ARCIMOTO INC Management report and analysis of the financial situation and operating results. (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations for the three and nine months ended September 30, 2022 and 2021
should be read together with our unaudited condensed financial statements and
related notes included elsewhere in this report and in conjunction with the
audited financial statements and notes thereto for the year ended December 31,
2021 included in the Company's Annual Report on Form 10-K filed with the SEC on
March 31, 2022. The following discussion contains "forward-looking statements"
that reflect our future plans, estimates, beliefs and expected performance. Our
actual results may differ materially from those currently anticipated and
expressed in such forward-looking statements as a result of a number of factors,
including those set forth above. We caution that assumptions, expectations,
projections, intentions or beliefs about future events may, and often do, vary
from actual results and the differences can be material. Please see "Cautionary
Note Regarding Forward-Looking Statements."



Overview



Arcimoto, Inc. (the "Company", "We", "Us", or "Our") was incorporated in the
State of Oregon on November 21, 2007, with the mission to catalyze the shift to
a sustainable transportation system. We build light, electric, ultra-efficient
vehicles that are incredibly fun to drive for a reason. Put simply, our vision
is an untouched planet and more livable cities.



Today's city is dominated by the traditional four-wheeled vehicle. We pave
almost half our urban land for these giant, multi-ton, extractive machines that
we almost always drive alone or with just one other person and leave parked and
rusting for most of their useful lives.



At Arcimoto, we believe that if we rightsize, electrify, and better utilize our
vehicles, we can reclaim our shared space, help clean our skies, and make cities
more livable for us all.



We have developed a new, human-scale three-wheeled electric vehicle platform,
featuring dual-motor front wheel drive, a battery pack sized to meet the range
needs of the vast majority of typical trips, and an optimized center of gravity
for a nimble, balanced driving experience. On this platform, we currently
manufacture a family of products targeting a wide range of everyday uses: the
Fun Utility Vehicle® ("FUV®"), for daily driving, rideshare and rental, the
Deliverator for last-mile delivery of essential food and goods, the Rapid
Responder® for emergency services and security, the Flatbed for general fleet
utility, and the Roadster, a pure fun machine that drives like nothing else on
the road.



The following table depicts our production, deployment and sales by quarter:



                   Q3 2019       Q4 2019       Q1 2020       Q2 2020      
Q3 2020       Q4 2020       Q1 2021       Q2 2021       Q3 2021       Q4 2021       Q1 2022       Q2 2022       Q3 2022       Overall
Finished Good
Inventory                 0             8            20            12            10             9            23            61            45            35            18            55            74
Deployed into
rental                    0             0             0             0             0             0             7            12            15            25            19            20            46           144
Deployed into
fixed assets              0             2             1             7             0            11             7             4            15            28             0             4            11            90
Sales                     2            44            27            11            31            28            60            31            64            37            24            41            74           474
Production                2            54            40            10            29            38            88            85            78            80            26           102           150           782




The Company's primary focus is on volume production planning in order to push to
sustainable profitability. On April 19, 2021, the Company purchased an
approximately 220,000 square foot facility to expand production capabilities.
The Company has continued to execute its growth strategy while securing
additional financing.



Platform and Technologies



Arcimoto is fundamentally a technology company. Its first decade was spent
developing and refining eight generations of a new three-wheeled electric
vehicle platform: a light-footprint, nimble reverse-trike architecture that
features a low center of gravity for stability on the road; dual-motor
front-wheel drive for enhanced traction; can be parked three to a space while
carrying two large adults comfortably, and is more efficient, by an order of
magnitude, than today's gas-powered cars. The Company has secured 13 utility
patents on various constituent technologies and vehicle platform architectures.
Arcimoto has teamed with several companies to evaluate Arcimoto's manufacturing
processes and supply chain management in order to drive down costs and increase
the volume of production of Arcimoto ultra-efficient electric vehicles. This
project progressed significantly, primarily due to the purchase of a new
production facility and additional capital manufacturing equipment, continued
production ramp planning, and product architecture sourcing-selection across all
major vehicle subsystems.



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Products



Arcimoto's vehicle products are based on the Arcimoto Platform, which includes
the basic lower framed structure and certain key components of our vehicles.
While intended to serve very different market segments, an estimated 90% of the
constituent parts are the same between all products currently in production and
development.



