SECURITIES AND EXCHANGE COMMISSION
Washington,
WASHINGTON, D.C. 20549
FORM 10-Q
☒xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the quarterly period ended
September 30, 2021or
2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the transition period from
________ to ________
Commission file number: 001-38824
CANOO INC.
Canoo Inc.
(Exact name of registrant as specified in its charter)
| | | | | |
Delaware | 83-1476189 |
(State or OherOther Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
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19951 Mariner Avenue,, Torrance,, California | 90503 |
(Address of Principal Executive Offices) | (Zip code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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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 Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ◻☒
| Accelerated filer | ☐ |
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Non-accelerated filer | ☒☐
| Smaller reporting company | ☒x
| Emerging growth company | ☒☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒
As of November
8, 2021,3, 2022, there were
238,630,287324,500,887 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.
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:
| ● | our ability to recognize the anticipated benefits of the business combination and proceeds from the concurrent private placement, which may be affected by, among other things, competition and the ability of the combined business to grow and manage growth profitably; |
| ● | our financial and business performance, including financial projections and business metrics and any underlying assumptions thereunder; |
| ● | changes in our strategy, future operations, financial position, estimated revenue and losses, projected costs, prospects and plans; |
| ● | our product development timeline and expected start of production; |
| ● | our manufacturing strategy, including with respect to a contract manufacturing partner and developing our owned facilities; |
| ● | the implementation, market acceptance and success of our business model; |
| ● | our ability to scale in a cost-effective manner; |
| ● | developments and projections relating to our competitors and industry; |
| ● | the impact of health epidemics or pandemics, including the COVID-19 pandemic, on our business and the actions we may take in response thereto; |
| ● | our expectations regarding our ability to obtain and maintain intellectual property protection and not infringe on the rights of others; |
| ● | our future capital requirements and sources and uses of cash; |
| ● | our ability to obtain funding for our future operations; |
| ● | our business, expansion plans and opportunities; and |
| ● | the outcome of any known and unknown litigation and regulatory proceedings. |
These statements are subject to known and unknown risks, uncertainties and assumptions, thatmany of which are difficult to predict and are beyond our control and 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.
| ● | We may be unable to develop, or may experience•Our management has performed an analysis of our ability to continue as a going concern and has identified substantial doubt about our ability to continue as a going concern. If we are unable to obtain additional funding or do not have access to additional capital, we will be unable to execute our business plans and could be required to terminate or significantly curtail our operations. •Economic, regulatory, political and other events, including the rise in interest rates, heightened inflation, slower growth or recession, issues with supply chain, shortage of labor and the war in Ukraine, adversely affect our financial results.
•Our ability to meet the timelines we have established for start of production of our initial electric vehicles ("EVs") is uncertain. •We are an early stage company with a history of losses and expect to incur significant expenses and continuing losses for the foreseeable future. •We may be unable to adequately control the costs associated with our operations. •If we fail to successfully build and tool our manufacturing facilities and/or if we are unable to establish or continue a relationship with a contract manufacturer or if our manufacturing facilities become inoperable, we will be unable to produce our vehicles and our business will be harmed. •Developing our own manufacturing facilities for production of our EVs could increase our capital expenditures and delay or inhibit production of our EVs. •Customers who have committed to purchase significant amounts of our vehicles may purchase significantly fewer vehicles than we currently anticipate or none at all. In that case, we will not realize the revenue we expect from these customers. •We may not be able to realize the non-dilutive financial incentives offered by the States of Oklahoma and Arkansas where we will develop our own manufacturing facilities. •We have not achieved positive operating cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. •Our financial results may vary significantly from period to period due to fluctuations in our operating costs, product demand and other factors. •Our limited operating history makes evaluating our business and future prospects difficult and increases in our capital expenditure associated with or delays in the development of our own manufacturing facilities and in the design, production and launch of our EVs, which could harm our business, prospects, financial condition and operating results. |
| ● | We are an early stage company with a history of losses and expect to incur significant expenses and continuing losses for the foreseeable future. |
| ● | We may be unable to adequately control the costs associated with our operations. |
| ● | We have yet to achieve positive operating cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain. |
| ● | Our financial results may vary significantly from period to period due to fluctuations in our operating costs, product demand and other factors. |
| ● | Our business plans require a significant amount of capital. In addition, our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders’ equity or introduce covenants that may restrict our operations or our ability to pay dividends. |
| ● | Our limited operating history makes evaluating our business and future prospects difficult and may increase the risk of your investment. |
| ● | We previously identified material weaknesses in our internal control over financial reporting. If we are unable to remediate the material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price. |
| ● | If we fail to manage our growth effectively, we may not be able to design, develop, manufacture, market and launch our electric vehicles ("EVs") successfully. |
| ● | Our ability to develop and manufacture EVs of sufficient quality and appeal to customers on schedule and on a large scale is unproven and still evolving. |
| ● | We have no experience to date in high volume manufacture of our EVs, and when we manufacture, we will be manufacturing at least in part with a contract manufacturing partner with whom we have not previously worked. |
| ● | We will depend initially on revenue generated from a single EV model and in the foreseeable future will be significantly dependent on a limited number of models. |
| ● | We may fail to attract new customers in sufficient numbers or at sufficient rates or at all or to retain existing customers. |
| ● | Increases in costs, disruption of supply or shortage of materials, in particular for lithium-ion battery cells, could harm our business. |
| ● | A consumer subscription model is different from the predominant current distribution model for automobile manufacturers, which makes evaluating the impact of a subscription model on our business, operating results |
| | and future prospects difficult. In addition, the novel approach of offering a subscription directly from an OEM may never achieve the level of market acceptance necessary to achieve profitability. |
| ● | We face legal, regulatory and legislative uncertainty in how our go-to-market models will be interpreted under existing and future law and we may be required to adjust our consumer business model in certain jurisdictions as a result. |
| ● | We face risks and uncertainties related to litigation, regulatory actions and government investigations and inquiries. |
| ● | The automotive market is highly competitive, and we may not be successful in competing in this industry. |
•We previously identified material weaknesses in our internal control over financial reporting. Although the weaknesses previously identified have been remediated, if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price.•If we fail to manage our growth effectively, we may not be able to design, develop, manufacture, market and launch our EVs successfully.
•We are highly dependent on the services of our key employees and senior management and, if we are unable to attract and retain key employees and hire qualified management, technical and EV engineering personnel, our ability to compete could be harmed.
•We face significant barriers to manufacture and bring our EVs to market, and if we cannot successfully overcome those barriers our business will be negatively impacted.
•Our ability to develop and manufacture EVs of sufficient quality and appeal to customers on schedule and on a large scale is unproven and still evolving.
•We have no experience to date in high volume manufacture of our EVs.
•We will depend initially on revenue generated from a single EV model and in the foreseeable future will be significantly dependent on a limited number of models.
•There is no guarantee that we will be able to develop our software platform, Canoo Digital Ecosystem, or that if we are able to develop it, that we will obtain the revenue and other benefits we expect from it.
•We may fail to attract new customers in sufficient numbers or at sufficient rates or at all or to retain existing customers.
•If our EVs fail to perform as expected, our ability to develop, market and deploy our EVs could be harmed.
•Our distribution model may expose us to risk and if unsuccessful may impact our business prospects and results of operations.
•We may experience significant delays in the design, production and launch of our EVs, which could harm our business, prospects, financial condition and operating results.
•Increases in costs, disruption of supply or shortage of raw materials and other components used in our vehicles, in particular lithium-ion battery cells, could harm our business.
•We depend upon third parties to manufacture and to supply key components and services necessary for our vehicles. We do not have long-term agreements with all of our manufacturers and suppliers, and if these manufacturers or suppliers become unwilling or unable to provide these key components and services we would not be able to find alternative sources in a timely manner and our business would be adversely impacted.
•We are or may be subject to risks associated with strategic alliances or acquisitions and may not be able to identify adequate strategic relationship opportunities, or form strategic relationships, in the future.
•Our EVs are based on the use of complex and novel steer-by-wire technology that is unproven on a wide commercial scale and rely on software and hardware that is highly technical, and if these systems contain errors, bugs or vulnerabilities, or if we are unsuccessful in addressing or mitigating technical limitations in our systems, our business could be adversely affected.
•We are subject to cybersecurity risks to our operational systems, security systems, infrastructure, integrated software in our EVs and customer data processed by us or third-party vendors.
•We face legal, regulatory and legislative uncertainty in how our go-to-market models will be interpreted under existing and future law, including the potential inability to protect our intellectual property rights, and we may be required to adjust our consumer business model in certain jurisdictions as a result.
•The automotive market is highly competitive and technological developments by our competitors may adversely affect the demand for our EVs and our competitiveness in this industry.
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,1A, “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,
20202021, filed with the
SECSecurities and Exchange Commission ("SEC") on March
31, 2021.1, 2022. 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.
Glossary
Unless otherwise stated in this Quarterly Report on Form 10-Q or the context otherwise requires, and regardless of capitalization, references to:
| ● | •“Business Combination” refers to the Company’s merger consummated on December 21, 2020, pursuant to that certain Merger Agreement and Plan of Reorganization, dated August 17, 2020, by and among HCAC, HCAC IV First Merger Sub, Ltd., an exempted company incorporated with limited liability in the Cayman Islands and a direct, wholly owned subsidiary of HCAC, EV Global Holdco LLC (f/k/a HCAC IV Second Merger Sub, LLC), a Delaware limited liability company and a direct, wholly owned subsidiary of HCAC, and Canoo Holdings Ltd., an exempted company incorporated with limited liability in the Cayman Islands; •“Common Stock” are to our common stock, $0.0001 par value per share; •“Company,” “our Company” “we” or “us” are to Canoo Inc. following completion of the Business Combination in December 2020; •“HCAC” means the special purpose acquisition company, Hennessy Capital Acquisition Corp. IV; •“Legacy Canoo” means Canoo Holdings Ltd. prior to completion of the Business Combination in December 2020; •“management” or our “management team” are to our officers and directors; •“private placement warrants” are to warrants sold to certain initial purchasers as part of the private placement that occurred simultaneously with the completion of HCAC’s initial public offering, which are not-redeemable so long as they are held by the initial purchasers of the warrants or their permitted transferees; and
Table of Reorganization, dated August 17, 2020, by and among HCAC, HCAC IV First Merger Sub, Ltd., an exempted company incorporated with limited liability in the Cayman Islands and a direct, wholly owned subsidiary of HCAC, EV Global Holdco LLC (f/k/a HCAC IV Second Merger Sub, LLC), a Delaware limited liability company and a direct, wholly owned subsidiary of HCAC, and Canoo Holdings Ltd., an exempted company incorporated with limited liability in the Cayman Islands. |
| ● | “common stock” are to our common stock, $0.0001 par value per share; |
| ● | “Company,” “our Company” “we” or “us” are to Canoo Inc. following completion of the Business Combination in December 2020; |
Contents | ● | “HCAC” means the special purpose acquisition company, Hennessy Capital Acquisition Corp. IV; |
| ● | “Legacy Canoo” means Canoo Holdings Ltd. prior to completion of the Business Combination in December 2020; |
| ● | “management” or our “management team” are to our officers and directors; |
5
•“public warrants” are to our redeemable warrants sold as part of the units in HCAC’s initial public offering (whether they were purchased in our initial public offering or thereafter in the open market) and to any private placement warrants that are sold to third parties that are not initial purchasers of the warrants or their permitted transferees or otherwise voluntarily converted by their holder.
| ● | “private placement warrants” are to warrants sold to certain initial purchasers as part of the private placement that occurred simultaneously with the completion of HCAC’s initial public offering, which are not-redeemable so long as they are held by the initial purchasers of the warrants or their permitted transferees; and |
| ● | “public warrants” are to our redeemable warrants sold as part of the units in HCAC’s initial public offering (whether they were purchased in our initial public offering or thereafter in the open market) and to any private placement warrants that are sold to third parties that are not initial purchasers of the warrants or their permitted transferees or otherwise voluntarily converted by their holder. |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CANOO INC.
Condensed Consolidated Balance Sheets
(in thousands, except par values) (unaudited)
| | | | | | |
| | September 30, | | December 31, |
| | 2021 | | 2020 |
Assets | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | 414,904 | | $ | 702,422 |
Restricted cash | | | 1,410 | | | — |
Prepaids and other current assets | | | 14,546 | | | 6,463 |
Total current assets | | | 430,860 | | | 708,885 |
Property and equipment, net | | | 140,867 | | | 30,426 |
Operating lease right-of-use assets | | | 14,501 | | | 12,913 |
Other assets | | | 28,319 | | | 1,246 |
Total assets | | $ | 614,547 | | $ | 753,470 |
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Liabilities and stockholders' equity | | | | | | |
Liabilities | | | | | | |
Current liabilities | | | | | | |
Accounts payable | | $ | 63,322 | | $ | 17,243 |
Accrued expenses and other current liabilities | | | 43,388 | | | 10,625 |
Total current liabilities | | | 106,710 | | | 27,868 |
Contingent earnout shares liability | | | 32,337 | | | 133,503 |
Private placement warrants liability | | | — | | | 6,613 |
Operating lease liabilities | | | 14,032 | | | 13,262 |
Long-term debt | | | — | | | 6,943 |
Other long-term liabilities | | | — | | | 39 |
Total liabilities | | | 153,079 | | | 188,228 |
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Commitments and contingencies (Note 8) | | | | | | |
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Stockholders’ equity | | | | | | |
Preferred stock, $0.0001 par value; 10,000 authorized, 0 shares issued and outstanding at September 30, 2021 and December 31, 2020 | | | — | | | — |
Common stock, $0.0001 par value; 500,000 authorized; 237,603 and 235,753 issued and outstanding at September 30, 2021 and December 31, 2020, respectively | | | 24 | | | 24 |
Additional paid-in capital | | | 1,015,461 | | | 910,579 |
Accumulated deficit | | | (554,017) | | | (345,361) |
Total stockholders’ equity | | | 461,468 | | | 565,242 |
Total liabilities and stockholders’ equity | | $ | 614,547 | | $ | 753,470 |
| | |
Condensed Consolidated Balance Sheets (in thousands, except par values) (unaudited) |
| | | | | | | | | | | |
| September 30,
2022 | | December 31,
2021 |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 6,815 | | | $ | 224,721 | |
| Restricted cash, current | 4,208 | | | 2,771 | |
| Inventory | 1,282 | | | — | |
| Prepaids and other current assets | 28,107 | | | 63,814 | |
| Total current assets | 40,412 | | | 291,306 | |
| Property and equipment, net | 301,974 | | | 202,314 | |
| Restricted cash, non-current | 9,500 | | | — | |
| Operating lease right-of-use assets | 28,469 | | | 14,228 | |
| Deferred asset - Walmart warrants | 50,175 | | | — | |
| Other assets | 14,256 | | | 15,226 | |
| Total assets | $ | 444,786 | | | $ | 523,074 | |
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| Liabilities and stockholders' equity | | | |
| Liabilities | | | |
| Current liabilities | | | |
| Accounts payable | $ | 96,576 | | | $ | 52,267 | |
| Accrued expenses and other current liabilities | 74,118 | | | 83,925 | |
| Convertible debt, current | 12,500 | | | — | |
| Total current liabilities | 183,194 | | | 136,192 | |
| Contingent earnout shares liability | 6,188 | | | 29,057 | |
| Operating lease liabilities | 27,533 | | | 13,826 | |
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| Total liabilities | 216,915 | | | 179,075 | |
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| Commitments and contingencies (Note 8) | | | |
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| Stockholders’ equity | | | |
| Preferred stock, $0.0001 par value; 10,000 authorized, no shares issued and outstanding at September 30, 2022 and December 31, 2021 | — | | | — | |
| Common stock, $0.0001 par value; 500,000 authorized; 299,868 and 238,578 issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 29 | | | 24 | |
| Additional paid-in capital | 1,327,435 | | | 1,036,104 | |
| Accumulated deficit | (1,099,593) | | | (692,129) | |
| Total stockholders’ equity | 227,871 | | | 343,999 | |
| Total liabilities and stockholders’ equity | $ | 444,786 | | | $ | 523,074 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CANOO INC.
Condensed Consolidated Statements of Operations (in thousands, except per share values)
Three and Nine Months Ended September 30, 2021 (unaudited)
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| | Three months ended | | Nine months ended | |
| | September 30, | | September 30, | |
| | 2021 | | 2020 | | 2021 | | 2020 | |
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Revenue | | $ | — | | $ | 2,550 | | $ | — | | $ | 2,550 | |
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Costs and Operating Expenses | | | | | | | | | | | | | |
Cost of revenue, excluding depreciation | | | — | | | 670 | | | — | | | 670 | |
Research and development expenses, excluding depreciation | | | 59,387 | | | 18,923 | | | 158,033 | | | 52,858 | |
Selling, general and administrative expenses, excluding depreciation | | | 45,510 | | | 8,405 | | | 144,072 | | | 15,897 | |
Depreciation | | | 2,109 | | | 1,738 | | | 6,317 | | | 5,179 | |
Total costs and operating expenses | | | 107,006 | | | 29,736 | | | 308,422 | | | 74,604 | |
Loss from operations | | | (107,006) | | | (27,186) | | | (308,422) | | | (72,054) | |
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Other (expense) income | | | | | | | | | | | | | |
Interest income (expense) | | | 33 | | | (1,094) | | | 79 | | | (10,465) | |
Gain on extinguishment of debt | | | — | | | 5,045 | | | — | | | 5,045 | |
Gain on fair value change in contingent earnout shares liability | | | 25,764 | | | — | | | 101,166 | | | — | |
Loss on fair value change in private placement warrants liability | | | — | | | — | | | (1,639) | | | — | |
Other income (expense), net | | | 334 | | | (155) | | | 160 | | | (47) | |
Loss before income taxes | | | (80,875) | | | (23,390) | | | (208,656) | | | (77,521) | |
Provision for income taxes | | | — | | | — | | | — | | | — | |
Net loss and comprehensive loss | | $ | (80,875) | | $ | (23,390) | | $ | (208,656) | | $ | (77,521) | |
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Per Share Data: | | | | | | | | | | | | | |
Net loss per share, basic and diluted | | $ | (0.35) | | $ | (0.20) | | $ | (0.92) | | $ | (0.82) | |
| | | | | | | | | | | | | |
Weighted-average shares outstanding, basic and diluted | | | 228,477 | | | 116,293 | | | 226,747 | | | 94,058 | |
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Condensed Consolidated Statements of Operations (in thousands, except per share values) Three and Nine Months ended September 30, 2022 and 2021 (unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| Revenue | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
| Costs and Operating Expenses | | | | | | | |
| Cost of revenue, excluding depreciation | — | | | — | | | — | | | — | |
| Research and development expenses, excluding depreciation | 57,063 | | | 59,387 | | | 255,009 | | | 158,033 | |
| Selling, general and administrative expenses, excluding depreciation | 48,826 | | | 45,510 | | | 159,600 | | | 144,072 | |
| Depreciation | 3,449 | | | 2,109 | | | 9,020 | | | 6,317 | |
| Total costs and operating expenses | 109,338 | | | 107,006 | | | 423,629 | | | 308,422 | |
| Loss from operations | (109,338) | | | (107,006) | | | (423,629) | | | (308,422) | |
| | | | | | | |
| Other (expense) income | | | | | | | |
| Interest (expense) income | (2,179) | | | 33 | | | (2,189) | | | 79 | |
| (Loss) gain on fair value change in contingent earnout shares liability | (2,067) | | | 25,764 | | | 22,869 | | | 101,166 | |
| Loss on fair value change in private placement warrants liability | — | | | — | | | — | | | (1,639) | |
| Loss on extinguishment of debt | (4,095) | | | — | | | (4,095) | | | — | |
| Other (expense) income, net | (26) | | | 334 | | | (420) | | | 160 | |
| Loss before income taxes | (117,705) | | | (80,875) | | | (407,464) | | | (208,656) | |
| Provision for income taxes | — | | | — | | | — | | | — | |
| Net loss and comprehensive loss | $ | (117,705) | | | $ | (80,875) | | | $ | (407,464) | | | $ | (208,656) | |
| | | | | | | |
| Per Share Data: | | | | | | | |
| Net loss per share, basic and diluted | $ | (0.43) | | | $ | (0.35) | | | $ | (1.62) | | | $ | (0.92) | |
| | | | | | | |
| Weighted-average shares outstanding, basic and diluted | 275,455 | | | 228,477 | | | 250,783 | | | 226,747 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CANOO INC.
