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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________
FORM 10-Q
______________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 001-39160
______________________
FISKER INC.
(Exact name of registrant as specified in its charter)
______________________
Delaware82-3100340
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1888 Rosecrans Avenue, Manhattan Beach, CA 90266
(Address of principal executive offices)
(833) 434-7537
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
______________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
symbol(s)
Name of each exchange
on which registered
Class A Common Stock, par value of $0.00001 per shareFSRNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
______________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of November 17, 2023, the registrant had 218,201,457 shares of Class A Common Stock and 132,354,128 shares of Class B Common Stock, par value $0.00001 per share, outstanding.


Table of Contents

TABLE OF CONTENTS
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Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are forward-looking and as such are not historical facts. These forward-looking statements include, without limitation, statements regarding future financial performance, business strategies, expansion plans, future results of operations, estimated revenues, losses, projected costs, prospects, plans and objectives of management. These forward-looking statements are based on our management’s current expectations, estimates, projections and beliefs, as well as a number of assumptions concerning future events, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this report, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “would” and variations thereof and similar words and expressions are intended to identify such forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this report may include, for example, statements about:
our ability to grow and manage growth profitably;
our ability to continue to enter into binding contracts with OEMs or tier-one suppliers in order to execute on our business plan;
our ability to execute our business model, including market acceptance of our planned products and services;
our expansion plans and opportunities;
our expectations regarding future expenditures;
our ability to raise capital in the future;
our ability to attract and retain qualified employees and key personnel;
the possibility that we may be adversely affected by other economic, business or competitive factors;
changes in applicable laws or regulations;
the outcome of any known and unknown litigation and regulatory proceedings;
our ability to maintain the listing of our Class A common stock, par value $0.00001 per share (“Class A Common Stock”) on the New York Stock Exchange (“NYSE”);
the possibility that the Russian-Ukraine war, the Israeli-Hamas conflict, rising interest rates, inflation and governmental responses to an inflationary environment, or public heath issues, including epidemics or pandemics, may adversely affect the results of our operations, financial position and cash flows; and
other factors described in this report, including those described in the section entitled “Risk Factors” under Part I, Item 1A of our most recent Annual Report on Form 10-K for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (“SEC”) on March 1, 2023, as supplemented by reports subsequently filed with the SEC, including the risk factors set forth in the section entitled “Risk Factors” under Part I, Item 1A of this report.

The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on our business. There can be no assurance that future developments affecting our business will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section entitled “Risk Factors” under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the effect of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
The forward-looking statements made by us in this report speak only as of the date of this report. Except to the extent required under the federal securities laws and rules and regulations of the SEC, we disclaim any obligation to update
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any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements.
WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website (www.fiskerinc.com) and various social media channels as a means of disclosing information about the company and its products to its customers, investors and the public (e.g., @fiskerinc, @fiskerofficial, #fiskerinc, #henrikfisker and #fisker on Twitter, Facebook, Instagram, YouTube, TikTok and LinkedIn). The information posted on social media channels is not incorporated by reference in this report or in any other report or document we file with the SEC. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about the Company when you enroll your e-mail address by visiting the “Investor Email Alerts” section of our website at www.investors.fiskerinc.com. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about the Company when you enroll your e-mail address by visiting the “Investor Email Alerts” section of our website at www.investors.fiskerinc.com.
ADDITIONAL INFORMATION
Unless the context indicates otherwise, references in this report to the “Company,” “Fisker,” “we,” “us,” “our” and similar terms refer to Fisker Inc. (f/k/a Spartan Energy Acquisition Corp.) and its consolidated subsidiaries (including Fisker Group Inc. or Legacy Fisker). References to “Spartan” refer to Spartan Energy Acquisition Corp., our predecessor company prior to the consummation of the Business Combination (as defined below).
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Fisker Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
 
As of September 30, 2023
As of December 31, 2022
ASSETS  
Current assets:  
Cash and cash equivalents$527,442 $736,549 
Restricted cash97,954  
Inventory545,653 4,276 
Prepaid expenses and other current assets274,391 87,489 
Equity investment2,220 3,140 
Total current assets1,447,660 831,454 
Non-current assets:
Property and equipment, net566,748 387,137 
Intangible assets228,819 246,922 
Right-of-use assets, net78,739 33,424 
Other non-current assets54,371 16,489 
Total non-current assets928,677 683,972 
TOTAL ASSETS$2,376,337 $1,515,426 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$444,734 $58,871 
Accrued expenses398,959 264,925 
Lease liabilities17,825 7,085 
Total current liabilities861,518 330,881 
Non-current liabilities:
Customer deposits16,359 15,334 
Lease liabilities51,723 27,884 
2025 Convertible senior notes and derivative liability, carried at fair value
446,275  
2026 Convertible senior notes662,118 660,822 
Total non-current liabilities1,176,475 704,040 
Total liabilities2,037,993 1,034,921 
COMMITMENTS AND CONTINGENCIES (Note 17)
Stockholders’ equity:
Preferred stock, $0.00001 par value; 15,000,000 shares authorized; no shares issued and outstanding as of September 30, 2023 and December 31, 2022
  
Class A Common stock, $0.00001 par value; 1,250,000,000 shares authorized; 210,885,860 and 187,599,812 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
2 2 
Class B Common stock, $0.00001 par value; 150,000,000 shares authorized; 132,354,128 shares issued and outstanding as of September 30, 2023 and December 31, 2022
1 1 
Additional paid-in capital1,803,463 1,650,196 
Accumulated deficit(1,465,122)(1,166,741)
Receivable for stock issuance (2,953)
Total stockholders’ equity338,344 480,505 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,376,337 $1,515,426 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Fisker Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three and Nine Months ended September 30, 2023 and 2022
(In thousands, except share and per share data)
(Unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Revenues$71,800 $14 $72,823 $36 
Cost of revenues104,548 6 105,472 25 
Gross margin(32,748)8 (32,649)11 
Operating costs and expenses:
Selling, general and administrative57,650 22,102 137,552 61,615 
Research and development13,428 117,885 143,422 290,505 
Total operating costs and expenses71,078 139,987 280,974 352,120 
Loss from operations(103,826)(139,979)(313,623)(352,109)
Other income (expense):
Other income (expense), net(2,288)270 (2,593)(553)
Interest income6,395 3,075 19,870 4,693 
Interest expense(4,928)(4,693)(14,134)(13,827)
Foreign currency gain (loss)11,068 (7,285)14,467 (9,956)
Unrealized gain loss recognized on equity securities
(530)(730)(920)(5,640)
Fair value adjustment on 2025 convertible senior notes and derivative liability
725  725  
Total other income (expense)10,442 (9,363)17,415 (25,283)
Loss before income taxes(93,384)(149,342)$(296,208)$(377,392)
Provision for income taxes(1,835) (2,173) 
Net loss$(95,219)$(149,342)$(298,381)$(377,392)
Net loss per common share
Net loss per share attributable to Class A and Class B Common stock- Basic and Diluted$(0.28)$(0.49)$(0.89)$(1.26)
Weighted average shares outstanding
Weighted average Class A and Class B Common shares outstanding- Basic and Diluted343,101,845 303,224,595 333,387,699 299,462,065 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Fisker Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
(Unaudited)

 Class A
Common Stock
Class B
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Stockholders’
Deficit
Three Months Ended September 30, 2023SharesAmountSharesAmount
Balance at June 30, 2023210,179,237 $2 132,354,128 $1 $1,794,327 $(1,369,903)$424,427 
Stock-based compensation— — — — 6,126 — 6,126 
Exercise of stock options and issuance of restricted stock unit awards, net of statutory tax withholdings168,448 — — — 27 — 27 
Share issued under “At-the-market” offering, net of stock issuance costs
— — — — (17)— (17)
Conversion of 2025 Convertible Senior Notes538,175 — — — 3,000 — 3,000 
Net loss— — — — — (95,219)(95,219)
Balance at September 30, 2023210,885,860 $2 132,354,128 $1 $1,803,463 $(1,465,122)$338,344 


 Class A
Common Stock
Class B
Common Stock
Additional
Paid-in
Capital
Receivable for stock issuanceAccumulated
Deficit
Stockholders’
Deficit
Nine Months Ended September 30, 2023SharesAmountSharesAmount
Balance at December 31, 2022187,599,812 $2 132,354,128 $1 $1,650,196 $(2,953)$(1,166,741)$480,505 
Stock-based compensation— — — — 13,510 — — 13,510 
Exercise of stock options and issuance of restricted stock unit awards, net of statutory tax withholdings1,594,719 — — — 53 — — 53 
Recognition of Magna warrants— — — — 6,000 — — 6,000 
Shares issued under “At-the-market” offering, net of stock issuance costs
21,153,154 — — — 130,704 2,953 — 133,657 
Conversion of 2025 Convertible Senior Notes538,175 — — — 3,000 — — 3,000 
Net loss— — — — — — (298,381)(298,381)
Balance at September 30, 2023210,885,860 $2 132,354,128 $1 $1,803,463 $ $(1,465,122)$338,344 




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 Class A
Common Stock
Class B
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Stockholders’
Deficit
Three Months Ended September 30, 2022Shares AmountSharesAmount
Balance at June 30, 2022166,279,680 $2 132,354,128 $1 $1,453,662 $(847,295)$606,370 
Stock-based compensation— — — — 11,166 — 11,166 
Exercise of stock options and issuance of restricted stock unit awards, net of statutory tax withholdings110,279 — — — 41 — 41 
Recognition of Magna warrants— — — — 6,695 — 6,695 
Shares issued under "At-the-market" offering, net of stock issuance costs13,103,208 — — — 115,758 — 115,758 
Net Loss— — — — — (149,342)(149,342)
Balance at September 30, 2022179,493,167 $2 132,354,128 $1 $1,587,322 $(996,637)$590,688 
 Class A
Common Stock
Class B
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Stockholders’
Deficit
Nine Months Ended September 30, 2022Shares AmountSharesAmount
Balance at December 31, 2021164,377,306 $2 132,354,128 $1 $1,419,284 $(619,245)$800,042 
Stock-based compensation— — — — 17,426 — 17,426 
Exercise of stock options and issuance of restricted stock unit awards, net of statutory tax withholdings624,502 — — — 556 — 556 
Recognition of Magna warrants— — — — 20,084 — 20,084 
Shares issued under "At-the-market" offering, net of stock issuance costs14,491,359 — — — 129,972 — 129,972 
Net Loss— — — — — (377,392)(377,392)
Balance at September 30, 2022179,493,167 $2 132,354,128 $1 $1,587,322 $(996,637)$590,688 

The accompanying notes are an integral part of these condensed consolidated financial statements.


