Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 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
                    
 
 
Hyzon Motors Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-39632
 
82-2726724
(State or other jurisdiction
of incorporation)
 
(Commission

File Number)
 
(I.R.S. Employer

Identification No.)
475 Quaker Meeting House Road

Honeoye Falls, NY
 
14472
(Address of principal executive offices)
 
(Zip Code)
(585)-484-9337
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
 
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, par value $0.0001 per share
 
HYZN
 
Nasdaq Capital Market
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share
 
HYZNW
 
Nasdaq Capital Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    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
August 11, November 1, 2021,
247,215,716
247,644,709 shares of Class A Common Stock, par value $0.0001 per share, were issued and outstanding.
 
Table of Contents
EXPLANATORY NOTE
On July 16, 2021, our predecessor Decarbonization Plus Acquisition Corporation, a Delaware corporation (“DCRB”), consummated the previously announced business combination with Hyzon Motors, Inc., a Delaware corporation (“Legacy Hyzon”), pursuant to which DCRB Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of DCRB (“Merger Sub”) merged with and into Legacy Hyzon, with Legacy Hyzon surviving the merger (the “Merger”, and together with the related transactions, the “Business Combination”). Upon consummation of the Business Combination, Legacy Hyzon became a direct wholly-owned subsidiary of DCRB, and DCRB was renamed Hyzon Motors, Inc. (“New Hyzon” or “Hyzon”). Unless stated otherwise, this report contains information about DCRB before the Business Combination. References to the “Company” in this report refer to DCRB before the consummation of the Business Combination or New Hyzon after the Business Combination, as the context suggests.
Table of Contents
DECARBONIZATION PLUS ACQUISITION CORPORATION
Quarterly Report on Form
10-Q
Table of Contents
 
     
Page No.
 
PART I—I – FINANCIAL INFORMATION
Item 1.
Interim Financial Statements
   1 
Item 1.
 
Condensed Balance Sheets (unaudited)Financial Statements
   1 
Condensed Statements of Operations (unaudited)Item 2.
 2
Condensed Statements of Changes in Stockholder’s Equity (unaudited)
3
Condensed Statements of Cash Flows (unaudited)
4
Notes to Condensed Financial Statements (unaudited)
5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   1921 
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
37
Item 4.
Controls and Procedures
   2237 
Item 4.
Controls and ProceduresPART II – OTHER INFORMATION
   2239 
PART II – OTHER INFORMATIONItem 1.
Legal Proceedings
   39 
Item 1.1A.
 
Risk Factors
39
Legal ProceedingsItem 2.
 24
Item 1A.
Risk Factors
24
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   2439 
Item 3.
 
Defaults Upon Senior Securities
39
Item 4.
Mine Safety Disclosures
   2439 
Item 4.5.
 
Other Information
39
Mine Safety DisclosuresItem 6.
 24
Item 5.
Other InformationExhibits.
   2440 
Item 6.
Exhibits.
25
SIGNATURE
 2641 
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HYZON MOTORS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
   
September 30, 2021
  
December 31, 2020
 
ASSETS
         
Current assets
         
Cash  $ 498,014  $17,139 
Accounts receivable   5,991   —   
Inventory   15,260   —   
Prepaid expenses and other current assets   24,555   848 
          
Total current assets
   543,820   17,987 
Property, plant, and equipment, net   8,878   418 
Right-of-use
assets
   2,365   1,656 
Deferred merger transaction costs   —     732 
Restricted cash and other assets   7,755   212 
          
Total Assets
  
$
562,818
 
 
$
21,005
 
          
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
Current liabilities         
Accounts payable  $2,851  $215 
Accrued professional fees   1,003   900 
Other accrued expenses   3,154   162 
Related party payables   4,554   560 
Horizon IP agreement payable   10,000   —   
Contract liabilities   10,984   2,608 
Current portion of lease liabilities   748   618 
          
Total current liabilities
  
 
33,294
 
 
 
5,063
 
          
Long term liabilities         
Lease liabilities   1,930   1,181 
Private placement warrant liability   11,781   —   
Earnout liability   114,758   —   
Other liabilities   316   —   
          
Total liabilities
  
$
162,079
 
 
$
6,244
 
 
 
 
 
 
 
 
 
 
Commitments and contingencies (Note 1
1
)
         
Stockholders’ Equity 
         
Common stock, $0.0001 par value; 400,000,000 shares authorized, 247,500,505 and 166,125,000 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively.   25   17 
Additional
paid-in
capital
   402,211   29,122 
Retained earnings (accumulated deficit)
   515   (14,271) 
Accumulated other comprehensive loss   (326)   (16) 
          
Total Hyzon Motors Inc. stockholders’ equity    402,425   14,852 
Noncontrolling interest   (1,686)   (91) 
          
Total Stockholders’ Equity 
  
 
400,739
 
 
 
14,761
 
          
Total Liabilities and Stockholders’ Equity 
  
$
562,818
 
 
$
21,005
 
          
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
1
Table of Contents
HYZON MOTORS INC. AND SUBSIDIARIES
PART I—FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except per share amounts)
 
Item 1.
   
Three Months Ended September 30,
  
Nine Months Ended
September 30,

2021
  
For the period
January 21, 2020
(Inception) –
September 30,
2020
 
   
2021
  
2020
 
Revenue
  $962  $—    
$
962  $—  
Operating expense:
                 
Cost of revenue
  
968
   
—
 
 
   
 
968
   
—
 
 
Research and development   4,822   104   8,921   163 
Selling, general and administrative   44,784   436   53,730   670 
                  
Total operating expenses   50,574   540   63,619   833 
                  
Loss from operations
  
 
(49,612
) 
 
 
(540
) 
 
 
(62,657
) 
 
 
(833
) 
                  
Other income (expense):
                 
Change in fair value of private placement warrant liability   7,614   —     7,614   —   
Change in fair value of earnout liability   73,615   —     73,615   —   
Foreign currency exchange loss and other expense   (110)   (1)   (169)   (1) 
Interest expense
,
 
net
   (254)   (15)   (5,249)   (20) 
                  
Total other
income (expense)
  
 
80,865
 
 
 
(16
) 
 
 
75,811
 
 
 
(21
) 
                  
Net income (loss)
  
$
31,253
 
 
$
(556
) 
 
$
13,154
 
 
$
(854
) 
Net loss attributable to noncontrolling interest   (1,101)   —   (1,632)   — 
                  
Net income (loss) attributable to Hyzon
  
$
32,354
 
 
$
(556
) 
 
$
14,786
 
 
$
(854
) 
                  
Comprehensive income (loss):
                 
Net income (loss)
  
$
31,253
 
 
$
(556
) 
 
$
13,154
 
 
$
(854
) 
Foreign currency translation adjustment   (205)   —     (293)   —   
                  
Comprehensive income (loss)
  
$
31,048
 
 
$
(556
) 
 
$
12,861
 
 
$
(854
) 
                  
Comprehensive loss attributable to noncontrolling interest   (1,075)   —     (1,594)   —   
                  
Comprehensive income (loss) attributable to Hyzon
  
$
32,123
 
 
$
(556
) 
 
$
14,455
 
 
$
(854
) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to Hyzon:
                 
Basic  $0.14  $—    $0.08  $(0.01)
D
iluted
 
$
 
0.13
  
$
—
 
 
  
$
 
0.07
  
$
 
(0.01
)
 
Weighted average common shares outstanding:
                 
Basic   234,464   148,405   189,226   148,405 
Diluted
  
246,263
   
148,405
   
200,968
   
148,405
 
Interim Financial Statements
Decarbonization Plus Acquisition Corporation
BALANCE SHEETS
   
June 30, 2021

(unaudited)
  
December 31,
2020
 
ASSETS:
 
Current assets:
         
Cash
  $167,284  $—   
Investment held in Trust Account
   225,734,427   225,727,721 
Prepaid insurance
   769,425   1,062,000 
   
 
 
  
 
 
 
Total current assets
   226,671,136   226,789,721 
   
 
 
  
 
 
 
Total assets
  $226,671,136  $226,789,721 
   
 
 
  
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
Current liabilities:
         
Accrued offering costs
  $175,000  $175,000 
Accounts payable—affiliate
   3,375,977   1,324,257 
Accrued expenses
   3,533,899   3,572,935 
   
 
 
  
 
 
 
Total Current Liabilities
   7,084,876   5,072,192 
Warrant liabilities
   40,763,719   33,600,270 
Deferred underwriting fee payable
   7,900,376   7,900,376 
   
 
 
  
 
 
 
Total liabilities
   55,748,971   46,572,838 
   
 
 
  
 
 
 
COMMITMENTS AND CONTINGENCIES
  0  0   
Class A common stock subject to possible redemption, 16,592,216 and 17,521,688
shares at June 30, 2021 and December 31, 2020,
respectively, at $10.00 per share
   165,922,160   175,216,880 
Stockholders’ equity:
         
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; 0ne issued and outstanding
   0—     0—   
Class A common stock, $0.0001 par value, 250,000,000 shares authorized; 5,980,286 and 5,050,814 shares, respectively, issued and outstanding (excluding 16,592,216 and 17,521,688 shares subject to possible redemption) at
June 30
, 2021 and December 31, 2020, respectively
   598   505 
Class B common stock, $0.0001 par value, 20,000,000 shares authorized, 5,643,125
 
s
hares issued and outstanding at
June
 3
0
, 2021 and December 31, 2020
   564   564 
Additional
paid-in
capital
   36,135,858   26,841,231 
Accumulated deficit
   (31,137,015)   (21,842,297) 
   
 
 
  
 
 
 
Total stockholders’ equity
   5,000,005   5,000,003 
   
 
 
  
 
 
 
Total liabilities and stockholders’ equity
  $ 226,671,136  $ 226,789,721 
   
 
 
  
 
 
 
1
Table of Contents
Decarbonization Plus Acquisition Corporation
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
UNAUDITED STATEMENTS OF OPERATIONS
   
For the Three
Months Ended June
30, 2021
  
For the Three
Months Ended June
30, 2020
  
For the Six Months
Ended June 30, 2021
  
For the Six Months
Ended June 30, 2020
 
Operating expenses:
                 
General and administrative expenses
  $1,361,853  $860  $2,137,975  $1,719 
   
 
 
  
 
 
  
 
 
  
 
 
 
Loss from operations
   (1,361,853)   (860)   (2,137,975)   (1,719) 
Other Income
                 
Interest earned on marketable securities held in Trust Account
  $3,372  $—    $6,706  $—   
Change in fair value of warrant liabilities
   (6,824,865)   —     (7,163,449)   —   
   
 
 
  
 
 
  
 
 
  
 
 
 
                  
Net loss
  $ (8,183,346)  $(859)  $ (9,294,718)  $(1,719) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Weighted average shares outstanding of Class A redeemable common stock, basic and diluted
   22,572,502   —     22,572,502   —   
   
 
 
  
 
 
  
 
 
  
 
 
 
Basic and diluted net income per common share, Class A redeemable common stock
  $—    $—    $0.00  $—   
   
 
 
  
 
 
  
 
 
  
 
 
 
Weighted average shares outstanding of Class B non-redeemable common stock, basic and diluted (1) (2)
   5,643,125   5,643,125   5,643,125   5,643,125 
   
 
 
  
 
 
  
 
 
  
 
 
 
Basic and diluted net loss per common share, Class B non-redeemable common stock
  $0    $(0.00)  $(1.65)  $(0.00) 
   
 
 
  
 
 
  
 
 
  
 
 
 
2
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Decarbonization Plus Acquisition Corporation
HYZON MOTORS INC. AND SUBSIDIARIES
UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
For the period from January 1,
2021
to June 30,
2021(in thousands, except share data)
  
Legacy Common
Stock
  
Common Stock

Class A
  
Additional
Paid-in
Capital
  
Retained
Earnings
(Accumulated
Deficit)
  
Accumulated
Other
Comprehensive
Loss
  
Total Hyzon
Motors Inc.
stockholders’
Equity (Deficit)
  
Noncontrolling
Interest
  
Total
Stockholders’
Equity (Deficit)
 
  
Shares
  
Amount
  
Shares
  
Amount
 
Balance as of December 31, 2020
     93,750,000  $94   
—
  
$
—
   29,045   (14,271)   (16)   14,852   (91)  $14,761 
Retroactive application of recapitalization
     (93,750,000)   (94)   166,125,000  $17   77   
—
 
 
   
—
 
 
   —     —     —   
                                            
Adjusted
 
balance,
beginning of
period
     —     —     166,125,000   17   29,122   (14,271)   (16)   14,852   (91)   14,761 
Exercise of stock option
s
     —     —     132,900   —     190   —     —     190   —     190 
Stock-based
compensation
     —     —     —     —     816   —     —     816   —     816 
IP transaction – deemed distribution
     —     —     —     —     (10,000)   —     —     (10,000)   —     (10,000) 
Net loss attributable to Hyzon
     —     —     —     —     —     (17,568)  —     (17,568)  —     (17,568)
Net loss attributable to noncontrolling interest
     —     —     —     —     —     —     —     —     (531)   (531) 
Foreign currency translation loss
     —     —     —     —     —     —     (79)   (79)   11   (68) 
                                            
Balance
 
at
 
June
30, 2021
     —     —     166,257,900   17   20,128   (31,839)   (95)   (11,789)   (611)   (12,400) 
Reverse recapitalization transaction, net (Note 3)
     
—
 
 
   
—
 
 
   
80,736,309
   8   354,626   —     —     354,634   —     354,634 
Vesting of RSU
s
     
—
 
 
   
—
 
 
   284,796   —     —     —   —   —   —   
—
 
 
 
Exercise of stock option
s
     —     —     221,500   —     250   —     —     250   —     250 
Stock-based compensation
     —     —     —     —     27,207   —     —     27,207   —     27,207 
Net income (loss) attributable to Hyzon
     —     —     —     —     —     32,354   —     32,354   —     32,354 
Net loss attributable to noncontrolling interest
     —     —     —     —     —     —     —     —     (1,101)   (1,101) 
Foreign currency translation loss
     —     —     —     —     —     —     (231)   (231)   26   (205) 
                                            
Balance as of September 30, 2021
     —     —     247,500,505   25   402,211   515   (326)   402,425   (1,686)   400,739 
                                            
                                                                                                                                                    
   
Class A Common Stock
   
Class B Common Stock
   
Additional
Paid-in
  
Accumulated
  
 
Stockholders’ 
 
   
Shares
   
Amount
   
Shares (1) (2)
   
Amount
   
Capital
  
Deficit
  
Equity
 
Balances
 as of
January 1, 202
1
   5,050,814   $
505
    5,643,125   $564   $26,841,231   $(21,842,297) $5,000,003 
Common stock subject to possible redemptio
n
  
111,137
   
11
   
—
 
 
   
—
 
 
   
1,111,359
   
—
 
 
   
1,111,370
 
Net loss
   —      —      —      —      —      (1,111,372)   (1,111,372) 
Balances
 as of
March 31, 202
1
  
 
5,161,951
 
  
$
516
 
  
 
5,643,125
 
  
$
564
 
  
$
27,952,590
 
 
$
(22,953,669
) 
 
$
5,000,001
 
Common stock subject to possible redemptio
n
  
818,335
   
82
   
—  
   
—
 
 
   
8,183,268
  
—
 
 
   
8,183,350
 
Net loss
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
(8,183,346
) 
 
 
(8,183,346
) 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Balances as of June 30, 202
1
   
 5,980,286
   $
  
598
    5,643,125   $564   $36,135,858  $(31,137,015)  $5,000,005 
For the period from January 1,
2020
to June 30,
2020
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
                                                                                                                                                    
   
Class A Common Stock
   
Class B Common Stock
   
Additional
Paid-in
   
Accumulated
  
Stockholder’s
 
 
   
Shares
   
Amount
   
Shares (1) (2)
   
Amount
   
Capital
   
Deficit
  
Equity
 
Balances
 as of
January 1, 202
0
   —     $—      5,750,000   $575   $243,447   $(219,422)  $24,600 
Net loss
   —      —      —      —      —      (859)   (859) 
Balances as of March 31, 202
0
  
 
—  
 
  
$
—  
 
  
 
5,750,000
 
  
$
575
 
  
$
243,447
 
  
(220,281
) 
 
23,741
 
Net loss
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
—  
 
  
 
(860
) 
 
 
(860
) 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
Balances as of June 30, 202
0
   —     $—      5,750,000   $575   $243,447   $(221,141)  $22,881 
 
3
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Decarbonization Plus Acquisition Corporation
UNAUDITED STATEMENTS OF CASH FLOWS(in thousands, except share data)
   
Legacy
Common Stock
  
Common Stock
Class A
  
Additional
Paid-in

Capital
  
Accumulated
Deficit
  
Accumulated
Other
Comprehensive
Loss
  
Total Hyzon
Motors Inc.
stockholders’
Equity (Deficit)
  
Noncontrolling
Interest
  
Total
Stockholders’
Equity (Deficit)
 
   
Shares
  
Amount
  
Shares
  
Amount
 
Balance as of January 21, 2020
(Inception)
   83,750,000  $84   
—
  
$
—
   —     —     —     84   —     84 
Retroactive
application of
recapitalization		   (83,750,000)   (84)   148,405,000  $15   69   
—
 
 
   
—
 
 
   —     —     —   
                                          
Adjusted
balance, beginning of period
   —     —     148,405,000   15   69   —     —     84   —     84 
Net loss attributable to Hyzon   —     —     —     —     —     (296)  —     (296)  —     (296)
                                          
Balance at June 30, 2020
   —     —     148,405,000   15   69   (296)   —     (212)   —     (212) 
Net loss attributable to Hyzon   —     —     —     —     —     (556)  —     (556)  0   (556)
                                          
Balance as of September 30, 2020
   —     —     148,405,000   15   69   (852)  —     (768)  0   (768)
                                          
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
   
For the Six
Months Ended
June 30, 2021
  
For the Six
Months Ended
June 30, 2020
 
Cash flow from operating activities:
         
Net loss
  $(9,294,718)  $(1,719) 
Adjustments to reconcile net loss to net cash used in operating activities:
         
Change in fair value of warrant liabilities
   7,163,449     
Interest
earned on marketable securities held in Trust Account
   (6,706)   —   
Changes in operating assets and liabilities:
         
Accounts payable
   2,051,720   1,719 
Accrued expenses
   (39,036)   —   
Prepaid insurance
   292,575   —   
   
 
 
  
 
 
 
Net cash used in operating activities
   167,284   —   
   
 
 
  
 
 
 
          
Net increase in cash
   167,284   —   
Cash at beginning of period
   —     315,600 
   
 
 
  
 
 
 
Cash at end of period
  $167,284  $315,600 
   
 
 
  
 
 
 
          
Supplemental disclosure of
non-cash
financing activities:
         
Change in value of Class A common stock subject to possible redemption
  $(9,294,720)  $—   
   
 
 
  
 
 
 
 
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HYZON MOTORS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
   
Nine Months Ended
September 30, 2021
  
For the period
January 21, 2020
(Inception) -
September 30, 2020
 
Cash Flows from Operating Activities:
         
