FTC SOLAR, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes included in Item 1 of this Form 10-Q and
along with information included in our Annual Report on Form 10-K for the year
ended December 31, 2021. In addition to historical financial information, the
following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from such
forward-looking statements. Factors that could cause or contribute to those
differences include, but are not limited to, those identified below and those
discussed in Part I, Item 1A. "Risk Factors" included in our Annual Report on
Form 10-K for the year ended December 31, 2021. Additionally, our historical
results are not necessarily indicative of the results that may be expected in
any future period.

This discussion and analysis of our financial condition and results of
operations contain the presentation of Adjusted EBITDA, Adjusted Net Loss and
Adjusted EPS, which are not presented in accordance with GAAP. Adjusted EBITDA,
Adjusted Net Loss and Adjusted EPS are being presented because they provide the
Company and readers of this Form 10-Q with additional insight into our
operational performance relative to earlier periods and relative to our
competitors. We do not intend Adjusted EBITDA, Adjusted Net Loss and Adjusted
EPS to be substitutes for any GAAP financial information. Readers of this Form
10-Q should use Adjusted EBITDA Adjusted Net Loss and Adjusted EPS only in
conjunction with Net Loss and Net Loss per Share, the most comparable GAAP
financial measures. Reconciliations of Adjusted EBITDA, Adjusted Net Loss and
Adjusted EPS to Net Loss and Net Loss per Share, the most comparable GAAP
measures, is provided in "Non-GAAP Financial Measures".

Insight

FTC Solar, Inc. (the "Company", "we", "our", or "us") was founded in 2017 and is
incorporated in the state of Delaware. We are a global provider of advanced
solar tracker systems, supported by proprietary software and value-added
engineering services. Our mission is to provide differentiated products,
software, and services that maximize energy generation and cost savings for our
customers, and to help facilitate the continued growth and adoption of solar
power globally. Trackers significantly increase the amount of solar energy
produced at a solar installation by moving solar panels throughout the day to
maintain an optimal orientation relative to the sun. Our tracker systems are
currently marketed under the Voyager brand name ("Voyager Tracker" or
"Voyager"). Voyager is a next-generation two-panel in-portrait single-axis
tracker solution that we believe offers industry-leading performance and ease of
installation. We have a team of dedicated renewable energy professionals with
significant project installation experience focused on delivering cost
reductions to our US and worldwide clients across the solar project development
and construction cycle. Our solar solutions span a range of applications,
including ground mount, tracker, canopy, and rooftop. The Company is
headquartered in Austin, Texas, and has international subsidiaries in Australia,
India, Singapore, and South Africa.



In April 2021, we completed an initial public offering (IPO) of 19,840,000
shares of our common stock receiving proceeds of $241.2 million, net of
underwriting discounts and commissions, but before offering costs, and began
trading on the Nasdaq Global Market under the symbol "FTCI". Prior to the
completion of the IPO, the board of directors and stockholders approved an
approximately 8.25-for-1 forward stock split (the "Forward Stock Split") of the
Company's shares of common stock which became effective on April 28, 2021.
Proceeds from the IPO were used for general corporate purposes, with $54.2
million used to purchase an aggregate of 4,455,384 shares of our common stock,
including shares resulting from the settlement of certain vested restricted
stock units ("RSUs") and exercise of certain options in connection with the IPO
at the IPO price, less underwriting discounts and commissions.

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We are an emerging growth company, as defined in the Jumpstart Our Business
Startups (JOBS) Act. Under the JOBS Act, we elected to use the allowed extended
transition period to delay adopting new or revised accounting standards until
such time as those standards apply to private companies.


Key factors affecting our performance

Government Regulations. Changes in the U.S. trade environment, including the
imposition of import tariffs, AD/CVD investigations and WROs directed at forced
labor in China, can have an impact on the timing of developer projects. This
impact on project activity by developers can negatively affect the amount and
timing of our revenue, results of operations and cash flows. Escalating trade
tensions, particularly between the United States and China, have led to
increased tariffs and trade restrictions, including tariffs applicable to
certain raw materials and components for our products. We have taken measures
with the intention of mitigating the effect of tariffs, AD/CVD and WROs on our
business by reducing our reliance on China. In 2019, 90% of our supply chain was
sourced from China. As of March 31, 2022, we have qualified suppliers outside of
China for all our commodities and reduced the extent to which our supply chain
for U.S.-based projects is subject to existing tariffs. We have entered into
partnerships with manufacturers in the United States, Mexico, Canada, Spain,
Brazil, Turkey, Saudi Arabia, India, Thailand, Vietnam and Korea to diversify
our supply chain and optimize costs.

Disruptions in Transportation and Supply Chain. Our costs are affected by the
underlying costs of raw materials including steel, component costs including
motors and micro-chips and transportations costs. Current market conditions and
international conflicts that constrain supply of materials and disrupt the flow
of materials from international vendors impacts the cost of our products and
services. We have also seen increases in domestic fuel prices and transportation
costs. These cost increases impact our margins. We are taking steps to expand
and diversify our manufacturing partnerships and we are implementing alternative
modes of transportation to mitigate the impacts of these current headwinds in
the global supply chain and logistics market. We also have a sharp focus on our
design to value initiative to improve margin by reducing manufacturing and
material costs of our products.

Megawatts ("MW") Shipped and Average Selling Price ("ASP"). The primary
operating metric we use to evaluate our sales performance and to track market
acceptance of our products is the change in quantity of megawatts (MW) shipped
from period to period. MW are measured for each individual project and are
calculated based on the expected output of that project once installed and fully
operational. We also utilize metrics related to price and cost of goods sold per
watt, including the change in ASP from period to period and cost per watt. ASP
is calculated by dividing total revenue by total watts and cost per watt is
calculated by dividing total costs of goods sold by total watts. These metrics
enable us to evaluate trends in pricing, manufacturing cost and profitability.
Events such as the COVID-19 pandemic and international conflicts can impact the
U.S. economy, global supply chains, and our business. These impacts can cause
significant shipping delays and cost increases, as well as offsetting ASP
increases, and also raise the price of inputs like steel and logistics,
affecting our cost per watt.

Investment in Technology and Personnel. We invest in both the people and
technology behind our products. We intend to continue making significant
investments in the technology for our products and expansion of our patent
portfolio to attract and retain customers, expand the capabilities and scope of
our products, and enhance user experience. We also intend to make significant
investments to attract and retain employees in key positions, including sales
leads, engineers, software developers, quality assurance personnel, supply chain
personnel, product management, and operations personnel, to help us drive
additional efficiencies across our marketplace and, in the case of sales leads,
to continue to enhance and diversify our sales capabilities, including
international expansion.

