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Prospectus Supplement No. 4
(to Prospectus dated April 6, 2021)

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-252082

 

 

 image_001.jpg

  

Up to 186,636,064 Shares of Common Stock

Up to 24,353,356 Shares of Common Stock Issuable Upon Exercise of Warrants

Up to 1,842,106 Warrants

 

This prospectus supplement updates and supplements the prospectus dated April 6, 2021 (the “Prospectus”), which forms a part of our Registration Statement on Form S-1, as amended (Registration No. 333-252082). This prospectus supplement is being filed to update and supplement the information in the Prospectus with the information contained in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 15, 2021 (the “Quarterly Report on Form 10-Q”). Accordingly, we have attached the Quarterly Report on Form 10-Q to this prospectus supplement.

 

The Prospectus and this prospectus supplement relate to the issuance by us of an aggregate of up to 24,353,356 shares of our common stock, $0.0001 par value per share (“Common Stock”), which consists of (i) up to 1,842,106 shares of Common Stock that are issuable upon the exercise of 1,842,106 warrants (the “Private Placement Warrants”) originally issued in a private placement in connection with the initial public offering of Hennessy Capital Acquisition Corp. IV (“HCAC”) by the holders thereof and (ii) up to 22,511,250 shares of Common Stock that are issuable upon the exercise of 22,511,250 warrants (the “Public Warrants”) originally issued in the initial public offering of HCAC by the holders thereof.

The Prospectus and this prospectus supplement also relate to the offer and sale from time to time by the selling securityholders named in the Prospectus of (i) up to 186,636,064 shares of Common Stock (including up to 1,842,106 shares of Common Stock that may be issued upon exercise of the Private Placement Warrants and up to 11,428,482 shares of Common Stock issuable as Earnout Shares (as defined in the Prospectus)) and (ii) up to 1,842,106 Private Placement Warrants.

 

This prospectus supplement should be read in conjunction with the Prospectus. This prospectus supplement updates and supplements the information in the Prospectus. If there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

 

Our Common Stock and Public Warrants are listed on The Nasdaq Global Select Market (“Nasdaq”) under the symbols “GOEV” and “GOEVW,” respectively. On November 15, 2021, the closing price of our Common Stock was $8.45 and the closing price for our Public Warrants was $2.30.

  

See the section entitled “Risk Factors” beginning on page 7 of the Prospectus and under similar headings in any further amendments or supplements to the Prospectus to read about factors you should consider before buying our securities.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense. 

  

The date of this prospectus supplement is December 8, 2021.


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from                      to            

Commission file number: 001-38824


Canoo Inc.

(Exact name of registrant as specified in its charter)


Delaware

83-1476189

(State or Oher Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

19951 Mariner Avenue, Torrance, California

90503

(Address of Principal Executive Offices)

(Zip code)

(424) 271-2144

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

As of November 8, 2021, there were 238,630,287 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.


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TABLE OF CONTENTS

    

    

Page

Part I

Financial Information

Item 1.

Financial Statements (Unaudited)

7

Condensed Consolidated Balance Sheets

7

Condensed Consolidated Statements of Operations

8

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

9

Condensed Consolidated Statements of Cash Flows

11

Notes to Condensed Consolidated Financial Statements

12

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

35

Item 4.

Controls and Procedures

35

Part II

Other Information

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3.

Defaults Upon Senior Securities

39

Item 4.

Mine Safety Disclosures

39

Item 5.

Other Information

39

Item 6.

Exhibits

41

Signatures

42

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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.

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These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or otherwise implied by the forward-looking statements. Below is a summary of certain material factors that may make an investment in our common stock speculative or risky.

We may be unable to develop, or may experience 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

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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.

Importantly, the summary above does not address all the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized herein, as well as other risks and uncertainties that we face, can be found under Part II, Item IA, “Risk Factors” in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 31, 2021. The above summary is qualified in its entirety by those more complete discussions of such risks and uncertainties. Given such risks and uncertainties, you should not place undue reliance on forward-looking statements.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.

