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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
______________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
oTRANSITION 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)
______________________
Delaware001-3963282-2726724
(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 shareHYZN
NASDAQ Capital Market
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per shareHYZNW
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 x No o
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 x No o

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 fileroAccelerated filero
    
Non-accelerated filerxSmaller reporting companyx
    
Emerging growth companyx

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. o

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

As of October 31, 2023, there were approximately 245,002,825 shares of the registrant’s common stock outstanding, par value $0.0001 per share, outstanding.

1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for future operations, and any statements that refer to characterizations of future events or circumstances, including any underlying assumptions. These statements constitute projections, forecasts, and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the 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 other 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 future events.

Forward-looking statements are subject to a number of risks and uncertainties including, but not limited to, those described below and under the section entitled “Risk Factors” in our Annual Report filed on Form 10-K for the year ended December 31, 2022, and in subsequent reports that we file with the SEC, including this Form 10-Q for the quarter ended September 30, 2023.
we have incurred significant losses since our inception and expect to incur losses in the foreseeable future, and there is substantial doubt that we will have sufficient funds to satisfy our obligations through the next 12 months from the date of this report;

our ability to continue as a going concern, which requires us to manage costs and obtain additional funding of our operations, including ramping up the production phase of our operations which includes beginning commercial scale production, launching the sale of our vehicles, and investing in research and development of additional products;

our ability to raise financing in the future; if we are unable to obtain sufficient additional funding or do not have access to capital, we will be unable to execute our business plans and our prospects, financial condition and results of operations could be materially adversely affected;

our corporate restructuring and the associated headcount reduction may not result in anticipated savings, which could result in total costs and expenses that are greater than expected and could disrupt our business;

our ability to commercialize our products and strategic plans, including our ability to establish facilities to produce our fuel cells, assemble 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 withstand intense competition and competitive pressures from other companies worldwide in the industries in which we operate;

our ability to convert non-binding memoranda of understanding and vehicle trial agreements into binding orders or sales (including because of the current or prospective resources of our counterparties) and the ability of our counterparties to make payments on orders;

our ability to invest in hydrogen production, distribution, and refueling operations to supply our customers with hydrogen at competitive costs to operate their fuel cell electric vehicles;

our hydrogen-powered commercial vehicles and hydrogen fuel cell systems depend on the availability of hydrogen; there is no assurance that there will be, or that we will be able to supply, hydrogen at prices or with an emission profile that allow our FCEVs to be competitive with commercial vehicles powered by other energy sources, and our lack of control over or limited availability of hydrogen may adversely impact our sales and product deployment;

disruptions to the global supply chain, including as a result of geopolitical events, and shortages of raw materials, and the related impacts on our third-party suppliers and assemblers;

our ability to maintain the listing of our common stock on the Nasdaq Capital Market;

our ability to retain or recruit, or changes required in, our officers, key employees or directors;

our ability to protect, defend, or enforce our intellectual property on which we depend; and

the impacts of legal proceedings, regulatory disputes, and governmental inquiries.

We have experienced and continue to experience several of these risks which have had and are having a materially negative effect on our results of operations. Should these risks increase, should risks or uncertainties other than those described above materialize, or should our underlying assumptions prove incorrect, our 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.
2




Hyzon Motors, Inc.
Quarterly Report on Form 10-Q
Table of Contents
3

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

HYZON MOTORS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
September 30,
2023
December 31,
2022
ASSETS
Current assets
Cash and cash equivalents $110,614 $60,554 
Short-term investments27,193 194,775 
Accounts receivable297 29 
Related party receivable 321 6,578 
Inventory41,233 35,553 
Prepaid expenses and other current assets11,510 15,365 
Total current assets191,168 312,854 
Property, plant, and equipment, net19,549 22,420 
Right-of-use assets5,082 9,181 
Investments in equity securities15,030 15,030 
Equity method investment8,328 8,500 
Other assets6,056 6,911 
Total Assets$245,213 $374,896 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$4,587 $13,798 
Accrued liabilities22,893 25,587 
Related party payables443 433 
Contract liabilities7,737 3,919 
Current portion of lease liabilities1,896 2,132 
Total current liabilities37,556 45,869 
Long term liabilities
Lease liabilities6,071 7,492 
Private placement warrant liability561 1,122 
Earnout liability4,898 10,927 
Deferred income taxes526 526 
Accrued SEC settlement16,500  
Other liabilities1,317 1,901 
Total Liabilities$67,429 $67,837 
Commitments and contingencies (Note 13)
Stockholders’ Equity
Common stock, $0.0001 par value; 400,000,000 shares authorized, 244,998,491 and 244,509,208 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.
25 25 
Treasury stock, at cost; 3,769,592 shares as of September 30, 2023 and December 31, 2022, respectively.
(6,446)(6,446)
Additional paid-in capital377,951 372,942 
Accumulated deficit(193,148)(58,598)
Accumulated other comprehensive income (loss)103 (153)
Total Hyzon Motors Inc. stockholders’ equity178,485 307,770 
Noncontrolling interest(701)(711)
Total Stockholders’ Equity 177,784 307,059 
Total Liabilities and Stockholders’ Equity$245,213 $374,896 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
4

HYZON MOTORS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Revenue$ $5 $ $2,939 
Operating expense:
Cost of revenue3,286 8,203 6,534 10,226 
Research and development10,857 9,241 32,794 26,660 
Selling, general, and administrative21,044 36,103 100,999 75,920 
Restructuring and asset impairment (Note 4)4,885  4,885  
Total operating expenses40,072 53,547 145,212 112,806 
Loss from operations(40,072)(53,542)(145,212)(109,867)
Other income (expense):
Change in fair value of private placement warrant liability(240)3,447 561 13,385 
Change in fair value of earnout liability(1,307)18,034 6,029 87,371 
Gain (loss) on equity securities    10,082 
Foreign currency exchange gain (loss) and other expense, net(3,877)(4,539)(2,447)(7,143)
Investment income and interest income, net1,441 947 6,501 1,018 
Total other income (expense)(3,983)17,889 10,644 104,713 
Loss before income taxes$(44,055)$(35,653)$(134,568)$(5,154)
Income tax expense   526 
Net loss$(44,055)$(35,653)$(134,568)(5,680)
Less: Net loss attributable to noncontrolling interest(1)(10,858)(18)(16,361)
Net income (loss) attributable to Hyzon$(44,054)$(24,795)$(134,550)$10,681 
Comprehensive income (loss):
Net loss$(44,055)$(35,653)$(134,568)$(5,680)
Foreign currency translation adjustment2,721 862 986 838 
Net change in unrealized gain (loss) on short-term investments286 131 (702)131 
Comprehensive loss$(41,048)$(34,660)$(134,284)$(4,711)
Less: Comprehensive income (loss) attributable to noncontrolling interest5 (9,705)10 (14,714)
Comprehensive income (loss) attributable to Hyzon$(41,053)$(24,955)$(134,294)$10,003 
Net income (loss) per share attributable to Hyzon:
Basic$(0.18)$(0.10)$(0.55)$0.04 
Diluted$(0.18)$(0.10)$(0.55)$0.04 
Weighted average common shares outstanding:
Basic244,885 248,164 244,686 248,054 
Diluted244,885 248,164 244,686 257,828 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
5