Impact of the COVID-19 Pandemic. In March of 2020, the World Health Organization
declared that the worldwide spread and severity of a new coronavirus, referred
to as COVID-19, was severe enough to be characterized as a pandemic. In response
to the continued spread of COVID-19, governmental authorities in the United
States and around the world have imposed various restrictions designed to slow
the pace of the pandemic, including restrictions on travel and other
restrictions that prohibit employees from going to work, including in cities
where we have offices, employees, and customers, causing severe disruptions in
the worldwide economy. The broader implications of the COVID-19 pandemic on our
business, financial condition and results of operations remain uncertain and
will depend on certain developments, including the duration and severity of the
COVID-19 pandemic, the impact of virus variants, the rate of vaccinations, the
COVID-19 pandemic's impact on our customers and suppliers and the range of
governmental and community reactions to the pandemic. While our day-to-day
operations have been affected, the impact has been less pronounced as most of
our staff has worked remotely and continued to develop our product offerings,
source materials and install our products. However, we have experienced
significant supply chain disruptions that have caused delays in product
deliveries due to diminished vessel capacity and port detainment of vessels as a
consequence of the COVID-19 pandemic (including as a result of multiple COVID-19
variants), which have contributed to an increase in lead times for delivery of
our tracker systems. For instance, we experienced a COVID-related supplier
production slowdown in India at the

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end of March 2021, which continued throughout 2021 due to the emergence of the
Omicron variant. The reduced capacity for logistics is also causing increases in
logistics costs. Additionally, ground operations at project sites have been
impacted by health-related restrictions, shelter-in-place orders and worker
absenteeism, which has resulted in delays in project completions, and these
restrictions have also hindered our ability to provide on-site support to our
customers and conduct inspections of our contract manufacturers. The disruptions
in the global supply chain have resulted in extended lead times for some of our
component parts. Management will continue to monitor the impact of the global
situation on our financial condition, cash flows, operations, contract
manufacturers, industry, workforce and customer relationships.

Non-GAAP Financial Measures

Adjusted EBITDA, Adjusted Net Loss and Adjusted Earnings Per Share (“EPS”)

We utilize Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS as supplemental
measures of our performance. We define Adjusted EBITDA as net loss plus (i)
provision (benefit) for income taxes, (ii) interest expense, net, (iii)
depreciation expense, (iv) amortization of intangibles, (v) stock-based
compensation, (vi) non-routine legal fees, severance and certain other costs
(credits) and (vii) the loss (income) from our unconsolidated subsidiary. We
also deduct the gains from the disposal of our investment in unconsolidated
subsidiary and from extinguishment of our debt from net loss in arriving at
Adjusted EBITDA. We define Adjusted Net Loss as net loss plus (i) amortization
of debt issue costs and intangibles, (ii) stock-based compensation, (iii)
non-routine legal fees, severance and certain other costs (credits), (iv) the
loss (income) from our unconsolidated subsidiary and (v) income tax expense
(benefit) of adjustments. We also deduct the gains or add back the losses from
the disposal of our investment in unconsolidated subsidiary and from
extinguishment of our debt from net loss in arriving at Adjusted Net Loss.
Adjusted EPS is defined as Adjusted Net Loss on a per share basis using the
weighted average diluted shares outstanding.

Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS are intended as
supplemental measures of performance that are neither required by, nor presented
in accordance with, U.S. generally accepted accounting principles ("GAAP"). We
present Adjusted EBITDA, Adjusted Net Loss and Adjusted EPS, because we believe
they assist investors and analysts in comparing our performance across reporting
periods on an ongoing basis by excluding items that we do not believe are
indicative of our core operating performance. In addition, we use Adjusted
EBITDA, Adjusted Net Loss and Adjusted EPS to evaluate the effectiveness of our
business strategies.

Among other limitations, Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS do
not reflect (i) our cash expenditures, or future requirements, for capital
expenditures or contractual commitments, and (ii) the impact of certain cash
charges resulting from matters we consider not to be indicative of our ongoing
operations. Further, the adjustments noted in Adjusted EBITDA do not reflect the
impact of any income tax expense or benefit. Additionally, other companies in
our industry may calculate Adjusted EBITDA, Adjusted Net Loss, and Adjusted EPS
differently than we do, which limits its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA, Adjusted Net Loss, and Adjusted
EPS should not be considered in isolation or as substitutes for performance
measures calculated in accordance with GAAP, and you should not rely on any
single financial measure to evaluate our business. These non-GAAP financial
measures, when presented, are reconciled to the most closely applicable GAAP
measure as disclosed below:


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                                                     Three months ended March 31,
                                          2022                                          2021
(in thousands, except
shares and per share
data)                    Adjusted EBITDA       Adjusted Net Loss       Adjusted EBITDA       Adjusted Net Loss
Net loss per GAAP       $         (27,793 )   $           (27,793 )   $          (7,442 )   $            (7,442 )
Reconciling items -
Provision (benefit)
for income taxes                       76                       -                   (19 )                     -
Interest expense, net                 295                       -                    14                       -
Amortization of debt
issue costs in
interest expense                        -                     173                     -                       -
Depreciation expense                  121                       -                     9                       -
Stock-based
compensation                        4,610                   4,610                   449                     449
(Gain) from disposal
of investment in
unconsolidated
subsidiary(d)                        (337 )                  (337 )                   -                       -
(Gain) loss on
extinguishment of
debt                                    -                       -                  (790 )                  (790 )
Non-routine legal
fees(a)                             1,078                   1,078                    15                      15
Severance(b)                          615                     615                     -                       -
Other costs(c)                      1,370                   1,370                   882                     882
(Income) loss from
unconsolidated
subsidiary(d)                           -                       -                   218                     218
Income tax expense
(benefit)
attributable to
adjustments                             -                       -                     -                      (8 )
Adjusted Non-GAAP
amounts                 $         (19,965 )   $           (20,284 )   $          (6,664 )   $            (6,676 )

GAAP net loss per
share:
Basic                          N/A            $             (0.28 )          N/A            $             (0.11 )
Diluted                        N/A            $             (0.28 )          N/A            $             (0.11 )

