SEC Filing | Xos, Inc.

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xos-20230331

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, 2023


☐			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

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 class	Trading Symbol	Name of exchange on which registered
Common Stock, $0.0001 par value per share	XOS	Nasdaq Global Market
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share	XOSWW	Nasdaq 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 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 Act). Yes ☐ No ☒

The registrant had outstanding 170,540,236 shares of Common Stock, $0.0001 par value as of May 4, 2023.

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TABLE OF CONTENTS


			Page
Part I - Financial Information			3
Item 1. Financial Statements (Unaudited)			7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			34
Item 3. Quantitative and Qualitative Disclosures About Market Risk			44
Item 4. Controls and Procedures			44
Part II - Other Information			47
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 3. Defaults Upon Senior Securities			47
Item 4. Mine Safety Disclosures			47
Item 5. Other Information			47
Item 6. Exhibits			47
Signatures			48

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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, including our ability to remediate the existing material weakness in our internal controls;

•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;

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•ability to source certain of our critical inventory items, including battery cells, semiconductor chips and vehicle bodies and aluminum;

•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 macroeconomic and political conditions, such as the effects of the COVID-19 pandemic, recessions, rising inflation and interest rates, uncertain credit and global financial markets, including the recent and potential bank failures, supply chain disruption, fuel prices, international currency fluctuations, and geopolitical events such as local and national elections, 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, 2022 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023 (the “2022 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 last-mile, back-to-base routes of up to 200 miles per day;

•“Closing” means the closing of the Business Combination;

•“Closing Date” means August 20, 2021;

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•“Common Stock” means the shares of common stock, par value $0.0001 per share, of Xos;

•“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;

•“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, Xos Energy SolutionsTM, service, 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 Sponsor” means 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;

•“Xos Energy Solutions™” 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;

•“X-Pack” means our proprietary battery system; and

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

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Item 1. Financial Statements

Index to Unaudited Condensed Consolidated Financial Statements


			Page
Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022			8
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022 (Unaudited)			9
Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2023 and 2022 (Unaudited)			10
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (Unaudited)			11
Notes to Condensed Consolidated Financial Statements (Unaudited)			13

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Xos, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

Unaudited

(in thousands, except par value)


	March 31, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	36,489	$	35,631
Restricted cash	—		3,044
Accounts receivable, net	6,970		8,238
Marketable debt securities, available-for-sale	27,528		50,648
Inventories	57,007		57,540
Prepaid expenses and other current assets	8,476		8,100
Total current assets	136,470		163,201
Property and equipment, net	17,752		18,581
Operating lease right-of-use assets, net	6,172		6,555

Other non-current assets	1,821		1,599
Total assets	$	162,215	$	189,936

Liabilities and Stockholders’ Equity
Accounts payable	$	3,533	$	2,896
Convertible debt, current	19,635		26,849
Derivative liabilities	497		405
Other current liabilities	17,168		15,616
Total current liabilities	40,833		45,766
Convertible debt, non-current	19,882		19,870
Earn-out shares liability	616		564
Common stock warrant liability	666		661
Other non-current liabilities	10,467		11,000
Total liabilities	72,464		77,861
Commitment and Contingencies (Note 13)
Stockholders’ Equity
Common Stock $0.0001 par value, authorized 1,000,000 shares, 169,829 and 168,817 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	17		17
Preferred Stock $0.0001 par value, authorized 10,000 shares, 0 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	191,820		190,215
Accumulated deficit	(101,749)		(77,418)
Accumulated other comprehensive loss	(337)		(739)
Total stockholders’ equity	89,751		112,075
Total liabilities and stockholders’ equity	$	162,215	$	189,936

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 Operations and Comprehensive Loss

Unaudited

(in thousands, except per share amounts)


	Three Months Ended March 31,
	2023		2022
Revenues	$	4,697	$	7,031
Cost of goods sold	5,574		13,030
Gross loss	(877)		(5,999)

Operating expenses
General and administrative	11,599		11,322
Research and development	5,749		6,949
Sales and marketing	1,804		2,028
Total operating expenses	19,152		20,299

Loss from operations	(20,029)		(26,298)

Other (expense) income, net	(4,151)		81
Change in fair value of derivative instruments	(97)		(435)
Change in fair value of earn-out shares liability	(52)		2,624

Loss before provision for income taxes	(24,329)		(24,028)
Provision for income taxes	2		2
Net loss	$	(24,331)	$	(24,030)

Other comprehensive loss
Marketable debt securities, available-for-sale
Net unrealized gain (loss), net of tax of $0, for the three months ended March 31, 2023 and 2022	402		(826)
Total comprehensive loss	$	(23,929)	$	(24,856)

Net loss per share
Basic	$	(0.14)	$	(0.15)
Diluted	$	(0.14)	$	(0.15)
Weighted average shares outstanding
Basic	168,829		163,165
Diluted	168,829		163,165

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 Stockholders’ Equity

Unaudited

(in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Par Value
Balance at December 31, 2021	163,137	$	16	$	178,851	$	(4,093)	$	(381)	$	174,393

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 under Standby Equity Purchase Agreement	19	—		62		—		—		62
Net and comprehensive loss	—	—		—		(24,030)		(826)		(24,856)
Balance at March 31, 2022	163,253	$	16	$	179,884	$	(28,123)	$	(1,207)	$	150,570