HYZON MOTORS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)

Common Stock
Class A
Treasury StockAdditional
Paid-in
Capital

Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total Hyzon
Motors Inc.
Stockholders’
Equity
Noncontrolling
Interest
Total
Stockholders’
Equity
Shares AmountSharesAmount
Balance as of December 31, 2022244,509,208 $25 3,769,592 $(6,446)$372,942 $(58,598)$(153)$307,770 $(711)$307,059 
Stock-based compensation   — 2,987 — — 2,987 — 2,987 
Vesting of RSUs198,911  — — — — — — — — 
Net share settlement of equity awards   — (111)— — (111)— (111)
Available-for-sale short-term investments:
Unrealized net gain on short-term investments   — — — 616 616  616 
Reclassification to net loss   — — — (1,604)(1,604)— (1,604)
Net loss attributable to Hyzon   — — (90,496)— (90,496)— (90,496)
Net loss attributable to noncontrolling interest   — — — — — (17)(17)
Foreign currency translation income (loss)   — — — (1,757)(1,757)22 (1,735)
Balance as of June 30, 2023244,708,119 $25 3,769,592 $(6,446)$375,818 $(149,094)$(2,898)$217,405 $(706)$216,699 
Exercise of stock options16,000 — — — 18 — — 18 — 18 
Stock-based compensation— — — — 2,156 — — 2,156 — 2,156 
Vesting of RSUs274,372 — — — — — — — — — 
Net share settlement of equity awards— — — — (41)— — (41)— (41)
Available-for-sale short-term investments:
Unrealized net gain on short-term investments— — — — — — 314 314 — 314 
Reclassification to net loss— — — — — — (28)(28)— (28)
Net loss attributable to Hyzon— — — — — (44,054)— (44,054)— (44,054)
Net loss attributable to noncontrolling interest— — — — — — — — (1)(1)
Foreign currency translation income— — — — — — 2,715 2,715 6 2,721 
Balance as of September 30, 2023244,998,491 $25 3,769,592 $(6,446)$377,951 $(193,148)$103 $178,485 $(701)$177,784 

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




HYZON MOTORS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)

Common Stock
Class A
Treasury StockAdditional
Paid-in
Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Total Hyzon
Motors Inc.
Stockholders’
Equity
Noncontrolling
Interest
Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance as of December 31, 2021247,758,412$25  $ $400,826 $(26,412)$378 $374,817 $(4,752)$370,065 
Exercise of stock options35,324 —  — 40 — — 40 — 40 
Stock-based compensation— —  — 3,052 — — 3,052 — 3,052 
Vesting of RSUs168,772 —  — — — — — — — 
Net share settlement of equity awards— —  — (463)— — (463)— (463)
Common stock issued for the cashless exercise of warrants44,349 —  — — — — — — — 
Repurchase of warrants— —  — (31)— — (31)— (31)
Net income attributable to Hyzon— —  — — 35,476 — 35,476 — 35,476 
Net loss attributable to noncontrolling interest— —  — — — — — (5,503)(5,503)
Foreign currency translation income (loss)— —  — — — (518)(518)494 (24)
Balance as of June 30, 2022248,006,857 $25  $ $403,424 $9,064 $(140)$412,373 $(9,761)$402,612 
Exercise of stock options
3,544 — — — 4 — — 4 — 4 
Stock-based compensation
— — — — 1,063 — — 1,063 — 1,063 
Vesting of RSUs133,980 — — — — — — — — — 
Net share settlement of equity awards— — — — (55)— — (55)— (55)
Common stock issued for the cashless exercise of warrants8,981 — — — — — — — — — 
Unrealized gain on short-term investments— — — — — — 131 131  131 
Net income attributable to Hyzon
— — — — — (24,795)— (24,795)— (24,795)
Net loss attributable to noncontrolling interest
— — — — — — — — (10,858)(10,858)
Foreign currency translation income (loss)
— — — — — — (291)(291)1,153 862 
Balance as of September 30, 2022248,153,362 $25  $ $404,436 $(15,731)$(300)$388,430 $(19,466)$368,964 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
6

HYZON MOTORS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
20232022
Cash Flows from Operating Activities:
Net income (loss)$(134,568)$(5,680)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization3,160 2,445 
Stock-based compensation5,143 4,115 
Deferred income tax expense 526 
Fair value adjustment of private placement warrant liability(561)(13,385)
Fair value adjustment of earnout liability(6,029)(87,371)
Fair value adjustment of value in equity securities (10,082)
Accretion of discount on available-for-sale debt securities(1,452)(185)
Write-down of inventory4,781  
Loss on equity method investment172 72 
Foreign currency transaction loss2,087  
Write-down of property and equipment2,119  
Restructuring and asset impairment charges4,885  
Changes in operating assets and liabilities:
Accounts receivable(264)2,676 
Inventory(9,411)(16,776)
Prepaid expenses and other current assets4,087 1,621 
Other assets343 (383)
Accounts payable(9,176)289 
Accrued liabilities(2,763)11,678 
Related party payables, net6,023 31 
Contract liabilities3,089 (5,053)
Other liabilities16,263 (756)
Net cash used in operating activities(112,072)(116,218)
Cash Flows from Investing Activities:
Purchases of property and equipment(5,951)(11,320)
Purchases of short-term investments(16,594)(313,032)
Proceeds from sale of short-term investments50,021  
Proceeds from maturities of short-term investments134,905 73,700 
Net cash provided by (used in) investing activities162,381 (250,652)
Cash Flows from Financing Activities:
Exercise of stock options18 44 
Payment of finance lease liability(237)(294)
Net share settlement of equity awards
(152)(517)
Payment for purchase of Horizon IP— (3,146)
Repurchase of warrants (31)
Net cash used in financing activities(371)(3,944)
Effect of exchange rate changes on cash(377)(967)
Net change in cash, cash equivalents, and restricted cash49,561 (371,781)
Cash, cash equivalents, and restricted cash — Beginning66,790 449,365 
Cash, cash equivalents, and restricted cash — Ending$116,351 $77,584 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
7

HYZON MOTORS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Nature of Business and Basis of Presentation

Description of Business

Hyzon Motors Inc. (“Hyzon” or the “Company”), headquartered in Honeoye Falls, New York, is commercializing its proprietary heavy-duty (“HD”) fuel cell technology through assembling and upfitting HD hydrogen fuel cell electric vehicles (“FCEVs”) in the United States, Europe, and Australia. In addition, Hyzon seeks to build and foster a clean hydrogen supply ecosystem with leading partners from feedstocks through production, dispensing, and financing. The Company is majority-owned by Hymas Pte. Ltd. (“Hymas”), a Singapore company, which is majority-owned but indirectly controlled by Horizon Fuel Cell Technologies PTE Ltd., a Singapore company (“Horizon”).

