QUANTUMSCAPE CORPORATION OnNovember 25, 2020 , Kensington acquired us. The Business Combination was accounted for as a reverse recapitalization in accordance withU.S. GAAP. Under this method of accounting, Kensington was treated as the "acquired" company for financial reporting purposes. Except as otherwise provided herein, our financial statement presentation includes (1) the results of Legacy QuantumScape and its consolidated subsidiaries as our accounting predecessor for periods prior to the completion of the Business Combination, and (2) the results of the Company (including the consolidation of Legacy QuantumScape and its subsidiaries) for periods after the completion of the Business Combination. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this Report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled "Risk Factors" as set forth in this Report. Unless the context otherwise requires, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to "LegacyQuantumScape ", "the Company", "we", "us" and "our" refer to the business and operations of Legacy QuantumScape and its consolidated subsidiaries prior to the Business Combination and toQuantumScape Corporation and its consolidated subsidiaries, following the closing of the Business Combination.
Overview
We are developing next-generation battery technology for EVs and other applications. We believe that our technology will enable a new category of battery that meets the requirements for broader market adoption. The lithium-metal solid-state battery technology that we are developing is being designed to offer greater energy density, longer life, faster charging, and greater safety when compared to today's conventional lithium-ion batteries.
We are a development stage company with no revenue to date, have incurred a net loss from operations of approximately$95.9 million and$186.5 million for the three and six months endedJune 30, 2022 , respectively, and an accumulated deficit of approximately$2.2 billion from our inception throughJune 30, 2022 . We expect to incur significant expenses and continuing losses for the foreseeable future.
Key Trends, Opportunities and Uncertainties
We are a pre-revenue company. We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose significant risks and challenges, including those discussed below and in the section titled "Risk Factors" appearing elsewhere in this Report.
Product Development
We are developing our battery technology with the goal of commercialization via
the production of C-sample battery cells made available for sale to a third
party. We have demonstrated capabilities of our solid-state separator and
battery technology in single-layer, four-layer, and 10-layer cells, and have
shown early 16-layer and 24-layer cell cycling data. We are now working to
develop A-sample battery cells, to validate the performance of these cells and
to continue to improve yield and performance of our battery cells.
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--------------------------------------------------------------------------------Our research and development currently includes programs for the following areas:
•
Multi-layering. We are working to continue increasing the number of layers in our cells. We have demonstrated capabilities of our solid-state separator and battery technology in single-layer, four-layer, and 10-layer solid-state cells in commercially relevant areas (ranging from approximately 60x75mm to 70x85mm). In 2022, we have announced early cycling test results for 16-layer and 24-layer cells also in commercially relevant areas. In order to advance the maturity of our prototype cells and produce commercially-viable solid-state battery cells, we must produce battery cells with dozens of layers, the exact number of which depends on our customers' requirements. We are targeting two to four dozen layers for our A-sample battery cells and additional layers for our B-sample battery cells - depending upon customer preference, cell design considerations, and other factors. We will need to overcome the developmental challenges to increase the layer count and implement the appropriate cell design for our solid-state battery cell.
•
Continued improvement in the quantity, quality and consistency of our solid-state separator. We are working to improve the quantity, quality and consistency of our solid-state separators, to further improve, among other things, the cycling behavior, power, operating conditions of our cells and to continue to reduce separator thickness.
•
Improvement of our separator manufacturing process. We use a method of
continuous processing found at scale in both the battery and ceramic industries
and are working on continuous improvement of this process, including better
consistency and higher throughput. Regarding consistency, tightening the
variability of separator quality results in better yield. Regarding throughput,
increasing the volume of separator production results in the increased
quantities required for higher layer counts and delivery of more test cells to
prospective customers. We are automating our manufacturing process and
purchasing larger-scale manufacturing equipment. We will need to substantially
improve our manufacturing processes to increase throughput required for higher
layer counts and to achieve the cost, performance and volume levels required for
commercial shipments.
