The following discussion and analysis of our financial condition and results of operations for the three and nine months endedSeptember 30, 2021 and 2020 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 endedDecember 31, 2020 included in the Company's Annual Report on Form 10-K filed with theSEC onMarch 31, 2021 . 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." OverviewArcimoto, Inc. (the "Company", "We", "Us", or "Our") was incorporated in theState of Oregon onNovember 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 over 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 approximately 95% of their useful lives. AtArcimoto , 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 share 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.
We launched production of the FUV® in the third quarter of 2019, prior to the onset of the COVID-19 pandemic. In 2019,Arcimoto produced 57 vehicles and sold 46. In 2020Arcimoto produced 117 vehicles and sold 96 new and one pre-owned. During the nine months endedSeptember 30, 2021 ,Arcimoto produced 251 model year 2021 vehicles, and delivered 153 new andtwo pre-owned vehicles to customers, a 125% improvement over the 69 (with one pre-owned) vehicles delivered to customers in the nine months endedSeptember 30, 2020 . Forty-five vehicles were in finished goods inventory as ofSeptember 30, 2021 . The Company's primary focus is on volume production planning in order to push to sustainable profitability. OnApril 19, 2021 , the Company purchased an approximately 220,000 square foot facility to expand production capabilities. The Company has submitted an application for theFederal Department of Energy's Advanced Technology Vehicle Manufacturing Loan Program ("ATVMLP") to secure the funds necessary to execute our growth strategy. Platform and TechnologiesArcimoto spent its first decade 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 10 utility patents on various constituent technologies and vehicle platform architectures. As announced onJune 10, 2020 ,Arcimoto has teamed withMunro & Associates to evaluateArcimoto's manufacturing processes and supply chain management in order to drive down costs and begin high-volume production ofArcimoto ultra-efficient electric vehicles. This project, which is estimated to take two years, progressed significantly in the third quarter of 2021, primarily due to the purchase of a new production facility, continued production ramp planning, and product architecture sourcing-selection across all major
vehicle subsystems. 20 ProductsArcimoto'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. Rapid Responder®
The Rapid Responder® was announced onFebruary 15, 2019 . The pure-electric Rapid Responder® is developed on theArcimoto platform, and designed to perform specialized emergency, security and law enforcement services at a fraction of the cost and environmental impact of traditional combustion vehicles. The Rapid Responder® aims to deliver first responders to incidents more quickly and affordably than traditional emergency response vehicles.Arcimoto is initially targeting the more than 50,000 fire stations acrossthe United States that use traditional fire engines and large automobiles to respond to calls.Arcimoto also plans to market the Rapid Responder® as a solution for campus security and law enforcement applications. Deliverator® Development of the Deliverator was officially announced onMarch 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. 21 Cameo (™)Arcimoto completed a prototype of the Cameo, an FUV equipped with a rear-facing rear seat and a modified roof built for on-road filming inSeptember 2020 . We teased the Cameo prototype in severalArcimoto videos inSeptember 2020 and have used the Cameo to shoot all of our own driving footage since its on-roading. Development of the Cameo is still in the planning stages.
The Cameo is aimed at the film industry, as well as the growing influencer and Do-It-Yourself ("DIY") film market. The Cameo is currently available to prospective customers as a custom-modified FUV.
Arcimoto Roadster The Arcimoto Roadster prototype was first introduced in a video releasedOctober 30, 2020 . Conceived as a pure platform fun machine, the Roadster offers a lower center of gravity, lower overall weight, and potentially improved aerodynamics. We announced the formal development of the Roadster product, in collaboration with industry partners onNovember 16, 2020 . The first production Roadster
was unveiled onJuly 26, 2021 . Arcimoto Flatbed The Arcimoto Flatbed prototype was introduced at the FUV &Friends Summer Showcase onJuly 26, 2021 . Similar to the Deliverator, it eschews the rear seat, this time for a pickup-style flatbed instead of an enclosed cargo area.Arcimoto announced a collaboration withEugene -based Sherptek, and displayed a modular, expandable flatbed that could be used for the Flatbed model. 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.
