(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| The |
Item 8.01 |
Other Events. |
• |
Exhibit 99.1: Recast Consolidated Financial Statements of Complete Solaria, Inc. |
• |
Exhibit 99.2: Management’s Discussion and Analysis of Results of Operations |
• |
Exhibit 99.3: Unaudited Pro Forma Condensed Combined Financial Information |
Exhibit Number |
Description | |
| 99.1 | Recast Consolidated Financial Statements of Complete Solaria, Inc. | |
| 99.2 | Management’s Discussion and Analysis of Results of Operations. | |
| 99.3 | Unaudited Pro Forma Condensed Combined Financial Information | |
| 99.4 | Consolidated Financial Statements of The Solaria Corporation | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
C OMPLETE SOLARIA , INC . | ||||||
| Dated: January 4, 2024 | ||||||
| By: | /s/ Chris Lundell | |||||
| Chris Lundell | ||||||
| Chief Executive Officer | ||||||
As of December 31, |
||||||||
2022 |
2021 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable, net |
||||||||
Inventories |
||||||||
Prepaid expenses and other current assets |
||||||||
Total current assets |
||||||||
Long-term deposits |
||||||||
Restricted cash |
||||||||
Property and equipment, net |
||||||||
Operating lease right-of-use |
||||||||
Intangible assets, net |
— | |||||||
Other noncurrent assets |
||||||||
Long-term assets held for sale - discontinued operations |
||||||||
Total assets |
$ | $ | ||||||
Liabilities, redeemable convertible preferred stock and stockholders’ deficit |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | $ | ||||||
Accrued expenses and other current liabilities |
||||||||
SAFE agreements |
||||||||
Convertible notes, net |
||||||||
Convertible notes, net due to related parties |
— | |||||||
Notes payable, net |
||||||||
Deferred revenue |
||||||||
Total current liabilities |
||||||||
Warranty provision, noncurrent |
||||||||
Warrant liability |
||||||||
Derivative liability |
||||||||
Long-term debt with CS Solis |
||||||||
Convertible notes, net, noncurrent |
— | |||||||
Convertible notes, net due to related parties, noncurrent |
||||||||
Operating lease liabilities, net of current portion |
||||||||
Total liabilities |
||||||||
Commitments and contingencies (Note 17) |
||||||||
Stockholders’ equity (deficit): |
||||||||
Common stock, $ |
||||||||
December 31, 2022 and 2 0 21, respectively; issued and outstanding |
||||||||
Additional paid-in capital |
||||||||
Accumulated other comprehensive income |
||||||||
Accumulated deficit |
( |
) | ( |
) | ||||
Total stockholders’ equity (deficit) |
( |
) | ||||||
Total liabilities and stockholders’ deficit |
$ | $ | ||||||
For the Years Ended December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Revenues |
$ | $ | $ | |||||||||
Cost of revenues |
||||||||||||
Gross profit |
||||||||||||
Operating expenses: |
||||||||||||
Sales commissions |
||||||||||||
Sales and marketing |
||||||||||||
General and administrative |
||||||||||||
Operating expenses |
||||||||||||
Loss from operations |
( |
) | ( |
) | ( |
) | ||||||
Interest expense 1 |
( |
) | ( |
) | ( |
) | ||||||
Interest income |
||||||||||||
Other income (expense), net 2 |
( |
) | ( |
) | ( |
) | ||||||
Loss from continuing operations before income taxes |
( |
) | ( |
) | ( |
) | ||||||
Income tax provision |
( |
) | ( |
) | ( |
) | ||||||
Net loss from continuing operations |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Loss on discontinued operations, net of tax |
( |
) | ||||||||||
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Comprehensive income (loss): |
||||||||||||
Foreign currency translation adjustment |
||||||||||||
Comprehensive loss (net of tax) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Net loss from continuing operations per share attributable to common stockholders, basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Net loss from discontinued operations per share attributable to common stockholders, basic and diluted |
$ | ( |
$ | $ | ||||||||
Net loss per share attributable to common stockholders, basic and diluted |
$ | ( |
$ | ( |
) | $ | ( |
) | ||||
Weighted-average shares used to compute net loss per share attributable to common stockholders’, basic and diluted |
||||||||||||
| 1. | Includes interest expense to related parties of $ |
| 2. | Other income (expense), net includes other income from related parties of $ |
Redeemable Convertible Preferred Stock |
Common Stock |
Additional Paid-in-Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total Stockholders’ Equity (Deficit) |
|||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||
Balance at January 1, 2020 |
$ | $ | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||||||||
Retroactive application of recapitalization (Note 3) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance at January 1, 2020, as adjusted |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Issuances of Series C-1 redeemable convertible preferred Stock upon conversion of 2017-A convertible note and 2019 SAFE |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Issuance of Series C redeemable convertible preferred stock upon conversion of convertible notes |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Conversion of redeemable convertible preferred stock to common stock |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Issuance of common stock warrant |
— | ( |
) | — | ||||||||||||||||||||||||||||
Exercise of common stock options |
||||||||||||||||||||||||||||||||
Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Balance as of December 31, 2020, as previously reported |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Retroactive application of recapitalization (Note 3) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance as of December 31, 2020 |
$ |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) | ||||||||||||||||||||||
Issuance of common stock upon asset acquisition of assembled workforce |
||||||||||||||||||||||||||||||||
Issuance of common stock warrant |
— | — | ||||||||||||||||||||||||||||||
Exercise of common stock options |
||||||||||||||||||||||||||||||||
Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Balance as of December 31, 2021, as previously reported |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Retroactive application of recapitalization (Note 3) |
||||||||||||||||||||||||||||||||
Balance as of December 31, 2021 |
$ |
$ |
$ |
$ |
( |
) |
$ |
$ |
( |
) | ||||||||||||||||||||||
Issuance of Series D-1, D-2, and D-3 redeemable convertible preferred stock upon conversion of convertible notes and SAFEs1 |
||||||||||||||||||||||||||||||||
Issuance of Series D-4, D-5, D-6 and D-7 redeemable convertible preferred stock upon acquisition2 |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Issuance of Series D-8 redeemable convertible preferred stock upon conversion of SAFE3 |
— | — | — | — | — | — | ||||||||||||||||||||||||||
Issuance of common stock in connection with business combination |
||||||||||||||||||||||||||||||||
Issuance of common stock warrants |
— | — | ||||||||||||||||||||||||||||||
Exercise of common stock options |
||||||||||||||||||||||||||||||||
Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Foreign currency translation adjustment |
— | — | ||||||||||||||||||||||||||||||
Balance as of December 31, 2022, as previously reported |
( |
) | ||||||||||||||||||||||||||||||
Retroactive application of recapitalization (Note 3) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance as of December 31, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
$ |
||||||||||||||||||||||||
| (1) | Includes D-1 redeemable convertible preferred stock with a carrying value of $ |
| (2) | Includes D-4 redeemable convertible preferred stock with a carrying value of $D-5 redeemable convertible preferred stock with a carrying value of $D-7 redeemable convertible preferred stock with a carrying value of $ |
| (3) | Includes D-8 redeemable convertible preferred stock with a carrying value of $ |
For the Years Ended December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Cash flows from operating activities |
||||||||||||
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Less: Net loss from discontinued operations, net of tax |
$ | ( |
) | $ | $ | |||||||
Net loss from continuing operations, net of tax |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Non-cash interest expense(1) |
||||||||||||
Gain on extinguishment of convertible notes and SAFEs (2) |
( |
) | ||||||||||
Stock-based compensation expense |
||||||||||||
Provision for doubtful accounts |
||||||||||||
Change in reserve for excess and obsolete inventory |
||||||||||||
Depreciation and amortization |
||||||||||||
Change in fair value of warrant liability |
( |
) | ||||||||||
Change in fair value of derivative liability |
||||||||||||
Change in fair value of convertible notes |
||||||||||||
Forgiveness of Paycheck Protection Plan loans |
( |
) | ||||||||||
Non-cash lease expense |
||||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable, net |
( |
) | ( |
) | ( |
) | ||||||
Inventories |
( |
) | ( |
) | ( |
) | ||||||
Prepaid expenses and other current assets |
( |
) | ( |
) | ||||||||
Long-term deposits |
( |
) | ( |
) | ||||||||
Other noncurrent assets |
( |
) | ||||||||||
Accounts payable |
( |
) | ||||||||||
Accrued expenses and other current liabilities |
( |
) | ||||||||||
Operating lease right-of-use |
( |
) | ( |
) | ||||||||
Warranty provision, noncurrent |
( |
) | ||||||||||
Deferred revenue |
( |
) | ||||||||||
Deferred rent |
||||||||||||
Net cash used in operating activities from continuing operations |
( |
) | ( |
) | ( |
) | ||||||
Net cash used in operating activities from discontinued operations |
( |
) | ||||||||||
Net cash used in operating activities |
( |
) | ( |
) | ( |
) | ||||||
Cash flows from investing activities |
||||||||||||
Purchase of property and equipment |
( |
) | ( |
) | ||||||||
Capitalization of internal-use software costs |
( |
) | ( |
) | ( |
) | ||||||
Payments for acquisition of business, net of cash acquired |
||||||||||||
Net cash provided by (used in) investing activities from continuing operations |
( |
) | ( |
) | ||||||||
Cash flows from financing activities |
||||||||||||
Proceeds from exercise of common stock options |
||||||||||||
Proceeds from issuance of convertible notes, net, noncurrent |
||||||||||||
Proceeds from issuance of convertible notes to related parties, net, noncurrent |
||||||||||||
Proceeds from issuance of SAFE agreements |
||||||||||||
Proceeds from issuance of notes payable, net |
||||||||||||
Payments for issuance costs of Series D-1, D-2 and D-3 redeemable convertible preferred stock |
( |
) | ||||||||||
Proceeds from issuance of long-term debt with CS Solis, net of issuance costs |
||||||||||||
Principal repayment of notes payable |
( |
) | ||||||||||
Principal repayment of convertible notes |
( |
) | ( |
) | ||||||||
Repayment of convertible notes to related parties |
( |
) | ||||||||||
Net cash provided by financing activities from continuing operations |
||||||||||||
For the Years Ended December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Effect of exchange rate changes |
||||||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
( |
) | ||||||||||
Cash, cash equivalents and restricted cash at beginning of period |
||||||||||||
Cash, cash equivalents and restricted cash at end of period |
$ | $ | $ | |||||||||
Supplemental disclosures of cash flow information: |
||||||||||||
Cash paid during the year for income taxes |
||||||||||||
Cash paid during the year for interest |
||||||||||||
Supplemental schedule of noncash investing and financing activities: |
||||||||||||
Issuance of common stock warrants |
||||||||||||
Issuance of Series C redeemable convertible preferred stock upon conversion of convertible debt |
||||||||||||
Issuance of Series C-1 redeemable convertible preferred stock upon conversion of convertible debt |
||||||||||||
Fair value of debt derivative liabilities related to issuance of convertible notes |
||||||||||||
Common stock issued in asset purchase |
||||||||||||
Notes payable issued in asset purchase |
||||||||||||
Operating lease right-of-use |
||||||||||||
Issuance of Series D-1, D-2 and D-3 redeemable convertible preferred stock upon conversion of convertible debt, net of issuance costs of $ |
||||||||||||
Acquisition of business through issuance of common stock and stock options |
||||||||||||
Acquisition of business through issuance of Series D redeemable convertible preferred stock |
||||||||||||
Acquisition of business through issuance of Series D redeemable convertible preferred stock warrants |
||||||||||||
Issuance of Series D redeemable convertible preferred stock upon conversion of SAFE |
||||||||||||
| 1. | Non-cash interest expense to related parties of $ |
| 2. | Gain on extinguishment of convertible notes and SAFEs includes other income from related parties of $ |
(1) |
Organization |
(a) |
Description of Business |
| • | Each share of the Company’s capital stock, inclusive of shares converted from 2022 Convertible Notes, issued and outstanding immediately prior to the Closing (“Legacy Complete Solaria Capital Stock”) were cancelled and exchanged into an aggregate of |
| • | In July 2023, (i) Meteora Special Opportunity Fund I, LP (“MSOF”), Meteora Capital Partners, LP (“MCP”) and Meteora Select Trading Opportunities Master, LP (“MSTO”) (with MSOF, MCP, and |
MSTO collectively as “Meteora”); (ii) Polar Multi-Strategy Master Fund (“Polar”), and (iii) Diametric True Alpha Market Neutral Master Fund, LP, Diametric True Alpha Enhanced Market Neutral Master Fund, LP, and Pinebridge Partners Master Fund, LP (collectively, “Sandia”) (together, the “FPA Funding PIPE Investors”) entered into separate subscription agreements (the “FPA Funding Amount PIPE Subscription Agreements”) pursuant to which, the FPA Funding PIPE Investors subscribed for on the Closing Date, an aggregate of |
| • | All certain investors (the “PIPE Investors”) purchased from the Company an aggregate of |
| • | On or around the Closing Date, pursuant to the New Money PIPE Subscription Agreements, certain investors affiliated with the New Money PIPE Subscription Agreements (“New Money PIPE Investors”) agreed to subscribe for and purchase, and Complete Solaria agreed to issue and sell to the New Money PIPE Investors an aggregate of |
| • | Subsequent to the Closing, Complete Solaria issued an additional |
| • | In March 2023, holders of |
| • | Each issued and outstanding FACT Class B Ordinary Share converted, on a one-for-one basis, into |
(b) |
Divestiture |
(c) |
Liquidity and Going Concern |
(d) |
Basis of Presentation |
(2) |
Summary of Significant Accounting Policies |
(a) |
Use of Estimates |
| • | The allocation of the transaction price to identified performance obligations; |
| • | Fair value of warrant liabilities; |
| • | The fair value of assets acquired and liabilities assumed for business combination; |
| • | The reserve methodology for inventory obsolescence; |
| • | The reserve methodology for product warranty; |
(b) |
Supply Chain Constraints and Risk; COVID-19 |
(c) |
Segment Information |
(d) |
Concentration of Risks |
(e) |
Cash and Cash Equivalents |
(f) |
Restricted Cash |
As of December 31, |
||||||||
2022 |
2021 |
|||||||
Cash and cash equivalents |
$ | $ | ||||||
Restricted cash |
||||||||
Total cash, cash equivalents and restricted cash |
$ | $ | ||||||
(g) |
Accounts Receivable, Net |
As of December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Balance at beginning of period |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Provision charged to earnings |
) | ( |
) | ( |
) | |||||||
Amounts written off, recoveries and other adjustments |
||||||||||||
Balance at end of period |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
(h) |
Inventories |
(i) |
Revenue Recognition |
| • | Cash agreements |
| • | Financing partner agreements |
| • | Power purchase agreements |
Years Ended December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Solar energy system installations |
$ | $ | $ | |||||||||
Software enhanced services |
||||||||||||
Total revenue |
$ | $ | $ | |||||||||
(j) |
Property and Equipment, Net |
Useful Lives |
||||
Manufacturing equipment |
||||
Developed software |
||||
Furniture & equipment |
||||
Leasehold improvements |
||||
(k) |
Internal-Use Software |
(l) |
Cost of Revenues |
(m) |
Advertising and Promotional Expenses |
(n) |
Income Taxes |
(o) |
Foreign Currency |
(p) |
Comprehensive Loss |
(q) |
Impairment of Long-Lived Assets |
(r) |
Business Combinations |
(s) |
Intangibles Assets, Net |
Estimated Useful Life |
||||
Assembled workforce |
||||
(t) |
Deferred Transaction Costs |
(u) |
Redeemable Convertible Preferred Stock Warrants |
(v) |
Stock-Based Compensation |
(w) |
Fair Value Measurements |
| • | Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. |
| • | Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. |
| • | Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. |
(x) |
Net Loss Per Share |
(y) |
Convertible Debt Embedded Derivative Liabilities |
(z) |
Leases |
(aa) |
Recently Adopted Accounting Pronouncements |
(ab) |
Accounting Pronouncements Not Yet Adopted |
(3) |
Reverse Recapitalization |
| • | Complete Solaria’s pre-combination stockholders have the majority of the voting power in the post-merged company; |
| • | Legacy Complete Solaria’s stockholders have the ability to appoint a majority of the Complete Solaria Board of Directors; |
| • | Legacy Complete Solaria’s management team is considered the management team of the post-merged company; |
| • | Legacy Complete Solaria’s prior operations is comprised of the ongoing operations of the post-merged company; |
| • | Complete Solaria is the larger entity based on historical revenues and business operations; and |
| • | the post-merged company has assumed Complete Solaria’s operating name. |
Recapitalization |
||||
FACT Class A Ordinary Shares, outstanding prior to Mergers |
||||
FACT Class B Ordinary Shares, outstanding prior to Mergers |
||||
Bonus shares issued to sponsor |
||||
Bonus shares issued to PIPE investors |
||||
Bonus shares issued to FPA investors |
||||
Shares issued from PIPE financing |
||||
Shares issued from FPA agreements, net of recycled shares |
||||
Less: redemption of FACT Class A Ordinary Shares |
( |
) | ||
Total shares from the Mergers and PIPE Financing |
||||
Legacy Complete Solaria shares |
||||
2022 Convertible Note Shares |
||||
Shares of Complete Solaria Common stock immediately after Mergers |
||||
(4) |
Business Combination |
Cash, cash equivalents and restricted cash |
$ | |||
Accounts receivable |
||||
Inventories |
||||
Prepaid expenses and other current assets |
||||
Property and equipment |
||||
Operating lease right-of-use |
||||
Intangible assets |
||||
Other non-current assets |
||||
Total identifiable assets acquired |
||||
Accounts payable |
||||
Accrued expenses and other current liabilities |
||||
Notes payable |
||||
Deferred revenue |
||||
Operating lease liabilities, net of current portion |
||||
Warranty provision, noncurrent |
||||
SAFE agreements |
||||
Total identifiable liabilities assumed |
||||
Net identifiable liabilities assumed |
||||
Goodwill |
||||
Total aggregate consideration paid |
$ | |||
Trademarks |
$ | |||
Developed technology |
||||
Customer relationships |
||||
Total intangible asset |
$ | |||
(5) |
Divestiture |
December 31, 2022 |
||||
Revenues |
$ | |||
Cost of revenues |
||||
Gross profit |
||||
Operating expenses: |
||||
Sales and marketing |
||||
General and administrative |
||||
Total operating expenses |
||||
Net loss from discontinued operations |
$ | ( |
) | |
December 31, 2022 |
||||
Intangible assets, net |
$ | |||
Goodwill |
||||
Long-term assets held for sale |
$ | |||
(6) |
Prepaid Expenses and Other Current Assets |
As of December 31, |
||||||||
2022 |
2021 |
|||||||
Inventory deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
$ | $ | ||||||
Prepaid sales commissions . . . . . . . . . . . . . . . . . . . . . . . |
||||||||
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
||||||||
Total prepaid expenses and other current assets . . . |
$ | $ | ||||||
(7) |
Property and Equipment, Net |
As of December 31, |
||||||||
2022 |
2021 |
|||||||
Developed software |
$ | $ | ||||||
Manufacturing equipment. |
||||||||
Furniture & equipment |
||||||||
Leasehold improvements |
||||||||
Total property and equipment |
||||||||
Less accumulated depreciation and amortization |
( |
) | ( |
) | ||||
Total property and equipment, net |
$ | $ | ||||||
(8) |
Intangible Assets, Net |
As of December 31, 2022 |
As of December 31, 2021 |
|||||||||||||||||||||||||||
Weighted- Average Remaining Life (Years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Amount |
||||||||||||||||||||||
Assembled workforce |
$ | |
$ | ( |
) | $ | |
$ | |
$ | ( |
) | $ | |
||||||||||||||
(9) |
Accrued Expenses and Other Current Liabilities |
December 31, |
||||||||
2022 |
2021 |
|||||||
Accrued compensation and benefits |
$ | $ | |
|||||
Accrued term loan and revolving loan amendment and final payment fees |
||||||||
Uninvoiced contract costs |
||||||||
Accrued legal settlements |
||||||||
Accrued taxes |
||||||||
Accrued rebates and credits |
||||||||
Inventory received but not invoiced |
||||||||
Operating lease liabilities, current |
||||||||
Customer deposits |
||||||||
Warranty provision, current |
||||||||
Other accrued liabilities |
||||||||
Total accrued expenses and other current liabilities |
$ | $ | ||||||
(10) |
Fair Value Measurements |
Warrant |
Convertible Debt Embedded Derivatives |
SAFEs |
||||||||||
Balance as of December 31, 2020 |
$ | $ | $ | |||||||||
Issuance of 2021-A Convertible Notes |
||||||||||||
Issuance of 2021-Rogers SAFE |
||||||||||||
Change in fair value |
||||||||||||
Balance as of December 31, 2021 |
$ | $ | $ | |||||||||
Conversion of debt into preferred shares |
( |
) | ||||||||||
Conversion of SAFEs into preferred shares |
( |
) | ||||||||||
Assumption of SAFEs in Solaria acquisition |
||||||||||||
Conversion of SAFEs from Solaria acquisition into preferred shares |
( |
) | ||||||||||
Issuance of Series D Warrants Tranche A |
||||||||||||
Issuance of Series D Warrants Tranche B |
||||||||||||
Change in fair value |
||||||||||||
Balance as of December 31, 2022 |
$ | |
$ | $ | ||||||||
As of December 31, 2022 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Financial Liabilities |
||||||||||||||||
Redeemable convertible preferred stock warrant liability |
$ | |
$ | |
$ | |
$ | |
||||||||
Total |
$ | $ | $ | $ | ||||||||||||
As of December 31, 2021 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Financial Liabilities |
||||||||||||||||
Redeemable convertible preferred stock warrant liability |
$ | $ | $ | $ | ||||||||||||
Convertible debt embedded derivatives |
||||||||||||||||
SAFE agreements |
||||||||||||||||
Total |
$ | $ | $ | $ | ||||||||||||
December 31, |
||||||||
2022 |
2021 |
|||||||
Expected term |
||||||||
Expected volatility |
% | % | ||||||
Risk-free interest rate |
% | % | ||||||
Expected dividend yield |
% | % | ||||||
December 31, |
||||||||
2022 |
2021 |
|||||||
Expected term |
||||||||
Expected volatility |
% | % | ||||||
Risk-free interest rate |
% | % | ||||||
Expected dividend yield |
% | % | ||||||
December 31, |
||||||||
2022 |
2021 |
|||||||
Expected term |
— | |||||||
Expected volatility |
% | |||||||
Risk-free interest rate |
% | |||||||
Expected dividend yield |
% | |||||||
Series B Warrants |
Series C Warrants |
Series D Tranche A Warrants |
Series D Tranche B Warrants |
Total |
||||||||||||||||
Balance as of December 31, 2020 |
$ | $ | $ | $ | $ | |||||||||||||||
Change in fair value |
||||||||||||||||||||
Balance as of December 31, 2021 |
||||||||||||||||||||
Change in fair value |
||||||||||||||||||||
Issuance of warrants in connection with acquisition of Solaria (Note 3) |
||||||||||||||||||||
Balance as of December 31, 2022 |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||
2019-A Convertible Notes |
2020-A Convertible Notes |
2021-A Convertible Notes |
Totals |
|||||||||||||
Balance as of December 31, 2020 |
$ | $ | $ | $ | ||||||||||||
Issuance of 2021-A Convertible Notes |
||||||||||||||||
Change in fair value |
||||||||||||||||
Balance as of December 31, 2021 |
||||||||||||||||
Extinguishment upon Series D issuance |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Balance as of December 31, 2022 |
$ | |
$ | $ | $ | |||||||||||
December 31, |
||||||
2022 |
2021 |
|||||
Expected fair value of preferred stock |
N/A | $ | ||||
Expected term |
N/A | |||||
Volatility |
N/A | % | ||||
Risk-free interest rate |
N/A | % | ||||
(11) |
Employee Benefit Plan |
(12) |
Other Income (Expense), Net |
Years Ended December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Change in fair value of SAFE agreements |
$ | $ | ( |
) | $ | ( |
) | |||||
Change in fair value of derivative liabilities |
( |
) | ( |
) | ||||||||
Change in fair value of warrant liabilities |
( |
) | ( |
) | ||||||||
Gain on extinguishment of convertible notes and SAFE agreements (1) |
||||||||||||
Forgiveness of Paycheck Protection Plan loan |
||||||||||||
Other, net |
( |
) | ||||||||||
Total other income (expense), net |
$ | ( |
) | $ | ( |
$ | ( |
) | ||||
(1) |
Includes $ |
(13) |
Common Stock |
As of December 31, |
||||||||
2022 |
2021 |
|||||||
Common stock warrants |
||||||||
Stock options, issued and outstanding |
||||||||
Stock options, authorized for future issuance |
||||||||
SAFE agreement |
||||||||
Convertible notes |
||||||||
Total shares reserved |
||||||||
(14) |
Warrants |
Years Ended December 31, | ||||
| 2022 | 2021 | |||
Expected term |
||||
Expected volatility |
||||
Risk-free interest rate |
||||
Expected dividends |
||||
(15) |
Borrowing Arrangements |
As of December 31, |
||||||||
2022 |
2021 |
|||||||
Convertible notes, net |
||||||||
2019-A Convertible Notes |
$ | $ | ||||||
2020-A Convertible Notes |
||||||||
2021-A Convertible Notes |
||||||||
Convertible notes, net |
||||||||
Convertible notes, net due to related parties |
||||||||
2020-A Convertible Notes |
||||||||
2021-A Convertible Notes |
||||||||
Convertible Promissory Notes with Ecosystem Integrity Fund II, LP. |
||||||||
Convertible notes, net due to related parties |
||||||||
Convertible notes, net, noncurrent |
||||||||
2022 Convertible Notes |
||||||||
Convertible notes, net, noncurrent |
||||||||
Convertible notes, net due to related parties, noncurrent |
||||||||
2022 Convertible Notes |
||||||||
Convertible notes, net due to related parties, noncurrent |
||||||||
Total convertible notes |
$ | $ | ||||||
As of December 31, |
||||||||
2022 |
2021 |
|||||||
Principal |
$ | $ | ||||||
Unamortized debt discount |
||||||||
PIK interest added to principal balance |
||||||||
Conversion to Series D-2 redeemable convertible preferred stock |
( |
) | ||||||
Net carrying amount |
$ | $ | ||||||
As of December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Amortization of debt discount |
$ | $ | $ | |||||||||
PIK interest |
||||||||||||
Total non-cash interest expense |
$ | $ | $ | |||||||||
As of December 31, |
||||||||
2022 |
2021 |
|||||||
Principal |
$ | $ | ||||||
Unamortized debt discount |
||||||||
PIK interest added to principal balance |
||||||||
Conversion to Series D-1 redeemable convertible preferred stock |
( |
) | ||||||
Net carrying amount |
$ | $ | ||||||
As of December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Amortization of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . |
$ | $ | $ | |||||||||
PIK interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
||||||||||||
Total non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . |
$ | $ | $ | |||||||||
As of December 31, |
||||||||
2022 |
2021 |
|||||||
Principal |
$ | $ | ||||||
Unamortized debt discount |
( |
) | ||||||
PIK interest added to principal balance |
||||||||
Conversion to Series D-1 redeemable convertible preferred stock |
( |
) | ||||||
Net carrying amount |
$ | $ | ||||||
As of December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Amortization of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . |
$ | $ | $ | |||||||||
PIK interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
||||||||||||
Total non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . |
$ | $ | $ | |||||||||
As of December 31, |
||||||||
2022 |
2021 |
|||||||
Principal |
$ | $ | ||||||
Unamortized debt discount |
||||||||
PIK interest added to principal balance |
||||||||
Repayment of principal and accrued interest |
( |
) | ||||||
Net carrying amount |
$ | $ | ||||||
As of December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Amortization of debt discount |
$ | $ | $ | |||||||||
PIK interest |
||||||||||||
Total non-cash interest expense |
$ | $ | $ | |||||||||
As of December 31, |
||||||||
2022 |
2021 |
|||||||
| Loan and Security Agreement |
$ | $ | ||||||
| 2021 Promissory Notes |
||||||||
| Current Insight Promissory Note |
||||||||
| |
|
|
|
|||||
| Less: Unamortized debt issuance costs and discounts |
||||||||
| |
|
|
|
|||||
| $ | $ | |||||||
| |
|
|
|
|||||
(16) |
Stock-Based Compensation |
Options outstanding |
||||||||||||||||
Number of shares |
Weighted average exercise price per share |
Weighted average contractual term (in years) |
Aggregate intrinsic value (in thousands) |
|||||||||||||
Outstanding—January 1, 2021 |
$ | $ | ||||||||||||||
Options granted |
||||||||||||||||
Options exercised |
( |
) | ||||||||||||||
Options canceled |
( |
) | ||||||||||||||
Outstanding—December 31, 2021 |
$ | $ | ||||||||||||||
Options granted |
||||||||||||||||
Options exercised |
( |
) | ||||||||||||||
Options canceled |
( |
) | ||||||||||||||
Outstanding—December 31, 2022 |
$ | $ | ||||||||||||||
Vested and expected to vest—December 31, 2022 |
$ | $ | ||||||||||||||
Vested and exercisable—December 31, 2022 |
$ | $ | ||||||||||||||
Years Ended December 31, | ||||
2022 |
2021 | |||
Expected term |
||||
Expected volatility |
||||
Risk-free interest rate |
||||
Expected dividends |
||||
Years Ended December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Cost of revenues |
$ | $ | $ | |||||||||
Sales and marketing |
||||||||||||
General and administrative |
||||||||||||
Loss from discontinued operations, net of tax |
||||||||||||
Total stock-based compensation expense |
$ | $ | $ | |||||||||
(17) |
Commitments and Contingencies |
December 31, 2022 |
||||
Remaining average remaining lease term (years) |
||||
Weighted average discount rate |
% | |||
2023 |
$ | |||
2024 |
||||
2025 |
||||
2026 |
||||
2027 and thereafter |
||||
Total undiscounted liabilities |
||||
Less imputed interest |
( |
) | ||
Present value of operation lease liabilities |
$ | |||
Years Ended December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Warranty provision, beginning of period |
$ | $ | $ | |||||||||
Warranty liability from the Business Combination |
||||||||||||
Accruals for new warranties issued |
||||||||||||
Settlements |
( |
) | ( |
) | ( |
) | ||||||
Warranty provision, end of period |
$ | $ | $ | |||||||||
Warranty provision, current |
$ | $ | $ | |||||||||
Warranty provision, noncurrent |
$ | $ | $ | |||||||||
(18) |
Income Taxes |
Years Ended December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Current: |
||||||||||||
Federal |
$ | $ | $ | |||||||||
State |
||||||||||||
Foreign |
||||||||||||
Total current |
$ | $ | $ | |||||||||
Deferred: |
||||||||||||
Federal |
$ | $ | $ | |||||||||
State |
||||||||||||
Foreign |
||||||||||||
Total deferred |
||||||||||||
Total provision |
$ | $ | $ | |||||||||
Years Ended December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Statutory federal income tax |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
State income taxes, net of federal tax benefits |
( |
) | ( |
) | ( |
) | ||||||
Stock compensation |
||||||||||||
Non-deductible interest expense |
||||||||||||
Mark to market adjustments |
||||||||||||
Nondeductible Expenses |
||||||||||||
PPP Loan |
( |
) | ||||||||||
Foreign earnings taxed at different rates |
||||||||||||
Other |
( |
) | ||||||||||
Valuation allowance |
||||||||||||
Tax Provision |
$ | $ | $ | |||||||||
Years Ended December 31, |
||||||||
2022 |
2021 |
|||||||
NOL carryforwards |
$ | $ | ||||||
Credits |
||||||||
Bad debt reserve |
||||||||
Inventory reserve |
||||||||
Warranty reserve |
||||||||
Revenue warranty |
||||||||
Interest expense carryover |
||||||||
Accrued compensation |
||||||||
Deferred revenue |
||||||||
ASC 842 leases |
||||||||
Assembled workforce |
||||||||
Fixed assets |
||||||||
Capitalized research and development |
||||||||
Other |
||||||||
Total |
||||||||
Valuation allowance |
( |
) | ( |
) | ||||
Net deferred tax assets |
$ | $ | ||||||
Deferred Tax Liabilities |
||||||||
Accounting method change |
( |
) | ( |
) | ||||
Capitalized software |
( |
) | ( |
) | ||||
Fixed assets |
( |
) | ||||||
Intangibles |
( |
) | ||||||
Convertible debt |
( |
) | ||||||
Refundable and deferred income taxes |
$ | $ | ||||||
Years Ended December 31, |
||||||||
2022 |
2021 |
|||||||
Unrecognized tax benefits as of beginning of year |
$ | $ | ||||||
Increases related to prior year tax positions |
||||||||
Increases related to current year tax positions |
||||||||
Decreases related to prior year tax positions |
||||||||
Unrecognized tax benefits as of end of year |
— | |||||||
| $ | $ | |||||||
(19) |
Basic and Diluted Net Loss Per Share |
Years Ended December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Numerator: |
||||||||||||
Net loss from continuing operations |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Net loss from discontinued operations |
( |
) | — | — | ||||||||
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Denominator: |
||||||||||||
Weighted average common shares outstanding, basic and diluted |
||||||||||||
Net loss per share: |
||||||||||||
Continuing operations – basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Discontinued operations – basic and diluted |
$ | ( |
) | $ | — | $ | — | |||||
Net loss per share – basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
As of December 31, |
||||||||||||
2022 |
2021 |
2020 |
||||||||||
Stock options issued and outstanding |
||||||||||||
Convertible notes |
||||||||||||
Preferred stock warrants |
||||||||||||
SAFE agreements |
||||||||||||
Common stock warrants |
||||||||||||
Potential common shares excluded from diluted net loss per share |
||||||||||||
(20) |
Related Party Transactions |
(21) |
Subsequent Events |
As of |
||||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable, net of allowance for credit losses of $ |
||||||||
Inventories |
||||||||
Prepaid expenses and other current assets |
||||||||
Total current assets |
||||||||
Restricted cash |
||||||||
Property and equipment, net |
||||||||
Operating lease right-of-use |
||||||||
Other noncurrent assets |
||||||||
Long-term assets held for sale – discontinued operations |
||||||||
Total assets |
$ | $ | ||||||
Liabilities and stockholders’ (deficit) equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | $ | ||||||
Accrued expenses and other current liabilities |
||||||||
Notes payable, net (1) |
||||||||
Deferred revenue, current |
||||||||
Short-term debt with CS Solis |
||||||||
Forward purchase agreement liabilities (2) |
||||||||
Total current liabilities |
||||||||
Warranty provision, noncurrent |
||||||||
Warrant liability |
||||||||
Long-term debt with CS Solis |
||||||||
Convertible notes, net, noncurrent |
||||||||
Convertible notes due to related parties, noncurrent |
||||||||
Deferred revenue, noncurrent |
||||||||
Operating lease liabilities, net of current portion |
||||||||
Total liabilities |
||||||||
Commitments and contingencies (Note 19) |
||||||||
Stockholders’ (deficit) equity: |
||||||||
Common stock, $ |
||||||||
Additional paid-in capital |
||||||||
Accumulated other comprehensive income |
||||||||
Accumulated deficit |
( |
) | ( |
) | ||||
Total stockholders’ (deficit) equity |
( |
) | ||||||
Total liabilities and stockholders’ deficit |
$ | $ | ||||||
(1) |
(2) |
Thirteen Weeks Ended October 1, 2023 |
Three Months Ended September 30, 2022 |
Thirty-Nine Weeks Ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
|||||||||||||
Revenues |
$ | $ | $ | $ | ||||||||||||
Cost of revenues |
||||||||||||||||
Gross profit |
||||||||||||||||
Operating expenses: |
||||||||||||||||
Sales commissions |
||||||||||||||||
Sales and marketing |
||||||||||||||||
General and administrative |
||||||||||||||||
Total operating expenses |
||||||||||||||||
Loss from continuing operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Interest expense (1) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Interest income |
||||||||||||||||
Other income (expense), net (2) |
( |
) | ( |
) | ||||||||||||
Loss from continuing operations before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Income tax benefit (provision) |
( |
) | ||||||||||||||
Net loss from continuing operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Discontinued operations (Note 8): |
||||||||||||||||
Loss from discontinued operations, net of tax |
( |
) | ( |
) | ||||||||||||
Impairment loss from discontinued operations |
( |
) | ( |
) | ||||||||||||
Net loss from discontinued operations |
( |
) | ( |
) | ||||||||||||
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Comprehensive income (loss): |
||||||||||||||||
Foreign currency translation adjustment |
||||||||||||||||
Comprehensive income (loss), net of tax |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Net loss from continuing operations per share attributable to common stockholders, basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Net loss from discontinued operations per share attributable to common stockholders, basic and diluted |
$ | ( |
) | $ | ( |
) | ||||||||||
Net loss per share attributable to common stockholders, basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted |
||||||||||||||||
(1) |
Includes interest expense to related parties of less than $ |
(2) |
Other income (expense), net includes other expense, net to related parties of $ |
Thirteen Week Period Ended October 1, 2023 |
||||||||||||||||||||||||||||||||
Redeemable Convertible Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total Stockholders’ (Deficit) Equity |
|||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||
Balance as of July 2, 2023, as previously reported |
$ | $ | — | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||
Retroactive application of recapitalization (Note 4) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance as of July 2, 2023, as adjusted |
— | ( |
) | |||||||||||||||||||||||||||||
Conversion of 2022 Convertible Notes into common stock |
||||||||||||||||||||||||||||||||
Issuance of common stock upon the reverse capitalization, net of offering costs |
||||||||||||||||||||||||||||||||
Reclassification of prepaid PIPE (2) |
||||||||||||||||||||||||||||||||
Reclassification of warrant liabilities to equity |
— | — | ||||||||||||||||||||||||||||||
Reclassification of Legacy Complete Solaria common stock into Complete Solaria Common Stock |
— | — | ( |
) | ||||||||||||||||||||||||||||
Issuance of common stock in connection with forward purchase agreements (3) |
||||||||||||||||||||||||||||||||
Issuance of common stock bonus shares in connection with Mergers (4) |
||||||||||||||||||||||||||||||||
Residual Mergers proceeds |
— | — | ||||||||||||||||||||||||||||||
Modification of Carlyle warrant |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
Vesting of restricted stock units |
||||||||||||||||||||||||||||||||
Foreign currency translation |
— | — | ||||||||||||||||||||||||||||||
Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Balance as of October 1, 2023 |
$ | — | $ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||
Thirty-Nine Week Period Ended October 1, 2023 |
||||||||||||||||||||||||||||||||
Redeemable Convertible Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total Stockholders’ (Deficit) Equity |
|||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||
Balance as of December 31, 2022, as previously reported |
$ | $ |
— |
$ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||
Retroactive application of recapitalization (Note 4) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance as of December 31, 2022, as adjusted |
— | ( |
) | |||||||||||||||||||||||||||||
Conversion of 2022 Convertible Notes into common stock |
||||||||||||||||||||||||||||||||
Issuance of common stock upon the reverse capitalization, net of offering costs |
||||||||||||||||||||||||||||||||
Reclassification of prepaid PIPE (2) |
||||||||||||||||||||||||||||||||
Reclassification of warrant liabilities to equity |
— | — | ||||||||||||||||||||||||||||||
Reclassification of Legacy Complete Solaria common stock into Complete Solaria Common Stock |
— | — | ( |
) | ||||||||||||||||||||||||||||
Issuance of common stock in connection with forward purchase agreements (3) |
||||||||||||||||||||||||||||||||
Issuance of common stock bonus shares in connection with Mergers (4) |
||||||||||||||||||||||||||||||||
Residual Mergers proceeds |
— | — | ||||||||||||||||||||||||||||||
Modification of Carlyle warrant |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Exercise of common stock options |
||||||||||||||||||||||||||||||||
Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
Vesting of restricted stock units |
||||||||||||||||||||||||||||||||
Foreign currency translation |
— | — | ||||||||||||||||||||||||||||||
Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Balance as of October 1, 2023 |
$ | — | $ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||
Three Month Period Ended September 30, 2022 |
||||||||||||||||||||||||||||||||
Redeemable Convertible Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total Stockholders’ (Deficit) Equity |
|||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||
Balance as of June 30, 2022, as previously reported |
$ | $ | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||||||||
Retroactive application of recapitalization (Note 4) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance as of June 30, 2022, as adjusted |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Exercise of common stock options |
||||||||||||||||||||||||||||||||
Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Balance as of September 30, 2022, as adjusted |
$ | $ | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||||||||
Nine Month Period Ended September 30, 2022 |
||||||||||||||||||||||||||||||||
Redeemable Convertible Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total Stockholders’ (Deficit) Equity |
|||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||
Balance as of December 31, 2021, as previously reported |
$ | $ | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||||||||
Retroactive application of recapitalization (Note 4) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance at December 31, 2021, as adjusted |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Issuance of Series D-1, D-2, and D-3 redeemable convertible preferred stock upon conversion of convertible notes and SAFEs(1) |
||||||||||||||||||||||||||||||||
Issuance of common stock options |
||||||||||||||||||||||||||||||||
Issuance of common stock warrants |
— | — | ||||||||||||||||||||||||||||||
Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Balance as of September 30, 2022, as previously reported |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Retroactive application of recapitalization (Note 4) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance as of September 30, 2022, as adjusted |
$ | $ | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||||||||
(1) |
Includes D-1 redeemable convertible preferred stock with a carrying value of $ |
(2) |
Reclassification of pre-funded PIPE was transacted with a related party. |
(3) |
Includes |
(4) |
Includes |
Thirty-Nine Weeks Ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
|||||||
Cash flows from operating activities from continuing operations |
||||||||
Net loss |
$ | ( |
) | $ | ( |
) | ||
Loss from discontinued operations, net of income taxes |
( |
) | ||||||
Net loss from continuing operations, net of tax |
( |
) | ( |
) | ||||
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: |
||||||||
Stock-based compensation expense |
||||||||
Non-cash interest expense(1) |
( |
) | ||||||
Non-cash lease expense |
||||||||
Gain on extinguishment of convertible notes and SAFEs (2) |
( |
) | ||||||
Depreciation and amortization |
||||||||
Provision for credit losses |
||||||||
Change in reserve for excess and obsolete inventory |
||||||||
Issuance of forward purchase agreements (3) |
( |
) | ||||||
Change in fair value of forward purchase agreement liabilities (4) |
||||||||
Loss on CS Solis debt extinguishment |
||||||||
Change in fair value of warrant liabilities |
( |
) | ||||||
Accretion of debt in CS Solis |
||||||||
Issuance of common stock in connection with forward purchase agreements (5) |
||||||||
Issuance of common stock bonus shares in connection with the Mergers (6) |
||||||||
Issuance of restricted stock units in connection with vendor services |
||||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable, net |
( |
) | ( |
) | ||||
Inventories |
( |
) | ( |
) | ||||
Prepaid expenses and other current assets |
( |
) | ||||||
Other noncurrent assets |
( |
) | ||||||
Accounts payable |
||||||||
Accrued expenses and other current liabilities |
( |
) | ||||||
Operating lease liabilities |
( |
) | ( |
) | ||||
Warranty provision, noncurrent |
( |
) | ||||||
Deferred revenue |
( |
) | ( |
) | ||||
Net cash used in operating activities from continuing operations |
( |
) | ( |
) | ||||
Net cash provided by operating activities from discontinued operations |
||||||||
Net cash used in operating activities |
( |
) | ( |
) | ||||
Cash flows from investing activities from continuing operations |
||||||||
Purchase of property and equipment |
( |
) | ||||||
Capitalization of internal-use software costs |
( |
) | ( |
) | ||||
Net cash used in investing activities from continuing operations |
( |
) | ( |
) | ||||
Cash flows from financing activities from continuing operations |
||||||||
Proceeds from issuance of notes payable, net |
||||||||
Principal repayment of notes payable |
( |
) | ( |
) | ||||
Proceeds from issuance of convertible notes, net of issuance cost |
||||||||
Proceeds from issuance of convertible notes, net of issuance cost, due to related parties |
||||||||
Repayment of convertible notes to related parties |
( |
) | ||||||
Proceeds from issuance of long-term debt with CS Solis, net of issuance cost |
||||||||
Proceeds from exercise of common stock options |
||||||||
Proceeds from Mergers and PIPE Financing |
||||||||
Proceeds from Mergers and PIPE Financing from related parties |
||||||||
Payments for issuance of Series D redeemable convertible preferred stock |
( |
) | ||||||
Net cash provided by financing activities from continuing operations |
||||||||
Effect of exchange rate changes |
||||||||
Net decrease in cash, cash equivalents and restricted cash |
( |
) | ( |
) | ||||
Cash, cash equivalents, and restricted cash at beginning of period |
||||||||
Cash, cash equivalents, and restricted cash at end of period |
$ | $ | ||||||
Thirty-Nine Weeks Ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
|||||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the year for interest |
||||||||
Cash paid during the year for income taxes |
||||||||
Supplemental schedule of noncash investing and financing activities: |
||||||||
Operating lease right-of-use |
||||||||