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Continued improvement of the cathode. Our cathodes use a conventional cathode active material such as NMC mixed with a catholyte. We plan to benefit from industry cathode chemistry improvements and/or cost reduction, which in the future may include use of other cathode active materials, including cobalt-free compositions, including LFP, as well as cathode processing advances such as dry electrode processing. Over the years, we have developed catholytes made of differing mixtures of organic polymer and organic liquid electrolyte to optimize performance across multiple metrics such as voltage, temperature, power, and safety, among others. We continue to test solid, gel and liquid catholytes in our cells. The solid catholyte is part of our ongoing research and development investigation into inorganic catholytes. Our solid-state catholyte platform is being designed to enable high rates of charge and discharge for even thicker cathode electrodes, which when combined with a lithium-metal anode, may further increase cell energy densities. Our team of over 750 scientists, engineers, technicians, and other staff is highly motivated and committed to solving these challenges ahead. However, any delays in the completion of these tasks will require additional cash use and delay market entry. As we grow our team, expand the size of our engineering line capacity, and build-out and bring up QS-0 andQS-1 , we expect our rate of cash utilization to also increase significantly.
Our architecture depends on our proprietary solid-state ceramic separator which we plan to manufacture ourselves. Though our separator's design is unique, its manufacturing relies on well-established, high-volume production processes currently deployed globally in other industries at large scale. The solid-state separator is being designed to enable our 'anode-free' architecture. As manufactured, our solid-state battery cell has no anode; the lithium-metal anode is formed during the first charge of the cell; 100% of the lithium that forms the anode comes from the cathode material we purchase. Eliminating the anode bill of materials and associated manufacturing costs found in conventional lithium-ion cells could result in a meaningful cost of goods sold advantage for us. In addition, our solid-state battery cell is being designed to reduce the time and capital-intensity of the formation process step as compared to conventional lithium-ion manufacturing. We are focused on the continued expansion of the throughput and capability of ourSan Jose, California engineering line as well as the planning and setup of QS-0 and planning forQS-1 . As part of the continued expansion of our throughput we are automating our manufacturing process and purchasing larger-scale battery-cell manufacturing equipment. We will need to substantially improve our battery cell manufacturing processes to increase throughput required for higher numbers of battery cells and to achieve the cost, performance and volume levels required for commercial shipments. Continued expansion of the throughput and capability of ourSan Jose engineering line and QS-0 serves three purposes. First, the engineering line and QS-0 are intended to provide a sufficient quantity of solid-state separators and cells for internal development, customer sampling (including pre A-sample, A-sample, and B-sample cells), and marking the start of commercialization via production of C-sample cells made available for sale to a third party. Second, ourSan Jose engineering line and QS-0 are intended to provide the basis for continued manufacturing process development and help inform tool selection and specifications for equipment forQS-1 . Delays in the successful buildout of ourSan Jose engineering line and QS-0 may impact both our development and theQS-1 timelines. And third, as we continue to buildout our manufacturing capabilities, we target the initial production of C- sample battery cells at QS-0. We will need to achieve significant cost savings in battery design and manufacturing, in addition to the cost savings associated with the elimination of an anode from our solid-state battery cells, while controlling costs associated with the manufacture of our solid-state separator, including achieving substantial improvements in throughput and yield required to hit commercial targets. Further, we will need to capture industry cost savings in the materials, components, equipment, and processes that we share, notably in the cathode, cell design, and factory.
