ROMEO POWER, INC. Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q (this "Quarterly Report") to the "Company," "Romeo," "we," "us," "our" and similar terms refer toRomeo Power, Inc. (f/k/aRMG Acquisition Corp. ) and its consolidated subsidiaries. References to "RMG" refer toRMG Acquisition Corp. prior to the consummation of the Business Combination (as defined below) and "Legacy Romeo" refers toRomeo Systems, Inc. As discussed in Note 1 to the accompanying condensed consolidated financial statements, we corrected the 2021 condensed consolidated financial statements related to the accounting for performance and market-based options granted in 2020 to our former Chairman and Chief Executive Officer. These corrections are reflected in the discussions.
Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "could," "would," "expect," "plan," "anticipate," "contemplate," "intend," "believe," "estimate," "continue," "goal," "project" or the negative of such terms or other similar terms. These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or otherwise implied by the forward-looking statements, including the following: •the risk that the pending acquisition by Nikola does not close due to regulatory approval, either party deciding to terminate the agreement after six months from the signing, or the failure of one or more of the other conditions to close under the merger agreement we entered into with Nikola in the anticipated timeframe or at all? •uncertainty as to the market value of the Nikola merger consideration to be paid in the merger; •the risk that following this merger, our financing or operating strategies will not be successful; •disruption from the merger making it more difficult to maintain customer, supplier, key personnel and other strategic relationships; •the risk of litigation in respect of either Romeo or Nikola or the merger?
•risks that we are unsuccessful in integrating potential acquired businesses and product lines;
•risks of decreased revenues due to pricing pressures or the merger, or lower product volume ordered from customers;
•risks that our products and services fail to interoperate with third-party systems;
•potential price increases or lack of availability of third-party technology, battery cells, components or other raw materials that we use in our products;
•potential disruption of our products, offerings, and networks;
•our ability to deliver products and services following a disaster or business continuity event;
•risks resulting from our international operations, including overseas supply chain partners;
•risks related to strategic alliances;
•risks related to our ability to raise additional capital in the future if required;
•potential unauthorized use of our products and technology by third parties;
•potential impairment charges related to our long-lived assets, including our fixed assets and equity method investments;
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--------------------------------------------------------------------------------•changes in applicable laws or regulations, including tariffs and similar charges;
•potential failure to comply with privacy and information security regulations governing the client datasets we process and store;
•the possibility that the novel coronavirus ("COVID-19") pandemic may adversely affect our future results of operations, financial position and cash flows;
•the possibility that
•the impact of macroeconomic conditions, including the volatility in capital, credit and securities markets, inflation, currency and interest rate fluctuations on our results of operations, financial position and cash flows; and
•the possibility that we may be adversely affected by other economic, business or competitive factors.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this and other reports we file with or furnish to theSecurities and Exchange Commission ("SEC"), including the information in "Item 1A. Risk Factors" included in Part II of this Form 10-Q for the period endedJune 30, 2022 , as well "Item 1A. Risk Factors" included in Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2021 ("2021 Form 10-K"). If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.
Overview
We are an energy technology leader delivering advanced electrification solutions
for complex vehicle applications. Through our energy-dense battery modules and
packs, we enable large-scale sustainable transportation by delivering safe,
longer lasting batteries that have shorter charge times and longer life. With
greater energy density, we are able to create lightweight and efficient
solutions that deliver superior performance and provide improved acceleration,
range and durability compared to battery packs provided by our competitors. Our
modules and packs are customizable and scalable and are optimized by our
proprietary battery management system ("BMS"). We believe we produce superior
battery products compared to our competitors by leveraging our technical
expertise and depth of knowledge of energy storage systems into high performing
products that fit a wide range of demanding applications.
Since 2016, we have been designing and building battery modules, and we provide
enabling battery technology for key customers in the vehicle electrification
industry. Currently, we primarily focus on marketing mobility energy technology
for commercial vehicles in Classes 4-8, recreational marine vessels, and
industrial off-highway vehicles. We have collaborated with HES to focus on
sustainability and reuse applications of our batteries, and we have a strategic
alliance with Republic to cooperate in opportunities to incorporate
next-generation battery technology into its fleet operations. We also have a
collaboration agreement with Dynexus to integrate Dynexus's battery performance
and health sensors into our battery ecosystem. These relationships help us to
de-risk our business model, scale our business and deliver value to our
customers.
Our operations now consist of a single business segment, which is Romeo Power .
Romeo Power designs and manufactures industry leading battery modules, battery
packs, and BMS technologies for our customers.
We expect our capital and operating expenditures to increase significantly in connection with our ongoing activities, as the Company:
•purchases production equipment and increases the number of production lines used to manufacture its products;
•completes construction in a new factory in
•commercializes products;
•continues to invest in R&D related to new technologies;
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--------------------------------------------------------------------------------•considers additional long-term supply agreements with cell suppliers that may require substantial advance payment;
•increases its investment in marketing and advertising, as well as the sales and distribution infrastructure for its products and services;
•maintains and improves operational, financial and management information systems;
•hires additional personnel;
•obtains, maintains, expands and protects its intellectual property portfolio; and
•enhances internal functions to support its requirements as a publicly-traded company.
Key Factors Affecting Operating Results
We believe that our performance and future success depend on a number of factors that present significant opportunities for us, but also pose risks and challenges, including those discussed below and in the section titled "Risk Factors" in our 2021 Form 10-K.