At the FUV & Friends Summer Showcase on
The first step toward that driverless control system was also on display at the Summer Showcase. A technology company, based inSouth San Francisco , demonstrated the first ever driverless FUV using remote control, a step toward ride-on-demand, where riders will be able to summon a vehicle to their location and then hop in and drive. 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. OnOctober 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. 22 Rental and Rideshare Model
We plan to augment this direct web purchase process with experience rental 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 inSan Diego, California andEugene, Oregon in the second quarter of 2021. Additional rental vehicles are available at our franchise rental location, Arcimoto Key West inKey West, Florida , and at GoCars inSan Francisco, California . We entered into an agreement with theGraduate Hotel inEugene, Oregon in the third quarter of 2021 to rent FUVs to hotel guests. We plan to open additionalArcimoto -owned and operated rental locations in favorable markets in the future, while also further developing our model for franchise and partner rental operations, and aggressively pursuing partners
for those operations.
Additionally, we are developing the technology necessary to enable rideshare on
the platform. This technology takes the form of a versatile mobile app,
unlocking the ability for
Service
We are pursuing three different models for service of the FUV:
Service-on-demand Our initial model is on-demand and on-site vehicle service byArcimoto technicians orArcimoto -authorized technicians. Service-on-demand will likely be the primary model during ourWest 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 theArcimoto 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 withAgero 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 onArcimoto vehicles. We are currently selecting, training, and certifying providers as we expand. Rental facility service
We employ
Management Opportunities, Challenges and Risks
Demand, Production and Capital
Demand for the Retail Series Arcimoto FUV has continued to increase. As of
23
We consider pre-orders to be strong sales leads, and use these leads as an
indicator of market demand. Pre-orders are made up of small refundable cash
deposits from individual retail customers and distribution agreements or
nonbinding letters of intent from commercial customers that may or may not have
deposited cash. The distribution of pre-orders since inception through
Retail Commercial Total Vehicles Dollars Vehicles Dollars Vehicles Dollars Vehicles/Deposits 4,906$ 517,324 1,800$ 30,000 6,706$ 547,324 Refunds (732 ) (73,200 ) (259 ) (29,600 ) (991 ) (102,800 ) Total net pre-orders 4,174 444,124 1,541 400 5,715 444,524 Less purchases (249 ) (25,000 ) (3 ) (300 ) (252 ) (25,300 ) Remaining 3,925$ 419,124 1,538$ 100 5,463$ 419,224
In the third quarter of 2019, we completed vehicle testing.Arcimoto tested to verify robustness of its vehicle design, to demonstrate compliance with all Federal Motor Vehicle Safety Standards required for motorcycles, and to demonstrate proper function of voluntarily-added equipment such as the FUV's 3+3 seat belts. Following completion of compliance testing, we initiated the sales process with our first customers. As sales are completed, pre-order and reservation fees are applied to the purchase price and balances due are collected on delivery. For portions of all four quarters of 2020,Arcimoto's production operations were suspended in response to the COVID-19 pandemic. The Company restarted limited production and resumed deliveries to customers in the third quarter of 2020. We have continued to experience supply chain challenges related to extended lead times for delivery of parts and raw materials and may continue to do so in
the foreseeable future. The push to volume production continues to be our most important overarching objective, and in the third quarter we made significant progress towards that goal. We took possession of our new High-Production Arcimoto Manufacturing Plant ("rAMP") facility, and began landing new production equipment, including our new automated plastics production cell, as well as began the renovation of the facility that will become general assembly. We plan to pause vehicle production for a portion of the first quarter of 2022, in order to move materials, quality, subassembly and the assembly line into the new facility, after which we expect to achieve substantially higher unit output for the remainder of next year. Simultaneously with this move, we plan to complete engineering and testing of battery packs using the next generation cell from our supplier, offering incremental performance improvements to customers. Currently, we are dependent on a single