EVLV Evolv Technologies Holdings Inc

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x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware			84-4473840
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

500 Totten Pond Road, 4th Floor

Waltham, Massachusetts 02451

Title of Each Class

Trading symbol

Name of Exchange on which registered

Class A common stock, par value $0.0001 per share

EVLV

The Nasdaq Stock Market

Warrants to purchase one share of Class A common stock

EVLVW

The Nasdaq Stock 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 x No o

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 x No o

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

x

Smaller reporting company

x

Emerging growth company

x

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. o

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

						Page
Part I			Financial Information
Item 1.			Financial Statements
			Condensed Consolidated Balance Sheets (Unaudited)			F-1
			Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)			F-2
			Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)			F-3
			Condensed Consolidated Statements of Cash Flows (Unaudited)			F-4
			Notes to Consolidated Financial Statements (Unaudited)			F-6
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			1
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			12
Item 4.			Controls and Procedures			13
Part II			Other Information			15
Item 1.			Legal Proceedings			15
Item 1A.			Risk Factors			15
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			15
Item 3.			Defaults Upon Senior Securities			15
Item 4.			Mine Safety Disclosures			15
Item 5.			Other Information			16
Item 6.			Exhibits			17
Signatures

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in 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”). All statements contained in this Quarterly Report on Form 10-Q, other than statements of historical fact, including, without limitation, statements regarding our results of operations and financial position, business strategy, plans and prospects, our relationship with significant manufacturers and suppliers, our ability to obtain new customers and retain existing customers, existing and prospective products, research and development costs, timing and likelihood of success, macroeconomic and market trends, and plans and objectives of management for future operations and results, are forward-looking statements. The words “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions are intended to identify forward-looking statements though not all forward-looking statement use these word or expressions.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, without limitation expectations regarding the Company’s strategies and future financial performance, including its future business plans or objectives, prospective performance and opportunities and competitors, revenues, products and services, pricing, operating expenses, market trends, liquidity, cash flows and uses of cash, capital expenditures; the Company’s history of losses and lack of profitability; the Company’s reliance on third party contract manufacturing and a global supply chain; the rate of innovation required to maintain competitiveness in the markets in which the Company competes; the competitiveness of the market in which the Company competes; the failure of our products to detect threats could result in injury or loss of life, which could harm our brand, reputation, and results of operations; the loss of designation of our Evolv Express system as a Qualified Anti-Terrorism Technology under the Homeland Security SAFETY Act; the ability for the Company to obtain, maintain, protect and enforce the Company’s intellectual property rights and use of “open source” software; the concentration of the Company’s revenues on a single solution; risks related to our indebtedness; the Company’s ability to timely design, produce and launch its solutions, the Company’s ability to invest in growth initiatives and pursue acquisition opportunities; the limited liquidity and trading of the Company’s securities; risks related to existing and changing tax laws; geopolitical risk and changes in applicable laws or regulations; the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; operational risk; risks related to the identification of a material weakness in our internal control over financial reporting; risks related to increasing attention to and evolving expectations for, environmental, social, and governance initiatives, risk that the COVID-19 pandemic may have an adverse effect on the Company’s business operations, as well as the Company’s financial condition and results of operations; the impact of fluctuating general economic and market conditions; the need for additional capital to support business growth, which might not be available on acceptable terms, if at all; risks related to our indebtedness; and litigation and regulatory enforcement risks, including the diversion of management time and attention and the additional costs and demands on resources; and other important factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as any such factors may be updated from time to time in its other filings with the Securities and Exchange Commission (the “SEC”). The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, it may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

We may announce material business and financial information to our investors using our investor relations website at https://ir.evolvtechnology.com/. We therefore encourage investors and others interested in Evolv to review the information that we make available on our website, in addition to following our filings with the SEC, webcasts, press releases and conference calls. Information contained on our website is not part of this Quarterly Report on Form 10-Q.

