EVOLV TECHNOLOGIES HOLDINGS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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, 2021
(the "2021 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 2021 Form 10-K and in other
parts of this Quarterly Report on Form 10-Q.

In preparing the condensed consolidated financial statements as of and for the
three and six months ended June 30, 2022, we identified immaterial errors in our
previously issued financial statements. We have corrected the amounts as
presented in this Item 2 accordingly. Please refer to Notes 1 and 21 to the
financial statements included in Part I, Item 1 of this Quarterly Report on Form
10-Q for additional information.

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.

As used in this Quarterly Report on Form 10-Q, unless otherwise indicated or the
context otherwise requires, references to "we," "us," "our," the "Company" and
"Evolv" refer to the consolidated operations of Evolv Technologies Holdings,
Inc. and its subsidiaries. References to "NHIC" refer to the company prior to
the consummation of the Merger and references to "Legacy Evolv" refer to Evolv
Technologies, Inc. dba Evolv Technology, Inc. prior to the consummation of the
Merger.

Business Overview

We are a global 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.

Our products have screened over 425 million visitors worldwide since our
inception. We believe that we have screened more people through advanced systems
than any organization other than the United States Transportation Security
Administration ("TSA"). Our customers include many iconic venues across a wide
variety of industries, including major sports stadiums and arenas, notable
performing arts and entertainment venues, major tourist destinations and
cultural attractions, large industrial workplaces, schools in large districts,
and prominent houses of worship. We offer our products for lease or purchase,
and utilize a multi-year security-as-a-service subscription pricing model that
delivers ongoing value to customers, generates predictable revenue, and creates
expansion and upsell opportunities.

Our mission is to make the world a safer and more enjoyable place to live, work,
study, and play. We are focused on delivering value in the spaces in and around
the physical threshold of large venues and facilities. We believe that digitally
transforming the threshold experience is one of the most exciting innovation
opportunities of our time. We believe that our ongoing innovations will not only
make venues and facilities safer and more enjoyable, but also more efficient and
profitable.

Since our inception, we have incurred significant operating losses. Our ability
to generate revenue and achieve cost improvements sufficient to achieve
profitability will depend on the successful further development and
commercialization of our products. We generated revenue of $16.5 million and
$8.4 million for the three months ended September 30, 2022 and 2021,
respectively. We generated net income (loss) of $(18.6) million and $20.8
million for the
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three months ended September 30, 2022 and 2021, respectively. We expect to
continue to incur operating losses as we focus on growing and establishing
recurring commercial sales of our products, including growing our sales and
marketing teams, scaling our manufacturing operations, and continuing research
and development efforts to develop new products and further enhance our existing
products.

Because of the numerous risks and uncertainties associated with product
development and commercialization, we are unable to accurately predict the
timing or amount of increased expenses or when, or if, we will be able to
achieve or maintain profitability. Until such time, if ever, as we can generate
substantial revenue sufficient to achieve profitability, we expect to finance
our operations through a combination of equity offerings and debt financings. In
July 2021, we received gross proceeds of $300.0 million from our PIPE Investment
as well as $84.9 million in proceeds, net of redemptions received from the
closing of the Merger. However, we may be unable to raise additional funds or
enter into such other agreements or arrangements when needed on favorable terms,
or at all. If we are unable to raise capital or enter into such agreements as,
and when, needed, we may have to significantly delay, scale back or discontinue
the further development and commercialization efforts of one or more of our
products, or may be forced to reduce or terminate our operations. See "Liquidity
and Capital Resources."

NewHold Investment Corporation Merger


On July 16, 2021, we completed the previously announced Merger, pursuant to the
Agreement and Plan of Merger, dated as of March 5, 2021, and amended by the
First Amendment to Agreement and Plan of Merger (the "Merger Agreement"), dated
as of June 5, 2021. Upon the closing of the Merger, NHIC changed its name to
Evolv Technologies Holdings, Inc. and the officers of NHIC, the legal
predecessor company, resigned. The officers of Legacy Evolv became the officers
of the Company, and the Company listed its shares of common stock, par value
$0.0001 per share, on Nasdaq under the symbol "EVLV".

Prior to the completion of the Merger, we entered into subscription agreements
(collectively, the "PIPE Investment") with certain parties subscribing for
shares of our common stock (the "Subscribers"). Pursuant to the PIPE Investment,
we issued 30,000,000 shares of common stock for a purchase price of $10.00 per
share with gross proceeds of $300.0 million. The purpose of the PIPE Investment
was to fund general corporate expenses.

Upon the closing of the Merger, each share of NHIC Class B common stock issued
and outstanding immediately prior to the effective time of the Merger, which
totaled 10,391,513 shares held by the NHIC Initial Shareholders ("Initial
Shareholders"), was automatically converted into one validly-issued share of our
common stock.

Additional information regarding the Merger Agreement appears in Note 3 of our
condensed consolidated financial statements for the three and nine months ended
September 30, 2022.

COVID-19

We have taken, and will continue to take, actions to mitigate the impact of the
COVID-19 pandemic on our cash flow and results of operations and financial
condition. While we have experienced supply chain challenges during the three
and nine months ended September 30, 2022, we have taken steps to prioritize
product availability and diversify our supply partners. In the long-term, we
believe that the COVID-19 pandemic may encourage organizations to continue to
reassess their security screening processes and may continue to accelerate their
adoption of solutions such as touchless security screening, which could create
additional demand for our products.

Additional information regarding COVID-19 risks appear in the “Risk Factors”
section of our 2021 Form 10-K.

Key Factors Affecting Our Operating Results


We believe that our performance and future success depend on many factors that
present significant opportunities for us but also pose risks and challenges,
including those discussed below and in the "Risk Factors" section of our 2021
Form 10-K, as updated by the "Risk Factors" section in this Quarterly Report on
Form 10-Q. We expect that our results of operations, including our revenue and
cost of revenue, may fluctuate or continue to fluctuate based on, among other
things, the impact of rising inflation rates on business spending; supply chain
issues and the impacts on our manufacturing capabilities; the continued effects
of the COVID-19 pandemic and other public health emergencies; the military
conflict between Russia and Ukraine and related geopolitical impacts; and a
possible economic recession. While these factors
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continue to evolve, we plan to remain flexible and to optimize our business as
appropriate and allocate resources as necessary.

Adoption of our Security Screening Products


We believe the world will continue to focus on the safety and security of people
in the places where they gather. Many of these locations, such as professional
sports venues, educational institutions, and healthcare facilities, are moving
toward a more frictionless security screening experience. We believe that we are
well-positioned to take advantage of this opportunity due to our proprietary
technologies and global distribution capabilities. Our products are designed to
empower venues and facilities to realize the full benefits of touchless security
screening, including a rapid visitor throughput and minimal security staff to
screened visitor physical contact. We expect that our results of operations,
including revenue, will fluctuate for the foreseeable future as venues and
facilities continue to shift away from conventional security screening processes
towards touchless security screening or consider security screening processes
for the first time. The degree to which potential and current customers
recognize these benefits and invest in our products will affect our financial
results.

