Date: 8/10/2023
Form: 10-Q - Quarterly Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended:
OR
For the transition period from ______________ to ______________
Commission File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (IRS Employer |
(Address of principal executive offices and zip code)
(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 | ||
| The |
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.
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).
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 ☐ |
| 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 August 9, 2023, there were approximately
ARCIMOTO, INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 2023
TABLE OF CONTENTS
i
ARCIMOTO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
| June 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Security deposits | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Customer deposits | ||||||||
| Mortgage loan | ||||||||
| Short-term convertible note | ||||||||
| Notes payable - related party | ||||||||
| Warrant liabilities | ||||||||
| Current portion of finance lease obligations | ||||||||
| Current portion of equipment notes payable | ||||||||
| Current portion of warranty reserve | ||||||||
| Current portion of deferred revenue | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Finance lease obligations | ||||||||
| Equipment notes payable | ||||||||
| Convertible note issued to related party | ||||||||
| Warranty reserve | ||||||||
| Operating lease liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity: | ||||||||
| Series A-1 Preferred Stock, par value, | ||||||||
| Class C Preferred Stock, par value, | ||||||||
| Preferred Stock, par value, | ||||||||
| Common Stock, par value, | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
1
ARCIMOTO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Loss (gain) on sale of asset | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expense: | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Financing costs | ||||||||||||||||
| Unrealized (gain) loss on convertible notes, mortgage loan and warrants fair value | ( | ) | ||||||||||||||
| Other (income) expense, net | ( | ) | ( | ) | ||||||||||||
| Loss on debt extinguishment | ||||||||||||||||
| Total other (income) expense | ||||||||||||||||
| Loss before income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
See accompanying notes to condensed consolidated financial statements.
2
ARCIMOTO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2023 and 2022
(Unaudited)
| Common Stock | Additional | Total | ||||||||||||||||||
| Number of Shares | Amount | Paid-In Capital | Accumulated Deficit | Stockholders’ Equity | ||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock for cash, net of offering costs of $ | ||||||||||||||||||||
| Issuance of common stock for RSU, net of tax | ( | ) | ( | ) | ||||||||||||||||
| Common stock to external consultant | ||||||||||||||||||||
| Equity awards issued to external consultants | — | |||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||
| Exercise of stock options | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock for cash, net of offering costs of $ | ||||||||||||||||||||
| Issuance of common stock for RSU, net of tax | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
ARCIMOTO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2023 and 2022
(Unaudited)
| Common Stock | Additional | Total | ||||||||||||||||||
| Number of Shares | Amount | Paid-In Capital | Accumulated Deficit | Stockholders’ Equity | ||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock for cash, net of offering costs of $ | ||||||||||||||||||||
| Issuance of common stock for RSU, net of tax | ( | ) | ( | ) | ||||||||||||||||
| Common stock to external consultant | ||||||||||||||||||||
| Equity awards issued to external consultants | — | |||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||
| Exercise of stock options | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock for cash, net of offering costs of $ | ||||||||||||||||||||
| Issuance of common stock for partial payment of convertible note | ||||||||||||||||||||
| Issuance of common stock for RSU, net of tax | ||||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
ARCIMOTO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Non-cash operating lease costs | ||||||||
| Non-cash financing costs | ||||||||
| Non-cash offering costs | ||||||||
| Interest expense paid in common stock | ||||||||
| Debt issuance costs expensed - mortgage loan | ||||||||
| Warrant issuance costs - expensed | ||||||||
| Loss on extinguishment of debt | ||||||||
| Unrealized loss (gain) on convertible notes, mortgage loan and warrants fair value | ( | ) | ||||||
| Common stock to external consultant | ||||||||
| Equity awards issued to external consultants | ||||||||
| Stock-based compensation | ||||||||
| Loss on disposal of asset | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid inventory | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ||||||||
| Customer deposits | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Warranty reserve | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Refund from return of equipment | ||||||||
| Security deposits | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from the sale of common stock and warrants | ||||||||
| Payment of offering costs | ( | ) | ( | ) | ||||
| Proceeds from notes payable - related party | ||||||||
| Payment of notes payable - related party | ( | ) | ||||||
| Proceeds from the exercise of warrants | ||||||||
| Proceeds from mortgage loan | ||||||||
| Proceeds from convertible note | ||||||||
| Debt issuance costs - mortgage loan | ( | ) | ||||||
| Proceeds from the exercise of stock options | ||||||||
| Payment on finance lease obligations | ( | ) | ( | ) | ||||
| Payment of equipment notes | ( | ) | ( | ) | ||||
| Proceeds from equipment notes | ||||||||
| Payment of convertible note | ( | ) | ||||||
| Payment of notes payable | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net cash and cash equivalents (decrease)/increase for period | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Accounts payable for purchase of property and equipment | $ | $ | ||||||
| Notes payable and accrued interest converted to common stock | $ | $ | ||||||
| Transfers from FUV Rental Fleet to Inventory | $ | $ | ||||||
| Equipment acquired through finance leases | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
5
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: NATURE OF OPERATIONS
Arcimoto, Inc. (the "Company”) 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 16 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 currently has two vehicle products built on this platform that target specific niches in the vehicle market: its flagship product, the Fun Utility Vehicle® ("FUV®”), for everyday consumer trips, and the Deliverator® for last-mile delivery and general fleet utility.