Adjusted Non-GAAP net
loss per share
(Adjusted EPS):
Basic                          N/A            $             (0.20 )          N/A            $             (0.10 )
Diluted                        N/A            $             (0.20 )          N/A            $             (0.10 )

Weighted-average
common shares
outstanding:
Basic                          N/A                     99,211,792            N/A                     66,875,469
Diluted                        N/A                     99,211,792            N/A                     66,875,469



(a) Non-routine legal fees represent legal fees incurred for matters that were
not ordinary or routine to the operations of the business.
(b) Severance costs were incurred related to agreements with certain executives
due to restructuring changes.
(c) Other costs in 2022 include certain costs attributable to accelerated
vesting of stock-based compensation awards resulting from our IPO and
shareholder follow on registration costs pursuant to our IPO. Other costs in
2021 include consulting fees in connection with operations and finance.
(d) Our management excludes the gain from current year collections of contingent
contractual amounts arising from the sale in 2021 of our unconsolidated
subsidiary when evaluating our operating performance, as well as the income
(loss) from operations of our unconsolidated subsidiary prior to the sale.

Key elements of our operating results

The following discussion describes certain items in our condensed consolidated statements of earnings.

Revenue

Revenue from the sale of Voyager Trackers and customized components of Voyager
Trackers is recognized over time, as work progresses, utilizing an input measure
of progress determined by cost incurred to date relative to total expected cost
on these projects to correlate with our performance in transferring control over
Voyager Trackers and its components. Revenue from the sale of a Voyager
Tracker's individual parts is recognized point-in-time as and when control
transfers based on the terms of the contract. Revenue from sale of term-based
software licenses is recognized upon transfer of control to the customer.
Revenue for shipping and handling services is

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recognized over time based on progress in meeting shipping terms of the
arrangements. Subscription revenue, which is derived from a subscription-based
enterprise licensing model, and support revenue, which is derived from ongoing
security updates and maintenance, are generally recognized on a straight-line
basis over the term of the contract.

Our customers include project developers, solar asset owners and EPC contractors
that design and build solar energy projects. For each individual solar project,
we enter into a contract with our customers covering the price, specifications,
delivery dates and warranty for the products being purchased, among other
things. Our contractual delivery period for Voyager Trackers and related parts
can vary depending on size of the project and availability of vessels and other
means of delivery. Contracts can range in value from tens of thousands to tens
of millions of dollars.

Our revenue is affected by changes in the volume and ASP of our solar tracking
systems purchased by our customers and volume of sales of software products and
engineering services, among other things. The ASP of our solar tracker systems
and quarterly volume of sales is driven by the supply of, and demand for, our
products, changes in product mix, geographic mix of our customers, strength of
competitors' product offerings and availability of government incentives to the
end-users of our products. Additionally, our revenue may be impacted by
seasonality and variability related to ITC step-downs and construction activity
as well as the cold weather.

The vast majority of our revenue in the periods presented was attributable to
sales in the United States and Australia, with a smaller portion derived from
sales in South Africa, Europe and Southeast Asia. Our revenue growth is
dependent on continued growth in the number of solar tracker projects and
engineering services we win in competitive bidding processes and growth in our
software sales each year, as well as our ability to increase our market share in
each of the geographies in which we currently compete, expand our global
footprint to new emerging markets, grow our production capabilities to meet
demand and continue to develop and introduce new and innovative products that
address the changing technology and performance requirements of our customers,
among other things.

Cost of revenue and gross profit (loss)

We subcontract with third-party manufacturers to manufacture and deliver our
products directly to our customers. Our product costs are affected by the
underlying cost of raw materials procured by these contract manufacturers,
including steel and aluminum; component costs, including electric motors and
gearboxes; technological innovation in manufacturing processes; and our ability
to achieve economies of scale resulting in lower component costs. We do not
currently hedge against changes in the price of raw materials, but we continue
to explore opportunities to mitigate the risks of foreign currency and commodity
fluctuations through the use of hedges and foreign exchange lines of credit.
Some of these costs, primarily personnel, are not directly affected by sales
volume.

We have increased our headcount since our April 2021 IPO as we scaled up our
business. Our gross profit may vary period-to-period due to changes in our
headcount, ASP, product costs, product mix, customer mix, geographical mix,
shipping methods, warranty costs and seasonality. Pursuant to the Coronavirus
Aid, Relief, and Economic Security Act (the "CARES Act"), we received employee
retention credits during 2021, which reduced the impact of increased personnel
costs on our operating results during the prior year comparative period.

Operating Expenses

Operating expenses consist of research and development expenses, selling and
marketing expenses and general and administrative expenses. Personnel-related
costs are the most significant component of our operating expenses and include
salaries, benefits, bonuses, commissions and stock-based compensation expenses.

Our increased headcount has contributed to increased operating costs both in
absolute dollars and as a percentage of revenue. While we have recently frozen
non-essential hiring in response to current regulatory issues that are
negatively impacting solar project activity levels, we expect to resume hiring
new employees in the future as needed to support our future expected growth and
in response to expected turnover. In addition, our operating costs have been
impacted by (i) our level of research activities to originate, develop and
enhance our products, (ii) our sales and marketing efforts as we expand our
development activities in other parts of the world, and (iii) increased legal
and professional fees, compliance costs, insurance, facility costs and other
costs associated with our expected growth and in being a public company.

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Results of operations – Quarters ended March 31, 2022 Compared to the three months ended March 31, 2021

                                                      Three months ended 

March, 31st,

                                                2022                        

2021

(in thousands, except                              Percentage of                      Percentage of
percentages)                         Amounts          revenue           Amounts          revenue
Revenue:
Product                             $   30,968               62.5 %    $   56,462               85.9 %
Service                                 18,585               37.5 %         9,245               14.1 %
Total revenue                           49,553              100.0 %        65,707              100.0 %
Cost of revenue:
Product                                 34,963               70.6 %        54,996               83.7 %
Service                                 23,877               48.2 %        10,592               16.1 %
Total cost of revenue                   58,840              118.7 %        65,588               99.8 %
Gross profit (loss)                     (9,287 )            (18.7 %)          119                0.2 %
Operating expenses
Research and development                 2,701                5.5 %         1,954                3.0 %
Selling and marketing                    1,972                4.0 %         1,100                1.7 %
General and administrative              13,818               27.9 %         5,084                7.7 %
Total operating expenses                18,491               37.3 %         8,138               12.4 %
Loss from operations                   (27,778 )            (56.1 %)       (8,019 )            (12.2 %)
Interest expense, net                     (295 )             (0.6 %)          (14 )              0.0 %
Gain from disposal of investment
in unconsolidated subsidiary               337                0.7 %             -                0.0 %
Gain on extinguishment of debt               -                0.0 %           790                1.2 %
Other expense                               19                0.0 %             -                0.0 %
Loss from unconsolidated
subsidiary                                   -                0.0 %          (218 )             (0.3 %)
Loss before income taxes               (27,717 )            (55.9 %)       (7,461 )            (11.4 %)
(Provision) benefit for income
taxes                                      (76 )             (0.2 %)           19                0.0 %
Net loss                            $  (27,793 )            (56.1 %)   $   (7,442 )            (11.3 %)


