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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
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 001-39598
https://cdn.kscope.io/0d3d04898ec8af86a7afb338ee11e6bd-xos-20220331_g1.jpg
XOS, INC.
______________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware
98-1550505
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
3550 Tyburn Street
Los Angeles, CA
90065
(Address of Principal Executive Offices)
(Zip Code)
    
Registrant’s telephone number, including area code: (818) 316-1890

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common Stock, $0.0001 par value per shareXOSNasdaq Global Market
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per shareXOSWWNasdaq Global Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller 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 Act).    Yes    No  
The registrant had outstanding 163,637,247 shares of Common Stock, $0.0001 par value as of May 4, 2022.


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Forward-Looking Statements

This Quarterly Report on Form 10-Q (the “Report”), 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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, (“the Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. All statements, other than statements of present or historical fact included in this Report 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.

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:

our ability to successfully commercialize our Fleet-as-a-Service offering to customers over time;

delays in the design, manufacturing and wide-spread deployment of our vehicles, powertrains and battery packs;

our ability to grow market share in our existing markets or any new markets we may enter;

our ability to successfully complete strategic relationships and alliances with third parties or acquisitions in the future;

our ability to recognize the anticipated benefits of the Business Combination (as defined below) 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;

changes in domestic and foreign business, market, financial, political and legal conditions;

changes in applicable laws or regulations;

the outcome of any legal proceedings against us;

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 revenues and losses, projected costs, prospects and plans;

our ability to maintain an effective system of internal controls over financial reporting;

our ability to respond to general economic conditions, including supply chain delays or interruptions that may occur;

our ability to manage our growth effectively;

our ability to achieve and maintain profitability in the future;

our ability to access sources of capital, including debt financing and other sources of capital to finance operations and growth;

our ability to maintain and enhance our products and brand, and to attract customers;

our ability to execute our business model, including market acceptance of our planned products and services and achieving sufficient production volumes at acceptable quality levels and prices;

ability to source certain of our critical inventory items, including battery cells, semiconductor chips and vehicle bodies and aluminum;
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our ability to successfully manage supply shortages and disruptions, product delivery delays, and anticipate costs and production timing in light of those challenges;

our ability to scale in a cost-effective manner, including hiring qualified personnel, particularly during recent hiring difficulties, to meet our manufacturing and delivery goals;

developments and projections relating to our competitors and industry;

general economic and political conditions, such as the effects of the COVID-19 pandemic, recessions, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability and acts of war or military conflict, including repercussions of the recent military conflict between Russia and Ukraine, or terrorism 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;

expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012, as amended;

our future capital requirements and sources and uses of cash;

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

any other risks and uncertainties set forth in this Report in the section entitled “Risk Factors”.

A discussion of these and other factors affecting our business and prospects is set forth in Part II, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2022 (the “2021 Form 10-K”). We encourage investors to review these risk factors.

Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. 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. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.

Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.


Part I - Financial Information
Glossary of Terms
Unless otherwise stated in this Report or the context otherwise requires, reference to:

Business Combination” means the Domestication, the Merger and the other transactions contemplated by the Merger Agreement, collectively, including the PIPE Financing;

Class 5 to 8 Vehicles” means medium and heavy duty trucks that typically travel on predictable routes and cover less than 200 miles per day;

Closing” means the closing of the Business Combination;

Closing Date” means August 20, 2021;

Common Stock” means the shares of common stock, par value $0.0001 per share, of Xos;
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Domestication” means the transfer by way of continuation and deregistration of NextGen from the Cayman Islands and the continuation and domestication of NextGen as a corporation incorporated in the State of Delaware;

Energy Services” means our infrastructure-as-a-service offering which includes charging infrastructure deployment, energy procurement and management, and the Xos HubTM, our proprietary mobile charging unit deployable for on-demand charging requirements;

Fleet-as-a-Service” means our comprehensive suite of products and services facilitating commercial battery-electric fleet operations through a combination of in-house proprietary technology and turnkey solutions from industry-leading partners. The platform includes our X-Pack battery system, X-Platform modular chassis, Energy Services, service and maintenance, digital fleet management products, over-the-air software update technology, and a wide range of additional service products;

Flex Manufacturing Strategy” means leveraging smaller, more-nimble existing facilities and labor talent to assemble vehicles through our strategic manufacturing partnerships, while the Company coordinates other aspects of the manufacturing process, including supply chain logistics, quality control, and manufacturing engineering;

Founders” means Dakota Semler and Giordano Sordoni;

Founder Shares” means Class B ordinary shares, par value $0.0001 per share, of NextGen, which were converted into shares of Common Stock in connection with the Business Combination;

Initial Public Offering” means NextGen’s initial public offering that was consummated on October 9, 2020;

“Legacy Xos Common Stock” means shares of common stock, par value $0.0001 per share, issued by Legacy Xos prior to the Business Combination;