Pricing, Product Cost and Margins


Revenue generated by the sale of products represented 60% and 64% of our total
revenue for the three months ended September 30, 2022 and 2021, respectively.
The remaining revenue was generated from subscription sales and services for our
products. Going forward, we expect our products to be adopted in a variety of
vertical industry markets and geographic regions, primarily within the United
States. With the further recent development, enhancement, and maintenance of our
analytics platform, which we refer to as Evolv Insights, as well as our plan to
lead increasingly with our subscription offering, we expect subscription revenue
as a percentage of total revenue to increase in future periods.

Pricing may also vary by region due to market-specific dynamics. As a result,
our financial performance depends, in part, on the mix of sales, bookings, and
business in different markets during a given period. In addition, we are subject
to price competition, and our ability to compete in key markets will depend on
the success of our investments in new technologies and cost improvements as well
as our ability to efficiently and reliably introduce cost-effective touchless
security screening products to our customers.

Continued Investment and Innovation


We believe that we are a global leader in AI-based weapons detection for
security screening, offering transformative technologies that enable higher
throughput, a more frictionless visitor experience, and substantial cost savings
through our product innovations. Our performance is significantly dependent on
the investment we make in our research and development efforts and on our
ability to be at the forefront of the security screening industry. It is
essential that we continually identify and respond to rapidly evolving customer
requirements, develop and introduce innovative new products, enhance existing
products and generate customer demand for our products. We believe that
investment in our security screening products will contribute to long-term
revenue growth, but it may adversely affect our near-term profitability.

Contingent Earn-out Shares


In connection with the Merger and pursuant to the Merger Agreement, certain of
the Legacy Evolv shareholders and Legacy Evolv Service Providers are entitled to
receive additional shares of the Company's common stock (the "Earn-Out Shares")
upon the Company achieving certain milestones.

The Earn-Out Shares are classified as liabilities in our condensed consolidated
balance sheets and were initially measured at fair value. Each reporting period,
the Earn-Out Shares are remeasured and changes in the fair value of the
contingent earn-out are recorded in other income (expense), net in our condensed
consolidated statements of operations and comprehensive loss. When the
Triggering Events have been achieved and the Earn-Out Shares are issued, the
Company will reclassify the corresponding amount from a liability to additional
paid-in-capital and common stock at par value of $0.0001 per share.

Additional information regarding Contingent Earn-out Shares vesting provisions
and accounting treatment appear in Note 2 of our consolidated financial
statements for the year ended December 31, 2021 of our Annual Report on Form
10-K.

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Contingently Issuable Common Stock

Prior to the Merger, certain NHIC shareholders owned 4,312,500 Founder Shares.
1,897,500 shares vested at the closing of the Merger, 517,500 shares were
transferred back to NHIC and then contributed to Give Evolv LLC. The remaining
1,897,500 outstanding shares shall vest upon the Company achieving certain
milestones.

The Founders Shares (the "Contingently Issuable Common Stock") are classified as
liabilities in our condensed consolidated balance sheets and were initially
measured at fair value. Each reporting period, the Founders Shares are
remeasured and changes in the fair value of the contingently issuable common
stock are recorded in other income (expense), net in our condensed consolidated
statements of operations and comprehensive loss. When the Triggering Events have
been achieved and the Founders Shares are issued, the Company will reclassify
the corresponding amount from a liability to additional paid-in-capital and
common stock at par value of $0.0001 per share.

Additional information regarding Contingently Issuable Common Stock vesting
provisions and accounting treatment appear in Note 2 of our consolidated
financial statements for the year ended December 31, 2021 of our Annual Report
on Form 10-K.

Components of Results of Operations

Revenue


We derive revenue from (1) subscription arrangements generally accounted for as
operating leases, (2) from the sale of products, inclusive of SaaS and
maintenance, and (3) professional services. Our arrangements are generally
noncancelable and nonrefundable after ownership passes to the customer for
product sales and upon installation for subscriptions. Revenue is recognized net
of sales tax.

Product Revenue

We derive a portion of our revenue from the sale of our Express equipment (and
prior to 2022, our Edge equipment) and related add-on accessories to customers.
Revenue is recognized when control of the product has transferred to the
customer, which follows the terms of each contract. We expect product revenue to
decline as a percentage of our overall revenue overtime as more and more
customers enter full subscription transactions with us and as our subscription
becomes more valuable to our business.

Subscription Revenue


Subscription revenue is comprised of revenue derived from leasing Express and
Edge units to our customers. Lease terms are typically four years and customers
generally pay either a quarterly or annual fixed payment for the lease and
maintenance elements over the contractual lease term. Equipment leases are
generally classified as operating leases as they do not meet any of the
sales-type lease criteria per ASC 842 and recognized ratably over the duration
of the lease. There are no contingent lease payments as a part of these
arrangements.

Generally, lease arrangements include both lease and non-lease components. The
non-lease components relate to (1) distinct services, such as SaaS, maintenance,
installation and training, and (2) any add-on accessories. Installation and
training are included in service revenue as described below, and add-on
accessories are included in product revenue as described above. Because the
equipment, SaaS, and maintenance components of a subscription arrangement are
recognized as revenue over the same time period and in the same pattern, the
equipment lease and SaaS/maintenance performance obligations are classified as a
single category of subscription revenue in our condensed consolidated statements
of operations and comprehensive loss.

Services Revenue


We provide SaaS, maintenance, installation and training services for our
products. 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.

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Cost of Revenue

We recognize cost of revenue in the same manner that the related revenue is
recognized.

Cost of Product Revenue

Cost of product revenue consists primarily of costs paid to third party
manufacturers, labor costs (including stock-based compensation), and shipping
costs.


Cost of Subscription Revenue

Cost of subscription revenue consists primarily of shipping costs, an allocated
portion of internal-use software amortization expense related to the Evolv cloud
portal, depreciation expense related to leased units, and maintenance costs
related to leased units. Maintenance costs consist primarily of labor (including
stock-based compensation), spare parts, shipping costs, field service repair
costs, equipment, and supplies.

Cost of Services Revenue


Cost of services revenue consists of costs related to installation and training
services, an allocated portion of internal-use software amortization expense
related to the Evolv cloud portal, and maintenance costs related to units
purchased by customers. Maintenance costs consists primarily of labor (including
stock-based compensation), spare parts, shipping costs, field service repair
costs, equipment, and supplies.

A provision for the estimated cost related to warranty is recognized as
necessary. Our estimate of costs to service the warranty obligations is based on
historical experience and expectations of future conditions. As of September 30,
2022, the warranty accrual was less than $0.1 million.

Gross Profit and Gross Margin

Our gross profit is calculated based on the difference between our revenues and
cost of revenues. Gross margin is the percentage obtained by dividing gross
profit by our revenue. Our gross profit and gross margin are, or may be,
influenced by a number of factors, including:


•Market conditions that may impact our pricing;
•Product mix changes between established products and new products;
•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.

We expect our gross margins to fluctuate over time, depending on the factors
described above.