Commercialization and Market Focus
Delivery of the A sample represents the beginning of the automotive qualification process, which involves several major delivery milestones - A, B and C samples - followed by the start of production. Each major sampling stage may consist of several generations of increasingly mature prototypes. We are currently targeting approximately 18 months between the A sample and prototype B-sample cells, which may use some low-volume processes. We anticipate a similar timeframe to go from B samples to C samples. Of course, these timelines involve uncertainty and will be influenced by a number of factors, including product and process development risks; the specification, ordering, and qualification of production tooling; other supply chain dynamics; and OEM validation timeframes. We are currently targeting the initial production of C-sample battery cells at QS-0. We have demonstrated the performance capabilities of our solid-state separator and battery technology in single-layer, four-layer, and 10-layer solid-state cells and more recently announced early cycling test results of 16-layer and 24-layer solid-state cells, in each case in commercially relevant areas (ranging approximately from 60x75mm to 70x85mm). We will work to continue improving quality, consistency, and throughput and optimize all components of the cell. We will continue to work to further develop and validate the volume manufacturing processes to enable high volume manufacturing and minimize manufacturing costs. Finally, we intend to continue to use and expand on our engineering line inSan Jose to prepare for high volume manufacturing, to continue to order QS-0 equipment and prepare QS-0, and to planQS-1 through our joint venture partnership withVolkswagen . 26 --------------------------------------------------------------------------------QS-1 , to be built and run by QSV, and the subsequent QS-1 Expansion, would represent a small fraction ofVolkswagen's demand for batteries and implies vehicle volumes under 2.5% ofVolkswagen's total production in 2021, assuming a 100kWh battery pack size. Our goal is to significantly expand the production capacity of the joint venture, in partnership withVolkswagen , to meet more of their projected demand. WhileVolkswagen is the first automotive original equipment manufacturer ("OEM") that we signed an agreement with the goal of commercializing vehicles using our battery technology, we intend to work closely with other OEMs to make our solid-state battery cells widely available over time. In addition toVolkswagen , we have signed customer sampling agreements with five other OEMs, ranging from top ten manufacturers by global revenue to premium performance and luxury carmakers, to collaborate with us in the testing and validation of our solid-state battery cells with the goal of providing such cells to the OEM for inclusion into pre-production prototype vehicles and ultimately into serial production vehicles. The agreement follows testing of the Company's early-stage cells by the OEM in its labs. We are currently focused on automotive EV applications, which have among the most stringent sets of requirements for batteries. However, we recognize that our solid-state battery technology has applicability in other large and growing markets including stationary storage and consumer electronics such as smartphones and wearables and intend to explore opportunities in those areas as appropriate. We believe that our technology enables a variety of business models. In addition to joint ventures, such as the one withVolkswagen , we may operate solely-owned manufacturing facilities or license technology to other manufacturers. We intend to continue to invest in research and development to improve battery cell performance, improve manufacturing processes, and reduce cost.
Access to Capital
Assuming we experience no significant delays in the research and development of our solid-state battery cells, we believe that our cash resources will last through 2024. However, any delays could materially impact us.
Regulatory Landscape
We operate in an industry that is subject to many established environmental regulations, which have generally become more stringent over time, particularly in hazardous waste generation and disposal and pollution control. Regulations in our target markets include economic incentives to purchasers of EVs, tax credits for EV manufacturers, and economic penalties that may apply to a car manufacturer based on its fleet-wide emissions which may indirectly benefit us to the extent that the regulations expand the market size of EVs. While we also expect environmental regulations to provide a tailwind to our growth, it is possible for certain regulations to result in margin pressures. Trade restrictions and tariffs, while historically minimal between theEuropean Union andthe United States where most of our production and sales are expected, are subject to unknown and unpredictable change that could impact our ability to meet projected sales or margins.
COVID-19
Beginning inMarch 2020 , the COVID-19 pandemic and the measures imposed to contain this pandemic have disrupted and may continue to impact the Company's business. InCalifornia and other cities across the world, although many of the COVID-19 restrictions have been removed, there is still concern that some or all of these restrictions may be reimposed if there are new variants (which may be more contagious or severe and may be less responsive to vaccines or treatments) and resurgences of COVID-19 cases. The magnitude of the impact of the COVID-19 pandemic (or epidemics) on the Company's supply chain, productivity, results of operations and financial position, and its disruption to the Company's business and battery development and timeline, will depend in part, on the length and severity of these restrictions and on the Company's ability to conduct business in the ordinary course. Basis of Presentation We currently conduct our business through one operating segment. As a pre-revenue company with no commercial operations, our activities to date have been limited and were conducted primarily inthe United States . Our historical results are reported underU.S. GAAP and inU.S. dollars. Upon commencement of commercial operations, we expect to expand our global operations substantially, including inthe United States and theEuropean Union , and as a result we expect our future results to be sensitive to foreign currency transaction and translation risks and other financial risks that are not reflected in our historical financial statements. As a result, we expect that the financial results we report for periods after we begin commercial operations will not be comparable to the financial results included in this Report.