FUV®



Arcimoto's flagship product is the FUV. The FUV delivers a thrilling ride
experience, exceptional maneuverability, comfort for two passengers with cargo,
highly-efficient parking (three FUVs to a single parking space), and
ultra-efficient operation, all at an affordable price. Over time, we anticipate
offering the FUV with several option packages to meet the needs of a variety of
customers.



We led with a consumer product because we are a consumer-first brand. We believe
individuals should be able to choose more efficient, more affordable, and
lighter-footprint mobility solutions, so that more of us can participate in the
transition to a sustainable transportation future.



Deliverator®



Development of the Deliverator was officially announced on March 19, 2019 with
the reveal of the first Deliverator prototype. The Deliverator is currently in
production.



The Deliverator is a pure electric, last-mile delivery solution designed to more
quickly, efficiently, and affordably get goods where they need to go. We plan
for the Deliverator to be customizable to carry a wide array of products, from
pizza, groceries, and cold goods to the 65 billion parcels delivered worldwide
annually.



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Driverless Arcimoto



Our long-term goal is to offer the market one of the lowest cost, most efficient
"last mile" human and goods shared transport solutions for the future road. We
intend that our platform will provide a ready foundation for remote control and
self-driving technology deployment and have begun to demonstrate that
capability.



Equipped with Faction's DriveLink™ and TeleAssist™ technologies, the completely
driverless Faction D1 combines autonomy with remote human teleoperation. The
driverless vehicle system retains the FUV platform's capabilities of a 75 mph
top speed and just over 100 miles of range while transporting up to 500 pounds
of cargo.


Pilot projects are being rolled out with additional scales/sites added.

Sales and distribution model



Arcimoto's sales and distribution model is direct. Customers place vehicle
orders on our website, and the vehicle product will be delivered directly to the
end user via a common carrier or our own delivery fleet. The website ordering
and vehicle configuration system is functional, with additional development
planned to further automate the sales process.



We are also developing relationships with commercial fleet management companies to accelerate commercial sales.



On October 26, 2020, we announced a partnership with DHL to provide nationwide
home delivery of the FUV. They are currently handling the bulk of our customer
deliveries.



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Rental Model



We plan to augment this direct web purchase process with experiential rental
operations in key markets. This rental model gives prospective customers a
direct experience with the physical product before purchasing. We opened our
first Company-owned rental operations in San Diego, California and Eugene,
Oregon in the second quarter of 2021. The Company-owned rental center in Hawaii
opened on August 20, 2022. Additional rental vehicles are available at revenue
sharing partner operators across locations in Washington, Florida, California,
and Oregon. We entered into an agreement with the Graduate Hotel in Eugene,
Oregon in the third quarter of 2021 to rent FUVs to hotel guests. We have a
revenue sharing agreement with GoCars in San Diego with additional locations
opening in the fourth quarter of 2022.



We plan to open other Arcimoto-owned and operated rental locations in future-friendly markets, while further developing partner rental operations and aggressively seeking new partners for these operations.


Service


We pursue three different models for FUV service:


Service-on-demand



Our initial model is on-demand and on-site vehicle service by Arcimoto
technicians or Arcimoto-authorized technicians. Service-on-demand will likely be
the primary model during our West Coast release as the majority of the vehicles
will be geographically located relatively near the factory or a mobile
technician. We intend for customers to request service either through the
Arcimoto mobile app or by calling a 24-hour service number.



In-market partnership



We are currently reviewing potential service partners located in our key
distribution regions. We have contracted with Agero Driver Assistance Services,
Inc. to provide our customers with roadside assistance. We are currently
reviewing Agero's network of pre-approved third-party service providers, as well
as other third-party service providers, to perform service on Arcimoto vehicles.
We are currently selecting, training, and certifying providers as we expand.



Rental facility service


We employ Arcimoto service technicians at some of our rental locations, subject to state dealer laws. Customers near these rental locations can deliver their vehicle to that location for service needs.


Vehicle Financing



We have secured multiple partners nationwide to apply for consumer financing on
our website. We have expanded financing options for customers to pursue personal
financing to purchase our FUVs.



Management Opportunities, Challenges and Risks

Sales funnel, backlog, etc.



