Canoo (US:GOEV)2024-08-14 21:16PART I – FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, fair value measurements, debt, equity, and other financial instruments Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets provide a snapshot of the company's financial position as of June 30, 2024, compared to December 31, 2023, showing slight increases in total assets and current liabilities, and a decrease in total stockholders' equity | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------------- | :--------------------------- | :------------------------------- | | Cash and cash equivalents | $4,513 | $6,394 | | Inventory | $9,302 | $6,153 | | Total current assets | $33,355 | $32,551 | | Total assets | $543,322 | $542,005 | | Total current liabilities | $195,026 | $184,447 | | Total liabilities | $347,025 | $292,429 | | Total stockholders' equity | $196,297 | $249,576 | Condensed Consolidated Statements of Operations The Condensed Consolidated Statements of Operations show a significant reduction in net loss for both the three and six months ended June 30, 2024, compared to the same periods in 2023, primarily driven by decreased operating expenses and substantial gains on fair value changes in warrant and derivative liabilities | Metric (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $605 | $0 | $605 | $0 | | Gross margin | $(1,240) | $0 | $(1,240) | $0 | | Total operating expenses | $41,952 | $73,565 | $104,599 | $155,093 | | Loss from operations | $(43,192) | $(73,565) | $(105,839) | $(155,093) | | Gain on fair value change in warrant and derivative liability | $48,308 | $5,623 | $38,836 | $22,965 | | Loss on fair value change in convertible debt and other | $(8,532) | $0 | $(67,116) | $0 | | Net loss and comprehensive loss attributable to Canoo | $(4,960) | $(70,870) | $(115,647) | $(161,602) | | Net loss per share, basic and diluted | $(0.09) | $(3.22) | $(1.95) | $(8.04) | Condensed Consolidated Statements of Stockholders' Equity The Condensed Consolidated Statements of Stockholders' Equity detail changes in common stock, additional paid-in capital, and accumulated deficit for the three and six months ended June 30, 2024 and 2023, reflecting significant issuances of shares under PPAs and convertible debentures, as well as stock-based compensation and net losses | Metric | Balance as of Dec 31, 2023 | Balance as of June 30, 2024 | | :-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------------- | :-------------------------- | | Common stock, $0.0001 par value; 2,000,000 authorized; 72,902 and 37,591 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | $4 | $7 | | Additional paid-in capital | $1,725,809 | $1,786,235 | | Accumulated deficit | $(1,481,844) | $(1,597,491) | | Total preferred stock and stockholders' equity | $249,576 | $196,297 | - Issuance of shares under the PPA totaled $70,547 thousand for the six months ended June 30, 2024 25 - Issuance of shares under Convertible Debentures amounted to $22,254 thousand for the six months ended June 30, 2024 25 - Stock-based compensation was $12,082 thousand for the six months ended June 30, 2024 25 - Net loss and comprehensive loss totaled $(115,647) thousand for the six months ended June 30, 2024 25 Condensed Consolidated Statements of Cash Flows The Condensed Consolidated Statements of Cash Flows show a significant reduction in net cash used in operating activities for the six months ended June 30, 2024, compared to the same period in 2023, alongside a decrease in cash used in investing activities and a slight decrease in cash provided by financing activities | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(83,419) | $(129,544) | | Net cash used in investing activities | $(6,923) | $(33,905) | | Net cash provided by financing activities | $88,539 | $132,215 | | Net decrease in cash, cash equivalents, and restricted cash | $(1,803) | $(31,234) | | Cash, cash equivalents, and restricted cash, end of period | $19,096 | $19,381 | Notes to Condensed Consolidated Financial Statements These notes provide detailed disclosures on the company's accounting policies, financial instruments, debt, equity, and other significant financial events, offering crucial context to the condensed consolidated financial statements 1. Organization and Description of the Business Canoo Inc. is an advanced mobility technology company focused on commercial fleet, government, and military customers, leveraging a proprietary modular electric vehicle platform and connected services for rapid innovation and cost-effective product development - Canoo Inc. is a high-tech advanced mobility technology company with a proprietary modular electric vehicle platform and connected services, initially targeting commercial fleet, government, and military customers 31 - The company believes its EV platform enables rapid innovation, faster market entry, and lower costs for new products across multiple use cases 31 2. Basis of Presentation and Summary of Significant Accounting Policies This section outlines the basis of financial statement preparation, including GAAP