Canoo Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation and Summary of Significant Accounting Policies (Policies)

Basis of Presentation and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2021

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

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.

Consolidation

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.

Material changes

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

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.

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

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	$	—