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Par Value
Balance at December 31, 2022	168,817	$	17	$	190,215	$	(77,418)	$	(739)	$	112,075
Stock options exercised	2	—		—		—		—		—
Stock based compensation expense	—	—		1,987		—		—		1,987
Issuance of common stock for vesting of restricted stock units	1,591	—		—		—		—		—
Shares withheld related to net share settlement of stock-based awards	(581)	—		(382)		—		—		(382)



Net and comprehensive loss	—	—		—		(24,331)		402		(23,929)
Balance at March 31, 2023	169,829	$	17	$	191,820	$	(101,749)	$	(337)	$	89,751

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 Cash Flows

Unaudited

(in thousands, unaudited)


	Three Months Ended March 31,
	2023		2022
OPERATING ACTIVITIES:
Net loss	$	(24,331)	$	(24,030)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	1,000		268
Amortization of right-of-use assets	383		355
Amortization of debt discounts and issuance costs	1,798		—
Amortization of insurance premiums	1,218		—
Inventory reserves	(471)		1,064



Impairment of assets held for sale	1,039		—
Change in fair value of derivative instruments	97		435
Change in fair value of earn-out shares liability	52		(2,624)
Net realized losses on marketable debt securities, available-for-sale	91		6
Stock-based compensation expense	2,012		1,391
Other non-cash items	(475)		732
Changes in operating assets and liabilities:
Accounts receivable	1,268		(3,495)
Inventories	1,064		(7,910)
Prepaid expenses and other current assets	(1,791)		1,914
Other assets	(222)		—
Accounts payable	635		(2,620)

Other liabilities	1,307		3,210
Net cash used in operating activities	(15,326)		(31,304)

INVESTING ACTIVITIES:
Purchase of property and equipment	(253)		(2,998)

Proceeds from sales and maturities of marketable debt securities, available-for-sale	23,065		30,151
Net cash provided by investing activities	22,812		27,153

FINANCING ACTIVITIES:




Principal payment of equipment leases	(600)		(83)
Proceeds from short-term insurance financing note	2,187		—
Payment for short-term insurance financing note	(1,427)		—
Payments of convertible notes and prepayment premiums	(9,450)		—

Taxes paid related to net share settlement of stock-based awards	(382)		(98)

Net cash used in financing activities	(9,672)		(181)

Net decrease in cash, cash equivalents and restricted cash	(2,186)		(4,332)
Cash, cash equivalents and restricted cash, beginning of period	38,675		19,176
Cash, cash equivalents and restricted cash, end of period	$	36,489	$	14,844

Reconciliation of Cash, Cash Equivalents and Restricted Cash to Condensed Consolidated Balance Sheets:
Cash and cash equivalents	$	36,489	$	11,810
Restricted cash	—		3,034

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Total cash, cash equivalents and restricted cash	$	36,489	$	14,844

Supplemental disclosure of cash flow information
Cash paid for interest	$	980	$	—
Supplemental disclosure of non-cash investing and financing activities
Purchase of property and equipment in accounts payable	$	2	$	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

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 1— Description of Business

Xos, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Xos”) is a leading fleet electrification solutions provider committed to the decarbonization of commercial transportation. Xos designs and manufactures Class 5-8 battery-electric commercial vehicles that travel on last-mile, back-to-base routes of up to 200 miles per day. Xos also offers charging infrastructure products and services through Xos Energy Solutions™ to support electric vehicle fleets. The Company’s proprietary fleet management software, Xosphere™, integrates vehicle operation and vehicle charging to provide commercial fleet operators a more seamless and cost-efficient vehicle ownership experience than traditional internal combustion engine counterparts. 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 facilitate electric fleet operations and seamlessly transition their traditional combustion-engine fleets to battery-electric vehicles.

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.

Risks and Uncertainties

In recent years, the United States and other significant markets have experienced high volatility and uncertainty in the capital markets, including inflation. interest rate increases, recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, supply chain disruption and geopolitical events, such as the war between Russia and Ukraine. These conditions could make it difficult for our customers and us to accurately forecast and plan future business activities, and could cause our customers to slow spending on our products and services or impact their ability to make timely payments. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. In addition, there is a risk that our current or future suppliers, service providers, manufacturers or other partners may not survive such difficult economic times, which would directly affect our ability to attain our operating goals on schedule and on budget. The ultimate impact of current economic conditions on the Company is uncertain, but it may have a material negative impact on the Company’s business, operating results, cash flows, liquidity and financial condition.

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. There are no comparable recent events which may provide guidance, and, as a result, the ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. As a result, 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, liquidity and financial condition.

Additionally, ongoing geopolitical events, such as the military conflict between Russia and Ukraine and related sanctions, 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.

Liquidity

As an early stage growth company, the net losses and cash outflows the Company has incurred since inception are consistent with its strategy and budget. The Company will continue to incur net losses and cash outflows in accordance with its operating

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Xos, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

plan as the Company continues to expand its research and development activities with respect to its vehicles and battery systems, scale its operations to meet anticipated demand and establish its Fleet-as-a-Service offering. As a result, the Company strives to maintain robust access to capital in order to fund and scale its operations. The Company may raise additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing, including through asset-based lending and/or receivable financing. The Company’s ability to access capital when needed is not assured and, if capital is not available to the Company when and in the amounts needed, the Company could be required to delay, scale back or abandon some or all of its development programs and other operations, which could materially harm its business, prospects, financial condition and operating results. Global economic conditions have been worsening, with disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the effects of COVID-19, recessions, rising inflation rates, including the recent and potential bank failures, supply chain disruption, fuel prices, international currency fluctuations, and geopolitical events such as local and national elections, corruption, political instability and acts of war or military conflict including repercussions of the war between Russia and Ukraine, or terrorism. If the Company is unable to raise capital when needed or on attractive terms, it would be forced to delay, reduce or eliminate its commercialization, research and development programs and/or other efforts.