Net
income (loss)
  $13,154  $(854) 
Adjustments to reconcile net
income (loss)
to net cash used in operating activities:
         
Depreciation and amortization   450   1 
Reduction in the carrying amount of right of use assets   221   98 
Stock-based compensation   28,084   —   
Loss on extinguishment of convertible notes   107   —   
Noncash interest expense   5,449   —   
Fair value adjustment of private placement warrant liability
  
(7,614
)
 
  
—
 
 
 
Fair value adjustment of earnout liability
  
(73,615
)
 
  
—
 
 
 
Changes in
 
operating assets and liabilities:
         
Accounts Receivable   (5,712)   —   
Inventory   (14,577)   —   
Prepaid expenses and other current assets   (19,549)   —   
Other assets   (150)   (14) 
Accounts payable   2,558   —   
Accrued professional fees and other current liabilities   3,031   17 
Operating lease liabilities   (187)   —   
Related party payables   3,821   756 
Contract liabilities   7,982   —   
Other liabilities   311   —   
          
Net cash
 (used in) provided by operating activities
   (56,236)   4 
          
Cash Flows from Investing Activities:
         
Purchases of property and equipment   (8,810)   (133) 
Advanced payments for capital expenditures   (3,948)   —   
Investment in equity securities   (4,826)   0   
          
Net cash used in investing activities
   (17,584)   (133) 
          
Cash Flows from Financing Activities:
        
Proceeds from issuance of common stock   —     84 
Proceeds 
from Business Combination, net of redemption and transaction costs (Note 3)
   512,936   —   
Exercise of stock options   440   —   
Payment of finance lease liability   (135)   (12) 
Debt issuance costs   (133)   —   
Proceeds from issuance of convertible notes   45,000   500 
          
Net cash provided by financing activit
i
es
   558,108   572 
          
Effect of exchange rate changes on cash
   (853)   1 
          
Net change in cash and restricted cash
   483,435   444 
Cash—Beginning   17,139   —   
          
Cash and restricted
cash —Ending
  
$
500,574  
$
444 
 
 
 
 
 
 
 
 
 
 
        
Supplemental schedule of non-cash investing activities and financing activities:
        
Lease assets obtained in exchange for lease obligations:
        
Operating leases
  
 
1,206
   
—
 
 
 
Finance leases
  
—
 
 
   
886
 
Conversion of Legacy Hyzon
common stock
  
73
   
—
 
 
 
Recognition of earnout liability in Business Combination
  188,373  
 
 
—
 
 
Recognition of private placement warrant liability in Business 
Combinatio
n
  19,395   
—  
 
Horizon license agreement payable
  
10,000
   
—
 
 
 
Conversion of convertible notes for common stock
  
50,198
   
—  
 
Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Note 1 — DescriptionThe accompanying notes are an integral part of Organization and Business Operations
Organization and General
Silver Run Acquisition Corporation III was incorporated in Delaware on September 7, 2017. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Initial Business Combination”). The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the “Securities Act,” as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). On August 18, 2020, the Company changed its name from Silver Run Acquisition Corporation III to Decarbonization Plus Acquisition Corporation (the “Company”
 o
r “DCRB”). Following the consummation of the Business Combination on July 16, 2021, DCRB changed its name to Hyzon Motors Inc.
At June 30, 2021, the Company had not commenced an
y
 operations. All activity through June 30, 2021 relates to the Company’s formation and initial public offering (“Initial Public Offering”), which is described below, as well as the identification and evaluation of prospective acquisition targets for an Initial Business Combination and ongoing administrative and compliance matters. The Company will not generate any operating revenues until after completion of its Initial Business Combination, at the earliest which is discussed in Note 8. The Company will generate
non-operating
income in the form of interest income from the proceeds derived from the Initial Public Offering.
The registration statement for the Initial Public Offering was declared effective on October 19, 2020. On October 22, 2020, the Company consummated the Initial Public Offering of 22,572,502 units (the “Units” and, with respect to the Class A common stock included in the Units sold, the “Public Shares”), which includes the partial exercise by the underwriters of their over-allotment option in the amount of 2,572,502 units (the “Over-allotment Units”) on November 12, 2020, at $10.00 per Unit, generating gross proceeds of $225,725,020, which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the private sale of 6,514,500 warrants (the “Private Placement Warrants”), including 514,500 warrants as a result of the underwriters’ partial exercise of their over-allotment option on November 12, 2020, at a price of $1.00 per Private Placement Warrant in a private placement to Decarbonization Plus Acquisition Sponsor, LLC (the “Sponsor”), the Company’s independent directors and an affiliate of the Company’s chief executive officer, generating gross proceeds of $6,514,500, which is described in Note 4.
Transaction costs amounted to $12,969,969, consisting of $4,514,500 of underwriting fees, $7,900,376 of deferred underwriting fees and $555,093 of
other offering costs. In addition, at June 30, 2021, there was $167,284 of cash held outside of the Trust Account (as defined below) available for working capital purposes, but the Company has access to working capital loans from the Sponsor, which is described in Note 4.
Following the closing of the Initial Public Offering on October 22, 2020 and the partial exercise of the underwriters’ over-allotment option on November 12, 2020, an amount of $225,725,020 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”) located in the United States. The proceeds held in the Trust Account will be invested only in U.S. government treasury bills with a maturity of 185 days or less or in money market funds that meet certain conditions under Rule
2a-7
under the Investment Company Act of 1940 and that invest only in direct U.S. government obligations. Funds will remain in the Trust Account until the earlier of (i) the consummation of the Initial Business Combination or (ii) the distribution of the Trust Account proceeds as described below. The remaining proceeds outside the Trust Account may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
The Company’s amended and restated certificate of incorporation prior to the Business Combination provides that, other than the withdrawal of interest to pay taxes, if any, none of the funds held in the Trust Account will be released until the earlier of: 
(i) the completion of the Initial Business Combination; (ii) the redemption of any Public Shares being sold in the Initial Public Offering that have been properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of its obligation to redeem 100% of Public Shares if it does not complete the Initial Business Combination within 24 months from the closing of the Initial Public Offering or (B) with respect to any other provision relating to the rights of holders of Public Shares or
pre-Initial
Business Combination activity; and (iii) the redemption of 100% of the Public Shares if the Company is unable to complete an Initial Business Combination within 24 months from the closing of the Initial Public Offering (subject to the requirements of law). The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s public stockholders.
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Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
these unaudited condensed consolidated financial statements.
 
Initial Business Combination5
The following description relates to the Company prior to the consummation of the Business Combination.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering, although substantially all of the net proceeds of the Initial Public Offering are intended to be generally applied toward consummating an Initial Business Combination. The Initial Business Combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on income earned on the Trust Account) at the time of the agreement to enter into the Initial Business Combination. 
The Company, after signing a definitive agreement for an Initial Business Combination, will either (i) seek stockholder approval of the Initial Business Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their shares, regardless of whether they vote for or against the Initial Business Combination, for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable, or (ii) provide stockholders with the opportunity to sell their Public Shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable. The decision as to whether the Company will seek stockholder approval of the Initial Business Combination or will allow stockholders to sell their Public Shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval, unless a vote is required by law or under the Nasdaq Capital Market rules. If the Company seeks stockholder approval, it will complete its Initial Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the Initial Business Combination. However, in no event will the Company redeem its Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001. In such case, the Company would not proceed with the redemption of its Public Shares and the related Initial Business Combination, and instead may search for an alternate Initial Business Combination.
If the Company holds a stockholder vote or there is a tender offer for shares in connection with an Initial Business Combination, a public stockholder will have the right to redeem its shares for an amount in cash equal to its pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable. As a result, such shares of Class A common stock will be recorded at redemption amount and classified as temporary equity upon the completion of the Initial Public Offering, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity”(“ASC 480”).
Pursuant to the Company’s amended and restated certificate of incorporation prior to the Business Combination, if the Company is unable to complete
the Initial Business Combination within 24 months from the closing of the Initial Public Offering, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter subject to lawfully available funds therefor, redeem the Public Shares, at a
per-share
price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to us to pay the Company’s franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholder’s rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. The Sponsor and the Company’s independent directors and an affiliate of the Company’s chief executive officer have entered into a letter agreement with the Company, pursuant to which they have agreed to waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares (as defined below) held by them if the Company fails to complete the Initial Business Combination within 24 months of the closing of the Initial Public Offering. However, if the Sponsor or any of the Company’s directors, officers or affiliates acquires shares of Class A common stock in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete the Initial Business Combination within the prescribed time period.
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Dearbonization Plus Acquisition CorporationHYZON MOTORS INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Basis of Presentation
Description of Business
Hyzon Motors Inc. (“Hyzon” or the “Company”), formerly known as Decarbonization Plus Acquisition Corporation (“DCRB”), headquartered in Honeoye Falls, New York, was incorporated in the State of Delaware on January 21, 2020. The Company is majority-owned by Hymas Pte. Ltd. (“Hymas”), which is majority-owned but indirectly controlled by Horizon Fuel Cell Technologies PTE Ltd., a Singapore company (“Horizon”). Hyzon focuses on accelerating decarbonization starting with mobility through the manufacturing and supply of hydrogen fuel cell-powered commercial vehicles across the North American, European, and Australasian regions. In addition, Hyzon focuses on building and fostering a clean hydrogen supply ecosystem with leading partners from feedstocks through production, dispensing and financing.
In the event of
On February 8, 2021, legacy Hyzon Motors Inc., now Hyzon Motors USA Inc. (“Legacy Hyzon”), entered into a liquidation, dissolution or winding up of the Company after an Initial Business Combination Agreement and Plan of Reorganization (the “Business Combination”) with DCRB to effect a business combination between DCRB and Legacy Hyzon with DCRB Merger Sub Inc., a wholly owned subsidiary of DCRB, merging with and into Legacy Hyzon, with Legacy Hyzon surviving the Company’smerger as a wholly owned subsidiary of DCRB. The transaction was unanimously approved by DCRB’s Board of Directors and was approved at a special meeting of DCRB’s stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock. The Company’s stockholders have no preemptive or other subscription rights. There are no sinking fund provisions applicable to the common stock, except that the Company will provideon July 15, 2021. On July 16, 2021, Legacy Hyzon completed its stockholdersbusiness combination with the opportunity to redeem their Public Shares for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account, uponDCRB. Concurrent with the completion of the Initial Business Combination, subjectbusiness combination, DCRB changed its name to the limitations described herein.“Hyzon Motors Inc.” and Legacy Hyzon changed its name to “Hyzon Motors USA Inc.”.
Going Concern and Liquidity
As of June 30, 2021, the Company had a cash balance of $167,284, but the Company h
a
d
 access to working capital loans from the Sponsor, which is described in Note 4, to partially cover the working capital deficit of $6.9 million as of June 30, 2021. This excludes interest income of approximately $6,706 from the Company’s investment in the Trust Account which is available to the Company for tax obligations. Through June 30, 2021, the Company has not withdrawn any interest income from the Trust Account t
o
 pay its income and franchise taxes.
Prior to the consummation of an Initial Business Combination (which was consummated on July 16, 2021, as discussed in Note 8), the Company used funds held outside of the Trust Account for paying existing accounts payable, identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the Initial Business Combination.
As discussed in Note 8, the Company consummated a business combination that was approved by shareholders of the Company on July 16, 2021.
Note 2 — Summary of Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary since its formation. All material intercompany balances and transactions have been eliminated in consolidation.
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Table of Contents
Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements and related disclosures have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rulesrequirements and regulationsrules of the SEC.Securities and Exchange Commission (“SEC”) for interim reporting. Certain notes or other information that are normally required by U.S. GAAP have been omitted if they substantially duplicate the disclosures contained in the Company’s annual audited consolidated financial statements. Accordingly, they do notthe 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, included in the Definitive Proxy Statement (the “Proxy”) of DCRB filed with the Securities and Exchange Commission (the “SEC”) on June 21, 2021.
Principles of Consolidation
The Company’s condensed consolidated financial statements include allthe accounts and operations of the informationCompany and footnotes required by GAAP. its wholly owned subsidiaries including a variable interest entity of which we are the primary beneficiary.
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All intercompany accounts and transactions are eliminated in consolidation.
Unaudited Interim Financial Information
In the opinion of management, in addition to the adjustments to record the Business Combination, the accompanying unaudited condensed consolidated financial statements include all normal and recurring adjustments (consisting of normal accruals) considerednecessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2021periods presented. Results of operations reported for interim periods presented are not necessarily indicative of results for the entire year or any other periods.
Variable Interest Entities (VIE)
On October 30, 2020, Hyzon entered into a joint venture agreement (the “JV Agreement”) with Holthausen Clean Technology Investment B.V. (“Holthausen”) (together referred to as the “Shareholders”) to establish a venture in the Netherlands called Hyzon Motors Europe B.V. (“Hyzon Europe”). The Shareholders combined their resources in accordance with the JV Agreement to mass commercialize fuel cell trucks within the European Union and nearby markets such as the United Kingdom, the Nordic countries, and Switzerland through Hyzon Europe. Hyzon and Holthausen have 50.5% and 49.5% ownership interest in the equity of Hyzon Europe, respectively.
We have determined that we are the primary beneficiary of Hyzon Europe. As a result, our Condensed Consolidated Balance Sheets include assets of $26.4 million and $1.0 million as of September 30, 2021, and December 31, 2020, respectively, and liabilities of $11.6 million and $1.2 million as of September 30, 2021, and December 31, 2020, respectively, related to Hyzon Europe.
Segment Information
The Company’s chief operating decision maker (“CODM”), who makes operating decisions, reviews financial information presented on a consolidated basis for the purposes of allocating resources and evaluating financial performance. Accordingly, management has determined that the Company operates as one operating and reportable segment.
Liquidity
As of September 30, 2021, the Company has approximately $498.0 million in cash. Cash flows used in operating activities was $56.2 million for the nine months ended September 30, 2021. On July 16, 2021, the Company received $512.9 
million in cash, net of redemption and transaction costs as a result of the Business Combination (see Note 3. Business Combination). Management expects that the Company’s cash will be sufficient to meet its liquidity requirements for at least one year from the issuance date of these condensed consolidated financial statements.
Risks and Uncertainties
The Company is subject to a variety of risks and uncertainties common to early-stage companies that have not yet commenced principal operations including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, and the ability to secure additional capital to fund
operations.
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Table of Contents
Note 2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, to the Company’s consolidated annual financial statements for the year ended December 31, 2020, included in the Proxy. There have been no material changes to the significant accounting policies during the three-month and nine-month periods ended September 30, 2021, except for the new or updated policies noted.
Restricted Cash
Restricted cash consists of funds that are contractually restricted as to usage or withdrawal. The Company presents restricted cash separately from unrestricted cash on the Condensed Consolidated Balance Sheets. As of September 30, 2021, the Company has
$2.6 
million in restricted cash included within Restricted cash and other assets, the balance is primarily comprised of
$2.4 
million in certain letters of credit. The Company
ha
d 0 
restricted cash as of December 31, 2020.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the
first-in,
first-out
method (FIFO) for all inventories. As of September 30, 2021, the Company had inventory comprised of raw materials and work in process of
$11.5 million and $3.8 
million, respectively. The Company had no inventory as of December 31, 2020.
Warrant Liabilities
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480,
Distinguishing
Liabilities
from
Equity
(“ASC 480”) and ASC 815-40,
Derivatives and Hedging—Contracts in Entity’s Own Equity
( (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance and adjusted to the current fair value at each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (see Note 13. Warrants).
Earnout liability
As a result of the Business Combination, the Company recognized earnout shares to Legacy Hyzon’s common stockholders as a liability. Pursuant to ASC 805-10,
Business Combinations
(“ASC 805”) the Company determined that the initial fair value of the earnout shares should be recorded as a liability with the offset going to additional paid-in capital and with subsequent changes in fair value recorded in the statement of operations at each reporting period. The earnout shares to other holders of outstanding equity awards are accounted for under ASC 718,
Stock Compensation
(“ASC 718”), as these earnout shares are compensatory in nature, as they relate to services provided or to be provided to the Company.
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Table of Contents
Note 3. Business Combination
As discussed in Note 1, on July 16, 2021, Legacy Hyzon consummated the transaction contemplated by the Business Combination. Immediately upon the completion of the Business Combination and the other transactions contemplated by the Business Combination, Legacy Hyzon became a direct, wholly owned subsidiary of DCRB. In connection with these transactions, DCRB changed its name to “Hyzon Motors Inc.”
The Business Combination was accounted for as a reverse recapitalization in accordance with US GAAP, with no goodwill or other intangible assets recorded and the net assets of Legacy Hyzon consolidated with DCRB at historical cost. Under this method of accounting, DCRB is treated as the “acquired” company for financial reporting purposes.
As a result of the Business Combination, each share of common stock of Legacy Hyzon, par value $0.001 per share, was converted to 1.772 shares of Class A common stock, par value $0.0001 per share of the Company, resulting in the issuance of approximately 173.4 million shares of Class A common
stock.
Additionally, the Company reserved for issuance approximately 21.7 million shares of Class A common stock in respect to outstanding options and restricted stock units (“RSUs”) issued in exchange for options, RSUs and warrants of the Company. 
DCRB held subscription agreements with certain investors to issue and sell an aggregate of
35,500,000
shares of Class A
 common stock 
of DCRB for $
10.00
per share for an aggregate commitment of $
355,000,000
(the “PIPE Financing”). At the closing of the Business Combination, DCRB consummated the PIPE Financing, and those proceeds became part of the Company’s capital.
Pursuant to the terms of the Convertible Notes described in Note 7, immediately prior to the Business Combination the outstanding principal of $45 million as well as the accrued interest on the Convertible Notes automatically converted into shares of the Company at a price per share equal to 90% of the price per share paid by the PIPE Financing investors, and upon the closing, converted into 5,022,052 shares of common stock of the post-combination company.
In addition,
the
exercise price
of the options granted to Ascent Funds Management LLC to purchase shares of Legacy Hyzon common stock (the “Ascent Options”) 
was $2.73 per share and
the Ascent Options were
automatically exercised in full by Ascent on a cashless basis into approximately 3.9 million shares of Legacy Hyzon
 common stock 
immediately prior to the consummation of the Business Combination, which converted into approximately 6.9 million shares of Class A
 common stock 
in connection with the Business Combination.
Immediately after giving effect to the Business Combination, PIPE Financing, Convertible Note conversion, and Ascent
Options
exercise described above, there were
246,994,209
shares of Class A common stock of the Company issued and outstanding.
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The number of shares of common stock issued immediately following the consummation of the Business Combination:
Shares
Common stock of DCRB
20,483,179
DCRB founders
5,643,125
Total DCRB
26,126,304
Conversion of Ascent
Options
(post-cashless exercise)
6,871,667
Legacy Hyzon shares after conversion
173,474,186
Conversion of convertible notes
5,022,052
PIPE shares
35,500,000
Total shares of common stock immediately after Business Combination
246,994,209
The following table reconciles the elements of the Business Combination to the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021:
(in thousands)
  
Recapitalization
 
Cash 
– DCRB trust and cash, net of redemptions and liabilities recorded by DCRB of $13.5 million
  $191,181 
Cash – 
PIPE Financing, net of transaction costs of $14.2 million
   340,797 
Less: 
transaction costs allocated to equity 
   (19,042) 
   