Availability of Funding Resources
As of
OnFebruary 15, 2022 , we entered into a Standby Equity Purchase Agreement ("SEPA") with an affiliate ofYorkville Advisors . Under the terms of the SEPA, we have the right, but not the obligation, to sell up to$350 million of Common Stock to Yorkville, subject to certain limitations, at the time of our choosing during the two-year term of the agreement. The agreement requires a$1.00 minimum price per share of the Company's Common Stock for sales under the SEPA to occur, which requirement was not met as ofJune 30, 2022 . During the three months endedJune 30, 2022 , no shares of common stock of the Company ("Common Stock") were issued under the SEPA. During the six months endedJune 30, 2022 , we issued 16.7 million shares of Common Stock to Yorkville for cash proceeds of$25.0 million , all of which occurred in the first quarter of 2022, with a portion of the shares issued as non-cash stock purchase discount under the SEPA. OnMay 12, 2022 , we entered into a Sales Agreement withCowen and Company, LLC ("Cowen"), with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its Common Stock, having an aggregate offering price of up to$200,000,000 (the "ATM") through Cowen as its sales agent. During the three and six months endedJune 30, 2022 , we issued 34.5 million shares of Common Stock to Cowen for cash proceeds of$23.8 million , net of costs, under the ATM. As further described under Note 16 - Subsequent Events, onJuly 30, 2022 , we entered into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement") with Nikola Corporation, aDelaware corporation and theJ Purchaser Corp. , aDelaware corporation and a wholly owned subsidiary of Nikola ("Purchaser") whereby the Company will be merged into Nikola as the result of an all-stock transaction (the "Transaction). Concurrently with the execution of the Merger Agreement, Romeo and Romeo Systems (the "Borrowers") entered into a Loan and Security Agreement (the "Loan Agreement") with Nikola as the lender (the "Lender"). The Loan Agreement provides for a liquidity support in the form of a senior secured debt facility (the "Facility") in an aggregate principal amount of up to$30.0 million . The Facility also provides for certain incremental increases of up to$20.0 million , which may become available for drawing to cover the shortfall (if any) of actual increased liquidity of the Borrowers, as compared to targeted increased liquidity of$20.0 million , for battery packs to be purchased by the Lender under an agreed to temporary and non-refundable price increase, and subject to certain terms and conditions set forth in the Loan Agreement. Loans under the Facility may be made until the earlier of (a) six months from the date of the execution and delivery of the Merger Agreement and the Loan Agreement and (b) the date of the termination of the Merger Agreement. All amounts outstanding under the Facility will be due upon the earlier of (a) the date that is the six-month anniversary of the termination of the Merger Agreement and (b)June 30, 2023 , which is the six-month anniversary of the End Date as defined in the Merger Agreement, subject to acceleration upon the occurrence of certain events set forth in the Facility Loan Agreement. Interest will be payable on borrowings under the Facility at daily SOFR plus 8.00%. The Transaction is expected to be completed by the end ofOctober 2022 , subject to customary closing conditions, including regulatory approval and the tender by the Company's stockholders of shares representing a majority of the Company's outstanding common stock. 31 -------------------------------------------------------------------------------- Although management has explored a range of options to further address the Company's capitalization and liquidity, management has concluded as of the date of this filing that other alternatives sufficient in amount and timing to fund our ongoing operating losses and cash flow needs are not available. In consideration of these factors, and as a result of continuing anticipated operating cash outflows, capital expenditures, amounts paid to BorgWarner inFebruary 2022 , and costs to support future growth, we believe that substantial doubt exists regarding our ability to continue as a going concern on a standalone basis for 12 months from the date of the issuance of our financial statements. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. COVID-19 Pandemic Update The COVID-19 pandemic has adversely impacted economic activity and conditions worldwide, including workforces, liquidity, capital markets, consumer behavior, supply chains and macroeconomic conditions. Some locales continue to impose prolonged quarantines and restrict travel. These restrictions have at times impacted the ability of our employees to get to their places of work to produce products, our ability to obtain sufficient components or raw materials and component parts on a timely basis or at a cost-effective price, and our ability to keep our products moving through the supply chain. We implemented precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring some employees to work remotely and implementing viral testing and social distancing protocols for all work conducted onsite. For the six months endedJune 30, 2022 , there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate and are increasing in various regions. There are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion and intermittent supplier delays. In 2021 and for the six months endedJune 30, 2022 , COVID-19 had an adverse impact on our operations, supply chains and distribution systems, and it has resulted in higher costs due to increased lead times and increased scarcity of raw materials than previously expected. Our efforts to qualify certain new suppliers, particularly inAsia , have been hampered which has required us to continue using certain higher cost components for our products. As restrictions on travel and local business activities are diminishing, we have resumed visits with customers and prospective customers in person, but the lengthy time period in which we were not able to host customers in our factory has prolonged the sales conversion cycle. Due to the various global economic impacts of the pandemic, we may experience significant and unpredictable reductions in demand for certain of our products, as well as interruptions in the availability of purchased components or increased logistics costs to deliver materials from suppliers or to customers. The degree and duration of disruptions to future business activities are unknown at this time. Ultimately, we cannot predict the duration of the COVID-19 pandemic. We will continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business, as appropriate, and we will have to accurately project demand and infrastructure requirements and deploy our production, workforce and other resources accordingly.
Global Battery Cell Shortage
The cost of battery cells manufactured by our suppliers, depends in part upon the prices and availability of raw materials such as lithium, nickel, cobalt and/or other metals. Costs for these raw materials have increased due to higher production costs and demand surges in the EV market. The prices for these materials fluctuate, and their available supply may be unstable depending on market conditions and global demand, including as a result of increased global production of EVs and energy storage products. In the three months endedJune 30, 2022 , the prices have remained elevated as a result ofRussia's invasion ofUkraine earlier this year.Russia is the world's second-largest producer of cobalt and the third-largest producer of nickel. Until the conflict betweenRussia andUkraine is resolved, these materials are likely to become increasingly scarce and more expensive to obtain. A rise in the number of EV start-up companies inthe United States that received substantial funding pursuant to capital markets transactions via mergers with special purpose acquisition companies (SPACs) in 2020 and 2021 also has contributed to increases in demand. Any reduced availability of these materials may impact our access to cells, and any increases in their prices may reduce our profitability if we cannot recoup the increased costs through the pricing of our products or services. The availability and price of cylindrical cells, which is the form we use in our products, tends to be more sensitive to the demand surge since most of the supply of other cell forms, such as pouch and prismatic cells, has been allocated previously, in some cases several years in advance. Our current products are designed around cylindrical cells because such cells allow for optimal energy density, longest life and the highest level of safety. There are only three battery cell suppliers for cylindrical cells ("Tier 1 Suppliers") whose cells 32 -------------------------------------------------------------------------------- are qualified for use in EV applications because of their superior quality, performance and safety standards. Other battery cell suppliers who manufacture cylindrical cells are emerging as potentially qualified sources for EV applications. We are conducting our rigorous qualification and validation process on these alternative cell suppliers in order to introduce more sourcing options into our product without sacrificing necessary performance and safety. Increased demand for EVs globally has outpaced the cell production capacity of the Tier 1 Suppliers. While the Tier 1 Suppliers are increasing their output capacity inAsia and continue to project expansion inthe United States in the next several years, EV battery pack manufacturers are competing for a severely limited supply of battery cells in the short and medium term. As a result of the increased demand and higher raw material costs, battery cell pricing has increased for cell purchases between 2021 and 2022. Pricing indications from our cell suppliers indicate demand may start to stabilize between 2023 and 2025, although we cannot be certain this stabilization will occur. EffectiveAugust 10, 2021 , we entered into a long-term supply agreement, which was amended inJune 2022 (the "Supply Agreement"), for the purchase of lithium-ion battery cells with a Tier 1 battery cell and materials manufacturer ("Supplier"). Under the Supply Agreement, the Supplier is committed to supplying cells to us, at escalating annual minimum quantities throughJune 30, 2028 . For further discussion of the Supply Agreement please see Note 15 to the accompanying condensed consolidated financial statements.