Condensed Consolidated Statement of Stockholders’ Equity (in thousands)
Three and Nine Months Ended September 30, 2021 (unaudited)
| | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | Total |
| | Common stock | | paid-in | | Accumulated | | stockholders’ |
| | Shares | | Amount | | capital | | deficit | | Equity |
Balance as of December 31, 2020 | | 235,753 | | $ | 24 | | $ | 910,579 | | $ | (345,361) | | $ | 565,242 |
Proceeds from exercise of public warrants | | 597 | | | — | | | 6,867 | | | — | | | 6,867 |
Repurchase of unvested shares – forfeitures | | (118) | | | — | | | (2) | | | — | | | (2) |
Issuance of shares for restricted stock units vested | | 1,230 | | | — | | | — | | | — | | | — |
Issuance of shares upon exercise of vested stock options | | 37 | | | — | | | — | | | — | | | — |
Stock-based compensation | | — | | | — | | | 45,146 | | | — | | | 45,146 |
Conversion of private placement warrants to public warrants | | — | | | — | | | 8,252 | | | — | | | 8,252 |
Net loss and comprehensive loss | | — | | | — | | | — | | | (15,227) | | | (15,227) |
Balance as of March 31, 2021 | | 237,499 | | $ | 24 | | $ | 970,842 | | $ | (360,588) | | $ | 610,278 |
Repurchase of unvested shares – forfeitures | | (56) | | | — | | | (2) | | | — | | | (2) |
Issuance of shares for restricted stock units vested | | 114 | | | — | | | — | | | — | | | — |
Issuance of shares upon exercise of vested stock options | | 6 | | | — | | | — | | | — | | | — |
Stock-based compensation | | — | | | — | | | 25,514 | | | — | | | 25,514 |
Net loss and comprehensive loss | | — | | | — | | | — | | | (112,554) | | | (112,554) |
Balance as of June 30, 2021 | | 237,563 | | $ | 24 | | $ | 996,354 | | $ | (473,142) | | $ | 523,236 |
Proceeds from exercise of public warrants | | 1 | | | — | | | 12 | | | — | | | 12 |
Repurchase of unvested shares – forfeitures | | (391) | | | — | | | (3) | | | — | | | (3) |
Issuance of shares for restricted stock units vested | | 418 | | | — | | | — | | | — | | | — |
Issuance of shares upon exercise of vested stock options | | 12 | | | — | | | — | | | — | | | — |
Stock-based compensation | | — | | | — | | | 19,098 | | | — | | | 19,098 |
Net loss and comprehensive loss | | — | | | — | | | — | | | (80,875) | | | (80,875) |
Balance as of September 30, 2021 | | 237,603 | | $ | 24 | | $ | 1,015,461 | | $ | (554,017) | | $ | 461,468 |
| | |
Condensed Consolidated Statement of Stockholders’ Equity (in thousands) Three and Nine Months Ended September 30, 2022 (unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Additional
paid-in
capital | | Accumulated
deficit | | Total
stockholders’
Equity |
| Shares | | Amount | | | |
| Balance as of December 31, 2021 | 238,578 | | | $ | 24 | | | $ | 1,036,104 | | | $ | (692,129) | | | $ | 343,999 | |
| | | | | | | | | |
| Repurchase of unvested shares – forfeitures | (296) | | | — | | | (3) | | | — | | | (3) | |
| Issuance of shares for restricted stock units vested | 584 | | | — | | | — | | | — | | | — | |
| Issuance of shares upon exercise of vested stock options | 20 | | | — | | | — | | | — | | | — | |
| Purchase of shares and warrants by VDL Nedcar | 972 | | | — | | | 8,400 | | | — | | | 8,400 | |
| Stock-based compensation | — | | | — | | | 20,680 | | | — | | | 20,680 | |
| Net loss and comprehensive loss | — | | | — | | | | | (125,367) | | | (125,367) | |
| Balance as of March 31, 2022 | 239,858 | | | $ | 24 | | | $ | 1,065,181 | | | $ | (817,496) | | | $ | 247,709 | |
| Repurchase of unvested shares - forfeitures | (175) | | | — | | | (3) | | | — | | | (3) | |
| Issuance of shares for restricted stock units vested | 1,017 | | | — | | | — | | | — | | | — | |
| Issuance of shares under SEPA agreement (Note 12) | 14,236 | | | 1 | | | 33,082 | | | — | | | 33,083 | |
| Issuance of shares under PIPE agreement (Note 10) | 13,699 | | | 1 | | | 49,999 | | | — | | | 50,000 | |
| Issuance of shares upon exercise of vested stock options | 7 | | | — | | | — | | | — | | | — | |
| | | | | | | | | |
| Issuance of shares under employee stock purchase plan | 254 | | | — | | | 1,175 | | | — | | | 1,175 | |
| Stock-based compensation | — | | | — | | | 20,773 | | | — | | | 20,773 | |
| Net loss and comprehensive loss | — | | | — | | | — | | | (164,392) | | | (164,392) | |
| Balance as of June 30, 2022 | 268,896 | | | $ | 26 | | | $ | 1,170,207 | | | $ | (981,888) | | | $ | 188,345 | |
| Repurchase of unvested shares - forfeitures | (176) | | | — | | | (3) | | | — | | | (3) | |
| Issuance of shares for restricted stock units vested | 1,245 | | | — | | | — | | | — | | | — | |
| Issuance of shares upon exercise of vested stock options | 24 | | | — | | | — | | | — | | | — | |
| Issuance of shares under employee stock purchase plan | 830 | | | — | | | 1,324 | | | — | | | 1,324 | |
| Issuance of shares under PPA agreement (Note 7) | 27,015 | | | 3 | | | 81,906 | | | — | | | 81,909 | |
| Issuance of shares under legal settlement (Note 8) | 2,034 | | | — | | | 5,532 | | | — | | | 5,532 | |
| Recognition of vested Walmart warrants | — | | | — | | | 50,175 | | | — | | | 50,175 | |
| Offering costs for the issuance of shares | — | | | — | | | (1,233) | | | — | | | (1,233) | |
| Stock-based compensation | — | | | — | | | 19,527 | | | — | | | 19,527 | |
| Net loss and comprehensive loss | — | | | — | | | — | | | (117,705) | | | (117,705) | |
| Balance as of September 30, 2022 | 299,868 | | | 29 | | | 1,327,435 | | | (1,099,593) | | | 227,871 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CANOO INC.
Condensed Consolidated Statement of Stockholders’ Deficit (in thousands)
Three and Nine Months Ended September 30, 2020 (unaudited)
| | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | Total |
| | Common stock | | paid-in | | Accumulated | | stockholders’ |
| | Shares | | Amount | | capital | | deficit | | deficit |
Balance as of December 31, 2019 | | 108,838 | | $ | 11 | | $ | 202,796 | | $ | (258,675) | | $ | (55,868) |
Issuance of shares upon exercise of unvested share options | | 424 | | | — | | | — | | | — | | | — |
Exchange and gain on extinguishment of related party convertible debt | | — | | | — | | | 8,264 | | | — | | | 8,264 |
Stock-based compensation | | — | | | — | | | 389 | | | — | | | 389 |
Net loss and comprehensive loss | | — | | | — | | | — | | | (30,890) | | | (30,890) |
Balance as of March 31, 2020 | | 109,262 | | $ | 11 | | $ | 211,449 | | $ | (289,565) | | $ | (78,105) |
Repurchase of shares – forfeitures | | (3,127) | | | — | | | (25) | | | — | | | (25) |
Stock-based compensation | | — | | | — | | | 351 | | | — | | | 351 |
Net loss and comprehensive loss | | — | | | — | | | — | | | (23,241) | | | (23,241) |
Balance as of June 30, 2020 | | 106,135 | | $ | 11 | | $ | 211,775 | | $ | (312,806) | | $ | (101,020) |
Repurchase of shares – forfeitures | | (293) | | | — | | | (2) | | | — | | | (2) |
Exchange and gain on extinguishment of related party convertible debt | | — | | | — | | | 36,521 | | | — | | | 36,521 |
Stock-based compensation | | — | | | — | | | 319 | | | — | | | 319 |
Net loss and comprehensive loss | | — | | | — | | | — | | | (23,390) | | | (23,390) |
Balance as of September 30, 2020 | | 105,842 | | $ | 11 | | $ | 248,613 | | $ | (336,196) | | $ | (87,572) |
| | |
Condensed Consolidated Statement of Stockholders’ Equity (in thousands) Three and Nine Months Ended September 30, 2021 (unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Additional
paid-in
capital | | Accumulated
deficit | | Total
stockholders’
equity |
| Shares | | Amount | | | |
| Balance as of December 31, 2020 | 235,753 | | | $ | 24 | | | $ | 910,579 | | | $ | (345,361) | | | $ | 565,242 | |
| Proceeds from exercise of public warrants | 597 | | | — | | | 6,867 | | | — | | | 6,867 | |
| Repurchase of unvested shares – forfeitures | (118) | | | — | | | (2) | | | — | | | (2) | |
| Issuance of shares for restricted stock units vested | 1,230 | | | — | | | — | | | — | | | — | |
| Issuance of shares upon exercise of vested stock options | 37 | | | — | | | — | | | — | | | — | |
| Stock-based compensation | — | | | — | | | 45,146 | | | — | | | 45,146 | |
| Conversion of private placement warrants to public warrants | — | | — | | — | | | 8,252 | | | — | | | 8,252 | |
| Net loss and comprehensive loss | — | | | — | | | — | | | (15,227) | | | (15,227) | |
| Balance as of March 31, 2021 | 237,499 | | | $ | 24 | | | $ | 970,842 | | | $ | (360,588) | | | $ | 610,278 | |
| Repurchase of unvested shares - forfeitures | (56) | | | — | | | (2) | | | — | | | (2) | |
| Issuance of shares for restricted stock units vested | 114 | | | — | | | — | | | — | | | — | |
| Issuance of shares upon exercise of vested stock options | 6 | | | — | | | — | | | — | | | — | |
| Stock-based compensation | — | | | — | | | 25,514 | | | — | | | 25,514 | |
| Net loss and comprehensive loss | — | | | — | | | — | | | (112,554) | | | (112,554) | |
| Balance as of June 30, 2021 | 237,563 | | | $ | 24 | | | $ | 996,354 | | | $ | (473,142) | | | $ | 523,236 | |
| Proceeds from exercise of public warrants | 1 | | | — | | | 12 | | | — | | | 12 | |
| Repurchase of unvested shares - forfeitures | (391) | | | — | | | (3) | | | — | | | (3) | |
| Issuance of shares for restricted stock units vested | 418 | | | — | | | — | | | — | | | — | |
| Issuance of shares upon exercise of vested stock options | 12 | | | — | | | — | | | — | | | — | |
| Stock-based compensation | — | | | — | | | 19,098 | | | — | | | 19,098 | |
| Net loss and comprehensive loss | — | | | — | | | — | | | (80,875) | | | (80,875) | |
| Balance as of September 30, 2021 | 237,603 | | | $ | 24 | | | $ | 1,015,461 | | | $ | (554,017) | | | $ | 461,468 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CANOO INC.
| | |
Condensed Consolidated Statements of Cash Flows (in thousands) Nine Months Ended September 30, 2022 and 2021 (unaudited) |
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2022 | | 2021 |
| Cash flows from operating activities: | | | |
| Net loss | $ | (407,464) | | | $ | (208,656) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | |
| Depreciation | 9,020 | | | 6,317 | |
| Non-cash operating lease expense | 1,515 | | | 774 | |
| Non-cash commitment fee under SEPA | 582 | | | — | |
| Non-cash legal settlement | 5,532 | | | — | |
| Stock-based compensation expense | 60,980 | | | 89,758 | |
| Gain on fair value change of contingent earnout shares liability | (22,869) | | | (101,166) | |
| Loss on fair value change in private placement warrants liability | — | | | 1,639 | |
| Loss on extinguishment of debt | 4,095 | | | — | |
| Non-cash debt discount | 900 | | | — | |
| Amortization of debt issuance costs and non-cash interest expense | 1,316 | | | — | |
| Changes in assets and liabilities: | | | |
| Inventory | (1,282) | | | — | |
| Prepaid expenses and other current assets | 4,037 | | | (8,915) | |
| Other assets | 970 | | | (939) | |
| Accounts payable & accrued expenses and other current liabilities | 12,805 | | | 40,567 | |
| Net cash used in operating activities | (329,863) | | | (180,621) | |
| | | |
| Cash flows from investing activities: | | | |
| Purchases of property and equipment | (88,817) | | | (73,976) | |
| Prepayment to VDL Nedcar | — | | | (26,134) | |
| Return of prepayment from VDL Nedcar | 30,440 | | | — | |
| Net cash used in investing activities | (58,377) | | | (100,110) | |
| | | |
| Cash flows from financing activities: | | | |
| Proceeds from exercise of public warrants | — | | | 6,879 | |
| | | |
| Repurchase of unvested shares | (9) | | | (7) | |
| Payment of offering costs | (1,219) | | | (5,306) | |
| Repayment of PPP loan | — | | | (6,943) | |
| Proceeds from the purchase of shares and warrants by VDL Nedcar | 8,400 | | | — | |
| Proceeds from issuance of shares under SEPA agreement | 32,500 | | | — | |
| Proceeds from issuance of shares under PIPE | 50,000 | | | — | |
| Proceeds from employee stock purchase plan | 2,499 | | | — | |
| Proceeds from PPA | 89,100 | | | — | |
| Net cash provided by (used in) financing activities | 181,271 | | | (5,377) | |
| Net decrease in cash, cash equivalents, and restricted cash | (206,969) | | | (286,108) | |
| | | |
| Cash, cash equivalents, and restricted cash | | | |
| Cash, cash equivalents, and restricted cash, beginning of period | 227,492 | | | 702,422 | |
| Cash, cash equivalents, and restricted cash, end of period | $ | 20,523 | | | $ | 416,314 | |
Table of Cash Flows (in thousands)Nine Months Ended September 30, 2021 and 2020 (unaudited)
Contents | | | | | | |
| | Nine months ended |
| | September 30, |
| | 2021 | | 2020 |
Cash flows from operating activities: | | | | | | |
Net loss | | $ | (208,656) | | $ | (77,521) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Depreciation | | | 6,317 | | | 5,179 |
Non-cash operating lease expense | | | 774 | | | 471 |
Loss on the disposal of property and equipment | | | — | | | 9 |
Debt discount amortization | | | — | | | 2,590 |
Gain on extinguishment of debt | | | — | | | (5,045) |
Stock-based compensation | | | 89,758 | | | 1,059 |
Gain on fair value in contingent earnout shares liability | | | (101,166) | | | — |
Loss on fair value change in private placement warrants liability | | | 1,639 | | | — |
Changes in operating assets and liabilities: | | | | | | |
Prepaids and other current assets | | | (8,915) | | | (3,186) |
Other assets | | | (939) | | | 726 |
Accounts payable | | | 23,920 | | | 1,082 |
Accrued interest expense | | | — | | | 7,927 |
Accrued expenses and other current liabilities | | | 16,647 | | | 1,618 |
Net cash used in operating activities | | | (180,621) | | | (65,091) |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Purchases of property and equipment | | | (73,976) | | | (1,209) |
Prepayment to VDL Nedcar | | | (26,134) | | | — |
Net cash used in investing activities | | | (100,110) | | | (1,209) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Proceeds from related party convertible debt | | | — | | | 90,000 |
Proceeds from convertible debt | | | — | | | 90,500 |
Loan advance | | | — | | | 7,017 |
Repayments on loan advance | | | — | | | (57) |
Proceeds from issuance of shares | | | — | | | 3 |
Repurchase of restricted shares | | | — | | | (27) |
Proceeds from exercise of public warrants | | | 6,879 | | | — |
Repurchase of unvested shares | | | (7) | | | — |
Payment of offering costs | | | (5,306) | | | (1,307) |
Repayment of PPP loan | | | (6,943) | | | — |
Net cash (used in) provided by financing activities | | | (5,377) | | | 186,129 |
Net (decrease) increase in cash, cash equivalents, and restricted cash | | | (286,108) | | | 119,829 |
| | | | | | |
Cash, cash equivalents, and restricted cash | | | | | | |
Cash, cash equivalents, and restricted cash, beginning of period | | | 702,422 | | | 29,507 |
Cash, cash equivalents, and restricted cash, end of period | | $ | 416,314 | | $ | 149,336 |
| | | | | | |
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets | | | | | | |
Cash and cash equivalents at end of period | | $ | 414,904 | | $ | 148,836 |
Restricted cash at end of period | | | 1,410 | | | 500 |
Total cash, cash equivalents, and restricted cash at end of period shown in the condensed consolidated statements of cash flows | | $ | 416,314 | | $ | 149,336 |
| | | | | | |
Supplemental non-cash investing and financing activities | | | | | | |
Acquisition of property and equipment included in current liabilities | | $ | 46,774 | | $ | 4,137 |
Offering costs included in accounts payable | | $ | 8,001 | | $ | — |
Offering costs included in accrued and other current liabilities | | $ | — | | $ | 2,254 |
Recognition of operating lease right-of-use asset | | $ | 2,362 | | $ | — |
Conversion of private placement warrants to public warrants | | $ | 8,252 | | $ | — |
Exchange of convertible debt | | $ | — | | $ | 291,309 |
Gain on extinguishment of related party convertible debt recorded in additional paid-in capital | | $ | — | | $ | 44,785 |
Issuance of long-term debt in exchange for loan advance | | $ | — | | $ | 7,017 |
| | | | | | |
Supplemental disclosures of cash flow information | | | | | | |
Cash paid for interest | | $ | 60 | | $ | — |
| | | | | | | | | | | |
| Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets | | | |
| Cash and cash equivalents at end of period | $ | 6,815 | | | $ | 414,904 | |
| Restricted cash, current at end of period | 4,208 | | | 1,410 | |
| Restricted cash, non-current at end of period | $ | 9,500 | | | $ | — | |
| Total cash, cash equivalents, and restricted cash at end of period shown in the condensed consolidated statements of cash flows | $ | 20,523 | | | $ | 416,314 | |
| | | |
| Supplemental non-cash investing and financing activities | | | |
| Acquisition of property and equipment included in current liabilities | $ | 72,375 | | | $ | 46,774 | |
| Offering costs included in current liabilities | $ | 1,189 | | | $ | 8,001 | |
| Recognition of operating lease right-of-use asset | $ | 15,757 | | | $ | 2,362 | |
| Conversion of private placement warrants to public warrants | $ | — | | | $ | 8,252 | |
| Issuance of shares for extinguishment of convertible debt under PPA agreement | $ | 81,909 | | | $ | — | |
| | | |
| Supplemental disclosures of cash flow information | | | |
| Cash paid for interest | $ | — | | | $ | 60 | |
| | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, unless otherwise stated) (unaudited)
1. Organization and Business
Canoo Inc. (“Canoo” or the “Company”) is a mobility technology company with a mission to bring electric vehicles
(“EVs”("EVs") to everyone.