Carlyle warrant modification |
( |
) | ||||||
Reclassification of liability-classified warrants to equity-classified warrants |
||||||||
Issuance of common stock warrants |
||||||||
Issuance of Series D redeemable convertible preferred stock upon conversion of SAFE |
||||||||
Issuance of Series D redeemable convertible preferred stock upon conversion of convertible debt |
||||||||
Conversion of 2022 Convertible Notes into common stock |
||||||||
Conversion of 2022 Convertible Notes issued to related parties into common stock |
||||||||
Conversion of preferred stock into common stock |
||||||||
Issuance of common stock in connection with forward purchase agreements (5) |
||||||||
Issuance of common stock bonus shares in connection with the Mergers (6) |
||||||||
Recapitalization of Legacy Complete Solaria Common stock into Complete Solaria Common Stock |
||||||||
Reclassification of investor related to PIPE funds |
||||||||
(1) |
Non-cash interest expense to related parties of $ |
(2) |
Gain on extinguishment of convertible notes and SAFEs includes other income from related parties of |
(3) |
Issuance of forward purchase agreements includes other income from related parties of $ |
(4) |
Change in fair value of forward purchase agreement liabilities includes other expense from related parties of $ |
(5) |
Issuance of common stock in connection with forward purchase agreements includes other expense from related parties of $ |
(6) |
Issuance of common stock bonus shares to related parties in connection with the Mergers includes other expense of $ |
(1) |
Organization |
(a) |
Description of Business |
| • | Each share of the Company’s capital stock, inclusive of shares converted from 2022 Convertible Notes, issued and outstanding immediately prior to the Closing (“Legacy Complete Solaria Capital Stock”) were cancelled and exchanged into an aggregate of |
| • | All certain investors (the “PIPE Investors”) purchased from the Company an aggregate of |
| • | On or around the Closing Date, pursuant to the New Money PIPE Subscription Agreements, certain investors affiliated with the New Money PIPE Subscription Agreements (“New Money PIPE Investors”) agreed to subscribe for and purchase, and Complete Solaria agreed to issue and sell to the New Money PIPE Investors an aggregate of |
| • | Subsequent to the Closing, Complete Solaria issued an additional |
| • | In March 2023, holders of one-for-one |
| • | Each issued and outstanding FACT Class B Ordinary Share converted, on a one-for-one |
(b) |
Basis of Presentation of Unaudited Interim Condensed Consolidated Financial Statements |
(c) |
Divestiture |
(d) |
Liquidity and Going Concern |
(e) |
Immaterial Correction of Prior Period Financial Statements |
(2) |
Summary of Significant Accounting Policies |
(a) |
Use of Estimates |
| • | the allocation of the transaction price to identified performance obligations; |
| • | fair value of warrant liabilities; |
| • | the fair value of assets acquired and liabilities assumed for business combinations; |
| • | the reserve methodology for inventory obsolescence; |
| • | the reserve methodology for product warranty; |
| • | the reserve methodology for the allowance for credit losses; and |
| • | the fair value of the forward purchase agreements. |
(b) |
Supply Chain Constraints and Risk |
(c) |
Segment Information |
(d) |
Restricted Cash |
As of |
||||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Cash and cash equivalents |
$ | $ | ||||||
Restricted cash |
||||||||
Total cash, cash equivalents, and restricted cash |
$ | $ | ||||||
(e) |
Revenue Recognition |
Thirteen Weeks Ended October 1, 2023 |
Three Months Ended September 30, 2022 |
Thirty-Nine Weeks Ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
|||||||||||||
Solar energy system installations |
$ | $ | $ | $ | ||||||||||||
Software enhanced services |
||||||||||||||||
Total revenue |
$ | $ | $ | $ | ||||||||||||
(f) |
Fair Value Measurements |
| • | Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. |
| • | Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. |
| • | Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. |
(g) |
Direct Offering Costs |
(h) |
Warrant Liabilities |
(i) |
Forward Purchase Agreements |
(j) |
Net Loss Per Share |
(k) |
Recently Adopted Accounting Pronouncements |
(3) |
Fair Value Measurements |
As of October 1, 2023 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Financial Liabilities |
||||||||||||||||
Carlyle warrants |
$ | $ | $ | $ | ||||||||||||
Public warrants |
||||||||||||||||
Private placement warrants |
||||||||||||||||
Working capital warrants |
||||||||||||||||
Forward purchase agreement liabilities |
||||||||||||||||
Total |
$ | $ | $ | $ | ||||||||||||
As of December 31, 2022 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Financial Liabilities |
||||||||||||||||
Redeemable convertible preferred stock warrant liability |
$ | $ | $ | $ | ||||||||||||
Total |
$ | $ | $ | $ | ||||||||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Expected term |
||||||||
Expected volatility |
% | |||||||
Risk-free interest rate |
% | |||||||
Expected dividend yield |
% | |||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Common stock trading price |
$ | |||||||
Simulation period |
||||||||
Risk-free rate |
% | |||||||
Volatility |
% | |||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Expected term |
— | |||||||
Expected volatility |
% | |||||||
Risk-free interest rate |
% | |||||||
Expected dividend yield |
% | |||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Expected term |
— | |||||||
Expected volatility |
% | |||||||
Risk-free interest rate |
% | |||||||
Expected dividend yield |
% | |||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Expected term |
— | |||||||
Expected volatility |
% | |||||||
Risk-free interest rate |
% | |||||||
Expected dividend yield |
% | |||||||
(4) |
Reverse Recapitalization |
| • | Complete Solaria’s pre-combination stockholders have the majority of the voting power in the post-merged company; |
| • | Legacy Complete Solaria’s stockholders have the ability to appoint a majority of the Complete Solaria Board of Directors; |
| • | Legacy Complete Solaria’s management team is considered the management team of the post-merged company; |
| • | Legacy Complete Solaria’s prior operations is comprised of the ongoing operations of the post-merged company; |
| • | Complete Solaria is the larger entity based on historical revenues and business operations; and |
| • | the post-merged company has assumed Complete Solaria’s operating name. |
Recapitalization |
||||
Cash proceeds from FACT, net of redemptions |
$ | |||
Cash proceeds from PIPE Financing |
||||
Less: cash payment of FACT transaction costs and underwriting fees |
( |
) | ||
Less: cash payment to FPA investors for rebates and recycled shares |
( |
) | ||
Less: cash payment for Promissory Note |
( |
) | ||
Net cash proceeds upon the closing of the Mergers and PIPE financing |
||||
Less: non-cash net liabilities assumed from FACT |
( |
) | ||
Net contributions from the Mergers and PIPE financing upon closing |
$ | |||
Recapitalization |
||||
FACT Class A Ordinary Shares, outstanding prior to Mergers |
||||
FACT Class B Ordinary Shares, outstanding prior to Mergers |
||||
Bonus shares issued to sponsor |
||||
Bonus shares issued to PIPE investors |
||||
Bonus shares issued to FPA investors |
||||
Shares issued from PIPE financing |
||||
Shares issued from FPA agreements, net of recycled shares |
||||
Less: redemption of FACT Class A Ordinary Shares |
( |
) | ||
Total shares from the Mergers and PIPE Financing |
||||
Legacy Complete Solaria shares |
||||
2022 Convertible Note Shares |
||||
Shares of Complete Solaria Common stock immediately after Mergers |
||||
(5) |
Forward Purchase Agreements |
| • | The FPA Sellers can terminate the transaction following the Optional Early Termination (“OET”) Date which shall specify the quantity by which the number of shares is to be reduced (such quantity, the “Terminated Shares”). Seller shall terminate the transaction in respect of any shares sold on or prior to the maturity date. The counterparty is entitled to an amount from the seller equal to the number of terminated shares multiplied by a reset price. The reset price is initially $ |
| • | The FPA contains multiple settlement outcomes. Per the terms of the agreements, the FPAs will (1) settle in cash in the event the Company is due cash upon settlement from the FPA Sellers or (2) settle in either cash or shares, at the discretion of the Company, should the settlement amount adjustment exceed the settlement amount. Should the Company elect to settle via shares, the equity will be issued in Complete Solaria Common Stock, with a per share price based on the volume-weighted average price (“VWAP”) Price over 15 scheduled trading days. The magnitude of the settlement is based on the Settlement Amount, an amount equal to the product of: (1) Number of shares issued to the |
FPA Seller pursuant to the FPA, less the number of Terminated Shares multiplied by (2) the VWAP Price over the valuation period. The Settlement amount will be reduced by the Settlement Adjustment, an amount equal to the product of (1) Number of shares in the Pricing Date Notice, less the number of Terminated Shares multiplied by $ |
| • | The Settlement occurs as of the Valuation Date, which is the earlier to occur of (a) the date that is two years after the date of the Closing Date of the Mergers (b) the date specified by Seller in a written notice to be delivered to Counterparty at Seller’s discretion (which Valuation Date shall not be earlier than the day such notice is effective) after the occurrence of certain triggering events; and (c) 90 days after delivery by the Counterparty of a written notice in the event that for any 20 trading days during a 30 consecutive trading day-period (the “Measurement Period”) that occurs at least 6 months after the Closing Date, the VWAP Price is less than the then applicable Reset Price. |
(6) |
Business Combination |
Amount |
||||
Cash, cash equivalents and restricted cash |
$ | |||
Accounts receivable |
||||
Inventories |
||||
Prepaid expenses and other current assets |
||||
Property and equipment |
||||
Operating lease right-of-use |
||||
Intangible assets |
||||
Other non-current assets |
||||
Total identifiable assets acquired |
||||
Accounts payable |
||||
Accrued expenses and other current liabilities |
||||
Notes payable |
||||
Deferred revenue |
||||
Operating lease liabilities, net of current portion |
||||
Warranty provision, noncurrent |
||||
SAFE agreements |
||||
Total identifiable liabilities assumed |
||||
Net identifiable liabilities assumed |
||||
Goodwill |
||||
Total aggregate consideration paid |
$ | |||
Amount |
||||
Trademarks |
$ | |||
Developed technology |
||||
Customer relationships |
||||
Total intangible assets |
$ | |||
Three Months Ended September 30, 2022 |
Nine Months Ended September 30, 2022 |
|||||||
Revenues |
$ | $ | ||||||
Net loss |
$ | ( |
) | $ | ( |
) | ||
(7) |
Prepaid Expenses and Other Current Assets |
As of |
||||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Inventory deposits |
$ | $ | ||||||
Prepaid sales commissions |
||||||||
Other |
||||||||
Total prepaid expenses and other current assets |
$ | $ | ||||||
(8) |
Divestiture |
Thirteen Weeks Ended October 1, 2023 |
Thirty-Nine Weeks Ended October 1, 2023 |
|||||||
Revenues |
$ | $ | ||||||
Cost of revenues |
||||||||
Gross loss |
( |
) | ( |
) | ||||
Operating expenses: |
||||||||
Sales and marketing |
||||||||
General and administrative |
||||||||
Total operating expenses |
||||||||
Loss from discontinued operations |
( |
) | ( |
) | ||||
Other income (expense), net |
||||||||
Loss from discontinued operations before income taxes |
( |
) | ( |
) | ||||
Income tax benefit (provision) |
( |
) | ||||||
Impairment loss from discontinued operations |
( |
) | ( |
) | ||||
Net loss from discontinued operations |
$ | ( |
) | $ | ( |
) | ||
As of |
||||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Intangible assets, net |
$ | $ | ||||||
Goodwill |
— | |||||||
Long-term assets held for sale |
$ | $ | ||||||
(9) |
Property and Equipment, Net |
Estimated |
As of |
|||||||||||
Useful Lives (Years) |
October 1, 2023 |
December 31, 2022 |
||||||||||
Developed software |
$ | $ | ||||||||||
Manufacturing equipment |
||||||||||||
Furniture and equipment |
||||||||||||
Leasehold improvements |
||||||||||||
Total property and equipment |
||||||||||||
Less: accumulated depreciation and amortization |
( |
) | ( |
) | ||||||||
Total property and equipment, net |
$ | $ | ||||||||||
(10) |
Goodwill and Intangible Assets |
As of October 1, 2023 |
||||||||||||||||||||
Gross Carrying Amount |
Impairment |
Held for Sale |
Accumulated Amortization |
Net Amount |
||||||||||||||||
Assembled workforce |
$ | $ | $ | ( |
) | $ | ||||||||||||||
Trademarks |
( |
) | ( |
) | ( |
) | ||||||||||||||
Customer relationship |
( |
) | ( |
) | ( |
) | ||||||||||||||
Developed technology |
( |
) | ( |
) | ( |
) | ||||||||||||||
Total intangible assets |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||
As of December 31, 2022 |
||||||||||||||||
Weighted- Average Remaining Life (Years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Amount |
|||||||||||||
Assembled workforce |
$ | $ | ( |
) | $ | |||||||||||
Trademarks |
( |
) | ||||||||||||||
Customer relationship |
( |
) | ||||||||||||||
Developed technology |
( |
) | ||||||||||||||
Total intangible assets |
$ | $ | ( |
) | $ | |||||||||||
Thirteen Weeks Ended October 1, 2023 |
Three Months Ended September 30, 2022 |
Thirty-Nine Weeks Ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
|||||||||||||
Assembled workforce |
$ | $ | $ | $ | ||||||||||||
Trademarks |
||||||||||||||||
Customer relationship |
||||||||||||||||
Developed technology |
||||||||||||||||
Total amortization expense |
$ | $ | $ | $ | ||||||||||||
(11) |
Accrued Expenses and Other Current Liabilities |
As of |
||||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Accrued compensation and benefits |
$ | $ | ||||||
Customer deposits |
||||||||
Uninvoiced contract costs |
||||||||
Inventory received but not invoiced |
||||||||
Accrued term loan and revolving loan amendment and final payment fees |
||||||||
Accrued legal settlements |
||||||||
Accrued taxes |
||||||||
Accrued rebates and credits |
||||||||
Operating lease liabilities, current |
||||||||
Revenue warranty |
||||||||
Deferred underwriters’ discount payable |
||||||||
Accrued warranty, current |
||||||||
Other accrued liabilities |
||||||||
Total accrued expenses and other current liabilities |
$ | $ | ||||||
(12) |
Employee Benefit Plan |
Thirteen Weeks Ended October 1, 2023 |
Three Months Ended September 30, 2022 |
Thirty-Nine Weeks Ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
|||||||||||||
Change in fair value of redeemable convertible preferred stock warrant liability |
$ | $ | $ | $ | ( |
) | ||||||||||
Change in fair value of Carlyle warrants |
||||||||||||||||
Change in fair value of FACT public, private placement and working capital warrants |
||||||||||||||||
Gain on extinguishment of convertible notes and SAFE agreements (1) |
||||||||||||||||
Loss on CS Solis debt extinguishment |
( |
) | ( |
) | ||||||||||||
Bonus shares issued in connection with the Mergers (2) |
( |
) | ( |
) | ||||||||||||
Issuance of forward purchase agreements (3) |
||||||||||||||||
Change in fair value of forward purchase agreement liabilities (4) |
( |
) | ( |
) | ||||||||||||
Issuance of shares in connection with the forward purchase agreements (5) |
( |
) | ( |
) | ||||||||||||
Other, net |
( |
) | ||||||||||||||
Total other income (expense), net |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
(1) |
Includes |
(2) |
Includes $ |
(3) |
Includes $ |
(4) |
Includes $ |
(5) |
Includes $ |
(14) |
Common Stock |
As of October 1, 2023 |
||||
Common stock warrants |
||||
Employee stock purchase plan |
||||
Stock options and RSUs, issued and outstanding |
||||
Stock options and RSUs, authorized for future issuance |
||||
Total shares reserved |
||||
(15) |
Warrants |
(16) |
Borrowing Arrangements |
As of |
||||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Convertible notes, net, noncurrent |
||||||||
2022 Convertible Notes |
$ | $ | ||||||
2022 Convertible Notes due to related parties |
||||||||
Total convertible notes |
$ | $ | ||||||
(17) |
Stock-Based Compensation |
Options Outstanding |
||||||||||||||||
Number of Shares |
Weighted Average Exercise Price per Share |
Weighted Average Contractual Term (Years) |
Aggregate Intrinsic Value (in thousands) |
|||||||||||||
Outstanding—December 31, 2022 |
$ | $ | ||||||||||||||
Options granted |
||||||||||||||||
Options exercised |
( |
) | ||||||||||||||
Options canceled |
( |
) | ||||||||||||||
Outstanding—October 1, 2023 |
$ | $ | ||||||||||||||
Vested and expected to vest—October 1, 2023 |
$ | $ | ||||||||||||||
Vested and exercisable—October 1, 2023 |
$ | $ | ||||||||||||||
Number of RSUs |
Weighted Average Grant Date Fair Value |
|||||||
Unvested at December 31, 2022 |
— | |||||||
Granted |
$ | |||||||
Vested and released |
( |
) | $ | |||||
Cancelled or forfeited |
( |
) | $ | |||||
Unvested at October 1, 2023 |
$ | |||||||
Thirteen Weeks Ended October 1, 2023 |
Three Months Ended September 30, 2022 |
Thirty-Nine Weeks Ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
|||||||||||||
Cost of revenues |
$ | $ | $ | $ | ||||||||||||
Sales and marketing |
||||||||||||||||
General and administrative |
||||||||||||||||
Loss from discontinued operations, net of tax |
— | — | ||||||||||||||
Total stock-based compensation expense |
$ | $ | $ | $ | ||||||||||||
(18) |
Employee Stock Purchase Plan |
(19) |
Commitments and Contingencies |
October 1, 2023 | ||
Remaining average remaining lease term |
||
Weighted average discount rate |
2023 (excluding the thirty-nine weeks ended October 1, 2023) |
$ | |||
2024 |
||||
2025 |
||||
2026 |
||||
2027 and thereafter |
||||
Total undiscounted liabilities |
||||
Less: imputed interest |
( |
) | ||
Present value of operating lease liabilities |
$ | |||
Thirty-Nine Weeks Ended October 1, 2023 |
Year Ended December 31, 2022 |
|||||||
Warranty provision, beginning of period |
$ | $ | ||||||
Warranty liability from Business Combination |
||||||||
Accruals for new warranties issued |
||||||||
Settlements |
( |
) | ( |
) | ||||
Warranty provision, end of period |
$ | $ | ||||||
Warranty provision, current |
$ | $ | ||||||
Warranty provision, noncurrent |
$ | $ | ||||||
(20) |
Basic and Diluted Net Loss Per Share |
Thirteen Weeks Ended October 1, 2023 |
Three Months Ended September 30, 2022 |
Thirty-Nine Weeks Ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
|||||||||||||
Numerator: |
||||||||||||||||
Net loss from continuing operations |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Net loss from discontinued operations |
( |
) | — | ( |
) | — | ||||||||||
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Denominator: |
||||||||||||||||
Weighted average common shares outstanding, basic and diluted |
||||||||||||||||
Net loss per share: |
||||||||||||||||
Continuing operations – basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Discontinued operations – basic and diluted |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
Net loss per share – basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
As of |
||||||||
October 1, 2023 |
December 31, 2022 |
|||||||
Common stock warrants |
||||||||
Preferred stock warrants |
— | |||||||
Stock options and RSUs issued and outstanding |
||||||||
Potential common shares excluded from diluted net loss per share |
||||||||
(21) |
Related Party Transactions |
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing at the end of this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Special Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Complete Solaria was formed in November 2022 through the merger of Complete Solar and Solaria. Founded in 2010, Complete Solar created a technology platform to offer clean energy products to homeowners by enabling a national network of sales partners and build partners. Our sales partners generate solar installation contracts with homeowners on our behalf. To facilitate this process, we provide the software tools, sales support and brand identity to its sales partners, making them competitive with national providers. This turnkey solution makes it easy for anyone to sell solar.
We fulfill our customer contracts by engaging with local construction specialists. We manage the customer experience and complete all pre-construction activities prior to delivering build-ready projects including hardware, engineering plans, and building permits to its builder partners. We manage and coordinate this process through our proprietary HelioTrackTM software system.
Effective January 1, 2023, we changed our fiscal quarters to four, thirteen-week periods within a standard calendar year. Each annual reporting period begins on January 1 and ends on December 31. Since the fiscal quarter change was made after the end of fiscal 2022, we will continue to report prior year financial information based on its prior year fiscal calendar. Our financial results for the thirty-nine weeks ended October 1, 2023 are compared to our results for the nine months ended September 30, 2022. The comparison of these two periods is primarily affected by the difference of one day between the first three quarters of fiscal 2023 and the first three quarters of 2022.
There is substantial doubt about the entity’s ability to continue as a going concern within one year after the date the unaudited condensed consolidated financial statements are issued. The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business. They do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty relating to its ability to continue as a going concern.
Growth Strategy and Outlook
Complete Solaria’s growth strategy contains the following elements:
| • | Increase revenue by expanding installation capacity and developing new geographic markets – We continue to expand our network of partners who will install systems resulting from sales generated by our sales partners. By leveraging this network of skilled builders, we aim to increase our installation capacity in our traditional markets and expand our offering into new geographies throughout the United States. This will enable greater sales growth in existing markets and create new revenue in expansion markets. |
| • | Increase revenue and margin by engaging national-scale sales partners – We aim to offer a turnkey solar solution to prospective sales partners with a national footprint. These include electric vehicle manufacturers, national home security providers, and real estate brokerages. We expect to create a consistent offering with a single execution process for such sales partners throughout their geographic territories. These national accounts have unique customer relationships that we believe will facilitate meaningful sales opportunities and low cost of acquisition to both increase revenue and improve margin. |
The Business Combination
Complete Solar entered into a Business Combination Agreement with FACT, First Merger Sub, Second Merger Sub, and Solaria on October 3, 2022. The Business Combination was consummated on July 18, 2023. Upon the terms and subject to the conditions of the Business Combination, (i) First Merger Sub merged with and into Complete Solaria with Complete Solaria surviving as a wholly-owned subsidiary of FACT (the “First Merger”), (ii) immediately thereafter and as part of the same overall transaction, Complete Solaria merged with and into Second Merger Sub, with Second Merger Sub surviving as a wholly-owned subsidiary of FACT (the “Second Merger”), and FACT changed its name to “Complete Solaria, Inc.” and Second Merger Sub changed its name to “CS, LLC” and (iii) immediately after the consummation of the Second Merger and as part of the same overall transaction, Solaria merged with and into a newly formed Delaware limited liability company and wholly-owned subsidiary of FACT and changed its name to “SolarCA LLC” (“Third Merger Sub”), with Third Merger Sub surviving as a wholly-owned subsidiary of FACT (the “Additional Merger”, and together with the First Merger and the Second Merger, the “Mergers”).
The merger between Complete Solaria and FACT has been accounted for as a reverse recapitalization. Under this method of accounting, FACT was treated as the acquired company for financial statement reporting purposes. This determination was primarily based on the Company having a majority of the voting power of the post-combination company, the Company’s senior management comprising substantially all of the senior management of the post-combination company, and the Company’s operations comprising the ongoing operations of the post-combination company. Accordingly, for accounting purposes, the Mergers have been treated as the equivalent of a capital transaction in which Complete Solaria is issuing stock for the net assets of FACT. The net assets of FACT have been stated at historical cost, with no goodwill or other intangible assets recorded.
Disposal Transaction
On August 18, 2023, we entered into a Non-Binding Letter of Intent to sell certain of our North American solar panel assets, inclusive of certain intellectual property and customer contracts, to Maxeon Solar Technologies, Ltd. (“Maxeon”). Subsequent to the execution of the Non-Binding Letter of Intent, on September 20, 2023, we entered into an asset purchase agreement (the “Disposal Agreement”) for the sale of certain assets to Maxeon. The Disposal Agreement also includes a supply agreement for Maxeon to supply its premium, high-performance, high-efficiency solar panels to Complete Solaria. The transaction closed on October 6, 2023. Under the terms of the Disposal Agreement, Maxeon agreed to acquire the identified assets and certain employees of Complete Solaria for an aggregate purchase price consisting of 1,100,000 Maxeon Common Shares (the “Disposal Transaction”).
As part of the Disposal Transaction, we determined that the criteria were met for held for sale and discontinued operations classification as of the end of our third fiscal quarter as the divestiture represents a strategic shift in our business. We recorded an impairment of $147.5 million associated with the recording of the assets as held for sale during the thirty-nine weeks ended October 1, 2023 and loss on disposal of $1.8 million during the fourth quarter.
Below, we have discussed our historical results of continuing operations, which excludes our product revenues and related metrics, as all results of operations associated with the solar panel business have been presented as discontinued operations, unless otherwise noted.
Key Financial Definitions/Components of Results of Operations
Revenues
We generate revenue by providing customer solar solutions through a standardized platform to our residential solar providers and companies to facilitate the sale and installation of solar energy systems. Our contracts consist of two performance obligations, which include solar installation services and post-installation services that are performed prior to inspection by the authority having jurisdiction. The significant majority of our revenue is recognized at a point in time upon the completion of the installation and the remainder is recognized upon inspection. Revenue is recognized net of a reserve for the performance guarantee of solar output.
We enter into three types of customer contracts for solar energy installations. The majority of our revenue is recognized through contracts where the homeowner enters into a power purchase agreement with our distribution partner. We perform the solar energy installation services on behalf of our distribution partner, who owns the solar energy system upon installation. Additionally, we enter into a Solar Purchase and Installation Agreement directly with homeowners, whereby the homeowner either pays cash or obtains financing through a third-party loan partner. In cash contracts with homeowners, we recognize revenue based on the price we charge to the homeowner. We record revenue in the amount received from the financing partner, net of any financing fees charged to the homeowner, which we consider to be a customer incentive.
As part of our revenue, we also enter into contracts to provide our software enhanced service offerings, including design and proposal services, to customers that include solar installers and solar sales organizations. We perform these leveraging our HelioQuoteTM platform and other software tools to create computer aided drawings, structural letters, and electrical reviews for installers and proposals for installers. We charge a fixed fee per service offering, which we recognize in the period the service is performed.
Operating Expenses
Cost of Revenues
Cost of revenues consists primarily of the cost of solar energy systems, and installation and other subcontracting costs. Cost of revenue also includes associated warranty costs, shipping and handling, allocated overhead costs, depreciation, and amortization of internally developed software.
Sales Commissions
Sales commissions are direct and incremental costs of obtaining customer contracts. These costs are paid to third-party vendors who source residential customer contracts for the sale of solar energy systems.
Sales and Marketing
Sales and marketing expenses primarily consist of personnel related costs, including salaries and employee benefits, stock-based compensation, and other promotional and advertising expenses. We expense certain sales and marketing, including promotional expenses, as incurred.
General and Administrative
General and administrative expenses consist primarily of personnel and related expenses for our employees, in our finance, research, engineering and administrative teams including salaries, bonuses, payroll taxes, and stock-based compensation. It also consists of legal, consulting, and professional fees, rent expenses pertaining to our offices, business insurance costs and other costs. We expect an increase in audit, tax, accounting, legal and other costs related to compliance with applicable securities and other regulations, as well as additional insurance, investor relations, and other costs associated with being a public company.
Interest Expense
Interest expense primarily relates to interest expense on the issuance of debt and convertible notes and the amortization of debt issuance costs.
Other Income (Expense), Net
Other income (expense), net consists of changes in the fair value of our convertible notes, the impact of debt extinguishment, and changes in the fair value of stock warrant liabilities and forward purchase agreements.
Income Tax Expense
Income tax expense primarily consists of income taxes in certain foreign and state jurisdictions in which we conduct business.
Supply Chain Constraints and Risk
We rely on a small number of suppliers of solar energy systems and other equipment. If any of our suppliers was unable or unwilling to provide us with contracted quantities in a timely manner at prices, quality levels and volumes acceptable to us, we would have very limited alternatives for supply, and we may not be able find suitable replacements for our customers, or at all. Such an event could materially adversely affect our business, prospects, financial condition and results of operations.
In addition, the global supply chain and our industry have experienced significant disruptions in recent periods. We have seen supply chain challenges and logistics constraints increase, including shortages of panels, inverters, batteries and associated component parts for inverters and solar energy systems available for purchase, which materially impacted our results of operations. In an effort to mitigate unpredictable lead times, we experienced substantial build up in inventory on hand commencing in early 2022 in response to global supply chain constraints. In certain cases, this has caused delays in critical equipment and inventory, longer lead times, and has resulted in cost volatility. These shortages and delays can be attributed in part to the COVID-19 pandemic and resulting government action, as well as broader macroeconomic conditions and have been exacerbated by the ongoing conflicts in Ukraine and Israel. While we believe that a majority of our suppliers have secured sufficient supply to permit them to continue delivery and installations through the end of 2023, if these shortages and delays persist into 2024, they could adversely affect the timing of when battery energy storage systems can be delivered and installed, and when (or if) we can begin to generate revenue from those systems. If any of our suppliers of solar modules experienced disruptions in the supply of the modules’ component parts, for example semiconductor solar wafers or investors, this may decrease production capabilities and restrict our inventory and sales. In addition, we have experienced and are experiencing varying levels of volatility in costs of equipment and labor resulting in part from disruptions caused by general global economic conditions. While inflationary pressures have resulted in higher costs of products, in part due to an increase in cost of the materials and wage rates, these additional costs have been offset by the related rise in electricity rates.
We cannot predict the full effects the supply chain constraints will have on our business, cash flows, liquidity, financial condition and results of operations at this time due to numerous uncertainties. Given the dynamic nature of these circumstances on our ongoing business, results of operations and overall financial performance, the full impact of macroeconomic factors, including the conflicts in Ukraine and Israel, cannot be reasonably estimated at this time. In the event we are unable to mitigate the impact of delays or price volatility in solar energy systems, raw materials, and freight, it could materially adversely affect our business, prospects, financial condition and results of operations. For additional information on risk factors that could impact our results, please refer to “Risk Factors” located elsewhere in this prospectus.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances, changes in the accounting estimates are reasonably likely to occur from period-to-period. Actual results could differ significantly from our estimates. Our future financial statements will be affected to the extent that our actual results materially differ from these estimates. For further information on all of our significant accounting policies, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included elsewhere in this prospectus.
We believe that policies associated with our revenue recognition, product warranties, inventory excess and obsolescence and stock-based compensation have the greatest impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
Revenue Recognition
We recognize revenue when control of goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
Revenue – Solar Energy System Installations
The majority of our revenue is generated from the installation of solar energy systems. We identify two performance obligations, which include installation services and post-installation services, and we recognize revenue when control transfers to the customer, upon the completion of the installation and upon the solar energy system passes inspection by the authority having jurisdiction, respectively. We apply judgment in allocating the transaction price between the installation and post-installation performance obligations, based on the estimated costs to perform our services. Changes in such estimates could have a material impact on the timing of our revenue recognition.
Our contracts with customers generally contain a performance guarantee of system output, and we will issue payments to customers if output falls below contractually stated thresholds over the performance guarantee period, which is typically 10 years. We apply judgment in estimating the reduction in revenue associated with the performance guarantee, which is historically not material. However, due to the long-term nature of the guarantee, changes in future estimates could have a material impact on the estimate of our revenue reserve.
Revenue – Software Enhanced Services
We recognize revenue from software enhanced services, which include proposals generated from our HelioQuoteTM platform and design services performed using internally developed and external software applications. We contract with solar installers to generate proposals and we contract with solar sales entities to perform design services for their potential customers. Under each type of customer contract, we generate a fixed number of proposals or designs for the customer in the month the services are contracted. Contracts with customers are enforceable on a month-to-month basis and we recognize revenue each month based on the volume of services performed.
Product Warranties
We typically provide a 10-year, warranty on our solar energy system installations, which provides assurance over the workmanship in performing the installation, including roof leaks caused by our performance. For solar
panel sales, recognized prior to the Disposal Transaction we provide a 30-year warranty that the products will be free from defects in material and workmanship. We record a liability for estimated future warranty claims based on historical trends and new installations. To the extent that warranty claim behavior differs from historical trends, we may experience a material change in our warranty liability.
Inventory Excess and Obsolescence
Our inventory consists of completed solar energy systems and related components, which we classify as finished goods. We record a reserve for inventory which is considered obsolete or in excess of anticipated demand based on a consideration of marketability and product life cycle stage, component cost trends, demand forecasts, historical revenues, and assumptions about future demand and market conditions. We apply judgment in estimating the excess and obsolete inventory, and changes in demand for our inventory components could have a material impact on our inventory reserve balance.
Stock-Based Compensation
We recognize stock-based compensation expense over the requisite service period on a straight-line basis for all stock-based payments that are expected to vest to employees, non-employees and directors, including grants of employee stock options and other stock-based awards. Equity-classified awards issued to employees, non-employees such as consultants and non-employee directors are measured at the grant-date fair value of the award. Forfeitures are recognized as they occur. For accounting purposes, we estimate grant-date fair value of stock options using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock prior to the Business Combination, the expected term of the option the expected volatility of the price of our common stock and expected dividend yield. We determine these inputs as follows:
| • | Expected Term - Expected term represents the period that our stock-based awards are expected to be outstanding and is determined using the simplified method. |
| • | Expected Volatility - Expected volatility is estimated by studying the volatility of comparable public companies for similar terms. |
| • | Expected Dividend -The Black-Scholes valuation model calls for a single expected dividend yield as an input. We have never paid dividends and have no plans to pay dividends. |
| • | Risk-free Interest Rate - We derive the risk-free interest rate assumption from the U.S. Treasury’s rates for the U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued. |
| • | Forfeitures - We recognize forfeitures as they occur. |
If any assumptions used in the Black-Scholes option pricing model change significantly, stock-based compensation for future awards may differ materially compared to the awards granted previously. For the thirty-nine weeks ended October 1, 2023, stock-based compensation expense was $4.2 million, of which $1.8 million, related to discontinued operations. As of October 1, 2023, we had approximately $16.6 million of total unrecognized stock-based compensation expense related to stock options.
Recent Accounting Pronouncements
A discussion of recently issued accounting standards applicable to Complete Solaria is described in Note 2, Summary of Significant Accounting Policies in the Notes to Financial Statements and Note 2, Summary of Significant Accounting Policies in the Notes to Unaudited Condensed Consolidated Financial Statements.
Results of Operations
Thirteen weeks ended October 1, 2023 compared to three months ended September 30, 2022
The following table sets forth our unaudited statements of operations data for the thirteen weeks ended October 1, 2023 and the three months ended September 30, 2022, respectively. We have derived this data from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. This information should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of operations for any future period.
| (in thousands) |
Thirteen Weeks Ended October 1, 2023 |
Three Months Ended September 30, 2022 |
$ Change | % Change | ||||||||||||
| Revenues |
$ | 24,590 | $ | 12,260 | $ | 12,330 | 101 | % | ||||||||
| Cost of revenues(1) |
18,354 | 8,266 | 10,088 | 122 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross profit |
6,236 | 3,994 | 2,242 | 56 | % | |||||||||||
| Gross margin % |
25 | % | 33 | % | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Sales commissions |
8,755 | 3,572 | 5,183 | 145 | % | |||||||||||
| Sales and marketing(1) |
2,214 | 1,604 | 610 | 38 | % | |||||||||||
| General and administrative(1) |
6,345 | 2,027 | 4,318 | 213 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
17,314 | 7,203 | 10,111 | 140 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loss from operations |
(11,078 | ) | (3,209 | ) | (7,869 | ) | 245 | % | ||||||||
| Interest expense(2) |
(1,902 | ) | (941 | ) | (961 | ) | 102 | % | ||||||||
| Interest income |
9 | — | 9 | — | ||||||||||||
| Other income (expense), net(3) |
(38,003 | ) | 4 | (38,007 | ) | * | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loss from continuing operations before taxes |
(50,974 | ) | (4,146 | ) | (46,828 | ) | * | |||||||||
| Income tax benefit (provision) |
1 | — | 1 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss from continuing operations |
(50,973 | ) | (4,146 | ) | (46,827 | ) | * | |||||||||
| Loss on discontinued operations, net of tax |
(155,909 | ) | — | (155,909 | ) | * | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss |
$ | (206,882 | ) | $ | (4,146 | ) | $ | (202,736 | ) | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | Percentage change not meaningful |
| (1) | Includes stock-based compensation expense as follows (in thousands): |
| Thirteen Weeks Ended October 1, 2023 |
Three Months Ended September 30, 2022 |
|||||||
| Cost of revenues |
$ | 20 | $ | 1 | ||||
| Sales and marketing |
143 | 37 | ||||||
| General and administrative |
1,416 | 47 | ||||||
|
|
|
|
|
|||||
| Total stock-based compensation expense |
$ | 1,579 | $ | 85 | ||||
|
|
|
|
|
|||||
| (2) | Includes interest expense to related party of $0.1 million and zero during the thirteen weeks ended October 1, 2023 and the three months ended September 30, 2022, respectively. |
| (3) | Includes other income (expense), net from related parties of $36.9 million and zero during the thirteen weeks ended October 1, 2023 and the three months ended September 30, 2022, respectively. |
Revenues
We disaggregate our revenues based on the following types of services (in thousands):
| Thirteen Weeks Ended October 1, 2023 |
Three Months Ended September 30, 2022 |
$ Change |
% Change |
|||||||||||||
| Solar energy system installations |
$ | 23,915 | $ | 11,120 | $ | 12,795 | 115 | % | ||||||||
| Software enhanced services |
675 | 1,140 | (465 | ) | (41 | )% | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total revenue |
$ | 24,590 | $ | 12,260 | $ | 12,330 | 101 | % | ||||||||
|
|
|
|
|
|
|
|||||||||||
Revenues from solar energy system installations for the thirteen weeks ended October 1, 2023 was $23.9 million compared to $11.1 million for the three months ended September 30, 2022. The increase in solar energy system installation revenues of $12.8 million was primarily due to an increase in the volume of solar energy system installations, as well as an increase in average selling price of solar energy system installations.
Revenues from software enhanced services for the thirteen weeks ended October 1, 2023 was $0.7 million compared to $1.1 million for the three months ended September 30, 2022. The decrease of $0.5 million was the result of a shift in focus towards solar energy installations.
Cost of Revenues
Cost of revenues for the thirteen weeks ended October 1, 2023 was $18.4 million compared to $8.3 million for the three months ended September 30, 2022. The increase in cost of revenues of $10.1 million, or 122%, was primarily due to the increase in revenue of 101%, coupled with rising costs associated with supply chain constraints, and a small increase in excess and obsolete inventory reserves.
Gross Margin
Gross margin decreased 8% year over year, from 33% for the three months ended September 30, 2022 to 25% for the thirteen weeks ended October 1, 2023. The decrease in gross margin was primarily attributed to the increasing cost of revenues as described above.
Sales Commissions
Sales commissions for the thirteen weeks ended October 1, 2023 was $8.8 million compared to $3.6 million for the three months ended September 30, 2022. The increase of $5.2 million, or 145%, was primarily due to the increase in revenue of 101%.
Sales and Marketing
Sales and marketing expense for the thirteen weeks ended October 1, 2023 increased by $0.6 million, or 38%, compared to the three months ended September 30, 2022. The increase is attributable to an increase of $0.3 million in related to office and operating related expenses, an increase of $0.1 million in travel related expenses, an increase of $0.1 million in stock-based compensation expenses due to options issued during the thirteen weeks ended October 1, 2023, and an increase of $0.1 million in outside services, offset by decrease in payroll of $0.1 million.
General and Administrative
General and administrative costs for the thirteen weeks ended October 1, 2023 increased by $4.3 million, or 213%, compared to the three months ended September 30, 2022. The increase was primarily attributed to increase in payroll of $1.7 million, increase of $1.0 million in stock-based compensation expenses due to options and RSUs issued in the thirteen weeks ended October 1, 2023, increase in travel costs of $0.5 million, increase in office occupancy related costs of $0.5 million, and increases in contractors and outside services costs of $0.4 million related to the Mergers.
Interest Expense
Interest expense for the thirteen weeks ended October 1, 2023 increased by $1.0 million, or 102%, compared to the three months ended September 30, 2022. The increase was primarily attributed $0.5 million of interest related to debt acquired as part of the acquisition of Solaria in November 2022, which was retained upon the divestiture from the business, as well as an increase of $0.3 million in interest expense related to the convertible notes and long-term debt in CS Solis for the thirteen weeks ended October 1, 2023.