Revenue

We generate our revenue in two streams - Product revenue and Service revenue.
Product revenue is derived from the sale of Voyager Trackers, customized
components of Voyager Trackers, individual part sales for certain specific
transactions and the sale of term-based software licenses. Service revenue
includes revenue from shipping and handling services, subscription-based
enterprise licensing model and maintenance and support services in connection
with the term-based software licenses.

                            Three months ended March 31,
(in thousands)     2022         2021       $ Change       % Change
Product          $ 30,968     $ 56,462     $ (25,494 )        (45.2 )%
Service            18,585        9,245         9,340          101.0 %
Total revenue    $ 49,553     $ 65,707     $ (16,154 )        (24.6 )%


Product revenue

The decrease in product revenue for the three months ended March 31, 2022, as
compared to the three months ended March 31, 2021, was primarily due to (i) a
customer concession reserve, (ii) a 34% decrease in MW produced and (iii) a
decrease of approximately 11% in ASP.

The current period decrease in MW produced was due to accelerated production and
product delivery in the fourth quarter of 2021, which had the effect of reducing
our project production in the current year quarter. Continued tight logistics,
supply chain availability, and increased uncertainty among project owners and
developers regarding the ability to obtain modules for use in their projects,
which also utilize our trackers, all contributed to the production decline
during the three months ended March 31, 2022. We believe the regulatory concerns
regarding module availability, among other things, has slowed new and existing
project activity during the three months ended March 31, 2022 by pushing some
activity out to later periods in 2022 and beyond.

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Service revenue

The increase in service revenue for the three months ended March 31, 2022, as
compared to the three months ended March 31, 2021, was primarily due to an
increase in MW delivered during the quarter related to logistics as well as an
increase in ASP related to shipping and logistics revenue on Voyager Tracker
sales, partially offset by a customer concession reserve recognized during the
three months ended March 31, 2022.

Cost of revenue and gross profit (loss)

Cost of revenue consists primarily of Voyager Trackers' raw material costs,
including purchased components, as well as costs related to freight and
delivery, product warranty, supply chain personnel and consultants, insurance
and customer support. Personnel costs include both direct labor costs as well as
costs attributable to any individuals whose activities relate to the
procurement, installation and delivery of the finished product and provision of
services and are net of federal employee retention credits received.

Gross profit may vary from period-to-period and is primarily affected by our
ASP, product costs, timing of tracker production and delivery, customer mix,
geographical mix, shipping method, logistics costs, warranty costs and
seasonality.

                                                 Three months ended March 31,
(in thousands)                        2022            2021         $ Change       % Change
Product                             $  34,963      $   54,996     $  (20,033 )        (36.4 )%
Service                                23,877          10,592         13,285          125.4 %
Total cost of revenue               $  58,840      $   65,588     $   (6,748 )        (10.3 )%
Gross profit (loss)                 $  (9,287 )    $      119     $   (9,406 )     (7,904.2 )%
Gross profit (loss) percentage of
revenue                                 (18.7 %)          0.2 %


The decrease in cost of revenue for the three months ended March 31, 2022, as
compared to the three months ended March 31, 2021, was primarily driven by a
decrease of 34% in MW produced, lower warranty costs and lower expenditures for
certain retrofits, remediations and product reconfigurations compared to the
same period last year. This was partially offset by increases in shipping and
logistics costs during much of 2021 and into 2022, as compared to rates
available during the first three months of 2021 and increases in
personnel-related costs due to higher headcount levels subsequent to our IPO as
we scaled up our operating structure. Cost per MW produced increased 37% due
mainly to increases in shipping and logistics costs, steel prices and
personnel-related costs.

Our gross profit (loss) percentage of revenue for the three months ended March
31, 2022 was a negative 18.7%, as compared to a positive 0.2% for the three
months ended March 31, 2021. The decrease was due primarily to (i) a customer
concession reserve of $5.0 million recognized during the three months ended
March 31, 2022, (ii) increased shipping and logistics costs that were not passed
on to our customers that impact our service margins and (iii) increased
headcount levels in relation to lower production which impacted our product
margins.

Research and development

Research and development expenses consist primarily of salaries (net of federal
employee retention credits received during 2021), employee benefits, stock-based
compensation expenses and travel expenses related to our engineers performing
research and development activities to originate, develop and enhance our
products. Additional expenses include consulting charges, component purchases,
legal fees for registering patents and other costs for performing research and
development on our software products.

                                     Three months ended March 31,
(in thousands)               2022        2021       $ Change       % Change
Research and development   $  2,701     $ 1,954     $     747           38.2 %


The increase in research and development expenses was primarily attributable to
(i) $0.5 million of higher payroll-related costs and (ii) $0.2 million of higher
stock-based compensation expense mainly due to headcount increases allowing for
expansion of our research and development activities designed to enhance our
products and the absence of federal employee retention credits received
subsequent to 2021. Research and development expenses as a percentage of revenue
were 5.5% for the three months ended March 31, 2022, compared to 3.0% for the
three months ended March 31, 2021.

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Sales and marketing

Selling and marketing expenses consist primarily of salaries (net of federal
employee retention credits received during 2021), employee benefits, stock-based
compensation expenses and travel expenses related to our sales and marketing and
business development personnel. Additionally, selling and marketing expenses
include costs associated with professional fees and support charges for software
subscriptions and licenses, trade shows and conventions.

