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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023.
OR
o
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 001-39881
EMBARK TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware85-3343695
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
321 Alabama St, San Francisco, California
94110
(Address of Principal Executive Offices)
(Zip Code)
(415) 671-9628
Registrant's telephone number, including area code
Not Applicable
(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 classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.0001 per shareEMBKThe Nasdaq Global Market
Warrants, each whole warrant exercisable for 1/20th share of Class A common stock at an exercise price of $11.50 per warrantEMBKWThe Nasdaq Global Market
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  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).     Yes  x   No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated fileroAccelerated filero
Non-accelerated filer  xSmaller reporting companyx
Emerging growth companyx
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes   o     No  x
As of May 9, 2023, the number of shares of the issuer’s Class A common stock outstanding was 19,695,752 and the number of outstanding shares of the issuer’s Class B common stock was 4,353,948.
As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to “Embark,” the “Company,” “we,” “us,” and “our,” and similar references refer to Embark Technology, Inc. and its wholly owned subsidiaries following the Business Combination (as defined herein) and to Embark Trucks, Inc. prior to the Business Combination.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that are forward‑looking and as such are not historical facts. This includes, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for future operations. These statements constitute projections, forecasts and forward-looking statements, 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 Quarterly Report on Form 10-Q, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” ”will,” “would” and negatives of these words and similar expressions may identify forward‑looking statements, but the absence of these words does not mean that a statement is not forward‑looking.
Forward‑looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about:
Embark’s ability to continue as a going concern
Embark’s public securities’ potential liquidity and trading;
Embark’s ability to raise financing in the future;
Embark’s success in retaining or recruiting, or changes required in, its officers, key employees or directors;
the impact of the regulatory environment and complexities with compliance related to such environment;
factors relating to the business, operations and financial performance of Embark and its subsidiaries, including:
the ability of Embark to maintain an effective system of internal controls over financial reporting;
the nature of autonomous driving as an emerging technology;
Embark’s limited operating history;
the acceptance of Embark’s technology by users and stakeholders in the freight transportation industry;
Embark’s business model, including its ability to maintain and develop customer relationships;
the ability of Embark to maintain a successful manufacturer‑agnostic approach to its technology;
the ability of Embark to achieve and maintain profitability in the future;
Embark’s ability to execute upon strategic alternatives and other business strategies identified by its Board; and
other factors detailed under the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q and the section entitled “Risk Factors” in Embark’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 28, 2023 (the “Annual Report”).
These forward‑looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward‑looking statements should not be relied upon as representing Embark’s views as of any subsequent date, and Embark does not undertake any obligation to update forward‑looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, Embark’s actual results or performance may be materially different from those expressed or implied by these forward‑looking statements. You should not place undue reliance on these forward‑looking statements.



Table of Contents
TABLE OF CONTENTS
Page
30
2

Table of Contents
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
3

Table of Contents
Embark Technology, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
March 31,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents
$126,202 $157,622 
Restricted cash, short-term
667 65 
Prepaid expenses and other current assets
7,333 7,886 
Total current assets
134,202 165,573 
Restricted cash, long-term
210 812 
Property, equipment and software, net
4,754 20,608 
Operating lease right-of-use assets9,395 21,958 
Other assets
4,874 5,779 
Total assets
$153,435 $214,730
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$909 $1,036 
Accrued expenses and other current liabilities
7,902 3,885 
Current portion of operating lease liabilities2,498 3,250 
Short-term notes payable
486 493 
Total current liabilities
11,795 8,664 
Long-term notes payable1,178 1,297 
Warrant liability435 463 
Non-current portion of operating lease liabilities14,224 19,222 
Other long-term liability110 110 
Total liabilities
27,742 29,756 
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, none issued and none outstanding as of March 31, 2023 and December 31, 2022
  
Class A common stock, $0.0001 par value; 4,000,000,000 shares authorized, 19,532,651 shares issued as of March 31, 2023; 4,000,000,000 shares authorized, 19,050,207 shares issued as of December 31, 2022
2 2 
Class B common stock, $0.0001 par value; 100,000,000 shares authorized, 4,353,948 shares issued as of March 31, 2023 and December 31, 2022
  
Additional paid-in capital
474,819 471,038 
Accumulated deficit
(349,128)(286,066)
Total stockholders’ equity
125,693 184,974 
Total liabilities and stockholders’ equity
$153,435 $214,730 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Embark Technology, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
(unaudited)
Three Months Ended March 31,
20232022
Operating expenses:
Research and development
$14,462 $18,695 
General and administrative
17,850 21,926 
Restructuring costs9,531 
Impairment of long-lived assets23,288 
Total operating expenses
65,131 40,621 
Loss from operations
(65,131)(40,621)
Other income (expense):
Change in fair value of warrant liability
28 22,156 
Other income
261 26 
Interest income
1,809 13 
Interest expense
(29)(21)
Loss before provision for income taxes
(63,062)(18,447)
Provision for income taxes  
Net loss and comprehensive loss
$(63,062)$(18,447)
Net loss attributable to common stockholders, basic and diluted
$(63,062)$(18,447)
Net loss per share attributable to common stockholders:
Basic and diluted, Class A and Class B$(2.67)$(0.82)
Weighted-average shares used in computing net loss per share attributable to common stockholders:
Basic and diluted23,630,012 22,631,150 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Embark Technology, Inc.
Condensed Consolidated Statements of Preferred Stock and Stockholder’s Equity
(in thousands, except number of shares)
(unaudited)
Class AClass BWarrantsAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders'
Equity
SharesAmountSharesAmount
Balance at January 1, 202319,050,207$2 4,353,948$ 23,153,266$471,038 $(286,066)$184,974 
Shares issued upon exercise of stock options177,166— — — — 220 — 220 
Shares issued upon vesting of restricted stock units305,278— — — — — — — 
Vesting of early exercised options— — — — — 10 — 10 
Stock-based compensation— — — — — 3,551 — 3,551 
Net Loss— — — — — — (63,062)(63,062)
Balance at March 31, 202319,532,651$2 4,353,948$ 23,153,266$474,819 $(349,128)$125,693 