Other Income (Expense), Net
Other income (expense), net for the thirteen weeks ended October 1, 2023 increased by $38.0 million compared to the three months ended September 30, 2022. The increase was primarily attributed to an increase of $35.5 million in other expense related to the issuance of common stock in connection with the FPAs, the loss on extinguishment of debt in CS Solis of $10.3 million, an increase of $6.7 million in other expense associated with the change in fair value of the FPAs, and an increase of $2.4 million driven by Company’s issuance of bonus shares in connection with the Mergers, offset by decreases in the fair value of the Company’s warrant liabilities of $16.9 million.
Net Loss from Continuing Operations
As a result of the factors discussed above, our net loss from continuing operations for the thirteen weeks ended October 1, 2023 was $51.0 million, an increase of $46.8 million, as compared to a net loss from continuing operations of $4.1 million for the three months ended September 30, 2022.
Loss of Discontinued Operations, Net of Tax
As a result of the disposition of the Solaria business as described above, we recognized a loss on discontinued operations of $155.9 million for the thirteen weeks ended October 1, 2023. Loss on discontinued operations was comprised of revenues of $3.8 million, offset by cost of revenues of $4.1 million, selling and marketing expenses of $2.4 million, general and administrative expenses of $5.7 million, and impairment of goodwill and intangible assets assigned to Solaria of $119.4 million and $28.1 million, respectively.
Thirty-nine weeks ended October 1, 2023 compared to nine months ended September 30, 2022
The following table sets forth our unaudited statements of operations data for the thirty-nine weeks ended October 1, 2023 and the nine months ended September 30, 2022, respectively. We have derived this data from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. This information should be read in conjunction with our unaudited condensed consolidated financial statements and
related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of operations for any future period.
| (In thousands) |
Thirty-Nine Weeks Ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
$ Change | % Change | ||||||||||||
| Revenues |
$ | 66,887 | $ | 48,974 | $ | 17,913 | 37 | % | ||||||||
| Cost of revenues(1) |
51,788 | 33,792 | 17,996 | 53 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross profit |
15,099 | 15,182 | (83 | ) | (1 | %) | ||||||||||
| Gross margin % |
23 | % | 31 | % | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Sales commissions |
23,221 | 15,694 | 7,527 | 48 | % | |||||||||||
| Sales and marketing(1) |
5,216 | 4,607 | 609 | 13 | % | |||||||||||
| General and administrative(1) |
22,965 | 6,194 | 16,771 | 271 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
51,402 | 26,495 | 24,907 | 94 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loss from operations |
(36,303 | ) | (11,313 | ) | (24,990 | ) | 221 | % | ||||||||
| Interest expense(2) |
(8,870 | ) | (2,672 | ) | (6,198 | ) | 232 | % | ||||||||
| Interest income |
26 | — | 26 | — | ||||||||||||
| Other income (expense), net(3) |
(28,302 | ) | 3,180 | (31,482 | ) | * | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loss from continuing operations before income taxes |
(73,449 | ) | (10,805 | ) | (62,644 | ) | 580 | % | ||||||||
| Income tax benefit (provision) |
1 | (4 | ) | 5 | (125 | %) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss from continuing operations |
(73,448 | ) | (10,809 | ) | (62,639 | ) | * | |||||||||
| Loss on discontinued operations, net of tax |
(168,458 | ) | — | (168,458 | ) | * | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss |
$ | (241,906 | ) | $ | (10,809 | ) | $ | (237,097 | ) | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | Percentage change not meaningful |
| (1) | Includes stock-based compensation expense as follows: |
| (In thousands) |
Thirty-Nine Weeks ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
||||||
| Cost of sales |
$ | 51 | $ | 6 | ||||
| Sales and marketing |
337 | 91 | ||||||
| General and administrative |
1,933 | 120 | ||||||
|
|
|
|
|
|||||
| Total stock-based compensation expense |
$ | 2,321 | $ | 217 | ||||
|
|
|
|
|
|||||
| (2) | Includes interest expense to related party of $0.4 million and $0.1 million during the thirty-nine weeks ended October 1, 2023 and the nine months ended September 30, 2022, respectively. |
| (3) | Includes other income (expense), net from related parties of $36.9 million and $1.4 million during the thirty-nine weeks ended October 1, 2023 and the nine months ended September 30, 2022, respectively. |
Revenues
We disaggregate our revenues based on the following types of services:
| (In thousands) |
Thirty-Nine Weeks ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
$ Change |
% Change |
||||||||||||
| Solar energy system installations |
$ | 64,511 | $ | 46,214 | $ | 18,297 | 40 | % | ||||||||
| Software enhanced services |
2,376 | 2,760 | (384 | ) | (14 | %) | ||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total service revenues |
$ | 66,887 | $ | 48,794 | $ | 17,913 | 37 | % | ||||||||
|
|
|
|
|
|
|
|||||||||||
Revenues from solar energy system installations for the thirty-nine weeks ended October 1, 2023 was $64.5 million compared to $46.2 million for the nine months ended September 30, 2022. The increase in solar energy system installation revenues of $18.3 million, or 40%, was primarily due to an increase in the volume of solar energy systems installations, a portion of which related to the fulfillment of delayed installations experienced in the first quarter of 2023 due to unusual inclement California weather, as well as an increase in average selling price of solar energy system installations.
Revenues from software enhanced services for the thirty-nine weeks ended October 1, 2023 was $2.4 compared to $2.8 million for the nine months ended September 30, 2022. The decrease of $0.4 million was the result of a shift in focus towards solar energy installations.
Cost of Revenues
Cost of revenues for the thirty-nine weeks ended October 1, 2023 was $51.8 million compared to $33.8 million for the nine months ended September 30, 2022. The increase in cost of revenues of $18.0 million, or 53%, was primarily due to the increase in revenues of 37%, coupled with rising costs associated with supply chain constraints.
Gross Margin
Gross margin decreased 8% year over year, from 31% for the nine months ended September 30, 2022 to 23% for the thirty-nine weeks ended October 1, 2023. The decrease in gross margin is primarily attributed to increasing cost of revenues as described above.
Sales Commissions
Sales commissions for the thirty-nine weeks ended October 1, 2023, increased by $7.5 million, or 48%, compared to the nine months ended September 30, 2022. The increase in sales commissions is primarily due to the increase in solar system installation revenue of 40%.
Sales and Marketing
Sales and marketing expense for the thirty-nine weeks ended October 1, 2023 increased by $0.6 million, or 13%, compared to the nine months ended September 30, 2022. The increase is primarily attributable to an increase of $0.4 million in office and operating related expense, increase of $0.2 million in stock-based compensation expenses due to options issued in the thirty-nineteen weeks ended October 1, 2023, an increase of $0.2 million in outside services, and an increase of $0.1 million in travel related expenses, offset by decrease in payroll of $0.4 million.
General and Administrative
General and administrative costs for the thirty-nine weeks ended October 1, 2023 increased by $16.8 million, or 271%, compared to the nine months ended September 30, 2022. The increase was primarily attributed to increases in contractors and outside services costs of $6.6 million related to the Business Combination, increase in payroll of $3.9 million, an increase in bad debt expense of $3.4 million, increase of $1.8 million in stock-based compensation expenses due to options and RSUs issued, and increase in office occupancy related costs of $1.1 million for the thirty-nine weeks ended October 1, 2023.
Interest Expense
Interest expense for the thirty-nine weeks ended October 1, 2023 increased by $6.2 million, or 232%, compared to the nine months ended September 30, 2022. The increase was primarily attributed $4.6 million of interest related to debt acquired as part of the acquisition of Solaria in November 2022, which was retained upon the divestiture from the business, as well as an increase of $1.4 million in interest expense related to the convertible notes and long-term debt in CS Solis for the thirty-nine weeks ended October 1, 2023.
Other Income (Expense), Net
Other income (expense), net for the thirty-nine weeks ended October 1, 2023 increased by $31.5 million compared to the nine months ended September 30, 2022. The increase was primarily attributed to an increase of $35.5 million in other expense related to the issuance of common stock in connection with the FPAs, the loss on extinguishment of debt in CS Solis of $10.3 million, an increase of $6.7 million in other expense associated with the change in fair value of FPAs, an increase of $2.4 million driven by Company’s issuance of bonus shares in connection with the Business Combination, and $3.2 million related to the conversion of convertible debts and SAFE agreements in March 2022, offset by decreases in the change in fair value of the Company’s warrant liabilities of $26.5 million.
Net Loss from Continuing Operations
As a result of the factors discussed above, our net loss from continuing operations for the thirty-nine weeks ended October 1, 2023 was $73.4 million, an increase of $62.6 million, as compared to a net loss from continuing operations of $10.8 million for the nine months ended September 30, 2022.
Loss of Discontinued Operations, Net of Tax
As a result of the disposition of the Solaria business as described above, we recognized a loss on discontinued operations of $168.5 million for the thirty-nine weeks ended October 1, 2023. Loss on discontinued operations was comprised of revenues of $29.0 million, offset by cost of revenues of $30.6 million, selling and marketing expenses of $6.8 million, general and administrative expenses of $12.6 million, and impairment of goodwill and intangible assets assigned to Solaria of $119.4 million and $28.1 million, respectively.
Results of Operations
Year ended December 31, 2022 compared to year ended December 31, 2021
The following table sets forth our unaudited statements of operations data for the years ended December 31, 2022 and 2021, respectively. We have derived this data from our audited annual financial statements included elsewhere in this prospectus. This information should be read in conjunction with our audited annual financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of operations for any future period.
| Years Ended December 31 | ||||||||||||||||
| (In thousands) |
2022 | 2021 | $ Change | % Change | ||||||||||||
| Revenues |
$ | 66,475 | $ | 68,816 | $ | (2,341 | ) | (3 | %) | |||||||
| Cost of revenues(1) |
46,647 | 40,123 | 6,524 | 16 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross profit |
19,828 | 28,693 | (8,865 | ) | (31 | %) | ||||||||||
| Gross margin % |
30 | % | 42 | % | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Sales commissions |
21,195 | 25,061 | (3,866 | ) | (15 | %) | ||||||||||
| Sales and marketing(1) |
6,156 | 5,179 | 977 | 19 | % | |||||||||||
| General and administrative(1) |
13,634 | 5,780 | 7,854 | 136 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
40,985 | 36,020 | 4,965 | 14 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loss from operations |
(21,157 | ) | (7,327 | ) | (13,830 | ) | 189 | % | ||||||||
| Interest expense(2) |
(4,986 | ) | (1,712 | ) | (3,274 | ) | 191 | % | ||||||||
| Interest income |
5 | — | 5 | 100 | % | |||||||||||
| Other income (expense), net(3) |
(1,858 | ) | (240 | ) | (1,618 | ) | * | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loss from continuing operations before income taxes |
(27,996 | ) | (9,279 | ) | (18,717 | ) | 202 | % | ||||||||
| Income tax benefit (provision) |
(27 | ) | (3 | ) | (24 | ) | * | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss from continuing operations |
(28,023 | ) | (9,282 | ) | (18,741 | ) | 202 | % | ||||||||
| Loss on discontinued operations, net of tax |
(1,454 | ) | — | (1,454 | ) | * | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss |
$ | (29,477 | ) | $ | (9,282 | ) | $ | (20,195 | ) | * | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | Percentage change not meaningful |
| (1) | Includes stock-based compensation expense as follows (in thousands): |
| Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cost of sales |
$ | 22 | $ | 19 | ||||
| Sales and marketing |
168 | 68 | ||||||
| General and administrative |
243 | 113 | ||||||
|
|
|
|
|
|||||
| Total stock-based compensation expense |
$ | 433 | $ | 200 | ||||
|
|
|
|
|
|||||
| (2) | Includes interest expense to related parties of $0.3 million and $0.7 million during the year ended December 31, 2022 and 2021, respectively |
| (3) | Includes other income from related parties of $1.4 million, and zero during the years ended December 31, 2022 and 2021, respectively. |
Revenues
The Company disaggregates its revenues based on the following types of services:
| Years Ended December 31, | Change $ |
Change % |
||||||||||||||
| (In thousands) | 2022 | 2021 | ||||||||||||||
| Solar energy system installations |
$ | 62,896 | $ | 66,958 | $ | (4,062 | ) | (6 | %) | |||||||
| Software enhanced services |
3,579 | 1,858 | 1,721 | 93 | % | |||||||||||
|
|
|
|
|
|
|
|||||||||||
| Total revenues |
$ | 66,475 | $ | 68,816 | $ | (2,341 | ) | (3 | %) | |||||||
|
|
|
|
|
|
|
|||||||||||
Revenues from solar energy system installations for the year ended December 31, 2022 was $62.9 million compared to $67.0 million for the year ended December 31, 2021. The decrease in solar energy system installation revenues of $4.1 million is primarily due to constraints on the supply of solar panels available to purchase for fulfillment of our customer contracts. These supply constraints resulted from economic sanctions such as the Dec 21, 2021 Uyghur Forced Labor Prevention Act and supplier reactions to the Auxin Solar Tariff Petition. Without the necessary equipment to fulfill customer contracts, our projects were pushed into subsequent quarters.
Revenues from software enhanced services for the year ended December 31, 2022 was $3.6 million compared to $1.9 million for the year ended December 31, 2021. The increase in software enhanced services revenues is primarily due to increased sales and marketing for proposal and design services.
Cost of Revenues
Cost of revenues for the year ended December 31, 2022 was $46.6 million compared to $40.1 million for the year ended December 31, 2021. The increase of cost of revenues of $6.5 million was primarily driven by an increase in the reserve for excess and obsolete inventory of $3.6 million, an increase in warranty costs of $0.9 million and the effect of increasing materials prices for our solar energy systems. The increase in the reserve was a result of a substantial build up in inventory on hand commencing in early 2022 in response to global supply chain constraints, a general product shift relating to market demand for higher voltage solar panels, and certain inventory management adjustments associated with inventories maintained by inactive installers.
Gross Margin
Gross margin decreased 12% year over year, from 42% for the year ended December 31, 2021 to 30% for the year ended December 31, 2022. The decrease in margin is primarily due to the increases in cost of revenues as described above.
Sales Commissions
Sales commission decreased by $3.8 million, or 15%, from $25.0 million in the year ended December 31, 2021 to $21.2 million in the year ended December 31, 2022. The decrease in commissions is due to the diversification of our sales partner channels to deliver greater services and value it is able to capture more contribution margin by reducing sales commissions.
Sales and Marketing
Sales and marketing expense increased by $1.0 million, or 19%, from $5.2 million in the year ended December 31, 2021 to $6.2 million in the year ended December 31, 2022. The increase was due to an increase in personnel-related costs.
General and Administrative
General and administrative expense increased by $7.9 million, or 136%, from $5.8 million in the year ended December 31, 2021 to $13.6 million in the year ended December 31, 2022. The increase was primarily attributed
outside services for finance and legal costs of $3.5 million related to the Mergers, an increase in bad debt expense of $1.7 million, an increase in payroll related costs of $1.3 million, an increase in office and occupancy related costs due to new offices for $0.8 million, an increase in, and an increase in stock-based compensation for $0.5 million.
Interest Expense
Interest expense increased by $3.3 million, or 191%, from $1.7 million in the year ended December 31, 2021 to $5.0 million in the year ended December 31, 2022. The increase was primarily attributed to accretion of $2.4 million and the amortization of issuance costs of $1.2 million related to long term debt in CS Solis LLC that occurred in February of 2022 and a $0.2 million increase in interest expense related to the 2022 Convertible Notes. The increase was offset by a $0.8 million reduction in interest expense, as we repaid or converted debt instruments in February 2022, which were outstanding during 2021.
Other Income (Expense), Net
Other income (expense), net increased by $1.6 million, or 674%, from $0.2 million in the year ended December 31, 2021 to $1.8 million in the year ended December 31, 2022. The increase was primarily attributed to an increase in the fair value of preferred stock warrants of $5.2 million, partially offset by a gain on the extinguishment of our convertible debt and safe agreements in March 2022 of $3.2 million.
Net Loss from Continuing Operations
As a result of the factors discussed above, our net loss for the year ended December 31, 2022 was $28.0 million, an increase of $18.7 million, or 202%, as compared to $9.3 million for the year ended December 31, 2021.
Loss of Discontinued Operations, Net of Tax
As a result of the disposition of the Solaria business as described above, we recognized a loss on discontinued operations of $1.5 million for the year ended December 31, 2022. Loss on discontinued operations was comprised of revenues of $13.3 million, offset by cost of revenues of $12.9 million, selling and marketing expenses of $1.3 million and general and administrative expenses of $0.6 million.
Year ended December 31, 2021 compared to year ended December 31, 2020
The following table sets forth our statement of operations data for 2021 and 2020. We have derived this data from our audited annual financial statements included elsewhere in this prospectus. This information should be read in conjunction with our audited annual financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of operations for any future period.
| Years Ended December 31 | ||||||||||||||||
| (In thousands) |
2021 | 2020 | $ Change | % Change | ||||||||||||
| Revenues |
$ | 68,816 | $ | 29,378 | $ | 39,438 | 134 | % | ||||||||
| Cost of revenues(1) |
40,123 | 17,097 | 23,026 | 135 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross profit |
28,693 | 12,281 | 16,412 | 134 | % | |||||||||||
| Gross margin % |
42 | % | 42 | % | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Sales commissions |
25,061 | 10,410 | 14,651 | 141 | % | |||||||||||
| Sales and marketing(1) |
5,179 | 3,185 | 1,994 | 63 | % | |||||||||||
| General and administrative(1) |
5,780 | 3,801 | 1,979 | 52 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
36,020 | 17,396 | 18,624 | 107 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loss from operations |
(7,327 | ) | (5,115 | ) | (2,212 | ) | 43 | % | ||||||||
| Interest expense(2) |
(1,712 | ) | (523 | ) | (1,189 | ) | 227 | % | ||||||||
| Interest income |
— | — | — | — | ||||||||||||
| Other income (expense), net |
(240 | ) | (41 | ) | (199 | ) | 485 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Loss from continuing operations before income taxes |
(9,279 | ) | (5,679 | ) | (3,600 | ) | 63 | % | ||||||||
| Income tax benefit (provision) |
(3 | ) | (3 | ) | — | 0 | % | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net loss from continuing operations |
$ | (9,282 | ) | $ | (5,682 | ) | $ | (3,600 | ) | 63 | % | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Includes stock-based compensation expense as follows: |
| Years Ended December 31, | ||||||||
| (In thousands) |
2021 | 2020 | ||||||
| Cost of sales |
$ | 19 | $ | 8 | ||||
| Sales and marketing |
68 | 37 | ||||||
| General and administrative |
113 | 64 | ||||||
|
|
|
|
|
|||||
| Total stock-based compensation expense |
$ | 200 | $ | 109 | ||||
|
|
|
|
|
|||||
| (2) | Includes interest expense to related party of $0.7 million and $0.2 million during the years ended December 31, 2021 and 2020, respectively. |
Revenues
Total revenue for the year ended December 31, 2021 was $68.8 million which compares with total revenue of $29.4 million for the year ended December 31, 2020. The increase in 2021 revenue is significantly impacted by the change in the business coming out of the COVID-19 pandemic. Solar revenue (including the installation and completion of solar systems) increased by $37.0 million. The increase is driven primarily by the volume of transactions in 2021. Other revenues, including design services and proposal services, increased by $1.6 million, the increase in revenues is driven by greater internal focus on performing such services in 2021.
Cost of Revenues
Cost of revenues for the year ended December 31, 2021 was $40.1 million compared to $17.1 million for the year ended December 31, 2020. The 135% increase in cost of revenue for the year ended December 31, 2021 over for the year ended December 31, 2020 grew proportionately with the increase in revenue during the same comparable periods, as well as slight increase in raw material costs.
Gross Profit
Our gross profits for the year ended December 31, 2021 increased by $16.4 million, or 134%, as compared to the year ended December 31, 2020. Gross margins of 42% remained flat year-over-year.
Sales Commission
Sales commissions for the year ended December 31, 2021 increased by $14.7 million, or 141%, compared to the year ended December 31, 2020. The increase in sales commissions expenses is primarily attributable to a corresponding increase of 134% in revenue.
Sales and Marketing
Sales and marketing expense for the year ended December 31, 2021 increased by $2.0 million, or 63%, compared to the year ended December 31, 2020. The increase was primarily attributable to an increase of $1.4 million in personnel-related expenses as a result of increased headcount in our sales and marketing organization, $0.2 million increase in office supplies, and $0.1 million increase in due and subscription expense.
General and Administrative
General and administrative expense for the year ended December 31, 2021 increased by $2.0 million, or 52%, compared to the year ended December 31, 2020. The increase was primarily attributable to an increase of $0.5 million in accounting, legal, and other contract labor costs, $0.3 million in personnel-related expenses, as a result of increased headcount, $0.2 million increase in office and occupancy related costs, $0.2 million increase in customer support, $0.2 million increase in amortization of internal software, a $0.1 million increase in stock-based compensation expense related to additional stock-based awards granted in fiscal year 2022, and a $0.1 million increase in recruitment and reallocation expenses.
Interest Expense
Interest expense for the year ended December 31, 2021 increased by $1.2 million, or 227%, compared to the year ended December 31, 2020. The increase is attributable to a $0.6 million increase in interest expense related to amortization of debt discount primarily due to the 2020-A and 2021-A notes, a $0.3 million increase in interest expense related to our SVB operating loan, and a $0.3 million increase in financing costs associated with a 2021 short-term bridge loan.
Other Income (Expense), Net
Other income (expense), net for the year ended December 31, 2021 increased by $0.2 million, or 485%, compared to the year ended December 31, 2020. The increase was primarily due to increase of $1.3 million related to the fair value measurement of the SAFEs, $0.3 million related to revaluation of derivative liabilities of 2019-A 2020-A and 2021-A notes, and $0.3 million related to fair value remeasurement of Series B and Series C preferred stock warrants. These expenses were partially offset by other income relating to PPP loan forgiveness of approximately $1.7 million.
Net Loss from Continuing Operations
As a result of the factors discussed above, our net loss from continuing operations for the year ended December 31, 2021 was $9.3 million, an increase of $3.6 million, or 63%, as compared to $5.7 million for the year ended December 31, 2020.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through sales of equity securities, issuance of convertible notes and cash generated from operations. Our principal uses of cash in recent periods have been funding our operations and investing in capital expenditures. As of October 1, 2023, our principal sources of liquidity were cash and cash equivalents of $1.7 million, which were held for working capital purposes. Our cash equivalents are on deposit with major financial institutions. Our cash position raises substantial doubt regarding our ability to continue as a going concern for twelve months following the issuance of the condensed consolidated financial statements.
We will receive the proceeds from any cash exercise of any Warrants. The aggregate amount of proceeds could be up to $254.1 million if all the Warrants are exercised for cash. However, to the extent the Warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the Warrants will decrease. The Private Warrants and Working Capital Warrants may be exercised for cash or on a “cashless basis.” The Public Warrants and the Merger Warrants may only be exercised for cash provided there is then an effective registration statement registering the shares of common stock issuable upon the exercise of such warrants. If there is not a then-effective registration statement, then such warrants may be exercised on a “cashless basis,” pursuant to an available exemption from registration under the Securities Act. We expect to use any such proceeds for general corporate and working capital purposes, which would increase our liquidity. As of December 21, 2023, the price of our common stock was $1.52 per share. We believe the likelihood that warrant holders will exercise their Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the market price of our common stock. If the market price for our common stock is less than $11.50 per share, we believe warrant holders will be unlikely to exercise. We do not expect to rely on the cash exercise of Warrants to fund our operations. Instead, we intend to rely on other sources of cash discussed elsewhere in this prospectus to continue to fund our operations.
The Resale Securities represent a substantial percentage of our shares of outstanding commons stock. The number of Resale Securities exceeds the number of shares of common stock constituting our public float, and represents approximately 190% of our public float and approximately 105% of outstanding common stock (after giving effect to the issuance of shares of common stock upon exercise of the Warrants) as of December 21, 2023. Any of these resales, or the perception in the market that the holders of a large number of shares intend to resell shares, could cause the market price of our shares of common stock to decline or increase the volatility in the market price of our shares of common stock.
Given the substantial number of shares of common stock being registered for potential resale by the selling securityholders pursuant to this prospectus, the sale of Resale Securities by the selling securityholders, or the perception in the market that the selling securityholders intend to sell a large number of shares, could increase the volatility of the market price of common stock or result in a significant decline in the public trading price of our common stock.
While we received cash of $19.8 million from the completion of the Business Combination in July 2023, and despite results of the closing of the Disposal Transaction and our recent cost cutting measures, additional capital infusion will be necessary in order to fund planned operations while meeting obligations as they come due. It is currently unlikely that warrant holders will exercise their warrants based on the current price of our common stock, and additional financing is required from outside sources. We may not be able to raise it on terms acceptable to us or at all. If we are not able to secure adequate additional funding when needed, the Company
will need to reevaluate its operating plan and may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs or cease operations entirely.
Debt Financings
2018 Bridge Notes
In December 2018, Solaria Corporation issued senior subordinated convertible secured notes (“2018 Notes”) totaling approximately $3.4 million in exchange for cash. The notes bear interest at the rate of 8% per annum and the investors are entitled to receive twice of the face value of the notes at maturity. The 2018 Notes were assumed in the acquisition by Complete Solaria and are secured by substantially all of the assets of Complete Solaria. In 2021, the 2018 Notes were amended extending the maturity date to December 13, 2022. In connection with the 2021 amendment, Solaria had issued warrants to purchase shares of Series E-1 redeemable convertible preferred stock of Solaria. The warrants were exercisable immediately in whole or in part at and expire on December 13, 2031. As part of the merger with Complete Solar, all the outstanding warrants issued to the lenders were assumed by the parent company, Complete Solaria.
In December 2022, we entered into an amendment to the 2018 Notes extending the maturity date from December 13, 2022 to December 13, 2023. In connection with the amendment, the notes will continue to bear interest at 8% per annum and are entitled to an increased repayment premium from 110% to 120% of the principal and accrued interest at the time of repayment.
The Company concluded that the modification was a troubled debt restructuring as the Company was experiencing financial difficulty and the amended terms resulted in a concession to the Company. As the future undiscounted cash payments under the modified terms exceeded the carrying amount of the Solaria Bridge Notes on the date of modification, the modification was accounted for prospectively. The incremental repayment premium is being amortized to interest expense using the effective interest rate method. As of October 1, 2023 and December 31, 2022, the carrying value of the 2018 Notes was $10.7 million and $9.8 million, respectively. Interest expense recognized for the thirty-nine weeks ended October 1, 2023 was $1.0 million.
SCI Term Loan and Revolver Loan
In October 2020, Solaria entered into a loan agreement (“Loan Agreement”) with Structural Capital Investments III, LP (“SCI”). The Loan Agreement with SCI comprises of two facilities, a term loan (the “Term Loan”) and a revolving loan (the “Revolving Loan”) for $5.0 million each with a maturity date of October 31, 2023. Both the Term Loan and the Revolving Loan were fully drawn upon closing. The Term Loan was repaid prior to the acquisition of Solaria by Complete Solar and was not included in the business combination.
The Revolving Loan has a term of thirty-six months, principal repayments at the end of the term and an annual interest rate of 7.75% or Prime rate plus 4.5%, whichever is higher. Interest expense recognized for the thirty-nine weeks ended October 1, 2023 was $0.5 million. In October 2023, the Company entered into an Assignment and Acceptance Agreement whereby Structural Capital Investments III, LP assigns the SCI debt to Kline Hill Partners Fund LP, Kline Hill Partners IV SPV LLC, Kline Hill Partners Opportunity IV SPV LLC, and Rodgers Massey Revocable Living Trust for a total purchase price of $5.0 million, as discussed in Note 22 – Subsequent Events of the accompanying notes to the unaudited condensed consolidated financial statements.
Secured Credit Facility
In December 2022, we entered into a secured credit facility agreement with Kline Hill Partners IV SPV LLC and Kline Hill Partners Opportunity IV SPV LLC. The secured credit facility agreement, which matures in April 2023, allows us to borrow up to 70% of the net amount of our eligible vendor purchase orders with a maximum amount of $10.0 million at any point in time. The purchase orders are backed by relevant customer sales orders
which serve as collateral. The amounts drawn under the secured credit facility may be reborrowed provided that the aggregate borrowing does not exceed $20.0 million. The repayment under the secured credit facility is the borrowed amount multiplied by 1.15x if repaid within 75 days and borrowed amount multiplied by 1.175x if repaid after 75 days. We may prepay any borrowed amount without premium or penalty. Under the original terms, the secured credit facility agreement was due to mature in April 2023. We are in the process of amending the secured credit facility agreement to extend its maturity date.
At October 1, 2023, the outstanding net debt amounted to $11.7 million, including accrued financing cost of $4.1 million, compared to December 31, 2022, where the outstanding net debt amounted to $5.6 million, including accrued financing cost of $0.1 million.
Debt in CS Solis
In February 2022, we received an investment from CRSEF Solis Holdings, LLC (“CRSEF”). The investment was made pursuant to a subscription agreement, under which CRSEF contributed $25.6 million in exchange for 100 Class B Membership Units of CS Solis. The Class B Membership Units are mandatorily redeemable by us on the three-year anniversary of the effective date of the CS Solis amended and restated LLC agreement. The Class B Membership Units accrue interest that is payable upon redemption at a rate of 10.5% which is accrued as an unpaid dividend, compounded annually, and subject to increases in the event we declare any dividends. In July 2023, we amended the debt of with CSREF as part of the closing of the Business Combination. The modification did not change the interest rate. The modification accelerates the redemption date of the investment, which was previously February 14, 2025, and is March 31, 2024 subsequent to the modification. As of October 1, 2023 and December 31, 2022, we have recorded a liability of $29.2 million and zero, respectively, included in short-term debt in CS Solis on the unaudited condensed consolidated balance sheets. As of October 1, 2023 and December 31, 2022, we have recorded a liability of zero and $25.2 million, respectively, included in net long-term debt in CS Solis on the unaudited condensed consolidated balance sheets. For the thirty-nine weeks ended October 1, 2023, we have recorded accretion of the liability as interest expense of $2.7 million, and we have recorded the amortization of issuance costs as interest expense of $0.7 million.
Cash Flows for the Thirty-Nine Weeks Ended October 1, 2023 and the Nine Months Ended September 30, 2022
The following table summarizes Complete Solaria’s cash flows from operating, investing, and financing activities for the thirty-nine weeks ended October 1, 2023 and the nine months ended September 30, 2022:
| (in thousands) |
Thirty-Nine Weeks Ended October 1, 2023 |
Nine Months Ended September 30, 2022 |
||||||
| Net cash used in operating activities from continuing operations |
$ | (47,152 | ) | $ | (17,197 | ) | ||
| Net cash used in investing activities from continuing operations |
$ | (1,534 | ) | $ | (1,048 | ) | ||
| Net cash provided by financing activities from continuing operations |
$ | 45,575 | $ | 13,704 | ||||
Cash Flows from Operating Activities
Net cash used in operating activities from continuing operations of $47.2 million for the thirty-nine weeks ended October 1, 2023 was primarily due to the net loss from continuing operations, net of tax of $73.4 million and net cash outflows of $18.8 million from changes in our operating assets and liabilities, adjusted for non-cash charges of $45.1 million. Non-cash charges primarily consisted of $35.5 million for the issuance of common stock in connection with FPAs, $10.3 million loss on CS Solis debt extinguishment, $6.7 million change in fair value of FPAs, $4.3 million change in allowance for credit losses, $4.0 million interest expense, $2.5 million
accretion of long-term debt in CS Solis, $2.4 million related to the issuance of bonus common stock shares in connection with the Business Combination $2.3 million of stock-based compensation expense, and $2.1 million relating to the change in reserve for excess and obsolete inventory, partially offset by a decrease in the fair value of warrant liabilities of $26.3 million. The main drivers of net cash inflows derived from the changes in operating assets and liabilities were related to an increase in accounts receivable, net of $11.8 million, an increase in prepaid expenses and other current assets of $8.3 million, an increase in inventory of $3.9 million, and a decrease in deferred revenue of $0.8 million, partially offset by an increase in accounts payable of $4.4 million, an increase in accrued expenses and other current liabilities of $1.6 million and a decrease in other noncurrent assets of $1.1 million.
Net cash used in operating activities from continuing operations of $17.2 million for the nine months ended September 30, 2022 was primarily due to the net loss from continuing operations, net of tax of $10.8 million and net cash outflows of $10.6 million from changes in operating assets and liabilities, adjusted for non-cash charges of $4.2 million. The main drivers of net cash outflows derived from the changes in operating assets and liabilities were related to an increase in inventory of $5.0 million, an increase in accounts receivable, net of $3.0 million, a decrease in accrued expenses and other current liabilities of $2.1 million and a decrease in warranty provision, noncurrent of $0.6 million. Non-cash charges primarily consisted of a change in reserve for obsolete inventory of $3.1 million, accretion of long-term debt in CS Solis of $2.6 million, $0.7 million change in allowance for credit losses, and $0.5 million in depreciation and amortization expense, partially offset by a gain on extinguishment of convertible notes and SAFEs of $3.2 million.
The net increase in cash, cash equivalents and restricted cash from discontinued operations of $0.2 million for the thirty-nine weeks ended October 1, 2023 was entirely attributable to net cash provided by operating activities from discontinued operations. This increase was primarily due to the net loss from discontinued operations, net of tax of $168.5 million, adjusted for non-cash charges of $152.9 million and net cash inflows of $15.8 million from changes in our operating assets and liabilities. Non-cash charges primarily consisted of impairment of goodwill of $119.4 million, impairment of intangible assets of $28.1 million, depreciation and amortization expense of $2.4 million, stock-based compensation expense of $1.8 million and a $1.1 million change in allowance for credit losses. The main drivers of net cash inflows derived from the changes in operating assets and liabilities were related to a decrease in accounts receivable, net of $8.2 million an increase in accrued expenses and other current liabilities of $6.0 million, a decrease of long-term deposits of $2.8 million and a decrease in inventories of $2.3 million, partially offset by a decrease of $2.9 million in accounts payable.
Cash Flows from Investing Activities
Net cash used in investing activities of $1.5 million for the thirty-nine weeks ended October 1, 2023 was primarily due to additions to internal-use-software.
Net cash used in investing activities of $1.0 million for the nine months ended September 30, 2022 was due to additions to internal-use-software.
Cash Flows from Financing Activities
Net cash provided by financing activities of $45.6 million for the thirty-nine weeks ended October 1, 2023 was primarily due to $21.3 million in net proceeds from the issuance of convertible notes, $19.8 million in proceeds from the Business Combination and PIPE Financing and $14.1 million in net proceeds from the issuance of notes payable, partially offset by repayment of notes payable of $9.7 million.
Net cash provided by financing activities of $13.7 million for the nine months ended September 30, 2022 was primarily due to net proceeds from the issuance of long-term debt in CS Solis of $25.0 million, partially offset by repayment of notes payable of $9.5 million, payments for issuance of Series D redeemable convertible preferred stock of $1.3 million and the repayment of convertible notes payable to related parties of $0.5 million.
Cash Flows for the Years Ended December 31, 2022 and 2021
The following table summarizes Complete Solaria’s cash flows from operating, investing, and financing activities for the years ended December 31, 2022 and 2021:
| Years Ended December 31, | ||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Net cash used in operating activities from continuing operations |
$ | (25,217 | ) | $ | 10,995 | |||
| Net cash used in investing activities from continuing operations |
$ | 3,335 | $ | (1,063 | ) | |||
| Net cash provided by financing activities from continuing operations |
$ | 31,191 | $ | 16,895 | ||||
Cash Flows from Operating Activities
Net cash used in operating activities from continuing operations of $25.2 million for the year ended December 31, 2022 was primarily due the net loss from continuing operations of $28.0 million, and net cash outflows of $11.2 million from changes in our operating assets and liabilities, adjusted for non-cash charges of $13.8 million. The main drivers of net cash outflows derived from the changes in operating assets and liabilities were related to an increase in accounts receivable of $9.7 million, and an increase in inventories of $4.9 million, and an decrease in prepaid expenses and other current assets of $1.6 million, partially offset by an increase in accounts as payable of $3.3 million and a decrease in prepaid expenses and other current assets of $1.2 million. Non-cash charges primarily consisted of $5.2 million change in the fair value of warrant liability, interest expense primarily related to long-term debt in CS Solis of $4.8 million, reserve for obsolete inventory of $3.6 million, increase in the allowance for doubtful accounts of $2.1 million, and depreciation and amortization expense of $0.6 million, partially offset by non-cash income recognized upon conversion of convertible notes and SAFE agreements of $3.2 million.
Net cash used in operating activities of $11.0 million for the year ended December 31, 2021 was primarily due to the net loss of $9.3 million, and net cash outflows of $5.4 million from changes in our operating assets and liabilities, adjusted for non-cash charges of $3.7 million. The main drivers of net cash outflows derived from the changes in operating assets and liabilities were related to an increase in accounts receivable of $4.8 million, an increase in inventory of $3.0 million and an increase in prepaid expenses and other current assets of $3.0 million, partially offset by an increase in accounts payable of $3.0 million, and an increase in accrued expenses and other current liabilities of $2.9 million. Non-cash charges primarily consisted of non-cash interest expense of $1.3 million, change in fair value of convertible notes of $1.3 million, change in reserve for obsolete inventory of $0.8 million, depreciation and amortization of $0.5 million, change in the allowance of allowance of doubtful accounts of $0.4 million, non-cash lease expense of $0.3 million, and change in fair value of warrant liabilities of $0.3 million, partially offset by $1.8 million in forgiveness of PPP loan.
Cash Flows from Investing Activities
Net cash provided by investing activities of $3.3 million for the year ended December 31, 2022, was primarily due to cash acquired in the acquisition of Solaria of $4.8 million, partially offset by additions to internal-use-software of $1.5 million.
Net cash used in investing activities of $1.1 million for the year ended December 31, 2021, was due to additions to internal-use-software.
Cash Flows from Financing Activities
Net cash provided by financing activities of $31.2 million for the year ended December 31, 2022 was primarily due to net proceeds from issuance of long-term debt in CS Solis of $25.0 million, proceeds from the issuance of the 2022 Convertible Notes of $12.0 million, and proceeds from the issuance of notes payable of $5.5 million. This was partially offset by the repayment of notes payable of $9.5 million, payments for issuance costs
of Series D redeemable convertible preferred shares of $1.4 million, and repayment of convertible notes payable to related parties of $0.5 million.
Net cash provided by financing activities of $16.9 million for fiscal year 2021 was primarily related to net proceeds from the issuance of notes payable of $7.2 million, the issuance of SAFE agreements of $5.0 million, issuance of our convertible promissory notes to related parties of $3.6 million and proceeds from the issuance of convertible promissory notes of $1.2 million.
Cash Flows for the Years Ended December 31, 2021 and 2020
The following table summarizes Complete Solaria’s cash flows from operating, investing, and financing activities for the years ended December 31, 2021 and 2020:
| Years Ended December 31, | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Net cash used in operating activities from continuing operations |
$ | (10,995 | ) | $ | (6,189 | ) | ||
| Net cash used in investing activities from continuing operations |
(1,063 | ) | (584 | ) | ||||
| Net cash provided by financing activities from continuing operations |
16,895 | 6,355 | ||||||
Cash Flows from Operating Activities
Net cash used in operating activities of $11.0 million for the year ended December 31, 2021 was primarily due to the net loss of $9.3 million, and net cash outflows of $5.4 million from changes in our operating assets and liabilities, adjusted for non-cash charges of $3.7 million. The main drivers of net cash outflows derived from the changes in operating assets and liabilities were related to an increase in accounts receivable of $4.8 million, an increase in inventory of $3.0 million, and an increase in prepaid expenses and other current assets of $3.0 million, partially offset by an increase in accounts payable of $3.0 million and an increase in accrued expenses and other current liabilities of $2.9 million. Non-cash charges primarily consisted of non-cash interest expense of $1.3 million, change in fair value of convertible notes of $1.3 million, change in reserve for obsolete inventory of $0.8 million, depreciation and amortization of $0.5 million, change in the allowance of doubtful accounts of $0.4 million, non-cash lease expense of $0.3 million, and change in fair value of warrant liabilities of $0.3 million, partially offset by $1.8 million in forgiveness of PPP loan.
Net cash used in operating activities of $6.2 million for year ended December 31, 2020 was primarily related to our net loss of $5.6 million, and net cash outflows of $1.9 million provided by changes in our operating assets and liabilities, adjusted for non-cash charges of $1.3 million. The main drivers of net cash outflows were derived from the changes in operating assets and liabilities and were related to an increase in accounts receivable of $2.0 million, an increase in inventory of $1.3 million, a decrease in accounts payable of $1.1 million, an increase in prepaid expenses and other current assets of $0.9 million, partially offset by an increase in accrued expenses and other current liabilities of $2.4 million, and an increase in deferred revenue of $1.5 million. Non-cash charges primarily consisted of non-cash interest of $0.5 million, increase in the allowance for doubtful accounts of $0.3 million, and depreciation and amortization of $0.3 million.
Cash Flows from Investing Activities
Net cash used in investing activities of $1.1 million for the year ended December 31, 2021 was due to additions to internal-use software.
Net cash used in investing activities of $0.6 million for fiscal year 2020 was due to additions to internal-use software.
Cash Flows from Financing Activities
Net cash provided by financing activities of $16.9 million for the year ended December 31, 2021 was primarily related to net proceeds from the issuance of notes payable of $7.2 million, the issuance of SAFE agreements of $5.0 million, issuance of our convertible promissory notes to related parties of $3.6 million, and proceeds from the issuance of convertible promissory notes of $1.2 million.
Net cash provided by financing activities of $6.4 million for the year ended December 31, 2020 was primarily related to net proceeds from issuance of notes payable of $4.0 million, proceeds from the issuance of convertible promissory notes to related parties of $3.3 million, and proceeds from the issuance of convertible promissory notes of $0.7 million, partially offset by repayment of convertible notes of $1.5 million.
Proceeds from Warrants
We will not receive any of the proceeds from sales of Warrants, except with respect to amounts we may receive upon the cash exercise of the Warrants. Whether warrantholders will exercise their Warrants, and therefore the amount of cash proceeds we would receive upon exercise, is dependent upon the trading price of the common stock, the last reported sales price for which was $1.52 per share on December 21, 2023. Each Warrant is exercisable for one share of common stock at an exercise price of $11.50. Therefore, if and when the trading price of the common stock is less than $11.50 per share, we expect that warrantholders would not exercise their Warrants. To the extent the Warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the Warrants will decrease. The Private Warrants and Working Capital Warrants may be exercised for cash or on a “cashless basis.” The Public Warrants and the Merger Warrants may only be exercised for cash provided there is then an effective registration statement registering the shares of common stock issuable upon the exercise of such warrants. If there is not a then-effective registration statement, then such warrants may be exercised on a “cashless basis,” pursuant to an available exemption from registration under the Securities Act.