Components of Results of Operations
We are a research and development stage company and we have not generated any
revenues to date. Our historical results may not be indicative of our future
results for reasons that may be difficult to anticipate. Accordingly, the
drivers of our future financial results, as well as the components of such
results, may not be comparable to our historical or projected results of
operations.
Operating Expenses
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Research and Development Expense
To date, our research and development expenses have consisted primarily of personnel-related expenses for scientists, experienced engineers and technicians as well as costs associated with the expansion and ramp up of our engineering and QS-0 facilities inSan Jose , including the material and supplies to support the product development and process engineering efforts. As we ramp up our engineering operations to complete the development of our solid-state, lithium-metal batteries and required process engineering to meet automotive cost targets, we anticipate that research and development expenses will increase significantly for the foreseeable future as we expand our hiring of scientists, engineers, and technicians and continue to invest in additional plant and equipment for product development (e.g. multi-layer cell stacking, packaging engineering), building prototypes, and testing of battery cells as our team works to meet the full set of automotive product requirements. We also recognize significant non-cash stock-based compensation to employees directly involved in research and development activities. For stock-based compensation awards with performance and market conditions, such as the awards granted under our Extraordinary Performance Award Program (the "EPA Program") inDecember 2021 , the non-cash expense recognized is based on a probability assessment of the performance conditions, and as such, we expect research and development expenses to fluctuate in the future as the performance conditions are re-assessed at each reporting period. Further, should the stated market conditions of the EPA Program grants be achieved prior to the expected achievement period, we would accelerate the stock-based compensation expense recognized, which could result in significant fluctuations in research and development expense recognized in the future. For more information on the EPA Program and grants thereunder, see Note 9 to our unaudited consolidated financial statements elsewhere in this Report.
As we ramp up towards commercial manufacturing operations, we will begin to incur expenses that are directly associated with manufacturing, including allocation of indirect costs from research and development.
General and Administrative Expense
General and administrative expenses consist mainly of personnel-related expenses for our executive, sales and marketing and other administrative functions and expenses for director and officer insurance and outside professional services, including legal, accounting and other advisory services. We are rapidly expanding our personnel headcount and supporting systems, in anticipation of planning for and supporting the ramp up of commercial manufacturing operations and due to the ongoing requirements of being a public company. Accordingly, we expect our general and administrative expenses to increase significantly in the near term and for the foreseeable future. Upon commencement of commercial operations, we also expect general and administrative expenses to include customer and sales support and advertising costs. We also recognize significant non-cash stock-based compensation to executives and certain employees. The non-cash expense recognized for EPA Program grants is based on a probability assessment of the performance conditions, and as such, we expect general and administrative expenses to fluctuate in the future as the performance conditions are re-assessed at each reporting period. Further, should the stated market conditions of the EPA Program awards be achieved prior to the expected achievement period, we would accelerate the stock-based compensation expense recognized, which could result in significant fluctuations in general and administrative expense recognized in the future.
As we ramp up towards commercial manufacturing operations, we will begin to incur expenses that are directly associated with manufacturing, including allocation of indirect costs from general and administrative activities.
Other Income (Expense)
Interest Expense
Interest expense consists primarily of interest expense associated with our QS-0 facility leases.
Interest Income
Interest income consists primarily of interest income from marketable securities.
Other Income (Expense)
Our other income (expense) consists of miscellaneous income and expenses.