Basis of Presentation

The accompanying unaudited interim consolidated financial statements and related disclosures have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) pursuant to the requirements and rules of the Securities and Exchange Commission (“SEC”). Any reference in these notes to applicable guidance refers to U.S. GAAP as found in U.S. Accounting Standards Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB"). 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, the unaudited interim consolidated financial statements should be read in connection with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2022.

The Company’s unaudited interim consolidated financial statements include the accounts and operations of the Company and its wholly owned subsidiaries including variable interest entity arrangements in which the Company is the primary beneficiary. All intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, the accompanying unaudited interim consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation for the periods presented. Results of operations reported for interim periods presented are not necessarily indicative of results for the entire year or any other periods.

Liquidity and Going Concern

These unaudited interim consolidated financial statements have been prepared by management in accordance with U.S. GAAP and this basis assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. These unaudited interim consolidated financial statements do not include any adjustments that may result from the outcome of the uncertainties described below.

In accordance with ASC 205-40, Presentation of Financial Statements - Going Concern (“ASC 205-40”), the Company evaluates whether there are certain conditions and events, considered in the aggregate, which raise substantial doubt about the Company’s ability to continue as a going concern. In accordance with ASC 205-40, the Company’s analysis can only include the potential mitigating impact of the plans that have not been fully implemented as of the issuance date of these unaudited interim consolidated financial statements if (a) it is probable that these plans will be effectively implemented within one year after the date that the financial statements are issued, and (b) it is probable that the plans, when implemented, will alleviate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

The Company incurred net losses of $44.1 million and $134.6 million for the three and nine months ended September 30, 2023, respectively. The Company incurred net losses of $35.7 million and $5.7 million for the three and nine months ended September 30, 2022, respectively. Accumulated deficit amounted to $193.1 million and $58.6 million as of September 30, 2023 and December 31, 2022, respectively. Net cash used in operating activities was $112.1 million and $116.2 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, the Company has $110.6 million in unrestricted cash and cash equivalents, $27.2 million in short-term investments, and $5.7 million in restricted cash.

The Company has concluded that at the time of the filing, substantial doubt exists about its ability to continue as a going concern as the Company believes that its financial resources, existing cash resources and additional sources of liquidity are not sufficient to support planned operations beyond the next 12 months.

In order to reduce the cash used in operating activities, the Company implemented certain cost savings initiatives in late 2022 and the first half of 2023, as well as a restructuring plan in July 2023, as further discussed in Note 4. Restructuring and Related Charges. While these plans are anticipated to reduce cash outflows when compared to prior periods, the Company’s continued existence is dependent upon its ability to obtain additional financing, as well as to attain and maintain profitable operations by entering into profitable sales or service contracts and generating sufficient cash flow to meet its obligations on a timely basis. The Company’s business will require significant funding to execute its long-term business plans. As of October 31, 2023, unrestricted cash, cash equivalents, and short-term investments were approximately $129 million.

The Company plans to improve its liquidity through a combination of equity and/or debt financing, alliances or other partnership agreements with entities interested in our technologies, and the liquidation of certain inventory balances. If the Company raises funds in the future by issuing equity securities, dilution to stockholders will occur and may be substantial. Any equity securities issued may also provide for rights, preferences, or privileges senior to those of common stockholders. If the Company raises funds in the future by issuing debt securities, these debt securities could have rights, preferences, and privileges senior to those of common stockholders. The terms of any debt securities or borrowings could impose significant restrictions on the Company’s operations. The capital markets have experienced in the past, and may experience in the future, periods of upheaval that could impact the availability and cost of equity and debt financing. In addition, recent and anticipated future increases in federal fund rates set by the Federal Reserve, which serve as a benchmark for rates on borrowing, will continue to impact the cost of debt financing.

There can be no assurance that any such financing can be realized by the Company, or if realized, what the terms thereof may be, or that any amount that the Company is able to raise will be adequate to support the Company’s working capital requirements and/or fuel cell technology advancement. If the Company cannot raise additional funds when needed or on acceptable terms, the financial condition, business prospects, and results of operations could be materially adversely affected. In addition, the Company is subject to, and may become a party to, a variety of litigation, other claims, suits, indemnity demands, regulatory actions, and government investigations and inquiries in the ordinary course of business. The outcome of litigation and other legal proceedings, including the other claims described under Legal Proceedings in Note 13. Commitments and Contingencies, 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, which may not be covered in full or in part by insurance.

Reclassifications

Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation in the unaudited interim consolidated financial statements and the accompanying notes.

Hyliion Inc. Technology Development Agreement

In February 2023, the Company entered into a Technology Development Agreement (“TD Agreement”) with Hyliion Inc. for the purpose of working collaboratively to integrate a Hyzon fuel cell into a Hyliion powertrain on a Class 8 semi-truck. Subject to the terms and conditions of the TD Agreement, the parties grant one another a worldwide, irrevocable, nonexclusive, royalty-free, non-sublicensable license to their respective intellectual property solely for the limited purpose of developing the deliverable. The TD Agreement contains various representations, warranties, covenants, indemnities and other provisions customary for transactions of this nature. The term of the TD Agreement is one year, with the option of extending the term by mutual agreement. The Company agrees to reimburse Hyliion up to $1 million for research and development expenses incurred. During the three and nine months ended September 30, 2023, the Company has incurred $0.3 million and $1.0 million of expenses under the TD Agreement which have been recorded within Research and development expense in the unaudited interim Consolidated Statements of Operations and Comprehensive Income (Loss).

8

Note 2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2. Summary of Significant Accounting Policies, in the Company’s consolidated financial statements included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2022.

There have been no material changes to the significant accounting policies for the nine months ended September 30, 2023.

Note 3. Revenue

The Company did not recognize revenue for the three and nine months ended September 30, 2023. The Company recognized negligible revenue and $2.9 million in sales of hydrogen fuel cell systems in the United States, sales of FCEVs in China, and upfit services in Europe for the three and nine months ended September 30, 2022, respectively.

In accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"), the Company is required to evaluate customers’ ability and intent to pay substantially all of the consideration to which the Company is entitled in exchange for the vehicles transferred to the customer, i.e., collectability of contracts with customers. The Company’s two customers in China are special purpose entities established in response to China’s national hydrogen fuel cell vehicle pilot program. In consideration of the customers’ limited operating history and extended payment terms in their contracts, the Company determined the collectability criterion is not met with respect to contract existence under ASC 606 for these customers, and therefore, an alternative method of revenue recognition has been applied to each arrangement.

The $2.5 million of revenue recognized from sales of FCEVs in China related to the delivery of 62 FCEVs in the nine months ended September 30, 2022. This amount is equal to the remaining consideration received after satisfying local government VAT obligations, as such amounts are non-refundable and the Company has transferred control of the 62 FCEVs to which the consideration relates and has stopped transferring goods or services to the customer. During the three months ended September 30, 2022, the Company delivered 20 additional FCEVs to a different customer, however, no amounts were recognized as revenue as the consideration received was less than the amounts paid to satisfy local government VAT obligations. The Company will continue to monitor the customer and evaluate the collectability criterion as of each reporting period. The total cost of the 62 FCEVs delivered was recorded within Cost of revenue in the Consolidated Statements of Operations and Comprehensive Income (Loss) in 2021 since control of such FCEVs was transferred to the customer prior to December 31, 2021. The total cost of $2.9 million related to the additional 20 FCEVs was recorded within Cost of revenue in the unaudited interim Consolidated Statements of Operations and Comprehensive Income (Loss) during the three months ended September 30, 2022 since control of such FCEVs was transferred at the time of delivery.

Contract Balances

Contract liabilities relate to the advance consideration invoiced or 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.

The current portion of contract liabilities is recorded within Contract liabilities in the unaudited interim Consolidated Balance Sheets and totaled $7.7 million and $3.9 million as of September 30, 2023 and December 31, 2022, respectively. The long-term portion of contract liabilities is recorded within Other liabilities in the unaudited interim Consolidated Balance Sheets and totaled $1.3 million and $1.9 million as of September 30, 2023 and December 31, 2022, respectively.

Remaining Performance Obligations

The transaction price associated with remaining performance obligations for commercial vehicles and other contracts with customers was $15.0 million as of September 30, 2023. The Company expects to recognize substantially all of its remaining performance obligations as revenue over the twelve months after September 30, 2023.

9

Note 4. Restructuring and Related Charges

Restructuring costs consist of employee-related charges that may include retention, relocation, severance, and other termination benefits, as well as, contract termination costs, accelerated depreciation, professional fees, and certain long-lived asset impairments. For ongoing benefit arrangements, a liability is recognized when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. For one-time benefit arrangements, a liability is incurred and accrued at the date the plan is communicated to employees, unless employees will be retained beyond a minimum retention period. In this case, the liability is calculated at the date the plan is communicated to employees and is accrued ratably over the future service period.

Restructuring costs including certain asset impairment are recorded in Restructuring and asset impairment in the unaudited interim Consolidated Statements of Operations and Comprehensive Income (Loss) as a component of loss from operations. Restructuring related liabilities are recorded within Accrued liabilities on the unaudited interim Consolidated Balance Sheets.

In July 2023, the Company’s board of directors approved a restructuring plan (the “Restructuring Program”) to improve operational effectiveness and cost reduction, including its workforce. Pursuant to the Restructuring Program, the Company expects to rationalize its global footprint, implement a shared service model for procurement and engineering, and transition to a third-party assembly model for FCEV upfit services. The Restructuring Program is expected to be completed by the end of third quarter of 2024.

The Company expects to incur employee-related charges such as one-time severance payments as well as cash bonus and stock-based compensation to drive retention through 2024. The Company anticipates modifying the affected employees’ stock awards in a manner that would result in additional non-cash charges.

As a result of the Restructuring Program, the Company evaluated long-lived assets for impairment at Hyzon Motors Europe B.V. (“Hyzon Europe”). The Company compared the carrying amount of the asset group comprising the long-lived assets to the estimated future undiscounted cash flows expected to be generated by the asset group. The estimated aggregate undiscounted cash flows were less than the carrying amount of the asset group. An impairment charge of $4.6 million ($2.8 million of right-of-use asset and $1.8 million of property, plant and equipment, net) was recorded during the third quarter of 2023, which represents the amount by which the carrying amount of the asset group exceeds the fair value of the assets, based on the expected discounted future cash flows attributable to those assets.

Costs by type associated with the Restructuring Program consisted of the following (in thousands):

Three Months Ended September 30, 2023
Nine Months Ended September 30, 2023
Asset-related $4,602 $4,602 
Employee-related283 283 
Total $4,885 $4,885 


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Note 5. Inventory    

Inventory consisted of the following (in thousands):
September 30,
2023
December 31,
2022
Raw materials$24,574 $24,862 
Work in process15,178 10,691 
Finished Goods1,481  
Total inventory$41,233 $35,553 

The Company writes down inventory for any excess or obsolescence, or when the Company believes that the net realizable value of inventories is less than the carrying value. A total of $2.7 million and $4.8 million in inventory write-downs was recognized for the three and nine months ended September 30, 2023, respectively. A total of $2.3 million and $3.0 million in inventory write-downs was recognized for the three and nine months ended September 30, 2022, respectively. The Company recorded the inventory write-downs in Cost of revenue in the unaudited interim Consolidated Statements of Operations and Comprehensive Income (Loss).

Note 6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

September 30,
2023
December 31,
2022
Deposit for fuel cell components (Note 16)$4,067 $6,092 
Vehicle inventory deposits37 2,074 
Production equipment deposits482 235 
Other prepaid expenses1,338 1,877 
Prepaid insurance4,355 3,201 
VAT receivable from government1,231 1,886 
Total prepaid expenses and other current assets$11,510 $15,365 

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Note 7. Property, Plant, and Equipment, net

Property, plant, and equipment, net consisted of the following (in thousands):
September 30,
2023
December 31,
2022
Land and building$2,823 $2,818 
Machinery and equipment13,873 15,832 
Software3,240 2,350 
Leasehold improvements2,904 2,123 
Construction in progress2,366 2,499 
Total Property, plant, and equipment25,206 25,622 
Less: Accumulated depreciation and amortization(5,657)(3,202)
Property, plant and equipment, net$19,549 $22,420 

Depreciation and amortization expense totaled $1.0 million and $3.2 million for the three and nine months ended September 30, 2023, respectively. Depreciation and amortization expense totaled $0.8 million and $2.1 million for the three and nine months ended September 30, 2022, respectively.