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


Embark Technology, Inc.
Condensed Consolidated Statements of Preferred Stock and Stockholder’s Equity
(in thousands, except number of shares)
(unaudited)
Class AClass BWarrantsAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders'
Equity
SharesAmountSharesAmount
Balance at January 1, 202218,141,649$2 4,353,948$ 23,153,266$417,535 $(182,903)$234,634 
Shares issued upon exercise of stock options372 — 372 
Vesting of early exercised options11 — 11 
Stock-based compensation16,698 — 16,698 
Net Loss— (18,447)(18,447)
Balance at March 31, 202218,141,649$2 4,353,948$ 23,153,266$434,616 $(201,350)$233,268 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Embark Technology, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended March 31,
20232022
Cash flows from operating activities
Net loss$(63,062)$(18,447)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization840 383 
Right-of-use asset amortization803 488 
Stock-based compensation, net of amounts capitalized3,610 16,602 
Impairment of long-lived assets23,288  
Change in fair value of warrants(28)(22,156)
Loss on sale of property, plant and equipment(70) 
Changes in operating assets and liabilities:
Prepaid expenses and other current assets527 682 
Other assets904 (126)
Operating lease liabilities(846) 
Accounts payable(311)1,644 
Other long-term liability 60 
Accrued expenses and other current liabilities4,000 2,645 
Net cash used in operating activities(30,345)(18,225)
Cash flows from investing activities
Purchase of property, equipment and software(1,147)(1,717)
Net cash used in investing activities(1,147)(1,717)
Cash flows from financing activities
Payment towards notes payable(125)(81)
Proceeds from exercise of stock options197 372 
Repurchase of early exercised options (4)
Net cash provided by financing activities72 287 
Net decrease in cash, cash equivalents and restricted cash(31,420)(19,655)
Cash, cash equivalents and restricted cash at beginning of period158,499 265,020 
Cash, cash equivalents and restricted cash at end of period$127,079 $245,365 
Supplemental disclosures of cash flow information:
Cash paid during the year for interest$ $18 
Supplemental schedule of noncash investing and financing activities:
Acquisition of property, equipment and software in accounts payable$198 $284 
Operating lease liabilities$ $6,587 
Stock-based compensation capitalized into internally developed software$ $156 
Vesting of early exercised stock options$10 $15 
Cash in transit for option exercise$24 $ 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Notes to Condensed Consolidated Financial Statements (unaudited)
1.DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Embark Technology, Inc. (“Embark Technology”) was originally incorporated in Delaware on September 25, 2020 under the name Northern Genesis Acquisition Corp. II (“NGA”). Embark Technology was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On November 10, 2021 (the “Closing Date”), Embark Technology (at such time named Northern Genesis Acquisition Corp. II) consummated the business combination (the “Business Combination”) pursuant to the Agreement and Plan of Merger, dated June 22, 2021 with the pre-Business Combination company, Embark Trucks, Inc. (“Embark Trucks”). In connection with the consummation of the Business Combination, the Company changed its name from Northern Genesis Acquisition Corp. II to Embark Technology, Inc. (“Embark” or the “Company”) and became the parent entity of Embark Trucks.
The principal activities of Embark include design and development of autonomous driving software for the truck freight industry. The Company is headquartered in San Francisco, California and was incorporated in the State of Delaware in 2016. Other than Embark Trucks, the Company has one foreign subsidiary based in Australia, as of March 31, 2023.
The Company has devoted substantially all of its resources to develop its autonomous truck technology, to enable and expand its route models - transfer point and direct-to-customer, to expand its partnerships with shippers and carriers and other potential consumers, to raising capital, and providing general and administrative support for these operations. The Company has not generated revenues from its principal operations from inception through March 31, 2023.
Prior to the Merger, NGA ordinary shares and warrants were traded on the New York Stock Exchange under the ticker symbols “NGAB” and “NGAB.WS”, respectively. On the Closing Date, the Company’s Class A common stock and warrants began trading on the NASDAQ under the ticker symbols “EMBK” and “EMBKW”, respectively. One of the primary purposes of the Merger was to provide a platform for Embark Trucks to gain access to the U.S. capital markets.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the regulations of the SEC. The condensed consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.
Unaudited Interim Financial Information
These interim Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and notes thereto contained in Embark’s Annual Report. The condensed consolidated balance sheet at December 31, 2022, has been derived from the audited financial statements at that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements. In management’s opinion, the unaudited interim financial statements have been prepared on the same basis as the annual financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2023 and the Company’s results of operations for the three months ended March 31, 2023 and 2022, and cash flows for the three months ended March 31, 2023 and 2022. The interim results are not necessarily indicative of the results for any future interim period or for the entire year.
Reverse Stock Split