                                  Three months ended March 31,
(in thousands)            2022        2021       $ Change       % Change
Selling and marketing   $  1,972     $ 1,100     $     872           79.3 %


The increase in selling and marketing expenses was primarily attributable to (i)
$0.5 million of higher stock-based compensation expense, and (ii) $0.2 million
of higher payroll-related costs related to higher headcount levels as we scaled
up our operating structure following our IPO and the absence of federal employee
retention credits received subsequent to 2021. In addition, we also spent an
additional $0.2 million for trade shows and advertising as compared to the same
period last year. Selling and marketing costs as a percentage of revenue were
4.0% for the three months ended March 31, 2022, compared to 1.7% for the three
months ended March 31, 2021.

General and administrative

General and administrative expenses consist primarily of salaries (net of
federal employee retention credits received during 2021), employee benefits,
stock-based compensation expenses, and travel expenses related to our
executives, finance team, and administrative employees. It also consists of
legal, consulting, and professional fees, rent and lease expenses pertaining to
our headquarters and international offices, business insurance costs and other
costs.

                                        Three months ended March 31,
(in thousands)                 2022        2021        $ Change       % Change

general and administrative $13,818 $5,084 $8,734 171.8%


The increase in general and administrative expenses was primarily attributable
to (i) $3.2 million of higher stock-based compensation expense, (ii) $2.9
million of higher payroll-related costs due to increased headcount, (iii) $1.0
million of higher legal and other professional services costs and (iv) an
increase of $1.3 million in other operating expenses, primarily related to
higher insurance costs as a result of being a new public company. General and
administrative expenses as a percentage of revenue were 27.9% for the three
months ended March 31, 2022, compared to 7.7% for the three months ended March
31, 2021.

Interest expense, net

                                 Three months ended March 31,
(in thousands)           2022        2021      $ Change      % Change

Interest expense, net $295 $14 $281 2007.1%


Interest expense during the three months ended March 31, 2022, primarily related
to commitment fees on our revolving credit facility with Barclays Bank that we
entered into in April 2021, along with associated debt issue cost amortization.

Capital gain on sale of stake in a non-consolidated subsidiary

                                                     Three months ended March 31,
(in thousands)                          2022               2021           $ Change        % Change
Gain from disposal of investment
in unconsolidated subsidiary        $        337       $          -     $        337        N/A




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We sold our interest in our unconsolidated subsidiary, Dimension Energy LLC
("Dimension"), on June 24, 2021. Dimension is a community solar developer based
in Atlanta, Georgia that provides renewable energy solutions for local
communities in the United States. The sales agreement with Dimension includes an
earnout provision which provides the potential to receive additional contingent
consideration of up to approximately $14.0 million through December 2024, based
on Dimension achieving certain performance milestones. The sales agreement also
includes a projects escrow release which is an additional contingent
consideration to receive $7 million based on Dimension's completion of certain
construction projects in progress at the time of the sale. We made an accounting
policy election to account for the contingent gains from the earnout provision
and projects escrow release only when those amounts become realizable in the
periods subsequent to the disposal date.

In the three months ended March 31, 2022we received $0.3 million escrow for the subsequent completion of certain construction projects that were in progress at the time of the sale.

Gain on extinguishment of debt

                                          Three months ended March 31,
(in thousands)                   2022        2021       $ Change      % 

Switch

Gain on extinguishment of debt $ – $790 $(790) (100.0%)


In January 2021, our Paycheck Protection Program loan that was received in April
2020 pursuant to the CARES Act, was forgiven, resulting in a gain on
extinguishment of debt. The terms of the CARES Act provided for loan forgiveness
if the proceeds were used to retain and pay employees and for other qualifying
expenditures.

Loss of the unconsolidated subsidiary

                                                Three months ended March 

31,

(in thousands)                        2022         2021       $ Change       % Change
Loss from unconsolidated subsidiary   $   -       $  218     $     (218 )   

100.0%

As indicated above, we sold our stake in our unconsolidated subsidiary, Dimension, on June 24, 2021. Our share of the loss of this unconsolidated subsidiary for the three months ended March 31, 2021 been $0.2 million.

Cash and capital resources

Liquidity

Since our inception, we have financed our operations primarily through sales of
shares of common stock, including our IPO in April 2021, issuance of debt and
payments from our customers. Our ability to generate positive cash flow from
operations is dependent on contract payment terms, timely collections from our
customers and the strength of our gross margins.

We have incurred cumulative losses since inception, resulting in an accumulated
deficit of $177.0 million at March 31, 2022, and have a history of cash outflows
from operations. During the year ended December 31, 2021, and the three months
ended March 31, 2022, we had $132.9 million and $53.1 million, respectively, of
cash outflow from operations. At March 31, 2022, we had $49.4 million of cash on
hand, $119.8 million of working capital and approximately $98.1 million of
unused borrowing capacity under our existing revolving credit facility. The
revolving credit facility includes a financial condition covenant stating we are
required to have a minimum liquidity, consisting of cash on hand and unused
borrowing capacity, of $125.0 million as of each quarter end. After considering
this financial condition covenant, we had approximately $22.4 million of
available liquidity as of March 31, 2022, in order to retain access to our
revolving credit facility. Additionally, we had no long-term borrowings or other
material obligations requiring the use of cash as of March 31, 2022.

From May 12, 2022we collected about $62 million of receivables since March 31, 2022and have a cash balance of approximately $71 million.

On March 25, 2022, the U.S. Department of Commerce, in response to a petition by
Auxin Solar, Inc., initiated an investigation of claims related to alleged
circumvention of U.S. antidumping and countervailing duties ("AD/CVD") by solar
manufacturers in certain Southeast Asian countries in an effort to determine
whether or not solar cells and/or modules made in those Southeast Asian nations
use parts originating from China in order to circumvent the AD/CVD tariffs. This
decision has resulted in some developers deferring projects later in the year
due to the uncertainty of panel supply and costs, which is expected to
negatively impact our anticipated revenues and our cash flows.

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Our costs are affected by certain component costs including steel, motors and
micro-chips, as well as transportation costs. Current market conditions that
constrain supply of materials and disrupt the flow of materials from
international vendors impact the cost of our products and services. These cost
increases impact our operating margins. We are taking steps to expand and
diversify our manufacturing partnerships and have employed alternative modes of
transportation to mitigate the impact of the current headwinds in the global
supply chain and logistics markets. Additionally, we have contracted with a
consulting firm to support us with improvements to our processes and performance
in various areas including design, sourcing, logistics, pricing, software and
standard configuration. For further information regarding this consulting firm,
see Note 13 in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In accordance with ASC 205-40, Going Concern, we have evaluated whether there
are conditions and events, considered in the aggregate, which raise substantial
doubt about our ability to continue as a going concern within one year after the
date the financial statements are issued. Based on our recurring losses from
operations, impact of the U.S. Department of Commerce investigation of AD/CVD
circumvention claims, the expectation of continued operating losses during 2022,
and the need to improve profitability and cash flow to finance our future
operations, we determined that there is substantial doubt about our ability to
continue as a going concern within twelve months of the issuance date of the
accompanying consolidated financial statements. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty and assumes we will continue as a going concern
through the realization of assets and satisfaction of liabilities and
commitments in the ordinary course of business.