“Legacy Xos Preferred Stock” means Class A through A-10 shares of preferred stock, par value $0.0001 per share, issued by Legacy Xos prior to the Business Combination;

Legacy Xos” means Xos, Inc., a Delaware corporation, prior to the consummation of the Business Combination;

Merger” means the merger of NextGen Merger Sub with and into Legacy Xos pursuant to the Merger Agreement, with Legacy Xos as the surviving company in the Merger and, after giving effect to such Merger, Legacy Xos becoming a wholly owned subsidiary of Xos;

Merger Agreement” means that certain Merger Agreement, dated as of February 21, 2021, as amended on May 14, 2021, by and among NextGen, Sky Merger Sub I, Inc., a Delaware corporation and direct wholly owned subsidiary of NextGen, and Legacy Xos;

NextGen” means NextGen Acquisition Corp., a Cayman Islands exempted company, prior to the consummation of the Domestication;

NextGen Sponsormeans NextGen Sponsor LLC.

PIPE Financing” means the transactions contemplated by the Subscription Agreements, pursuant to which the PIPE Investors collectively subscribed for 21,600,000 shares of Common Stock for an aggregate purchase price of $216,000,000 in connection with the Closing;

PIPE Investors” means the investors who participated in the PIPE Financing and entered into the Subscription Agreements;

Powertrain” means an assembly of every component that pushes a vehicle forward. A vehicle’s powertrain creates power from the engine and delivers it to the wheels on the ground. The key components of a powertrain include an engine, transmission, driveshaft, axles, and differential;

Preferred Stock” means preferred stock, par value $0.0001 per share, authorized under the Certificate of Incorporation of Xos, Inc.;

Private Placement Warrants” means the warrants to purchase Common Stock originally issued in a private placement in connection with the Initial Public Offering;
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Public Warrants” means the redeemable warrants to purchase shares of Common Stock at an exercise price of $11.50 per share originally issued in connection with the Initial Public Offering;

Sponsor” means NextGen’s sponsor, NextGen Sponsor LLC;

Subscription Agreements” means the subscription agreements entered into by NextGen and each of the PIPE Investors in connection with the PIPE Financing;

Warrants” means Private Placement Warrants and Public Warrants;

X-Pack” means our proprietary battery system; and

X-Platform” means our proprietary, purpose-built vehicle chassis platform.

Item 1.    Financial Statements
Index to Consolidated Financial Statements
Page

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Xos, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except par value)
March 31, 2022
(Unaudited)
December 31, 2021
Assets
Cash and cash equivalents$11,810 $16,142 
Restricted cash
3,034 3,034 
Accounts receivable
6,848 3,353 
Marketable debt securities, available-for-sale — short-term
89,823 94,696 
Inventories, net
40,303 30,883 
Prepaid expenses and other current assets17,570 17,850 
Total current assets169,388 165,958 
Marketable debt securities, available-for-sale — long-term28,063 54,816 
Property and equipment, net10,253 7,426 
Operating lease right-of-use assets, net7,765  
Other assets506 506 
Total assets$215,975 $228,706 
Liabilities and Stockholders’ Equity
Accounts payable$7,941 $10,122 
Other current liabilities11,857 5,861 
Total current liabilities19,798 15,983 
Earn-out shares liability
26,938 29,240 
Common stock warrant liability
7,930 7,496 
Other non-current liabilities
7,895 1,594 
Total liabilities62,561 54,313 
Commitment and Contingencies
Stockholders’ Equity
Common Stock $0.0001 par value, authorized 1,000,000 shares,
  163,253 and 163,137 shares issued and outstanding at March 31, 2022
  and December 31, 2021, respectively
16 16 
Preferred Stock $0.0001 par value, authorized 10,000 shares, 0 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
  
Additional paid-in capital
179,884 178,851 
Accumulated deficit(25,279)(4,093)
Accumulated other comprehensive loss
(1,207)(381)
Total stockholders’ equity
153,414 174,393 
Total liabilities and stockholders’ equity$215,975 $228,706 





The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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Xos, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share amounts)
Three Months Ended
March 31
20222021
Revenues$7,031 $793 
Cost of goods sold
10,186 672 
Gross margin
(3,155)121 
Operating expenses
General and administrative
11,322 2,354 
Research and development
6,949 2,999 
Sales and marketing
2,028 312 
Total operating expenses
20,299 5,665 
Loss from operations
(23,454)(5,544)
Other income (expense), net
81 (217)
Change in fair value of derivative instruments
(435)6,394 
Change in fair value of earn-out shares liability
2,624  
Write off of subscription receivable (379)
Realized loss on debt extinguishment
 (14,104)
Loss before provision for income taxes
(21,184)(13,850)
Provision for income taxes
2  
Net loss
(21,186)(13,850)
Other comprehensive loss
Marketable debt securities, available-for-sale
Change in net unrealized loss, net of tax of $, for the three months ended March 31, 2022 and 2021
(826) 
Total comprehensive loss
$(22,012)$(13,850)
Net loss per share
Basic
$(0.13)$(0.19)
Diluted
$(0.13)$(0.19)
Weighted average shares outstanding
Basic163,165 72,354 
Diluted163,165 72,354 