On August 15, 2022, the directors of the Company approved an amendment to the Company’s second amended and restated certificate of incorporation (the “Certificate of Incorporation”) to effect a reverse stock split (the “Reverse Stock Split”) of the Company’s outstanding common stock, par value $0.0001 per share (the “Common Stock”), at the ratio of 1-for-20. Following the close of trading on the Nasdaq Global Market on August 16, 2022 (the “Effective Time”), the Company filed a certificate of amendment to the Certificate of Incorporation (the “Amendment”) with the Secretary of State of the State of Delaware to effect the Reverse Stock Split. All references in these financial statements to number of common shares issued or outstanding, price per share, outstanding equity awards as well as the applicable exercise price, and weighted average number of shares outstanding prior to the 1 for 20 reverse split have been adjusted to reflect the stock split on a retroactive basis as of the earliest period presented, unless otherwise noted. Warrants will be impacted by the same ratio upon exercise.
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No fractional shares were issued in connection with the Reverse Stock Split. The Reverse Stock Split did not affect the number of authorized shares of Embark’s common stock, the par value of the common stock, the number of warrants issued and outstanding, or the exercise price of the warrants.
Liquidity and Capital Resources, and Ability of the Company to Continue as a Going Concern.
The Company has incurred losses from operations since inception. The Company incurred net losses of $63.1 million and $18.4 million for the three months ended March 31, 2023 and 2022, respectively, and accumulated deficit amounts of $349.1 million and $286.1 million as of March 31, 2023 and December 31, 2022, respectively. Net cash used in operating activities was $30.3 million and $18.2 million for the three months ended March 31, 2023 and 2022, respectively.
The Company’s liquidity is based on its ability to enhance its operating cash flow position, obtain capital financing from equity interest investors, and borrow funds to fund its general operations, research and development activities and capital expenditures. As of March 31, 2023 and December 31, 2022, the Company’s balance of cash and cash equivalents was $126.2 million and $157.6 million, respectively. As Embark has not earned any revenue to date, it has financed its operations primarily through the sale of shares of common stock and preferred stock to fund operations, invest in research and development (“R&D”) and repay borrowings. Embark has explored and exhausted avenues following an extended evaluation by Embark of alternative markets in which to commercialize its technology, and with the lack of success in bringing Embark’s product to those markets, it will not generate revenues in the near future, and may not be able to raise additional financing on terms that are favorable, or at all. As such, Embark believes that its operating losses and negative operating cash flows will continue into the foreseeable future requiring Embark to explore strategic alternatives. These conditions and events raise substantial doubt about Embark’s ability to continue as a going concern.
In response to these conditions, as part of management’s plans, on March 1, 2023, the Board approved a process to explore, review and evaluate a range of potential strategic alternatives, including, without limitation, exploring alternative uses of Embark’s assets to commercialize its technology, additional sources of financing, as well as potential dissolution or winding up of Embark and liquidation of its assets. In addition, on March 3, 2023, Embark announced a workforce restructuring plan and initiated a workforce reduction of approximately 230 employees. Management’s plan cannot be considered probable and thus does not alleviate the substantial doubt about Embark’s ability to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company that is either a) not an emerging growth company or b) an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
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Segment Information
The Company operates in one segment, the truck business unit, which is focused on enhancing self-driving truck software technology. Therefore, the Company’s chief executive officer, who is also the CODM, makes decisions and manages the Company’s operations as a single operating segment for purposes of allocating resources and evaluating financial performance. All long-lived assets are maintained in, and all losses are attributable to, the United States of America.
Concentration of Risks
Embark’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and restricted cash. Embark maintains its cash and cash equivalents and restricted cash with high-quality financial institutions with investment-grade ratings. A majority of the cash balances are with U.S. banks and are insured to the extent defined by the Federal Deposit Insurance Corporation.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of expenses during the reporting period.
The Company’s most significant estimates and judgments involve the useful lives of long-lived assets, the recoverability and impairment of long-lived assets, the incremental borrowing rate (“IBR”) applied in lease accounting, the capitalization of software development costs, the valuation of the Company’s stock-based compensation, including the valuation of warrants to purchase the Company’s stock and the valuation allowance for income taxes. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. As of March 31, 2023 and December 31, 2022, the Company had $126.2 million and $157.6 million of cash and cash equivalents, respectively.
The Company maintains letters of credit to secure leases of the Company’s offices and facilities. A portion of the Company’s cash is collateralized in conjunction with the letter of credit and is classified as restricted cash on the Company’s condensed consolidated balance sheets. As of March 31, 2023 and December 31, 2022, the Company had $0.9 million and $0.9 million in restricted cash, respectively. The Company determines short-term or long-term classification based on the expected duration of the restriction.
The reconciliation of cash and cash equivalents and restricted cash and cash equivalents to amounts presented in the condensed consolidated statements of cash flows are as follows (in thousands):
As of March, As of December 31,
202320222022
Cash and cash equivalents$126,202 $244,488 $157,622 
Restricted cash, short-term667 65 65 
Restricted cash, long-term210 812 812 
Total cash, cash equivalents and restricted cash$127,079 $245,365 $158,499 