We are focused on building our sales and rental revenue in the states where we
have current rental operations and delivery options available for
customers: California, Florida, Washington, Oregon, Nevada, Hawaii and Arizona.
Also, we plan to expand our business in other states as we scale our production.
On October 20, 2022, Arcimoto announced that it is now accepting customer orders
from New York, New Jersey, Pennsylvania, Maryland, Virginia, Georgia, and
Washington D.C. While we expand geographical boundaries of our business
operations, we also plan to expand and improve on the customers' retail
experiences by including additional rental partnerships and pop-up demo drive
experiences through new Customer Experience Centers. We opened our Honolulu
Experience Center on August 20, 2022. Our current conversion rate from our
rental operations and demo drives on a year-to-date basis is approximately
6%. Approximately 20% of our sales orders during the third quarter of 2022 were
derived from our rental operation leads. During the third quarter of 2022, we
converted 5% of drives to order from our demo drives and rental volumes which
increased by 111% quarter-over-quarter. We aim to increase our conversion rate
for both our rental operations and demo drives through increased engagement at
each step of our customer journey and grow our drive volume by expanding our
geographical footprint through various channels. These various channels include,
but are not limited to, our rental operations, pop-up demo centers in high
traffic flagship markets, strategic events and shows throughout the country and
identifying new markets and expanding our brand awareness.



At September 30, 2022, the order backlog for our vehicles is 48. The conversion
rate from order backlog to actual sales is approximately 89%. During the third
quarter of 2022, the volume of demo drives made by potential customers is 2,603.





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Currently, we are dependent on a single supplier for our battery cells. During
the third quarter of 2022, our engineering team commenced a program to expand
our options of battery cell types for module development. Upon development,
regulatory testing will be conducted for compliance with government safety
standards. We do not expect any challenges in regard to the
certification process. We also expect that future battery cell technologies may
have to be certified if these purchased cells have different specifications than
what already has been certified.



We continue our efforts to reduce the costs of components and spare parts Arcimoto
high-performance electric vehicles. To date, substantial progress has been made in identifying cost targets for a specific vehicle configuration based on current and projected supply chain conditions, manufacturing cost reduction, analysis lean manufacturing, vehicle architecture selection for all major subsystems and the technology roadmap for the future. vehicles and marketing roadmap.



We have conducted multiple pilot programs with various partners to add credence
to the business case for a light weight rapid response electric vehicle. Rapid
responders have been well received under these pilot programs.



We have several ongoing Deliverator pilot programs with individuals,
municipalities, and corporate fleets. We have completed the first phase of
tool-up for manufacture and production of the Deliverator, and we will continue
to build Deliverators in low volume through the remainder of 2022, to support
commercial new pilot programs.



Mean-Lean-Machine ("MLM")



We currently have received 1,206 pre-orders or $120,600 cash, net of
cancellations for our MLM product line. The MLM is an electric three-wheeled
bicycle that incorporates our tilting technology. Due to current unfavorable
global macroeconomic environment, we have temporarily postponed operations of
our MLM product line in order to conserve capital.



Trends in Cash Flow, Capital Expenditures and Operating Expenses



Our capital expenditures are typically difficult to project beyond the short
term given the number and breadth of our core projects at any given time and may
further be impacted by uncertainties in future market conditions. We are
simultaneously ramping new products in the Deliverator and Roadster, micro
mobility, ramping manufacturing facilities in the new 10-acre campus and
piloting the development and manufacture of new battery module technologies, and
the pace of our capital spend may vary depending on overall priority among
projects, the pace at which we meet milestones, production adjustments to and
among our various products, increased capital efficiencies and the addition of
new projects. We currently expect our capital expenditures to be between
$10,800,000 to $11,500,000 in 2022. We had previously reported that we expected
our capital expenditures to be between $35,000,000 and $40,000,000. However,
subsequent to September 30, 2022, we initiated a series of strategic plans to
conserve cash and focus on immediate revenue generating products in light of the
global economic environment.



Our business has been consistently generating negative cash flow from
operations, some of this is offset with better working capital management
resulting in shorter days sales outstanding than days payable outstanding. We
are also likely to see heightened levels of capital expenditures during certain
periods depending on the specific pace of our capital-intensive projects and
rising material prices and increasing supply chain and labor expenses resulting
from changes in global trade conditions and labor availability associated with
the COVID-19 pandemic. Moreover, while our stock price was significantly
elevated during parts of 2021, we saw higher levels of exercise of investor
warrants and options from employee equity plans, which obligates us to deliver
shares pursuant to the terms of those agreements. In the long run, we expect our
ability to be self-funding to be achieved as we approach a sales volume of
approximately 7,500 vehicles per year and as long as macroeconomic factors
support growth in our sales, and engineering cost reductions and volume pricing
improve materials cost. On November 11, 2022, our shareholders approved an
agreement to obtain additional funding (with certain restrictions) in order to
finance our operations and growth with a $50,000,000 equity line of credit and a
$10,000,000 senior secured convertible note. The shareholders also approved a
reverse stock split of the Company's stock within a range of 1-for-5 to
1-for-20 that is expected to be completed by the end of the fourth quarter of
2022. Subsequent to the meeting, the Board of Directors approved a
1-for-20 reverse stock split. These series of actions allow us to access funds
from the capital markets which will be used to fund our operations in the
foreseeable future.