In February 2023, two wholly-owned subsidiaries
of the Company were formed, Arcimoto Property Holding Company, LLC and APHC Holdings, LLC. APHC Holdings, LLC is the parent of Arcimoto
Property Holding Company, LLC. Arcimoto Property Holding Company, LLC is the borrower in a loan obtained on February 17, 2023 for $
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1-for-20 Reverse Stock Split
On November 11, 2022, the Board of Directors approved a reverse stock split of 1-for-20. This action enabled the Company to access additional funds for operational needs by maintaining its listing requirements. The 1-for-20 reverse stock split decreased the number of outstanding shares and increased net loss per common share. All per share and share amounts presented have been retroactively adjusted for the effect of this reverse stock split for all periods presented.
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. In addition, the Company does not have sufficient cash on hand to pay obligations as they come due.
On January 14, 2022 the Company entered into an
agreement with Canaccord Genuity LLC ("Canaccord”) to raise the at-the-market ("ATM”) offering amount to $
During 2023, the Company obtained a loan that
is secured by the Company’s land and buildings as disclosed in Note 6 - Mortgage Loan. The principal amount of this loan is $
6
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Management has evaluated these conditions and concluded that they raise substantial doubt about the Company’s ability to continue as a going concern for at least a period of one year from the issuance of these unaudited financial statements. Management has initiated a series of actions to alleviate the Company’s financial situation: (1) reducing headcount significantly via lay-offs and an unpaid furlough program that started at the beginning of the fourth quarter of 2022 and may likely continue into the foreseeable future; (2) temporarily suspending production in the first quarter of 2023 in order to relocate operations to a new facility and focus purchases on the minimum needed to resume production, which was resumed in February 2023; (3) negotiating payment plans with the Company’s vendors that are critical to the Company’s operations; and (4) monetizing assets that may not be critical to the core business. Management also plans to pursue other financing solutions through the credit and equity markets. There can be no assurance that the Company will be able to secure such additional financing or, if available, that it will be on favorable terms or that the Company will be able to sufficiently reduce costs for any such additional financing to meet its needs. Therefore, the plans cannot be deemed probable of being implemented. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated 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 consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position as of June 30, 2023, and the results of its operations for the three and six months ended June 30, 2023 and 2022 and its cash flows for the six months ended June 30, 2023 and 2022. Results for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023. 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, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on April 14, 2023.
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.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.
Inventory
| June 30, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
7
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 allowance to reduce certain inventories to net realizable value of approximately $
Intangible Assets
Intangible assets primarily consist of trade names/trademarks,
proprietary technology, and customer relationships. They are amortized using the straight-lined method over a period of
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.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Options and other instruments under the 2012, 2015, 2018, and 2022 Plans to purchase common stock | ||||||||||||||||
| Conversion of convertible notes, if-converted method | ||||||||||||||||
| Total | ||||||||||||||||
All options and warrants were excluded from the table above as they are out of the money.
Convertible Notes, Mortgage Loan and Warrants
We have elected the fair value option under ASC
825-10-25 to account for the $
8
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Accounting Pronouncements Recently Adopted
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 adopted the provisions of this ASU effective January 1, 2023. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.
NOTE 3: PROPERTY AND EQUIPMENT
| June 30, 2023 | December 31, 2022 | |||||||
| Land | $ | $ | ||||||
| Buildings | ||||||||
| Machinery and equipment | ||||||||
| Fixed assets in process | ||||||||
| Leasehold improvements | ||||||||
| FUV fleet | ||||||||
| FUV rental fleet | ||||||||
| Computer equipment and software | ||||||||
| Vehicles | ||||||||
| Furniture and fixtures | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
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.