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Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, prepaid expenses and other current assets, accounts payable and accrued expenses, short-term and long-term notes payable and other current liabilities. The assets and liabilities that were measured at fair value on a recurring basis are cash equivalents and warrant liabilities. The Company believes that the carrying values of the remaining financial instruments approximate their fair values. The Company applies fair value accounting in accordance with ASC 820, Fair Value Measurements for valuation of financial instruments. ASC 820 provides a framework for measuring fair value under GAAP that expands disclosures about fair value measurements, establishes a fair value hierarchy, and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 — Fair value is based on observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2 — Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable.
Level 3 — Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as an option pricing model, discounted cash flow, or similar technique.
Public and Private Warrants
As part of NGA’s initial public offering on October 13, 2020, NGA issued to third party investors 41.4 million units, consisting of one share of Class A common stock of NGA and one-third of one warrant, at a price of $10.00 per unit. Each whole warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per warrant (the “Public Warrants”). Further, NGA completed the private sale of 6.7 million warrants to NGA's sponsor at a purchase price of $1.50 per warrant (the “Private Placement Warrants” or “Private Warrants”). Following the effectiveness of the Reverse Stock Split on August 16, 2022, the Public and Private Warrants were impacted by the same ratio upon exercise. The Reverse Stock Split did not affect the number of warrants issued and outstanding or the exercise price of the warrants. Each whole warrant is now exercisable for 1/20th of one share of Class A common stock at $11.50 per warrant. Subsequent to the Business Combination, 13.8 million Public Warrants and 6.7 million Private Warrants remained outstanding as of March 31, 2023.
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants and the Class A common stock issuable upon the exercise of the Private Placement Warrants did not become transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants are redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
The Company evaluated the Public and Private Warrants under ASC 815-40, Derivatives and Hedging-Contracts in Entity's Own Equity, and concluded that they do not meet the criteria to be classified in stockholders' equity. Since the Public and Private Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as liabilities on the balance sheet at fair value upon the closing of the Business Combination, with subsequent changes in their respective fair values recognized in the condensed consolidated statements of operations and comprehensive income (loss) at each reporting date.
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Property, Equipment and Software
Property, equipment and software is stated at cost less accumulated depreciation. Repair and maintenance costs are expensed as incurred. Depreciation and amortization are recorded on a straight-line basis over each asset’s estimated useful life.
Property, Equipment and Software
Useful life (years)
Machinery and equipment
5 years
Electronic equipment
3 years
Vehicles and vehicle hardware
3 – 7 years
Leasehold improvements
Shorter of useful life or lease term
Furniture and fixtures7 years
Leases
The Company determines if a contract contains a lease at inception of the arrangement based on whether the Company has the right to obtain substantially all of the economic benefits from the use of an identified asset and whether the Company has the right to direct the use of an identified asset in exchange for consideration, which relates to an asset which the Company does not own. Right of use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are recognized as the lease liability, adjusted for lease incentives received. Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s IBR, because the interest rate implicit in most of its leases is not readily determinable. The IBR is a hypothetical rate based on the Company’s understanding of what its credit rating would be to borrow and resulting interest we would pay to borrow an amount equal to the lease payments in a similar economic environment over the lease term on a collateralized basis. Lease payments may be fixed or variable; however, only fixed payments or in-substance fixed payments are included in the Company’s lease liability calculation. Variable lease payments may include costs such as common area maintenance, utilities, real estate taxes or other costs. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred.
Operating leases are included in operating lease ROU assets, operating lease liabilities, current and operating lease liabilities, non-current on the Company’s condensed consolidated balance sheets. For operating leases, lease expense is recognized on a straight-line basis in operations over the lease term. The Company elected the practical expedient not to separate non-lease components from lease components, therefore, the Company accounts for lease and non-lease components as a single lease component. The Company also elected the short-term lease recognition practical expedient for all leases that qualify.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment annually, or whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company assesses the recoverability of these assets by comparing the carrying amount of such assets or asset group to the future undiscounted cash flows it expects the assets or asset group to generate. The Company recognizes an impairment loss if the sum of the expected long-term discounted cash flows that the long-lived asset is expected to generate is less than the carrying amount of the long-lived asset being evaluated. The Company analyzed its long-lived assets for impairment and recorded a $23.3 million impairment charge related to property and equipment and its right-of-use assets in its condensed consolidated statements of operations for the three months ended March 31, 2023.
Income Taxes
The Company accounts for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Company’s lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance as of March 31, 2023 and December 31, 2022, respectively. Uncertain tax positions taken or expected
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to be taken in a tax return are accounted for using the more likely than not threshold for financial statement recognition and measurement.
Stock-based Compensation
Stock-based compensation expense related to stock option awards, restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted to employees, directors and non-employees are accounted for based on estimated grant-date fair values. For stock option awards and RSUs with service conditions, the Company uses the straight-line method to recognize compensation expense over the requisite service period, which is generally the vesting period, and estimates the fair value of share-based awards using the Black-Scholes option-pricing model. The Black-Scholes model requires the input of subjective assumptions, including expected volatility, expected dividend yield, expected term, risk-free rate of return and the stock price of the underlying common shares on the date of grant. The fair value of each RSU is based on the fair value of the Company’s common stock on the date of grant. Stock-based compensation for RSUs granted with a performance condition is recognized on a graded vesting basis. Stock-based compensation tor PSUs, is recognized on a graded vesting basis, as the PSUs are associated with market conditions over the holder’s derived service period. The fair value of the PSUs are estimated using the Monte Carlo simulation. The Company accounts for the effect of forfeitures as they occur.
Internal Use Software
The Company capitalizes certain costs associated with creating and enhancing internally developed software for the Company’s technology infrastructure and such costs are recorded within property, equipment and software, net. These costs include personnel and related employee benefit expenses for employees directly associated with and who devote time to software development projects. Software development costs that do not qualify for capitalization are expensed as incurred and recorded in research and development expense in the condensed consolidated statements of operations.
Software development activities typically consist of three stages: (1) the planning phase; (2) the application and infrastructure development stage; and (3) the post implementation stage. Costs incurred in the planning and post implementation phases, including costs associated with training and repairs and maintenance of the developed technologies, are expensed as incurred. The Company capitalizes costs associated with software developed when the preliminary project stage is completed, management implicitly or explicitly authorizes and commits to funding the project and it is probable that the project will be completed and perform as intended. Costs incurred in the application and infrastructure development phases, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete, and the software is ready for its intended purpose. Software development costs are depreciated using the straight-line method over the estimated useful life, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived. Internal use software is tested for impairment in accordance with the Company’s long- lived assets impairment policy.
In March 2023, the Company ceased further development of its capitalized software in line with its restructuring decision. The Company analyzed its internal use software and recorded a full impairment of the asset for $11.2 million in its condensed consolidated statements of operations for the time period for the three months ended March 31, 2023.
Research and Development Expense
Research and development expense consist of outsourced engineering services, allocated facilities costs, depreciation, internal engineering and development expenses, materials, labor, and stock-based compensation related to development of the Company’s products and services. Research and development costs are expensed as incurred except for amounts capitalized to internal-use software if applicable.
General, and Administrative Expenses
General, and administrative expense consist of personnel costs, allocated facilities expenses, depreciation and amortization, travel, and business development costs.