The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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Xos, Inc. and Subsidiaries
Condensed Consolidated Statements of Legacy Xos Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands)
Legacy Xos
Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated
Deficit
Accumulated Other Comprehensive LossTotal
Stockholders’
Equity (Deficit)
SharesAmountShares
Par Value
Balance at December 31, 20202,762 $7,862 72,277 $7 $290 $(27,494)$— $(27,197)
Payment of subscription receivable— 2,430 — — 380 — — 380 
Issuance of Legacy Xos Preferred Stock, including note conversion49,518 66,701 — — — — — — 
Options exercised— — 206 — 3 — — 3 
Stock repurchased and retired— — (94)— (1)— — (1)
Stock based compensation expense— — — — 2 — — 2 
Net loss— — — — — (13,850)— (13,850)
Balance at March 31, 2021 (unaudited)
52,280 $76,993 72,389 $7 $674 $(41,344)$ $(40,663)
Balance at December 31, 2021  $ 163,137 $16 $178,851 $(4,093)$(381)$174,393 
Stock options exercised— — — — — — —  
Stock based compensation expense— — — — 1,068 — — 1,068 
Issuance of common stock for vesting of restricted stock units— — 133 — — — —  
Shares withheld related to net share settlement of stock-based awards— — (36)— (97)— — (97)
Issuance of common stock for commitment shares under Standby Equity Purchase Agreement— — 19 — 62 — — 62 
Net and comprehensive loss— — — — — (21,186)(826)(22,012)
Balance at March 31, 2022 (unaudited)
 $ 163,253 $16 $179,884 $(25,279)$(1,207)$153,414 






The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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Xos, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
Three Months Ended
March 31
20222021
OPERATING ACTIVITIES:
Net loss
$(21,186)$(13,850)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation268 89 
Amortization of right-of-use assets
355  
Inventory reserve
1,248  
Write off of subscription receivable 379 
Realized loss on debt extinguishment
 14,104 
Change in fair value of derivative instruments
435 (6,394)
Change in fair value of earn-out shares liability(2,624) 
Net realized losses on marketable debt securities, available-for-sale
6  
Stock-based compensation expense1,391 2 
Other non-cash items
732  
Changes in operating assets and liabilities:
Accounts receivable(3,495)94 
Inventories(10,668)(1,432)
Prepaid expenses and other current assets280 (862)
Other assets (350)
Accounts payable(2,278)(113)
Other liabilities
4,232 (449)
Net cash used in operating activities(31,304)(8,782)
INVESTING ACTIVITIES:
Purchase of property and equipment(2,998)(202)
Proceeds from sales and maturities of marketable debt securities, available-for-sale
30,151  
Net cash provided by (used in) investing activities
27,153 (202)
FINANCING ACTIVITIES:
Proceeds from issuance of shares of Legacy Xos Preferred Stock 31,759 
Proceeds from subscription receivable – preferred 2,430 
Principal payment of equipment leases
(83)(38)
Taxes paid related to net share settlement of stock-based awards
(98) 
Proceeds from stock option exercises 2 
Net cash (used in) provided by financing activities
(181)34,153 
Net (decrease) increase in cash, cash equivalents and restricted cash
(4,332)25,169 
Cash, cash equivalents and restricted cash, beginning of period
19,176 10,359 
Cash, cash equivalents and restricted cash, end of period
$14,844 $35,528 
Reconciliation of Cash, Cash Equivalents and Restricted Cash to Condensed Consolidated Balance Sheets:
Cash and cash equivalents
$11,810 $35,528 
Restricted cash
3,034  
Total cash, cash equivalents and restricted cash
$14,844 $35,528 
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Supplemental disclosure of non-cash investing and financing activities
Purchase of property and equipment in accounts payable
$97 $ 
Recognition of right-of-use asset and lease liabilities upon ASC 842 adoption on 1/1/2022
$7,682 $— 
Right-of-use asset obtained in exchange for operating lease obligations
$437 $ 
Conversion of notes payable to Legacy Xos Preferred Stock:
Issuance of redeemable convertible preferred stock$ $34,918 
Conversion of interest payable on convertible notes$ $2,453 
Conversion of notes payable into preferred stock$ $21,540 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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Xos, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1Description of Business

Xos, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Xos”) is a mobility solutions company. Xos manufactures Class 5 to 8 battery-electric commercial vehicles, facilitates fleet transition from traditional internal combustion engine vehicles to electric vehicles, and enables electric fleets to better manage their fleet operations through a portfolio of management tools. Xos developed the X-Platform (its proprietary, purpose-built vehicle chassis platform) and the X-Pack (its proprietary battery system) specifically for the medium- and heavy-duty commercial vehicle segment with a focus on last-mile commercial fleet operations. Xos’ “Fleet-as-a-Service” package offers customers a comprehensive suite of commercial products and services to facilitate electric fleet operations and seamlessly transition their traditional combustion-engine fleets to battery-electric vehicles.