In August 2021, the Company consummated the Business Combination, which resulted in net cash proceeds of approximately $216.7 million. In December 2020, the Company had the initial closing of its Series A Financing, and in the first quarter of 2021, the Company completed the Series A Financing, including the conversion of all its convertible notes into shares of Legacy Xos preferred stock. As of March 31, 2023, the Company’s principal sources of liquidity were its cash and cash equivalents and investments in marketable debt securities, available-for-sale aggregating to $64.0 million. The Company’s short-term uses of cash are for working capital and to pay interest on its debt and its long-term uses of cash are for working capital and to pay the principal of its indebtedness.

The Company believes that its existing cash resources are sufficient to support planned operations for the next 12 months, and the Company has a base of assets against which it expects to be able to borrow in the future. The Company believes it will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and advances under the Standby Equity Purchase Agreement (the "SEPA"). In addition, the Company may seek to raise additional capital through debt financing through asset-based lending and/or receivable financing or through the sale of equity or debt securities.

Supply Chain Disruptions

The Company’s ability to source certain critical inventory items has been impacted by negative global economic conditions caused by factors such as the COVID-19 pandemic, and may continue to be impacted in the future. The Company continues to face widespread shortages for specific components, such as semiconductor chips and battery cells, and disruptions to the supply of components due to port congestion and fluctuating fuel prices.

Despite these disruptions, the Company has taken significant measures to source inventory for its vehicles and its supply chain team has been working with vendors to find alternative solutions to overcome these constraints and where appropriate, working to find alternate sources of supply for critical components, including placing orders in advance of projected need to ensure inventory is able to be delivered in time for production plans.

Note 2— Basis 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

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Notes to Unaudited Condensed Consolidated Financial Statements

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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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, 2022 and 2021 presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023.

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, inventory valuation, incremental borrowing rates for assessing operating and financing lease liabilities, useful lives of property and equipment, contingent earn-out shares liability, stock-based compensation, valuation of convertible debt and related embedded derivatives, 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 financial statements.

Accounts Receivable, Net

The Company records unsecured and non-interest bearing accounts receivable at the gross invoice amount, net of any allowance for expected credit losses. The Company maintains its allowance for expected credit losses at a level considered adequate to provide for potential account losses on the balance based on management’s evaluation of past losses, current customer conditions, and the anticipated impact of current economic conditions. The Company recorded an allowance for expected credit losses of $39,000 as of March 31, 2023. No allowance for doubtful accounts was recorded as of March 31, 2022.

Investments in Marketable Debt Securities, Available-for-Sale

The Company maintains a portfolio of investments in a variety of fixed and variable rate debt securities, including U.S. treasuries, corporate debt, asset-backed securities and other, non-U.S. government and supranational bonds and certificate of deposit. The Company considers its investments in marketable debt securities to be available-for-sale, and accordingly, are recorded at their fair values. The Company determines the appropriate classification of investments in marketable debt securities at the time of purchase. Unrealized gains and losses on marketable debt securities, available-for-sale are recorded in Accumulated other comprehensive loss which is included within stockholders’ equity. Interest along with amortization of purchase premiums and accretion of discounts from the purchase date through the estimated maturity date, including consideration of variable maturities and contractual call provisions, are included in other income (expenses), net in the condensed consolidated statements of operations and comprehensive loss. Realized gains and losses on the sale of marketable debt securities, available-for-sale are recorded in Other (expense) income, net. The Company typically invests in highly-rated debt securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires substantially all investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. See Note 8 — Investments for additional information.

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Notes to Unaudited Condensed Consolidated Financial Statements

On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments — Credit Losses which requires that credit losses be presented as an allowance rather than as an impairment write-down. Adoption of the standard had no material impact on its financial statements.

The Company reviews quarterly its investment portfolio of all securities in an unrealized loss position to determine if an impairment charge or credit reserve is required. The Company excludes accrued interest from both the fair value and the amortized cost basis of marketable debt securities, available-for-sale, for the purposes of identifying and measuring an impairment. An investment is impaired if the fair value is less than its amortized cost basis. Impairment relating to credit losses is recorded through a reduction in the amortized cost of the security or an allowance for credit losses and credit loss expense (included in selling, general and administrative expense), limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded as a credit loss is recorded through other comprehensive income (loss), net of applicable taxes. The Company made an accounting policy election to not measure an allowance for credit losses for accrued interest receivables. The Company evaluates write-off of accrued interest receivable at the time credit loss exists for the underlying security. As of March 31, 2023 and 2022, we did not recognize any allowance for expected credit losses or impairment, respectively, on marketable debt securities - available-for-sale.

Warranty Liability

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. The Company recorded warranty liability within other current liabilities in the consolidated balance sheets as of March 31, 2023 and December 31, 2022.