supplier for our battery cells. During the third quarter of 2021, we received two types of battery cells, one of which has been discontinued. In order to use these cells, our engineering team is currently developing a module that will enable the utilization of these battery cell types. Upon development, regulatory testing will be conducted for compliance with government safety standards. This development and testing will occur concurrently with the planned pause in production discussed in the paragraph above. The Company expects these cells to be utilized in our FUVs by the end of the first quarter of 2022. Until the batteries are able to be used in our FUVs, we may have to extend the pause in production. With limited FUV production through 2020 and now extending into 2021, we are focusing on pilot programs for the Deliverator and Rapid Responder®, performing value engineering and planning for volume manufacture to achieve sustainable profitability, applying to theFederal Department of Energy's ATVMLP to finance original equipment manufacturing ("OEM") volume production, engaging sales efforts focused on fleet deployments, building and testing our rental operations, and expanding our service network. The average sales price, including custom upgrade options, for the three months endedSeptember 30, 2021 was$21,121 , which is$3,221 or 18% above the base model price of$17,900 . During the nine months endedSeptember 30, 2021 ,Arcimoto produced 251 vehicles, and delivered 153 new and two pre-owned vehicles to customers. Forty-one vehicles have been placed into service in rental operations. Thirty-one vehicles have been placed into service forArcimoto
fleet operations.
We have contractedMunro & Associates , a lean design consulting company, to evaluateArcimoto's manufacturing processes and supply chain management in order to drive down costs and begin high-volume production ofArcimoto ultra-efficient electric vehicles. To date, substantial progress has been made in understanding the cost models for future vehicles based on current and anticipated supply chain conditions, ergonomic studies, planning for failure modes and effects analysis ("FMEA"), baseline ride-drive characteristics, mapping outEuropean Union ("EU") certification, cost reduction for manufacturing, lean manufacturing analysis, vehicle architecture sourcing-selection for all major subsystems and the technology roadmap for future vehicles and marketing roadmap.Arcimoto's test of the Rapid Responder® in a pilot program with theCity of Eugene , theEugene-Springfield Fire Department ("ESFD") was completed onMarch 31, 2021 , and ESFD has provided us with valuable feedback for future product development and marketing. We are evaluating upfitters and defining the process for installation of non-compliant accessories such as lights and sirens and we released pricing and availability for the Rapid Responder® in the first quarter of 2021. 24
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 2021, with the intent to deliver them to new pilot programs.
OnSeptember 26, 2020 ,Arcimoto introduced the beta Configurator, a web tool for selecting vehicle options and visualizing the final configured product. We subsequently opened$2,500 non-refundable reservations for production FUVs through the end of the year to pre-order customers inWashington, California , andOregon , with a new starting price of$17,900 , and many more configurable options than our previous offering. Average sales price as configured for the first 113 reservations was$21,893 . While the beta Configurator has been an effective tool for converting early pre-orders to purchased vehicles, we are working on the next iteration in order to improve user interface and experience. OnFebruary 4, 2021 , the Company closed and completed a Purchase Agreement (the "Agreement") for the business ofTilting Motor Works, Inc. ("TMW"), including technology patents for tilting three wheeled vehicles and the TRiO motorcycle accessory product line. The TRiO is a bolt-on front end kit that converts a two wheeled motorcycle to a three wheeled tilting reverse trike. The Company believes the TRiO product line will continue to flourish underArcimoto , as we are able to bring considerable marketing and manufacturing efforts to bear, and the underlying technology will be beneficial to futureArcimoto products. Authorized dealers/installers of the TRiO products are potential partners for providing product support services to FUV owners in certain areas.Arcimoto delivered 8 and 18 TRiO kits, generating$104,330 and$227,113 in net revenue with a 33.5% and 28.3% gross margin, during the three months endedSeptember 30, 2021 , and fromFebruary 4 2021 toSeptember 30, 2021 , respectively. The Company completed the relocation of TMW to itsEugene, Oregon campus in the second quarter of 2021.
