UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019June 30, 2021
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: 001-38824
Canoo Inc.
Commission File Number: 001-37509
HENNESSY CAPITAL ACQUISITION CORP. IV
(Exact name of registrant as specified in its charter)
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Delaware | 83-1476189 | |
(State or | (I.R.S. Employer Identification |
No.)
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19951 Mariner Avenue, Torrance, California | 90503 | |
(Address of | (Zip |
(424) 271-2144
(Registrant’s telephone number, including area code: (307) 734-4849code)
Not applicableSecurities registered pursuant to Section 12(b) of the Act:
(Former name or former address, if changed since last report)
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Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
Common stock, $0.0001 par value per share | | GOEV | | The Nasdaq Global Select Market |
Warrants, each whole warrant exercisable for one share of common stock at an exercise price of $11.50 per share | | GOEVW | | The Nasdaq Global Select Market |
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 DateData File required to be submitted and 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”,filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | ◻ | Accelerated filer | ☐ | | |
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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 ☐☒
Securities registered pursuant to Section 12(b) of the Act:
As of May 10, 2019,August 6, 2021, there were 30,015,000237,491,189 shares of the Company’s class Aregistrant’s common stock, and 7,503,750 of the Company’s class B common stockpar value $0.0001 per share, issued and outstanding.
HENNESSY CAPITAL ACQUISITION CORP. IV
TABLE OF CONTENTS
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2 Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. All statements, other than statements of present or historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of such terms or other similar expressions. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about:
3 These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or otherwise implied by the forward-looking statements. Below is a summary of certain material factors that may make an investment in our common stock speculative or risky.
4
Importantly, the summary above does not address all the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized herein, as well as other risks and uncertainties that we face, can be found under Part II, Item IA, “Risk Factors” in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 31, 2021. The above summary is qualified in its entirety by those more complete discussions of such risks and uncertainties. Given such risks and uncertainties, you should not place undue reliance on forward-looking statements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. Unless otherwise stated in this Quarterly Report on Form 10-Q or the context otherwise requires, and regardless of capitalization, references to:
5
6 PART Item 1. Financial Statements
Condensed Consolidated Balance Sheets
7 CANOO INC. Condensed Consolidated Statements of Operations (in thousands, except per share values)
Three and Six Months Ended June 30, 2021 and 2020 (unaudited)
8 CANOO INC.
Three and Six Months Ended June 30, 2021 (unaudited)
9 CANOO INC.
Three and Six Months Ended June 30, 2020 (unaudited)
10
CANOO INC. Condensed Consolidated Statements of Cash Flows (in thousands) Six Months Ended June 30, 2021 and 2020 (unaudited)
The accompanying notes are an integral part of these condensed consolidated financial statements. 11 CANOO INC. Notes to Condensed Consolidated Financial Statements (dollars in thousands, unless otherwise stated) (unaudited)
1. Organization and Canoo Inc. (“Canoo” or the “Company”) is a mobility technology company with a mission to bring EVs to everyone. The Company has developed a breakthrough EV platform that it believes will enable it to rapidly innovate, and bring new products addressing multiple use cases to market faster than its competition and at lower cost. Business Combination On December 21, 2020 (the “Closing Date”), Hennessy Capital Acquisition Corp. IV (“HCAC”) consummated the previously announced merger pursuant to that certain Merger Agreement and Plan of Reorganization, dated August 17, 2020 (the
On the Closing Date, and in connection with the closing of the Business Combination, HCAC changed its name to Canoo Inc. and the Company’s common stock began trading on The The financial statements included in this report reflect (i) the historical operating results of Legacy Canoo prior to the Business Combination; (ii) the combined results of HCAC and Legacy Canoo following the closing of the Business Combination; (iii) the assets and liabilities of Legacy Canoo at their historical cost; and (iv) the Company’s equity structure for all periods presented. 2. Basis of Presentation and Summary of Significant Accounting Policies These unaudited condensed consolidated financial statements have been prepared in accordance with the
The accompanying unaudited condensed
12 Except for any updates below, no material changes have been made to the Company’s significant accounting policies disclosed in Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K. Retroactive Application of Recapitalization The Business Combination on December 21, 2020 was accounted for as a recapitalization of equity structure. Pursuant to GAAP, the Company retrospectively recasted the weighted-average shares included within its condensed consolidated statements of operations for the three and six months ended June 30, 2020. Legacy Canoo redeemable convertible preference shares – Angel Series (“Angel Shares”) and Legacy Canoo redeemable convertible preference shares – Seed Series (“Seed Shares”) were converted to Legacy Canoo A series redeemable convertible preference shares and later were exchanged into Legacy Canoo ordinary shares. The
COVID-19 Beginning in the
Ultimately, the Company
13 Fair Value of Financial Instruments The Company applies the provisions of ASC 820, Fair Value Measurements and Disclosures, which provides a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. Fair value represents the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses the following hierarchy in measuring the fair value of the Company’s assets and liabilities,
Valuation techniques used to measure fair value must maximize the use of observable inputs and