Xos Fleet, Inc. (“Legacy Xos”), the new legal entity name of the legacy Xos operating entity and Xos Services, Inc. (“Xos Services”, formerly Rivordak, Inc.), the subsidiary holding a California dealer license to sell Xos vehicles, are wholly owned subsidiaries of Xos, Inc., and make up 100% of the operations of the Company.

Business Combination

Xos, Inc. was initially incorporated on July 29, 2020 as a Cayman Islands exempted company under the name “NextGen Acquisition Corporation” (“NextGen”). On August 20, 2021, the transactions contemplated by the Agreement and Plan of Merger, as amended on May 14, 2021, by and among NextGen, Sky Merger Sub I, Inc., a Delaware corporation and a direct wholly owned subsidiary of NextGen (“Merger Sub”), and Xos, Inc., a Delaware corporation (now known as Xos Fleet, Inc., “Legacy Xos”), were consummated (the “Closing”), whereby Merger Sub merged with and into Legacy Xos, the separate corporate existence of Merger Sub ceased and Legacy Xos became the surviving corporation and a wholly owned subsidiary of NextGen (such transaction the “Merger” and, collectively with the Domestication, the “Business Combination”). As a result, Xos became the publicly traded entity listed on the Nasdaq Global Market.

Emerging Growth Company

Section 102(b)(1) of the Jumpstart its Business Startups Act (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement declared effective pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard, until such time the Company is no longer considered to be an emerging growth company. At times, the Company may elect to early adopt a new or revised standard.

Risks and Uncertainties

COVID-19 and actions taken to mitigate its spread have had and may continue to have an adverse impact on the economies and financial markets of many countries, including the areas in which the Company operates. As the COVID-19 pandemic continues to evolve, the Company believes the extent of the pandemic’s impact to its business, operating results, cash flows, liquidity and financial condition will be primarily driven by the severity and duration of the COVID-19 pandemic, the pandemic’s impact on the United States and global economies and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic. Those primary drivers are beyond the Company’s knowledge and control, and as a result, at this time the Company is unable to predict the cumulative impact, both in terms of severity and duration, that the COVID-19 pandemic will have on its business, operating results, cash flows and financial condition. However, the impact of the COVID-19 pandemic could be material if the current circumstances continue to exist for a prolonged period of time or worsen.

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Xos, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Additionally, recent geopolitical events, such as the recent military conflict between Russia and Ukraine, may increase the severity of supply chain disruptions and further hinder our ability to source inventory for our vehicles. The conflict continues to evolve and its ultimate impact on the Company is uncertain, but a prolonged conflict may have a material negative impact on the Company’s business, operating results, cash flows, liquidity and financial condition.

Although the Company has used the best current information available to it in its estimates, actual results could materially differ from the estimates and assumptions developed by management.

Supply Chain Disruptions

Negative global economic conditions, which the COVID-19 pandemic has contributed to, has impacted the Company’s ability to source certain critical inventory items. The series of restrictions imposed and the speed and nature of the recovery in response to the pandemic have placed burdens on the Company’s supply chain management, such as the semiconductor chip and battery cell shortage and supply limitations on vehicle bodies and aluminum.

Despite supply chain disruptions, the Company has continued to source inventory for its vehicles and its purchasing team has been working with vendors to find alternative solutions to areas where there are supply chain constraints, and where appropriate and critical, has placed orders in advance of projected need to ensure inventory is able to be delivered in time for production plans.
Note 2Basis of Presentation and Summary of Significant Accounting Policies

The following is a summary of the significant accounting policies consistently applied in the preparation of the accompanying unaudited condensed consolidated financial statements:

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. They do not include all of the information and footnotes required by U.S. GAAP for complete audited financial statements. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Legacy Xos and Xos Services. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments (primarily consisting of normal accruals) considered for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020 presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 30, 2022.
Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenues and expenses during the reporting periods. The areas with significant estimates and judgments include, among others, earn-out shares liability, stock-based compensation, common stock warrant liability and product warranty liability. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to the Company’s condensed consolidated financial statements.

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Xos, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation in the unaudited condensed consolidated financial statements and the accompanying notes, including (i) classification of operating expenses in the unaudited condensed consolidated statements of operations and comprehensive loss and (ii) presenting equipment leases as part of other current and non-current liabilities. The Company reclassified a portion of its payroll related expenses in general and administrative to sales and marketing and research and development. Additionally, the Company reclassified depreciation expense to general and administrative expense. These reclassifications have no effect on previously reported net loss.

