements require variable lease payments that do not depend on an underlying index or rate established at lease commencement. Such payments and changes in payments based on a rate or index are recognized in operating expenses when incurred. | The measurement of lease liability depends on expected lease term with renewal options wherein it is reasonably certain that the renewal option will be exercised. Because the Company’s operating lease does not provide an implicit rate, the Company estimates its incremental borrowing rate at lease commencement date for borrowings on a collateralized basis over a similar term in a similar economic environment. | If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of ROU liability reported. |
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Emerging Growth Company Accounting Election
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act and we have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We expect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public business entities and non-public business entities until the earlier of the date we (a) are no longer an emerging growth company or (b) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.
We will remain an emerging growth company under the JOBS Act until the earliest of (a) the last day of our first fiscal year following the fifth anniversary of Ivanhoe’s IPO (December 31, 2027), (b) the last date of our fiscal year in which our total annual gross revenues are at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years. As of June 30, 2022, the market value of our common stock that was held by non-affiliates exceeded $700 million, therefore we will cease to be an “emerging growth company” as of December 31, 2022.
Recent Accounting Pronouncements
See “Note 2 – Basis of Presentation” of our accompanying unaudited condensed consolidated financial statements for the three and six months ended June 30, 2022 included in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and their potential impact on our financial condition, results of operations and cash flows.
Other Information
The Company’s website is www.ses.ai. Information contained on the Company’s website is not part of this report. Information that we furnish to or file with the SEC, including the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to, or exhibits included in, these reports are made available for download, free of charge, through the Company’s website as soon as reasonably practicable. The Company’s SEC filings, including exhibits filed therewith, are also available directly on the SEC’s website at www.sec.gov.
The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at www.ses.ai. Accordingly, investors should monitor this channel, in addition to following the Company’s press releases, SEC filings and public conference calls and webcasts. The contents of our website are not, however, a part of this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to a variety of markets and other risks including the effects of change in interest rates, inflation and foreign currency translation and transaction risks as well as risks to the availability of funding sources, hazard events and specific asset risks.
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Interest Rate Risk
The market interest risk in our financial instruments and our financial positions represents the potential loss arising from adverse changes in interest rates. As of June 30, 2022 and 2021, we had cash, cash equivalents, and restricted cash of $405.2 million and $161.0 million, respectively, consisting of U.S. Treasury money market funds and short-term mutual funds. Due to 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
The functional currency of all our entities and all its subsidiaries is the U.S. dollar, except for our subsidiaries in China and South Korea, which has Chinese renminbi (RMB) and South Korean won (KRW), respectively, as its functional currency, reflecting its principal operating economic environment. We expect to be exposed to both currency transaction remeasurement and translation risk. To date, we have had some exposure to foreign currency fluctuations and have not hedged such exposure, although we may do so in the future.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principle executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended June 30, 2022, as such term is defined in Rules 13a-15(e) and 15d-15(e) under Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer have concluded that as of June 30, 2022, our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting, as discussed in more detail below. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Notwithstanding the identified material weaknesses, management, including our principal executive officer and principal financial officer, believes the condensed consolidated financial information included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
Material Weaknesses
We previously identified two material weaknesses, as disclosed in our 2021 Annual Report and the Super 8-K Amendment. With respect to the first material weakness, our management concluded that Ivanhoe’s internal controls around the interpretation and accounting for certain complex financial instruments were not effectively designed or maintained. This material weakness resulted in the restatement of Ivanhoe’s audited balance sheet as of January 11, 2021, as previously revised in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, filed with the SEC on June 14, 2021 and its interim consolidated financial statements for the quarters ended March 31, 2021, June 30, 2021, and September 30, 2021.
The second material weakness for Old SES, which relates to the calculation of stock-based compensation expense and stock-based compensation disclosures, remains unremediated. We did not design or maintain an effective internal control environment that meets our accounting and reporting requirements. This material weakness resulted in the restatement of our interim consolidated financial statements for the three and nine months ended September 30, 2021, which were
40
previously filed with the SEC in connection with the Business Combination. Additionally, this material weakness could result in a misstatement of the stock-based compensation and disclosures, and presentation of earnings per share that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected on a timely basis.