As described in Note 10, the Company has a
The Earnout Shares are accounted for as a contingent liability and its fair value is determined using Level 3 inputs, since estimating the fair value of
14 Additionally, as described in
Following is a summary of the change in fair value of contingent Earnout Shares liability and private placement warrants liability for the six months ended June 30, 2021 (in thousands). Earnout Shares Liability
Private Placement Warrants Liability
3. Immaterial correction of prior period financial statements Subsequent to issuance of the Company’s Annual Report on Form 10-K for the year-ended December 31, 2020, on April 12, 2021, the SEC Division of Corporation of Finance released Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “Statement”). Upon review and analysis of the Statement, management determined that the Company’s private placement warrants issued in connection with HCAC's IPO on March 5, 2019 do not meet the scope exception from derivative accounting prescribed by ASC 815-40, Contracts in Entity’s Own Equity. Accordingly, the private placement warrants should have been recognized by the Company at fair value as of the Closing Date and classified as a liability, rather than equity in the Company’s previously reported consolidated balance sheet as of December 31, 2020. Thereafter, the change in fair value of the outstanding private placement warrants should have been recognized as a gain (loss) within other (expense) income each reporting period in the Company’s consolidated statement of operations. The fair value of the private placement warrants as of the Closing Date on December 21, 2020 and December 31, 2020 amounted to $9.7 million and $6.6 million, respectively. The change in fair value from the Closing Date through December 31, 2020 amounted to a gain of $3.1 million. The impact of the misstatement as of December 31, 2020 resulted in an understatement of the private placement warrants liability of $6.6 million, and an overstatement of accumulated deficit and additional paid-in capital of $3.1 million and $9.7 million, respectively. Accordingly, management is correcting the relevant financial statements and related footnotes as of December 31, 2020 within these condensed consolidated financial statements. Management has evaluated the materiality of these misstatements based on an analysis of quantitative and qualitative factors and concluded they were not material to the prior period financial statements, individually or in aggregate. 15 The following tables reflect the impact of the immaterial correction on the Company’s previously reported consolidated balance sheet as of December 31, 2020 (in thousands):
4. Recent Accounting Pronouncements Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”), in the form of Accounting Standards Updates (“ASUs”), to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have immaterial impact on the Company’s consolidated financial position, results of operations or cash flows. Recently Issued Accounting Pronouncements Not Yet Adopted In August 2020, the FASB issued ASU No. 2020-06 Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40). The objective of the amendments in this ASU is to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The amendments in this ASU reduce the number of accounting models for convertible debt instruments and redeemable convertible preference shares. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods therein. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, 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 evaluating this guidance to determine the impact it may have on the consolidated financial statements. In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments ( Subtopic 470-50 ), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity ( Subtopic 815-40 ): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options ("ASU No. 2021-04"). This ASU provides a principles-based framework for issuers to account for a modification or exchange of freestanding equity-classified written call options. The provisions of the ASU are effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on the consolidated financial statements. 16 5. Property and Equipment, net Property and equipment, net consisted of the following (in thousands):
Construction-in-progress is primarily comprised of tooling necessary in the production of the Company’s vehicles. Completed tooling assets will be transferred to their respective asset classes and depreciation will begin when an asset is ready for its intended use. As of June 30, 2021, manufacturing has not begun and therefore no depreciation on tooling has been recognized to date. Depreciation expense for property and equipment was $2.1 million and $4.2 million for the three and six months ended June 30, 2021, respectively. Depreciation expense for property and equipment was $1.8 million and $3.4 million for the three and six months ended June 30, 2020, respectively. 6. Accrued Expenses and Other Current Liabilities Accrued expenses consisted of the following (in thousands):
7. Long-term debt On July 7, 2020, Legacy Canoo entered into a promissory note for loan proceeds under the Paycheck Protection Program (the “PPP”) (the “PPP Loan”) administered by the Small Business Administration (“SBA”) established under Division A, Title I of the CARES Act. Loan advance proceeds were received by the Company during the six months ended June 30, 2020, and therefore was accounted for as a financing cash inflow in the condensed consolidated statement of cash flows for the six months ended June 30, 2020. The PPP provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the business, subject to certain limitations. The Company used the PPP Loan proceeds for purposes consistent with the provisions of the PPP. As of May 14, 2021, the Company repaid its PPP Loan in full, which was accounted for as a financing cash outflow in the condensed consolidated statement of cash flows for the six months ended June 30, 2021. 