(Unaudited)

			March 31, 2023						December 31, 2022
Assets
Current assets:
Cash and cash equivalents			$	180,996					$	229,783
Restricted cash			1,000						—
Accounts receivable, net			23,156						31,920
Inventory			8,816						10,257
Current portion of contract assets			3,265						2,852
Current portion of commission asset			3,293						3,384
Prepaid expenses and other current assets			14,413						14,388
Total current assets			234,939						292,584
Restricted cash, noncurrent			275						275
Contract assets, noncurrent			715						1,386
Commission asset, noncurrent			6,390						5,655
Property and equipment, net			59,789						44,707
Operating lease right-of-use assets			1,459						1,673
Other assets			1,965						1,835
Total assets			$	305,532					$	348,115
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable			$	19,192					$	18,194
Accrued expenses and other current liabilities			6,477						11,545
Current portion of deferred revenue			23,977						18,273
Current portion of long-term debt			—						10,000
Current portion of operating lease liabilities			1,122						1,114
Total current liabilities			50,768						59,126
Deferred revenue, noncurrent			20,748						17,695
Long-term debt, noncurrent			—						19,683
Operating lease liabilities, noncurrent			630						892
Contingent earn-out liability			17,536						14,218
Contingently issuable common stock liability			4,134						3,392
Public warrant liability			7,874						6,124
Total liabilities			101,690						121,130
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 100,000,000 authorized at March 31, 2023 and December 31, 2022; no shares issued and outstanding at March 31, 2023 and December 31, 2022			—						—
Common stock, $0.0001 par value; 1,100,000,000 shares authorized at March 31, 2023 and December 31, 2022; 147,977,034 and 145,204,974 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively			15						15
Additional paid-in capital			424,672						419,190
Accumulated other comprehensive loss			(26)						(10)
Accumulated deficit			(220,819)						(192,210)
Stockholders’ equity			203,842						226,985
Total liabilities and stockholders’ equity			$	305,532					$	348,115

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

			Three Months Ended March 31,
			2023						2022
Revenue:
Product revenue			$	8,754					$	5,194
Subscription revenue			6,466						3,004
Service revenue			3,361						512
Total revenue			18,581						8,710
Cost of revenue:
Cost of product revenue			10,578						5,206
Cost of subscription revenue			2,351						1,542
Cost of service revenue			887						1,065
Total cost of revenue			13,816						7,813
Gross profit			4,765						897
Operating expenses:
Research and development			5,389						4,175
Sales and marketing			12,804						9,672
General and administrative			8,926						10,817
Loss from impairment of property and equipment			137						96
Total operating expenses			27,256						24,760
Loss from operations			(22,491)						(23,863)
Other income (expense), net:
Interest expense			(654)						(142)
Interest income			953						68
Other expense, net			19						—
Loss on extinguishment of debt			(626)						—
Change in fair value of contingent earn-out liability			(3,318)						3,078
Change in fair value of contingently issuable common stock liability			(742)						1,472
Change in fair value of public warrant liability			(1,750)						5,586
Total other income (expense), net			(6,118)						10,062
Net loss			$	(28,609)					$	(13,801)
Weighted average common shares outstanding – basic and diluted			146,433,378						142,878,406
Net loss per share - basic and diluted			$	(0.20)					$	(0.10)
Net loss			$	(28,609)					$	(13,801)
Other comprehensive loss
Cumulative translation adjustment			(16)						—
Total other comprehensive loss			(16)						—
Total comprehensive loss			$	(28,625)					$	(13,801)

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

			Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Stockholders’ Equity
			Shares						Amount
Balances at December 31, 2022			145,204,974						$	15					$	419,190					$	(10)					$	(192,210)					$	226,985
Issuance of common stock upon net exercise of stock options			100,587						—						33						—						—						33
Issuance of common stock upon vesting of restricted stock units			1,841,257						—						—						—						—						—
Issuance of common stock upon exercise of warrants			830,216						—						348						—						—						348
Stock-based compensation cost			—						—						5,101						—						—						5,101
Cumulative translation adjustment			—						—						—						(16)						—						(16)
Net loss			—						—						—						—						(28,609)						(28,609)
Balances at March 31, 2023			147,977,034						$	15					$	424,672					$	(26)					$	(220,819)					$	203,842
Balances at December 31, 2021			142,745,021						$	14					$	396,064					$	—					$	(105,804)					$	290,274
Issuance of common stock upon exercise of stock options			496,971						—						226						—						—						226
Issuance of common stock upon vesting of restricted stock units			80,044						—						—						—						—						—
Stock-based compensation cost			—						—						3,953						—						—						3,953
Net loss			—						—						—						—						(13,801)						(13,801)
Balances at March 31, 2022			143,322,036						$	14					$	400,243					$	—					$	(119,605)					$	280,652

(Unaudited)