compliance and interim reporting rules. It details the 1-for-23 reverse stock split effected on March 8, 2024, and highlights substantial doubt about the company's ability to continue as a going concern due to historical losses and negative cash flows. It also describes the company's policies for fair value measurements, contingent earnout shares, convertible debt, warrants, redeemable preferred stock, and stock-based compensation - On March 8, 2024, the Company effected a 1-for-23 reverse stock split, retroactively adjusting all share and per share information 34 - The Company has incurred losses and negative cash flows from operating activities since inception, leading management to believe substantial doubt exists about its ability to continue as a going concern for the next twelve months 3536 - The Company uses a three-level hierarchy (Level 1, 2, 3) for fair value measurements, prioritizing observable inputs 3839 - Convertible debt is accounted for using the fair value option, with changes in fair value reported in the Condensed Consolidated Statements of Operations 44 - Warrants are classified as either liability or equity based on specific criteria, with liability-classified warrants requiring periodic fair value remeasurement through earnings 45 - Redeemable Preferred Stock is classified outside permanent equity (mezzanine equity) and accreted to its expected settlement value due to increasing rate dividends 46149 - Stock-based compensation awards are granted to employees and directors based on estimated grant date fair value, recognized over the service period, with performance and market conditions valued using Monte Carlo simulation 4950 3. Recent Accounting Pronouncements The company adopted ASU 2023-01 (Leases) with no material impact and is currently assessing the impact of recently issued ASUs 2023-09 (Income Taxes), 2023-07 (Segment Reporting), and 2023-06 (Disclosure Improvements) - ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements, was adopted and had no material impact on the financial statements 54 - The Company is assessing the impact of ASU No. 2023-09 (Income Taxes) and ASU No. 2023-07 (Segment Reporting), effective for fiscal years beginning after December 15, 2024 and 2023 respectively 5657 4. Fair Value Measurements This section details the fair value measurements of the company's liabilities, primarily Level 3 instruments like contingent earnout shares, convertible debt, and derivative liabilities. It highlights significant changes in fair value for these instruments, including gains and losses recognized during the period | Liability (in thousands) | June 30, 2024 Fair Value | December 31, 2023 Fair Value | | :-------------------------------- | :----------------------- | :--------------------------- | | Convertible debt, current | $47,228 | $16,052 | | Derivative liability, non-current | $33,242 | $25,919 | | Warrant liability, non-current | $55,995 | $17,390 | | Contingent earnout shares liability | $0 | $41 | | Derivative liability, current | $0 | $860 | Change in Fair Value of Convertible Debt (Six Months Ended June 30) | Metric (in thousands) | 2024 | | :-------------------- | :----- | | Beginning fair value | $16,052 | | Additions | $46,894 | | Payments | $(57,241) | | Change in fair value | $41,523 | | Ending fair value | $47,228 | Change in Fair Value of Earnout Shares Liability (Six Months Ended June 30) | Metric (in thousands) | 2024 | 2023 | | :-------------------- | :--- | :--- | | Beginning fair value | $41 | $3,013 | | Change in fair value | $(41) | $(2,564) | | Ending fair value | $0 | $449 | - The Company recognized a gain of $11.2 million from the fair value change in the Series B Preferred Stock conversion feature derivative and a gain of $6.4 million from the Series C Preferred Stock conversion feature derivative for the six months ended June 30, 2024 6970 5. Prepaids and Other Current Assets Prepaids and other current assets decreased slightly to $15.6 million as of June 30, 2024, from $16.1 million at December 31, 2023, primarily due to a decrease in prepaid expenses and short-term deposits, partially offset by the recognition of deferred battery supplier costs | Asset (in thousands) | June 30, 2024 | December 31, 2023 | | :------------------------------- | :------------ | :---------------- | | Prepaid expense | $8,133 | $9,300 | | Short term deposits | $5,428 | $6,312 | | Deferred battery supplier cost | $1,100 | $0 | | Other current assets | $896 | $487 | | Total prepaids and other current assets | $15,557 | $16,099 | 6. Inventory Inventory increased to $9.3 million as of June 30, 2024, from $6.2 million at December 31, 2023, primarily consisting of raw materials for vehicle production. No write-downs were recorded during the reported periods - Inventory balance increased to $9.3 million as of June 30, 2024, from $6.2 million as of December 31, 2023, primarily raw materials for vehicle production 74 - No inventory write-downs were recorded for the three and six months ended June 30, 2024, and June 30, 2023 74 7. Property and Equipment, net Net