Warranty Liability

Since 2021, the Company provides customers with a product warranty that assures that the products meet standard specifications and are free for periods typically between 2 to 5 years. The Company accrues warranty reserve for the products sold, which includes its best estimate of the projected costs to repair or replace items under warranties and recalls if identified. These estimates are based on actual claims incurred to date and an estimate of the nature, frequency and costs of future claims. These estimates are inherently uncertain given the Company’s relatively short history of sales, and changes to its historical or projected warranty experience may cause material changes to the warranty reserve in the future. Claims incurred under the Company’s standard product warranty programs are recorded based on open claims. No claims were incurred for the year ended December 31, 2021 and the period ended March 31, 2022. The Company recorded warranty liability within other current liabilities in the consolidated balance sheets as of March 31, 2022 and December 31, 2021.

The reconciliation of the change in the Company’s product liability balances for the three months ended March 31, 2022 consisted of the following (in thousands):
March 31, 2022
Warranty liability, beginning of period$177 
Reduction in liability (payments)  
Increase in liability (new warranties)298 
Warranty liability, end of period$475 

Leases

Upon inception of a contract, the Company evaluates if the contract, or part of the contract, contains a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The lease liability is measured as the present value of the unpaid lease payments, and the ROU asset value is derived from the calculation of the lease liability, including prepaid lease payments, if any. Lease payments include fixed and in-substance fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, fees paid by the lessee to the owners of a special-purpose entity for restructuring the transaction, and probable amounts the lessee will owe under a residual value guarantee. Lease payments do not include (i) variable lease payments other than those that depend on an index or rate, (ii) any guarantee by the lessee of the lessor’s debt, or (iii) any amount allocated to non-lease components, if such election is made upon adoption, per the provisions of ASU 2016-02, Leases.

When the Company cannot determine the actual implicit rates a lease, it uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company gives consideration to its recent debt issuances, if any, as well as publicly available data for instruments with similar characteristics when calculating its incremental borrowing rate. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company's lease term includes any option to extend the lease when it is reasonably certain to be exercised based on considering all relevant economic factors. Operating expense charges from the lessor are accounted for on an accrual basis. The Company has elected not to separate the lease and non-lease components.

The leases have remaining initial terms ranging from less than 1 year to 6 years.

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Xos, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
The Company reviews the carrying value of its right-of-use assets for impairment whenever events or changes in circumstances indicate that the recorded value may not be recoverable. Recoverability of assets is measured by comparing the carrying amounts of the assets to the estimated future undiscounted cash flows, excluding financing costs. If the Company determines that an impairment exists, any related impairment loss is estimated based on fair values.

Recent Accounting Pronouncements Issued and Adopted:

ASC 842, Leases: In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as subsequently amended, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors), and replaces the existing guidance in ASC 840, Leases. The new standard also requires lessees to recognize operating and finance lease liabilities and corresponding ROU assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements.

On January 1, 2022, the Company adopted ASC 842 using the modified retrospective method. The Company has presented financial results and applied its accounting policies for the period beginning January 1, 2022 under ASC 842, while prior period results and accounting policies have not been adjusted and are reflected under legacy GAAP pursuant to ASC 840. In connection with the adoption of ASC 842, the Company performed an analysis of contracts under ASC 840 to ensure proper assessment of leases (or embedded leases) in existence as of January 1, 2022. The Company elected the package of practical expedients permitted under ASC 842, which allows the Company not to reassess 1) whether any expired or existing contracts as of the adoption date are or contain a lease, 2) lease classification for any expired or existing leases as of the adoption date and 3) initial direct costs for any existing leases as of the adoption date. The most significant impact of applying ASC 842 was the recognition of ROU asset and lease liabilities for operating leases in its condensed consolidated balance sheets. On January 1, 2022, the Company recognized an initial operating ROU asset of $7.7 million and associated operating lease liabilities of $7.7 million.

Refer to Note 6 — Leases for further information regarding the impact of the adoption of ASU 2016-02 on the Company's financial statements, as well as its various accounting policies for each lease type.
Recent Accounting Pronouncements Issued and not yet Adopted:

ASU 2016-13, Financial Instruments — Credit Losses (“ASU 2016-13”): In June 2016, the FASB issued ASU 2016-13, the Company will be required to use an expected-loss model for its marketable debt securities, available-for sale, which requires that credit losses be presented as an allowance rather than as an impairment write-down. Reversals of credit losses (in situations in which the estimate of credit losses declines) is permitted in the reporting period that the change occurs. Current U.S. GAAP prohibits reflecting reversals of credit losses in current period earnings. At March 31, 2022, the Company had $117.9 million in marketable debt securities, available for sale which would be subject to this new standard. As of December 31, 2021, these marketable debt securities, available for sale have an average credit rating of A+ and no impairment write-downs have been recorded. The Company is currently evaluating the impact of this new standard on its investment policy and investments and does not expect the standard to have a material impact on its financial statements at adoption or in subsequent periods. The Company expects to adopt the new standard effective January 1, 2023.