			Three Months Ended March 31,
			2023						2022
Cash flows from operating activities:
Net loss			$	(28,609)					$	(13,801)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,815						1,086
Write-off of inventory and change in inventory reserve			214						324
Adjustment to property and equipment for sales type leases			—						(625)
Loss from impairment of property and equipment			137						96
Stock-based compensation			5,043						3,927
Non-cash interest expense			22						5
Non-cash lease expense			214						197
Change in allowance for expected credit losses			124						—
Loss on extinguishment of debt			626						—
Change in fair value of earn-out liability			3,318						(3,078)
Change in fair value of contingently issuable common stock			742						(1,472)
Change in fair value of public warrant liability			1,750						(5,586)
Changes in operating assets and liabilities
Accounts receivable			8,640						(2,112)
Inventory			1,418						(1,310)
Commission assets			(644)						(351)
Contract assets			258						108
Other assets			(130)						141
Prepaid expenses and other current assets			(25)						(5,571)
Accounts payable			(2,213)						(855)
Deferred revenue			8,757						2,577
Accrued expenses and other current liabilities			(4,637)						(2,433)
Operating lease liability			(254)						(697)
Net cash used in operating activities			(3,434)						(29,430)
Cash flows from investing activities:
Development of internal-use software			(733)						(728)
Purchases of property and equipment			(13,365)						(6,689)
Proceeds from sale of property and equipment			60						—
Net cash used in investing activities			(14,038)						(7,417)
Cash flows from financing activities:
Proceeds from exercise of stock options			33						227
Proceeds from long-term debt			1,876						—
Repayment of principal on long-term debt			(31,876)						—
Payment of debt issuance costs and prepayment penalty			(332)						—
Net cash provided by (used in) financing activities			(30,299)						227
Effect of exchange rate changes on cash and cash equivalents			(16)						—
Net increase (decrease) in cash, cash equivalents and restricted cash			(47,787)						(36,620)
Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period			230,058						308,167
Cash, cash equivalents and restricted cash at end of period			$	182,271					$	271,547
Supplemental disclosure of cash flow information
Cash paid for interest			$	710					$	133
Supplemental disclosure of non-cash activities
Transfer of property and equipment to inventory			$	191					$	—
Capital expenditures incurred but not yet paid			10,648						2,391
Capitalization of stock compensation			91						25
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents			$	180,996					$	270,872
Restricted cash			1,000						400
Restricted cash, noncurrent			275						275
Total cash, cash equivalents and restricted cash shown in the statements of cash flows			$	182,271					$	271,547

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

On July 16, 2021, we consummated the business combination (the “Merger”), contemplated by the Agreement and Plan of Merger, dated March 5, 2021, with NHIC Sub Inc. (“Merger Sub”), a wholly-owned subsidiary of NewHold Investment Corp. (“NHIC”), a special purpose acquisition company, which is our legal predecessor, and Evolv Technologies, Inc. dba Evolv Technology, Inc. (“Legacy Evolv”), as amended by that certain First Amendment to Agreement and Plan of Merger dated June 5, 2021 by and among NHIC, Merger Sub and Legacy Evolv (the “Amendment” and as amended, the “Merger Agreement”). Pursuant to the Merger Agreement, Merger Sub was merged with and into Legacy Evolv, with Legacy Evolv surviving the Merger as a wholly-owned subsidiary of NHIC. Upon the closing of the Merger, NHIC changed its name to Evolv Technologies Holdings, Inc. Evolv Technologies Holdings, Inc. became the successor entity to NHIC pursuant to Rule 12g-3(a) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”). The new standard adjusts the accounting for assets held at amortized cost basis, including marketable securities accounted for as available for sale, and trade receivables. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For public entities except smaller reporting companies, the guidance is effective for annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10, which deferred the effective date for non-public entities and smaller reporting companies to annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. Early application is allowed. The Company adopted this guidance effective January 1, 2023, and the adoption of this guidance did not have a material impact on its consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The amendments in ASU 2021-08 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. The Company adopted this guidance effective January 1, 2023, and the adoption of this guidance did not have an impact on its consolidated financial statements and related disclosures.

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values (in thousands):

			Fair Value Measurements at March 31, 2023
			Level 1						Level 2						Level 3						Total
Assets:
Money market funds			$	17					$	—					$	—					$	17
			$	17					$	—					$	—					$	17
Liabilities:
Contingent earn-out liability			$	—					$	—					$	17,536					$	17,536
Contingently issuable common stock liability			—						—						4,134						4,134
Public Warrant liability			7,874						—						—						7,874
			$	7,874					$	—					$	21,670					$	29,544

			Fair Value Measurements as of December 31, 2022
			Level 1						Level 2						Level 3						Total
Assets:
Money market funds			$	149,971					$	—					$	—					$	149,971
			$	149,971					$	—					$	—					$	149,971
Liabilities:
Contingent earn-out liability			$	—					$	—					$	14,218					$	14,218
Contingently issuable common stock liability			—						—						3,392						3,392
Public Warrant liability			6,124						—						—						6,124
			$	6,124					$	—					$	17,610					$	23,734

Money market funds are included in cash and cash equivalents on the condensed consolidated balance sheets. The Company may also value its non-financial assets and liabilities, including items such as inventories and property and equipment, at fair value on a non-recurring basis if it is determined that impairment has occurred. Such fair value measurements use significant unobservable inputs and are classified as Level 3.

