Business Context and Reporting Period
NextGen Acquisition Corporation, the SPAC pursuing a proposed business combination with Xos, Inc., filed this Form 8-K on May 14, 2021, reporting an event occurring May 12, 2021. The filing primarily addresses revised accounting for NextGen’s warrants and the resulting non-reliance on previously issued financial statements.
Financial Metrics and Accounting Matters
- NextGen stated that it had not generated operating revenue and would not generate operating revenue until at least completion of its initial business combination.
- The company reassessed 12,500,000 public warrants and 6,333,334 private-placement warrants after the SEC issued guidance regarding SPAC warrant accounting.
- The warrants will be classified as derivative liabilities and measured at fair value, with changes in fair value recognized in earnings.
- Changes in warrant fair value are non-cash charges but may materially affect reported results of operations and period-to-period volatility.
- The filing does not provide clear values for revenue, net income or loss, cash flow, margins, debt, cash balances, or liquidity.
Material Changes Versus Prior Periods
- Management and the Audit Committee concluded that certain items in the audited October 9, 2020 balance sheet, the unaudited pro forma October 9, 2020 balance sheet, and the audited financial statements for the period from inception through December 31, 2020 should no longer be relied upon.
- NextGen stated that it would amend its Form 10-K for the year ended December 31, 2020 to include restated audited financial statements.
- Unless the warrant agreement is amended, the company expects to continue recognizing the warrants as liabilities and incurring costs to measure them at fair value.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide operating guidance for NextGen or Xos. It includes disclosure regarding the proposed transaction and expected filing of a Form S-4 registration statement and proxy statement/prospectus.
- Completion of the transaction is subject to shareholder approval, satisfaction of the minimum trust-account condition after redemptions, regulatory approvals, and other closing conditions.
- Risks include failure to complete the transaction by the business-combination deadline, failure to complete the related PIPE investment, termination of the merger agreement, litigation, employee-retention and business-disruption effects, and loss of exchange listing.
- Additional risks relate to volatility in NextGen’s securities, Xos’s ability to execute its business plan and projections, changes in the combined capital structure, and competition and regulatory uncertainty in the electric-vehicle industry.
- The warrant accounting change is the principal unusual item and may adversely affect reported earnings despite having no direct cash impact.
Investor Verification Checklist
- Verify the amended Form 10-K and the amounts of the warrant-liability restatement.
- Review the revised fair values and earnings effects for the public and private-placement warrants.
- Confirm whether the warrant agreement is amended or continues to require liability classification.
- Review the Form S-4 and proxy statement/prospectus for transaction terms, redemption assumptions, PIPE financing, trust-account requirements, and closing conditions.
- Assess the stated risks concerning transaction completion, Xos’s projections, regulatory conditions, litigation, and electric-vehicle market competition.