UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 001-38213
ARCIMOTO, INC.
(Exact name of registrant as specified in its charter)
| Oregon | 26-1449404 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
2034 West 2nd Avenue, Eugene, OR 97402
(Address of principal executive offices and zip code)
(541) 683-6293
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| Common stock, no par value | FUV | Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of Nov 10, 2022, there were approximately 51,191,532 shares of the registrant’s common stock issued and outstanding.
FORM 10-Q
For the Quarterly Period Ended September 30, 2022
TABLE OF CONTENTS
| Page |
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| PART I. |
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| Item 1. |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II. |
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| Item 1. |
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| Item 6. |
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PART I - FINANCIAL INFORMATION
ARCIMOTO, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
Item 1. Financial Statements
| September 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,217,951 | $ | 16,971,320 | ||||
| Accounts receivable, net | 332,119 | 127,860 | ||||||
| Inventory | 12,290,355 | 7,856,105 | ||||||
| Prepaid inventory | 3,110,391 | 2,637,688 | ||||||
| Other current assets | 5,391,558 | 2,440,322 | ||||||
| Total current assets | 25,342,374 | 30,033,295 | ||||||
| Property and equipment, net | 29,440,642 | 24,338,907 | ||||||
| Intangible assets, net | 9,256,391 | 9,885,680 | ||||||
| Deferred offering costs | — | 24,000 | ||||||
| Operating lease right-of-use assets | 1,477,776 | — | ||||||
| Security deposits | 119,673 | 117,468 | ||||||
| Total assets | $ | 65,636,856 | $ | 64,399,350 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 2,708,556 | $ | 2,016,283 | ||||
| Accrued liabilities | 4,704,836 | 2,352,034 | ||||||
| Customer deposits | 1,048,434 | 817,137 | ||||||
| Notes payable | - | 2,039,367 | ||||||
| Short-term convertible note | 8,673,858 | — | ||||||
| Warrant liabilities | 366,852 | — | ||||||
| Current portion of finance lease obligations | 500,955 | 352,294 | ||||||
| Current portion of equipment notes payable | 414,877 | 493,160 | ||||||
| Current portion of warranty reserve | 451,397 | 331,485 | ||||||
| Current portion of deferred revenue | 219,908 | 111,166 | ||||||
| Current portion of operating lease liabilities | 690,682 | — | ||||||
| Deferred rent | — | 101,550 | ||||||
| Total current liabilities | 19,780,355 | 8,614,476 | ||||||
| Finance lease obligations | 934,482 | 712,511 | ||||||
| Equipment notes | 958,636 | 1,185,060 | ||||||
| Convertible note | 4,801,600 | |||||||
| Warranty reserve | 276,634 | 330,015 | ||||||
| Operating lease liabilities | 864,195 | — | ||||||
| Long-term deferred revenue | 2,250 | 9,000 | ||||||
| Total long-term liabilities | 7,837,797 | 2,236,586 | ||||||
| Total liabilities | 27,618,152 | 10,851,062 | ||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity: | ||||||||
| Common Stock, par value, shares authorized; and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 177,188,124 | 150,502,566 | ||||||
| Additional paid-in capital | 12,144,581 | 7,038,124 | ||||||
| Accumulated deficit | (151,314,001 | ) | (103,992,402 | ) | ||||
| Total stockholders’ equity | 38,018,704 | 53,548,288 | ||||||
| Total liabilities and stockholders’ equity | $ | 65,636,856 | $ | 64,399,350 | ||||
See accompanying notes to condensed financial statements.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Revenue |
$ | 2,024,205 | $ | 1,498,176 | $ | 4,173,779 | $ | 3,609,531 | ||||||||
| Cost of goods sold |
6,987,035 | 4,856,331 | 17,138,644 | 11,329,143 | ||||||||||||
| Gross loss |
(4,962,830 | ) | (3,358,155 | ) | (12,964,865 | ) | (7,719,612 | ) | ||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
6,521,379 | 3,186,469 | 14,144,395 | 8,256,980 | ||||||||||||
| Sales and marketing |
3,321,862 | 1,983,738 | 9,318,647 | 4,537,816 | ||||||||||||
| General and administrative |
4,099,354 | 3,061,607 | 10,583,968 | 8,071,795 | ||||||||||||
| Loss on asset disposal |
12,408 | — | 12,408 | — | ||||||||||||
| Total operating expenses |
13,955,003 | 8,231,814 | 34,059,418 | 20,866,591 | ||||||||||||
| Loss from operations |
(18,917,833 | ) | (11,589,969 | ) | (47,024,283 | ) | (28,586,203 | ) | ||||||||
| Other (income) expense: |
||||||||||||||||
| Gain on forgiveness of PPP loan |
— | — | — | (1,078,482 | ) | |||||||||||
| Unrealized (gain)/loss on convertible note fair value |
(2,122,828 | ) | — | 22,712 | — | |||||||||||
| Interest expense |
84,945 | 51,671 | 258,851 | 151,246 | ||||||||||||
| Other expense/(income) |
83,749 | (131,781 | ) | 12,553 | (221,214 | ) | ||||||||||
| Loss before income tax benefit |
(16,963,699 | ) | (11,509,859 | ) | (47,318,399 | ) | (27,437,753 | ) | ||||||||
| Income tax (expense) benefit |
— | — | (3,200 | ) | 2,938,698 | |||||||||||
| Net loss |
$ | (16,963,699 | ) | $ | (11,509,859 | ) | $ | (47,321,599 | ) | $ | (24,499,055 | ) | ||||
| Weighted average common shares - basic and diluted |
44,956,358 | 37,525,123 | 40,857,819 | 36,340,706 | ||||||||||||
| Net loss per common share - basic and diluted |
$ | (0.38 | ) | $ | (0.31 | ) | $ | (1.16 | ) | $ | (0.67 | ) | ||||
See accompanying notes to condensed financial statements.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Common Stock | ||||||||||||||||||||||||
| Number of Shares | Amount | Additional Paid-In Capital | Stock Subscription Receivable | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||
| Balance at June 30, 2021 | 36,991,916 | $ | 142,906,963 | $ | 8,286,108 | $ | (3,534,860 | ) | $ | (69,417,847 | ) | $ | 78,240,364 | |||||||||||
| Issuance of common stock for accounts payable | 6,421 | 74,805 | — | — | — | 74,805 | ||||||||||||||||||
| Issuance of common stock for cash, net of offering costs of $ | 398,051 | 6,729,933 | — | — | — | 6,729,933 | ||||||||||||||||||
| Exercise of warrants | 40,000 | 20,000 | — | — | — | 20,000 | ||||||||||||||||||
| Exercise of stock options | 141,970 | 526,838 | (2,852 | ) | — | — | 523,986 | |||||||||||||||||
| Stock subscribed on June 29, 2021 | — | — | (3,534,860 | ) | 3,534,860 | — | — | |||||||||||||||||
| Stock-based compensation | — | — | 1,322,119 | — | — | 1,322,119 | ||||||||||||||||||
| Net loss | — | — | — | — | (11,509,859 | ) | (11,509,859 | ) | ||||||||||||||||
| Balance at September 30, 2021 | 37,578,358 | $ | 150,258,539 | $ | 6,070,515 | $ | — | $ | (80,927,706 | ) | $ | 75,401,348 | ||||||||||||
| Balance at June 30, 2022 | 41,770,760 | $ | 166,999,962 | $ | 10,528,288 | $ | — | $ | (134,350,302 | ) | $ | 43,177,948 | ||||||||||||
| Issuance of common stock for cash, net of offering costs of $ | 3,773,289 | 10,177,356 | — | — | — | 10,177,356 | ||||||||||||||||||
| Common stock to external consultant | 12,000 | — | 45,246 | — | — | 45,246 | ||||||||||||||||||
| Equity awards issued to external consultants | — | — | 24,210 | — | — | 24,210 | ||||||||||||||||||
| Exercise of stock options | 4,465 | 10,806 | (3,170 | ) | — | — | 7,636 | |||||||||||||||||
| Stock-based compensation | — | — | 1,550,007 | — | — | 1,550,007 | ||||||||||||||||||
| Net loss | — | — | — | (16,963,699 | ) | (16,963,699 | ) | |||||||||||||||||
| Balance at September 30, 2022 | 45,560,514 | $ | 177,188,124 | $ | 12,144,581 | $ | — | $ | (151,314,001 | ) | $ | 38,018,704 | ||||||||||||
| Common Stock | ||||||||||||||||||||||||
| Number of Shares | Amount | Additional Paid-In Capital | Stock Subscription Receivable | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||
| Balance at December 31, 2020 | 34,187,555 | $ | 100,236,178 | $ | 3,876,503 | $ | — | $ | (56,428,651 | ) | $ | 47,684,030 | ||||||||||||
| Issuance of common stock for settlement of payable | 17,421 | 221,105 | — | — | — | 221,105 | ||||||||||||||||||
| Issuance of common stock for cash, net of offering costs of $ | 1,853,181 | 33,112,763 | — | — | — | 33,112,763 | ||||||||||||||||||
| Issuance of common stock for the acquisition of TMW | 436,339 | 13,038,355 | — | — | — | 13,038,355 | ||||||||||||||||||
| Exercise of warrants | 626,429 | 1,786,397 | (58,895 | ) | — | — | 1,727,502 | |||||||||||||||||
| Exercise of stock options | 457,433 | 1,863,741 | (407,556 | ) | — | — | 1,456,185 | |||||||||||||||||
| Stock-based compensation | — | — | 2,660,463 | — | — | 2,660,463 | ||||||||||||||||||
| Net loss | — | — | — | — | (24,499,055 | ) | (24,499,055 | ) | ||||||||||||||||
| Balance at September 30, 2021 | 37,578,358 | $ | 150,258,539 | $ | 6,070,515 | $ | — | $ | (80,927,706 | ) | $ | 75,401,348 | ||||||||||||
| Balance at December 31, 2021 | 37,643,591 | $ | 150,502,566 | $ | 7,038,124 | $ | — | $ | (103,992,402 | ) | $ | 53,548,288 | ||||||||||||
| Issuance of common stock for cash, net of offering costs of $ | 7,839,691 | 26,493,094 | — | — | — | 26,493,094 | ||||||||||||||||||
| Issuance of common stock for RSU, net of tax | 9,202 | 46,746 | (76,200 | ) | — | — | (29,454 | ) | ||||||||||||||||
| Common stock to external consultant | 16,000 | — | 68,361 | — | — | 68,361 | ||||||||||||||||||
| Equity awards issued to external consultants | — | — | 375,782 | — | — | 375,782 | ||||||||||||||||||
| Exercise of warrants | 8,000 | 20,000 | — | — | — | 20,000 | ||||||||||||||||||
| Exercise of stock options | 44,030 | 125,718 | (34,623 | ) | — | — | 91,095 | |||||||||||||||||
| Stock-based compensation | — | — | 4,773,137 | — | — | 4,773,137 | ||||||||||||||||||
| Net loss | — | — | — | — | (47,321,599 | ) | (47,321,599 | ) | ||||||||||||||||
| Balance at September 30, 2022 | 45,560,514 | $ | 177,188,124 | $ | 12,144,581 | — | $ | (151,314,001 | ) | $ | 38,018,704 | |||||||||||||
See accompanying notes to condensed financial statements.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
See accompanying notes to condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: NATURE OF OPERATIONS
Arcimoto, Inc. (the “Company”, “We”, “Us”, or “Our”) was incorporated in the State of Oregon on November 21, 2007. The Company’s mission is to catalyze the global shift to a sustainable transportation system. Over the past 15 years, the Company has developed a new vehicle platform designed around the needs of everyday drivers. Having approximately one-third the weight and one-third of the footprint of the average car, the Arcimoto platform’s purpose is to bring the joy of ultra-efficient, pure electric driving to the masses. To date, the Company has introduced six vehicle products built on this platform that target specific niches in the vehicle market: our flagship product, the Fun Utility Vehicle® (“FUV®”), for everyday consumer trips; the Deliverator® for last-mile delivery and general fleet utility; the Rapid Responder™ for emergency services and security; the Cameo™ for film, sports and influencers; the Arcimoto Roadster, an unparalleled pure-electric on-road thrill machine, and the Arcimoto Flatbed that has a pick-up style flatbed instead of an enclosed cargo area.
