UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

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

EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38824

Canoo Inc.

(Exact name of registrant as specified in its charter)


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

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

(424) 271-2144

(Registrant’s telephone number, including area code)

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


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.0001 par value per share	GOEV	The Nasdaq Global Select Market
Warrants, each whole warrant exercisable for one share of common stock at an exercise price of $11.50 per share	GOEVW	The Nasdaq Global Select Market

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

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

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

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



Large accelerated filer	◻	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒	Emerging growth company	☒

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

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

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

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TABLE OF CONTENTS


		Page

Part I	Financial Information

Item 1.	Financial Statements (Unaudited)	7

	Condensed Consolidated Balance Sheets	7

	Condensed Consolidated Statements of Operations	8

	Condensed Consolidated Statements of Stockholders’ Equity (Deficit)	9

	Condensed Consolidated Statements of Cash Flows	11

	Notes to Condensed Consolidated Financial Statements	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35

Item 4.	Controls and Procedures	35

Part II	Other Information

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	41

Signatures		42

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Cautionary Note Regarding Forward-Looking Statements

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

Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about:

●

our ability to recognize the anticipated benefits of the business combination and proceeds from the concurrent private placement, which may be affected by, among other things, competition and the ability of the combined business to grow and manage growth profitably;

●

our financial and business performance, including financial projections and business metrics and any underlying assumptions thereunder;

●

changes in our strategy, future operations, financial position, estimated revenue and losses, projected costs, prospects and plans;

●

our product development timeline and expected start of production;

●

our manufacturing strategy, including with respect to a contract manufacturing partner and developing our owned facilities;

●

the implementation, market acceptance and success of our business model;

●

our ability to scale in a cost-effective manner;

●

developments and projections relating to our competitors and industry;

●

the impact of health epidemics or pandemics, including the COVID-19 pandemic, on our business and the actions we may take in response thereto;

●

our expectations regarding our ability to obtain and maintain intellectual property protection and not infringe on the rights of others;

●

our future capital requirements and sources and uses of cash;

●

our ability to obtain funding for our future operations;

●

our business, expansion plans and opportunities; and

●

the outcome of any known and unknown litigation and regulatory proceedings.

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

●

We may be unable to develop, or may experience increases in our capital expenditure associated with or delays in the development of our own manufacturing facilities and in the design, production and launch of our EVs, which could harm our business, prospects, financial condition and operating results.

●

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

●

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

●

We have yet to achieve positive operating cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain.

●

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

●

Our business plans require a significant amount of capital. In addition, our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders’ equity or introduce covenants that may restrict our operations or our ability to pay dividends.

●

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

●

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

●

If we fail to manage our growth effectively, we may not be able to design, develop, manufacture, market and launch our electric vehicles ("EVs") successfully.

●

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

●

We have no experience to date in high volume manufacture of our EVs, and when we manufacture, we will be manufacturing at least in part with a contract manufacturing partner with whom we have not previously worked.

●

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

●

We may fail to attract new customers in sufficient numbers or at sufficient rates or at all or to retain existing customers.

●

Increases in costs, disruption of supply or shortage of materials, in particular for lithium-ion battery cells, could harm our business.

●

A consumer subscription model is different from the predominant current distribution model for automobile manufacturers, which makes evaluating the impact of a subscription model on our business, operating results

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and future prospects difficult. In addition, the novel approach of offering a subscription directly from an OEM may never achieve the level of market acceptance necessary to achieve profitability.

●

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

●

We face risks and uncertainties related to litigation, regulatory actions and government investigations and inquiries.

●

The automotive market is highly competitive, and we may not be successful in competing in this industry.

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

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

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

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

●

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

●

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

●

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

●

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

●

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

●

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

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●

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

●

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

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CANOO INC.