Unless otherwise stated in this Quarterly Report on Form 10-Q or the context otherwise requires, and regardless of capitalization, references to:

“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;

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“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.

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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

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

Commitments and contingencies (Note 8)

 

  

 

  

Stockholders’ equity

 

  

 

  

Preferred stock, $0.0001 par value; 10,000 authorized, no 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

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

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CANOO INC.

Condensed Consolidated Statements of Operations (in thousands, except per share values)

Three and Nine Months Ended September 30, 2021 (unaudited)

    

Three months ended

Nine months ended

    

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

    

Revenue

$

$

2,550

$

$

2,550

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)

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)

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

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

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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

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

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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)

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

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CANOO INC.

Condensed Consolidated Statements of Cash Flows (in thousands)

Nine Months Ended September 30, 2021 and 2020 (unaudited)

    

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

$

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

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CANOO INC.

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”) to everyone. The Company has developed a breakthrough EV platform that it believes will enable it to rapidly innovate, and bring new products addressing multiple use cases to market faster than its competition and at lower cost.

Business Combination

On December 21, 2020 (the “Closing Date”), Hennessy Capital Acquisition Corp. IV (“HCAC”) consummated the previously announced merger pursuant to that certain Merger Agreement and Plan of Reorganization, dated August 17, 2020 (the “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”) 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 connection with the Company’s audited financial statements and related notes as of and for the year ended December 31, 2020 (“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

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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 made to the Company’s significant accounting policies disclosed in Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K.

Retroactive Application of Recapitalization

The Business Combination on December 21, 2020 was accounted for as a recapitalization of equity structure. Pursuant to GAAP, the Company retrospectively recasted the weighted-average shares included within its condensed consolidated statements of operations for the three and nine months ended September 30, 2020. Legacy Canoo redeemable convertible preference shares – Angel Series (“Angel Shares”) and Legacy Canoo redeemable convertible preference shares – Seed Series (“Seed Shares”) were converted to Legacy Canoo A series redeemable convertible preference shares and later were exchanged into Legacy Canoo ordinary shares. The basic and diluted weighted-average Legacy Canoo ordinary shares are retroactively converted to shares of the Company’s common stock to conform to the recasted condensed consolidated statements of stockholders' equity (deficit). The following table summarizes the weighted-average common stock of the Company, basic and diluted for the three and nine months ended September 30, 2020 after factoring all retroactive application 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

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COVID-19

Beginning in the first quarter of 2021, there has been increasing availability and administration of vaccines against 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.

Ultimately, the Company cannot predict the duration or severity of the COVID-19 pandemic or any variant thereof. The Company will continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve its business as appropriate. To do this, the Company plans to project demand and infrastructure requirements globally and to deploy its workforce and other resources accordingly.

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.

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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, 2021 and December 31, 2020 (in thousands):

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, 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 in Note 8, in connection with the Company’s agreement with Panasonic, there is a standby letter of credit of $0.8 million 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 fails 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, the Company has a contingent obligation to issue 15.0 million shares of the Company’s common 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.

Following is a summary of the change in fair value of contingent Earnout Shares liability and private placement warrants liability for the nine months ended September 30, 2021 (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

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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-K for the year-ended December 31, 2020, on April 12, 2021, the SEC Division of Corporation of Finance released Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “Statement”). Upon review and analysis of the Statement, management determined that the Company’s private placement warrants issued in connection with HCAC's IPO on March 5, 2019 do not meet the scope exception from derivative accounting prescribed by ASC 815-40, Contracts in Entity’s Own Equity. Accordingly, the private placement warrants should have been recognized by the Company at fair value as of the Closing Date and classified as a liability, rather than equity in the Company’s previously reported consolidated balance sheet as of December 31, 2020. Thereafter, the change in fair value of the outstanding private placement warrants should have been recognized as a gain (loss) within other (expense) income each reporting period in the Company’s consolidated statement of operations. The fair value of the private placement warrants as of the Closing Date on December 21, 2020 and December 31, 2020 amounted to $9.7 million and $6.6 million, respectively. The change in fair value from the Closing Date through December 31, 2020 amounted to a gain of $3.1 million.