Concentration risk
The Company is dependent on one supplier for its battery supply that is a key component of its main product line. Any disruption in supply chain or significant price increase may impact Arcimoto's production volume and costs, which will affect the Company's long-term goal of sustainable profitability. Also, the Company may from time to time experience shortages in obtaining materials and parts that are used in our production process as we depend on a limited number of suppliers for our inputs.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The accompanying financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred significant losses since inception and management expects losses to continue for the foreseeable future. On January 14, 2022 the Company entered into an agreement with Canaccord Genuity LLC to raise the at-the-market (“ATM”) offering amount to $100,000,000. The Company had approximately $1,248,000 in cash and cash equivalents as of November 11, 2022. The state of the capital markets and the Company's stock price has limited its standing ability to generate additional funds through its ATM offering even though the Company has approximately $71,800,000 of unused amounts related to this ATM. Under current macroeconomic conditions, the Company has had limited success obtaining additional funds through the capital markets and/or by re-financing its long-lived assets and therefore has initiated certain cost cutting measures across the Company. During the third quarter of 2022, the Company signed a financing agreement with a third party lender whereby the lender will provide financing through another secured $10,000,000 convertible note, subject to shareholder approval. Subsequent to the third quarter of 2022, the Company signed an equity agreement with a third party investor whereby the investor will provide up to $50,000,000 of financing through an equity line of credit with certain restrictions. This financing agreement, along with a proposal for a reverse stock split, was approved in a special shareholders' meeting on November 11, 2022. The reverse stock split is expected to occur, after a series of administrative actions, before the end of 2022. These actions allow the Company continued access to the ATM and the equity line of credit, along with the secured $10,000,000 convertible note. The Company believes the existing cash on hand and expected available funds as discussed above will be sufficient to meet our cash needs for at least the next 12 months.
Basis of Presentation
The accompanying unaudited financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and pursuant to the instructions to Form 10-Q promulgated by the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all information and disclosures required by GAAP for complete financial statement presentation. In the opinion of management, the accompanying condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position as of September 30, 2022, and the results of its operations for the three and nine months ended September 30, 2022 and 2021 and its cash flows for the nine months ended September 30, 2022 and 2021. Results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022.
The preparation of financial statements in conformity with U.S GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and its related disclosures. Actual amounts could differ materially from those estimates.
Business Combinations
The Company accounts for business combinations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations” using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill. All acquisition costs are expensed as incurred. Upon acquisition, the acquired assets and liabilities and results of operations are consolidated beginning at the acquisition date. See Note 3 - TMW Acquisition for additional information related to our acquisition that concluded in the first quarter of 2021.
Inventory
Inventory is stated at the lower of cost ((using the first-in, first-out method (“FIFO”)) or net realizable value. Inventories consist of purchased electric motors, electrical storage and transmission equipment, and component parts.
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw materials | $ | 10,468,060 | $ | 7,089,033 | ||||
| Work in progress | 115,117 | 70,243 | ||||||
| Finished goods | 1,707,178 | 696,829 | ||||||
| Total | $ | 12,290,355 | $ | 7,856,105 | ||||
The Company is required to remit partial prepayments for some purchases of its inventories acquired from overseas vendors which are included in prepaid inventory. The Company is currently selling vehicles below the base cost of a finished unit. Accordingly, the Company expensed all labor and overhead as period costs and recorded an adjustment to reduce certain inventories to net realizable value of approximately $1,263,000 and $826,000 as of September 30, 2022 and December 31, 2021, respectively. The amount expensed for all labor and overhead was approximately $4,289,000 and $2,819,000 for the three months ended September 30, 2022 and 2021, respectively. The amount expensed for all labor and overhead was approximately $11,362,000 and $7,002,000 for the nine months ended September 30, 2022 and 2021 respectively.
ARCIMOTO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Intangible Assets
Intangible assets primarily consist of trade names/trademarks, proprietary technology, and customer relationships. These assets are amortized using the straight-line method over a period of 10 to 14 years. The Company assesses the recoverability of its finite-lived intangible assets when there are indications of potential impairment.
Net Loss per Share
The Company’s computation of loss per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the loss available to common shareholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., common stock warrants and common stock options) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
Basic and diluted loss per common share is the same for all periods presented because all common stock warrants and common stock options outstanding were anti-dilutive.
During the three months ended September 30, 2022 and 2021, the Company excluded the outstanding Employee Equity Plans (“EEP”) and other securities summarized below calculated using the Treasury Stock Method for options and other instruments and the If-Converted Method for convertible notes, which entitled the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Options and other instruments under the 2012, 2015, and 2018 Plans to purchase common stock | $ | 474,680 | $ | 2,218,840 | $ | 916,394 | $ | 2,486,917 | ||||||||
| Underwriters and investors warrants issued outside of an EEP | — | 54,996 | — | 61,163 | ||||||||||||
| Conversion of warrants issued in conjunction with convertible note | — | — | — | — | ||||||||||||
| Conversion of convertible notes, if-converted method | 1,736,181 | — | 851,125 | — | ||||||||||||
| Total | $ | 2,210,861 | $ | 2,273,836 | $ | 1,767,519 | $ | 2,548,080 | ||||||||
Accounting Pronouncements Recently Adopted
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) which supersedes ASC Topic 840, Leases. ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability on their balance sheets for all the leases with terms greater than 12 months. Based on certain criteria, leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. In November 2019, the FASB delayed the effective date for Topic 842 to fiscal years beginning after December 15, 2020 for private companies and emerging growth companies, and interim periods within those years, with early adoption permitted. In June 2020, the FASB issued ASU No 2020-05 that further delayed the effective date of Topic 842 to fiscal years beginning after December 15, 2021. We adopted this new standard on January 1, 2022. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” that allows entities to apply the provisions of the new standard at the effective date, as opposed to the earliest period presented under the modified retrospective transition approach and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The modified retrospective approach includes a number of optional practical expedients primarily focused on leases that commenced before the effective date of Topic 842, including continuing to account for leases that commence before the effective date in accordance with previous guidance, unless the lease is modified. Most of the Company's operating lease commitments are subjected to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption of Topic 842, which increased the total assets and total liabilities that the Company reports relative to such amounts prior to adoption. The adoption of ASU 2016-02 did not have a material impact on Arcimoto’s Statement of Operations. Upon adoption on January 1, 2022, the Company recorded an operating lease right-of-use asset for approximately $1,800,000 and an operating lease liability of approximately $1,900,000. See Note 8 "Leases" for further disclosures.
In August 2020, the FASB issued ASU No. 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40)." ("ASU 2020-06"). ASU 2020-06 simplifies the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The Update also provides for expanded disclosure requirements to increase transparency. In summary, this ASU (1) simplifies the accounting for convertible instruments by reducing the number of accounting models by eliminating the models that require separation of a cash conversion or beneficial conversion feature from the host contract; (2) simplifies the derivatives scope exception by removing three of the conditions required to avoid derivative accounting and providing certain clarification regarding certain scenarios and scope exceptions and; (3) provide targeted improvements for calculating EPS by requiring the if-converted method for convertible instruments. The guidance is effective for smaller reporting companies for fiscal periods beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. Arcimoto has elected to adopt the provisions of this ASU effective January 1, 2022 and has applied the modified retrospective method of accounting for prior periods within the financial statements. The adoption has no impact on the Company's financial statements.
Accounting Pronouncements Not Yet Adopted
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financial statements properly reflect the change.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which replaces the current incurred loss methodology with an expected loss methodology which is referred to as the current expected credit loss (“CECL”) methodology. The measurement of credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivables and trade accounts receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees and other similar instruments) and net investment in leases recognized by a lessor in accordance with Accounting Standards Codification (“ASC”) Topic 842 – Leases. ASU 2016-13 also made changes to the accounting for available-for-sale debt securities and requires credit losses to be presented as an allowance rather than as a write-down on such securities management does not intend to sell or believes that it is more likely than not they will be required to sell. The Company is required to adopt ASU 2016-13 on January 1, 2023 and has not completed its assessment of ASU 2016-13’s impact on its financial statements.
ARCIMOTO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3: TMW ACQUISITION
On January 23, 2021, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Tilting Motor Works, Inc. (“TMW”), a Washington corporation (the “Seller”) and its owner. TMW engages in the design, production, sales, and installation of a bolt on kit that converts a two wheeled motorcycle into a tilting three wheeled motorcycle. TMW was acquired to utilize the tilting technology in new three wheeled micro-mobility vehicles.
Pursuant to the terms and conditions of the Agreement, the Company paid cash of $1,754,083 and issued 436,339 shares of Company common stock and assumed certain liabilities as consideration for substantially all of TMW’s assets. The common shares issued were unregistered and are subject to sales restrictions under the Securities Act of 1933. The Company valued the shares issued in the transaction at the average of opening and closing price on the date of acquisition with a 12.5% discount for lack of marketability. The acquisition closed on February 4, 2021 and was recorded as a business combination as the set of assets and activities acquired met the definition of a business.
The purchase price allocation was finalized in the first quarter of 2021 and is as follows:
| Cash | $ | 1,754,083 | ||
| Add: Fair value of shares issued | 13,038,355 | |||
| Total consideration | $ | 14,792,438 |
| Description | Fair value | |||
| Assets acquired: | ||||
| Inventory | $ | 342,394 | ||
| Prepaid expenses and other current assets | 4,083 | |||
| Property, plant, and equipment | 4,349 | |||
| Trade name | 2,052,000 | |||
| Proprietary technology | 7,010,000 | |||
| Customer relationships | 1,586,000 | |||
| Goodwill | 6,824,209 | |||
| Total assets acquired | $ | 17,823,035 | ||
| Liabilities assumed: | ||||
| Customer deposits | $ | 91,749 | ||
| Deferred tax liability | 2,938,848 | |||
| Total liabilities assumed | 3,030,597 | |||
| Estimated fair value of net assets acquired | $ | 14,792,438 | ||
In the fourth quarter of 2021, Arcimoto conducted a goodwill impairment test and consequently wrote-off the entire amount of goodwill to the Company's Statement of Operations for the year ended December 31, 2021.
The following unaudited proforma financial information presents the consolidated results of operations of the Company and TMW for the nine months ended September 30, 2021, as if the acquisition had occurred as of the beginning of the first period presented instead of on February 4, 2021. The proforma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during those periods.
The proforma financial information for the Company and TMW is as follows:
| For the Nine Months Ended | ||||
| September 30, | ||||
| 2021 | ||||
| Revenues | $ | 3,619,510 | ||
| Net loss attributable to common stockholders | $ | (24,758,304 | ) | |
| Net loss per basic and diluted common share | $ | (0.68 | ) | |
| Weighted average common shares outstanding: | ||||
| Basic and diluted | 36,340,706 | |||
ARCIMOTO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4: PROPERTY AND EQUIPMENT
As of September 30, 2022 and December 31, 2021, our property and equipment consisted of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Land | $ | 4,743,526 | $ | 4,743,526 | ||||
| Buildings | 8,006,474 | 8,006,474 | ||||||
| Machinery and equipment | 8,546,067 | 7,282,960 | ||||||
| Fixed assets in process | 6,730,661 | 3,269,532 | ||||||
| Leasehold improvements | 1,193,771 | 1,165,231 | ||||||
| FUV fleet | 1,743,997 | 1,471,534 | ||||||
| FUV rental fleet | 3,120,949 | 1,315,980 | ||||||
| Computer equipment and software | 226,915 | 258,309 | ||||||
| Vehicles | 748,707 | 419,661 | ||||||
| Furniture and fixtures | 52,007 | 52,007 | ||||||
| Total property and equipment | 35,113,074 | 27,985,214 | ||||||
| Less: Accumulated depreciation | (5,672,432 | ) | (3,646,307 | ) | ||||
| Total | $ | 29,440,642 | $ | 24,338,907 | ||||
Fixed assets in process are primarily comprised of building improvements that have not yet been completed and machinery and equipment not yet placed into service. Completed assets are transferred to their respective asset class and depreciation begins when the asset is placed in service. FUV fleet consists of marketing and other non-revenue generating vehicles. FUV rental fleet consists of rental revenue generating vehicles.