Changes in Internal Control over Financial Reporting
Other than the actions taken as described in “Management’s Remediation Initiatives” below to improve the Company’s internal control over financial reporting, there have been no changes in our internal control over financial reporting during the most recent fiscal quarter that materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Remediation Initiatives
We have taken the following steps towards remediation of the identified material weaknesses and to enhance our internal control over financial reporting:
● | We hired additional compliance, accounting, and financial staff with appropriate public company experience and technical knowledge, including a qualified assistant corporate controller, a director of SOX (defined below), and a senior manager and manager of SEC reporting and technical accounting. We will continue utilizing third-party consultants to supplement our internal resources to execute key controls related to various financial reporting processes. |
● | We improved our capabilities to identify, research, and prepare supporting documentation for technical accounting issues. |
● | We engaged a global accounting advisory firm to assist with the documentation, evaluation, remediation, and testing of our internal control over financial reporting based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). |
● | We have begun implementing new controls and redesigning existing controls, including transactional, review, IT and user access controls to mitigate the identified risks of material misstatements. |
● | In addition to the above, we have worked with outside advisors to improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting. |
We have expended, and will continue to expend, a substantial amount of effort and resources for the remediation and improvement of our internal control over financial reporting. We will continue to work on improvements to our internal controls during 2022 as we assess and evaluate the controls intended to remediate the material weaknesses. We currently expect to remediate the material weaknesses by December 31, 2022; however, we cannot make any assurances that we will successfully remediate the material weaknesses within our anticipated timeframe. If we are unable to develop and maintain an effective system of internal controls and procedures required by Section 404(a) of the Sarbanes-Oxley Act of 2002 (“SOX”), we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our stock price, business, and operating results.
41
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be subject to claims arising in the ordinary course of business or become involved in litigation or other legal proceedings. We are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors disclosed in “Part I, Item 1A” of the 2021 Annual Report, and the other reports that we have filed with the SEC. Any of the risks discussed in such reports, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations, financial condition or prospects. During the period covered by this Quarterly Report on Form 10-Q, there have been no material changes in our risk factors as previously disclosed except the following:
The uncertainty in global economic conditions and the risks relating to health epidemics, including the
COVID-19 pandemic, could have a material adverse effect on our business and results of operations. Our ability to operate in any respect may be interrupted by the current COVID-19 pandemic.
We face various risks relating to public health issues, including epidemics, pandemics, and other outbreaks, including the ongoing COVID-19 pandemic. The effects and potential effects of COVID-19 include, but are not limited to, its impact on general economic conditions, trade and financing markets and changes in customer behavior, and significant uncertainty in the overall continuity in business operations. The spread of COVID-19 has also disrupted the manufacturing, delivery and overall supply chain of EV manufacturers and suppliers and EV batteries, and has led to a global decrease in vehicle sales in markets around the world. In particular, the COVID-19 crisis may cause a decrease in demand for EV batteries if fleet operators delay purchases of vehicles or if fuel prices for internal combustion engine vehicles remain at levels that do not create an incentive to accelerate the migration from internal combustion engine vehicles to EVs, an increase in costs resulting from the efforts of manufacturers of EVs or EV batteries to mitigate the effects of COVID-19, delays in EV manufacturers’ schedules to full commercial production of EVs and disruptions to these supply chains, among other negative effects.
The pandemic has resulted in government authorities implementing many measures to contain the spread of COVID-19, including travel bans and restrictions, quarantines, shelter-in-place and stay-at-home orders, business closures and other public health safety measures. These measures may be in place for a significant period of time and may be reinstituted if conditions deteriorate, which could adversely affect our start-up and manufacturing plans. As a precaution, we took certain preventive measures in light of this pandemic and reduced our operational activities during the year ended December 31, 2020. In particular, we temporarily reduced employee compensation, recommended that all non-essential personnel work from home, and reduced in-person participation in research and development activities. As a result, our personnel costs and travel related costs were lower in 2020. We also were required to implement additional safety protocols for essential workers, which resulted in delays in the timing of project execution.