Research and Development

Our research and development expenses represent costs incurred to support
activities that advance the development of innovative security screening
technologies, new product platforms, as well as activities that enhance the
capabilities of our existing product platforms. Our research and development
expenses consist primarily of salaries and bonuses, employee benefits,
stock-based compensation, prototypes, design expenses, and consulting and
contractor costs. We expect research and development costs will increase on an
absolute dollar basis for the year ended December 31, 2022 compared to the year
ended December 31, 2021 as we continue to invest in advancing our portfolio of
security screening products.

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Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related expenses
associated with our sales and marketing, customer success, business development,
and strategy functions, as well as costs related to trade shows and events, and
stock-based compensation. We expect our sales and marketing costs will increase
on an absolute dollar basis for the year ended December 31, 2022 compared to the
year ended December 31, 2021 as we expand our headcount and initiate new
marketing campaigns.

General and Administrative


General and administrative expenses consist primarily of personnel-related
expenses associated with our executive, finance, investor relations, legal,
information technology, and human resources functions, as well as professional
fees for legal, audit, accounting and other consulting services, stock-based
compensation, and sales tax contingencies. We expect our general and
administrative expenses will increase on an absolute dollar basis for the year
ended December 31, 2022 compared to the year ended December 31, 2021 as a result
of operating as a public company, including expenses necessary to comply with
the rules and regulations applicable to companies listed on a national
securities exchange and related to compliance and reporting obligations pursuant
to the rules and regulations of the SEC, as well as increased expenses for
general and director and officer insurance, and other administrative and
professional services. In addition, we expect to incur additional costs as we
hire additional personnel and enhance our infrastructure to support the
anticipated growth of the business.

Loss From Impairment of Property and Equipment


Impairment of property and equipment relates to Edge units and Express prototype
units that are removed from service and retired as we transition our domestic
customers to our most current Express units.

Interest Expense

Interest expense includes cash interest paid on our long-term debt and
amortization of deferred financing fees and costs.

Interest Income

Interest income relates to interest earned on money market funds and interest
earned on our lease receivables for our Evolv Express units.

Change in Fair Value of Derivative Liability


In August through September 2019 and in September 2020, we issued Convertible
Notes to several investors (the "2020 Convertible Notes") that provided a
conversion option whereby upon the closing of a specified financing event the
notes would automatically convert into shares of the same class and series of
our capital stock issued to other investors in the financing at a conversion
price equal to 85% and 80%, respectively, of the price per share of the
securities paid by the other investors. This conversion option was determined to
be an embedded derivative that was required to be bifurcated and accounted for
separately from the notes. The derivative liability was initially recorded at
fair value upon issuance of the notes and is subsequently remeasured to fair
value at each reporting date. Changes in the fair value of the derivative
liability are recognized in the condensed consolidated statements of operations
and comprehensive loss. In October 2019, the specified financing event was
consummated, as such the 2020 Convertible Notes issued August through September
2019 were converted into shares of Series B-1 Preferred Stock and the derivative
liability was extinguished.

In January and February 2021, we entered into a Convertible Note Purchase
Agreement (the "2021 Convertible Notes") with various investors for gross
proceeds of $30.0 million with a stated interest rate of 8.0% per annum. The
2021 Convertible Notes provided a conversion option whereby upon the closing of
a Qualified Financing event, in which the aggregate gross proceeds totaled at
least $100.0 million, the 2021 Convertible Notes would automatically convert
into shares of the same class and series of capital stock of the Company issued
to other investors in the financing at a conversion price equal to 80% of the
price per share paid by the other investors. The conversion option met the
definition of an embedded derivative and was required to be bifurcated and
accounted for separately from the notes. The proceeds from the 2021 Convertible
Notes were allocated between the derivative liability and included in long-term
liabilities on the Company's condensed consolidated balance sheet. The
difference between the initial carrying value of the notes and the
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stated value of the notes represented a discount that was accreted to interest
expense over the term of the Convertible Notes using the effective interest
method.

In June 2021, we modified the 2021 Convertible Notes to grant the holders an
additional 1,000,000 shares of NHIC common stock as further consideration upon
the automatic conversion of the notes upon closing of the Merger. The
modification of the 2021 Convertible Notes resulted in the recognition of a
derivative liability for the fair value of the 1,000,000 NHIC shares as of June
21, 2021 as well as a bifurcated embedded derivative for conversion feature into
shares of the same class and series of capital stock of the Company issued to
other investors in the financing at a conversion price equal to 80% of the price
per share paid by the other investors.

Upon the closing of the Merger, the Convertible Notes automatically converted
into 4,408,672 shares of the Company's common stock and the holders of the 2021
Convertible Notes also received 1,000,000 shares of the Company's common stock,
as noted above. Upon the conversion of the Convertible Notes, the carrying value
of the debt of $32.8 million, and the related derivative liability of $19.7
million and accrued interest of $0.2 million were derecognized resulting in a
loss on extinguishment of debt of $0.9 million recorded in other income
(expense), net in the condensed consolidated statements of operations and
comprehensive loss.

Change in Fair Value of Contingent Earn-out Liability


In connection with the Merger and pursuant to the Merger Agreement, certain of
Legacy Evolv's initial shareholders are entitled to receive additional shares of
our common stock upon us achieving certain milestones. The earn-out arrangement
with the Legacy Evolv shareholders is accounted for as a liability and
subsequently remeasured at each reporting date with changes in fair value
recorded as a component of other income (expense), net in the condensed
consolidated statements of operations and comprehensive loss.

Change in Fair Value of Contingently Issuable Common Stock Liability


Prior to the Merger, certain NHIC shareholders owned 4,312,500 shares of Founder
Shares. 1,897,500 shares vested at the closing of the Merger, 1,897,500 shares
shall vest upon us achieving certain milestones and 517,500 shares were
contributed to Give Evolv LLC. Those 1,897,500 outstanding contingently issuable
common shares are accounted for as a liability and subsequently remeasured at
each reporting date with changes in fair value recorded as a component of other
income (expense), net in the condensed consolidated statements of operations and
comprehensive loss.

Change in Fair Value of Public Warrant Liability


In connection with the closing of the Merger, the Company assumed a warrant to
purchase shares of common stock (the "Public Warrants"). We assessed the
features of these warrants and determined that they qualify for classification
as a liability. Accordingly, we recorded the warrants at fair value upon the
closing of the Merger with the offset to additional paid-in capital.

Change in Fair Value of Common Stock Warrant Liability


We classify certain warrants for the purchase of shares of our common stock as a
liability on our condensed consolidated balance sheets as these warrants are
freestanding financial instruments that may require us to adjust the exercise
price and number of shares that is not consistent with a fixed-for-fixed option
pricing model. The warrant liability is initially recorded at fair value on the
issuance date of each warrant and is subsequently remeasured to fair value at
each reporting date. Changes in the fair value of the common stock warrant
liability are recognized as a component of other income (expense), net in the
condensed consolidated statements of operations and comprehensive loss. Changes
in fair value of the common stock warrant liability will continue to be
recognized until the warrants are exercised, expire or qualify for equity
classification. In connection with the closing of the Merger, all common stock
warrants that were issued prior to the closing of the Merger were converted into
shares of the Company's common stock.