On December 23, 2020, the Company entered into an agreement to purchase certain buildings totaling approximately 187,000 square feet, and approximately 6.6 acres of real estate located within the City of Eugene, Oregon for a total purchase price of $10,250,000 from RLA Holdings, LLC. The addresses of these building are 311 Chambers Street and 1480 West 3rd Avenue. During the first quarter of 2021, an additional 4.1 acres and 33,000 square feet of buildings to the south commonly known as 1593 W. 5th Ave. Eugene, Oregon was added to the purchase agreement totaling $2,500,000. As a result, the total sales price increased to $12,750,000. On April 19, 2021, the purchase was completed. $1,250,000 was deducted at the closing with the due date of this note being year from the closing date. The payment was deferred to and paid off in July 2022. This note was secured by a zero interest note. The Company intends to utilize these properties to improve its production capabilities. The new facility became operational during the first quarter of 2022 and is expected to be completed by the end of 2023. The purchases described above are allocated to property and equipment as land and buildings.
Depreciation expense was approximately $767,000 and $2,074,000 during the three and nine months ended September 30, 2022 and $412,000 and $1,089,000 during the three and nine months ended September 30, 2021, respectively.
ARCIMOTO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5: INTANGIBLE ASSETS
The following table summarizes the Company’s intangible assets:
| September 30, 2022 | ||||||||||||||||
| Estimated | ||||||||||||||||
| Useful Life (Years) | Gross Amount | Accumulated Amortization | Net Book Value | |||||||||||||
| Tradename and trademarks | 14 | $ | 2,052,000 | $ | (236,865 | ) | $ | 1,815,135 | ||||||||
| Proprietary technology | 13 | 7,010,000 | (892,299 | ) | 6,117,701 | |||||||||||
| Customer relationships | 10 | 1,586,000 | (262,445 | ) | 1,323,555 | |||||||||||
| $ | 10,648,000 | $ | (1,391,609 | ) | $ | 9,256,391 | ||||||||||
| December 31, 2021 | ||||||||||||||||
| Estimated | ||||||||||||||||
| Useful Life (Years) | Gross Amount | Accumulated Amortization | Net Book Value | |||||||||||||
| Tradename and trademarks | 14 | $ | 2,052,000 | $ | (130,950 | ) | $ | 1,921,050 | ||||||||
| Proprietary technology | 13 | 7,010,000 | (487,875 | ) | 6,522,125 | |||||||||||
| Customer relationships | 10 | 1,586,000 | (143,495 | ) | 1,442,505 | |||||||||||
| $ | 10,648,000 | $ | (762,320 | ) | $ | 9,885,680 | ||||||||||
Amortization expense was approximately $208,000 and $210,000 during the three months ended September 30, 2022 and 2021, respectively. Amortization expense was approximately $629,000 and $552,000 during the nine months ended September 30, 2022 and 2021, respectively.
NOTE 6: CUSTOMER DEPOSITS
The Company has received refundable customer pre-orders ranging from $100 to $500 per vehicle for purposes of securing a place in a line to order its utility vehicle. As of September 30, 2022 and December 31, 2021, these refundable pre-orders total $415,200 and $424,300, respectively. In addition, Arcimoto also received non-refundable customer deposits of $2,500, which was reduced to $500 during the quarter ending June 30, 2022, that are required for the Company to start production of their vehicles. When a customer’s order is ready to enter the production process, the customer is notified that if they would like to proceed with the purchase of a vehicle, their pre-orders will no longer be refundable and additional deposit required must be paid prior to the start of the manufacturing process. As of September 30, 2022 and December 31, 2021, these non-refundable deposits total $336,000 and $125,000, respectively.
The Company has also received approximately $120,000 and $227,000 of refundable deposits related to its TMW product line as of September 30, 2022 and December 31, 2021, respectively. Arcimoto also receives non-refundable deposits as final payment prior to delivery of the final product. These non-refundable deposits total approximately $56,600 and $40,400 as of September 30, 2022 and December 31, 2021, respectively.
During the second quarter of 2022, the Company began to receive refundable deposits of $100 per unit for the recently announced Mean-Lean-Machine ("MLM"), the electric tilting trike. As of September 30, 2022, the balance of such deposits was $120,600 and is included as part of Customer Deposits on the Company's Condensed Balance Sheets.
As of September 30, 2022 and December 31, 2021, the Company’s balance of deposits received was approximately $1,048,400 and $817,100, respectively. Deposits are included in current liabilities in the accompanying condensed balance sheets. The Company also has customer deposits from its employees. However, the balances of these deposits as of September 30, 2022 and December 31, 2021 are not material.
NOTE 7: NOTES PAYABLE
As of September 30, 2022, the Company has financed a total of approximately $2,778,000 of its capital equipment purchases with notes payable having monthly payments ranging from approximately $300 to $12,000, repayment terms ranging from 60 to 72 months, and effective interest rates ranging from 1.99% to 9.90%. Total monthly payments as of September 30, 2022 are approximately $54,000. These equipment notes mature ranging from December 2022 through May 2028. The balance of equipment financing notes payable was approximately $1,374,000 and $1,678,000 as of September 30, 2022 and December 31, 2021, respectively.
ARCIMOTO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8: LEASES
Operating Leases
The Company has active operating lease arrangements for office space and production facilities. The Company is typically required to make fixed minimum rent payments relating to its right to use the underlying leased asset. In accordance with the adoption of ASC 842, the Company recorded right-of-use assets and related lease liabilities for these leases as of January 1, 2022.
The Company has lease agreements which contain both lease and non-lease components, which it has elected to account for as a single lease component when the payments are fixed. As such, variable lease payments not dependent on an index or rate, such as real estate taxes, common area maintenance, and other costs that are subject to fluctuation from period to period are not included in lease measurement. The Company includes extensions in the determination of the lease term when it is reasonably certain that such options will be exercised.
The Company’s lease agreements do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate incremental borrowing rate. The Company benchmarked itself against other companies of similar credit ratings and comparable credit quality and derived an incremental borrowing rate to discount each of its lease liabilities based on the remaining lease term.
The components of operating lease expense recorded in the statement of operations were as follows:
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||
| Operating lease cost | $ | 193,018 | $ | 548,997 | ||||
| Short-term lease cost | 52,631 | 104,882 | ||||||
| Total lease cost | $ | 245,649 | $ | 653,879 | ||||
Variable lease cost for the three and nine months ended September 30, 2022 was not material. The Company recorded rent expense on a straight-line basis and recognized rent expense of $306,000 and $629,000 for the three and nine months ended September 30, 2021, respectively.
Right of use assets and lease liabilities for operating leases were recorded in the condensed balance sheets as follows:
| September 30, 2022 | ||||
| Operating lease right-of-use assets | $ | 1,477,776 | ||
| Operating lease liabilities, current | $ | 690,682 | ||
| Operating lease liabilities, long-term | 864,195 | |||
| Total operating lease liabilities | $ | 1,554,877 | ||
The weighted-average remaining lease term for operating leases was 2.5 years and the weighted-average incremental borrowing rate was 8.3% as of September 30, 2022.
Supplemental cash flow information related to the Company’s operating leases was as follows:
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 194,355 | $ | 554,751 | ||||
As of September 30, 2022, future minimum lease payments required under operating leases are as follows:
| 2022 (remainder) | $ | 196,273 | ||
| 2023 | 745,288 | |||
| 2024 | 500,457 | |||
| 2025 | 230,859 | |||
| 2026 | 58,433 | |||
| Thereafter | - | |||
| Total minimum lease payments | 1,731,310 | |||
| Less: imputed interest | (176,433 | ) | ||
| Total | $ | 1,554,877 |
ARCIMOTO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8: LEASES (Continued)
Finance leases
As of September 30, 2022, the Company has financed through lease agreements a total of approximately $2,650,000 of its capital equipment purchases with monthly payments ranging from approximately $400 to $14,000, repayment terms ranging from 48 to 60 months, and effective interest rates ranging from 3.87% to 9.52%. Total monthly finance lease payments as of September 30, 2022 are approximately $54,000. These lease obligations mature ranging from June 2023 through September 2026 and are secured by approximately $2,713,000 in underlying assets which have approximately $975,000 in accumulated depreciation as of September 30, 2022. The balance of finance lease obligations was approximately and $1,065,000 as of September 30, 2022 and December 31, 2021, respectively.
Right of use assets and lease liabilities for finance leases were recorded in the condensed balance sheets as follows:
| September 30, 2022 | ||||
| Property and equipment, net | $ | 1,718,581 | ||
| Finance lease liabilities, current | $ | 500,955 | ||
| Finance lease liabilities, long-term | 934,482 | |||
| Total finance lease liabilities | $ | 1,435,437 | ||
The weighted-average remaining lease term for finance leases was 3.39 years and the weighted-average incremental borrowing rate was 5.43% as of September 30, 2022.
Supplemental cash flow information related to the Company’s finance leases was as follows:
| Nine Months Ended September 30, 2022 | ||||
| Operating cash flows from finance leases | $ | (46,127 | ) | |
| Financing cash flows from finance leases | $ | (305,296 | ) | |
Amortization and interest expense information related to the Company’s finance leases was as follows:
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||
| Amortization Expense | $ | 57,403 | 152,508 | |||||
| Interest Expense | $ | 16,148 | 46,127 | |||||
As of September 30, 2022, future minimum lease payments required under finance leases are as follows:
| 2022 (remainder) | $ | 143,377 | ||
| 2023 | 499,426 | |||
| 2024 | 352,609 | |||
| 2025 | 352,609 | |||
| 2026 | 216,507 | |||
| Thereafter | - | |||
| Total minimum lease payments | $ | 1,564,528 | ||
| Less: imputed interest | (129,091 | ) | ||
| Total | $ | 1,435,437 |
NOTE 9: CONVERTIBLE NOTES
$4,500,000 Convertible Promissory Note ( "April 2022 Note")
On April 25, 2022, the Company ("Debtor") entered into a $4,500,000 convertible promissory note agreement with Ducera Investments LLC - 2022 Series A ("Creditor") whereby the Debtor agrees to pay the Creditor the amount borrowed plus interest accrued at an annual rate of 10% compounded quarterly. Subject to certain conditions, interest on the promissory note accrues as additional principal. The term of the April 2022 Note is years unless conversion privileges are exercised. Conversion can occur at the option of the Creditor, the Debtor or upon maturity and is described below:
(i) The Creditor has the option to convert the promissory note at any time prior to the maturity date, in full or in part, into the number of shares of common stock ("Common Stock"), no par value, of the Company equal to the amount determined by dividing the principal amount of this note plus the accrued interest by $7.00, subject to adjustment (as adjusted, the "Conversion Price"); (ii) at any time prior to the maturity date, the Debtor may convert the note, in full or in part, at the Conversion Price provided that, in order to exercise the conversion, the closing share price of the Common Stock on the Nasdaq Stock Market LLC (the “Closing Share Price”) for the thirty (30) consecutive trading days prior to, and including, the conversion date exceeds the per share price required to provide the Creditor with shares having a market value of at least 4.5 times $4,500,000 upon conversion; and (iii) if none of a Creditor’s election to convert shares or the Company’s election to convert shares has occurred, then upon the Maturity Date, the outstanding principal plus accrued interest on the note shall convert into shares of the common stock at the lesser of the Conversion Price and the greater of (x) the per share price required to provide the Creditor with shares having a market value of at least 4 times $4,500,000, and (y) $4.33 (the “Floor Conversion Price”). In the event that the notes are converted at the Floor Conversion Price, the Company shall also pay to the Creditor on the maturity date a cash payment equal to (x) the principal amount of the note at the maturity date minus (y) the Converted Equity Market Value (as defined below) divided by 4. “Converted Equity Market Value” means the value of the shares of common stock delivered to the Creditor based on a share price equal to the lower of: (i) 10-day volume weighted average price of the common stock for the 10-days immediately prior to, but excluding, the maturity date and (ii) the Closing Share Price on the day immediately prior to the maturity date.