We could receive up to an aggregate of approximately $254.1 million if all of the Warrants are exercised for cash, but we would only receive such proceeds if and when the warrantholders exercise their Warrants, which, based on the current trading price of our common stock, is unlikely unless there is a significant increase in the trading price of our common stock. The Warrants may not be, or remain, in the money during the period they are exercisable and prior to their expiration and, therefore, it is possible that the Warrants may not be exercised prior to their maturity, even if they are in the money, and as such, may expire worthless with minimal proceeds received by us, if any, from the exercise of the Warrants. To the extent that any of the Warrants are exercised on a “cashless basis,” we will not receive any proceeds upon such exercise. As a result, we do not expect to rely on the cash exercise of Warrants to fund our operations. Instead, we intend to rely on other sources of cash discussed elsewhere in this prospectus to continue to fund our operations.
Forward Purchase Agreements
On and around July 13, FACT entered into multiple forward purchase agreements with certain FPA Investors, pursuant to which FACT (now to Complete Solaria following the Closing) agreed to purchase in the aggregate, up to 5,618,488 shares of common stock then held by the FPA Investors (subject to certain conditions and purchase limits set forth in the forward purchase agreements). Pursuant to the terms of the forward purchase agreements, each FPA Investor further agreed not to redeem any of the FACT Class A Ordinary Shares owned by it at such time. The per price at which the FPA Investors have the right to sell the shares to us on the Maturity Date is not less than $5.00 per share.
If the FPA Investors hold some or all of the 5,618,488 forward purchase agreement shares on the Maturity Date, and the per share trading price of our common stock is less than the per share price at which the FPA Investors have the right to sell the common stock to us on the Maturity Date, we would expect that the FPA Investors will exercise this repurchase right with respect to such shares. In the event that we are required to repurchase these forward purchase
agreement shares, or in the event that the forward purchase agreements are terminated the amount of cash arising from the Business Combination that would ultimately be available to fund our liquidity and capital resource requirements would reduce accordingly, which would adversely affect our ability to fund our growth plan in the manner we had contemplated when entering into the forward purchase agreements.
Off Balance Sheet Arrangements
As of the date of this prospectus, Complete Solaria does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement, or other contractual arrangement to which an entity unconsolidated with Complete Solaria is a party, under which it has any obligation arising under a guaranteed contract, derivative instrument, or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity, or market risk support for such assets.
Currently, Complete Solaria does not engage in off-balance sheet financing arrangements.
Emerging Growth Company Status
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012, or 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.
Complete Solaria is an “emerging growth company” as defined in Section 2(a) of the Securities Act, and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. Following the closing of the Merger, our Post-Combination Company will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of common stock that is held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which we has total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1.0 billion in non-convertible debt in the prior three-year period, or (iv) December 31, 2025. Complete Solaria expects to continue to take advantage of the benefits of the extended transition period, although it may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. 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.
Quantitative and Qualitative Disclosures About Market Risk
Complete Solaria’s operations expose Complete Solaria to a variety of market risks. Complete Solaria monitors and manages these financial exposures as an integral part of its overall risk management program.
Interest Rate Risk
We do not have significant exposure to interest rate risk that could affect the balance sheet, statement of operations, and the statement of cash flows, as we do not have any outstanding variable rate debt as of October 1, 2023.
Concentrations of Credit Risk and Major Customers
Our customer base consists primarily of residential homeowners. We do not require collateral on our accounts receivable. Further, our accounts receivable are with individual homeowners and we are exposed to normal industry credit risks. We continually evaluate our reserves for potential credit losses and establish reserves for such losses.
As of October 1, 2023, one customer accounted for 10% or more of total accounts receivable, net balance. As of September 30, 2022, one customer accounted for 10% or more of the total accounts receivable, net balance.
For the thirty-nine weeks ended October 1, 2023, one customer accounted for 10% or more of the total revenues. For the nine months ended September 30, 2022, two customers accounted for 10% or more of total revenues.
Recent Developments
In October 2023, the Company entered into an Assignment and Acceptance Agreement (“Assignment Agreement”), whereby Structural Capital Investments III, LP assigns the SCI debt to Kline Hill Partners Fund LP, Kline Hill Partners IV SPV LLC, Kline Hill Partners Opportunity IV SPV LLC, and Rodgers Massey Revocable Living Trust for a total purchase price of $5.0 million. The Company has identified this as a related party transaction.
In October 2023, in connection with the Assignment Agreement, the Company also entered into the First Amendment to Warrant to Stock Purchase Agreements with the holders of the Series D-7 warrants. Pursuant to the terms of the agreement, the warrants to purchase 1,376,414 shares of Series D-7 preferred stock converted into warrants to purchase 656,630 shares of common stock (the “replacement warrants”). As a result of the warrant amendment, the Company reclassified the replacement warrants from equity to liability. The replacement warrants were remeasured to the fair value on the amendment effective date and the Company will record subsequent changes in fair value in other income (expense), net on the unaudited condensed consolidated statements of operations and comprehensive income (loss).
As noted above, in October 2023, we completed the sale of our solar panel business to Maxeon, pursuant to the terms of the Disposal Agreement.
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined financial information presents the pro forma effects of the Business Combination, inclusive of the Mergers and the Domestication of FACT, as described below and the pro forma effects of the Disposal Transaction, as described below. The Business Combination and related transactions, as further described elsewhere in the unaudited pro forma financial information, were completed on or around July 18, 2023.
FACT is a blank check company incorporated as a Cayman Islands exempted company in December 2020. FACT was formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. On March 2, 2021, FACT consummated its initial public offering (the “IPO”) generating gross proceeds of $345.0 million. Simultaneously with the closing of the IPO, FACT consummated the sale of 6,266,667 Private Warrants at a purchase price of $1.50 per warrant in a private placement to FACT’s sponsor, Freedom Acquisition I LLC, a Delaware limited liability company (the “Sponsor”), generating gross proceeds of $9.4 million. Following the Extension Amendment Redemptions on March 2, 2023, 11,243,496 Class A Ordinary Shares remained outstanding. As of the Closing Date, holders of 7,784,739 shares of Class A Ordinary Shares had validly elected to redeem their Class A Ordinary Shares for a full pro rata portion of the trust account holding the proceeds from FACT’s initial public offering, or approximately $10.56 per share and $82.2 million in the aggregate.
Complete Solar, Inc., a Delaware corporation (“Complete Solar”), was incorporated in the State of Delaware in 2010 and provides solar services such as sales enablement, project management, partner coordination and customer communication. Legacy Complete Solaria is the result of the business combination of Complete Solar and The Solaria Corporation, which was consummated on November 4, 2022. As discussed below, the disposition of The Solaria Corporation (“Solaria”) was consummated in October 2023. Complete Solaria’s unaudited condensed consolidated balance sheet as of October 1, 2023 and unaudited condensed consolidated statement of operations and comprehensive income (loss) for the thirty-nine week period ended October 1, 2023 have been recast to give effect to the disposition.
The unaudited pro forma condensed combined financial information also includes the impact of the following:
| • | The final disposition, which was consummated on October 6, 2023, of certain North American solar panel assets, inclusive of certain intellectual property and customer contracts, not reflected in Compete Solaria’s unaudited condensed consolidated balance sheet as of October 1, 2023 (the “Disposal Transaction”). In connection with the Disposal Transaction, Maxeon agreed to hire certain employees of Complete Solaria who, upon closing, became employees of Maxeon. |
| • | In conjunction with the Disposal Transaction, on October 5, 2023, Complete Solaria amended certain warrants, dated November 2, 2022, originally issued by the Complete Solaria to six warrant holders, which warrants are exercisable for (a) an aggregate of 1,486,268 shares of Complete Solaria’s common stock, par value $0.001 per share, or (b) if designated and issued, a future series of preferred stock of Complete Solaria. |
| • | Complete Solaria, Inc. previously announced in its Current Report on Form 8-K filed with the SEC on July 14, 2023 that the Company and Freedom Acquisition I Corp. entered into separate agreements (each a “Forward Purchase Agreement”, and together, the “Forward Purchase Agreements”) with each of (i) Meteora; (ii) Polar, and (iii) Sandia (each of Meteora, Polar, and Sandia, individually, a “Seller”, and together, the “Sellers”) for OTC Equity Prepaid Forward Transactions. |
On December 18, 2023, Complete Solaria and each Seller entered into separate amendments to the Forward Purchase Agreements (the “Amendments”). The Amendments lower the reset price of each
Forward Purchase Agreement from $5.00 to $3.00 and allow the Company to raise up to $10,000,000 of equity from existing stockholders without triggering certain anti-dilution provisions contained in the Forward Purchase Agreements.
| • | On December 19, 2023, the Complete Solaria entered into separate common stock purchase agreements (the “Purchase Agreements”) with the Rodgers Massey Freedom and Free Markets Charitable Trust and the Rodgers Massey Revocable Living Trust (each a “Purchaser”, and together, the “Purchasers”). Pursuant to the terms of the Purchase Agreements, each Purchaser purchased 1,838,235 shares of Complete Solaria Common Stock, par value $0.001, (the “Shares”), at a price per share of $1.36, representing an aggregate purchase price of $5.0 million. The Purchasers paid for the Shares in cash. Thurman J. Rodgers is a trustee of each Purchaser and is the Executive Chairman of the board of directors of Complete Solaria. |
Description of the Business Combination
The Domestication – As part of the Business Combination, FACT affected a deregistration under the Cayman Islands Companies Act and a domestication under Section 388 of the DGCL (the “Domestication”). Upon the effectiveness of the Domestication, FACT changed its name to Complete Solaria, Inc. (“New Complete Solaria”).
In connection with the Domestication, (i) each issued and outstanding FACT Class A Ordinary Share and each issued and outstanding FACT Class B Ordinary Share converted into one share of Complete Solaria Common Stock. Additionally, each issued and outstanding whole warrant to purchase one FACT Class A Ordinary Share at an exercise price of $11.50 per share converted, on a one-for-one basis, to purchase one share of Complete Solaria Common Stock at an exercise price of $11.50 per share.
The Mergers – On July 18, 2023 (the “Closing Date”) and following the approval at an extraordinary general meeting of the shareholders of FACT held on July 11, 2023, as contemplated by the Business Combination Agreement, the parties consummated the closing of the transactions contemplated by the Business Combination Agreement (collectively, the “Business Combination”), whereby (i) First Merger Sub merged with and into Legacy Complete Solaria, with Legacy Complete Solaria surviving as a wholly-owned subsidiary of the Company (the “First Merger”), (ii) immediately thereafter and as part of the same overall transaction, Legacy Complete Solaria merged with and into Second Merger Sub, with Second Merger Sub surviving as a wholly-owned subsidiary of the Company (the “Second Merger”), and Second Merger Sub changed its name to “CS, LLC”, and (iii) immediately after the consummation of the Second Merger and as part of the same overall transaction, Solaria merged with and into a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company and changed its name to “SolarCA LLC” (“Third Merger Sub”), with Third Merger Sub surviving as a wholly-owned subsidiary of the Company (the “Additional Merger”, and together with the First Merger and the Second Merger, the “Mergers”).
As a condition to the closing of the Business Combination, Complete Solar was required to consummate a merger with Solaria. On October 3, 2022, Complete Solar entered into the Required Transaction Merger Agreement, pursuant to which, and on the terms and subject to the conditions of which, Complete Solar would acquire all of the outstanding shares of capital stock of Solaria. The merger between Complete Solar and Solaria was consummated on November 4, 2022. As a result, Solaria became a wholly-owned subsidiary of Complete Solar, forming Legacy Complete Solaria. As discussed below, the disposition of Solaria was consummated in October 2023. Complete Solaria’s unaudited condensed consolidated balance sheet as of October 1, 2023 and unaudited condensed consolidated statement of operations and comprehensive income (loss) for the thirty-nine week period ended October 1, 2023 have been recast to give effect to the disposition.
The equity exchange and financing related matters associated with the Business Combination are summarized as follows:
| i. | Legacy Complete Solaria has raised the 2022 Convertible Notes in November 2022, December 2022, February 2023, May 2023 and June 2023 with additional investors, with an aggregate purchase price of $33.3 million. Additionally, Legacy Complete Solaria assumed a note from an existing investor for |
| $6.7 million, which was modified as of the close of the acquisition of Solaria to contain the same terms as the other 2022 Convertible Notes. At the Closing, the principle and accrued interest (“Conversion Amount”) of the 2022 Convertible Notes converted into a number of shares of Complete Solaria Common Stock equal to the Conversion Amount divided by 0.75 divided by the price per share of Common Stock of Complete Solaria (“Convertible Note Conversion Shares”). |
| ii. | At the Closing, each share of Legacy Complete Solaria Capital Stock, inclusive of the 2022 Convertible Note Conversion Shares, issued and outstanding immediately prior to the Closing were cancelled and exchanged into an aggregate of 33,805,245 shares of Complete Solaria Common Stock (at a deemed value of $10.00 per share) equal to the Aggregate Merger Consideration. Additionally, each holder of Legacy Complete Solaria Capital Stock received Complete Solaria Warrants equal to a portion of the Aggregate Warrant Consideration, calculated on a pro rata basis based on the percentage interest of issued and outstanding shares of Legacy Complete Solaria Capital Stock held by the holder of such share of Legacy Complete Solaria Capital Stock. |
| iii. | At the Closing, all Legacy Complete Solaria Options and Legacy Complete Solaria Warrants outstanding as of immediately prior to such time were converted into options of Complete Solaria (“Complete Solaria Options”) and Complete Solaria Warrants, respectively. Each such Complete Solaria Option and Complete Solaria Warrant relates to a number of whole shares of Complete Solaria Common Stock (rounded down to the nearest whole share) equal to (i) the number of shares of Legacy Complete Solaria Common Stock subject to the applicable Legacy Complete Solaria Option or Legacy Complete Solaria Warrant multiplied by (ii) the Merger Consideration Per Fully Diluted Share. The exercise price for each Complete Solaria Option and Complete Solaria Warrant equals (i) the exercise price per share of the applicable Complete Solaria Option or Complete Solaria Warrant divided by (ii) the Merger Consideration Per Fully Diluted Share (rounded up to the nearest full cent). |
| iv. | At the Closing, the Sponsor transferred to the convertible note investors a pro rata percentage of (i) 666,651 shares of Complete Solaria Common Stock in exchange for payment by such investor to FACT of $0.0001 per share and (ii) 484,364 FACT Private Warrants held by the Sponsor. In addition, convertible note investors are entitled to receive, on a pro rata basis, up to an additional (i) 333,333 shares of Complete Solaria Common Stock, at a purchase price of $0.0001 per share, if within the first 12 months following the Closing Date, the volume weighted average price of Complete Solaria Common Stock equals or exceeds $12.50 per share for a period of at least 20 days out of 30 consecutive days on which the shares of Complete Solaria Common Stock are traded on a stock exchange, and (ii) 333,333 shares of Complete Solaria Common Stock, at a purchase price of $0.0001 per share, if within the first 12 months following the Closing Date, the volume weighted average price of Complete Solaria Common Stock equals or exceeds $15.00 per share for a period of at least 20 days out of 30 consecutive days on which the shares of Complete Solaria Common Stock are traded on a stock exchange. The transfer of Complete Solaria Common Stock and Private Warrants from the Sponsor to the Legacy Complete Solaria convertible noteholders is an exchange between investors, which does not result in a pro forma adjustment. |
| v. | On or around the Closing, Complete Solaria entered into New Money PIPE Subscription Agreements with certain investors to subscribe for and purchase 120,000 FACT Class A Ordinary Shares for a purchase price of $5.00 and aggregate proceeds of $0.6 million. Additionally, Complete Solaria issued an additional 60,000 shares of Complete Solaria Common Stock in consideration for certain services provided in the structuring of the Forward Purchase Agreements. |
| vi. | On or around the Closing Date, Complete Solaria entered into Subscription Agreements with certain PIPE Investors who purchased 1,570,000 shares of Complete Solaria Common Stock for aggregate proceeds of $15.7 million, including $3.5 million that was funded prior to the Closing Date. |
| vii. | On or around the Closing Date, the Sponsor transferred 4,333,333 FACT Class B Ordinary Shares to certain third parties pursuant to working capital lending arrangements, non-redemption agreements, PIPE Investments and the settlement of FACT’s accrued expenses associated with the Business Combination. Additionally, Complete Solaria issued and transferred 193,976 shares of Complete Solaria Common Stock |
| to the Sponsor, 120,000 shares of Complete Solaria Common Stock to PIPE Investors and 150,000 shares of Complete Solaria Common Stock to Sellers in connection with the Forward Purchase Agreements. |
| viii. | On July 17 and July 18, and in connection with obtaining consent for the Business Combination, Legacy Complete Solaria, FACT and CSREF Solis Holdings, LLC (“Carlyle”) entered into an amended and restated consent to the Business Combination Agreement and an amended and restated warrant agreement, which modified the terms of the mandatorily redeemable investment made by Carlyle in Legacy Complete Solaria. |
The Carlyle investment of $25.6 million was mandatorily redeemable on the three-year anniversary of the effective date of the CS Solis amended and restated LLC agreement (February 14, 2025) and accrued interest at a rate of 10.5%, which was structured as a a dividend payable based on 25% of the investment amount measured quarterly, compounded annually, and subject to increases in the event Legacy Complete Solaria declared any dividend. In connection with the investment, Legacy Complete Solaria issued a warrant to purchase up to 5,978,960 shares of its common stock at a price of $0.01 per share, of which, 4,132,513 shares were immediately exercisable and, were outstanding as of the date of modification. At Closing, the Legacy Complete Solaria warrants were exchanged for 1,995,879 warrants to purchase shares of Complete Solaria Common Stock. Legacy Complete Solaria accounted for the mandatorily redeemable investment from Carlyle in accordance with ASC 480 — Distinguishing Liabilities from Equity and recorded the investment as a liability, which was accreted to its redemption value under the effective interest method.
Among other changes to the investment agreement, the modification accelerates the redemption date of the investment, which was previously February 14, 2025 and is March 31, 2024 subsequent to the modification. Additionally, as part of the amendment, the parties entered into an amended and restated warrant agreement. As part of the warrant agreement, Complete Solaria will issue Carlyle a warrant to purchase up to 2,745,879 shares of Complete Solaria Common Stock at a price per share of $0.01, which is inclusive of the outstanding warrant to purchase 1,995,879 shares at the time of modification. The warrant, which expires on July 18, 2030, provides Carlyle with the right to purchase shares of Complete Solaria Common Stock based on (a) the greater of (i) 1,995,879 shares and (ii) the number of shares equal to 2.795% of the Complete Solaria’s issued and outstanding shares of common stock, on a fully-diluted basis; plus (b) on and after the date that is ten (10) days after the date of the agreement, an additional 350,000 shares; plus (c) on and after the date that is thirty (30) days after the date of the agreement, if the original investment amount has not been repaid, an additional 150,000 shares; plus (d) on and after the date that is ninety (90) days after the date of the agreement, if the original investment amount has not been repaid, an additional 250,000 shares, in each case, of Complete Solaria Common Stock at a price of $0.01 per share.
Description of the Disposal Transaction
On August 18, 2023, Complete Solaria entered into a Non-Binding Letter of Intent to sell certain of Complete Solaria’s North American solar panel assets, inclusive of certain intellectual property and customer contracts, to Maxeon. Subsequent to the execution of the Non-Binding Letter of Intent, on September 20, 2023, Complete Solaria entered into an asset purchase agreement with Maxeon for the sale of certain assets to Maxeon. . The agreement also includes a supply agreement for Maxeon to supply its premium, high-performance, high- efficiency solar panels to Complete Solaria. On October 6, 2023, Complete Solaria completed the sale of its solar panel business to Maxeon, pursuant to the terms of the Disposal Agreement. Under the terms of the Disposal Agreement, Maxeon agreed to acquire certain assets and employees of Complete Solaria, for an aggregate purchase price of approximately $11.0 million, consisting of 1,100,000 shares of Maxeon ordinary shares.
In conjunction with the Disposal Transaction, on October 5, 2023, Complete Solaria amended certain warrants, dated November 2, 2022, originally issued by the Complete Solaria to six warrant holders (the “Holders”), which warrants are exercisable for (a) an aggregate of 1,486,268 shares of Complete Solaria’s common stock, par value $0.001 per share, or (b) if designated and issued, a future series of preferred stock of Complete Solaria (the “Amendments”). The Amendments were made in connection with the Holders assigning loans they previously made to SolarCA LLC, a Delaware limited liability company (successor in interest to The Solaria Corporation and a wholly owned subsidiary of Complete Solaria) in order to provide the Holders with the
benefits of the protective provisions of the original warrants to fix at a set number the number of shares of Common Stock issuable thereunder, as well as the exercise price per share. Pursuant to the Amendments, the warrants may be exercised for (a) Common Stock, at an exercise price of $0.75 per share, or (b) if designated and issued, a future series of preferred stock, at an exercise of 25% of the lowest price Complete Solaria receives for such share of future series of preferred stock. In connection with the Amendments, Complete Solaria agreed to provide the warrant holders with certain registration rights pursuant to that certain A&R Registration Rights Agreement, dated July 18, 2023, which the was previously filed by Complete Solaria as Exhibit 4.1 to the Complete Solaria’s Current Report on Form 8-K filed on July 24, 2023.
Accounting for the Business Combination
This unaudited pro forma condensed combined financial information should be read together with the historical financial statements and related notes of FACT, Legacy Complete Solaria and Solaria and other financial information filed with the Securities and Exchange Commission.
Legacy Complete Solaria has been determined to be the accounting acquirer of FACT and Solaria based on the following facts and circumstances:
| • | Legacy Complete Solaria’s existing shareholders are expected to have the greatest voting interest in the combined entity. Excluding warrant and option holders, Legacy Complete Solaria’s existing shareholders have an approximately 57.8% voting interest. On a fully diluted basis, Legacy Complete Solaria’s existing shareholders have approximately 56.4% ownership. |
| • | Legacy Complete Solaria’s existing shareholders have the ability to control decisions regarding election and removal of the majority of the combined entity’s executive board of directors. |
| • | Legacy Complete Solaria’s senior management is the senior management of the combined entity. |
| • | The combined company name is Complete Solaria, Inc., i.e. the combined entity assumed Legacy Complete Solaria’s name. |
The weighting of evidence as described above is indicative that Legacy Complete Solaria is the accounting acquirer of FACT. Accordingly, the merger between Legacy Complete Solaria and FACT has been accounted for as a reverse recapitalization, with FACT being treated as the “acquired” company for financial reporting purposes. For accounting purposes, the reverse recapitalization is the equivalent of Legacy Complete Solaria issuing stock for the net assets of FACT, accompanied by a recapitalization. As a result of the Business Combination being an in-substance capital transaction, Legacy Complete Solaria’s qualifying transaction costs are treated as an equivalent to equity issuance costs, reflected as a reduction in additional paid-in capital, rather than as an expense, in the unaudited pro forma condensed combined financial information. The net assets of FACT have been stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the reverse recapitalization are those of Legacy Complete Solaria.
Outstanding vested and unvested share-based awards of Legacy Complete Solaria (including options and RSUs) were converted into the right to receive upon vesting or exercise such awards for common shares of Complete Solaria Common Stock after applying the Merger Consideration Per Fully Diluted Share. Because no terms of such share-based awards are modified upon consummation of the Business Combination, no accounting impact for such outstanding awards was recognized.
Public and private warrants of FACT were not modified as a result of the Business Combination and continue to be liabilities in the New Complete Solaria’s financial statements. The shares of New Complete Solaria Common Stock issuable upon the achievement of trading targets are expected to be classified in equity of New Complete Solaria pursuant to guidance in ASC 815-40.
Complete Solaria has accounted for the modification of the long-term debt in CS Solis as debt extinguishment in accordance with ASC 480 and ASC 470. As a result of the extinguishment, Complete Solaria has recorded a loss on extinguishment and adjusted the value of the debt in CS Solis to its fair value.
Additionally, the modification of the warrant resulted in the reclassification of previously equity classified warrants to liability classification, which was accounted for in accordance with ASC 815 and ASC 718. Complete Solaria recorded a reduction in additional paid-in capital for the value of the warrants prior to the modification, recorded a warrant liability for the value of the warrants after the modification and recorded other expense equal to the different between the reduction in additional paid-in capital and the warrant liability.
Accounting for the Disposal Transaction
On October 6, 2023, Complete Solaria completed the sale of certain assets to Maxeon, pursuant to the terms of the Disposal Agreement. During the third fiscal quarter of 2023, Complete Solaria determined that the Disposal Transaction met the criteria for held-for-sale and discontinued operations classification. Complete Solaria concluded that the disposition of the solar panel business qualifies as a disposal of a business. Complete Solaria has recorded an impairment of $147.5 million, predominately related to Complete Solaria’s intangible assets and goodwill, in the third fiscal quarter of 2023 which is equal to the difference between the carrying value of the disposal group and the fair value of the disposal group less costs to sell. Based on Complete Solaria’s assessment of the Disposal Transaction, Complete Solaria has presented Solaria as held-for-sale and discontinued operations in its Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2023. During the fourth fiscal quarter of 2023, upon consummation of the Disposal Transaction, Complete Solaria recognized a loss on disposal of $1.8 million.
In conjunction with the Disposal Transaction, on October 5, 2023, Complete Solaria amended certain warrants, dated November 2, 2022, originally issued by the Complete Solaria to six warrant holders. The warrants that were amended were historically liability classified and were subsequently reclassified to equity as part of the close of the Business Combination. Upon the modification of the warrants, the warrants are liability classified in accordance with the guidance of ASC 815. In accordance with ASC 718, Complete Solaria will account for the modification of the warrants by reducing additional paid-in capital by the value of the warrants immediately before the modification, recording a warrant liability for the value of the warrants immediately after the modification, and recording the difference as an expense in the consolidated statements of operations.
Complete Solaria has included the adjustments as of December 22, 2023 in the Pro Forma Accounting Adjustments column of the unaudited pro forma condensed combined statements of operations for the thirty-nine weeks ended October 1, 2023 and the year ended December 31, 2022 and the unaudited pro forma condensed combined balance sheet as of October 1, 2023.
Basis of Pro Forma Presentation
The adjustments in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information of Complete Solaria upon consummation of the Business Combination and other events contemplated by the Business Combination as well as the effects of the Disposal Transaction. Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial information are described in the accompanying notes.
The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results and financial position that would have been achieved had the Business Combination and Disposal Transaction occurred on the dates indicated. The Business Combination proceeds remaining after the payment for the redemption of public shares, and payment of transaction costs related to the Merger are expected to be used for other general corporate purposes. The consideration shares received for the Disposal Transaction are expected to be classified as investment in equity securities. Further, the unaudited pro forma condensed combined financial information does not purport to project the future operating results or financial position of New Complete Solaria following the completion of the Business Combination and Disposal Transaction. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of this unaudited pro forma condensed combined financial information and are subject to change as additional information becomes available and analyses are performed.
Other than certain ordinary course of business sale and purchase transactions between Complete Solar and Solaria, FACT, Complete Solar, and Solaria have not had any historical relationship prior to the transactions associated with the Business Combination.
The following table presents the pro forma New Complete Solaria common stock issued and outstanding immediately after the Business Combination, which does not give effect to the potential exercise of any warrants:
| Number of Shares | Percentage of Outstanding Shares |
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| FACT Public Stockholders(4) |
3,458,757 | 7.6 | % | |||||
| Founder Shares (1), (2), (3), (4) |
8,152,325 | 18.0 | % | |||||
| Complete Solaria shareholders |
20,034,257 | 44.3 | % | |||||
| Complete Solaria convertible noteholders (3) |
6,126,726 | 13.5 | % | |||||
| PIPE Investors |
7,518,488 | 16.6 | % | |||||
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| Total |
45,290,553 | 100.0 | % | |||||
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| (1) | The above table includes 122,500 FACT Class B Ordinary Shares transferred to FACT directors, employees and consultants. |
| (2) | The table excludes the transfer of 4,333,333 shares of FACT Class B Ordinary Shares from the Sponsor to certain third parties pursuant to working capital lending arrangements, non-redemption agreements and PIPE Investments and the settlement of FACT’s accrued expenses associated with the Business Combination. |
| (3) | The above table includes the transfer of 666,651 shares of New Complete Solaria Common Stock from the Sponsor to Complete Solaria convertible noteholders and excludes up to 666,666 shares of New Complete Solaria Common Stock issuable by the New Complete Solaria to convertible noteholders based on the trading price of New Complete Solaria Common Stock. The issuance of New Complete Solaria Common Stock to the Complete Solaria convertible noteholders would further increase the ownership percentages of Complete Solaria convertible noteholders and would dilute the ownership of all stockholders. |
| (4) | The above table excludes the transfer of shares of a number FACT Class A Ordinary Shares held by Sponsor as of the Closing equal the difference of (i) 3,300,000 minus (ii) the number of shares, if any, of FACT Class A Ordinary Shares transferred by Sponsor to holders of 2022 Convertible Notes minus (iii) the number of shares, if any, of FACT Class A Ordinary Shares transferred by Sponsor to certain counterparties in consideration for loans and other amounts paid to finance the working capital loans due to the Sponsor and extension fees as consideration for such holders agreeing to enter into non-redemption agreements and/or such FACT PIPE Investment investors agreeing to make FACT PIPE Investment, as applicable. |
Of the 666,666 shares of Complete Solaria Common Stock issuable by Complete Solaria to convertible noteholders based on the trading price of Complete Solaria Common Stock, 333,333 shares will vest if, from Closing of the Business Combination until the 12 month anniversary thereof, the average price of Complete Solaria Common Stock exceeds $12.50 for any 20 trading days within any 30 trading day period and 333,333 will vest if, from the Closing of the Business Combination until the 12 month anniversary thereof, the average price of Complete Solaria Common Stock exceeds $15.00 for any 20 trading days within any 30 trading day period. The issuance of such shares would dilute the value of all shares of Complete Solaria Common Stock outstanding at that time. Assuming the current capitalization structure, the 666,666 shares that would become vested upon meeting the price threshold would represent approximately 1.5% of total shares outstanding.
The management of New Complete Solaria has concluded that the contingently issuable shares are equity-classified instruments, which do not have an impact on the unaudited pro forma condensed combined statement of operations for the periods ended December 31, 2022 and October 1, 2023.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of October 1, 2023
(in thousands)
| Complete Solaria (Historical) |
Pro Forma Accounting Adjustments |
Pro Forma Complete Solaria |
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| ASSETS |
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| Current Assets: |
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| Cash and cash equivalents |
$ | 1,661 | $ | 5,000 | A | $ | 6,661 | |||||||||
| Investment in equity securities |
— | 10,989 | B | 10,989 | ||||||||||||
| Accounts receivable, net |
26,003 | — | 26,003 | |||||||||||||
| Inventories |
12,503 | — | 12,503 | |||||||||||||
| Prepaid expenses and other current assets |
9,947 | — | 9,947 | |||||||||||||
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| Total current assets |
50,114 | 15,989 | 66,103 | |||||||||||||
| Restricted cash |
3,758 | — | 3,758 | |||||||||||||
| Property and equipment, net |
4,185 | — | 4,185 | |||||||||||||
| Operating lease right-of-use assets |
1,465 | — | 1,465 | |||||||||||||
| Other noncurrent assets |
198 | — | 198 | |||||||||||||
| Long-term assets held for sale – discontinued operations |
12,299 | (12,299 | ) | C | — | |||||||||||
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| Total assets |
$ | 72,019 | $ | (3,690 | ) | $ | 75,709 | |||||||||
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| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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| Current liabilities: |
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| Accounts payable |
$ | 14,571 | $ | — | $ | 14,571 | ||||||||||
| Accrued expenses and other current liabilities |
26,674 | 450 | D | 27,124 | ||||||||||||
| Notes payable, net |
27,934 | — | 27,934 | |||||||||||||
| Deferred Revenue, current |
2,421 | — | 2,421 | |||||||||||||
| Short-term debt with CS Solis |
29,194 | — | 29,194 | |||||||||||||
| Forward purchase agreement liabilities |
6,586 | 403 | E | 6,989 | ||||||||||||
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| Total current liabilities |
107,380 | 853 | 108,233 | |||||||||||||
| Warranty provision, noncurrent |
3,416 | — | 3,416 | |||||||||||||
| Warrant liability |
10,240 | 1,464 | F | 11,704 | ||||||||||||
| Deferred revenue, noncurrent |
976 | — | 976 | |||||||||||||
| Operating lease liabilities, net of current portion |
790 | — | 790 | |||||||||||||
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| Total liabilities |
122,802 | 2,317 | 125,119 | |||||||||||||
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| Common Stock |
7 | — | 7 | |||||||||||||
| Additional paid-in capital |
276,438 | 4,632 | G | 281,070 | ||||||||||||
| Accumulated other comprehensive income (loss) |
51 | — | 51 | |||||||||||||
| Retained earnings (accumulated deficit) |
(327,279 | ) | (3,259 | ) | H | (330,538 | ) | |||||||||
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| Total stockholders’ equity (deficit) |
(50,783 | ) | 1,373 | (49,410 | ) | |||||||||||
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| Total liabilities and stockholders’ equity (deficit) |
$ | 72,019 | $ | 3,690 | $ | 75,709 | ||||||||||
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the thirty-nine weeks ended October 1, 2023
(in thousands, except per share amounts)
| Complete Solaria (Historical) |
Freedom Acquisition Corp (Historical Adjustments) |
Complete Solaria Combined |
Pro Forma Accounting Adjustments |
Pro Forma Combined |
||||||||||||||||||
| Revenues |
$ | 66,887 | $ | — | $ | 66,887 | $ | — | $ | 66,887 | ||||||||||||
| Cost of revenues |
51,788 | — | 51,788 | — | 51,788 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Gross Profit |
15,099 | — | 15,099 | — | 15,099 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating Expenses: |
||||||||||||||||||||||
| Sales commissions |
23,221 | — | 23,221 | — | 23,221 | |||||||||||||||||
| Operating costs |
— | 7,002 | 7,002 | — | 7,002 | |||||||||||||||||
| Sales and marketing |
5,216 | — | 5,216 | — | 5,216 | |||||||||||||||||
| General and administrative |
22,965 | — | 22,965 | — | 22,965 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total operating expenses |
51,402 | 7,002 | 58,404 | — | 58,404 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Loss from operations |
(36,303 | ) | (7,002 | ) | (43,305 | ) | — | (43,305 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Foreign currency exchange gain (loss) |
— | — | — | — | — | |||||||||||||||||
| Interest income on marketable securities held in Trust Account |
— | 4,225 | 4,225 | (4,225 | ) | AA | — | |||||||||||||||
| Change in fair value of warrant liabilities |
— | (3,440 | ) | (3,440 | ) | — | (3,440 | ) | ||||||||||||||
| Change in fair value of convertible note |
— | (273 | ) | (273 | ) | 273 | BB | — | ||||||||||||||
| Offering expenses related to warrant issuance |
— | — | — | — | — | |||||||||||||||||
| Interest expense |
(8,870 | ) | — | (8,870 | ) | 742 | CC | (8,128 | ) | |||||||||||||
| Interest income |
26 | — | 26 | — | 26 | |||||||||||||||||
| Other income (expense), net |
(28,302 | ) | — | (28,302 | ) | (9,455 | ) | DD | (37,757 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Loss before income taxes |
(73,449 | ) | (6,490 | ) | (79,939 | ) | (12,665 | ) | (92,604 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income tax (benefit) provision, net |
(5 | ) | — | (5 | ) | — | (5 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) from continuing operations |
$ | (73,444 | ) | $ | (6,490 | ) | $ | (79,934 | ) | $ | (12,665 | ) | $ | (92,599 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Weighted average shares outstanding, used in computing net loss per share attributable to common stockholders, basic and diluted |
16,969,979 | 51,160,118 | ||||||||||||||||||||
| Net loss per share attributable to common stockholders, basis and diluted |
$ | (4.33 | ) | $ | (1.81 | ) | ||||||||||||||||
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 2022
(in thousands, except per share amounts)
| Complete Solaria (Historical) |
Freedom Acquisition Corp (Historical) |
Complete Solaria Combined |
Pro Forma Accounting Adjustments |
Pro Forma Combined |
||||||||||||||||||
| Revenues |
$ | 66,475 | $ | — | $ | 66,475 | $ | — | $ | 66,475 | ||||||||||||
| Cost of revenues |
46,647 | — | 46,647 | — | 46,647 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Gross Profit |
19,828 | — | 19,828 | — | 19,828 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating Expenses: |
||||||||||||||||||||||
| Sales commissions |
21,195 | — | 21,195 | — | 21,195 | |||||||||||||||||
| Operating costs |
— | 4,407 | 4,407 | — | 4,407 | |||||||||||||||||
| Sales and marketing |
6,156 | — | 6,156 | — | 6,156 | |||||||||||||||||
| General and administrative |
13,634 | — | 13,634 | — | 13,634 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total operating expenses |
40,985 | 4,407 | 45,392 | — | 45,392 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Loss from operations |
(21,157 | ) | (4,407 | ) | (25,564 | ) | — | (25,564 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Foreign currency exchange gain (loss) |
— | (18 | ) | (18 | ) | — | (18 | ) | ||||||||||||||
| Interest income on marketable securities held in Trust Account |
— | 4,822 | 4,822 | (4,822 | ) | AA |
— | |||||||||||||||
| Change in fair value of warrant liabilities |
— | 5,510 | 5,510 | — | 5,510 | |||||||||||||||||
| Change in fair value of convertible note |
— | (196 | ) | (196 | ) | 196 | BB |
— | ||||||||||||||
| Interest expense |
(4,986 | ) | — | (4,986 | ) | 221 | CC |
(4,765 | ) | |||||||||||||
| Interest income |
5 | — | 5 | — | 5 | |||||||||||||||||
| Forgiveness of debt |
— | 272 | 272 | — | 272 | |||||||||||||||||
| Other income (expense), net |
(1,858 | ) | — | (1,858 | ) | 5,211 | DD |
3,353 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Loss before income taxes |
(27,996 | ) | 5,983 | (22,013 | ) | 806 | (21,207 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income tax (benefit) provision, net |
27 | — | 27 | — | 27 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) from continuing operations |
$ | (28,023 | ) | $ | 5,983 | $ | (22,040 | ) | $ | 806 | $ | (21,234 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Weighted average shares outstanding, used in computing net loss per share attributable to common stockholders, basic and diluted, |
8,366,296 | 51,160,118 | ||||||||||||||||||||
| Net loss per share attributable to common stockholders, basis and diluted |
$ | (3.35 | ) | $ | (0.42 | ) | ||||||||||||||||
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 1 — Basis of Presentation
The merger between Legacy Complete Solaria and FACT has been accounted for as a reverse recapitalization, with FACT being treated as the “acquired” company for financial reporting purposes. For accounting purposes, the reverse recapitalization was the equivalent of Legacy Complete Solaria issuing stock for the net assets of FACT, accompanied by a recapitalization. The net assets of FACT were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the reverse recapitalization will be those of Legacy Complete Solaria.
The unaudited pro forma condensed combined statement of operations of Complete Solaria for the thirty-nine weeks ended October 1, 2023 and for the year ended December 31, 2022, gives pro forma effect to the Business Combination as if it had been consummated on January 1, 2022.
On October 6, 2023, Complete Solaria completed the sale of certain of Complete Solaria’s North American solar panel assets, inclusive of certain intellectual property and customer contracts, to Maxeon, pursuant to the terms of the Disposal Agreement. The Disposal Transaction was accounted for as discontinued operations for financial reporting purposes.
In July 2023, Complete Solaria and Freedom Acquisition I Corp. entered into separate agreements (each a “Forward Purchase Agreement”, and together, the “Forward Purchase Agreements”) with each of (i) Meteora; (ii) Polar, and (iii) Sandia (each of Meteora, Polar, and Sandia, individually, a “Seller”, and together, the “Sellers”) for OTC Equity Prepaid Forward Transactions.On December 18, 2023, Complete Solaria and each Seller entered into separate amendments to the Forward Purchase Agreements (the “Amendments”). The Amendments lower the reset price of each Forward Purchase Agreement from $5.00 to $3.00 and allow the Company to raise up to $10,000,000 of equity from existing stockholders without triggering certain anti-dilution provisions contained in the Forward Purchase Agreements.
On December 18, 2023, the Complete Solaria entered into separate common stock purchase agreements (the “Purchase Agreements”) with the Rodgers Massey Freedom and Free Markets Charitable Trust and the Rodgers Massey Revocable Living Trust (each a “Purchaser”, and together, the “Purchasers”). Pursuant to the terms of the Purchase Agreements, each Purchaser purchased 1,838,235 shares of common stock of the Company, par value $0.0001, (the “Shares”), at a price per share of $1.36, representing an aggregate purchase price of $5.0 million. The Purchasers paid for the Shares in cash. Thurman J. Rodgers is a trustee of each Purchaser and is the Executive Chairman of the board of directors of the Company.
The unaudited pro forma balance sheet of Complete Solaria as of October 1, 2023, gives pro forma effect to these transactions as if they had been consummated on October 1, 2023. The unaudited pro forma condensed combined statements of operations of Complete Solaria for the year ended December 31, 2022, and for the thirty-nine weeks ended October 1, 2023, presents pro forma effect to the transactions as if it had been completed on January 1, 2022. As the Disposal Transaction was consummated in October 2023. Complete Solaria’s unaudited condensed consolidated balance sheet as of October 1, 2023 and unaudited condensed consolidated statement of operations and comprehensive income (loss) for the thirty-nine week period ended October 1, 2023 have been recast to give effect to the disposition. Further, as the Disposal Transaction is related to the disposition of certain assets acquired in the Required Transaction, which occurred on November 4, 2022, there is is no pro forma impact associated with periods prior to the year ended December 31, 2022.
The unaudited pro forma combined balance sheet as of October 1, 2023, and unaudited pro forma condensed combined statement of operations for the thirty-nine weeks ended October 1, 2023, have been prepared using, and should be read in conjunction with, the following:
| • | unaudited condensed consolidated financial statements of Complete Solaria as of and for thirty-nine weeks ended October 1, 2023, and the related notes, included in the Proxy Statement; |
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 has been prepared using, and should be read in conjunction with, the following:
| • | audited statements of operations of FACT for the fiscal year ended December 31, 2022 included in the Proxy Statement; and |
| • | audited statements of operations of Legacy Complete Solaria for the fiscal year ended December 31, 2022 included in the Proxy Statement. |
Additionally, in giving pro forma effect to the Disposal Transaction as if it had been consummated on January 1, 2022, the unaudited pro forma condensed combined statement of operations was prepared using the unaudited statement of operations of Solaria for the period from January 1, 2022 through the close of the Disposal Transaction.
