The following discussion and analysis of our financial condition and results of
operations for the three and nine months ended September 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 ended December 31,
2020 included in the Company's Annual Report on Form 10-K filed with the SEC on
March 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."



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 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.



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 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 2020 Arcimoto produced 117 vehicles and sold 96 new and one pre-owned.
During the nine months ended September 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 ended September 30, 2020. Forty-five
vehicles were in finished goods inventory as of September 30, 2021.



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 submitted an application for the Federal Department of Energy's
Advanced Technology Vehicle Manufacturing Loan Program ("ATVMLP") to secure the
funds necessary to execute our growth strategy.



Platform and Technologies



Arcimoto 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 on June 10, 2020, Arcimoto has teamed with
Munro & Associates to evaluate Arcimoto's manufacturing processes and supply
chain management in order to drive down costs and begin high-volume production
of Arcimoto 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



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.



 Rapid Responder®



The Rapid Responder® was announced on February 15, 2019. The pure-electric Rapid
Responder® is developed on the Arcimoto 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 across the
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 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.



                                       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 in September 2020. We
teased the Cameo prototype in several Arcimoto videos in September 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 released October
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 on November 16, 2020. The first production Roadster

was
unveiled on July 26, 2021.



Arcimoto Flatbed



The Arcimoto Flatbed prototype was introduced at the FUV & Friends Summer
Showcase on July 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 with Eugene-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 July 26, 2021, Arcimoto demonstrated progress on torque vectoring and other drive system software improvements, including "drive-by-wire" functionality, a foundational layer for a true driverless control system.


The first step toward that driverless control system was also on display at the
Summer Showcase. A technology company, based in South 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.



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.



                                       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 in San Diego, California and Eugene, Oregon in the second
quarter of 2021. Additional rental vehicles are available at our franchise
rental location, Arcimoto Key West in Key West, Florida, and at GoCars in San
Francisco, California. 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 plan to open additional Arcimoto-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 Arcimoto or a potential partner to determine what level of human resources and interaction is necessary for a given rental location.





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 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, depending on the dealer laws in the state. Customers near those rental locations are able to deliver their vehicle to that location for service needs.

Management Opportunities, Challenges and Risks

Demand, Production and Capital

Demand for the Retail Series Arcimoto FUV has continued to increase. As of September 30, 2021, we had 5,463 net FUV pre-orders placed with small refundable deposits or fleet order commitments, representing an increase of 746, or approximately 16%, from the 4,717 pre-orders as of December 31, 2020.





                                       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 September 30, 2021, is presented in the table below:





                                  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 the Federal 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
ended September 30, 2021 was $21,121, which is $3,221 or 18% above the base
model price of $17,900. During the nine months ended September 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 for Arcimoto

fleet
operations.



We have contracted Munro & Associates, a lean design consulting company, to
evaluate Arcimoto's manufacturing processes and supply chain management in order
to drive down costs and begin high-volume production of Arcimoto 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 out European
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 the City of
Eugene, the Eugene-Springfield Fire Department ("ESFD") was completed on March
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.





On September 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 in Washington, California,
and Oregon, 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.



On February 4, 2021, the Company closed and completed a Purchase Agreement (the
"Agreement") for the business of Tilting 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 under Arcimoto, as we
are able to bring considerable marketing and manufacturing efforts to bear, and
the underlying technology will be beneficial to future Arcimoto 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 ended September 30,
2021, and from February 4 2021 to September 30, 2021, respectively. The Company
completed the relocation of TMW to its Eugene, Oregon campus in the second
quarter of 2021.



Trends in Cash Flow, Capital Expenditures and Operating Expenses

In 2019, Arcimoto generated cash flow from retail production vehicle sales for the first time.





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 ended September 30, 2021, as compared to the nine months ended September
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 of September 30, 2020, to 232 employees as of September 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 the SEC on March 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 September 30, 2021 versus Three Months Ended September 30, 2020

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
ended September 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 ended September 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 ended September 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 ended September 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 ended September 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 ended September 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 ended
September 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 ended September 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 ended September
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
ended September 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 September 30, 2021 was approximately $52,000, as compared to $29,000 during the three months ended September 30, 2020. The increase in interest expense was due to additional financing of equipment in order to ramp up our production.





Other Income



Other income of approximately $132,000 for the three months ended September 30,
2021 primarily consists of sub-lease income from one of our properties which
ended in the fourth quarter of 2021.



Nine Months Ended September 30, 2021 versus Nine Months Ended September 30, 2020

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
ended September 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 ended September 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 ended September
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 ended September 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 ended September 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 ended September 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 ended
September 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 ended September 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 ended
September 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
ended September 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


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 September 30, 2021. There was no
forgiveness on the PPP loan recognized as of September 30, 2020.



                                       29



Interest Expense



Interest expense for the nine months ended September 30, 2021 was approximately
$151,000, as compared to $692,000 during the nine months ended September 30,
2020. The decrease in interest expense was due to the pay off of all
non-equipment financing in June 2020.



Other Income



Other income increased by approximately $214,000 or 2850% for the nine months
ended September 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 of September 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 from December 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 through September 30, 2021, resulting in
proceeds to the Company of approximately $33,100,000, net of offering costs. On
April 19, 2021, we disbursed $11,500,000 cash for the purchase of the buildings
on Chambers 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 Ended
                                                     September 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 ended September 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 ended September 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 ended September 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 September 30, 2020, the Company paid approximately $1,097,000, for manufacturing equipment and fixed asset purchases and approximately $54,000 for security deposits.

Cash Flows from Financing Activities





During the nine months ended September 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 ended
September 30, 2020. 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 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 ended September 30, 2020, net cash provided by financing
activities was approximately $23,239,000. Cash flows provided by financing
activities during the nine months ended September 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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