property and equipment increased slightly to $380.1 million as of June 30, 2024, from $377.1 million at December 31, 2023, driven by ongoing construction-in-progress related to manufacturing lines. Depreciation expense decreased for both the three and six-month periods | Asset (in thousands) | June 30, 2024 | December 31, 2023 | | :---------------------------- | :------------ | :---------------- | | Tooling, machinery, and equipment | $50,600 | $44,025 | | Construction-in-progress | $312,439 | $307,489 | | Total property and equipment, net | $380,129 | $377,100 | - Depreciation expense for property and equipment decreased to $3.4 million for the three months ended June 30, 2024 (from $4.6 million in 2023) and to $6.8 million for the six months ended June 30, 2024 (from $9.1 million in 2023) 76 8. Accrued Expenses and Other Current liabilities Accrued expenses and other current liabilities increased to $70.6 million as of June 30, 2024, from $63.9 million at December 31, 2023, primarily due to the recognition of a $9.0 million ERC financing liability | Accrued Expense (in thousands) | June 30, 2024 | December 31, 2023 | | :----------------------------------------- | :------------ | :---------------- | | Accrued property and equipment purchases | $29,472 | $29,433 | | Accrued research and development costs | $12,505 | $15,913 | | ERC financing liability | $9,013 | $0 | | Total accrued expenses and other current liabilities | $70,591 | $63,901 | - The ERC financing liability of $9.0 million represents proceeds from the sale of economic interest in employee retention credits, pending final IRS determination 7778 9. Convertible Debt This section details the company's various Pre-Paid Advance Agreements (PPAs) and Convertible Debentures with Yorkville, outlining the terms, advances received, and repayment through common stock issuance or cash. It highlights the full payoff of several previous PPAs and debentures, and the remaining outstanding balances for the Tenth Pre-Paid Advance and June Prepaid Advance as of June 30, 2024 - The Company has engaged in multiple Pre-Paid Advance Agreements (PPAs) and Convertible Debentures with Yorkville, receiving significant advances and repaying them through common stock issuances or cash 7997 - The Sixth, Seventh, Eighth, and Ninth Pre-Paid Advances were fully paid off through a combination of common stock issuances and cash during the six months ended June 30, 2024 85868788 - As of June 30, 2024, a principal balance of $31.0 million remains outstanding under the Tenth Pre-Paid Advance and $15.0 million under the June Prepaid Advance 9096 - The August and September Convertible Debentures were fully paid off by January 2024 through common stock issuances, resulting in losses on extinguishment of debt 100101 10. Operating leases The company has operating lease agreements for office and manufacturing spaces, including a facility in Justin, Texas, and the Oklahoma City manufacturing facility. The Oklahoma facility lease is accounted for as a financing lease due to a repurchase option, rather than a sale and leaseback. Total operating lease liabilities were $37.3 million as of June 30, 2024 - The lease for the Oklahoma Manufacturing Facility is accounted for as a financing lease, not a sale and leaseback, due to a repurchase option, with a corresponding finance liability of $34.2 million at inception 110111 - As of June 30, 2024, the remaining operating lease right-of-use asset was $34.5 million and the operating lease liability was $37.3 million 115 Maturities of Operating Lease Liabilities (in thousands) as of June 30, 2024 | Year | Operating Lease Payments | | :---------- | :----------------------- | | 2024 (remaining) | $2,803 | | 2025 | $5,728 | | 2026 | $5,504 | | 2027 | $5,532 | | 2028 | $5,813 | | Thereafter | $23,707 | | Total lease payments | $49,087 | | Less: imputed interest | $11,779 | | Present value of operating lease liabilities | $37,308 | 11. Commitments and Contingencies The company has commitments including standby letters of credit totaling $10.6 million and is involved in several legal proceedings, including class action complaints, a Section 16(b) disgorgement claim, a registration rights agreement dispute, and a putative class action for employment-related claims - The Company has standby letters of credit totaling $10.6 million related to its Bentonville, Arkansas, and Michigan leases, included in restricted cash 119 - Ongoing legal proceedings include a putative class action for stock purchases, a Section 16(b) claim seeking $61.1 million in disgorgement from DD Global Holdings Ltd., a breach of registration rights agreement claim by Champ Key Limited seeking over $23.0 million, and a putative class action for California state employment-related claims 121122123 12. Related Party Transactions Related party transactions include aircraft reimbursement and shared services payments to entities controlled by the CEO, Tony Aquila, as well as equity issuances (PIPEs and Series C Preferred Stock) to affiliated entities managed by him - Aircraft reimbursement to