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Fisker Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands, except share data)
(Unaudited)
Nine Months Ended September 30,
20232022
Cash Flows from Operating Activities:
Net loss$(298,381)$(377,392)
Reconciliation of net loss to net cash used in operating activities:
Stock-based compensation expense13,460 17,426 
Depreciation and amortization61,452 1,212 
Amortization of right-of-use asset6,923 3,054 
Accretion of debt issuance costs1,296 1,047 
Change in fair value of 2025 convertible senior notes and derivative liability(725) 
Unrealized loss recognized on equity securities920 5,640 
Unrealized foreign currency (gain)/loss(15,385)13,301 
Changes in operating assets and liabilities:
Inventory(541,378) 
Prepaid expenses and other assets(217,084)(12,942)
Accounts payable and accrued expenses487,956 2,319 
Customer deposits1,025 7,853 
Change in operating lease liabilities(17,659)(2,948)
Net cash used in operating activities(517,580)(341,430)
Cash Flows from Investing Activities:
Acquisition of equity investment (10,000)
Funding of notes receivable(7,700) 
Purchases of property and equipment and intangible asset(169,985)(157,256)
Net cash used in investing activities(177,685)(167,256)
Cash Flows from Financing Activities:
Proceeds from the issuance of convertible notes450,000  
Proceeds from the exercise of stock options2,820 2,146 
Payments for statutory withholding taxes(2,768)(1,436)
Proceeds from stock issuance under "At-the-market" offering135,928 132,538 
Payments for "At-the-market" issuance costs(1,868)(2,305)
Net cash provided by financing activities584,112 130,943 
Net decrease in cash and cash equivalents(111,153)(377,743)
Cash and cash equivalents, beginning of the period736,549 1,202,439 
Cash, cash equivalents and restricted cash, end of the period $625,396 $824,696 
Supplemental disclosure of cash flow information
Cash paid for interest$16,688 $17,985 
Cash paid for income taxes$191 $ 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Fisker Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(In thousands, except share data)
(Unaudited)
1. Overview of the Company
Fisker was originally incorporated in the State of Delaware on October 13, 2017 as a special purpose acquisition company under the name Spartan Energy Acquisition Corp. for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses. Spartan completed its initial public offering in August 2018. On October 29, 2020, Spartan’s wholly-owned subsidiary merged with and into Fisker Holdings Inc. (f/k/a Fisker Inc.), a Delaware corporation (“Legacy Fisker”), with Fisker Holdings Inc. surviving the merger as a wholly-owned subsidiary of Spartan (the “Business Combination”). In connection with the Business Combination, Spartan changed its name to Fisker Inc.
Legacy Fisker was incorporated in the State of Delaware on September 21, 2016. In connection with its formation, the Company entered into stock purchase agreements with the Company’s founders, whereby the founders contributed certain intellectual property (primarily trademarks) and interests in Platinum IPR LLC. Platinum IPR LLC was an entity solely owned by the Company’s founders, which held Fisker trademarks registered in a variety of jurisdictions around the world. The founders’ transfer of its interest in Platinum IPR LLC and the transfer of trademarks was accounted for as a transfer of assets between entities under common control. The carrying amount of the transferred assets is recorded based on the prior carrying value, which was de minimis.
The Company’s common stock is listed on the NYSE under the symbol “FSR”. The Company’s warrants previously traded on the NYSE under the symbol “FSR WS” and on April 19, 2021, the NYSE filed a Form 25-NSE with respect to the warrants; the formal delisting of the warrants became effective ten days thereafter.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and pursuant to the regulations of the SEC. Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.
Unaudited Interim Financial Statements
The condensed consolidated balance sheet as of September 30, 2023, the condensed consolidated statements of operations and the condensed consolidated statements of changes in stockholders’ equity for the nine-months ended September 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine-months ended September 30, 2023 and 2022, as well as other information disclosed in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements as of that date. The interim condensed consolidated financial statements and the accompanying notes should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023.
Comprehensive loss is not separately presented as the amounts are equal to net loss for the three and nine-months ended September 30, 2023 and 2022.
The interim condensed consolidated financial statements and the accompanying notes have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The condensed consolidated financial statements for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future years or interim periods.
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Going Concern, Liquidity and Capital Resources

The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern over the next twelve months from the date of filing this report. As of September 30, 2023, the Company had approximately $527.4 million in unrestricted cash and cash equivalents. The Company believes that substantial doubt about its ability to continue as a going concern does not exist as its cash on hand will be sufficient to meet its working capital and capital expenditure requirements for a period of at least twelve months from the date of the filing of this Form 10-Q.

Prior to the third quarter of 2023, the Company did not generate any significant revenue from its core business operations and has incurred significant accumulated losses of approximately $1.5 billion. The Company expects to continue to incur operating losses for the foreseeable future. The Company expects its capital expenditures and working capital requirements to increase during the remaining months of 2023 and beyond, as it continues serial production of the Fisker Ocean, develops its customer support and marketing infrastructure and expands its research and development efforts. The Company has raised additional cash resources from the issuance of senior convertible notes on July 11, 2023 and September 29, 2023 with net proceeds of $445.1 million (Refer to Note 18, Subsequent Event, for information regarding covenant compliance related to these notes and impact on balance sheet classification). This will be used to fund its operations until it achieves a level of production and sales that provide for operating profitability. To the extent that Fisker’s current resources are insufficient to satisfy its cash requirements, which may result from a reduction in consumer demand or a slower than expected ramp in production due to unavailability of parts from significant suppliers, the Company may need to seek additional equity or debt financing and there can be no assurance that the Company will be successful in its efforts. If the financing is not available, or if the terms of financing are less desirable than the Company expects, the Company may be forced to decrease its planned level of investment in product development or scale back its operations, including production of the Fisker Ocean, which could have an adverse impact on its business and financial prospects.
Supplier Risk
During the third quarter of 2023, suppliers ramped production of components for serial production of vehicles, which are assembled in Austria. As of September 30, 2023, these supplier contracts do not represent unconditional purchase obligations with take-or-pay or specified minimum quantities provisions. The Company has secured battery capacity with a supplier located in China for the Fisker Ocean SUV. Under the terms of the agreement, from 2023 through 2025, the battery supplier will deliver two different battery solutions for the Fisker Ocean SUV, with an initial battery capacity of over 5 gigawatt-hours annually.

We are dependent on our suppliers, including single source suppliers, for the production of the Fisker Ocean SUV. The inability of these suppliers to deliver necessary components of our products in a timely manner at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these components from these suppliers, could have a material adverse effect on our business, prospects, financial condition and operating results.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP required management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the condensed consolidated financial statements and accompanying notes. The Company bases these estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.
Restricted Cash
Cash and cash equivalents that is restricted is primarily related to letters of credit issued to a supplier. The Company’s restricted cash balance was $98.0 million as of September 30, 2023. Cash and cash equivalents were unrestricted as of December 31, 2022.
Revenue from Contracts with Customers
The Company follows a five-step process in which (i) a contract is identified, (ii) the related performance obligations are identified, (iii) the transaction price is determined, (iv) the transaction price is allocated to the identified
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performance obligations, and (v) revenue is recognized when (or as) performance obligations are satisfied. The Company’s revenue is primarily generated from the sale of electric vehicles and accessories to customers, as well as specific services that meet the definition of a performance obligation under ASC 606, including over-the-air ( OTA) software updates as they become available. Revenue recognized from the sale of the Fisker Ocean during the three and nine-months ended September 30, 2023 was $71.6 million and $72.3 million, respectively.
The Company recognizes revenue related to the vehicles at a point in time when the customer obtains control of the vehicle either upon completion of delivery or upon pick up of the vehicle by the customer. As the Company has a stand-ready obligation to deliver unspecified OTA software updates when-and-if they become available, the Company recognizes revenue from the OTA software updates ratably over the basic vehicle warranty term, commencing when control of the vehicles is transferred to the customer. We also defer revenue from specific services that meet the definition of a performance obligation including premium connectivity and roadside assistance. We also recognize a sales return reserve estimate.
Any fees that are paid or payable by the Company to a customer’s lender when financing is arranged are recognized as an offset to vehicles sales. Shipping and handling is considered a fulfillment activity. Sales taxes collected from customers are excluded from the transaction price of electric vehicle contracts.
Payment for EV sales is typically received at or prior to delivery, or according to agreed upon payment terms. The standalone selling prices of all performance obligations are estimated by considering costs to develop and deliver the good or service, third-party pricing of similar goods or services and other information that may be available. The transaction price is allocated among the performance obligations in proportion to the standalone selling price of each performance obligation.
Deferred revenue is the total transaction price allocated to unsatisfied, or partially unsatisfied performance obligations as of the balance sheet date. This is primarily relates to undelivered OTA software updates. Deferred revenue was immaterial as of September 30, 2023.
Other revenue consists of sales of merchandise and home charging solutions.