17 8. Commitments and Contingencies Lease Commitments Refer to Note 9 for information regarding operating lease commitments. Legal Proceedings From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. Some of these claims, lawsuits and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, non-monetary sanctions or relief. On April 2, 2021 and April 9, 2021, the Company was named as a defendant in putative class action complaints filed in California on behalf of individuals who purchased or acquired shares of the Company’s stock during a specified period. Through the complaint, plaintiffs are seeking, among other things, compensatory damages. On June 25, 2021, the Company was named as a nominal defendant in a stockholder derivative complaint filed in Delaware. Through the stockholder derivative complaint, the plaintiff is asserting claims against certain of the Company’s current and former officers and directors and seeking, among other things, damages. However, the final determinations of liability arising from these litigation matters will only be made following comprehensive investigations and litigation processes. In addition, on April 29, 2021, the SEC’s Division of Enforcement advised that it has opened an investigation related to, among other things, HCAC’s initial public offering, HCAC’s merger with the Company and the concurrent PIPE offering, historical movements in the Company, the Company’s operations, business model, revenues, revenue strategy, customer agreements, earnings, and other related topics, along with the recent departures of certain of the Company’s officers. The SEC has informed the Company that its current investigation is a fact-finding inquiry. The SEC has also informed the Company that the investigation does not mean that it has concluded that anyone has violated the law, and does not mean that it has a negative opinion of any person, entity or security. We are providing the requested information and cooperating fully with the SEC investigation. At this time, the Company does not consider any such claims, lawsuits or proceedings that are currently pending, individually or in the aggregate, including the matters referenced above, to be material to the Company’s business or likely to result in a material adverse effect on its future operating results, financial condition or cash flows should such proceedings be resolved unfavorably. Indemnifications In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third-parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The Company provided indemnifications to certain of its officers and employees with respect to claims filed by a former employer. 9. Related Party Transactions On February 28, 2018, Legacy Canoo, via a wholly owned subsidiary, entered into a lease for an office facility in Torrance, California (“Torrance lease”) with an entity controlled by certain investors of Legacy Canoo, which was assigned to another entity controlled by certain investors of Legacy Canoo, on April 30, 2018. The original lease term is 15 years and commenced on April 30, 2018. During the first quarter of 2021, the Company entered into a separate lease for an office facility in Justin, Texas (“Justin lease”) with an entity controlled by the Executive Chairman and Chief Executive Officer of the Company. The original lease term is 5 years 3 months, commencing on January 1, 2021. The Torrance and Justin leases (collectively referred to herein as the “leases”) contain a 3% per annum escalation clause. 18 The Torrance lease and Justin lease contain the option to extend the terms of the leases for 2 additional 60-month periods and 1 additional 60-month period, respectively, commencing when the prior term expires. At the inception of each of the leases, it was not reasonably certain we would exercise any of the options to extend the term of the leases. There were no changes to that assessment as of June 30, 2021. The Company has determined that the leases do not effectively transfer control of the underlying facilities to the Company based on the lease terms and, accordingly, the Company has classified the leases as operating leases. As such, the rent and property taxes are expensed on a straight-line basis in the condensed consolidated statements of operations. Related party lease expense related to these leases was $0.6 million and $1.1 million for the three and six months ended June 30, 2021, respectively. Related party lease expense related to these operating leases was $0.5 million and $0.9 million for the three and six months ended June 30, 2020, respectively. In June 2021, the Torrance lease property was sold to a non-related party lessor. The change in lessor did not impact the terms and conditions of the Torrance lease. As such, payments made to the new landlord will not be considered as a related party lease expense. The weighted average remaining lease term at June 30, 2021 and December 31, 2020 was 11.3 years and 12.3 years, respectively. Maturities of the Company’s operating lease liabilities at June 30, 2021 were as follows (in thousands):
On November 25, 2020, Legacy Canoo entered into an agreement, which remains in effect, with Tony Aquila, Executive Chairman and Chief Executive Officer of the Company to reimburse Mr. Aquila for certain air travel expenses based on certain agreed upon criteria (“aircraft reimbursement”). The total aircraft reimbursement to Mr. Aquila for the use of an aircraft owned by Aquila Family Ventures, LLC (“AFV”), an entity controlled by Mr. Aquila, for the purposes related to the business of the Company for the three and six months ended June 30, 2021 was approximately $0.4 million and $1.0 million, respectively. 10. Contingent Earnout Shares Liability As part of the 19 December 21, 2020. The Earnout Shares do not have employment requirement and
Pursuant to the guidance under ASC 815, Derivatives and Hedging, the right to Earnout Shares was classified as a Level 3 fair value measurement liability, and the increase or decrease in the fair value during the reporting period is recognized as other expense or other income in the condensed consolidated statement of operations accordingly. The fair value of the Earnout Shares liability was estimated using the Monte Carlo simulation of the stock prices based on historical and implied market volatility of a peer group of public companies. As of December 21, 2020, the initial fair value of the Earnout Shares liability was recognized at $248.9 million with a corresponding reduction from the additional paid-in capital in stockholders’ (deficit) equity. As of June 30, 2021 and December 31, 2020, the fair value of the Earnout Shares liability was estimated to be $58.1 million and $133.5 million, respectively. The Company recognized a gain (loss) on the fair value change in Earnout Shares liability of ($8.2) million and $75.4 million as other income (expense) in its condensed consolidated statement of operations for the three and six months ended June 30, 2021.