Following the re-opening of non-essential businesses and the easing of restrictions on non-essential in-person work, since the beginning of the year ended December 31, 2021, we have ramped up research and development hiring and increased our investment in in-person work. However, measures that have been relaxed may be reimplemented if COVID-19 continues to spread. If, as a result of these measures, we have to limit the number of employees and contractors at any research and development or manufacturing facility at a given time, it could cause a delay in our development, testing and manufacturing efforts and a delay in our product schedule. For example, increasing number of COVID-19 cases in Shanghai resulted in a government mandated temporary shutdown of our Shanghai facility in April 2022, causing a delay of over a month in our development, testing and manufacturing efforts, our product schedule and our ability to obtain materials from our suppliers in the affected area. The government-mandated shutdown was lifted on June 1, 2022 and the
42
Shanghai facility has since re-opened. There can be no assurances that other temporary shutdowns will not be imposed in the future. If our workforce is unable to work effectively, or if we are required to shut down our facilities on a more permanent basis, including due to illness, quarantines, government actions or other restrictions in connection with COVID-19, our operations will be adversely affected.
We continue to monitor closely the impact of COVID-19 on all aspects of our business and geographies, including its impact on our employees, suppliers, business partners and potential distribution channels and customers. The extent to which the COVID-19 pandemic may continue to affect our business will depend on continued developments, which are uncertain and cannot be predicted. Even after the COVID-19 pandemic has subsided, we may continue to suffer an adverse effect to our business due to possible longer-term global economic effects of COVID-19, including any economic recession. If the immediate or prolonged effects of the COVID-19 pandemic have a significant adverse impact on government finances, it would create uncertainty as to the continuing availability of incentives related to EV purchases and other governmental support programs. In addition, a recurrence of COVID-19 cases or an emergence of additional variants or strains could cause other widespread or more severe impacts depending on where infection rates are highest.
We have incurred and will continue to incur increased costs related to becoming and operating as a public company, and our management will be required to devote substantial additional time to new compliance initiatives and corporate governance practices. Moreover, we have identified a material weakness in our internal control over financial reporting, and we may experience additional material weaknesses or significant deficiencies, or otherwise fail to develop or maintain an effective system of internal controls in the future, which could result in material misstatements of our consolidated financial statements, adversely affect investor confidence in us and adversely affect the market price of our securities.
We have incurred and will continue to incur significant legal, accounting and other expenses that Old SES did not incur as a private company. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Protection Act, as well as rules adopted, and to be adopted, by the SEC and the NYSE. Our management and other personnel have devoted and will need to continue to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to substantially increase our legal and financial compliance costs and to make certain activities more time-consuming and costly, which will increase our operating expenses. For example, these rules and regulations applicable to public companies may make it more difficult and more expensive for us to obtain director and officer liability insurance and we will likely incur additional costs to maintain sufficient insurance coverage as a public company.
Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and errors in our financial statements and operate successfully as a public company. As disclosed in our 2021 Annual Report, our management concluded that Ivanhoe’s internal controls around the interpretation and accounting for certain complex financial instruments were not effectively designed or maintained. This material weakness resulted in the restatement of Ivanhoe’s audited balance sheet as of January 11, 2021, as previously revised in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, filed with the SEC on June 14, 2021 and its interim consolidated financial statements for the quarters ended March 31, 2021, June 30, 2021, and September 30, 2021. Additionally, as disclosed in our 2021 Annual Report, in connection with the preparation of our fiscal year 2021 financial statements, we identified a material weakness in our internal control over financial reporting, which we are currently working to remediate, related to certain errors in our historical financial calculation of stock-based compensation expense and stock-based compensation disclosures during the three and nine months ended September 30, 2021. These errors led us to conclude that the financial statements during the three and nine months ended September 30, 2021 should be restated. For more information, see “Part I, Item 4. Controls and Procedures.”
In light of the foregoing, and in order to comply with the requirements of being a public company, we are undertaking and will continue to undertake various actions, such as implementing additional internal controls and procedures and hiring additional compliance, accounting and financial staff with appropriate public company experience and technical knowledge. The measures we take to remediate the deficiency in our internal control over financial reporting and to implement and maintain effective internal controls may not be sufficient to satisfy our obligations as a public company and produce reliable financial reports, and we may not be able to implement the required controls in a timely fashion. If we experience any additional material weaknesses or significant deficiencies or otherwise fail to develop or maintain an
43
effective system of internal controls in the future, investors may lose confidence in us and our financial statements, which could adversely affect the value of our securities. In addition, if we cannot provide reliable financial reports or prevent fraud and errors in our financial statements, our reputation and operating results could be materially adversely affected.