Arcimoto has elected to measure the note at fair value under ASC 825-10-25 to account for the convertible debt. In estimating the fair value of this debt, a binomial lattice methodology was used. The required inputs include the risk-free rate, the Company's stock volatility, stock price on valuation date, and a risk premium. The note's fair value measurement is classified as Level 2 under the fair value hierarchy as provided by ASC 820, "Fair Value Measurement." The fair valuation of this convertible note uses inputs other than quoted prices that are observable either directly or indirectly. Under this option, changes in fair value of the convertible debt are recorded as an unrealized gain or loss on convertible note fair value in the Condensed Statement of Operations. As a result, the Company recorded an unrealized gain of $1,925,190 for the three months ended September 30, 2022 and an unrealized loss of $220,350 for the nine months ended September 30, 2022. The balance on this note is $4,801,600 at September 30, 2022.
$10,000,000 Senior Secured Convertible Note ( "September 2022 Note")
Under the SPA, Arcimoto authorized the issuance of one or more series of senior secured convertible notes of the Company, in the aggregate original principal amount of $20,000,000. Such notes shall be convertible into shares of common stock, no par value per share, of the Company. Further, the Company authorized the issuance of warrants to acquire up to an aggregate of 500,000 shares of common stock. The notes will rank senior to all outstanding and future indebtedness of the Company and its subsidiaries and will be secured by a second priority perfected security interest in all of the existing and future assets of the Company and its direct and indirect subsidiaries, if any, including a pledge of all of the capital stock of each of the subsidiaries.
On September 1, 2022 (the "Issuance Date"), one note (the “September 2022 Note”) in the amount of $10,000,000 with 500,000 accompanying warrants (the “Warrants”) were issued to the Buyer. The remaining $10,000,000 as noted above requires shareholder approval in accordance with NASDAQ listing requirements. The September 2022 Note was issued with a principal amount of $10,000,000 and an original issue discount of $600,000, payable in 24 periodic installments with a coupon rate of 6%, and with a maturity date of September 1, 2024. At the option of the Company, periodic installments can be paid in either cash or common stock (at an 8% discount) to the Holder. Payments in cash are subject to an additional premium and are recorded as additional interest expense. In the event of a default, the interest rate is increased to 15%, which is the default rate. At any time on or after the Issuance Date, the Holder is entitled to convert any unpaid principal plus accrued interest at a conversion price of $5.00 per share. The SPA also provides for the Holder to require payment of principal and unpaid interest up to four times per period. This provision allows the September 2022 Note to be settled in full over a six-month period at the Holder's option. In addition, a certain percentage of cash received from issuances of shares in conjunction with the ATM discussed in Note 2 - Summary of Significant Accounting Policies will be used to pay down the principal of the September 2022 Note.
The Warrants are exercisable at any time or times on or after the six month and one day anniversary of the Issuance Date. The Warrants expire on the anniversary of the Issuance Date. The exercise price of each Warrant which is convertible to a share of common stock is $10.00.
The net proceeds of $9,400,000 (after discount) are bifurcated between the Warrants and the September 2022 Note. The amount allocated to the Warrants is $598,670, which is the fair value on the Issuance Date. The remaining amount (before debt issuance costs) of $8,801,330 is allocated to the September 2022 Note on the Issuance Date. The Company has elected to measure the note at fair value under ASC 825-10-25 to account for the convertible debt. In estimating the fair value of this debt, a binomial lattice methodology was used. The required inputs include the risk-free rate, the Company's stock volatility, stock price on valuation date, and a risk premium. The note's fair value measurement is classified as Level 2 under the fair value hierarchy as provided by ASC 820, "Fair Value Measurement." The fair valuation of this convertible note uses inputs other than quoted prices that are observable either directly or indirectly. Under this option, changes in fair value of the convertible debt are recorded as an unrealized gain or loss on convertible note fair value in the Condensed Statement of Operations. As a result of this election, debt issuance costs incurred were approximately $232,669 and are expensed in Other expense/(income) on the Condensed Statement of Operations. The Company also recorded an unrealized loss of $34,180 for the three and nine months ended September 30, 2022. The balance of the September 2022 Note (after early principal payments made in September 2022) is $8,673,858 and is classified as a current liability on the Condensed Balance Sheet as disclosed above because the agreement allows the September 2022 Note to be settled in full over a six-month period at the Holder's option.
The Warrants are recorded at fair value on September 1, 2022 at $598,670 and are remeasured at fair value at September 30, 2022 and are classified as a current liability on the Condensed Balance Sheet. As a result, the Company recorded an unrealized gain of $231,818 at September 30, 2022. The balance of the Warrants at September 30, 2022 is $366,852 and is recorded as a current liability.
NOTE 10: STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock, no par value, of which 1,500,000 shares were designated as Series A-1 Preferred Stock and 2,000,000 are designated as Class C Preferred Stock. As of September 30, 2022 and December 31, 2021, there were no shares issued or outstanding.
Common Stock
The Company has reserved a total of 8,083,448 and 6,262,478 shares of its common stock pursuant to the equity incentive plans (see Note 11) as of September 30, 2022 and December 31, 2021, respectively. The Company has 6,033,637 and 3,973,629 stock units, options, and warrants outstanding under these plans as of September 30, 2022 and December 31, 2021, respectively.
The Company has no shares and 122,238 shares of its common stock reserved for warrants issued outside of the equity incentive plans as of September 30, 2022 and December 31, 2021. The warrants were forfeited during the third quarter of 2022.
Issuance of common stock for settlement of payable
The Company issued 16,000 common shares to an external party for consulting activities with a fair value of $68,361 during the nine months ended September 30, 2022.The Company issued 17,421 common shares to an external party for services related to investor relations activities with a fair value of $221,000 during the nine months ended September 30, 2021.
ARCIMOTO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10: STOCKHOLDERS’ EQUITY (Continued)
Exercise of Stock Options and Warrants
A total of 44,030 employee options, with exercise prices ranging from $1.71 to $2.50 per share, were exercised for total proceeds to the Company of $91,095 during the nine months ended September 30, 2022. A total of 457,433 employee options, with exercise prices ranging from $1.71 to $5.41 per share, were exercised for total cash proceeds to the Company of approximately during the nine months ended September 30, 2021.
A total of 8,000 employee warrants, with an exercise price of $2.50 per share, were exercised for total proceeds to the Company of $20,000 during the nine months ended September 30, 2022. A total of 155,000 employee warrants, with an exercise price of $0.50 per share, were exercised for total proceeds to the Company of $78,000 during the nine months ended September 30, 2021.
Offerings of Common Stock
On January 25, 2021, the Company entered into an Equity Distribution Agreement (“EDA”) with Canaccord Genuity LLC (“Canaccord”) under which we may offer and sell shares of our common stock in connection with the EDA in an aggregate offering amount of up to $80,000,000 from time to time through Canaccord, acting exclusively as our sales agent (the “Offering”).
We issued and sold 1,853,181 shares of common stock during the nine months ended September 30, 2021, in connection with the EDA at per share prices between $12.36 and $32.87, resulting in net proceeds to the Company of approximately $33,100,000 after subtracting offering expenses.
On January 14, 2022, the Company entered into an Equity Distribution Agreement (the “Sales Agreement”) with Canaccord, which replaced the EDA discussed above, under which we may offer and sell, from time to time, through or to Canaccord, as sales agent up to $100,000,000 of its common stock. We intend to use the net proceeds of the Sales Agreement primarily for working capital and general corporate purposes.
We issued and sold 3,773,289 shares of common stock during the three months ended September 30, 2022, in connection with the Sales Agreement at per share prices between $1.44 and $3.35, resulting in net proceeds to the Company of $10,177,356 after subtracting offering expenses. We issued and sold 7,839,691 shares of common stock during the nine months ended September 30, 2022, in connection with the Sales Agreement at per share prices between $1.44 and $7.18, resulting in net proceeds to the Company of $26,493,094 after subtracting offering expenses.
NOTE 11: STOCK-BASED PAYMENTS
The Company has common stock, common stock units, and common stock purchase options and warrants reserved pursuant to the 2022 Omnibus Stock Incentive Plan ("2022 Plan"), 2018 Omnibus Stock Incentive Plan (“2018 Plan”), and the Amended and Restated 2015 Stock Incentive Plan (“2015 Plan”).
Stock-based compensation, including stock options, warrants and stock issued for compensation is included in the statements of operations as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Research and development | $ | 275,290 | $ | 260,262 | $ | 897,866 | $ | 531,836 | ||||||||
| Sales and marketing | 314,967 | 229,892 | 1,004,621 | 447,450 | ||||||||||||
| General and administrative | 505,772 | 410,086 | 1,445,595 | 906,920 | ||||||||||||
| Cost of goods sold | 453,978 | 421,879 | 1,425,055 | 774,257 | ||||||||||||
| Total | $ | 1,550,007 | $ | 1,322,119 | $ | 4,773,137 | $ | 2,660,463 | ||||||||
2022 Omnibus Stock Incentive Plan
On July 29, 2022, Arcimoto's shareholders approved the 2022 Omnibus Stock Incentive Plan (the "Plan"). The Plan enables the Company to provide additional incentives or awards to Employees, Directors and Consultants. The maximum aggregate number of shares which may be issued pursuant to all awards is 2,000,000 shares.
The 2022 Plan provides the Company the ability to grant shares of common stock of the Company through the grant of equity awards, including, but not limited to, options that are incentive stock options or non-qualified stock options ('NQSOs") and restricted stock, provided that only employees are entitled to receive incentive stock options in accordance with IRS guidelines. As of September 30, 2022, the Company had not issued any awards under this plan. Awards that are forfeited generally become available for grant under the 2022 Plan.
2018 Omnibus Stock Incentive Plan
The 2018 Plan authorizing 1,000,000 shares was approved by the Board of Directors and then the Company’s shareholders at the Company’s 2018 annual meeting of shareholders held on June 9, 2018. At the 2019 annual meeting, the shareholders approved an additional 1,000,000 shares of common stock to be issued under the 2018 Plan. On April 20, 2020, the board of directors approved an increase from 2,000,000 to 4,000,000 shares; at the annual shareholder meeting on June 20, 2020, the increase was approved by a majority of the shareholders. On June 11, 2021 the Company held its annual meeting of shareholders, and the board of directors approved an increase from 4,000,000 to 6,000,000 shares, the increase was approved by a majority of the shareholders.
ARCIMOTO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11: STOCK-BASED PAYMENTS (Continued)
The 2018 Plan provides the Company the ability to grant to employees, directors, consultants, or advisors shares of common stock of the Company through the grant of equity awards, including, but not limited to, options that are incentive stock options or non-qualified stock options ('NQSOs") and restricted stock, provided that only employees are entitled to receive incentive stock options in accordance with IRS guidelines. As of September 30, 2022, there were no shares of common stock available to be issued under the 2018 Plan. Awards that are forfeited generally become available for grant under the 2018 Plan.
Stock-based compensation expense under the 2018 Plan for the three and nine months ended September 30, 2022 was $1,549,000 and $4,751,000, respectively. Stock-based compensation expense under the 2018 Plan for the three and nine months ended September 30, 2021 was approximately $1,302,000 and $2,598,000, respectively.
During the first nine months of 2022, unqualified and qualified options to purchase 2,166,056 shares of common stock were granted to employees and vendors/consultants under the 2018 Plan with a grant date fair value of approximately $6,162,000. The options were valued using the Black-Scholes option pricing model with approximately a 6.1 year expected term, risk free interest rate of 2.2%, a dividend yield of 0%, and an annualized standard deviation of stock price volatility of 60.97%. These options vest over years.
During the first nine months of 2022, 473,804 restricted stock units were issued to certain personnel and outside consultants with a grant date fair value of approximately $1,514,000. These shares were valued by using the closing price of Arcimoto’s stock on the date of the grant. These awards have various vesting terms, ranging from immediate vesting to year.
Total compensation cost related to non-vested option awards issued under the 2018 Plan not yet recognized as of September 30, 2022 was approximately $9,087,000 and will be recognized on a straight-line basis through 1.93 years based on the respective vesting periods. Total compensation cost related to non-vested restricted stock awards issued under the 2018 Plan not yet recognized as of September 30, 2022 was approximately $430,000 and will be recognized on a straight-line basis through 0.16 years based on the respective vesting periods. The amount of future stock compensation expense could be affected by any future grants or forfeitures.