During each of the three months ended March 31, 2023 and 2022, there were no transfers between Level 1, Level 2 and Level 3.

Pursuant to the Merger Agreement, the Legacy Evolv shareholders, immediately prior to the Merger, were entitled to receive additional shares of the Company’s common stock upon the Company achieving certain milestones as described in Note 2 of our consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2022. The Company’s contingent earn-out shares were recorded at fair value as contingent earn-out liability upon the closing of the Merger and are remeasured each reporting period. As of March 31, 2023, no milestones have been achieved.

The fair value of the contingent earn-out is calculated using a Monte Carlo analysis in order to simulate the future path of the Company’s stock price over the earn-out period. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability’s estimated value. The significant assumptions used in the Monte Carlo model as of March 31, 2023 were as follows: 90% expected stock price volatility, a risk-free rate of return of 3.8%, a 25% likelihood of change in control and a remaining term of 2.9 years.

Balance at December 31, 2022			$	14,218
Change in fair value			3,318
Balance at March 31, 2023			$	17,536

Prior to the Merger, certain NHIC shareholders owned 4,312,500 shares of NHIC Class B common stock (the "Founder Shares"). Upon the closing of the Merger, NHIC Class A and Class B common stock became the Company's common stock. 1,897,500 Founder Shares vested at the closing of the Merger, 517,500 Founder Shares were transferred back to NHIC and then contributed to Give Evolv LLC, and the remaining 1,897,500 outstanding Founder Shares are contingently issuable and shall vest upon the Company achieving certain milestones as described in Note 2 of our consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2022. The Company’s contingently issuable common shares were recorded at fair value on the closing of the Merger and are remeasured each reporting period. As of March 31, 2023, no milestones have been achieved.

The fair value of the contingently issued common shares is determined using a Monte Carlo analysis in order to simulate the future path of the Company’s stock price over the vesting period. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability’s estimated value. The significant assumptions used in the Monte Carlo model as of March 31, 2023 were as follows: 90% expected stock price volatility, a risk-free rate of return of 3.8%, a 25% likelihood of change in control and a remaining term of 3.3 years.

The following table provides a rollforward of the contingently issuable common shares (in thousands):

Balance at December 31, 2022			$	3,392
Change in fair value			742
Balance at March 31, 2023			$	4,134

In connection with the closing of the Merger, the Company assumed warrants (the "Public Warrants") to purchase 14,325,000 shares of common stock at an exercise price of $11.50. The Public Warrants are immediately exercisable and expire in July 2026. The Public Warrants are classified as a liability and are subsequently remeasured to fair value at each reporting date based on the closing price as reported by Nasdaq on the last date of the reporting period. None of the Public Warrants have been exercised as of March 31, 2023.

Balance at December 31, 2022			$	6,124
Change in fair value			1,750
Balance at March 31, 2023			$	7,874

The Company recognizes revenue in accordance with Accounting Standards Codification 606 – Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In order to achieve this core principle, the Company applies the following five steps when recording revenue: (1) identify the contract, or contracts, with the customer, (2) identify the performance obligations in the

			Less than 1 year						Greater than 1 year						Total
Product revenue			$	5,435					$	—					$	5,435
Subscription revenue			31,659						67,413						99,072
Service revenue			15,930						41,376						57,306
Total revenue			$	53,024					$	108,789					$	161,813

The amount of minimum future leases is based on expected income recognition. As of March 31, 2023, future minimum payments on noncancelable leases are as follows (in thousands):

Year Ending December 31:
2023 (nine months remaining)			$	23,898
2024			30,446
2025			26,586
2026			16,060
2027			2,065
Thereafter			17
			$	99,072

Balance at December 31, 2022			$	35,968
Revenue recognized in relation to the beginning of the year contract liability balance			(6,887)
Revenue deferred			15,644
Balance at March 31, 2023			$	44,725

			Three Months Ended March 31,
			2023						2022
Revenue from sales-type leases			$	—					$	1,106
Interest income on lease receivables			53						49
Lease income - operating leases			6,466						3,004
Total lease revenue			$	6,519					$	4,159

The revenue from sales-type leases is related to the Evolv Express units where the lease term is for the major part of the economic life of the underlying equipment and is classified as product revenue in the condensed consolidated statements of operations and comprehensive loss. The interest income on lease receivables is classified as other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. The lease income from operating leases is related to the leased equipment under subscription arrangements and is classified as subscription revenue in the condensed consolidated statements of operations and comprehensive loss. Revenue related to leases entered into with related parties were $0.2 million and $0.1 million during the three months ended March 31, 2023 and 2022, respectively.