Cost of Revenues
Cost of revenues primarily relates to the cost of production of vehicles and includes direct parts, material and labor costs, machinery and tooling depreciation, amortization of capitalized manufacturing costs, shipping and logistics costs, reserves for estimated warranty costs related to the production of vehicles, adjustments related to write down the carrying value of inventory when it exceeds its estimated net realizable value (“NRV”) as needed, adjustments for excess and obsolete inventory, adjustments associated with lower levels of production during the ramp-up phase, and losses on firm purchase commitments, as needed.
Fair Value Measurements
The Company follows the accounting guidance in ASC 820 Fair Value Measurement (ASC 820), for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
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The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Fair Value Option
Under the ASC 825-10, Financial Instruments - Overall, the Company has the irrevocable option to report most financial assets and financial liabilities at fair value on an instrument-by-instrument basis. The Company elected the fair value option to account for the 2025 convertible senior notes due to the embedded derivative that would require bifurcation and separate accounting if the fair value option was not elected. Also the Company believes the fair value option provides users of the financial statements with greater ability to estimate the outcome of future events as facts and circumstances change, particularly with respect to changes in the fair value of the Common Stock underlying the conversion and redemption features (See Note 12). The fair value of the 2025 convertible senior notes is estimated based on a discounted cash flow model and a Monte Carlo simulation, which represent Level 3 measurements. Significant assumptions include the discount rate, the expected premium for conversion, and expected volatility. The 2025 convertible senior notes are presented at fair value in the Condensed Consolidated Balance Sheet, with changes in fair value recognized in Fair value adjustment on 2025 convertible senior notes and derivative liability on the Condensed Consolidated Statements of Operations. There were no changes in fair value attributable to instrument-specific credit risk during the period associated with the 2025 convertible senior notes.

Derivative Instruments
The Company’s only derivative instrument related to the investor’s rights to purchase additional convertible senior notes is described in detail in Note 12. The Investor’s call option is accounted for as a derivative liability on the Condensed Consolidated Balance Sheet at its fair value, with changes in fair value recognized in Fair value adjustment on 2025 convertible senior notes and derivative liability on the Condensed Consolidated Statements of Operations. The Company uses a Monte Carlo Simulation Model to determine the fair value of this derivative instrument.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value and consists of raw materials, work in progress and finished goods. Inventory value is determined using standard cost, which approximates actual cost on a first-in, first-out basis. The Company records inventory write-downs for excess or obsolete inventories based upon assumptions about current and future demand forecasts. If inventory on-hand is in excess of future demand forecast, the excess amounts are written-off.
Inventory is also reviewed to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires an assessment to determine the selling price of the vehicles less the estimated cost to convert the inventory on-hand into a finished product. Once inventory is written down, a new, lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. In the event there are changes in our estimates of future selling prices or production costs, additional and potentially material write-downs may be required.

Long-Lived Assets
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the related assets as follows:

Useful Life (in years)
Tooling
3-8
Machinery and equipment
5-15
Furniture and fixtures
5-10
IT hardware and software
3-10
Leasehold improvementsShorter of their estimated life or remaining lease term
Construction in progress is comprised primarily of costs incurred to construct serial production tooling located at affiliates of Magna and our suppliers.
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Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the related lease. Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repair expenditures are expensed as incurred, while major improvements that increase functionality of the asset are capitalized and depreciated ratably to expense over the identified useful life.
Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset group to its carrying amount. The Company assesses impairment for asset groups, which represent a combination of assets that produce distinguishable cash flows. If the carrying amount of the asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. The Company has not recorded any impairment charges during the periods presented.
Income Taxes
Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. As of September 30, 2023, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for the year ended December 31, 2022.
The Company’s income tax provision consists of an estimate for U.S. federal, foreign and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in the tax law. The Company maintains a valuation allowance against the full value of its U.S. and state net deferred tax assets because the Company believes the recoverability of the tax assets is not more likely than not as of September 30, 2023.
Equity Awards
The grant date for an option or stock award is established when the grantee has a mutual understanding of the key terms and conditions of the option or award, the award is authorized, including all the necessary approvals unless approval is essentially a formality or perfunctory, and the grantee begins to benefit from, or be adversely affected by, underlying changes in the price of the Company’s Class A common shares. An award or option is authorized on the date that all approval requirements are completed (e.g., action by the compensation committee approving the award and the number of options, restricted shares or other equity instruments to be issued to individual employees).
Net Loss per Share of Common Stock
Basic net loss per share of common stock is calculated using the two-class method under which earnings are allocated to both common shares and participating securities. Undistributed net losses are allocated entirely to common shareholders since the participating security has no contractual obligation to share in the losses. Basic net loss per share is calculated by dividing the net loss attributable to common shares by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share of common stock is computed by dividing the net loss using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of stock-based compensation awards and warrants to purchase common stock (using the treasury stock method).

Foreign Currency Remeasurement and Transactions
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The functional currency of the Company’s foreign subsidiaries is the U.S. Dollar. For these subsidiaries, monetary assets and liabilities denominated in non-U.S. currencies are re-measured to U.S. Dollars using current exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities denominated in non-U.S. currencies are maintained at historical U.S. Dollar exchange rates. Expenses are re-measured at average U.S. Dollar monthly rates.

Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency. Transaction gains and losses are immaterial for all periods presented.
In April and July 2022, the Company purchased 130.1 million Euros for $140.0 million U.S. dollars, a currency exchange rate of 1 U.S. dollar for 1.076 Euro and 50.0 million Euros for $50.9 million U.S. dollars, a currency exchange rate of 1 U.S. dollar for 1.018 Euro, which are designed to provide an economic hedge against future foreign currency exposures. As of September 30, 2023, the Company has fully utilized these funds for research and development and production of Ocean and future projects.

3. Fair Value Measurements
The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows (in thousands):
Fair Value Measured as of September 30, 2023:
Level 1Level 2Level 3Total
Assets included in:    
Money market funds included in cash and cash equivalents$329,771 $ $ $329,771 
Equity investment2,220   2,220 
Total fair value$331,991 $ $ $331,991 
Liabilities included in:
2025 convertible senior notes and derivative liability$ $ $446,275 $446,275 
Total fair value$ $ $446,275 $446,275 
Fair Value Measured as of December 31, 2022:
Level 1Level 2Level 3Total
Assets included in:    
Money market funds included in cash and cash equivalents$601,045 $ $ $601,045 
Equity investment3,140   3,140 
Total fair value$604,185 $ $ $604,185 
The fair value of the Company’s money market funds is determined using quoted market prices in active markets for identical assets. The carrying amounts included in the Condensed Consolidated Balance Sheets under Current assets approximate fair value because of the short maturity of these instruments.
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On July 28, 2021, the Company made a commitment for a private investment in public equity (PIPE) supporting the planned merger of European EV charging network, Allego B.V. (“Allego”) with Spartan Acquisition Corp. III (NYSE: SPAQ), a publicly-listed special purpose acquisition company. Fisker Inc. was the exclusive electric vehicle automaker in the PIPE and, in parallel, Allego agreed to terms to deliver a range of charging options for Fisker customers in Europe. On March 16, 2022, the merger closed and the Company delivered cash of $10.0 million in exchange for 1,000,000 shares of Allego's Class A common stock (NYSE: ALLG). The Company’s ownership percentage is less than 5% and does not result in significant influence. The Company has classified its equity investment in Allego as a current asset. For equity securities still held as of September 30, 2023, unrealized losses recognized during the three-months ended September 30, 2023 totaled $0.5 million and unrealized losses recognized during the nine-months ended September 30, 2023 totaled $0.9 million, as shown separately in the Condensed Consolidated Statement of Operations.
In August 2021, the Company issued convertible senior notes due in 2026. We carry the convertible senior notes at face value less the unamortized debt issuance costs on our consolidated balance sheets and present the fair value for disclosure purposes only. As of September 30, 2023, the fair value of the 2026 Notes was $214.8 million compared to its fair value of $309.8 million as of December 31, 2022. The estimated fair value of the convertible notes, which are classified as Level 2 financial instruments, was determined based on the estimated or actual bid prices of the convertible notes in an over-the-counter market on the last business day of the period.
The fair value of the 2025 convertible senior notes is estimated based on a discounted cash flow model and a Monte Carlo simulation, which represent Level 3 measurements.
Refer to Note 12 for additional information regarding the convertible notes issued by the Company.
4. Inventory
Inventory consists of the following as of September 30, 2023 and December 31, 2022 (in thousands):

As of September 30, 2023As of December 31, 2022
Raw materials$268,063 $698 
Work in progress20,973  
Finished goods
256,617 3,578 
Total$545,653 $4,276 
Inventory was comprised of raw materials, work in progress related to the production of vehicles for sale and finished goods inventory including new vehicles available for sale. Expenditure related to services performed subsequent to the start of production of salable vehicles are expensed as incurred in cost of revenues in the Condensed Consolidated Statements of Operations.
The Company writes-down inventory for any excess or obsolete inventories or when we believe the net realizable value of inventories is less than the carrying value. The Company recorded an obsolescence reserve on inventories of $0.9 million for the three and nine months ended September 30, 2023. Fixed production overhead costs are allocated to inventory based on the normal capacity of the production facility. The Company recorded a $18.2 million inventory valuation adjustment in cost of revenues in the three months ended September 30, 2023, due to the ramp up in production which impacted the allocation of fixed production overhead costs.
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5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following as of September 30, 2023 and December 31, 2022 (in thousands):
As of September 30, 2023As of December 31, 2022
Advanced payments to suppliers$166,719 $27,218 
Value-added tax receivables50,547 27,928 
Prepaid insurance9,904 2,951 
Prepaid and other current assets47,221 29,392 
$274,391 $87,489 
The Company paid value-added taxes on certain capital expenditures and submitted requests for refunds from tax authorities in foreign countries with a concentration in Europe that are pending repayment as of September 30, 2023 and December 31, 2022. Prepaid and other current assets include payments to certain suppliers in advance of production.