CEO Tony Aquila for business use of his private jet was $0.3 million for Q2 2024 and $0.5 million for YTD Q2 2024 127 - Payments to AFV (controlled by CEO) for shared services support were $0.2 million for Q2 2024 and $0.4 million for YTD Q2 2024 127 - The Company entered into June 2023 PIPE ($8.8 million) and August 2023 PIPE ($3.0 million) agreements with special purpose vehicles managed by entities affiliated with Mr. Aquila 128129 - In April 2024, the Company sold 16,500 shares of Series C Preferred Stock and warrants to purchase 7.4 million shares of Common Stock for $16.5 million to affiliated entities managed by Mr. Aquila 130 13. Equity This section covers the At-The-Market (ATM) Offering Program, other equity issuances, an amendment to increase authorized common stock, and details of the Series B and Series C Cumulative Perpetual Redeemable Preferred Stock, including their conversion features, redemption options, dividend rates, and accounting classification as mezzanine equity - The Company has an At-The-Market (ATM) Offering Program to sell up to $200.0 million in common stock, with H.C. Wainwright & Co., LLC acting as the sole Designated Manager since February 2023 131133 - Stockholders approved an amendment on October 5, 2023, to increase the number of authorized Common Stock shares from 1.0 billion to 2.0 billion 136 - The Series B Preferred Stock, issued in September 2023 for $45.0 million, is convertible into common stock at $12.88 per share, has a 7.5% annual dividend rate, and is redeemable by the Company under certain conditions 137138140 Its liquidation preference was $47.2 million as of June 30, 2024 141 - The Series C Preferred Stock, issued in April 2024 for $16.5 million, is convertible into common stock at the lesser of 120% of average VWAP (floor $2.00) or $2.24, has a 7.5% annual dividend rate, and is redeemable by the Company 142143144145 Its liquidation preference was $16.7 million as of June 30, 2024 147 - Both Series B and Series C Preferred Stock are classified as mezzanine equity due to potential cash-settlement scenarios and are accreted to their expected settlement value 148149 14. Stock-based Compensation This section details stock-based compensation, including CEO Equity Awards (PSUs and RSUs) granted in February 2024, which resulted in a modification expense. It also covers other RSU and PSU grants to employees and the 2020 Employee Stock Purchase Plan (ESPP), with a summary of total stock-based compensation expense by line item - In February 2024, CEO Equity Awards (1.7 million CEO PSUs and 3.4 million CEO RSUs) were granted, leading to an incremental stock-based compensation expense of $1.1 million for Q2 2024 and $4.9 million for YTD Q2 2024 due to modification of prior awards 150151 - Total fair value of restricted stock units granted was $0.3 million for Q2 2024 and $8.7 million for YTD Q2 2024 154 - Performance stock units (PSUs) with market conditions are valued using a Monte Carlo simulation, while those with performance conditions are measured at grant date stock price with expense recorded based on probability of achievement 155156 Stock-Based Compensation Expense (in thousands) | Line Item | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $(680) | $209 | $(50) | $4,344 | | Selling, general and administrative | $1,808 | $6,498 | $12,132 | $12,199 | | Total | $1,128 | $6,707 | $12,082 | $16,543 | - The 2020 Employee Stock Purchase Plan (ESPP) recognized nominal stock-based compensation expense for Q2 2024 and $0.1 million for YTD Q2 2024 159 15. Warrants This section provides detailed information on various warrants issued by the company, including Public Warrants, VDL Nedcar Warrants, Walmart Warrants, Yorkville Warrants, RDO SPA Warrants, June and August 2023 PIPE Warrants, I-40 Warrants, and Series B and C Preferred Stock Warrants. It covers their exercise prices, expiration dates, classification (equity or liability), and fair value changes, noting that none of these warrants have been exercised as of June 30, 2024 - As of June 30, 2024, approximately 1.0 million public warrants are outstanding, exercisable for 23 shares of Common Stock at $264.50 per share, expiring December 21, 2025 160 - Walmart Warrants, exercisable for 2.9 million shares at $44.87 per share, are liability-classified and vest proportionally with net revenue from Walmart transactions, with 0.7 million warrants vested as of June 30, 2024 163164167 - Yorkville Warrants, including the March Yorkville Warrants (totaling 21.3 million shares at $1.37 exercise price), are liability-classified and resulted in a $31.4 million gain for Q2 2024 and $4.6 million for YTD Q2 2024 due to fair value changes 172174 - Series C Preferred Stock Warrants, issued in April 2024, allow purchase of approximately 7.4 million shares at $2.24 per share, are liability-classified, and generated a $4.4 million gain from fair value changes for Q2 and YTD Q2 2024 188189 - None of the Public, VDL Nedcar, Walmart, Yorkville, RDO SPA, June 2023 PIPE, I-40, August 2023 PIPE, Series B Preferred Stock, or Series C Preferred