Trends in Cash Flow, Capital Expenditures and Operating Expenses
In 2019,
Our capital expenditures for low-volume production are substantially complete, and we have begun to purchase equipment in anticipation of increased production. We have brought the thermo forming of body panels in-house and ordered approximately$1,741,000 in equipment for this process. We anticipate placing the equipment in service at a future date. Approximately$1,450,000 of this amount were financed at interest rates ranging from 5.56% to 9.0% and terms of 60-72 months. We anticipate a savings of$780 per FUV produced with this automation. We purchased a multi-directional rotary brush machine at a total cost of$142,200 to automate the deburr and finishing of sheet metal. This was financed at an interest rate of 9.86% and a term of 60 months. We purchased an additional CNC mill at a total cost of$173,860 to increase production capacity. This was financed at an interest rate of 4.11% for 60 months. We purchased an additional welding cell at a total cost of$286,674 for welding the two sides of the upper frame together.$250,000 of this was financed at an interest rate of 5.75% for 60 months. We anticipate a savings of$390 per FUV produced with the welding automation. We purchased a wire bonding machine at a cost of$211,524 for next generation battery module production. We anticipate securing low interest debt for these equipment purchases. The Company is preparing an ATVMLP application to finance OEM volume production. Operating expenses increased by approximately 165%, or$12,985,000 , for the nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 2020 . This increase was mostly due to increased research and development ("R&D") expenses associated with developing the 2.0 FUV platform that is planned for OEM production volumes and increased personnel costs related to new hires across all departments. Other factors include, but are not limited to, an increase in sales and marketing efforts and G&A expense associated with the integration of TMW. The number of employees increased by approximately 98%, from 117 as ofSeptember 30, 2020 , to 232 employees as ofSeptember 30, 2021 . The increased staff was needed to build out all parts of the Company for selling and servicing vehicles. During the third quarter of 2021, the Company had purchased and will continue to purchase another type of battery cell that is different than the one it uses currently in its production process. In order to use this new battery cell,Arcimoto will develop a new battery module for use in its production process. These development costs may be significant and may cause a temporary shut-down of its production facility, which in turn will cause a delay in production of its vehicles during the first quarter of 2022. Such delays may ultimately impact our future cash flows.
New Accounting Pronouncements
For a description of our critical accounting policies and estimates, please refer to the "Summary of Significant Accounting Policies" in Note 2 to our 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 theSEC onMarch 31, 2021 . 25
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with 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. Results of Operations
Three Months Ended
The following table summarizes the Company's results of operations:
Three Months Ended September 30, Change 2021 2020 Dollars Percentage Revenue: Product sales$ 1,333,604 $ 620,438 $ 713,166 115 % Grant revenue - 10,000 (10,000 ) (100 )% Other revenue 164,572 53,457 111,115 208 % Total revenues 1,498,176 683,895 814,281 119 % Cost of goods sold 4,856,331 2,046,466 2,809,865 137 % Gross loss (3,358,155 ) (1,362,571 ) (1,995,584 ) 146 % Operating expenses: Research and development 3,186,469 1,314,053 1,872,416 142 % Sales and marketing 1,983,738 361,508 1,622,230 449 %
General and administrative 3,061,607 1,575,890
1,485,717 94 % Total operating expenses 8,231,814 3,251,451 4,980,363 153 % Loss from operations (11,589,969 ) (4,614,022 ) (6,975,947 ) 151 % Other (income) expense: Interest expense 51,671 29,120 22,551 77 % Other income (131,781 ) - (131,781 ) - % Foreign exchange gain - (409 ) 409 (100 )%
Loss before income tax benefit (11,509,859 ) (4,642,733 )
(6,867,126 ) 148 % Net loss$ (11,509,859 ) $ (4,642,733 ) $ (6,867,126 ) 148 % Revenues