Income Taxes

Our income tax provision consists of an estimate for U.S. federal and state
income taxes based on enacted rates, as adjusted for allowable credits,
deductions, uncertain tax positions, changes in deferred tax assets and
liabilities and changes in tax law. There is no provision for income taxes for
the three and nine months ended September 30, 2022 and 2021

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because we have historically incurred net operating losses and maintain a full
valuation allowance against its deferred tax assets.

Results of Operations

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the three months
ended September 30, 2022 and 2021, (in thousands):

                                                 Three Months Ended
                                                   September 30,
                                              2022                2021             $ Change               % Change
Revenue:
Product revenue                           $    9,839          $   5,395          $   4,444                         82  %
Subscription revenue                           5,198              2,312              2,886                        125
Service revenue                                1,493                717                776                        108
Total revenue                                 16,530              8,424              8,106                         96
Cost of revenue:
Cost of product revenue                       12,960              2,967              9,993                        337
Cost of subscription revenue                   2,207              1,277                930                         73
Cost of service revenue                        1,138                713                425                         60
Total cost of revenue                         16,305              4,957             11,348                        229
Gross profit                                     225              3,467             (3,242)                       (94)
Operating expenses:
Research and development                       5,616              3,612              2,004                         55
Sales and marketing                           11,746             10,024              1,722                         17
General and administrative                     8,839              7,535              1,304                         17
Loss from impairment of property and
equipment                                        626              1,656             (1,030)                       (62)
Total operating expenses                      26,827             22,827              4,000                         18
Loss from operations                         (26,602)           (19,360)            (7,242)                        37
Other income (expense), net:
Interest expense                                (188)              (295)               107                        (36)
Interest income                                1,052                  -              1,052                             *
Other expense, net                               (57)              (669)               612                        (91)
Loss on extinguishment of debt                     -               (865)               865                             *
Change in fair value of derivative
liability                                          -                475               (475)                            *
Change in fair value of contingent
earn-out liability                             7,245             32,609            (25,364)                       (78)
Change in fair value of contingently
issuable common stock liability                1,081              5,718             (4,637)                       (81)
Change in fair value of public warrant
liability                                     (1,146)             3,152             (4,298)                      (136)
Change in fair value of common stock
warrant liability                                  -                 42                (42)                            *
Total other income (expense), net              7,987             40,167            (32,180)                       (80)
Net income (loss) attributable to common
stockholders - basic                      $  (18,615)         $  20,807          $ (39,422)                      (189) %


* - Not meaningful
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Revenue, Cost of Revenue and Gross Profit

Product Revenue

                                          Three Months Ended September 30,
                                              2022                   2021              $ Change               % Change
Product revenue                       $          9,839           $    5,395          $    4,444                        82  %
Cost of product revenue               $         12,960           $    2,967          $    9,993                       337  %

Gross profit – Product revenue $ (3,121) $ 2,428

          $   (5,549)                     (229) %
Gross profit margin - Product revenue              (32)  %               45  %                 N/A                    (77) %


The increases in product revenue and cost of product revenue are primarily due
to the increase in product sales of Evolv Express units, which include the
significant increase in the adoption of Evolv Express units by schools,
healthcare facilities, hotels, casinos, and professional sports arenas. We
believe there are several key trends driving increased adoption of our solutions
and growth in our product sales, including (i) escalating gun violence, which
has created stronger demand for security screening solutions for customers and
prospects in our key vertical markets, (ii) acceleration in our customer
acquisition activities as highlighted by the addition of 92 new customers during
the three months ended September 30, 2022 compared to 23 new customers during
the three months ended September 30, 2021, (iii) the expansion of our customers'
initial Evolv Express deployments to other venues and locations, and (iv)
growing momentum with our channel partners which helps us extend our reach in
certain geographies or vertical markets.

The decrease in gross profit and gross profit margin during the three months
ended September 30, 2022 compared to the prior year period is attributable to
several factors. We experienced strong demand across our education and
healthcare customers for single lane configurations of Evolv Express due to
limitations in the lobby size typical of customers in those markets. These
configurations generate lower gross profit than our dual lane configurations of
Evolv Express due to a lower average sale price. Further, a higher percentage of
sales were made through our channel partners, which are generally at a lower
average sale price, and therefore a lower gross margin, during the three months
ended September 30, 2022 compared to the prior year period. Gross profit and
gross profit margin were also adversely impacted by marketing and sponsorship
arrangements with certain customers, increases in shipping costs, and the costs
associated with the write-off of scrap inventory incurred without corresponding
revenue. We expect to see improvement in our gross margins as we continue to
engineer our product with lower cost components. We also expect to see
improvements in gross margin to the extent shipping costs and high demand
materials costs decline when global supply chain disruptions ease.

Subscription Revenue

                                           Three Months Ended September 30,
                                               2022                  2021               $ Change               % Change
Subscription revenue                    $        5,198           $    2,312          $     2,886                       125  %
Cost of subscription revenue            $        2,207           $    1,277          $       930                        73  %
Gross profit - Subscription revenue     $        2,991           $    1,035          $     1,956                       189  %
Gross profit margin - Subscription
revenue                                             58   %               45  %                  N/A                     13  %


The increases in subscription revenue and cost of subscription revenue are
primarily due to growth in our customer base and a higher number of active Evolv
Express units deployed in the preceding twelve months. The increase in

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gross profit is primarily driven by our increased subscription revenue. The
increase in gross profit margin is primarily driven by increased recurring
revenue from increased active subscriptions and customer growth.

Service Revenue

                                           Three Months Ended September 30,
                                               2022                    2021               $ Change               % Change
Service revenue                       $           1,493            $      717          $       776                       108  %
Cost of service revenue               $           1,138            $      713          $       425                        60  %
Gross profit - Service revenue        $             355            $        4          $       351                      8775  %
Gross profit margin - Service revenue                24    %                1  %                  N/A                     23  %


The increase in service revenue is primarily due to the increased number of
purchase subscription units deployed in the preceding twelve months and
increased installation and training related to the Evolv Express units. Gross
profit and gross profit margin increased for the three months ended September
30, 2022 compared to the prior year period due primarily to a larger mix of
service revenue being derived from purchase subscriptions, which typically
generate a higher gross profit margin compared to installation and training
services.

Research and Development Expenses


                                             Three Months Ended September 

30,

                                                  2022                2021             $ Change               % Change
Personnel related (including stock-based
compensation)                                $     4,306          $   2,992          $    1,314                       44  %
Materials and prototypes                             203                 93                 110                      118  %
Professional fees                                    974                443                 531                      120  %
Other                                                133                 84                  49                       58  %
                                             $     5,616          $   3,612          $    2,004                       55  %


The increase in personnel related expenses is due to an increase in payroll
costs and stock-based compensation primarily resulting from new hires in our
research and development function during the past twelve months. The increase in
professional fees primarily relates to consulting costs incurred for product
development and engineering.