11. Stock-based Compensation On the Stock Options All employees are eligible to be granted options to purchase shares of the Company’s common stock under the Company’s equity plans. All options granted will expire ten years from their date of issuance. Stock options granted generally vest 25% on the one-year anniversary of the date when vesting starts with the remaining balance vesting equally on a monthly basis over the subsequent three years. New shares are issued from authorized shares of common stock 20 Under the Legacy Canoo 2018 Equity Plan, employees may exercise stock options prior to vesting. The Company has the right to repurchase any unvested (but issued) shares upon termination of service of an employee at the original exercise price. The consideration received for Restricted Stock Awards (“RSAs”) The Company’s RSAs consist of restricted shares. From November 4, 2018 to May 6, 2019, Legacy Canoo sold restricted shares to its founders, which include certain investors, for a converted purchase price of $0.008 per share (the “Founder Restricted Shares”), with the On December 18, 2020, Legacy Canoo approved an
December 2020. The Company has Restricted Stock Units (“RSUs”) Under the 2020 Equity Incentive Plan, employees are compensated through various forms of equity, including RSUs. Each RSU represents a contingent right to receive 1 share of the
Performance-Based Restricted Stock Units (“PSUs”) PSUs represent the PSUs subject to performance conditions, such as operational milestones, are measured on the grant date, the total fair value of which 21
The following table summarizes the Company’s stock-based compensation expense by line item for the
The Company’s total unrecognized compensation
As of June 30, 2021, the Company
Combination, or earlier upon redemption or liquidation. The Company
If the Company calls the public warrants for redemption, management will have the option to require all holders that wish to exercise the public warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and
On March 2, 2021, all of the private placement warrants were converted to public warrants. As noted in 22 public warrants. Additionally, during the
13. Net Loss per Share The condensed consolidated statements of share. The following table presents
14. Income Taxes As the Company has not generated any taxable income since inception, the cumulative deferred tax assets 15. Subsequent Events Effective July 30, 2021, the Company amended its Justin lease to extend the leased square footage for the duration of the
The Company 23
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of
Overview Canoo Inc. ("we," "us," "Canoo" or the
We are a mobility technology company with a mission to bring EV’s to everyone. We have developed a technology platform, referred to as the Multi-Purpose Platform or platform, built to be highly modular and to enable us to rapidly innovate, and bring new products addressing multiple use cases to market faster than our competition and at lower cost. Our Multi-Purpose Platform is a self-contained, fully-functional rolling chassis that directly houses all of the most critical components for operation of an EV. These include our in-house designed proprietary performance electric drivetrain, true steer-by-wire system, our low-profile suspension systems, our battery systems, our advanced vehicle control electronics and software and other critical components, which all have been optimized for functional integration and versatility. Our initial near-term vehicle lineup currently includes our Lifestyle Vehicle which is expected to launch in the fourth quarter of 2022 with multiple use case variants and trim levels, our first Multi-Purpose Delivery Vehicle, the MPDV1, which will have a targeted limited production availability in 2023 and estimated serial production launch in 2023, and our Pickup with anticipated availability beginning as early as 2023. This vehicle lineup offers us the unique ability to meet the demands in multiple target markets for the benefit of a wide array of potential customers. All our vehicles are expected to offer competitive performance capabilities paired with class-leading cargo and passenger volume on a small footprint. Our vehicle architecture and design philosophy is aimed at driving productivity and returning capital to our customers. Each vehicle has been developed to be modular and customizable to enhance the long term value of the vehicles. In addition, we are developing a software ecosystem, which aims to deliver a one-stop customer experience with direct access to vehicle telematics and control of key functionality. We also envision the Canoo app having functionality to 24 schedule mobile services and provide instant quotes for insurance, financing, and valuation via direct integration with 3rd party providers. Unlike most of our peers, which are at the early stages of their vehicle development cycle, prior to becoming a public company, we had already invested more than $250 million and passed critical milestones in developing and testing of our platform and product, including:
Recent Developments After having completed over 500,000 testing miles, the team has now moved into Gamma development on the Lifestyle Vehicle, putting us one step closer to bringing our first product to market in the fourth quarter of 2022. Our first Gamma vehicles are expected to be produced beginning in the third quarter of 2021, and within the total Gamma phase, we expect to conduct 300-600 vehicle tests for crash testing and certification, along with 10 to 15 vehicles dedicated for durability validation. Most recently, in June 2021, we finalized the selection of VDL Nedcar B.V. as our planned contract manufacturing partner. VDL Nedcar is expected to manufacture the Lifestyle Vehicle for the US and EU markets, in addition to other Canoo vehicles or variants which will be built off of our initial platform. In June 2021, we also finalized the selection of Oklahoma as the location for our US manufacturing facility, after an intensive multi-state search process. This US mega microfactory, targeted to open in 2023, is expected to include a full commercialization facility with a paint, body shop and general assembly plant, along with a low-volume R&D and industrialization facility and administrative space. In addition, in July 2021, we announced that Board