6. Intangible Assets
The Company has the following intangible assets (in thousands):
As of September 30, 2023
 Amortization PeriodGross
Carrying
Amount
Accumulated
Amortization
Net
Capitalized cost - manufacturing8 years$258,304 $(29,485)$228,819 
  $258,304 $(29,485)$228,819 
 
As of December 31, 2022
 Amortization
Period
Gross
Carrying
Amount
Accumulated
Amortization
Net
Capitalized cost - manufacturing8 years$252,304 $(5,382)$246,922 
  $252,304 $(5,382)$246,922 
The Company commenced amortization in the fourth quarter of 2022 of capitalized licensing costs associated with the manufacturing of the Fisker Ocean and production parts, and for warrants granted to Magna International, Inc. (“Magna”). The Company expects to amortize the intangible asset over eight years but will continually assess the reasonableness of the estimated life. Refer to Note 13 for additional information regarding the capitalization of costs upon issuance of warrants to Magna.
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7. Property and Equipment, Net
Property and equipment, net, consists of the following (in thousands):
 
As of September 30, 2023
As of December 31, 2022
Tooling$450,157 $ 
Machinery and equipment135,559 9,298 
Furniture and fixtures1,553 470 
IT hardware and software13,023 6,427 
Leasehold improvements647 634 
Construction in progress3,157 372,789 
Total property and equipment604,096 389,618 
Less: Accumulated depreciation and amortization(37,348)(2,481)
Property and equipment, net$566,748 $387,137 
Construction in progress is comprised primarily of costs incurred to construct serial production tooling located at affiliates of Magna and our suppliers. Assets of $450.2 million that are ready for their intended use have changed categories from Construction in progress to Tooling during the nine-months ended September 30, 2023. Assets of $101.3 million have also changed categories from Construction in progress to Machinery and equipment during the nine-months ended September 30, 2023.
As of September 30, 2023, accounts payable and accrued expenses includes acquired property and equipment of $191.8 million compared to $144.8 million as of December 31, 2022, which is excluded from net cash used in investing activities as reported in the condensed consolidated statement of cash flows for the nine-months ended September 30, 2023.


8. Leases

The Company has entered into various operating lease agreements and a finance lease agreement for certain office space, manufacturing and warehouse facilities, retail and customer services locations, equipment, and vehicles. We determine whether a contractual arrangement is or contains a lease, including embedded leases, at inception and record the lease when the underlying assets is made available for us by the lessor, or the date of commencement. At lease commencement, the Company measures the lease liability at the present value of lease payments not yet paid. For purposes of calculating lease liabilities, lease terms include options to extend or renew the lease when it is reasonably certain that we will exercise such options. Certain operating leases provide for annual increases to lease payments based on an index or rate. Lease expense for finance lease payments is recognized as amortization expense of the finance lease right-of-use asset over the lease term.

Operating leases

During the nine-months ended September 30, 2023 and year ended December 31, 2022, the Company recorded non-cash lease right-of-use assets of $49.1 million and $33.4 million and non-cash lease liabilities of $37.9 million and $35.0 million, respectively, on its consolidated balance sheet.


The table below presents information regarding the Company’s lease assets and liabilities (in thousands):

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 As of September 30, 2023As of December 31, 2022
Assets:
     Operating lease right-of-use assets$78,739 $33,424 
Liabilities:
     Operating lease — current$17,825 $7,085 
     Operating lease — long-term$51,723 $27,884 


The components of lease related expense are as follows (in thousands):

Three-months ended September 30,
 20232022
Lease costs
Operating lease expense$3,946 $1,432 
Short-term lease expense454 53 
Total lease costs$4,400 $1,485 

Nine-months ended September 30,
 20232022
Lease costs
     Operating lease expense$8,904 $3,957 
     Short-term lease expense$632 170 
Total lease costs$9,536 $4,127 
Operating and short-term lease related expenses are included in selling, general and administrative expense on the Condensed Consolidated Statement of Operations.

Other information related to operating leases is as follows:

 As of September 30, 2023As of December 31, 2022
Weighted average remaining lease term (in years)4.53.6
Weighted average discount rate8.76 %5.27 %

The components of supplemental cash flow information related to leases are as follows (in thousands):

Nine months ended September 30,
 20232022
Cash flow information:
     Cash paid for amounts included in the measurement of lease liabilities:
          Operating cash flows used by operating leases$10,300 $2,412 
     Non-cash activity:
          ROU asset obtained in exchange for operating lease obligations$52,297 $12,501 


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As of September 30, 2023, future minimum payments of our operating lease liabilities during the next five years and thereafter are as follows (in thousands):

Operating Leases
Year ending December 31, 2023$4,407 
Year ending December 31, 2024$18,697 
Year ending December 31, 2025$17,653 
Year ending December 31, 2026$16,832 
Year ending December 31, 2027$9,382 
Thereafter$20,982 
     Total$87,953 
Less: present value discount(18,405)
Total lease costs$69,548 

The Company’s lease agreements do not provide an implicit rate, so the Company used an estimated incremental borrowing rate, which was derived from third-party information available at lease inception, in determining the present value of lease payments. The rate used is for a secured borrowing of a similar term as the lease.

Finance leases

During 2023 the Company recorded embedded finance lease right-of-use assets of $24.1 million on its consolidated balance sheet, related to certain equipment and tooling that is controlled and used by the Company for vehicle manufacturing. The Company paid for a majority of the costs during 2022 with a remaining liability of $10.0 million as of September 30, 2023 to be paid in 2023. Amortization of right-of-use assets totaled $0.8 million for the nine-months ended September 30, 2023 and future amortization of embedded finance lease right-of-use assets will be recognized over a lease term of approximately 8 years. The Company did not have any finance leases during 2022. As of September 30, 2023, the embedded finance lease right-of-use assets, totaling $25.6 million and lease liabilities from finance leases are included in other non-current assets and accrued expenses on the balance sheet.
9. Accrued Expenses
A summary of the components of accrued expenses is as follows (in thousands):
 September 30, 2023December 31, 2022
Accrued vendor liabilities$347,683 $251,291 
Advance payments from customers27,404  
Order deposits3,510 4,860 
Accrued interest695 4,867 
Accrued professional fees3,435 1,145 
Accrued payroll2,619 1,627 
Accrued other13,613 1,135 
Total accrued expenses$398,959 $264,925 
Accrued vendor liabilities include amounts owed to vendors but not yet invoiced in exchange for vendor purchases, inventory purchases, and research and development services. Certain estimates of accrued vendor expenses are based on costs incurred to date.
Order Deposits

In the third quarter of 2022, the Company began accepting order deposits of $5,000 USD or equivalent currency (Order Deposits) for Fisker Ocean Ones, a limited-edition trim level of the Fisker Ocean. The Company also converted customer deposits for reservation holders who previously made a deposit for an Extreme, Ultra or Sport Ocean prior to
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August 16, 2022, the enactment date of the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”). Order deposits will be applied to the sales price of the vehicle and recognized as revenue when the vehicle is sold and delivered to the customer. Order Deposits are not included in customer deposits.

On July 1, 2022, the Company entered into a contract for global payment processing agreement with JPMorgan Chase Bank, N.A. (“Chase”). Order Deposits paid directly to the Company via ACH or other direct payment mechanisms are received in the Company’s bank account and available for its use in the subsequent month after the month in which the Order Deposits were placed. For Order Deposits made through credit card transactions, Chase holds cash received from customers until the vehicle is delivered to the customer at which time the cash is deposited into the Company’s bank account and available for its use. Cash received from Order Deposits and the conversion of any customer deposit into an Order Deposit results in the recognition of a contract liability. As of September 30, 2023 and December 31, 2022 contract liabilities for Order Deposits totaled $3.5 million and $4.9 million, respectively.


Advance Payments from Customers

Customer payments received in advance of vehicle delivery, a recognized contract liability, totaled $27.4 million as of September 30, 2023. There were no customer payments received in advance of vehicle delivery as of December 31, 2022.

Revenue recognized during the three months ended September 30 2023, that was included in the contract liability balance at June 30, 2023 totaled $12.7 million. Revenue recognized during the nine months ended September 30, 2023 that was included in the contract liability balance at December 31, 2022 was $0.6 million.

10. Customer Deposits
Customer deposits consists of the following (in thousands):
 September 30, 2023December 31, 2022
Customer reservation $15,816 $14,580 
Customer SUV option543 754 
Total customer deposits$16,359 $15,334 

Customer deposits consist of reservations, which represent cash received for the future right (e.g., a reservation) to order a Fisker Ocean, PEAR, Alaska or Ronin. Each reservation requires a deposit that ranges from $100 USD or equivalent currency to $2,000 USD or equivalent currency.



11. Unconsolidated Variable Interest Entity

The Company holds a variable interest in an automotive-related entity to which we provide financial assistance to support our production needs. Our variable interest in the entity is a note receivable with face value of $7.7 million, and a carrying amount of $4.5 million as of September 30, 2023, net of expected credit losses, which is included in Other non-current assets on the Company’s Condensed Consolidated Balance Sheet. Our maximum exposure to loss as of September 30, 2023 including the undrawn amount on the note receivable was $10.0 million. However, given our commitment to fund possible future tranches, this would result in an additional $8.0 million, for an aggregate maximum exposure of $18.0 million.