Total revenue increased approximately$814,000 or 119% for the three months endedSeptember 30, 2021 , compared to the same period last year. This increase was primarily due to an increase in product sales of approximately$713,000 from higher sales volume, an increase of approximately$10,000 of TMW net revenue due to the acquisition of TMW in the first quarter of 2021 and an increase in rental revenue of approximately$31,000 compared to the same period last year. We had approximately$1,498,000 in revenue, comprising of approximately$1,333,000 in net revenue from the sales of our vehicles, approximately$104,000 in TMW net revenue and approximately$61,000 in net revenue from used vehicles, rental fees, parts, delivery fees, merchandise and outside metal during the three months endedSeptember 30, 2021 . We had approximately$684,000 in revenue, comprising of approximately$620,000 in revenue from the sales of our vehicles, and approximately$53,000 in revenue from merchandise and outside metal fabrication during the three months endedSeptember 30, 2020 . 26 Cost of Goods Sold
We had approximately$4,856,000 in cost of goods sold ("COGS"), comprising approximately$1,356,000 for FUV material and freight costs from the sale of our vehicles,$168,000 in warranty reserves,$69,000 in TMW COGS,$446,000 from an adjustment to inventory for loss, obsolescence, purchase price variance and scrap, and approximately$2,817,000 in manufacturing, labor, and overhead, during the three months endedSeptember 30, 2021 . We had approximately$2,046,000 in COGS comprising approximately$692,000 in FUV material costs from the sale of our vehicles and approximately$1,280,000 in manufacturing, labor, and overhead, and approximately$22,000 from an adjustment to inventory for loss, obsolescence, purchase price variance and scrap during the three months endedSeptember 30, 2020 . Cost of goods sold increase by approximately$2,810,000 or 137%, primarily driven by an increase in FUV material costs as a result of a higher number of FUV units sold, higher payroll costs, and higher manufacturing overhead as a result of ramping up our production operations, higher warranty reserves due to increased sales and recall costs, and higher inventory losses due to obsolescence, write-downs and purchase price variance. Operating Expenses
Research and Development ("R&D") Expenses
R&D expenses consist primarily of prototyping new variants of the 1.0 FUV platform, developing the 2.0 platform, and developing new three wheeled tilting micro mobility platforms. R&D expenses for the three months endedSeptember 30, 2021 and 2020 were approximately$3,187,000 and$1,314,000 , respectively. R&D expenses increased by$1,873,000 or 143% during the three months endedSeptember 30, 2021 as compared to the same period last year primarily due to the development of the 2.0 FUV platform that is planned for Original Equipment Manufacturer ("OEM") volumes. The increase was driven by higher consulting services, higher payroll expenses and additional expenses incurred as a result of our TMW acquisition in the first quarter of 2021.
Sales and Marketing ("S&M") Expenses
S&M expenses for the three months endedSeptember 30, 2021 and 2020 were approximately$1,984,000 and$362,000 , respectively. The primary reasons for the increase in sales and marketing expenses during the three months endedSeptember 30, 2021 of approximately$1,622,000 , or 449%, as compared to the prior period was increased costs related to logistics and product support resulting from the expansion of the sales department.
These activities reflect higher levels of marketing, road shows and costs in developing positive experiences for our customers and product support. The increased costs were primarily due to higher payroll costs as a result of additional personnel required to perform such activities.
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 endedSeptember 30, 2021 were approximately$3,062,000 as compared to approximately$1,576,000 for the same period last year, representing an increase of approximately$1,486,000 , or 94%. The primary reasons for the increase in the current period was due to costs associated with the integration of TMW, increased lease expenses, increased professional fees, increased personnel costs related to new hires, and increased legal costs. 27 Interest Expense
Interest expense for the three months ended
Other Income
Other income of approximately$132,000 for the three months endedSeptember 30, 2021 primarily consists of sub-lease income from one of our properties which ended in the fourth quarter of 2021.