The reconciliation of the change in the Company’s product liability balances consisted of the following (in thousands):


	March 31, 2023		March 31, 2022
Warranty liability, beginning of period	$	1,099	$	177
Reduction in liability (payments)	(216)		—
Increase in liability	272		298
Warranty liability, end of period	$	1,155	$	475

Concentrations of Credit and Business Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Depository Insurance Corporation coverage limit of $250,000. As of March 31, 2023 and 2022, the Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

During the three months ended March 31, 2023, one customer accounted for 82% of the Company’s revenues (gross of customer returns). During the three months ended March 31, 2022, three customers accounted for 24%, 11%, and 10% of the Company’s revenues. As of March 31, 2023, two customers accounted for 59% and 15% of the Company’s accounts receivable. As of March 31, 2023, four customers accounted for 13%, 11%, 11%, and 11% of the Company’s accounts receivable.

Concentration of Supply Risk

The Company is dependent on its suppliers, the majority of which are single-source suppliers, and the inability of these suppliers to deliver necessary components of its products according to the schedule and at prices, quality levels and volumes acceptable to the Company, or its inability to efficiently manage these components, could have a material adverse effect on the Company’s results of operations and financial condition.

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Notes to Unaudited Condensed Consolidated Financial Statements

Recent Accounting Pronouncements Issued and Adopted:

The Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), as amended, on January 1, 2023 using the modified retrospective approach method. As of March 31, 2023 and December 31, 2022 the Company had $27.5 million and $50.6 million, respectively, in marketable debt securities, available for sale which are subject to the new standard. As of January 1, 2023 and March 31, 2023, these marketable debt securities, available for sale have an average credit rating of A and no allowance for expected credit losses has been recorded. Under the modified retrospective approach, the Company would record a cumulative effect adjustment to retained earnings by recording an initial allowance for credit losses on marketable debt securities, available-for sale. Periods presented that are prior to the adoption date of January 1, 2023 will not be adjusted. ASU 2016-13 replaced the incurred loss impairment model with a methodology that reflects a current expected credit loss and made targeted changes to the impairment model for available-for-sale debt securities. ASU 2016-13 impacted all of the Company’s investments held at fair value, which included its marketable debt securities, available for sale. Upon adoption of ASU 2016-13 on January 1, 2023, no adjustment was recorded by the Company for an initial allowance for credit losses on marketable debt securities, available for sale and there was no cumulative effect adjustment to retained earnings. Subsequent increases or decreases in the allowance for credit losses on marketable debt securities, available for sale will be recorded in the Company's condensed consolidated statements of operations and comprehensive loss.

ASU 2016-13 also applied to the Company’s other financial assets including loans, trade receivables and other financial assets that have the contractual right to receive cash. These other financial assets were evaluated and the adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated financial statements.

Note 3— Revenue Recognition

Disaggregated revenues by major source for the three months ended March 31, 2023 and 2022 consisted of the following (in thousands):


	Three Months Ended March 31,
	2023		2022
Product and service revenue
Stepvans & vehicle incentives(1)	$	4,262	$	6,863
Powertrains	5		14
Fleet-as-a-Service	166		95
Total product and service revenue	4,433		6,972
Ancillary revenue	264		59
Total revenues	$	4,697	$	7,031

____________

(1)Amounts are net of returns.

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Notes to Unaudited Condensed Consolidated Financial Statements

Note 4 — Inventories

Inventory amounted to $57.0 million and $57.5 million as of March 31, 2023 and December 31, 2022, respectively, and consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Raw materials	$	39,412	$	40,271
Work in process	3,213		4,618
Finished goods	14,382		12,651
Total inventories	$	57,007	$	57,540

Inventories as of March 31, 2023 and December 31, 2022 was comprised of raw materials, work in progress related to the production of vehicles for sale and finished goods inventory including vehicles in transit to fulfill customer orders, new vehicles and Energy Services products available for sale and new vehicles awaiting final pre-delivery quality review inspection.

Note 5 — Selected Balance Sheet Data

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Prepaid inventories	$	2,263	$	2,372
Prepaid expenses and other(1)	1,295		1,299
Contract assets	1,132		290
Financed insurance premiums	3,036		2,289

Assets held for sale	750		1,850


Total prepaid expenses and other current assets	$	8,476	$	8,100

____________

(1) Primarily relates to prepaid insurance, licenses, subscriptions, contract assets and other receivables.

Other Current Liabilities

Other current liabilities as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Accrued expenses and other(1)	$	7,232	$	7,589
Contract liabilities	764		193
Customer deposits	1,194		721
Warranty liability	1,155		1,099
Equipment notes payable	314		303
Short-term insurance financing notes	2,824		2,065
Operating lease liabilities, current	1,557		1,530
Finance lease liabilities, current	2,128		2,116
Total other current liabilities	$	17,168	$	15,616

____________

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Notes to Unaudited Condensed Consolidated Financial Statements

(1)Primarily relates to accrued inventory purchases, personnel costs, wages, health benefits, vacation and other accruals.

Revenue recognized from the customer deposits balance as of December 31, 2022 was $0.2 million for the three months ended March 31, 2023.

Other Non-Current Liabilities

Other non-current liabilities as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands)


	March 31, 2023		December 31, 2022
Accrued interest expense	$	1,277	$	784
Equipment notes payable, non-current	860		942
Operating lease liabilities, non-current	4,770		5,174
Finance lease liabilities, non-current	3,560		4,100
Total other non-current liabilities	$	10,467	$	11,000

Note 6 — 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.

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

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Notes to Unaudited Condensed Consolidated Financial Statements

the Monte Carlo simulation of the stock prices based on historical and implied market volatility of a peer group of public companies.