			Three Months Ended March 31,
			2023						2022
Product revenue			$	8,754					$	5,194
Leased equipment			6,466						3,004
SaaS, maintenance, and other revenue			2,778						368
Professional services			583						144
Total revenue			$	18,581					$	8,710

			Allowance for Doubtful Accounts
Balance at December 31, 2022			$	(200)
Provisions			(124)
Write-offs, net of recoveries			—
Balance at March 31, 2023			$	(324)

			March 31, 2023						December 31, 2022
Raw materials			$	2,406					$	2,334
Finished goods			6,410						7,923
Total			$	8,816					$	10,257

			March 31, 2023						December 31, 2022
Computers and telecom equipment			$	843					$	599
Lab equipment			902						871
Furniture and fixtures			111						111
Leasehold improvements			542						542
Leased equipment			44,147						35,983
Capitalized software			5,013						4,150
Sales demo equipment			2,411						2,340
Equipment held for lease1			15,322						7,826
Construction in progress			23						71
			69,314						52,493
Less: Accumulated depreciation and amortization			(9,525)						(7,786)
			$	59,789					$	44,707

As of March 31, 2023 and December 31, 2022, the net book value of capitalized software was $4.2 million and $3.5 million, respectively. These amounts include $0.1 million and $0.2 million of capitalized stock compensation costs, respectively. Depreciation and amortization expense related to property and equipment was $1.8 million and $1.1 million for the three months ended March 31, 2023 and 2022.

			March 31, 2023						December 31, 2022
Leased equipment			$	44,147					$	35,983
Accumulated depreciation			(7,115)						(5,802)
Leased equipment, net			$	37,032					$	30,181

Depreciation expense related to leased units was $1.4 million and $0.9 million during the three months ended March 31, 2023 and 2022, respectively. Depreciable lives are generally 7 years, consistent with the Company’s planned and historical usage of the equipment subject to operating leases.

			March 31, 2023						December 31, 2022
Term loans payable			$	—					$	30,000
Less: Unamortized discount			—						(317)
			—						29,683
Less: Current portion of long-term debt			—						10,000
Long-term debt, net of discount			$	—					$	19,683

In December 2022, the Company entered into a loan and security agreement (the "2022 SVB Credit Agreement") with Silicon Valley Bank ("SVB") in order to finance purchases of hardware to be leased to customers. The 2022 SVB Credit Agreement provided for an initial term loan advance of $30.0 million, which was approximately equivalent to the value of all hardware purchases made to support leasing transactions with the Company's customers through December 21, 2022 (the "SVB Closing Date"), with the opportunity to obtain, within 18 months after the SVB Closing Date, additional term loan advances, subject to the satisfaction of certain conditions, in an aggregate principal amount equal to $20.0 million (subject to an increase of an additional $25.0 million upon the satisfaction of certain conditions and approval from SVB). The interest rate applicable to the SVB Term Loans was the greater of (a) the Wall Street Journal Prime Rate plus 1.0% or (b) 7.25% per annum. Interest and principal under the SVB Credit Agreement was payable monthly.

On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Corporation ("FDIC") as receiver. The FDIC created a successor bridge bank, Silicon Valley Bridge Bank, N.A. ("SVBB"), and all deposits of SVB were transferred to SVBB under a systemic risk exception approved by the Federal Reserve, the U.S. Treasury Department, and the FDIC. On March 12, 2023, the Federal Reserve, the U.S. Treasury Department, and the FDIC announced in a joint statement that all SVB deposits, including both insured and uninsured amounts, would be available in full to account holders. SVB was acquired by First Citizens Bank on March 27, 2023.