We are not the primary beneficiary of the variable interest entity (“VIE”) as we lack the power to direct the activities that most significantly impact the entities’ economic performance. Therefore, we do not consolidate the VIE under the variable interest model.
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12. Convertible Senior Notes
2026 Notes
In August 2021, we issued an aggregate of $667.5 million principal amount of 2.50% convertible senior notes due in September 2026 (the “2026 Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The 2026 Notes have been designated as green bonds, whose proceeds will be allocated in accordance with the Company’s green bond framework. The 2026 Notes consisted of a $625.0 million initial placement and an over-allotment option that provided the initial purchasers of the 2026 Notes with the option to purchase an additional $100.0 million aggregate principal amount of the 2026 Notes, of which $42.5 million was exercised. The 2026 Notes were issued pursuant to an indenture dated August 17, 2021. The net proceeds from the issuance of the 2026 Notes were $562.2 million net of debt issuance costs and cash used to purchase the capped call transactions (“2026 Capped Call Transactions”) discussed below. The debt issuance costs are amortized to interest expense.
The 2026 Notes are unsecured obligations which bear regular interest at 2.50% annually and are payable semiannually in arrears on March 15 and September 15 of each year, beginning on March 15, 2022. The 2026 Notes will mature on September 15, 2026, unless repurchased, redeemed, or converted in accordance with their terms prior to such date. The 2026 Notes are convertible into cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock, at our election, at an initial conversion rate of 50.7743 shares of Class A common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of approximately $19.70 per share of our Class A common stock. The conversion rate is subject to customary adjustments for certain events as described in the indenture governing the 2026 Notes. We may redeem for cash all or any portion of the 2026 Notes, at our option, on or after September 20, 2024 if the last reported sale price of our Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
Holders of the 2026 Notes may convert all or a portion of their 2026 Notes at their option prior to June 15, 2026, in multiples of $1,000 principal amounts, only under the following circumstances:
during any calendar quarter commencing after the calendar quarter ending on September 30, 2021 (and only during such calendar quarter), if the last reported sale price of the Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five-business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our Class A common stock and the applicable conversion rate of the 2026 Notes on such trading day;
if we call such 2026 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the notes called (or deemed called) for redemption; or
on the occurrence of specified corporate events.
On or after June 15, 2026, the 2026 Notes are convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Holders of the 2026 Notes who convert the 2026 Notes in connection with a make-whole fundamental change, as defined in the indenture governing the 2026 Notes, or in connection with a redemption may be entitled to an increase in the conversion rate. Additionally, in the event of a fundamental change, holders of the 2026 Notes may require us to repurchase all or a portion of the 2026 Notes at a price equal to 100% of the principal amount of 2026 Notes, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
We accounted for the issuance of the 2026 Notes as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.
As of September 30, 2023 and December 31, 2022, the 2026 Notes consisted of the following (in thousands):
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 September 30, 2023December 31, 2022
Convertible Senior 2026 Notes
Principal amount
667,500 667,500 
Unamortized debt issuance costs and debt discount
(5,382)(6,678)
Net carrying amount
662,118 660,822 
Interest expense related to the amortization of debt issuance costs for the three and nine-months ended September 30, 2023 was $0.5 million and $1.3 million, respectively. Contractual interest expense for the three and nine-months ended September 30, 2023 was $4.2 million and $12.5 million, respectively.
As of September 30, 2023, the if-converted value of the 2026 Notes did not exceed the principal amount. The 2026 Notes were not eligible for conversion as of September 30, 2023. No sinking fund is provided for the 2026 Notes, which means that we are not required to redeem or retire them periodically.
Capped Call Transactions
In connection with the offering of the 2026 Notes, we entered into the 2026 Capped Call Transactions with certain counterparties at a net cost of $96.8 million. The 2026 Capped Call Transactions are purchased capped call options on 33.9 million shares Class A common stock, that, if exercised, can be net share settled, net cash settled, or settled in a combination of cash or shares consistent with the settlement elections made with respect to the 2026 Notes if converted. The cap price is initially $32.57 per share of our Class A common stock and subject to certain adjustments under the terms of the 2026 Capped Call Transactions. The strike price is initially $19.70 per share of Class A common stock, subject to customary anti-dilution adjustments that mirror corresponding adjustments for the 2026 Notes.
The 2026 Capped Call Transactions are intended to reduce potential dilution to holders of our Class A common stock upon conversion of the 2026 Notes and/or offset any cash payments we are required to make in excess of the principal amount, as the case may be, with such reduction or offset subject to a cap. The cost of the Capped Call Transactions was recorded as a reduction of our additional paid-in capital in our consolidated balance sheets. The Capped Call Transactions will not be remeasured as long as they continue to meet the conditions for equity classification.

Senior Convertible Notes Due 2025

On July 10, 2023, the Company entered into the Securities Purchase Agreement (the “Original Purchase Agreement”) with an institutional investor pursuant to which the Company sold, and the Investor purchased, $340 million in aggregate principal amount of 0% senior convertible notes due in 2025 (the “Series A-1 Notes”) in a registered direct offering. The Series A-1 Notes were sold at an original issue discount of approximately twelve percent (12%) resulting in gross proceeds to the Company of $300 million.

Pursuant to the terms of the Original Purchase Agreement, during the six-month period beginning on the one-year anniversary of the issuance of the Series A-1 Notes and ending on the eighteen-month anniversary of the issuance of the Series A-1 Notes, the Investor could purchase up to an additional $226.7 million in aggregate principal amount of senior convertible notes due two years after the date of issuance (the “Investor AIR Notes”) in one or more registered direct offerings. If the Investor elected, during the AIR Period, to purchase the full amount of Investor AIR Notes, the Company could, at its option, require the Investor to purchase up to an additional $113.3 million in aggregate principal amount of senior convertible notes due 2 years after the date of issuance (the “Issuer AIR Notes” and, together with the Investor AIR Notes, the “Additional Notes”).

On September 29, 2023, the Company and the Investor entered into Amendment No. 1 to the Original Purchase Agreement the “Purchase Agreement Amendment”), in order to:
Increase the aggregate principal amount of Investor AIR Notes available for purchase to $566.7 million, to be purchased at any time after (A) with respect to the initial $170.0 million of Investor AIR Notes, September 27, 2023, (B) with respect to the next $226.7 million of Investor AIR Notes, December 29, 2023 or (C) with respect to the remaining $170.0 million of Investor AIR Notes, March 29, 2024;
Extend the Investor’s right to effect a closing of Investor AIR Notes to March 29, 2026;
Increase the aggregate principal amount of Issuer AIR Notes to $226.7 million;
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Increase the amount of Common Stock required to be reserved by the Company prior to obtaining the stockholder approval described below to 782,000,000 shares of Class A Common Stock; and
Require that the Company either obtain the prior written consent of requisite stockholders or seek and obtain stockholder approval at a special meeting (in each case no later than January 31, 2024), in order to (x) approve the issuance of securities issued or issuable in an Additional Closing (as defined in the Securities Purchase Agreement) and (y) increase the authorized shares of the Company from 1,250,000,000 to 2,000,000,000. If the Company fails to obtain such approval, it will seek approval at an additional stockholder meeting on or prior to March 31, 2024 and, if necessary, semi-annually thereafter.

On September 29, 2023, pursuant to the terms of the Purchase Agreement Amendment, the Company sold, and the Investor purchased, $170.0 million of the “Series B-1 Notes” in a registered direct offering. The Series B-1 Notes were issued at an original issue discount of approximately twelve percent (12%) resulting in gross proceeds to the Company of $150.0 million.

The Series A-1 Notes and the Series B-1 Notes (collectively, the “2025 Notes”) were issued as senior obligations of the Company under an indenture dated July 11, 2023, by and between the Company and Wilmington Savings Fund Society, FSB, as the trustee, as supplemented by that certain Second Supplemental Indenture dated September 29, 2023. The Notes bear interest at the rate of 0% per annum, however, the interest rate of the Notes will automatically increase to 18% per annum (the “Default Rate”) upon the occurrence and continuance of an event of default. The Notes are subject to certain covenants, including a financial test covenant, that requires the Company to have available cash equal to or greater than $340 million at the end of each quarter. The financial test covenant was amended to require the Company to have available cash equal to or greater than $250 million at the end of each quarter. Refer to Note 18, Subsequent Event, for additional information regarding covenant compliance.

The 2025 Notes are convertible into common stock at any time, in whole or in part, at the Investor’s option at a conversion price of $5.5744 with respect to the Series A-1 Notes and $7.5986 with respect to the Series B-1 Notes. The conversion prices are subject to proportional adjustment upon the occurrence of any stock split, stock dividend, stock combination, and/or similar transactions. Additionally, the conversion prices are subject to a full-ratchet adjustment in connection with a subsequent offering at a per share price less than the fixed conversion price in effect. Furthermore, in the event of default, the 2025 Notes may be converted using an alternative conversion price equal to the lower of (i) the conversion price in effect or (ii) 80% of the average stock price preceding conversion.

The 2025 Notes amortize in nine equal installments on each three-month anniversary beginning July 11, 2023, with respect to the Series A-1 Notes and September 29, 2023 with respect to the Series B-1 Notes. The Company may elect to settle each installment in cash based on 103% of the principal amount (plus any accrued default interest or late charges) or in shares of Class A Common Stock, subject to the satisfaction of certain conditions including trading volume and continued NYSE listing requirements, priced at the lower of (i) the conversion price in effect of (ii) 93% of the average stock price preceding such settlement, subject to a floor price of $1.16 which is subject to adjustment to stock splits, dividends, combinations, or other similar events. The investor may elect to defer installments to future periods as it did during the third quarter of 2023. Refer to Note 18, Subsequent Event, for additional information regarding conversions in the fourth quarter of 2023.