The impact of the misstatement as of December 31, 2020 resulted in an understatement of the private placement warrants liability of $6.6 million, and an overstatement of accumulated deficit and additional paid-in capital of $3.1 million and $9.7 million, respectively.  

Accordingly, management is correcting the relevant financial statements and related footnotes as of December 31, 2020 within these condensed consolidated financial statements. Management has evaluated the materiality of these misstatements based on an analysis of quantitative and qualitative factors and concluded they were not material to the prior period financial statements, individually or in aggregate.

The following tables reflect the impact of the immaterial correction on the Company’s previously reported consolidated balance sheet as of December 31, 2020 (in thousands):

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. Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”), in the form of Accounting Standards Updates (“ASUs”), to the FASB’s Accounting Standards Codification.

The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have immaterial impact on the Company’s consolidated financial position, results of operations or cash flows.

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Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU No. 2020-06 Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40). The objective of the amendments in this ASU is to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The amendments in this ASU reduce the number of accounting models for convertible debt instruments and redeemable convertible preference shares. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods therein. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact it may have on the consolidated financial statements.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options ("ASU No. 2021-04"). This ASU provides a principles-based framework for issuers to account for a modification or exchange of freestanding equity-classified written call options. The provisions of the ASU are effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on the consolidated financial statements.

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

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 be transferred to their respective asset classes and depreciation will begin when an asset is ready for its intended use. As of September 30, 2021, manufacturing has not begun and therefore no depreciation on tooling has been recognized to date.

Depreciation expense for property and equipment was $2.1 million and $6.3 million for the three and nine months ended September 30, 2021, respectively. Depreciation expense for property and equipment was $1.7 million and $5.2 million for the three and nine months ended September 30, 2020, respectively.

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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

Commitments

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 Sales 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 is a standby letter of credit of $0.8 million as of September 30, 2021. This letter of credit will not be drawn upon unless the Company fails to make its invoice payments.

Legal Proceedings

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. Some of these claims, lawsuits and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, non-monetary sanctions or relief.

On April 2, 2021 and April 9, 2021, the Company was named as a defendant in putative class action complaints filed in California on behalf of individuals who purchased or acquired shares of the Company’s stock during a specified period. Through the complaint, plaintiffs are seeking, among other things, compensatory damages. On June 25, 2021, the Company was named as a nominal defendant in a stockholder derivative complaint filed in Delaware. Through the stockholder derivative complaint, the plaintiff is asserting claims against certain of the Company’s current and former officers and directors and seeking, among other things, damages. The final determinations of liability arising from these litigation matters will only be made following comprehensive investigations and litigation processes.

In addition, on April 29, 2021, the SEC’s Division of Enforcement advised that it has opened an investigation related to, among other things, HCAC’s initial public offering, HCAC’s merger with the Company and the concurrent

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PIPE offering, historical movements in the Company, the Company’s operations, business model, revenues, revenue strategy, customer agreements, earnings, and other related topics, along with the recent departures of certain of the Company’s officers. The SEC has informed the Company that its current investigation is a fact-finding inquiry. The SEC has also informed the Company that the investigation does not 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. 

At this time, the Company does not consider any such claims, lawsuits or proceedings that are currently pending, individually or in the aggregate, including the matters referenced above, to be material to the Company’s business or likely to result in a material adverse effect on its future operating results, financial condition or cash flows should such proceedings be resolved unfavorably.

Indemnifications

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third-parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The Company provided indemnifications to certain of its officers and employees with respect to claims filed by a former employer.

9. Operating Leases

On February 28, 2018, Legacy Canoo, via a wholly owned subsidiary, entered into a lease for an office facility in Torrance, California (“Torrance lease”) with an entity controlled by certain investors of Legacy Canoo, which was assigned to another entity controlled by certain investors of Legacy Canoo on April 30, 2018. The original lease term is 15 years and commenced on April 30, 2018. During the first quarter of 2021, the Company entered into a separate lease for an office facility in Justin, Texas (“Justin lease”) with an entity controlled by the Executive Chairman and Chief Executive Officer of the Company. The original lease term is 5 years 3 months, commencing on January 1, 2021. 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 leases for two additional 60-month periods and one additional 60-month period, respectively, commencing when the prior term expires. At the  inception of each of the leases, it was not reasonably certain we would exercise any of the options to extend the term of the leases. There were no changes to that assessment as of September 30, 2021.