2015 Stock Incentive Plan
The 2015 Plan provides the Company the ability to grant to employees, directors, consultants, or advisors shares of common stock of the Company through the grant of options that are incentive stock options or NQSOs and/or the grant of restricted stock, provided that only employees are entitled to receive incentive stock options in accordance with IRS guidelines. One million shares of common stock were authorized for issuance under the 2015 Plan.
Employee stock-based compensation expense for the three and nine months ended September 30, 2022 related to the 2015 Plan was approximately $1,234 and $22,142, respectively. Employee stock-based compensation expense for the three and nine months ended September 30, 2021 related to the 2015 Plan was approximately $19,800 and $61,800, respectively.
Total compensation cost related to non-vested awards not yet recognized as of September 30, 2022 was approximately $2,900. The amounts will be recognized on a straight-line basis through May 2023 based on the respective vesting periods. The amount of future stock option compensation expense could be affected by any future option forfeitures.
NOTE 12: COMMITMENTS AND CONTINGENCIES
Litigation
On March 6, 2020, the Company filed a complaint (“the Complaint”) against Ayro, Inc. (“Ayro”), accusing Ayro of patent infringement in Federal District Court for the Western District of Texas, Waco Division (Case No. 6:20-cv-00176-ADA) (“the Ayro Litigation”). In the Complaint, Arcimoto alleged that Ayro’s 311 two-seater electric vehicles infringe U.S. Patent 8,985,255 (the “255 Patent”). The Complaint asked for monetary damages and enhanced damages due to willful infringement of the 255 Patent by Ayro. On March 27, 2020, Ayro answered the Complaint, denying liability and asserting counterclaims of noninfringement and patent invalidity. During the first quarter of 2021, the parties reached an immaterial settlement and the case was subsequently dismissed.
The Company, Mark Frohnmayer and Douglas Campoli have been sued in two putative class actions in the United States District Court for the Eastern District of New York, Barnette v. Arcimoto, Inc. et al. (Case No. 21-cv-02143 filed on April 19, 2021) and Gibson v. Arcimoto, Inc. et al. (Case No. 21-cv-02870 filed on May 20, 2021). The putative class actions purported to be on behalf of all those who purchased the Company’s common stock between February 14, 2018 and March 22, 2021. The allegations in the actions are based on the research report dated March 23, 2021 produced by Bonitas Research, LLC, a short seller of the Company’s common stock. The Barnette and Gibson actions were consolidated as In re Arcimoto, Inc. Securities Litigation (Case No. 21-cv-02143) on July 14, 2021, and a consolidated amended complaint was filed on September 20, 2021. Briefing on the defendants’ motion to dismiss the consolidated amended complaint was completed on March 11, 2022 and the Court has not yet issued a decision. No motion to certify a class has been filed at this time. The company believes it has substantial defenses to the claims asserted in this lawsuit and intends to vigorously defend this action. However, the Company cannot predict the outcome of these matters.
The Company is also a nominal defendant in two shareholder derivative lawsuits filed in the United States District Court for the Eastern District of New York, Liu v. Frohnmayer et al. (Case No. 21-cv-03702 filed on June 30, 2021) and Carranza v. Frohnmayer et al. (Case No. 21-cv-03888 filed on July 9, 2021), and a shareholder derivative lawsuit filed in the United States District Court for the District of Oregon, Laguerre v. Frohnmayer et al. (Case No. 21-cv-00982 filed on June 30, 2021) and Adams v. Frohnmayer et al. (Case No. 22-cv-00800 filed on June 1, 2022). Mark Frohnmayer, Douglas Campoli, Terry Becker, Nancy Calderon, Joshua Scherer, and Jesse Eisler are named as defendants in all four shareholder derivative suits. Jeff Curl is named as a defendant in Laguerre, Liu and Adams. The allegations in the shareholder derivative lawsuits largely arise from the Bonitas report referenced above. The Liu and Carranza actions were consolidated on August 4, 2021 as In re Arcimoto, Inc. Derivative Litigation (Lead Case No. 21-cv-03702). The derivative actions are all currently stayed. The Company believes it has substantial defenses to the claims asserted and intends to vigorously defend the actions. However, the Company cannot predict the outcome of these matters.
The Company possesses insurance coverage to cover the litigation expenses with a deductible of $1,500,000. The Company has an accounting policy to record an accrual of legal costs on the basis of an estimate of future legal costs. The amount of accrued litigation expenses at September 30, 2022 is approximately $1,151,000.
Additionally, from time to time, we might become involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements and other matters arising in the ordinary course of our business.
ARCIMOTO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13: RELATED PARTY TRANSACTIONS
Arcimoto may, from time to time, sell to its management and employees at a discounted price. Sales to such parties for the three and nine months ended September 30, 2022 were not material. Also, from time to time, the Company may make certain purchases from an entity owned by the Chief Operating Officer. During the first half of 2022, the purchases were not material and the amount owed to the related party was zero at September 30, 2022.
On April 25, 2022, the Company entered into a $4,500,000 convertible promissory note agreement with Ducera Investments LLC, a related party because a partner at Ducera is also a member of the Board of Directors at Arcimoto. Further disclosures are presented in Note 9 - Convertible Notes.
On September 1, 2022, Arcimoto reimbursed Ducera Investments LLC approximately $67,000 for third party legal fees and expenses in conjunction with the issuance of the September 2022 Note described in Note 9 - Convertible Notes.
NOTE 14: SEGMENT REPORTING
Segment
Arcimoto has three reportable segments that are identified based on its product lines and services: fun utility vehicles (“FUV”), rental and TMW. The FUV segment consists of the sale of its electric vehicle product lines while the rental segment‘s operations involve generating revenue from the short-term rental of its electric vehicles via various channels or networks. The TMW segment, as discussed above, engages in the design, production, sales, and installation of a bolt on kit that converts a two wheeled motorcycle into a tilting three wheeled motorcycle.
The reportable segments were identified based on how the Chief Operations Decision Maker (“CODM”), which in the Company’s case, is the Chief Executive Officer (“CEO”), allocates resources to the various operations. The following tables disclose the financial information used by the CODM in allocating Arcimoto’s resources.
| For the three months ended | ||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||||||||
| FUV | Rental | TMW | Total | FUV | Rental | TMW | Total | |||||||||||||||||||||||||
| Revenues | $ | 1,675,428 | 145,470 | 203,307 | 2,024,205 | $ | 1,360,375 | 33,472 | 104,329 | 1,498,176 | ||||||||||||||||||||||
| Operating Loss | (17,795,421 | ) | (636,466 | ) | (485,946 | ) | (18,917,833 | ) | (11,157,673 | ) | (73,114 | ) | (359,182 | ) | (11,589,969 | ) | ||||||||||||||||
| Unrealized gain on convertible note fair value | (2,122,828 | ) | - | |||||||||||||||||||||||||||||
| Interest expense, net | 84,945 | 51,671 | ||||||||||||||||||||||||||||||
| Other expense/(income) | 83,749 | (131,781 | ) | |||||||||||||||||||||||||||||
| Net loss | (16,963,699 | ) | (11,509,859 | ) | ||||||||||||||||||||||||||||
| For the nine months ended | ||||||||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||||||||
| FUV | Rental | TMW | Total | FUV | Rental | TMW | Total | |||||||||||||||||||||||||
| Revenues | $ | 3,205,783 | 211,786 | 756,210 | 4,173,779 | $ | 3,325,078 | 57,340 | 227,113 | 3,609,531 | ||||||||||||||||||||||
| Operating Loss | (44,139,916 | ) | (1,576,960 | ) | (1,307,407 | ) | (47,024,283 | ) | (27,559,083 | ) | (49,246 | ) | (977,874 | ) | (28,586,203 | ) | ||||||||||||||||
| Gain on forgiveness of PPP loan | - | (1,078,482 | ) | |||||||||||||||||||||||||||||
| Unrealized loss on convertible note fair value | 22,712 | - | ||||||||||||||||||||||||||||||
| Interest expense, net | 258,851 | 151,246 | ||||||||||||||||||||||||||||||
| Other expense/(income) | 12,553 | (221,214 | ) | |||||||||||||||||||||||||||||
| Income tax expense/(benefit) | 3,200 | (2,938,698 | ) | |||||||||||||||||||||||||||||
| Net loss | (47,321,599 | ) | (24,499,055 | ) | ||||||||||||||||||||||||||||
ARCIMOTO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 15: SUBSEQUENT EVENTS
The Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date.
The Company has evaluated subsequent events through the date the financial statements were issued and up to the time of filing with the Securities and Exchange Commission. The discussions that follow reflect this evaluation.
On September 29, 2022, the Company announced a restructuring plan to reduce operation costs substantially and will focus on operations related to immediate revenue-generating programs which includes its main FUV product lines and its rental operations. The restructuring plan was implemented in October 2022. In an effort to reduce such costs, the Company terminated a significant number of its employees on a company-wide basis and initiated a furlough program that is expected to last from four weeks to four months, depending on operational circumstances. The Company also ended certain significant contracts with its vendors. No severance costs were incurred as a result of these restructuring plans.
Subsequent to September 30, 2022, Arcimoto raised approximately $799,000 (net of offering costs) as of October 14, 2022 through its Equity Distribution Agreement (the “Sales Agreement”) with Canaccord Genuity LLC (the “Agent”), pursuant to which the Company may offer and sell, from time to time, through or to the Agent, as sales agent up to $100,000,000 of shares (“Shares”) of its common stock.
On November 11, 2022, Arcimoto's shareholders approved the remaining $10,000,000 of financing with a third party investor through the SPA as disclosed in Note 9 - Convertible Notes. The shareholders also approved up to $50,000,000 of financing through an equity line of credit with certain restrictions with a third party investor. In addition, the shareholders approved a reverse stock split within a range of 1-for-5 to 1-for-20 that is expected to be completed by the end of the fourth quarter of 2022 and an increase in the number of authorized shares from 100,000,000 shares to 200,000,000 shares. On November 11, 2022, the Board of Directors approved a reverse stock split of 1-for-20. See Note 2 - Summary of Significant Accounting Policies for further disclosures. This series of actions enable the Company to access additional funds for operational needs. The 1-for-20 reverse stock split will decrease the number of outstanding shares and increase net loss per common share. Since the reverse stock split has not yet been consummated, the financial statements and footnotes presented have not yet been retroactively adjusted.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express our strategies, intentions, financial projections, beliefs, expectations, strategies, predictions, or any other statements relating to our future activities or other future events or conditions. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements generally can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “will”, “could”, “should”, “projects”, “plans”, “goal”, “targets”, “potential”, “estimates”, “pro forma”, “seeks”, “intends”, or “anticipates”, or similar expressions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors discussed from time to time in this report and in other documents which we file with the United States Securities and Exchange Commission ("SEC"). In addition, such statements could be affected by risks and uncertainties related to:
| ● |
our ability to identify financing sources to fund our capital expenditure requirements and continue operations until sufficient cash flow can be generated from operations; |
| ● |
our ability to lower production costs to achieve cost-effective mass production, which we believe will be an important factor affecting adoption of the products; |
| ● |
our ability to effectively execute our business plan and growth strategy; |
| ● |
unforeseen or recurring operational problems at our facility, or a catastrophic loss of our manufacturing facility, including the temporary closures of our facility that might be required as a result of the continuing COVID-19 pandemic; |
| ● |
our dependence on our suppliers, whose ability to supply us may be negatively impacted by, among other things, the measures being implemented to address COVID-19; |
| ● |
our ability to secure battery cells from a foreign sole sourced vendor in order to maintain production levels due to supply chain constraints; |
| ● |
changes in consumer demand for, and acceptance of, our products; |
| ● |
overall strength and stability of general economic conditions and specifically of the automotive industry, both in the United States and globally; |
| ● |
changes in U.S. and foreign trade policy, including the imposition of tariffs and the resulting consequences; |
| ● |
changes in the competitive environment, including adoption of technologies and products that compete with our products; |
| ● |
our ability to generate consistent revenues; |
| ● |
our ability to design, produce and market our vehicles within projected timeframes given that a vehicle consists of several thousand unique items and we can only go as fast as the slowest item; |
| ● |
our experience to date in manufacturing and our ability to manufacture increasing numbers of vehicles at the volumes that we need in order to meet our goals; |
| ● |
our reliance on as well as our ability to attract and retain key personnel; |
| ● |
changes in the price of oil and electricity; |
| ● |
changes in laws or regulations governing our business and operations; |
| ● |
our ability to maintain adequate liquidity and financing sources and an appropriate level of debt, if any, on terms favorable to our company; |
| ● |
the number of reservations and cancellations for our vehicles and our ability to deliver on those reservations; |
| ● |
our ability to maintain quality control over our vehicles and avoid material vehicle recalls; |
| ● |
our ability to manage the distribution channels for our products, including our ability to successfully implement our direct to consumer distribution strategy and any additional distribution strategies we may deem appropriate; |
| ● |
our ability to obtain and protect our existing intellectual property protections including patents; |
| ● |
changes in accounting principles, or their application or interpretation, and our ability to make estimates and the assumptions underlying the estimates, which could have an effect on earnings or losses; |
| ● |
interest rates and the credit markets; |
| ● |
costs and risks associated with litigation; and |
| ● |
other risks described from time to time in periodic and current reports that we file with the SEC. |
The foregoing list does not contain all potential risks and uncertainties. Any forward-looking statements speak only as of the date on which they are made, and except as may be required under applicable securities laws; we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the filing date of this report.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2022 and 2021 should be read together with our unaudited condensed financial statements and related notes included elsewhere in this report and in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those set forth above. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see “Cautionary Note Regarding Forward-Looking Statements.”