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Restructuring Costs
In March 2023, the Company initiated a reduction in workforce restructuring plan and simultaneously proceeded with potential liquidation of its assets. As a result of this workforce reduction initiative, the Company incurred $9.5 million in employee severance pay and related costs during the three months ended March 31, 2023. The Company is expected to implement further reductions in workforce as a part its restructuring plan in the near future.
Change in fair value of warrant liability
Change in fair value of warrant liability represents the change in fair value of Public, Private, Working Capital and Forward Purchase Agreement (“FPA”) Warrants. For each reporting period, Embark will determine the fair value of the warrant liability, and record a corresponding non-cash benefit or non-cash charge, due to a decrease or increase in fair value, respectively, of the calculated warrant liability.
Other Income
The Company has subleased office space to a third party, as a result of the sublease arrangements, the company has earned rental income which is included as a part of other income. The Company had also received consideration from certain arrangements related to truck transfer services resulting from research and development activities, this has also been presented as other income in the Company’s condensed consolidated statement of operations.
Interest Income
Interest income primarily consists of investment and interest income from marketable securities, long- term investments and the Company’s cash and cash equivalents.
Interest Expense
Interest expense consisted primarily of interest on the Company’s various truck financing arrangements.

Net Loss Per Share
Prior to the Merger and prior to effecting the recapitalization, the Company had one class of common stock. Subsequent to the Merger, the Company has two classes of common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, including the liquidation and dividend rights, except with respect to electing members of the Board of Directors and voting rights. As the liquidation and dividend rights are identical, undistributed earnings and losses are allocated on a proportionate basis and the resulting net loss per share attributable to common stockholders are the same for both Class A common stock and Class B common stock on an individual and combined basis.
Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Net loss is attributed to common stockholders and participating securities based on their participation rights. Net loss attributable to common stockholders is not allocated to the redeemable convertible preferred stock as the holders of the redeemable convertible preferred stock do not have a contractual obligation to share in any losses. No dividends were declared or paid for three months ended March 31, 2023. No preferred stock was outstanding as of March 31, 2023.
Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.
Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of redeemable convertible preferred stock, stock options, and warrants. As the Company has reported losses for all periods presented, all potentially dilutive securities including preferred stock, stock options, and warrants, are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.
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Comprehensive Loss
Comprehensive loss is defined as the total change in stockholders’ equity during the period other than from transactions with stockholders. Comprehensive loss consists of net loss and other comprehensive loss. Other comprehensive loss is comprised of unrealized losses on investments classified as available-for-sale. There was no other comprehensive loss for three months ended March 31, 2023 and 2022.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The Company adopted “ASC 842” on January 1, 2022, using the modified retrospective transition method, specifically the "Comparatives under ASC 840 approach", and used the effective date as the date of initial application. The Company elected the “package of practical expedients,” which permits Embark not to reassess under ASC 842 its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the use of hindsight in determining the lease term and in assessing impairment of the entity’s right-of-use assets. Upon adoption of the new leasing standard on January 1, 2022, the Company recognized right-of-use assets of $4.4 million and lease liabilities of $4.5 million, respectively, which are related to its various operating leases. The difference between the right-of-use assets and lease liabilities is primarily attributed to the elimination of deferred rent. There was no adjustment to the opening balance of accumulated deficit as a result of the adoption of ASC 842.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. The adoption of ASU 2019-12 is effective for the Company beginning January 1, 2022. The adoption of this standard did not have a material impact to its financial statements.
In May 2021, the FASB issued ASU 2021-04, Modification of equity-classified written call options. ASU 2021-04 provides clarification and reduces diversity in an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options, such as warrants, that remain equity classified after modification or exchange. The adoption of ASU 2021-04 was effective for the Company beginning January 1, 2022. The adoption of this standard did not have a material impact to its financial statements.
Recently Issued Accounting Pronouncements
As an emerging growth company (“EGC”), the JOBS Act allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which, together with subsequent amendments, amends the requirement on the measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for the Company beginning January 1, 2023, with early adoption permitted. The Company is currently in the process of evaluating the effects of this pronouncement on the Company’s financial statements and does not expect it to have a material impact on its consolidated financial statements. There was no impact to the Company's consolidated financial statements as a result of adopting this standard on January 1, 2023.
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815- 40): Accounting for convertible instruments and contracts in an entity’s own equity. The ASU simplifies accounting for convertible instruments by removing certain separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share for convertible instruments by using the if-converted method. The amendments are effective for the Company beginning January 1, 2024, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact of this standard on its consolidated financial statements.

