goev-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________________

FORM 10-Q

___________________________________________________

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

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

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

EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 001-38824

___________________________________________________

CANOO INC.

(Exact name of registrant as specified in its charter)

___________________________________________________


Delaware			83-1476189
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

19951 Mariner Avenue, Torrance, California			90503
(Address of Principal Executive Offices)			(Zip code)

(424) 271-2144

(Registrant’s telephone number, including area code)

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

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, $0.0001 par value per share

GOEV

The Nasdaq Global Select Market

Warrants, each whole warrant exercisable for one share of common stock at an exercise price of $11.50 per share

GOEVW

The Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of May 3, 2022, there were 240,414,269 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.

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TABLE OF CONTENTS


		Page

Part I	Financial Information

Item 1.	Financial Statements (Unaudited)	6

	Condensed Consolidated Balance Sheets	6

	Condensed Consolidated Statements of Operations	7

	Condensed Consolidated Statements of Stockholders’ Equity	8

	Condensed Consolidated Statements of Cash Flows	10

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29

Item 4.	Controls and Procedures	29

Part II	Other Information

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	34

Signatures		35

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. All statements, other than statements of present or historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of such terms or other similar expressions. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control.

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

•Our management has performed an analysis of our ability to continue as a going concern and has identified substantial doubt about our ability to continue as a going concern.

•Our business plans require a significant amount of capital. If we are unable to obtain sufficient funding or do not have access to capital, we will be unable to execute our business plans and could be required to terminate or significantly curtail our operations and our prospects, financial condition and results of operations could be materially adversely affected.

•We are an early stage company with a history of losses and expect to incur significant expenses and continuing losses for the foreseeable future.

•We may be unable to adequately control the costs associated with our operations.

•If we fail to successfully build and tool our manufacturing facilities or if our manufacturing facilities become inoperable, we will be unable to produce our vehicles and our business will be harmed.

•We may not be able to realize the non-dilutive financial incentives offered by the States of Oklahoma and Arkansas where we will develop our own manufacturing facilities.

•Developing our own manufacturing facilities for production of our EVs could increase our capital expenditures and delay or inhibit production of our EVs.

•We have not achieved positive operating cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain.

•Our financial results may vary significantly from period to period due to fluctuations in our operating costs, product demand and other factors.

•Our limited operating history makes evaluating our business and future prospects difficult and increases the risk of your investment.

•We previously identified material weaknesses in our internal control over financial reporting. Although the weaknesses previously identified have been remediated, if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price.

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•If we fail to manage our growth effectively, we may not be able to design, develop, manufacture, market and launch our EVs successfully.

•We are highly dependent on the services of our key employees and senior management and, if we are unable to attract and retain key employees and hire qualified management, technical and EV engineering personnel, our ability to compete could be harmed.

•We face significant barriers to manufacture and bring our EVs to market, and if we cannot successfully overcome those barriers our business will be negatively impacted.

•Our ability to develop and manufacture EVs of sufficient quality and appeal to customers on schedule and on a large scale is unproven and still evolving.

•We have no experience to date in high volume manufacture of our EVs.

•We will depend initially on revenue generated from a single EV model and in the foreseeable future will be significantly dependent on a limited number of models.

•There is no guarantee that we will be able to develop our software platform, Canoo Digital Ecosystem, or that if we are able to develop it, that we will obtain the revenue and other benefits we expect from it.

•We may fail to attract new customers in sufficient numbers or at sufficient rates or at all or to retain existing customers, if any, and may face risks if we are dependent on a small number of customers for a significant portion of our revenues.

•If our EVs fail to perform as expected, our ability to develop, market and deploy our EVs could be harmed.

•Our distribution model may expose us to risk and if unsuccessful may impact our business prospects and results of operations.

•We may experience significant delays in the design, production and launch of our EVs, which could harm our business, prospects, financial condition and operating results.

•Increases in costs, disruption of supply or shortage of raw materials and other components used in our vehicles, in particular lithium-ion battery cells, could harm our business.

•We depend upon third parties to manufacture and to supply key components and services necessary for our vehicles. We do not have long-term agreements with all of our manufacturers and suppliers, and if these manufacturers or suppliers become unwilling or unable to provide these key components and services we would not be able to find alternative sources in a timely manner and our business would be adversely impacted.

•We are or may be subject to risks associated with strategic alliances or acquisitions and may not be able to identify adequate strategic relationship opportunities, or form strategic relationships, in the future.