As of March 31, 2023 and December 31, 2022, the fair value of the Earn-out Shares liability was estimated to be $0.6 million and $0.6 million, respectively. The Company recognized a loss on the change in fair value in Earn-out Shares liability of $52,000 and gain of $2.6 million in its consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023 and 2022, respectively.

The allocated fair value to the Earn-out RSU component, which is covered by ASU 718, Compensation — Stock Compensation, is recognized as stock-based compensation expense over the vesting period commencing on the grant date of the award.

Note 7 — Convertible Notes

Convertible Debentures

On August 9, 2022, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with YA II PN, Ltd. (“Yorkville”) for the issuance of convertible debentures, convertible into shares of Common Stock subject to certain conditions and limitations, in the principal amount of up to $35 million (the “Convertible Debentures”). On August 11, 2022, pursuant to the Securities Purchase Agreement, the Company sold and issued a Convertible Debenture to Yorkville in the principal amount of $20.0 million. On September 21, 2022, pursuant to the Securities Purchase Agreement, the Company sold and issued an additional Convertible Debenture to Yorkville in the principal amount of $15.0 million. Yorkville will use commercially reasonable efforts to convert $2.0 million during each 30-day period beginning on September 9, 2022, provided that certain conditions are satisfied as of each such period.

The Convertible Debentures bear interest at an annual rate of 6%, payable at maturity, and have a maturity date of November 11, 2023, which the Company may extend by an additional three months in certain instances. The interest rate will increase to an annual rate of (i) 10% upon the occurrence and during the continuance of an event of default, and (ii) 7.5% for so long as “Registration Event” (as defined in the Convertible Debentures) remains in effect in accordance with the Registration Rights Agreement (described below). The Convertible Debentures provide a conversion right, in which any portion of the principal amount of the debt, together with any accrued but unpaid interest, may be converted into the Common Stock at a conversion price equal to the lower of (i) $2.4733 or (ii) 97% of the lowest daily volume weighted average price (“VWAP”) of the Common Stock during the three consecutive trading days immediately preceding the conversion (but not lower than a certain floor price (“Floor Price”) that is subject to further adjustment in accordance with the terms of the Convertible Debentures). The Floor Price was $0.59 as of March 31, 2023.

The Convertible Debentures may not be converted into shares of Common Stock to the extent such conversion would result in Yorkville and its affiliates having beneficial ownership of more than 9.99% of the then outstanding shares of Common Stock; provided that this limitation may be waived by the investor upon not less than 65 days’ prior notice to the Company.

The Convertible Debentures provide the Company, subject to certain conditions, with a redemption right pursuant to which the Company, upon 10 business days’ prior notice to Yorkville, may redeem, in whole or in part, any of the outstanding principal and interest thereon at a redemption price equal to (i) the principal amount being redeemed, (ii) all accrued and unpaid interest under the applicable Convertible Debenture, and (iii) a redemption premium of 5% of the principal amount being redeemed.

The Convertible Debentures include a monthly prepayment provision that is triggered if (i) the daily VWAP of the Company’s Common Stock is less than the Floor Price for 5 consecutive trading days or (ii) the Company has issued pursuant to the Convertible Debentures in excess of 95% of the Common Stock available under the Exchange Cap, as defined in the Convertible Debentures. If this provision is triggered, the Company is required to make monthly payments, beginning on the 10th calendar day after the triggering date, of up to $4.0 million of principal (subject to a redemption premium of 5%) plus accrued and unpaid interest, subject to certain conditions (“Prepayments”). The monthly Prepayment requirement will cease if (i) the Company provides Yorkville a reset notice reducing the Floor Price, limited to no more than 85% of closing price on the trading day immediately prior to the notice and not less than $0.50 or (ii) the daily VWAP is greater than the Floor Price for 3 consecutive trading days. In the event the monthly Prepayment provision was triggered by the issuance in excess of 95% of the Common Stock available under the Exchange Cap, the monthly Prepayment requirement will cease on the date the Company has obtained stockholder approval to increase the number of shares of Common Stock available under the Exchange Cap and/or

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Notes to Unaudited Condensed Consolidated Financial Statements

the Exchange Cap no longer applies. The monthly Prepayment requirement will cease upon the payment in full of all obligations under the Convertible Debentures. Three Prepayments, which included $9.0 million of principal payments, $0.5 million payment of redemption premiums and $1.0 million payment of accrued interest, were made during the three months ended March 31, 2023.

The Company and Yorkville entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which the Company is required to file a registration statement registering the resale by Yorkville of any shares of the Company’s Common Stock issuable upon conversion of the Convertible Debentures. The Company filed the registration statement on September 8, 2022 and received notice of effectiveness on September 19, 2022.

The derivative features of the Convertible Debentures are carried on the Company’s consolidated balance sheet at fair value of $0.5 million and $0.4 million in Derivative liabilities as of March 31, 2023 and December 31, 2022, respectively. For the three months ended March 31, 2023, the Company recorded a loss on the change in fair value of derivative liabilities of $0.1 million. The derivative liabilities associated with the Convertible Debentures will remain in effect until such time as the underlying convertible notes are exercised or terminated (see Note 1 0 — Derivative Instruments). The Company classified the Convertible Debentures and associated derivative liabilities as current liabilities given a maturity date of less than one year.

The Company received proceeds, net of a 2% original issuance discount, of $34.3 million from Yorkville. Debt issuance costs of $0.3 million were recorded at inception of the Convertible Debentures. Debt discount and issuance costs are amortized through the maturity date of the debenture using the effective interest rate method.