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In June 2022, the FASB issued ASU 2022-03 to clarify the guidance on the fair value measurement of an equity security that is subject to a contractual sale restriction, and require specific disclosures for equity securities that are subject to such restrictions. The amendments are effective in periods beginning after December 15, 2023 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this standard on its consolidated financial statements.
In September 2022, the FASB issued ASU 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50)." ASU 2022-04 is intended to establish disclosures that enhance the transparency of a supplier finance program used by an entity in connection with the purchase of goods and services. Supplier finance programs, which also may be referred to as reverse factoring, payables finance or structured payables arrangements, allow a buyer to offer its suppliers the option for access to payment in advance of an invoice due date, which is paid by a third-party finance provider or intermediary. Under the guidance, a buyer in a supplier finance program would disclose qualitative and quantitative information about its supplier finance programs. The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance.
3.BALANCE SHEET COMPONENTS
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of March 31, 2023 and December 31, 2022, respectively (in thousands):
March 31,
2023
December 31,
2022
Prepaid insurance
$3,085 $3,411 
Prepaid software
1,6432,648 
Income tax receivable
494494 
Short-term deposits
431452 
Prepaid salary
558558 
Other current assets
1,122323 
Total prepaid expenses and other current assets
$7,333 $7,886 
Property, Equipment and Software
Property, equipment and software consist of the following as of March 31, 2023 and December 31, 2022, respectively (in thousands):
March 31,
2023
December 31,
2022
Machinery and equipment
$248 $569 
Electronic equipment
776 1,645 
Vehicles and vehicle hardware
7,741 10,777 
Leasehold improvements
 1,037 
Developed software
 11,261 
 Other27 116 
Property, equipment and software, gross
8,792 25,405 
Less: accumulated depreciation and amortization
(4,038)(4,797)
Total property, equipment and software, net
$4,754 $20,608 
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Depreciation and amortization expense for the three months ended March 31, 2023 and March 31, 2022 was $0.8 million and $0.4 million, respectively. The Company recognized $16.4 million as impairment on Property, equipment and software during the three months ended March 31, 2023. See Note 5, “Restructuring costs and Impairment of Long-Lived Assets.”
Other Assets
Other assets consist of the following as of March 31, 2023 and December 31, 2022, respectively (in thousands):
March 31,
2023
December 31,
2022
Lease deposits$3,230 $3,224 
Prepaid insurance1,455 2,000 
Other long term assets189 555 
Total Other Assets
$4,874 $5,779 
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following as of March 31, 2023 and December 31, 2022, respectively (in thousands):
March 31,
2023
December 31,
2022
Payroll expenses$3,059 $1,342 
General expenses257 412 
Legal expenses2,253 232 
Software expenses821 529 
Consultant expenses1,158 959 
Other accrued expenses and current liabilities354 411 
Total accrued expenses and other current liabilities
$7,902 $3,885 
4.FAIR VALUE MEASUREMENTS
The carrying value and fair value of the Company’s financial instruments as of March 31, 2023 and December 31, 2022, respectively, are as follows:
March 31, 2023
(in thousands)
Level 1Level 2Level 3Total
Assets
Cash equivalents:
United States money market funds$100,246 $ $ $100,246
Liabilities
Warrant liabilities - FPA warrants (1)
$13 $ $ $13 
Warrant liabilities - public warrants$259 $ $ $259 
Warrant liabilities - working capital warrants$ $ $38 $38 
Warrant liabilities - private warrants$ $ $126 $126 
(1)FPA are the “Forward Purchase Agreements” entered into, or amended and restated, by NGA on April 21, 2021.
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December 31, 2022
(in thousands)
Level 1Level 2Level 3Total
Assets
Cash equivalents:
United States money market funds$1,379 $ $ $1,379
Liabilities
Warrant liabilities - FPA warrants$13 $ $ $13 
Warrant liabilities - public warrants$276 $ $ $276 
Warrant liabilities - working capital warrants$ $ $40 $40 
Warrant liabilities - private warrants$ $ $134 $134 
As of March 31, 2023 and December 31, 2022, there were no transfers made among the three levels in the fair value hierarchy.
The fair value of the above liability classified Public, Private, Working Capital and FPA Warrants have been measured based on the listed market price of such warrants on November 10, 2021. The FPA warrants and Public Warrants were valued using the public price as of March 31, 2023 and December 31, 2022. The Private and Working Capital Warrants were fair valued using the Black Scholes Option Pricing Model as of March 31, 2023 and December 31, 2022. For the three months ended March 31, 2023, the Company recognized income in the condensed consolidated statement of operations resulting from a change in the fair value of warrants of approximately $28,000, presented as other income (expense) on the accompanying condensed consolidated statement of operations.
5.RESTRUCTURING COSTS AND IMPAIRMENT OF LONG-LIVED ASSETS
In March 2023, the Board of Directors of the Company (the “Board”) approved a process to explore, review and evaluate a range of potential strategic alternatives available to the Company, including, without limitation, exploring alternative uses of the Company’s assets to commercialize its technology, additional sources of financing, as well as potential dissolution or winding up of the Company and liquidation of its assets.
Restructuring costs
On March 3, 2023, Embark announced a workforce restructuring plan and initiated a workforce reduction of approximately 230 employees. The Company incurred $9.5 million in employee severance pay and related costs during the three months ended March 31, 2023.
Impairment of long-lived assets
The Company reviewed its long-lived assets for impairment following Financial Accounting Standards Board’s Accounting Standards Codification (ASC) 360 for Property, Plant, and Equipment. The Company tested its long-lived assets for recoverability due to changes in circumstances that indicated that the carrying amounts may not be recoverable.
Following Board’s decision to explore alternative uses of the Company’s assets, the process of winding up Embark operations begun while continuing to explore the sale to a strategic buyer and the liquidation of the Company. Contemporaneous with the wind up process, the Company began the process of selling its long-lived assets and stopped the development of its capitalized internal use software as part of the process of reducing the Company’s footprint following a reduction in force on March 3, 2023. As of March 31, 2023, no decision was made as to whether the Company will be liquidated or sold to a strategic buyer.
The Company reviewed its property and equipment related assets for impairment by comparing the carrying values of the assets with their estimated future undiscounted cash flows. Impairment charge was calculated as the difference between asset carrying values and fair value as determined by prices of similar items, indicative fair market quotes received which are considered level three fair value estimates.
The Company analyzed its right-of used assets for impairment based on fair values calculated as discounted cash flows estimated to be received from the lease assets where applicable. The difference between fair value and carrying value of the right of use asset was recognized as an impairment in March 2023.
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The following table presents gross asset values, impairment charges and fair value of property, equipment and software as on March 31, 2023 (in thousands):
Gross Book ValueImpairmentFair Value as on March 31, 2023
Property, equipment and software
Developed software $11,261 $11,261 $ 
Property and equipment15,546 6,754 8,792 
Gross Property, equipment and software26,807 18,015 8,792 