Depreciation expense was approximately $
9
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 4: INTANGIBLE ASSETS
| June 30, 2023 | ||||||||||||||||
| Estimated Useful Life (Years) | Gross Carrying Amount at June 30, 2023 | Accumulated Amortization | Net Book Value | |||||||||||||
| Tradename and trademarks | $ | $ | ( | ) | $ | |||||||||||
| Proprietary technology | ( | ) | ||||||||||||||
| Customer relationships | ( | ) | ||||||||||||||
| $ | $ | ( | ) | $ | ||||||||||||
| December 31, 2022 | ||||||||||||||||
| Estimated Useful Life (Years) | Gross Carrying Amount at December 31, 2022 | Accumulated Amortization | Net Book Value | |||||||||||||
| Tradename and trademarks | $ | $ | ( | ) | $ | |||||||||||
| Proprietary technology | ( | ) | ||||||||||||||
| Customer relationships | ( | ) | ||||||||||||||
| $ | $ | ( | ) | $ | ||||||||||||
Amortization expense was approximately $
NOTE 5: CUSTOMER DEPOSITS
The Company has received refundable customer pre-orders
ranging from $
The Company has also received approximately $
During the second quarter of 2022, the Company
began to receive refundable deposits of $
As of June 30, 2023 and December 31,
2022, the Company’s balance of deposits received was approximately $
10
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 6: MORTGAGE LOAN
On February 17, 2023, the Company’s wholly-owned
subsidiary, Arcimoto Property Holding Company, LLC ("Borrower”) entered into a loan ("Mortgage Loan”) with HRE
FUV Lending, LLC (the "Lender”) and issued a related Promissory Note (the "Note”) payable to the Lender. Pursuant
to the Mortgage Loan and the Note, the Borrower is receiving a $
The Company elected to account for this mortgage
loan using the fair value option. In estimating the fair value of this debt, a discounted cash flows model was used. 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 mortgage loan uses inputs other than quoted prices that are observable either directly or indirectly in a discounted
cash flows model. Under this option, changes in fair value of the debt are recorded as an unrealized loss on mortgage loan fair value
in the Condensed Consolidated Statements of Operations at inception of $
NOTE 7: EQUIPMENT NOTES PAYABLE
As of June 30, 2023, the Company has financed
a total of approximately $
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.
11
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
Variable lease cost for the three and six months ended June 30, 2023 and 2022 was not material.
| June 30, 2023 | December 31, 2022 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities, current | $ | $ | ||||||
| Operating lease liabilities, long-term | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The weighted-average remaining lease term for
operating leases was
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | $ | $ | $ | ||||||||||||
12
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
| 2023 (Remainder) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total | $ |
Finance Leases
As of June 30, 2023, the Company has financed
through lease agreements a total of approximately $
| June 30, 2023 | December 31, 2022 | |||||||
| Property and equipment, net | $ | $ | ||||||
| Finance lease liabilities, current | $ | $ | ||||||
| Finance lease liabilities, long-term | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
The weighted-average remaining lease term for
finance leases was
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating cash flows from finance leases | $ | ( | ) | $ | ||||
| Financing cash flows from finance leases | $ | ( | ) | $ | ( | ) | ||
13
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Amortization expense | $ | $ | $ | $ | ||||||||||||
| Interest expense | $ | $ | $ | $ | ||||||||||||
| 2023 (Remainder) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total minimum lease payments | $ | |||
| Less: imputed interest | ( | ) | ||
| Total | $ |
NOTE 9: CONVERTIBLE NOTES
$4,500,000 Convertible Promissory Note ("April 2022 Note”)
On April 25, 2022, the Company ("Debtor”)
entered into a $
(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
$
14
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Arcimoto has elected to measure the note at fair
value. In estimating the fair value of this debt, a binomial lattice model 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 Consolidated Statements of
Operations. As a result, the Company recorded an unrealized (loss) gain of $(
$
On August 31, 2022, the Company entered into a Securities Purchase Agreement (the "SPA”) with a third-party investor (the "Buyer” or the "Holder”). Under the terms of the SPA, the Company will issue to the Buyer the notes and warrants pursuant to a currently effective shelf registration statement on Form S-3, which has sufficient availability for the issuance of the securities on each closing date.
Under the SPA, the Company authorized the issuance
of one or more series of senior secured convertible notes of the Company, in the aggregate original principal amount of $
On September 1, 2022 (the "Issuance Date”),
one note (the "September 2022 Note”) in the amount of $
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 fifth anniversary of the Issuance Date.
The exercise price of each Warrant which is convertible to a share of common stock is $
The net proceeds of $
15
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The Warrants were recorded at fair value on the
September 1, 2022 issuance date at $
NOTE 10: STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue
The Series A-1 Preferred Stock is convertible
at any time after issuance at the option of the holder into shares of common stock at the original issue price of the Series A-1 Preferred
Stock. The Series A-1 Preferred Stock was also subject to mandatory conversion provisions upon an initial public offering raising $
Except as otherwise required by law or expressly provided in the Company’s Second Amended and Restated Articles of Incorporation, as amended, each share of Class C Preferred Stock has one vote for the election of directors and on all matters submitted to a vote of shareholders of the Company. The Company is not obligated to redeem or repurchase any shares of Class C Preferred Stock. Shares of Class C Preferred Stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous fund provisions.