The Convertible Debentures will not be included in the computation of either basic or diluted EPS for the three months ended March 31, 2023 in Note 16 — Net Loss per Share. This financial instrument is not included in basic EPS because it does not represent participating securities. Further, the Convertible Debentures are not included in diluted EPS because the Company reported a net loss from continuing operations for the three months ended March 31, 2023; thus, including these financial instruments would have an antidilutive effect on EPS.

As of March 31, 2023 and December 31, 2022, the Company had a principal balance of $24.0 million outstanding, net of unamortized debt discounts and issuance costs of $4.4 million and $33.0 million outstanding, net of unamortized debt discounts and issuance costs of $6.2 million, respectively. Amortization of debt discounts and issuance costs, recorded in other income (expense), net, for the three months ended March 31, 2023 totaled $1.8 million. The Company recorded interest expense of $0.4 million in other income (expense), net related to the Convertible Debentures during the three months ended March 31, 2023.

Convertible Promissory Note

On August 9, 2022, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with Aljomaih Automotive Co. (“Aljomaih”) under which the Company agreed to sell and issue to Aljomaih a convertible promissory note with a principal amount of $20.0 million. On August 11, 2022, pursuant to the Note Purchase Agreement, the Company sold and issued $20.0 million in principal amount of a convertible promissory note (the “Original Note”) to Aljomaih. On September 28, 2022, the Company and Aljomaih agreed to amend and restate the Original Note (as amended and restated, the “Note”) to, among other things, adjust the calculation of the shares of the Company’s Common Stock issuable as interest, as described further below.

The Note bears interest at a rate of 10.0% per annum, payable at maturity in validly issued, fully paid and non-assessable shares of Common Stock (“Interest Shares”), unless earlier converted or paid. The Note matures on August 11, 2025. If the 10-day VWAP ending on the trading day immediately prior to the applicable payment date is greater than or equal to the Nasdaq Minimum Price (as defined in the Note) or the Company has received the requisite approval from its stockholders, the number of Interest Shares to be issued will be calculated based on the 10-day; otherwise, the number of Interest Shares to be issued will be based on the Nasdaq Minimum Price. The conversion price for the Note will initially be equal to $2.3817 per share, subject to adjustment in some events pursuant to the terms of the Note. The Company will have the right, in its sole discretion and exercisable at its election by sending notice of such exercise to Aljomaih, to irrevocably fix the method of settlement that will apply to all conversions of Notes. Methods of settlement include (i) physical settlement in shares of Common Stock, (ii) cash settlement determined by multiplying the principal being converted by the 10-day VWAP ending on the trading day immediately prior to the conversion date and dividing by the conversion price, or (iii) a combination of Common Stock and cash.

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Notes to Unaudited Condensed Consolidated Financial Statements

The Note may not be converted into shares of Common Stock and Interest Shares may not be issued to the extent (i) such conversion or issuance would result in the investor having beneficial ownership of more than 19.99% of the then outstanding shares of the Company’s Common Stock or (ii) the aggregate number of shares issued would exceed the Authorized Share Cap (as defined in the Note).

The Note also includes an optional redemption feature that provides the Company, on or after August 11, 2024, or as otherwise agreed to between the Company and Aljomaih in writing, the right to redeem the outstanding principal and accrued and unpaid interest, upon written notice not less than 5 trading days prior to exercise of the option, in full or in part and without penalty.

The Company accounts for the Note in accordance with the guidance contained in ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, under which the Note was analyzed for the identification of material embedded features that meet the criteria for equity treatment and/or bifurcation and must be recorded as a liability. The Company classified the Note as a non-current liability given a maturity date of greater than one year.

The Company received proceeds of $20.0 million from Aljomaih. Debt issuance costs of $0.1 million were recorded at inception of the Note. Debt issuance costs are amortized through the maturity date of the Note using the effective interest rate method.

The Note will not be included in the computation of either basic or diluted EPS for the three months ended March 31, 2023 in Note 16 - Net Loss per Share. This financial instrument is not included in basic EPS because it does not represent participating securities. Further, the Note is not included in diluted EPS because the Company reported a net loss from continuing operations for the three months ended March 31, 2023; thus, including these financial instruments would have an antidilutive effect on EPS.

As of March 31, 2023 and December 31, 2022, the Company had a principal balance of $20.0 million outstanding, net of unamortized debt and issuance costs of $0.1 million and $20.0 million outstanding, net of unamortized debt and issuance costs $0.1 million, respectively. Amortization of debt issuance costs, recorded in other income (expense), net, for the three months ended March 31, 2023 was immaterial. The Company recorded interest expense of $0.5 million in other income (expense), net related to the Note during the three months ended March 31, 2023.

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, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Short-term investments:
Corporate debt security	$	24,185	$	—	$	(303)	$	23,882
U.S. treasuries	651		—		(1)		650
Asset-backed security and other	3,029		—		(33)		2,996


	$	27,865	$	—	$	(337)	$	27,528

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Notes to Unaudited Condensed Consolidated Financial Statements


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Short-term investments:
Corporate debt security	$	40,177	$	—	$	(612)	$	39,565
U.S. treasuries	2,201		—		(21)		2,180
Asset-backed security and other	5,324		—		(76)		5,248
Non-U.S. government and supranational bonds	3,685		—		(30)		3,655

	$	51,387	$	—	$	(739)	$	50,648

As of March 31, 2023, no allowance for credit losses was recorded related to an impairment of available-for-sale securities.