Operating expenses increased by approximately 70% or $5,723,000 for the three
months ended September 30, 2022 as compared to the three months ended
September 30, 2021 and 63%, or $13,193,000, for the nine months ended
September 30, 2022, as compared to the nine months ended September 30, 2021.
This increase was primarily due to, among other things, increased sales and
marketing costs and research and development ("R&D") expenses. Sales and
marketing expenses increased as we ramped up our marketing efforts to achieve
higher levels of sales growth. Research and development expenses increased as we
pursued new and more efficient methods of production processes and continued to
improve our technological design and development of our product lines. The
number of employees increased by approximately 40%, from 232 as of September 30,
2021, to 325 employees as of September 30, 2022. The increased staff was needed
to build out all parts of the Company for selling and servicing vehicles.
However, as a result of macroeconomic conditions and to conserve cash, we
initiated a series of restructuring activities in October 2022 and temporarily
scaled back our operations to focus on immediate revenue-generating activities.



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Risks and Uncertainties



In the future, the Company may not have the capital resources necessary to
further the development of existing and/or new products. In October 2022, we
initiated a series of strategic restructuring plans in order to focus on our
revenue-generating lines of business. These actions resulted in cancellations or
postponements of material supplier contracts as well as a significant reduction
in workforce in order to conserve cash that is prioritized for immediate
revenue-generating activities.



Although we have taken strategic steps to improve our cost structure, our
current cost structure, along with other factors including market penetration in
the states we are currently doing business, does not allow us to achieve
profitability. Although we are constantly trying to improve our cost structure
and market penetration, we may not succeed to the point where we can achieve
profitability consistently. Also, Arcimoto may not be able to reduce costs to
the level necessary to unlock the market potential for our products.



We may, from time to time, be subject to recalls due to, among other things,
software glitches and/or faulty parts which may require us to provide warranty
repairs to our customers. These additional warranties may have a negative impact
on our financial resources, which may in turn, negatively impact our financial
results.







New Accounting Pronouncements



For a description of new accounting pronouncements, please refer to the "Summary
of Significant Accounting Policies" in Note 2 to our Condensed Financial
Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q and the
Company's Annual Report on Form 10-K filed with the SEC on March 31, 2022.



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Significant Accounting Policies and Estimates



Our financial statements are prepared in accordance with United States Generally
Accepted Accounting Principles ("U.S. GAAP"). The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, costs and expenses and
related disclosures. We base our estimates on historical experience, as
appropriate, and on various other assumptions that we believe are reasonable
under the circumstances. Changes in the accounting estimates are reasonably
likely to occur from period to period. Accordingly, actual results could differ
significantly from the estimates made by our management. We evaluate our
estimates and assumptions on an ongoing basis. To the extent that there are
material differences between these estimates and actual results, our future
financial statement presentation, financial condition, results of operations and
cash flows will be affected. See Note 2 to our Condensed Financial Statements
under Part I, Item I of this Quarterly Report on Form 10-Q.



Inventory



Inventory is stated at the lower of cost (using the first-in, first-out method
("FIFO")) or net realizable value. We expense all labor and overhead costs as we
are currently selling vehicles below the base cost of a finished unit. As such,
our inventory costs consist mainly of material costs. Due to external economic
conditions, including supply chain issues and inflation, among other things,
such costs may fluctuate significantly over time and affect our results of
operations. There had been no significant fluctuations in costs of the materials
used in our inventory during the first nine months of 2022.



Convertible Notes



We have elected the fair value option under ASC 825-10-25 to account for both
the $4,500,000 and $10,000,000 convertible notes. We have utilized a binomial
lattice methodology in estimating the fair values. The notes' fair value
measurement is classified as Level 2 under the fair value hierarchy as provided
by ASC 820, "Fair Value Measurement". The fair valuation of these convertible
notes uses inputs other than quoted prices that are observable either directly
or indirectly. Under this option, changes in fair value of the convertible
notes are recorded as unrealized gain/loss on convertible notes' fair value in
the Condensed Statements of Operations.