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Xos, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Note 3Revenue Recognition
Disaggregated revenues by major source for the three months ended March 31, 2022 and 2021 consisted of the following (in thousands):
Three Months Ended
March 31, 2022March 31, 2021
Product and service revenue
Stepvans & vehicle incentives$6,863 $674 
Powertrains14 119 
Fleet-as-a-Service95  
Total product revenue6,972 793 
Ancillary revenue59  
Total revenue$7,031 $793 

Note 4 — Inventories
Inventory amounted to $40.3 million and $30.9 million, respectively, as of March 31, 2022 and December 31, 2021 and consisted of the following (in thousands):
March 31, 2022December 31, 2021
Raw materials$24,008 $20,382 
Work in process18,602 10,659 
Finished goods
 901 
Inventories, gross of reserves
42,610 31,942 
Less: inventory reserve
(2,307)(1,059)
Inventories, net
$40,303 $30,883 

Note 5 — Selected Balance Sheet Data
Prepaid expenses and other current assets as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands):
March 31, 2022December 31, 2021
Prepaid inventories
$8,415 $7,303 
Prepaid insurance
3,040 4,996 
Deposits (primarily relating to deposits on equipment purchases)
3,203 2,783 
Assets held for sale
1,848 1,848 
Prepaid licenses and subscriptions
706 801 
Others
358 119 
Total
$17,570 $17,850 
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Xos, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Other current liabilities as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands):
March 31, 2022December 31, 2021
Accrued expenses(1)
$8,120 $3,997 
Lease liabilities, current
1,958 482 
Customer deposits
1,026 899 
Warranty liability
475 177 
Others
278 306 
Total
$11,857 $5,861 
____________
(1) Primarily relates to personnel costs — wages, health benefits, vacation and other accruals.
Note 6 — Leases
A summary of the balances relating to the Company’s lease assets and liabilities as of March 31, 2022 consisted of the following (in thousands):
Balance Sheet LocationMarch 31, 2022
Assets
Operating leasesOperating lease right-of-use assets, net$7,765 
Equipment finance leasesProperty and equipment, net2,156 
Total Lease Assets$9,921 
Liabilities
Current
Operating leasesOther current liabilities$1,465 
Equipment finance leasesOther current liabilities493 
Sub-total$1,958 
Non-current
Operating leasesOther non-current liabilities$6,353 
Equipment finance leasesOther non-current liabilities1,542 
Sub-total$7,895 
Total Lease Liabilities$9,853 
Operating Leases

The Company has a 5-year office lease on its headquarter facility in Los Angeles, which commenced in January 2022, as well as certain other leases (both short-term and long-term) within the United States.

The Company records lease expense on a straight-line basis over the lease term in general and administrative expense. Total lease expense for the three months ended March 31, 2022 and 2021 was $0.4 million and $0.2 million, respectively.

Lease terms include renewal or termination options that the Company is reasonably certain to exercise. For leases with a term of 12 months or less, the Company has made an accounting policy election to not record a ROU asset and associated lease liability on its unaudited condensed consolidated balance sheet. Total lease expense recorded for these short-term leases is immaterial for the three months ended March 31, 2022.
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Notes to Unaudited Condensed Consolidated Financial Statements
Equipment Finance Leases

The Company leases certain equipment facilities under finance leases that expire on various dates through 2027. The finance lease cost for the three months ended March 31, 2022 and 2021 consisted of the following (in thousands):

Income Statement Location
March 31, 2022March 31, 2021
Amortization
General and administrative expense$160 $29 
Interest accretion on finance lease liabilities
Other income (expense), net27 6 
Total
$187 $35 
Supplemental Cash Flow Information, Weighted-Average Remaining Lease Term and Discount Rate
The weighted-average remaining lease term and discount rates, as well as supplemental cash flow information for the three months ended March 31, 2022 consisted of the following (in thousands for the supplemental cashflow information):
Supplemental cashflow information:
Cash paid for amounts included in the measurement of operating lease liabilities$408 
ROU assets obtained in exchange for operating lease obligations$437 
Weighted average remaining lease term:
Operating leases5.3 years
Equipment finance leases3.7 years
Weighted average discount rate:
Operating lease - IBR5.5 %
Equipment finance leases - rate implicit in the lease7.0 %
Maturity Analysis
A summary of the undiscounted cash flows and a reconciliation to the Company’s lease liabilities as of March 31, 2022 consisted of the following (in thousands):
March 31, 2022
 Operating Leases
Equipment Finance LeasesTotal
2022 (remaining nine months)
$1,233 $480 $1,713 
2023
1,894 529 2,423 
2024
1,948 444 2,392 
2025
2,004 439 2,443 
2026
1,672 356 2,028 
Thereafter
130 29 159 
Total future minimum lease payments
$8,881 $2,277 $11,158 
Less: imputed interest
1,063 242 1,305 
Present value of Lease Liabilities
$7,818 $2,035 $9,853 
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Notes to Unaudited Condensed Consolidated Financial Statements
Schedule of future minimum lease payments for operating and finance leases as of December 31, 2021 consisted of the following (in thousands):
December 31, 2021
Operating Leases
Equipment Finance LeasesTotal
2022
$1,167 $482 $1,649 
2023
1,158 442 1,600 
2024
1,192 386 1,578 
2025
1,228 401 1,629 
2026
1,265 339 1,604 
Thereafter
106 27 133 
Total future minimum lease payments
$6,116 $2,077 $8,193 