The Investor’s right to purchase the Investor AIR Notes provided for in the Original Purchase Agreement, and as amended in the Purchase Agreement Amendment (a net written call option) was determined to be a separate financial instrument from the 2025 Notes issued to the Investor, as the Investor could detach and sell the 2025 Notes to other investors while retaining the rights to purchase the Investor AIR Notes. As a result, the Company concluded that the written option is required to be accounted for as a derivative liability which is required to be remeasured to fair value each balance sheet date with changes in fair value recorded in earnings. As discussed in Note 2, the Company elected the fair value option to account for the 2025 Notes, including the Series A-1 Notes. Accordingly, the $300.0 million of proceeds received were allocated to the Series A-1 Notes and the call option at their estimated fair values as of the issuance date (July 11, 2023). The Series A-1 Notes and the call option will subsequently be remeasured to their fair values at the end of each reporting period.

As the Purchase Agreement Amendment amended the terms and conditions of the investor’s call option, the Purchase Agreement Amendment was evaluated as a modification to the freestanding derivative instrument. The effect of the modified terms was recognized in the mark to market adjustment as of the three months-ended September 30, 2023. Upon issuance any Additional Notes under the Purchase Agreement, the Company expects to continue to elect to apply the fair value option .
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The fair value of the 2025 senior convertible notes and derivative liability was estimated using the Monte Carlo simulation pricing model with embedded lattice, and with the following range of assumptions:
 
Expected term (in years)1.3
Volatility
57.6% to 70.0%
Dividend yield0.0%
Risk-free interest rate
5.03% to 5.45%
Common stock price$6.42


A reconciliation of the beginning and ending balances for the Notes and the call option (derivative liability), which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows for the three and nine months ended September 30, 2023 (in thousands):

 
2025 Notes, at fair value
Fair value - December 31, 2022
$ 
Fair value - June 30, 2023
 
Issuance of Series A-1 Notes
297,000 
Issuance of Series B-1 Notes
150,000 
Change in fair value - mark to market adjustment
(725)
Fair value - September 30, 2023
$446,275 

The fair value of the derivative liability was immaterial during the quarter and as of September 30, 2023.
13. Common Stock and Warrants
Magna Warrants
On October 29, 2020, the Company granted Magna up to 19,474,454 warrants, each with an exercise price of $0.01, to acquire underlying shares of Class A common stock of Fisker, which represented approximately 6.0% ownership in Fisker on a fully diluted basis as of the grant date. The right to exercise vested warrants expires on October 29, 2030. The warrants are accounted for as an award issued to non-employees measured on October 29, 2020 with three interrelated performance conditions that are separately evaluated for achievement.
MilestonePercentage of
Warrants that
Vest Upon
Achievement
Number of
Warrants that
Vest Upon
Achievement
(a) (i) Achievement of the “preliminary production specification” gateway as set forth in the Development Agreement; (ii) entering into the Platform Agreement; and (iii) entering into the Initial Manufacturing Agreement33.3 %6,484,993 
(b) (i) Achievement of the “target agreement” gateway as set forth in the Development Agreement and (ii) entering into the Detailed Manufacturing Agreement, which will contain terms and conditions agreed to in the Initial Manufacturing Agreement33.3 %6,484,993 
(c) Start of pre-serial production33.4 %6,504,468 
19,474,454 
The cost upon achievement of each milestone is recognized when it is probable that a milestone will be met. The cost for awards to nonemployees is recognized in the same period and in the same manner as if the Company had paid cash for the goods or services. At September 30, 2023, the Company capitalized costs as an intangible asset representing the
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future economic benefit to Fisker Inc. For the nine-months ended September 30, 2023, the recognized cost of $3.8 million (a non-cash transaction) associated with services rendered, resulted in an increase in capitalized cost-manufacturing to $258.3 million as of September 30, 2023. The Company will continually assess the reasonableness of the estimated useful life and will assess the intangible asset for impairment. If an indicator of impairment exists, the undiscounted cash flows will be estimated. If the carrying amount of the intangible asset is not recoverable, the Company will then determine its fair value and record an impairment loss. As of September 30, 2023, no indicators of impairment exists.
The fair value of each warrant is equal to the intrinsic value (e.g., stock price on grant date less exercise price) as the exercise price is $0.01. The terms of the warrant agreement require net settlement when exercised. Using the measurement date stock price of $8.96 for a share of Class A common stock, the warrant fair values for each tranche is shown below. Capitalized cost also results in an increase to additional paid in capital equal to the fair value of the vested warrants. Awards vest when a milestone if met. Magna has 12,969,986 vested and exercisable warrants to acquire underlying Class A common stock of Fisker as of September 30, 2023, none of which are exercised.
Fair valueCapitalized at September 30, 2023
Milestone (a)$58,041 $58,041 
Milestone (b)58,041 58,041 
Milestone (c)58,215 58,215 
$174,297 $174,297 
At-the-market Equity Program
In May, 2022, we entered into an at-the-market distribution agreement dated May 24, 2022 with J.P. Morgan Securities LLC and Cowen and Company, LLC as the sales agents (the “Distribution Agreement”), pursuant to which the Company established an at-the-market equity program (the “ATM Program”). Pursuant to the ATM Program, Fisker could, at its discretion and from time to time during the term of the Distribution Agreement, sell, through the Agents, shares of its Class A Common Stock as would result in aggregate gross proceeds to the Company of up to $350 million by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415 of the Securities Act of 1933, as amended, including without limitation sales made directly on the New York Stock Exchange, on any other existing trading market for the Class A Common Stock or to or through a market maker. In addition, the sales agents could also sell the shares of Class A Common Stock by any other method permitted by law, including, but not limited to, negotiated transactions. The Class A Common Stock sold under the ATM Program was registered with the SEC under the Company’s effective shelf registration statement that permits the Company to issue various securities for proceeds of up to $2.0 billion. The Company issued 21,153,154 shares of Class A common stock during the nine-months ended September 30, 2023 for gross proceeds of $133.1 million, before $2.0 million of commissions and other direct incremental issuance costs. Effective July 12, 2023, the Company terminated the Distribution Agreement. As a result, the Company will not offer or sell any more shares under the ATM Program.
14. Loss Per Share
The Company computes earnings (loss) per share of Class A Common Stock and Class B Common Stock using the two-class method required for participating securities. Basic and diluted earnings per share was the same for each period presented as the inclusion of all potential Class A Common Stock and Class B Common Stock outstanding would have been anti-dilutive. Basic and diluted earnings per share are the same for each class of common stock because they are
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entitled to the same liquidation and dividend rights. The following table sets forth the computation of basic and diluted loss per Class A Common Stock and Class B Common Stock:
Three-months Ended September 30,
20232022
Numerator:
Net loss$(95,219)$(149,342)
Denominator:
Weighted average Class A common shares outstanding210,747,717 170,870,467 
Weighted average Class B common shares outstanding132,354,128 132,354,128 
Weighted average Class A and Class B common shares outstanding- Basic and Diluted343,101,845 303,224,595 
Net loss per share attributable to Class A and Class B Common shareholders- Basic and Diluted$(0.28)$(0.49)

Nine Months Ended September 30,
20232022
Numerator:
Net loss$(298,381)$(377,392)
Denominator:
Weighted average Class A common shares outstanding201,033,571 167,107,937 
Weighted average Class B common shares outstanding132,354,128 132,354,128 
Weighted average Class A and Class B common shares outstanding- Basic and Diluted333,387,699 299,462,065 
Net loss per share attributable to Class A and Class B Common shareholders- Basic and Diluted(0.89)$(1.26)
The following table presents the potential common shares outstanding that were excluded from the computation of diluted net loss per share of common stock as of the periods presented because including them would have been antidilutive:
As of September 30,
20232022
Convertible senior notes (a)100,471,297 33,891,845 
Stock options and warrants36,857,869 30,555,194 
Total137,329,166 64,447,039 
(a) We have options to issue up to an additional $623.3 million in convertible senior notes which may result in further dilution.
15. Stock Based Compensation
The 2020 Equity Incentive Plan (the “Plan”) is a stock-based compensation plan which provides for the grants of options and restricted stock to employees and consultants of the Company. Options granted under the Plan may be either incentive options (“ISO”) or nonqualified stock options (“NSO”). Also, the Company established a 2020 Employee Stock Purchase Plan (the “ESPP”) under which Class A Common Stock may be issued. As of September 30, 2023, no shares have been issued under the ESPP.
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Stock-based compensation expense is as follows (in thousands):
Three Months Ended September 30,
20232022
Selling, general and administrative expense$2,454 $3,908 
Research and development expense3,252 7,258 
Production expense420  
Total$6,126 $11,166 