 
 
 
Effect of Business Combination, net of redemption and transaction costs
  
$
512,936
 
 
 
 
 
 
The Company issued equity classified common shares and certain liability classified earnout shares. Transaction costs of $6.4 million attributable to the liability classified earnout shares were expensed. The rest was attributable to the equity classified common shares and recorded as a reduction to Additional paid-in capital in the Condensed Consolidated Balance Sheets.
The following table reconciles the elements of the Business Combination to the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2021:
(in thousands)
  
Recapitalization
 
Cash –
DCRB trust and cash, net of redemptions and liabilities recorded by DCRB of $13.5 million
  $191,181 
Cash –
PIPE Financing, net of transaction costs of $14.2 million
   340,797 
Conversion of convertible notes into common stock
   50,198 
Recognize earnout liability
   (188,373) 
Recognize
private placement warrants liability
   (19,395) 
Recapitalization of Legacy Hyzon common shares
   75 
Less: 
transaction costs allocated to equity 
   (19,857) 
   
 
 
 
Effect of Business Combination, net of redemption and transaction costs
  
$
354,626
 
 
 
 
 
 
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Earnout
Following the closing of the Business Combination, holders of the Company’s legacy common stock and outstanding equity awards (including warrant, stock option and RSU holders) were granted the right to receive up to an aggregate amount of 23,250,000 shares of Class A common stock that would vest in in three tranches of (i) 9,000,000, (ii) 9,000,000 and (iii) 5,250,000 shares if the trading price of the common stock of the Company achieves $18, $20, and $35
, respectively, as 
its last reported sales price per share for any 20 trading days within any 30 consecutive trading day period within five years following the closing date of the Business Combination, provided that in no event will the issuance of the 5,250,000
earnout shares occur prior to the
one-year
anniversary of the closing date. Upon forfeiture of underlying unvested equity awards prior to occurrence of targeted trading price noted above, the associated earnout shares shall be allocated pro-rata among the remaining eligible Company’s common stock and equity awards holders.
The Company recognized earnout shares to Legacy Hyzon’s common stockholders as a liability. The earnout liability was $114.8 million and $188.4 
million as of September 30, 2021 and at the close of the Business Combination, respectively. The change in earnout liability was recorded as other income in Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The Company recognized the earnout shares to other equity holders as separate and incremental awards from other equity holders’ underlying stock-based
compensation
awards in accordance with ASC 718.
Certain earnout awards accounted for under ASC 718 were vested at the time of grant, and therefore recognized immediately as compensation expense. Certain other earnout awards accounted for under ASC 718 contained performance and market-based vesting conditions, and as the performance conditions are not deemed probable at September 30, 2021, no compensation expense has been recorded related to these awards. Total compensation expense recorded in the three and nine months ended September 30, 2021 related to earnout awards was
$13.2 
million.
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Note 4. Revenue
We recognized $1.0 million in sales of fuel cell vehicles for the three months ended September 30, 2021. See Note 1
4
. Related Party Transactions, discussing the assignment of certain sales contracts from our related party Holthausen.
Warranty
In most cases, products that customers purchase from us are covered by one to
six-year
limited product warranty. At the time revenue is recognized, the Company estimates the cost of expected future warranty claims and accrues estimated future warranty costs. These estimates are based on industry information, actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain given the Company’s relatively short history, and changes to the historical or projected warranty experience may cause changes to the warranty reserve when the Company accumulates more actual data and experience in the future. The Company will periodically review the adequacy of its product warranties and adjust, if necessary, the warranty percentage and accrued warranty liability for actual historical experience. Accrued warranty obligations are recorded within Other liabilities and warranty expenses are recorded within Cost of revenue.
Contract Liabilities
Contract liabilities relate to the advance consideration received from customers for products and services prior to satisfying a performance obligation or in excess of amounts allocated to a previously satisfied performance obligation. These amounts are included within contract liabilities in the accompanying Condensed Consolidated Balance Sheets.
The carrying amount of contract liabilities included in the accompanying Condensed Consolidated Balance Sheets was $11.0 million and $2.6 million as of September 30, 2021, and December 31, 2020, respectively.
Remaining Performance Obligations
The transaction price associated
with remaining performance obligations related to orders for commercial vehicles and other contracts with customers was $20.6 million of September 30, 2021, of which the Company expects to recognize as revenue over the next 12
months.
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Note 5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
(in thousands)
  
September 30, 2021
   
December 31, 2020
 
Deposit for fuel cell components (Note 14)
  $5,000   $—   
Vehicle inventory deposits
   4,756    577 
Production equipment deposits
   3,948    —   
Other current deposits
   3,346    271 
Prepaid Insurance
   7,505    —   
   
 
 
   
 
 
 
Total prepaid expenses and other current assets
   24,555    848 
   
 
 
   
 
 
 
Note 6. Property, Plant, and Equipment
, net
Property, plant, and equipment
, net
consisted of the following:
(In thousands)
  
September 30, 2021
   
December 31, 2020
 
Land and building
  $2,424   $—   
Machinery and equipment
   5,728    371 
Software
   168    —   
Leasehold improvements
   358    —   
Construction in progress
   663    60 
         
Total Property, plant, and equipment
  
9,431
   
431
 
Less: Accumulated depreciation and amortization
   (463)    (13) 
   
 
 
   
 
 
 
Property, plant and equipment, net
  $8,878   $418 
   
 
 
   
 
 
 
Depreciation and amortization expense totaled $0.2 million and $0.5 
million for the three months and nine months ended September 30, 2021. Depreciation and amortization expense was negligible for the three months ended September 30, 2020, and the period from inception (January 21, 2020) to September 30, 2020.
Note 7. Convertible Notes
In February 2021, the Company entered into a Convertible Notes Purchase Agreement with certain investors for the purchase and sale of $45 million in Convertible Notes (the “Convertible Notes”). The Convertible Notes accrued interest at an annual rate of 1% commencing upon issuance and compounding semi-annually on each August 1 and February 1. Interest was payable by increasing the principal amount of the Convertible Notes (with such increased amount accruing interest as well) on each interest payment due date.
As the Convertible Notes contained various settlement outcomes, the Company evaluated each scenario for accounting purposes. The conversion features settled at discounts upon certain financing events were determined to be redemption features and were evaluated as embedded derivatives and bifurcated from the Convertible Notes due to the substantial premium to be paid upon redemption. At issuance, option-based features were determined to have a de minimis fair value, and
non-option-based
features were bifurcated assuming the issuance fair value was zero. Changes in the derivative liability fair values were reported in operating results that may be expectedeach reporting period, prior to the close of the Business
Combination.
The period from July 1, 2021
to the close date of the Business Combination the Company recorded de minimis amount of interest expense related to the stated interest for the Convertible Notes and $0.3 million related to the change in the value of the bifurcated embedded derivative within interest expense.
The period from February 2021
to the close date of the Business Combination the Company recorded $0.2 million of interest expense related to the stated interest for the Convertible Notes and $5.0 million related to the change in the value of the bifurcated embedded derivative within interest expense.
Upon the closing, the Convertible Notes and the accrued interest automatically converted into 5,022,052 shares of common stock of the Company (see Note 3. Business Combination).
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Note 8. Investments in Equity Securities
We have certain equity security investments which are included in Restricted cash and other assets on the Condensed Consolidated Balance Sheets.
The Company owns common shares, participation rights, and options to purchase additional common shares in Global NRG H2 Limited (“NRG”). The Company does not have control and does not have the ability to exercise significant influence over the operating and financial policies of this entity. The Company’s investment totaled $0.1 million as of December 31, 2020 and increased to $2.5 million as of September 30, 2021.
On July 29, 2021, the Company entered into a Master Hub Agreement with Raven SR, LLC (“Raven SR”) whereby Raven SR granted to the Company a right of first refusal to co-invest in up to 100 of Raven SR’s first 200 solid waste-to-hydrogen generation and production facilities hubs), and up to 150 of Raven SR’s gas-to-hydrogen generation and production facilities across the United States on a hub-by-hub basis. In connection with this agreement, Hyzon invested $2.5 million on July 30, 2021, to acquire a minority interest in Raven SR.
The Company’s total investments in equity securities as of September 30, 2021, and December 31, 2020,
were $
5.0
million
and $
0.1
million, respectively.
Note 9. Income Taxes
The Company did not record a provision for income taxes for the three or nine months ended September 30, 2021, because it expects to generate a loss for the year ending December 31, 2021, and the Company’s net deferred tax assets continue to be fully offset by a valuation allowance.
As of September 30, 2021, and December 31, 2020, the Company had
net 
deferred tax assets of approximately $19.3 million and $3.1 million, respectively, each of which was fully offset by a valuation allowance. During the three months ended September 30, 2021, and September 30, 2020, the Company did 0t record an income tax benefit (expense) as a result of the full valuation allowances recorded against its deferred tax assets. During the nine months ended September 30, 2021, and the period from inception (January 21, 2020) to September 30, 2020, the Company did 0t record an income tax benefit (expense) as a result of the full valuation allowances recorded against its deferred tax assets.
There were 0 unrecognized tax benefits and 0
amounts accrued for interest and penalties as of September 30, 2021, and December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or any future period.material deviation from its positions. The Company is subject to income tax examinations by major taxing authorities in the countries in which it operates since inception.
Emerging GrowthNote 10. Fair Value Measurements
The Company follows the guidance in ASC Topic 820, Fair Value Measurement. For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
As of September 30, 2021, and December 31, 2020, the carrying amount of accounts receivable, other current assets, other assets, accounts payable, and accrued and other current liabilities approximated their estimated fair value due to their relatively short maturities.
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Table of Contents
The Company did not have warrant liabilities or earnout liabilities as of December 31, 2020. The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
   
Fair Value Measurements on a Recurring Basis
 
(In thousands)  
Level 1
   
Level 2
   
Level 3
   
Total
 
Warrant
l
iability – Private Placement Warrants
   —      —     $11,781   $11,781 
   
 
 
   
 
 
   
 
 
   
 
 
 
Earnout shares liability
   —      —      114,758    114,758 
   
 
 
   
 
 
   
 
 
   
 
 
 
Private Placement Warrants
The estimated fair value of the private placement warrants (the “Private Placement Warrants”) is determined using Level 3 inputs by using the binominal lattice model
(“BLM”), the application of BLM requires the use of several inputs and significant unobservable assumptions, including volatility. Significant judgment is required in determining the expected volatility of our common stock. The following table provides quantitative information regarding Level 3 fair value measurement inputs:
   
September 30, 2021
  
July 16, 2021
 
Stock price
  $6.94  $10.33 
Exercise price (strike price)
  $11.50  $11.50 
Risk-free interest rate
   0.9%   0.8% 
Volatility
   60.00%   34.20% 
Remaining term (in years)
   4.79   5.00 
The following table presents the changes in the liability for Private Placement Warrants during the nine months ended September 30, 2021 (in thousands):
Balance as of July 16, 2021
  $19,395 
Change in estimated fair value
   (7,614) 
     
Balance as of
September
30, 2021
  $11,781 
 
 
 
 
 
Earnout
The fair value of the earnout shares was estimated by utilizing a Monte-Carlo simulation model. The inputs into the Monte-Carlo pricing model included significant unobservable inputs. The following table provides quantitative information regarding Level 3 fair value measurement inputs:
   
September 30, 2021
  
July 16, 2021
 
Stock price
  $6.94  $10.33 
Risk-free interest rate
   0.9%   0.8% 
Volatility
   90.00%   90.00% 
Remaining term (in years)
   4.79   5.00 
The following table presents the changes in earnout liability during the nine months ended September 30, 2021 (in thousands):
Balance as of July 16, 2021
  $188,373 
Change in estimated fair value
   (73,615) 
     
Balance as of
 September 
30, 2021
  $114,758 
 
 
 
 
 
The Company performs routine procedures such as comparing prices obtained from independent sources to ensure that appropriate fair values are recorded.
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Note 11. Commitments and Contingencies
Legal Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims in the ordinary course of business. While we are a party to current legal proceedings as discussed more fully below, we do not believe that these proceedings, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition, or results of operations. Regardless of outcome, such proceedings or claims can have an adverse impact on us because of legal defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.
Prior to the completion of the Business Combination, certain purported DCRB stockholders filed lawsuits against DCRB and its directors asserting claims for breaches of fiduciary duty (
Lanctot
 v. Decarbonization Plus Acquisition Corp. et al.,
Index No. 652070/2021 (N.Y. Sup. Ct., N.Y. County);
Pham
 v. Decarbonization Plus Acquisition Corp. et al.,
No.21-CIV-01928
(Cal. Sup., San Mateo County)). These complaints allege that the DCRB board members breached their fiduciary duties in connection with the merger by allegedly agreeing to the transaction following an inadequate process and at an unfair price, and by allegedly disseminating inaccurate or incomplete information concerning the transaction. These complaints seek, among other things, injunctive relief, damages, and an award of attorneys’ fees. The defendants in these cases have not yet answered these complaints and we believe that these lawsuits are without merit.
On September 28, 2021, Blue Orca Capital released a report indicating that it held a short position in our stock and making numerous allegations about the Company. On October 5, 2021, we issued a press release denying the allegations and correcting numerous false claims and assertions in the report. Two related putative securities class action lawsuits were filed against the Company, certain of its current officers and directors and certain officers and directors of DCRB between September 30, 2021, and October 13, 2021, in the U.S. District Court for the Western District of New York (
Kauffmann v. Hyzon Motors Inc
., et al.
(No.6:21-cv-06612-CJS);
Brennan v. Hyzon Motors Inc
., et al.
(No.6:21-cv-06636-CJS))
asserting violations of federal securities laws under Sections 10(b) and 20(a) of the Exchange Act, and Rule
10b-5
thereunder. The complaints generally allege that the Company and individual defendants made materially false and misleading statements relating to the nature of its customer contracts, vehicle orders and sales and earnings projections, based on allegations in the Blue Orca Capital report. We intend to vigorously defend against these claims.
The proceedings are subject to uncertainties inherent in the litigation process. We cannot predict the outcome of these matters or estimate the possible loss or range of possible loss, if any.
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Note 12. Stock-based Compensation Plans
2020 Stock Incentive Plan
In January 2020, Legacy Hyzon adopted the 2020 Stock Incentive Plan (the “2020 Plan”) under which employees, directors, and consultants may be granted various forms of equity incentive compensation including incentive and
non-qualified
options.
A total number of 16,250,000 reserved shares of common stock were reserved for awards under the 2020 Plan. Shares of common stock issued under the Plan may be either authorized but unissued shares or reacquired common stock of Legacy Hyzon. Under the 2020 Plan, the exercise period of options is determined when granted, and options expire no later than fifteen years from the date of grant, subject to terms and limitations relative to termination of service and ownership percentages of the voting power of all classes of Legacy Hyzon’s stock.
The 2020 Plan was terminated in connection with the Business Combination in July 2021, and Legacy Hyzon will not grant any additional awards under the 2020 Plan. Any ungranted shares under the 2020 plan expired. However, the 2020 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under it. At the closing of the Business Combination, the outstanding awards under the 2020 Plan were converted at an Exchange Ratio
of 1.772
.
Share and per share information below have been converted from historical disclosure based on the Exchange Ratio.
2021 Equity Incentive Plan
The 2021 Equity Incentive Plan (the “2021 Plan”) was approved by the Board of Directors on June 24, 2021, and subsequently approved by the stockholders on July 15, 2021. The 2021 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, RSU and performance awards to the Company’s
employees, directors, and consultants. The number of shares of the Company’s common stock reserved for issuance under the 2021 Plan
is 23,226,543
shares. In connection with the Business Combination, 21,339,493 shares of Class A common stock subject to outstanding equity awards granted under the 2020 Plan are converted into equity awards under the 2021 Plan. The number of shares of common stock available for issuance under the 2021 Plan will also include an annual increase on the first day of each year beginning in 2022 and ending in 2031, equal to the lesser of (A) two and
one-half
percent of the shares outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares as determined by the Board of Directors.
Former CTO Retirement Agreement
In September 2021, the Company and former Chief Technology Officer (“former CTO”) entered into a Letter Agreement (the “Agreement”) concerning the former CTO’s retirement and separation from Hyzon. Pursuant to the Agreement, for a period of 24 months commencing on September 18, 2021 (the “Initial Consulting Period”), he will serve as a consultant to Hyzon. In exchange for services provided during the Initial Consulting Period, he will receive
$20,000 per month. Subject to conditions of the Letter Agreement, the 1,772,000 stock options previously granted pursuant to his employment agreement with the Company will continue to vest annually in equal installments on April 1, 2022 through April 1, 2025. He also will be entitled to receive 250,000
RSUs of Hyzon, half of which
vested after
his retirement date and half of which will vest on or after the one-year anniversary of his retirement date. The service condition in the Agreement related to the vesting of these awards was determined to be non-substantive, and therefore, the Company recognized stock-based compensation expense of
$13.4 million immediately in September 2021. In addition, the Company recognized salary expense of $0.5 million related to his monthly consulting payments.
Stock-based Compensation Activities
During the three months
ended September 30, 2021, the Company did not grant any stock options. During the nine months ended September 30, 2021, the Company granted 134,672 stock options with a weighted average grant date fair value of $1.68 per share that vest over five years. During the three months ended September 30, 2021, 221,500 options were exercised resulting in proceeds of $0.3 million, and 107,206 options were forfeited or replaced. During the nine months ended September 30, 2021, 354,409 options were exercised resulting in proceeds of $0.4 million, and 174,542 options were forfeited or replaced. There was no option activity in the three months ended September 30, 2020, or the period from inception (January 21, 2020) to September 30, 2020.
During the three months ended September 30, 2021, the Company granted 864,765
RSUs
with a weighted average grant date fair value of $8.04 per share. During the three months ended September 30, 2021, 450,643
RSUs
were forfeited. During the nine months ended September 30, 2021, the Company granted 2,622,589
RSUs
with a weighted average grant date fair value of $4.44 per share. The
RSUs
granted during the three months and nine months ended September 30, 2021, vest over periods ranging from four to five years. The Company did not grant
RSUs
in the three months ended September 30, 2020, or the period from inception (January 21, 2020) to September 30, 2020.
As of September 30, 2021, there were 19,757,800 options with a weighted average exercise price of $1.13, and 2,171,946
RSUs
outstanding. There were 0 stock options or
RSUs
outstanding as of September 30, 2020.
The Company recognized stock-based compensation expense
, inclusive of all employees, former CTO’s awards, and earnout shares to other equity holders,
of $27.2 million and $28.1 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2020, the total remaining unrecognized compensation expense related to nonvested stock-based compensation awards was $12.6 million, which is expected to be recognized over the remaining vesting period of the respective grants, through the third quarter of 2026.
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Note 13. Warrants
As of September 30, 2021, there were 19,300,742 warrants outstanding, of which 11,286,242 are public warrants (the “Public Warrants”) and 8,014,500 
were Private Placement Warrants. Each whole warrant entitles the registered holder to
purchase 1 share of
common stock 
at a price of $11.50 per share, subject to adjustment as discussed below. Only whole warrants are exercisable. The warrants will expire on the earlier to occur of: (i) the fifth anniversary of the completion of the Company’s Business Combination, (ii) their redemption or (iii) the liquidation of the Company.
Once the warrants become exercisable, the Company may redeem the outstanding warrants for cash:
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, which the Company refers to as the
“30-day
redemption period”; and
if, and only if, the last reported sale price of the Company’s common stock has been at least $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like) on each of 20 trading days within the 30-trading day period ending on the third business day prior to the date on which the notice of redemption is given.
Once the warrants become exercisable, the Company may redeem the outstanding warrants for common stock:
in whole and not in part;
at a price of $0.10 per warrant;
upon a minimum of 30 days’ prior written notice of redemption;
if, and only if, the last reported sale price of the Company’s common stock equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like) on the trading day prior to the date on which the notice of redemption is given; and
if the last sale price of the Company’s common stock on the trading day prior to the date on which the notice of redemption is given is less than $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants.
The terms of the Private Placement Warrants are identical to the Public Warrants as described above, except that the Private Placement Warrants are not redeemable (except as described above) so long as they are held by the sponsor or its permitted transferees.
The Public Warrants are classified as equity and subsequent remeasurement is not required. The Private Placement Warrants are classified as liabilities and are initially recorded at their fair value, within warrant liability on the Condensed Consolidated Balance Sheets, and remeasured at each subsequent reporting date. Changes in the fair value of these instruments are recognized within Change in fair value of warrant liabilities in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
The fair value of the Private Placement Warrants on July 16, 2021, in the amount of $19.4 million was recorded as a Warrant liability and a reduction to Additional
paid-in
capital on the Condensed Consolidated Balance Sheets. The change in fair value for the three and nine months ended September 30, 2021, in the amount of $7.6 million was recorded as a reduction in Warrant liability on the Condensed Consolidated Balance Sheets and a gain from change in fair value of warrant liability on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
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Note 14. Related Party Transactions
Horizon IP Agreement
In January 2021, the Company entered into an “emerging growth company,”intellectual property agreement (the “Horizon IP Agreement”) with Jiangsu Qingneng New Energy Technologies Co., Ltd. and Shanghai Qingneng Horizon New Energy Ltd. (together, “JS Horizon”) both of which are affiliates of the Company’s ultimate parent, Horizon. Under the Horizon IP Agreement, JS Horizon assigned to the Company a joint ownership interest in certain intellectual property rights previously developed by JS Horizon (“Background IP”), and each of Hyzon and JS Horizon granted to the other, within such other party’s field of use, exclusive licenses under their respective joint ownership rights in the Background IP, as definedwell as their rights in improvements made in the future with respect to such Background IP. Under that agreement, the Company also grants JS Horizon a perpetual
non-exclusive
license under certain provisional patent applications (and any patents issuing therefrom), as well as improvements thereto. On September 27, 2021, the Horizon IP Agreement was amended to add Jiangsu Horizon Powertrain Technologies Co. Ltd. (“JS Powertrain”) as a party.
The Horizon IP Agreement revised and clarified the intellectual property arrangements existing as of the Company’s inception, as set forth under two previous agreements. Under a license agreement made effective at the time of the Company’s inception (the “License Agreement”), the Company received an exclusive license under certain of the Background IP. That agreement was later terminated and replaced with a Partial Assignment Agreement of Fuel Cell Technology, dated November 19, 2020 (the “Partial Assignment Agreement”), which contemplated a joint ownership structure with respect to certain of the Background IP similar to the structure set forth under the now existing Horizon IP Agreement. Both the original License Agreement and Partial Assignment Agreement have been superseded by the Horizon IP Agreement.
Under the terms of the Horizon IP Agreement, the Company will pay JS Horizon and
JS
Powertrain $10 million as consideration for the rights it receives under the Background IP and improvements thereto.
Subsequent to September 30, 2021
, $6.9
million
was
paid and the remainder is expected to be paid in December 2021.
Because the Company is under common control with Horizon and JS Horizon, the cost of the intellectual property transferred should equal the historical cost of the Company’s ultimate parent, Horizon. Due to the creation of the Background IP through research and development over a long period of time, the historical cost of the intellectual property acquired is zero. As such, no asset was recorded for the Background IP on the Company’s balance sheet. The difference between the fixed amounts payable to JS Horizon and JS Powertrain and the historical cost is treated as a deemed distribution to Horizon, given the common control.
Related Party Payables and Receivables
Horizon Fuel Cell Technologies and Related Subsidiaries
Hyzon utilizes Horizon to supply certain fuel cell components. In March 2021, the Company made a deposit payment to Horizon in the amount of
$5 million to secure fuel cell components. This payment is included in prepaid expenses as none of the components have yet been received.
Certain employees of Horizon and its affiliates provide services to the Company. Based on an analysis of the compensation costs incurred by Horizon and an estimate of the proportion of effort spent by such employees on each entity, an allocation of approximately $1.2 million and $0.1 million was recorded in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) related to such services for the three months ended September 30, 2021, and September 30, 2020, respectively. An allocation of approximately $1.8 million and $0.4 million was recorded in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) related to such services for the nine months ended September 30, 2021, and the period from inception (January 21, 2020) to September 30, 2020, respectively.
The
related party liability to Horizon and affiliates is $3.8 million and $0.6 million as of September 30, 2021, and December 31, 2020,
respectively.
Holthausen
The Company entered into a joint venture agreement in October 2020 to create Hyzon Europe with Holthausen. As Hyzon Europe builds out its production facilities, it relies on Holthausen for certain production resources that result in related party transactions. In addition, both companies rely on certain suppliers, including Horizon.
In July 2021, Hyzon Europe assumed certain customer sales contracts from Holthausen with an aggregate value of
$5.1
 million. As a result of this transaction, the Company recorded Contract liabilities of
$4.1
million, work-in-process inventory of
$3.4
million, and due from Holthausen of $0.7 million.
As of September 30, 2021, the Company has a net related party payable in the amount of $0.8 million due to Holthausen.
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Note 15. Earnings per Share
The following table presents the information used in the calculation of our basic and diluted earnings (loss) per share attributable to Hyzon common stockholders (in thousands, except per share data):
   Three Months Ended September 30,   Nine Months
Ended
September 30,		   Inception
(January 21,
2020) to
September 30,		 
   2021   2020   2021   2020 
Net income (loss) attributable to Hyzon
  $32,354   $(556)   $14,786   $(854) 
Weighted average shares outstanding:
                    