Overview
Arcimoto, Inc. (the “Company”, “We”, “Us”, or “Our”) was incorporated in the State of Oregon on November 21, 2007, with the mission to catalyze the shift to a sustainable transportation system. We build light, electric, ultra-efficient vehicles that are incredibly fun to drive for a reason. Put simply, our vision is an untouched planet and more livable cities.
Today’s city is dominated by the traditional four-wheeled vehicle. We pave almost half our urban land for these giant, multi-ton, extractive machines that we almost always drive alone or with just one other person and leave parked and rusting for most of their useful lives.
At Arcimoto, we believe that if we rightsize, electrify, and better utilize our vehicles, we can reclaim our shared space, help clean our skies, and make cities more livable for us all.
We have developed a new, human-scale three-wheeled electric vehicle platform, featuring dual-motor front wheel drive, a battery pack sized to meet the range needs of the vast majority of typical trips, and an optimized center of gravity for a nimble, balanced driving experience. On this platform, we currently manufacture a family of products targeting a wide range of everyday uses: the Fun Utility Vehicle® (“FUV®”), for daily driving, rideshare and rental, the Deliverator for last-mile delivery of essential food and goods, the Rapid Responder® for emergency services and security, the Flatbed for general fleet utility, and the Roadster, a pure fun machine that drives like nothing else on the road.
The following table depicts our production, deployment and sales by quarter:
| Q3 2019 |
Q4 2019 |
Q1 2020 |
Q2 2020 |
Q3 2020 |
Q4 2020 |
Q1 2021 |
Q2 2021 |
Q3 2021 |
Q4 2021 |
Q1 2022 |
Q2 2022 |
Q3 2022 |
Overall |
|||||||||||||||||||||||||||||||||||||||||||
| Finished Good Inventory |
0 | 8 | 20 | 12 | 10 | 9 | 23 | 61 | 45 | 35 | 18 | 55 | 74 | |||||||||||||||||||||||||||||||||||||||||||
| Deployed into rental |
0 | 0 | 0 | 0 | 0 | 0 | 7 | 12 | 15 | 25 | 19 | 20 | 46 | 144 | ||||||||||||||||||||||||||||||||||||||||||
| Deployed into fixed assets |
0 | 2 | 1 | 7 | 0 | 11 | 7 | 4 | 15 | 28 | 0 | 4 | 11 | 90 | ||||||||||||||||||||||||||||||||||||||||||
| Sales |
2 | 44 | 27 | 11 | 31 | 28 | 60 | 31 | 64 | 37 | 24 | 41 | 74 | 474 | ||||||||||||||||||||||||||||||||||||||||||
| Production |
2 | 54 | 40 | 10 | 29 | 38 | 88 | 85 | 78 | 80 | 26 | 102 | 150 | 782 | ||||||||||||||||||||||||||||||||||||||||||
The Company’s primary focus is on volume production planning in order to push to sustainable profitability. On April 19, 2021, the Company purchased an approximately 220,000 square foot facility to expand production capabilities. The Company has continued to execute its growth strategy while securing additional financing.
Platform and Technologies
Arcimoto is fundamentally a technology company. Its first decade was spent developing and refining eight generations of a new three-wheeled electric vehicle platform: a light-footprint, nimble reverse-trike architecture that features a low center of gravity for stability on the road; dual-motor front-wheel drive for enhanced traction; can be parked three to a space while carrying two large adults comfortably, and is more efficient, by an order of magnitude, than today’s gas-powered cars. The Company has secured 13 utility patents on various constituent technologies and vehicle platform architectures. Arcimoto has teamed with several companies to evaluate Arcimoto’s manufacturing processes and supply chain management in order to drive down costs and increase the volume of production of Arcimoto ultra-efficient electric vehicles. This project progressed significantly, primarily due to the purchase of a new production facility and additional capital manufacturing equipment, continued production ramp planning, and product architecture sourcing-selection across all major vehicle subsystems.
Products
Arcimoto’s vehicle products are based on the Arcimoto Platform, which includes the basic lower framed structure and certain key components of our vehicles. While intended to serve very different market segments, an estimated 90% of the constituent parts are the same between all products currently in production and development.
FUV®
Arcimoto’s flagship product is the FUV. The FUV delivers a thrilling ride experience, exceptional maneuverability, comfort for two passengers with cargo, highly-efficient parking (three FUVs to a single parking space), and ultra-efficient operation, all at an affordable price. Over time, we anticipate offering the FUV with several option packages to meet the needs of a variety of customers.
We led with a consumer product because we are a consumer-first brand. We believe individuals should be able to choose more efficient, more affordable, and lighter-footprint mobility solutions, so that more of us can participate in the transition to a sustainable transportation future.
Deliverator®
Development of the Deliverator was officially announced on March 19, 2019 with the reveal of the first Deliverator prototype. The Deliverator is currently in production.
The Deliverator is a pure electric, last-mile delivery solution designed to more quickly, efficiently, and affordably get goods where they need to go. We plan for the Deliverator to be customizable to carry a wide array of products, from pizza, groceries, and cold goods to the 65 billion parcels delivered worldwide annually.
Driverless Arcimoto
Our long-term goal is to offer the market one of the lowest cost, most efficient “last mile” human and goods shared transport solutions for the future road. We intend that our platform will provide a ready foundation for remote control and self-driving technology deployment and have begun to demonstrate that capability.
Equipped with Faction’s DriveLink™ and TeleAssist™ technologies, the completely driverless Faction D1 combines autonomy with remote human teleoperation. The driverless vehicle system retains the FUV platform’s capabilities of a 75 mph top speed and just over 100 miles of range while transporting up to 500 pounds of cargo.
Pilot projects are in current deployment with additional scale/sites being added.
Sales and Distribution Model
Arcimoto’s sales and distribution model is direct. Customers place vehicle orders on our website, and the vehicle product will be delivered directly to the end user via a common carrier or our own delivery fleet. The website ordering and vehicle configuration system is functional, with additional development planned to further automate the sales process.
We are also developing relationships with commercial fleet management companies to accelerate commercial sales.
On October 26, 2020, we announced a partnership with DHL to provide nationwide home delivery of the FUV. They are currently handling the bulk of our customer deliveries.
Rental Model
We plan to augment this direct web purchase process with experiential rental operations in key markets. This rental model gives prospective customers a direct experience with the physical product before purchasing. We opened our first Company-owned rental operations in San Diego, California and Eugene, Oregon in the second quarter of 2021. The Company-owned rental center in Hawaii opened on August 20, 2022. Additional rental vehicles are available at revenue sharing partner operators across locations in Washington, Florida, California, and Oregon. We entered into an agreement with the Graduate Hotel in Eugene, Oregon in the third quarter of 2021 to rent FUVs to hotel guests. We have a revenue sharing agreement with GoCars in San Diego with additional locations opening in the fourth quarter of 2022.
We plan to open additional Arcimoto-owned and operated rental locations in favorable markets in the future, while also further developing partner rental operations, and aggressively pursuing new partners for those operations.
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.
Vehicle Financing
We have secured multiple partners nationwide to apply for consumer financing on our website. We have expanded financing options for customers to pursue personal financing to purchase our FUVs.
Management Opportunities, Challenges and Risks
Sales Funnel, Order Backlog, etc.
We are focused on building our sales and rental revenue in the states where we have current rental operations and delivery options available for customers: California, Florida, Washington, Oregon, Nevada, Hawaii and Arizona. Also, we plan to expand our business in other states as we scale our production. On October 20, 2022, Arcimoto announced that it is now accepting customer orders from New York, New Jersey, Pennsylvania, Maryland, Virginia, Georgia, and Washington D.C. While we expand geographical boundaries of our business operations, we also plan to expand and improve on the customers' retail experiences by including additional rental partnerships and pop-up demo drive experiences through new Customer Experience Centers. We opened our Honolulu Experience Center on August 20, 2022. Our current conversion rate from our rental operations and demo drives on a year-to-date basis is approximately 6%. Approximately 20% of our sales orders during the third quarter of 2022 were derived from our rental operation leads. During the third quarter of 2022, we converted 5% of drives to order from our demo drives and rental volumes which increased by 111% quarter-over-quarter. We aim to increase our conversion rate for both our rental operations and demo drives through increased engagement at each step of our customer journey and grow our drive volume by expanding our geographical footprint through various channels. These various channels include, but are not limited to, our rental operations, pop-up demo centers in high traffic flagship markets, strategic events and shows throughout the country and identifying new markets and expanding our brand awareness.
At September 30, 2022, the order backlog for our vehicles is 48. The conversion rate from order backlog to actual sales is approximately 89%. During the third quarter of 2022, the volume of demo drives made by potential customers is 2,603.
Currently, we are dependent on a single supplier for our battery cells. During the third quarter of 2022, our engineering team commenced a program to expand our options of battery cell types for module development. Upon development, regulatory testing will be conducted for compliance with government safety standards. We do not expect any challenges in regard to the certification process. We also expect that future battery cell technologies may have to be certified if these purchased cells have different specifications than what already has been certified.
We continue our efforts to drive down component and parts costs of Arcimoto ultra-efficient electric vehicles. To date, substantial progress has been made in identifying the cost targets for specific vehicle configuration based on current and anticipated supply chain conditions, 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.
We have conducted multiple pilot programs with various partners to add credence to the business case for a light weight rapid response electric vehicle. Rapid responders have been well received under these pilot programs.
We have several ongoing Deliverator pilot programs with individuals, municipalities, and corporate fleets. We have completed the first phase of tool-up for manufacture and production of the Deliverator, and we will continue to build Deliverators in low volume through the remainder of 2022, to support commercial new pilot programs.
Mean-Lean-Machine ("MLM")
We currently have received 1,206 pre-orders or $120,600 cash, net of cancellations for our MLM product line. The MLM is an electric three-wheeled bicycle that incorporates our tilting technology. Due to current unfavorable global macroeconomic environment, we have temporarily postponed operations of our MLM product line in order to conserve capital.
Trends in Cash Flow, Capital Expenditures and Operating Expenses
Our capital expenditures are typically difficult to project beyond the short term given the number and breadth of our core projects at any given time and may further be impacted by uncertainties in future market conditions. We are simultaneously ramping new products in the Deliverator and Roadster, micro mobility, ramping manufacturing facilities in the new 10-acre campus and piloting the development and manufacture of new battery module technologies, and the pace of our capital spend may vary depending on overall priority among projects, the pace at which we meet milestones, production adjustments to and among our various products, increased capital efficiencies and the addition of new projects. We currently expect our capital expenditures to be between $10,800,000 to $11,500,000 in 2022. We had previously reported that we expected our capital expenditures to be between $35,000,000 and $40,000,000. However, subsequent to September 30, 2022, we initiated a series of strategic plans to conserve cash and focus on immediate revenue generating products in light of the global economic environment.