Stock Warrants have been exercised as of June 30, 2024 160161167174177179182184187189 16. Net Loss per Share Basic and diluted net loss per share are equal due to the company's net loss position, making all potentially dilutive securities anti-dilutive. The weighted-average shares outstanding increased significantly from 2023 to 2024 Net Loss Per Common Share | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss available to common shareholders | $(6,037) | $(70,870) | $(117,586) | $(161,602) | | Weighted-average shares outstanding | 69,619 | 21,982 | 60,199 | 20,100 | | Net loss per share, basic and diluted | $(0.09) | $(3.22) | $(1.95) | $(8.04) | Outstanding Potentially Dilutive Shares Excluded (in thousands) | Type of Security | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Convertible debt | 20,000 | 2,598 | 20,000 | 2,598 | | Restricted and performance stock units | 3,719 | 1,429 | 3,719 | 1,429 | | Warrants to purchase common stock | 34,649 | 0 | 34,649 | 0 | 17. Income Taxes The company has not generated taxable income since inception, resulting in cumulative deferred tax assets being fully offset by a valuation allowance, and no income tax benefit recognized - The Company has not generated any taxable income since inception, and its cumulative deferred tax assets are fully offset by a valuation allowance 194 18. Subsequent Events Subsequent events include the July 2024 PPA with Yorkville for up to $100.0 million in advances, with an initial $15.0 million advance and associated warrants. Additionally, the company implemented an Employee Reorganization Plan on August 14, 2024, involving permanent employee reductions at its Torrance, California facility and estimated charges of up to $3.0 million - On July 19, 2024, the Company entered into the July 2024 PPA with Yorkville, allowing for advances up to $100.0 million, with an initial $15.0 million advance at a purchase price of $2.70 per share (subject to repricing and a $1.00 floor price) 195196197 - In connection with the July 2024 PPA, the Company issued warrants to Yorkville to purchase approximately 2.8 million shares of Common Stock at an exercise price of $2.70 per share 199 - On August 14, 2024, the Company implemented an Employee Reorganization Plan, permanently reducing employees at its Torrance, California facility and offering relocation to a majority of employees to Oklahoma or Texas facilities 200 - The Employee Reorganization Plan is estimated to result in an aggregate charge of up to $3.0 million for one-time relocation benefits and severance payments, primarily cash expenditures in Q4 2024 201 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business model, key factors affecting performance, detailed analysis of operating results, non-GAAP financial measures, liquidity, capital resources, and critical accounting estimates Overview Canoo Inc. is an advanced mobility technology company focused on commercial, government, and military customers, utilizing a proprietary modular EV platform and a multi-layer business model to monetize value across the vehicle lifecycle. The company emphasizes in-house manufacturing in Oklahoma and strategic investments in technology and products - Canoo Inc. is a high-tech advanced mobility technology company focused on commercial fleet, government, and military customers, with a proprietary modular electric vehicle platform 205 - The company's business model is designed to monetize value across the entire vehicle lifecycle, including its Multi-Purpose Platform (MPP-1), cybersecurity, modular top hats, connected accessories, and the Canoo Digital Ecosystem for software sales and data insights 206209 - Canoo is committed to building its fully electric vehicles in Oklahoma, sourcing a majority of parts from America and allied nations, and pursuing vertical integration to achieve in-house scale production with reduced supply chain risk 211 Key Factors Affecting Operating Results The company's future success is highly dependent on securing substantial additional capital for commercialization, including investments in R&D, manufacturing, marketing, and personnel. Adverse macroeconomic conditions, such as inflation and supply chain challenges (e.g., semiconductor shortages), pose significant risks to operations and financial results - The Company requires substantial additional capital to develop EVs and services, fund operations, and invest in technology, manufacturing, marketing, and personnel, with current resources insufficient for the next 12 months 215216 - Adverse macroeconomic conditions, including heightened inflation, slower growth, higher interest rates, and supply chain challenges (like semiconductor shortages), could negatively affect the Company's business and financial results 217 Key Components of Statements of Operations This section defines the primary components of the company's statements of operations, including revenue (from vehicle deliveries, battery modules, and engineering services), cost of revenue, research and development expenses, selling, general and administrative