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, 2023 and December 31, 2022 consisted of the following (in thousands):


	March 31, 2023
	Less than 12 months				12 months or greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Corporate debt security	$	405	$	—	$	23,477	$	(303)	$	23,882	$	(303)
U.S. treasuries	—		—		650		(1)		650		(1)
Asset-backed security and other	—		—		2,996		(33)		2,996		(33)


	$	405	$	—	$	27,123	$	(337)	$	27,528	$	(337)


	December 31, 2022
	Less than 12 months				12 months or greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Corporate debt security	$	1,790	$	(2)	$	37,775	$	(610)	$	39,565	$	(612)
U.S. treasuries	—		—		2,180		(21)		2,180		(21)
Asset-backed security and other	—		—		5,248		(76)		5,248		(76)
Non-U.S. government and supranational bonds	—		—		3,655		(30)		3,655		(30)

	$	1,790	$	(2)	$	48,858	$	(737)	$	50,648	$	(739)

Gross realized gains and gross realized losses from the sales of the Company’s marketable debt securities, available-for-sale for the three months ended March 31, 2023 and 2022 consisted of the following (in thousands):


	Three Months Ended March 31,
	2023		2022
Gross realized gains	$	—	$	—
Gross realized losses	$	(91)	$	(6)

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Notes to Unaudited Condensed Consolidated Financial Statements

Amortized cost and fair value of marketable debt securities, available-for-sale by contractual maturity as of March 31, 2023 consisted of the following (in thousands, except weighted average data):


	Amortized Cost		Fair Value
Due in one year or less	$	27,865	$	27,528
Weighted average contractual maturity			0.3 years

Amortized cost and fair value of marketable debt securities, available-for-sale by contractual maturity as of December 31, 2022 consisted of the following (in thousands, except weighted average data):


	Amortized Cost		Fair Value
Due in one year or less	$	51,387	$	50,648
Weighted average contractual maturity			0.3 years

Actual maturities may differ from contractual maturities because certain issuers may have the right or obligation to prepay certain obligations with or without penalties.

Note 9 — Equity

Xos Common and Preferred Stock

The Company is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Company is authorized to issue is 1,010,000,000 shares. 1,000,000,000 shares shall be Common Stock, each having a par value of one-hundredth of one cent ($0.0001). 10,000,000 shares shall be Preferred Stock, each having a par value of one-hundredth of one cent ($0.0001).

Voting Rights: Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Company for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock).

Preferred Stock: The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Company (the “Board of Directors”) is hereby expressly authorized to provide for the issue of all or any number of the shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such shares and as may be permitted by the DGCL. The Board of Directors is also expressly authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issuance of shares of that series. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.

Nasdaq Deficiency Letter: On December 28, 2022, the Company received a deficiency letter (the “Letter”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days prior to the date of the Letter, the closing bid price for the Common Stock, was below $1.00 per

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Notes to Unaudited Condensed Consolidated Financial Statements

share, which is the minimum closing bid price required for continued listing on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (“Rule 5450(a)(1)”).

Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company is provided with a grace period of 180 calendar days, or until June 26, 2023, to meet the minimum bid price requirement of Rule 5450(a)(1) under the listing rules of Nasdaq. If at any time during the 180-calendar day grace period, the closing bid price of the Common Stock is at least $1.00 per share for a minimum of ten consecutive business days (unless the Nasdaq staff exercises its discretion to extend this ten business day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H)), Nasdaq will provide the Company written confirmation of compliance and the matter will be closed.

In the event the Company does not regain compliance within the 180-calendar day grace period, the Company may be eligible for an additional 180-calendar day grace period if it applies to transfer the listing of the Common Stock to the Nasdaq Capital Market. To qualify, the Company must meet the continued listing requirement for the applicable market value of publicly held shares requirement and all other applicable initial listing standards for the Nasdaq Capital Market, with the exception of the minimum bid price requirement, based on the Company’s most recent public filings and market information and provide written notice of its intention to cure the minimum bid price deficiency during the second compliance period by effecting a reverse stock split, if necessary. If the Nasdaq staff determines that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible for such additional compliance period, Nasdaq will provide notice that the Common Stock will be subject to delisting. The Company would have the right to appeal a determination to delist the Common Stock, and the Common Stock would remain listed on the Nasdaq Global Market until the completion of the appeal process.

Standby Equity Purchase Agreement

On March 23, 2022, the Company entered into a Standby Equity Purchase Agreement (the "SEPA") with YA II PN, Ltd. (“Yorkville”), whereby the Company has the right, but not the obligation, to sell to Yorkville up to $125.0 million of shares of its Common Stock at its request any time during the 36 months following the execution of the SEPA, subject to certain conditions. The Company expects to use any net proceeds for working capital and general corporate purposes.

As consideration for Yorkville’s commitment to purchase shares of common stock at the Company’s direction upon the terms and subject to the conditions set forth in the purchase agreement, upon execution of the purchase agreement, the Company issued 18,582 shares of common stock to Yorkville.

Under the Securities Purchase Agreement, the Company agreed not to effect an advance under the SEPA, without the advance mutual consent of both the Company and Yorkville, until the earliest of the date (i) all Convertible Debentures have been repaid or converted into Common Stock or (ii) Yorkville no longer has any right or ability to convert any portion of the Convertible Debentures into Common Stock (collectively, the “Consent Termination Date”). Yorkville agreed to extend the term set forth in the SEPA for a number of days equal to the number of days between the date of the Securities Purchase Agreement and the Consent Termination Date.