The Company has determined that the leases do not effectively transfer control of the underlying facilities to the Company based on the lease terms and, accordingly, the Company has classified the leases as operating leases. As such, the rent and property taxes are expensed on a straight-line basis in the condensed consolidated statements of operations.

Related party lease expense related to these leases was $0.1 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.

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The weighted average remaining lease term at September 30, 2021 and December 31, 2020 was 10.9 years and 12.3 years, respectively.

Maturities of the Company’s operating lease liabilities at September 30, 2021 were as follows (in thousands):

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


(1)Calculated using the incremental borrowing rate
(2)Included within Accrued expenses and other current liabilities line 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 Chairman 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”), an entity controlled by Mr. Aquila, for the purposes related to the business of the Company 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 the Business Combination, certain stockholders 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.

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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 of September 30, 2021 and December 31, 2020 the fair value of the Earnout Shares liability was estimated to be $32.3 million and $133.5 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 operations for the three and nine months ended September 30, 2021, respectively.

12. Stock-based Compensation

On the Closing Date 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 Ratio 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 purchase shares of the Company’s common stock under the Company’s equity plans. All options granted will expire ten years from their date of issuance. Stock options granted generally vest 25% on the one-year anniversary of the date when vesting starts with the remaining balance vesting equally on a monthly basis over the subsequent three years. New shares are issued from authorized shares of common stock 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 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 converted purchase price of $0.008 per share (the “Founder Restricted Shares”), 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 of the 2019 awards was vested upon issuance); 37.5% vest ratably over a period of thirty-six months from December 18, 2018; and 50% vest 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.

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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. Each RSU represents a contingent right to receive one share of the Company’s common stock. During the three months ended September 30, 2021, no RSUs were granted. During the nine months ended September 30, 2021, 6,985,548 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.

Performance-Based Restricted Stock Units (“PSUs”)

PSUs represent the right to receive a share of the Company’s common 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-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 following PSUs were granted to the CEO in the second quarter of 2021, with a total grant date fair value of approximately $15.9 million:

During April 2021, in connection with the appointment 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’s analysis determined that these operational milestone events are probable of achievement. The compensation expense recognized for the PSUs awarded to the CEO in the second quarter of 2021 was $1.8 million and $3.0 million for the three and nine months ended September 30, 2021, respectively.

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The following table summarizes the Company’s stock-based compensation expense by line item for the three- and nine months ended periods presented in the condensed consolidated statements of operations (in thousands):

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

The Company’s total unrecognized compensation cost as of September 30, 2021, was $59.6 million.

13. Warrants

As of September 30, 2021, the Company had 23,755,169 public warrants outstanding. Each public warrant entitles the registered holder to purchase one share of the Company’s common 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, 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 598,175 public warrants exercised for the three and nine months ended September 30, 2021, respectively, for total proceeds of $6.9 million.

14. Net Loss per Share

The condensed consolidated statements of operations include the basic and diluted net loss per share.

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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

15. Income Taxes

As the Company has not generated any taxable income since inception, the cumulative deferred tax assets remain fully offset by a valuation allowance, and no benefit from federal or state income taxes has been included in the condensed consolidated financial statements.

16. Subsequent Events

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, the Company entered into the Sales Agreement effective October 15, 2021, with Panasonic for 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.

On October 20, 2021, the Company entered into a lease for an office and research and development laboratory facility in Auburn Hills, Michigan, to facilitate the Company’s continued personnel growth and support strong supplier relationships in this region. The total minimum lease payments over the initial lease term of approximately 11 years is $12.7 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, 2021 through the date these financial statements were issued and has determined that it does not have any additional material subsequent events to disclose.

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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, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021 (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.