•Our EVs are based on the use of complex and novel steer-by-wire technology that is unproven on a wide commercial scale and rely on software and hardware that is highly technical, and if these systems contain errors, bugs or vulnerabilities, or if we are unsuccessful in addressing or mitigating technical limitations in our systems, our business could be adversely affected.

•We are subject to cybersecurity risks to our operational systems, security systems, infrastructure, integrated software in our EVs and customer data processed by us or third-party vendors.

•We face legal, regulatory and legislative uncertainty in how our go-to-market models will be interpreted under existing and future law, including the potential inability to protect our intellectual property rights, and we may be required to adjust our consumer business model in certain jurisdictions as a result.

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•The automotive market is highly competitive and technological developments by our competitors may adversely affect the demand for our EVs and our competitiveness in this industry.

•Economic, regulatory, political and other events, such as the rise in interest rates, heightened inflation, issues with supply chain, shortage of labor and the war in Ukraine, may adversely affect our financial results.

Importantly, the summary above does not address all the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized herein, as well as other risks and uncertainties that we face, can be found under Part II, Item IA, “Risk Factors” in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022. The above summary is qualified in its entirety by those more complete discussions of such risks and uncertainties. Given such risks and uncertainties, you should not place undue reliance on forward-looking statements.

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

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

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

•“Business Combination” refers to the Company’s merger consummated on December 21, 2020, pursuant to that certain Merger Agreement and Plan of Reorganization, dated August 17, 2020, by and among HCAC, HCAC IV First Merger Sub, Ltd., an exempted company incorporated with limited liability in the Cayman Islands and a direct, wholly owned subsidiary of HCAC, EV Global Holdco LLC (f/k/a HCAC IV Second Merger Sub, LLC), a Delaware limited liability company and a direct, wholly owned subsidiary of HCAC, and Canoo Holdings Ltd., an exempted company incorporated with limited liability in the Cayman Islands.

•“common stock” are to our common stock, $0.0001 par value per share;

•“Company,” “our Company” “we” or “us” are to Canoo Inc. following completion of the Business Combination in December 2020;

•“HCAC” means the special purpose acquisition company, Hennessy Capital Acquisition Corp. IV;

•“Legacy Canoo” means Canoo Holdings Ltd. prior to completion of the Business Combination in December 2020;

•“management” or our “management team” are to our officers and directors;

•“private placement warrants” are to warrants sold to certain initial purchasers as part of the private placement that occurred simultaneously with the completion of HCAC’s initial public offering, which are not-redeemable so long as they are held by the initial purchasers of the warrants or their permitted transferees; and

•“public warrants” are to our redeemable warrants sold as part of the units in HCAC’s initial public offering (whether they were purchased in our initial public offering or thereafter in the open market) and to any private placement warrants that are sold to third parties that are not initial purchasers of the warrants or their permitted transferees or otherwise voluntarily converted by their holder.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CANOO INC.


Condensed Consolidated Balance Sheets (in thousands, except par values) (unaudited)


	March 31, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	104,926	$	224,721
Restricted cash, current	3,448		2,771
Prepaids and other current assets	34,373		63,814
Total current assets	142,747		291,306
Property and equipment, net	223,715		202,314
Restricted cash, non-current	10,250		—
Operating lease right-of-use assets	26,847		14,228
Other assets	16,402		15,226
Total assets	$	419,961	$	523,074

Liabilities and stockholders' equity
Liabilities
Current liabilities
Accounts payable	$	80,930	$	52,267
Accrued expenses and other current liabilities	51,972		83,925
Total current liabilities	132,902		136,192
Contingent earnout shares liability	13,592		29,057
Operating lease liabilities	25,758		13,826


Total liabilities	172,252		179,075

Commitments and contingencies (Note 7)

Stockholders’ equity
Preferred stock, $0.0001 par value; 10,000 authorized, no shares issued and outstanding at March 31, 2022 and December 31, 2021	—		—
Common stock, $0.0001 par value; 500,000 authorized; 239,858 and 238,578 issued and outstanding at March 31, 2022 and December 31, 2021, respectively	24		24
Additional paid-in capital	1,065,181		1,036,104
Accumulated deficit	(817,496)		(692,129)
Total stockholders’ equity	247,709		343,999
Total liabilities and stockholders’ equity	$	419,961	$	523,074

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

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CANOO INC.