The Company hasWe have developed a breakthrough EV platform that
it believeswe believe will enable
itus to rapidly innovate, and bring new products addressing multiple use cases to market faster than
itsour competition and at
a 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 “Merger Agreement”), by and among HCAC, HCAC IV First Merger Sub, Ltd., an exempted company incorporated with limited liability in the Cayman Islands and a direct, a wholly owned subsidiary of HCAC (“First Merger Sub”), EV Global Holdco LLC (f/k/a HCAC IV Second Merger Sub, LLC), a Delaware limited liability company and a direct, wholly owned subsidiary of HCAC (“Second Merger Sub”), and Canoo Holdings Ltd., an exempted company incorporated with limited liability in the Cayman Islands (“Legacy Canoo”). Pursuant to the terms of the Merger Agreement, a business combination between HCAC and Legacy Canoo was effected through the merger of (a) First Merger Sub with and into Legacy Canoo, with Legacy Canoo surviving as a wholly-owned subsidiary of HCAC (Legacy Canoo, in its capacity as the surviving corporation of the merger, the “Surviving Corporation”) and (b) the Surviving Corporation with and into Second Merger Sub, with Second Merger Sub being the surviving entity, which ultimately resulted in Legacy Canoo becoming a wholly-owned direct subsidiary of HCAC (all transactions collectively, the “Business Combination”).
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 Nasdaq Global Select Market under the ticker symbol GOEV.
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.
Recent Developments
On June 16, 2021, the Company and VDL Nedcar B.V. (“VDL Nedcar”) entered into a binding term sheet for vehicle contract manufacturing (the “Term Sheet”). On July 1, 2021, the Company made a $30.4 million pre-payment to VDL Nedcar pursuant to the Term Sheet, which was classified as an investing outflow in the accompanying condensed statement of cash flows. During the three months ended September 30, 2021, VDL Nedcar utilized $4.3 million of the prepayment to purchase property and equipment on behalf of the Company. The remaining $26.1 million is classified as a long-term asset in Other Assets in the accompanying condensed consolidated balance sheet as of September 30, 2021.
2. Basis of Presentation and Summary of Significant Accounting Policies
These unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”)SEC and accounting principles generally accepted in the United States (“GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by GAAP have been omitted if they substantially duplicate the disclosures contained in the Company’s annual audited consolidated financial statements. Accordingly, the unaudited condensed consolidated financial statements should be read in connectionconjunction with the Company’s audited financial statements and related notes as of andincluded in the Company's Annual Report on Form 10-K for the year ended December 31, 20202021, filed with the SEC on March 1, 2022 (“Annual Report on Form 10-K”). Results of operations reported for interim periods are not necessarily indicative of results for the entire year. In the opinion of management, the Company has made all adjustments
necessary to present fairly its condensed consolidated financial statements for the periods presented. Such adjustments are of a normal, recurring nature. The Company’s financial statements have been prepared under the assumption that the Company will continue as a going concern, which contemplates the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future.
The accompanying unaudited condensed consolidated financial statements include the results of the Company and its subsidiaries. The Company’s comprehensive loss is the same as its net loss.
Except for any updates below, no material changes have
been madeoccurred with respect 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
Liquidity and Capital Resources
As of
Recapitalizationthe date of the filing of this Form 10-Q, the Company’s principal sources of liquidity are its unrestricted cash balance and its access to capital under the Wainwright ATM Program (as defined below). The Business Combination on December 21, 2020 was accounted for as a recapitalizationCompany has incurred losses since inception and had negative cash flow from operating activities of equity structure. Pursuant to GAAP, the Company retrospectively recasted the weighted-average shares included within its condensed consolidated statements of operations$329.9 million for the three and nine months ended September 30, 2020. Legacy Canoo redeemable convertible preference shares – Angel Series (“Angel Shares”)2022. The Company expects to continue to incur net losses and Legacy Canoo redeemable convertible preference shares – Seed Series (“Seed Shares”) were convertednegative cash flows from operating activities in accordance with its operating plan and expects that both capital and operating expenditures will increase significantly in connection with its ongoing activities. As previously disclosed in our 2021 Form 10-K, management planned to Legacy Canoo A series redeemable convertible preference sharesraise additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing and later were exchanged into Legacy Canoo ordinary shares. The basicto the extent unsuccessful at doing so, management had the intent and diluted weighted-average Legacy Canoo ordinary shares are retroactively convertedability to sharesuse its discretion to delay, scale back, or abandon future expenditures. As of the date of the filing of this Form 10-Q, management has not taken actions to delay, scale back, or abandon future expenditures. However, management’s actions to preserve an adequate level of liquidity for a period of twelve months from the date of the filing of this Form 10-Q are not sufficient on their own without obtaining access to additional liquidity to mitigate the conditions raising substantial doubt about the Company’s common stockability to conformcontinue as a going concern.
As an early-stage growth company, the Company’s ability to access capital is critical. Although management continues to explore raising additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing to supplement the recastedCompany’s capitalization and liquidity, management cannot conclude as of the date of this filing that its plans are probable of being successfully implemented. The condensed consolidated statementsinterim financial information does not include any adjustments that might result from the outcome of stockholders' equity (deficit). The following table summarizesthis uncertainty.
We believe substantial doubt exists about the
weighted-average common stockCompany’s ability to continue as a going concern for twelve months from the date of
the Company, basic and diluted for the three and nine months ended September 30, 2020 after factoring all retroactive applicationissuance of
recapitalization.
| | | | | | | | | | | | | | |
| | | | | | 12/21/20 | | | | | | | | Weighted |
| | | | | | Merger | | Recapitalized | | Days | | | | Average |
| | | | As | | Conversion | | Common | | Outstanding | | % of | | Common |
Date | | Description | | Calculated | | Ratio | | Stock | | in 2020 | | weighting | | Shares |
3 months ended 9/30/2020 | | Weighted-average shares, basic and diluted | | 8,997,164 | | 1.24 | | 11,151,398 | | | | 100 | % | 11,151,398 |
| | | | | | | | | | | | | | |
12/31/2018 | | Angel Shares | | | | | | 51,316,627 | | 92 | | 100 | % | 51,316,627 |
| | | | | | | | | | | | | | |
3/4/2019 | | Seed Shares | | | | | | 11,107,496 | | 92 | | 100 | % | 11,107,496 |
| | | | | | | | | | | | | | |
5/6/2019 | | Seed Shares | | | | | | 11,107,495 | | 92 | | 100 | % | 11,107,495 |
| | | | | | | | | | | | | | |
8/16/2020 | | Convertible Debt | | | | | | 63,219,362 | | 46 | | 50 | % | 31,609,681 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 116,292,697 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | 12/21/20 | | | | | | | | Weighted |
| | | | As | | Merger | | Recapitalized | | Days | | | | Average |
| | | | Previously | | Conversion | | Common | | Outstanding | | % of | | Common |
Date | | Description | | Reported | | Ratio | | Stock | | in 2020 | | weighting | | Shares |
9 months ended 9/30/2020 | | Weighted-average shares, basic and diluted | | 7,997,527 | | 1.24 | | 9,912,414 | | | | 100 | % | 9,912,414 |
| | | | | | | | | | | | | | |
12/31/2018 | | Angel Shares | | | | | | 51,316,627 | | 274 | | 100 | % | 51,316,627 |
| | | | | | | | | | | | | | |
3/4/2019 | | Seed Shares | | | | | | 11,107,496 | | 274 | | 100 | % | 11,107,496 |
| | | | | | | | | | | | | | |
5/6/2019 | | Seed Shares | | | | | | 11,107,495 | | 274 | | 100 | % | 11,107,495 |
| | | | | | | | | | | | | | |
8/16/2020 | | Convertible Debt | | | | | | 63,219,362 | | 46 | | 17 | % | 10,613,470 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 94,057,501 |
our financial statements.
COVID-19
BeginningMacroeconomic Conditions
Current adverse macroeconomic conditions, including but not limited to heightened inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, challenges in the
first quarter of 2021, there has been increasing availabilitysupply chain and
administration of vaccines againstthe ongoing impacts from COVID-19,
in many parts of the world, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, virus variants, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains and intermittent supplier delays. The Company has also previously been affected by temporary facility closures, employment and compensation adjustments, and impediments to administrative activities supporting its product research and development.could negatively affect our business.
Ultimately, the Company cannot predict the
durationimpact of current or
severityworsening macroeconomic conditions or the ongoing impacts of the COVID-19
pandemic or any variant thereof.pandemic. The Company
will continuecontinues to monitor macroeconomic conditions to remain flexible and to optimize and evolve its business as appropriate. To do this, the Company
plans to projectis working on projecting demand and infrastructure requirements
globally and
to deploydeploying its workforce and other resources accordingly.
Property and Equipment, net
Construction-in-progress is stated at historical cost and is transferred to its respective depreciable asset class once the underlying asset is ready for its intended use. Depreciation of construction-in-progress begins only once placed into service, over the estimated useful life on a straight-line basis. Useful life determination requires significant judgment.
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, focusing on the most observable inputs when available: | ● | Level 1 Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 Valuations are based on inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
•Level 1 Quoted prices in active markets for identical assets or liabilities.•Level 2 Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as required by ASC 820, by level, within the fair value hierarchy as of September 30, 20212022 and December 31, 20202021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Fair Value | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Liability | | | | | | | |
| Contingent earnout shares liability | $ | 6,188 | | $ | — | | $ | — | | $ | 6,188 |
| | | | | | | | | | | | |
| | September 30, 2021 |
| | Fair Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | | | |
Money Market Funds | | $ | 416,314 | | $ | 416,314 | | $ | — | | $ | — |
| | | | | | | | | | | | |
Liability | | | | | | | | | | | | |
Contingent earnout shares liability | | $ | 32,337 | | $ | — | | $ | — | | $ | 32,337 |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Fair Value | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Liability | | | | | | | |
| Contingent earnout shares liability | $ | 29,057 | | | $ | — | | | $ | — | | | $ | 29,057 | |
Table of Contents | | | | | | | | | | | | |
| | December 31, 2020 |
| | Fair Value | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | | | |
Money Market Funds | | $ | 702,422 | | $ | 702,422 | | $ | — | | $ | — |
| | | | | | | | | | | | |
Liability | | | | | | | | | | | | |
Contingent earnout shares liability | | $ | 133,503 | | $ | — | | $ | — | | $ | 133,503 |
Private placement warrants liability | | $ | 6,613 | | $ | — | | $ | 6,613 | | $ | — |
As described
The Company's financial assets and liabilities not measured at fair value on a recurring basis include cash and cash equivalents, restricted cash, short-term debt, accounts payable, and other current liabilities and are reflected in
Note 8, in connection with the
Company’s agreement with Panasonic, there is a standby letter of credit of $0.8 millionfinancial statements at
September 30 2021 which is included in restricted cash. The letter of credit has a two-year term and will not be drawn upon unless the Company failscost. Cost approximates fair value for these items due to
make its invoice payments. Further, as of September 30, 2021, the company had $0.6 million in refundable customer deposits included in restricted cash.As described in Note 11, thetheir short-term nature.
Earnout Shares Liability
The Company has a contingent obligation to issue 15.0 million shares of
the Company’s common stockCommon Stock to certain stockholders and employees upon the achievement of certain market share price milestones within specified periods
following the Business Combination (the “Earnout Shares”). Upon the occurrence of a bankruptcy or liquidation, any unissued Earnout Shares would be fully issued regardless of whether the share price target has been met.
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 this contingent liability requires the use of significant and subjective inputs that may and are likely to change over the duration of the liability with related changes in internal and external market factors. The tranches were valued using the Monte Carlo simulation of the stock prices based on historical and implied market volatility of
a peer group of public companies.Additionally, as described in Note 13, the private placement warrants that were outstanding were converted to public warrants on March 2, 2021. The private placement warrants were accounted for as a liability and its fair value is determined using Level 2 inputs, since the Company’s public warrants are actively traded and the Company’s private placement warrants have terms and provisions that are identical to those of the public warrants.
Company.
Following is a summary of the change in fair value of contingent
Earnout Shares liability and private placement warrantsearnout shares liability for the nine months ended September 30,
20212022 (in thousands).
Earnout Shares Liability
| | | |
Beginning fair value at December 31, 2020 | | $ | 133,503 |
Change in fair value during the period | | | (101,166) |
Ending fair value at September 30, 2021 | | $ | 32,337 |
| | | | | |
| Beginning fair value at December 31, 2021 | $ | 29,057 | |
| Change in fair value during the period | (22,869) | |
| Ending fair value at September 30, 2022 | $ | 6,188 | |
Convertible Debt
Private Placement Warrants Liability
| | | |
Beginning fair value at December 31, 2020 | | $ | 6,613 |
Change in fair value during the period | | | 1,639 |
Conversion of private placement warrants to public warrants | | | (8,252) |
Ending fair value at September 30, 2021 | | $ | — |
3. Immaterial correction of prior period financial statements
Subsequent to issuance of the Company’s Annual Report on Form 10-KThe Company accounts 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 determinedconvertible debt that the Company’s private placement warrants issued in connection with HCAC's IPO on March 5, 2019 dodoes not meet the scope exception from derivative accounting prescribed by ASC 815-40, criteria for equity treatment in accordance with the guidance contained in Accounting Standards Update (“ASU”) 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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Accordingly, the private placementCompany elected to classify the convertible debt as a liability at amortized cost using the effective interest method. The Company classifies convertible debt based on the re-payment terms and conditions. Any discounts on the convertible debt and costs incurred upon issuance of the convertible debt are amortized to interest expense over the terms of the related convertible debt. Convertible debt is also analyzed for the existence of embedded derivatives, which may require bifurcation from the convertible debt and separate accounting treatment. Refer to Note 7 for information regarding convertible debt.
Warrants
The Company determines the accounting classification of warrants should have been recognizedit issues as either liability or equity classified by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("ASC 480"), then in accordance with ASC 815-40 ("ASC 815"), Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the Company to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing variable number of shares. If warrants do not meet liability classification under ASC 480, the Company assesses the requirements under ASC 815, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, asirrespective of the Closing Datelikelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815, and in order to conclude equity classification, the Company also assesses whether the warrants are indexed to its common stock and whether the warrants are classified as aequity under ASC 815 or other applicable GAAP. After all relevant assessments, the Company concludes whether the warrants are classified as liability rather than equity in the Company’s previously reported consolidated balance sheet as of December 31, 2020. Thereafter, the changeor equity. Liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value ofafter the outstanding private placement warrants should have been recognized as a gain (loss) within other (expense) income each reporting periodissuance date recorded in the Company’s consolidated statementstatements of operations. TheEquity classified warrants only require 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 materialaccounting at issuance with no changes recognized subsequent to the prior period financial statements, individually or in aggregate.
The following tables reflectissuance date. Refer to Note 13 for information regarding the impactwarrants issued to Walmart Inc. ("Walmart").
Table of the immaterial correction on the Company’s previously reported consolidated balance sheet as of December 31, 2020 (in thousands):
Contents | | | | | | |
| | As of December 31, 2020 |
| | As Previously | | Warrants | | |
| | Reported | | Adjustments | | As Corrected |
Consolidated Balance Sheet | | | | | | |
Private placement warrants liability | | — | | 6,613 | | 6,613 |
Total liabilities | | 181,615 | | 6,613 | | 188,228 |
| | | | | | |
Stockholders' equity (deficit) | | | | | | |
Additional paid in capital | | 920,324 | | (9,745) | | 910,579 |
Accumulated deficit | | (348,493) | | 3,132 | | (345,361) |
Total stockholders' equity (deficit) | | 571,855 | | (6,613) | | 565,242 |
4.
3. Recent Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”), in the form of
Accounting Standards Updates (“ASUs”),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 condensed consolidated financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2020,November 2021, the FASB issued ASU No. 2020-06 Debt — Debt with Conversion2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which amends the guidance on accounting for government assistance and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40).requires business entities to disclose information about certain government assistance they receive. The objectivedisclosures include information around the nature of the amendments in this ASU isassistance, the related accounting policies used to address issues identified as a resultaccount for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilitiesagreements, including commitments and equity.contingencies. 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, 2023,2021, and only impacts annual financial statement footnote disclosures. The Company adopted the new standard during the three months ended March 31, 2022, and the impact of any government assistance transactions within the scope of this standard will be included within our annual financial statement footnote disclosures for year ended December 31, 2022.
Recently Issued Accounting Pronouncements Not Yet Adopted
In September 2022, the FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (Topic 405-50): Disclosure of Supplier Finance Program Obligations, which adds certain disclosure requirements for a buyer in a supplier finance program. The amendments require that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The amendments are expected to improve financial reporting by requiring new disclosures about the programs, thereby allowing financial statement users to better consider the effect of the programs on an entity’s working capital, liquidity, and cash flows. The amendments are effective for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years. Early adoptionyears, except for the requirement to disclose rollforward information, which is permitted, but no earlier thaneffective prospectively for 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.2023. Early adoption is permitted. The Company isWe are currently assessing the provisions of this new pronouncement and evaluating any material impact that this guidance to determine the impact it may have on theour condensed consolidated financial statements.
4. Prepaids and other current assets
Prepaids and other current assets consisted of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Receivable from VDL Nedcar | $ | — | | | $ | 30,440 | |
| Deferred battery supplier cost | 18,300 | | | 18,300 | |
| Short term deposits | 2,977 | | | 7,030 | |
| Prepaid expense | 6,021 | | | 4,865 | |
| Other current assets | 809 | | | 3,179 | |
| Prepaids and other current assets | $ | 28,107 | | | $ | 63,814 | |
5. Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
| | | | | | |
| | September 30, | | December 31, |
| | 2021 | | 2020 |
Machinery and equipment | | $ | 14,823 | | $ | 15,292 |
Computer hardware | | | 4,458 | | | 2,464 |
Computer software | | | 7,409 | | | 5,159 |
Vehicles | | | 298 | | | 63 |
Furniture and fixtures | | | 740 | | | 519 |
Leasehold improvements | | | 14,932 | | | 14,559 |
Construction-in-progress | | | 117,437 | | | 5,283 |
| | | 160,097 | | | 43,339 |
Less: Accumulated depreciation | | | (19,230) | | | (12,913) |
Property and equipment, net | | $ | 140,867 | | $ | 30,426 |
| | | | | | | | | | | |
| September 30,
2022 | | December 31,
2021 |
| Tooling, machinery, and equipment | 31,309 | | | 18,040 | |
| Computer hardware | 8,643 | | | 6,161 | |
| Computer software | 9,053 | | | 7,837 | |
| Vehicles | 295 | | | 267 | |
| Furniture and fixtures | 742 | | | 742 | |
| Leasehold improvements | 14,956 | | | 14,939 | |
| Construction-in-progress | 267,830 | | | 176,162 | |
| 332,828 | | | 224,148 | |
| Less: Accumulated depreciation | (30,854) | | | (21,834) | |
| Property and equipment, net | $ | 301,974 | | | $ | 202,314 | |
Construction-in-progress is primarily related to the development of manufacturing lines as well as equipment and tooling necessary in the production of the Company’s vehicles. Completed tooling assets will beare transferred to their respective asset classes and depreciation will beginbegins when an asset is ready for its intended use. As of
Depreciation expense for property and equipment was $3.4 million and $9.0 million for the three and nine months ended September 30,
2021, manufacturing has not begun and therefore no depreciation on tooling has been recognized to date.