Sales and Marketing Expenses

                                             Three Months Ended September 30,
                                                 2022                2021             $ Change               % Change
Personnel related (including stock-based
compensation)                                $    7,820          $   7,067          $      753                       11  %
Direct marketing                                  1,613              1,702                 (89)                      (5) %
Travel and entertainment                            992                519                 473                       91  %
Professional fees                                   421                252                 169                       67  %
Other                                               900                484                 416                       86  %
                                             $   11,746          $  10,024          $    1,722                       17  %


The increase in personnel related expenses is due to an increase in payroll
costs, commissions and stock-based compensation resulting from new hires in our
sales and marketing functions during the past twelve months, which includes
functions such as partner development, customer success, and other business
development. The increase in travel and entertainment expense is due to an
increase in travel costs for in-person sales personnel meetings and events. The
increase in other expenses is primarily due to an increase in shipping costs
related to demo units.
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General and Administrative Expenses


                                             Three Months Ended September 

30,

                                                  2022                2021             $ Change               % Change
Personnel related (including stock-based
compensation)                                $     4,548          $   2,657          $    1,891                       71  %
Professional fees                                  1,896              1,874                  22                        1  %
Director and officer insurance                       894                995                (101)                     (10) %
Non-income taxes                                     214                 67                 147                      219  %
Other                                              1,287              1,942                (655)                     (34) %
                                             $     8,839          $   7,535          $    1,304                       17  %


The increase in personnel related expenses is due to an increase in payroll
costs and stock-based compensation resulting from expanding our administrative
team during the past twelve months. The decrease in other expenses is primarily
due to $0.7 million of non-capitalizable transaction costs incurred during the
three months ended September 30, 2021 related to the Merger.

Loss From Impairment of Property and Equipment


Impairment of property and equipment was $0.6 million and $1.7 million for the
three months ended September 30, 2022 and 2021, respectively. As we transition
existing domestic customers to our current Express model, we are removing Edge
units and Express prototype units from service, resulting in the impairment of
the remaining economic value of such units.

Interest Expense


Interest expense was $0.2 million for the three months ended September 30, 2022,
compared to $0.3 million for the three months ended September 30, 2021. The
decrease was primarily due to interest expense and debt discount amortization
related to the Convertible Notes during the three months ended September 30,
2021. The Convertible Notes converted to the Company's stock upon closing of the
Merger in July 2021.

Interest Income

Interest income of $1.1 million for the three months ended September 30, 2022
related primarily to interest earned on money market funds. No interest income
was earned for the three months ended September 30, 2021.

Loss on Extinguishment of Debt


Loss on extinguishment of debt of $0.9 million for the three months ended
September 30, 2021 related to a modification of the 2021 Convertible Notes due
to an agreement with noteholders to receive an additional 1,000,000 shares of
NHIC common stock as further consideration for the conversion of such notes.

Change in Fair Value of Derivative Liability


Change in fair value of the derivative liability was $0.5 million for the three
months ended September 30, 2021, resulting from the settlement of the derivative
liability upon the closing of the Merger.

Change in Fair Value of Contingent Earn-out Liability


Change in fair value of the contingent earn-out liability was $7.2 million and
$32.6 million for the three months ended September 30, 2022 and 2021,
respectively, resulting from quarterly mark-to-market adjustments. The
contingent earn-out liability was established in connection with the closing of
the Merger in July 2021.

Change in Fair Value of Contingently Issuable Common Stock Liability


Change in the fair value of the contingently issuable common stock liability was
$1.1 million and $5.7 million for the three months ended September 30, 2022 and
2021, respectively, resulting from quarterly mark-to-market adjustments.
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The contingently issuable common stock liability was established in connection
with the closing of the Merger in July 2021.

Change in Fair Value of Public Warrant Liability


Change in the fair value of the public warrant liability was $(1.1) million and
$3.2 million for the three months ended September 30, 2022 and 2021,
respectively, resulting from quarterly mark-to-market adjustments. The public
warrant liability was established in connection with the closing of the Merger
in July 2021.

Change in Fair Value of Common Stock Warrant Liability


Change in the fair value of the common stock warrant liability was less than
$0.1 million for the three months ended September 30, 2021, resulting from the
conversion of the common stock warrant liability upon the closing of the Merger
in July 2021 and mark-to-market adjustments prior to the closing of the Merger.



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Comparison of the Nine Months ended September 30, 2022 and 2021

The following table summarizes our results of operations for the nine months
ended September 30, 2022 and 2021, (in thousands):

                                                 Nine Months Ended
                                                   September 30,
                                              2022               2021             $ Change               % Change
Revenue:
Product revenue                           $  19,179          $  10,279          $   8,900                         87  %
Subscription revenue                         12,208              5,060              7,148                        141
Service revenue                               2,923              1,456              1,467                        101
Total revenue                                34,310             16,795             17,515                        104
Cost of revenue:
Cost of product revenue                      23,513              7,386             16,127                        218
Cost of subscription revenue                  5,730              3,080              2,650                         86
Cost of service revenue                       3,392              1,685              1,707                        101
Total cost of revenue                        32,635             12,151             20,484                        169
Gross profit                                  1,675              4,644             (2,969)                       (64)
Operating expenses:
Research and development                     13,947              8,399              5,548                         66
Sales and marketing                          33,169             17,756             15,413                         87
General and administrative                   29,268             12,058             17,210                        143
Loss from impairment of property and
equipment                                     1,038              1,656               (618)                       (37)
Total operating expenses                     77,422             39,869             37,553                         94
Loss from operations                        (75,747)           (35,225)           (40,522)                       115
Other income (expense), net:
Interest expense                               (489)            (5,952)             5,463                        (92)
Interest income                               1,611                  -              1,611                             *
Other expense, net                              (57)              (669)               612                        (91) %
Loss on extinguishment of debt                    -            (12,685)            12,685                             *
Change in fair value of derivative
liability                                         -             (1,745)             1,745                             *
Change in fair value of contingent
earn-out liability                            9,754             32,609            (22,855)                       (70) %
Change in fair value of contingently
issuable common stock liability               2,529              5,718             (3,189)                       (56) %
Change in fair value of public warrant
liability                                     4,297              3,152              1,145                         36  %
Change in fair value of common stock
warrant liability                                 -               (879)               879                             *
Total other income (expense), net            17,645             19,549             (1,904)                       (10)
Net income (loss) attributable to common
stockholders - basic                      $ (58,102)         $ (15,676)         $ (42,426)                       271  %


* - Not meaningful







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Revenue, Cost of Revenue and Gross Profit

Product Revenue

                                            Nine Months Ended September 30,
                                                2022                   2021             $ Change              % Change
Product revenue                          $        19,179           $  10,279          $   8,900                       87  %
Cost of product revenue                  $        23,513           $   7,386          $  16,127                      218  %
Gross profit - Product revenue           $        (4,334)          $   2,893          $  (7,227)                    (250) %
Gross profit margin - Product revenue                (23)  %              28  %                N/A                   (51) %


The increases in product revenue and cost of product revenue are primarily due
to the increase in product sales of Evolv Express units, which include the
significant increase in the adoption of Evolv Express units by schools,
healthcare facilities, hotels, casinos, and professional sports arenas. We
believe there are several key trends driving increased adoption of our solutions
and growth in our product sales, including (i) escalating gun violence, which
has created stronger demand for security screening solutions for customers and
prospects in our key vertical markets, (ii) acceleration in our customer
acquisition activities as highlighted by the addition of 189 new customers
during the nine months ended September 30, 2022 compared to 57 new customers
during the nine months ended September 30, 2021, (iii) the expansion of our
customers' initial Evolv Express deployments to other venues and locations, and
(iv) growing momentum with our channel partners which helps us extend our reach
in certain geographies or vertical markets.