Management has made significant estimates and assumptions in its determination of the Pro Forma Accounting Adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.
The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. The pro forma adjustments reflecting the consummation of the Business Combination and the Disposal Transaction are based on certain currently available information and certain assumptions and methodologies that Legacy Complete Solaria believes are reasonable under the circumstances. The unaudited Pro Forma Accounting Adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the Pro Forma Accounting Adjustments and it is possible such differences may be material. Complete Solaria believes that these assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination and Disposal Transaction are based on information available to management at the time and that the Pro Forma Accounting Adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma combined financial information.
The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination or Disposal Transaction.
The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination and Disposal Transaction taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of Complete Solaria. They should be read in conjunction with the historical financial statements and notes thereto of FACT and Legacy Complete Solaria.
Note 2 — Accounting Policies
Upon completion of the Business Combination, management performed a comprehensive review of FACT’s and Legacy Complete Solaria’s accounting policies. Based on its initial analysis, management has not identified any material differences in accounting policies that would have a material impact on the unaudited pro forma condensed combined financial information.
Note 3 — Adjustments to Unaudited Pro Forma Condensed Combined Financial Information
Article 11 of Regulation S-X allows for the presentation of reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Complete Solaria has elected not to present Management’s Adjustments and will only be presenting Pro Forma Accounting Adjustments in the following unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Business Combination and Disposal Transaction and has been prepared for informational purposes only.
The pro forma condensed combined provision for income taxes does not necessarily reflect the amounts that would have resulted had Complete Solaria filed consolidated income tax returns during the periods presented.
The unaudited pro forma basic and diluted net loss per share amounts presented in the unaudited pro forma condensed combined statement of operations are based upon the number of shares of Complete Solaria outstanding, assuming the Business Combination occurred on January 1, 2022.
Adjustments to Unaudited Pro Forma Combined Balance Sheet
The pro forma Transaction Accounting Adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:
| (A) | Reflects the proceeds received associated with the Common Stock Purchase Agreements with a related-party investor for the sale of 3,676,470 shares of Complete Solaria Common Stock for a purchase price of $1.36 per share. |
| (B) | Reflects the fair value of 1,100,000 Maxeon Ordinary Shares received as consideration for the Disposal Transaction. |
| (C) | Reflects the disposition of solar panel assets, inclusive of certain intellectual property and customer contracts, transferred in conjunction with the Disposal Transaction. |
| (D) | Reflects the accrual of $0.5 million of transaction costs that were incurred from October 2, 2023 through the closing date of the Disposal Transaction. As these costs were not accrued as of October 1, 2023, their accrual is reflected as a reduction in retained earnings. |
| (E) | Reflects the change in fair value of the forward purchase agreement liabilities resulting from the Amendments of the Forward Purchase Agreements. |
| (F) | Represents the adjustment for the reclassification of warrants upon the modification from equity classified to liability classified in accordance with the guidance of ASC 815. |
| (G) | Represents Pro Forma Accounting Adjustments to the additional paid-in-capital balance to reflect the following (in thousands): |
| Reclassification of warrants upon the modification from equity classified to liability classified in accordance with the guidance of ASC 815 |
$ | (368 | ) | |
| Issuance of 3,676,470 shares of Complete Solaria Common Stock to a related-party investor |
5,000 | |||
|
|
|
|||
| Total |
$ | 4,632 | ||
|
|
|
| (H) | Represents Pro Forma Accounting Adjustments to the retained earnings (accumulated deficit) balance to reflect the following (in thousands): |
| Reflects transaction costs that were incurred from October 2, 2023 through the closing date of the Disposal Transaction |
$ | (450 | ) | |
| Reflects the loss on disposal associated with the Disposal Transaction |
(1,310 | ) | ||
| Amendments of Forward Purchase Agreements |
(403 | ) | ||
| Reclassification of warrants upon the modification from equity classified to liability classified in accordance with the guidance of ASC 815 |
(1,096 | ) | ||
|
|
|
|||
| Total |
$ | (3,259 | ) | |
|
|
|
Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations
The pro forma adjustments included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022, and the thirty-nine weeks ended October 1, 2023 are as follows:
| (AA) | Reflects the elimination of historical investment income earned on FACT’s Trust Account. The pro forma Transaction Accounting Adjustments are $(4.3) million and $(4.8) million for the thirty-nine weeks ended October 1, 2023, and the year ended December 31, 2022, respectively. |
| (BB) | Reflects change in fair value on FACT promissory note. The pro forma adjustments are $0.3 million and $0.2 million for the thirty-nine weeks ended October 1, 2023, and the year ended December 31, 2022, respectively. |
| (CC) | Reflects interest expense of $0.7 million and $0.2 million associated with the 2022 Convertible Notes for the thirty-nine weeks ended October 1, 2023, and the year ended December 31, 2022, respectively, which was assumed in the acquisition of Solaria and converted into Complete Solaria Common Stock upon the Close of the Business Combination. |
| (DD) | Reflects the elimination of change in fair value of Legacy Complete Solaria’s Preferred Stock warrant liability. The pro forma Transaction Accounting Adjustments are $(9.5) million and $5.2 million for the thirty-nine weeks ended October 1, 2023, and the year ended December 31, 2022, respectively. |
Note 4 — Net Loss Per Share
Represents the net loss per share calculated using the historical weighted average shares outstanding and the issuance of additional shares in connection with the Business Combination, and other related events, assuming such additional shares were outstanding since January 1, 2022. As the Business Combination and other related events are being reflected as if they had occurred as of January 1, 2022, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes the shares issued in connection with the Business Combination, other related events have been outstanding for the entire periods presented.
| (in thousands, except for share and per share data) |
For the year ended December 31, 2022 |
For the thirty-nine weeks ended October 1, 2023 |
||||||
| Pro forma loss attributable to common stockholders – Complete Solaria |
$ | (21,234 | ) | $ | (92,599 | ) | ||
| Pro forma weighted-average shares outstanding, basic and diluted |
51,160,118 | 51,160,118 | ||||||
| Net loss per share – basic and diluted |
$ | (0.42 | ) | $ | (1.81 | ) | ||
The following summarizes the number of shares of Complete Solaria Common Stock outstanding used for pro forma presentation purposes for the year ended December 31, 2022, and for the thirty-nine weeks ended October 1, 2023:
| Pro forma weighted-average shares outstanding—basic and diluted |
||||
| Public Shareholders |
3,458,757 | |||
| Founder Shares |
8,152,325 | |||
| PIPE Investors |
7,518,488 | |||
| Legacy Complete Solaria Shareholders |
29,837,453 | |||
| Legacy Complete Solaria – equity classified penny warrants |
2,193,095 | |||
|
|
|
|||
| Pro forma weighted-average shares outstanding—basic and diluted |
51,160,118 | |||
|
|
|
|||
| (1) | Excludes approximately 7,624,716 shares of Complete Solaria Common Stock which remain reserved for options and restricted stock units outstanding. At the Closing, Legacy Complete Solaria options and restricted stock units will be converted into Complete Solaria options and restricted stock units, upon substantially the same terms and conditions as in effect with respect to the corresponding Complete Solaria option and restricted stock units. |
| (2) | Excludes approximately 1,156,884 shares of Complete Solaria Common Stock which remain reserve for non-penny warrants outstanding. At the Closing, Legacy Complete Solaria warrants converted into Complete Solaria Warrants, upon substantially the same terms and conditions as in effect with respect to the corresponding Legacy Complete Solaria warrants. |
| (3) | Includes 7,518,488 shares related to PIPE investors, which, prior to the Closing, will convert into Legacy Complete Solaria Common Stock, and will convert into Complete Solaria Common Stock upon the Closing. |
| (4) | The table excludes the transfer of 4,333,333 shares of FACT Class B Ordinary Shares from the Sponsor to certain third parties pursuant to working capital lending arrangements, non-redemption agreements, PIPE Investments, and the settlement of accrued expenses related to the Business Combination. |
| (5) | Excludes the transfer of shares of a number FACT Class A Ordinary Shares held by Sponsor as of the Closing equal the difference of (i) 3,300,000 minus (ii) the number of shares, if any, of FACT Class A Ordinary Shares transferred by Sponsor to holders of 2022 Convertible Notes minus (iii) the number of shares, if any, of FACT Class A Ordinary Shares transferred by Sponsor to certain counterparties in consideration for loans and other amounts paid to finance the working capital loans due to the Sponsor and extension fees as consideration for such holders agreeing to enter into non-redemption agreements and/or such FACT PIPE Investment investors agreeing to make FACT PIPE Investment, as applicable. |
| (6) | Does not reflect the transfer of 666,651 shares of Complete Solaria Common Stock from the Sponsor to Legacy Complete Solaria convertible noteholders upon Closing. |
The following potential outstanding securities were excluded from the computation of pro forma net loss per share, basic and diluted, because their effect would have been anti-dilutive or issuance of such shares is contingent upon the satisfaction of certain conditions which are not satisfied as of the period end for pro forma presentation purposes.
| Share Type |
Shares | |||
| Public Warrants |
8,625,000 | |||
| Private Warrants |
6,266,667 | |||
| Private Warrants in Connection with Promissory Notes held by the Sponsor and its affiliates |
716,667 | |||
| Aggregate Warrant Consideration |
6,266,572 | |||
| Shares issuable upon achievement of trading price targets |
666,666 | |||
| Options (unvested and vested) |
7,624,716 | |||
| Warrants (non-penny warrants) |
1,156,884 | |||
Exhibit 99.4
To the shareholders and the Board of Directors of The Solaria Corporation
Opinion
We have audited the consolidated financial statements of The Solaria Corporation and subsidiaries (the “Company”), which comprise the Consolidated Balance Sheets as of December 31, 2021 and 2020, and the related Consolidated Statements of Operations and Comprehensive Loss, Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit, and Consolidated Statements of Cash Flows for the years then ended, and the related notes to the consolidated financial statements (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has experienced net operating losses from operations and negative cash flows from operations and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
1
Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
| • | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| • | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| • | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| • | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| • | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ Deloitte & Touche LLP
San Francisco, California
February 9, 2023
2
THE SOLARIA CORPORATION AND SUBSIDIARIES
AS OF DECEMBER 31, 2021 AND 2020
(In thousands, except par value and share amounts)
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 9,113 | $ | 9,802 | ||||
| Accounts receivable, net |
6,288 | 13,318 | ||||||
| Inventory, net |
16,928 | 10,448 | ||||||
| Prepaid expenses and other current assets |
2,053 | 9,160 | ||||||
|
|
|
|
|
|||||
| Total current assets |
34,382 | 42,728 | ||||||
| Restricted cash |
4,802 | 3,747 | ||||||
| Operating lease right-of-use assets, net and other noncurrent assets |
1,755 | 2,534 | ||||||
| Property and equipment, net |
999 | 4,928 | ||||||
|
|
|
|
|
|||||
| TOTAL ASSETS |
$ | 41,938 | $ | 53,937 | ||||
|
|
|
|
|
|||||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 5,489 | $ | 4,459 | ||||
| Accrued expenses and other current liabilities |
11,713 | 9,975 | ||||||
| Deferred revenue |
75 | 2,070 | ||||||
| Notes payable, net |
10,912 | 5,938 | ||||||
| Operating lease liability |
283 | 390 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
28,472 | 22,832 | ||||||
| NONCURRENT LIABILITIES: |
||||||||
| Redeemable convertible preferred stock warrants liability |
4,955 | 1,725 | ||||||
| Operating lease liability, net of current portion |
1,674 | 2,139 | ||||||
| Other liabilities, noncurrent |
2,341 | 2,280 | ||||||
| Notes payable, net of current portion |
41,197 | 11,171 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
78,639 | 40,147 | ||||||
|
|
|
|
|
|||||
| COMMITMENTS AND CONTINGENCIES (NOTE 14) |
||||||||
| MEZZANINE REDEEMABLE CONVERTIBLE PREFERRED STOCK |
||||||||
| Redeemable convertible preferred stock: par value of $0.001 per share; 13,500,285 shares authorized as of December 31, 2021 and 2020; issued and outstanding of 11,147,927 shares and 10,920,447 shares as of December 31, 2021 and 2020, respectively; aggregate liquidation value of $71.7 million and $71.3 million as of December 31, 2021 and 2020, respectively |
72,061 | 71,152 | ||||||
|
|
|
|
|
|||||
| STOCKHOLDERS’ DEFICIT |
||||||||
| Common stock; par value $0.001 per share; 27,000,000 shares authorized as of December 31, 2021 and 2020; issued and outstanding of 2,001,357 shares and 1,841,452 shares as of December 31, 2021 and 2020, respectively |
521 | 521 | ||||||
| Class B common stock; par value $0.001 per share; 815 shares authorized as of December 31, 2021 and 2020; 815 shares issued and outstanding as of December 31, 2021 and 2020 |
1 | 1 | ||||||
| Additional paid-in capital |
178,309 | 175,285 | ||||||
| Accumulated other comprehensive loss |
(55 | ) | (68 | ) | ||||
| Accumulated deficit |
(287,538 | ) | (233,101 | ) | ||||
|
|
|
|
|
|||||
| Total stockholders’ deficit |
(108,762 | ) | (57,362 | ) | ||||
|
|
|
|
|
|||||
| TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT |
$ | 41,938 | $ | 53,937 | ||||
|
|
|
|
|
|||||
See accompanying notes to consolidated financial statements
3
THE SOLARIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
(In thousands)
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Product revenue, net |
$ | 59,763 | $ | 48,328 | ||||
| Cost of revenue |
61,144 | 47,950 | ||||||
|
|
|
|
|
|||||
| Gross profit (loss) |
(1,381 | ) | 378 | |||||
| Operating expenses |
||||||||
| Research and engineering |
4,345 | 2,964 | ||||||
| Sales and marketing |
7,244 | 7,349 | ||||||
| General and administrative |
9,789 | 9,905 | ||||||
| Litigation-related costs |
5,485 | 2,311 | ||||||
| Impairment and related charges (Note 3) |
17,052 | 395 | ||||||
|
|
|
|
|
|||||
| Total operating expenses |
43,915 | 22,924 | ||||||
| Loss from operations |
(45,296 | ) | (22,546 | ) | ||||
| Interest expense |
(5,221 | ) | (2,763 | ) | ||||
| Interest income |
6 | 130 | ||||||
| Loss on extinguishment of debt (Note 7) |
(5,384 | ) | — | |||||
| Other income (expense), net |
1,458 | 1,404 | ||||||
|
|
|
|
|
|||||
| Total other expenses, net |
(9,141 | ) | (1,229 | ) | ||||
|
|
|
|
|
|||||
| Loss before provision for income taxes |
(54,437 | ) | (23,775 | ) | ||||
| Provision for income taxes |
— | 80 | ||||||
|
|
|
|
|
|||||
| Net loss |
(54,437 | ) | (23,855 | ) | ||||
| OTHER COMPREHENSIVE INCOME (LOSS): |
||||||||
| Currency translation adjustment, net of tax effect of $0, for the years ended December 31, 2021 and 2020 |
13 | (68 | ) | |||||
|
|
|
|
|
|||||
| Net loss and comprehensive loss |
(54,424 | ) | (23,923 | ) | ||||
| Redeemable convertible preferred stock accretion |
21 | 36 | ||||||
|
|
|
|
|
|||||
| Net loss and comprehensive loss to common stockholders |
$ | (54,403 | ) | $ | (23,887 | ) | ||
|
|
|
|
|
|||||
See accompanying notes to consolidated financial statements
4
THE SOLARIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
(In thousands, except number of shares)
| Accumulated Other Comprehensive Loss |
||||||||||||||||||||||||||||||||||||||||||||
| Total Stockholders’ |
||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Convertible |
Additional Paid-in |
Accumulated | ||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Class B Common Stock | Capital | Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Amount | Amount | Amount | Amount | |||||||||||||||||||||||||||||||||||
| Balance at December 29, 2019 |
10,151,638 | $ | 64,193 | 1,816,452 | $ | 521 | 815 | $ | 1 | $ | 172,469 | $ | — | $ | (209,246 | ) | $ | (36,255 | ) | |||||||||||||||||||||||||
| Exercise of options |
— | — | 25,000 | — | — | — | 10 | — | — | 10 | ||||||||||||||||||||||||||||||||||
| Issuance of Series E-1 redeemable convertible preferred stock |
768,809 | 6,748 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation |
— | 175 | — | — | — | — | 2,842 | — | — | 2,842 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustment |
— | — | — | — | — | — | — | (68 | ) | — | (68 | ) | ||||||||||||||||||||||||||||||||
| Redeemable convertible preferred stock accretion |
— | 36 | — | — | — | — | (36 | ) | — | — | (36 | ) | ||||||||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | — | — | (23,855 | ) | (23,855 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Balance at December 31, 2020 |
10,920,447 | $ | 71,152 | 1,841,452 | $ | 521 | 815 | $ | 1 | $ | 175,285 | $ | (68 | ) | $ | (233,101 | ) | $ | (57,362 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Exercise of warrants |
246,564 | 762 | 25,000 | — | — | — | 2 | — | — | 2 | ||||||||||||||||||||||||||||||||||
| Exercise of options |
— | — | 159,583 | — | — | — | 370 | — | — | 370 | ||||||||||||||||||||||||||||||||||
| Repurchase of common stock |
— | — | (24,678 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Rescission of Series E-1 redeemable convertible preferred stock |
(19,084 | ) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation |
— | 126 | — | — | — | — | 2,673 | — | — | 2,673 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustment |
— | — | — | — | — | — | — | 13 | — | 13 | ||||||||||||||||||||||||||||||||||
| Redeemable convertible preferred stock accretion |
— | 21 | — | — | — | — | (21 | ) | — | — | (21 | ) | ||||||||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | — | — | (54,437 | ) | (54,437 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Balance at December 31, 2021 |
11,147,927 | $ | 72,061 | 2,001,357 | $ | 521 | 815 | $ | 1 | $ | 178,309 | $ | (55 | ) | $ | (287,538 | ) | $ | (108,762 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
See accompanying notes to consolidated financial statements
5
THE SOLARIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Years Ended | ||||||||
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities |
||||||||
| Net loss |
$ | (54,437 | ) | $ | (23,855 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Debt amortization and non-cash interest expense |
3,555 | 2,036 | ||||||
| Loss on extinguishment of debt |
5,384 | — | ||||||
| Stock-based compensation |
2,799 | 3,017 | ||||||
| Change in fair value of redeemable convertible preferred stock warrant liability |
(358 | ) | (1,085 | ) | ||||
| Depreciation expense |
1,290 | 451 | ||||||
| Allowance for doubtful accounts expense |
— | 183 | ||||||
| Impairment and related charges |
17,052 | 395 | ||||||
| Impairment of investment in privately held company |
250 | — | ||||||
| Noncash operating lease expense |
283 | 336 | ||||||
| Forgiveness of Paycheck Protection Plan (PPP) Loan |
(1,433 | ) | — | |||||
| Other |
13 | 135 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
7,030 | (501 | ) | |||||
| Inventory, net |
(15,168 | ) | 2,393 | |||||
| Prepaid expenses and other current assets |
2,970 | (4,413 | ) | |||||
| Accounts payable |
1,030 | (2,189 | ) | |||||
| Accrued expenses and other current liabilities |
(1 | ) | 3,216 | |||||
| Deferred revenue |
(1,995 | ) | (1,582 | ) | ||||
| Operating lease liability |
(309 | ) | (52 | ) | ||||
| Other liabilities, noncurrent |
60 | 1,629 | ||||||
|
|
|
|
|
|||||
| Net cash used in operating activities |
(31,985 | ) | (19,886 | ) | ||||
| Cash Flows from Investing Activities |
||||||||
| Purchases of property and equipment |
(1,827 | ) | (2,935 | ) | ||||
| Proceeds from sale of property and equipment |
248 | — | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(1,579 | ) | (2,935 | ) | ||||
| Cash Flows from Financing Activities |
||||||||
| Proceeds from issuance of notes payable, net |
33,415 | 21,933 | ||||||
| Repayment of notes payable, net |
(382 | ) | (15,835 | ) | ||||
| Proceeds from issuance of preferred stock, net |
— | 6,748 | ||||||
| Proceeds from exercise of redeemable convertible preferred stock warrants |
512 | — | ||||||
| Proceeds from exercise of stock options |
372 | 10 | ||||||
|
|
|
|
|
|||||
| Net cash provided by financing activities |
33,917 | 12,856 | ||||||
|
|
|
|
|
|||||
| Effect of Exchange Rate Changes |
13 | (67 | ) | |||||
| Net Change in Cash, Cash Equivalents and Restricted Cash |
366 | (10,032 | ) | |||||
| Cash, Cash Equivalents and Restricted Cash, beginning of year |
13,549 | 23,581 | ||||||
|
|
|
|
|
|||||
| Cash, Cash Equivalents and Restricted Cash, end of year |
$ | 13,915 | $ | 13,549 | ||||
|
|
|
|
|
|||||
6
THE SOLARIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Years Ended | ||||||||
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Supplemental Cash Flow Information |
||||||||
| Taxes paid |
$ | 73 | $ | 98 | ||||
|
|
|
|
|
|||||
| Interest paid |
$ | 860 | $ | 353 | ||||
|
|
|
|
|
|||||
| Non-Cash Investing and Financing Activities |
||||||||
| Preferred stock warrants issued in connection with the 2018 Bridge notes modification |
$ | (731 | ) | $ | — | |||
|
|
|
|
|
|||||
| Forgiveness of PPP Loan |
$ | (1,433 | ) | $ | — | |||
|
|
|
|
|
|||||
See accompanying notes to consolidated financial statements
7
THE SOLARIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021, AND 2020
(In thousands, except share and per share amounts)
| 1. | ORGANIZATION |
Description of Business
The Solaria Corporation was incorporated as a Delaware corporation on May 5, 2006. The Solaria Corporation (together with its subsidiaries, the “Company” or “Solaria”) designs, develops, manufactures, and generates revenue from the sale of silicon photovoltaic solar panels and licensing of its technology to third parties. The Company operates from its headquarters in Fremont, California.
Liquidity and Going Concern — Since inception, the Company has incurred recurring losses and negative cash flows from operations. The Company incurred net losses of $54.4 million and $23.9 million during the year ended December 31, 2021 and 2020, respectively, and had an accumulated deficit of $287.5 million as of December 31, 2021. The Company had cash and cash equivalents of $9.1 million as of December 31, 2021. Historically, the Company’s activities have been financed through private placements of equity securities and debt. The Company expects to incur significant operating expenses as it continues to grow its business. The Company believes that its operating losses and negative operating cash flows will continue into the foreseeable future. The Company’s history of recurring losses, negative operating cash flows and the need to raise additional funding to finance its operations raise substantial doubt about the Company’s ability to continue as a going concern.
As more fully described in Note 17, the Company was acquired by Complete Solar Holding Corporation (“Complete Solar”) in November 2022 and formed Complete Solaria, Inc. (“Complete Solaria”). As a result, the Company became a wholly-owned indirect subsidiary of “Complete Solaria” at that time. Subsequent to the acquisition, the combined company does business as Complete Solaria. The Company’s ability to continue as a going concern is dependent on its and Complete Solaria’s ability to improve profitability and cash flows as well as Complete Solaria’s ability to raise additional funds through debt and/or equity raises. As discussed in Note 17, Complete Solaria’s plan is to seek additional funding through completion of a business combination with Freedom Acquisition Corp. (“Freedom”), a special purpose acquisition corporation (“SPAC”). At this time, Complete Solaria is focused on completing the business combination, which is subject to approval of the shareholders of both companies, regulatory approval from the Securities and Exchange Commission (“SEC”) and other customary closing conditions and is limited in its efforts to raise additional capital from secondary sources.
If Complete Solaria fails to complete this business combination, it plans to continue to fund its operations and capital funding needs through a combination of private equity offerings, debt financings and other sources. If Complete Solaria is not able to secure adequate additional funding when needed, the Company will need to reevaluate its operating plan and may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs or cease operations entirely. These actions could materially impact the Company’s business, results of operations and future prospects.
While Complete Solaria and Solaria have historically been able to raise multiple rounds of financing, there can be no assurance that in the event additional financing is required, such financing will be available on terms that are favorable, or at all. Failure to generate sufficient cash flows from operations, raise additional capital or reduce certain discretionary spending would have a material adverse effect on the Company’s ability to achieve their intended business objectives.
Therefore, there is substantial doubt about Solaria’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying financial statements have been prepared assuming Solaria will continue to operate as a going concern, which contemplates the realization
8
of assets and settlement of liabilities in the normal course of business. They do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation — The Company’s consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Solaria Australia Pty. Ltd and TSC PowerHome BVd PLV Inc. All intercompany balances and transactions have been eliminated in consolidation.
The Company had 52 or 53 week fiscal year that ended on the Sunday nearest to December 31 of each year. Beginning 2020 the Company changed the fiscal year end to calendar year end.
Significant Risks and Uncertainties — The Company is subject to a number of risks that are similar to those which other companies of similar size in its industry are facing, including, but not limited to, the need for successful development of products, the need for additional capital (or financing) to fund operations, competition from substitute products and services from larger companies, ability to develop sales channels and to onboard channel partners, as defined, protection of proprietary technology, patent litigation, dependence on key customers, dependence on key individuals, and risks associated with changes in information technology.
In March 2020, the World Health Organization declared the outbreak of a novel corona virus as a pandemic. The pandemic has reached every region of the world and has resulted in widespread impacts on the global economy. In response, the Company has modified certain business and workforce practices (including discontinuing non-essential business travel, implementing a temporary work-from-home policy for employees who can execute their work remotely and encouraging employees to adhere to local and regional social distancing guidelines, more stringent hygiene and cleaning protocols across the Company’s facilities and operations and self-quarantining recommendations) to conform to restrictions and best practices encouraged by governmental and regulatory authorities.
The quarantine of personnel or the inability to access the Company’s facilities or customer sites could adversely affect the Company’s operations. As of the date of this report, the Company’s efforts to respond to the challenges presented by the conditions described above have allowed the Company to minimize the impacts of these challenges to its business.
Use of Estimates—The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of income and expense during the reporting period. Such estimates include warranty cost, allowances for doubtful accounts, determination of the net realizable value of inventory, determination of the useful lives of property and equipment, assessment of the recoverability and fair values of property and equipment, valuation of deferred tax assets and liabilities, estimation of other accruals and reserves, determination of the fair value of debt, redeemable convertible preferred stock, common stock, simple agreements for future equity, stock option and restricted stock grants, and redeemable convertible preferred stock and common stock warrants. Management evaluates its estimates and assumptions on an ongoing basis using historical trends, market pricing, current events and other relevant assumptions and data points. Actual results could differ from those estimates and such differences may be material to the consolidated financial statements.
Foreign Currency—The Company’s reporting currency is the US dollar. The functional currency for each of the Company’s foreign subsidiaries is the local currency, as it is the monetary unit of account of the principal economic environments in which the Company’s foreign subsidiaries operate. Assets and
9
liabilities of the foreign subsidiaries are translated at the current exchange rate as of the end of the period, and revenue and expenses are translated at the average exchange rates in effect during the period. The gain or loss resulting from the process of translating foreign currency financial statements into US dollar financial statements is accounted for as a foreign currency cumulative translation adjustment and is reported as a component of accumulated other comprehensive loss. Foreign currency transaction gains and losses resulting from transactions denominated in a currency other than the functional currency are recognized in Other Income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss.
Comprehensive Loss—Comprehensive loss consists of two components, net loss and other comprehensive income (loss), net. Other comprehensive income (loss), net is defined as revenue, expenses, gains, and losses that under US GAAP are recorded as an element of stockholders’ deficit but are excluded from net loss. The Company’s other comprehensive loss consists of foreign currency translation adjustments that result from the consolidation of its foreign entities and is reported net of tax effects.
Cash and Cash Equivalents— The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are recorded at cost, which approximates fair value. As of December 31, 2021 and 2020, cash and cash equivalents consist primarily of checking and savings deposits.
Restricted Cash— The Company classifies all cash for which usage is limited by contractual provisions as restricted cash. Restricted cash consists of $4.8 million and $3.7 million deposited in money market account, which is used as cash collateral backing letters of credit related to customs duty authorities’ requirements as of December 31, 2021 and 2020, respectively. The Company has presented these balances under noncurrent assets in the consolidated balance sheets.
Total cash, cash equivalents and restricted cash is presented in the table below (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash and cash equivalents |
$ | 9,113 | $ | 9,802 | ||||
| Restricted cash |
4,802 | 3,747 | ||||||
|
|
|
|
|
|||||
| Total cash, cash equivalents and restricted cash |
$ | 13,915 | $ | 13,549 | ||||
|
|
|
|
|
|||||
Accounts Receivable, net— Accounts receivable are recorded at invoiced amounts less allowances for bad debts that management believes will be adequate to absorb estimated losses on existing balances, or net realizable value. On a periodic basis, management evaluates accounts receivable and determines whether to record an allowance, or whether any account balances should be written off based on past history of write-offs, collections, and current credit conditions. A receivable is considered past due if the Company has not received payments based on agreed-upon payment terms. The Company generally does not require any security or collateral to support its accounts receivable. For the year ended December 31, 2021, accounts receivable write-offs and bad debt expense were zero. For the year ended December 31, 2020 accounts receivable write-offs were $0.1 million and bad debt expense was $0.2 million, respectively. As of December 31, 2021 and 2020, the allowance for doubtful accounts was $0.6 million. The Company did not record any impairment losses on accounts receivable in fiscal years 2020 and 2021.
Simple Agreement for Future Equity notes— The Company’s Simple Agreement for Future Equity notes (“SAFE”) are financial instruments whereby an investor provides an investment into the Company, and the note is subsequently converted into a preferred equity security at a discount to the price paid by other investors when and if preferred equity is issued through a qualifying capital raise. The SAFE notes are classified as liabilities as of December 31, 2021 and 2020 and key terms of such notes are described in Note 7.
The Company elected the fair value option for SAFE financial instruments, which requires these to be remeasured to fair value each reporting period with changes in fair value recorded in Other Income (expense), net in the Consolidated Statements of Operations and Other Comprehensive Loss, except for
10
changes in fair value that result from a change in the instrument specific credit risk which are presented separately within other comprehensive income (loss). The fair value estimate includes significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. The decision to elect the fair value option is made on an instrument-by-instrument basis on the date the instrument is initially recognized, is applied to the entire instrument, and is irrevocable once elected. As a result of applying the fair value option, direct costs and fees related to issuance of SAFE were expensed as incurred.
As more fully described in Note 17, post consummation of the merger in November 2022, all SAFE notes were assumed by Complete Solar.
Fair Value Measurements— As more fully described in Note 7, the Company follows ASC 820, Fair Value Measurements, which establishes a common definition of fair value to be applied when U.S. GAAP requires the use of fair value, establishes a framework for measuring fair value, and requires certain disclosure about such fair value measurements. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value accounting is applied to all assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Concentration of Credit Risk— Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Concentration risk for cash and cash equivalents is mitigated by banking with a creditworthy financial institution. At times, cash deposits have exceeded the federally insurable limit; however, the Company has not experienced any losses on its cash deposits and cash equivalents since inception. The Company generally does not require collateral or other security to support its accounts receivable. Credit is extended to customers based on an evaluation of their financial condition and other factors. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts as appropriate.
The Company had one major customer for the years ended December 31, 2021, and 2020, respectively. Major customers are defined as customers generating revenue greater than 10% of the Company’s revenue. Revenue from the major customer accounted for 69% and 58% of revenue for the years ended December 31, 2021, and 2020, respectively. Accounts receivable from the major customer totaled $3.6 million and $9.2 million as of December 31, 2021, and 2020, respectively.
For the year ended December 31, 2021, three suppliers represented 56% of the Company’s inventory purchases. For the year ended December 31, 2020, three suppliers represented 41% of the Company’s inventory purchases.
Inventory, net— Inventory, net consist of raw materials, work-in-progress, and finished goods, stated at the lower of actual cost (which approximates first-in, first-out basis) or net realizable value. The determination of net realizable value involves numerous judgments, including estimated future demand and selling prices. Inventory that is obsolete, in excess of the Company’s forecasted demand or is anticipated to be sold at a loss is written down to its estimated realizable value based on product life cycle, development plans, expected demand or quality issues.
Property and Equipment, net— Property and equipment, net is stated at cost and depreciated on a straight-line basis over the assets’ estimated useful lives. Equipment purchased but not yet placed into service is classified as construction in progress and is not depreciated until it is placed in service. Upon retirement or sale, costs and related accumulated depreciation are removed from the balance sheets and the resulting gain or loss is included in operating expense in the Consolidated Statements of Operations and Comprehensive Loss. Maintenance and repairs costs are charged to operations as incurred.
11
Depreciation is calculated on a straight-line basis over the estimated useful lives of those assets, ranging from three years to five years. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the remaining lease term.
Investment in Privately Held Company— In June 2015, the Company invested $0.3 million in a privately held company and accounted for such investment using the cost method. As of December 31, 2020, this investment is included in other noncurrent assets in the consolidated Balance Sheet. The Company monitors the investment for impairment and makes appropriate reductions in carrying value if the Company determines that an impairment charge is required based primarily on the financial condition and near-term prospects of the investee. In December 2021, the Company determined the investment carrying value to be fully impaired and recorded a $0.3 million expense to Other Income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss.
Impairment of Long-Lived Assets— The Company periodically evaluates the carrying value of long-lived assets to be held and used when indicators of impairment exist. The carrying value of a long-lived asset to be held and used is considered impaired when the estimated separately identifiable undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the estimated cash flows discounted at a rate commensurate with the risk involved. As discussed in Note 3, in December 2021, the Company recorded a write-down of assets associated with its Solar Park contract manufacturer in Korea. Equipment with a net carrying value of $4.2 million was fully written off as part of the Solar Park write-down. In addition, as discussed in Note 5, in March of 2020, the Company recorded an impairment charge of $0.4 million related to the abandonment of certain manufacturing equipment which was no longer expected to be completed. No other significant impairment charges have been recorded in the periods presented.
Commitments and Contingencies— The Company is and may become involved in various legal proceedings arising from its business activities. While management is not aware of any litigation matter that in and of itself would have a material adverse impact on the Company’s consolidated results of operations, cash flows or financial position, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in the Company’s consolidated financial statements.
An estimated loss contingency is accrued in the Company’s consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of the Company’s potential liability.
Revenue Recognition— In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance, Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers that supersedes nearly all U.S. GAAP on revenue recognition and eliminates legacy industry-specific guidance. Since its issuance, the FASB has issued several amendments to ASC 606. The Company adopted ASC 606 on January 1, 2018, using the modified retrospective method.
The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its arrangements with customers:
| • | Identify the contract with a customer; |
| • | Identify the performance obligations in the contract; |
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| • | Determine the transaction price; |
| • | Allocate the transaction price to the performance obligations in the contract; and |
| • | Recognize revenue as performance obligations are satisfied. |
ASC 606 provides a unified model in determining when and how revenue is recognized with the core principle that revenue should be recognized when a customer obtains control of the promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company generates revenues from the sale of silicon photovoltaic solar panels and licensing of the Company’s technology to third parties.
The Company contracts with customers under non-cancellable arrangements. While customers, including distributors, may cancel master purchase agreements for convenience at any time, customers may not cancel or modify purchase orders placed under the terms of such master purchase agreements after 4 weeks from the scheduled delivery date. Each purchase order is therefore a contract with the customer, i.e., the purchase of a quantity of any given, single product; further, purchase orders do not commit the customer to purchase any further volumes over time. Contract modifications do not carry revenue recognition implications as no revenue is recognized until control over products, or intellectual property, as applicable, has transferred to the customer.
The Company’s contracts with customers consist of a single performance obligation as the Company has no practice of selling products and licensing its intellectual property under the same arrangement. Products and licensed intellectual property are distinct performance obligations. Customers can benefit from the panels and intellectual property on their own – the panels and intellectual property can be used on their own, and the panels do not require integration with other offerings, do not modify or customize (or are being modified or customized by) other offerings, and are not highly interrelated or interdependent with other offerings. Similarly, no purchase of panels is required for the customer to be able to use the intellectual property as intended, and updates, if any, to the intellectual property being licensed are not critical to the customer’s ability to derive the intended benefits from such licensing arrangement over the licensing term. The Company does not offer extended warranty for customers to purchase, nor does the Company sell any services related to the panels. Further, while customers do have the option to purchase additional quantities of any given products, such options do not grant material rights to the customer as all such options are priced similarly to the upfront transaction and the pricing of each purchase order is highly variable.
The transaction price is determined based on the total consideration specified in the contract, including variable consideration. Variable consideration consists of a variety of incentives, such as volume-based rebates and price protection. The Company uses the expected-value method to estimate variable consideration, which results in a reduction of the transaction price.
The pricing of each purchase order is separately negotiated and is reflective of management’s pricing objectives in agreeing to honor such purchase order once agreed to. No reallocation of the transaction price is generally required as contracts with customers typically include a single performance obligation.
The Company recognizes revenue from sales of products as control is transferred to the customer, generally upon delivery to the customer’s premises as customers do not have rights of return and the Company does not have significant obligations post shipment. In instances where the price of a licensing arrangement is fixed at arrangement inception, license revenue is recognized at the time control over the related intellectual property has transferred to the customer. In instances where the pricing of a licensing arrangement is royalty-based, revenue is recognized based on estimates of the licensee’s estimated use of the licensed intellectual property in the period of reference, with a true up being recorded as actual use becomes known based on royalty reports received from the licensee.
Revenue is recognized net of sales taxes charged to customers. The Company accounts for shipping and handling costs as fulfillment costs.
Capitalized Contract Acquisition Costs and Fulfillment Cost— Contract acquisition costs primarily consist of commissions that the Company incurs to obtain a contract with a customer. These costs are
13
incremental (i.e., no commissions are due and payable unless a contract is entered into with a customer) and recoverable. However, as the period from fulfillment of the performance obligation to rights to payment does not exceed a year, commission, costs, as permitted by the practical expedient, are expensed upon control of the product transferring to the customer, generally upon delivery because based on the above, these costs do not benefit future periods.
Cost of Revenue— Cost of revenue consists primarily of direct production costs, including labor, materials, and subcontractor costs, indirect labor and overhead costs related to manufacturing activities; depreciation of production equipment, and allocated facilities costs.
Shipping and Handling— The Company considers shipping and handling to represent activities performed in fulfilling the contract with the customer. When shipping is charged to the customer, the Company nets such charges against actual shipping costs incurred. Taxes imposed by governmental authorities on the Company’s revenue producing activities, such as sales taxes, are excluded from net sales.
Warranty Cost— The Company warrants that its products will operate substantially in conformity with published product specifications, generally for a period of twenty-five years. The Company does not sell extended warranty coverage. The warranties provide the purchaser with protection in the event of defect or failure to perform as warranted. In fiscal year 2020, the Company changed its warranty accrual calculation methodology from a revenue-based methodology to a cost of goods sold-based methodology. Management concluded that the impact of such change in the period of change and in all periods prior to such change was de minimis and therefore reflected the impact of the change in the period the change was effected. Therefore, all periods presented are materially consistent. The Company accrues the estimated cost of warranties in the period the related revenue is recognized based on historical and projected warranty claim rates, historical and projected cost per claim, and knowledge of specific product failures outside the Company’s typical experience. Estimated warranty obligations as of December 31, 2021 and 2020 were $1.7 million and $1.2 million, respectively, and are included in Accrued expenses and other current liabilities in the consolidated balance sheets.
The following table is a roll forward of warranty cost as of December 31, 2021, and 2020 (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Beginning balance |
$ | 1,248 | $ | 929 | ||||
| Warranty settlements |
(135 | ) | (224 | ) | ||||
| Additions to warranty accrual |
625 | 543 | ||||||
|
|
|
|
|
|||||
| Ending balance |
$ | 1,738 | $ | 1,248 | ||||
|
|
|
|
|
|||||
| Warranty cost, current |
$ | 87 | $ | 62 | ||||
| Warranty cost, noncurrent |
1,651 | 1,186 | ||||||
|
|
|
|
|
|||||
| Total warranty cost |
$ | 1,738 | $ | 1,248 | ||||
|
|
|
|
|
|||||
Research and Engineering— Research and engineering costs that do not meet the criteria for capitalization are expensed as incurred. Research and engineering costs primarily consist of compensation, employee benefits, stock-based compensation related to technology developers and product management employees, as well as fees paid for outside services.
Sales and Marketing— Sales and marketing costs are charged to expense as incurred. The Company incurred advertising costs amounting to $0.6 million and $0.3 million for the years ended December 31, 2021 and 2020, respectively.
General and Administrative— General and administrative expenses primarily consist of employee compensation, including stock-based compensation and benefits for the Company’s finance, human resources, legal, and general management functions as well as facilities and professional services.
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Litigation-Related Costs – primarily consist of legal costs incurred in connection with the Company’s patent infringement claims against Canadian Solar, Inc (“Canadian Solar”) filed by Solaria in March 2020 in the Federal District Court for the Northern District of California and in the United States International Trade Commission (ITC) and related to Solaria’s proprietary shingled solar module technology. An initial determination in favor of the Company by the Chief Administrative Law Judge of the United States International Trade Commission was reached in October 2021. ln June 2022, the Company announced that it has settled its patents infringement claims and would terminate the litigation against Canadian Solar in return for Canadian Solar ceasing its importation of shingled solar panels into the United States for seven years.
Stock-Based Compensation— The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation (“ASC 718”).
The Company grants stock options to its employees, directors and consultants for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant. All stock-based payments to employees and non-employees, including grants of stock options, are recognized in the consolidated financial statements based on their respective grant date fair values.
The Company estimates the fair value of stock-based payments on the date of grant using the Black-Sholes-Merton option pricing model. The model requires management to make a number of assumptions, including the expected volatility of the Company’s stock, the expected life of the option, the risk-free interest rate, expected dividends, and forfeiture rates. The fair value of the stock options, adjusted for forfeitures, is expensed over the related service period which is typically the vesting period.