As of March 31, 2023 and December 31, 2022, the remaining commitment available under the agreement was $120.7 million.

Note 10 — Derivative Instruments

Public and Private Placement Warrants

As of March 31, 2023, the Company had 18,633,301 Public Warrants and 199,997 Private Placement Warrants outstanding, with fair values of $0.7 million and $7,000, respectively.

The Public Warrants have an exercise price of $11.50 per share, subject to adjustments, and will expire on August 20, 2026 or earlier upon redemption or liquidation. The Public Warrants may only be exercised for a whole number of shares. No fractional Public Warrants will be issued upon separation of the units and only whole Public Warrants will trade. The Public Warrants became exercisable; provided that the Company has an effective registration statement under the Securities Act covering the issuance of the Common Stock issuable upon exercise of the Warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder (or the Company permits holders to exercise their Warrants on a cashless basis under the circumstances specified in the warrant agreement). A registration statement was filed with the SEC covering the issuance of the Common Stock issuable

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Notes to Unaudited Condensed Consolidated Financial Statements

upon exercise of the Warrants, and the Company will use its commercially reasonable efforts to maintain the effectiveness of such registration statement and a current prospectus relating to those shares of Common Stock until the Public Warrants expire or are redeemed. If the shares of Common Stock are at the time of any exercise of a Public Warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, requires holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement.

The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the Common Stock issuable upon exercise of the Private Placement Warrants were not transferable, assignable or salable until September 19, 2021, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial shareholders or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

Redemption of Warrants for cash when the price per Common Stock equals or exceeds $18.00:

Once the Warrants become exercisable, the Company may redeem the outstanding Warrants (except as described above with respect to the Private Placement Warrants):

•in whole and not in part;

•at a price of $0.01 per Warrant;

•upon not less than 30 days’ prior written notice of redemption to each Warrant holder; and

•if, and only if, the last reported sale price of Common Stock for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the Warrant holders (the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for share sub-divisions, share dividends, rights issuances, consolidations, reorganizations, recapitalizations and the like).

The Company will not redeem the Warrants as described above unless a registration statement under the Securities Act covering the issuance of the Common Stock issuable upon exercise of the Warrants is then effective and a current prospectus relating to those Common Stock is available throughout the 30-day redemption period. If and when the Warrants become redeemable by the Company, it may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

Redemption of Warrants for Common Stock when the price per share equals or exceeds $10.00:

Once the Warrants become exercisable, the Company may redeem the outstanding Warrants (including both Public Warrants and Private Placement Warrants):

•in whole and not in part;

•at $0.10 per Warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to an agreed table based on the redemption date and the “fair market value” of Common Stock;

•if, and only if, the Reference Value equals or exceeds $10.00 per share (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like); and

•if the Reference Value is less than $18.00 per share (as adjusted), the Private Placement Warrants must also concurrently be called for redemption on the same terms as the outstanding Public Warrants, as described above.

The “fair market value” of Common Stock shall mean the average reported last sale price of Common Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of Warrants.

In no event will the Company be required to net cash settle any Warrant. The Warrants may also expire worthless.

Embedded Derivative Liabilities on Convertible Debentures

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Notes to Unaudited Condensed Consolidated Financial Statements

The Convertible Debentures are principally debt financial instrument hosts containing various embedded features and options. Upon analysis of these features and options, the Company identified one option present within both Convertible Debentures which required bifurcation from the host debt contract upon issuance of each debenture and subsequent periodic valuation under ASC 815. The Company estimates the fair value of the embedded features using a Monte Carlo simulation (see Note 1 7 — Fair Value Measurements). The carrying value of the embedded derivatives on the Convertible Debentures were recorded as derivative liabilities on the consolidated balance sheets and changes in fair value are reflected within the consolidated statements of operations and comprehensive loss.

Note 11 — Share-Based Compensation

2018 Stock Plan

On November 27, 2018, the Legacy Xos’ board of directors and stockholders adopted the 2018 Stock Plan. There are no shares available for issuance under the 2018 Stock Plan; however, the 2018 Stock Plan continues to govern the terms and conditions of the outstanding awards granted under the 2018 Stock Plan.

Options

As of March 31, 2023, there were 1,569,996 Options outstanding under the 2018 Stock Plan. The amount and terms of Option grants were determined by the board of directors of Legacy Xos. The Options granted under the 2018 Stock Plan generally expire within 10 years from the date of grant and generally vest over 4 years, at the rate of 25% on the first anniversary of the date of grant and ratably on a monthly basis over the remaining 36-month period thereafter based on continued service.

Stock option activity during the three months ended March 31, 2023 consisted of the following:


	Options	Weighted Average Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Years	Intrinsic Value
December 31, 2022 — Options outstanding	1,572,451	$	0.02	$	0.02	7.14	$	670,451
Granted	—	—		—
Exercised	1,647	0.02		0.02
Forfeited	808	0.02		0.02
March 31, 2023 — Options outstanding	1,569,996	$	0.02	$	0.02	6.90	$	798,297
March 31, 2023 — Options vested and exercisable	1,105,080	$	0.02	$	0.02	6.74	$	562,066

Aggregate intrinsic value represents the difference between the exercise price of the options and the fair value of the Company’s common stock. The aggregate intrinsic value of options exercised during the three months ended March 31, 2023 and 2022 were approximately $800 and $