Less: Accumulated Depreciation(5,637)(1,599)(4,038)
Net Property, equipment and software$21,170 $16,416 $4,754 
Right-of-use Assets
Headquarter lease$14,228 $6,241 $7,987 
Other leases2,039 631 1,408 
Right-of-use Assets$16,267 $6,872 $9,395 
Total$37,437 $23,288 $14,149 
The Company recognized partial impairment on all property and equipment for a total of $5.2 million, net of depreciation and full impairment on developed software for $11.2 million, net of amortization. The Company has stopped development of its internal use software because it is not expected to be used given Company’s plan to liquidate or sell its assets and seek other strategic business alternatives. The Company also recognized an additional $6.9 million on right-of-use assets pertaining to property leases during the three months ended March 31, 2023.
6.STOCKHOLDERS’ EQUITY
The Reverse Stock Split
The Reverse Stock Split did not affect the number of authorized shares of Embark’s common stock or the par value of the common stock.
Following the Reverse Stock Split effectiveness on August 16, 2022, all references in these financial statements to number of common shares issued or outstanding, price per share and weighted average number of shares outstanding prior to the 1 for 20 reverse split have been adjusted to reflect the stock split on a retroactive basis as of the earliest period presented, unless otherwise noted.
Shares Authorized and Issued
As of March 31, 2023, the Company had authorized a total of 4,110,000,000 shares for issuance with 4,000,000,000 shares designated as Class A common stock, 100,000,000 shares designated as Class B common stock and 10,000,000 shares designated as preferred stock.
As of March 31, 2023, the Company had 19,532,651 shares issued as Class A common stock and 4,353,948 shares issued as Class B common stock.
Preferred Stock
As of March 31, 2023 and December 31, 2022, the Company had no shares of preferred and founders preferred stock issued or outstanding. The Company’s preferred stock does not contain any mandatory redemption features, nor are they redeemable at the option of the holder.
Class A and Class B Common Stock
The Company’s Board of Directors has authorized two class of common stock, Class A common stock and Class B common stock. Holders of Class A common stock and Class B common stock are not entitled to preemptive or other similar subscription rights to purchase any of Embark’s securities.
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Class A common stock is neither convertible nor redeemable. Class B common stock is convertible into Class A common stock. Unless Embark’s board of directors determines otherwise, Embark will issue all of its capital stock in certificated form. Embark’s founders, Alex Rodrigues and Brandon Moak (the “Founders”), held, and continue to hold, all outstanding shares of Class B common stock issued upon consummation of the Business Combination.
In connection with the merger with NGA on November 10, 2021, the Embark Founders exchanged 4,353,948 shares of Founder’s common stock, which were entitled to one vote per share, into the same number of shares of Class B common stock, which are entitled to ten votes per share. The Company recorded the incremental value of $13.6 million associated with this transaction as stock-based compensation in general and administrative expenses.
The significant rights, privileges and preferences of common stock as of March 31, 2023 are as follows:
Liquidation Preference
If Embark is involved in voluntary or involuntary liquidation, dissolution or winding up of Embark’s affairs, or a similar event, each holder of Embark Common Stock will participate pro rata in all assets remaining after payment of liabilities, subject to prior distribution rights of Embark preferred stock, if any, then outstanding.
Dividends
Each holder of shares of Embark Common Stock is entitled to the payment of dividends and other distributions as may be declared by the Board from time to time out of Embark’s assets or funds legally available for dividends or other distributions. These rights are subject to the preferential rights of the holders of Embark’s Preferred Stock, if any, and any contractual limitations on Embark’s ability to declare and pay dividends.
Voting
Each holder of Class A common stock is entitled to one vote per share on each matter submitted to a vote of stockholders, as provided by the Second Amended and Restated Certificate of Incorporation of Northern Genesis Acquisition Corp. II (the “Charter”). Each holder of Class B common stock is entitled to ten votes per share on each matter submitted to a vote of stockholders, as provided by the Embark Charter. Following the Business Combination, holders of Class B common stock have the ability to control the business affairs of Embark. Embark’s Amended and Restated Bylaws (the “Bylaws”) provide that the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, will constitute a quorum at all meetings of the stockholders for the transaction of business. When a quorum is present, the affirmative vote of a majority of the votes cast is required to take action, unless otherwise specified by law, the Bylaws or the Charter, and except for the election of directors, which is determined by a plurality vote. There are no cumulative voting rights.
Stock purchase agreement
On May 31, 2022, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement, each with CF Principal Investments LLC (“Cantor”). Pursuant to the Purchase Agreement, the Company has the right to sell to Cantor up to the lesser of (i) 1,500,000 of newly issued shares of the Company’s Class A common stock, par value $0.0001 per share, and (ii) the Exchange Cap (as defined in the Purchase Agreement), from time to time during the 36-month term of the Purchase Agreement. Sales of Class A common stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at the option of the Company, and the Company is under no obligation to sell any securities to Cantor under the Purchase Agreement. The total number of shares to be sold to Cantor is limited to the extent that shares sold to Cantor would not result in Cantor and its affiliates having shares in excess of the Beneficial Ownership Limitation. The purchase price of shares sold to Cantor will be equal to 97% of the volume weighted average price on the trading day the shares are put to Cantor. The Company determined that the right to sell shares of the Company’s Class A common stock to Cantor pursuant to the Purchase Agreement represents a freestanding put option under ASC 815, Derivatives and Hedging. The fair value of the put option was determined to be zero as the shares to be issued and the purchase price is settled within one business day. During the three months ended March 31, 2023, the Company did not sell shares of Class A common stock to Cantor pursuant to the Purchase Agreement.
As consideration for Cantor’s commitment to purchase shares of Class A common stock at the Company’s direction upon the terms and subject to the conditions set forth in the Purchase Agreement, the Company agreed to issue 22,500 shares of Class A common stock (the “Commitment Shares”) to Cantor at the time of execution of the Purchase
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Agreement. On May 31, 2022, the Company issued the Commitment Shares to Cantor with a fair value of $0.7 million. The fair value associated with the Commitment Shares was recorded as a component of other expense in the Company’s condensed consolidated statement of operations and a component of common stock and additional paid-in capital in the company’s condensed consolidated balance sheet.
7.WARRANTS
As of March 31, 2023, the following warrants were issued and outstanding:
DescriptionClassificationIssue Date
Warrants
Outstanding
Fair Value Price Per Share
Exercise
Price per
Share
Expiration
FPA warrants LiabilityNovember 10, 2021666,663 $0.02 $11.50 November 10, 2026
Public warrantsLiabilityNovember 10, 202113,799,936 $0.02 $11.50 November 10, 2026
Private warrantsLiabilityNovember 10, 20216,686,667 $0.02 $11.50 November 10, 2026
Working capital warrantsLiabilityNovember 10, 20212,000,000 $0.02 $11.50 November 10, 2026