Redeemable Convertible Preferred Stock Warrants— The Company accounts for the outstanding warrants exercisable into shares of the Company’s redeemable convertible preferred stock in accordance with FASB Accounting Standards Codification (ASC) Topic 480, Distinguishing Liabilities from Equity. Under Topic 480, the Company is required to classify certain warrants to purchase shares of stock as liabilities and adjust the warrant instruments to fair value at each reporting period. At the end of each reporting period, changes in fair value during the period are recognized as a component of Other Income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss. The Company will continue to adjust the preferred stock warrant liability for changes in the fair value until the earlier of the exercise or expiration of the warrants or the completion of a liquidation event, including completion of an initial public offering, at which time the warrant liability will be reclassified to additional paid-in capital.
Income Taxes— The Company accounts for income taxes using the asset and liability method as described in ASC 740, Income Taxes. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and income tax credit carryforwards. The effect on deferred income tax assets and liabilities of a change in income tax rates is recognized in the Consolidated Statements of Operations and Comprehensive Loss in the period that includes the enactment date. Deferred income taxes are netted and classified as a noncurrent asset or liability on the consolidated balance sheets.
In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period when such determination is made. As more fully discussed in Note 12, as of December 31, 2021 and 2020 the Company had fully reserved its deferred tax assets.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than
15
50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Leases— The Company early adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as amended (“ASC 842”) effective January 1, 2018 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. ASC 842 requires all lessees to recognize most leases on their balance sheets as lease right-of-use (“ROU”) assets with corresponding lease liabilities.
Operating lease right-of-use assets and operating lease liabilities are recognized at the present value of the future lease payments, generally for the base lease term, at the lease commencement date for each lease. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate because the interest rate implicit in most of the Company’s leases is not readily determinable. The Company’s incremental borrowing rate is estimated to approximate the interest rate that the Company would pay to borrow on a collateralized basis with similar terms and payments as the lease, and in economic environments where the leased asset is located.
Operating lease right-of-use assets also include any prepaid lease payments and lease incentives. The Company’s lease agreements generally contain lease and non-lease components. Non-lease components, which primarily include payments for maintenance and utilities, are combined with lease payments and accounted for as a single lease component. The Company includes the fixed non-lease components in the determination of the right-of-use assets and operating lease liabilities. The Company records the amortization of the right-of-use asset and the accretion of lease liability as rent expense included in general and administrative, cost of revenue, research and engineering and sales and marketing in the consolidated statement of operations and comprehensive loss. The Company did not identify any finance leases at December 31, 2021 and 2020.
When lease agreements provide allowances for leasehold improvements, the Company assesses whether it is the owner of the leasehold improvements for accounting purposes. When the Company concludes that it is the owner, the Company capitalizes the leasehold improvement assets and recognizes the related depreciation expense on a straight-line basis over the lesser of the lease term or the estimated useful life of the asset. Additionally, the Company recognizes the amounts of allowances to be received from the lessor as a reduction of the lease liability and the associated right-of-use asset. When the Company concludes that it is not the owner, the payments that the Company makes towards the leasehold improvements are accounted as a component of the lease payments.
Accounting Pronouncements Recently Adopted — In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement. This guidance evaluated such costs for capitalization using the same criteria as for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. This ASU is effective for the Company on January 1, 2021. The adoption of this ASU on January 1, 2021 did not have a material impact to the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The amendments in ASU 2020-06 simplify accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will no longer be available. ASU 2020-06 is effective for interim and annual reporting periods beginning after December 15, 2023, with early adoption permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods
16
within those fiscal year. The Company adopted the new standard on January 1, 2022 under the modified retrospective approach resulting in a cumulative catch-up adjustment of $1.1 million to accumulated deficit and additional paid-in capital as of the date of adoption related to the beneficial conversion feature related to the 2018 Bridge Notes as discussed in Note 7.
Recent Accounting Pronouncements Not Yet Adopted
The Company currently qualifies as an EGC under the JOBS Act. Accordingly, the Company has the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. The Company has elected to adopt new or revised accounting guidance within the same time period as private companies, unless, as indicated below, management determines it is preferable to take advantage of early adoption provisions offered within the applicable guidance.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the FASB’s guidance on the impairment of financial instruments. Topic 326 adds to GAAP an impairment model (known as the “current expected credit loss model”) that is based on expected losses rather than incurred losses. ASU 2016-13 is effective for the Company’s annual and interim periods beginning after December 15, 2022 with early adoption permitted. The Company does not expect to early adopt the new standard. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and for interim periods within fiscal years beginning after December 15, 2022. Most amendments within this accounting standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted ASU 2019-12 under the private company transition guidance beginning January 1, 2022, the adoption did not have an impact on the Company’s financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). This guidance clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for all entities, including adoption in an interim period. The Company adopted ASU 2021-04 under the private company transition guidance beginning January 1, 2022, the adoption did not have an impact on the Company’s financial statements.
| 3. | SOLAR PARK RELATED COSTS |
In December 2021 the Company determined that it would no longer utilize Solar Park Korea Co., Ltd. (“Solar Park”), a contract manufacturer, for production of solar panels. Solar Park was experiencing serious financial issues during the fourth quarter of 2021.
As of December 31, 2021, the Company evaluated the relevant facts and circumstances, determined that substantially all Company assets associated with Solar Park were at risk. Accordingly, the Company wrote off the full carrying value of the assets described below Solar Park as a component of operating expenses in
17
the consolidated statement of operations and comprehensive loss for the year ended December 31, 2021 (in thousands):
| Description |
Amount | |||
| Inventory and related advances write-down |
$ | 9,123 | ||
| Equipment and related advances write-down |
7,928 | |||
|
|
|
|||
| Total |
$ | 17,052 | ||
|
|
|
|||
These amounts include inventory of $8.7 million, inventory-related advances of $0.4 million, equipment of $4.2 million and equipment-related advances of $3.7 million. The Company utilized inventory held outside of Solar Park to facilitate its transition to a new provider during fiscal year 2022.
As discussed in Notes 14 and 17, in June 2022, the Company filed a notice of arbitration with the Singapore International Arbitration Centre (“SIAC”) seeking approximately $47.0 million in damages against Solar Park in connection with the write-downs described above and other costs related to the loss of Solar Park’s production and transition to a new provider. Solar Park filed a response with SIAC in June 2022 asserting damages of approximately $30.0 million against the Company. The arbitration hearing, is expected to occur during the first half of 2024.
| 4. | REVENUE |
The Company generates revenues from the sale of silicon photovoltaic solar panels and licensing of the Company’s technology to third parties.
Product Sales— The Company recognizes revenue from sales of products as control is transferred to customers, which generally occurs upon delivery to the customer’s premises. Other than standard warranty obligations, there are no rights of return or significant post-shipment obligations with respect to the Company’s products. Contracts with customers consist of a single performance obligation, hence the entire transaction price is allocated to this single performance obligation. In determining the transaction price in contracts with customers, the Company reduces revenue for the estimated costs of customer and distributor programs and incentive offerings such as price protection and rebates. Any provision for customer and distributor programs and other discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience.
License Revenue — The Company derives revenue from the licensing of the Company’s technology to third parties. Revenue from functional IP licensing arrangements is recognized at a point in time when control over the licensed technology is transferred to the customer. License fees, i.e., royalties, that are not fixed at contract inception are recognized over time upon occurrence of the later of the subsequent technology sale or usage, or satisfaction of the performance obligation to which some or all of the usage-based royalty relates. The Company recorded license revenue amounting to $0.03 million and $0.2 million for the years ended December 31, 2021, and 2020, respectively, which is included under product revenue, net in the Consolidated Statements of Operations and Comprehensive Loss.
Disaggregated revenue by primary geographical market and business activity are as follows (in thousands):
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Primary geographical markets |
||||||||
| U.S. |
$ | 56,577 | $ | 46,158 | ||||
| International |
3,186 | 2,170 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 59,763 | $ | 48,328 | ||||
|
|
|
|
|
|||||
| Product sales |
$ | 59,737 | $ | 48,098 | ||||
| Royalty |
26 | 230 | ||||||
|
|
|
|
|
|||||
| Total revenue |
$ | 59,763 | $ | 48,328 | ||||
|
|
|
|
|
|||||
18
Contract Balances — Contract liabilities consist of deferred revenue or customer deposits and relate to amounts invoiced to or advance consideration received from customers, which precede the Company’s satisfaction of the associated performance obligation(s).
The following table is a roll forward of deferred revenue balances as of December 31, 2021, and 2020 (in thousands):
| Years Ended December 31, |
||||||||
| 2021 | 2020 | |||||||
| Deferred revenue—beginning balance |
$ | 2,070 | $ | 2,246 | ||||
| Additions |
1,494 | 5,624 | ||||||
| Revenue recognized |
(3,489 | ) | (5,800 | ) | ||||
|
|
|
|
|
|||||
| Deferred revenue—ending balance |
$ | 75 | $ | 2,070 | ||||
|
|
|
|
|
|||||
As of December 31, 2021, and 2020, the Company’s deferred revenue is expected to be recognized during the succeeding 12-month period and is therefore presented as deferred revenue, current, in the consolidated balance sheets.
| 5. | FINANCIAL STATEMENT COMPONENTS |
Inventories, Net—The components of inventories as of December 31, 2021 and 2020, respectively, were as follows (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Finished goods |
$ | 16,928 | $ | 5,029 | ||||
| Work in progress |
— | 1,712 | ||||||
| Raw materials |
— | 3,707 | ||||||
|
|
|
|
|
|||||
| Total inventory, net |
$ | 16,928 | $ | 10,448 | ||||
|
|
|
|
|
|||||
As of December 31, 2021 and 2020 reserves for inventory obsolescence were $0.1 million and $0.2 million, respectively.
As more fully discussed in Note 3, in December 2021, the Company wrote off approximately $8.7 million of inventory which is held at the Solar Park contract manufacturer’s site in Korea and is not expected to be recoverable.
Property and Equipment, net— Property and equipment, net as of December 31, 2021 and 2020, consist of the following (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Manufacturing equipment |
$ | 3,195 | $ | 7,316 | ||||
| Leasehold improvement |
864 | 1,080 | ||||||
| Furniture, fixtures and office equipment |
66 | 100 | ||||||
|
|
|
|
|
|||||
| $4,125 | $8,496 | |||||||
| Less: Accumulated depreciation |
(3,126 | ) | (3,568 | ) | ||||
|
|
|
|
|
|||||
| Total property and equipment, net |
$ | 999 | $ | 4,928 | ||||
|
|
|
|
|
|||||
Total depreciation expense for the years ended December 31, 2021, and 2020 was $1.3 million and $0.5 million, respectively.
19
In addition, in March of 2020, the Company recorded an impairment charge of $0.4 million related to the abandonment of certain manufacturing equipment which was no longer expected to be completed. These assets were previously included as a component of Construction in Progress within Property and Equipment. The write-down was included in the Consolidated Statement of Operations and Comprehensive Loss as Impairment and Related Charges.
As more fully discussed in Note 3, the Company wrote off approximately $4.2 million net carrying value of manufacturing equipment which is held at the Solar Park contract manufacturer’s site in Korea and is not expected to be recoverable.
Accrued Expenses and Other Current Liabilities— Accrued expenses and other current liabilities consist of the following (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Accrued purchases |
$ | 2,657 | $ | 1,400 | ||||
| Accrued rebates and credits |
1,967 | 2,313 | ||||||
| Warranty cost, current |
87 | 62 | ||||||
| Other taxes payable |
1,053 | 2,275 | ||||||
| Customer deposits |
773 | 452 | ||||||
| Accrued payroll |
784 | 1,099 | ||||||
| Current portion of amount payable to a vendor (Note 14) |
1,699 | 1,252 | ||||||
| SCI Term Loan and Revolving Loan amendment fees |
1,700 | — | ||||||
| Other accrued liabilities |
993 | 1,122 | ||||||
|
|
|
|
|
|||||
| Total accrued expenses and other current liabilities |
$ | 11,713 | $ | 9,975 | ||||
|
|
|
|
|
|||||
Other income (expense), net
Other income (expense), net consists of the following (in thousands):
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Forgiveness of Paycheck Protection Program Loan (Note 7) |
$ | 1,433 | $ | — | ||||
| Change in fair value of redeemable convertible preferred stock warrant liability (Note 8) |
358 | 1,085 | ||||||
| Write-off of Investment in Privately Held Company |
(250 | ) | — | |||||
| Others |
(83 | ) | 319 | |||||
|
|
|
|
|
|||||
| Total other income (expense), net |
$ | 1,458 | $ | 1,404 | ||||
|
|
|
|
|
|||||
| 6. | LEASES |
Operating Leases— In April 2018, the Company entered into a 56-month lease agreement for an office space in Oakland, California for $0.8 million in total payments. Effective June 2021, the Company terminated the lease agreement and agreed to settle the unpaid rent and related legal costs for $0.3 million. As a result, the Company derecognized the Oakland right-of use asset and corresponding lease liability and recognized a loss of $0.01 million as Other Income (Expense), net in the Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2021.
20
In November 2019, the Company entered an 84-month lease for office and manufacturing space in Fremont, California (“Fremont facility”) for $3.3 million in total payment. The Company has an option to renew the lease for five years. Lease renewals are not assumed in the determination of the lease term until the exercise of the renewals are deemed to be reasonably certain.
Operating lease right of use assets and lease liability as of December 31, 2021 and 2020 were as follows (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease right-of-use assets, net |
$ | 1,642 | $ | 2,156 | ||||
|
|
|
|
|
|||||
| Lease liabilities: |
||||||||
| Current |
$ | 283 | $ | 390 | ||||
| Noncurrent |
1,674 | 2,139 | ||||||
|
|
|
|
|
|||||
| Total lease liabilities |
$ | 1,957 | $ | 2,529 | ||||
|
|
|
|
|
|||||
For the years ended December 31, 2021 and 2020, the Company incurred operating leases expenses of $0.7 million and $0.8 million, respectively, which is included in research and engineering, sale and marketing and general and administrative expenses in the consolidated statement of operations and comprehensive loss.
Supplemental cash flow information and non-cash activity related to the Company’s operating leases for the years ended December 31, 2021 and 2020, respectively, were as follows (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash payments included in the measurement of operating lease liability – operating cash flows |
$ | 991 | $ | 441 | ||||
|
|
|
|
|
|||||
As of December 31, 2021, future minimum lease payments under the noncancellable lease agreements are as follows (in thousands):
| Future Operating Lease Payments |
Amount | |||
| 2022 |
$ | 512 | ||
| 2023 |
528 | |||
| 2024 |
548 | |||
| 2025 |
559 | |||
| Thereafter |
477 | |||
|
|
|
|||
| Reasonably certain future lease payments |
2,624 | |||
| Less imputed interest |
(667 | ) | ||
|
|
|
|||
| Total operating lease liability |
1,957 | |||
| Less current portion |
283 | |||
|
|
|
|||
| Operating lease liability, noncurrent |
$ | 1,674 | ||
|
|
|
|||
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Weighted-average remaining lease term |
4.4 Years | 5.3 Years | ||||||
| Weighted-average lease discount rate |
12.75 | % | 12.75 | % | ||||
As of December 31, 2021 and 2020, the discount rate of 12.75% for the operating lease was determined based on recent debt financing transaction.
21
| 7. | NOTES PAYABLE, NET |
Notes payable, net consists of the following (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| 2018 Bridge Notes |
$ | 7,076 | $ | 4,422 | ||||
| Payroll Protection Program Loan |
1,414 | 1,433 | ||||||
| Simple Agreement for Future Equity Note |
34,001 | 2,000 | ||||||
| Term and Revolver Loan |
9,618 | 9,254 | ||||||
|
|
|
|
|
|||||
| Total notes payable, net |
52,109 | 17,109 | ||||||
| Less current portion |
(10,912 | ) | (5,938 | ) | ||||
|
|
|
|
|
|||||
| Notes payable, net of current portion |
$ | 41,197 | $ | 11,171 | ||||
|
|
|
|
|
|||||
2018 Bridge Notes
In December 2018, the Company issued senior subordinated convertible secured notes (“2018 Notes”) totaling approximately $3.4 million in exchange for cash. The notes bear interest at the rate of 8% per annum and the investors are entitled to receive twice of the face value of the notes at maturity. The 2018 Notes are secured by substantially all of the Company’s assets.
In connection with the 2018 Notes, the Company originally issued warrants to purchase 486,240 shares of its common stock at $0.01 per share. The warrants, which were exercisable upon issuance, expire in December 2023. At issuance, the Company determined the relative fair value of the warrants to be $1.1 million. The Company recorded the fair value of the warrant as a debt discount within additional paid-in capital. After allocating $1.1 million to the warrant, the fair value of preferred stock in which the notes could be converted exceeded the carrying value of the notes. As such the conversion feature under the notes was considered a beneficial conversion feature which was treated as debt discount and amortized to interest expense using the effective interest rate method. The Company recorded an additional $1.1 million discount to the notes within additional paid-in capital.
In December 2021, the Company entered into an amendment to the 2018 Notes extending the maturity date from December 13, 2021 to December 13, 2022. In connection with the amendment, the notes will continue to bear interest at 8% per annum and are entitled to a repayment premium of 110% of the principal and accrued interest at the time of repayment. Additionally, the Company issued warrants to purchase 196,462 shares of Series E-1 redeemable convertible preferred stock (“Series E-1 warrants”) at $4.59 per share in connection with the amendment. The warrants were exercisable immediately and expire on December 13, 2031. Upon issuance, the Company determined the fair value of the warrants to be $0.7 million using the Black-Scholes option-pricing model using the following assumptions: no dividends; risk-free interest rate of 1.42%; contractual life of 10 years; and expected volatility of 54.4%. The Series E-1 warrants qualified as liabilities as the underlying preferred stock were contingently redeemable upon the occurrence of a change in control, which is outside the control of the Company. At December 31, 2021, all of the warrants issued remain outstanding.
The Company concluded that the modification was a troubled debt restructuring as the Company was experiencing financial difficulty and the amended terms resulted in a concession to the Company. As the future undiscounted cash payments under the modified terms exceeded the carrying amount of the 2018 Notes on the date of modification, the modification was accounted for prospectively. Additionally, the Company recorded the fair value of the Series E-1 warrants as a reduction of Notes payable, net of discounts to the restructured notes on the date of modification. The debt discount and incremental repayment premium are being amortized to interest expense using the effective interest rate method.
22
The net carrying value of 2018 Bridge Notes was as below (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Principal |
$ | 7,777 | $ | 5,555 | ||||
| Less: unamortized debt discount |
(701 | ) | (1,133 | ) | ||||
|
|
|
|
|
|||||
| Net carrying value |
7,076 | 4,422 | ||||||
| Less: current portion |
(7,076 | ) | (4,422 | ) | ||||
|
|
|
|
|
|||||
| Total noncurrent portion |
$ | — | $ | — | ||||
|
|
|
|
|
|||||
The following table sets forth the total interest expense recognized related to the 2018 Bridge Notes (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Amortization of debt discount |
$ | 1,160 | $ | 643 | ||||
| Contractual interest expense |
2,223 | 1,335 | ||||||
|
|
|
|
|
|||||
| Total interest expense |
$ | 3,383 | $ | 1,978 | ||||
|
|
|
|
|
|||||
| Effective interest rate of the liability component |
32.6 | % | 32.6 | % | ||||
|
|
|
|
|
|||||
Paycheck Protection Program Loan
In May 2020, the Company entered into an unsecured promissory note under the Payroll Protection Program (“PPP Loan”), with a bank under the PPP administered by the United States Small Business Administration (“SBA”) and authorized by the Keeping American Workers Employed and Paid Act, which is part of the CARES Act, enacted on March 27, 2020. The PPP Loan may be prepaid, in full or in part, at any time prior to maturity with no prepayment penalties. Under the terms of the PPP, the Company can apply for, and be granted, forgiveness for all or a portion of the PPP Loan. The principal amount of the PPP Loan is $1.4 million. The PPP Loan is non-interest bearing and has a maturity date of less than a year. The PPP Loan was forgiven in full in March 2021 and as a result gain on forgiveness of debt of $1.4 million is recorded within Other income (expense), net in the Company’s Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2021.
In February 2021, the Company obtained a PPP Loan with a principal amount of $1.4 million. The PPP Loan bears interest at less than 1% per annum and has a maturity date of less than one year. The PPP Loan principal and accrued interest was forgiven in full in January 2022.
Simple Agreement for Future Equity Notes
The Company entered into various interest free unsecured SAFE notes agreements and raised $32.0 million in fiscal 2021 and $2.0 million in fiscal 2020. The number of shares to be issued upon conversion of the SAFE notes are subject to the following:
Equity Financing – In the event of certain equity financing before the termination of the SAFE note, on the initial closing of such equity financing, the SAFE note will automatically convert into the number of shares of SAFE preferred stock in accordance with the terms of the SAFE agreement. In the event of certain other financing before the termination of the SAFE note, the investor may elect to convert the SAFE note into preferred stock equal based on the terms of the SAFE agreement.
Public Offering – If there is an Initial Public Offering (“IPO”) before the termination of the SAFE note, the SAFE note will automatically convert into the right to receive the number of shares of common stock according to the terms of the SAFE agreement.
23
Change of Control – If there is a Change of Control before the termination of the SAFE note, the SAFE note will automatically convert into the right to receive a portion of proceeds according to the terms of the SAFE agreement.
Dissolution Event – If there is a Dissolution Event before the termination of the SAFE note, the investor will automatically be entitled to receive a portion of proceeds according to the terms of the SAFE agreement.
Valuation Caps – the SAFE notes are subject to a valuation cap. The valuation cap is $190.0 million for each of 33 notes with aggregate principal of $30.0 million. Two notes with principal balance of $2.0 million each have valuation caps of $219.1 million and $221.1 million, respectively.
The Company elected to account for all of the SAFE notes at estimated fair value pursuant to the fair value option and recorded the change in estimated fair value as Other income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss until the notes are converted or settled.
The estimated fair values of SAFE notes approximated the face value and is considered a Level 3 fair value measurement.
Term and Revolver Loan
In October 2020, the Company entered into a loan agreement (“Loan Agreement”) with Structural Capital Investments III, LP (“SCI”).
The Loan Agreement with SCI comprises of two facilities, a term loan (the “Term Loan”) and a revolving loan (the “Revolving Loan”) (together “Original Agreement”) for $5.0 million each with a maturity date of October 31, 2023. Both the Term Loan and the Revolving Loan were fully drawn upon closing.
The Term Loan has a term of thirty-six months, equal monthly payments of principal beginning November 2021 until the end of the term and an annual interest rate of 9.25% or Prime rate plus 6%, whichever is higher. The Revolving Loan also has a term of thirty-six months, principal repayments at the end of the term and an annual interest rate of 7.75% or Prime rate plus 4.5%, whichever is higher. The Loan Agreement required the Company to meet certain financial covenants relating to maintenance of specified restricted cash balance, achieving specified revenue target and maintaining specified contribution margin (“Financial covenants”) over the term of each of the Term Loan and Revolving Loan.
In October 2020, the Company recorded debt issuance costs discount totaling $0.8 million related to the Original agreement. The total debt issuance costs and discount is being amortized to interest expense using the effective interest method.
In February 2021, the Company entered into an Amended and Restated Loan and Security Agreement as a First Amendment to the Original Agreement (“First Amendment”) to revise certain financial covenants within the Original Agreement.
In July 2021, the Company entered into an amendment to the Original Agreement (“Second Amendment”) as a forbearance agreement for SCI to forbear from exercising any rights and remedies available to it as a result of Company not meeting certain Financial Covenants required by the Original Agreement. As a result of this amendment changes were made to the financial covenants. The Company incurred $1.2 million in amendment fee related to the Second Amendment which was recognized as loss on extinguishment of debt discussed below.
In connection with the Second Amendment, the Company issued E-1 Warrants to purchase 305,342 shares of Series E-1 redeemable convertible preferred stock (“SCI Series E-1 warrants”) at $4.59 per share. The warrants were fully exercisable in whole or in part at any time during the term of the Original agreement. The SCI Series E-1 Warrants are scheduled to expire on July 30, 2031. Upon issuance, the Company determined the fair value of the warrants to be $1.2 million using the Black-Scholes option-pricing model using the following assumptions: no dividends; risk-free interest rate of 1.44%; contractual life of 10 years; and expected volatility of 55.7%. The Series E-1 warrants qualified as liabilities as the underlying preferred stock were contingently redeemable upon the occurrence of a change in control, which is outside the control of the Company.
24
The Company concluded that the modification to the terms of the Second Amendment changed the present value of cash flows by more than 10% and, as such, was treated as a debt extinguishment. The Company recognized a loss on extinguishment of debt of $3.0 million in the Consolidated Statements of Operations and Comprehensive Loss in July 2021 which included the fair value of SCI Series E-1 warrants of $1.2 million issued in connection with the modification and $1.2 million amendment fee.
In December 2021, the Company entered into an amendment to the Original Agreement (“Third Amendment”) as a forbearance agreement for SCI to forbear from exercising any rights and remedies available to it as a result of Company not meeting certain Financial Covenants required by the Original agreement. As a result of this amendment changes were made to the financial covenants. The Company incurred $0.5 million in amendment fee related to the Third Amendment and also paid default interest amounting to $0.3 million for the period April 2021 through November 2021. In connection with the Third Amendment, the Company further amended the exercise price of the Series D-1 Preferred Stock Warrants to $2.17 per share and also amended the number of warrants. As of the date of the Amendment, the Company determined the fair value of the amended Series D-1 Preferred Stock warrants to be $2.9 million using the Black-Scholes option-pricing model using the following assumptions: no dividends; risk-free interest rate of 1.35%; contractual life of 6 years; and expected volatility of 57.7%.
Additionally, the Company amended the exercise price of the Series E-1 Preferred Stock Warrants to $2.29 per share. As of the date of the Amendment, the Company determined the fair value of the amended Series E-1 Preferred Stock warrants to be $1.3 million using the Black-Scholes option-pricing model using the following assumptions: no dividends; risk-free interest rate of 1.44%; contractual life of 9.6 years; and expected volatility of 57.6%.
The Company concluded that the modification to the terms of the Third Amendment changed the present value of cash flows by more than 10% and, as such, was treated as a debt extinguishment. The Company recognized a loss on extinguishment of debt of $2.4 million in the Consolidated Statements of Operations and Comprehensive Loss in December 2021 which included the incremental fair value of the Series D-1 warrants of $1.7 million and incremental fair value of the Series E-1 warrants of $0.2 million relating to the modification.
The Term Loan and Revolving Loan consisted of the following (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Principal |
$ | 9,618 | $ | 10,000 | ||||
| Less: unamortized debt discount |
— | (746 | ) | |||||
|
|
|
|
|
|||||
| Net carrying value |
9,618 | 9,254 | ||||||
| Less: current portion |
(2,421 | ) | (83 | ) | ||||
|
|
|
|
|
|||||
| Total noncurrent portion |
$ | 7,197 | $ | 9,171 | ||||
|
|
|
|
|
|||||
The following table sets forth the total interest expense recognized related to the SCI term Loan and revolving Loan (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Amortization of debt discount |
$ | 170 | $ | 49 | ||||
| Contractual interest expense |
860 | 151 | ||||||
|
|
|
|
|
|||||
| Total interest expense |
$ | 1,030 | $ | 200 | ||||
|
|
|
|
|
|||||
25
The scheduled maturities of the SCI term loan and revolving loan, at December 31, 2021 are as follows (in thousands):
| Year |
Amount | |||
| 2022 |
$ | 2,421 | ||
| 2023 |
7,197 | |||
|
|
|
|||
| Total term and revolver loan |
$ | 9,618 | ||
|
|
|
|||
| 8. | REDEEMABLE CONVERTIBLE PREFERRED STOCK WARRANTS |
In 2010, in connection with a loan agreement, the Company issued a warrant to purchase 211,270 shares of Series A-1 preferred stock at an exercise price of $1.52 per share. These warrants were exercised in March 2021.
In connection with the Series B-1 preferred stock financing in February 2015, the Company amended certain previously outstanding common stock warrants into a warrant to purchase 35,294 shares of Series B-1 at an exercise price of $5.40 per share. These warrants were exercised in March 2021.
In 2017, in connection with a Loan and Security Agreement with Structural Capital Investments II, LP and El Dorado Investment Company, the Company issued warrants to purchase 147,551 shares of Series C-1 at an exercise price of $8.66 per share. In 2018, in connection with a second amendment to Loan and Security Agreement and the cancellation of the C-1 Warrants, the Company issued warrants to purchase 375,801 shares of Series D-1 at an exercise price of $4.33 per share. As fully discussed in Note 7, in December 2021, in connection with the Third Amendment to the Original Agreement, the Company amended certain terms of the warrant to purchase Series D-1 preferred stock. As amended, the Series D-1 preferred stock warrants are calculated based on a percentage of the Company’s fully diluted capitalization at an exercise price of $2.17 per share. As of December 31, 2021, 742,679 units of Series D-1 preferred stock warrants are outstanding. The warrants were exercisable upon issuance and expire on December 22, 2027.
As fully discussed in Note 7, in July 2021, in connection with the Second Amendment to Original Agreement, the Company issued warrants to purchase 305,342 shares of Series E-1 at an exercise price of $4.59 per share. In December 2021, in connection with the Third Amendment to the Original Agreement, the Company amended the exercise price of the Series E-1 preferred stock warrants to $2.29 per share.
As fully discussed in Note 7, in December 2021, in connection with the amendment to the 2018 Notes, the Company issued warrants to purchase 196,462 shares of Series E-1 Preferred Stock at an exercise price of $4.59 per share. The Series E-1 warrants remain outstanding as of December 31, 2021.
All of the above preferred stock warrants qualified as liabilities as the underlying preferred stock were contingently redeemable upon the occurrence of a change in control, which is outside the control of the Company. The preferred stock warrants have been recorded as a preferred stock warrant liability and are revalued to fair value each reporting period.
26
The changes in value of the preferred stock warrant liability are summarized below (in thousands):
| Amount | ||||
| Balance, December 31, 2019 |
$ | 2,810 | ||
| Change in Fair Value included in Other income (expense), net |
(1,085 | ) | ||
|
|
|
|||
| Balance, December 31, 2020 |
$ | 1,725 | ||
|
|
|
|||
| Series E-1 warrants issued in connection with SCI Second amendment—included in Loss on debt extinguishment |
$ | 1,191 | ||
| Series E-1 warrants issued in connection with 2018 Bridge notes amendment—included in Notes payable, net of discounts |
731 | |||
| Exercise of warrant |
(251 | ) | ||
| Change in Fair Value included in Loss on debt extinguishment relating to SCI Third amendment |
1,917 | |||
| Change in Fair Value included in Other income (expense), net |
(358 | ) | ||
|
|
|
|||
| Balance, December 31, 2021 |
$ | 4,955 | ||
|
|
|
|||
Fair Value Measurement — The Company follows ASC 820 which establishes disclosure requirements and a common definition of fair value to be applied when U.S. GAAP requires the use of fair value. The ASC 820 fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
Level 1—Observable inputs that reflect quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs that reflect quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the assets or liabilities, or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3—Inputs that are generally unobservable and are supported by little or no market activity, and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is significant to the fair value measurement in its entirety.
The consolidated financial statements as of and for the years ended December 31, 2021, and 2020, do not include any nonrecurring fair value measurements relating to assets or liabilities.
27
There were no transfers between Level 1 or Level 2 of the fair value hierarchy during the years ended December 31, 2021 and 2020.
| As of December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Financial liabilities: |
||||||||||||||||
| Simple Agreement for Future Equity Note |
$ | — | $ | — | $ | 34,001 | $ | 34,001 | ||||||||
| Redeemable convertible preferred stock warrants liability |
— | — | 4,955 | 4,955 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total financial liabilities |
$ | — | $ | — | $ | 38,956 | $ | 38,956 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| As of December 31, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Financial liabilities: |
||||||||||||||||
| SAFE Note |
$ | — | $ | — | $ | 2,000 | $ | 2,000 | ||||||||
| Redeemable convertible preferred stock warrants liability |
— | — | 1,725 | 1,725 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total financial liabilities |
$ | — | $ | — | $ | 3,725 | $ | 3,725 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The estimated fair values of SAFE notes as of December 31, 2021 and December 31, 2020, was determined to be same as face value.
As of December 31, 2021, the redeemable convertible preferred stock warrants were valued using the Black-Scholes option pricing model with the following assumptions:
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Expected term (in years) |
5.98 -9.95 | 0.25 - 6.98 | ||||||
| Expected volatility |
54.0% - 57.7% | 65.4% - 67.1% | ||||||
| Risk-free interest rate |
1.35% - 1.52% | 0.09% - 0.65% | ||||||
| Expected dividend yield |
0% | 0% | ||||||
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK
As of December 31, 2021, the Company is authorized to issue 13,500,285 shares of redeemable convertible preferred stock with a par value of $0.001 per share (collectively, Preferred Stock). Redeemable convertible preferred stock as of December 31, 2021 and 2020, consisted of the following (in thousands, except share and per share data):
| As of December 31, 2021 | ||||||||||||||||||||
| Shares Authorized |
Shares Issued and Outstanding |
Net Carrying Value |
Conversion Price Per Share |
Aggregate Liquidation Preference |
||||||||||||||||
| Series E-1 |
7,324,607 | 5,348,050 | $ | 49,186 | $ | 9.17 | $ | 49,042 | ||||||||||||
| Series D-1 |
375,801 | — | — | — | — | |||||||||||||||
| Series C-1 |
1,509,508 | 1,509,508 | 13,060 | 8.66 | 13,072 | |||||||||||||||
| Series B-1 |
785,471 | 785,471 | 4,237 | 5.40 | 4,242 | |||||||||||||||
| Series A-1 |
3,504,898 | 3,504,898 | 5,578 | 1.52 | 5,327 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 13,500,285 | 11,147,927 | $ | 72,061 | $ | 71,683 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
28
| As of December 31, 2020 | ||||||||||||||||||||
| Shares Authorized |
Shares Issued and Outstanding |
Net Carrying Value |
Conversion Price Per Share |
Aggregate Liquidation Preference |
||||||||||||||||
| Series E-1 |
7,324,607 | 5,367,134 | $ | 49,054 | $ | 9.17 | $ | 49,217 | ||||||||||||
| Series D-1 |
375,801 | — | — | — | — | |||||||||||||||
| Series C-1 |
1,509,508 | 1,509,508 | 13,055 | 8.66 | 13,072 | |||||||||||||||
| Series B-1 |
785,471 | 750,177 | 4,037 | 5.40 | 4,051 | |||||||||||||||
| Series A-1 |
3,504,898 | 3,293,628 | 5,006 | 1.52 | 5,006 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| 13,500,285 | 10,920,447 | $ | 71,152 | $ | 71,346 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
During March 2021, the Company issued 211,270 Series A-1 preferred stock and 35,294 Series B-1 preferred stock in connection with the exercise of warrants discussed in Note 8 above. Additionally, the Company entered into an agreement with an employee to reduce Series E-1 preferred stock by 19,084.
During March and April 2020, the Company issued 768,809 Series E-1 preferred stock at an issuance price of $9.17 per share for $6.7 million. Of the 768,809 shares, 32,715 shares were issued to a Board member as compensation.
The holders of Preferred Stock have the following rights, preferences, privileges and restrictions:
Dividends — The holders of the outstanding shares of Preferred Stock are entitled to receive, when and if declared by the Board of Directors, noncumulative dividends at the annual rate of 8% per share of Preferred Stock. Dividends on Preferred Stock are payable in preference to any dividends on common stock or Class B common stock. In any year, after payment of dividends on Preferred Stock, any additional dividends declared by the Board of Directors will be paid among the holders of Preferred Stock, common stock, and Class B common stock pro rata on an if-converted basis. No dividends have been declared or paid for the years ended December 31, 2021 and 2020.
Liquidation — Upon liquidation, dissolution, or winding up of the Company, including a change of control of the Company, holders of Preferred Stock will be entitled to receive, on a pro rata basis, prior and in preference to any distribution to holders of any series of common stock, an amount equal to $9.17 per share of Series E-1, $8.66 per share of Series D-1, $8.66 per share of Series C-1, $5.40 per share of Series B-1 and $1.52 per share of Series A-1, plus any declared but unpaid dividends on such shares. If the assets and funds thus available for distribution among holders of Preferred Stock are insufficient to provide such holders their full aforesaid preferential amount, then the entire amount of the assets and funds of the Company legally available for distribution will be distributed ratably among all holders of Preferred Stock.
After the distribution to the holders of Preferred Stock, any remaining assets of the Company legally available for distribution will be distributed pro rata, on an if-converted basis, to all holders of common stock and Class B common stock.
Conversion — Each share of Preferred Stock is convertible at the option of the holder into that number of common shares that is equal to the original issuance price of the Preferred Stock divided by the conversion price, as defined in the Company’s Certificate of Incorporation, subject to adjustment for events of dilution. Holders of Preferred Stock may elect to convert their shares into common stock at any time.
Each share of Preferred Stock will automatically convert into shares of common stock at the then effective conversion rate for each such share (i) immediately prior to the closing of a qualified public offering of the Company’s common stock in which gross proceeds exceed $15.0 million or (ii) upon the receipt by the Company of a written request for such conversion from the holders of a majority of the then outstanding Preferred Stock.
Voting — Each share of Preferred Stock has voting rights equivalent to the number of shares of common stock into which it is convertible.
29
Protective Provisions— As long as 250,000 shares of Preferred Stock remain outstanding, the majority vote of the holders of the then outstanding shares of Preferred Stock is necessary for consummation of certain transactions, including but not limited to: increasing or decreasing the authorized capital stock; creating any senior or pari passu security, privileges, preferences or voting rights senior to or on parity with those granted to the Preferred Stock; altering or changing the preferred series rights; redeeming or repurchasing the Company’s equity securities; and entering into any transaction deemed to be a liquidation or dissolution of the Company.
Redemption— At any time after 7 years from the issuance of respective series of Preferred Shares, the holders of a majority of the outstanding voting Preferred Stock Series may vote to require the Company to redeem all outstanding shares of Preferred Stock Series in three equal annual installments by paying in cash an amount per share equal to the original issuance price of the Preferred Stock Series, plus any accrued but unpaid dividends. If the Company does not have sufficient funds legally available to redeem all shares of Preferred Stock, then the Company will redeem the maximum possible number of shares ratably among the holders of such shares and will redeem the remaining shares as soon as sufficient funds are legally available. After 7 years from the issuance of respective series of Preferred Shares, the Preferred shares are then currently redeemable at the option of the holder and have been classified in the mezzanine section of the Consolidated Balance Sheets.
Preferred Shares are also contingently redeemable upon liquidation and certain deemed liquidation events such as acquisition, merger, consolidation or the sale, lease transfer, exclusive license or other disposition by the Company of all or substantially all of the assets of the Company. These events are outside the control of the Company and therefore the Preferred Stock have been classified in the mezzanine section of the Consolidated Balance Sheets.
The Company records its redeemable convertible preferred stock at the amount of cash proceeds received on the date of issuance, net of issuance costs. Since the preferred stock is probable of becoming redeemable at the option of the holder at a future date, accretion of the preferred stock will be recognized over the period of time from the date of issuance to the earliest redemption date. The accretion is recorded as additional paid-in capital. Accretion of preferred stock was $0.02 million and $0.04 million for the years ended December 31, 2021 and 2020, respectively.
| 10. | COMMON STOCK |
As of December 31, 2021 and 2020, the Company is authorized to issue two classes of common stock, designated as common stock and Class B common stock. The two classes of common stock have similar rights, except holders of common stock are entitled to one vote per share while holders of Class B common stock have no voting rights. Each share of Class B common stock will automatically convert into one share of common stock immediately prior to a qualified initial public offering of the Company’s common stock or upon the consummation of a liquidation event (as defined in the Certificate of Incorporation). As of December 31, 2021 and 2020, the Company is authorized to issue 27,000,000 shares of common stock with a par value of $0.001 per share and 815 shares are designated as Class B common stock.
In April 2021, 25,000 warrants to purchase common stock were exercised. In March 2021, 12,674 warrants to purchase common stock expired unexercised.
| 11. | RELATED PARTY TRANSACTIONS |
The Company defines related parties as directors, executive officers, nominees for director, stockholders that have significant influence over the Company, or are a greater than 5% beneficial owner of the Company’s capital and their affiliates or immediate family members. As of and for the years ended
30
December 31, 2021 and 2020, there were no significant related party transactions or balances other than the following:
As discussed in Note 7, in December 2018, the Company issued the 2018 Notes totaling approximately $3.4 million in exchange for cash. Three of the notes with aggregate principal of $0.2 million were issued to related parties including two officers and a trust affiliated with a Board member. The aggregate liability, inclusive of interest and principal accretion, totaled $0.4 million and $0.3 million as of December 31, 2021 and 2020, respectively. These amounts are included in the Consolidated Balance Sheets as Notes Payable, Net.
As discussed in Note 9, during March and April 2020, the Company issued 32,715 shares of Series E-1 preferred stock, at an issuance price of $9.17 per share, to a Board Member, as compensation for serving as President of the Company on an interim basis. Further as discussed in Note 9, in March 2021, the Company and the individual agreed to reduce the number of shares issued by 19,084.
| 12. | INCOME TAXES |
Loss before provision for income taxes for the year ended December 31, 2021 and 2020, was as follows (in thousands):
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Domestic |
$ | (53,282 | ) | $ | (23,452 | ) | ||
| Foreign |
(1,155 | ) | (323 | ) | ||||
|
|
|
|
|
|||||
| Total |
$ | (54,437 | ) | $ | (23,775 | ) | ||
|
|
|
|
|
|||||
The Company did not record a provision for income taxes for the year ended December 31, 2021. For the year ended December 31, 2020 the provision for income taxes was $0.1 million related to foreign withholding tax.
The reconciliation of federal statutory income tax rate to our effective income tax rate is as follows:
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Income tax provision at statutory rate |
21.0 | % | 21.0 | % | ||||
| State income taxes, net of federal benefit |
5.0 | % | 3.2 | % | ||||
| Non-deductible expenses and other |
-0.4 | % | -0.2 | % | ||||
| Non-deductible warrant expense |
0.2 | % | 1.0 | % | ||||
| Share-based compensation |
-0.8 | % | -1.3 | % | ||||
| Change in valuation allowance, net |
-24.5 | % | -23.3 | % | ||||
| Research and development credits |
0.1 | % | 0.1 | % | ||||
| Foreign rate differential |
-0.4 | % | -0.4 | % | ||||
| Forgiveness PPP loan |
0.6 | % | 0.0 | % | ||||
| Expired loss carry forward |
-0.6 | % | -0.5 | % | ||||
|
|
|
|
|
|||||
| Effective tax rate |
0.0 | % | -0.3 | % | ||||
|
|
|
|
|
|||||
The Company’s effective tax rate could also fluctuate due to changes in the valuation of its deferred tax assets or liabilities, or by changes in tax laws, regulations, and accounting principles.