Basic
   234,464    148,405    189,226    148,405 
Effect of dilutive securities
   11,799    —      11,742    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
   246,263    148,405    200,968    148,405 
Earnings (loss) per share attributable to Hyzon:
                    
Basic
  $0.14   $—   $0.08   $(0.01) 
Diluted
  $0.13   $—   $0.07   $(0.01) 
The weighted average number of shares outstanding prior to Business Combination were converted at an Exchange Ratio of 1.772.
The following shares were not included in the calculation of the weighted average diluted shares outstanding as the effect would have been anti-dilutive or the shares are contingently issuable, but all necessary conditions have not been satisfied for the periods indicated (in thousands):
                                                                                     
   
Three Months Ended September 30,
   
Nine Months
Ended
September 30,
   
Inception
(January 21,
2020) to
September 30,
 
   
2021
   
2020
   
2021
   
2020
 
Stock options and restricted stock units
   1,475    0      1,475    0   
Stock options with market and performance conditions
   5,538    0      5,538    0   
Private placement warrants
   8,015    0      8,015    0   
Public Warrants
   11,286    0      11,286    0   
Earnout shares
   23,250    0      23,250    0   
In the three and nine months ended September 30, 2020, the weighted average number of shares outstanding used to calculate both basic and diluted net loss per share attributable to common shares is the same because the Company reported a net loss for each of these periods and the effect of inclusion would be antidilutive. There were no potentially dilutive securities for the three months ended September 30, 2020 or the period from inception (January 21, 2020) to September 30, 2020.​​​​​​​
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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This report contains forward-looking statements within the meaning of the Section 2(a)27A of the Securities Act of 1933, as modifiedamended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for future operations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the JOBS Act,fact that they do not relate strictly to historical or current facts. When used in this report, the words “could,” “should”, “will,” “may,” “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “project,” the negative of such terms and it may take advantageother similar expressions are intended to identify forward looking statements, although not all forward-looking statements contain such identifying words. Such forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of certain exemptions from various reporting requirements thatfuture events.
Forward-looking statements are applicablesubject to other public companies that are not emerging growth companiesa number of risks and uncertainties including, but not limited to, those described below and under the sections entitled “Risk Factors “and “Cautionary Note Regarding Forward-Looking Statements” included in the Definitive Proxy Statement (the “Proxy”) of DCRB filed with the Securities and Exchange Commission (the “SEC”) on June 21, 2021 and in subsequent reports that we file with the SEC, including this Form 10-Q for the quarter ended September 30, 2021.
our ability to commercialize our strategic plans, including our ability to establish facilities to produce our vehicles or secure hydrogen supply in appropriate volumes, at competitive costs or with competitive emissions profiles;
our ability to effectively compete in the heavy-duty transportation sector, and intense competition and competitive pressures from other companies worldwide in the industries in which we operate;
our ability to maintain the listing of our common stock on Nasdaq;
our ability to raise financing in the future;
our ability to retain or recruit, or changes required in, our officers, key employees or directors; and
our ability to protect, defend or enforce intellectual property on which we depend
Should one or more of the risks or uncertainties described above, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements
The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us and speak only as of the date of this report. Except as otherwise required by applicable law, we disclaim any duty to update any forward looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this report. You should, however, review additional disclosures we make in subsequent filings with the SEC.
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto included as a part of the Form
10-Q
to which this Management’s Discussion and Analysis of Financial Condition and Results of Operation is attached. Unless the context otherwise requires, all references in this section to “Hyzon,” “we,” “us,” and “our” are intended to mean the business and operations of Hyzon Motors Inc. and its consolidated subsidiaries following the consummation of the Business Combination and to Legacy Hyzon and its consolidated subsidiaries prior to the Business Combination.
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Table of Contents
Overview
Headquartered in Rochester, New York, with operations in North America, Europe, and Australasia, Hyzon is an energy transition accelerator and technology innovator, providing
end-to-end
solutions primarily for the commercial mobility sector. We operate two lines of businesses: commercial vehicles and hydrogen supply infrastructure.
Our commercial vehicle business is focused primarily on assembling and supplying battery-electric vehicles and fuel cell electric vehicles, such as heavy-duty (Class 8) trucks, medium-duty (Class 6) trucks, light-duty (Class 3) trucks, and
40-
and
60-foot
(12 and
18-meter)
city and coach buses to commercial vehicle operators.
On-road,
our potential customers include shipping and logistics companies and retail customers with large distribution networks, such as grocery retailers, food and beverage companies, waste management companies, and municipality and government agencies around the world.
Off-road,
our potential customers include mining and port equipment manufacturers and operators. These strategic customer groups generally employ a
‘back-to-base’
model where their vehicles return to a central base or depot between operations, thereby allowing operators to have fueling independence as the necessary hydrogen can be produced locally at or proximate to the central base and dispensed at optimally-configured hydrogen refueling stations. Our fuel cell technologies are also compatible with light commercial vehicles among other applications. Hyzon plans to expand its range of products and hydrogen solutions if the transportation sector increasingly adopts hydrogen power and investments are made in hydrogen production and related infrastructure in accordance with our expectations.
In addition, we perform integration for rail and aviation customers and plan to expand our integration activities across maritime and other applications in the future. We expect the opportunities in these sectors to continue to expand with the rapid technological advances in hydrogen-powered fuel cells and the increasing investments in hydrogen production, storage and refueling infrastructure around the world.
Our hydrogen supply infrastructure business is focused on building and fostering a clean hydrogen supply ecosystem with leading partners from feedstock through hydrogen production, dispensing and financing. We collaborate with strategic partners on development, construction, operation, and ownership of hydrogen production facilities and refueling stations in each major region of our operations, which intends to complement our
back-to-base
model and near-term fleet deployment. On July 29, 2021, the Company entered into a Master Hub Agreement with Raven SR, LLC (“Raven SR”) whereby Raven SR granted to the Company a right of first refusal to
co-invest
in up to 100 of Raven SR’s first 200 solid
waste-to-hydrogen
production hubs, and up to 150 of Raven SR’s
gas-to-hydrogen
production hubs across the United States on a
hub-by-hub
basis. In connection with this agreement, Hyzon invested $2.5 million on July 30, 2021, to acquire a minority interest in Raven SR. We expect near-term realization of the first
waste-to-hydrogen
production hub constructed by Raven SR coming online in Richmond, CA, with 5 tons per day of zero Carbon Intensity green hydrogen available for our near-term
back-to-base
fleets at diesel parity, in 2022.
Business Combination
On February 8, 2021, Legacy Hyzon, now Hyzon Motors USA Inc. (“Legacy Hyzon”) entered into the Business Combination Agreement and Plan of Reorganization (the “Business Combination”) with DCRB and Merger Sub pursuant to which Merger Sub merged with and into Legacy Hyzon, with Legacy Hyzon surviving the merger as a wholly owned subsidiary of DCRB. The transaction closed on July 16, 2021. Following the close of the business combination, DCRB has been named Hyzon Motors Inc., began trading on Nasdaq, and its common stock and warrants trade under the symbols “HYZN” and “HYZNW”, respectively. The Business Combination generated proceeds of approximately $512.9 million cash, net of transaction costs allocated to equity and redemptions by DCRB’s public stockholders. This includes an aggregate of $355 million of gross proceeds from the PIPE Financing at $10.00 per PIPE Share. Hyzon’s cash on hand after giving effect to this transaction, including transaction costs and expenses, is expected to be used for general corporate purposes, including developing infrastructure and supply chain, acquiring and leasing equipment for manufacturing, and investing in research and development.
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Table of Contents
COVID-19
Pandemic
The
COVID-19
pandemic is currently impacting countries, communities, supply chains, and the global financial markets. Governments have imposed laws requiring social distancing, travel restrictions, shutdowns of businesses and quarantines, among others, and these laws may limit our ability to meet with potential customers or partners, or affect the ability of our personnel, suppliers, partners and customers to operate in the ordinary course of business. Although the economy has begun to recover, the severity and duration of the related global economic crisis is not beingfully known. The
COVID-19
pandemic is expected to continue to have residual negative impacts, in particular the supply chain continues to face disruptions. Rebounding demand in key components challenge the supply base and supply chain with short notice and increasing volume levels. The supply constraints include overseas freight congestion causing extended lead times, semiconductor allocation, other raw/component material shortages and supplier staffing challenges.
The
COVID-19
pandemic and measures to prevent its spread have had the following impact on our business:
Our workforce
. Employee health and safety is our priority. In response to
COVID-19,
we established new protocols to help protect the health and safety of our workforce. We will continue to stay
up-to-date
and follow local, CDC, or WHO guidelines regarding safe work environment requirements.
Operations and Supply Chain.
We continue to experience some delays in our supply chains which may temporarily limit our ability to outfit vehicles and fuel cell systems with key components. However, our global footprint has allowed us to leverage our strategic partnerships and to meet customer demands for zero emission heavy commercial vehicles despite these challenges. In the future, we may experience supply chain disruptions from related or third-party suppliers and any such supply chain disruptions could cause delays in our development and delivery timelines. We continue to monitor the situation for any potential adverse impacts and execute appropriate countermeasures, where possible.
While we have experienced some operational challenges, the long-term implications of the
COVID-19
pandemic on our workforce, operations and supply chain, as well as demand remain uncertain. These factors may in turn, have a material adverse effect on our results of operations, financial position, and cash flows.
Key Trends and Uncertainties
We believe that our performance and future success depends on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section entitled “Risk Factors — Risks Related to Hyzon” included in the Proxy of DCRB filed with SEC on June 21, 2021.
Commercial Launch of Hyzon-branded commercial vehicles and other hydrogen solutions
We have reported our first deliveries and revenues of $1.0 million through September 30, 2021; however, our business model has yet to be tested. Prior to full commercialization of our commercial vehicle business at scale, we must complete the construction of required manufacturing facilities and achieve research and development milestones. We must establish and operate facilities capable of producing our hydrogen fuel cell systems or assembling our hydrogen-powered commercial vehicles in appropriate volumes and at competitive costs.
Until we can generate sufficient additional revenue from our commercial vehicle business, we expect to finance our operations through equity and/or debt financings. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We expect that any delays in the successful completion of our manufacturing facilities, availability of critical parts, and/or validation and testing will impact our ability to generate revenue.
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Table of Contents
Hydrogen Production & Supply Infrastructure
We continue to develop an end-to-end hydrogen ecosystem delivery model, with a partner-driven approach to design, build, own & operate hydrogen production hubs and downstream dispensing infrastructure expected to provide zero-to-negative carbon intensity hydrogen at below diesel-parity cost structures supporting Hyzon vehicle fleet deployments. We intend to continue forming additional partnerships across the full hydrogen feedstock, production & dispensing lifecycle in each major region in which we operate, designed to ensure that the hydrogen fuel required is available at the cost and carbon intensity requirements to drive fleet conversions to Hyzon hydrogen fuel cell commercial vehicles. Given we have a partner-driven approach, we are naturally reliant upon our partners’ performance in fulfilling the obligations that we depend on for delivery of each segment of that value chain. Additionally, consistent with other construction projects there are risks related to realized construction cost and schedule that can impact final cost to produce and deliver hydrogen and timing of that delivery, along with the availability of feedstock near our vehicle fleet deployments. We intend to manage these risks by partnering with high quality and high performing partners with a track record of timely delivery and instituting commercial agreements to drive down construction cost and on-time schedule performance.
Continued Investment in Innovation
We believe that we are the industry-leading hydrogen technology company with the most efficient and reliable fuel cell powertrain technologies and an unmatched product and service offering. Our financial performance will be significantly dependent on our ability to maintain this leading position. We expect to incur substantial and increasing research and development expenses and stock-based compensation expenses as a result. We dedicate significant resources towards research and development and invest heavily in recruiting talent, especially for vehicle design, vehicle software, fuel cell system, and electric powertrain engineers. We will continue to recruit and retain talented engineers to grow our strength in our core technologies. We expect to incur additional stock-based compensation expenses as we support our growth and status as a publicly traded company. We expect our strategic focus on innovation will further solidify our leadership position.
Customer Demand
We have received significant interest in our commercial vehicles and are able to convert
non-binding
letters of intent or memoranda of understanding into binding orders or sales. However, while we are continually seeking to expand our customer base, we depend on a few major customers and we expect this will continue for the next several years. As of September 30, 2021, Hyzon has received orders from customers in an aggregate value of approximately $20.6 million from companies around the world, and Hyzon’s customers have paid $11.0 million in deposits with respect to such orders.
Supplier Relationships
We also depend on third parties, including our majority beneficial shareholder and parent company Horizon, for supply of key inputs and components for our products, such as fuel cells and automotive parts. We intend to negotiate potential relationships with industry-leading original equipment manufacturers (“OEMs”) to supply chassis for our Hyzon-branded vehicles but do not yet have any binding agreements and there is no guarantee that definitive agreements will be reached. Such suppliers, including Horizon, may be unable to deliver the inputs and components necessary for us to produce our hydrogen-powered commercial vehicles or hydrogen fuel cell systems at prices, volumes, and specifications acceptable to us. If we are unable to source required inputs and other components from third parties on acceptable terms, it could have a material adverse effect on our business and results of operations.
The automotive industry continues to face supply chain disruption. We are experiencing increases in both the cost and time to receive of raw materials, such as semiconductors or chassis. Any such increase or supply interruption could materially negatively impact our business, prospects, financial condition and operating results. Many of the parts for our products are sourced from suppliers in China and the manufacturing situation in China remains uncertain.
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Table of Contents
Market Trends and Competition
The last ten years have seen the rapid development of alternative energy solutions in the transportation space. We believe this growth will continue to accelerate as increased product offerings, technological developments, reduced costs, additional supporting infrastructure, and increased global focus on climate goals drive broader adoption.