Income Tax Expense / Benefit
Our income tax provision consists of an estimate for
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--------------------------------------------------------------------------------Results of Operations
Comparison of the Three and Six Months Ended
The following table sets forth our historical operating results for the periods indicated (amounts in thousands):
Three Months Ended June 30, $ % Six Months Ended June 30, $ %
2022 2021 Change Change 2022 2021 Change Change
Operating expenses:
Research and
development $ 65,133 $ 35,776 $ 29,357 82 % $ 126,478 $ 65,241 $ 61,237 94 %
General and
administrative 30,740 13,846 16,894 122 % 60,052 29,056 30,996 107 %
Total operating
expenses 95,873 49,622 46,251 93 % 186,530 94,297 92,233 98 %
Loss from operations (95,873 ) (49,622 ) (46,251 ) 93 % (186,530 ) (94,297 ) (92,233 ) 98 %
Other income (loss):
Interest expense (607 ) (238 ) (369 ) 155 % (1,207 ) (238 ) (969 ) 407 %
Interest income 1,510 349 1,161 333 % 2,326 596 1,730 290 %
Change in fair value of
assumed common stock
warrant liabilities - 130,504 (130,504 ) (100 )% - 99,740 (99,740 ) (100 )%
Other (expense) income 133 (5 ) 138 (2760 )% 221 98 123 126 %
Total other income
(loss): 1,036 130,610 (129,574 ) (99 )% 1,340 100,196 (98,856 ) (99 )%
Net income (loss) (94,837 ) 80,988 (175,825 ) (217 )% (185,190 ) 5,899 (191,089 ) (3239 )%
Less: Net loss
attributable to
non-controlling
interest (8 ) - (8 ) 100 % (9 ) (10 ) 1 (10 )%
Net income (loss)
attributable to common
stockholders $ (94,829 ) $ 80,988 $ (175,817 ) (217 )% $ (185,181 ) $ 5,909 $ (191,090 ) (3234 )%
Research and Development
The increase in research and development expense in the three months ended June
30, 2022 compared to the three months ended June 30, 2021 primarily resulted
from the $10.3 million increase in personnel cost due to the growth in research
and development headcount to support our battery technology development, an
increase of $5.4 million in facility expenses primarily related to the QS-0
facility, an increase of $2.5 million related to depreciation and amortization,
an increase of $1.9 million in engineering and research and development
consulting fees, outside services and other, and an increase of $1.1 million for
research and development material supplies and equipment maintenance expenses to
support the growth in product development and manufacturing engineering efforts.
Additionally, non-cash stock-based compensation expense increased by $8.2
million from $6.6 million for the three months ended June 30, 2021 to $14.8
million for the three months ended June 30, 2022 primarily due to the effect of
restricted stock units ("RSU") granted subsequent to June 30, 2021 and the EPA
Program grants in December 2021 .
The increase in research and development expense in the six months ended June
30, 2022 compared to the six months ended June 30, 2021 primarily resulted from
the $22.5 million increase in personnel cost due to the growth in research and
development headcount to support technology development, an increase of $8.7
million in facility expenses primarily related to the QS-0 facility, an increase
of $6.1 million related to depreciation and amortization, an increase of $4.5
million in engineering and research and development consulting fees, outside
services and other, and an increase of $4.4 million in material supplies and
equipment maintenance to support the growth in product development and
manufacturing engineering efforts. Additionally, non-cash stock-based
compensation expense increased by $15.0 million from $13.0 million for the six
months ended June 30, 2021 to $28.0 million for the six months ended June 30,
2022 primarily due to the effect of RSUs granted subsequent to June 30, 2021 and
the EPA Program grants in December 2021 .
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--------------------------------------------------------------------------------General and Administrative
The increase in general and administrative expenses in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 primarily resulted from the$3.6 million increase in professional fees and other corporate expenses due to costs associated with business growth and an increase of$1.7 million in personnel costs due to the headcount increase to support business growth. Additionally, non-cash stock-based compensation expense increased by$11.2 million , from$5.0 million for the three months endedJune 30, 2021 to$16.1 million for the three months endedJune 30, 2022 primarily due to the effect of RSUs granted subsequent toJune 30, 2021 and the EPA Program grants inDecember 2021 . The increase in general and administrative expenses in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 primarily resulted from the$6.2 million increase in professional fees and other corporate expenses due to costs associated with business growth and an increase of$3.1 million in personnel costs due to the headcount increase to support business growth. Additionally, non-cash stock-based compensation expense increased by$21.1 million , from$10.3 million for the six months endedJune 30, 2021 to$31.4 million for the six months endedJune 30, 2022 primarily due to the effect of RSUs granted subsequent toJune 30, 2021 and the EPA Program grants inDecember 2021 . Interest Expense
The increase in interest expense during the three and six months ended
Interest Income
The increase in interest income during the three and six months endedJune 30, 2022 compared to the three and six months endedJune 30, 2021 was mainly due to an increase in the interest rate.