Results of Operations


Three months completed September 30, 2022 compared to the three months ended September 30, 2021

The following table summarizes the operating results of the Company:


                                   Three Months Ended
                                      September 30,                         Change
                                 2022              2021            Dollars        Percentage
Revenue                      $   2,024,205     $   1,498,176     $    526,029              35 %
Cost of goods sold               6,987,035         4,856,331        2,130,704              44 %
Gross loss                      (4,962,830 )      (3,358,155 )     (1,604,675 )            48 %

Operating expenses: Research and development 6,521,379 3,186,469 3,334,910

             105 %
Sales and marketing              3,321,862         1,983,738        1,338,124              67 %

General and administrative 4,099,354 3,061,607 1,037,747

              34 %
Loss on asset disposal              12,408                 -           12,408             N/A
Total operating expenses        13,955,003         8,231,814        5,723,189              70 %

Loss from operations           (18,917,833 )     (11,589,969 )     (7,327,864 )            63 %

Other (income) expense:
Unrealized gain on
convertible note fair
value                           (2,122,828 )               -       (2,122,828 )            NA
Interest expense                    84,945            51,671           33,274              64 %
Other expense/(income)              83,749          (131,781 )        215,530            (164 )%

Net loss                     $ (16,963,699 )   $ (11,509,859 )   $ (5,453,840 )            47 %





Revenues



Total revenue increased approximately $526,000 or 35% for the three months ended
September 30, 2022, compared to the same period last year. The increase was
primarily due to an increase in the number of FUV units sold and a slight
increase in average sales price for the quarter. TMW revenue and rental revenue
also increased. These increases were due to the ramp up of our marketing and
sales activities.



We had approximately $2,024,000 in revenue, comprising approximately
$1,675,000 in net revenue from the sales of our vehicles and related products
and accessories, approximately $203,000 in TMW net revenue and approximately
$145,000 in net revenue from rental operations during the three months ended
September 30, 2022. We had approximately $1,498,000 in revenue, comprising
approximately $1,360,000 in revenue from the sales of our vehicles,
approximately $104,000 in TMW revenue and approximately $33,000 in revenue from
our rental operation during the three months ended September 30, 2021.



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Cost of Goods Sold ("COGS")



Cost of goods sold increased by approximately $2,131,000 or 44%, primarily
driven by higher materials cost due to increased production and rising costs due
to global supply chain issues, higher payroll costs due to additional hiring and
company-wide cost of living payroll increases and higher manufacturing overhead
as a result of ramping up our production operations and higher TMW COGS and
higher rental operations COGS as a result of higher TMW revenues and higher
rental revenue, respectively, and to a lesser extent, higher purchase price
variance and warranty costs, partially offset by a slightly lower inventory loss
and obsolescence.



We had approximately $6,987,000 in COGS, comprising approximately $1,667,000 for
FUV material and freight costs from the sale of our vehicles, $250,000 related
to our rental operations, $179,000 related to TMW, $202,000 in warranty
costs, $401,000 from an adjustment to inventory for purchase price variance,
obsolescence and scrap, and approximately $4,289,000 in manufacturing, labor,
and overhead, during the three months ended September 30, 2022. Included in
the manufacturing, labor and overhead costs are payroll and employee-related
costs of $2,340,000 while the remaining costs consist of consulting services,
freight, and depreciation, among other things.



We had approximately $4,856,000 in COGS, comprising approximately $1,360,000 for
FUV material costs from the sale of our vehicles, $168,000 in warranty
reserves, $69,000 in TMW COGS and $446,000 in other material-related costs and
approximately $2,817,000 in manufacturing, labor, and overhead, during the three
months ended September 30, 2021.



Operating Expenses


Research and development (“R&D”) expenses



R&D expenses increased by $3,335,000 or 105% during the three months ended
September 30, 2022 as compared to the same period last year primarily due to
higher costs incurred in developing and/or improving new technology in
connection with our product lines and also designing production processes in
anticipation of future increases in production volume. The increase was due to
higher consulting services and payroll costs as a result of additional hiring
and cost of living payroll increases. R&D expenses for the three months
ended September 30, 2022 and 2021 were approximately $6,521,000 and
$3,186,000, respectively.