Nine Months Ended September 30,
20232022
Selling, general and administrative expense$5,407 $6,099 
Research and development expense7,683 11,327 
Production expense420  
Total13,510 17,426 
Stock options
Options under the Plan may be granted at prices as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO and NSO shall not be less than 100% of the estimated fair value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant. The fair value of the shares is determined by the Board of Directors on the date of grants. Stock options generally have a contractual life of 10 years. Upon exercise, the Company issues new shares.
In 2016 and 2017, the Company’s founders were granted an aggregate of 15,882,711 options which are fully vested and are not related to performance. Options granted to other employees and consultants become vested and are exercisable over a range of up to six years from the date of grant.
The Company did not grant any stock options during the three-months ended September 30, 2023.
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The following table summarizes option activity under the Plan:
 Options Weighted
Average
Exercise
Price
Weighted
Average
Contractual
Term (in
Years)
Balance as of December 31, 202217,679,596 1.51 4.7
Granted7,000 7.05 
Exercised(60,340)0.44 
Forfeited(242,841)13.49 
Balance as of September 30, 202317,383,415 1.35 3.9
The fair value of each stock option grant under the Plan was estimated on the date of grant using the Black-Scholes option pricing model, with the following range of assumptions:
 Nine Months Ended September 30, 2023
Expected term (in years)6.3
Volatility
74.5% to 75.2%
Dividend yield0.0%
Risk-free interest rate
3.40% to 4.00%
Common stock price
$6.98 to $7.10
The Black-Scholes option pricing model requires various highly subjective assumptions that represent management’s best estimates of the fair value of the Company’s common stock, volatility, risk-free interest rates, expected term, and dividend yield. As the Company’s shares have actively traded for a short period of time subsequent to the Business Combination, volatility is based on a benchmark of comparable companies within the automotive and energy storage industries.
The expected term represents the weighted-average period that options granted are expected to be outstanding giving consideration to vesting schedules. Since the Company does not have an extended history of actual exercises, the Company has estimated the expected term using a simplified method which calculates the expected term as the average of the time-to-vesting and the contractual life of the awards. The Company has never declared or paid cash dividends and does not plan to pay cash dividends in the foreseeable future; therefore, the Company used an expected dividend yield of zero. The risk-free interest rate is based on U.S. Treasury rates in effect during the expected term of the grant. The expected volatility is based on historical volatility of publicly-traded peer companies.
Restricted stock awards
During the nine-months ended September 30, 2022, the Company granted employees, who rendered services during the year ended December 31, 2021 and were employees of the Company on the grant date, a restricted stock unit (“RSU”) award based in proportion to the service period beginning from the employee’s hire date to the end of the year. The restricted stock unit awards vested on the grant date which resulted in the release of 339,340 shares of Class A common stock equal to stock-based compensation expense of $4.5 million recognized in the nine-months ended September 30, 2022. The Company’s founders declined to receive an award related to performance in 2021 and 2022. In accordance with the Company’s Outside Director Compensation Policy, each outside Board of Directors member will receive an annual RSU equal to $200,000 granted on the date of the Company’s annual shareholders’ meeting which vests in 25% increments at the end of each calendar quarter. Each Outside Director may elect to convert all or a portion of his or her annual Board of Directors retainer, excluding any annual retainer that an Outside Director may receive for serving as Lead Director and any annual retainers for committee service, into RSUs in lieu of the applicable cash retainer payment (“RSU Election”). The RSU awards granted to Outside Directors vested on the grant date which resulted in stock-based compensation expense of $0.8 million recognized in both the nine-months ended September 30, 2023 and 2022, and $0.3 million in both the three-month periods ended September 30, 2023 and 2022, respectively.
The number of Class A Common Stock granted to Outside Directors annually is based on the 30-day average closing trading price of Class A common stock on the day preceding the grant date (“RSU Value”). When an Outside Director
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exercises his or her RSU Election, the number of shares of Class A Common Stock equal the amount of cash subject to such RSU Election divided by the applicable RSU Value and are fully vested.
The following table summarizes RSU activity under the Plan:
 RSU AwardsWeighted Average Grant Date Fair Value
Unvested as of December 31, 202211,752 $12.45 
Awarded2,282,921 5.84
Vested(227,627)12.27
Forfeited(189,994)10.02
Unvested as of September 30, 20231,877,052 $8.21 
Performance-based restricted stock awards
In the third quarter of 2021, the Company’s compensation committee ratified and approved performance-based restricted stock units (“PRSUs”) to all employees (“Grantee”) the value of which is determined based on the Grantee’s level within the Company (“PRSU Value”). Each PRSU is equal to one underlying share of Class A common stock. The number of shares subject to a Grantee’s PRSU award equals the Grantee’s PRSU Value divided by the closing price per Class A common share on the service inception date, or if the service inception date is not a trading day, the closing price per Share on the closest trading day immediately prior to the service inception date; in each case rounded down to the nearest whole number. Each PRSU award shall vest as to 50% of the PRSU Value upon the Committee’s determination, in its sole discretion, and certification of the occurrence of the Ocean Start of Production and shall vest as to 50% of the PRSUs upon the first anniversary of the Ocean Start of Production, in each case, subject to (i) the Grantee’s continuous service through the applicable vesting date, (ii) the Grantee’s not committing any action or omission that would constitute Cause for termination through the applicable vesting date, as determined in the sole discretion of the Company, and (iii) the Ocean Start of Production occurring on or before December 31, 2022. The compensation committee has discretion to reduce or eliminate the number of PRSUs that shall vest pursuant to each PRSU award upon the certification of the occurrence of the Ocean Start of Production and/or upon the first anniversary of the Ocean Start of Production, after considering, any factors that it deems relevant, which could include but are not limited to (i) Company performance against key performance indicators, and (ii) departmental performance against goals. The service inception date precedes the grant dates for both performance conditions. The grant date for each of the performance conditions is the date Grantees have a mutual understanding of the key terms and conditions of the PRSU, which will occur when each performance condition is achieved, and the compensation committee has determined whether it will exercise its discretion to adjust the PRSU award. Recognition of stock-based compensation occurs when performance conditions are probable of achievement. Measurement of stock-based compensation attributed to the PRSU awards will be based on the fair value of the underlying Class A Common Stock once the grant date is determined (e.g., variable accounting).
As of September 30, 2023, the Company has approved and authorized PRSUs equal to 2,028,076 shares of Class A Common Stock with an aggregate PRSU value of $13.0 million of which 1,278,465 awards vested on March 24, 2023, the grant and vesting date for the first tranche of the PRSU award. As of December 31, 2022, achievement of the first tranche of the PRSU award was deemed probable resulting in the recognition of cumulative expense of $10.1 million. During the nine-month period ended September 30, 2023, the Company measured the cumulative expense to be recognized upon vesting based on the closing stock price on the grant and vesting date, which resulted in cumulative expense of $7.3 million, a reduction of $2.8 million from the Company’s measurement of compensation expense as of the end of 2022. There was no cumulative expense impact the during the three-months ended September 30, 2023.
As of September 30, 2023, achievement of the second tranche of the PRSU awards was deemed probable resulting in the recognition of compensation expense of $3.5 million and $10.9 million, respectively for the three and nine-months ending September 30, 2023. Measurement of PRSU compensation expense is based on the closing price on the last day of the quarter ended September 30, 2023 multiplied by the outstanding approved and authorized PRSUs. The grant date of the PRSUs has not been determined and thus the PRSUs remain subject to variable accounting treatment.
16. Related Party Transactions
On March 8, 2021, the Company appointed Mitchell Zuklie to its Board of Directors. Mr. Zuklie is the chairman of the law firm of Orrick, Herrington & Sutcliff LLP (“Orrick”), which provides various legal services to the Company.
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During the three months ended September 30, 2023 and 2022, the Company incurred expenses for legal services rendered by Orrick totaling approximately $0.5 million and $4.6 million, respectively, and $1.3 million and $7.7 million for the nine-months ended September 30, 2023 and 2022, respectively.
17. Commitments and Contingencies
The Company is not a party to any material legal proceedings and is not aware of any pending or threatened material claims. From time to time however, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities.


18. Subsequent Event

Since September 30, 2023, 16 million shares have been issued in connection with the 2025 Notes, which reduced the carrying value of the 2025 Notes by $46.0 million. On November 22, 2023, the Company entered into an amendment and waiver agreement with the holder of the Company’s 2025 Notes. Pursuant to the waiver, the holder agreed to waive a covenant event of default resulting from the late filing of the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2023 in exchange for having the 2025 Notes secured with a first priority security interest in substantially all of the consolidated assets of the Company, including the existing and future assets of the Company and certain of its subsidiaries, and the Company pledging the share capital of certain subsidiaries of the Company comprising substantially all of the Company’s operations. In addition, the financial test covenant was amended to require the company to have available cash equal to or greater than $250.0 million at the end of each quarter, a reduction from $340.0 million. Following the execution of the waiver, the Company will take steps to perfect the lien on certain assets through year-end; such actions are within the control of the Company.

The 2025 Notes continue to be classified as long-term liabilities in the condensed consolidated balance sheet due to the execution of the amendment and waiver agreement.




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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Fisker is building a technology-enabled, asset-light automotive business that it believes will be among the first of its kind and aligned with the future state of the automotive industry. This involves a focus on vehicle development, customer experience, sales and service intended to change the personal mobility experience through technological innovation, ease of use and flexibility. The Company combines the legendary design and engineering expertise of Henrik Fisker to develop high quality electric vehicles with strong emotional appeal. Central to Fisker’s business model is the Fisker Flexible Platform Agnostic Design (“FF-PAD”), a proprietary process that allows the development and design of a vehicle to be adapted to any given electric vehicle (“EV”) platform in the specific segment size. The process focuses on selecting industry leading vehicle specifications and adapting the design to crucial hard points on a third-party supplied EV platform and outsourced manufacturing to reduce development cost and time to market. The first example of this is Fisker’s work to adapt the Fisker Ocean design to a base vehicle platform developed by Magna Steyr Fahrzeugtechnik AG & Co KG (“Magna Steyr”).

Recent Developments

We had several business updates in August, September, October, and November 2023, including (i) the opening of the flagship customer lounge in Los Angeles; (ii) commencing global test drive events; (iii) the publishing of our annual ESG impact report; (iv) the achievement of producing over 8,000 vehicles; (v) the delivery of over 2,000 vehicles in 10 countries; (vi) completion of the homologation process in the US and Europe for the Fisker Ultra trim; (vii) bolstering the balance sheet with a successful offering of $170.0 million in aggregate principal of 0% senior convertible notes due in 2025; (viii) the adjustment of Fisker Ocean Extreme, Ultra, and Sport trim pricing.