Change in Fair Value of Assumed Common Stock Warrant Liability
The change in fair value of Assumed Common Stock Warrant liabilities was due to the change in the estimated non-cash fair value of the Public and Private Placement Warrants at the end of each reporting period or through the exercise of the warrants. All Assumed Common Stock Warrants were exercised or redeemed as ofDecember 31, 2021 , and there was no remaining liability for Assumed Common Stock Warrants as ofDecember 31, 2021 .
Liquidity and Capital Resources
As ofJune 30, 2022 andDecember 31, 2021 , our principal sources of liquidity were our cash and cash equivalents and marketable securities in the amount of approximately$1.3 billion and$1.4 billion , respectively. Our cash equivalents are invested inU.S. money market funds,U.S. Treasury bonds and commercial paper. Our marketable securities are invested inU.S. Treasury notes and bonds, commercial paper, and corporate notes and bonds. We have yet to generate any revenue from our business operations. To date, we have funded our capital expenditure and working capital requirements through equity as further discussed below. Our ability to successfully develop our products, commence commercial operations and expand our business will depend on many factors, including our working capital needs, the availability of equity or debt financing and, over time, our ability to generate cash flows from operations. Prior to the Business Combination, we financed our operations primarily from the sales of redeemable convertible preferred stock. In connection with the Business Combination, we received net cash proceeds of approximately$676.9 million . Additionally, after the Business Combination, during the year endedDecember 31, 2020 , we received proceeds of approximately$99.8 million from the Series F Preferred Stock Purchase Agreements. During the year endedDecember 31, 2021 , we completed theMarch 2021 Public Offering for aggregate net cash proceeds of$462.9 million . InApril 2021 , we received$100 million from VGA pursuant to our achievement of the technical milestone specified in the Series F Preferred Stock Purchase Agreements. Also, during the year endedDecember 31, 2021 , all Assumed Common Stock Warrants were exercised or redeemed and we received net proceeds of$151.4 million . We believe that our cash on hand will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of this Report. Assuming we experience no significant delays in the research and development of our solid-state battery cells, we believe that our cash resources will last through 2024. However, any delays could materially impact us. We may, however, need additional cash resources due to changed business conditions or other developments, including unanticipated delays in negotiations with automotive OEMs and tier-one automotive suppliers or other suppliers, supply chain challenges, disruptions due to the COVID-19 pandemic, competitive pressures, and regulatory developments, among others. To the extent that our current resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If such financing is not available, or if the financing terms are less desirable than we expect, we may be forced to decrease our level of investment in product development or scale back our operations, which could have an adverse impact on our business and financial prospects. 30 --------------------------------------------------------------------------------
Cash Flows
The following table provides a summary of our cash flow data for the periods indicated (amounts in thousands):
Six Months Ended
2022 2021
Net cash used in operating activities$ (98,733 ) $ (54,435 ) Net cash (used in) provided by investing activities 116,633 (330,539 ) Net cash provided by financing activities 4,768
683,648
Cash Flows from Operating Activities
Our cash flows used in operating activities to date have been primarily driven by the growth in our underlying business to support the research and development of our next-generation of battery technology. As we continue to ramp up hiring for technical headcount to accelerate our engineering efforts ahead of starting the pre-pilot and pilot line operations, we expect our cash used in operating activities to increase significantly before we start to generate any material cash flows from our business. To support our research and development activities and our plan to expand our pre-pilot manufacturing capability, we are expecting cash payments of$6.7 million during the next twelve months and$86.7 million thereafter for the operating lease commitments as ofJune 30, 2022 . From time to time we also enter into non-cancellable service and purchase commitments. We are expecting cash used in operating activities to include payments of approximately$2.3 million in the next twelve months and approximately$10.0 million thereafter through 2027 for our non-cancellable commitments as ofJune 30, 2022 . As we complete the development of our solid-state, lithium-metal batteries and required process engineering to meet