The Company recognized impairment charges of $1.8 million during the three and nine months ended September 30, 2023, related to restructuring in Hyzon Europe (see Note 4. Restructuring and Related Charges). There were no property, plant and equipment impairment charges for the three and nine months ended September 30, 2022.

Additionally, outside of the restructuring in Hyzon Europe, the Company recorded write-downs of other property and equipment of $1.8 million during the three months ended September 30, 2023, which consist of $1.1 million in Research and development expense, and $0.7 million in Selling, general, and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss), respectively. The Company recorded write-downs of other property and equipment of $2.1 million during the nine months ended September 30, 2023, which consist of $1.4 million in Research and development expense, and $0.7 million in Selling, general, and administrative expense, respectively.

Note 8. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

September 30,
2023
December 31,
2022
Payroll and payroll related expenses$6,314 $4,638 
Accrued professional fees3,432 10,016 
Accrued product warranty costs856 942 
Accrued contract manufacturer costs1,335 1,409 
Accrued contract termination costs 448 2,688 
Accrued Orten cancellation costs 1,192 
Accrued SEC settlement (Note 13)8,500  
Other accrued expenses2,008 4,702 
Accrued liabilities$22,893 $25,587 

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Note 9. Investments in Equity Securities

The Company owns common shares, participation rights, and options to purchase additional common shares in certain private companies. On a non-recurring basis, the carrying value is adjusted for changes resulting from observable price changes in orderly transactions for identical or similar investments in the same issuer or an impairment.

There was no gain or loss on equity securities in the unaudited interim Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2023. Included in the Gain (loss) on equity securities in the unaudited interim Consolidated Statements of Operations and Comprehensive Income (Loss) for the nine months ended September 30, 2022 is a $12.5 million gain related to the equity investment in Raven SR, Inc. (“Raven SR”). The investment in Raven SR’s common shares and options was initially accounted for at cost of $2.5 million.

Additionally, included in Gain (loss) on equity securities in the unaudited interim Consolidated Statements of Operations and Comprehensive Income (Loss) for the nine months ended September 30, 2022 is a $2.4 million impairment loss related to the Company’s investment in Global NRG H2 Limited (“NRG”), a New Zealand corporation, equal to the initial cost basis. In accordance with ASC 321, Investments - Equity Securities, the investment in NRG does not have a readily determinable fair value and is measured at cost minus impairment, which requires the Company to evaluate on an ongoing basis whether an investment has been impaired based on qualitative factors. The Company impaired NRG due to the investee’s lack of progress in developing its plans and operating performance.

The following table summarizes the total carrying value of held securities, measured as the total initial cost plus cumulative net gain (loss) (in thousands):

September 30,
2023
December 31,
2022
Total initial cost basis$4,948 $4,948 
Adjustments:
Cumulative unrealized gain12,530 12,530 
Cumulative impairment(2,448)(2,448)
Carrying amount, end of period$15,030 $15,030 

The following table summarizes unrealized gain and impairment recorded in Other income (expense) in the unaudited interim Consolidated Statements of Operations and Comprehensive Income (Loss), which are included as adjustments to the carrying value of equity securities (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Unrealized gain on equity securities$ $ $ $12,530 
Impairment   (2,448)
Total unrealized gain and impairment on equity securities$ $ $ $10,082 

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Note 10. Short-term Investments

The following tables summarize the Company's short-term investments as of September 30, 2023 and December 31, 2022 (in thousands):

As of September 30, 2023
Amortized CostUnrealized GainsUnrealized LossesFair Value
Short-term investments
Corporate debt securities$2,230 $ $ $2,230 
U.S. Treasury bills24,363 600  24,963 
Total short-term investments$26,593 $600 $ $27,193 

As of December 31, 2022
Amortized CostUnrealized GainsUnrealized LossesFair Value
Short-term investments
Certificates of deposit$38,703 $194 $ $38,897 
Commercial paper26,198 205  26,403 
Corporate debt securities46,826 189 (33)46,982 
Foreign government bonds37,453 348  37,801 
U.S. Treasury bills44,333 359 44,692 
Total short-term investments$193,513 $1,295 $(33)$194,775 

Note 11. Income Taxes

During the three and nine months ended September 30, 2023 the Company did not record any tax expense. During the three and nine months ended September 30, 2022, the Company recorded a zero tax expense and a discrete tax expense of $0.5 million, respectively. The discrete item in the nine months ended September 30, 2022 was primarily associated with the establishment of a deferred tax liability that is not expected to offset available deferred tax assets.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company assesses all available evidence, both positive and negative, to determine the amount of any required valuation allowance within each taxing jurisdiction. The Company continues to be in a net operating loss and net deferred tax asset position, before valuation allowances. Full valuation allowances, but for the deferred tax liability described above, have been established for the Company’s operations in all jurisdictions.

There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its positions. The Company is subject to income tax examinations by taxing authorities in the countries in which it operates since inception.

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Note 12. Fair Value Measurements

The Company follows the guidance in ASC 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, 2023, and December 31, 2022, the carrying amounts of accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate estimated fair value due to their relatively short maturities.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value (in thousands):

As of September 30, 2023
Level 1Level 2Level 3Total
Assets:
Cash equivalents:$82,204 $ $ $82,204 
Short-term investments:
Corporate debt securities 2,230  2,230 
U.S. Treasury bills24,963   24,963 
Liabilities:
Warrant liability – Private Placement Warrants$ $561 $ $561 
Earnout shares liability  4,898 4,898 
As of December 31, 2022
Level 1Level 2Level 3Total
Assets:
Cash equivalents:$23,113 $4,992 $ $28,105 
Short-term investments:
Certificates of deposit 38,897  38,897 
Commercial paper 26,403  26,403 
Corporate debt securities 46,982  46,982 
Foreign government bonds 37,801  37,801 
U.S. Treasury bills44,692   44,692 
Liabilities:
Warrant liability – Private Placement Warrants$ $1,122 $ $1,122 
Earnout shares liability  10,927 10,927 

Cash Equivalents

The Company’s cash equivalents consist of short-term, highly liquid financial instruments that are readily convertible to cash with original maturities of three months or less. As of September 30, 2023, the Company has $82.2 million invested in money market funds and certificates of deposit. As of December 31, 2022, the Company had $28.1 million invested in commercial paper and money market funds. The Company classifies its investments in commercial paper as Level 2 because they are valued using inputs other than quoted prices which are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded.