member, Josette Sheeran, has also been appointed as President of Canoo. In her additional duties as President, Ms. Sheeran will work with our Chairman and CEO, Tony Aquila, to build a globally experienced team to drive market share and to partner with businesses and governments to advance Canoo’s environmental, sustainability, and governance (ESG) commitment to make electric vehicles and support sustainable infrastructure available to the masses. Comparability of Financial Information Our results of operations and statements of assets and liabilities may not be comparable to historical results as a result of the Business Combination, which was completed late in the fourth quarter of 2020. Key Factors Affecting Operating Results We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below. Successful Commercialization Our EVs We expect to derive future revenue from our first vehicle offerings including through sales and subscription programs for our Lifestyle Vehicle, MPDV1, and/or Pickup which are not expected to launch until the fourth quarter of 2022 and 2023 or later. In order to reach commercialization, we must purchase and integrate related property and equipment, as well as achieve several research and development milestones. We expect that both our capital and operating expenditures will increase significantly in connection with our ongoing activities, as we:
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As a result, we will require substantial additional capital to develop our EVs and services and fund our operations for the foreseeable future. We will also require capital to identify and commit resources to investigate new areas of demand. Until we can generate sufficient revenue from vehicle sales, we expect to primarily finance our operations through commercialization and production with proceeds from the Business Combination, including the proceeds from the PIPE financing that took place concurrently with the Business Combination, and, as needed, secondary public offerings or debt financings. The amount and timing of our future funding requirements, will depend on many factors, including the pace and results of our research and development efforts and our ability to successfully manage and control costs. COVID-19 Impact On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 11, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of COVID-19 include restrictions on travel, quarantines in certain areas and forced closures for certain types of public places and businesses. COVID-19 and actions taken to mitigate its spread have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which we operate. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act was enacted to, among other provisions, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic. As the COVID-19 pandemic continues to evolve, the ultimate extent of the impact on our business, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the pandemic, the pandemic’s further impact on the U.S. and global economies and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic, including rollout of, and acceptance of vaccines, as well as emergence of virus variants. The 26 business partners. There is no certainty that such actions will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities. We are hopeful that in the coming months, with the expansion of vaccination efforts in the United States and elsewhere, and with this an anticipated loosening of certain governmental restrictions, businesses will be able to resume more normal operations in the second half of 2021. However, while the pandemic continues, if significant portions of our workforce or contractors and service providers are unable to work effectively, including due to illness, quarantines, social distancing, government actions or other restrictions in connection with the COVID-19 pandemic, our operations will be impacted. These factors related to COVID-19 are beyond our knowledge and control and, as a result, at this time, we are unable to predict the ultimate impact, both in terms of severity and duration, that the COVID-19 pandemic will have on our business, operating results, cash flows and financial condition, but it Key Components of Statements of Operations Basis of Presentation Currently, we conduct business through one operating segment. We are an early stage-growth company with no commercial operations, and our activities to date have been limited and are conducted in the United States. For more information about our basis of presentation, refer to Note 2 of the notes to our accompanying financial statements for Research and Development Expenses, excluding Depreciation Research and development expenses, excluding depreciation consist of salaries, employee benefits and expenses for design and engineering personnel, stock-based compensation, as well as materials and supplies used in research and development activities. In addition, research and development expenses include fees for consulting and engineering services from third party vendors. Selling, General and Administrative Expenses, excluding Depreciation The principal components of our selling, general and administrative expenses are salaries, wages, benefits and bonuses paid to our employees; stock-based compensation; travel and other business expenses; professional services fees (including legal, audit and tax); and ordinary day-to-day business expenses. Depreciation Expense Depreciation is provided on property and equipment over the estimated useful lives on a straight-line basis. Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in the loss from operations. No depreciation expense is allocated to research and development, cost of revenue and selling, general and administrative expenses. Interest Expense Interest expense consists primarily of interest expenses and debt discount amortization. 27 Results of Operations Comparison of the Three and Six Months Ended June 30, 2021 and 2020 The following table sets forth our historical operating results for the periods indicated:
Percentage changes greater than +/- 1000% are considered not meaningful and are presented as “NM.” Research and Development Expenses, excluding Depreciation Research and development expenses increased by $43.0 million, or 293.6%, to $57.6 million in the Research and development expenses increased by $63.1 million, or 185.7%, to $97.0 million in the six months ended ended June 30, 2021, compared to $33.9 million in the six months ended ended June 30, 2020. The increase was primarily due to increases in research and development costs of $31.2 million, stock-based compensation expense of $15.1 million, and salary and related benefits expense of $11.7 million, respectively. The increase in research and development costs primarily relates to our expenditures for the Gamma stage engineering design and development costs during the six months ended ended June 30, 2021. The increase in stock-based compensation expenses of $8.3 million and $15.1 million was primarily driven by the continued recognition of stock compensation expense during three and six months ended June 30, 2021, respectively, resulting from the issuance of awards to employees and board of directors along with the modification of certain performance restricted stock awards to become time-based vesting with a merger trigger, which was satisfied on December 21, 2020. See further discussion on the restricted stock awards in Note 11 of the notes to our accompanying financial statements. Salary and related benefits expenses increased $8.1 million, from $11.2 million during the three months ended June 30, 2020 to $19.3 million during the three months ended June 30, 2021. Salary and related benefits increased $11.7 million from $22.6 million during the six months ended June 30, 2020 to $34.3 million during the six months ended 28 June 30, 2021. Increases due primarily to our continuing investment in personnel and contract employees to drive and reach our research and development goals. We expect to see an overall increase in research and development expenses to support our initiatives related to the Lifestyle Vehicle, Multi-Purpose Delivery Vehicles, and Pickup expected to launch as early as 2022 and 2023, respectively. Selling, General and Administrative Expenses, excluding Depreciation Selling, general and administrative expenses increased by $41.2 million, to $44.6 million in the three months ended June 30, 2021, compared to $3.4 million in the three months ended ended June 30, 2020. The increase was primarily due to increases of $16.9 million in stock-based compensation expenses, $10.2 million in professional fees, $4.8 million in marketing spend, $3.3 million in salary and related benefits, and $2.9 million in occupancy costs. Other factors affecting selling, general and administrative expenses were individually immaterial. Selling, general and administrative expenses increased by $92.8 million, to $100.3 million in the six months ended June 30, 2021, compared to $7.5 million in the six months ended ended June 30, 2020. The increase was primarily due to increases of $54.7 million in stock-based compensation expenses, $16.1 million in professional fees, $5.9 million in occupancy costs, $5.6 million in marketing spend,and $5.0 million in salary and related benefits. Other factors affecting selling, general and administrative expenses were individually immaterial. The increase in stock-based compensation expenses of $16.9 million and $54.7 million for the three and six months ended June 30, 2021, respectively, was primarily driven by certain awards granted during the periods subject to time-based vesting. The remaining increase was primarily driven by the continued recognition of stock compensation expense during three and six months ended June 30, 2021, resulting from the modification of certain performance restricted stock awards to become time-based vesting with a merger trigger, which was satisfied on December 21, 2020. See further discussion on the restricted stock awards in Note 11 of the notes to our accompanying financial statements. Other factors affecting stock-based compensation expenses were individually immaterial. Professional fees increased by $10.2 million to $11.2 million in the three months ended June 30, 2021, compared to $1.0 million in the three months ended June 30, 2020. Professional fees increased by $16.1 million to $17.5 million in the six months ended June 30, 2021, compared to $1.4 million in the six months ended June 30, 2020. The increase was primarily due to activities related to our business development, legal fees and miscellaneous support activities. Salary and related benefits expenses increased $3.3 million to $5.4 million in the three months ended June 30, 2021, compared to $2.1 million in the three months ended June 30, 2020. Salary and related benefits expenses increased $5.0 million to $10.1 million in the three months ended June 30, 2021, compared to $5.1 million in the three months ended June 30, 2020. Increases were due primarily to increase in headcount. We expect to see an overall increase in selling, general and administrative expenses to support our initiatives related to the Lifestyle Vehicle, Multi-Purpose Delivery Vehicles, and Pickup expected to launch as early as 2022 and 2023, respectively. Interest Expense Interest expense decreased by $3.6 million and 9.4 million in the three and six months ended June 30, 2020. The decrease was primarily due to interest expense on related party convertible notes and the amortization of debt discount during three and six months ended June 30, 2020. The related party convertible notes were repaid during Business Combination. (Loss) gain on Fair Value Change in Contingent Earnout Shares Liability The Company has 29 liability of ($8.2) million and non-cash gain of $75.4 million in the three and six months ended June 30, 2021, respectively, which was a result of the periodic remeasurement of the fair value of our contingent Earnout Shares liability. See further discussion on the contingent Earnout Shares liability in Note 10 of the notes to our accompanying financial statements. Loss on Fair Value Change of Private Placement Warrants Liability We recognized a non-cash loss on fair value change of private placement warrants liability of $1.6 million in the six months ended June 30, 2021, which was a result of the periodic remeasurement of the fair value of our private placement warrants liability. See further discussion on the private placement warrants liability in Note 12 of the notes to our accompanying financial statements. Non-GAAP Financial Measures In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operational performance. We use the following non-GAAP measures to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance. EBITDA and Adjusted EBITDA “EBITDA” is defined as net loss before interest expense, income tax expense or benefit, and depreciation and amortization. “Adjusted EBITDA” is defined as EBITDA adjusted for stock-based compensation, restructuring charges, asset impairments, and other costs associated with exit and disposal activities, acquisition and related costs, changes to the fair value of contingent earnout shares liability, and any other one-time non-recurring transaction amounts impacting the statement of operations during the year. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe Adjusted EBITDA, when combined with net loss, and EBITDA, are beneficial to an investor’s complete understanding of our operating performance. We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that when evaluating EBITDA and Adjusted EBITDA we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate EBITDA and Adjusted EBITDA in the same fashion. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We manage our business utilizing EBITDA and Adjusted EBITDA as supplemental performance measures. 30 The following table reconciles net loss to EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2021 and 2020, respectively:
Liquidity and Capital Resources As of June 30, 2021, our principal source of liquidity was our cash balance in the amount of $563.6 million, which was primarily invested in money market funds that consist of liquid debt securities issued by the U.S. government. As an early stage growth company in the pre-commercialization stage of development, the net losses and comprehensive losses we have incurred since inception are consistent with our strategy and budget. We will continue to incur net losses and comprehensive losses in accordance with our operating plan as we continue to expand our research and development activities to complete the development of our skateboard platform and EVs, establish our go-to-market model and scale our operations to meet anticipated demand. We expect that both our capital and operating expenditures will increase significantly in connection with our ongoing activities, as we:
As an 31 or all of its development programs and other operations, which could materially harm our business, financial condition and results of operations. The accompanying condensed consolidated financial statements have been prepared by Cash Flows Summary Presented below is a summary of our operating, investing and financing cash flows (in thousands):
Cash Flows from Operating Activities Our cash flows from operating activities are significantly affected by the growth of our business primarily related to research and development as well as selling, general, and administrative activities. Our operating cash flow is also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable Net cash used in operating activities was $108.8 million for the six months ended June 30, 2021. Our cash outflow from operating activities primarily consist of payments related to Net cash used in operating activities was $42.3 million for the six months ended June 30, 2020. Our cash outflow from operating activities primarily consist of payments related to our research and development and selling, general and administration expenses. The total expenditure as Cash Flows from Investing Activities We continue to experience negative cash flows from investing activities as we expand our business and continue to build our infrastructure. Cash flows from investing activities primarily relate to capital expenditures to support our growth. Net cash used in investing activities was approximately $28.7 million for the six months ended June 30, 2021, which primarily consisted of purchases of production tooling as well as machinery and equipment. 32 Net cash used in investing activities was $1.0 million for the six months ended June 30, 2020, which primarily consisted of purchases of machinery and equipment, computer hardware and software and leasehold improvements. Cash Flows from Financing Activities Net cash used in financing activities was $1.4 million for the six months ended June 30, 2021, which was primarily due to proceeds of $6.9 million resulting from the exercise by certain public warrant holders, offset by the payment of the Company’s Net cash provided by financing activities was $32.3 million for the six months ended June 30, 2020, which was primarily due to
Off-Balance Sheet Arrangements We
Critical Accounting Policies and Estimates Our condensed consolidated financial statements (unaudited) have been prepared in accordance with GAAP. The preparation of these financial statements Actual results For a discussion of our critical accounting Emerging Growth Company and Smaller Reporting Company Status
We currently qualify as an “emerging growth company” as defined in Section
We currently qualify as a “smaller reporting company” as defined in the
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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Controls and Procedures Evaluation of Disclosure Controls and Procedures
The Company has taken the following remediation actions to date in relation to the previously identified material weaknesses described under Part II, Item 9A, “Disclosure Controls and Procedures,” of our Annual Report on Form 10-K and Part I, Item 4, “Controls and Procedures,” of our Quarterly Report on Form 10-Q for the a.Hired experienced executives and personnel within our accounting and IT functions to strengthen the Company's expertise in financial close, technical accounting and reporting and IT capabilities; b.Hired experienced personnel to enhance and operate our internal control program and execute related remediation efforts, including co-sourcing our internal audit function to an experienced, nationally recognized Big Four public accounting firm; c.Implemented a formal financial reporting risk assessment with the assistance of third-party specialists; d.Designed additional internal reporting processes and controls, including those intended to add rigor to our financial close processes; e.Designed controls as it relates to segregation of duties, user access rights and privileges and change management; f.Designed and implemented controls over account reconciliations and review of journal entries; and g.Engaged third-party assistance by an experienced, nationally recognized Big Four accounting firm to aid in our evaluation of the accounting for complex transactions as they arise; 34 We will not be able to conclude whether the material weaknesses have been remediated until sufficient time has elapsed to provide evidence that the newly designed and implemented or enhanced controls are operating effectively. Changes in Internal Control over Financial Reporting During the Other than as discussed above, there PART II — OTHER INFORMATION Item 1. Legal Proceedings