As we continue to address these current market challenges, management has also taken the following actions:

we are in discussions with the lenders of our revolving credit facility to lower
the minimum required liquidity amount, which, if successful, could result in
additional liquidity;

we have initiated a program, as described above, with the assistance of third parties, to improve our operating performance and increase our gross margins;

we are freezing non-essential hiring, reducing our travel costs, reducing future reliance on consultants and postponing non-essential initiatives;

we negotiate better payment terms with our customers and suppliers;

we have initiated frequent and consistent communication with our customers, which has enabled us to resolve issues preventing the timely collection of certain outstanding receivables after March 31, 2022; and

we are exploring options for obtaining additional sources of capital.

Should we not be successful in executing the above initiatives, or in reducing
our historical levels of use of cash to fund our operations, or should market
conditions deteriorate significantly from what we currently expect, or
regulatory and international trade policies become more stringent as a result of
findings from the Department of Commerce's AD/CVD investigation, or other
factors, we may need to issue additional debt or obtain new equity financing to
fund our operations for the next twelve months. We may be unable to obtain any
desired additional financing on terms favorable to us, or at all, depending on
market and other conditions. The ability to raise additional financing depends
on numerous factors that are outside of our control, including general economic
and market conditions, the health of financial institutions, investors' and
lenders' assessments of our prospects and the prospects of the solar industry in
general.

Statements of cash flows

In connection with preparation of our consolidated financial statements as of
and for the year ended December 31, 2021, we identified an error in the
classification of offering costs in the statement of cash flows for the three
months ended March 31, 2021. Specifically, we incorrectly classified $1.1
million of offering costs paid as an operating cash outflow instead of a
financing cash outflow in our previously issued cash flow statement for the
three months ended March 31, 2021. Although we have concluded that this error is
immaterial to the previously issued financial statements, we have corrected this
error in the accompanying condensed consolidated statements of cash flows


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revising the operating and financing cash outflows previously presented in our statement of cash flows for the three months ended March 31, 2021.

The following table shows our cash flows from operating activities, investing
activities and financing activities for the stated periods (revised as described
above):

                                                          Three months ended March 31,
(in thousands)                                              2022                 2021
Net cash used in operating activities                  $      (53,106 )     $      (25,904 )
Net cash used in investing activities                            (186 )                (85 )
Net cash provided by (used in) financing activities               428               (2,045 )
Effect of exchange rate changes on cash, cash
equivalents and restricted cash                                    62                    1
Net decrease in cash, cash equivalents and
restricted cash                                        $      (52,802 )     $      (28,033 )


Operating activities

During the three months ended March 31, 2022, we used approximately $22.7
million of cash to fund (i) losses on certain of our projects, largely related
to increased material and logistics costs due to supply chain disruptions during
the past year that were not fully recoverable, (ii) higher personnel and
facility-related costs associated with headcount increases, and (iii) increased
professional service fees, largely as a result of being a new public company.
Economic conditions during 2021 and the first three months of 2022 caused our
industry to experience rapid commodity price increases and significant increases
in transportation costs during the last twelve months which negatively impacted
our margins in the near term and thus, our cash flow from operations.

We are taking steps to diversify our supply chain and implement design changes
to lower the material requirements for our trackers in order to mitigate these
economic headwinds. We believe this impact to be temporary as we work through
our cost improvement roadmap.

A total of approximately $30.4 million was also used in the past three months March 31, 2022to fund increases in working capital and other items, largely related to (i) a slowdown in collections from customers during the period and (ii) current period project activity.

During the three months ended March 31, 2021, we used approximately $5.6 million
to fund operating expenses as we continued to expand our presence to additional
countries. A total of $20.3 million was also used during the three months ended
March 31, 2021, to fund increases in working capital, largely related to an
increase in revenue recognized in excess of customer billings resulting from
project activity levels during the period.

Investing activities

During the three months ended March 31, 2022, we paid approximately $0.5
million, primarily for new lab equipment to be used for product testing, as well
as new computer and IT equipment, acquired during the latter part of 2021.
Additionally, we received $0.3 million from escrow in connection with our June
2021 sale of Dimension in connection with the subsequent completion of certain
construction projects that were in progress at the time of the sale.

In the three months ended March 31, 2021our capital expenditures for new equipment were approximately $0.1 million.

Fundraising activities

In the three months ended March 31, 2022we received $0.5 million proceeds from the exercise of stock options by employees.

During the three months ended March 31, 2021, we paid off the $1.0 million of
outstanding borrowings under our Western Alliance Bank revolving line of credit
facility and incurred approximately $1.1 million in costs associated with our
IPO during the second quarter of 2021.

Revolving line of credit

On April 30, 2021, we entered into a senior secured revolving credit facility
with various lenders, including Barclays Bank PLC, as an issuing lender, the
swingline lender and as administrative agent (the "Credit Agreement"). The
Credit Agreement has an initial

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three-year term and will be used for working capital and for other general
corporate purposes. The Credit Agreement includes the following terms: (i)
aggregate commitments of up to $100 million, with letter of credit and swingline
sub-limits; (ii) a base rate of LIBOR, plus 3.25% per annum, (iii) initial
commitment fees of 0.50% per annum; (iv) initial letter of credit fees of 3.25%
per annum; and (v) other customary terms for a corporate revolving credit
facility. Should LIBOR rates become unavailable during the term of the Credit
Agreement, the rate per annum on loans will be based on the secured overnight
financing rate (SOFR) published by the Federal Reserve Bank of New York, or a
successor SOFR administrator.

We have not made any draws on the revolving credit facility as of March 31,
2022. However, at March 31, 2022, we did have a $1.9 million in letter of credit
outstanding that reduced our available borrowing capacity to approximately $98.1
million.