2022, respectively. Depreciation expense for property and equipment was $2.1 million and $6.3 million for the three and nine months ended September 30, 2021, respectively. Depreciation
6. Accrued Expenses and Other Current Liabilities
Accrued expenses consisted of the following (in thousands):
| | | | | | | | | | | |
| September 30,
2022 | | December 31,
2021 |
| Accrued property and equipment purchases | $ | 26,331 | | | $ | 34,375 | |
| Accrued research and development costs | 23,398 | | | 23,994 | |
| Accrued professional fees | 14,174 | | | 9,239 | |
| Accrued battery supplier costs | — | | | 10,000 | |
| Other accrued expenses | 10,215 | | | 6,317 | |
| Total accrued expenses | $ | 74,118 | | | $ | 83,925 | |
7. Convertible Debt
Yorkville PPA
On July 20, 2022, the Company entered into a Pre-Paid Advance Agreement (the "PPA") with YA II PN, Ltd. ("Yorkville") pursuant to which the Company could request advances of up to $50.0 million in cash from Yorkville, with an aggregate limit of $300.0 million (the "Pre-Paid Advance"). Amounts outstanding under Pre-Paid Advances could be offset by the issuance of shares of Common Stock to Yorkville at a price per share calculated pursuant to the PPA as the lower of 120% of the daily volume-weighted average price (“VWAP”) on Nasdaq as of the day immediately preceding the date a Pre-Paid Advance was made (“Fixed Price”) or 95% of the VWAP on Nasdaq as of the day immediately preceding the conversion date, which in no event would be less than $1.00 per share (“Floor Price”). The issuance of the shares of Common Stock under the PPA is subject to certain limitations, including that the aggregate number of shares of Common Stock issued pursuant to the PPA (including the aggregation with the issuance of shares of Common Stock under Standby Equity Purchase Agreement entered into by the Company with Yorkville on May 10, 2022 (the “SEPA”), which was terminated effective August 26, 2022) cannot exceed 19.9% of the Company's outstanding shares of Common Stock as of May 10, 2022 ("Exchange Cap"). Interest accrues on the outstanding balance of any Pre-Paid Advance at an annual rate
equal to 5%, subject to an increase to 15% upon events of default described in the PPA. Each Pre-Paid Advance has a maturity date of 15 months from the Pre-Paid Advance Date. Yorkville is not entitled to participate in any earnings distributions until a Pre-Paid Advance is offset with shares of Common Stock.
On July 22, 2022, the Company received an aggregate of $49.5 million on account of the first Pre-Paid Advance in accordance with the PPA. On August 26, 2022, the Company received an aggregate of $39.6 million on account of the second Pre-Paid Advance in accordance with the PPA. The net proceeds received by the Company from Yorkville include a 1% discount of the Pre-Paid Advance in accordance with the PPA. As of September 6, 2022, the first Pre-Paid Advance was fully paid off through the issuance of 15.1 million shares of Common Stock to Yorkville. As of September 30, 2022, 11.9 million shares of Common Stock has been issued to Yorkville under the second Pre-Paid Advance, with a remaining principal balance of $12.5 million presented as convertible debt, current within the condensed consolidated balance sheet as of September 30, 2022. The Company is required to pay the balance of the Pre-Paid Advance by making weekly payments of $1.0 million pursuant to a Side Letter to the PPA dated October 5, 2022 (the "PPA Side Letter"). Interest expense
for property and equipment was $1.7 million and $5.2 millionincurred under the PPA for the three and nine months ended September 30,
2020, respectively.
2022 was $2.2 million, which was a result of effective interest incurred under the PPA of $0.3 million, as well as the amortization of related debt issuance costs of $1.0 million and debt discount of $0.9 million. As of September 30, 2022, total remaining shares of Common Stock issuable under the Exchange Cap was 7.5 million. Other than the balance to be paid pursuant to the PPA Side Letter, the PPA provides that in respect of any Pre-Paid Advance, if the VWAP of shares of Common Stock is less than the Floor Price for at least five trading days during a period of seven consecutive trading days or the Company has issued substantially all of the shares of Common Stock available under the Exchange Cap, then the Company is required to make monthly cash payments of amounts outstanding under any Pre-Paid Advance beginning on the 10th calendar day and continuing on the same day of each successive calendar month until the entire amount of such Pre-Paid Advance balance has been paid or until the payment obligation ceases. Pursuant to the PPA, the monthly payment obligation ceases if the Exchange Cap no longer applies and the VWAP is greater than the Floor Price for a period of five consecutive trading days, unless a subsequent triggering date occurs.
The Company, at its option, has the right, but not the obligation, to repay early in cash a portion or all amounts outstanding under any Pre-Paid Advance, provided that the VWAP of the Common Stock is less than the Fixed Price during a period of three consecutive trading days immediately prior to the date on which the Company delivers a notice to Yorkville of its intent and such notice is delivered at least 10 trading days prior to the date on which the Company will make such payment. If elected, the early repayment amount is to include a 3% redemption premium (“Redemption Premium”). If any Pre-Paid Advances are outstanding and any event of default has occurred, the full amount outstanding under the Pre-Paid Advances plus the Redemption Premium, together with interest and other amounts owed in respect thereof, will become, at Yorkville’s election, immediately due and payable in cash.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses consisted of the following (in thousands):
| | | | | | |
| | September 30, | | December 31, |
| | 2021 | | 2020 |
Accrued property and equipment purchases | | $ | 16,132 | | $ | 3,992 |
Accrued research and development purchases | | | 8,831 | | | 2,420 |
Accrued professional fees | | | 11,914 | | | 1,386 |
Other accrued expenses | | | 6,511 | | | 2,827 |
Total accrued expenses | | $ | 43,388 | | $ | 10,625 |
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 in April 2020, and therefore were accounted for as a financing cash inflow in the condensed consolidated statement of cash flows for the nine months ended September 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. On 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 nine months ended September 30, 2021.
8. Commitments and Contingencies
Refer to Note 9 for information regarding operating lease commitments.
In connection with the
Company’s Sales Agreement (the “Sales Agreement”) with Panasonic Industrial Devices Salescommencement of the Company's Bentonville, Arkansas lease in February 2022, the Company
of America, a Division of Panasonic Corporation of America (“PIDSA”) and Sanyo Electric Co. Ltd., acting through its Mobility Energy Business Division (“SANYO”, and together with PIDSA, “Panasonic”), there isissued a standby letter of credit of
$0.8$9.5 million
which is included in restricted cash, non-current within the accompanying condensed consolidated balance sheet as of September 30,
2021. This2022. The letter of credit
has a five year term and will not be drawn upon unless the Company fails to make its
invoice payments.
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. The Company has filed a pending motion to dismiss the complaints. The final determinations of liability arising from these litigation matters will only be made following comprehensive investigations and litigation processes.
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 assertingasserted claims against certain of the Company’s
current and former officers and directors and seeking, among other things, damages.
The final determinations of liability arising from these litigation matters will only be made following comprehensive investigationsOn September 7, 2022, the court granted the defendants’ motion to dismiss the stockholder derivative complaint, dismissed the plaintiff’s claims without prejudice, and
litigation processes.In addition, onclosed the case.
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 private investment in public equity 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 indicate that it has concluded that anyone has violated the law, and does not indicate 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.
In March 2022, the Company received demand letters on behalf of shareholders of the Company identifying purchases and sales of the Company’s securities within a period of less than six months by DD Global Holdings Ltd. (“DDG”) that resulted in profits in violation of Section 16(b) of the Exchange Act. On May 9, 2022, the Company brought an action against DDG in the Southern District of New York seeking the disgorgement of the Section 16(b) profits obtained by DDG from such purchases and sales. In the action, the Company seeks to recover an estimated $61.1 million of Section 16(b) profits. In September 2022, the Company filed an amended complaint and a motion to dismiss by DDG is fully briefed and pending.
The Company was the respondent in a confidential arbitration initiated by a former employee of the Company concerning a dispute over issued shares of Common Stock. The arbitration demand alleged claims for conversion and violations of various California statutory provisions. The Company filed counterclaims against the former employee for breach of contract and declaratory judgment. The parties entered into a confidential settlement whereby the Company, without admitting wrongdoing, liability or unlawful conduct, released the shares of Common Stock that were in dispute and issued 2,033,864 additional shares of the Common Stock for full and final settlement of the claim.
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.
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.employee.
9. Operating Leases
On February 28, 2018, Legacy Canoo, via a wholly owned subsidiary,
Arkansas Facility Lease
During the first quarter of 2022, the Company entered into a real estate lease for an officeits industrialization facility in Torrance, California (“Torrance lease”Bentonville, Arkansas ("Bentonville 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 1510 years and commenced on April 30, 2018. During the first quarter of 2021, the Company entered into a separateFebruary 1, 2022.
The Bentonville lease
forcontains 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. Effective July 30, 2021, the Company amended its Justin lease to extend the leased square footage for the duration of the arrangement term. The Torrance and Justin leases (collectively referred to herein as the “leases”) contain a 3% per annum escalation clause.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 after June 2021 will not be considered as a related party lease expense.
The Torrance lease and Justin lease contain the option to extend the terms of the leasesterm for 2 additional 60-month periods10 years and 1 additional 60-month period, respectively, commencing when the prior term expires.is classified as an operating lease. At the inception of each of the leases,lease, 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 September 30, 2021.
The
Company has determined that the leases do not effectively transfer control of the underlying facilities torent payments made by the Company
based onunder the
Bentonville 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.
Michigan Lease
On October 20, 2021, the Company entered into a real estate lease for office space ("Michigan office lease") and research and development space ("Michigan R&D lease") located in Auburn Hills, Michigan (collectively the “Michigan lease”). The Michigan R&D lease commenced on August 25, 2022 once the Company gained control of the underlying asset. The Michigan R&D lease expires January 31, 2033 and is classified as an operating lease. As of September 30, 2022, the Company does not have control of the office space and therefore, the Michigan office lease has not commenced. The total minimum lease payments over the Michigan office lease is $8.9 million. Upon the execution of the lease agreement, the Company provided the landlord with a standby letter of credit of $1.1 million, which was included in restricted cash, current on the condensed consolidated balance sheets.
The Michigan lease contains one option to extend the term for an additional five-year period. At the inception of the lease, it was not reasonably certain we would exercise the option to extend the term of the lease. The rent payments made by the Company under the Michigan lease are expensed on a straight-line basis in the condensed consolidated statements of operations.
Lease Portfolio
The Company used judgment in determining an appropriate incremental borrowing rate to calculate the operating
lease right-of-use asset and operating lease liability. The weighted average discount rate used was 6.96%. As of September 30, 2022, the remaining operating lease ROU asset and operating lease liability were approximately $28.5 million and $29.3 million, respectively. As of December 31, 2021, the operating lease ROU asset and operating lease liability were approximately $14.2 million and $14.6 million, respectively. As of September 30, 2022 and December 31, 2021, $1.8 million and $0.8 million, respectively, of the lease liability was determined to be short term and was included in accrued expenses and other current liabilities within the condensed consolidated balance sheets.
Related party lease expense related to these leases waswere$0.1 million and $0.4 million for the three and nine months ended September 30, 2022, respectively. Related party lease expense related to these leases were $0.1 million and $1.2 million for the three and nine months ended September 30, 2021, respectively. Related party lease expense related to these operating leases was $0.4 million and $1.3 million for the three and nine months ended September 30, 2020, respectively.
The weighted average remaining lease term at September 30, 20212022 and December 31, 20202021 was 10.99.7 years and 12.310.7 years, respectively.
Maturities of the Company’s operating lease liabilities at September 30,
20212022 were as follows (in thousands):
| | | | | |
| Operating
Lease |
| 2022 (excluding the nine months ended September 30, 2022) | $ | 866 | |
| 2023 | 3,831 | |
| 2024 | 3,985 | |
| 2025 | 4,114 | |
| 2026 | 3,937 | |
| Thereafter | 24,401 | |
| Total lease payments | 41,134 | |
Less: imputed interest(1) | 11,840 | |
Present value of operating lease liabilities | 29,294 | |
Current portion of operating lease liabilities(2) | 1,761 | |
| Operating lease liabilities, net of current portion | $ | 27,533 | |
__________________________
(1) | | | |
| | Operating |
| | Lease |
2021 (excluding the nine months ended September 30, 2021) | | $ | 467 |
2022 | | | 1,909 |
2023 | | | 1,966 |
2024 | | | 2,025 |
2025 | | | 2,085 |
Thereafter | | | 14,194 |
Total lease payments | | | 22,646 |
Less: imputed interest(1) | | | 7,852 |
Present value of operating lease liabilities | | | 14,794 |
Current portion of operating lease liabilities(2) | | | 762 |
Operating lease liabilities, net of current portion | | $ | 14,032 |
(2)Included within Accrued expenses and other current liabilities line item on the Condensed Consolidated Balance Sheet.
(1) | Calculated using the incremental borrowing rate |
(2) | Included within Accrued expenses and other current liabilitiesline item on the Condensed Consolidated Balance Sheet. |
10. Related Party Transactions
On November 25, 2020, Legacy Canoo entered into an agreement, which remains in effect, with Tony Aquila, Executive ChairmanChair and Chief Executive Officer (“CEO”) 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”AFV"), an entity controlled by Mr. Aquila, for the purposes related to the business of the Company was
less than $0.1 million and approximately $0.6 million for the three and nine months ended September 30, 2022, respectively. The reimbursement was approximately $0.5 million and $1.5 million for the three and nine months ended September 30, 2021, respectively.
11. Contingent Earnout Shares Liability
As part of In addition, certain AFV staff provided the Business Combination, certain stockholdersCompany with shared services support in its Justin, Texas corporate office facility. For the three and employees are entitled to additional consideration in the form of Earnout Shares of the Company’s common stock to be issued when the Company’s common stock’s price achieves certain market share price milestones within specified periods following the Business Combination on December 21, 2020. The Earnout Shares do not have employment requirement and will be issued in tranches based on the following conditions:
| 1. | If the closing share price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within any consecutive 30-trading day period prior to the two-year anniversary of the Closing Date (“$18 Milestone”), then the Company is required to issue an aggregate of 5.0 million shares of its common stock to holders with the contingent right to receive Earnout Shares. These Earnout Shares may instead be issued in the event of a Change of Control (as defined in the Merger Agreement) prior to the two-year anniversary of the Closing Date if the per share consideration in such transaction is at least $18. |
| 2. | If the closing share price of the Company’s common stock equals or exceeds $25.00 per share for any 20 trading days within any consecutive 30-trading day period prior to the four-year anniversary of the Closing Date (“$25 Milestone”), then the Company is required to issue an aggregate of 5.0 million shares of its common stock to holders with the contingent right to receive Earnout Shares. These Earnout Shares may instead be issued in the event of a Change of Control (as defined in the Merger Agreement) prior to the four-year anniversary of the Closing Date if the per share consideration in such transaction is at least $25. |
| 3. | If the closing share price of the Company’s common stock equals or exceeds $30.00 per share for any 20 trading days within any consecutive 30-trading day period prior to the five-year anniversary of the Business Combination Closing Date (“$30 Milestone”), then the Company is required to issue an aggregate of 5.0 million shares of its common stock to holders with the contingent right to receive Earnout Shares. These Earnout Shares may instead be issued in the event of a Change of Control (as defined in the Merger Agreement) prior to the five-year anniversary of the Closing Date if the per share consideration in such transaction is at least $30. |
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 ofnine months ended September 30, 2021 and December 31, 20202022, the fair value of the Earnout Shares liability was estimated to be $32.3Company paid AFV approximately $0.3 million and $133.5$0.8 million, respectively. The Company recognized a gain on the fair value change in Earnout Shares liability of $25.8 million and $101.2 million as other income (expense) in its condensed consolidated statement of operationsrespectively, for these services. There were no payments made to AFV for these services for the three and nine months ended September 30, 2021, respectively.
12. Stock-based Compensation
2021.
On
May 10, 2022, the
Closing DateCompany entered into Common Stock Subscription Agreement providing for the purchase of
the Business Combination, the Legacy Canoo 2018 Employee Stock Option Plan (“Legacy Canoo 2018 Equity Plan”) was converted to the Company’s 2018 Employee Stock Option and Grant Plan (“2018 Equity Plan”) with the Legacy Canoo ordinary shares authorized for issuance pursuant to previously issued awards converted at the Exchange Ratioan aggregate of
1.239434862 to the Company’s common stock and the exercise price per option and purchase price per restricted shares decreased proportionately by the same conversion ratio. See additional discussion on the retroactive application of recapitalization in Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K.Stock Options
Employees are eligible to be granted options to purchase13.7 million shares of the Company’s common stock under the Company’s equity plans. All options granted will expire ten years from their dateCommon Stock at a price 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 upon the exercise of stock options.
Under the 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$3.65 per share for an employee at the original exercise price. The consideration received for the early exercise of an option is considered to be a deposit and the related amount is recorded as a liability.
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 convertedaggregate purchase price of $0.008 per share$50.0 million (the “Founder Restricted Shares”"PIPE"), with the following vesting conditions: 12.5% vest when the Legacy Canoo achieves $100 million in cumulative funding from inception (which condition was satisfied December 18, 2018, accordingly this portion. The purchasers of the 2019 awards was vested upon issuance); 37.5% vest ratably over a periodshares are special purpose vehicles managed by entities affiliated with Mr. Tony Aquila, the Company’s Executive Chairman and CEO. The closing of thirty-six months from December 18, 2018; and 50% vestthe PIPE occurred on the date the Company starts commercial production of its first vehicle (“SOP”), which the Company determined was not probable of being met as of December 31, 2020.
On December 18, 2020, Legacy Canoo approved an amendment to change the SOP vesting goal of all eligible Founder Restricted Shares held by Legacy Canoo’s executives to time-based vesting with a merger trigger, which was satisfied on December 21, 2020. The investor-held Founder Restricted Shares’ SOP vesting goal was not amended. The amended time-based vesting of the SOP portion has a cliff vesting of 25% on March 18, 2020 with the remaining shares vesting quarterly over 36 months thereafter. The amendment was accounted for as a grant modification in December 2020.
The Company has an irrevocable, exclusive option to repurchase all or any portion of the unvested Founder Restricted Shares at the converted original per share purchase price for the shares upon termination or the cessation of services provided by the stockholder.
Restricted Stock Units (“RSUs”)
Under the 2020 Equity Incentive Plan, employees are compensated through various forms of equity, including
RSUs.restricted stock unit awards (“RSU”). Each RSU represents a contingent right to receive
1one share of
the Company’s common stock.Common Stock. During the three
months ended September 30, 2021, 0 RSUs were granted. During theand nine months ended September 30,
2021, 6,985,5482022, 2,011,240 and 13,754,492 RSUs were granted
of which 998,994 vested immediately and the remainder subject to time-based
vesting.On May 14, 2021, the Company awarded 500,000 RSUs to the CEO. The RSUs vest in one-third increments on the first, second, and third anniversaries of the vesting, commencement date, December 21, 2020, subject to continuous service.
respectively.
Performance-Based Restricted Stock Units
Performance stock unit awards (“
PSUs”PSU”)
PSUs represent the right to receive a share of the Company’s common stockCommon Stock if service, performance, and market conditions, or a combination thereof, are met over a defined period. PSUs that contain a market condition, such as stock price milestones, are subject to a Monte-CarloMonte Carlo simulation model to determine the grant date fair value by simulating a range of possible future stock prices for the Company over the performance period. The grant date fair value of the market condition PSUs is recognized as compensation expense over the greater of the Monte Carlo simulation model’s derived service period and the arrangement’s explicit service period, assuming both conditions must be met.
