Item 2.02 Results of Operations and Financial Condition
The information set forth under Item 4.02 is incorporated into this Item 2.02 by reference.
Item 4.02Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed
Interim Review
On April 12, 2021, the Staff of the U.S. Securities and Exchange Commission (the SEC) issued the
Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (SPACs) (the Staff Statement). QuantumScape Corporation, a Delaware corporation (the
Company) has evaluated the applicability and potential impact of the Staff Statement on the Companys financial statements. The Staff Statement clarified guidance for all SPAC-related companies regarding the accounting and reporting
for their warrants that could result in the warrants issued by SPACs being classified as a liability measured at fair value, with non-cash fair value adjustments recorded in earnings at each reporting period.
On April 28, 2021, the Audit Committee of the Board of Directors of the Company (the Audit Committee), in consultation
with management of the Company, concluded that the Companys consolidated financial statements for the year ended December 31, 2020 included in the Companys (i) Annual Report on Form 10-K,
filed on February 23, 2021, (ii) Registration Statement on Form S-1 (Registration No. 333-251433) effective March 8, 2021 and (iii) Registration
Statement on Form S-1 (Registration No. 333- 254582) (the Affected Period) should no longer be relied upon based on the facts described below. Further, any previously furnished or filed
reports, earnings releases, guidance, investor presentations, or similar communications, regarding the Affected Period should also not be relied upon.
In connection with making the determination to restate the financial statements covered by the Affected Period (the Restatement),
the Company reviewed and discussed the accounting treatment of its Warrants (as described below) and the Affected Period with Ernst & Young LLP, its independent registered public accounting firm. The Company has determined that the Warrants
should be accounted for as liabilities measured at fair value, with non-cash fair value adjustments recorded in earnings at each reporting period. It is expected that the liabilities on the Companys
balance sheet in its restated consolidated financial statements for the year ended December 31, 2020 will increase by approximately $675 to $705 million, additional
paid-in-capital will decrease by approximately $95 to $125 million, and expenses in its Statement of Operations will increase by approximately $565 to
$595 million. These estimates are preliminary and subject to change as management completes the restatement. Our independent registered public accounting firm has not audited or reviewed these estimates. The Company plans to file an amendment
to each relevant filings as noted above to restate the Affected Period within the next two weeks.
As of March 31, 2021,
approximately 8.7 million Warrants remained outstanding; the Company anticipates that the incremental non-cash non-operating expense on its Statement of Operations
related to the Warrants will be approximately $20-$40 million for the three months ended March 31, 2021.
The Companys management is also in the process of assessing the effectiveness of the Companys internal control over financial
reporting and its disclosure controls and procedures.
The Audit Committee and the Companys management have discussed the matters
disclosed in this Item 4.02(a) with Ernst & Young LLP.
Corporate History and Background
On November 25, 2020, the original QuantumScape Corporation, now named QuantumScape Battery, Inc., consummated a business combination (the
Business Combination) with Kensington Capital Acquisition Corp., a SPAC (Kensington). Legacy QuantumScape became a wholly-owned subsidiary of Kensington, and Kensington changed its name to QuantumScape Corporation. Our
Class A Common Stock and public warrants are listed on the New York Stock Exchange (the NYSE) under the symbols QS and QS.WS, respectively. Prior to the Business Combination, Kensington issued a total of
approximately 18.1 million warrants (the Warrants), which were assumed by the Company as part of the Business Combination, such Warrants are exercisable for the Companys Class A Common Stock.
2