Note 7 — Recapitalization and Earn-out Shares Liability

Recapitalization

As discussed in Note 1, on August 20, 2021, Legacy Xos and NextGen consummated the Business Combination contemplated by the Merger Agreement. Xos has been determined to be the accounting acquirer based on evaluation of the following facts and circumstances:

Xos stockholders have the largest voting interest in the post-combination company;

The board of directors of Xos is authorized to be up to nine members and had six members designated at the time of closing, and Xos having the ability to nominate the majority of the members of the board of directors as of closing;

Xos management holds executive management roles (including Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, and Chief Technology Officer, among others) for the post-combination company and is responsible for the day-to-day operations;

The post-combination company assumed the Xos name: “Xos, Inc.”; and

The intended strategy of the post-combination entity continued Legacy Xos’ strategy of being a leader in the electric vehicle industry.

Accordingly, all historical financial information presented in these combined and consolidated financial statements represents the accounts of Legacy Xos and its wholly owned subsidiaries “as if” Legacy Xos is the predecessor and legal successor. The historical operations of Legacy Xos are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Legacy Xos prior to the business combination; (ii) the combined results of NextGen and Legacy Xos following the Business Combination; and (iii) the assets and liabilities of Legacy Xos at their historical cost. No step-up basis of intangible assets or goodwill was recorded in the business combination transaction consistent with the treatment of the transaction as a reverse capitalization.

In connection with the Business Combination, each share of Legacy Xos Common Stock and Legacy Xos Preferred Stock issued and outstanding immediately prior to the Business Combination (with each share of Legacy Xos Preferred Stock being treated as if it were converted into Legacy Xos Common Stock immediately prior to the Business Combination) converted into the right to receive 1.956440 shares (the “Exchange Ratio”) of Common Stock.
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Notes to Unaudited Condensed Consolidated Financial Statements

Also, in connection with the Business Combination, the following occurred:

the merger of Legacy Xos into a wholly owned subsidiary of NextGen, with Legacy Xos surviving the merger as a wholly owned subsidiary of NextGen, with the combined company is referred to as “Xos”;

142,584,621 shares of Common Stock issued, including: (i) the Legacy Xos’ Common Stock, and (ii) Legacy Xos’ Preferred Stock, including the exercise and conversion of Legacy Xos’ Preferred Stock warrant (as if the Legacy Xos Preferred Stock had converted into the Legacy Xos’ Common Stock immediately prior to the reverse merger);

the issuance and sale of 19,600,000 shares of Common Stock (PIPE investment) for a purchase price of $10.00 per share and an aggregate purchase price of $196.0 million (which excludes the sale of 2,000,000 shares in the aggregate for a purchase price of $10.00 per share and an aggregate purchase price of $20.0 million pursuant to an offering of Common Stock by the founders of Legacy Xos). On the Closing Date, one of the PIPE Investors, Grantchester C Change, LLC., did not fund their $4.0 million committed amount under the binding Subscription Agreement.;

the settlement of the outstanding underwriting fees incurred in connection with the initial public offering of NextGen on October 9, 2020, for which the final cash amount owed was $11.2 million;

the settlement of the direct and incremental transaction costs incurred prior to, or concurrent with, the closing of the business combination in the amount of $44.2 million, which are recorded as reduction to additional paid-in capital;

the recognition of contingent earn-out interests provision as liability with a fair value of $101.7 million on the day of the merger consummation; and,

the assumption of the Public Warrants (12,499,964 units) and Private Placement Warrants (6,333,334 units) at fair value of $17.9 million on the day of merger consummation.


Contingent Earn-out Shares Liability

The Company has a contingent obligation to issue 16.2 million shares (the “Earn-out Shares”) of Common Stock and grant 261,000 restricted stock units (“Earn-out RSUs”) to certain stockholders and employees upon the achievement of certain market share price milestones within specified periods following the Business Combination on August 20, 2021.