In addition, as a public company, we are required to comply with SEC rules that implement Sections 308 and 404 of the Sarbanes-Oxley Act. Under these rules, management is required to certify financial and other information in our quarterly and annual reports and is required to make a formal assessment of the effectiveness of our internal control over financial reporting in connection with the filing of our annual reports. Additionally, once we cease to be an emerging growth company, we are required to include a report on internal control over financial reporting issued by our independent registered public accounting firm.
For as long as we remain an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following January 11, 2026, the fifth anniversary of the completion of Ivanhoe’s IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. To the extent we choose not to use exemptions from various reporting requirements under the JOBS Act, or if we no longer can be classified as an “emerging growth company,” we expect that we will incur additional compliance costs, which will reduce our ability to operate profitably. As of June 30, 2022, the market value of our common stock that was held by non-affiliates exceeded $700 million, therefore we will cease to be an “emerging growth company” as of December 31, 2022, our independent registered public accounting firm will be required to issue a report on our internal control over financial reporting for our 2022 Annual Report, and we expect to incur increasing compliance costs and devote substantial management attention to the requirements of the Sarbanes-Oxley Act.
As a public reporting company, we are subject to rules and regulations established from time to time by the SEC and the NYSE regarding our internal control over financial reporting. If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results, or report them in a timely manner.
We are a public reporting company subject to the rules and regulations established from time to time by the SEC and the NYSE. These rules and regulations require, among other things, that we establish and periodically evaluate procedures with respect to our internal control over financial reporting. Public company reporting obligations place a considerable burden on our financial and management systems, processes and controls, as well as on our personnel.
In addition, as a public company we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal control over financial reporting, which requires us to document our internal control over financial reporting. Likewise, our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of our internal control over financial reporting at such time as we cease to be an “emerging growth company,” as defined in the JOBS Act, if we are an “accelerated filer” or “large accelerated filer” at such time. As of June 30, 2022, the market value of our common stock that was held by non-affiliates exceeded $700 million, therefore we will cease to be an “emerging growth company” as of December 31, 2022, and our independent registered public accounting firm will be required to issue a report on our internal control over financial reporting for our 2022 Annual Report.
We expect to incur [increased] costs related to our internal control over financial reporting [this year and] in upcoming years to further improve our internal control environment. If we are unable to remediate the existing material weaknesses in our internal controls of financial reporting, if we identify additional material weaknesses in our internal control over financial reporting, or if we are unable to comply with the requirements applicable to us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, in a timely manner, we may be unable to accurately report our financial results, or report them within the timeframes required by the SEC. If this occurs, we also could become subject to sanctions or investigations by the SEC or other regulatory authorities. In addition, if we are unable to assert that our
44
internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, or express an adverse opinion, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets and our stock price may be adversely affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
45
Item 6. Exhibits
Exhibit |
| Description |
---|---|---|
3.1 | ||
3.2 | ||
31.1† | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2† | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1* | ||
32.2* | ||
101.INS† | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH† | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL† | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF† | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB† | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE† | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104† | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
† Filed herewith.
* Furnished herewith.
46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.
Date: August 11, 2022 | ||
SES AI CORPORATION | ||
By: | /s/ Qichao Hu | |
Name: | Qichao Hu | |
Title: | Chief Executive Officer | |
(Principal Executive Officer) | ||
By: | /s/ Jing Nealis | |
Name: | Jing Nealis | |
Title: | Chief Financial Officer | |
(Principal Financial Officer) |
47
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Qichao Hu, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SES AI Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: August 11, 2022 |
|
| By: |
| /s/ Qichao Hu | |
|
|
| Qichao Hu | |||
|
|
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Jing Nealis, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SES AI Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Date: August 11, 2022 |
|
| By: |
| /s/ Jing Nealis | |
|
|
| Jing Nealis | |||
|
|
| Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
In connection with the Quarterly Report on Form 10-Q of SES AI Corporation (the “Company”) for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Qichao Hu, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 11, 2022 |
|
| By: |
| /s/ Qichao Hu | |
|
|
| Qichao Hu | |||
|
|
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
In connection with the Quarterly Report on Form 10-Q of SES AI Corporation (the “Company”) for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jing Nealis, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 11, 2022 |
|
| By: |
| /s/ Jing Nealis | |
|
|
| Jing Nealis | |||
|
|
| Chief Financial Officer (Principal Financial Officer) |
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