The decrease in gross profit and gross profit margin during the nine months
ended September 30, 2022 compared to the prior year period is attributable to
several factors. We experienced strong demand across our education and
healthcare customers for single lane configurations of Evolv Express due to
limitations in the lobby size typical of customers in those markets. These
configurations generate lower gross profit than our dual lane configurations of
Evolv Express due to a lower average sale price. Further, a higher percentage of
sales were made through our channel partners, which are generally at a lower
average sale price, and therefore a lower gross margin, during the nine months
ended September 30, 2022 compared to the prior year period. Gross profit and
gross profit margin were also adversely impacted by marketing and sponsorship
arrangements with certain customers, increases in shipping costs, and the costs
associated with the write-off of scrap inventory incurred without corresponding
revenue. We expect to see improvement in our gross margins as we continue to
engineer our product with lower cost components. We also expect to see
improvements in gross margin to the extent shipping costs and high demand
materials costs decline when global supply chain disruptions ease.

Subscription Revenue

                                              Nine Months Ended September 30,
                                                  2022                   2021             $ Change               % Change
Subscription revenue                       $        12,208           $   5,060          $    7,148                      141  %
Cost of subscription revenue               $         5,730           $   3,080          $    2,650                       86  %
Gross profit - Subscription revenue        $         6,478           $   1,980          $    4,498                      227  %
Gross profit margin - Subscription revenue              53   %              39  %                 N/A                    14  %


The increases in subscription revenue and cost of subscription revenue are
primarily due to growth in our customer base and a higher number of active Evolv
Express units deployed in the preceding twelve months. The increase in

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gross profit is primarily driven by our increased subscription revenue. The
increase in gross profit margin is primarily driven by increased recurring
revenue from increased active subscriptions and customer growth.

Service Revenue

                                            Nine Months Ended September 30,
                                                2022                  2021             $ Change               % Change
Service revenue                          $        2,923           $   1,456          $    1,467                      101  %
Cost of service revenue                  $        3,392           $   1,685          $    1,707                      101  %
Gross profit - Service revenue           $         (469)          $    (229)         $     (240)                     105  %
Gross profit margin - Service revenue               (16)  %             (16) %                 N/A                     -  %


The increase in service revenue is primarily due to the increased number of
purchase subscription units deployed in the preceding twelve months and
increased installation and training related to the Evolv Express units. The
negative gross profit and gross profit margin in each period are due primarily
to field services costs associated with the Evolv Express units. We expect we
will see leverage in these expense investments as we work to achieve further
levels of scale.

Research and Development Expenses


                                              Nine Months Ended September 

30,

                                                  2022                2021             $ Change               % Change
Personnel related (including stock-based
compensation)                                $    11,268          $   5,424          $    5,844                      108  %
Materials and prototypes                             439              1,537              (1,098)                     (71) %
Professional fees                                  1,706              1,023                 683                       67  %
Other                                                534                415                 119                       29  %
                                             $    13,947          $   8,399          $    5,548                       66  %


The increase in personnel related expenses is due to an increase in payroll
costs and stock-based compensation resulting from new hires in our research and
development function during the past twelve months. The decrease in materials
and prototype costs is due to the transition from prototype production to
standard manufacturing of the Evolv Express, which results in lower prototyping
costs. The increase in professional fees primarily relates to consulting costs
incurred for product development and engineering.

Sales and Marketing Expenses

                                             Nine Months Ended September 30,
                                                 2022                2021             $ Change              % Change
Personnel related (including stock-based
compensation)                                $   21,433          $  12,270          $   9,163                       75  %
Direct marketing                                  4,502              2,773              1,729                       62  %
Travel and entertainment                          2,530              1,011              1,519                      150  %
Professional fees                                   973                624                349                       56  %
Other                                             3,731              1,078              2,653                      246  %
                                             $   33,169          $  17,756          $  15,413                       87  %


The increase in personnel related expenses is due to an increase in payroll
costs, commissions and stock-based compensation resulting from new hires in our
sales and marketing functions during the past twelve months, which includes
functions such as partner development, customer success, and other business
development. The increase in direct marketing is due to an increase in trade
shows and events, which have begun to return to pre-pandemic levels. The
increase in travel and entertainment expense is due to an increase in travel
costs for in-person sales personnel meetings and events. The increase in other
expenses is primarily due to $1.0 million of certain one-time expenses as well
as an increase in shipping costs related to demo units.
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General and Administrative Expenses


                                             Nine Months Ended September 

30,

                                                 2022                2021             $ Change              % Change
Personnel related (including stock-based
compensation)                                $   12,513          $   4,038          $   8,475                      210  %
Professional fees                                 7,235              3,548              3,687                      104  %
Insurance costs                                   3,524              1,183              2,341                      198  %
Non-income taxes                                    701                106                595                      561  %
Other                                             5,295              3,183              2,112                       66  %
                                             $   29,268          $  12,058          $  17,210                      143  %


The increase in personnel related expenses is due to an increase in payroll
costs and stock-based compensation resulting from expanding our administrative
team during the past twelve months. The increase in professional fees is due to
an increase in accounting, audit, tax, and legal services provided to the
Company to support public company requirements. The increase in insurance costs
is due primarily to director and officer insurance expense in relation to being
a public company. The increase in non-income taxes is due to a sales tax
contingency liability as we may owe additional sales and use taxes in various
jurisdictions. The increase in other expenses is due primarily to $1.7 million
of certain one-time expenses, a $0.4 million one-time payment to a former
employee, and a $0.5 million increase in IT and software subscription costs,
offset by $0.7 million of non-capitalizable transaction costs incurred during
the nine months ended September 30, 2021 related to the Merger.

Loss From Impairment of Property and Equipment


Impairment of property and equipment was $1.0 million and $1.7 million for the
nine months ended September 30, 2022 and 2021 respectively. As we transition
existing domestic customers to our current Express model, we are removing Edge
units and Express prototype units from service, which results in the impairment
of the remaining economic value of such units.

Interest Expense


Interest expense was $0.5 million for the nine months ended September 30, 2022,
compared to $6.0 million for the nine months ended September 30, 2021. The
decrease was primarily due to interest expense on the Convertible Notes during
the nine months ended September 30, 2021. The Convertible Notes converted to the
Company's common stock upon closing of the Merger in July 2021.

Interest Income


Interest income of $1.6 million for the nine months ended September 30, 2022
related primarily to interest earned on money market funds. No interest income
was earned for the nine months ended September 30, 2021.