PSUs subject to performance conditions, such as operational milestones, are measured on the grant date, the total fair value of which is calculated as the product of the number of PSUs and the grant date stock price. Compensation expense for PSUs with a performance condition is recorded each period based upon a probability assessment of the expected outcome of the performance metric with a final adjustment upon measurement at the end of the performance period.
The followingDuring the three and nine months ended September 30, 2022, 52,606 and 4,298,458 PSUs were granted to
the CEO in the second quarter of 2021,Company employees, respectively, with a total grant date fair value of approximately
$15.9 million:
| ● | During April 2021, in connection with the appointment$0.1 million and $13.9 million, respectively. The PSUs vest based on the Company's achievement of certain specified operational milestones by various dates through December 2025. As of the CEO, the Company awarded 2,000,000 PSUs. The PSUs will vest in one-third increments based upon the achievement of certain stock price milestones during the performance period ending October 2025. In addition, the PSUs are subject to a service condition which requires continuous service through October 2023; |
| ● | During May 2021, the Company awarded 1,703,828 PSUs. The PSUs vest based on the Company's achievement of certain specified stock price milestones over a three-year performance period ending May 2024, subject to continued service with the Company through the applicable vesting dates; and |
| ● | During May 2021, the Company awarded 300,000 PSUs whereby vesting depends upon the occurrence of certain operational milestone events by May 2024. |
As of grant date, the Company’sCompany's analysis determined that these operational milestone
events are probable of achievement.achievement and as such, compensation expense of $3.0 million and $4.6 million has been recognized for the three and nine months ended September 30, 2022.
No PSUs were granted to the CEO during the three and nine months ended September 30, 2022. The compensation expense recognized for
thepreviously awarded PSUs
awarded to the CEO
in the second quarter of 2021 was
$1.8$4.4 million and
$3.0$13.5 million for the three and nine months ended September 30,
2021, respectively.
2022. The following table summarizes the Company’s stock-based compensation expense by line item for the three-three and nine months ended periodsperiod presented in the condensed consolidated statements of operations (in thousands)millions):
| | | | | | | | | | | |
| Three months ended | | Nine months ended |
| September 30, | | September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Research and development | $ | 5,810 | | $ | 225 | | $ | 22,634 | | $ | 688 |
Selling, general and administrative | | 13,288 | | | 94 | | | 67,124 | | | 371 |
Total | $ | 19,098 | | $ | 319 | | $ | 89,758 | | $ | 1,059 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Research and development | $ | 8.2 | | | $ | 5.8 | | | $ | 23.4 | | | $ | 22.6 | |
| Selling, general and administrative | 11.3 | | 13.3 | | 37.5 | | 67.1 |
| Total | $ | 19.5 | | | $ | 19.1 | | | $ | 60.9 | | | $ | 89.7 | |
The Company’s total unrecognized compensation cost as of September 30,
2021,2022, was
$59.6$86.8 million.
2020 Employee Stock Purchase Plan
The 2020 Employee Stock Purchase Plan (the “2020 ESPP”) was adopted by the board of directors on September 18, 2020, approved by the stockholders on December 18, 2020, and became effective on December 21, 2020 with the Business Combination. On December 21, 2020, the board of directors delegated its authority to administer the 2020 ESPP to the Compensation Committee. The Compensation Committee determined that it is in the best interests of the Company and its stockholders to implement successive three-month purchase periods, with the first offering period commencing on grant date January 3, 2022 and a purchase date of April 1, 2022. The 2020 ESPP provides participating employees with the opportunity to purchase up to a maximum number of shares of Common Stock of 4,034,783, plus the number of shares of Common Stock that are automatically added on January 1st of each year for a period of ten years, in an amount equal to the lesser of (i) 1% of the total number of shares of Common Stock outstanding on December 31st of the preceding calendar year, and (ii) 8,069,566 shares of Common Stock.
During the three and nine months ended September 30, 2022, total employee withholding contributions for the 2020 ESPP was $0.5 million and $2.5 million, respectively, which is included in restricted cash, current, within the accompanying condensed consolidated balance sheet as of September 30, 2022. Approximately $0.2 million and $1.1 million of stock-based compensation expense was recognized for the 2020 ESPP during the three and nine months ended September 30, 2022, respectively.
12. Equity
Yorkville SEPA13. Warrants
On May 10, 2022, the Company entered into the SEPA with Yorkville. Pursuant to the SEPA, the Company could sell to Yorkville up to $250.0 million of its shares of Common Stock, at the Company’s request any time during the 36 months following the execution of the SEPA. During the three and nine months ended September 30, 2022, we issued none and 14.2 million shares of Common Stock to Yorkville, respectively, for cash proceeds of $32.5 million with a portion of the shares issued as non-cash stock purchase discount under the SEPA. Effective August 26, 2022, the Company terminated the SEPA. At the time of termination, there were no outstanding borrowings, advance notices, shares of Common Stock to be issued or fees due under the SEPA.
Wainwright At-The-Market Offering Program
On August 8, 2022, the Company entered into an Equity Distribution Agreement (as supplemented by side letters entered into on August 8, 2022 and on October 5, 2022, the “Wainwright Sales Agreement”) with Evercore Group L.L.C. and H.C. Wainwright & Co., LLC (collectively, the "agents"), to sell shares of Common Stock having an aggregate sales price of up to $200.0 million, from time to time, through an “at-the-market offering” program under which the agents act as sales agents (the “Wainwright ATM Program”). The sales are made by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The Company is
not obligated to sell any shares of Common Stock under the Wainwright Sales Agreement and may at any time suspend solicitation and offers thereunder. As of September 30, 2021,2022, the Company had 23,755,169not sold shares of Common Stock under the Wainwright ATM Program. See Note 16 for shares sold after September 30, 2022.
Other Issuances of Equity
Refer to Notes 10 and 13 for information regarding the PIPE, VDL Nedcar (as defined below) and Walmart warrants, as applicable.
13. Warrants
Public Warrants
As of September 30, 2022, the Company had 23,755,069 public warrants outstanding. Each public warrant entitles the registered holder to purchase
1one share of
the Company’s common stockCommon Stock at a price of $11.50 per share, subject to adjustment. The public warrants will expire on
the fifth anniversary of the Closing Date of the Business Combination,December 21, 2025, or earlier upon redemption or liquidation.
The Company may call the public warrants for redemption:
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon a minimum of 30 days prior written notice of redemption; and |
| ● | if, and only if, the last reported closing price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
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 number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of common stock at a price below its exercise price.
On March 2, 2021, all of the private placement warrants were converted to public warrants. As noted in Note 3, the private placement warrants were accounted for as a liability until the private placement warrants were converted to public warrants. There were 1,061 and 598,175no public warrants exercised for the three and nine months ended September 30, 2021, respectively,2022.
VDL Nedcar Warrants
In February 2022, the Company and a company related to VDL Nedcar entered into an investment agreement, under which the VDL Nedcar-related company agreed to purchase shares of Common Stock for an aggregate value of $8.4 million, at the market price of Common Stock as of December 14, 2021. As a result, the Company issued 972,222 shares of Common Stock upon execution of the agreement. The Company also issued a warrant to purchase an aggregate 972,222 shares of Common Stock to VDL Nedcar at exercise prices ranging from $18 to $40 per share, which are classified as equity. The exercise period is from November 1, 2022, to November 1, 2025 ("Exercise Period"). The warrant can be exercised in whole or in part during the Exercise Period but can only be exercised in three equal tranches and after the stock price per Common Stock has reached at least the relevant exercise price. The $8.4 million received from VDL Nedcar is included as a financing cash inflow in the accompanying condensed consolidated statement of cash flows for the nine months ended September 30, 2022. The shares of Common Stock issued to VDL Nedcar are included in the accompanying condensed consolidated statement of stockholders' equity for the nine months ended September 30, 2022.
Walmart Warrants
On July 11, 2022, Canoo Sales, LLC, a wholly-owned subsidiary of the Company, entered into an Electric Vehicle Fleet Purchase Agreement (the “Walmart EV Fleet Purchase Agreement") with Walmart. Pursuant to the Walmart EV Fleet Purchase Agreement, subject to certain acceptance and performance criteria, Walmart agreed to purchase at least 4,500 EVs, with an option to purchase up to an additional 5,500 EVs, for an agreed upon capped price per unit determined based on the EV model. The Walmart EV Fleet Purchase Agreement (excluding any work order or purchase order as a part thereof) has a five-year term, unless earlier terminated.
In connection with the Walmart EV Fleet Purchase Agreement, the Company entered into a Warrant Issuance Agreement with Walmart pursuant to which the Company issued to Walmart a Warrant to purchase an aggregate of 61.2 million shares of Common Stock, at an exercise price of $2.15 per share, which represented approximately 20% ownership in the Company on a fully diluted basis as of the issuance date. The Warrant has a term of 10 years and is vested with respect to 15.3 million shares of Common Stock. Thereafter, subject to stockholder approval, as applicable, the Warrant will vest quarterly in amounts proportionate with the net revenue realized by the Company from transactions with Walmart or its affiliates under the Walmart EV Fleet Purchase Agreement or enabled by any other agreement between the Company and Walmart, and any net revenue attributable to any products or services offered by Walmart or its affiliates related to the Company, until such net revenue equals $300.0 million, at which time the Warrant will have vested fully. Of the aggregate 61.2 million shares of Common Stock issuable to Walmart, 7.3 million shares of Common Stock are subject to stockholder approval. In the event that stockholder approval is not obtained, in lieu of any shares which would have been issued to Walmart on account of the Warrant, the Company is required to pay to Walmart an amount in cash calculated pursuant to the Warrant.
Since the counterparty is also a customer, the issuance of the Warrant was determined to be consideration payable to a customer within the scope of ASC 606, Revenue from Contracts with Customers, and was measured at fair value on the Warrant’s issuance date. Warrants that vested immediately resulted in a corresponding other asset presented on the
condensed consolidated balance sheets under ASC 606 and amortized on a pro-rata basis, commencing upon initial performance, over the term of the Walmart EV Fleet Purchase Agreement.
The fair value of the Warrants at the issuance date was measured using the Black-Scholes-Merton option pricing model. The key inputs used in the valuation were as follows:
| | | | | |
| |
| Expected term (years) | 10 |
| Risk free interest rate | 3.0 | % |
| Expected volatility | 91.3 | % |
| Dividend yield | — | % |
| Exercise price | $ | 2.15 | |
| Stock price | $ | 3.63 | |
Estimates were determined as follows: (i) expected term based on the warrant’s contractual term, (ii) based on the blended volatilities of historical and implied market volatility of the Company, (iii) risk-free interest rates based on US Treasury yield for the expected term, and (iv) an expected dividend yield of zero percent was used since we did not yet and not yet presently expect to pay dividends.
As of September 30, 2022, a total
proceeds of
$6.9 million.
15.3 million warrants have vested, of which none have been exercised.
The condensed consolidated statements of operations include the basic and diluted net loss per share.
The following table presents the potential shares that were excluded from the computation of diluted net loss per share, because their effect was anti-dilutive as follows (in thousands):
| | | | |
| | September 30, |
| | 2021 | | 2020 |
Early exercise of unvested stock options | | 3,146 | | 6,864 |
Options to purchase common stock | | 285 | | 352 |
Restricted common stock shares | | 5,123 | | 13,631 |
Restricted and performance stock units | | 15,086 | | 5,555 |
| | | | | | | | | | | |
| September 30, |
| 2022 | | 2021 |
| Restricted and performance stock units | 33,257 | | | 15,086 | |
| Convertible debt (Note 7) | 7,451 | | | — |
| Restricted common stock shares | 3,019 | | | 5,123 | |
| Early exercise of unvested stock options | 870 | | | 3,146 | |
| Options to purchase common stock | 197 | | | 285 | |
As the Company has not generated any taxable income since inception, the cumulative deferred tax assets remain fully offset by a valuation allowance, and
0no benefit from federal or state income taxes has been included in the condensed consolidated financial statements.
Side Letter to Pre-Paid Advance Agreement
On October
6, 2021, the Company awarded 1,468,429 time-based RSUs equal to $10 million to Josette Sheeran, in connection with her appointment to President of the Company on July 26, 2021. The number of units awarded was based upon the fair market value of the Company’s common stock on October 4, 2021.
On October 19, 2021,5, 2022, the Company entered into the PPA Side Letter, pursuant to which the parties agreed that the Company will be permitted to submit sales orders, and consummate sales pursuant to such orders, for the Wainwright ATM Program beginning on October 5, 2022 for so long as the Company pays to Yorkville the sum of $1.0 million per calendar week to be applied in the order of priority set forth in the PPA Side Letter. Failure to make timely payments under the PPA Side Letter will automatically result in the reinstatement of restrictions on the Company’s ability to consummate sales under the Wainwright Sales Agreement effective October 15, 2021, with Panasonic forand will be deemed an event of default.
Side Letter to the
supply of lithium-ion battery cells. The agreement stipulates an upfront non-refundable $30 million payment payable in tranches through March 2022 and provides for purchase commitments by the Company during an initial purchase period from August 2022 through December 2023.
Wainwright Sales Agreement
On October 20, 2021,5, 2022, the Company entered into a Side Letter to the Wainwright Sales Agreement, pursuant to which, notwithstanding the existence of outstanding balances under the PPA as of October 5, 2022, but only for so long as any portion of such balance is outstanding, the agents agreed to allow the Company to submit orders to sell Common Stock of the Company under the Wainwright Sales Agreement beginning on October 5, 2022. In addition, pursuant to the Side Letter to the Wainwright Sales Agreement, during the period from October 5, 2022 until the beginning of the third business day after the Company files its Annual Report on Form 10-K for the fiscal year ended December 31, 2022: (i) only H.C. Wainwright may be designated as a Designated Manager under the Wainwright Sales Agreement and receive the entire compensation payable thereunder (equal to 3.0% of the gross proceeds of the shares of Common Stock sold), and (ii) for so long as H.C. Wainwright acts as the sole Designated Manager, H.C. Wainwright agreed to waive the additional fee of 1.5% of the gross proceeds from any sales under the Wainwright Sales Agreement.
Sale of shares under the Wainwright ATM Program
For the period October 1, 2022 through the date of this filing, the Company sold an aggregate of 22.1 million shares of Common Stock for net proceeds of $30.5 million under the Wainwright ATM Program, and compensation paid to the agents for the period was $0.9 million.
Purchase and Sale Agreement for Manufacturing Facility
On November 9, 2022, the Company entered into a Purchase and Sale Agreement ("PSA") with Terex USA, LLC for the purchase of approximately 630,000 square foot vehicle manufacturing facility on approximately 121 acres in Oklahoma City, Oklahoma. The purchase price for the facility is $35.9 million. The closing of the PSA is expected to occur on or before February 22, 2023 and is subject to customary closing conditions.
Zeeba Electric Vehicle Fleet Purchase Agreement
On October 10, 2022, the Company entered into an Electric Vehicle Fleet Purchase Agreement (the “Zeeba EV Fleet Purchase Agreement”) with Zeeba Automotive Group, Inc, a fleet leasing provider. Pursuant to the Zeeba EV Fleet Purchase Agreement, subject to certain acceptance and performance criteria, Zeeba agreed to purchase at least 3,000 EVs by 2024, with an option to purchase up to an additional 2,450 EVs.
Kingbee Electric Vehicle Fleet Purchase Agreement
On October 11, 2022, the Company entered into an Electric Vehicle Fleet Purchase Agreement (the “Kingbee EV Fleet Purchase Agreement,” together with the Zeeba EV Fleet Purchase Agreement and the Kingbee EV Fleet Purchase Agreement, the “EV Fleet Purchase Agreements”) with Kingbee EV Corp, a work-ready van rental provider. Pursuant to the Kingbee EV Fleet Purchase Agreement, subject to certain acceptance and performance criteria, Kingbee agreed to purchase at least 9,300 EVs over the five-year term, with an option to purchase up to an additional 9,300 EVs.
Battery Manufacturing Facility
On November 1, 2022, the Company entered into a commercial lease
of approximately 100,000 square foot manufacturing facility located in the MidAmerica Industrial Park in Pryor, Oklahoma with the Oklahoma Ordnance Works Authority for
an office and research and development laboratory facility in Auburn Hills, Michigan,the assembly of its proprietary battery modules. The lease term is approximately 10 years with lessee's right to
facilitate the Company’s continued personnel growth and support strong supplier relationships in this region.terminate after 5 years. The
total minimum
aggregate lease
paymentspayment over the initial
lease term
ofis expected to be approximately
11 years is $12.7$7.2 million.
On November 4, 2021, the CEO was awarded 6,000,000 PSUs based on the Company's achievement of certain specified stock price milestones over a five-year performance period ending November 2026, subject to continued service with the Company through the applicable vesting dates.
The Company has analyzed its operations subsequent to September 30,
20212022 through the date these financial statements were issued and has determined that it does not have any additional material subsequent events to disclose.
Item 2. 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 our results of operations and financial condition. This discussion and analysis should be read in conjunction with our condensed consolidated interim financial statements and the related notes contained elsewhere in this Quarterly Report on Form 10-Q. The statements in this discussion regarding expected and other production timelines, development of our own manufacturing facilities, industry trends, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31,
20202021 filed with the
Securities and Exchange Commission (the “SEC”)SEC on March
31, 20211, 2022 (the “Annual Report on Form 10-K”), Part II, Item IA. “Risk Factors” in this Quarterly Report on Form 10-Q and “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Certain figures
such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.
Canoo
Inc. ("we," "us," "Canoo" or the "Company") is
a Delaware corporation headquartered in Torrance, California. On December 21, 2020 (the “Closing Date”), Hennessy Capital Acquisition Corp. IV (“HCAC”) consummated its business combination with Canoo Holdings Ltd., an exempted company incorporated with limited liability in the Cayman Islands (“Legacy Canoo”) contemplated pursuant to that certain Merger Agreement and Plan of Reorganization, dated as of August 17, 2020 (the “Merger Agreement”), by and among HCAC, HCAC IV First Merger Sub, Ltd., an exempted company incorporated with limited liability in the Cayman Islands and a direct, a wholly owned subsidiary of HCAC, EV Global Holdco LLC (f/k/a HCAC IV Second Merger Sub, LLC), a Delaware limited liability company and a direct, wholly owned subsidiary of HCAC, and Legacy Canoo, which ultimately resulted in Legacy Canoo becoming a wholly-owned direct subsidiary of HCAC (the "Business Combination"). In connection with the closing of the Business Combination, HCAC changed its name to Canoo Inc. and we became a Nasdaq listed company.We are a mobility technology company with a mission to bring EVselectric vehicles (“EVs”) to everyone.everyone and provide connected services that improve the vehicle ownership experience. We have developedare developing a technology platform referred to as the Multi-Purpose Platform or platform, built to be highly modular and tothat we believe will enable us to rapidly innovate and bring new products, addressing multiple use cases, to market faster than our competition and at lower cost. Our vehicle architecture and design philosophy are aimed at driving productivity and returning capital to our customers, and we believe the software and technology capabilities we are developing, packaged around a modular, customizable product, have the potential to fundamentally alter the value proposition across a vehicle’s lifecycle. We remain committed to the environment and to delivering sustainable mobility that is accessible to everyone. We proudly intend to manufacture our fully electric vehicles in Arkansas and Oklahoma, bringing advanced manufacturing and technology jobs to communities in America's heartland. We are committed to building a diverse workforce that will draw heavily upon the local communities of Native Americans and veterans.