Sales and marketing (“S&M”) expenses



S&M expenses for the three months ended September 30, 2022 and 2021 were
approximately $3,322,000 and $1,984,000, respectively. The primary reasons for
the increase in sales and marketing expenses during the three months ended
September 30, 2022 of approximately $1,338,000, or 67%, as compared to the prior
period were increased costs related to the expansion of the sales and marketing
department and higher activities to market our product lines via various forms
ofcustomer communications. As markets opened up after the COVID-19 pandemic, we
have expanded into new markets, conducted road shows and incurred expenses to
increase our brand awareness. We have hired key sales and marketing personnel to
support our sales growth strategy which increased our payroll and
employee-related costs. The higher levels of marketing activities resulted in
higher travel and marketing costs. The increase in marketing activities have
allowed us to increase our presence in additional states.



General and administrative (“G&A”) expenses



G&A expenses consist primarily of personnel and facilities costs related to
executives, finance, human resources, information technology, as well as legal
fees for professional and contract services. G&A expenses for the three months
ended September 30, 2022 were approximately $4,099,000 as compared to
approximately $3,062,000 for the same period last year, representing an increase
of approximately $1,038,000, or 34%. The increase was primarily due to, among
other things, higher payroll and payroll-related costs as a result of cost of
living payroll increases and additional employees needed to support anticipated
business growth, higher consulting costs to support our technology
infrastructure, higher insurance costs from higher business activities, higher
legal costs, partially offset by lower accounting and professional fees.



Loss on Disposal of Asset


We recorded approx. $12,000 loss on disposal of an FUV unit from our FUV fleet.

Unrealized gain on convertible notes and warrants



We recorded an unrealized gain of $2,123,000 as a result of the mark-to-market
to fair value for our convertible notes in accordance with the election of the
fair value option under ASC 825-10 and the bifurcated warrants issued in
conjunction with our $10,000,000 convertible note.



Interest Expense



Interest expense for the three months ended September 30, 2022 was approximately
$85,000, as compared to $52,000 during the three months ended September 30,
2021. The increase in interest expense was primarily due to higher debt incurred
in 2022.





Other Expense/(Income)



Other expense was approximately $84,000 for the three months ended September 30,
2022. Other Income was approximately $132,000 for the three months ended
September 30, 2021. Other expense increased by approximately $216,000 primarily
due to debt issuance costs related to our $10,000,000 convertible note issued
during the third quarter of 2022.



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Nine month period ended September 30, 2022 compared to nine months ended September 30, 2021

The following table summarizes the operating results of the Company:


                                   Nine Months Ended
                                     September 30,                         Change
                                2022              2021             Dollars        Percentage

Revenue                     $   4,173,779     $   3,609,531           564,248              16 %
Cost of goods sold             17,138,644        11,329,143         5,809,501              51 %
Gross loss                    (12,964,865 )      (7,719,612 )      (5,245,253 )            68 %

Operating expenses:
Research and development       14,144,395         8,256,980         5,887,415              71 %
Sales and marketing             9,318,647         4,537,816         4,780,831             105 %
General and
administrative                 10,583,968         8,071,795         2,512,173              31 %
Loss on asset disposal             12,408                 -            12,408             N/A
Total operating expenses       34,059,418        20,866,591        13,192,827              63 %

Loss from operations          (47,024,283 )     (28,586,203 )     (18,438,080 )            64 %

Other (income) expense:
Gain on forgiveness of
PPP loan                                -        (1,078,482 )       1,078,482            (100 )%
Unrealized loss on
convertible note fair
value                              22,712                 -            22,712              NA
Interest expense                  258,851           151,246           107,605              71 %
Other expense/(income)             12,553          (221,214 )         233,767            (106 )%

Loss before income tax
benefit                       (47,318,399 )     (27,437,753 )     (19,880,646 )            72 %

Income tax (expense)
benefit                            (3,200 )       2,938,698        (2,941,898 )          (100 )%

Net loss                    $ (47,321,599 )   $ (24,499,055 )   $ (22,822,544 )            93 %




Revenues



Total revenue increased by approximately $564,000 or 16% for the nine months
ended September 30, 2022, compared to the same period last year. The increase
was primarily due to an increase TMW revenue and rental revenue, partially
offset by a decline in our FUV sales as we temporarily ceased production in the
first quarter of 2022 in order to move into our new production facilities in
anticipation of future production growth. During the first quarter of 2022, we
also conducted tests on two of our battery cells for regulatory compliance
purposes. TMW was acquired during the first quarter of 2021 and therefore, TMW
revenues for the nine months ended September 30, 2021 were from the time of
acquisition till September 30, 2021.