We believe that commercial vehicle operators, its initial target market, will be driven towards hydrogen-powered commercial vehicles predominantly by the need to decarbonize activities, but also by the potential for lower total cost of ownership in comparison to the cost of ownership associated with traditional gasoline and diesel internal combustion engine vehicles. Our fuel cell technology can be deployed across a broad range of mobility applications, including
on-road,
off-road,
rail, maritime and aviation.
The competitive landscape for our commercial vehicles ranges from vehicles relying on legacy internal combustion engines, to extended range electric and battery electric engines, to other hydrogen fuel cell and alternative
low-to-no
carbon emission propulsion vehicles. Competitors include well established vehicle companies already deploying vehicles with internal fuel cell technology and other heavy vehicle companies that have announced their plans to offer fuel cell trucks in the future. We also face competition from other fuel cell manufacturers. We believe that our company is well positioned to capitalize on growth in demand for alternative
low-to-no
carbon emission propulsion vehicles due to the numerous benefits of hydrogen power, including hydrogen’s abundance and ability to be produced locally and the generally faster refueling times for hydrogen-powered commercial vehicles, as compared to electricity-powered vehicles. However, in order to successfully execute on our business plan, we must continue to innovate and convert successful research and development efforts into differentiated products, including new commercial vehicle models.
Our current and potential competitors have greater financial, technical, manufacturing, marketing and other resources. Our competitors may be able to deploy greater resources to the design, development, manufacturing, distribution, promotion, sales, marketing and support of their internal combustion, alternative fuel and electric truck programs.
Regulatory Landscape
We operate in a highly regulated industry. The failure to comply with laws or regulations, including but limited to rules and regulations covering vehicle safety, emissions, dealerships, and distributors, could subject us to significant regulatory risk and changing laws and regulations and changing enforcement policies and priorities could adversely affect our business, prospects, financial condition and operating results. We may be also required to obtain and comply with the independent registeredterms and conditions of multiple environmental permits, many of which are difficult and costly to obtain and could be subject to legal challenges. We depend on global customers and suppliers, and adverse changes in governmental policy or trade regimes could significantly impact the competitiveness of our products. Changes to applicable tax laws and regulations or exposure to additional income tax liabilities could affect our business and future profitability. See the section entitled “Information about Hyzon – Government Regulations” in the Proxy.
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Table of Contents
Results of Operations
Three Months Ended September 30, 2021 and 2020
Hyzon was formed and commenced operations on January 21, 2020. As a result, we have a very limited operating history from inception and limited prior period comparable information available to be presented in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Hyzon.”
Revenue.
Revenue represents sales of hydrogen fuel cell electric vehicles. Revenue for the three months ended September 30, 2021 was $1.0 million. We did not generate revenue for the three months ended September 30, 2020.
Operating Expenses.
Operating expenses for the three months ended September 30, 2021 were $50.6 million compared to $0.5 million for the three months ended September 30, 2020. Operating expenses consist of cost of revenue, research and development expenses and selling, general and administrative expenses.
Cost of Revenue.
Cost of revenue includes direct materials, labor costs, allocated overhead costs related to the manufacture of hydrogen fuel cell electric vehicles, and estimated warranty costs. Cost of revenue for the three months ended September 30, 2021 were $1.0 million. We did not generate revenue for the three months ended September 30, 2020.
Research and Development Expenses.
Research and development expenses represent costs incurred to support activities that advance the development of current and next generation hydrogen powered fuel cell systems, the design and development of ePowertrain, and the integration of those systems into various mobility applications. Our research and development expenses consist primarily of employee-related personnel expenses, prototype materials and tooling, design expenses, consulting and contractor costs and an allocated portion of overhead costs.
Research and development expenses were $4.8 million and $0.1 million in the three months ended September 30, 2021 and September 30, 2020, respectively. The increase was primarily due to $3.0 million in higher personnel costs in developing our research and development expertise for our global customer base. We expect research and development expenses to increase significantly and become a larger percentage of our operating expenses going forward as we build out our research facilities and expand headcount to advance our development of current and next generation hydrogen powered fuel cell systems, the design and development of ePowertrain, and the integration of those systems into various mobility applications.
Selling, General and Administrative Expenses.
Selling expenses consist primarily of employee-related costs for individuals working in our sales and marketing departments, third party commissions, and related outreach activities. General and administrative expenses consist primarily of personnel-related expenses associated with our executive, finance, legal, information technology and human resources functions, as well as professional fees for legal, audit, accounting and other consulting services, and an allocated portion of overhead costs.
Selling, general and administrative expenses were $44.8 million and $0.4 million in the three months ended September 30, 2021 and September 30, 2020, respectively. The increase is comprised of $26.7 million related to stock compensation expense, $13.4 million of which is triggered by a key executive retirement arrangement (see Note 12. Stock-based Compensation Plans) and $13.1 million relates to earnout equity awards pursuant to the Business Combination (see Note 3. Business Combination). Salary and related expenses were $3.3 million in the three months ended September 30, 2021 compared to $0.3 million in the three months ended September 30, 2020. The additional increase of approximately $11.0 million in selling, general and administrative expense was due to building out the Company’s corporate infrastructure and legal and accounting costs associated with the Business Combination for the three months ended September 30, 2021 compared to $0.4 million in the three months ended September 30, 2020. We also continue to incur increased expenses, including accounting, audit, legal, regulatory and
tax-related
services associated with maintaining compliance with exchange listing and SEC requirements; director and officer insurance costs; and investor and public accounting firm attestation requirementsrelations costs.
26
Table of Section 404Contents
Change in Fair Value.
Change in fair value represents
non-cash
gains or losses in estimated fair values of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensationprivate placement warrant and earnout liabilities required to remeasured at each balance sheet date. Change in estimated fair value of private placement warrant and earnout liabilities for the three months ended September 30, 2021, were $7.6 million and $73.6 million gains, respectively. There were no equivalent instruments requiring fair value remeasurement during the three months ended September 30, 2020.
Foreign Currency Exchange Gain (Loss).
Foreign currency exchange gain (loss) represents exchange rate gains and losses related to all transactions denominated in a currency other than our or our subsidiary’s functional currencies. Foreign currency exchange loss was $0.1 million in the three months ended September 30, 2021 compared to negligible expense in the three months ended September 30, 2020, as there were few transactions in foreign currencies in the prior period. We expect the volume of foreign currency transactions to grow significantly in the future as we continue to expand our geographic footprint.
Interest Expense, net.
Interest expense, net was $0.3 million in the three months ended September 30, 2021, compared to negligible expense in the three months ended September 30, 2020. Interest expense relates primarily to the convertible debt issued in February 2021 and is comprised primarily from changes in the fair value of the embedded derivative associated with the automatic conversion provision of the convertible note. Upon close of the Business Combination in July 2021, the convertible debt and accrued interest converted into shares of common stock of the Company (see Note 3. Business Combination). There was no debt outstanding during the three months ended September 30, 2020.
Net Income (Loss) Attributable to
Non-Controlling
Interests.
Net income (loss) attributable
to non-controlling interests
represents results attributable to third parties in our operating subsidiaries. Net income (loss) is generally allocated based on such ownership interests held by third parties with respect to each of these entities.
Net loss attributable
to non-controlling interests
was $1.1 million for the three months ended September 30, 2021, compared to zero in the three months ended September 30, 2020. The change in the comparative periods is the result of our entering into a joint venture agreement with Holthausen to establish a venture in the Netherlands in October of 2020.
Nine Months Ended September 30, 2021 and Period from January 21, 2020 (Inception) to September 30, 2020
Revenue for the nine months ended September 30, 2021 were $1.0 million. We did not generate revenue for the period from January 21, 2020 (Inception) to September 30, 2020.
Operating expenses for the nine months ended September 30, 2021 were $63.6 million compared to $0.8 million for the period from January 21, 2020 (Inception) to September 30, 2020. Operating expenses consist of cost of revenue, research and development expenses and selling, general and administrative expenses.
Cost of Revenue
Cost of revenue for the nine months ended September 30, 2021 were $1.0 million. Hyzon did not generate revenue for the period from January 21, 2020 (Inception) to September 30, 2020.
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Table of Contents
Research and Development Expenses
Research and development expenses were $8.9 million and $0.2 million in the nine months ended September 30, 2021 and the period from January 21, 2020 (Inception) to September 30, 2020, respectively. The increase was primarily due to $5.4 million in higher personnel costs in developing our research and development expertise for our global customer base. We expect research and development expenses to increase significantly and become a larger percentage of our operating expenses going forward as we build out our research facilities and expand headcount to advance our development of current and next generation hydrogen powered fuel cell systems and the design and development of ePowertrain, and the integration of those systems into various mobility applications.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $53.7 million and $0.7 million in the nine months ended September 30, 2021 and the period from January 21, 2020 (Inception) to September 30, 2020, respectively. The increase is comprised of $27.7 million related to stock compensation expense, $13.4 million of which is triggered by a key executive retirement arrangement (see Note 12. Stock-based Compensation Plans) and $13.1 million relates to earnout equity awards pursuant to the Business Combination (see Note 3. Business Combination). Salary and related expenses were $5.7 million in the nine months ended September 30, 2021 compared to $0.5 million in the period ended September 30, 2020. The additional increase of approximately $20.8 million in selling, general and administrative expense was due to building out the Company’s periodic reportscorporate infrastructure and proxylegal and accounting costs associated with the Business Combination for the nine months ended September 30, 2021 compared to $0.2 million for the period from January 21, 2020 (Inception) to September 30, 2020. We also expect to continue to incur increased expenses, including accounting, audit, legal, regulatory and
tax-related
services associated with maintaining compliance with exchange listing and SEC requirements; director and officer insurance costs; and investor and public relations costs.
Change in Fair Value
Change in estimated fair value of private placement warrant and earnout liabilities for the nine months ended September 30, 2021, were $7.6 million and $73.6 million gains, respectively. There were no equivalent instruments requiring fair value remeasurement during the period January 21, 2020 (Inception) to September 30, 2020.
Foreign Currency Exchange Gain (Loss)
Foreign currency exchange loss was $0.2 million in the nine months ended September 30, 2021 compared to negligible expense in the period January 21, 2020 (Inception) to September 30, 2020, as there were few transactions in foreign currencies in the prior period. We expect the volume of foreign currency transactions to grow significantly in the future as we continue to expand our geographic footprint.
Interest Expense, net
Interest expense, net was $5.2 million in the nine months ended September 30, 2021 compared to negligible expense in the period January 21, 2020 (Inception) to September 30, 2020. Interest expense in 2021 relates primarily to the convertible debt issued in February 2021 and is comprised primarily from changes in the fair value of the embedded derivative associated with the automatic conversion provision of the convertible note. Upon close of the Business Combination in July 2021, the convertible debt and accrued interest converted into shares of common stock of the Company (see Note 3. Business Combination). Interest expense in 2020 relates primarily to the convertible debt issued on August 24, 2020 and converted to 250,000 common shares on October 19, 2020 upon the Company’s closing of Qualified Financing.
Net Income (Loss) Attributable to
Non-Controlling
Interests
Net loss attributable
to non-controlling interests
was $1.6 million for the nine months ended September 30, 2021 compared to zero in the period from January 21, 2020 (Inception) to September 30, 2020. The change in the comparative periods is the result of our entering into a joint venture agreement with Holthausen to establish a venture in the Netherlands in October of 2020.
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Table of Contents
Non-GAAP
Financial Measures
In addition to our results determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we believe the following
non-GAAP
measures are useful in evaluating our operational performance. We use the following
non-GAAP
financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that
non-GAAP
financial information, when taken collectively, may be helpful to investors in assessing our operating performance.
EBITDA and Adjusted EBITDA
“EBITDA” is defined as net loss before interest income or expense, income tax expense or benefit, and depreciation and amortization. “Adjusted EBITDA” is defined as EBITDA adjusted for stock-based compensation expense, change in fair value of private placement warrant liability, change in fair value of earnout liability and other special items determined by management, if applicable. EBITDA and Adjusted EBITDA are intended as supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP. We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar
non-GAAP
financial measures to investors. However, you should be aware that when evaluating EBITDA and Adjusted EBITDA we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or
non-recurring
items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion.
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA on a supplemental basis. You should review the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
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Table of Contents
The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA:
                                                    
   
Three Months Ended September 30,
 
(In thousands)  
2021
     
2020
 
Net income (loss)
  $31,253     $(556) 
Interest expense, net
   254      15 
Income tax expense (benefit)
   —        —   
Depreciation and amortization
   223      75 
  
 
 
     
 
 
 
EBITDA
  
$
31,730
 
    
$
(466
) 
Change in fair value of private placement warrant liability
   (7,614)      —   
Change in fair value of earnout liability
   (73,615)      —   
Stock-based compensation
   13,827      —   
Executive transition charges
(1)
   13,860      —   
Business combination transaction expenses
(2)
   6,533      —   
Regulatory and legal matters
(3)
   111      —   
  
 
 
     
 
 
 
Adjusted EBITDA
  
$
(15,168
) 
    
$
(466
) 
  
 
 
     
 
 
 
(1)
Executive transition charges include stock-based compensation costs of $13.4 million and salary expense of $0.5 million related to former CTO’s retirement.
(2)
Transaction costs of $6.4 million attributable to the liability classified earnout shares and $0.1 million of write-off of debt issuance costs.
(3)
Regulatory and legal matters include legal, advisory, and other professional service fees incurred in connection with the short-seller analyst article from September 2021, and investigations and litigation related thereto.
  
Nine Months Ended
  
For the period
January 21, 2020
(Inception) –
 
(In thousands) 
September 30, 2021
  
September 30, 2020
 
Net income (loss)
 $13,154  $(854) 
Interest expense, net
  5,249   20 
Income tax expense (benefit)
  —     —   
Depreciation and amortization
  518   99 
 
 
 
  
 
 
 
EBITDA
 
$
18,921
 
 
$
(735
) 
Change in fair value of private placement warrant liability
  (7,614)   —   
Change in fair value of earnout liability
  (73,615)   —   
Stock-based compensation
  14,704   —   
Executive transition charges
(1)
  13,860   —   
Business combination transaction expenses
(2)
  6,533   —   
Regulatory and legal matters
(3)
  111   —   
 
 
 
  
 
 
 
Adjusted EBITDA
 
$
(27,100
) 
 
$
(735
) 
 
 
 
  
 
 
 