Nine Months Ended
The following table summarizes the Company's results of operations:
Nine Months Ended September 30, Change 2021 2020 Dollars Percentage
Revenue: Product sales$ 3,224,387 $ 1,473,428 $ 1,750,959 119 % Grant revenue - 10,000 (10,000 ) (100 )% Other revenue 385,144 85,800 299,344 349 % Total revenues 3,609,531 1,569,228 2,040,303 130 % Cost of goods sold 11,329,143 4,944,801 6,384,342 129 % Gross loss (7,719,612 ) (3,375,573 ) (4,344,039 ) 129 % Operating expenses: Research and development 8,256,980 2,047,341 6,209,639 303 % Sales and marketing 4,537,816 1,003,681 3,534,135 352 %
General and administrative 8,071,795 4,830,236
3,241,559 67 % Total operating expenses 20,866,591 7,881,258 12,985,333 165 % Loss from operations (28,586,203 ) (11,256,831 ) (17,329,372 ) 154 % Other (income) expense:
Gain on forgiveness of PPP loan (1,078,482 ) -
(1,078,482 ) - % Interest expense 151,246 691,729 (540,483 ) (78 )% Other income (221,214 ) (7,500 ) (213,714 ) 2850 % Foreign exchange gain - (409 ) 409 (100 )%
Loss before income tax benefit (27,437,753 ) (11,940,651
) (15,497,102 ) 130 % Income tax (expense) benefit 2,938,698 - 2,938,698 - % Net loss$ (24,499,055 ) $ (11,940,651 ) $ (12,558,404 ) 105 % Revenues Total revenue increased by approximately$2,040,000 or 130% for the nine months endedSeptember 30, 2021 compared to the same period last year. This increase was primarily due to an increase in product sales of approximately$1,751,000 from higher sales volume, an increase of approximately$227,000 of TMW net revenue due to the acquisition of TMW in the first quarter of 2021 and an increase in rental revenue of approximately$41,000 compared to the same period last year. We had approximately$3,610,000 in revenue, comprising of approximately$3,224,000 in revenue from the sales of our vehicles, approximately$227,000 in TMW net revenue and approximately$159,000 in revenue from used vehicles, rental fees, parts, delivery fees, merchandise and outside metal fabrication during the nine months endedSeptember 30, 2021 . We had approximately$1,569,000 in revenue, comprising of approximately$1,473,000 in revenue from the sales of our vehicles,$10,000 in grant revenue, and approximately$86,000 in revenue from merchandise and outside metal fabrication during the nine months endedSeptember 30, 2020 . 28 Cost of Goods Sold
We had approximately$11,329,000 in cost of goods sold ("COGS"), comprising approximately$5,093,000 in FUV, delivery, and other material costs from the sale of our vehicles, approximately$405,000 in warranty reserves, approximately$163,000 in TMW COGS,$475,000 from an adjustment to inventory for loss, obsolescence, purchase price variance and scrap, and approximately$5,193,000 in manufacturing, labor and overhead during the nine months endedSeptember 30, 2021 . We had approximately$4,945,000 in COGS comprising approximately$1,574,000 in FUV parts from the sale of our vehicles, approximately$70,000 in warranty reserves and approximately$15,000 in COGS from merchandise and outside metal fabrication and approximately$3,269,000 in overhead and underutilized factory capacity during the nine months endedSeptember 30, 2020 . This was offset by an approximately$15,000 reduction in COGS due to an adjustment to inventory for loss, obsolescence, purchase price variance and scrap. Cost of goods sold increased by approximately$6,384,000 or 129%, primarily driven by an increase in FUV material costs as a result of a higher number of FUV units sold, higher payroll costs, and higher manufacturing overhead as a result of ramping up our production operations, higher warranty