Short-term Investments

The Company’s short-term investments consist of high quality, investment grade marketable debt securities and are classified as available-for-sale. The Company classifies its investments in certificates of deposit, commercial paper, corporate debt securities and foreign government bonds as Level 2 because they are valued using inputs other than quoted prices which are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded.

Earnout to Common Stockholders

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,
2023
December 31,
2022
Stock price$1.25$1.55
Risk-free interest rate4.9 %4.2 %
Volatility92.0 %92.0 %
Remaining term (in years)2.793.54

The following table presents the changes in the liabilities for Private Placement Warrants and Earnout for the nine months ended September 30, 2023 (in thousands):
Private Placement WarrantsEarnout
Balance as of December 31, 2022$1,122 $10,927 
Change in estimated fair value(561)(6,029)
Balance as of September 30, 2023
$561 $4,898 

The Company performs routine procedures such as comparing prices obtained from independent sources to ensure that appropriate fair values are recorded.

Assets Measured on a Nonrecurring Basis

Assets that are measured at fair value on a nonrecurring basis are remeasured when carrying value exceeds fair value. This includes the evaluation of long-lived assets. Where an indication of an impairment exists, the Company’s estimates of fair value of long-lived assets require the use of significant unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with respect to future circumstances that might directly impact the long-lived assets’ operations in the future and are therefore uncertain.

The Company assesses the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses undiscounted future cash flows of the asset or asset group for equipment and intangible assets. The Company assessed the fair value of the relevant long-lived assets using the income approach. Inputs used to calculate the fair value based on the income approach primarily include estimated future cash flows, discounted at a rate that approximates the cost of capital of a market participant.

During the quarter ended September 30, 2023, the Company recognized an impairment charge of $4.6 million ($2.8 million of right-of-use asset and $1.8 million of property, plant and equipment, net) as a result of restructuring at Hyzon Europe (See Note 4. Restructuring and Related Charges).
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Note 13. Commitments and Contingencies

Legal Proceedings

The Company is subject to, and may become a party to, a variety of litigation, other claims, suits, indemnity demands, regulatory actions, and government investigations and inquiries in the ordinary course of business. The assessment as to whether a loss is probable or reasonably possible, and as to whether such loss or a range of such loss is estimable, often involves significant judgment about future events, and the outcome of litigation is inherently uncertain. The Company accrues for matters when we believe that losses are probable and can be reasonably estimated.

As the outcome of individual matters is not predictable with assurance, the assessments are based on the Company’s knowledge and information available at the time; thus, the ultimate outcome of any matter could require payment substantially in excess of the amount being accrued and/or disclosed. The Company is party to current legal proceedings as discussed more fully below.

Shareholder Securities and Derivative Litigation

Three related putative securities class action lawsuits were filed between September 30, 2021 and November 15, 2021, in the U.S. District Court for the Western District of New York against the Company, certain of the Company’s current and former officers and directors and certain former officers and directors of Decarbonization Plus Acquisition Corporation (“DCRB”) and DCRB’s sponsor (Kauffmann v. Hyzon Motors Inc., et al. (No. 21- cv-06612-CJS), Brennan v. Hyzon Motors Inc., et al. (No. 21-cv-06636-CJS), and Miller v. Hyzon Motors Inc. et al. (No. 21-cv-06695-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 the Company’s 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 the Company’s stock and which has made numerous allegations about the Company. These lawsuits have been consolidated under the caption In re Hyzon Motors Inc. Securities Litigation (Case No. 6:21-cv-06612-CJS-MWP), and on March 21, 2022, the court-appointed lead plaintiff filed a consolidated amended complaint seeking monetary damages. The Company and individual defendants moved to dismiss the consolidated amended complaint on May 20, 2022, and the court-appointed lead plaintiff filed its opposition to the motion on July 19, 2022. The court-appointed lead plaintiff filed an amended complaint on March 21, 2022, and a second amended complaint on September 16, 2022. Briefing regarding the Company and individual defendants’ anticipated motion to dismiss the second amended complaint was stayed pending a non-binding mediation among the parties, which took place on May 9, 2023. The parties did not reach a settlement during the May 9, 2023 mediation. On June 20, 2023, the court granted the lead plaintiff leave to file a third amended complaint, which was filed on June 23, 2023. The third amended complaint added additional claims. The Company filed a motion to dismiss on September 13, 2023, and DCRB and former DCRB officers, directors, and its sponsor filed a motion to dismiss on the same day. The lead plaintiff filed oppositions to the motions to dismiss on October 25, 2023, and defendants’ replies are due November 22, 2023.

Between December 16, 2021, and January 14, 2022, three related shareholder derivative lawsuits were filed in the U.S. District Court for the Western District of New York (Lee v. Anderson et al. (No. 21-cv-06744-CJS), Révész v. Anderson et al. (No. 22-cv-06012-CJS), and Shorab v. Anderson et al. (No. 22-cv-06023-CJS)). These three lawsuits have been consolidated under the caption In re Hyzon Motors Inc. Derivative Litigation (Case No. 6:21-cv-06744-CJS). On February 2, 2022, a similar stockholder derivative lawsuit was filed in the U.S. District Court for the District of Delaware (Yellets v. Gu et al. (No. 22-cv-00156)). On February 3, 2022, a similar shareholder derivative lawsuit was filed in the Supreme Court of the State of New York, Kings County (Ruddiman v. Anderson et al. (No. 503402/2022)). On February 13, 2023, a similar stockholder derivative lawsuit was filed in the Delaware Court of Chancery (Kelley v. Knight et al. (C.A. No. 2023-0173)). These lawsuits name as defendants certain of the Company’s current and former directors and certain former directors of DCRB, along with the Company as a nominal defendant, and generally allege that the individual defendants breached their fiduciary duties by making or failing to prevent the misrepresentations alleged in the consolidated securities class action, and assert claims for violations of federal securities laws, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and/or waste of corporate assets. These lawsuits generally seek equitable relief and monetary damages. Each of the shareholder derivative actions has been stayed or the parties have jointly requested that the actions be stayed pending a decision regarding the anticipated motion to dismiss in the consolidated securities class action.

On March 18, 2022, a putative class action complaint, Malork v. Anderson et al. (C.A. No. 2022-0260- KSJM), was filed in the Delaware Court of Chancery against certain officers and directors of DCRB, DCRB’s sponsor, and certain investors in DCRB’s sponsor, alleging that the director defendants and controlling stockholders of DCRB’s sponsor breached their fiduciary duties in connection with the merger between DCRB and Legacy Hyzon. The complaint seeks equitable relief and monetary damages. On May 26, 2022, the defendants in this case moved to dismiss the complaint. On August 2, 2022, the plaintiff filed an amended complaint. Defendants filed a motion to dismiss the amended complaint on August 15, 2022. Briefing on the motion to dismiss is now complete, and oral argument occurred on April 21, 2023. On July 17, 2023, the Delaware Court of Chancery denied the defendants’ motion to dismiss the complaint.