Condensed Consolidated Statements of Operations (in thousands, except per share values) Three Months Ended March 31, 2022 and 2021 (unaudited)


	Three months ended March 31,
	2022		2021

Revenue	$	—	$	—

Costs and Operating Expenses
Cost of revenue, excluding depreciation	—		—
Research and development expenses, excluding depreciation	82,487		39,319
Selling, general and administrative expenses, excluding depreciation	55,621		55,627
Depreciation	2,678		2,124
Total costs and operating expenses	140,786		97,070
Loss from operations	(140,786)		(97,070)

Other (expense) income
Interest (expense) income	(29)		11
Gain on fair value change in contingent earnout shares liability	15,465		83,560
Loss on fair value change in private placement warrants liability	—		(1,639)
Other (expense), net	(17)		(89)
Loss before income taxes	(125,367)		(15,227)
Provision for income taxes	—		—
Net loss and comprehensive loss	$	(125,367)	$	(15,227)

Per Share Data:
Net loss per share, basic and diluted	$	(0.54)	$	(0.07)

Weighted-average shares outstanding, basic and diluted	233,661		224,795

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

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CANOO INC.


Condensed Consolidated Statement of Stockholders’ Equity (in thousands) Three Months Ended March 31, 2022 (unaudited)


	Common stock			Additional paid-in capital		Accumulated deficit		Total stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2021	238,578	$	24	$	1,036,104	$	(692,129)	$	343,999

Repurchase of unvested shares – forfeitures	(296)	—		(3)		—		(3)
Issuance of shares for restricted stock units vested	584	—		—		—		—
Issuance of shares upon exercise of vested stock options	20	—		—		—		—
Purchase of shares and warrants by VDL Nedcar	972	—		8,400		—		8,400
Stock-based compensation	—	—		20,680		—		20,680
Net loss and comprehensive loss	—	—				(125,367)		(125,367)
Balance as of March 31, 2022	239,858	$	24	$	1,065,181	$	(817,496)	$	247,709

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

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CANOO INC.


Condensed Consolidated Statement of Stockholders’ Equity (in thousands) Three Months Ended March 31, 2021 (unaudited)


	Common stock				Additional paid-in capital		Accumulated deficit		Total stockholders’ equity
	Shares		Amount
Balance as of December 31, 2020	235,753		$	24	$	910,579	$	(345,361)	$	565,242
Proceeds from exercise of public warrants	597		—		6,867		—		6,867
Repurchase of unvested shares – forfeitures	(118)		—		(2)		—		(2)
Issuance of shares for restricted stock units vested	1,230		—		—		—		—
Issuance of shares upon exercise of vested stock options	37		—		—		—		—
Stock-based compensation	—		—		45,146		—		45,146
Conversion of private placement warrants to public warrants	—	—	—		8,252		—		8,252
Net loss and comprehensive loss	—		—		—		(15,227)		(15,227)
Balance as of March 31, 2021	237,499		$	24	$	970,842	$	(360,588)	$	610,278

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

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CANOO INC.


Condensed Consolidated Statements of Cash Flows (in thousands) Three Months Ended March 31, 2022 and 2021 (unaudited)


	Three months ended March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(125,367)	$	(15,227)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	2,678		2,124
Non-cash operating lease expense	439		(584)
Stock-based compensation	20,680		45,146
Gain on fair value in contingent earnout shares liability	(15,465)		(83,560)
Loss on fair value change in private placement warrants liability	—		1,639
Changes in operating assets and liabilities:
Prepaids and other current assets	(998)		(9,176)
Other assets	(1,176)		253
Accounts payable, accrued expenses and other current liabilities	(1,128)		5,366
Other long-term liabilities	—		71
Net cash used in operating activities	(120,337)		(53,948)

Cash flows from investing activities:
Purchases of property and equipment	(28,442)		(12,108)
Return of prepayment to VDL Nedcar	30,440		—
Net cash provided by (used in) investing activities	1,998		(12,108)

Cash flows from financing activities:
Proceeds from exercise of public warrants	—		6,867
Withholding for employee stock purchase plan	1,174		—
Repurchase of unvested shares	(3)		(2)
Payment of offering costs	(100)		(1,306)
Proceeds from the purchase of shares and warrants by VDL Nedcar	8,400		—
Net cash provided by financing activities	9,471		5,559
Net decrease in cash, cash equivalents, and restricted cash	(108,868)		(60,497)

Cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash, beginning of period	227,492		702,422
Cash, cash equivalents, and restricted cash, end of period	$	118,624	$	641,925

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents at end of period	$	104,926	$	641,925
Restricted cash, current at end of period	3,448		—
Restricted cash, non-current at end of period	$	10,250	$	—
Total cash, cash equivalents, and restricted cash at end of period shown in the condensed consolidated statements of cash flows	$	118,624	$	641,925

Supplemental non-cash investing and financing activities
Acquisition of property and equipment included in current liabilities	$	48,149	$	8,189
Offering costs included in current liabilities	$	982	$	12,001
Recognition of operating lease right-of-use asset	$	13,058	$	1,171
Conversion of private placement warrants to public warrants	$	—	$	8,252

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

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CANOO INC.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, unless otherwise stated) (unaudited)

1. Organization and Business

Canoo Inc. (“Canoo” or the “Company”) is a mobility technology company with a mission to bring EVs to everyone. We have developed a breakthrough EV platform that we believe will enable us to rapidly innovate, and bring new products addressing multiple use cases to market faster than our competition and at a lower cost.