reserves due to increased sales and recall costs, and higher inventory losses due to obsolescence, write-downs and purchase price variance. Operating Expenses R&D Expenses R&D expenses consist primarily of prototyping new variants of the 1.0 FUV platform, developing the 2.0 platform, and developing new three wheeled tilting micro mobility platforms. R&D expenses for the nine months endedSeptember 30, 2021 and 2020 were approximately$8,257,000 and$2,047,000 , respectively. R&D expenses increased by$6,210,000 or 303% during the nine months endedSeptember 30, 2021 as compared to the same period last year primarily due to the development of the 2.0 FUV platform that is planned for OEM volumes. The increase was driven by higher consulting services, higher payroll expenses and additional expenses incurred as a result of our TMW acquisition in the first quarter of 2021. S&M Expenses S&M expenses for the nine months endedSeptember 30, 2021 and 2020 were approximately$4,538,000 and$1,004,000 , respectively. The primary reasons for the increase in sales and marketing expenses during the nine months endedSeptember 30, 2021 of approximately$3,534,000 , or 352%, as compared to the prior period were increased marketing activities to ramp sales in line with planned production increases and increased costs associated with logistics
and product support.
These activities reflect higher levels of marketing, road shows and costs in developing positive experiences for our customers and product support. The increased costs were primarily due to higher payroll costs as a result of additional personnel required to perform such activities.
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 endedSeptember 30, 2021 were approximately$8,072,000 as compared to approximately$4,830,000 for the same period last year, representing an increase of approximately$3,242,000 , or 67%. The primary reasons for the increase in the current period were due to costs associated with the integration of TMW, increased lease expenses, increased professional fees, increased personnel costs related to new hires, and increased legal costs.
Gain on Forgiveness of PPP Loan
OnMay 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 beginningDecember 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 datedApril 2, 2020 . OnApril 27, 2021 , all of the outstanding principal and interest of approximately$1,069,000 and$10,000 , respectively, were forgiven as ofSeptember 30, 2021 . There was no forgiveness on the PPP loan recognized as ofSeptember 30, 2020 . 29 Interest Expense Interest expense for the nine months endedSeptember 30, 2021 was approximately$151,000 , as compared to$692,000 during the nine months endedSeptember 30, 2020 . The decrease in interest expense was due to the pay off of all non-equipment financing inJune 2020 . Other Income Other income increased by approximately$214,000 or 2850% for the nine months endedSeptember 30, 2021 compared with the same period last year. This increase was primarily due to sub-lease income from one of our properties acquired in 2021 which ended in the fourth quarter of 2021.
Liquidity and Capital Resources
The Company has not achieved positive earnings and operating cash flows to enable the Company to finance its operations internally. Funding for the business to date has come primarily through the issuance of debt and equity securities. The Company may require additional funding to continue to operate in the normal course of business. Management's belief that current cash reserves and if needed, other external sources of funding will sustain operations for more than 12 months.