We believe we are one of the first automotive manufacturers focused on capturing value across the entirety of the vehicle lifecycle, across multiple owners. Our platform and data architecture is purpose-built to be durable and serve as the foundation for the vehicles we intend to offer, unlocking a highly differentiated, multi-layer business model. The foundational layer is our Multi-Purpose Platform (“MPP” or “platform”) architecture, which serves as the base of our vehicles, including the Lifestyle Vehicle and its Delivery, Base, Premium, and Adventure trims; the Multi-Purpose Delivery Vehicle (“MPDV”) and the Pickup. The next layer is cybersecurity which is embedded in our vehicle to ensure the privacy and protection of vehicle data. Our top hats, or cabins, are modular and purpose-built to provide tailored solutions for our customers. This intentional design enables us to efficiently use resources to produce only what is necessary, underscoring our focus on sustainability and returning capital to customers. The remaining layers, connected accessories and digital customer ecosystem, present high-margin opportunities that extend beyond the initial vehicle sale, across multiple owners. Owners will further be able to customize their vehicles by adding connected accessories such as Bluetooth devices or infotainment systems. In addition, there are opportunities for software sales throughout the vehicle life, including predictive maintenance and service software or advanced driver assistance systems upgrades.
Our platform architecture is a self-contained,
fully-functionalfully functional rolling chassis that directly houses
all of the most critical components for operation of an
EV. These includeEV, including 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
of which have been optimized for functional
integrationintegration. Both our true steer-by-wire system, believed to be the first such system applied to a production-intent vehicle, and
versatility.Our initialour flat composite leaf-spring suspension system are core components of our platform’s differentiated functionality, enabling the development of a broad range of vehicle lineup currently includestypes and use cases due to the chassis’ flat profile and fully variable steering positions. All of our announced vehicles, including the Lifestyle Vehicle and the Lifestyle Delivery Vehicle, the MPDV and the Pickup, will share a common platform architecture paired with multipledifferent top hats to create a range of uniquely customized and use case variants and trim levels, including a delivery variant, our Multi-Purpose Delivery Vehicle (“MPDV”), and our Pickup. This vehicle lineup positions us well to meet demands inoptimized purpose-built mobility solutions targeting multiple target markets forsegments of the benefitrapidly expanding EV marketplace.
In addition to our customers. Each vehicle has been developed to be modular and customizable to enhance the long term value of the vehicles. In addition,technology, we are developing a software ecosystem,platform that aggregates car data from both Canoo and non-Canoo vehicles and delivers valuable insights to our customers. Collected over-the-air for connected vehicles or via an on-board diagnostics device for non-connected vehicles, we believe car data is critical to powering the customer journey and maximizing utility and value from the vehicle ownership experience. Leveraging our data aggregation platform, we aim to create the Canoo Digital Ecosystem, an application store that centralizes all vehicle information for customers and provides key tools across Security & Safety, Household Management, Fleet Management, Lifecycle Management and Vehicle Asset Management. Through our software offering, we believe we can provide differentiated value to both commercial customers and consumers by staying connected throughout the vehicle lifecycle, across multiple owners.
Core to our ethos is delivering high quality products while empowering local communities, which aimsdrove our decision to deliverbuild in America and source a one-stop customer experiencemajority of our parts from America and allied nations. We believe vertical integration across our manufacturing and assembly process will enable us to achieve start of production with direct accessless supply chain risk and provide us better oversight of our vehicle manufacturing. We are building production facilities in states and communities that are investing in high-tech manufacturing alongside us, creating American jobs and driving innovation. We intend to vehicle telematicshave our battery manufacturing and control of key functionality.a mega microfactory in Pryor, Oklahoma as well as a facility in Bentonville, Arkansas. We also envisionplan to move our corporate headquarters to Bentonville.
We have made strategic investments in our technology and products that position us to capture three large and growing markets - commercial and passenger vehicles, upfitting and accessories, and car data. With the Canoo app having functionalityrise of on-demand delivery and eCommerce, it is increasingly important to schedule mobile servicesbring electrification to commercial vehicles, which Mordor Intelligence estimated represented a market opportunity of over $715 billion as of 2020. We also have chosen to pursue the most profitable segments of the passenger vehicle market, the SUV and provide instant quotes for insurance, financing,Pickup segments, which IHS estimated to have generated over $115 billion in profits in 2020. In addition to this opportunity in commercial and valuation via direct integration with third-party providers.
passenger vehicle markets, due to the modularity and customization of all our vehicles, we believe there is a significant opportunity in upfitting and accessories across the vehicle lifecycle, which the Specialty Equipment Market Association estimated were valued at $24 billion in 2020. Lastly, according to research conducted by McKinsey, the value from car data monetization is expected to generate an over $250 billion market by 2030. Altogether, we estimate our highly strategic total market opportunity could grow to be over $1 trillion.Recent Developments
We continue to make progress towards the developmentinnovate and launchdevelop every aspect of our initial slate of vehicles. After having completed over 500,000 testing miles,business, from our non-traditional business model to our built in America, highly utilitarian vehicles optimized to return capital to our customers. We believe being forward-thinking across these areas has set the team has now moved fully into Gamma development on the Lifestyle Vehicle, continuing our progress towards an expected start of production in 2022. Development also continues on the MPDV and Pickup.
In prior updates, we announced the selection of Oklahoma as the locationfoundation for our owned U.S. mega microfactory manufacturing facility. We have recently expanded this partnershipus to include Arkansas and additional locations in Oklahoma. Our Arkansas sites will include a new corporate headquarter for the Company, an advanced industrialization production facility and a research and development center. The expansion in Oklahoma is expected to feature a new research and development center, software development center and customer support and finance center. In our owned production facilities, we expect to produce certain variants of the Lifestyle Vehicle for the US market, as well as the MPDV and Pickup, when those vehicles are launched to the market.
In October 2021, we entereddevelop into a Sales Agreement with Panasonicscalable business that is differentiated from our peers across the automotive original equipment manufacturer landscape.
Recent Developments
Refer to Note 16 for
the supply of lithium-ion battery cells. Panasonic has a proven track record as a world-class battery supplier with billions of cells on the road today, and this partnership is expected to help us to meet production timelines and deliver strong safety and durability performance in our vehicles.
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.
information regarding subsequent events.
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
Availability of Financing Sources and Commercialization
of Our EVs
We expect to derive future revenue from our first vehicle
offerings, which are not expected to launch until late 2022 or after.offerings. 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
Our capital and operating expenditures
will increasehave increased significantly in connection with our ongoing activities
and we expect they will continue to increase, as we:
| ● | commercialize our EVs;•continue to invest in our technology, research and development efforts; •compensate existing personnel; •invest in manufacturing capacity, via our owned facilities; • |
| ● | invest in manufacturing capacity, via both our own owned facilities and contract manufacturing; |
| ● | continue to invest in our technology, research and development efforts; |
| ● | increase our investment in marketing, advertising, sales and distribution infrastructure for our EVs and services; |
| ● | obtain, maintain and improve our operational, financial and management information systems; |
| ● | hire additional personnel; |
| ● | obtain, maintain, expand and protect our intellectual property portfolio; and |
| ● | •obtain, maintain and improve our operational, financial and management information systems; •hire additional personnel; •commercialize our EVs; •obtain, maintain, expand and protect our intellectual property portfolio; and •continue to operate as a public company. |
As a result, we willpublic company.
We 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 financeare financing our operations through commercializationaccess to private 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 equity offerings orand debt financings. The amountManagement believes substantial doubt exists about the Company’s ability to continue as a going concern for twelve months from the date of issuance of the financial statements included in this Quarterly Report on Form 10-Q.
Macroeconomic Conditions
Current adverse macroeconomic conditions, including but not limited to heightened inflation, slower growth or recession, changes to fiscal and timingmonetary policy, higher interest rates, currency fluctuations, challenges in the supply chain and the ongoing impacts from COVID-19, could negatively affect our business.
Increased demand for semiconductor chips in 2020, due in part to the COVID-19 pandemic and increased demand for consumer electronics that use these chips, resulted in a global shortage of
our future funding requirements will depend on many factors, including the pace and results of our research and development efforts andchips in 2021 that has continued into 2022. As a result, our ability to
successfully manage and control costs.COVID-19 Impact
COVID-19 and actions taken to mitigate its spread have had and are expected to continue to have an adverse impact onsource semiconductor chips used in our vehicles may be adversely affected. This shortage may result in increased chip delivery lead times, delays in 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 (including on supply chain and inflation) and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic, including rollout of, acceptance of, and effectiveness of vaccines, as well as emergence of virus variants.
The measures taken to control the spread of the virus have adversely impacted our employees’ ability to collaborate in a discipline that requires a high degree of collaborative work. Our operations have had to change and adapt to meet these new demands. The operationsproduction of our suppliers, vendorsvehicles, and business partners have also been impacted. Various aspects of our business cannot be conducted remotely, including the testing and manufacturing of our EVs. Further, as a growing company, the ability for usincreased costs to hire, onboard and train new employees has been impacted and has required us to evaluate areas of our business that will not result in the best use of our human capital for long-term growth. The spread of COVID-19 has also caused us and many of our contractors and service providers to modify our business practices (including employee travel, recommending that all non-essential personnel work from home and cancellation or reduction of physical participation in testing activities, meetings, events and conferences), and collectively with our contractors and service providers, we have been and may further be required to take actions as required by government authorities or that we determine are in the best interests of our employees, customers, suppliers, vendors and 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.
With the expansion of vaccination efforts in the United States and elsewhere, a majority of governmental restrictions have loosened, and businesses are resuming more normal operations. 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 could be material if the current circumstances continue to exist for a prolonged period of time. source available semiconductor chips.
Although we have made our best estimates based upon current information, actual results could materially differ from the estimates and assumptions developed by management. Accordingly, it is reasonably possible that the estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, and if so, we may be subject to future impairment losses related to long-lived assets as well as changes to valuations.
Key Components of Statements of Operations
Currently, we conduct business through one operating segment. We are an early stage-growth company with
nolimited commercial
operations, and our activities to date,
have been limited andwhich are
primarily 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 the three and nine months ended September 30,
2021 and 2020.2022.
Research and Development Expenses, excluding Depreciation
Research and development expenses, excluding depreciation consist of salaries, employee benefits and expenses for design and engineering
and certain manufacturing 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;
and professional services fees
(includingincluding legal, audit and
tax); and ordinary day-to-day business expenses.tax services.
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.
Comparison of the
threeThree and
nine months endedNine Months Ended September 30,
20212022 and
20202021
The following table sets forth our historical operating results for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Nine months ended | | | | | | |
| | September 30, | | $ | | % | | | September 30, | | $ | | % | |
(in thousands) | | 2021 | | 2020 | | Change | | Change | | | 2021 | | 2020 | | Change | | Change | |
Revenue | | $ | — | | $ | 2,550 | | $ | (2,550) | | (100.0) | % | | $ | - | | $ | 2,550 | | $ | (2,550) | | (100.0) | % |
Costs and operating expenses | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenue, excluding depreciation | | | — | | | 670 | | | (670) | | (100.0) | % | | | - | | | 670 | | | (670) | | (100.0) | % |
Research and development expenses, excluding depreciation | | | 59,387 | | | 18,923 | | | 40,464 | | 213.8 | % | | | 158,033 | | | 52,858 | | | 105,175 | | 199.0 | % |
Selling, general and administrative expenses, excluding depreciation | | | 45,510 | | | 8,405 | | | 37,105 | | 441.5 | % | | | 144,072 | | | 15,897 | | | 128,175 | | 806.3 | % |
Depreciation | | | 2,109 | | | 1,738 | | | 371 | | 21.3 | % | | | 6,317 | | | 5,179 | | | 1,138 | | 22.0 | % |
Total costs and operating expenses | | | 107,006 | | | 29,736 | | | 77,270 | | 259.9 | % | | | 308,422 | | | 74,604 | | | 233,818 | | 313.4 | % |
Loss from operations | | | (107,006) | | | (27,186) | | | (79,820) | | 293.6 | % | | | (308,422) | | | (72,054) | | | (236,368) | | 328.0 | % |
Interest income (expense) | | | 33 | | | (1,094) | | | 1,127 | | (103.0) | % | | | 79 | | | (10,465) | | | 10,544 | | (100.8) | % |
Gain on extinguishment of debt | | | — | | | 5,045 | | | (5,045) | | (100.0) | % | | | - | | | 5,045 | | | (5,045) | | (100.0) | % |
Gain on fair value change in contingent earnout shares liability | | | 25,764 | | | — | | | 25,764 | | NM | | | | 101,166 | | | - | | | 101,166 | | NM | |
Loss on fair value change in private placement warrants liability | | | — | | | — | | | — | | NM | | | | (1,639) | | | - | | | (1,639) | | NM | |
Other income (expense), net | | | 334 | | | (155) | | | 489 | | (315.5) | % | | | 160 | | | (47) | | | 207 | | (440.4) | % |
Loss before income taxes | | | (80,875) | | | (23,390) | | | (57,485) | | 245.8 | % | | | (208,656) | | | (77,521) | | | (131,135) | | 169.2 | % |
(Provision for) income taxes | | | — | | | — | | | — | | NM | | | | - | | | - | | | - | | NM | |
Net loss and comprehensive loss | | $ | (80,875) | | $ | (23,390) | | $ | (57,485) | | 245.8 | % | | $ | (208,656) | | $ | (77,521) | | $ | (131,135) | | 169.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | $ Change | | % Change | | Nine Months Ended September 30, | | $ Change | | % Change |
| (in thousands) | | 2022 | | 2021 | | | | 2022 | | 2021 | | |
| Revenue | | $ | — | | | $ | — | | | $ | — | | | NM | | — | | | — | | | — | | | NM |
| Costs and Operating Expenses | | | | | | | | | | | | | | | | |
| Cost of revenue, excluding depreciation | | — | | | — | | | — | | | NM | | — | | | — | | | — | | | NM |
| Research and development expenses, excluding depreciation | | 57,063 | | | 59,387 | | | (2,324) | | | (4) | % | | 255,009 | | | 158,033 | | | 96,976 | | | 61 | % |
| Selling, general and administrative expenses, excluding depreciation | | 48,826 | | | 45,510 | | | 3,316 | | | 7 | % | | 159,600 | | | 144,072 | | | 15,528 | | | 11 | % |
| Depreciation | | 3,449 | | | 2,109 | | | 1,340 | | | 64 | % | | 9,020 | | | 6,317 | | | 2,703 | | | 43 | % |
| Total costs and operating expenses | | 109,338 | | | 107,006 | | | 2,332 | | | 2 | % | | 423,629 | | | 308,422 | | | 115,207 | | | 37 | % |
| Loss from operations | | (109,338) | | | (107,006) | | | (2,332) | | | 2 | % | | (423,629) | | | (308,422) | | | (115,207) | | | 37 | % |
| Interest (expense) income | | (2,179) | | | 33 | | | (2,212) | | | NM | | (2,189) | | | 79 | | | (2,268) | | | NM |
| (Loss) gain on fair value change in contingent earnout shares liability | | (2,067) | | | 25,764 | | | (27,831) | | | (108) | % | | 22,869 | | | 101,166 | | | (78,297) | | | (77) | % |
| Loss on fair value change in private placement warrants liability | | — | | | — | | | — | | | NM | | — | | | (1,639) | | | 1,639 | | | (100) | % |
| Loss on extinguishment of debt | | (4,095) | | | — | | | (4,095) | | | NM | | (4,095) | | | — | | | (4,095) | | | NM |
| Other (expense) income, net | | (26) | | | 334 | | | (360) | | | (108) | % | | (420) | | | 160 | | | (580) | | | (363) | % |
| Loss before income taxes | | (117,705) | | | (80,875) | | | (36,830) | | | 46 | % | | (407,464) | | | (208,656) | | | (198,808) | | | 95 | % |
| Provision for income taxes | | — | | | — | | | — | | | NM | | — | | | — | | | — | | | NM |
| Net loss and comprehensive loss | | (117,705) | | | (80,875) | | | (36,830) | | | 46 | % | | (407,464) | | | (208,656) | | | (198,808) | | | 95 | % |
“NM” means not meaningful
Revenue and Cost of Revenue, excluding Depreciation
During the three and nine months ended September 30, 2020, revenue was derived from the provision of consulting services. Cost of revenue, excluding depreciation, includes materials, labor, and other direct costs related to the provision of engineering, development, and design consulting services. The total revenue was $2.6 million and related cost of revenue was $0.7 million for the three and nine months ended September 30, 2020.
During the three and nine months ended September 30, 2021, there was no revenue generated since the Company is an early stage growth company in the pre-commercialization stage of development.
Research and Development Expenses, excluding Depreciation
Research and development expenses increaseddecreased by $40.5$2.3 million, or 213.8%4%, to $57.1 million in the three months ended September 30, 2022, compared to $59.4 million in the three months ended September 30, 2021, compared2021. The decrease was primarily due to $18.9decreases in research and development costs such as engineering and design, testing, prototype tooling, and gamma parts of $16.2 million and partially offset by an increase in salary and related benefits expense of $8.5 million and increase in stock-based compensation expense of $2.4 million.
Research and development expenses increased by $97.0 million, or 61%, to $255.0 million in the
threenine months ended September 30,
2020.2022, compared to $158.0 million the nine months ended September 30, 2021. The increase was primarily due to increases in
research and development costs of $22.4 million, salary and related benefits expense of
$12.8$40.6 million,
and stock-based compensation expense of $5.6 million, respectively. The increase in research and development costs
primarily related to expenditures for the Gamma stagesuch as engineering
and design,
testing, prototype tooling, and
development costs incurred during the three months ended September 30, 2021.Researchgamma parts of $39.6 million, travel and developmentother business expenses increased by $105.1 million, or 199.0%, to $158.0 million in the nine months ended September 30, 2021, compared to $52.9 million in the nine months ended September 30, 2020. The increase was primarily due to increases in research and development costs of $54.0 million, salary and related benefits expense of$25.0$4.9 million, and stock-based compensation expenseprofessional fees of $21.9 million, respectively. The increase in research and development costs primarily relates to our expenditures for the Gamma stage engineering design and development costs incurred during the nine months ended September 30, 2021.
$4.0 million. The increase in stock-based compensation expenses of $5.6 million and $21.9 million during the three and nine months ended September 30, 2021, respectively, was primarily driven by the recognition of stock compensation expense related to 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 12 of the notes to our accompanying financial statements.
Salary and related benefits expenses increased $12.8 million, from $11.0$8.5 million during the three months ended September 30, 20202022 to $32.3 million from $23.8 million during the three months ended September 30, 2021. Salary2021, and related benefits increased $25.0 million from $33.9to $99.5 million during the nine months ended September 30, 2020 to2022 from $58.9 million during the nine months ended September 30, 2021. These increases are primarily due to continued investment in personnel and contract employees to drive and reach our research and development goals.
We expect
Travel and other business expenses increased by $4.9 million during the nine months ended September 30, 2022 to continue$6.2 million from $1.3 million during the nine months ended September 30, 2021, primarily due to see an overall increase in researchtravel related to gamma stage engineering design and development expensescosts.
Professional fees increased by $4.0 million during the nine months ended September 30, 2022 to
support our growth and initiatives related$6.7 million from $2.7 million during the nine months ended September 30, 2021, primarily due to
the Lifestyle Vehicle, Multi-Purpose Delivery Vehicles, and Pickup which are expected to launch as early as 2022 and 2023.consulting fees.
Selling, General and Administrative Expenses, excluding Depreciation
Selling, general and administrative expenses increased by
$37.1$3.3 million,
or 441.5%, to
$45.5$48.8 million
infor the three months ended September 30,
2021,2022, compared to
$8.4$45.5 million
infor the three months ended September 30,
2020.2021. The increase was primarily due to increases of
$13.0$2.6 million in
professional fees, $13.2 million in stock-based compensationinformation technology ("IT") expenses,
$7.2$1.2 million in salary and related benefits,
$0.9 million in professional fees, and
$2.6$0.7 million in occupancy
costs.costs, partially offset by a decrease of $2.0 million in stock-based compensation expenses. Other factors affecting selling, general and administrative expenses were individually immaterial.