expenses, depreciation, interest expense, and gains/losses from fair value changes in financial instruments and debt extinguishment - Revenue is primarily derived from vehicle deliveries, with additional revenue from battery module sales and engineering services 220 - Cost of revenue includes direct costs for vehicle components, parts, labor, and depreciation/amortization of tooling and capitalized costs 221 - Operating expenses include research and development (salaries, design, materials, consulting) and selling, general and administrative (salaries, stock-based compensation, professional fees) 221222223 - Other income/expense items include interest expense, gains/losses on fair value changes in contingent earnout shares, warrants, derivative liabilities, convertible debt, and gains/losses on extinguishment of debt 225226227228229 Results of Operations The company reported $0.6 million in revenue for both the three and six months ended June 30, 2024, resulting in a negative gross margin of $1.2 million. Net loss significantly decreased by 93% for the three months and 28% for the six months ended June 30, 2024, primarily due to reduced operating expenses (R&D down 56% and 50%, SG&A down 28% and 9%) and substantial gains on fair value changes in warrant and derivative liabilities, despite a significant loss on fair value change in convertible debt Summary of Operating Results (in thousands) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $605 | $0 | $605 | $0 | | Gross margin | $(1,240) | $0 | $(1,240) | $0 | | Research and development expenses, excluding depreciation | $16,784 | $38,582 | $43,174 | $85,686 | | Selling, general and administrative expenses, excluding depreciation | $21,804 | $30,421 | $54,672 | $60,270 | | Loss from operations | $(43,192) | $(73,565) | $(105,839) | $(155,093) | | Gain on fair value change in warrant and derivative liability | $48,308 | $5,623 | $38,836 | $22,965 | | Loss on fair value change in convertible debt and other | $(8,532) | $0 | $(67,116) | $0 | | Net loss and comprehensive loss | $(4,960) | $(70,870) | $(115,647) | $(161,602) | - Research and development expenses decreased by $21.8 million (56%) for the three months and $42.5 million (50%) for the six months ended June 30, 2024, primarily due to reduced salary/benefits and R&D costs as the company transitioned to low-volume production 235236237238 - Selling, general and administrative expenses decreased by $8.6 million (28%) for the three months and $5.6 million (9%) for the six months ended June 30, 2024, mainly due to lower stock-based compensation, salary/benefits, and professional fees 240241242 - Gain on fair value change in warrant and derivative liability increased significantly by $42.7 million (759%) for the three months and $15.8 million (69%) for the six months ended June 30, 2024, driven by changes in fair value of warrants and derivative liabilities 248 - Loss on fair value change in convertible debt was $8.5 million for the three months and $67.1 million for the six months ended June 30, 2024, due to the company electing the fair value option for debt instruments 250 Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS, to their most comparable GAAP measures. These metrics are used by management and provided to investors to assess operational performance by excluding certain non-cash or non-recurring items - EBITDA is defined as net loss before interest expense, income tax expense or benefit, and depreciation and amortization 254 - Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS further adjust EBITDA for stock-based compensation, restructuring charges, asset impairments, non-routine legal fees, fair value changes in contingent earnout shares, warrants, derivative liabilities, convertible debt, loss on extinguishment of debt, and other one-time non-recurring transactions 254 Adjusted Non-GAAP Amounts (in thousands) | Metric | Three months ended June 30, 2024 | Six months ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :----------------------------- | | Net loss (GAAP) | $(4,960) | $(115,647) | | Adjusted EBITDA | $(38,608) | $(86,912) | | Adjusted Net Loss | $(42,705) | $(100,021) | | Adjusted EPS (Basic & Diluted) | $(0.61) | $(1.66) | Liquidity and Capital Resources As of June 30, 2024, the company had $4.5 million in unrestricted cash and cash equivalents and an accumulated deficit of $1.6 billion. Management believes existing cash resources are insufficient to support planned operations for the next 12 months, raising substantial doubt about its ability to continue as a going concern. The company continues to seek additional capital through debt and equity financing - As of June 30, 2024, the Company had $4.5 million in unrestricted cash and cash equivalents and an accumulated deficit of $1.6 billion 261262 - Management believes existing cash resources and additional sources of liquidity are not sufficient to support planned operations for the next 12 months, raising substantial doubt about the Company's ability to continue as a going concern 265 - The Company expects significant