The Company determined the FPA, Public, Private and Working Capital warrants to be classified as a liability and fair valued the warrants on the issuance date using the publicly available price for the warrants, of $41.2 million. The fair value of the FPA and Public warrants are remeasured as of the reporting date with the change in value reflected as part of other income (expense).

The fair value of $0.4 million of Private and Working Capital warrants was determined using the Black-Scholes option valuation model using the following assumptions for values as of March 31, 2023:

Risk – free interest rate3.75%
Expected term (in years)3.61
Expected dividend yield0%
Expected volatility123.7%
The Company estimates the volatility of its warrants based on a combination of volatility from the Company’s traded warrants and from historical volatility of select peer company’s common stock that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.

Reverse Stock Split
Following the Reverse Stock Split effectiveness on August 16, 2022, warrants will be impacted by the same ratio upon exercise. The Reverse Stock Split did not affect the number of warrants issued and outstanding or the exercise price of the warrants. Each whole warrant exercisable is now for 1/20th share of Class A common stock at an exercise price of $11.50 per warrant.
8.STOCK-BASED COMPENSATION EXPENSE
Stock Option Plan
In connection with the Business Combination, the Company adopted the 2021 Incentive Award Plan (the “2021 Plan”), under which the Company grants cash and equity incentive awards to directors, employees (including named executive officers) and consultants in order to attract, motivate and retain the talent for which the Company competes. The Company terminated the 2016 Stock Plan, provided that the outstanding awards previously granted under the 2016 Plan continue to remain outstanding under the 2016 Plan. Under the 2021 Plan, as of March 31, 2023, the Company has authorized the issuance of a maximum number of 4,807,138 shares of Class A common stock, with annual increases that began on January 1, 2022 and ending on and including January 1, 2031 of 5% of the aggregate number of shares of Class A common stock outstanding on the last day of the preceding calendar year. During the three months ended March 31, 2023, the Company issued 1,966,961 shares of restricted stock units under the 2021 Plan.
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Embark Trucks adopted the 2016 Stock Plan in October 2016 (the “2016 Plan”). The 2016 Plan authorized the grant of incentive stock options, non-statutory stock options, and restricted stock awards to employees, directors, and consultants. The 2016 Plan also initially reserved 993,542 shares of common stock for issuance and designated forfeited option shares to be returned to the option reserve. Options may be early exercised and are exercisable for a term of 10 years from the date of grant. As of March 31, 2023, the Company had registered 3,937,824 shares to be reserved for option grants, RSUs and PSUs previously issued under the 2016 Plan. The Company will not issue additional awards under the 2016 Plan.
Stock Option Valuation
The Company utilizes the Black-Scholes option pricing model for estimating the fair value of options granted, which requires the input of highly subjective assumptions.
The Company calculates the fair value of each option grant on the grant date using the following assumptions:
Expected Term — The Company uses the simplified method when calculating expected term due to insufficient historical exercise data.
Expected Volatility — The volatility is based on a benchmark of comparable companies within the automotive and energy storage industries.
Expected Dividend Yield — The dividend rate used is zero as the Company does not have a history of paying dividends on its common stock and does not anticipate doing so in the foreseeable future.
Risk-Free Interest Rate — The interest rates used are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.
The Company did not grant any stock options for the three months ended March 31, 2023 and 2022.
Option Activity
Changes in stock options are as follows:
Number of Outstanding OptionsWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Term (years)Aggregate Intrinsic value (in thousands
Outstanding at December 31, 2022725,721$3.17 6.77$1,288 
Exercised(177,166)$1.22 — 284 
Cancelled(31,979)$2.53 — — 
Outstanding at March 31, 2023516,576 $3.84 6.04$659,703 
Vested and Exercisable as of March 31, 2023447,111$2.81 5.39$622,407 
The aggregate intrinsic value in the above table is calculated as the difference between the estimated fair value of the Company's common stock price and the exercise price of the stock options. The company did not grant any stock options for the three months ended March 31, 2023 and 2022. As of March 31, 2023, the total unrecognized compensation related to unvested stock option awards granted was $2.18 million, which the Company expects to recognize over a weighted-average period of approximately 1.67 years.
Restricted Stock Units
Prior to the Business Combination, Embark Trucks also granted employees RSUs which are subject to performance and service-based vesting conditions. As the Company went public upon the completion of the Business Combination in November 2021, the performance condition had been met. The RSUs generally vest over either a four year period with 25% of the award vesting after the first-year anniversary and one-thirty sixth of the remainder of the award vesting monthly thereafter, vesting over a four year period with one forty-eighth of the award vesting monthly, or over a four year period with a 40/30/20/10 monthly schedule. Vesting is contingent upon such employee’s continued service on such vesting date.
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RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. The Company may grant RSUs with different vesting terms from time to time.
For the three months ended March 31, 2023, the Company granted 1,966,961 shares of RSUs under the 2021 Equity Plan: there was no grant of RSUs under the 2016 Plan during the three months ended March 31, 2023. The company did not grant any RSUs for the three months ended March 31, 2022. The weighted average grant date fair value per share for the RSUs granted for the three months ended March 31, 2023 was $2.61. As of March 31, 2023 there was $20.0 million unrecognized stock-based compensation expense related to outstanding RSUs granted to employees, with a weighted-average remaining vesting period of 2.7 years.
A summary of the Company’s RSU activities and related information is as follows:
Number of Shares
Weighted Average
Grant date Fair
Value Per Share
Balance as of December 31, 2022
1,152,405$52.05 
Granted
1,966,9612.61 
Forfeited