Selling, general and administrative expenses increased by
$128.2$15.5 million
or 806.3%, to
$144.1$159.6 million
infor the nine months ended September 30,
2021,2022, compared to
$15.9$144.1 million
infor the nine months ended September 30,
2020.2021. The increase was primarily due to increases of
$66.8 million in stock-based compensation expenses, $29.1 million in professional fees, $11.9$19.3 million in salary and related benefits,
$8.5$10.6 million in IT expenses, $9.6 million in professional fees, and $3.6 million in occupancy costs,
and $5.9offset by a decrease of $29.6 million in
marketing spend.stock-based compensation expenses. Other factors affecting selling, general and administrative expenses were individually immaterial.
The increase in stock-based compensation expenses of $13.2 million and $66.8 million for the three and nine months ended September 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, 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 12 of the notes to our accompanying financial statements. Other factors affecting stock-based compensation expenses were individually immaterial.
Professional fees increased by $13.0 million and $29.1 million during the three and nine months ended September 30, 2021, respectively, primarily due to activities related to business development, legal fees, and consulting fees.
Salary and related benefits expenses increased
$7.2by $1.2 million
to $10.5 million in the three months ended September 30, 2022, compared to $9.3 million in the three months ended September 30,
2021, compared to $2.1 million in the three months ended September 30, 2020.2021. Salary and related benefits expenses increased
$11.9by $19.3 million
to $38.0 million in the nine months ended September 30, 2022, compared to $18.7 million in the
threenine months ended September 30,
2021, compared to $6.8 million in the three months ended September 30, 2020.2021. These increases were due primarily to investment in personnel to support our growth and achieve start of production in late 2022.
We expect
Professional fees increased by $0.9 million to continue$16.1 million in the three months ended September 30, 2022, compared to see an overall increase$15.2 million in selling, general and administrative expensesthe three months ended September 30, 2021. Professional fees increased by $9.6 million to support our growth and initiatives$42.1 million in the nine months ended September 30, 2022, compared to $32.5 million in the nine months ended September 30, 2021. These increases were primarily due to activities related to business development, legal fees, and consulting fees.
IT expenses increased by $2.6 million to $6.0 million in the Lifestyle Vehicle, Multi-Purpose Delivery Vehicles,three months ended September 30, 2022 compared to $3.4 million in the three months ended September 30, 2021. IT expenses increased by $10.6 million to $16.4 million in the nine months ended September 30, 2022, compared to $5.8 million in the nine months ended September 30, 2021. These increases were primarily due to increased computer software-related costs including subscriptions and Pickup which are expectedmaintenance.
Occupancy fees increased by $0.7 million to launch as early as$3.8 million during the three months ended September 30, 2022, and 2023.compared to $3.1 million in the three months ended September 30, 2021. Occupancy fees increased by $3.6 million to $12.9 million in the nine months ended September 30, 2022, compared to $9.3 million in the nine months ended September 30, 2021. These increases were primarily due to increased rent from additional spaced leases that commenced in 2022. Refer to Note 9 for information regarding the Company's lease portfolio.
Stock-based compensation expenses decreased by $2.0 million to $11.3 million for the three months ended September 30,
2022, compared to $13.3 million in the three months ended September 30, 2021. Stock-based compensation expenses decreased by $29.6 million to $37.5 million in the nine months ended September 30, 2022, compared to $67.1 million in the nine months ended September 30, 2021. These decreases were primarily driven by the granting of certain restricted stock awards in the prior period, partially offset by the continued recognition of stock compensation expense related to issuance of awards to employees. See further discussion on stock-based compensation in Note 11 of the notes to our accompanying financial statements. Other factors affecting stock-based compensation expenses were individually immaterial.
Interest Expense
Interest(expense) income
We recognized interest expense decreased by $1.1of$2.2 millionin thethree and nine months ended September 30, 2022, which was a result of effective interest incurred under the PPA of $0.3 million, as well as the amortization of related debt issuance costs of $1.0 million and $10.5debt discount of $0.9 million.
(Loss) Gain on Fair Value Change in Contingent Earnout Shares Liability
We recognized a non-cash loss on fair value change of contingent earnout shares liability of $2.1 million and non-cash gain of $22.9 million in the three and nine months ended September 30,
2021, respectively. The decrease was primarily due to interest expense incurred and the amortization of debt discount on related party convertible notes that were repaid in connection with the Business Combination.Gain on Fair Value Change in Contingent Earnout Shares Liability
The Company has a contingent obligation to issue 15.0 million shares of its common stock to certain stockholders and employees (the "Earnout Shares"). We recognized a non-cash gain on fair value change in contingent Earnout Shares liability of $25.8 million and $101.2 million in the three and nine months ended September 30, 2021,2022, respectively, which was a result of the periodic remeasurement of the fair value of our contingent Earnout Sharesearnout shares liability. See further discussion on the contingent Earnout Shares liability in Note 11 of the notes to our accompanying financial statements.
Gain on Extinguishment of Debt
The Company recognized aA non-cash gain on extinguishmentfair value change of debtcontingent earnout shares liability of $5.0$25.8 million and $101.2 million was recognized in the three and nine months ended September 30, 2020 which was a result of the conversion of all of the Company’s outstanding convertible notes on August 16, 2020.
2021, respectively.
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 nine months ended September 30, 2021 which was a result of the periodic remeasurement of the fair value of our private placement warrants liability. See further discussion onAll of the private placement warrants liability in Note 13were converted to public warrants on March 2, 2021.
Loss on Extinguishment of Debt
We recognized$4.1 million of extinguishment of debt loss as a result of repayments made to Yorkville of convertible debt through the notes to our accompanying financial statements.issuance of shares during the three and nine months ended September 30, 2022.
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, changes to the fair value of warrants 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 EBITDA and 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.
The following table reconciles net loss to EBITDA and Adjusted EBITDA for the three and nine months ended September 30,
2022 and 2021,
and 2020, respectively:
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
(in thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Net loss | | $ | (80,875) | | $ | (23,390) | | $ | (208,656) | | $ | (77,521) |
Interest (income) expense | | | (33) | | | 1,094 | | | (79) | | | 10,465 |
Provision for income taxes | | | — | | | — | | | — | | | — |
Depreciation | | | 2,109 | | | 1,738 | | | 6,317 | | | 5,179 |
EBITDA | | | (78,799) | | | (20,558) | | | (202,418) | | | (61,877) |
Adjustments: | | | | | | | | | | | | |
Gain on fair value change in contingent earnout shares liability | | | (25,764) | | | — | | | (101,166) | | | — |
Loss on fair value change in private placement warrants liability | | | — | | | — | | | 1,639 | | | — |
Other (income) expense, net | | | (334) | | | 155 | | | (160) | | | 47 |
Stock-based compensation | | | 19,098 | | | 319 | | | 89,758 | | | 1,059 |
Adjusted EBITDA | | $ | (85,799) | | $ | (20,084) | | $ | (212,347) | | $ | (60,771) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net loss | | $ | (117,705) | | | $ | (80,875) | | | $ | (407,464) | | | $ | (208,656) | |
| Interest expense (income) | | 2,179 | | | (33) | | | 2,189 | | | (79) | |
| Provision for income taxes | | — | | | — | | | — | | | — | |
| Depreciation | | 3,449 | | | 2,109 | | | 9,020 | | | 6,317 | |
| EBITDA | | (112,077) | | | (78,799) | | | (396,255) | | | (202,418) | |
| Adjustments: | | | | | | | | |
| Loss (gain) on fair value change in contingent earnout shares liability | | 2,067 | | | (25,764) | | | (22,869) | | | (101,166) | |
| Loss on fair value change in private placement warrants liability | | — | | | — | | | — | | | 1,639 | |
| Loss on extinguishment of debt | | 4,095 | | | — | | | 4,095 | | | — | |
| Other expense (income), net | | 26 | | | (334) | | | 420 | | | (160) | |
| Stock-based compensation | | 19,527 | | | 19,098 | | | 60,980 | | | 89,758 | |
| Non-cash legal settlement (Note 8) | | 5,532 | | | — | | | 5,532 | | | — | |
| Adjusted EBITDA | | $ | (80,830) | | | $ | (85,799) | | | $ | (348,097) | | | $ | (212,347) | |
Liquidity and Capital Resources
As of September 30, 2021, our principal source of liquidity was our2022, we had unrestricted cash balanceand cash equivalents in the amount of $414.9$6.8 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 assessing our liquidity requirements and cash needs, we also consider contractual obligations to which we are a party
. Additionally, see discussion related to the operating lease maturity schedule and any new leases entered into in Note 9 of the pre-commercialization stage of development, thenotes to our accompanying financial statements.
We have incurred and expect to incur, net losses
which have resulted in an accumulated deficit of $1.1 billion as of September 30, 2022. Management continues to explore raising additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing to supplement the Company’s capitalization and
comprehensive lossesliquidity. If and as we
raise additional funds by incurring loans or by issuing debt securities or preferred stock, these forms of financing have
incurred since inceptionrights, preferences, and privileges senior to those of holders of our Common Stock. The availability and the terms under which we are
consistent withable to raise additional capital could be disadvantageous, and the terms of debt financing or other non-dilutive financing involve restrictive covenants and dilutive financing instruments, which could place significant restrictions on our
strategyoperations. Macroeconomic conditions and
budget.credit markets are also impacting the availability and cost of potential future debt financing. As we raise capital through the issuance of additional equity, such sales and issuance has and will continue to dilute the ownership interests of the existing holders of Common Stock. There can be no assurances that any additional debt, other non-dilutive and/or equity financing would be available to us on favorable terms or at all. We
willexpect to continue to incur net losses,
and comprehensive losses,
and negative cash flows from operating activities in accordance with our operating plan as we continue to expand our research and development activities to complete the development of our
Multi-Purpose PlatformMPP 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:
| ● | continue to invest in our technology, research and development efforts; |
| ● | increase our investment in marketing, advertising, sales and distribution infrastructure for our EVs and services; |
| ● | obtain, maintain and improve our operational, financial and management information systems; |
| ● | hire additional personnel; |
| ● | obtain, maintain, expand and protect our intellectual property portfolio; and |
| ● | continue to operate as a public company. |
As an early stage growth company adjusting to the long-term implications of the COVID-19 pandemic,invest in our ability to access capital is critical. Management plans to raise additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing. Additional financing may not be available on favorable terms or at alltechnology, research and
development efforts; •compensate existing personnel;•invest in manufacturing capacity, via our owned facilities;
•increase our investment in marketing, advertising, sales and distribution infrastructure for our EVs and services;
•obtain, maintain and improve our operational, financial and management information systems;
equity financing could be dilutive to current stockholders. Debt financing•hire additional personnel;
•commercialize our EVs;
•obtain, maintain, expand and other non-dilutive financing, if available, may involve restrictive covenantsprotect our intellectual property portfolio; and dilutive financing instruments. Our ability to access capital when needed is not assured and, if capital is not available to us when, and in the amounts needed, we will not be able to expand our operations beyond bringing the lifestyle vehicle to the point of production, and we could be required to delay, scale back, or abandon some or all of our 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 management assuming that we will continue
•operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. public company.
As of the date of this report,
we believe that our existing cash resources
and additional sources of liquidity are
not sufficient to support planned operations, which comprise bringing our lifestyle vehicle to the point of production, for the next 12 months.
As aThe accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result
management believes that our existing financial resources are sufficient to continue operating activities for at least one year pastfrom the
issuance dateoutcome of
the financial statements.this uncertainty.
Presented below is a summary of our operating, investing and financing cash flows (in thousands):
| | | | | | | |
| | For the Nine Months Ended | |
| | September 30, | |
Consolidated Cash Flow Statements Data: | | 2021 | | 2020 | |
Net cash used in operating activities | | $ | (180,621) | | $ | (65,091) | |
Net cash used in investing activities | | | (100,110) | | | (1,209) | |
Net cash (used in) provided by financing activities | | | (5,377) | | | 186,129 | |
| | | | | | | | | | | | | | |
| | For the nine months ended September 30, |
Consolidated Cash Flow Statements Data | | 2022 | | 2021 |
| Net cash used in operating activities | | $ | (329,863) | | | $ | (180,621) | |
| Net cash used in investing activities | | (58,377) | | | (100,110) | |
| Net cash provided by (used in) financing activities | | 181,271 | | | (5,377) | |
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 and other current assets and liabilities.
Net cash used in operating activities was $329.9 million for the nine months ended September 30, 2022. Our cash outflow from operating activities primarily consist of payments related to our research and development and selling, general and administration expenses. Total expenditure as it relates to research and development excluding depreciation was $255.0 million during the nine months ended September 30, 2022, of which $23.4 million related to stock-compensation expenses. We also incurred selling, general and administration expenses of $159.6 million for the nine months ended September 30, 2022, of which $37.5 million related to stock-compensation expenses. The expenses include salaries and benefits paid to employees as primarily all salaries and benefits were paid in cash during the nine months ended September 30, 2022.
Net cash used in operating activities was $180.6 million for the nine months ended September 30, 2021. Our cash outflow from operating activities primarily consist of payments related to our research and development and selling, general and administration expenses. Total expenditure as it relates to research and development excluding depreciation was $158.0 million during the nine months ended September 30, 2021, of which $22.6 million related to stock-compensation expenses. We also incurred selling, general and administration expenses of $144.1 million for the nine months ended September 30, 2021, of which $67.1 million related to stock-compensation expenses during the nine months ended September 30, 2021. The expenses include salaries and benefits paid to employees as primarily all salaries and benefits were paid in cash during the nine months ended September 30, 2021.
Net cash used in operating activities was $65.1 million for the nine months ended September 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 it relates to research and development excluding depreciation was $52.9 million during the nine months ended September 30, 2020, of which $0.7 million related to stock-compensation expenses during the nine months ended September 30, 2020. We also incurred selling, general and administration expenses of $15.9 million for the nine months ended September 30, 2020, of which $0.4 million related to stock-compensation expenses during the period. Primarily all of research and development and selling, general and administrative expenses were paid in cash. The expenses include salaries and benefits paid to employees as primarily all salaries and benefits were paid in cash during the nine months ended September 30, 2020.
Cash Flows from Investing Activities
We continuegenerally expect 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 $58.4 million for the nine months ended September 30, 2022, which consisted of $88.8 million related to purchase of property and equipment, primarily purchases of production tooling, machinery, and equipment to support future manufacturing activities, offset by a repayment received in February 2022 totaling $30.4 million from VDL Nedcar.
Net cash used in investing activities was approximately $100.1 million for the nine months ended September 30, 2021, which primarily consisted of purchases of production tooling as well as machinery and equipment
and prepayment to
support future manufacturing activities.VDL Nedcar.
Cash Flows from Financing Activities
Net cash
used in investingprovided by financing activities was
$1.2$181.3 million for the nine months ended September 30,
2020,2022, which primarily consisted of
purchasesproceeds of
machinery$89.1 million under the PPA, proceeds of $50.0 million from the issuance of Common Stock under the PIPE closed in May 2022, proceeds of $32.5 million from issuance of Common Stock under SEPA, proceeds of $8.4 million received from VDL Nedcar in February 2022 for the purchase of the shares of Common Stock, and
equipment, computer hardware and software and leasehold improvements.Cash Flowsproceeds of $2.5 million from Financing Activities
the issuance of Common Stock under the employee stock purchase plan, partially offset by the payment of $1.2 million in offering costs.
Net cash used in financing activities was $5.4 million for the nine months ended September 30, 2021, which was primarily due to a $6.9 million repayment of the
Company’sCompany's PPP loan and $5.3 million in payments for offering costs, offset by proceeds of $6.9 million resulting from the exercise of public warrants.
Net cash provided by financing activities was $186.1 million for the nine months ended September 30, 2020, which was primarily due to the proceeds from convertible debt and derivative liability as well as the loan advance.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements.
Critical Accounting
Policies and Estimates
Our condensed consolidated financial statements (unaudited) have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
There
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in ASC 480 and ASC 815, as further described in Note 2. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the instruments are outstanding. The Company concluded that the warrants issued to Walmart and vested as of September 30, 2022 qualify for equity accounting treatment. The equity classified warrants are measured at fair value on its grant date using a Black-Scholes-Merton model, with no fair value re-measurement at each reporting period given equity classification. Refer to Note 13 for information regarding the warrants issued to Walmart.
Except for any updates above, there have been no material changes to our critical accounting
policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31,
2020.2021. For a discussion of our critical accounting
policies and estimates, see the section titled “Critical Accounting Policies and Estimates” included in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,Operations", each included in our Annual Report on Form 10-K.
”
Emerging Growth Company and Smaller Reporting Company Status
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 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.
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. As a result, starting with our first quarterly report in 2022, we will no longer be eligible to rely on the scaled disclosure exemptions applicable to smaller reporting companies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
We have not, to date, been exposed to material market risks given our early stage of operations. Upon commencing commercial operations, we may be exposed to material market risks. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our current market risk exposure is primarily the result of fluctuations in interest rates.
Interest Rate Risk
We are exposed to market risk for changes in interest rates applicable to our cash and cash equivalents. We had cash and cash equivalents totaling $6.8 million as of September 30, 2022. Our cash and cash equivalents were invested primarily in money market funds and are not invested for trading or speculative purposes. However, due to the short-term nature and the low-risk profile of the money market funds, we do not believe a sudden increase or decrease in market interest rates would have a material effect on the fair market value of our portfolio.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Inflationary factors such as increases in material costs (e.g. semiconductor chips) or overhead costs may adversely affect our business, financial condition, and operating costs upon commencing commercial operations.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The term “disclosure
Our management, with the participation of our Executive Chair and CEO and Interim Chief Financial Officer ("CFO"), has evaluated the effectiveness of our disclosure controls and
procedures”,procedures as
of September 30, 2022. We have established and currently maintain disclosure controls and procedures, as such term is defined
underin Rules 13a-15(e) and 15d-15(e)
underof the Exchange Act,
means controls and other procedures of a company that are designed to
ensureprovide reasonable assurance that information required to be disclosed
by a company in
theour reports
that it files or submitsfiled under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the
SEC’sSEC's rules and
forms. Disclosure controlsforms, and
procedures include, without limitation, controls and procedures designed to ensure that
such information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the company’s management, including
itsour principal executive
officer and principal financial officer, as appropriate, to allow
for timely decisions regarding required disclosure.
Because there are inherent limitations in all control systems, a control system,In designing and evaluating disclosure controls and procedures, management recognized that any controls and procedures, no matter how well
conceiveddesigned and operated, can provide only reasonable
as opposedassurance of achieving the desired control objectives, and management necessarily was required to
absolute, assurance thatapply its judgment in evaluating the
objectivescost-benefit relationship of
the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty,possible controls and
that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.While we have made meaningful progressprocedures.
Based on
strengthening our internal controls relative to the previously identified material weaknesses, those material weaknesses have not yet been fully remediated. Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectivenessan evaluation of our disclosure controls and procedures,
as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our
managementCEO and CFO concluded that our disclosure controls and procedures were
not effective at
thea reasonable assurance level as of
the end of the period covered by this Quarterly Report on Form 10-Q, as a result of the ongoing remediation associated with the material weaknesses both discussed below and identified in our Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.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 quarter ended March 31, 2021:
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;September 30, 2022.