Loss on Extinguishment of Debt


Loss on extinguishment of debt of $12.7 million for the nine months ended
September 30, 2021 related to a modification of the 2021 Convertible Notes due
to an agreement with noteholders to receive an additional 1,000,000 shares of
NHIC common stock as further consideration for the conversion of such notes.

Change in Fair Value of Derivative Liability


Change in fair value of the derivative liability was $(1.7) million for the nine
months ended September 30, 2021, resulting from an increase in the fair value of
the Company's stock given the pending Merger. The derivative liability was
derecognized in connection with the closing of the Merger in July 2021.
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Change in Fair Value of Contingent Earn-out Liability


Change in fair value of the contingent earn-out liability was $9.8 million and
$32.6 million for the nine months ended September 30, 2022 and 2021,
respectively, resulting from quarterly mark-to-market adjustments. The
contingent earn-out liability was established in connection with the closing of
the Merger in July 2021.

Change in Fair Value of Contingently Issuable Common Stock Liability


Change in the fair value of the contingently issuable common stock liability was
$2.5 million and $5.7 million for the nine months ended September 30, 2022 and
2021, respectively, resulting from quarterly market-to-market adjustments. The
contingently issuable common stock liability was established in connection with
the closing of the Merger in July 2021.

Change in Fair Value of Public Warrant Liability


Change in the fair value of the public warrant liability was $4.3 million and
$3.2 million for the nine months ended September 30, 2022 and 2021,
respectively, resulting from quarterly mark-to-market adjustments. The public
warrant liability was established in connection with the closing of the Merger
in July 2021.

Change in Fair Value of Common Stock Warrant Liability

Change in the fair value of the common stock warrant liability was $(0.9)
million
for the nine months ended September 30, 2021, resulting from the
conversion of the common stock warrant liability upon the closing of the Merger
in July 2021 and mark-to-market adjustments prior to the closing of the Merger.

Income Taxes


There is no provision for income taxes for the three and nine months ended
September 30, 2022 and 2021 because we have historically incurred net operating
losses and maintain a full valuation allowance against our deferred tax assets.
We have provided a valuation allowance for all of our deferred tax assets as a
result of our historical net losses in the jurisdictions in which we operate. We
continue to assess all positive and negative evidence, including our future
taxable income by jurisdiction based on our recent historical operating results,
the expected timing of reversal of temporary differences, various tax planning
strategies that we may be able to enact in future periods, the impact of
potential operating changes on our business and our forecasted results from
operations in future periods based on available information at the end of each
reporting period. To the extent that we are able to reach the conclusion that
deferred tax assets are realizable based on any combination of the above factors
in any given tax jurisdiction, a reversal of all or some related portion of our
existing valuation allowances may occur.

Liquidity and Capital Resources


Our primary requirements for liquidity and capital are working capital,
inventory management, capital expenditures and general corporate needs. We
expect these needs to continue as we develop and grow our business. Prior to the
Merger, as an early-stage company, we primarily obtained cash to fund our
operations through preferred stock offerings and debt instruments. As of
September 30, 2022, we had $218.5 million in cash and cash equivalents. We
incurred a net loss of $18.6 million and net income of $20.8 million for the
three months ended September 30, 2022 and 2021, respectively, and a net loss of
$58.1 million and $15.7 million for the nine months ended September 30, 2022 and
2021, respectively. We incurred cash outflows from operating activities of $69.4
million and $42.6 million during the nine months ended September 30, 2022 and
2021, respectively.

We expect our cash and cash equivalents, together with cash we expect to
generate from future operations, will be sufficient to fund our operating
expenses and capital expenditure requirements for a period of at least twelve
months from the date of this Quarterly Report on Form 10-Q. However, because we
are in the growth stage of our business and operate in an emerging field of
technology, we expect to continue to invest in research and development and
expand our sales and marketing teams worldwide. We are likely to require
additional capital to respond to the expected growth in the demand for equipment
purchases to support our "leased equipment" offering, technological
advancements, competitive dynamics or technologies, customer demands, business
opportunities, challenges, acquisitions or unforeseen circumstances and in
either the short-term or long-term may determine to engage in equity or debt
financings or enter into credit facilities for other reasons. If we are unable
to obtain adequate financing or financing on terms satisfactory to us, when we
require it, our
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ability to continue to grow or support our business and to respond to business
challenges could be significantly limited. In particular, global events such as
the public health emergencies, including the COVID-19 pandemic and its variants,
international political turmoil, including Russia's invasion of Ukraine, ongoing
supply chain disruptions, and prolonged inflation and rising interest rates have
resulted in, and may continue to result in, significant disruption of global
financial markets, reducing our ability to access capital. If we are unable to
raise additional funds when or on the terms desired, our business, financial
condition and results of operations could be adversely affected.

PIPE Investment and Proceeds from the closing of the Merger

In July 2021, we received gross proceeds of $300.0 million from our PIPE
Investment
, as well as $84.9 million in proceeds, net of redemptions received in
connection with the closing of the Merger.

Financing Arrangements


In December 2020, we entered into a $10.0 million credit agreement with JPMorgan
Chase Bank, N.A. ("JPM Credit Agreement") with a maturity date of December 3,
2024, and a revolving line of credit of up to $10.0 million with a maturity date
of December 3, 2022, which extinguished the 2020 Silicon Valley Bank Term Loan.
Under the terms of the JPM Credit Agreement, we received proceeds of $10.0
million. As of September 30, 2022, we had $9.0 of debt outstanding. In September
and December of 2020, we issued a total of $4.0 million of convertible notes
(the "2020 Convertible Notes"). In January and February 2021, we issued a total
of $30.0 million of convertible notes with a maturity date of September 2021.

Upon the closing of the Merger, the Convertible Notes automatically converted
into 4,408,672 shares of the Company's common stock and the holders of the 2021
Convertible Notes also received the right to receive 1,000,000 shares of the
Company's common stock, as noted above. Upon the conversion of the Convertible
Notes, the carrying value of the debt of $32.8 million and the related
derivative liability of $19.7 million and accrued interest of $0.2 million were
derecognized resulting in a loss on extinguishment of debt of $0.9 million
recorded in other income (expense), net, which was recorded during the three and
nine months ended September 30, 2021.

Material Cash Requirements for Known Contractual and Other Obligations


The following is a description of commitments for capital expenditures and other
known and reasonably likely cash requirements as of September 30, 2022. We
anticipate fulfilling such commitments with our existing cash and cash
equivalents obtained through operations, proceeds from long-term debt, closing
of the Merger, and issuance of common stock in connection with the PIPE
investment. Cash and cash equivalents amounted to $218.5 million as of
September 30, 2022.

We entered into a lease agreement for additional office space starting May 1,
2021 through October 31, 2024, with the option to extend through October 31,
2027 with written notice. We are required to maintain a minimum cash balance of
$0.7 million as a security deposit on the leased space which is classified as
restricted cash, current and restricted cash, non-current on the condensed
consolidated balance sheet as of September 30, 2022. Total future minimum lease
payments under this noncancelable operating lease amount to $2.4 million. See
Note 6 to our condensed consolidated financial statements for the three and nine
months ended September 30, 2022.