increases in capital and operating expenditures for R&D, manufacturing, marketing, personnel, and public company operations 262264 Consolidated Cash Flow Statements Data (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(83,419) | $(129,544) | | Net cash used in investing activities | $(6,923) | $(33,905) | | Net cash provided by financing activities | $88,539 | $132,215 | Critical Accounting Estimates There have been no material changes to the company's critical accounting estimates as described in its Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes have occurred to the Company's critical accounting estimates previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023 273 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's market risk exposure is currently minimal due to its early stage of operations, primarily limited to interest rate risk on cash and cash equivalents and potential inflation risk on material and overhead costs upon commercialization - The Company's current market risk exposure is primarily due to fluctuations in interest rates on its cash and cash equivalents, which are invested in low-risk money market funds 274 - Inflationary factors, such as increases in material costs (e.g., semiconductor chips) or overhead costs, may adversely affect the business upon commencing commercial operations 274 Item 4. Controls and Procedures Management, with CEO and CFO participation, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2024. There were no material changes in internal control over financial reporting during the three and six months ended June 30, 2024 - The Company's disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of June 30, 2024 275276 - No material changes occurred in the Company's internal control over financial reporting during the three and six months ended June 30, 2024 277 PART II — OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, equity sales, and other significant corporate events Item 1. Legal Proceedings This section refers to Note 11, Commitments and Contingencies, for a description of any material pending legal proceedings - For a description of material pending legal proceedings, refer to Note 11, Commitments and Contingencies, in the Condensed Consolidated Financial Statements 279 Item 1A. Risk Factors No material changes to previously disclosed risk factors, except for the addition of risks associated with the recently implemented Employee Reorganization Plan, which could adversely affect and disrupt business operations - The Employee Reorganization Plan, implemented on August 14, 2024, is a new risk factor that could adversely affect and disrupt the Company's business and results of operations due to potential loss of institutional knowledge, inability to retain relocated personnel, and unforeseen costs 280281 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended June 30, 2024, the company issued 73,649 shares of Common Stock to certain consultants, exempt from registration under Section 4(a)(2) of the Securities Act - The Company issued 73,649 shares of Common Stock to consultants during Q2 2024, exempt from registration under Section 4(a)(2) of the Securities Act 282 Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities 282 Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the Company 282 Item 5. Other Information This section details the new Executive Chairman Agreement with Mr. Aquila, effective August 12, 2024, outlining his compensation and reimbursement. It also provides further information on the Employee Reorganization Plan, including relocation offers and estimated charges, and confirms no Rule 10b5-1 trading arrangement changes - A new Executive Chairman Agreement with Mr. Aquila commenced on August 12, 2024, replacing the expired initial agreement, with an annual fee of $500,000 and reimbursement for business expenses, including air travel 283284 - The Employee Reorganization Plan, implemented August 14, 2024, involves permanently reducing employees at the Torrance, California facility, with relocation offers for approximately 137 out of 194 employees, and estimated charges up to $3.0 million 286287 - No director or officer adopted, modified, or terminated any Rule 10b5-1 trading arrangement during the quarter ended June 30, 2024 288 Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, certificates of designation, warrant forms, securities purchase agreements, prepaid advance agreements, and certifications - Key exhibits include the Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Certificates of Amendment, Certificates of Designation for Series B and C Preferred Stock, various Warrant forms, Securities Purchase Agreements, Prepaid Advance Agreements (June 2024 PPA, July 2024 PPA), and the Executive Chairman Agreement 289291 Signatures The report is duly signed by Tony Aquila, Chief Executive Officer and Executive Chair of the Board, and Greg Ethridge, Chief Financial Officer, on August 14, 2024 - The report is signed by Tony Aquila, CEO and Executive Chair, and Greg Ethridge, CFO, on August 14, 2024 293