Overview

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 EVs to everyone. We have developed a technology platform, referred to as the Multi-Purpose Platform or platform, built to be highly modular and to enable us to rapidly innovate, and bring new products addressing multiple use cases to market faster than our competition and at lower cost. Our Multi-Purpose Platform is a self-contained, fully-functional rolling chassis that directly houses all of the most critical components for operation of an EV. These include our in-house designed proprietary performance electric drivetrain, true steer-by-wire system, our low-profile suspension systems, our battery systems, our advanced vehicle control electronics and software and other critical components, all of which have been optimized for functional integration and versatility.

Our initial vehicle lineup currently includes our Lifestyle Vehicle, with multiple 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 in multiple target markets for the benefit of a wide array of potential customers.

All our vehicles are expected to offer competitive performance capabilities paired with class-leading cargo and passenger volume on a small footprint. Our vehicle architecture and design philosophy is aimed at driving productivity and returning capital to our customers. Each vehicle has been developed to be modular and customizable to enhance the long term value of the vehicles. In addition, we are developing a software ecosystem, which aims to deliver a one-stop customer experience with direct access to vehicle telematics and control of key functionality. We also envision the Canoo app having functionality to schedule mobile services and provide instant quotes for insurance, financing, and valuation via direct integration with third-party providers.

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Recent Developments

We continue to make progress towards the development and launch of our initial slate of vehicles. After having completed over 500,000 testing miles, 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 location for our owned U.S. mega microfactory manufacturing facility. We have recently expanded this partnership 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 entered into a Sales Agreement with Panasonic 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.

Key Factors Affecting Operating Results

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below.

Successful Commercialization Our EVs

We expect to derive future revenue from our first vehicle offerings, which are not expected to launch until late 2022 or after. In order to reach commercialization, we must purchase and integrate related property and equipment, as well as achieve several research and development milestones.

We expect that both our capital and operating expenditures will increase significantly in connection with our ongoing activities, as we:

commercialize our EVs;
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

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continue to operate as a public company.

As a result, we will require substantial additional capital to develop our EVs and services and fund our operations for the foreseeable future. We will also require capital to identify and commit resources to investigate new areas of demand. Until we can generate sufficient revenue from vehicle sales, we expect to primarily finance our operations through commercialization and production with proceeds from the Business Combination, including the proceeds from the PIPE financing that took place concurrently with the Business Combination, and, as needed, secondary public equity offerings or debt financings. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our research and development efforts and our ability to successfully manage and control costs.

COVID-19 Impact

COVID-19 and actions taken to mitigate its spread have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which we operate. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act was enacted to, among other provisions, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic.

As the COVID-19 pandemic continues to evolve, the ultimate extent of the impact on our business, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the pandemic, the pandemic’s further impact on the U.S. and global economies (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 operations of our suppliers, vendors 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 us 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. 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.

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Key Components of Statements of Operations

Basis of Presentation

Currently, we conduct business through one operating segment. We are an early stage-growth company with no commercial operations, and our activities to date have been limited and are conducted in the United States. For more information about our basis of presentation, refer to Note 2 of the notes to our accompanying financial statements for the three and nine months ended September 30, 2021 and 2020.

Research and Development Expenses, excluding Depreciation

Research and development expenses, excluding depreciation consist of salaries, employee benefits and expenses for design and engineering personnel, stock-based compensation, as well as materials and supplies used in research and development activities. In addition, research and development expenses include fees for consulting and engineering services from third party vendors.

Selling, General and Administrative Expenses, excluding Depreciation

The principal components of our selling, general and administrative expenses are salaries, wages, benefits and bonuses paid to our employees; stock-based compensation; travel and other business expenses; professional services fees (including legal, audit and tax); and ordinary day-to-day business expenses.

Depreciation Expense

Depreciation is provided on property and equipment over the estimated useful lives on a straight-line basis. Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in the loss from operations. No depreciation expense is allocated to research and development, cost of revenue and selling, general and administrative expenses.

Interest Expense

Interest expense consists primarily of interest expenses and debt discount amortization.

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Results of Operations

Comparison of the three and nine months ended September 30, 2021 and 2020

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