31
Significant components of the Company’s deferred taxes as of December 31, 2021 and 2020 were as follows (in thousands):
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Deferred tax assets: |
||||||||
| Net operating loss carryforwards |
$ | 72,714 | $ | 61,488 | ||||
| Operating lease liability |
508 | 647 | ||||||
| Property and equipment, net |
430 | — | ||||||
| Research and development credit carryforward |
672 | 597 | ||||||
| Inventory reserve |
1,499 | 1,506 | ||||||
| Accrued expenses and other reserves |
2,652 | 1,325 | ||||||
| Stock-based compensation |
2,086 | 1,876 | ||||||
|
|
|
|
|
|||||
| Total deferred tax assets |
80,561 | 67,439 | ||||||
| Deferred tax liabilities: |
||||||||
| Property and equipment, net |
— | 85 | ||||||
| Operating lease right-of-use assets |
426 | 552 | ||||||
|
|
|
|
|
|||||
| Total deferred tax liabilities |
426 | 637 | ||||||
| Gross deferred tax assets |
80,135 | 66,802 | ||||||
| Less valuation allowance |
(80,135 | ) | (66,802 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax asset |
$ | — | $ | — | ||||
|
|
|
|
|
|||||
The Company has established a valuation allowance to offset the gross deferred tax assets as of December 31, 2021 and 2020, due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. The valuation allowance balance was $80.1 million and $66.8 million for the years ended December 31, 2021 and 2020, respectively.
In assessing the realizability of deferred income tax assets, the Company considered whether it is more likely than not that some portion or all of its deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the uncertainty surrounding the Company’s ability to realize such deferred income tax assets, a full valuation allowance has been established. The valuation allowance increased by $13.3 million during year ended December 31, 2021 and $5.5 million during year ended December 31, 2020.
As of December 31, 2021, the Company had federal net operating loss carryforward (“NOL”) of approximately $269.5 million which will begin to expire in 2023, a California net NOL of approximately $232.3 million which will start to expire, if not used, in 2028.
As of December 31, 2021, the Company had federal research and development credit carryforward (“R&D carryforward”) of approximately $1.8 million which will expire, if not used, in 2026, and a California R&D carryforward of approximately $1.6 million which can carry forward indefinitely.
As of December 31, 2020, the Company had federal a R&D carryforward of approximately $1.8 million which will expire, if not used, in 2026, and a California R&D carryforward of approximately $1.5 million which can carry forward indefinitely.
The utilization of the Company’s NOL’s and R&D carryforwards may be subject to limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code and similar foreign provisions. Such limitations may result in the expiration of these carryforwards before their utilization.
32
The Company is subject to income taxes in the U.S. federal jurisdiction, and various foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company’s tax years remain open for examination by all tax authorities since inception. The Company is not currently under examination in any tax jurisdictions.
The Company had unrecognized tax benefits of $1.3 million for federal and $1.3 million for state related to R&D credits generated as of December 31, 2021. As of December 31, 2020, the total amount of unrecognized tax benefits for federal and state was $1.3 million and $1.3 million, respectively. The reversal of the uncertain tax benefits would not affect the Company’s effective tax rate to the extent that it continues to maintain a full valuation allowance against its deferred tax assets.
The Company applies the provisions set forth in FASB ASC Topic 740, Income Taxes, to account for the uncertainty in income taxes. In the preparation of income tax returns in federal and state jurisdictions, the Company asserts certain tax positions based on its understanding and interpretation of income tax laws. The taxing authorities may challenge such positions, and the resolution of such matters could result in recognition of income tax expense in the Company’s financial statements.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Unrecognized tax benefits as of beginning of year |
$ | 2,649 | $ | 2,635 | ||||
| Increases related to current year tax positions |
20 | 14 | ||||||
|
|
|
|
|
|||||
| $ | 2,669 | $ | 2,649 | |||||
|
|
|
|
|
|||||
The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the statements of operations. Accrued interest and penalties are included as part of income tax payable in the consolidated balance sheets. No accrued interest or penalties have been recorded for year ended December 31, 2021 or December 31, 2020.
The Company has not provided U.S. income or foreign withholding taxes on the undistributed earnings of its foreign subsidiary as of December 31, 2022 and December 31, 2021 because it intends to permanently reinvest such earnings outside of the United States. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability will be immaterial, due to the participation exemption put in place under the 2017 Tax Cuts and Jobs Act.
On March 18, 2020, the Families First Coronavirus Response Act (FFCR Act) and, on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company analyzed the provisions of the Act and determined there was no significant impact to its 2020 or 2021 tax provision.
On June 29, 2020, the California Governor signed Assembly Bill 85 (“A.B. 85”) which includes several tax measures, provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5 million of tax per year. Generally, A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021, and 2022 for taxpayers with taxable income of $1.0 million or more. The Company analyzed the provisions of the A.B. 85 and determined there was no significant impact to its 2021 or 2020 tax provision.
33
On December 27, 2020, the “Consolidated Appropriations Act, 2021” (the “CAA”) was signed into law. The CAA includes provisions meant to clarify and modify certain items put forth in CARES Act, while providing aid to businesses affected by the pandemic. The CAA allows deductions for expenses paid for by Paycheck Protection Program (“PPP”) and Economic Injury Disaster Loan (“EIDL”) Program, clarifies forgiveness of EIDL advances, and other business provisions. The Company analyzed the provisions of the CAA and determined there was no significant impact to its 2021 and 2020 tax provision.
| 13. | STOCK-BASED COMPENSATION |
The Company has two stock option plans: the 2006 Stock Option Plan and the 2016 Stock Option Plan (collectively, the Plans). Options granted under the Plans may be either incentive stock options (ISOs) or nonqualified stock options (NSOs). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees, directors and consultants. Options under the Plans may be granted with contractual terms of up to ten years (five years if granted to holders of more than 10% of the Company’s vesting stock). All options issued through December 31, 2021 have a ten-year contractual term. The exercise price of an ISO and NSO will not be less than 100% and 85% of the estimated fair value of the shares on the date of grant, respectively, as determined by the Company’s Board of Directors.
The exercise price of an ISO and NSO granted to a 10% stockholder will not be less than 110% of the estimated fair value of the shares on the date of grant, as determined by the Board of Directors. Options generally vest over four to five years at a rate of 20% to 25% upon the first anniversary of the commencement date and monthly thereafter.
As of December 31, 2021 and 2020, there were 335,538 and 577,568 shares of common stock available to be granted under the Plan.
The Company estimated the fair values of each option awarded on the date of grant using the Black-Scholes-Merton option pricing model utilizing the assumptions noted below. The expected term of the options is based on the average period the stock options are expected to remain outstanding calculated as the midpoint of the options vesting term, and contractual expiration period, as the Company did not have sufficient historical information to develop reasonable expectations about future exercise patterns and post vesting employment termination behavior. The expected stock price volatility for the Company’s stock was determined by examining the historical volatilities of its industry peers as the Company did not have any trading history of its common stock. The risk-free interest rate was calculated using the average of the published interest rates for U.S. Treasury zero-coupon issues with maturities that approximate the expected term. The dividend yield assumption is zero as the Company has no history of, nor plans of, dividend payments. The estimated forfeiture rates are based on the Company’s historical forfeiture activity of unvested stock options.
The assumptions used under the Black-Scholes-Merton option pricing model and the weighted average calculated fair value of the options granted to employees for the years ended December 31, 2021 and 2020 are as follows:
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Grant date fair value |
$ | 1.00 | $ | 1.56 | ||||
| Expected term (in years) |
6.04 | 5.97 | ||||||
| Expected volatility |
60 | % | 56 | % | ||||
| Risk-free interest rate |
1.19 | % | 0.85 | % | ||||
| Expected dividend yield |
0 | % | 0 | % | ||||
34
A summary of the Company’s stock option and restricted stock unit activity and related information for the years ended December 31, 2021 and 2020 is as follows:
| Options outstanding | Restricted stock units | |||||||||||||||||||||||
| Number of shares |
Weighted average exercise price |
Weighted average remaining contractual term (years) |
Aggregate intrinsic values ($‘000s) |
Number of plan shares outstanding |
Weighted average grant date fair value per share |
|||||||||||||||||||
| Balances, December 29, 2019 |
4,397,782 | $ | 3.60 | 8.46 | $ | 3,802 | — | $ | — | |||||||||||||||
| Options granted |
3,042,592 | 3.01 | 120,000 | 3.91 | ||||||||||||||||||||
| Options exercised |
(25,000 | ) | 0.40 | |||||||||||||||||||||
| Options forfeited |
(1,290,613 | ) | 4.42 | |||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Balances, December 31, 2020 |
6,124,761 | 3.15 | 8.30 | 942 | 120,000 | 3.91 | ||||||||||||||||||
| Options granted |
2,700,752 | 1.78 | ||||||||||||||||||||||
| Options exercised |
(159,583 | ) | 2.31 | |||||||||||||||||||||
| Options forfeited |
(1,781,017 | ) | 3.20 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Balances, December 31, 2021 |
6,884,913 | 2.62 | 8.01 | 288 | 120,000 | 3.91 | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Options vested and exercisable — December 31, 2020 |
2,633,335 | 3.19 | 7.25 | 942 | ||||||||||||||||||||
| Options vested and exercisable — December 31, 2021 |
3,727,228 | 2.85 | 7.31 | 288 | ||||||||||||||||||||
Stock-based compensation is allocated on a departmental basis, based on the classification of the option holder or grant recipient. No income tax benefits have been recognized in the statements of operations for stock-based compensation arrangements and no stock-based compensation costs are capitalized as part of inventory or property and equipment as of December 31, 2021 and 2020.
Stock-based compensation expense is as follows for the years ended December 31, 2021 and 2020 in thousands):
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cost of revenues |
$ | 119 | $ | 147 | ||||
| Research and development |
456 | 539 | ||||||
| Sales and marketing |
638 | 684 | ||||||
| General and administrative |
1,586 | 1,647 | ||||||
|
|
|
|
|
|||||
| Total stock-based compensation |
$ | 2,799 | $ | 3,017 | ||||
|
|
|
|
|
|||||
Future stock-based compensation for unvested options granted and outstanding as of December 31, 2021 is $3.4 million to be recognized over the weighted-average remaining requisite service period of 2.83 years. The aggregate intrinsic value of options exercised was zero and $0.1 million for the years ended December 31, 2021 and 2020, respectively.
| 14. | COMMITMENTS AND CONTINGENCIES |
As more fully discussed in Note 3, Solar Park has asserted damages of $30.0 million against the Company in response to the Company’s arbitration claim seeking approximately $47.0 million in damages against Solar Park. The Company believes that the allegations lack merit and intends to vigorously defend all claims asserted. No liability has been recorded in the Company’s consolidated financial statements as the
35
likelihood of a loss is not probable at this time; and the Company does not believe a reasonably possible loss would be material to, nor does it expect the ultimate resolution of these cases will have a material adverse effect on, the Company’s financial condition, results of operations or cash flows.
As of December 31, 2021, the Company was contesting a $1.8 million liability to a vendor for the purchase of factory equipment which was intended to be used in Solar Park. The $1.8 million liability was included in the December 31, 2021 Consolidated Balance Sheet as Accrued Expenses and Other Current Liabilities of $1.7 million and Other Liabilities, noncurrent of $0.1 million. As of December 31, 2020 the liability was $1.6 million and was included in the Consolidated Balance Sheet as Accrued Expenses and Other Liabilities of $1.3 million and Other Liabilities, noncurrent of $0.3 million. On January 10, 2023, the Company reached an agreement with the vendor which reduced the liability from $1.8 million to $0.9 million.
In July 2020, the Company became aware that it might be subject to Antidumping and Countervailing Duties (“ADCVD”) on certain components manufactured in China and used in the solar panel production process in Korea. The Company applied for a definitive ruling from the U.S. Department of Commerce (“DoC”) while in parallel shifting its component supply from China. The DoC issued its ruling in April 2021. Because of the specificity of the DoC ruling in the Solaria case and prior case law under similar circumstances, the Company concluded that such ADCVD was not probable to be incurred for purchases in periods prior to the DoC ruling and immediately started paying appropriate ADCVD deposits on all entries after April 2021. No liability has been recorded in the Company’s consolidated financial statements as the likelihood of a loss is not probable at this time.
The Company is involved in other lawsuits and claims which arise in the normal course of business. These claims individually and in the aggregate are not expected to result in a material effect on the Company’s financial condition, results of operations or cash flows.
The Company had $4.5 million of outstanding letters of credit related to normal business transactions as of December 31, 2021. These agreements require the Company to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder. As discussed in Note 2, the cash collateral in these restricted cash accounts was $4.8 million and $3.7 million as of December 31, 2021 and 2020, respectively.
| 15. | EMPLOYEE BENEFIT PLAN |
The Company has a 401(k) plan to provide defined contribution retirement benefits for all employees. Participants may contribute a portion of their compensation to the plan, subject to limitations under the Code. The Company’s contributions to the plan are at the discretion of the Board of Directors. The Company has not made any contributions to the plan since inception.
| 16. | GEOGRAPHIC INFORMATION |
The following table summarize revenues by geographic area (in thousands):
| Years Ended December 31, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Amount | Percent | Amount | Percent | |||||||||||||
| Total revenue, net |
||||||||||||||||
| United States |
$ | 56,577 | 94.7 | % | $ | 46,158 | 95.5 | % | ||||||||
| Europe |
2,888 | 4.8 | % | 1,262 | 2.6 | % | ||||||||||
| Australia |
298 | 0.5 | % | 908 | 1.9 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 59,763 | 100.0 | % | $ | 48,328 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
36
| 17. | SUBSEQUENT EVENTS |
Management has evaluated subsequent events through February 9, 2023, the date of issuance of these financial statements and has determined that there are no subsequent events outside the ordinary scope of business that require adjustment to, or disclosure in, the financial statements other than those described below.
In January 2022, the PPP Loan principal and accrued interest was forgiven in full.
Effective March 23, 2022, the Company’s board of directors approved an offer, to certain eligible employees, to exchange existing stock options, with an exercise price above $1.36, for new replacement stock options. The exercise price of the replacement stock options is $1.36 per share, which was the estimated fair market value on the exchange date, as determined with assistance from third-party valuation specialists. Eligible employees elected to exchange an aggregate of 991,195 outstanding stock options, with exercise prices ranging from $1.64 to $3.91 per share, for new replacement stock options. The replacement stock options have a grant date of March 23, 2022 and a contractual term of 10 years. The exchange offer applied to both vested and unvested shares. Previously vested shares were exchanged for vested replacement stock options. Unvested shares were exchanged for shares which vest in accordance with the board-approved grant approval schedule with the service period ranging from 1.0 to 4.3 years. The repricing was accounted for as a modification and resulted in incremental stock-based compensation expense of $0.4 million.
In April 2022, the Company entered into an amendment to the Original Agreement (“Fourth Amendment”) as a forbearance agreement for SCI to forbear from exercising any rights and remedies available to it as a result of the Company not meeting certain Financial Covenants required by the Original Agreement. As a result of this amendment, changes were made to the financial covenants. The Company paid $0.15 million in amendment fee related to the Fourth Amendment.
In June 2022, the Company entered into an amendment to the Original Agreement (“Fifth Amendment”) related to SCI which resulted in certain changes to financial covenants including updates to quarterly revenue requirements and contribution margin requirements.
In May 2022, the Company issued a secured promissory note to a trust affiliated with Thurman J. (T.J.) Rodgers, a director of Solaria amounting to $6.5 million in exchange for cash. The secured promissory note accrues paid-in-kind interest at a rate of 7.5% per annum and the note had an original maturity date of July 11, 2022. In conjunction with the Agreement and Plan of Merger with Complete Solar discussed below, both the parties agreed to extend the note term beyond its original maturity date. The secured promissory note with the original principal value of $6.5 million and paid-in-kind interest of $0.2 million was finally terminated in October 2022, in exchange for the issuance of a new convertible note by Complete Solar.
In June 2022, as discussed in Notes 3 and 15, the Company filed a notice of arbitration with the Singapore International Arbitration Centre (“SIAC”) seeking approximately $47.0 million in damages against Solar Park in connection with the write-downs described in Note 3 and other costs related to the loss of Solar Park’s production and transition to a new provider. Solar Park filed a response with SIAC in June 2022 asserting damages of approximately $30.0 million against the Company. The parties stayed the arbitration to attend a mediation in early 2023, which was not successful. The arbitration is scheduled for February 2024.
In September 2022, the Company paid off the total outstanding principal and interest of the Term Loan related to the Loan Agreement with SCI in the amount of $2.8 million.
In October 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Complete Solar and formed Complete Solaria. As a result, the Company became a wholly-owned indirect subsidiary of Complete Solaria effective on the date of consummation of the merger in November 2022.
In October 2022, the Company entered into an amendment to the Original Agreement (“Sixth Amendment”) related to SCI, which resulted in removal of certain financial covenants related to revenue and contribution margin requirements.
37
In November 2022 Complete Solaria entered into a definitive business combination agreement with Freedom Acquisition I Corp. (NYSE: FACT) (“Freedom”), a Special Purpose Acquisition Company (“SPAC”). Upon closing of the business combination, which is expected in the first half of 2023, the combined Company is expected to be listed on the New York Stock Exchange under the new ticker “CSLR”.
In November 2022, the Company entered into an amendment to the 2018 Notes extending the maturity date from December 13, 2022 to December 13, 2023. In connection with the amendment, the terms of the notes will continue to bear interest at 8% per annum and are entitled to a repayment premium of 120% of the principal and accrued interest due. Additionally, in connection with the amendment and cancellation of 196,462 shares of Series E-1 warrants of Solaria, Complete Solaria, issued warrants to purchase 304,234 shares of Series D-7 preferred stock at $3.84 per share.
38
THE SOLARIA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)
| September 30, 2022 |
December 31, 2021 |
|||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 2,107 | $ | 9,113 | ||||
| Accounts receivable, net |
3,885 | 6,288 | ||||||
| Inventory, net |
4,010 | 16.928 | ||||||
| Prepaid expenses and other current assets |
10,442 | 2,053 | ||||||
|
|
|
|
|
|||||
| Total current assets |
20,444 | 34,382 | ||||||
| Restricted cash |
3,742 | 4,802 | ||||||
| Operating lease right-of-use assets, net and other noncurrent assets |
1,571 | 1,755 | ||||||
| Property and equipment, net |
836 | 999 | ||||||
|
|
|
|
|
|||||
| TOTAL ASSETS |
$ | 26,593 | $ | 41,938 | ||||
|
|
|
|
|
|||||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 2,386 | $ | 5,489 | ||||
| Accrued expenses and other current liabilities |
11,383 | 11,713 | ||||||
| Deferred revenue |
73 | 75 | ||||||
| Notes payable, net |
15,760 | 10,912 | ||||||
| Operating lease liability |
324 | 283 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
29,926 | 28,472 | ||||||
| NONCURRENT LIABILITIES: |
||||||||
| Redeemable convertible preferred stock warrants liability |
4,180 | 4,955 | ||||||
| Operating lease liability, net of current portion |
1,427 | 1,674 | ||||||
| Other liabilities, noncurrent |
3,374 | 2,341 | ||||||
| Notes payable, net of current portion |
55,187 | 41,197 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
94,094 | 78,639 | ||||||
|
|
|
|
|
|||||
| COMMITMENTS AND CONTINGENCIES (NOTE 13) |
||||||||
| MEZZANINE REDEEMABLE CONVERTIBLE PREFERRED STOCK |
||||||||
| Redeemable convertible preferred stock: par value of $0.001 per share; 13,500,285 shares authorized as of September 30, 2022 and December 31, 2021; 11,147,927 issued and outstanding as of September 30, 2022 and December 31, 2021; aggregate liquidation value of $71.7 million as of September 30, 2022 and December 31, 2021 |
72,070 | 72,061 | ||||||
|
|
|
|
|
|||||
| STOCKHOLDERS’ DEFICIT |
||||||||
| Common stock; par value $0.001 per share; 27,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 3,412,907 and 2,001,357 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively |
523 | 521 | ||||||
| Class B common stock; par value $0.001 per share; 815 shares authorized as of September 30, 2022 and December 31, 2021; 815 shares issued and outstanding as of September 30, 2022 and December 31, 2021 |
1 | 1 | ||||||
| Additional paid-in capital |
179,388 | 178,309 | ||||||
| Accumulated other comprehensive loss |
71 | (55 | ) | |||||
| Accumulated deficit |
(319,554 | ) | (287,538 | ) | ||||
|
|
|
|
|
|||||
| Total stockholders’ deficit |
(139,571 | ) | (108,762 | ) | ||||
|
|
|
|
|
|||||
| TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT |
$ | 26,593 | $ | 41,938 | ||||
|
|
|
|
|
|||||
See accompanying notes to unaudited condensed consolidated financial statements
39
THE SOLARIA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands)
| Nine Months Ended September 30, |
||||||||
| 2022 | 2021 | |||||||
| Product revenue, net |
$ | 30,826 | $ | 47,961 | ||||
| Cost of revenue |
31,504 | 48,664 | ||||||
|
|
|
|
|
|||||
| Gross loss |
(678 | ) | (703 | ) | ||||
| Operating expenses |
||||||||
| Research and engineering |
3,180 | 3,332 | ||||||
| Sales and marketing |
4,517 | 5,571 | ||||||
| General and administrative |
7,284 | 6,695 | ||||||
| Litigation-related costs |
451 | 5,395 | ||||||
| Transaction-related costs |
1,893 | — | ||||||
|
|
|
|
|
|||||
| Total operating expenses |
17,325 | 20,993 | ||||||
| Loss from operations |
(18,003 | ) | (21,696 | ) | ||||
| Interest expense |
(2,941 | ) | (3,735 | ) | ||||
| Interest income |
10 | 4 | ||||||
| Change in fair value of Simple Agreement for Future Equity (SAFE) Notes |
(14,229 | ) | — | |||||
| Loss on extinguishment of debt (Note 6) |
— | (2,967 | ) | |||||
| Other income, net |
2,096 | 1,725 | ||||||
|
|
|
|
|
|||||
| Total other expense, net |
(15,064 | ) | (4,973 | ) | ||||
|
|
|
|
|
|||||
| Loss before provision for income taxes |
(33,067 | ) | (26,669 | ) | ||||
| Provision for income taxes |
— | — | ||||||
|
|
|
|
|
|||||
| Net loss |
(33,067 | ) | (26,669 | ) | ||||
| OTHER COMPREHENSIVE INCOME (LOSS): |
||||||||
| Currency translation adjustment, net of tax effect of $0, for the nine months ended September 30, 2022 and 2021 |
126 | (42 | ) | |||||
|
|
|
|
|
|||||
| Net loss and comprehensive loss |
(32,941 | ) | (26,711 | ) | ||||
| Redeemable convertible preferred stock accretion |
(9 | ) | (16 | ) | ||||
|
|
|
|
|
|||||
| Net loss and comprehensive loss to common stockholders |
$ | (32,950 | ) | $ | (26,727 | ) | ||
|
|
|
|
|
|||||
See accompanying notes to unaudited condensed consolidated financial statements
40
THE SOLARIA CORPORATION. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(In thousands, except number of shares)
| Redeemable Convertible Preferred Stock |
Common Stock | Class B Common Stock |
Additional Paid- in Capital |
Accumulated Other Comprehensive Loss |
Accumulated Deficit |
Total Stockholders’ Deficit |
||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Amount | Amount | Amount | Amount | |||||||||||||||||||||||||||||||
| Balance at December 31, 2020 |
10,920,447 | $ | 71,152 | 1,841,452 | $ | 521 | 815 | $ | 1 | $ | 175,285 | $ | (68 | ) | $ | (233,101) | $ | (57,362 | ) | |||||||||||||||||||||
| Exercise of warrants |
246,564 | 762 | 25,000 | — | — | — | 2 | — | — | 2 | ||||||||||||||||||||||||||||||
| Exercise of options |
— | — | 89,583 | — | — | — | 255 | — | — | 255 | ||||||||||||||||||||||||||||||
| Repurchase of common stock |
— | — | (24,678 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Rescission of Series E-1 redeemable convertible preferred stock |
(19,084 | ) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Stock- based compensation |
— | — | — | — | — | — | 1,947 | — | — | 1,947 | ||||||||||||||||||||||||||||||
| Currency translation adjustment |
— | — | — | — | — | — | — | (42 | ) | — | (42 | ) | ||||||||||||||||||||||||||||
| Redeemable convertible preferred stock accretion |
— | 16 | — | — | — | — | (16 | ) | — | — | (16 | ) | ||||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | — | — | (26,669 | ) | (26,669 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Balance at September 30, 2021 |
11,147,927 | $ | 71,930 | 1,931,357 | $ | 521 | 815 | $ | 1 | $ | 177,473 | $ | (110 | ) | $ | (259,770) | $ | (81,885 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Balance at December 31, 2021 |
11,147,927 | $ | 72,061 | 2,001,357 | $ | 521 | 815 | $ | 1 | $ | 178,309 | $ | (55 | ) | $ | (287,538) | $ | (108,762 | ) | |||||||||||||||||||||
| Adoption of ASU 2020-06 |
— | — | — | — | — | — | (1,051 | ) | — | 1,051 | — | |||||||||||||||||||||||||||||
| Exercise of warrants |
— | — | 1,311,651 | 2 | — | — | 128 | — | — | 130 | ||||||||||||||||||||||||||||||
| Repurchase of common stock |
— | — | (101 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Stock- based compensation |
— | — | 100,000 | — | — | — | 2,011 | — | — | 2,011 | ||||||||||||||||||||||||||||||
| Currency translation adjustment |
— | — | — | — | — | — | — | 126 | — | 126 | ||||||||||||||||||||||||||||||
| Redeemable convertible preferred stock accretion |
— | 9 | — | — | — | — | 9 | — | — | (9 | ) | |||||||||||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | — | — | (33,067 | ) | (33,067 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Balance at September 30, 2022 |
11,147,927 | $ | 72,070 | 3,412,907 | $ | 523 | 815 | $ | 1 | $ | 179,388 | $ | 71 | $ | (319,554) | $ | (139,571 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements
41
THE SOLARIA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Nine Months Ended September 30, |
||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities |
||||||||
| Net loss |
$ | (33,067 | ) | $ | (26,669 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Debt amortization and non- cash interest expense |
2,337 | 2,742 | ||||||
| Loss on extinguishment of debt |
— | 2,967 | ||||||
| Stock- based compensation |
2,011 | 1,947 | ||||||
| Change in fair value of redeemable convertible preferred stock warrant liability |
(775 | ) | (339 | ) | ||||
| Bad debt expense |
472 | — | ||||||
| Depreciation expense |
219 | 918 | ||||||
| Change in fair value of SAFE Notes |
14,229 | — | ||||||
| Forgiveness of Paycheck Protection Plan Loan |
(1,414 | ) | (1,433 | ) | ||||
| Noncash operating lease expense |
184 | 261 | ||||||
| Other |
44 | 23 | ||||||
| Changes in operating assets and liabilities: |
— | |||||||
| Accounts receivable, net |
1,930 | 1,121 | ||||||
| Inventory, net |
12,918 | (10,759 | ) | |||||
| Prepaid expenses and other current assets |
(8,388 | ) | 3,923 | |||||
| Accounts payable |
(3,103 | ) | (162 | ) | ||||
| Accrued expenses and other current liabilities |
(572 | ) | 1,714 | |||||
| Deferred revenue |
(1 | ) | (1,995 | ) | ||||
| Operating lease liability |
(207 | ) | (286 | ) | ||||
| Other liabilities, noncurrent |
1,035 | 401 | ||||||
|
|
|
|
|
|||||
| Net cash used in operating activities |
(12,148 | ) | (25,626 | ) | ||||
| Cash Flows from Investing Activities |
||||||||
| Purchases of property and equipment |
(207 | ) | (1,436 | ) | ||||
| Proceeds from sale of property and equipment |
151 | 248 | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(56 | ) | (1,188 | ) | ||||
| Cash Flows from Financing Activities |
||||||||
| Proceeds from issuance of notes payable, net |
8,500 | 33,415 | ||||||
| Repayment of notes payable, net |
(4,618 | ) | — | |||||
| Proceeds from exercise of redeemable convertible preferred stock warrants |
— | 515 | ||||||
| Proceeds from exercise of stock options |
130 | 255 | ||||||
|
|
|
|
|
|||||
| Net cash provided by financing activities |
4,012 | 34,185 | ||||||
|
|
|
|
|
|||||
| Effect of Exchange Rate Changes |
126 | (42 | ) | |||||
| Net Change in Cash, Cash Equivalents and Restricted Cash |
(8,066 | ) | 7,329 | |||||
| Cash, Cash Equivalents and Restricted Cash, beginning of year |
13,915 | 13,549 | ||||||
|
|
|
|
|
|||||
| Cash, Cash Equivalents and Restricted Cash, end of year |
$ | 5,849 | $ | 20,878 | ||||
|
|
|
|
|
|||||
| Non- Cash Investing and Financing Activities |
||||||||
| Forgiveness of Paycheck Protection Plan Loan |
$ | (1,414 | ) | $ | (1,433 | ) | ||
|
|
|
|
|
|||||
See accompanying notes to the unaudited condensed consolidated financial statements
42
THE SOLARIA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(In thousands, except share and per share amounts)
| 1. | ORGANIZATION |
Description of Business
The Solaria Corporation was incorporated as a Delaware corporation on May 5, 2006. The Solaria Corporation (together with its subsidiaries, the “Company” or “Solaria”) designs, develops, manufactures, and generates revenue from the sale of silicon photovoltaic solar panels and licensing of its technology to third parties. The Company operates from its headquarters in Fremont, California.
Liquidity and Going Concern — Since inception, the Company has incurred recurring losses and negative cash flows from operations. The Company incurred net losses of $33.1 million and $26.7 million during the nine months ended September 30, 2022 and 2021, respectively, and had an accumulated deficit of $319.5 million as of September 30, 2022. The Company had cash and cash equivalents of $2.1 million as of September 30, 2022. Historically, the Company’s activities have been financed through private placements of equity securities and debt. The Company expects to incur significant operating expenses as it continues to grow its business. The Company believes that its operating losses and negative operating cash flows will continue into the foreseeable future. The Company’s history of recurring losses, negative operating cash flows and the need to raise additional funding to finance its operations raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern requires that the Company obtain sufficient funding to finance its operations.
As more fully described in Note 16, the Company was acquired by Complete Solar Holding Corporation (“Complete Solar”) in November 2022 and formed Complete Solaria, Inc. (“Complete Solaria”). As a result, the Company became a wholly-owned indirect subsidiary of Complete Solaria at that time. Subsequent to the acquisition, the combined company does business as Complete Solaria. As discussed in Note 16, Complete Solaria’s plan is to seek additional funding through completion of a business combination with Freedom Acquisition Corp. (“Freedom”), a special purpose acquisition corporation (“SPAC”). At this time, Complete Solaria is focused on completing the business combination, which is subject to approval of the shareholders of both companies, regulatory approval from the Securities and Exchange Commission (“SEC”) and other customary closing conditions and is limited in its efforts to raise additional capital from secondary sources.
If Complete Solaria fails to complete this business combination, it plans to continue to fund its operations and capital funding needs through a combination of private equity offerings, debt financings and other sources. If Complete Solaria is not able to secure adequate additional funding when needed, it will need to reevaluate its operating plan and may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs or cease operations entirely. These actions could materially impact Complete Solaria and its subsidiary Solaria’s, results of operations and future prospects.
While Complete Solaria and Solaria have historically been able to raise multiple rounds of financing, there can be no assurance that in the event additional financing is required, such financing will be available on terms that are favorable, or at all. Failure to generate sufficient cash flows from operations, raise additional capital or reduce certain discretionary spending would have a material adverse effect on Complete Solaria and its subsidiary Solaria’s ability to achieve their intended business objectives.
Therefore, there is substantial doubt about Solaria’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying financial statements have been prepared assuming Solaria will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business. They do not include any adjustments
43
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation— The Company’s unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Solaria Australia Pty. Ltd and TSC PowerHome BVd PLV Inc. All intercompany balances and transactions have been eliminated in consolidation.
Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the years ended December 31, 2021 and 2020. The unaudited condensed consolidated balance sheet as of December 31, 2021, included herein, was derived from the audited consolidated balance sheet of the Company as of that date. In the opinion of management, these unaudited condensed consolidated financial statements reflect all normal recurring adjustments, or a description of the nature and amount of any adjustments other than normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 30, 2022 and December 31, 2021, the Company’s results of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ deficit activities, and cash flows for the nine months ended September 30, 2022 and 2021.
Significant Risks and Uncertainties— The Company is subject to a number of risks that are similar to those which other companies of similar size in its industry are facing, including, but not limited to, the need for successful development of products, the need for additional capital (or financing) to fund operations, competition from substitute products and services from larger companies, ability to develop sales channels and to onboard channel partners, as defined, protection of proprietary technology, patent litigation, dependence on key customers, dependence on key individuals, and risks associated with changes in information technology.
In March 2020, the World Health Organization declared the outbreak of a novel corona virus as a pandemic. The pandemic has reached every region of the world and has resulted in widespread impacts on the global economy. In response, the Company has modified certain business and workforce practices (including discontinuing non-essential business travel, implementing a temporary work-from-home policy for employees who can execute their work remotely and encouraging employees to adhere to local and regional social distancing guidelines, more stringent hygiene and cleaning protocols across the Company’s facilities and operations and self-quarantining recommendations) to conform to restrictions and best practices encouraged by governmental and regulatory authorities.
The quarantine of personnel or the inability to access the Company’s facilities or customer sites could adversely affect the Company’s operations. As of the date of this report, the Company’s efforts to respond to the challenges presented by the conditions described above have allowed the Company’s to minimize the impacts of these challenges to its business.
Concentration of Credit Risk— Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Concentration risk for cash and cash equivalents is mitigated by banking with a creditworthy financial institution. At times, cash deposits have exceeded the federally insurable limit; however, the Company has not experienced any losses on its cash deposits and cash equivalents since inception. The Company generally does not require collateral or other security to support its accounts receivable. Credit is extended to customers based on an evaluation of their financial condition and other factors. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts as appropriate.
44
The Company had two major customers for the nine months ended September 30, 2022 and 2021, respectively. Major customers are defined as customers generating revenue greater than 10% of the Company’s product revenue. Revenue from the major customers accounted for 76% and 79% of revenue for the nine months ended September 30, 2022 and 2021, respectively. Accounts receivable from the two major customers totaled $2.2 million and $3.6 million as of September 30, 2022 and December 31, 2021, respectively.
Use of Estimates—The preparation of unaudited condensed consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of income and expense during the reporting period. Such estimates include warranty cost, allowances for doubtful accounts, determination of the net realizable value of inventory, determination of the useful lives of property and equipment, assessment of the recoverability and fair values of property and equipment, valuation of deferred tax assets and liabilities, estimation of other accruals and reserves, determination of the fair value of debt, redeemable convertible preferred stock, common stock, simple agreements for future equity, stock option and restricted stock grants, and redeemable convertible preferred stock and common stock warrants. Management evaluates its estimates and assumptions on an ongoing basis using historical trends, market pricing, current events and other relevant assumptions and data points. Actual results could differ from those estimates and such differences may be material to the unaudited condensed consolidated financial statements.
Transaction-Related Costs – Such costs primarily consist of legal and professional fees incurred in connection with the Company’s merger with Complete Solar which is discussed in Note 16.
Significant Accounting Policies – There have been no material changes in the significant accounting policies described in our audited financial statements for the years ended December 31, 2021 and 2020.
Accounting Pronouncements Recently Adopted — In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The amendments in ASU 2020-06 simplify accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will no longer be available. ASU 2020-06 is effective for interim and annual reporting periods beginning after December 15, 2023, with early adoption permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal year. The Company adopted the new standard on January 1, 2022 under the modified retrospective approach resulting in a cumulative catch-up adjustment of $1.1 million to accumulated deficit and additional paid-in capital as of the date of adoption related to the beneficial conversion feature related to the 2018 Bridge Notes as discussed in Note 6.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). This guidance clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is
45
permitted for all entities, including adoption in an interim period. The Company adopted ASU 2021-04 under the private company transition guidance beginning January 1, 2022, the adoption did not have an impact on the Company’s financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and for interim periods within fiscal years beginning after December 15, 2022. Most amendments within this accounting standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted ASU 2019-12 under the private company transition guidance beginning January 1, 2022, the adoption did not have an impact on the Company’s financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the FASB’s guidance on the impairment of financial instruments. Topic 326 adds to GAAP an impairment model (known as the “current expected credit loss model”) that is based on expected losses rather than incurred losses. ASU 2016-13 is effective for the Company’s annual and interim periods beginning after December 15, 2022 with early adoption permitted. The Company does not expect to early adopt the new standard. The Company is currently evaluating the impact of ASU 2016-13 on its unaudited condensed consolidated financial statements.
| 3. | REVENUE |
The Company generates revenues from the sale of silicon photovoltaic solar panels and licensing of the Company’s technology to third parties.
Product Sales— The Company recognizes revenue from sales of products as control is transferred to customers, which generally occurs upon delivery to the customer’s premises. Other than standard warranty obligations, there are no rights of return or significant post-shipment obligations with respect to the Company’s products. Contracts with customers consist of a single performance obligation, hence the entire transaction price is allocated to this single performance obligation. In determining the transaction price in contracts with customers, the Company reduces revenue for the estimated costs of customer and distributor programs and incentive offerings such as price protection and rebates. Any provision for customer and distributor programs and other discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience.
License Revenue — The Company derives revenue from the licensing of the Company’s technology to third parties. Revenue from functional IP licensing arrangements is recognized at a point in time when control over the licensed technology is transferred to the customer. License fees, i.e., royalties, that are not fixed at contract inception are recognized over time upon occurrence of the later of the subsequent technology sale or usage, or satisfaction of the performance obligation to which some or all of the usage-based royalty relates. In March 2022, the Company settled litigation with a customer in relation to an arrangement for which $4.5 million had been recognized in license revenue in fiscal year 2019. The $0.45 million loss incurred upon settlement is included in General and administrative expenses in the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss for the nine months ended September 30, 2022. The Company recognized license revenue amounting to $0.01 million and $0.02 million for the nine months ended September 30, 2022, and 2021, respectively.
46
Disaggregated revenue by primary geographical market and business activity are as follows (in thousands):
| Nine months ended September 30, |
||||||||
| 2022 | 2021 | |||||||
| Primary geographical markets |
||||||||
| U.S. |
$ | 26,566 | $ | 46,159 | ||||
| International |
4,260 | 1,802 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 30,826 | $ | 47,961 | ||||
|
|
|
|
|
|||||
| Product sales |
$ | 30,817 | $ | 47,938 | ||||
| Royalty |
9 | 23 | ||||||
|
|
|
|
|
|||||
| Total revenue |
$ | 30,826 | $ | 47,961 | ||||
|
|
|
|
|
|||||
Contract Balances Contract liabilities consist of deferred revenue or customer deposits and relate to amounts invoiced-to or advance consideration received from customers, which precede the Company’s satisfaction of the associated performance obligation(s).
The following table is a rollforward of deferred revenue as of September 30, 2022 and December 31, 2021 (in thousands):
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Deferred revenue—beginning balance |
$ | 75 | $ | 2,070 | ||||
| Additions |
291 | 1,494 | ||||||
| Revenue recognized |
(293 | ) | (3,489 | ) | ||||
|
|
|
|
|
|||||
| Deferred revenue—ending balance |
$ | 73 | $ | 75 | ||||
|
|
|
|
|
|||||
As of September 30, 2022 and December 31, 2021, the Company’s deferred revenue is expected to be recognized during the succeeding 12-month period and is therefore presented as deferred revenue, current, in the Unaudited Condensed Consolidated Balance Sheets.
| 4. | FINANCIAL STATEMENT COMPONENTS |
Restricted Cash— The Company classifies all cash for which usage is limited by contractual provisions as restricted cash. Restricted cash consists of $3.7 million and $4.8 million deposited in money market account, which is used as cash collateral backing letters of credit related to customs duty authorities’ requirements as of September 30, 2022 and December 31, 2021, respectively. The Company has presented these balances under noncurrent assets in the Unaudited Condensed Consolidated Balance Sheets.
Total cash, cash equivalents and restricted cash is presented in the table below (in thousands):
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Cash and cash equivalents |
$ | 2,107 | $ | 9,113 | ||||
| Restricted cash |
3,742 | 4,802 | ||||||
|
|
|
|
|
|||||
| Total cash, cash equivalents and restricted cash |
$ | 5,849 | $ | 13,915 | ||||
|
|
|
|
|
|||||
47
Inventories—The components of inventories as of September 30, 2022 and December 31, 2021, respectively, were as follows (in thousands):
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Finished goods |
$ | 4,010 | $ | 16,928 | ||||
| Work in progress |
— | — | ||||||
| Raw materials |
— | — | ||||||
|
|
|
|
|
|||||
| Total inventory, net |
$ | 4,010 | $ | 16,928 | ||||
|
|
|
|
|
|||||
As of September 30, 2022 and December 31, 2021 reserves for inventory obsolescence were both $0.1 million.
Property and Equipment, net— Property and equipment, net as of September 30, 2022 and December 31, 2021, consist of the following (in thousands):
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Manufacturing equipment |
$ | 3,227 | $ | 3,195 | ||||
| Leasehold improvement |
875 | 864 | ||||||
| Furniture, fixtures and office equipment |
79 | 66 | ||||||
|
|
|
|
|
|||||
| 4,181 | 4,125 | |||||||
| Less: Accumulated depreciation |
(3,345 | ) | (3,126 | ) | ||||
|
|
|
|
|
|||||
| Total property and equipment, net |
$ | 836 | $ | 999 | ||||
|
|
|
|
|
|||||
Total depreciation expense for the nine months ended September 30, 2022 and 2021, was $0.2 million and $0.9 million, respectively.