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 and implemented additional internal reporting processes and controls, including those intended to add rigor to our financial close processes;
e.Designed and implemented 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;
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; and
| h. | Designed and began execution of a comprehensive management testing program covering all key controls that were implemented to support to our remediation efforts. |
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 and operating effectiveness has been validated through completion of our management testing program.
Changes in Internal Control over Financial Reporting
During the second quarter of 2021, we implemented a new employee stock plan administration system. Accordingly, we are modifying the design and documentation of certain processes and internal controls related to the system implementation. We do not believe that the system implementation is likely to materially affect our internal control over financial reporting.
Other than as discussed above, there
There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30,
20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
For a description of any material pending legal proceedings, please see Note 8, Commitments and Contingencies, of the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Except as stated below, there have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K. Any of the risk factors included in the Annual Report on Form 10-K or enumerated below could result in a significant or material adverse effect on our results of operations, financial condition or cash flows. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
Risks Related to
our Production ProcessesOur Business and
Supply ChainFinancial Results
We may not be able to realize the non-dilutive financial incentives offered by the States of Oklahoma and Arkansas where we will develop our own manufacturing facilities. Developing our own manufacturing facilities for production
Our management has performed an analysis of our EVsability to continue as a going concern and has identified substantial doubt about our ability to continue as a going concern. If we are unable to obtain sufficient additional funding or do not have access to capital, we may be required to terminate or significantly curtail our operations.
Based on their assessment, our management has raised concerns about our ability to continue as a going concern. Management continues to explore raising additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing to supplement the Company’s capitalization and liquidity. However, as substantial doubt about our ability to continue as a going concern exists, our ability to finance our operations through the sale and issuance of additional debt or equity securities or through bank or other financing could increasebe impaired and management cannot conclude as of the date of this filing that its plans are probable of being successfully implemented. As of the date of this report, we believe that our capital expendituresexisting cash resources and delay or inhibitadditional sources of liquidity are not sufficient to support planned operations, which comprise bringing our lifestyle vehicle to the point of production, for the next 12 months. Our ability to continue as a going concern will depend on our ability to obtain additional capital.
Our principal sources of liquidity are our unrestricted cash balance in the amount of $6.8 million as of September 30, 2022 and potential proceeds from the Wainwright ATM Program (Note 12). The decision regarding the sale of shares through the Wainwright ATM Program is subject to market conditions, such as trading volume, price of our
EVs.In June 2021, we finalizedCommon Stock and other factors beyond our control, as well as conditions included in the selection of the State of Oklahoma as the location for our U.S. mega microfactory (among other facilities) to execute Phase 2 of production of our EVs, and in November 2021, we finalized the selection of the State of Arkansas as the location for an advanced industrialization facility (among other facilities), which is expected
to support our initial production of EVs starting in 2022. As part of the negotiations with the State of Oklahomaprograms’ governing documents and the Statetimely weekly payment of Arkansas,$1.0 million of Pre-Paid Advances pursuant to the States have offered non-dilutive financial incentives to support our facilities, whichPPA Side Letter. As of November 7, 2022, we expect could be realized through a periodhad issued an aggregate of time based upon22.1 million shares under the achievement of certain milestones.
Our agreements with the States of Arkansas and Oklahoma are preliminary and there isWainwright ATM Program. There’s no assuranceguarantee that we will be able to enter into definitive agreements reflectingsell any additional shares and receive any additional proceeds from the non-dilutiveWainwright ATM Program. Therefore, our current sources of financing remain limited.
Additional capital may not be available on favorable terms, or at all, and additional equity financing, including shares issued under the Wainwright ATM Program, will further dilute our current stockholders. If we raise additional funds by issuing debt securities or preferred stock, or by incurring additional loans, these forms of financing would have rights, preferences, and privileges senior to those of holders of our Common Stock. If adequate capital is not available to us in the amounts needed, we could be required to terminate or significantly curtail our operations in which case our investors could lose some or all of their investment.
Outstanding amounts under the PPA will make us more vulnerable to downturns in our financial incentivescondition.
As of November 7, 2022, there are $5.0 million of Pre-Paid Advances outstanding under the PPA. If our cash flow from operations is insufficient to meet our payments under the PPA, including the timely weekly payment of $1.0 million pursuant to the PPA Side Letter, and if there are any future Pre-Paid Advances and we are unable to offset amounts outstanding under the PPA with the issuance of shares of Common Stock or otherwise pay in cash, we would incur an event of the default under the PPA, in which case, all outstanding amounts would be immediately due and payable and we would also be unable to continue issuing shares under the Wainwright ATM Program. Any debt we owe Yorkville under the PPA or any other debt owed to other parties could make us more vulnerable to a downturn in our operating results or a downturn in economic conditions. If our cash flow from operations is insufficient to meet any debt service requirements or we incur an event of default, we could be required to refinance our obligations, or dispose of assets in order to meet debt service requirements.
Customers who have been offered. There is also no guaranteecommitted to purchase significant amounts of our vehicles may purchase significantly fewer vehicles than we currently anticipate or none at all. In that case, our business, prospects, financial condition, results of operations, and cash flows could be materially and adversely affected.
Our future success depends on us commencing commercial sales and attracting a large number of customers for our EVs. In the near-term, if we are able to
enter into definitive agreements, we will be able to achievecomplete the
milestones or other requirements established by the States of Arkansas and Oklahoma to realize the full value of the financial incentives. Other factors beyond our control, could also impact the ability of the States to materialize such incentives. As a result, there is no guarantee that we will realize the non-dilutive incentives offered to us.In addition, there can be no assurance that we will be able to establish our own production facilities in the State of Arkansas or the State of Oklahoma within the planned timelines, or at all. The expense and time required to complete development of our MPP and EVs, we have secured commitments from Walmart, Zeeba and Kingbee to purchase vehicles . Pursuant to EV Fleet Purchase Agreements, such facilitiesparties agreed to purchase certain specific number of EVs, in each case with an option to purchase additional EVs. Such parties’ purchases are subject to us meeting certain acceptance and to assure that EVs manufactured at such facilities complyperformance criteria with our quality standards and regulatory requirements could be greater than currently anticipated. Developing our own manufacturing and production facilities could increase our capital expenditures and could delay production of ourrespect to EVs. If we are unable to complete development ofmeet such requirements, such parties may terminate the EV Fleet Purchase Agreements or decide to purchase fewer vehicles than expected. Walmart also has the right to terminate the Walmart EV Fleet Purchase Agreement for convenience upon at least 30 days’ written notice. Furthermore, these parties may not have the financial resources to purchase vehicles from us. If these parties terminate the EV Fleet Purchase Agreements or purchase less EVs than expected or none at all, we will not realize the revenue that we expect to realize from these agreements.
In addition, the automotive market is highly competitive, and our
facilities in accordancerelationship with
Walmart will limit our
anticipated timelines,access to certain customers that could represent substantial business opportunities. Under the Walmart EV Fleet Purchase Agreement, we
may be unablegranted Walmart exclusivity rights, which restrict our ability to
produce and delivercontract with Amazon.com, Inc., its subsidiaries, or affiliates. If due to the exclusivity granted to Walmart, we cannot sell our EVs to
the market withinthese customers, our
planned timelines.Our manufacturing facilitiesoperations may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, flooding, fire and power outages, or by health epidemics, such as the recent COVID-19 pandemic, which may render it difficult or impossible for us to manufactureadversely impacted. Furthermore, our EVs for some period of time. The inability to manufacture our EVs or the backlog that could develop if our manufacturing facilities are inoperable for even a short period of time may result in the loss of customers or harm our reputation.
Risks Related to Technology, Data and Privacy-Related Matters
Our partners and third-party vendors, including our selected outsourced manufacturing partner, are subject to cybersecurity and other production risks, which could harm our competitive advantage or cause delays in the productioncommercial relationship with Walmart, together with its ownership of our vehicles.
The parent company of our selected outsourced manufacturing partner, VDL Nedcar B.V. (“VDL Nedcar”), was the subject ofCommon Stock as a large-scale cybersecurity attack on October 7, 2021, which disabled computers and servers and resulted in the shutdown of a large part of its operations, some of which have only resumed recently. Because the investigation as to the background and consequencesresult of the attack remain ongoing, we have not yet been able to determine if the proprietary information and intellectual property we have shared with VDL Nedcar in anticipation of entering into definitive agreements, was accessed, compromised or misappropriated in the incident. If the perpetratorsexercise of the attack obtained accessWarrant we issued to Walmart, may deter Walmart’s competitors or other third parties from contracting with us.
As a result of the EV Fleet Purchase Agreements, we will make substantial capital investments and strategic business decisions. If we are unable to maintain our
proprietary information and intellectual property, our competitive advantage could be seriously harmed. Loss of our competitive advantage could adversely affectrelationships with Walmart, Zeeba or Kingbee or other similar parties, our business, prospects, financial condition,
results of operations, and
operating results.Ifcash flows could be materially and adversely affected.
Risks Related to Our Securities
The issuance of shares of our selected outsourced manufacturing partner suffers disruptions, delays or capacity constraints asCommon Stock upon exercise of our outstanding warrants will increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
As of September 30, 2022, there were 23,755,069 public warrants outstanding. In February 2022, we also issued a resultwarrant to purchase an aggregate of cybersecurity attacks or otherwise, andapproximately 1.0 million shares of Common Stock to VDL Nedcar at exercise prices ranging from $18 to $40 per share. In connection with the Walmart EV Fleet Purchase Agreement, we issued to Walmart a Warrant to purchase an aggregate of 61.2 million shares of Common Stock, at an exercise price of $2.15 per share. The Warrant is unable to manufacture EVs at scale that meet our specifications and timeline, or if we are not able to enter into long-term definitive agreements with our selected outsourced manufacturing partner, we may need to accelerate our plansvested with respect to 15.3 million shares of Common Stock.
To the developmentextent any of our own manufacturing facilities or find other alternatives, including securing a different outsourced manufacturer. Pursuing these alternatives could cause significant delaysoutstanding warrants are exercised, additional shares of our Common Stock will be issued, which will result in dilution to the holders of our Common Stock and increase the number of shares subject to resale in the productionpublic market. Sales of our vehicles and cause us to incur additional costs. Delays and additional costs could have a material adverse effect on our business, prospects, financial condition and operating results.
Risks Related to Environmental, Regulatory and Tax Matters
We face risks and uncertainties related to litigation, regulatory actions and government investigations and inquiries.
We are, and maysuch shares in the future become, subject to various litigations, other claims, suits, regulatory actions and government investigations and inquiries. Seepublic market or 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, wefact that such warrants may be involved in other legal proceedings arising inexercised could adversely affect 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 themarket price of our common stock. In addition, such legal proceedingsCommon Stock and may make it more difficult for you to financesell your shares at a time and price that you deem appropriate.
Substantial blocks of our
operations.Common Stock may be sold into the market as a result of the financing instruments we have entered or may enter into, which may cause the price of our Common Stock to decline.
The price of our Common Stock could decline if there are substantial sales of shares of our Common Stock, if there is a large number of shares of our Common Stock available for sale, or if there is the perception that these sales could occur.
We have entered into various equity and financing agreements, under which we have issued, as of November 7, 2022, an aggregate of 67.5 million shares of Common Stock, all of which are expected to be sold in the market. In addition, on July 11, 2022, we issued the Warrant to Walmart to purchase 61.2 million shares of Common Stock, of which 15.3 million shares of Common Stock have vested and may be immediately exercised. Issuances of shares of Common Stock pursuant to the equity and financing agreements that we have entered, and will enter, into will continue to dilute the percentage ownership of our stockholders and may dilute the per share projected earnings (if any) or book value of our Common Stock. Sales of a substantial number of shares of our Common Stock in the public market or other issuances of shares of our Common Stock, or the perception that these sales or issuances could occur, could cause the market price of
our Common Stock to decline and may make it more difficult for you to sell your shares at a time and price that you deem appropriate.
The actual number of shares of Common Stock we will issue pursuant to the Wainwright ATM Program, at any one time or in total, is uncertain.
Subject to certain conditions and compliance with applicable law, we will issue, or continue to issue, as applicable, shares of our Common Stock from time to time in the market under the Wainwright ATM Program. It is not possible at this stage to predict the total number of shares of Common Stock that will be ultimately issued pursuant to these programs.
We currently qualify
For the second quarter of 2022, we have re-qualified as an “emerging growth company” and a “smaller reporting company” within the meaning of the Securities Act; however,Act. The reduced disclosure requirements applicable to smaller reporting companies may make our Common Stock less attractive to investors.
Based on the aggregate worldwide market value of voting and non-voting Common Stock held by non-affiliates as of June 30, 2022, we will ceasere-qualified as a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act and for so long as we remain a smaller reporting company, we are permitted and intend to qualify as an “emerging growth company” beginningrely on exemptions from certain disclosure requirements that are applicable to other public companies that are not smaller reporting companies. These exemptions include, among others:
•being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with our Annual Report on Form 10-K for the year ending December 31, 2021,correspondingly reduced “Management’s Discussion and at such time, will beAnalysis of Financial Condition and Results of Operations” disclosure;
•being permitted to omit quantitative and qualitative disclosures of market risk; and
•not being required to comply with the auditor attestation requirements of Section 404 ofin 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 effectivenessassessment 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 certainSection 404(b) of the scaled disclosures available to smaller reporting companies in our Annual Report on Form 10-K for the year ending December 31, 2021 and our 2022 proxy statement. Sarbanes-Oxley Act.
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 cannot predict whether investors will find our Common Stock less attractive if we rely on these exemptions. If some investors find our Common Stock less attractive as a result, we could experience greater difficulty raising equity capital, there may be a less active trading market for our Common Stock, and our stock price may be more volatile. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
During the three months ended September 30, 2022, the Company issued 2,033,864 shares of Common Stock to a former employee of the Company in connection with the settlement of a confidential arbitration. For more information, see Note 8, Commitments and Contingencies, of the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The issuance of these shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
During the three months ended September 30, 2022, the Company sold other equity securities not registered under the Securities Act, as has been previously disclosed in Current Reports on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The table below provides information with respect to recent repurchases of unvested shares of our
common stock:Common Stock:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
| July 1 - July 31, 2022 | | 51,680 | | | $ | 0.01 | | | — | | | — | |
| August 1 - August 31, 2022 | | 45,290 | | | $ | 0.02 | | | — | | | — | |
| September 1 - September 30, 2022 | | 79,668 | | | $ | 0.02 | | | — | | | — | |
_________________________
(1) | | | | | | | | | |
| | | | | | | Total Number of | | Maximum Number |
| | | | | | | Shares Purchased as | | of Shares that May |
| | Total Number of | | | | | part of Publicly | | Yet Be Purchased |
| | Shares Purchased | | Average Price | | Announced Plans or | | Under the Plans or |
Period | | (1) | | Paid per Share | | Programs | | Programs |
July 1 - July 31, 2021 | | 125,761 | | $ | 0.01 | | — | | — |
August 1 - August 31, 2021 | | 62,191 | | $ | 0.01 | | — | | — |
September 1 - September 30, 2021 | | 102,562 | | $ | 0.01 | | — | | — |
Certain of our shares of Common Stock held by employees and service providers are subject to vesting. Unvested shares are subject to a right of repurchase by us in the event the holder of such shares is no longer employed by or providing services for us. All shares in the above table were shares repurchased as a result of our exercising this right and not pursuant to a publicly announced plan or program.
(1) | Certain of our shares of common stock held by employees and service providers are subject to vesting. Unvested shares are subject to a right of repurchase by us in the event the holder of such shares is no longer employed by or providing services for us. All shares in the above table were shares repurchased as a result of our exercising this right and not pursuant to a publicly announced plan or program. |
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers (Item 5.01)
On November 13, 2021, the Company executed a modification to the employment terms of Renato Giger, the Company’s Interim Chief Financial Officer, pursuant to which Mr. Giger’s base salary was adjusted to $12,000 per month, effective November 16, 2021. All other terms of Mr. Giger’s employment and compensation remain unchanged.
Corrected Financial 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.
This correction was not material to any of our previously issued financial statements. The following tables show the affected line items within the consolidated financial statements (in thousands):
| | | | | | |
| | As of December 31, 2020 |
| | As Previously | | Warrants | | |
| | Reported | | adjustments | | As Restated |
Consolidated Balance Sheet | | | | | | |
Private placement warrants liability | $ | — | $ | 6,613 | $ | 6,613 |
Total liabilities | | 181,615 | | 6,613 | | 188,228 |
| | | | | | |
Stockholders' equity (deficit) | | | | | | |
Additional paid in capital | | 920,324 | | (9,745) | | 910,579 |
Accumulated deficit | | (348,493) | | 3,132 | | (345,361) |
Total stockholders' equity (deficit) | | 571,855 | | (6,613) | | 565,242 |
| | | | | | |
| | For the year ended December 31, 2020 |
| | As Previously | | Warrants | | |
| | Reported | | adjustments | | As Corrected |
Consolidated Statement of Operations | | | | | | |
Other (expense) income | | | | | | |
Gain (loss) on fair value change in private placement warrants liability | $ | — | $ | 3,132 | $ | 3,132 |
Loss before income taxes | | (89,816) | | 3,132 | | (86,684) |
Net loss and comprehensive loss | | (89,818) | | 3,132 | | (86,686) |
Net loss per share, basic and diluted | | (0.81) | | 0.03 | | (0.78) |
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).
| | | | | | |
| | For the year ended December 31, 2020 |
| | As Previously | | Warrants | | |
| | Reported | | adjustments | | As Corrected |
Consolidated Statement of Redeemable Convertible Preference Shares and Stockholders' (Deficit) Equity | | | | | | |
Additional paid-in Capital | $ | 920,324 | $ | (9,745) | $ | 910,579 |
Accumulated Deficit | | (348,493) | | 3,132 | | (345,361) |
Net loss and comprehensive loss | | (89,818) | | 3,132 | | (86,686) |
Total stockholders' (deficit) equity | | 571,855 | | (6,613) | | 565,242 |
| | | | | | |
| | For the year ended December 31, 2020 |
| | As Previously | | Warrants | | |
| | Reported | | adjustments | | As Corrected |
Consolidated Statement of Cash Flows | | | | | | |
Cash flows from operating activities | | | | | | |
Net loss | $ | (89,818) | $ | 3,132 | $ | (86,686) |
Gain on fair value change in private placement warrants liability | | — | | (3,132) | | (3,132) |
Supplemental non-cash investing and financing activities | | | | | | |
Recognition of private placement warrants liability | | — | | 9,745 | | 9,745 |
| | | | | | | | |
Exhibit
No. |
| Description |
3.1 |
| |
3.2 |
| |
10.1
4.1 |
| |
10.2
4.2 |
| |
| 10.1† | | |
31.1*
10.2 |
| |
| 10.3 | | |
| 10.4 | | |
| 10.5 | | |
| 31.1* | | |
31.2* |
| |
32.1** |
| |
32.2** |
| |
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
____________________
† Certain confidential portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause the Company competitive harm if publicly disclosed. The Company agrees to furnish an unredacted copy to the SEC upon request.
** 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.
Date: November 9, 2022
| | | | | | | | |
Date: November 15, 2021
| CANOO INC.
|
|
| |
| CANOO INC.
|
By:
|
|
|
| By:
| /s/ Tony Aquila |
| Name: | Tony Aquila |
| Title: | Executive Chairman and Chief Executive Officer
and Executive Chair of the Board |
|
| (Principal Executive Officer) |
|
|
|
| By: | /s/ Renato Giger Ramesh Murthy |
| Name: | Renato Giger
Ramesh Murthy |
| Title: | Senior Vice President, Interim Chief Financial Officer
and Chief Accounting Officer |
|
| (Principal Financial Officer and Principal Accounting Officer) |