Cash Flows


The following table sets forth a summary of cash flows for the periods
presented:

                                                                  Nine Months Ended September 30,
                                                                     2022                    2021
Net cash used in operating activities                         $        (69,421)         $   (42,565)
Net cash used in investing activities                                  (19,178)             (10,994)
Net cash provided by (used in) financing activities                       (429)             383,277
Effect of exchange rate changes on cash and cash equivalents                35                    -
Net increase (decrease) in cash, cash equivalents and
restricted cash                                               $        (88,993)         $   329,718


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Operating Activities

                                                                 Nine Months Ended September 30,
                                                                    2022                    2021
Net loss                                                     $        (58,102)         $   (15,676)
Non-cash (income) expense                                               4,403               (9,977)
Changes in operating assets and liabilities                           (15,722)             (16,912)
Net cash used in operating activities                        $        

(69,421) $ (42,565)



Net loss increased from $15.7 million for the nine months ended September 30,
2021 to $58.1 million for the nine months ended September 30, 2022, as a result
of the factors described in "Results of Operations" above.

Non-cash expenses for the nine months ended September 30, 2022 are primarily
attributable to $15.5 million of stock-based compensation expense, $3.8 million
of depreciation and amortization, and $1.0 million of loss from impairment of
property and equipment, offset by $16.6 million of an aggregate change in fair
value of the earn-out liability, contingently issuable common stock warrant
liability, and public warrant liability. Non-cash expenses for the nine months
ended September 30, 2021 are primarily attributable to a $12.7 million loss on
debt extinguishment related to the 2021 Convertible Notes, $5.6 million of
non-cash interest expense primarily related to the accretion of the debt
discount associated with the 2021 Convertible Notes, $6.0 million of stock-based
compensation expense, $1.9 million of depreciation and amortization, and $1.7
million of loss from impairment of property and equipment, offset by $38.9
million of an aggregate change in fair value of the derivative liability, common
stock warrant liability, earn-out liability, contingently issuable common stock
liability, and public warrant liability.

Changes in operating assets and liabilities for the nine months ended
September 30, 2022 are primarily related to the following:

•$14.8 million increase in accounts receivable primarily due to higher sales and
the timing of billings to customers;

•$4.4 million increase in inventory primarily due to increased production of
units to meet customer demand;

•$9.0 million increase in prepaid expense and other current assets primarily due
to deposits paid to the Company’s contract manufacturer; offset by

•$16.0 million increase in deferred revenue due to a higher volume of sales.

Changes in operating assets and liabilities for the nine months ended
September 30, 2021 are primarily related to the following:

•$5.9 million increase in accounts receivable primarily due to higher sales and
the timing of billings to customers; and

•$11.5 million increase in prepaid expense and other current assets primarily
due to prepaid subscriptions and insurance.

Investing Activities


During the nine months ended September 30, 2022, cash used in investing
activities was $19.2 million, consisting of $17.6 million for the purchase of
property and equipment, primarily related to the purchase of Express units to be
leased to customers, and $1.9 million for the development of internal-use
software, offset by $0.3 million of proceeds from the sale of property and
equipment.

During the nine months ended September 30, 2021, cash used in investing
activities was $11.0 million, consisting of the purchase of property and
equipment, primarily related to the purchase of Express units to be leased to
customers.


Financing Activities

During the nine months ended September 30, 2022, cash used in financing
activities was $0.4 million, consisting of $1.0 million of debt repayments
offset by $0.6 million of proceeds from the exercise of stock options.

During the nine months ended September 30, 2021, cash provided by financing
activities was $383.3, consisting of $300.0 million from the issuance of common
stock from the PIPE investment, $84.9 million of proceeds from closing of

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the Merger, $31.9 million from the issuance of long-term debt, net of issuance
costs, and $0.8 million from the exercise of stock options, partially offset by
$34.0 million of offering costs paid in relation to the closing of the Merger
and $0.4 million in net cash outflows for the repayment of our finance
obligations.

Recent Accounting Pronouncements


A description of recently issued accounting pronouncements that may potentially
impact our financial position, results of operations or cash flows is disclosed
in Note 2 to our condensed consolidated financial statements included elsewhere
in this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates


Our critical accounting policies and estimates are described in Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition" for the year ended
December 31, 2021 in our Annual Report on Form 10-K. There have been no material
changes to our critical accounting policies and estimates during the three
months ended September 30, 2022 outside of our critical accounting policies and
estimates described below.

Leases

We lease our corporate headquarters under a non-cancelable operating lease that
expires in October 2024. We determine if our arrangement contains a lease at
inception. We do not separate lease and non-lease components of our arrangement
determined to contain a lease.

We use our estimated incremental borrowing rate, which is derived from
information available at the lease commencement date, in determining the present
value of operating lease payments. To determine the estimated incremental
borrowing rate, we use publicly available credit ratings for peer companies and
estimate the incremental borrowing rate using yields for maturities that are in
line with the duration of the lease payments.

To determine the residual value estimates and useful life of equipment that we
lease to our customers, we are required to make judgments about future events
that are subject to risks and uncertainties outside of their control, such as
inventory levels of new equipment, changing consumer preferences, new technology
and mandatory regulations. We have disciplines related to the management and
maintenance of our leased equipment designed to manage the risk associated with
the residual values of our revenue generating equipment. We periodically review
and adjust, as appropriate, the estimated residual values and useful lives of
existing revenue generating equipment for the purposes of recording depreciation
expense. Based on the results of our analysis, we may adjust the estimated
residual values and useful lives of individual assets of our revenue generating
equipment each year.

Emerging Growth Company Status


The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an
"emerging growth company" such as us to take advantage of an extended transition
period to comply with new or revised accounting standards applicable to public
companies until those standards would otherwise apply to private companies. We
meet the definition of an "emerging growth company" and have elected to use this
extended transition period for complying with new or revised accounting
standards that have different effective dates for public and private companies
until the earlier of the date we (1) are no longer an emerging growth company or
(2) affirmatively and irrevocably opt out of the extended transition period
provided in the JOBS Act. As a result of this election, we will not be subject
to the same new or revised accounting standards as other public companies that
are not emerging growth companies and our condensed consolidated financial
statements may not be comparable to other public companies that comply with new
or revised accounting pronouncements as of public company effective dates. We
may choose to early adopt any new or revised accounting standards whenever such
early adoption is permitted for private companies.

We will remain an emerging growth company until the earlier of (1) the last day
of the fiscal year (a) following the fifth anniversary of the completion of the
initial public offering, (b) in which we have total annual gross revenue of at
least $1.235 billion or (c) in which we are deemed to be a large accelerated
filer, and (2) the date on which we have issued more than $1.0 billion in
non-convertible debt during the prior three-year period.

Further, even after we no longer qualify as an emerging growth company, we may
still qualify as a "smaller reporting company," which would allow us to take
advantage of many of the same exemptions from disclosure
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requirements, including reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements. We cannot predict if
investors will find our common shares less attractive because we may rely on
these exemptions. If some investors find our common shares less attractive as a
result, there may be a less active trading market for our common shares and our
share price may be more volatile.

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