(1)
Executive transition charges include stock-based compensation costs of $13.4 million and salary expense of $0.5 million related to former CTO’s retirement.
(2)
Transaction costs of $6.4 million attributable to the liability classified earnout shares and $0.1 million of write-off of debt issuance costs.
(3)
Regulatory and legal matters include legal, advisory, and other professional service fees incurred in connection with the short-seller analyst article from September 2021, and investigations and litigation related thereto.
Liquidity and Capital Resources
As of September 30, 2021, we had $498.0 million in unrestricted cash, positive working capital of $510.5 million, and retained earnings of $0.5 million. The Business Combination closed on July 16, 2021, generated proceeds of approximately $512.9 million of cash, net of transaction costs and redemptions. We believe that our current cash balance will provide adequate liquidity during the
12-month
period following September 30, 2021.
Our future capital requirements will depend on many factors, including, but not limited to, the rate of our growth, our ability to generate sufficient revenue from commercial vehicle sales and leases to cover operating expenses, working capital expenditures, and additional cash resources due to changed business conditions or other developments, including supply chain challenges, disruptions
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due to
COVID-19,
competitive pressures, and regulatory developments, among other developments. Further, we may enter into future arrangements to acquire or invest in businesses, products, services, strategic partnerships, and technologies. As such, we may be required to seek additional equity and/or debt financing. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations may be materially and adversely affected.
Debt
As of September 30, 2021 we have no debt. The Convertible Notes and accrued interest were converted to 5,022,052 shares of common stock upon close of the Business Combination.
Cash Flows
Cash Flows for the nine Months Ended September 30, 2021 and for the Period from January 21, 2020 (Inception) through September 30, 2020
Cash Flows from Operating Activities
Net cash used in operating activities was $56.2 million for the nine months ended September 30, 2021, as compared to negligible cash provided for the period from January 21, 2020 (Inception) through September 30, 2020. The cash flows used in operating activities for the nine months ended September 30, 2021 was driven by net income of $13.2 million and adjusted for certain non-cash items and changes in operating assets and liabilities. Non-cash gain adjustments primarily consisted of changes in fair value of the private placement warrant of $7.6 million and earnout liabilities of $73.6 million. These non-cash gain adjustments were partially offset by $28.1 million stock-based compensation expense and $0.7 million in depreciation and amortization and reduction in the carrying amount of right of use assets. Changes in operating assets and liabilities were primarily driven by $25.2 million in prepayments for vehicle inventory, production equipment, other supplier deposits and D&O insurance, and $14.6 million in inventory purchases. The cash flows provided by operating activities for the period from January 21, 2020 (Inception) through September 30, 2020 was driven by recording a net loss of $0.9 million, slightly outweighed by changes in operating assets and liabilities.
Cash Flows from Investing Activities
Net cash used in investing activities was $17.6 million for the nine months ended September 30, 2021, as compared to $0.1 million for the period from January 21, 2020 (Inception) through September 30, 2020. The cash flows used in investing activities for the nine months ended September 30, 2021 were primarily due to $7.2 million in capital expenditures, as well as, $4.0 million in machinery and equipment deposits to begin production of hydrogen fuel cell systems and assembly of hydrogen storage systems, and $4.9 million investments in equity securities of NRG and Raven SR. The $7.2 million in capital expenditures were comprised of approximately $2.3 million related to acquiring a facility near Rochester, NY, $3.0 million in machinery equipment and $1.9 million in R&D assets. There were no similar purchases or investments in the period January 21, 2020 (Inception) through September 30, 2020.
Cash Flows from Financing Activities
Net cash provided by financing activities was $558.1 million for the nine months ended September 30, 2021, as compared to $0.6 million for the period from January 21, 2020 (Inception) through September 30, 2020. The cash flows provided by financing activities for the nine months ended September 30, 2021 was due primarily to $512.9 million in proceeds from the Business Combination, net of transaction costs allocated to equity and redemption and $45.0 million in proceeds from issuance of convertible debt. The cash flows provided by financing activities for the period from January 21, 2020 (Inception) through September 30, 2020 was due primarily to $0.5 million in proceeds from issuance of convertible debt.
Contractual Obligations and Commitments
Hyzon’s contractual obligations and other commitments as of September 30, 2021, include payments totaling $10 million in the aggregate due in 2021 to JS Horizon and JS Powertrain, pursuant to the terms of the Horizon IP Agreement. Please see the section below entitled “Intellectual Property” for additional information concerning the Horizon IP Agreement. This liability is reported under Horizon license agreement payable on the Condensed Consolidated Balance Sheets as of September 30, 2021. Subsequent to September 30, 2021, $6.9 million was paid and the remainder is expected to be paid in December 2021.
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Off-Balance
Sheet Arrangements
We do not maintain any
off-balance
sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and exemptionsaccompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s applications of accounting policies. Certain policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by management to determine appropriate assumptions to be used in certain estimates; as a result, they are subject to an inherent degree of uncertainty and are considered critical. Accordingly, we believe the following policies are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Share-based Compensation
We measure and recognize compensation expense for all stock options and restricted stock awards based on the estimated fair value of the award on the grant date. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective award, on a straight-line basis when the only condition to vesting is continued service. If vesting is subject to a market or performance condition, recognition is based on the derived service period of the award. Expense for awards with performance conditions is estimated and adjusted based upon the assessment of the probability that the performance condition will be met.
We use the Black-Scholes option pricing model to estimate the fair value of stock option awards with service and/or performance conditions. The Black-Scholes option pricing model requires management to make a number of assumptions, including the expected life of the option, the volatility of the underlying stock, the risk-free interest rate and expected dividends. The assumptions used in our Black-Scholes option-pricing model represent our best estimates at the time of grant. These estimates involve a number of variables, uncertainties and assumptions and the application of our judgment, as they are inherently subjective. If any assumptions change, our stock-based compensation expense could be materially different in the future.
These assumptions are estimated as follows:
Fair Value of Common Stock.
The grant date fair value of our common stock utilized in the calculation of share-based compensation was determined using valuation methodologies which utilize certain assumptions, including observations of comparable equity values and transactions, probability weighting of events, time to liquidation, a risk-adjusted interest rate, and assumptions regarding our projected future cash flows and growth potential.
Expected Term.
The expected term represents the period that our stock options are expected to be outstanding.
Expected Volatility.
We determine the price volatility factor based on the historical volatilities of our publicly traded peer group as Hyzon does not have a long trading history for our common stock. Industry peers consist of several public companies in the automotive and energy storage industry that are similar to Hyzon in size, stage of life cycle, and financial leverage.
Risk-Free Interest Rate.
The risk-free interest rate was based on U.S. Treasury
zero-coupon
securities with maturities consistent with the estimated expected term.
Expected Dividend Yield.
We have not paid dividends on our common stock nor do we expect to pay dividends in the foreseeable future.
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Warrant Liabilities
We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
We account for the Public Warrants as equity and account for the Private Placement Warrants, in connection with the Business Combination, as liabilities. In accordance with ASC 815, the Private Placement Warrants do not meet the criteria for equity classification and must be recorded as liabilities. As the Private Placement Warrants meet the definition of a derivative as contemplated in ASC 815, the warrants are measured at fair value at inception and remeasured at each reporting date.
We, with the assistance of third-party valuations, utilize the binominal lattice valuation model (“BLM”) to estimate the fair value of Private Placement Warrants at each reporting date. The application of the BLM utilizes significant unobservable assumptions, including volatility. Significant judgment is required in determining the expected volatility of our common stock.
Earnout Liability
The earnout shares with Legacy Hyzon’s common stockholders are accounted for as a liability. In accordance with ASC 815, the earnout shares with Legacy Hyzon common stockholders do not meet the criteria for equity classification and must be recorded as liabilities. Pursuant to ASC 805 initial measurement of these earnout shares are measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. As these earnout shares meet the definition of a derivative as contemplated in ASC 815, they are remeasured at each reporting date. Changes in fair value are recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
The earnout shares to other holders of outstanding equity awards are accounted for in accordance with ASC 718,
Stock Compensation
, as they relate to stock-based compensation awards issued in exchange for service provided or to be provided to the Company. We recognized the earnout shares to other equity holders as separate and incremental awards from other equity holders’ underlying stock-based compensation awards. Upon the close of the Business Combination, we became contingently obligated to issue earnout shares if the vesting conditions were met. However, for unvested equity awards and where grant date was not established, we did not recognize any expense.
We, with the assistance of third-party valuations, utilize the Monte-Carlo valuation model to estimate the fair value of earnout shares at each reporting date. The application of the Monte-Carlo pricing model utilizes significant unobservable assumptions, including volatility. Significant judgment is required in determining the expected volatility of our common stock. Monte Carlo analysis simulates the future path of the Company’s stock price over the earnout period. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the requirementsliability’s estimated value.
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Equity Valuations
For all periods prior to the consummation of the Business Combination, there was not a market for our equity. Accordingly, valuations of our equity instruments require the application of significant estimates, assumptions, and judgments. These valuations impact share-based compensation reported in our condensed consolidated financial statements. The following discussion provides additional details regarding the significant estimates, assumptions, and judgments that impact the determination of the fair values of share-based compensation awards and the common stock that comprises our capital structure. The following discussion also explains why these estimates, assumptions, and judgments could be subject to uncertainties and future variability.
Common Stock Valuations
We use valuations of our common stock for various purposes, including, but not limited to, the determination of the exercise price of stock options and inclusion in the Black-Scholes option pricing model. As a privately held company, the lack of an active public market for our common stock requires our management and board of directors to exercise reasonable judgment and consider a number of factors in order to make the best estimate of fair value of our equity. As our capital structure consists of a single class of equity, Hyzon, with the assistance of a third-party valuation specialist, estimates the fair value of our total equity value using a combination of the comparable sales method (a market approach) and the excess earnings method (an income approach). Estimating our total equity value requires the application of significant judgment and assumptions. Factors considered in connection with estimating these values include:
Recent arms-length transactions involving the sale or transfer of our common stock;
Our historical financial results and future financial projections;
The market value of equity interests in substantially similar businesses, which equity interests can be valued through nondiscretionary, objective means;
The lack of marketability of our common stock;
The likelihood of achieving a liquidity event, such as the business combination, given prevailing market conditions;
Industry outlook; and
General economic outlook, including economic growth, inflation and unemployment, interest rate environment and global economic trends.
The fair value ultimately assigned to our common stock may take into account any number or combination of the various factors described above, based upon their applicability at the time of measurement. Determination of the fair value of our common stock also may involve the application of multiple valuation methodologies and approaches, with varying weighting applied to each methodology as of the grant date. Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows; discount rates; market multiples; the selection of comparable companies; and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.
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As of November 12, 2020, the estimated fair value of our common stock was $2.00 per share. In making this determination, we relied upon the previous Round A equity financing, which closed on November 12, 2020 as being the only reliable indication of fair value of our common stock before (and including) December 1, 2020. The price of the Round A capital raise was $2.00 per share of our common stock.
The estimated fair value of our common stock was $4.45 per share as of December 31, 2020. The increase in fair value was primarily due to our making progress and taking necessary steps to prepare for the Business Combination. The necessary steps undertaken to prepare for the Business Combination included meeting with DCRB and financial advisors, discussing timing expectations, negotiating a
non-binding
advisory voteletter of intent and signing a binding exclusivity agreement between DCRB and Hyzon. As our ongoing negotiations related to the Business Combination reflected an increased likelihood of a near-term exit transaction and/or liquidity event, the valuation of our equity as of December 31, 2020 took into consideration the indicated equity value implied by the negotiations. While the December 31, 2020 valuation incorporated indicated equity values based upon traditional income and market approaches, consisting of the excess earnings method and comparable sales method. the valuation also incorporated the equity value implied by the business combination. Accordingly, the valuation applied the probability-weighted expected return method (PWERM) to weight the indicated equity value determined under the traditional income and market approaches and the equity value implied by our expected business combination with DCRB. Due to the proximity in time and observability, management placed the most significant weighting on executive compensationthe value as implied by the comparable sales method.
The estimated fair value of our common stock was $9.90 per share as of June 30, 2021. The increase in fair value from December 31, 2020 to June 30, 2021 was primarily due to Hyzon executing a
non-binding
letter of intent with DCRB in January 2021 and stockholder approvalsigning a Business Combination Agreement with DCRB as well as issuing a convertible note payable in the amount of any golden parachute payments$45 million in February 2021. In addition, Hyzon made progress in procuring new orders from customers during the six months ended June 30, 2021.
As of June 30, 2021, the estimated fair value of our common stock was $9.90 per share, which equates to an implied equity value of $1.0 billion. The primary difference between the fair value derived on June 30, 2021 and the fair value implied by the Business Combination is that the fair value implied by the Business Combination is based only upon a scenario in which the parties complete the Business Combination and is not previously approved.probability weighted, in contrast to the June 30, 2021 valuation, which considered multiple potential outcomes, some of which would have resulted in a lower value of our common stock than its implied transaction value.
Further,
Following the Business Combination with DCRB, it is no longer necessary for our management and its board of directors to estimate the fair value of our common stock, as the Class A common stock is traded in the public market.
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Emerging Growth Company Status
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to
non-emerging
growth companies but any such an election to opt out is irrevocable. The Company hasHyzon elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company,Hyzon, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. Thisstandard, until such time Hyzon is no longer considered to be an emerging growth company. At times, Hyzon may make comparison ofelect to early adopt a new or revised standard.
In addition, Hyzon intends to rely on the Company’s financial statements with another public company which is neitherother exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an emerging growth company, nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
The accompanying unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Amendment No. 1 of the Form
10-K/A
filed by the Company with the SEC on May 13, 2021.
Net Loss Per Common Share
Net loss per common share is computed by dividing net loss applicableHyzon intends to common stockholders by the weighted average number of common shares outstanding during the period, excluding shares of common stock subject to forfeiture, plus, to the extent dilutive, the incremental number of shares of common stock to settle warrants, as calculated using the treasury stock method. For the three months and six months ended June 30, 2021 the Company has not considered the effect of warrants sold in the Initial Public Offering and private placement in the calculation of diluted income (loss) per share since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive. For the three months and six months ended June 30, 2020, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company under the treasury stock method. As a result, diluted loss per common share is the same as basic loss per common share for the periods.
The Company’s statements of operations include a presentation of income (loss) per share for common stock in a manner similar to the
two-class
method of income per share. Net income per common share, basic and diluted for Class A redeemable common stock is calculated by dividing the interest income earned on the Trust Account (net of applicable franchise and income taxes for the periods ended June 30, 2021), by the weighted average number of Class A redeemable common stock outstanding for the period or since original issuance. Net loss per common share, basic and diluted for Class B
non-redeemable
common stock is calculated by dividing the net income (loss), less income attributable to Class A redeemable common stock, by the weighted average number of Class B non-redeemable common stock outstanding for the period. Class B
Non-redeemable
common stock includes the Founder Shares (as defined below) as these shares do not have any redemption features and do not participate in the income earned on the Trust Account.
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Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
The following table reflects the calculation of basic and diluted net loss per common share (in dollars, except per share amounts):
   
Three Months Ended
   
Three Months Ended
   
Six Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Class A Redeemable Common Stock
                    
Numerator: Earnings allocable to Class A Redeemable Common Stock
                    
Interest Income
   3,372    —      6,706    —   
Income and Franchise Tax
   (3,372)    —      (6,706)    —   
Redeemable 
Net Loss
   0      0      0      0   
Denominator: Weighted Average Class A Redeemable Common Stock
                    
Class A Redeemable Common Stock, Basic and Diluted
   22,572,502    —      22,572,502    —   
Income (Loss)/Basic and Diluted Class A Redeemable Common Stock
             0      —   
Class B Non-Redeemable Common Stock
                    
Numerator: Net Loss minus Class A Redeemable Net Loss
                    
Net Loss
   (8,183,346)    (860)    (9,294,718)    (1,719) 
Class A Redeemable Net Loss
 
   0—      0—      —      —   
Class B Non-Redeemable Net Loss
   (8,183,346)    (860)    (9,294,718)    (1,719) 
Denominator: Weighted Average Class B Non-Redeemable Common Stock
                    