Our business has been consistently generating negative cash flow from operations, some of this is offset with better working capital management resulting in shorter days sales outstanding than days payable outstanding. We are also likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and rising material prices and increasing supply chain and labor expenses resulting from changes in global trade conditions and labor availability associated with the COVID-19 pandemic. Moreover, while our stock price was significantly elevated during parts of 2021, we saw higher levels of exercise of investor warrants and options from employee equity plans, which obligates us to deliver shares pursuant to the terms of those agreements. In the long run, we expect our ability to be self-funding to be achieved as we approach a sales volume of approximately 7,500 vehicles per year and as long as macroeconomic factors support growth in our sales, and engineering cost reductions and volume pricing improve materials cost. On November 11, 2022, our shareholders approved an agreement to obtain additional funding (with certain restrictions) in order to finance our operations and growth with a $50,000,000 equity line of credit and a $10,000,000 senior secured convertible note. The shareholders also approved a reverse stock split of the Company's stock within a range of 1-for-5 to 1-for-20 that is expected to be completed by the end of the fourth quarter of 2022. Subsequent to the meeting, the Board of Directors approved a 1-for-20 reverse stock split. These series of actions allow us to access funds from the capital markets which will be used to fund our operations in the foreseeable future.
Operating expenses increased by approximately 70% or $5,723,000 for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 and 63%, or $13,193,000, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. This increase was primarily due to, among other things, increased sales and marketing costs and research and development (“R&D”) expenses. Sales and marketing expenses increased as we ramped up our marketing efforts to achieve higher levels of sales growth. Research and development expenses increased as we pursued new and more efficient methods of production processes and continued to improve our technological design and development of our product lines. The number of employees increased by approximately 40%, from 232 as of September 30, 2021, to 325 employees as of September 30, 2022. The increased staff was needed to build out all parts of the Company for selling and servicing vehicles. However, as a result of macroeconomic conditions and to conserve cash, we initiated a series of restructuring activities in October 2022 and temporarily scaled back our operations to focus on immediate revenue-generating activities.
Risks and Uncertainties
In the future, the Company may not have the capital resources necessary to further the development of existing and/or new products. In October 2022, we initiated a series of strategic restructuring plans in order to focus on our revenue-generating lines of business. These actions resulted in cancellations or postponements of material supplier contracts as well as a significant reduction in workforce in order to conserve cash that is prioritized for immediate revenue-generating activities.
Although we have taken strategic steps to improve our cost structure, our current cost structure, along with other factors including market penetration in the states we are currently doing business, does not allow us to achieve profitability. Although we are constantly trying to improve our cost structure and market penetration, we may not succeed to the point where we can achieve profitability consistently. Also, Arcimoto may not be able to reduce costs to the level necessary to unlock the market potential for our products.
We may, from time to time, be subject to recalls due to, among other things, software glitches and/or faulty parts which may require us to provide warranty repairs to our customers. These additional warranties may have a negative impact on our financial resources, which may in turn, negatively impact our financial results.
New Accounting Pronouncements
For a description of new accounting pronouncements, please refer to the “Summary of Significant Accounting Policies” in Note 2 to our Condensed Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe are reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. See Note 2 to our Condensed Financial Statements under Part I, Item I of this Quarterly Report on Form 10-Q.
Inventory
Inventory is stated at the lower of cost (using the first-in, first-out method (“FIFO”)) or net realizable value. We expense all labor and overhead costs as we are currently selling vehicles below the base cost of a finished unit. As such, our inventory costs consist mainly of material costs. Due to external economic conditions, including supply chain issues and inflation, among other things, such costs may fluctuate significantly over time and affect our results of operations. There had been no significant fluctuations in costs of the materials used in our inventory during the first nine months of 2022.
Convertible Notes
We have elected the fair value option under ASC 825-10-25 to account for both the $4,500,000 and $10,000,000 convertible notes. We have utilized a binomial lattice methodology in estimating the fair values. The notes' fair value measurement is classified as Level 2 under the fair value hierarchy as provided by ASC 820, "Fair Value Measurement". The fair valuation of these convertible notes uses inputs other than quoted prices that are observable either directly or indirectly. Under this option, changes in fair value of the convertible notes are recorded as unrealized gain/loss on convertible notes' fair value in the Condensed Statements of Operations.
Results of Operations
Three Months Ended September 30, 2022 versus Three Months Ended September 30, 2021
The following table summarizes the Company’s results of operations:
| Three Months Ended |
||||||||||||||||
| September 30, |
Change |
|||||||||||||||
| 2022 |
2021 |
Dollars |
Percentage |
|||||||||||||
| Revenue |
$ | 2,024,205 | $ | 1,498,176 | $ | 526,029 | 35 | % | ||||||||
| Cost of goods sold |
6,987,035 | 4,856,331 | 2,130,704 | 44 | % | |||||||||||
| Gross loss |
(4,962,830 | ) | (3,358,155 | ) | (1,604,675 | ) | 48 | % | ||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
6,521,379 | 3,186,469 | 3,334,910 | 105 | % | |||||||||||
| Sales and marketing |
3,321,862 | 1,983,738 | 1,338,124 | 67 | % | |||||||||||
| General and administrative |
4,099,354 | 3,061,607 | 1,037,747 | 34 | % | |||||||||||
| Loss on asset disposal |
12,408 | — | 12,408 | N/A | ||||||||||||
| Total operating expenses |
13,955,003 | 8,231,814 | 5,723,189 | 70 | % | |||||||||||
| Loss from operations |
(18,917,833 | ) | (11,589,969 | ) | (7,327,864 | ) | 63 | % | ||||||||
| Other (income) expense: |
||||||||||||||||
| Unrealized gain on convertible note fair value |
(2,122,828 | ) | — | (2,122,828 | ) | NA | ||||||||||
| Interest expense |
84,945 | 51,671 | 33,274 | 64 | % | |||||||||||
| Other expense/(income) |
83,749 | (131,781 | ) | 215,530 | (164 | )% | ||||||||||
| Net loss |
$ | (16,963,699 | ) | $ | (11,509,859 | ) | $ | (5,453,840 | ) | 47 | % | |||||
Revenues
Total revenue increased approximately $526,000 or 35% for the three months ended September 30, 2022, compared to the same period last year. The increase was primarily due to an increase in the number of FUV units sold and a slight increase in average sales price for the quarter. TMW revenue and rental revenue also increased. These increases were due to the ramp up of our marketing and sales activities.
We had approximately $2,024,000 in revenue, comprising approximately $1,675,000 in net revenue from the sales of our vehicles and related products and accessories, approximately $203,000 in TMW net revenue and approximately $145,000 in net revenue from rental operations during the three months ended September 30, 2022. We had approximately $1,498,000 in revenue, comprising approximately $1,360,000 in revenue from the sales of our vehicles, approximately $104,000 in TMW revenue and approximately $33,000 in revenue from our rental operation during the three months ended September 30, 2021.
Cost of Goods Sold ("COGS")
Cost of goods sold increased by approximately $2,131,000 or 44%, primarily driven by higher materials cost due to increased production and rising costs due to global supply chain issues, higher payroll costs due to additional hiring and company-wide cost of living payroll increases and higher manufacturing overhead as a result of ramping up our production operations and higher TMW COGS and higher rental operations COGS as a result of higher TMW revenues and higher rental revenue, respectively, and to a lesser extent, higher purchase price variance and warranty costs, partially offset by a slightly lower inventory loss and obsolescence.
We had approximately $6,987,000 in COGS, comprising approximately $1,667,000 for FUV material and freight costs from the sale of our vehicles, $250,000 related to our rental operations, $179,000 related to TMW, $202,000 in warranty costs, $401,000 from an adjustment to inventory for purchase price variance, obsolescence and scrap, and approximately $4,289,000 in manufacturing, labor, and overhead, during the three months ended September 30, 2022. Included in the manufacturing, labor and overhead costs are payroll and employee-related costs of $2,340,000 while the remaining costs consist of consulting services, freight, and depreciation, among other things.
We had approximately $4,856,000 in COGS, comprising approximately $1,360,000 for FUV material costs from the sale of our vehicles, $168,000 in warranty reserves, $69,000 in TMW COGS and $446,000 in other material-related costs and approximately $2,817,000 in manufacturing, labor, and overhead, during the three months ended September 30, 2021.
Operating Expenses
Research and Development (“R&D”) Expenses
R&D expenses increased by $3,335,000 or 105% during the three months ended September 30, 2022 as compared to the same period last year primarily due to higher costs incurred in developing and/or improving new technology in connection with our product lines and also designing production processes in anticipation of future increases in production volume. The increase was due to higher consulting services and payroll costs as a result of additional hiring and cost of living payroll increases. R&D expenses for the three months ended September 30, 2022 and 2021 were approximately $6,521,000 and $3,186,000, respectively.
Sales and Marketing (“S&M”) Expenses
S&M expenses for the three months ended September 30, 2022 and 2021 were approximately $3,322,000 and $1,984,000, respectively. The primary reasons for the increase in sales and marketing expenses during the three months ended September 30, 2022 of approximately $1,338,000, or 67%, as compared to the prior period were increased costs related to the expansion of the sales and marketing department and higher activities to market our product lines via various forms ofcustomer communications. As markets opened up after the COVID-19 pandemic, we have expanded into new markets, conducted road shows and incurred expenses to increase our brand awareness. We have hired key sales and marketing personnel to support our sales growth strategy which increased our payroll and employee-related costs. The higher levels of marketing activities resulted in higher travel and marketing costs. The increase in marketing activities have allowed us to increase our presence in additional states.
General and Administrative (“G&A”) Expenses
G&A expenses consist primarily of personnel and facilities costs related to executives, finance, human resources, information technology, as well as legal fees for professional and contract services. G&A expenses for the three months ended September 30, 2022 were approximately $4,099,000 as compared to approximately $3,062,000 for the same period last year, representing an increase of approximately $1,038,000, or 34%. The increase was primarily due to, among other things, higher payroll and payroll-related costs as a result of cost of living payroll increases and additional employees needed to support anticipated business growth, higher consulting costs to support our technology infrastructure, higher insurance costs from higher business activities, higher legal costs, partially offset by lower accounting and professional fees.
We recorded approximately $12,000 loss on disposal of one FUV unit from our FUV fleet.
Unrealized Gain on Convertible Note and Warrants
We recorded an unrealized gain of $2,123,000 as a result of the mark-to-market to fair value for our convertible notes in accordance with the election of the fair value option under ASC 825-10 and the bifurcated warrants issued in conjunction with our $10,000,000 convertible note.
Interest Expense
Interest expense for the three months ended September 30, 2022 was approximately $85,000, as compared to $52,000 during the three months ended September 30, 2021. The increase in interest expense was primarily due to higher debt incurred in 2022.
Other Expense/(Income)
Other expense was approximately $84,000 for the three months ended September 30, 2022. Other Income was approximately $132,000 for the three months ended September 30, 2021. Other expense increased by approximately $216,000 primarily due to debt issuance costs related to our $10,000,000 convertible note issued during the third quarter of 2022.