Accrued Expenses and Other Current Liabilities— Accrued expenses and other current liabilities consist of the following (in thousands):
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accrued purchases |
$ | 3,950 | $ | 2,657 | ||||
| Accrued rebates and credits |
696 | 1,967 | ||||||
| Warranty cost, current |
93 | 87 | ||||||
| Other taxes payable |
956 | 1,053 | ||||||
| Customer deposits |
786 | 773 | ||||||
| Accrued payroll |
629 | 784 | ||||||
| Accrued interest |
150 | — | ||||||
| Current portion of amount payable to a vendor (Note 13) |
1,420 | 1,699 | ||||||
| SCI Term Loan and Revolving Loan amendment fees (Note 6) |
1,700 | 1,700 | ||||||
| Other accrued liabilities |
1,003 | 993 | ||||||
|
|
|
|
|
|||||
| Total accrued expenses and other current liabilities |
$ | 11,383 | $ | 11,713 | ||||
|
|
|
|
|
|||||
48
Warranty Cost— The following table is a roll forward of warranty cost as of September 30, 2022 and December 31, 2021 (in thousands):
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Beginning balance |
$ | 1,738 | $ | 1,248 | ||||
| Warranty settlements |
(148 | ) | (135 | ) | ||||
| Additions to warranty accrual |
277 | 625 | ||||||
|
|
|
|
|
|||||
| Ending balance |
$ | 1,867 | $ | 1,738 | ||||
|
|
|
|
|
|||||
| Warranty cost, current |
$ | 93 | $ | 87 | ||||
| Warranty cost, noncurrent |
1,774 | 1,651 | ||||||
|
|
|
|
|
|||||
| Total warranty cost |
$ | 1,867 | $ | 1,738 | ||||
|
|
|
|
|
|||||
Other Income, net
Other income, net consists of the following (in thousands):
| Nine Months Ended September 30, |
||||||||
| 2022 | 2021 | |||||||
| Forgiveness of Paycheck Protection Program Loan (Note 6) |
$ | 1,414 | 1,433 | |||||
| Change in fair value of preferred stock warrants liability (Note 7) |
775 | 339 | ||||||
| Others |
(93 | ) | (47 | ) | ||||
|
|
|
|
|
|||||
| Total other income, net |
$ | 2,096 | $ | 1,725 | ||||
|
|
|
|
|
|||||
| 5. | LEASES |
Operating Leases— In April 2018, the Company entered into a 56-month lease agreement for an office space in Oakland, California for $0.8 million in total payments. Effective June 2021, the Company terminated the lease agreement and agreed to settle the unpaid rent and related legal costs for $0.3 million. As a result, the Company derecognized the Oakland right-of use asset and corresponding lease liability and recognized a loss of $0.01 million as Other income (expense), net in the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss for the nine months ended September 30, 2021.
In November 2019, the Company entered an 84-month lease for office and manufacturing space in Fremont, California (“Fremont facility”) for $3.3 million in total payment. The Company has an option to renew the lease for five years. Lease renewals are not assumed in the determination of the lease term until the exercise of the renewals are deemed to be reasonably certain.
49
| 6. | NOTES PAYABLE, NET |
Notes payable, net consists of the following (in thousands):
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| 2018 Bridge Notes |
$ | 9,086 | $ | 7,076 | ||||
| Payroll Protection Program Loan |
— | 1,414 | ||||||
| Simple Agreement for Future Equity Note |
50,230 | 34,001 | ||||||
| Term and Revolver Loan |
4,957 | 9,618 | ||||||
| Promissory Note |
6,674 | — | ||||||
|
|
|
|
|
|||||
| Total notes payable, net |
70,947 | 52,109 | ||||||
| Less current portion |
(15,760 | ) | (10,912 | ) | ||||
|
|
|
|
|
|||||
| Notes payable, net of current portion |
$ | 55,187 | $ | 41,197 | ||||
|
|
|
|
|
|||||
2018 Bridge Notes
In connection with the 2018 Notes, the Company originally issued warrants to purchase 486,240 shares of its common stock at $0.01 per share. The warrants, which were exercisable upon issuance, expire in December 2023. At issuance, the Company determined the relative fair value of the warrants to be $1.1 million. The Company recorded the fair value of the warrant as a debt discount within additional paid-in capital. After allocating $1.1 million to the warrant, the fair value of preferred stock in which the notes could be converted exceeded the carrying value of the notes. As such the conversion feature under the notes was considered a beneficial conversion feature which was treated as debt discount and amortized to interest expense using the effective interest rate method. The Company recorded an additional $1.1 million discount to the notes within additional paid-in capital. As discussed in Note 2, in January 1, 2022, in connection with the adoption of ASU 2020-06, the Company derecognized the beneficial conversion feature which resulted in a $1.1 million decrease in additional paid-in capital and cumulative catch-up adjustment to accumulated deficit.
In December 2021, the Company entered into an amendment to the 2018 Notes extending the maturity date from December 13, 2021 to December 13, 2022. In connection with the amendment, the notes will continue to bear interest at 8% per annum and are entitled to a repayment premium of 110% of the principal and accrued interest at the time of repayment. Additionally, the Company issued warrants to purchase 196,462 shares of Series E-1 redeemable convertible preferred stock (“Series E-1 warrants”) at $4.59 per share in connection with the amendment. The warrants were exercisable immediately and expire on December 13, 2031. Upon issuance, the Company determined the fair value of the warrants to be $0.7 million using the Black-Scholes option-pricing model using the following assumptions: no dividends; risk-free interest rate of 1.42%; contractual life of 10 years; and expected volatility of 54.4%. The Series E-1 warrants qualified as liabilities as the underlying preferred stock were contingently redeemable upon the occurrence of a change in control, which is outside the control of the Company. At September 30, 2022, the warrants remain outstanding.
The Company concluded that the modification was a troubled debt restructuring as the Company was experiencing financial difficulty and the amended terms resulted in a concession to the Company. As the future undiscounted cash payments under the modified terms exceeded the carrying amount of the 2018 Notes on the date of modification, the modification was accounted for prospectively. Additionally, the Company recorded the fair value of the Series E-1 warrants as a reduction of Notes payable, net of discounts to the restructured notes on the date of modification. The debt discount and incremental repayment premium are being amortized to interest expense using the effective interest rate method.
50
The net carrying value of 2018 Bridge Notes was as below (in thousands):
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Principal |
$ | 9,258 | $ | 7,777 | ||||
| Less: unamortized debt discount |
(172 | ) | (701 | ) | ||||
|
|
|
|
|
|||||
| Net carrying value |
9,086 | 7,076 | ||||||
| Less: current portion |
(9,086 | ) | (7,076 | ) | ||||
|
|
|
|
|
|||||
| Total noncurrent portion |
$ | — | $ | — | ||||
|
|
|
|
|
|||||
The following table sets forth the total interest expense recognized related to the 2018 Bridge Notes (in thousands):
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Amortization of debt discount |
$ | 467 | $ | 1,160 | ||||
| Contractual interest expense |
1,482 | 2,223 | ||||||
|
|
|
|
|
|||||
| Total interest expense |
$ | 1,949 | $ | 3,383 | ||||
|
|
|
|
|
|||||
| Effective interest rate of the liability component |
32.6 | % | 32.6 | % | ||||
|
|
|
|
|
|||||
Paycheck Protection Program Loan
In May 2020, the Company entered into an unsecured promissory note under the Payroll Protection Program (“PPP Loan”), with a bank under the PPP administered by the United States Small Business Administration (“SBA”) and authorized by the Keeping American Workers Employed and Paid Act, which is part of the CARES Act, enacted on March 27, 2020. The PPP Loan may be prepaid, in full or in part, at any time prior to maturity with no prepayment penalties. Under the terms of the PPP, the Company can apply for, and be granted, forgiveness for all or a portion of the PPP Loan. The principal amount of the PPP Loan is $1.4 million. The PPP Loan is non-interest bearing and has a maturity date of less than a year. The PPP Loan was forgiven in full in March 2021 and as a result gain on forgiveness of debt of $1.4 million is recorded within Other income (expense), net in the Company’s Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2021.
In February 2021, the Company obtained a PPP Loan with a principal amount of $1.4 million. The PPP Loan bears interest at less than 1% per annum and has a maturity date of less than one year. The PPP Loan principal and accrued interest was forgiven in full in January 2022 and as a result the gain on forgiveness of debt of $1.4 million is recorded within Other income (expense), net in the Company’s Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2022.
Promissory Note
In May 2022, the Company issued a secured promissory note to a trust affiliated with Thurman J. (T.J.) Rodgers, a director of Solaria amounting to $6.5 million in exchange for cash. The secured promissory note accrues paid-in-kind interest at a rate of 7.5% per annum and the note had an original maturity date of July 11, 2022, collateralized by substantially all of the Company’s personal property, including all assets, inventory, equipment, general intangibles, financial assets, investment property, securities, deposit accounts and excluding intellectual property. As of September 30, 2022, the secured promissory note remained outstanding. In conjunction with the transaction with Complete Solar, both the parties agreed to extend the note term beyond its original maturity date. The secured promissory note with the original principal value of $6.5 million and paid-in-kind interest of $0.2 million was finally terminated in October 2022, in exchange for the issuance of a new convertible note by Complete Solar.
51
Simple Agreement for Future Equity Notes
The Company entered into various interest free unsecured Simple Agreement for Future Equity Notes (“SAFE”) notes agreements and raised $32.0 million in fiscal 2021 and $2.0 million in fiscal 2020. The number of shares to be issued upon conversion of the SAFE notes are subject to the following:
Equity Financing – In the event of certain equity financing before the termination of the SAFE note, on the initial closing of such equity financing, the SAFE note will automatically convert into the number of shares of SAFE preferred stock in accordance with the terms of the SAFE agreement. In the event of certain other financing before the termination of the SAFE note, the investor may elect to convert the SAFE note into preferred stock equal based on the terms of the SAFE agreement.
Public Offering – If there is an Initial Public Offering (“IPO”) before the termination of the SAFE note, the SAFE note will automatically convert into the right to receive the number of shares of common stock according to the terms of the SAFE agreement.
Change of Control – If there is a Change of Control before the termination of the SAFE note, the SAFE note will automatically convert into the right to receive a portion of proceeds according to the terms of the SAFE agreement.
Dissolution Event – If there is a Dissolution Event before the termination of the SAFE note, the investor will automatically be entitled to receive a portion of proceeds according to the terms of the SAFE agreement.
Valuation Caps – the SAFE notes are subject to a valuation cap. The valuation cap is $190.0 million for each of 33 notes with aggregate principal of $30.0 million. Two notes with principal balance of $2.0 million each have valuation caps of $219.1 million and $221.1 million, respectively.
The Company elected to account for all of the SAFE notes at estimated fair value pursuant to the fair value option and recorded the change in estimated fair value as other income (expense), net in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss until the notes are converted or settled.
The estimated fair value and face value of these notes was $50.2 million and $34.0 at September 30, 2022 and December 31, 2021, respectively, and is considered Level 3 fair value measurement. The Company recorded a loss of $14.2 million relating to the change in estimated fair value of these notes as change in fair value of Simple Agreement for Future Equity Notes in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2022. There was no change in estimated fair value of these notes for the year ended December 31, 2021.
As more fully described in Note 16, post consummation of the merger in November 2022, all SAFE notes were assumed by Complete Solar.
Term Loan and Revolver Loan
In October 2020, the Company entered into a loan agreement (“Loan Agreement”) with Structural Capital Investments III, LP (“SCI”).
The Loan Agreement with SCI comprises of two facilities, a term loan (the “Term Loan”) and a revolving loan (the “Revolving Loan”) (together “Original Agreement”) for $5.0 million each with a maturity date of October 31, 2023. Both the Term Loan and the Revolving Loan were fully drawn upon closing.
The Term Loan has a term of thirty-six months, equal monthly payments of principal beginning November 2021 until the end of the term and an annual interest rate of 9.25% or Prime rate plus 6%, whichever is higher. The Revolving Loan also has a term of thirty-six months, principal repayments at the end of the term and an annual interest rate of 7.75% or Prime rate plus 4.5%, whichever is higher. The Loan Agreement required the Company to meet certain financial covenants relating to maintenance of specified restricted cash balance, achieving specified revenue target and maintaining specified contribution margin (“Financial covenants”) over the term of each of the Term Loan and Revolving Loan. The Term Loan and Revolving Loan are collateralized substantially by all assets and property of the Company.
52
In October 2020, the Company recorded debt issuance costs discount totaling $0.8 million related to the Original agreement. The total debt issuance costs and discount is being amortized to interest expense using the effective interest method.
In February 2021, the Company entered into an Amended and Restated Loan and Security Agreement as a First Amendment to the Original Agreement (“First Amendment”) to revise certain financial covenants within the Original Agreement.
In July 2021, the Company entered into an amendment to the Original Agreement (“Second Amendment”) as a forbearance agreement for SCI to forbear from exercising any rights and remedies available to it as a result of Company not meeting certain Financial Covenants required by the Original Agreement. As a result of this amendment changes were made to the financial covenants. The Company incurred $1.2 million in amendment fee related to the Second Amendment which was recognized as loss on extinguishment of debt discussed below.
In connection with the Second Amendment, the Company issued E-1 Warrants to purchase 305,342 shares of Series E-1 redeemable convertible preferred stock (“SCI Series E-1 warrants”) at $4.59 per share. The warrants were fully exercisable in whole or in part at any time during the term of the Original agreement. The SCI Series E-1 Warrants are scheduled to expire on July 30, 2031. Upon issuance, the Company determined the fair value of the warrants to be $1.2 million using the Black-Scholes option-pricing model using the following assumptions: no dividends; risk-free interest rate of 1.44%; contractual life of 10 years; and expected volatility of 55.7%. The Series E-1 warrants qualified as liabilities as the underlying preferred stock were contingently redeemable upon the occurrence of a change in control, which is outside the control of the Company.
The Company concluded that the modification to the terms of the Second Amendment changed the present value of cash flows by more than 10% and, as such, was treated as a debt extinguishment. The Company recognized a loss on extinguishment of debt of $3.0 million in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss in July 2021 which included the fair value of SCI Series E-1 warrants of $1.2 million issued in connection with the modification and $1.2 million amendment fee.
In December 2021, the Company entered into an amendment to the Original Agreement (“Third Amendment”) as a forbearance agreement for SCI to forbear from exercising any rights and remedies available to it as a result of Company not meeting certain Financial Covenants required by the Original agreement. As a result of this amendment, changes were made to the financial covenants. The Company incurred $0.5 million in amendment fee related to the Third Amendment and also paid default interest amounting to $0.3 million for the period April 2021 through November 2021.
In connection with the Third Amendment, the Company further amended the exercise price of the Series D-1 Preferred Stock Warrants to $2.17 per share and also amended the number of warrants. As of the date of the Amendment, the Company determined the fair value of the amended Series D-1 Preferred Stock warrants to be $2.9 million using the Black-Scholes option-pricing model using the following assumptions: no dividends; risk-free interest rate of 1.35%; contractual life of 6 years; and expected volatility of 57.7%.
Additionally, the Company amended the exercise price of the Series E-1 Preferred Stock Warrants to $2.29 per share. As of the date of the Amendment, the Company determined the fair value of the amended Series E-1 Preferred Stock warrants to be $1.3 million using the Black-Scholes option-pricing model using the following assumptions: no dividends; risk-free interest rate of 1.44%; contractual life of 9.6 years; and expected volatility of 57.6%.
The Company concluded that the modification to the terms of the Third Amendment changed the present value of cash flows by more than 10% and, as such, was treated as a debt extinguishment. The Company recognized a loss on extinguishment of debt of $2.4 million in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss in December 2021 which included the incremental fair value of the Series D-1 warrants of $1.7 million and incremental fair value of the Series E-1 warrants of $0.2 million relating to the modification.
53
In April 2022, the Company entered into an amendment to the Original Agreement (“Fourth Amendment”) as a forbearance agreement for SCI to forbear from exercising any rights and remedies available to it as a result of the Company not meeting certain Financial Covenants required by the Original Agreement. As a result of this amendment, changes were made to the financial covenants. The Company incurred $0.15 million in amendment fee related to the Fourth Amendment.
In June 2022, the Company entered into an amendment to the Original Agreement (“Fifth Amendment”) related to SCI which resulted in certain changes to financial covenants including updates to quarterly revenue requirements and contribution margin requirements.
In September 2022, the Company paid off the total outstanding principal and interest of the Term Loan related to the Loan Agreement with SCI in the amount of $2.8 million. The remaining unamortized debt discount of $0.04 million on the date of pay off was recorded as amortization of debt discount and included as interest expense.
The Term Loan and Revolving Loan consisted of the following (in thousands):
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Principal |
$ | 5,000 | $ | 9,618 | ||||
| Less: unamortized debt discount |
(43 | ) | — | |||||
|
|
|
|
|
|||||
| Net carrying value |
4,957 | 9,618 | ||||||
| Less: current portion |
— | (2,421 | ) | |||||
|
|
|
|
|
|||||
| Total noncurrent portion |
$ | 4,957 | $ | 7,197 | ||||
|
|
|
|
|
|||||
The revolving loan principal balance at September 30, 2022 amounted to $5.0 million and is due on October 2023.
The following table sets forth the total interest expense recognized related to the SCI term loan and revolving Loan (in thousands):
| September 30, | September 31, | |||||||
| 2022 | 2021 | |||||||
| Amortization of debt discount |
$ | 64 | $ | 170 | ||||
| Contractual interest expense |
692 | 664 | ||||||
|
|
|
|
|
|||||
| Total interest expense |
$ | 756 | $ | 834 | ||||
|
|
|
|
|
|||||
| 7. | REDEEMABLE PREFERRED STOCK WARRANTS |
In 2010, in connection with a loan agreement, the Company issued a warrant to purchase 211,270 shares of Series A-1 preferred stock at an exercise price of $1.52 per share. These warrants were exercised in March 2021.
In connection with the Series B-1 preferred stock financing in February 2015, the Company amended certain previously outstanding common stock warrants into a warrant to purchase 35,294 shares of Series B-1 at an exercise price of $5.40 per share. These warrants were exercised in March 2021.
In 2017, in connection with a Loan and Security Agreement with Structural Capital Investments II, LP and El Dorado Investment Company, the Company issued warrants to purchase 147,551 shares of Series C-1 at an exercise price of $8.66 per share. In 2018, in connection with a second amendment to Loan and Security Agreement and the cancellation of the C-1 Warrants, the Company issued warrants to purchase 375,801 shares of Series D-1 at an exercise price of $4.33 per share. As fully discussed in Note 6, in December 2021, in connection with the Third Amendment to the Original Agreement, the Company amended certain terms
54
of the warrant to purchase Series D-1 preferred stock. As amended, the Series D-1 preferred stock warrants are calculated based on a percentage of the Company’s fully diluted capitalization at an exercise price of $2.17 per share. As of September 30, 2022, 745,001 units of Series D-1 preferred stock warrants are outstanding. The warrants were exercisable upon issuance and expire on December 22, 2027.
As fully discussed in Note 6, in July 2021, in connection with the Second Amendment to Original Agreement, the Company issued warrants to purchase 305,342 shares of Series E-1 at an exercise price of $4.59 per share. In December 2021, in connection with the Third Amendment to the Original Agreement, the Company amended the exercise price of the Series E-1 preferred stock warrants to $2.29 per share.
As fully discussed in Note 6, in December 2021, in connection with the amendment to the 2018 Notes, the Company issued warrants to purchase 196,462 shares of Series E-1 Preferred Stock at an exercise price of $4.59 per share. The Series E-1 warrants remain outstanding as of September 30, 2022 and December 31, 2021.
All of the above preferred stock warrants qualified as liabilities as the underlying preferred stock were contingently redeemable upon the occurrence of a change in control, which is outside the control of the Company. The preferred stock warrants have been recorded as a preferred stock warrant liability and are revalued to fair value each reporting period.
The changes in value of the preferred stock warrant liability are summarized below (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Beginning Balance—January 1 |
$ | 4,955 | $ | 1,725 | ||||
| Change in Fair Value included in Other income (expense), net |
(775 | ) | (339 | ) | ||||
| Exercise of warrant |
— | (250 | ) | |||||
| Series E-1 warrants issued in connection with SCI Second amendment—included in Loss on debt extinguishment |
— | 1,191 | ||||||
|
|
|
|
|
|||||
| Ending Balance—September 30 |
$ | 4,180 | $ | 2,327 | ||||
|
|
|
|
|
|||||
Fair Value Measurement— The Company follows ASC 820 which establishes disclosure requirements and a common definition of fair value to be applied when U.S. GAAP requires the use of fair value. The ASC 820 fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
Level 1—Observable inputs that reflect quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs that reflect quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the assets or liabilities, or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3—Inputs that are generally unobservable and are supported by little or no market activity, and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is significant to the fair value measurement in its entirety.
The unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2022 and year ended December 31, 2021, do not include any nonrecurring fair value measurements relating to assets or liabilities.
55
There were no transfers between Level 1 or Level 2 of the fair value hierarchy during the nine months ended September 30, 2022 and year ended December 31, 2021.
| As of September 30, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Financial liabilities: |
||||||||||||||||
| SAFE Note |
$ | — | $ | — | $ | 50,230 | $ | 50,230 | ||||||||
| Redeemable convertible preferred stock warrants liability |
— | — | 4,180 | 4,180 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total financial liabilities |
$ | — | $ | — | $ | 54,410 | $ | 54,410 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| As of December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Financial liabilities: |
||||||||||||||||
| SAFE Note |
$ | — | $ | — | $ | 34,001 | $ | 34,001 | ||||||||
| Redeemable convertible preferred stock warrants liability |
— | — | 4,955 | 4,955 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total financial liabilities |
$ | — | $ | — | $ | 38,956 | $ | 38,956 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The following table summarizes the significant unobservable inputs used in the fair value measurement of the SAFE Notes as of September 30, 2022:
| Fair Value (in thousands) |
Valuation Technique |
Unobservable Input |
Input | |||||
| $50,230 | Scenario-based analysis | Discount rate |
20 | % | ||||
| Probability of SPAC business combination |
80 | % | ||||||
| Probability of continuing business under non |
||||||||
| merger scenario |
20 | % | ||||||
The estimated fair values of SAFE notes as of December 31, 2021, was determined to be same as face value.
As of September 30, 2022 and December 31, 2021, the warrants were valued using the Black— Scholes option pricing model with the following assumptions:
| September 30, | December 31, | |||
| 2022 | 2021 | |||
| Expected term (in years) |
5.23 - 9.20 | 5.98 - 9.95 | ||
| Expected volatility |
55.4% - 58.6% | 54.0% - 57.7% | ||
| Risk-free interest rate |
3.83% - 4.06% | 1.35% - 1.52% | ||
| Expected dividend yield |
0% | 0% |
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| 8. | REDEEMABLE CONVERTIBLE PREFERRED STOCK |
As of September 30, 2022, the Company is authorized to issue 13,500,285 shares of redeemable convertible preferred stock with a par value of $0.001 per share (collectively, Preferred Stock). Redeemable convertible preferred stock as of September 30, 2022 and December 31, 2021 consisted of the following (in thousands, except share and per share data):
| As of September 30, 2022 | ||||||||||||||||||||
| Shares Authorized |
Shares Issued and Outstanding |
Net Carrying Value |
Conversion Price Per Share |
Aggregate Liquidation Preference |
||||||||||||||||
| Series E-1 |
7,324,607 | 5,348,050 | $ | 49,191 | $ | 9.17 | $ | 49,042 | ||||||||||||
| Series D-1 |
375,801 | — | — | — | — | |||||||||||||||
| Series C-1 |
1,509,508 | 1,509,508 | 13,063 | 8.66 | 13,072 | |||||||||||||||
| Series B-1 |
785,471 | 785,471 | 4,238 | 5.40 | 4,242 | |||||||||||||||
| Series A-1 |
3,504,898 | 3,504,898 | 5,578 | 1.52 | 5,327 | |||||||||||||||
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| 13,500,285 | 11,147,927 | $72,070 | $ 71,683 | |||||||||||||||||
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| As of December 31, 2021 | ||||||||||||||||||||
| Shares Authorized |
Shares Issued and Outstanding |
Net Carrying Value |
Conversion Price Per Share |
Aggregate Liquidation Preference |
||||||||||||||||
| Series E-1 |
7,324,607 | 5,348,050 | $ | 49,186 | $ | 9.17 | $ | 49,042 | ||||||||||||
| Series D-1 |
375,801 | — | — | — | — | |||||||||||||||
| Series C-1 |
1,509,508 | 1,509,508 | 13,060 | 8.66 | 13,072 | |||||||||||||||
| Series B-1 |
785,471 | 785,471 | 4,237 | 5.40 | 4,242 | |||||||||||||||
| Series A-1 |
3,504,898 | 3,504,898 | 5,578 | 1.52 | 5,327 | |||||||||||||||
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| 13,500,285 | 11,147,927 | $72,061 | $ 71,683 | |||||||||||||||||
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During March 2021, the Company issued 211,270 Series A-1 preferred stock and 35,294 Series B-1 preferred stock in connection with the exercise of warrants discussed in Note 7.
The holders of Preferred Stock have the following rights, preferences, privileges, and restrictions:
Dividends— The holders of the outstanding shares of Preferred Stock are entitled to receive, when and if declared by the Board of Directors, noncumulative dividends at the annual rate of 8% per share of Preferred Stock. Dividends on Preferred Stock are payable in preference to any dividends on common stock or Class B common stock. In any year, after payment of dividends on Preferred Stock, any additional dividends declared by the Board of Directors will be paid among the holders of Preferred Stock, common stock, and Class B common stock pro rata on an if-converted basis. No dividends have been declared or paid during the nine months ended September 30, 2022 and 2021.
Liquidation— Upon liquidation, dissolution, or winding up of the Company, including a change of control of the Company, holders of Preferred Stock will be entitled to receive, on a pro rata basis, prior and in preference to any distribution to holders of any series of common stock, an amount equal to $9.17 per share of Series E-1, $8.66 per share of Series D-1, $8.66 per share of Series C-1, $5.40 per share of Series B-1 and $1.52 per share of Series A-1, plus any declared but unpaid dividends on such shares. If the assets and funds thus available for distribution among holders of Preferred Stock are insufficient to provide such holders their full aforesaid preferential amount, then the entire amount of the assets and funds of the Company legally available for distribution will be distributed ratably among all holders of Preferred Stock.
After the distribution to the holders of Preferred Stock, any remaining assets of the Company legally available for distribution will be distributed pro rata, on an if-converted basis, to all holders of common stock and Class B common stock.
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Conversion— Each share of Preferred Stock is convertible at the option of the holder into that number of common shares that is equal to the original issuance price of the Preferred Stock divided by the conversion price, as defined in the Company’s Certificate of Incorporation, subject to adjustment for events of dilution. Holders of Preferred Stock may elect to convert their shares into common stock at any time.
Each share of Preferred Stock will automatically convert into shares of common stock at the then effective conversion rate for each such share (i) immediately prior to the closing of a qualified public offering of the Company’s common stock in which gross proceeds exceed $15.0 million or (ii) upon the receipt by the Company of a written request for such conversion from the holders of a majority of the then outstanding Preferred Stock.
Voting— Each share of Preferred Stock has voting rights equivalent to the number of shares of common stock into which it is convertible.
Protective Provisions— As long as 250,000 shares of Preferred Stock remain outstanding, the majority vote of the holders of the then outstanding shares of Preferred Stock is necessary for consummation of certain transactions, including but not limited to: increasing or decreasing the authorized capital stock; creating any senior or pari passu security, privileges, preferences or voting rights senior to or on parity with those granted to the Preferred Stock; altering or changing the preferred series rights; redeeming or repurchasing the Company’s equity securities; and entering into any transaction deemed to be a liquidation or dissolution of the Company.
Redemption— At any time after 7 years from the issuance of respective series of Preferred Shares, the holders of a majority of the outstanding voting Preferred Stock Series may vote to require the Company to redeem all outstanding shares of Preferred Stock Series in three equal annual installments by paying in cash an amount per share equal to the original issuance price of the Preferred Stock Series, plus any accrued but unpaid dividends. If the Company does not have sufficient funds legally available to redeem all shares of Preferred Stock, then the Company will redeem the maximum possible number of shares ratably among the holders of such shares and will redeem the remaining shares as soon as sufficient funds are legally available. After 7 years from the issuance of respective series of Preferred Shares, the Preferred shares are then currently redeemable at the option of the holder and have been classified in the mezzanine section of the Unaudited Condensed Consolidated Balance Sheets.
Preferred Shares are also contingently redeemable upon liquidation and certain deemed liquidation events such as acquisition, merger, consolidation or the sale, lease transfer, exclusive license or other disposition by the Company of all or substantially all of the assets of the Company. These events are outside the control of the Company and therefore the Preferred Stock have been classified in the mezzanine section of the Unaudited Condensed Consolidated Balance Sheets.
The Company records its redeemable convertible preferred stock at the amount of cash proceeds received on the date of issuance, net of issuance costs. Since the preferred stock is probable of becoming redeemable at the option of the holder at a future date, accretion of the preferred stock will be recognized over the period of time from the date of issuance to the earliest redemption date. The accretion is recorded as additional paid-in capital. Accretion of preferred stock was $0.01 million and $0.02 million for the nine months ended September 30, 2022 and 2021, respectively.
| 9. | COMMON STOCK |
As of September 30, 2022 and December 31, 2021, the Company is authorized to issue two classes of common stock, designated as common stock and Class B common stock. The two classes of common stock have similar rights, except holders of common stock are entitled to one vote per share while holders of Class B common stock have no voting rights. Each share of Class B common stock will automatically convert into one share of common stock immediately prior to a qualified initial public offering of the Company’s common stock or upon the consummation of a liquidation event (as defined in the Certificate of Incorporation). As of September 30, 2022 and December 31, 2021, the Company is authorized to issue
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27,000,000 shares of common stock with a par value of $0.001 per share and 815 shares are designated as Class B common stock.
In April 2021, 25,000 warrants to purchase common stock were exercised. In March 2021, 12,674 warrants to purchase common stock expired unexercised.
During the nine months ended September 30, 2022, 1,311,651 warrants to purchase common stock were exercised and 505,672 warrants to purchase common stock expired unexercised. As of September 30, 2022 and December 31, 2021, 1,156,624 units and 2,973,947 units, respectively, of common stock warrants are outstanding.
| 10. | RELATED PARTY TRANSACTIONS |
The Company defines related parties as directors, executive officers, nominees for director, stockholders that have significant influence over the Company, or are a greater than 5% beneficial owner of the Company’s capital and their affiliates or immediate family members. As of September 30, 2022 and December 31, 2021 and during the nine months ended September 30, 2022 and September 30, 2021 there were no significant transactions with related parties other than the following:
As discussed in Note 6, in May 2022, the Company issued a $6.5 million secured promissory note to a trust affiliated with Thurman J. (T.J.) Rodgers, a director of Solaria amounting in exchange for cash. The secured promissory note with the original principal value of $6.5 million and paid-in-kind interest of $0.2 million was terminated in October 2022, in exchange for the issuance of a new convertible note by Complete Solar.
As discussed in Note 6, in December 2018, the Company issued the 2018 Notes totaling approximately $3.4 million in exchange for cash. Three of the notes with aggregate principal of $0.2 million were issued to related parties including two officers and a trust affiliated with a Board member. The aggregate liability, inclusive of interest and principal accretion totaled $0.5 million and $0.4 million as of September 30, 2022 and December 31, 2021, respectively. These amounts are included in the Unaudited Condensed Consolidated Balance Sheets as Notes Payable, Net.
| 11. | INCOME TAXES |
The Company did not record income tax expense during the nine months ended September 30, 2022 and 2021, respectively due to losses incurred and a full valuation allowance recorded against net deferred tax assets. The Company’s tax loss carryforwards differ from financial statement losses primarily due to stock-based compensation which is not deductible for income tax purposes.
The Company’s deferred tax assets principally result from net operating loss carryforwards. Utilization of the Company’s net operating loss carryforwards is dependent upon future levels of taxable income and may be subject to limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code and similar foreign provisions. Such limitations may result in the expiration of these carryforwards before their utilization.
During the nine months ended September 30, 2022, there were no significant changes to the total amount of unrecognized tax benefits. As of December 31, 2021, the Company had unrecognized tax benefits of $1.3 million for federal and $1.3 million for state related to R&D credits generated as of December 31, 2021.
| 12. | STOCK-BASED COMPENSATION |
The Company has two stock option plans: the 2006 Stock Option Plan and the 2016 Stock Option Plan (collectively, the Plans). Options granted under the Plans may be either incentive stock options (ISOs) or nonqualified stock options (NSOs). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees, directors and consultants. Options under the Plans may be granted with contractual terms of up to ten years (five years if
59
granted to holders of more than 10% of the Company’s vesting stock). All options issued through September 30, 2022 have a ten-year contractual term. The exercise price of an ISO and NSO will not be less than 100% and 85% of the estimated fair value of the shares on the date of grant, respectively, as determined by the Company’s Board of Directors.
The exercise price of an ISO and NSO granted to a 10% stockholder will not be less than 110% of the estimated fair value of the shares on the date of grant, as determined by the Board of Directors. Options generally vest over four to five years at a rate of 20% to 25% upon the first anniversary of the commencement date and monthly thereafter.
As of September 30, 2022 and December 31, 2021, there were 926,435 and 335,538 shares of common stock available to be granted under the Plan.
The Company estimated the fair values of each option awarded on the date of grant using the Black-Scholes-Merton option pricing model utilizing the assumptions noted below. The expected term of the options is based on the average period the stock options are expected to remain outstanding calculated as the midpoint of the options vesting term, and contractual expiration period, as the Company did not have sufficient historical information to develop reasonable expectations about future exercise patterns and post vesting employment termination behavior. The expected stock price volatility for the Company’s stock was determined by examining the historical volatilities of its industry peers as the Company did not have any trading history of its common stock. The risk-free interest rate was calculated using the average of the published interest rates for U.S. Treasury issues with maturities that approximate the expected term. The dividend yield assumption is zero as the Company has no history of, nor plans of, dividend payments. The estimated forfeiture rates are based on the Company’s historical forfeiture activity of unvested stock options.
The assumptions used under the Black-Scholes-Merton option pricing model and the weighted average calculated fair value of the options granted to employees for the nine months ended September 30, 2022 and 2021 are as follows:
| Nine Months Ended September 30, |
||||||||
| 2022 | 2021 | |||||||
| Grant date fair value |
$ | 1.03 | $ | 1.34 | ||||
| Expected term (in years) |
6.21 | 6.13 | ||||||
| Expected volatility |
60 | % | 60 | % | ||||
| Risk- free interest rate |
1.98 | % | 1.01 | % | ||||
| Expected dividend yield |
0 | % | 0 | % | ||||
A summary of the Company’s stock option and restricted stock unit activity and related information for the nine months ended September 30, 2022 is as follows:
| Options outstanding | Restricted stock units | |||||||||||||||||||||||
| Number of shares |
Weighted average exercise price |
Weighted average remaining contractual term (years) |
Aggregate intrinsic values ($‘000s) |
Number of plan shares outstanding |
Weighted average grant date fair value per share |
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| Balances, December 31, 2021 |
6,884,913 | $ | 2.62 | 8.01 | $ | 288 | 120,000 | $ | 3.91 | |||||||||||||||
| Options granted |
756,060 | 1.78 | ||||||||||||||||||||||
| Options exercised |
— | — | ||||||||||||||||||||||
| Options forfeited |
(702,426 | ) | 3.39 | (120,000 | ) | |||||||||||||||||||
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| Balances, September 30, 2022 |
6,938,547 | 2.18 | 7.94 | 9,441 | — | |||||||||||||||||||
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| Options vested and exercisable - |
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| September 30, 2022 |
3,770,809 | 2.43 | 7.27 | 4,332 | ||||||||||||||||||||
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Stock- based compensation is allocated on a departmental basis, based on the classification of the option holder or grant recipient. No income tax benefits have been recognized in the statements of operations for stock- based compensation arrangements and no stock- based compensation costs are capitalized as part of inventory or property and equipment as of September 30, 2022 and December 31, 2021.
Stock- based compensation expense is as follows for the nine months ended September 30, 2022 and 2021 in thousands):
| Nine Months Ended September 30, |
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| 2022 | 2021 | |||||||
| Cost of revenues |
$ | 37 | $ | 93 | ||||
| Research and development |
339 | 347 | ||||||
| Sales and marketing |
466 | 477 | ||||||
| General and administrative |
1,169 | 1,030 | ||||||
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| Total stock- based compensation |
$ | 2,011 | $ | 1,947 | ||||
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Repricing of Options
Effective March 23, 2022, the Company’s board of directors approved an offer, to certain eligible employees, to exchange existing stock options, with an exercise price above $1.36, for new replacement stock options. The exercise price of the replacement stock options is $1.36 per share, which was the estimated fair market value on the exchange date, as determined with assistance from third- party valuation specialists. Eligible employees elected to exchange an aggregate of 991,195 outstanding stock options, with exercise prices ranging from $1.64 to $3.91 per share, for new replacement stock options. The replacement stock options have a grant date of March 23, 2022 and a contractual term of 10 years.
The exchange offer applied to both vested and unvested shares. Previously vested shares were exchanged for vested replacement stock options. Unvested shares were exchanged for shares which vest in accordance with the board-approved grant approval schedule with the service period ranging from 1.0 to 4.3 years.
The March 23, 2022 share exchange was accounted for as a modification and resulted in incremental stock-based compensation expense of $0.4 million of which $0.2 million related to vested options which was recognized immediately and $0.2 million related to unvested options which is being amortized on a straight-line basis over the 3.0 year weighted-average vesting period for those options.
| 13. | COMMITMENTS AND CONTINGENCIES |
In June 2022, the Company filed a notice of arbitration with the Singapore International Arbitration Centre (“SIAC”) seeking approximately $47.0 million in damages against Solar Park Korea Co., LTD (“Solar Park”), a contract manufacturer of solar panels. The arbitration relates to write- downs recorded by the Company in December 2021 and other costs related to the loss of Solar Park’s production and transition to a new provider. Solar Park filed a response with SIAC in June 2022 asserting damages of approximately $30.0 million against the Company. The arbitration is expected to occur during the first half of 2024. On March 16, 2023, Solar Park filed a lawsuit against the Company and Complete Solaria claiming misappropriation of trade secrets, defamation, and tortious interference with contractual relations, among other things, in the United States District Court for the Northern District of California.
The Company believes that Solar Park’s allegations in the arbitration and the litigation lack merit and intends to vigorously defend all claims asserted. No liability has been recorded in the Company’s unaudited condensed consolidated financial statements as the likelihood of a loss is not probable at this time, and the Company does not believe a reasonably possible loss would be material to, nor does it expect that the ultimate resolution of these cases will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
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As of September 30, 2022, the Company was contesting a $1.8 million liability to a vendor for the purchase of factory equipment which was intended to be used in Solar Park. The liability was included in the September 30, 2022 Unaudited Condensed Consolidated Balance Sheet as Accounts Payable of $0.4 million and Accrued Expenses and Other Current Liabilities of $1.4 million. The liability was included in the December 31, 2021 Unaudited Condensed Consolidated Balance Sheet as Accrued Expenses and Other Current Liabilities of $1.7 million and Other Liabilities, noncurrent of $0.1 million. On January 2023, the Company reached a settlement agreement with the vendor which reduced the liability from $1.8 million to $0.9 million.
In July 2020, the Company became aware that it might be subject to Antidumping and Countervailing Duties (“ADCVD”) on certain components manufactured in China and used in the solar panel production process in Korea. The Company applied for a definitive ruling from the U.S. Department of Commerce (“DoC”) while in parallel shifting its component supply from China. The DoC issued its ruling in April 2021. Because of the specificity of the DoC ruling in the Solaria case and prior case law under similar circumstances, the Company concluded that such ADCVD was not probable to be incurred for purchases in periods prior to the DoC ruling and immediately started paying appropriate ADCVD deposits on all entries after April 2021. No liability has been recorded in the Company’s consolidated financial statements as the likelihood of a loss is not probable at this time.
The Company is involved in other lawsuits and claims which arise in the normal course of business. These claims individually and in the aggregate are not expected to result in a material effect on the Company’s financial condition, results of operations or cash flows.
The Company had $3.5 million of outstanding letters of credit related to normal business transactions as of September 30, 2022. These agreements require the Company to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder. As discussed in Note 4, the cash collateral in these restricted cash accounts was $3.7 million and $4.8 million as of September 30, 2022 and December 31, 2021, respectively.
| 14. | EMPLOYEE BENEFIT PLAN |
The Company has a 401(k) plan to provide defined contribution retirement benefits for all employees. Participants may contribute a portion of their compensation to the plan, subject to limitations under the Code. The Company’s contributions to the plan are at the discretion of the Board of Directors. The Company has not made any contributions to the plan since inception.
| 15. | GEOGRAPHIC INFORMATION |
The following table summarizes revenue by geographic area for the nine months ended September 30, 2022 and 2021 (in thousands):
| Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Amount | Percent | Amount | Percent | |||||||||||||
| Total revenue, net |
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| United States |
$ | 26,566 | 86.2 | % | $ | 46,159 | 96.2 | % | ||||||||
| Europe |
4,260 | 13.8 | % | 1,674 | 3.5 | % | ||||||||||
| Australia |
— | 0.0 | % | 128 | 0.3 | % | ||||||||||
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| Total |
$ | 30,826 | 100.0 | % | $ | 47,961 | 100.0 | % | ||||||||
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| 16. | SUBSEQUENT EVENTS |
Management has evaluated subsequent events through February 9, 2023, the date of issuance of these financial statements and has determined that there are no subsequent events outside the ordinary scope of business that require adjustment to, or disclosure in, the financial statements other than those described below.
In October 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Complete Solar and formed Complete Solaria. As a result, the Company became a wholly-owned indirect subsidiary of Complete Solaria effective on the date of consummation of merger in November 2022.
In October 2022, the Company entered into an amendment to the Original Agreement (“Sixth Amendment”) related to SCI which resulted in removal of quarterly revenue and contribution margin requirements.
In October 2022, in conjunction with the Merger Agreement with Complete Solar discussed above, the secured promissory note, issued in May 2022, to a trust affiliated with Thurman J. (T.J.) Rodgers, was terminated in exchange for issuance of a convertible note by Complete Solar.
In November 2022 Complete Solaria entered into a definitive business combination agreement with Freedom Acquisition I Corp. (NYSE: FACT) (“Freedom”), a Special Purpose Acquisition Company (“SPAC”). Upon closing of the business combination, which is expected in the first half of 2023, the combined Company is expected to be listed on the New York Stock Exchange under the new ticker “CSLR”.
In November 2022, the Company entered into an amendment to the 2018 Notes extending the maturity date from December 13, 2022 to December 13, 2023. In connection with the amendment, the terms of the notes will continue to bear interest at 8% per annum and are entitled to a repayment premium of 120% of the principal and accrued interest due. Additionally, in connection with the amendment and cancellation of 196,462 shares of Series E-1 warrants of Solaria, Complete Solaria issued warrants to purchase 304,234 shares of Series D-7 preferred stock at $3.84 per share.
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