The facility is secured by a first priority lien on substantially all of our
assets, subject to certain exclusions, and customary guarantees. The Credit
Agreement, as amended, includes the following financial condition covenants that
we are required to satisfy: (i) maintain a minimum liquidity limit of $50
million for each quarter; (ii) maintain a 3.75 times leverage ratio; and (iii)
maintain a 1.5 times interest coverage ratio. The leverage and interest coverage
ratios will be triggered when we achieve $50 million in adjusted EBITDA over a
trailing twelve months, or upon our election if we have achieved positive
adjusted EBITDA over a trailing twelve months. Once the leverage and interest
coverage ratios are triggered the minimum liquidity limit will not have a
minimum limit. Minimum liquidity includes unrestricted cash plus the undrawn
balance of the revolving credit facility. The minimum liquidity covenant was the
only financial condition covenant we had to satisfy as of the period ended March
31, 2022. As of March 31, 2022, we were in full compliance with our financial
condition covenant.

Significant Accounting Policies and Significant Management Estimates

We prepare our interim unaudited condensed consolidated financial statements in
accordance with GAAP. The preparation of condensed consolidated financial
statements also requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
revenue and expenses during the period. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results could differ significantly from the
estimates made by our management. To the extent that there are differences
between our estimates and actual results, our future financial statement
presentation, financial condition, results of operations and cash flows will be
affected. We believe that the accounting policies discussed below are critical
to understanding our historical and future performance, as these policies relate
to the more significant areas involving management's judgments and estimates.
Critical accounting policies and estimates are those that we consider the most
important to the portrayal of our financial condition and results of operations
because they require our most difficult, subjective or complex judgments, often
as a result of the need to make estimates about the effects of matters that are
inherently uncertain.

We believe that the accounting policies described below involve a significant
degree of judgment and complexity. Accordingly, we believe these are the most
critical to aid in fully understanding and evaluating our condensed consolidated
financial condition and results of operations.

Revenue recognition

Description of the policy

We recognize revenue when promised goods or services are transferred to
customers in an amount that reflects the consideration to which we expect to be
entitled to in exchange for those goods or services by following a five-step
process, (1) identify the contract with a customer, (2) identify the performance
obligations in the contract, (3) determine the transaction price, (4) allocate
the transaction price to the performance obligations in the contract, and (5)
recognize revenue when or as the Company satisfies a performance obligation, as
further described below.

Identify the contract with a customer: A contract with a customer exists when
(i) the Company enters into an enforceable contract with a customer that defines
each party's rights regarding the products and services to be transferred and
identifies the payment terms related to these products and services, (ii) the
contract has commercial substance and, (iii) the Company determines that
collection of substantially all consideration for products and services that are
transferred is probable based on the customer's intent and ability to pay the
promised consideration. In assessing the recognition of revenue, we also
evaluate whether two or more contracts should be combined and accounted for as
one contract and if the combined or single contract should be accounted for as
multiple performance obligations which could change the amount of revenue and
profit (loss) recorded in a period. Change orders may include changes in
specifications or design, manner of

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performance, equipment, materials, scope of work, and/or the period of
completion of the project. We analyze change orders to determine if they should
be accounted for as a modification to an existing contract or a new stand-alone
contract.

Contracts we enter into with our customers for sale of Voyager Trackers are
generally under two different types of arrangements: (1) purchase agreements and
equipment supply contracts ("Purchase Agreements") and (2) sale of individual
parts of the Voyager Tracker.

Change orders from our customers are generally changes to existing contracts and are included in the total estimated contract revenue when it is probable that the change order will result in additional value that can be reliably estimated and realized.

Identify the performance obligations in the contract: We enter into contracts
that can include various combinations of products and services, which are either
capable of being distinct and accounted for as separate performance obligations
or as one performance obligation since the majority of tasks and services are
part of a single project or capability. However, determining whether products or
services are considered distinct performance obligations that should be
accounted for separately versus together may sometimes require significant
judgment.

Our Purchase Agreements typically include two performance obligations- 1)
Voyager Tracker or customized components of Voyager Tracker, and 2) shipping and
handling services. The deliverables included as part of the Voyager Tracker are
predominantly accounted for as one performance obligation, as these deliverables
are part of a combined promise to deliver a project.

Revenue from shipping and handling services will be recognized over time based on the shipping terms of the agreements, as this fairly represents the Company’s performance in transferring control.

Sale of individual parts of Voyager Tracker for certain specific transactions
includes multiple performance obligations consisting of individual parts of the
Voyager Tracker. Revenue is recognized for parts sales at a point in time when
the obligations under the terms of the contract with our customer are satisfied.
Generally, this occurs with the transfer of control of the asset, which is in
line with shipping terms.

Determine the transaction price: The transaction price is determined based on
the consideration to which we will be entitled in exchange for transferring
services to the customer. Such amounts are typically stated in the customer
contract, and to the extent that we identify variable consideration, we will
estimate the variable consideration at the onset of the arrangement as long as
it is probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable
consideration is subsequently resolved. The majority of our contracts do not
contain variable consideration provisions as a continuation of the original
contract. None of our contracts contain a significant financing component. Taxes
collected from customers and remitted to governmental authorities are not
included in revenue.

Allocate the transaction price to performance obligations in the contract: Once
we have determined the transaction price, we allocate the total transaction
price to each performance obligation in a manner depicting the amount of
consideration to which we expect to be entitled in exchange for transferring the
good(s) or service(s) to the customer. We allocate the transaction price to each
performance obligation identified in the contract on a relative standalone
selling price basis.

We use the expected cost-plus margin approach based on hardware, labor, and
related overhead cost to estimate the standalone selling price of the Voyager
Tracker, customized components of Voyager Tracker, and individual parts of
Voyager Tracker for certain specific transactions. We use the adjusted market
assessment approach for all other performance obligations except shipping,
handling, and logistics. For shipping, handling, and logistics performance
obligations, we use a residual approach to calculate the standalone selling
price, because of the nature of the highly variable and broad range of prices we
charge to various customers for this performance obligation in the contracts.