Between January 26, 2022 and August 22, 2022, Hyzon received demands for books and records pursuant to Section 220 of the Delaware General Corporation Law from four stockholders who state they are investigating whether to file similar derivative or stockholder lawsuits, among other purposes. On May 31, 2022, one of these four stockholders represented that he had concluded his investigation and did not intend to file a complaint. On November 18, 2022, a second of the four stockholders filed a lawsuit in the Delaware Court of Chancery (Abu Ghazaleh v. Decarbonization Plus Acquisition Sponsor, LLC et al. (C.A. No. 2022-1050)), which was voluntarily dismissed shortly thereafter on December 1, 2022. On February 13, 2023, a third of these four stockholders filed a derivative lawsuit in the Delaware Court of Chancery (Kelley v. Knight et al. (C.A. No. 2023-0173)). The complaint asserts claims for breach of fiduciary duty and generally alleges that the individual defendants breached their fiduciary duties by making or failing to prevent misrepresentations including those alleged in the consolidated securities class action and the report released by Blue Orca Capital. As with the previously filed stockholders derivative lawsuits, the complaint seeks equitable relief and monetary damages. On April 17, 2023, the Court entered an order staying this action pending a decision on the anticipated motion to dismiss in the consolidated securities class action.

On April 18, 2023, the Company received a demand for books and records pursuant to Section 220 of the Delaware General Corporation Law from a stockholder seeking to investigate possible breaches of fiduciary duty or other misconduct or wrongdoing by the Company's controlling stockholder, Hymas Pte. Ltd. ("Hymas"), Hyzon's Board of Directors (the "Board") and/or certain members of Hyzon's senior management team in connection with the Company's entrance into (i) an equity transfer agreement (the "Equity Transfer") with certain entities affiliated with the Company, and (ii) the share buyback agreement with the Hymas (the "Share Buyback" and, together with the Equity Transfer, the "Transactions") as reported by the Company in its Form 8-K filed on December 28, 2022.

The above proceedings are subject to uncertainties inherent in the litigation process. The Company cannot predict the outcome of these matters or estimate the possible loss or range of possible loss, if any at this time.

Government Investigations

On January 12, 2022, the Company announced it received a subpoena from the SEC for production of documents and information, including documents and information related to the allegations made in the September 28, 2021 report issued by Blue Orca Capital. The Company received two additional subpoenas in connection with the SEC’s investigation on August 5, 2022 and August 10, 2022. On October 31, 2022, the U.S. Attorney’s Office for the Southern District of New York (“SDNY”) notified the Company that it was also investigating these matters.

On September 26, 2023, the Company announced a final resolution, subject to court approval, of the SEC’s investigation. On that date, the SEC filed a complaint in the U.S. District Court for the Western District of New York naming the Company, Craig Knight, the Company’s former Chief Executive Officer and a former director, and Max C.B. Holthausen, a former managing director of the Company’s European subsidiary, Hyzon Motors Europe B.V., as defendants. Without admitting or denying the allegations in the SEC’s complaint, the Company consented to the entry of a final judgment, subject to court approval, that would permanently restrain and enjoin the Company from violating certain sections of and rules under the Exchange Act and the Securities Act, and would require the Company to pay a civil penalty of $25.0 million as follows: $8.5 million within 30 days of entry of the final judgment; (2) $8.5 million by December 31, 2024; and (3) $8.0 million within 730 days of entry of the final judgment. Mr. Knight and Mr. Holthausen also separately consented to the entry of final judgments, subject to court approval, resolving the SEC’s allegations.

Delaware Court of Chancery Section 205

On February 13, 2023, the Company filed a petition under the caption In re Hyzon Motors Inc., C.A. No. 2023-0177-LWW (Del. Ch) in the Delaware Court of Chancery pursuant to Section 205 of the Delaware General Corporation Law (“DGCL”), which permits the Court of Chancery, in its discretion, to validate potentially defective corporate acts due to developments regarding potential interpretations of the DGCL stemming from the Court’s recent decision in Garfield v. Boxed, Inc., 2022 WL 17959766 (Del. Ch. Dec. 27, 2022). On March 6, 2023, the Court of Chancery granted our petition, holding that any defects that may have existed with respect to the conduct of the Special Meeting of Shareholders held on July 15, 2021, to approve the increase in the Company’s authorized share capital were ratified as of the meeting.

The Company continues to believe that, notwithstanding the relief the Delaware Court of Chancery granted to the Company under Section 205, at the time of DCRB Shareholder Meeting on July 16, 2021, the increase in the Company’s authorized share capital was validly approved by DCRB’s shareholders under Delaware law.

Customer and Supplier Disputes

From time to time, the Company is subject to various commercial disputes or claims with its customers or suppliers. In January 2023, Duurzaam Transport B.V. and H2 Transport B.V., both private limited companies in the Netherlands and customers of the Company’s European subsidiary, Hyzon Europe, filed an attachment with the local Dutch court. The initial attachment claimed that Hyzon Europe was liable for liquidated and consequential damages stemming from Hyzon Europe allegedly not delivering trucks as contracted. The initial attachment placed a lien on the assets of Hyzon Europe. Following the attachments, Duurzaam Transport B.V. and H2 Transport B.V. initiated proceedings on the merits in February 2023. The dispute was settled without any party admitting liability, and the Company made a payment of €2.1 million (approximately $2.3 million in USD) in April 2023, which was recorded in Accrued liabilities in the Consolidated Balance Sheets as of December 31, 2022.

On July 28, 2023, Worthington Industries Poland SP.Z.O.O, a Hyzon Europe supplier, filed a complaint in the Amsterdam District Court in the Netherlands, against Hyzon Europe for breach of contract and obtained an attachment covering Hyzon Europe’s bank accounts. The complaint seeks damages from Hyzon Europe totaling €4.6 million (approximately $4.9 million in USD). The Company intends to vigorously defend itself against this claim.

Regardless of outcome, such proceedings or claims can have an adverse impact on the Company because of legal defense and settlement costs, the Company’s obligations to indemnify third parties, diversion of resources, and other factors, and there can be no assurances that favorable outcomes will be obtained. Based on the early-stage nature of these cases, the Company cannot predict the outcome of these currently outstanding customer and supplier dispute matters or estimate the possible loss or range of possible loss, if any.