The Earn-out Shares will be issued in tranches based on the following conditions:

i.If the volume-weighted average closing share price (“VWAP”) of the Common Stock equals or exceeds $14.00 per share for any 10 trading days within any consecutive 20-trading day period between the merger closing date and the five year anniversary of such closing date (“Earn-out Period”), then the Company is required to issue an aggregate of 5.4 million shares (“Tranche 1 Earn-out Shares”) of Common Stock to holders with the contingent right to receive Earn-out Shares (excluding any Earn-out RSUs). If after Closing and during the Earn-out Period, there is a Change in Control (as defined in the Merger Agreement), the Company is required to issue Tranche 1 Earn-out Shares when the value per share of the Company is equal to or greater than $14.00 per share, but less than $20.00. If there is a change in control where the value per share of commons stock is less than $14.00, then the Earn-out Shares shall terminate prior to the end of the Earn-out Period and no common stock shall be issuable.

ii.If the VWAP of the Common Stock equals or exceeds $20.00 per share for any 10 trading days within any consecutive 20-trading day period during the Earn-out Period, then the Company is required to issue an aggregate of 5.4 million shares (“Tranche 2 Earn-out Shares”) of Common Stock to holders with the contingent right to receive Earn-out Shares (excluding any Earn-out RSUs). If after Closing and during the Earn-out Period, there is a Change in Control (as defined in the Merger Agreement), the Company is required to issue Tranche 2 Earn-out Shares when the value per share of the Company is equal to or greater than $20.00 per share, but less than $25.00.

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Notes to Unaudited Condensed Consolidated Financial Statements
iii.If the VWAP of the Common Stock equals or exceeds $25.00 per share for any 10 trading days within any consecutive 20-trading day period during the Earn-out Period, then the Company is required to issue an aggregate of 5.4 million shares (“Tranche 3 Earn-out Shares”) of Common Stock to holders with the contingent right to receive Earn-out Shares (excluding any Earn-out RSUs). If after Closing and during the Earn-out Period, there is a Change in Control (as defined in the Merger Agreement), the Company is required to issue Tranche 3 Earn-out Shares when the valuer per share of the Company is equal to or greater than $25.00 per share.

Pursuant to the guidance under ASC 815, Derivatives and Hedging, the right to Earn-out Shares was classified as a Level 3 fair value measurement liability, and the increase or decrease in the fair value during the reporting period is recognized in the condensed consolidated statement of operations accordingly. The fair value of the Earn-out Shares liability was estimated using the Monte Carlo simulation of the stock prices based on historical and implied market volatility of a peer group of public companies.

The Company recognized a gain on the fair value change in Earn-out Shares liability of $2.6 million in its unaudited condensed consolidated statements of operations for the three months ended March 31, 2022.
Note 8 — Investments
Amortized cost, gross unrealized gains/losses in accumulated other comprehensive loss and fair value of marketable debt securities, available-for-sale, by type of security as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands):
March 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Short-term investments:
Corporate debt security$62,153 $ $(338)$61,815 
U.S. treasuries4,966  (48)4,918 
Asset-backed security and other4,868  (47)4,821 
Non-U.S. government and supranational bonds16,375  (109)16,266 
Certificate of deposit2,003   2,003 
$90,365 $ $(542)$89,823 
Long-term investments:
Corporate debt security$24,997 $ $(591)$24,406 
U.S. treasuries650  (9)641 
Asset-backed security and other3,081  (65)3,016 
$28,728 $ $(665)$28,063 
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Notes to Unaudited Condensed Consolidated Financial Statements
December 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Short-term investments:
Corporate debt security$71,406 $ $(57)$71,349 
U.S. treasuries3,415  (7)3,408 
Asset-backed security and other2,555  (4)2,551 
Non-U.S. government and supranational bonds16,405 1 (19)16,387 
Certificate of deposit1,001   1,001 
$94,782 $1 $(87)$94,696 
Long-term investments:
Corporate debt security$42,703 $ $(246)$42,457 
U.S. treasuries2,201  (5)2,196 
Asset-backed security and other5,438  (28)5,410 
Non-U.S. government and supranational bonds3,769  (16)3,753 
Certificate of deposit1,000   1,000 
$55,111 $ $(295)$54,816 

The Company’s investments in marketable debt securities, available-for-sale that have been in a continuous unrealized loss position by type of security as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

March 31, 2022
Less than 12 months12 months or greaterTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Corporate debt security$86,221 $(929)$ $ $86,221 $(929)
US treasuries5,559 (57)  5,559 (57)
Asset-backed security and other7,837 (112)  7,837 (112)
Non-U.S. government and supranational bonds16,266 (109)  16,266 (109)
Certificates of deposit2,003    2,003  
$117,886 $(1,207)$ $ $117,886 $(1,207)
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December 31, 2021
Less than 12 months12 months or greaterTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Corporate debt security$113,806 $(303)$ $ $113,806 $(303)
US treasuries5,604 (12)  5,604 (12)
Asset-backed security and other7,961 (32)  7,961 (32)
Non-U.S. government and supranational bonds20,140 (34)  20,140 (34)
Certificates of deposit