Key Components of Operating Results
The following discussion describes certain line items in our condensed consolidated statements of operations and comprehensive (loss) income.
Revenue
We primarily generate revenue from the sale of battery modules, battery packs, and BMS, as well as the performance of engineering services, inclusive of the development of prototypes. Revenue generated from the sale of our battery modules, battery packs, and BMS under standard supply or production contracts is presented as product revenue in our condensed consolidated statements of operations and comprehensive (loss) income. Revenue generated from the production of prototypes is included in services revenue in our condensed consolidated statements of operations and comprehensive (loss) income, when prototypes are developed as a part of broader engineering services contracts, which are commonly entered into prior to signing a full production contract with a customer. Our services revenues are primarily earned through engineering services provided to the BorgWarner JV. As discussed in Note 1 to the accompanying condensed consolidated financial statements, we acquired BorgWarner's 60% ownership of the JV onFebruary 4, 2022 and dissolved the JV onFebruary 11, 2022 . Cost of Revenue and Gross Loss Cost of revenue is comprised primarily of product costs, personnel costs (e.g., for production line and production management employees), logistics and freight costs, depreciation and amortization of manufacturing and test equipment, and allocation of fixed overhead expenses. Our product costs are impacted by technological innovations, such as advances in battery controls and battery configurations, new product introductions, economies of scale that result in lower component costs, and improvements in and automation of our production processes. Our production line and production management personnel costs are primarily impacted by (1) changes in headcount, the number of production shifts and production lines that will be required to meet our anticipated future production levels, and (2) changes in compensation and benefits.
Gross loss may vary between periods and is primarily affected by production volumes, product costs, including costs for raw materials, components and labor, product mix, customer mix, and warranty costs.
Operating Expenses
Operating expenses primarily consist of research and development (R&D) costs and
selling, general, and administrative costs. Personnel-related costs are the most
significant component of each of these expense classifications and include
salaries, benefits, payroll taxes, sales commissions, incentive compensation,
and stock-based compensation.
R&D Expense
R&D expense includes personnel-related costs, third-party design and development
costs, testing and evaluation costs and other indirect costs. R&D employees have
expertise and perform activities related to battery cell science, battery module
related technology and electro-mechanical engineering, thermal engineering and
BMS engineering. We devote substantial resources to
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R&D programs that focus on both performance enhancements to, and cost
efficiencies in, existing products and the timely development of new products
that utilize technological innovation to drive down product costs, improve
product functionality and enhance product safety and reliability. We intend to
continue to invest resources in R&D efforts on an on-going basis, as we believe
this investment is critical to maintaining and strengthening our product and its
performance.
Selling, General, and Administrative Expense
Selling, general and administrative expense includes sales, marketing and general and administrative costs. Sales and marketing expense includes personnel-related costs, as well as marketing, customer support, trade show and other indirect costs supporting our initiatives related to offering products to electrify commercial trucks, buses, mining and agricultural equipment, and watercraft.
General and administrative expense includes: personnel-related costs attributable to our executive, finance, human resources and information technology organizations; certain facility costs; and fees for professional services. Fees for professional services consist primarily of outside legal and accounting, consulting, audit and tax costs.
Acquisition of
OnFebruary 4, 2022 , we acquired BorgWarner's ownership share in the JV, which was subsequently dissolved onFebruary 11, 2022 . The primary asset acquired in the Membership Interest Purchase Agreement (the "Purchase Agreement") constitutes an in-process research and development asset ("IPR&D") comprised entirely of the Company's research and development. The Company recorded a charge of$35.0 million related to the acquisition of in-process research and development expense in the condensed consolidated statements of operations at the Purchase Agreement Closing Date because the Company determined that the IPR&D asset had no alternative future use that is distinct and different from the Company's existing research and development. See Note 1 to the accompanying condensed consolidated financial statements for further information on our acquisition of BorgWarner's ownership share in the JV.
Change in Fair Value of Public and Private Placement Warrants
InFebruary 2019 , RMG issued 7,666,648 warrants (the "Public Warrants") to purchase shares of Common Stock at$11.50 per share. Simultaneously, RMG issued 4,600,000 warrants (the "Private Placement Warrants" and, together with the Public Warrants, the "Public and Private Placement Warrants") to purchase shares of Common Stock at$11.50 per share toRMG Sponsor, LLC , certain funds and accounts managed by subsidiaries of BlackRock, Inc., and certain funds and accounts managed byAlta Fundamental Advisers LLC . The Company re-measures the fair value of the Public and Private Placement Warrants at each reporting period. OnFebruary 16, 2021 , we announced the redemption of all of the outstanding Public Warrants to purchase shares of our Common Stock. OnApril 5, 2021 , all the outstanding Public Warrants were redeemed. As a result, we only had change in fair value of private placement warrants for the three and six months endedJune 30, 2022 . Investment Loss, Net Investment loss, net primarily includes realized loss recognized in connection with our available-for-sale ("AFS") debt investments and amortization of premium paid when we purchase our AFS debt investments, net of coupon interest income recognized in connection with our AFS debt investments.