Recognize revenue when or as the Company satisfies a performance obligation: For
each performance obligation identified, we determine at contract inception
whether we satisfy the performance obligation over time or at a point in time.
Voyager Tracker and customized components of Voyager Tracker performance
obligations in the contract are satisfied over-time as work progresses for its
custom assembled Voyager Tracker, utilizing an input measure of progress
determined by cost-to-cost measures on these projects as this faithfully depicts
our performance in transferring control. Additionally, our performance does not
create an asset with an alternative use, due to the highly customized nature of
the product, and we have an enforceable right to payment for performance
completed to date. Our performance obligations for individual part sales for
certain specific transactions are recognized point-in-time as and when control
transfers based on the Incoterms for the contract. Our performance obligations
for term-based software licenses are recognized point-in-time as and when
control transfers, either upon delivery to the customer or the software license
start date, whichever is later. Our performance obligation

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for shipping and handling services is satisfied over-time as the services are
delivered over the term of the contract. We recognize subscription services
sales/other services on a straight-line basis over the contract period. With
regard to support revenue, a time-elapsed method is used to measure progress
because we transfer control evenly over the contractual period. Accordingly, the
fixed consideration related to support revenue is generally recognized on a
straight-line basis over the contract term.

Contract accounting: The timing of revenue recognition, billing, and cash
collection results in the recognition of accounts receivable, unbilled
receivables for revenue recognized in excess of billing, and deferred revenue in
the Condensed Consolidated Balance Sheets. We may receive advances or deposits
from our customers before revenue is recognized, resulting in contract
liabilities, which are reflected as "deferred revenue" on our Condensed
Consolidated Balance Sheets.

Judgments and assumptions

The timing and amounts of revenue and cost of revenue recognition, as well as
recording of related receivables and deferred revenue, is highly dependent on
our identification of performance obligations in each contract and our estimates
by contract of total project cost and our progress toward project completion as
of each period end. Certain estimates are subject to factors outside of our
control that may impact our suppliers and the global supply chain. As an
example, we began to experience increases in steel prices and shipping and
logistics costs, as well as delays in delivery of our products to customers
during 2021, which negatively impacted our results of operations as we were not
able to recover all of the additional costs under certain of our fixed fee
contracts. We base our estimates on the best information available at each
period end, but future events and their effects cannot be determined with
certainty, and actual results could differ materially from our assumptions and
estimates.

Accounts receivable, net

Policy description

Trade receivables are recorded at invoiced amounts, net of allowances for
doubtful accounts if applicable, and do not bear interest. We generally do not
require collateral from our customers; however, in certain circumstances, we may
require letters of credit, other collateral, additional guarantees or advance
payments. The allowance for doubtful accounts is based on our assessment of the
collectability of our customer accounts.

We plan to adopt ASU No. 2016-13, Financial Instruments - Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments effective January 1,
2023. For the three months ended March 31, 2022 and 2021 we have utilized the
incurred loss model in estimating our allowance for doubtful accounts.

Judgments and assumptions

We regularly review our accounts receivable that remain outstanding past their
applicable payment terms and establish allowances or make potential write-offs
by considering certain factors such as historical experience, industry data,
credit quality, age of balances and current economic conditions that may affect
a customers' ability to pay.

Adjustments to the allowance may either impact the amount of revenue previously
recognized or bad debt expense depending on the facts and circumstances leading
to the adjustment. Adjustments to amounts originally estimated to be collectible
that are considered to be potential price concessions as a result of a dispute
regarding performance or other matters affecting customer relationships will
result in a reduction in revenue whereas adjustments due to changes in customer
credit risk or their expected ability to pay will be recognized in bad debt
expense.

Warranty

Policy description

Typically, the sale of Voyager Tracker projects includes parts warranties to
customers as part of the overall price of the product. We provide standard
assurance type warranties for our products for periods generally ranging from
five to ten years. We record a provision for estimated warranty expenses in cost
of sales, net of amounts recoverable from manufacturers under their warranty
obligations to us. We do not maintain general or unspecified reserves; all
warranty reserves are related to specific projects. All actual or estimated
material costs incurred for warranty services in subsequent periods are charged
to those established reserves.

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Judgments and assumptions

We base our estimated warranty obligations on our historical experience and
forward-looking factors including the nature and frequency of product failure
rates and costs to address future claims. These estimates are inherently
uncertain given our relatively short history of sales and changes to our
historical or projected warranty experience may result in material changes to
our warranty reserve in the future. Additionally, we make estimates of what
costs we believe will be recoverable from the manufacturer of our products that
we use to offset our obligations to our customers.

While we periodically monitor our warranty activities and claims, if actual
costs incurred were to be different from our estimates, we would recognize
adjustments to our warranty reserves in the period in which those differences
arise or are identified. Such adjustments could be material to our results of
operations in the period the adjustments are made.

Stock-based compensation

Description of the policy

We recognize compensation expense for all share-based payment awards made,
including stock options and restricted stock, based on the estimated fair value
of the award on the grant date, in the accompanying consolidated statement of
operations and comprehensive loss. We calculate the fair value of stock options
using the Black-Scholes Option-Pricing model while the fair value of restricted
stock grants is based on the estimated fair value of the Company's common stock
on the date of grant. Forfeitures are accounted for as they occur. For
service-based awards, stock-based compensation is recognized using the
straight-line attribution approach over the requisite service period. For
performance-based awards, stock-based compensation is recognized based on graded
vesting over the requisite service period when the performance condition is
probable of being achieved.

Judgments and assumptions

The Black-Scholes model is based on various assumptions, in addition to the option exercise price and the value of our common stock at the date of grant. These assumptions include:

Expected Life: The expected life represents the period over which the Company’s stock-based awards are expected to be outstanding and is calculated as the average of the vesting terms of the options and the contractual terms, using the simplified method. The simplified method considers that the term is the average of the vesting period and the contractual life of the options.

Expected Volatility: Since the Company did not have a trading history of its
common stock prior to our IPO and since such trading history subsequent to our
IPO is limited, the expected volatility is derived from the average historical
stock volatilities of several public companies within the Company's industry
that it considers to be comparable to its business over a period equivalent to
the expected term of the stock option grants.

Risk-Free-Interest-Rate: The Company bases the risk-free interest rate on the
implied yield available on US Treasury zero-coupon issues with a remaining term
equivalent to the expected term.

Expected Dividend: The Company has not issued any dividends in its history and
does not expect to issue dividends over the life of the options and, therefore,
has estimated the dividend yield to be zero.

Changes to any of these assumptions, but particularly our estimates of expected
term and volatility, could change the fair value of our options and impact the
amount of stock-based compensation expense we report each period.

Accounting election of the JOBS law

We are an emerging company in full growth, within the meaning of the JOBS law. Under the JOBS Act, growing emerging businesses can delay the adoption of new or revised accounting standards until those standards apply to private businesses. We have chosen to use the extended transition period allowed to adopt new or revised accounting standards.

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