In light of the foregoing, on March 28, 2023, upon the recommendation of the Company’s newly-formed Investment Committee of the Board of Directors, the Company (i) gave notice of its desire and intent to terminate the commitments under the 2022 SVB Credit Agreement and (ii) transferred its excess cash out of First Citizens Bank (the “Transfer”). The Transfer resulted in an event of default under the 2022 SVB Credit Agreement. Upon the occurrence of such event of default, First Citizens Bank could have, but was not required to, declare all obligations under the 2022 SVB

On March 31, 2023, the Company fully repaid all borrowings and accrued interest under the 2022 SVB Credit Agreement and terminated the 2022 SVB Credit Agreement. In accordance with the terms of the 2022 SVB Credit Agreement, the Company was required to pay a prepayment premium equal to 1.0% of the principal balance on the date of repayment. The Company incurred a loss on debt extinguishment of $0.6 million, consisting of the prepayment penalty of $0.3 million and the write off of $0.3 million of unamortized debt issuance costs.

The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted during the three months ended March 31, 2023 and 2022:

			Three Months Ended March 31,
			2023						2022
Risk-free interest rate			4.2		%				1.6		%
Expected term (in years)			6.1						6.1
Expected volatility			87.5		%				75.0		%
Expected dividend yield			0.0		%				0.0		%

			Number of Shares						Weighted Average Exercise Price
Outstanding as of December 31, 2022			20,396,824						$	0.73
Granted			2,840,421						3.12
Exercised			(100,587)						0.33
Forfeited			—						—
Outstanding as of March 31, 2023			23,136,658						1.03

			Number of Shares						Grant Date Fair Value
Outstanding as of December 31, 2022			7,501,945						$	3.54
Granted			6,491,541						3.10
Vested			(1,409,257)						3.54
Forfeited			(188,696)						3.95
Outstanding as of March 31, 2023			12,395,533						$	3.30

			Number of Shares						Grant Date Fair Value
Outstanding as of December 31, 2022			864,000						$	2.65
Granted			—						—
Vested			(432,000)						2.65
Forfeited			(17,500)						2.65
Outstanding as of March 31, 2023			414,500						$	2.65

In January 2021, the Company granted warrants (the "Finback Common Stock Warrants") to purchase 2,552,913 shares of the Company's common stock at an exercise price of $0.42 per share to Finback Evolv OBH, LLC ("Finback"), a consulting group affiliated with one of the Company's shareholders. The Finback Common Stock Warrants vest upon meeting certain sales criteria as defined in a business development agreement (the "Finback BDA"), which has a term of 3 years. The BDA expired on January 1, 2023, but includes a 1-year "tail period" expiring on January 1, 2024. During the tail period, Finback Common Stock Warrants will continue to vest related to any sale consummated by the Company for which it is determined Finback provided services prior to January 1, 2023 in furtherance of the sale. The Finback Common Stock Warrants expire in January 2031. The Finback Common Stock Warrants are accounted for under ASC 718 Compensation – Stock Compensation as the warrants vest upon certain performance conditions being met.

During the three months ended March 31, 2023, 830,216 Finback Common Stock Warrants were exercised. As of March 31, 2023, 79,677 Finback Common Stock Warrants were exercisable at a total aggregate intrinsic value of $0.2 million, and 1,511,307 Finback Common Stock Warrants are unvested and have a total unrecognized grant date fair value of $11.5 million. During the three months ended March 31, 2023 and 2022, the Company recorded $0.6 million and $0.2 million, respectively, of stock-based compensation expense within sales and marketing expense related to the Finback Common Stock Warrants.

			Three Months Ended March 31,
			2023						2022
Cost of revenue			$	145					$	108
Research and development			837						548
Sales and marketing			1,998						1,484
General and administrative			2,063						1,787
Total stock-based compensation expense			$	5,043					$	3,927

There is no provision for income taxes for the three months ended March 31, 2023 and 2022 because the Company has historically incurred net operating losses and maintains a full valuation allowance against its deferred tax assets.

The Company’s tax provision and the resulting effective tax rate for interim periods is determined based upon its estimated annual effective tax rate (“AETR”), adjusted for the effect of discrete items arising in that quarter. The impact of such inclusions could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, a cumulative adjustment is made in that quarter.

Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):

			Three Months Ended March 31,
			2023						2022
Numerator:
Net income (loss) attributable to common stockholders – basic and diluted			$	(28,609)					$	(13,801)
Denominator:
Weighted average common shares outstanding - basic and diluted			146,433,378						142,878,406
Net loss per share attributable to common stockholders – basic and diluted			$	(0.20)					$	(0.10)

The following potentially dilutive outstanding securities were excluded from the computation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive or issuance of such shares is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period:

			Three Months Ended March 31,
			2023						2022
Options issued and outstanding			23,136,658						21,964,309
Public Warrants to purchase common stock			14,324,994						14,324,993
Warrants to purchase common stock (Finback)**			1,590,984						2,421,200
Unvested restricted stock units			12,395,533						6,251,002
Unvested performance stock units			414,500						934,000
Earn-out shares*			15,000,000						15,000,000
Contingently issuable common stock*			1,897,500						1,897,500
			68,760,169						62,793,004

*Issuance of Earn-out shares and Contingently issuable common stock are contingent upon the satisfaction of certain conditions, which were not satisfied by the end of the period

Reseller Agreement with Stanley Black & Decker

In June 2020, the Company entered into a reseller agreement with Stanley Black & Decker, an investor in the Company. Stanley Black & Decker's electronic security business was acquired by Securitas AB ("Securitas") in 2023. Securitas, directly or through its affiliates, resells the Company's products. During the three months ended March 31, 2023 and 2022, revenue from Securitas' reseller services was $0.4 million and less than $0.1 million, respectively. As of March 31, 2023 and December 31, 2022, accounts receivable related to Securitas' reseller services was $0.6 million and $2.2 million, respectively.

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its Board of Directors and certain of its executive officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their role, status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not currently aware of any indemnification claims and has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of March 31, 2023 or December 31, 2022.

Legal Proceedings

As discussed in Note 1, in preparing the condensed consolidated financial statements as of and for the three and six months ended June 30, 2022, the Company identified errors in its previously issued financial statements whereby (a) certain expenses that were cost of subscription revenue related and cost of service revenue related were inaccurately classified as sales and marketing expenses on the consolidated statements of operations and comprehensive loss, (b) certain equipment under lease or held for lease was inaccurately classified as inventory on the consolidated balance sheets and a portion of the cash outflows related to the equipment under lease or held for lease were misclassified between operating and investing cash flows on the consolidated statements of cash flows, and (c) the vesting of warrants related to the Business Development Agreement disclosed in Note 16 were not accounted for accurately. The identified errors impacted the Company's previously issued 2020 annual financial statements, 2021 quarterly and annual financial statements, and quarterly financial statements for the three months ended March 31, 2022. The Company has made adjustments to the prior period amounts presented in these financial statements accordingly. Additionally, the Company has made adjustments to

Revised Condensed Consolidated Statement of Operations and Comprehensive Loss

			Three Months Ended March 31, 2022
			As Previously Reported						Adjustment						As Revised
Revenue:
Product revenue			$	5,194					$	—					$	5,194
Subscription revenue			3,020						(16)						3,004
Service revenue			501						11						512
Total revenue			8,715						(5)						8,710
Cost of revenue:
Cost of product revenue			5,576						(370)						5,206
Cost of subscription revenue			1,065						477						1,542
Cost of service revenue			448						617						1,065
Total cost of revenue			7,089						724						7,813
Gross profit			1,626						(729)						897
Operating expenses:
Research and development			4,286						(111)						4,175
Sales and marketing expense			12,053						(2,381)						9,672
General and administrative			11,093						(276)						10,817
Loss from impairment of property and equipment			96						—						96
Total operating expenses			27,528						(2,768)						24,760
Loss from operations			(25,902)						2,039						(23,863)
Other income (expense), net:
Interest expense			(142)						—						(142)
Interest income			209						(141)						68
Change in fair value of contingent earn-out liability			4,226						(1,148)						3,078
Change in fair value of contingently issuable common stock liability			1,472						—						1,472
Change in fair value of public warrant liability			5,586						—						5,586
Total other income (expense), net			11,351						(1,289)						10,062
Net loss			$	(14,551)					$	750					$	(13,801)
Weighted average common shares outstanding - basic and diluted			142,878,406						—						142,878,406
Net loss per share - basic and diluted			$	(0.10)					$	—					$	(0.10)