Recent Developments

On February 17, 2022, the Company executed a settlement agreement under which VDL Nedcar B.V. ("VDL Nedcar") agreed to refund the prepayment of $30.4 million to the Company in relation to the termination of the vehicle contract manufacturing term sheet and to purchase, indirectly through its related company Tessa Beheer B.V., 972,222 shares of Common Stock at the market price as of December, 14 2021 for an aggregate purchase price equal to $8.4 million and one warrant to purchase in the aggregate up to 972,222 shares of Common Stock at exercise prices ranging from $18 to $40 per share. On February 23, 2022, the Company received the prepayment in full, which is included within cash flows from investing activities in the accompanying condensed consolidated statement of cash flows for the three months ended March 31, 2022. In addition, on February 22, 2022, we received the $8.4 million in consideration for the shares and the warrant.

2. Basis of Presentation and Summary of Significant Accounting Policies

These unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by GAAP have been omitted if they substantially duplicate the disclosures contained in the Company’s annual audited consolidated financial statements. Accordingly, the unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related notes as of and for the year ended December 31, 2021, included in the Company's Annual Report on Form 10-K (“Annual Report on Form 10-K”). Results of operations reported for interim periods are not necessarily indicative of results for the entire year. In the opinion of management, the Company has made all adjustments necessary to present fairly its condensed consolidated financial statements for the periods presented. Such adjustments are of a normal, recurring nature. The Company’s financial statements have been prepared under the assumption that the Company will continue as a going concern, which contemplates the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future.

The accompanying unaudited condensed consolidated financial statements include the results of the Company and its subsidiaries. The Company’s comprehensive loss is the same as its net loss.

Except for any updates below, no material changes have occurred with respect to the Company’s significant accounting policies disclosed in Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K.

Liquidity and Capital Resources

As of March 31, 2022, the Company’s principal source of liquidity is its unrestricted cash balance in the amount of $104.9 million. The Company has incurred losses since inception and had negative cash flow from operating activities of $120.3 million for the three months ended March 31, 2022. The Company expects to continue to incur net losses and negative cash flows from operating activities in accordance with its operating plan and expects that both capital and operating expenditures will increase significantly in connection with its ongoing activities. As previously disclosed in our 2021 Form 10-K, management planned to raise additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing and to the extent unsuccessful at doing so, management had the intent and ability to use its discretion to delay, scale back, or abandon future expenditures. As of the date of the filing of this Form 10-Q, securing additional financing is in progress, as discussed in Note 14, and as such management has delayed taking actions to delay, scale back, or abandon future expenditures. As such, management’s actions to preserve an adequate level of liquidity for a period extending twelve months from the date of the filing of this Form 10-Q are no longer sufficient on their own

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without additional financing, to mitigate the conditions raising substantial doubt about the Company’s ability to continue as a going concern.

As an early-stage growth company, the Company’s ability to access capital is critical. Although management continues to explore raising additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing to supplement the Company’s capitalization and liquidity, management cannot conclude as of the date of this filing that its plans are probable of being successfully implemented. The condensed consolidated interim financial information does not include any adjustments that might result from the outcome of this uncertainty.

We believe substantial doubt exists about the Company’s ability to continue as a going concern for twelve months from the date of issuance of our financial statements.

COVID-19

Virus variants, infection rates and regulations continue to fluctuate in various regions of the world and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains and intermittent supplier delays. As a result of COVID-19, the Company has previously been affected by temporary facility closures, employment and compensation adjustments, and impediments to administrative activities supporting its product research and development.

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

Fair Value of Financial Instruments

The Company applies the provisions of ASC 820, Fair Value Measurements and Disclosures, which provides a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. Fair value represents the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses the following hierarchy in measuring the fair value of the Company’s assets and liabilities, focusing on the most observable inputs when available:

•Level 1 Quoted prices in active markets for identical assets or liabilities.