Item 1A. Risk Factors
We currently qualify as an “emerging growth company” and a “smaller reporting company” within the meaning of the Securities Act; however, we will cease to qualify as an “emerging growth company” beginning with our Annual Report on Form 10-K for the year ending December 31, 2021, and at such time, will be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We currently qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act, as amended, and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards and certain other exemptions and reduced reporting requirements provided by the JOBS Act. Accordingly, we have not been required to provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. Based on the Company’s aggregate worldwide market value of voting and non-voting common equity held by non-affiliates as of June 30, 2021, the Company expects that it will become a “large accelerated filer” and lose emerging growth company status beginning with its Annual Report on Form 10-K for the year ending December 31, 2021. Therefore, our independent registered public accounting firm will be required to provide the attestation report on our system of internal control over financial reporting in such Annual Report. If we are unable to assert that our internal control over financial reporting is effective, as a result of not having remediated the material weaknesses described herein, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, or expresses an adverse opinion, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets or other sources of funds and our stock price may be adversely affected. We currently qualify as a “smaller reporting company” as defined in the Exchange Act. As a result of becoming a “large accelerated filer”, we will no longer be a smaller reporting company even if our annual revenue is less than $100.0 million for the year ending December 31, 2021. However, we will continue to be able to take advantage of certain of the scaled disclosures available to smaller reporting companies in our Annual Report on Form 10-K for the year ending 35 December 31, 2021 and our 2022 proxy statement. These scaled disclosures include presenting only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and reduced disclosure obligations regarding executive compensation in our proxy statement. This may make comparison of our disclosures with another public company, which is not a smaller reporting company difficult because of the differences in the extent of such disclosure. We face risks and uncertainties related to litigation, regulatory actions and government investigations and inquiries. We are, and may in the future become, subject to various litigation, other claims, suits, regulatory actions and government investigations and inquiries. See the description of certain current legal proceedings described under Note 8, Commitments and Contingencies, of the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. In addition, from time to time, we may be involved in other legal proceedings arising in the ordinary course of business, including those relating to employment matters, relationships with collaboration partners, intellectual property disputes, and other business matters. Any such claims or investigations may be time-consuming, costly, divert management resources, or otherwise have a material adverse effect on our business or result of operations. The results of the current legal proceedings and any future legal proceedings cannot be predicted with certainty and adverse judgments or settlements in some or all of these legal proceedings may result in materially adverse monetary damages or injunctive relief against us. Any such payments or settlement arrangements in current or future litigation, could have a material adverse effect on our business, operating results or financial condition. Even if the plaintiffs’ claims are not successful, current or future litigation could result in substantial costs and significantly and adversely impact our reputation and divert management’s attention and resources, which could have a material adverse effect on our business, operating results and financial condition, and negatively affect the price of our common stock. In addition, such legal proceedings may make it more difficult to finance our operations. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
The table below provides information with respect to
Defaults Upon Senior Securities None. 36 Item 4. Mine Safety Disclosures
Item 5. Other Information
The following tables showing the correction of prior period amounts should be read in conjunction with Note 3 to our condensed consolidated unaudited financial statements in this Quarterly Report on Form 10-Q. This correction affected our consolidated balance sheet, consolidated statement of operations, consolidated statement of redeemable convertible preference shares and stockholders’ (deficit) equity and consolidated statement of cash flows for year ended December 31, 2020.
Other than changes made to reflect the impact of the recognition of the fair value of the private placement warrants liability at the Closing Date to additional paid-in capital and the subsequent remeasurement of the fair value of the warrant liability at December 31, 2020 to accumulated deficit, there have been no changes to the Consolidated Statement of Redeemable Convertible Preference Shares and Stockholders’ (Deficit) Equity (in thousands).
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Item 6. Exhibits
* Filed herewith. ** The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the SEC and are not to be incorporated by reference into any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
38 SIGNATURES
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