automotive cost targets, we anticipate that research and development operating expenses will increase significantly for the foreseeable future. Cash used in operating activities for the six months endedJune 30, 2022 was primarily driven by a net loss of$185.2 million offset by non-cash of$59.4 million related to stock-based compensation, non-cash expense of$10.5 million related to depreciation and amortization, non-cash expense of$3.7 million related to amortization of premiums and accretion of discounts on marketable securities, and non-cash lease expense and amortization of right-of-use assets of$3.7 million . This was partially offset by an increase of$5.2 million in prepaid and other assets, an increase of$2.1 million in asset retirement obligation related to certain leased facilities and a$0.7 million in accounts payable and accrued liabilities mainly driven by higher period-over-period spending in payroll, materials and supplies, professional services and general and administrative to support the growth of the business, specifically in the research and development of our battery technology. Cash used in operating activities for the six months endedJune 30, 2021 was primarily driven by a net income of$5.9 million offset by the non-cash income of$99.7 million for the change in fair value of Assumed Common Stock Warrant liabilities, non-cash expense of$23.3 million related to stock-based compensation, non-cash expense of$5.4 million related to amortization of premiums and accretion of discounts on marketable securities, and non-cash expense of$5.2 million related to depreciation and amortization.
Cash Flows from Investing Activities
Our cash flows from investing activities to date have been comprised of purchases of property and equipment and purchases, maturities and sales of our marketable securities. We expect the level of capital investment to increase substantially in the near future as we fully build out our engineering lines as well as acquire the property and equipment for QS-0. Cash provided by investing activities for the six months endedJune 30, 2022 primarily consists of the maturity and sale of marketable securities of$419.2 million and$15.1 million , respectively, offset by$250.8 million used for the purchase of marketable securities. Cash provided by investing activities also reflects$66.9 million of cash used for various property and equipment, primarily to support our research and development activities. Cash provided by investing activities for the six months endedJune 30, 2021 primarily consists of proceeds from the maturities of marketable securities of$411.0 million . Proceeds from the sales of marketable securities was$121.5 million . These proceeds were offset by$819.3 million of cash used for the purchase of marketable securities, and$43.7 million of cash used for various property and equipment expenditures.
Cash Flows from Financing Activities
Our cash flows from financing activities primarily consist of proceeds from the exercise of stock options. Finance lease commitment for QS-0 will result in net cash payments of$2.9 million in the next twelve months and payments of$51.9 million thereafter. Cash provided by financing activities during the six months endedJune 30, 2022 is primarily due to$5.0 million received from the exercise of stock options and our employee stock purchase plan. Cash provided by financing activities during the six months endedJune 30, 2021 is primarily related to$462.9 million in net proceeds received from theMarch 2021 Public Offering,$112.3 million received from the exercise of Public Warrants,$99.9 million in net proceeds received from the Series F Preferred Stock Agreements and approximately$9.5 million received from the exercise of stock options. 31
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Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, as defined under
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance withU.S. GAAP. In the preparation of these condensed consolidated financial statements, we are required to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported expenses incurred during the reporting periods. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on the consolidated financial statements. Our significant accounting policies are described in Note 2 to our condensed consolidated financial statements elsewhere in this Report. Our critical accounting policies and estimates were described in Part II, Item 7, "Critical Accounting Policies and Estimates" in our Annual Report. There have been no material changes to our critical accounting policies and estimates since our Annual Report.
Recent Accounting Pronouncements
See Note 3 to the condensed consolidated financial statements elsewhere in
this Report for more information about recent accounting pronouncements, the
timing of their adoption, and, to the extent it has made one, of their potential
impact on our financial condition and its results of operations and cash flows.
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