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


	September 30,		December 31,
	2021		2020
Assets
Current assets
Cash and cash equivalents	$	414,904	$	702,422
Restricted cash		1,410		—
Prepaids and other current assets		14,546		6,463
Total current assets		430,860		708,885
Property and equipment, net		140,867		30,426
Operating lease right-of-use assets		14,501		12,913
Other assets		28,319		1,246
Total assets	$	614,547	$	753,470

Liabilities and stockholders' equity
Liabilities
Current liabilities
Accounts payable	$	63,322	$	17,243
Accrued expenses and other current liabilities		43,388		10,625
Total current liabilities		106,710		27,868
Contingent earnout shares liability		32,337		133,503
Private placement warrants liability		—		6,613
Operating lease liabilities		14,032		13,262
Long-term debt		—		6,943
Other long-term liabilities		—		39
Total liabilities		153,079		188,228

Commitments and contingencies (Note 8)

Stockholders’ equity
Preferred stock, $0.0001 par value; 10,000 authorized, no shares issued and outstanding at September 30, 2021 and December 31, 2020		—		—
Common stock, $0.0001 par value; 500,000 authorized; 237,603 and 235,753 issued and outstanding at September 30, 2021 and December 31, 2020, respectively		24		24
Additional paid-in capital		1,015,461		910,579
Accumulated deficit		(554,017)		(345,361)
Total stockholders’ equity		461,468		565,242
Total liabilities and stockholders’ equity	$	614,547	$	753,470

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

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CANOO INC.

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

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


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020

Revenue	$	—	$	2,550	$	—	$	2,550

Costs and Operating Expenses
Cost of revenue, excluding depreciation		—		670		—		670
Research and development expenses, excluding depreciation		59,387		18,923		158,033		52,858
Selling, general and administrative expenses, excluding depreciation		45,510		8,405		144,072		15,897
Depreciation		2,109		1,738		6,317		5,179
Total costs and operating expenses		107,006		29,736		308,422		74,604
Loss from operations		(107,006)		(27,186)		(308,422)		(72,054)

Other (expense) income
Interest income (expense)		33		(1,094)		79		(10,465)
Gain on extinguishment of debt		—		5,045		—		5,045
Gain on fair value change in contingent earnout shares liability		25,764		—		101,166		—
Loss on fair value change in private placement warrants liability		—		—		(1,639)		—
Other income (expense), net		334		(155)		160		(47)
Loss before income taxes		(80,875)		(23,390)		(208,656)		(77,521)
Provision for income taxes		—		—		—		—
Net loss and comprehensive loss	$	(80,875)	$	(23,390)	$	(208,656)	$	(77,521)

Per Share Data:
Net loss per share, basic and diluted	$	(0.35)	$	(0.20)	$	(0.92)	$	(0.82)

Weighted-average shares outstanding, basic and diluted		228,477		116,293		226,747		94,058

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

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CANOO INC.

Condensed Consolidated Statement of Stockholders’ Equity (in thousands)

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


				Additional				Total
	Common stock			paid-in		Accumulated		stockholders’
	Shares	Amount		capital		deficit		Equity
Balance as of December 31, 2020	235,753	$	24	$	910,579	$	(345,361)	$	565,242
Proceeds from exercise of public warrants	597		—		6,867		—		6,867
Repurchase of unvested shares – forfeitures	(118)		—		(2)		—		(2)
Issuance of shares for restricted stock units vested	1,230		—		—		—		—
Issuance of shares upon exercise of vested stock options	37		—		—		—		—
Stock-based compensation	—		—		45,146		—		45,146
Conversion of private placement warrants to public warrants	—		—		8,252		—		8,252
Net loss and comprehensive loss	—		—		—		(15,227)		(15,227)
Balance as of March 31, 2021	237,499	$	24	$	970,842	$	(360,588)	$	610,278
Repurchase of unvested shares – forfeitures	(56)		—		(2)		—		(2)
Issuance of shares for restricted stock units vested	114		—		—		—		—
Issuance of shares upon exercise of vested stock options	6		—		—		—		—
Stock-based compensation	—		—		25,514		—		25,514
Net loss and comprehensive loss	—		—		—		(112,554)		(112,554)
Balance as of June 30, 2021	237,563	$	24	$	996,354	$	(473,142)	$	523,236
Proceeds from exercise of public warrants	1		—		12		—		12
Repurchase of unvested shares – forfeitures	(391)		—		(3)		—		(3)
Issuance of shares for restricted stock units vested	418		—		—		—		—
Issuance of shares upon exercise of vested stock options	12		—		—		—		—
Stock-based compensation	—		—		19,098		—		19,098
Net loss and comprehensive loss	—		—		—		(80,875)		(80,875)
Balance as of September 30, 2021	237,603	$	24	$	1,015,461	$	(554,017)	$	461,468

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

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CANOO INC.