Loss in Equity Method Investments
Loss in equity method investments reflects the recognition of our proportional share of the net losses of our equity method investments. For the six months endedJune 30, 2022 and the three and six months endedJune 30, 2021 , these losses relate only to the BorgWarner JV, in which we held a 40% ownership interest until we purchased the remaining 60% of ownership from BorgWarner onFebruary 4, 2022 and then dissolved the JV onFebruary 11, 2022 . See Note 1 to the accompanying condensed consolidated financial statements for further information on our acquisition of the BorgWarner's ownership share in the JV. As ofJune 30, 2022 , there were no significant activities related toHeritage Battery Recycling, LLC ("HBR"). Therefore, during the three and six months endedJune 30, 2022 and 2021, there were no profits or losses from our equity method investment in HBR recognized. 34 --------------------------------------------------------------------------------
Results of Operations
Three Months Ended
June 30, $ %
2022 2021 Change Change
Revenues: (dollars in thousands)
Product revenues $ 5,650 $ 466 $ 5,184 1,112 %
Service revenues 79 460 (381) (83) %
Total revenues 5,729 926 4,803 519 %
Cost of revenues:
Product cost 19,630 5,542 14,088 254 %
Service cost 68 403 (335) (83) %
Total cost of revenues 19,698 5,945 13,753 231 %
Gross loss (13,969) (5,019) (8,950) 178 %
Operating expenses:
Research and development 7,132 1,792 5,340 298 %
Selling, general, and administrative 18,741 20,884 (2,143) (10) %
Total operating expenses 25,873 22,676 3,197 14 %
Operating loss (39,842) (27,695) (12,147) 44 %
Interest expense (39) (5) (34) 680 %
Change in fair value of public and private
placement warrants 225 1,995 (1,770) (89) %
Investment loss, net (788) (379) (409) 108 %
Loss before income taxes and loss in equity
method investments (40,444) (26,084) (14,360) 55 %
Loss in equity method investments - (563) 563 (100) %
Benefit from income taxes - - - NM
Net loss $ (40,444) $ (26,647) $ (13,797) 52 %
NM = Not meaningful
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Six Months Ended
June 30, $ %
2022 2021 Change Change
Revenues: (dollars in thousands)
Product revenues $ 17,052 $ 1,078 $ 15,974 1,482 %
Service revenues 248 902 (654) (73) %
Total revenues 17,300 1,980 15,320 774 %
Cost of revenues:
Product cost 48,746 9,980 38,766 388 %
Service cost 205 792 (587) (74) %
Total cost of revenues 48,951 10,772 38,179 354 %
Gross loss (31,651) (8,792) (22,859) 260 %
Operating expenses:
Research and development 13,837 5,563 8,274 149 %
Selling, general, and administrative 40,989 36,786 4,203 11 %
Acquisition of in-process research and
development 35,402 - 35,402 NM
Total operating expenses 90,228 42,349 47,879 113 %
Operating loss (121,879) (51,141) (70,738) 138 %
Interest expense (78) (12) (66) 550%
Change in fair value of public and private
placement warrants 1,496 118,120 (116,624) (99) %
Investment loss, net (825) (289) (536) 185 %
(Loss) income before income taxes and loss in
equity method investments (121,286) 66,678 (187,964) 282 %
Loss in equity method investments (271) (1,206) 935 (78) %
Provision for income taxes - (10) 10 NM
Net (loss) income $ (121,557) $ 65,462 $ (187,019) 286 %
NM = Not meaningful
Three Months Ended
Revenues Product revenues Product revenues increased approximately$5.2 million , or 1,112%, for the three months endedJune 30, 2022 , as compared to the same period in the prior year. The increase in product revenues relates primarily to increased delivery on two supply contracts, resulting in an increase of approximately$5.1 million of product revenues for the three months endedJune 30, 2022 as compared to the same period in the prior year. The term of each of the two supply contracts will end between 2023 and 2025. Minimum quantity commitments related to contracts signed throughJune 30, 2022 is approximately$406.4 million of backlog. With the completion of the delivery of engineering and prototype services, we currently expect to recognize approximately$24.9 million of this backlog revenue during the remainder of our fiscal year endingDecember 31, 2022 . However, in light of the announced Transaction, the Company expects some of its other customers to potentially cancel, reduce or delay some of their purchases either pursuant to the terms of their respective contracts or through direct negotiations. For further discussion on our backlog, see Note 3 to the accompanying condensed consolidated financial statements. Service revenues
Service revenues declined approximately
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--------------------------------------------------------------------------------Cost of Revenues
Cost of revenues - product cost
Cost of revenues associated with product revenues increased approximately$14.1 million , or 254%, for the three months endedJune 30, 2022 , as compared to the same period in the prior year. Higher costs of product revenue resulted from a higher volume of product shipments during the three months endedJune 30, 2022 , which drove increases in materials consumed as well as greater production labor headcount and other production related operating costs. The increase in material costs also reflects incurrence of delivery expediting costs due to scarcity of supply. Overhead costs remained consistent year over year. A significant portion of the overhead costs that we incurred in both periods include facility rent, utilities, and depreciation of manufacturing equipment and tooling, which are fixed or semi-fixed in nature. As manufacturing activities under our supply contracts increase, we expect to achieve improved leverage on fixed and semi-fixed overhead costs. As a result of such improvement and the change in product mix, gross loss as a percentage of product revenues decreased to 247% for the three months endedJune 30, 2022 , as compared to gross loss as a percentage of product revenues of 1,089% for the same period in the prior year.
Cost of revenues - service cost
Cost of revenues associated with service revenues decreased approximately$0.3 million , or 83%, for the three months endedJune 30, 2022 , as compared to cost of revenues associated with service revenues for the same period in the prior year. The decrease is primarily due to decrease in service revenues from the JV as discussed under "Service Revenues" above. Gross margin was 14% for the three months endedJune 30, 2022 , as compared to gross margin of 12% for the same period in the prior year.
Research and Development Expense
R&D expense increased approximately$5.3 million , or 298%, for the three months endedJune 30, 2022 , as compared to the same period in the prior year. The increase was primarily attributable to a$2.2 million increase in compensation and benefits as a result of a headcount increase for increased R&D activities to support ongoing technology and product development. The remaining increase was primarily due to an increase in professional services of$1.2 million and an increase of$1.1 million in the volume of materials consumed as a result of an increase in product development activities. As manufacturing activities under our supply contracts increase, we expect to achieve improved leverage on R&D costs. As a result of such improvement, R&D expense as a percentage of revenues decreased to 124% for the three months endedJune 30, 2022 , as compared to 194% for the same period in the prior year.
Selling, General, and Administrative Expense
Selling, general, and administrative ("SG&A") expense decreased approximately
$2.1 million , or 10%, for the three months ended June 30, 2022 , as compared to
the same period in the prior year. The $2.1 million decrease reflects primarily
a decline in professional services costs of $2.8 million , marketing costs of
$0.4 million , public relations and trade show expenses of $0.3 million ,
investment fees of $0.1 million and SBC expenses of $3.4 million , offset
partially by an increase in legal expenses of $3.8 million , IT related costs of
$1.1 million and compensation and benefits cost of $0.5 million . The decrease in
SBC expenses of $3.4 million is primarily due to the amortization during the
three months ended June 30, 2021 of the high fair value one-time non-recurring
special equity awards and performance options granted to our two ex-CEOs.
