Xos, Inc. — 2021 Q2 filing summary
Important entity context: This is NextGen Acquisition Corporation’s Form 10-Q for the quarter ended June 30, 2021, filed August 17, 2021. NextGen was a blank-check company pursuing a merger with Xos; this filing does not report Xos’s operating results.
Business context and reporting period
NextGen had not commenced operations or generated operating revenue. Its activities were formation, its 2020 IPO, and seeking and pursuing a business combination. The financial statements cover the three and six months ended June 30, 2021; the filing does not present comparable prior-year operating results.
Financial position and results
| Metric | Reported value |
|---|---|
| Q2 2021 net income | $733,375 |
| Six-month 2021 net loss | $7,664,815 |
| Q2 operating expenses | $561,773, including $30,000 related-party expense |
| Six-month operating expenses | $1,345,611, including $60,000 related-party expense |
| Six-month operating cash flow | $(1,235,918) |
| Six-month financing cash flow | $440,000, from a Sponsor note |
| Cash at June 30 | $25,413 |
| Trust Account investments | $375,029,850 |
| Current liabilities / working capital | $591,339 current liabilities; approximately $204,000 working-capital deficit |
| Outstanding Sponsor note | $440,000; non-interest-bearing, with up to $1 million available |
| Total liabilities / shareholders’ equity | $48,558,009 / $5,000,010 |
There was no operating revenue or operating margin to report. Q2 profit primarily reflected a $1.283 million gain from the change in fair value of warrant liabilities; the six-month loss primarily reflected a $6.341 million warrant-liability fair-value loss. Trust Account investment gains were $12,628 for Q2 and $21,876 for six months. Warrant remeasurement is non-cash and materially affected reported earnings.
Material changes, transaction, and outlook
Compared with December 31, 2020, cash fell from $821,331 to $25,413, while Trust Account investments remained approximately $375 million. Current liabilities rose from $122,735 to $591,339, including the new $440,000 Sponsor note. Warrant liabilities increased from $28.501 million to $34.842 million.
NextGen had agreed to combine with Xos under a February 2021 merger agreement, amended in May. The disclosed terms included 127,626,116 shares of merger consideration valued at $10 per share, implying a stated pre-transaction Xos equity value of approximately $1.276 billion, and a proposed $220 million PIPE investment. The transaction remained subject to closing conditions and shareholder approval. The filing gives no operating guidance for Xos.
NextGen’s business-combination deadline was October 9, 2022; if it failed to complete a transaction by then, it would wind up and redeem public shares under the stated terms. Management said available working capital and borrowing capacity were expected to meet needs through the earlier of a business-combination closing or one year from the filing. Risks included transaction completion and redemptions, COVID-19 uncertainty, and potential warrant dilution. Approximately $5 million of deferred legal fees was disclosed as an unrecognized contingent liability; $13.125 million of deferred underwriting commissions would be payable if a business combination closed.
Controls, contingencies, and unusual items
Management concluded disclosure controls were not effective because of a material weakness in accounting for IPO warrants, associated with a previously disclosed financial-statement restatement. Six stockholder demand letters alleged omissions in the proposed-merger proxy statement/prospectus; one also challenged the merger consideration. A separate New York lawsuit sought corrective disclosures and other relief; defendants had not yet responded. The filing stated there were no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Review Xos’s own financial statements and the merger disclosure statement; this SPAC filing is not a report of Xos’s business performance.
- Check the merger’s final terms, closing conditions, PIPE funding, redemption levels, and resulting dilution, including warrant and award treatment.
- Assess the warrant-accounting material weakness, prior restatement, and whether remediation was completed.
- Track the stockholder litigation, demand letters, and deferred legal fees, as well as NextGen’s cash and Sponsor borrowing capacity.