Condensed Consolidated Statement of Stockholders’ Deficit (in thousands)

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


				Additional				Total
	Common stock			paid-in		Accumulated		stockholders’
	Shares	Amount		capital		deficit		deficit
Balance as of December 31, 2019	108,838	$	11	$	202,796	$	(258,675)	$	(55,868)
Issuance of shares upon exercise of unvested share options	424		—		—		—		—
Exchange and gain on extinguishment of related party convertible debt	—		—		8,264		—		8,264
Stock-based compensation	—		—		389		—		389
Net loss and comprehensive loss	—		—		—		(30,890)		(30,890)
Balance as of March 31, 2020	109,262	$	11	$	211,449	$	(289,565)	$	(78,105)
Repurchase of shares – forfeitures	(3,127)		—		(25)		—		(25)
Stock-based compensation	—		—		351		—		351
Net loss and comprehensive loss	—		—		—		(23,241)		(23,241)
Balance as of June 30, 2020	106,135	$	11	$	211,775	$	(312,806)	$	(101,020)
Repurchase of shares – forfeitures	(293)		—		(2)		—		(2)
Exchange and gain on extinguishment of related party convertible debt	—		—		36,521		—		36,521
Stock-based compensation	—		—		319		—		319
Net loss and comprehensive loss	—		—		—		(23,390)		(23,390)
Balance as of September 30, 2020	105,842	$	11	$	248,613	$	(336,196)	$	(87,572)

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

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CANOO INC.

Condensed Consolidated Statements of Cash Flows (in thousands)

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


	Nine months ended
	September 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(208,656)	$	(77,521)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		6,317		5,179
Non-cash operating lease expense		774		471
Loss on the disposal of property and equipment		—		9
Debt discount amortization		—		2,590
Gain on extinguishment of debt		—		(5,045)
Stock-based compensation		89,758		1,059
Gain on fair value in contingent earnout shares liability		(101,166)		—
Loss on fair value change in private placement warrants liability		1,639		—
Changes in operating assets and liabilities:
Prepaids and other current assets		(8,915)		(3,186)
Other assets		(939)		726
Accounts payable		23,920		1,082
Accrued interest expense		—		7,927
Accrued expenses and other current liabilities		16,647		1,618
Net cash used in operating activities		(180,621)		(65,091)

Cash flows from investing activities:
Purchases of property and equipment		(73,976)		(1,209)
Prepayment to VDL Nedcar		(26,134)		—
Net cash used in investing activities		(100,110)		(1,209)

Cash flows from financing activities:
Proceeds from related party convertible debt		—		90,000
Proceeds from convertible debt		—		90,500
Loan advance		—		7,017
Repayments on loan advance		—		(57)
Proceeds from issuance of shares		—		3
Repurchase of restricted shares		—		(27)
Proceeds from exercise of public warrants		6,879		—
Repurchase of unvested shares		(7)		—
Payment of offering costs		(5,306)		(1,307)
Repayment of PPP loan		(6,943)		—
Net cash (used in) provided by financing activities		(5,377)		186,129
Net (decrease) increase in cash, cash equivalents, and restricted cash		(286,108)		119,829

Cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash, beginning of period		702,422		29,507
Cash, cash equivalents, and restricted cash, end of period	$	416,314	$	149,336

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents at end of period	$	414,904	$	148,836
Restricted cash at end of period		1,410		500
Total cash, cash equivalents, and restricted cash at end of period shown in the condensed consolidated statements of cash flows	$	416,314	$	149,336

Supplemental non-cash investing and financing activities
Acquisition of property and equipment included in current liabilities	$	46,774	$	4,137
Offering costs included in accounts payable	$	8,001	$	—
Offering costs included in accrued and other current liabilities	$	—	$	2,254
Recognition of operating lease right-of-use asset	$	2,362	$	—
Conversion of private placement warrants to public warrants	$	8,252	$	—
Exchange of convertible debt	$	—	$	291,309
Gain on extinguishment of related party convertible debt recorded in additional paid-in capital	$	—	$	44,785
Issuance of long-term debt in exchange for loan advance	$	—	$	7,017

Supplemental disclosures of cash flow information
Cash paid for interest	$	60	$	—

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

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CANOO INC.

Notes to Condensed Consolidated Financial Statements

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

1. Organization and Business

Canoo Inc. (“Canoo” or the “Company”) is a mobility technology company with a mission to bring electric vehicles (“EVs”) to everyone. The Company has developed a breakthrough EV platform that it believes will enable it to rapidly innovate, and bring new products addressing multiple use cases to market faster than its competition and at lower cost.