Class B Non-Redeemable Common Stock, Basic and Diluted
   5,643,125    5,000,000    5,643,125    5,000,000 
Loss/Basic and Diluted Class B Non-Redeemable Common Stock
   (1.45)    (0.00)    (1.65)    (0.00) 
Note: For the three months ended and six months ended June 30, 2021 and 2020, basic and diluted shares are the same as there are no securities that are dilutive to the Company’s common stockholders under the treasury method.​​​​​​​
Concentration of Credit Risk
Financial instruments that potentially subject th
e
 Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Depository Insurance Corporation coverag
e of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risksrely on such accounts.
Warrant Liabilities
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment,exemptions, Hyzon is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional
paid-in
capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a
non-cash
gain or loss on the statements of operations. The Company utilized a Monte Carlo simulation model to value the Public Warrant liabilities at the date of the Initial Public Offering and then the unadjusted, quoted price listed on the NASDAQ Capital Market for each subsequent reporting period, and utilizes a Black-Scholes model to value the Private Warrant liabilities that are categorized within Level 3 at each reporting period, with changes in fair value recognized in the Statements of Operations (see Note 7).
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Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, approximates the carrying amounts represented in the
condensed
consolidated balance sheets, primarily due to their short term nature. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. See Note 7 for the levels within the valuation hierarchy, as well as additional information on assets and liabilities measured at fair value.
Use of Estimates
The preparation of these Condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of expenses during the reporting periods. Accordingly, the actual results could differ from those estimates.
Cash and cash equivalents
Cash includes amounts held at banks with an original maturity of less than three months. As of June 30, 2021, and December 31, 2020, the Company held $167,284 and $0, respectively, in cash. The Company held 0 cash equivalents at June 30, 2021 or December 31, 2020.
Common stock subject to possible redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC 480. Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at June 30, 2021 and December 31,
2020, 16,592,216 and 17,521,688 shares of
Class
A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of the Company’s condensed consolidated balance sheets.
Offering Costs
Offering costs consist of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that are directly related to the Initial Public Offering. The Company incurred offering costs amounting to $11,555,093 upon the completion of the Initial Public Offering. In connection with the sale of the Over-allotment Units, the Company incurred an additional $514,500 of underwriting fees and $900,376 of deferred underwriting fees.
The Company complies with the requirements of ASC
340-10-S99-1
and SEC Staff Accounting Bulletin Topic 5A—Expenses of Offering. Offering costs directly attributable to the issuance of an equity contract to be classified in equity are recorded as a reduction in equity. Offering costs for equity contracts that are classified as assets and liabilities are expensed immediately. The Company recorded $12,315,313 of offering costs as a reduction of equity in connection with the Public Shares included in the Units. The Company immediately expensed $654,656 of offering costs in connection with the Public Warrants included in the Units that were classified as liabilities.
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Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
As of June 30, 2021 and December 31, 2020, the Company had 0
deferred offering costs on the accompanying
condensed
consolidated balance sheets.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between these financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to b
e
 realized.
FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were 0 unrecognized tax benefits, deferred tax assets or valuations against them as of June 30, 2021 and December 31, 2020, respectively. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. NaN
 amounts were accrued for the payment of interest and penalties for the three months ended and six months ended June 30, 2021 and 2020, respectively. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
The Company had 0 tax liability as of June 30, 2021 and December 31, 2020, respectively.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
Note 3 — Public Offering
Pursuant to the Initial Public Offering, the Company sold 22,572,502 Units, at a purchase price of $10.00 per Unit, which includes the partial exercise by the underwriters of their over-allotment option in the amount of 2,572,502 Over-allotment Units at $10.00 per Unit. Each Unit consists of one share of Class A common stock and
one-half
of one Public Warrant. Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment (see Note 6).
Note 4 — Related Party Transactions
Founder Shares
On September 12, 2017, the Sponsor purchased 11,500,000 shares of Class B common stock (the “Founder Shares”) for an aggregate price of $25,000, or approximately $0.002 per share. As used herein, unless the context otherwise requires, “Founder Shares” shall be deemed to include the shares of Class A common stock issuable upon conversion thereof. The Founder Shares are identical to the Public Shares except that the Founder Shares automatically convert into shares of Class A common stock at the time of the Company’s Initial Business Combination and are subject to certain transfer restrictions, as described in more detail below. Holders of Founder Shares may also elect to convert their shares of Class B common stock into an equal number of shares of Class A common stock, subject to adjustment as provided above, at any time. On September 18, 2020, the Sponsor agreed to return 2,875,000 Founder Shares to the Company at no cost. In October 2020, the Sponsor agreed to return an additional 2,875,000 Founder Shares to the Company at no cost. The Sponsor and an affiliate of the Company’s chief executive officer agreed to forfeit up to an aggregate of 750,000 Founder Shares to the extent that the over-allotment option was not exercised in full by the underwriters. The forfeiture would be adjusted to the extent that the over-allotment option was not exercised in full by the underwriters so that the Founder Shares will represent 20.0% of the Company’s issued and outstanding shares after the Initial Public Offering. As a result of the underwriters’ partial exercise their over-allotment option on November 12, 2020, 643,125 Founder Shares are no longer subject to forfeiture. The over-allotment option expired on December 3, 2020, resulting in the forfeiture of 106,875 Founder Shares to the Company at no cost.
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Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
The Sponsor and the Company’s officers, directors and an affiliate of the Company’s chief executive officer have waived their redemption rights with respect to any Founder Shares and any Public Shares held by them in connection with the completion of an Initial Business Combination. If the Initial Business Combination is not completed within 24 months from the closing of the Initial Public Offering, the Sponsor and the Company’s officers, directors and an affiliate of the Company’s chief executive officer have agreed to waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares held by them.
The Company’s initial stockholders have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (A) one year after the completion of the Initial Business Combination or (B) subsequent to the Initial Business Combination, (x) if the last sale price of the Company’s Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any
30-trading
day period commencing at least 150 days after the Initial Business Combination, or (y) the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Private Placement Warrants
Simultaneously with the closing of the Initial Public Offering, the Sponsor and the Company’s independent directors and an affiliate of the Company’s chief executive officer purchased 6,000,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, for an aggregate purchase price of $6,000,000. The Sponsor and an affiliate of the Company’s chief executive officer agreed to purchase up to an additional 600,000 Private Placement Warrants, at a price of $1.00 per Private Placement Warrant, or an aggregate additional $600,000, to the extent the underwriter’s over-allotment option was exercised in full. Simultaneously with the closing of the sale of the Over-allotment Units, the Sponsor and the affiliate of the Company’s chief executive officer purchased an additional 514,500 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, generating gross proceeds of approximately $514,500 (see Note 2 for further information regarding the accounting treatment of the Private Placement Warrants).
Each Private Placement Warrant is exercisable to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment. A portion of the proceeds from the Private Placement Warrants were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within 24 months from the closing of the Initial Public Offering, the proceeds of the sale of the Private Placement Warrants held in the Trust Account will be used to partially fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Private Placement Warrants and all underlying securities will expire worthless. The Private Placement Warrants will be
non-redeemable
and exercisable on a cashless basis so long as they are held by the initial purchasers of the Private Placement Warrants or their permitted transferees.
The Sponsor and the Company’s officers, directors and an affiliate of the Company’s chief executive officer have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days after the completion of the Initial Business Combination.
Registration Rights
Pursuant to a Registration Rights Agreements entered into on October 19, 2020, the holders of Founder Shares, Private Placement Warrants and Warrants that may be issued upon conversion of Working Capital Loans (as defined below), if any, are entitled to registration rights (in the case of the Founder Shares, only after conversion of such shares to shares of Class A common stock). These holders are entitled to certain demand and “piggyback” registration rights. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
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Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Related Party Loans
On September 12, 2017, the Company and the Sponsor entered into a loan agreement, whereby the Sponsor agreed to loan the Company an aggregate of $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). This loan is
non-interest
bearing and payable on the earlier of December 31, 2020 (as amended) or the completion of the Initial Public Offering (the “Maturity Date”). On September 13, 2017, the Company drew down $300,000 on this Note. On October 21, 2020, the Company paid back the Sponsor for the full amount of the outstanding
Note. The Note is no longer available to the Company.
In addition to the Note, the Sponsor paid certain costs related to formation and offering for the Company. Costs in the amount of $219,022 were forgiven by the Sponsor in December 2019 and have been recorded within additional
paid-in
capital.
As of June 30, 2021, and December 31, 2020, the Company owe
d
 the Sponsor $3,375,977 and $1,324,257, respectively, for additional expenses paid on its behalf, of which $0 and $0 at June 30, 2021 and
December 31, 2020, respectively are related to the Working Capital Loans.
Related Party Note
On July 16, 2021, the Company and the Sponsor entered into a note agreement, whereby the Sponsor agreed to loan the Company an aggregate of $1,500,000 to cover working capital requirements. The note agreement c
o
nverted at the business combination date into 1,500,000 additional private placement warrants.
Advance from Related Party
As of October 22, 2020, the Sponsor and affiliate of the Company’s chief executive officer advanced $600,000 to the Company to cover the purchase of additional Private Placement Warrants if the over-allotment is exercised in full. Simultaneously with the closing of the sale of the Over-allotment Units, the Company utilized the advance from the Sponsor and the affiliate of the Company’s chief executive officer to issue an additional 514,500 Private Placement Warrants at a price of $1.00 per Private Placement Warrant (see Note 2 for further information regarding the accounting treatment of the Private Placement Warrants). The over-allotment option expired on December 3, 2020, resulting in the return of $85,500 of the advancement not utilized. As of June 30, 2021 and December 31, 2020, there were 0 advances outstanding.
Administrative Support Agreement
The Company has agreed to pay an affiliate of the Sponsor a total of $10,000 per month for office space, utilities and secretarial and administrative support. Upon completion of the Initial Business Combination or the Company’s liquidation, the Company will cease paying these monthly fees. For the three months ended and six months ended June 30, 2021,
the Company
incurred
$30,000 and $60,000,
respectively, of monthly fees to the affiliate of the Sponsor, of which $60,000 remained outstanding at June 30, 2021. There were 0 such fees for the three and six months ended June 30, 2020, and 0 amounts due at December 31, 2020.
Working Capital Loans
In addition, in order to finance transaction costs in connection with an Initial Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes an Initial Business Combination, the Company would repay the Working Capital Loans. In the event that an Initial Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. If the Sponsor makes any working capital loans, up to $1,500,000 of such loans may be converted into warrants of the post business combination entity at the price of $1.00 per warrant at the option of the lender. Such warrants would be identical to the Private Placement Warrants, including as to exercise price, exercisability and exercise period. As of June 30, 2021 and December 31, 2020, the Company had $0 and $0 borrowings under the Working Capital Loans.
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Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Note 5 — Commitments and Contingencies
Underwriting Agreement
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $7,900,376 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes an Initial Business Combination, subject to the terms of the underwriting agreement.
Business Combination Agreement
On February 8, 2021, the Company entered into a business combination agreement and plan of reorganization (the “Business Combination Agreement”) with DCRB Merger Sub Inc., a Delaware corporation and our wholly owned subsidiary (“Merger Sub”), and Hyzon Motors, Inc., a Delaware corporation (“Legacy Hyzon”), pursuant to which Merger Sub will be merged with and into Legacy Hyzon (the “Merger,” together with the other transactions related thereto, the “Proposed Transactions”), with Legacy Hyzon surviving the Merger as our wholly owned subsidiary. The parties completed the Proposed Transactions on July 16, 2021 following the Company’s stockholders approval of the Proposed Transactions on July 15, 2021.
Please see the Form
8-K
filed with the SEC on July 16, 2021 for additional information.
In connection with the Business Combination, certain of DCRB’s purported stockholders filed lawsuits against DCRB and its directors asserting claims for breaches of fiduciary duty:
Lanctot v. Decarbonization Plus Acquisition Corp. et al
., Index No. 652070/2021 (N.Y. Sup. Ct., N.Y. Cnty.) and
Pham v. Decarbonization Plus Acquisition Corp. et al
., Case No. 21-CIV-01928 (Cal. Sup. Ct., San Mateo Cnty.). These complaints allege that the DCRB board members breached their fiduciary duties by in connection with the merger by allegedly agreeing to the transaction following an inadequate process and at an unfair price, and by allegedly disseminating inaccurate or incomplete information concerning the transaction. These complaints seek, among other things, injunctive relief and an award of attorneys’ fees. The defendants in these cases have not yet answered these complaints and we believe that these pending and threatened lawsuits are without merit.
Risks and Uncertainties
The Company continues to evaluate the impact of the
COVID-19
pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of operations and/or search for a target company, the specific impact was not readily determinable as of the date of these condensed consolidated financial statements. These condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 6 — Stockholders’ Equity
Common Stock
On October 19, 2020, the Company amended and restated its certificate of incorporation to, among other things, increase the number of authorized shares of Class A common stock from 200,000,000 to 250,000,000. The authorized common stock of the Company includes up to 250,000,000 shares of Class A common stock with a par value of $0.0001 per share and 20,000,000 shares of Class B common stock with a par value of $0.0001 per share. If the Company enters into an Initial Business Combination, it may (depending on the terms of such an Initial Business Combination) be required to increase the number of shares of Class A common stock which the Company is authorized to issue at the same time as the Company’s stockholders vote on the Initial Business Combination to the extent the Company seeks stockholder approval in connection with the Initial Business Combination. Holders of the Company’s common stock are entitled to one vote for each share of common stock. At June 30, 2021, and December 31, 2020, there were 22,572,502 and 22,572,502 shares, respectively, of Class A common stock issued and outstanding, of which 17,410,551 and 17,521,688 shares, respectively, were subject to possible redemption. At June 30, 2021 and December 31, 2020, there were 5,643,125 shares of Class B common stock issued and outstanding, which reflects that on September 18, 2020, October 7, 2020, October 8, 2020 and December 3, 2020, the Sponsor returned 2,875,000, 1,437,500, 1,437,500 and 106,875 Founder Shares, respectively, to the Company at no cost.
The Sponsor and an affiliate of the Company’s chief executive officer agreed to forfeit up to an aggregate of 750,000 Founder Shares to the extent that the over-allotment option is not exercised in full by the underwriters. The forfeiture would be adjusted to the extent that the over-allotment option was not exercised in full by the underwriters so that the Founder Shares would represent 20.0% of the Company’s issued and outstanding shares after the Initial Public Offering. As a result of the underwriters’ election to partially exercise their over-allotment option, 106,875 Founder Shares were forfeited.
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Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At June 30, 2021 and December 31, 2020, there were 0 shares of preferred stock issued or outstanding.
Warrants
Each whole Warrant entitles the holder thereof to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustment as described in the prospectus for the Initial Public Offering. Only whole Warrants are exercisable. The Warrants will become exercisable on the later of 30 days after the completion of an Initial Business Combination or 12 months from the closing of the Initial Public Offering, and will expire five years after the completion of the Initial Business Combination or earlier upon redemption or liquidation, as described in the prospectus for the Initial Public Offering. No fractional Warrants will be issued upon separation of the units and only whole Warrants will trade.
The exercise price of each Warrant is $11.50 per share, subject to adjustment as described in the prospectus for the Initial Public Offering. In addition, if the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of an Initial Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by th
e
 Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “newly issued price”), the exercise price of the Warrants will be adjusted (to the nearest cent) to be equal to 115% of the newly issued price.
The Warrants will become exercisable on the later of:
30 days after the completion of the Initial Business Combination or,
12 months from the closing of the Initial Public Offering.
provided in each case that we have an effective registration statement under the Securities Act covering the shares of Class A common stock issuable upon exercise of the Warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder (or the Company permits holders to exercise their Warrants on a cashless basis under the circumstances specified in the Warrant agreement).
As of June 30, 2021, the Company had not registered the shares of Class A common stock issuable upon exercise of the Warrants. However, the Company has agreed that as soon as practicable, but in no event later than 15 business days, after the closing of an Initial Business Combination, the Company will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of Class A common stock issuable upon exercise of the Warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the Warrants in accordance with the provisions of the Warrant agreement. Notwithstanding the above, if the Company’s Class A common stock is at the time of any exercise of a Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at the Company’s option, require holders of the Public Warrants who exercise their Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but the Company will be required to use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
The Warrants will expire at 5:00 p.m., New York City time, five years after the completion of an Initial Business Combination or earlier upon redemption or liquidation. On the exercise of any Warrant, the Warrant exercise price will be paid directly to the Company and not placed in the Trust Account.
Once the Warrants become exercisable, the Company may redeem the outstanding Warrants for cash (except as described in the prospectus for the Initial Public Offering with respect to the Private Placement Warrants):
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Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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, referred to as the
30-day
redemption period; and
if, and only if, the last sale price of the Company’s Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) 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 warrantholders.
The Company will not redeem the Warrants for cash unless a registration statement under the Securities Act covering the shares of Class A common stock issuable upon exercise of the Warrants is effective and a current prospectus relating to those shares of Class A common stock is available throughout the
30-day
redemption period. If and when the Warrants become redeemable by the Company, the Company may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Except as described in the prospectus for the Initial Public Offering, none of the Private Placement Warrants will be redeemable by the Company so long as they are held by the initial purchasers of the Private Placement Warrants or their permitted transferees.
Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described in the prospectus for the Initial Public Offering with respect to the Private Placement Warrants):
in whole and not in part;
at a price of $0.10 per Warrant, provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares of Class A common stock determined by reference to the table set forth in the warrant agreement based on the redemption date and the “fair market value” of the Company’s Class A common stock (as defined below) except as otherwise described in the warrant agreement;
upon a minimum of 30 days’ prior written notice of redemption;
if, and only if, the last sale price of the Company’s Class A common stock equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) on the trading day prior to the date on which the Company sends the notice of redemption to the warrantholders; and
if the last sale price of the Company’s Class A common stock on the trading day prior to the date on which the Company sends the notice of redemption to the warrantholders is less than $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Warrants, as described above.
The “fair market value” of the Company’s Class A common stock shall mean the average reported last sale price of the Company’s Class A common stock for the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of Warrants.
No fractional shares of Class A common stock will be issued upon redemption. If, upon redemption, a holder would be entitled to receive a fractional interest in a share, the Company will round down to the nearest whole number the number of shares of Class A common stock to be issued to the holder.
As of June 30, 2021 and December 31, 2020, there
were 11,286,251 Public Warrants and 6,514,500 Private Placement Warrants outstanding. The Company classifies the outstanding Public Warrants and Private Placement Warrants as warrant liabilities on the Balance Sheet in accordance with the guidance contained in ASC
815-40.
The Warrant liabilities are initially measured at fair value upon the closing of the Initial Public Offering and subsequently
re-measured
at each reporting period using a Monte-Carlo model. The Public Warrants were recorded as a liability at fair value. The Company recognized gains (losses) in connection with changes in the fair value of Warrant liabilities
of $6,824,865 and $7,163,449
within change in fair value of Warrant liabilities in the condensed consolidated Statements of Operations during the three months ended and six months ended June 30, 2021, respectively.
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants, and the common shares issuable upon the exercise of the Private Placement Warrants are not, transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and will be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
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Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Note 7 — Fair Value Measurements
At June 30, 2021 and December 31, 2020, assets held in the Trust Account were comprised
of $225,734,427
and $225,727,721, respectively, in money market funds which are invested in U.S. Treasury Securities. Through June 30, 2021, the Company has not withdrawn any interest earned on the Trust Account to pay its franchise and income tax obligations.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring th
e
 fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets an
d
 liabilities:
Level 1:
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2:
Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3:
Unobservable inputs based on our assessment of the assumptions that market participants would use in    pricing the asset or liability.
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description
  
Amount at
Fair Value
   
Level 1
   
Level 2
   
Level 3
 
June 30, 2021
                    
Assets:
                    
Marketable securities held in Trust Account—U.S. Treasury Securities Money Market Fund
   225,734,427    225,734,427    —      —   
Liabilities:
                    
Warrant Liability—Public Warrants
   25,845,515    25,845,515    —        
Warrant Liability—Private Placement Warrants
   14,918,205    —      —      14,918,205 
December 31, 2020
                    
Assets:
                    
Marketable securities held in Trust Account—U.S. Treasury Securities Money Market Fund
   225,727,721    225,727,721    —        
Liabilities:
                    
Warrant Liability—Public Warrants
   20,766,705    20,766,705    —        
Warrant Liability—Private Placement Warrants
   12,833,565    —      —      12,833,565 
The Company utilized a Monte Carlo simulation model to value the Public Warrant liabilities at the date of the Initial Public Offering and then the unadjusted, quoted price listed on the NASDAQ Capital Market for each subsequent reporting period, and utilizes a Black-Scholes model to value the Private Warrant liabilities that are categorized within Level 3 at each reporting period, with changes in fair value recognized in the Statements of Operations. The estimated fair value of the warrant liability on the Private Warrants is determined using Level 3 inputs. Inherent in a binomial options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury
zero-coupon
yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.
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Dearbonization Plus Acquisition Corporation
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
The significant unobservable inputs used in the Black-Scholes model to measure the warrant liabilities that are categorized within Level 3 of the fair value hierarchy are as follows:
   
As of
June 30,
2021
  
As of
December 31,
2020
 
Stock price
   10.31   10.60 
Strike price
   11.50   11.50 
Term (in years)
   5.1   5.4 
Volatility
   30.0%   27.8% 
Risk-free rate
   0.9%   0.4% 
Dividend yield
   0.0%   0.0% 
Fair value of warrants
   2.29   1.97 
The following table provides a summary of the changes in fair value of the warrant liabilities that are measured at fair value on a recurring basis:
Private
Placement
(Level 3)
Public
(Level 1)
Warrant
Liabilities
Fair value as of December 31, 2020
   12,833,565    20,766,705    33,600,270 
Change in valuation inputs or other assumptions
   2,084,640    5,078,810    7,163,449 
   
 
 
   
 
 
   
 
 
 
Fair value as of June 30, 2021
   14,918,205    25,845,515    40,763,719 
   
 
 
   
 
 
   
 
 