As manufacturing activities under our supply contracts increase, we expect to
achieve improved leverage on SG&A costs. As a result of such improvement, SG&A
expense as a percentage of revenues decreased to 327% for the three months ended
June 30, 2022 , as compared to 2,255% for the same period in the prior year.
Change in Fair Value of Public and Private Placement Warrants
The Company re-measures the fair value of its Public and Private Placement Warrants liabilities at each reporting period.
For the three months endedJune 30, 2022 , the change in fair value of the Private Placement Warrants liability was a decrease of$0.2 million , resulting in the recognition of a gain related to the reduction of the carrying value of the associated 37 --------------------------------------------------------------------------------
liability. The decrease in the fair value of the Private Placement Warrants was primarily due to the decreases in the price of our Common Stock.
For the three months endedJune 30, 2021 , the change in fair value of the Public and Private Placement Warrants liability was a decrease of$2.0 million , resulting in the recognition of a gain related to the reduction of the carrying value of the associated liability. The decrease in the fair value of the Public and Private Placement Warrants was primarily due to the decreases in the price of our Common Stock.
Loss in Equity Method Investments
We accounted for our investment in the BorgWarner JV under the equity method of accounting and, accordingly, recognize our proportionate share of the joint venture's earnings and losses. For the three months endedJune 30, 2021 ,$0.6 million was recognized as loss in equity method investments, representing our 40% share of the losses recognized by the joint venture. For the three months endedJune 30, 2022 , no loss in equity method investments was recognized because we acquired full ownership of the JV onFebruary 4, 2022 .
Net Loss
We reported net loss of$40.4 million for the three months endedJune 30, 2022 , as compared to net loss of$26.6 million for the same period in the prior year. The increase of$13.8 million in net loss is primarily due to the increased cost of product revenues, increased R&D cost and higher SG&A expense as discussed above.
Six Months Ended
Revenues
Product revenues
Product revenues increased approximately$16.0 million , or 1,482%, for the six months endedJune 30, 2022 , as compared to the same period in the prior year. The increase in product revenues relates primarily to increased delivery on three supply contracts, resulting in an increase of approximately$15.1 million of product revenues for the six months endedJune 30, 2022 as compared to the same period in the prior year. The term of each of the three supply contracts will end between 2023 and 2025. Minimum quantity commitments related to contracts signed throughJune 30, 2022 is approximately$406.4 million of backlog. With the completion of the delivery of engineering and prototype services, we expect to recognize approximately$24.9 million of this backlog revenue during the remainder of our fiscal year endingDecember 31, 2022 . However, in light of the announced Transaction, the Company expects some of its other customers to potentially cancel, reduce or delay some of their purchases either pursuant to the terms of their respective contracts or through direct negotiations. For further discussion on our backlog, see Note 3 to the accompanying condensed consolidated financial statements. Service revenues Service revenues declined approximately$0.7 million , or 73%, for the six months endedJune 30, 2022 , as compared to the same period in the prior year. The decline in service revenues is primarily related to the acquisition of BorgWarner's 60% ownership onFebruary 4, 2022 as the service revenue was primarily related to our revenue from the JV. Cost of Revenues
Cost of revenues - product cost
Cost of revenues associated with product revenues increased approximately$38.8 million , or 388%, for the six months endedJune 30, 2022 , as compared to the same period in the prior year. Higher costs of product revenue resulted from a higher volume of product shipments during the six months endedJune 30, 2022 , which drove increases in materials consumed as well as greater production labor headcount and other production related operating costs. The increase in material costs also reflects incurrence of delivery expediting costs due to scarcity of supply. 38 -------------------------------------------------------------------------------- Overhead costs remained consistent year over year. A significant portion of the overhead costs that we incurred in both periods include facility rent, utilities, and depreciation of manufacturing equipment and tooling, which are fixed or semi-fixed in nature. As manufacturing activities under our supply contracts increase, we expect to achieve improved leverage on fixed and semi-fixed overhead costs. As a result of such improvement and the change in product mix, gross loss as a percentage of product revenues decreased to 186% for the six months endedJune 30, 2022 , as compared to gross loss as a percentage of product revenues of 826% for the same period in the prior year.
Cost of revenues - service cost
Cost of revenues associated with service revenues decreased approximately$0.6 million , or 74%, for the six months endedJune 30, 2022 , as compared to cost of revenues associated with service revenues for the same period in the prior year. The decrease is primarily due to decrease in service revenues from the JV as discussed under "Service Revenues" above. Gross margin was 17% for the six months endedJune 30, 2022 , as compared to gross margin of 12% for the same period in the prior year.
Research and Development Expense
R&D expense increased approximately$8.3 million , or 149%, for the six months endedJune 30, 2022 , as compared to the same period in the prior year. The increase was primarily attributable to a$4.7 million increase in compensation and benefits as a result of a headcount increase for increased R&D activities to support ongoing technology and product development. The remaining increase was primarily due to an increase in professional services of$3.0 million and an increase of$0.5 million in the volume of materials consumed as a result of an increase in product development activities. As manufacturing activities under our supply contracts increase, we expect to achieve improved leverage on R&D costs. As a result of such improvement, R&D expense as a percentage of revenues decreased to 80% for the six months endedJune 30, 2022 , as compared to 281% for the same period in the prior year.
Selling, General, and Administrative Expense
SG&A expense increased approximately$4.2 million , or 11%, for the six months endedJune 30, 2022 , as compared to the same period in the prior year. The$4.2 million increase reflects primarily an increase in compensation and benefits cost of$7.9 million , legal expenses of$7.3 million and IT related costs of$1.5 million , offset partially by a decrease in professional service costs of$3.3 million , marketing costs of$0.7 million , license costs of$0.2 million , investment fees of$0.2 million , insurance costs of$0.2 million and SBC expenses of$7.8 million . The decrease in SBC expenses of$7.8 million is primarily due to the amortization during the six months endedJune 30, 2021 of the high fair value one-time non-recurring special equity awards and performance options granted to our two ex-CEOs. As manufacturing activities under our supply contracts increase, we expect to achieve improved leverage on SG&A costs. As a result of such improvement, SG&A expense as a percentage of revenues decreased to 237% for the six months endedJune 30, 2022 , as compared to 1,858% for the same period in the prior year.