•Level 2 Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3 Valuations are based on inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The following table summarizes the Company’s assets and liabilities that are measured at fair value

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on a recurring basis as required by ASC 820, by level, within the fair value hierarchy as of March 31, 2022 and December 31, 2021 (in thousands):


	March 31, 2022
	Fair Value		Level 1		Level 2		Level 3
Assets
Money Market Funds	$	118,624	$	118,624	$	—	$	—

Liability
Contingent earnout shares liability	$	13,592	$	—	$	—	$	13,592


	December 31, 2021
	Fair Value		Level 1		Level 2		Level 3
Assets
Money Market Funds	$	227,492	$	227,492	$	—	$	—

Liability
Contingent earnout shares liability	$	29,057	$	—	$	—	$	29,057

The Company has a contingent obligation to issue 15.0 million shares of the Company’s common stock to certain stockholders and employees upon the achievement of certain market share price milestones within specified periods (the “Earnout Shares”). Upon the occurrence of a bankruptcy or liquidation, any unissued Earnout Shares would be fully issued regardless of whether the share price target has been met.

The Earnout Shares are accounted for as a contingent liability and its fair value is determined using Level 3 inputs, since estimating the fair value of this contingent liability requires the use of significant and subjective inputs that may and are likely to change over the duration of the liability with related changes in internal and external market factors. The tranches were valued using the Monte Carlo simulation of the stock prices based on historical and implied market volatility of the Company and a peer group of public companies.

Following is a summary of the change in fair value of contingent earnout shares liability for the three months ended March 31, 2022 (in thousands).

Earnout Shares Liability


Beginning fair value at December 31, 2021	$	29,057
Change in fair value during the period	(15,465)
Ending fair value at March 31, 2022	$	13,592

3. Recent Accounting Pronouncements

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

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

Recently Issued Accounting Pronouncements Adopted

In August 2020, the FASB issued ASU No. 2020-06 Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40). The objective of the amendments in this ASU is to address issues identified as a result of the complexity associated with applying GAAP for

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certain financial instruments with characteristics of liabilities and equity. The amendments in this ASU reduce the number of accounting models for convertible debt instruments and redeemable convertible preference shares. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods therein. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted the new standard during the three months ended March 31, 2022. The adoption of the new standard did not have a material impact to our condensed consolidated financial statements.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options ("ASU No. 2021-04"). This ASU provides a principles-based framework for issuers to account for a modification or exchange of freestanding equity-classified written call options. The provisions of the ASU are effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the new standard during the three months ended March 31, 2022. The adoption of the new standard did not have a material impact to our condensed consolidated financial statements.

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which amends the guidance on accounting for government assistance and requires business entities to disclose information about certain government assistance they receive. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The amendments are effective for fiscal years beginning after December 15, 2021, and only impacts annual financial statement footnote disclosures. The Company adopted the new standard during the three months ended March 31, 2022, and the impact of our government assistance transactions within the scope of this standard will be included within our annual financial statement footnote disclosures for year ended December 31, 2022.

4. Prepaids and other current assets

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


	March 31, 2022		December 31, 2021
Receivable from VDL Nedcar	$	—	$	30,440
Deferred battery supplier cost	18,300		18,300
Short term deposits	4,325		7,030
Prepaid expense	11,186		4,865
Other current assets	562		3,179
Prepaids and other current assets	$	34,373	$	63,814

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5. Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):


	March 31, 2022		December 31, 2021
Machinery and equipment	$	21,184	$	18,040
Computer hardware	7,313		6,161
Computer software	7,955		7,837
Vehicles	325		267
Furniture and fixtures	742		742
Leasehold improvements	14,939		14,939
Construction-in-progress	195,769		176,162
	248,227		224,148
Less: Accumulated depreciation	(24,512)		(21,834)
Property and equipment, net	$	223,715	$	202,314

Construction-in-progress is primarily related to the development of manufacturing lines as well as equipment and tooling necessary in the production of the Company’s vehicles. Completed tooling assets will be transferred to their respective asset classes and depreciation will begin when an asset is ready for its intended use. As of March 31, 2022, manufacturing has not begun and therefore no depreciation on construction-in-progress has been recognized to date.

Depreciation expense for property and equipment was $2.7 million and $2.1 million for the three months ended March 31, 2022 and 2021, respectively.

6. Accrued Expenses and Other Current Liabilities

Accrued expenses consisted of the following (in thousands):


	March 31, 2022		December 31, 2021
Accrued property and equipment purchases	$	9,859	$	34,375
Accrued research and development costs	18,716		23,994
Accrued professional fees	13,747		9,239
Accrued battery supplier costs	—		10,000
Other accrued expenses	9,650

SEC Form 10-Q filed by Canoo Inc.