 
There were 0 transfers between Levels 1, 2 or 3 during the three months and six months ended June 30, 2021. There were no warrants issued for the three months and six months ended June 30, 2020.
Note 8 — Subsequent Events
Management has evaluated the impact of subsequent events through the date these condensed consolidated financial statements were available to be issued. All subsequent events required to be disclosed are included in these condensed consolidated financial statements.
Business Combination
On July 16, 2021 (the “Closing Date”), we consummated the previously announced business combination (the “Business Combination”) pursuant to that certain business combination agreement, dated February 8, 2021 (the “Business Combination Agreement”), with Merger Sub and Legacy Hyzon, pursuant to which Merger Sub was merged with and into Legacy Hyzon, with Legacy Hyzon surviving the Merger as a wholly owned subsidiary of DCRB. On the Closing Date, the DCRB changed its name from Decarbonization Plus Acquisition Corporation to Hyzon Motors, Inc. (“New Hyzon”).
At the effective time of the Merger (the “Effective Time”), each share of Legacy Hyzon’s Common Stock, par value $0.001 per share (“Legacy Hyzon Common Stock”) issued and outstanding immediately prior to the Effective Time (including any shares of Legacy Hyzon Common Stock resulting from the conversion of the options to purchase outstanding shares of Legacy Hyzon Common Stock (“Ascent Option”), but excluding any shares of Legacy Hyzon Common Stock resulting from the conversion of Legacy Hyzon’s outstanding convertible notes (the “Convertible Notes”)) was converted into the right to receive 1.7720 shares of Class A Common Stock, par value $0.0001 per share, of New Hyzon (“New Hyzon Class A Common Stock”) (the “Exchange Ratio”) and the contingent right to receive additional shares of New Hyzon Class A Common Stock as additional consideration upon the occurrence of certain triggering events (“Earnout Shares”). Additionally, each share of common stock, par value $0.001 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time was converted and exchanged for one validly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of Legacy Hyzon.
Earnout
During the five-year period following the Closing Date (the “Earnout Period”), the Company will issue to eligible holders of securities of New Hyzon up to 23,250,000 Earnout Shares, in three tranches of 9,000,000, 9,000,000 and 5,250,000 Earnout Shares, respectively, upon the Company achieving $18, $20 or $35 as its last reported sales price per share for any twenty (20) trading days within any thirty (30) consecutive trading day period within the Earnout Period; provided, that in no event will the issuance of the 5,250,000 Earnout Shares occur prior to July 16, 2022, which is the one year anniversary of the date of the Closing Date.
PIPE Financing
On July 16, 2021, a number of purchasers (each, a “Subscriber”) purchased an aggregate of 35,500,000 shares of DCRB Class A Common Stock (the “PIPE Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of $355,500,000 (the “PIPE Financing”), pursuant to separate subscription agreements (each, a “Subscription Agreement”) entered into on February 8, 2021. Pursuant to the Subscription Agreements, we gave certain registration rights to the Subscribers with respect to the PIPE shares. The purpose of the PIPE Financing was to raise additional capital for use by the combined company following the Closing Date. Concurrently with the closing of the PIPE Financing, the Convertible Notes automatically converted to approximately 5.02 million shares of New Hyzon Class A Common Stock.
In July 2021, the Sponsor transferred $1,332,715 of working capital loans to the Company to reimburse costs of an affiliate.
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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to the “Company,” “our,” “us” or “we” refer to Hyzon Motors, Inc. (f/k/a Decarbonization Plus Acquisition Corporation), except where the context requires otherwise. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained in Item 1. of this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form
10-Q
includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. 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. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings.
Overview
We are a former blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On July 16, 2021, we consummated our Business Combination with Legacy Hyzon.
Recent Developments
Business Combination
On July 16, 2021 (the “Closing Date”), we consummated the previously announced business combination (the “Business Combination”) pursuant to that certain business combination agreement, dated February 8, 2021 (the “Business Combination Agreement”),with Merger Sub and Legacy Hyzon, pursuant to which Merger Sub was merged with and into Legacy Hyzon, with Legacy Hyzon surviving the Merger as a wholly owned subsidiary of DCRB. On the Closing Date, the DCRB changed its name from Decarbonization Plus Acquisition Corporation to Hyzon Motors, Inc. (“New Hyzon”).
At the effective time of the Merger (the “Effective Time”), each share of Legacy Hyzon’s Common Stock, par value $0.001 per share (“Legacy Hyzon Common Stock”) issued and outstanding immediately prior to the Effective Time (including any shares of Legacy Hyzon Common Stock resulting from the conversion of the options to purchase outstanding shares of Legacy Hyzon Common Stock (“Ascent Option”), but excluding any shares of Legacy Hyzon Common Stock resulting from the conversion of Legacy Hyzon’s outstanding convertible notes (the “Convertible Notes”)) was converted into the right to receive 1.7720 shares of Class A Common Stock, par value $0.0001 per share, of New Hyzon (“New Hyzon Class A Common Stock”) (the “Exchange Ratio”) and the contingent right to receive additional shares of New Hyzon Class A Common Stock as additional consideration upon the occurrence of certain triggering events (“Earnout Shares”). Additionally, each share of common stock, par value $0.001 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time was converted and exchanged for one validly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of Legacy Hyzon.
Earnout
During the five-year period following the Closing Date (the “Earnout Period”), the Company will issue to eligible holders of securities of New Hyzon up to 23,250,000 Earnout Shares, in three tranches of 9,000,000, 9,000,000 and 5,250,000 Earnout Shares, respectively, upon the Company achieving $18, $20 or $35 as its last reported sales price per share for any twenty (20) trading days within any thirty (30) consecutive trading day period within the Earnout Period; provided, that in no event will the issuance of the 5,250,000 Earnout Shares occur prior to July 16, 2022, which is the one year anniversary of the date of the Closing Date.
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PIPE Financing
On July 16, 2021, a number of purchasers (each, a “Subscriber”) purchased an aggregate of 35,500,000 shares of DCRB Class A Common Stock (the “PIPE Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of $355,500,000 (the “PIPE Financing”), pursuant to separate subscription agreements (each, a “Subscription Agreement”) entered into on February 8, 2021. Pursuant to the Subscription Agreements, we gave certain registration rights to the Subscribers with respect to the PIPE shares. The purpose of the PIPE Financing was to raise additional capital for use by the combined company following the Closing Date. Concurrently with the closing of the PIPE Financing, the Convertible Notes automatically converted to approximately 5.02 million shares of New Hyzon Class A Common Stock.
Results of Operations
Prior to the completion of the Business Combination, we neither engaged in any significant operations nor generated any operating revenue. Our only activities from inception through the closing of the Business Combination related to our formation and the initial public offering, as well as due diligence costs incurred. As a result of the closing of the Business Combination, our business has substantially changed and is now that of New Hyzon. Accordingly, we expect to incur increased expenses as a result of being a public operating company.
For the three months ended June 30, 2020, we had a net loss of approximately $1,000 which consisted of approximately $1,000 in general and administrative expenses.
For the three months ended June 30, 2021, we had a net loss of approximately $8.2 million, which consisted of approximately $1.4 million in general and administrative expenses, including due diligence costs incurred in the pursuit of our acquisition plans, $6.8 million due to the change in the fair value of warrant liabilities, offset by interest earned on marketable securities held in DCRB’s trust account with Continental Stock and Transfer & Trust Company acting as trustee (the “Trust Account”) of $3,000.
For the six months ended June 30, 2020, we had a net loss of approximately $2,000 which consisted of approximately $2,000 in general and administrative expenses.
For the six months ended June 30, 2021, we had a net loss of approximately $9.2 million, which consisted of approximately $2.1 million in general and administrative expenses, including due diligence costs incurred in the pursuit of our acquisition plans, $7.2 million due to the change in the fair value of warrant liabilities, offset by interest earned on marketable securities held in the Trust Account of $7,000.
Liquidity and Capital Resources
Following the consummation of our initial public offering, our liquidity needs have been satisfied through the net proceeds of approximately $2.0 million from the sale of equity securities held outside of the Trust Account as well as a $1.5 million proceeds from a unsecured promissory note (the “Note”) issued by DCRB to Decarbonization Plus Acquisition Sponsor, LLC (the “Sponsor”) which was converted into warrants of New Hyzon at Closing.
In addition, in the short term and the long term, in order to finance transaction costs in connection with a business combination, the Sponsor or an affiliate of the Sponsor, or certain of our officers and directors could have, but were not obligated to, loan us additional funds as may be required. As of June 30, 2020, $1.5 million was outstanding under the Note.
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On February 8, 2021, we entered into the Business Combination Agreement with Merger Sub and Legacy Hyzon and on July 16, 2021, we closed the Business Combination. Approximately $20.89 million of funds held in the Trust Account were also used to fund the redemption of 2,089,323 shares of DCRB Class A Common Stock.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Principles of Consolidation
The consolidated financial statements include the accounts of DCRB and its wholly owned subsidiary since its formation. All material intercompany balances and transactions have been eliminated.
Basis of Presentation
The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and expenses during the periods reported. Actual results could materially differ from those estimates.
Warrant Liabilities
We account for the warrants issued in connection with our initial public offering in accordance with Accounting Standards Codification (“ASC”)
815-40,
Derivatives and Hedging—Contracts in Entity’s Own Equity
(“ASC 815”), under which the warrants do not meet the criteria for equity classification and must be recorded as liabilities. As the warrants meet the definition of a derivative as contemplated in ASC 815, the DCRB’s warrants are measured at fair value at inception and at each reporting date in accordance with ASC 820,
Fair Value Measurement
, with changes in fair value recognized in the Statements of Operations in the period of change.
Impact of
COVID-19
We continue to evaluate the impact of the
COVID-19
pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on our financial position and/or results of operations, the specific impact is not readily determinable as of the balance date.
Recent Accounting Pronouncements
We do not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material impact on our financial statements.
Off-Balance
Sheet Arrangements
As of the date of this Quarterly Report, we did not have any
off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation
S-K.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” under the JOBS Act and are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We elected to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for
non-emerging
growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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As an “emerging growth company,” we are not required to, among other things, (i)things: (a) provide an auditor’s attestation report on ourHyzon’s system of internal controlscontrol over financial reporting (ii)pursuant to Section 404(b) of the Sarbanes-Oxley Act; (b) provide all of the compensation disclosure that may be required of
non-emerging
growth public companies (iii)under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (c) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis),; and (iv)(d) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the CEO’sChief Executive Officer’s compensation to median employee compensation. These exemptions
Hyzon will apply for a periodremain an emerging growth company under the JOBS Act until the earliest of five years(a) the last day of Hyzon’s first fiscal year following the completionfifth anniversary of our Public Offering the closing of DCRB’s initial public offering, (b) the last date of Hyzon’s fiscal year in which Hyzon has total annual gross revenue of at least $1.07 billion, (c) the date on which Hyzon is deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by
non-affiliates
or until we otherwise no longer qualify as an “emerging growth company.”(d) the date on which Hyzon has issued more than $1.0 billion in
non-convertible
debt securities during the previous three years.
Item 3. Material Transactions with Related Parties
Horizon IP Agreement
In January 2021, Hyzon entered into the Horizon IP Agreement with JS Horizon, part of the Horizon group of Companies, and in September 2021 JS Powertrain was an added party to the agreement. Pursuant to the agreement the parties convey to each other certain rights in intellectual property relating to Hyzon’s core fuel cell and mobility product technologies, under which Hyzon will pay JS Horizon and JS Powertrain a total fixed payment of $10 million in 2021. Subsequent to September 30, 2021, $6.9 million was paid and the remainder is expected to be paid in December 2021.
Horizon Supply Agreement
In January 2021, Hyzon entered into a supply agreement with Jiangsu Horizon New Energy Technologies Co. Ltd, a wholly owned subsidiary of Horizon, to supply certain fuel cell components. During the three months ended March 31, 2021, the Company made a deposit payment to Horizon in the amount of $5.0 million for long lead time components. This payment is included in prepaid expenses as none of the components have yet been received as of September 30, 2021.
Holthausen
The Company entered into a joint venture agreement in October 2020 to create Hyzon Europe with Holthausen. As Hyzon Europe builds out its production facilities, it relies on Holthausen for certain production resources that result in related party transactions. In addition, both companies rely on certain suppliers including Horizon.
In July 2021, Hyzon Europe assumed certain customer sales contracts from Holthausen with an aggregate value of $5.1 million. As a result of this transaction, the Company recorded Contract liabilities of $4.1 million, work-in-process inventory of $3.4 million, and due from Holthausen of $0.7 million.
As of September 30, 2021, the Company has a net related party payable in the amount of $0.8 million due to Holthausen.
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Item 3.
Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined in Rule
12b-2
under the Exchange Act. As a result, pursuant to Item 305(e) of
Regulation
S-K,
we are not required to provide the information required by this Item.
Item 4.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules
13a-15
and
15d-15
under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2021. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e)
and
15d-15(e)
under the Exchange Act) were not effective as of June 30, 2021 due solely to our restatement of our financial statements to reclassify our warrants as described under “Restatement of Previously Issued Financial Statements”.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As required by Rules
13a-15
and
15d-15
under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e)
and
15d-15(e)
under the Exchange Act) were not effective as of September 30, 2021, solely due to the material weakness in internal control over financial reporting described below. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form
10-Q
fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Changes
Material Weaknesses in Internal Control over Financial Reporting
Due solely
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
In connection with the audit of our consolidated financial statements for the year ended December 31, 2020, we identified material weaknesses in our internal control over financial reporting. Specifically, due to our size and limited operating history, particularly prior to the events that ledBusiness Combination, we did not have sufficient financial reporting resources and personnel necessary to our restatementensure the appropriate segregation of our financial statements on Form
10-K/A
filedduties and effective review procedures with the SEC on May 13, 2021 (the “Restatement”), management identified a material weakness in internal controls relatedrespect to the accounting for Warrants issued in connection with our Public Offering,processing and recording of financial transactions, as described below under “Restatementwell as an appropriate level of Previously Issued Financial Statements.”control oversight over the financial statement reporting process.
 
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In light
Remediation Plans
We have commenced measures to remediate the identified material weakness, including: (i) the hiring of the Restatement ofadditional finance and accounting personnel over time to augment our financial statements, we enhanced our processesaccounting staff and to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of theprovide more resources for complex accounting standards that applymatters and financial reporting; (ii) further developing and implementing formal policies, processes and documentation procedures relating to our financial statements.reporting and consulting with accounting experts; and (iii) the adoption of new technological solutions. We intend to continue to take steps to remediate the material weakness described above and further evolving our accounting processes.
The actions we are taking are subject to ongoing executive management review and are also subject to audit committee oversight. To date, we have provided enhanced accesshired additional financial and accounting personnel with technical accounting experience and implemented new technology solutions to accounting literature, research materials and documents, performed an analysis to ensure thatassist with our financial reporting process. We are still executing an assessment to identify process design gaps and implementing additional controls to mitigate segregation of duty risk. We will not be able to fully remediate this material weakness until these steps have been completed and have been operating effectively for a sufficient period of time. If we are unable to successfully remediate the material weakness, or if in the future, we identify further material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our consolidated financial statements are in accordance with generally accepted accounting principles and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan continue tomay be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.materially misstated.
Restatement of Previously IssuedChanges in Internal Control over Financial StatementsReporting
On May 13, 2021, we revisedOther than in connection with the implementation of the remedial measures described above, there have not been any changes in our prior position on accounting for Warrantsinternal control over financial reporting (as such term is defined in Rules 13a-15(f) and restated
15d-15(f)
under the Exchange Act) during the quarter to which this Quarterly Report related that have materially affected, or are reasonably likely to affect, our internal control over financial statements as of December 31, 2020 and for the period ended December 31, 2020 to reclassify the Company’s warrants as described in the Restatement. However, the non-cash adjustments to the financial statements did not impact the amounts previously reported for our cash and cash equivalents, total assets, revenue or cash flows.
reporting.
 
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PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings
From timeThe information set forth under Note 11 to time, we may become involvedour unaudited condensed consolidated financial statements of this quarterly report on
Form 10-Q
is incorporated by reference in legal proceedings or be subjectanswer to claims in the ordinary course of business. We are not currently a partythis item. Such information is limited to any material legal proceedings. Regardless of outcome, such proceeding or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors and there can be no assurances that favorable outcomes will be obtained.
In connection with the Business Combination, certain of DCRB’s purported stockholders filed lawsuits against DCRB and its directors asserting claims for breaches of fiduciary duty:
Lanctot
 v. Decarbonization Plus Acquisition Corp. et al.,
Index No. 652070/2021 (N.Y. Sup. Ct., N.Y. Cnty.);
Pham
 v. Decarbonization Plus Acquisition Corp. et al.,
Case No.
21-CIV-01928
(Cal. Sup., San Mateo Cnty.). These complaints allege that the DCRB board members breached their fiduciary duties by in connection with the merger by allegedly agreeing to the transaction following an inadequate process and at an unfair price, and by allegedly disseminating inaccurate or incomplete information concerning the transaction. These complaints seek, among other things, injunctive relief and an award of attorneys’ fees. The defendants in these cases have not yet answered these complaints and we believe that these pending and threatened lawsuits are without merit.recent developments.
 
Item 1A.
Risk Factors
As a result of the closing of the Business Combination on July 16, 2021, the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form
10-K/A
for the fiscal year ended December 31, 2020, no longer apply. For risk factors relating to our business following the Business Combination, please refer to the section entitled “
Risk Factors
” in our Definitive Proxy Statement (file
No. 001-39632)
filed with the SEC on June 21, 2021. Additional risk factors not presently known to us or that we deem immaterial may also impair our business or results of operations. Other than as set forth below, there have been no material changes to the risk factors disclosed in our Definitive Proxy Statement.
We face risks and uncertainties related to litigation, regulatory actions and government investigations and inquiries.
We are subject to, and may become a party to, a variety of litigation, other claims, suits, regulatory actions and government investigations and inquiries. For example, two related putative securities class action lawsuits were filed against the Company, certain of its current officers and directors and certain officers and directors of DCRB between September 30, 2021, and October 13, 2021, in the U.S. District Court for the Western District of New York (
Kauffmann v. Hyzon Motors Inc
., et al. (No. 6:21-cv-06612-CJS); and
Brennan v. Hyzon Motors Inc
., et al. (No. 6:21-cv-06636-CJS)) asserting violations of federal securities laws. The complaints generally allege that the Company and individual defendants made materially false and misleading statements relating to the nature of its customer contracts, vehicle orders and sales and earnings projections, based on allegations in a report released on September 28, 2021 by Blue Orca Capital, an investment firm that indicated that it held a short position in our stock and made numerous allegations about the Company. The proceedings are subject to uncertainties inherent in the litigation process. We cannot predict the outcome of these matters or estimate the possible loss or range of possible loss, if any. We have incurred and may further incur substantial expenses as a result of regulatory and legal matters related to the Blue Orca Capital report and other similar research reports.
The outcome of litigation and other legal proceedings, including the other claims described under Legal Proceedings in Note 11, Commitments and Contingencies, to the condensed consolidated financial statements included elsewhere in this Current Report on Form
10-Q
and incorporated by reference herein, are inherently uncertain and adverse judgments or settlements in some or all of these legal disputes may result in materially adverse monetary damages or injunctive relief against us. Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or obtain adequate insurance in the future. The litigation and other legal proceedings described under Note 11 are subject to future developments and management’s view of these matters may change in the future.
We have identified material weaknesses in our internal control over financial reporting which, if not corrected, could affect the reliability of our consolidated financial statements and have other adverse consequences.
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected on a timely basis.
In connection with the audit of our consolidated financial statements for the year ended December 31, 2020, we identified material weaknesses in our internal control over financial reporting that we are currently working to remediate. Specifically, due to our size and limited operating history, particularly prior to the Business Combination, we did not have sufficient financial reporting resources and personnel necessary to ensure the appropriate segregation of duties and effective review procedures with respect to the processing and recording of financial transactions, as well as an appropriate level of control oversight over the financial statement reporting process.
We have commenced measures to remediate the identified material weakness, including: (i) the hiring of additional finance and accounting personnel over time to augment our accounting staff and to provide more resources for complex accounting matters and financial reporting; (ii) further developing and implementing formal policies, processes and documentation procedures relating to our financial reporting and consulting with accounting experts; and (iii) the adoption of new technological solutions. We intend to continue to take steps to remediate the material weakness described above and further evolve our accounting processes.
The actions we are taking are subject to ongoing executive management review and are also subject to audit committee oversight. To date, we have hired additional financial and accounting personnel with technical accounting experience and implemented new technology solutions to assist with our financial reporting process. We are still executing an assessment to identify process design gaps and implementing additional controls to mitigate segregation of duty risk. We will not be able to fully remediate this material weakness until these steps have been completed and have been operating effectively for a sufficient period of time. If we are unable to successfully remediate the material weakness, or if in the future, we identify further material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our consolidated financial statements may be materially misstated, and we may be delayed in filing required periodic reports.
 
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Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
The information required by this Item 2 is contained in our Current Report on Form
None.8-K,
as originally filed with the SEC on July 22, 2021.
 
Item 3.
Defaults Upon Senior Securities
None.
 
Item 4.
Mine Safety Disclosures
Not applicable.
 
Item 5.
Other Information
None.
 
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Item 6.
Exhibits.Exhibits
 
Exhibit

Number
  
Description
3.1  Second Amended and Restated Certificate of Incorporation of New Hyzon (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2021)
3.2  Amended and Restated Bylaws of New Hyzon (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2021)
4.1Ardour Warrant Agreement, dated as of July 16, 2021, by and between DCRB and Continental Stock Transfer & Trust Company incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2021.
10.1  Amended and Restated Registration Rights Agreement, dated as of July 16, 2021, by and among New Hyzon and certain securityholders of New Hyzon named therein and certain equityholdersequity holders of Legacy Hyzon named therein (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2021)
10.210.2#  New Hyzon 2021 Equity and Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2021)
10.310.3#  Employment Agreement, dated as of July 9, 2021, between New Hyzon and Craig Knight (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2021)
10.410.4#  Employment Agreement, dated as of July 9, 2021, between New Hyzon and George Gu (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2021)
10.510.5#  Employment Agreement, dated as of August 5, 2021, between New Hyzon and Mark Gordon (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 6, 2021)
10.6#Letter Agreement between Hyzon and Gary Robb (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 2, 2021)
31.1  Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
31.2  Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
32.132.1*  Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350
32.232.2*  Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350
101.INS  Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH  Inline XBRL Taxonomy Extension Schema Document
101.CAL  Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF  Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB  Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE  Inline XBRL Taxonomy Extension Presentation Linkbase Document
104  Cover Page Interactive Data File (embedded within the Inline XBRL document)
 
*
This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act
#
Indicates management contract or compensatory arrangement.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  
Hyzon Motors Inc.
Date: August 13,November 12, 2021  By: 
/s/ Mark Gordon
  Name: Mark Gordon
  Title: 
Chief Financial Officer

(Principal Financial Officer)
 
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