Acquisition of
OnFebruary 4, 2022 , we acquired the BorgWarner's ownership share in the JV, which was subsequently dissolved onFebruary 11, 2022 . The primary asset acquired in the Purchase Agreement constitutes an in-process research and development asset ("IPR&D"). The Company recorded a charge of$35.4 million to acquired in-process research and development expense in the condensed consolidated statements of operations at the Purchase Agreement Closing Date because the Company determined that the IPR&D asset had no alternative future use that is distinct and different from the Company's existing research and development. For further information on our acquisition of the BorgWarner's ownership share in the JV, see Note 1 to the accompanying condensed consolidated financial statements.
We did not incur such charge in the six months ended
Change in Fair Value of Public and Private Placement Warrants
The Company re-measures the fair value of the Public and Private Placement Warrants liabilities at each reporting period.
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For the six months ended June 30, 2022 , the change in fair value of the Private
Placement Warrants liability was a decrease of $1.5 million , resulting in the
recognition of a gain related to the reduction of the carrying value of the
associated liability. The decrease in the fair value of the Private Placement
Warrants was primarily due to the decreases in the price of our Common Stock.
For the six months ended June 30, 2021 , the change in fair value of the Public
and Private Placement Warrants liability was a decrease of $118.1 million ,
resulting in the recognition of a gain related to the reduction of the carrying
value of the associated liability. The decrease in the fair value of the Public
and Private Placement Warrants was primarily due to the decreases in the price
of our Common Stock.
Loss in Equity Method Investments
We account for our investment in the BorgWarner JV under the equity method of accounting and, accordingly, recognize our proportionate share of the joint venture's earnings and losses. For the six months endedJune 30, 2021 ,$1.2 million was recognized as loss in equity method investments, representing our 40% share of the losses recognized by the joint venture. For the six months endedJune 30, 2022 ,$0.3 million was recognized as loss in equity method investments, representing our 40% share of the losses recognized by the joint venture fromJanuary 1, 2022 throughFebruary 4, 2022 , the date on which we acquired full ownership of the JV. No loss or gain in equity method investment has been recognized afterFebruary 4, 2022 .
Net (Loss) Income
We reported net loss of$121.6 million for the six months endedJune 30, 2022 , as compared to net income of$65.5 million for the same period in the prior year. The increase of$187.0 million in net loss is primarily due to the one-time charge associated with the acquisition of in-process research and development and the unfavorable comparison in fair value of our Public and Private Placement Warrants liability as discussed above. The net loss for the six months endedJune 30, 2022 also reflects increased cost of product revenues, increased R&D cost and higher SG&A expense.
Non-GAAP Financial Measures
In addition to our results determined in accordance with accounting principles generally accepted inthe United States of America ("GAAP"), our management utilizes certain non-GAAP performance measures, EBITDA and Adjusted EBITDA, for purposes of evaluating our ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP operating measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance.
EBITDA and Adjusted EBITDA
"EBITDA" is defined as earnings before interest income and expense, income tax
expense or benefit, and depreciation and amortization. "Adjusted EBITDA" has
been calculated using EBITDA adjusted for, stock-based compensation, change in
fair value of the Public and Private Placement Warrants, investment loss, net,
and acquisition of in-process research and development (Note 1 to the
accompanying condensed consolidated financial statements). We believe that both
EBITDA and Adjusted EBITDA provide additional information for investors to use
in (1) evaluating our ongoing operating results and trends and (2) comparing our
financial performance with those of comparable companies which may disclose
similar non-GAAP financial measures to investors. These non-GAAP measures
provide investors with incremental information for the evaluation of our
performance after isolation of certain items deemed unrelated to our core
business operations.
EBITDA and Adjusted EBITDA are presented as supplemental measures to our GAAP
measures of performance. When evaluating EBITDA and Adjusted EBITDA, you should
be aware that we may incur future expenses similar to those excluded when
calculating these measures. In addition, our presentation of these measures
should not be construed as an inference that our future results will be
unaffected by unusual or non-recurring items. Furthermore, our computation of
EBITDA and Adjusted EBITDA may not be directly comparable to similarly titled
measures computed by other companies, as the nature of the adjustments that
other companies may include or exclude when calculating EBITDA and Adjusted
EBITDA may differ from the adjustments reflected in our measure. Because of
these limitations, EBITDA and Adjusted EBITDA should not be considered in
isolation, nor should these measures be viewed as a substitute for the most
directly comparable GAAP measure, which is net income (loss). We compensate for
the limitations of our non-GAAP measures by relying primarily on our GAAP
results. You should review the reconciliation of our net (loss) income to EBITDA
and Adjusted EBITDA below and not rely on any single financial measure to
evaluate our performance.
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The following table reconciles net (loss) income to EBITDA and Adjusted EBITDA
for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net (loss) income $ (40,444) $ (26,647) $ (121,557) $ 65,462
Interest expense 39 5 78 12
Provision for income taxes - - - 10
Depreciation and amortization expense 492 494 1,590 999
Amortization of investment premium paid 85 570 233 990
EBITDA (39,828) (25,578) (119,656) 67,473
Stock-based compensation 3,238 6,162 4,101 10,618
Change in fair value of public and private
placement warrants (225) (1,995) (1,496) (118,120)
Investment loss, net 788 379 825 289
Acquisition of in-process research and
development - - 35,402 -
Adjusted EBITDA $ (36,027) $ (21,032) $ (80,824) $ (39,740) Liquidity and Capital Resources
From our inception inJune 2014 throughJune 30, 2022 , we generated an accumulated deficit of$293.1 million , while pursuing substantial R&D activities to bring the products in our lithium-ion battery technology platform to market on a mass production scale. We also have added significant cost to establish the infrastructure necessary as a public entity and to support growth of both commercial and production activities. OnDecember 29, 2020 , the consummation of the Business Combination resulted in net cash proceeds of$345.8 million of cash available to fund our future operations, potential future obligations to contribute cash to fund the BorgWarner JV proportional to our ownership and our$35.0 million initial contribution for a profit sharing interest in the HBR System. The net proceeds received reflect gross proceeds of$394.2 million from the Business Combination, inclusive of cash from the PIPE Shares (as defined below), offset by the following: (i) settling all of Legacy Romeo's issued and outstanding term notes, inclusive of accrued and unpaid interest, (ii) payment of transaction costs incurred by both RMG and Legacy Romeo, and (iii) payments of deferred legal fees, underwriting commissions, and other costs incurred in connection with the initial public offering of RMG. Our current business plans include continued investments into R&D for technology and product development, capital for additional production capacity and related operating infrastructure, and further build out of business systems supporting the overall business. Support of these investments is expected to continue to consume cash which will require additional sources of capital. As the market for our customers' products and demand for our technology continues to grow, increased sales volume may contribute to lower cost for materials we purchase and better cost leverage, as well as an improved pricing environment. However, we expect operating losses to continue to consume cash and cannot predict when we will generate positive cash flow. As discussed in the "Overview" section, we continue to take precautionary measures intended to help minimize the risk of the COVID-19 virus to our employees and operations. We encourage vaccination, use of personal protective equipment, social distancing protocols when possible and virus testing for all employees when required or deemed appropriate. While COVID-19 has had a limited adverse impact on our internal operations, we have experienced some disruption in supply chain and distribution systems which have led to the need to expedite delivery of materials and incur higher freight costs. The degree and duration of disruptions to future business activity are unknown at this time.