2023-06-23-Fisker-Ocean-Graz-MultiColor-HM_075748-4000x3000_esoo2m.jpg
As outlined earlier this year, our production forecasts are linked to supply chain readiness and receipt of multiple regulatory homologation approvals across our launch markets. The timing of these approvals shifted in the first half of this
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year, which impacted our 2023 volume forecasts and supplier ramp readiness. Based on our current supplier capacity expectations, we currently forecast we will produce approximately 13,000 to 17,000 vehicles during 2023.
Our focus during this industrialization phase is to ensure process readiness, tooling maturity, part validation, volume ramp up, software maturity, and streamline logistics. Our suppliers are subject to external factors that could impact their ability to ramp output of components for our vehicles at high quality levels. For example, during the third quarter, one supplier experienced financial hardship and Fisker provided financial assistance to support our production needs. Our key supply chain partners are concentrated within an umbrella group of companies, and we are dependent upon their operational performance. Our ability to reach expected run rates is contingent upon key suppliers’ ability to mature software and components and the ability of our manufacturing partner to successfully ramp production at required quality levels. We continue to work with our suppliers and our manufacturing partner to meet our updated production goals for 2023 and prepare for higher volumes in 2024.

Basis of Presentation
Fisker currently conducts its business through one operating segment. Fisker’s automobile sales activity has been limited to date. Revenue from merchandise sales and home charging solutions represented Fisker’s commercial activity historically, but are not core to our ongoing business. Fisker’s historical results are reported under U.S. GAAP and in U.S. dollars. With the start of retail production of its Ocean SUV, Fisker expects its global operations to focus primarily on the USA and the European Union markets. As a result, Fisker expects that the financial results it reports for periods after it began retail production will not be comparable to the financial results for earlier periods including Fisker’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023.


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Results of Operations
Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022
The following table sets forth Fisker’s historical operating results for the periods indicated:
 
Three Months
Ended September 30,
 
 20232022
$ Change
% Change
 (dollar amounts in thousands)
Revenues$71,800 $14 $71,786 n.m.
Cost of revenues104,548 104,542 n.m.
Gross Margin(32,748)(32,756)n.m.
Operating costs and expenses:
Selling, general and administrative57,650 22,102 35,548 161 %
Research and development13,428 117,885 (104,457)(89)%
Total operating costs and expenses71,078 139,987 (68,909)(49)%
Loss from operations(103,826)(139,979)36,153 (26)%
Other income (expense):
Other income (expense)(2,288)270 (2,558)n.m.
Interest income6,395 3,075 3,320 108 %
Interest expense(4,928)(4,693)(235)%
Foreign currency gain/(loss)11,068 (7,285)18,353 (252)%
Unrealized gain/(loss) recognized on equity securities(530)(730)200 (27)%
Fair value adjustment on 2025 convertible note
725 — 725 n.m.
Total other income (expense)10,442 (9,363)19,805 (212)%
Loss before income taxes(93,384)(149,342)55,958 (37)%
Provision for income taxes(1,835)— (1,835)n.m.
Net Loss$(95,219)$(149,342)$54,123 (36)%
n.m. = not meaningful.
Revenue and Cost of Revenues
In the second quarter of 2023, we began producing vehicles for deliveries to our customers and, accordingly, we are recognizing vehicle revenues from the sale of initial Fisker Ocean SUVs. Merchandise sales and home charging solutions are not intended to comprise a significant portion of the Company’s revenues. Over the course of the fourth quarter of 2023, we continue to ramp production volumes at a measured pace to help facilitate the delivery of high-quality components from suppliers in line with our serial production run-rate.
During the three-month period ended September 30, 2023, the Company delivered 1,097 vehicles and recognized net revenue of $71.6 million with related cost of revenues totaling $104.4 million resulting in negative gross profit of $32.8 million. The increase in revenue, cost of revenue and gross profit is due to the increase in vehicles sales for the three-month period ended September 30, 2023. The Company had no vehicle sales during the corresponding three month period ended September 30, 2022. During the three-month period ended September 30, 2023, the Company determined that an $18.2 million inventory valuation adjustment was appropriate due to the lower levels of production during the ramp-up phase which we expect to continue until we reach full production.
Sales of branded apparel and goods and home charging solutions totaled $211 thousand with related costs of revenue sold of $137 thousand resulting in a gross profit of $74 thousand during the three month period ended September 30, 2023 compared to branded apparel sales of $14 thousand with related cost of revenues of $6 thousand resulting in gross profit of $8 thousand during the corresponding three month period ended September 30, 2022.
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Since commencing production and sale of our vehicles, our cost of revenues include mainly vehicle components and parts, labor costs, amortized tooling costs and capitalized costs associated with the Magna warrants, shipping and logistics costs, and reserves for estimated warranty expenses.
Subsequent to the release of our preliminary earnings results on November 13, 2023, we identified approximately $20 million of expenses that were related to services performed after the start of production of salable vehicles. The expenses were incorrectly recorded primarily as selling, general and administrative expenses in our preliminary earnings results, but were later determined to be associated with production set-up activities and are now appropriately reflected in cost of revenues. Additionally, other inventory adjustments were recorded resulting in a $4.0 million increase in net loss subsequent to the preliminary earnings results.
Selling, General and Administrative
Selling, general and administrative expenses consist mainly of personnel-related expenses for Fisker’s executive and other administrative functions, advertising and marketing expenses, and expenses for outside professional services, including legal, accounting and other advisory services.
Selling, general and administrative expenses increased by $35.5 million or 161% from $22.1 million during the three months ended September 30, 2022 to $57.7 million during the three month period ended September 30, 2023, primarily due to increased salaried employee headcount and stock-based compensation, and targeted marketing and advertising for events. With vehicle deliveries having begun in the second quarter of 2023, we have increased our marketing and advertising efforts in alignment with expected customer interest in the Fisker Ocean. Also, Center+, showroom, vehicle processing, and service and pickup locations will open throughout the remainder of 2023 resulting in higher expenses. The timing of openings will correspond with customer order demand and facility readiness in North America and Europe. Selling, general and administrative expenses include stock-based compensation expense of $2.5 million and $3.9 million for three months ended September 30, 2023 and 2022, respectively. Overall, total headcount for the Company increased to more than 1,300 employees as of September 30, 2023, compared to 760 employees as of December 31, 2022.
Research and Development
To date, Fisker’s research and development expenses have consisted primarily of external engineering services in connection with the design of the Fisker Ocean and PEAR models and development of the pre-production and start of production vehicles.
Research and development expenses decreased by approximately $104.5 million or 88.6% from $117.9 million during the three months ended September 30, 2022, to $13.4 million during the three months ended September 30, 2023. The decrease primarily relates to lower costs associated with the purchase and expense of prototype parts and engineering and design services incurred as Fisker met key development gateways during the third quarter of 2022 that did not recur in the third quarter of 2023 as Fisker Ocean consumer deliveries accelerated. Over the remainder of 2023, we expect research and development expenses will continue to trend lower than the corresponding three month period in 2022 as conceptual design and development of PEAR and costs associated with the completion of homologation in 2023 are not expected to exceed 2022’s costs incurred to complete the engineering and design of the Ocean and transition to production, including accrual of probable achievement of engineering and design milestones at the end of 2022. Research and development expense includes stock-based compensation expense of $3.3 million and $7.3 million for the three months ended September 30, 2023 and 2022, respectively.

Interest Expense
Interest expense consists of interest expense associated with the convertible senior convertible notes due in 2026.
Interest expense amounted to $4.9 million and $4.7 million during the three months ended September 30, 2023 and 2022, respectively due to the sale, in August 2021, of $667.5 million principal amount of 2.50% convertible senior notes due in September 2026. Interest expense in the subsequent three month period throughout calendar year 2023 will approximate $4.6 million, including accretion of debt issuance costs.
Foreign Currency Gain/Loss
The Company recorded a foreign currency gain of $11.1 million during the three months ended September 30, 2023, compared to a loss of $7.3 million during the three months ended September 30, 2022, primarily due to remeasurement losses on Euro-denominated monetary assets caused by weakening Euro currency rates. For the remainder of 2023, we
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expect EUR denominated transactions associated with our foreign operations and services provided by suppliers will increase and will subject Fisker to greater fluctuation in realized gain and losses from foreign currencies.
Unrealized Gain/Loss Recognized on Equity Securities
Unrealized loss recognized on equity securities held as of September 30, 2023 totaled $0.5 million for the three months ended September 30, 2023 compared to a loss of $0.7 million during the three months ended September 30, 2022.
Fair value adjustment on 2025 convertible not
The Company elected to account for its 2025 convertible notes with changes in fair value recorded as a component of other income (expense), which resulted in a net $0.7 million fair value adjustment for the three-months ended September 30, 2023.
Provision for Income Tax
Fisker’s income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in the tax law. Fisker maintains a valuation allowance against the full value of its U.S. and state net deferred tax assets because Fisker believes the recoverability of the tax assets is not more likely than not.
Provision for income tax amounted to $1.8 million for the three months ended September 30, 2023.
Net Loss
Net loss was $95.2 million during the three months ended September 30, 2023, a decrease of approximately $54.1 million from a net loss of $149.3 million during the three months ended September 30, 2022, for the reasons discussed above.
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Comparison of the Nine-Months Ended September 30, 2023 to the Nine-Months Ended September 30, 2022
The following table sets forth Fisker’s historical operating results for the periods indicated:

 
Nine-Months
Ended September 30,
 
 20232022
$ Change
% Change
 (dollar amounts in thousands)
Revenues$72,823 $36 72,787 n.m.
Cost of revenues105,472 25 105,447 n.m.
Gross Margin(32,649)11 (32,660)n.m.
Operating costs and expenses:
Selling, general and administrative137,552 61,615 75,937 123 %
Research and development143,422 290,505 (147,083)(51)%
Total operating costs and expenses280,974 352,120 (71,146)(20)%
Loss from operations(313,623)(352,109)38,486 (11)%
Other income (expense):
Other income (expense)(2,593)(553)(2,040)