Business Combination

On December 21, 2020 (the “Closing Date”), Hennessy Capital Acquisition Corp. IV (“HCAC”) consummated the previously announced merger pursuant to that certain Merger Agreement and Plan of Reorganization, dated August 17, 2020 (the “Merger Agreement”), by and among HCAC, HCAC IV First Merger Sub, Ltd., an exempted company incorporated with limited liability in the Cayman Islands and a direct, a wholly owned subsidiary of HCAC (“First Merger Sub”), EV Global Holdco LLC (f/k/a HCAC IV Second Merger Sub, LLC), a Delaware limited liability company and a direct, wholly owned subsidiary of HCAC (“Second Merger Sub”), and Canoo Holdings Ltd., an exempted company incorporated with limited liability in the Cayman Islands (“Legacy Canoo”). Pursuant to the terms of the Merger Agreement, a business combination between HCAC and Legacy Canoo was effected through the merger of (a) First Merger Sub with and into Legacy Canoo, with Legacy Canoo surviving as a wholly-owned subsidiary of HCAC (Legacy Canoo, in its capacity as the surviving corporation of the merger, the “Surviving Corporation”) and (b) the Surviving Corporation with and into Second Merger Sub, with Second Merger Sub being the surviving entity, which ultimately resulted in Legacy Canoo becoming a wholly-owned direct subsidiary of HCAC (all transactions collectively, the “Business Combination”).

On the Closing Date, and in connection with the closing of the Business Combination, HCAC changed its name to Canoo Inc. and the Company’s common stock began trading on The Nasdaq Global Select Market under the ticker symbol GOEV.

The financial statements included in this report reflect (i) the historical operating results of Legacy Canoo prior to the Business Combination; (ii) the combined results of HCAC and Legacy Canoo following the closing of the Business Combination; (iii) the assets and liabilities of Legacy Canoo at their historical cost; and (iv) the Company’s equity structure for all periods presented.

Recent Developments

On June 16, 2021, the Company and VDL Nedcar B.V. (“VDL Nedcar”) entered into a binding term sheet for vehicle contract manufacturing (the “Term Sheet”). On July 1, 2021, the Company made a $30.4 million pre-payment to VDL Nedcar pursuant to the Term Sheet, which was classified as an investing outflow in the accompanying condensed statement of cash flows. During the three months ended September 30, 2021, VDL Nedcar utilized $4.3 million of the prepayment to purchase property and equipment on behalf of the Company. The remaining $26.1 million is classified as a long-term asset in Other Assets in the accompanying condensed consolidated balance sheet as of September 30, 2021.

2. Basis of Presentation and Summary of Significant Accounting Policies

These unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by GAAP have been omitted if they substantially duplicate the disclosures contained in the Company’s annual audited consolidated financial statements. Accordingly, the unaudited condensed consolidated financial statements should be read in connection with the Company’s audited financial statements and related notes as of and for the year ended December 31, 2020 (“Annual Report on Form 10-K”). Results of operations reported for interim periods are not necessarily indicative of results for the entire year. In the opinion of management, the Company has made all adjustments

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necessary to present fairly its condensed consolidated financial statements for the periods presented. Such adjustments are of a normal, recurring nature. The Company’s financial statements have been prepared under the assumption that the Company will continue as a going concern, which contemplates the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future.

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

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

Retroactive Application of Recapitalization

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


			12/21/20					Weighted
			Merger	Recapitalized	Days			Average
		As	Conversion	Common	Outstanding	% of		Common
Date	Description	Calculated	Ratio	Stock	in 2020	weighting		Shares
3 months ended 9/30/2020	Weighted-average shares, basic and diluted	8,997,164	1.24	11,151,398		100	%	11,151,398

12/31/2018	Angel Shares			51,316,627	92	100	%	51,316,627

3/4/2019	Seed Shares			11,107,496	92	100	%	11,107,496

5/6/2019	Seed Shares			11,107,495	92	100	%	11,107,495

8/16/2020	Convertible Debt			63,219,362	46	50	%	31,609,681

								116,292,697


			12/21/20					Weighted
		As	Merger	Recapitalized	Days			Average
		Previously	Conversion	Common	Outstanding	% of		Common
Date	Description	Reported	Ratio	Stock	in 2020	weighting		Shares
9 months ended 9/30/2020	Weighted-average shares, basic and diluted	7,997,527	1.24	9,912,414		100	%	9,912,414