Our continuing short-term and long-term liquidity requirements are expected to be impacted by the following, among other things:
•the timing and the costs involved in bringing our products to market; •the expansion of production capacity; •our ability to manage the costs of manufacturing our product; •the availability, cost and logistics expense for materials we purchase;
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•the availability of trade credit associated with the purchase of materials;
•capital commitments that may be required to secure long-term cell supply
arrangements;
•general business liabilities, including the cost of warranty and quality
claims, commercial disputes and potential business litigation costs and
liabilities;
•the scope, costs, timing and outcomes of our R&D activities for our battery
modules and battery packs;
•the costs of maintaining, expanding and protecting our intellectual property
portfolio, including licensing expenses and potential intellectual property
litigation costs and liabilities;
•the costs of additional general and administrative personnel, including
accounting and finance, legal and human resources, as a result of becoming a
public company;
•our ability to collect revenues from start-up companies operating in a
relatively new industry;
•the rate of development of the markets and demand for our products, including
the pace of conversion to vehicle electrification and the degree of regulatory
mandates and incentives that may affect the rate of conversion;
•the global battery cell shortage;
•the impact of the announced Transaction on our customers and suppliers; and
•other risks discussed in the section titled "Risk Factors."
Liquidity Requirements
As ofJune 30, 2022 , our current assets were approximately$101.4 million , consisting primarily of cash and cash equivalents, inventory, prepaid inventory and prepaid expenses and other current assets, and an insurance receivable. As ofJune 30, 2022 , our current liabilities were approximately$33.6 million , consisting primarily of accounts payable, accrued expenses, contract liabilities, current lease liabilities and other current liabilities. These liabilities are described in the paragraphs below. As described in more detail in Note 15 to the accompanying condensed consolidated financial statements, we signed a Supply Agreement, effectiveAugust 10, 2021 , which was amended inJune 2022 , with a supplier for the purchase of battery cells over the period of 2021 through 2028. As part of the Supply Agreement, we made a$64.7 million Prepayment to the supplier for the contract years beginning 2023 through 2028, and paid an additional$1.5 million Deposit to secure the supply of cells for 2022. These amounts will be recouped through credits received as cells are purchased. As ofJune 30, 2022 , the balance of the Deposit was$0.2 million . If we breach our minimum volume commitments during any applicable year, the supplier will be entitled to keep the remaining balance of the prepaid amounts for such year, as applicable. As described in more detail in Note 15 to the accompanying condensed consolidated financial statements, onOctober 25, 2021 BorgWarner decided to exercise a right under the Joint Venture Operating Agreement, datedMay 6, 2019 (the "Operating Agreement"), to put its ownership stake in the BorgWarner JV to Romeo. As a result, we completed the acquisition of the BorgWarner's ownership share in the first quarter of 2022. The acquisition was paid for in cash. Other strategic initiatives, which may or may not be similar in nature to the long-term cell supply agreement, will continue to be assessed in the context of balancing business value and our liquidity position. We may consider future strategic initiatives which in our assessment may lead to opportunities to maximize value of the business and require significant investment. Management anticipates that, in addition to possible strategic initiatives, our other ongoing liquidity and capital needs will relate primarily to capital expenditures for the expansion and support of production capacity, investment related to continue to reduce the cost of our product, working capital to support increased production and sales volume, general overhead and personnel expenses to support continued growth and scale, and overall operating losses. As ofJune 30, 2022 , we had cash and cash equivalents of$38.7 million . We have recurring losses, which have resulted in an accumulated deficit of$293.1 million as ofJune 30, 2022 . OnFebruary 15, 2022 , we entered into the SEPA with an affiliate ofYorkville Advisors . Under terms of the SEPA, we have the right, but not the obligation, to sell up to$350 million of Common Stock to an affiliate ofYorkville Advisors , subject to certain limitations, at the time of our choosing during the two-year term of the agreement. The agreement requires a$1.00 minimum price per share of the Company's Common Stock for sales under the SEPA to occur, which requirement was not met as ofJune 30, 2022 . During the three months endedJune 30, 2022 , no shares of Common Stock were issued under the SEPA. During the six months endedJune 30, 2022 , we issued 16.7 million shares of Common Stock to Yorkville for cash proceeds of$25.0 million , all of which occurred in the first quarter of 2022, with a portion of the shares issued as non-cash stock purchase discount under the SEPA. 42 -------------------------------------------------------------------------------- OnMay 12, 2022 , we entered into a Sales Agreement withCowen and Company, LLC ("Cowen"), with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, having an aggregate offering price of up to$200,000,000 (the "ATM") through Cowen as its sales agent. During the three and six months endedJune 30, 2022 , we issued 34.5 million shares of Common Stock to Cowen for cash proceeds of$23.8 million , net of costs, under the ATM. As further described under Note 16 - Subsequent Events, onJuly 30, 2022 , we entered into the Merger Agreement with Nikola whereby the Company will be merged into Nikola as the result of the Transaction. Concurrently with the execution of the Merger Agreement, the Borrowers entered into the Loan and Security Agreement with Nikola as the Lender. The Loan Agreement provides for a liquidity support in the form of the Facility in an aggregate principal amount of up to$30.0 million . The Facility also provides for certain incremental increases of up to$20.0 million , which may become available for drawing to cover the shortfall (if any) of actual increased liquidity of the Borrowers, as compared to targeted increased liquidity of$20.0 million , for battery packs to be purchased by the Lender under an agreed to temporary and non-refundable price increase, and subject to certain terms and conditions set forth in the Loan Agreement. Loans under the Facility may be made until the earlier of (a) six months from the date of the execution and delivery of the Merger Agreement and the Loan Agreement and (b) the date of the termination of the Merger Agreement. All amounts outstanding under the Facility will be due upon the earlier of (a) the date that is the six-month anniversary of the termination of the Merger Agreement and (b)June 30, 2023 , which is the six-month anniversary of the End Date as defined in the Merger Agreement, subject to acceleration upon the occurrence of certain events set forth in the Facility Loan Agreement. Interest will be payable on borrowings under the Facility at daily SOFR plus 8.00%. The Transaction is expected to be completed by the end ofOctober 2022 , subject to customary closing conditions, including regulatory approval and the tender by the Company's stockholders of shares representing a majority of the Company's outstanding common stock. Although management has explored a range of options to further address the Company's capitalization and liquidity, management has concluded as of the date of this filing that other alternatives sufficient in amount and timing to fund our ongoing operating losses and cash flow needs are not available. In consideration of these factors, and as a result of continuing anticipated operating cash outflows, capital expenditures, amounts paid to BorgWarner inFebruary 2022 , and costs to support future growth, we believe that substantial doubt exists regarding our ability to continue as a going concern on a standalone basis for 12 months from the date of the issuance of our financial statements. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. Effective as ofOctober 1, 2021 , the Company entered into a Single-Tenant Commercial Lease (the "Lease") for approximately 215,000 square feet of office, assembly, storage, warehouse and distribution space located inCypress, California (the "Premises"). The Company is using the Premises for its corporate headquarters and manufacturing facility. OnOctober 29, 2021 , the Landlord tendered possession of the Premises to us. The monthly lease payments commenced onJanuary 21, 2022 . Under the terms of the Lease, the Company paid the Landlord an initial base monthly rent of$210,700 , or$0.98 per square foot. The monthly base rent will increase annually by approximately three percent of the then-current base rent. The Company is also responsible for its proportional share of operating expenses, real estate tax expenses, insurance charges and maintenance costs, each as defined in the Lease, associated with the ownership, operation, maintenance, and repair of the Premises, subject to certain exclusions provided in the Lease (as described in the Lease). The term of the Lease is 97 calendar months. The Company may, at its option, extend the term of the Lease for five additional years on the same terms and conditions, except that the base monthly rent shall be adjusted to the "fair rental value" of the Premises. As ofJune 30, 2022 , we estimate our total unconditional contractual commitments, including inventory purchases, lease minimum payments and other contractual commitments, are$8.7 million for the six months endingDecember 31, 2022 ,$37.7 million for the year endingDecember 31, 2023 ,$197.2 million for the year endingDecember 31, 2024 ,$195.6 million for the year endingDecember 31, 2025 ,$193.2 million for the year endingDecember 31, 2026 and$354.9 million thereafter. However, the amount of our purchase commitments subsequent toJune 30, 2022 is not fully fixed and is subject to change based on changes in certain raw materials indexes as well the quantities of purchases we actually make. 43 --------------------------------------------------------------------------------
Cash Flow Analysis
The following table provides a summary of cash flow data for the six months
ended
Six Months Ended June 30,
2022 2021
Cash, cash equivalents and restricted cash at beginning of
period $ 25,638 $ 293,942
Operating activities:
Net (loss) income (121,557) 65,462
Non-cash adjustments 47,300 (102,784)
Changes in working capital (7,619) (6,438)
Net cash used in operating activities (81,876) (43,760)
Net cash provided by (used in) investing activities 49,587 (231,048)
Net cash provided by financing activities 48,358 26,412
Net change in cash, cash equivalents, and restricted cash 16,069 (248,396)
Cash, cash equivalents and restricted cash at end of period
Cash Flows used in Operating Activities
Net cash used in operating activities was approximately$81.9 million for the six months endedJune 30, 2022 , which is primarily the net loss of$121.6 million and cash used for changes in working capital of$7.6 million , offset by non-cash adjustments of$47.3 million . Significant non-cash items included in net loss which affected operating activities include: acquisition of in-process research and development, inventory provision, depreciation and amortization, stock-based compensation, non-cash equity-method loss, the change in fair value of our Private Placement Warrants and loss on sale of available-for-sale investments. Net cash used in operating activities was approximately$43.8 million for the six months endedJune 30, 2021 . Significant cash outflows include changes in operating assets and liabilities totaling approximately$6.4 million . These net cash outflows were primarily the result of cash outlays for pre-paid expenses and other current assets and inventory purchases as well as an increase in our accounts receivable balance. Cash outflows for prepaid expenses and other current assets consisted primarily of payments for insurance policies required to comply with the requirements of being a publicly traded company and prepayments for inventory to secure supply of certain key materials. The aforementioned cash outflows were offset by increases in accounts payable and accrued expenses of$7.1 million . An additional contributor to net cash used in operating activities during the period was our loss after adjustment for non-cash items, which approximated$37.3 million . Significant non cash adjustments include, adjustments for stock-based compensation, our non-cash equity-method loss, inventory write downs, and the change in fair value of our Public and Private Placement Warrants.
Cash Flows used in Investing Activities
For the six months endedJune 30, 2022 , net cash provided by investing activities was approximately$49.6 million and was primarily related to$96.2 million of proceeds from matured and sold available-for-sale investments, partially offset by$34.0 million of asset acquisition, net of cash acquired, in our acquisition of BorgWarner's ownership in the JV, as well as$12.6 million for capital expenditures. For further discussion on our acquisition of BorgWarner's ownership in the JV, see Note 1 to the accompanying condensed consolidated financial statements. For the six months endedJune 30, 2021 , net cash used in investing activities was approximately$231.0 million and was primarily related to$304.9 million used to purchase investments, our contribution of$4.0 million to the BorgWarner JV to fund operating activities, and$2.1 million for capital expenditures. Cash used for investing activities was partially offset by$79.9 million provided from sales and maturities of investments.
Cash Flows from Financing Activities
For the six months endedJune 30, 2022 , net cash provided by financing activities of approximately$48.4 million was related primarily to$25.0 million of proceeds from share issuance under the SEPA and$23.8 million of proceeds from share 44 --------------------------------------------------------------------------------
issuance under the ATM, offset by principal payments for finance leases of
For the six months ended
Contractual Obligations and Commitments
For the six months endedJune 30, 2022 , there have been no material changes to our significant contractual obligations as previously disclosed in our 2021 Form 10-K, except as described above in the section titled "Liquidity Requirements". Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments involve our equity method investments, revenue recognition, equity valuations, private placement warrants, leases and inventory. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates. There have been no substantial changes to these estimates, or the policies related to them during the six months endedJune 30, 2022 . For a full discussion of these estimates and policies, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in Item 7 of our 2021 Form 10-K.
Recent Accounting Pronouncements
See Note 2 to the accompanying condensed consolidated financial statements.
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