			Three Months Ended March 31, 2022
			As Previously Reported			Adjustment			As Revised
Cash flows from operating activities:
Net loss			$	(14,551)		$	750		$	(13,801)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			948			138			1,086
Write-off of inventory			324			—			324
Adjustment to property and equipment for sales type leases			(321)			(304)			(625)
Loss from impairment of property and equipment			96			—			96
Stock-based compensation			5,190			(1,263)			3,927
Non-cash interest expense			5			—			5
Non-cash lease expense			197			—			197
Change in fair value of earn-out liability			(4,226)			1,148			(3,078)
Change in fair value of contingently issuable common stock			(1,472)			—			(1,472)
Change in fair value of public warrant liability			(5,586)			—			(5,586)
Changes in operating assets and liabilities
Accounts receivable			(2,112)			—			(2,112)
Inventory			(6,985)			5,675			(1,310)
Commission assets			(351)			—			(351)
Contract assets			108			—			108
Other assets			—			141			141
Prepaid expenses and other current assets			(5,280)			(291)			(5,571)
Accounts payable			(1,867)			1,012			(855)
Deferred revenue			2,778			(201)			2,577
Deferred rent			(468)			468			—
Accrued expenses and other current liabilities			(2,065)			(368)			(2,433)
Operating lease liability			(229)			(468)			(697)
Net cash used in operating activities			(35,867)			6,437			(29,430)
Cash flows from investing activities:
Development of internal-use software			(646)			(82)			(728)
Purchases of property and equipment			(323)			(6,366)			(6,689)
Net cash used in investing activities			(969)			(6,448)			(7,417)
Cash flows from financing activities:
Proceeds from exercise of stock options			216			11			227
Net cash provided by financing activities			216			11			227
Net increase (decrease) in cash, cash equivalents and restricted cash			(36,620)			—			(36,620)
Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period			308,167			—			308,167
Cash, cash equivalents and restricted cash at end of period			$	271,547		$	—		$	271,547
Supplemental disclosure of non-cash activities
Transfer of inventory to property and equipment			$	4,620		$	(4,620)		$	—
Capital expenditures incurred but not yet paid			1,693			698			2,391

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Form 10-K"). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” section of our 2022 Form 10-K and in other parts of this Quarterly Report on Form 10-Q.

During the year ended December 31, 2022, we identified immaterial errors in our previously issued financial statements. We have corrected the amounts as presented in this Item 7 accordingly. Please refer to Notes 1 and 14 to the financial statements included in Part 1 of this Quarterly Report on Form 10-Q for additional information.

We are a leader in AI-based weapons detection for security screening. Unlike conventional walk-through metal detectors, our products use advanced sensors, artificial intelligence software, and cloud services to reliably detect guns, improvised explosives, and large knives while ignoring harmless items like phones and keys. This not only enhances security at venues and facilities but also improves the visitor experience by making screening up to ten times faster than alternatives at up to 70% lower total cost.

Services revenue includes subscription-based SaaS and maintenance revenue related to products sold to customers, as well as installation and training services. Revenue for installation and training are recognized upon transfer of control of these services, which are normally rendered over a short duration. Maintenance consists of technical support, bug fixes, and when-and-if available threat updates. SaaS and maintenance revenue is recognized ratably over the period of the arrangement, which is typically four years.

•Market conditions that may impact our pricing;

•Product mix changes between established products and new products;

•Mix between purchase subscription sales and pure subscription sales;

•Our cost structure for manufacturing operations, including contract manufacturers, relative to volume, and our product support obligations;

•Our ability to maintain our costs on the components that go into the manufacture of our product; and

•Write-offs of inventory.

The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022, (in thousands):

			Three Months Ended March 31,
			2023						2022						$ Change						% Change
Revenue:
Product revenue			$	8,754					$	5,194					$	3,560					69		%
Subscription revenue			6,466						3,004						3,462						115
Service revenue			3,361						512						2,849						556
Total revenue			18,581						8,710						9,871						113
Cost of revenue:
Cost of product revenue			10,578						5,206						5,372						103
Cost of subscription revenue			2,351						1,542						809						52
Cost of service revenue			887						1,065						(178)						(17)
Total cost of revenue			13,816						7,813						6,003						77
Gross profit			4,765						897						3,868						431
Operating expenses:
Research and development			5,389						4,175						1,214						29
Sales and marketing			12,804						9,672						3,132						32
General and administrative			8,926						10,817						(1,891)						(17)
Loss from impairment of property and equipment			137						96						41						43
Total operating expenses			27,256						24,760						2,496						10
Loss from operations			(22,491)						(23,863)						1,372						(6)
Other income (expense), net:
Interest expense			(654)						(142)						(512)						361
Interest income			953						68						885						1301		%
Other expense, net			19						—						19						*
Loss on extinguishment of debt			(626)						—						(626)						*
Change in fair value of contingent earn-out liability			(3,318)						3,078						(6,396)						(208)
Change in fair value of contingently issuable common stock liability			(742)						1,472						(2,214)						(150)
Change in fair value of public warrant liability			(1,750)						5,586						(7,336)						(131)
Total other income (expense), net			(6,118)						10,062						(16,180)						(161)
Net loss attributable to common stockholders – basic and diluted			$	(28,609)					$	(13,801)					$	(14,808)					107		%