Although the Company's objective is to increase its revenues from the sale of its products to sufficiently generate positive operating and cash flow levels, there can be no assurance that the Company will be successful in this regard. The Company may need to raise additional capital in order to fund its operations, which if needed, it intends to obtain through debt and/or equity offerings. Funds on hand and any follow-on capital, will be used to invest in our business to expand sales and marketing efforts, including Company-owned and franchise-rental operations and the systems to support them, enhance our current product lines by continuing research and development to enhance and reduce the cost of the FUV and to bring future variants to retail production, continue to build out and optimize our production facility, debt repayment, and fund operations until positive cash flow is achieved. The need for additional capital may be adversely impacted by uncertain market conditions or approval by regulatory bodies. As ofSeptember 30, 2021 , we had approximately$32,978,000 in cash and cash equivalents, representing a decrease in cash and cash equivalents of approximately$6,474,000 fromDecember 31, 2020 . Our cash used from operating activities was approximately$25,354,000 , which was primarily due to our net loss of approximately$24,499,000 . In connection with our ATM, we issued and sold 1,853,181 shares of common stock throughSeptember 30, 2021 , resulting in proceeds to the Company of approximately$33,100,000 , net of offering costs. OnApril 19, 2021 , we disbursed$11,500,000 cash for the purchase of the buildings onChambers Ave. We anticipate that our current sources of liquidity, including cash and cash equivalents, together with our current projections of cash flow from operating activities, will provide us with more than 12 months of liquidity. The amount and timing of funds that we may raise is undetermined and could vary based on a number of factors, including our ongoing liquidity needs, our current capitalization, as well as access to current and future sources of liquidity. If circumstances arise where we have to obtain additional funds for our business needs, we will consider obtaining such funds, among other things, through the capital markets and/or refinancing our long-lived assets.
The following table summarizes the Company's sources and uses of cash:
Nine Months EndedSeptember 30, 2021 2020
Net cash used in operating activities$ (25,353,778 ) $ (10,949,108 ) Net cash used in investing activities (16,617,195 ) (1,151,027 ) Net cash provided by financing activities 35,497,371 23,238,548 Net cash increase (decrease) for period$ (6,473,602 ) $ 11,138,413
Cash Flows 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 endedSeptember 30, 2021 , cash used in operating activities was approximately$25,354,000 , which included a net loss of approximately$24,499,000 , non-cash charge related to depreciation and amortization of approximately$1,641,000 , gain on forgiveness of PPP loan of$1,078,000 , non-cash charge related to stock-based compensation of approximately$2,660,000 , non-cash income related to income tax benefit of approximately$2,939,000 ,and changes in accounts receivable, inventory, prepaid inventory, other current assets, accounts payable, accrued liabilities, customer deposits, warranty reserve and deferred revenue of approximately$1,139,000 . 30 During the nine months endedSeptember 30, 2020 , cash used in operating activities was approximately$10,949,000 , which included a net loss of approximately$11,941,000 , non-cash charge related to depreciation and amortization of approximately$676,000 , non-cash charge related to the amortization of debt discounts of approximately$311,000 , non-cash charge related to stock-based compensation of approximately$1,233,000 , and accounts receivable, inventory, prepaid inventory, other current assets, accounts payable, accrued liabilities, customer deposits, warranty reserve and deferred revenue of approximately$1,227,000 .
Cash Flows 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 endedSeptember 30, 2021 , the Company paid approximately$14,839,000 for manufacturing equipment and fixed asset purchases, approximately$24,000 for security deposits, and$1,754,000 for cash paid for the TMW acquisition.
During the nine months ended
Cash Flows from Financing Activities
During the nine months endedSeptember 30, 2021 , net cash provided by financing activities was approximately$35,497,000 , compared to net cash provided by financing activities of approximately$23,239,000 during the nine months endedSeptember 30, 2020 . Cash flows provided by financing activities during the nine months endedSeptember 30, 2021 comprised of proceeds from the issuance of common stock through our registered offerings 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 the 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 , and payments on capital lease obligations and equipment notes of approximately$493,000 . During the nine months endedSeptember 30, 2020 , net cash provided by financing activities was approximately$23,239,000 . Cash flows provided by financing activities during the nine months endedSeptember 30, 2020 mainly comprised of proceeds from the issuance of common stock through our S-3 offering of approximately$24,852,000 (net of offering costs of approximately$1,649,000 ), proceeds from the paycheck protection program loan of approximately$1,069,000 , proceeds from exercise of stock options and warrants of approximately$1,672,000 , reduced by payments on capital lease obligations amounting to approximately$334,000 , repayment of convertible notes payable to related parties of approximately$188,000 , repayment of convertible notes payable of$500,000 , and repayments of notes payable of approximately$3,332,000 .
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