We had approximately $4,174,000 in revenue, comprising approximately $3,206,000
in net revenue from the sales of our vehicles and related products and
accessories, approximately $756,000 in TMW net revenue and approximately
$212,000 in net revenue from rental operations during the nine months ended
September 30, 2022. We had approximately $3,610,000 in revenue, comprising
approximately $3,325,000 in revenue from the sales of our vehicles and related
products and accessories, approximately $227,000 in TMW net revenue and
approximately $57,000 in revenue from rental operations during the nine months
ended September 30, 2021.



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Cost of Goods Sold



Cost of goods sold increased by approximately $5,810,000 or 51%, primarily
driven by higher payroll costs due to additional hiring and company-wide cost of
living payroll increases and higher manufacturing overhead as a result of
ramping up our production operations and higher inventory losses due to purchase
price variance, higher freight charges as a result of macroeconomic factors
related to transportation costs, higher TMW and rental COGS due to increased
activity compared to the same period last year. As noted above, TMW was acquired
during the first quarter of 2021 and as such, the results of operations for TMW
did not fully reflect nine months of operations in 2021.



We had approximately $17,139,000 in COGS, comprising approximately $3,158,000
for FUV material and freight costs from the sale of our vehicles, $536,000
related to our rental operations, $586,000 related to TMW, $402,000 in warranty
costs, $1,094,000 from an adjustment to inventory for purchase price variance,
obsolescence and scrap, and approximately $11,362,000 in manufacturing, labor,
and overhead, during the nine months ended September 30, 2022. Included in
the manufacturing, labor and overhead costs are payroll and employee-related
costs of $6,524,000 while the remaining costs consist of consulting services,
freight, and depreciation, among other things.



We had approximately $11,329,000 in COGS, comprising approximately $5,093,000
for FUV material and freight costs from the sale of our vehicles, $163,000
related to TMW, $405,000 in warranty costs, $475,000 from an adjustment to
inventory for purchase price variance and scrap and other costs, and
approximately $5,193,000 in manufacturing, labor, and overhead, during the nine
months ended September 30, 2021.



Operating Expenses


Research and development (“R&D”) expenses



R&D expenses increased by $5,887,000 or 71% during the nine months ended
September 30, 2022 as compared to the same period last year primarily due to
higher costs incurred in developing and/or improving new technology in
connection with our product lines and also designing production processes in
anticipation of future increases in production volume. The increase was due to
higher consulting services and payroll costs as a result of additional hiring
and cost of living payroll increases. R&D expenses for the nine months
ended September 30, 2022 and 2021 were approximately $14,144,000 and $8,257,000,
respectively.


Sales and marketing (“S&M”) expenses



S&M expenses for the nine months ended September 30, 2022 and 2021 were
approximately $9,319,000 and $4,538,000, respectively. The primary reasons for
the increase in sales and marketing expenses during the nine months ended
September 30, 2022 of approximately $4,781,000, or 105%, as compared to the
prior period was increased costs related to the expansion of the sales and
marketing department and higher activities to market our product lines via
various forms ofcustomer communications. As markets opened up after the COVID-19
pandemic, we have expanded into new markets, conducted road shows and incurred
expenses to increase our brand awareness. We have hired key sales and marketing
personnel to support our sales growth strategy which increased our payroll and
employee-related costs. The higher levels of marketing activities resulted in
higher travel and marketing costs.



General and administrative (“G&A”) expenses



G&A expenses consist primarily of personnel and facilities costs related to
executives, finance, human resources, information technology, as well as legal
fees for professional and contract services. G&A expenses for the nine months
ended September 30, 2022 were approximately $10,584,000 as compared to
approximately $8,072,000 for the same period last year, representing an increase
of approximately $2,512,000, or 31%. The increase was primarily due to, among
other things, higher payroll and payroll-related costs as a result of cost of
living payroll increases and additional employees needed to support anticipated
business growth, higher consulting costs to support our technology
infrastructure, higher insurance costs from higher business
activities, partially offset by lower legal, accounting and professional fees.



Loss on Disposal of Asset


We recorded approx. $12,000 loss on disposal of an FUV unit from our FUV fleet.