12/31/2018	Angel Shares			51,316,627	274	100	%	51,316,627

3/4/2019	Seed Shares			11,107,496	274	100	%	11,107,496

5/6/2019	Seed Shares			11,107,495	274	100	%	11,107,495

8/16/2020	Convertible Debt			63,219,362	46	17	%	10,613,470

								94,057,501

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COVID-19

Beginning in the first quarter of 2021, there has been increasing availability and administration of vaccines against COVID-19 in many parts of the world, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, virus variants, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains and intermittent supplier delays. The Company has also previously been affected by temporary facility closures, employment and compensation adjustments, and impediments to administrative activities supporting its product research and development.

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

Fair Value of Financial Instruments

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

●

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

●

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

●

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

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Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as required by ASC 820, by level, within the fair value hierarchy as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021
	Fair Value		Level 1		Level 2		Level 3
Assets
Money Market Funds	$	416,314	$	416,314	$	—	$	—

Liability
Contingent earnout shares liability	$	32,337	$	—	$	—	$	32,337


	December 31, 2020
	Fair Value		Level 1		Level 2		Level 3
Assets
Money Market Funds	$	702,422	$	702,422	$	—	$	—

Liability
Contingent earnout shares liability	$	133,503	$	—	$	—	$	133,503
Private placement warrants liability	$	6,613	$	—	$	6,613	$	—

As described in Note 8, in connection with the Company’s agreement with Panasonic, there is a standby letter of credit of $0.8 million at September 30 2021 which is included in restricted cash. The letter of credit has a two-year term and will not be drawn upon unless the Company fails to make its invoice payments. Further, as of September 30, 2021, the company had $0.6 million in refundable customer deposits included in restricted cash.

As described in Note 11, the Company has a contingent obligation to issue 15.0 million shares of the Company’s common stock to certain stockholders and employees upon the achievement of certain market share price milestones within specified periods following the Business Combination (the “Earnout Shares”). Upon the occurrence of a bankruptcy or liquidation, any unissued Earnout Shares would be fully issued regardless of whether the share price target has been met.

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

Additionally, as described in Note 13, the private placement warrants that were outstanding were converted to public warrants on March 2, 2021. The private placement warrants were accounted for as a liability and its fair value is determined using Level 2 inputs, since the Company’s public warrants are actively traded and the Company’s private placement warrants have terms and provisions that are identical to those of the public warrants.

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

Earnout Shares Liability


Beginning fair value at December 31, 2020	$	133,503
Change in fair value during the period		(101,166)
Ending fair value at September 30, 2021	$	32,337

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Private Placement Warrants Liability


Beginning fair value at December 31, 2020	$	6,613
Change in fair value during the period		1,639
Conversion of private placement warrants to public warrants		(8,252)
Ending fair value at September 30, 2021	$	—

3. Immaterial correction of prior period financial statements

Subsequent to issuance of the Company’s Annual Report on Form 10-K for the year-ended December 31, 2020, on April 12, 2021, the SEC Division of Corporation of Finance released Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “Statement”). Upon review and analysis of the Statement, management determined that the Company’s private placement warrants issued in connection with HCAC's IPO on March 5, 2019 do not meet the scope exception from derivative accounting prescribed by ASC 815-40, Contracts in Entity’s Own Equity. Accordingly, the private placement warrants should have been recognized by the Company at fair value as of the Closing Date and classified as a liability, rather than equity in the Company’s previously reported consolidated balance sheet as of December 31, 2020. Thereafter, the change in fair value of the outstanding private placement warrants should have been recognized as a gain (loss) within other (expense) income each reporting period in the Company’s consolidated statement of operations. The fair value of the private placement warrants as of the Closing Date on December 21, 2020 and December 31, 2020 amounted to $9.7 million and $6.6 million, respectively. The change in fair value from the Closing Date through December 31, 2020 amounted to a gain of $3.1 million.

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

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

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


	As of December 31, 2020
	As Previously	Warrants
	Reported	Adjustments	As Corrected
Consolidated Balance Sheet
Private placement warrants liability	—	6,613	6,613
Total liabilities	1