Nine Months Ended September 30, 2022 versus Nine Months Ended September 30, 2021
The following table summarizes the Company’s results of operations:
| Nine Months Ended |
||||||||||||||||
| September 30, |
Change |
|||||||||||||||
| 2022 |
2021 |
Dollars |
Percentage |
|||||||||||||
| Revenue |
$ | 4,173,779 | $ | 3,609,531 | 564,248 | 16 | % | |||||||||
| Cost of goods sold |
17,138,644 | 11,329,143 | 5,809,501 | 51 | % | |||||||||||
| Gross loss |
(12,964,865 | ) | (7,719,612 | ) | (5,245,253 | ) | 68 | % | ||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
14,144,395 | 8,256,980 | 5,887,415 | 71 | % | |||||||||||
| Sales and marketing |
9,318,647 | 4,537,816 | 4,780,831 | 105 | % | |||||||||||
| General and administrative |
10,583,968 | 8,071,795 | 2,512,173 | 31 | % | |||||||||||
| Loss on asset disposal |
12,408 | — | 12,408 | N/A | ||||||||||||
| Total operating expenses |
34,059,418 | 20,866,591 | 13,192,827 | 63 | % | |||||||||||
| Loss from operations |
(47,024,283 | ) | (28,586,203 | ) | (18,438,080 | ) | 64 | % | ||||||||
| Other (income) expense: |
||||||||||||||||
| Gain on forgiveness of PPP loan |
— | (1,078,482 | ) | 1,078,482 | (100 | )% | ||||||||||
| Unrealized loss on convertible note fair value |
22,712 | — | 22,712 | NA | ||||||||||||
| Interest expense |
258,851 | 151,246 | 107,605 | 71 | % | |||||||||||
| Other expense/(income) |
12,553 | (221,214 | ) | 233,767 | (106 | )% | ||||||||||
| Loss before income tax benefit |
(47,318,399 | ) | (27,437,753 | ) | (19,880,646 | ) | 72 | % | ||||||||
| Income tax (expense) benefit |
(3,200 | ) | 2,938,698 | (2,941,898 | ) | (100 | )% | |||||||||
| Net loss |
$ | (47,321,599 | ) | $ | (24,499,055 | ) | $ | (22,822,544 | ) | 93 | % | |||||
Revenues
Total revenue increased by approximately $564,000 or 16% for the nine months ended September 30, 2022, compared to the same period last year. The increase was primarily due to an increase TMW revenue and rental revenue, partially offset by a decline in our FUV sales as we temporarily ceased production in the first quarter of 2022 in order to move into our new production facilities in anticipation of future production growth. During the first quarter of 2022, we also conducted tests on two of our battery cells for regulatory compliance purposes. TMW was acquired during the first quarter of 2021 and therefore, TMW revenues for the nine months ended September 30, 2021 were from the time of acquisition till September 30, 2021.
We had approximately $4,174,000 in revenue, comprising approximately $3,206,000 in net revenue from the sales of our vehicles and related products and accessories, approximately $756,000 in TMW net revenue and approximately $212,000 in net revenue from rental operations during the nine months ended September 30, 2022. We had approximately $3,610,000 in revenue, comprising approximately $3,325,000 in revenue from the sales of our vehicles and related products and accessories, approximately $227,000 in TMW net revenue and approximately $57,000 in revenue from rental operations during the nine months ended September 30, 2021.
Cost of Goods Sold
Cost of goods sold increased by approximately $5,810,000 or 51%, primarily driven by higher payroll costs due to additional hiring and company-wide cost of living payroll increases and higher manufacturing overhead as a result of ramping up our production operations and higher inventory losses due to purchase price variance, higher freight charges as a result of macroeconomic factors related to transportation costs, higher TMW and rental COGS due to increased activity compared to the same period last year. As noted above, TMW was acquired during the first quarter of 2021 and as such, the results of operations for TMW did not fully reflect nine months of operations in 2021.
We had approximately $17,139,000 in COGS, comprising approximately $3,158,000 for FUV material and freight costs from the sale of our vehicles, $536,000 related to our rental operations, $586,000 related to TMW, $402,000 in warranty costs, $1,094,000 from an adjustment to inventory for purchase price variance, obsolescence and scrap, and approximately $11,362,000 in manufacturing, labor, and overhead, during the nine months ended September 30, 2022. Included in the manufacturing, labor and overhead costs are payroll and employee-related costs of $6,524,000 while the remaining costs consist of consulting services, freight, and depreciation, among other things.
We had approximately $11,329,000 in COGS, comprising approximately $5,093,000 for FUV material and freight costs from the sale of our vehicles, $163,000 related to TMW, $405,000 in warranty costs, $475,000 from an adjustment to inventory for purchase price variance and scrap and other costs, and approximately $5,193,000 in manufacturing, labor, and overhead, during the nine months ended September 30, 2021.
Operating Expenses
Research and Development (“R&D”) Expenses
R&D expenses increased by $5,887,000 or 71% during the nine months ended September 30, 2022 as compared to the same period last year primarily due to higher costs incurred in developing and/or improving new technology in connection with our product lines and also designing production processes in anticipation of future increases in production volume. The increase was due to higher consulting services and payroll costs as a result of additional hiring and cost of living payroll increases. R&D expenses for the nine months ended September 30, 2022 and 2021 were approximately $14,144,000 and $8,257,000, respectively.
Sales and Marketing (“S&M”) Expenses
S&M expenses for the nine months ended September 30, 2022 and 2021 were approximately $9,319,000 and $4,538,000, respectively. The primary reasons for the increase in sales and marketing expenses during the nine months ended September 30, 2022 of approximately $4,781,000, or 105%, as compared to the prior period was increased costs related to the expansion of the sales and marketing department and higher activities to market our product lines via various forms ofcustomer communications. As markets opened up after the COVID-19 pandemic, we have expanded into new markets, conducted road shows and incurred expenses to increase our brand awareness. We have hired key sales and marketing personnel to support our sales growth strategy which increased our payroll and employee-related costs. The higher levels of marketing activities resulted in higher travel and marketing costs.
General and Administrative (“G&A”) Expenses
G&A expenses consist primarily of personnel and facilities costs related to executives, finance, human resources, information technology, as well as legal fees for professional and contract services. G&A expenses for the nine months ended September 30, 2022 were approximately $10,584,000 as compared to approximately $8,072,000 for the same period last year, representing an increase of approximately $2,512,000, or 31%. The increase was primarily due to, among other things, higher payroll and payroll-related costs as a result of cost of living payroll increases and additional employees needed to support anticipated business growth, higher consulting costs to support our technology infrastructure, higher insurance costs from higher business activities, partially offset by lower legal, accounting and professional fees.
We recorded approximately $12,000 loss on disposal of one FUV unit from our FUV fleet.
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 June 30, 2021. No such transaction took place in 2022.
Unrealized Gain on Convertible Note and Warrants
We recorded an unrealized loss of $23,000 as a result of the mark-to-market to fair value for our convertible notes in accordance with the election of the fair value option under ASC 825-10 and the bifurcated warrants issued in conjunction with our $10,000,000 convertible note.
Interest Expense
Interest expense for the nine months ended September 30, 2022 was approximately $259,000, as compared to $151,000 during the nine months ended September 30, 2021. The increase in interest expense was primarily due to higher debt incurred in 2022.
Other Income
Other expense was approximately $13,000 for the nine months ended September 30, 2022 and other income was approximately $221,000 for the nine months ended September 30, 2021. Other expense increased by approximately $234,000 primarily due to debt issuance costs related to our $10,000,000 convertible note issued during the third quarter of 2022.
Liquidity and Capital Resources
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, 2022 cash used in operating activities was approximately $40,864,000, which included a net loss of approximately $47,322,000, non-cash charges of $8,628,000 and changes in net working capital and other items that contributed to cash and cash equivalent reduction of approximately $2,170,000. Our net loss was primarily due to, among other things, (1) spending on R&D expenditures to develop and improve new technology in connection with our product lines and new designs of our production processes in anticipation of future increases in production volume, and (2) spending on S&M expenses as we increased our sales force in order to ramp up our marketing efforts and activities to increase our brand awareness and conduct road shows. Our inventory increased in anticipation of future sales and production growth while our accounts payable increased, primarily due to timing.
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 charges of approximately $284,000, and changes in net working capital items of approximately $1,139,000.
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, 2022, we paid approximately $9,372,000 to purchase property and equipment in anticipation of our future production growth.
During the nine months ended September 30, 2021, we paid approximately $14,839,000 to purchase property and equipment, approximately $24,000 for security deposits, and $1,754,000 as part of the TMW acquisition.
Cash Flows from Financing Activities
During the nine months ended September 30, 2022, net cash provided by financing activities was approximately $37,484,000, compared to net cash provided by financing activities of approximately $35,497,000 during the nine months ended September 30, 2021. Cash flows provided by financing activities during the nine months ended September 30, 2022 comprised of proceeds from the issuance of common stock through our registered offerings of approximately $26,517,000 (net of offering costs of approximately $871,000), proceeds from exercise of warrants of approximately $20,000, proceeds from equipment notes of approximately $177,000, proceeds from the exercise of options of approximately $91,000, and net proceeds from convertible note of $13,500,000, reduced by payments of notes payable of approximately $2,039,000, payments on finance lease obligations of approximately $305,000, equipment notes of approximately $482,000, and payments of convertible note of approximately $162,000.
During the nine months ended September 30, 2021, net cash provided by financing activities was approximately $35,497,000. Cash flows provided by financing activities during the nine months ended September 30, 2021 comprised of proceeds from the issuance of common stock through our registered offering of approximately $33,113,000 (net of offering costs of approximately $1,125,000), proceeds from the exercise of warrants of approximately $1,727,000, proceeds from exercise of options of approximately $1,456,000, proceeds from equipment notes of approximately $362,000, reduced by repayments of notes payable of approximately $667,000, payments of equipment notes of approximately $493,000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Because we are allowed to comply with the disclosure obligations applicable to a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, with respect to this Quarterly Report on Form 10-Q, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Management uses the criteria in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013) to evaluate internal disclosure controls and procedures.
Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
(b) Changes in Internal Control Over Financial Reporting
There has not been any material change in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the period ended September 30, 2022, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The information contained in Note 12 to the Unaudited Condensed Financial Statements under the heading “Litigation” contained in Part I, Item 1 of this report is incorporated herein by this reference.
EXHIBIT INDEX
| Incorporated by Reference (Unless Otherwise Indicated) |
|||||
| Exhibit Number |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing Date |
| 3.1(a) |
Second Amended and Restated Articles of Incorporation of Arcimoto, Inc. |
10-K |
001-38213 |
3.1(a) |
March 29, 2019 |
| 3.1(b) |
Articles of Amendment to Second Amended and Restated Articles of Incorporation of Arcimoto, Inc |
10-K |
001-38213 |
3.1(b) |
March 29, 2019 |
| 3.2 |
1-A |
024-10710 |
2.2 |
August 8, 2017 |
|
| 4.1 | Form of Warrant | 8-K | 001-38213 | 4.1 | September 1, 2022 |
| 4.2 | Form of Senior Secured Convertible Note | 8-K | 001-38213 | 4.2 | September 1, 2022 |
| 10.1* | Form of Securities Purchase Agreement, dated August 31, 2022, by and among the Company and the investors party thereto | 8-K | 001-38213 | 10.1 | September 1, 2022 |
| 10.2 | Form of Security Agreement, by and between the Company and the signatory thereto, as the Collateral Agent | 8-K | 001-38213 | 10.2 | September 1, 2022 |
| 10.3 | Form of Voting Agreement | 8-K | 001-38213 | 10.3 | September 1, 2022 |
| 31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
— |
— |
— |
Filed herewith |
| 31.2 |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
— |
— |
— |
Filed herewith |
| 32.1 |
— |
— |
— |
Filed herewith |
|
| 101.INS |
Inline XBRL Instance Document. |
— |
— |
— |
Filed herewith |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document. |
— |
— |
— |
Filed herewith |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
— |
— |
— |
Filed herewith |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
— |
— |
— |
Filed herewith |
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document. |
— |
— |
— |
Filed herewith |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
— |
— |
— |
Filed herewith |
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
||||
* Schedules, exhibits and similar supporting attachments to this exhibit are omitted pursuant to Item 601(b)(2) of Regulation S-K. We agree to furnish a supplemental copy of any omitted schedule or similar attachment to the SEC upon request.
# Denotes management contract or compensatory plan or arrangement
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ARCIMOTO, INC. |
||
| Date: November 14, 2022 |
By: |
/s/ Douglas M. Campoli |
| Douglas M. Campoli |
||
| Chief Financial Officer (Principal Financial Officer) |
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Jesse A. Fittipaldi, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Arcimoto, Inc. (the registrant); |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: November 14, 2022 |
By: |
/s/ Jesse A. Fittipaldi |
| Jesse A. Fittipaldi | ||
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Interim Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Douglas M. Campoli, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Arcimoto, Inc. (the registrant); |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: November 14, 2022 |
By: |
/s/ Douglas M. Campoli |
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Douglas M. Campoli |
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Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350
Each of the undersigned hereby certifies that, to his knowledge:
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1. |
The Quarterly Report on Form 10-Q for the period ended September 30, 2022 (the “Report”) of Arcimoto, Inc. (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: November 14, 2022 |
By: |
/s/ Jesse A. Fittipaldi |
| Jesse A. Fittipaldi | ||
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Interim Chief Executive Officer |
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/s/ Douglas M. Campoli |
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Douglas M. Campoli |
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Chief Financial Officer (Principal Financial Officer) |