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Gain on PPP loan forgiveness



On May 5, 2020, the Company received a Paycheck Protection Program ("PPP") loan
in the amount of approximately $1,069,000, referred to on the balance sheet as
Note payable to bank. The loan has an interest rate of 1% and monthly payments
of approximately $60,000 for 18 months beginning December 5, 2020. This loan is
eligible for the limited loan forgiveness provisions of Section 1102 of the
CARES Act, and the SBA Interim Final Rule dated April 2, 2020. On April 27, 2021
all of the outstanding principal and interest of approximately $1,069,000 and
$10,000, respectively, were forgiven as of June 30, 2021. No such transaction
took place in 2022.


Unrealized gain on convertible notes and warrants



We recorded an unrealized loss of $23,000 as a result of the mark-to-market to
fair value for our convertible notes in accordance with the election of the fair
value option under ASC 825-10 and the bifurcated warrants issued in conjunction
with our $10,000,000 convertible note.



Interest charges

Interest expense for the nine months ended September 30, 2022 was approximately
$259,000, as compared to $151,000 during the nine months ended September 30,
2021. The increase in interest expense was primarily due to higher debt incurred
in 2022.



Other Income



Other expense was approximately $13,000 for the nine months ended September 30,
2022 and other income was approximately $221,000 for the nine months ended
September 30, 2021. Other expense increased by approximately $234,000 primarily
due to debt issuance costs related to our $10,000,000 convertible note issued
during the third quarter of 2022.



Cash and capital resources

Cash flow from operating activities



Our cash flows from operating activities are significantly affected by our cash
outflows to support the growth of our business in areas such as R&D, sales and
marketing and G&A expenses. Our operating cash flows are also affected by our
working capital needs to support personnel related expenditures, accounts
payable, inventory purchases and other current assets and liabilities.



During the nine months ended September 30, 2022 cash used in operating
activities was approximately $40,864,000, which included a net loss of
approximately $47,322,000, non-cash charges of $8,628,000 and changes in net
working capital and other items that contributed to cash and cash equivalent
reduction of approximately $2,170,000. Our net loss was primarily due to, among
other things, (1) spending on R&D expenditures to develop and improve new
technology in connection with our product lines and new designs of our
production processes in anticipation of future increases in production volume,
and (2) spending on S&M expenses as we increased our sales force in order to
ramp up our marketing efforts and activities to increase our brand awareness and
conduct road shows. Our inventory increased in anticipation of future sales and
production growth while our accounts payable increased, primarily due to timing.



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Contents

In the nine months ended September 30, 2021cash used in operating activities was approximately $25,354,000which included a net loss of approximately $24,499,000non-monetary expenses of approximately $284,000and a change in net working capital items of approximately $1,139,000.

Cash flow from investing activities



Cash flows from investing activities primarily relate to the capital
expenditures to support our growth in operations, including investments in
manufacturing equipment and tooling. During the nine months ended September 30,
2022, we paid approximately $9,372,000 to purchase property and equipment in
anticipation of our future production growth.



In the nine months ended September 30, 2021we paid about
$14,839,000 to purchase goods and equipment, approximately $24,000 for security deposits, and $1,754,000 in connection with the acquisition of TMW.

Cash flow from financing activities



During the nine months ended September 30, 2022, net cash provided by financing
activities was approximately $37,484,000, compared to net cash provided by
financing activities of approximately $35,497,000 during the nine months ended
September 30, 2021. Cash flows provided by financing activities during the nine
months ended September 30, 2022 comprised of proceeds from the issuance of
common stock through our registered offerings of approximately $26,517,000 (net
of offering costs of approximately $871,000), proceeds from exercise of warrants
of approximately $20,000, proceeds from equipment notes of approximately
$177,000, proceeds from the exercise of options of approximately $91,000, and
net proceeds from convertible note of $13,500,000, reduced by payments of notes
payable of approximately $2,039,000, payments on finance lease obligations of
approximately $305,000, equipment notes of approximately $482,000, and payments
of convertible note of approximately $162,000.



During the nine months ended September 30, 2021, net cash provided by financing
activities was approximately $35,497,000. Cash flows provided by financing
activities during the nine months ended September 30, 2021 comprised of proceeds
from the issuance of common stock through our registered offering of
approximately $33,113,000 (net of offering costs of approximately $1,125,000),
proceeds from the exercise of warrants of approximately $1,727,000, proceeds
from exercise of options of approximately $1,456,000, proceeds from equipment
notes of approximately $362,000, reduced by repayments of notes payable of
approximately $667,000, payments of equipment notes of approximately $493,000.

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