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Note 14. Stock-based Compensation Plans

The following table summarizes the Company’s stock option, Restricted Stock Units (“RSUs”) and Performance Stock Units (“PSUs”) activity:

Stock OptionsRSUs PSUs
Number of OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual (Years)Aggregate Intrinsic Value (in 000s)Number of RSUsWeighted Average Grant Date Fair ValueNumber of PSUsWeighted Average Grant Date Fair Value
Outstanding at December 31, 202219,536,904 $1.51 12.005,972 6,268,193 $2.81  $ 
Granted1,261,130 $1.37 — — 7,567,847 $0.97 2,969,375 $0.98 
Exercised or released(16,000)$1.13 — — (630,420)$3.08  $ 
Forfeited/Cancelled(5,934,298)$2.26 — — (1,274,518)$2.98  $ 
Outstanding at September 30, 2023
14,847,736 $1.22 10.58 11,931,102 $1.61 2,969,375 $0.98 
Vested and expected to vest, September 30, 202314,847,736 $1.22 10.58 11,931,102 $1.61 2,969,375 $0.98 
Exercisable and vested at September 30, 202312,839,987 $1.19 11.39 — — — — 

As of September 30, 2023, there was $1.0 million of unrecognized stock-based compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.84 years.

RSUs granted under the Company’s equity incentive plans typically vest over one to four-year period beginning on the date of grant. RSUs will be settled through the issuance of an equivalent number of shares of the Company’s common stock and are equity classified.

In 2023, the Company granted PSUs to certain members of management, which vest over a three-year period beginning on the date of grant. Subject to the achievement of performance goals during a performance period outlined by the Compensation Committee of the Board of Directors, upon vesting, the PSUs are exchanged for a number of shares of common stock equal to the target number of PSUs multiplied by a factor between 0% and 150%. The actual number of units that ultimately vest may equal, exceed, or be less than the targeted number of shares based on the level of achievement of performance goals over the performance period and continued employment with the Company. Performance goals are based on a combination of internal company, functional and individual employee performance metrics. The Company adjusts the expense recognized based on the likelihood of future achievement of the performance metric. If the performance metrics are not achieved by the outlined performance period, the awards are forfeited.

The total fair value of RSUs and PSUs is determined based upon the stock price on the date of grant. As of September 30, 2023, unrecognized compensation costs related to unvested RSUs of $15.0 million is expected to be recognized over a remaining weighted average period of 2.48 years. As of September 30, 2023, unrecognized compensation costs related to unvested PSUs of $2.6 million is expected to be recognized over a remaining weighted average period of 2.63 years.

Earnout to Other Equity Holders

Certain earnout awards to other equity holders accounted for under ASC 718, Compensation - Stock Compensation were vested at the time of grant, and therefore recognized immediately as compensation expense, and certain earnout awards vest over future periods. Total compensation expense related to these awards was negligible and $0.1 million for the three and nine months ended September 30, 2023, respectively. Total compensation expense/(benefit) related to these awards was $(0.1) million and $0.8 million for the three and nine months ended and September 30, 2022, respectively. Certain earnout awards to other equity holders contained performance and market-based vesting conditions, and as the performance conditions are not deemed probable at September 30, 2023, no compensation expense has been recorded related to these awards.

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Note 15. Stockholders' Equity

Common Stock

The Company is authorized to issue 400,000,000 shares of common stock with a par value of $0.0001 per share. Holders of Class A common stock are entitled to one vote for each share. At September 30, 2023 and December 31, 2022, there were 244,998,491 and 244,509,208 shares of Class A common stock issued and outstanding, respectively.

Warrants

At September 30, 2023 and December 31, 2022, there were 11,013,665 Public Warrants and 8,014,500 Private Placement Warrants, for a total of 19,028,165 warrants outstanding. At September 30, 2023 and December 31, 2022, there were 170,048 Ardour Warrants outstanding.

Note 16. Related Party Transactions

Horizon IP Agreement

In January 2021, the Company entered into an 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 subsidiaries of the Company’s ultimate parent, Horizon. In September 2021, Jiangsu Horizon Powertrain Technologies Co. Ltd. (“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 was to pay JS Horizon and JS Powertrain a total fixed payment of $10.0 million. The full $10.0 million has been paid, $6.9 million was paid in 2021 and the remaining $3.1 million was paid in February 2022.

Hyzon Motors USA Inc., a subsidiary of the Company, entered into a Second Amendment (the “Second Amendment”) to the Horizon IP Agreement. The Second Amendment is effective September 22, 2023. Under the terms of the Second Amendment, the parties have agreed to certain amendments to the Horizon IP Agreement pertaining to their rights in and to hydrogen fuel cell intellectual property. The parties have also agreed to a term for the Horizon IP Agreement that shall expire on the seven-year anniversary of the effective date of the Second Amendment.

Related Party Payables and Receivables

Horizon Fuel Cell Technologies and Related Subsidiaries

In prior periods, the Company made deposit payments to Horizon and its subsidiaries to secure fuel cell components. As of September 30, 2023, the deposit balance was $4.1 million and included within Prepaid expenses and other current assets in the unaudited interim Consolidated Balance Sheet. The Company has cancelled certain orders that were previously made against this deposit balance, and the parties are currently in negotiations as to the resolution of this order cancellation matter and the settlement of the deposit balance. The Company has determined that the recovery of this deposit balance represents a contingency. The Company can not estimate the possible loss or range of possible loss, if any, at this time based on the current status of the negotiations.

Certain employees of Horizon and its subsidiaries provide research and development, staff training, and administrative 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 $0.4 million and $0.9 million in the Company’s unaudited interim Consolidated Statements of Operations and Comprehensive Income (Loss) related to such services for the three and nine months ended September 30, 2022, respectively. There were no such activities for the three and nine months ended September 30, 2023.

As of September 30, 2023, the related party payable, net to Horizon and its subsidiaries is $0.1 million. The related party receivable, net from Horizon and its subsidiaries was $6.1 million as of December 31, 2022. The related party receivable, net at December 31, 2022 primarily relates to the divestiture of Hyzon Motors Technology (Guangdong) Co., Ltd. (“Hyzon Guangdong”), which was subsequently renamed to Guangdong Qingyun Technology Co. Ltd. (“Guangdong Qingyun”). In April 2023, the Company received $6.4 million to settle the related party receivable associated with the divestiture of Hyzon Guangdong.

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Note 17. Income (Loss) per share

The following table presents the information used in the calculation of the Company’s basic and diluted net income (loss) per share attributable to Hyzon common stockholders (in thousands, except per share data):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Net income (loss) attributable to Hyzon$(44,054)$(24,795)$(134,550)$10,681 
Weighted average shares outstanding:
Basic244,885 248,164 244,686 248,054 
Effect of dilutive securities   9,774 
Diluted