As of June 30, 2023 and December 31, 2022, there were no shares of preferred stock issued or outstanding.
Common Stock
The Company has reserved a total of
The Company has
Exercise of Stock Options and Warrants
A total of 889 employee options, with an exercise
price of $
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ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
A total of
A total of
Offerings of Common Stock and Warrants
2023 Purchase Agreements
On January 18, 2023, the Company entered into
securities purchase agreements (the "Purchase Agreements”) with certain investors (collectively, the "Purchasers”).
The Purchase Agreements provide for the sale and issuance by the Company of an aggregate of (i)
The Pre-Funded Warrants are immediately exercisable
subject to certain ownership limitations, have an exercise price of $
Both the Pre-Funded and Common Warrants contain provisions that regarding settlement in the event of a fundamental transaction that calculate the fair value of the warrants using a prespecified volatility assumption that was not consistent with the input used to value the warrants at issuance which causes the warrants to be classified as liabilities.
The Pre-Funded Warrants are recorded at fair value
on January 18, 2023 at $
The offering resulted in gross proceeds to the
Company of approximately $
2023 Second Purchase Agreements
On June 12, 2023, the Company entered into securities
purchase agreements (the "Second Purchase Agreements”) with certain investors (collectively, the "Purchasers”). The
Second Purchase Agreements provide for the sale and issuance by the Company of an aggregate of
17
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The Second Offering resulted in gross proceeds
to the Company of approximately $
The Company paid the Placement Agent a cash fee
equal to $
The Warrants issued to the Purchasers are recorded
at fair value on June 12, 2023 at $
2022 Offerings
On January 14, 2022, the Company entered into
an Equity Distribution Agreement (the "Sales Agreement”) with Canaccord, under which the Company may offer and sell, from
time to time, through or to Canaccord, as sales agent up to $
We issued and sold
18
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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”).
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Cost of goods sold | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
2022 Omnibus Stock Incentive Plan
On July 29, 2022, Arcimoto’s shareholders approved
the 2022 Omnibus Stock Incentive Plan (the "2022 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
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. During the six months ended June 30, 2023, the Company issued
Stock-based compensation expense under the 2022
Plan for the three and six months ended June 30, 2023 was $
2018 Omnibus Stock Incentive Plan
The 2018 Plan authorizing
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 NQSOs and restricted stock, provided that only employees are entitled
to receive incentive stock options in accordance with IRS guidelines. As of June 30, 2023, the Company had a remaining reserve of
Stock-based compensation expense under the 2018
Plan for the three and six months ended June 30, 2023 was $
During the first half of 2022, unqualified and
qualified options to purchase
19
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
During the first half of 2022,
No options were granted or restricted stock issued during the first half of 2023 under the 2018 Plan.
Total compensation cost related to non-vested
awards issued under the 2018 Plan not yet recognized as of June 30, 2023 was approximately $
2015 Stock Incentive Plan
Stock-based compensation expense under the 2015
Plan for the three and six months ended June 30, 2023 was $
There is no non-vested compensation expense as June 30, 2023 as all awards were fully vested as of May 2023.
NOTE 12: COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company 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. The Company has an accounting policy to record an accrual of legal costs on the basis of an estimate of future legal costs. As of June 30, 2023, the Company had no accrual for future legal costs.
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 six months ended June 30, 2023 were not material. Also, from time to time, the Company may make certain purchases from an entity owned by the former Chief Operating Officer. During the first half of 2023, the purchases were not material and the amount owed to the related party was zero at June 30, 2023.
On May 26, 2023, the Company entered into a $
The Related Party Note was amended on June 11,
2023. The amendment provided that if the promissory note becomes due because the Company raises third-party capital in an amount equal
to or in excess of $
20
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
On June 12, 2023, the Company completed an equity
offering raise in excess of $
On April 25, 2022, the Company entered into a
$
NOTE 14: SEGMENT REPORTING
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.
| For the Three Months Ended | ||||||||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||||||||||
| FUV | Rental | TMW | Total | FUV | Rental | TMW | Total | |||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Financing costs | ||||||||||||||||||||||||||||||||
| Unrealized loss on convertible note, mortgage loan and warrants | ||||||||||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||||||||
| Other (income) expense, net | ( | ) | ||||||||||||||||||||||||||||||
| Income tax (expense) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
21
ARCIMOTO, INC.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
| For the Six Months Ended | ||||||||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||||||||||
| FUV | Rental | TMW | Total | FUV | Rental | TMW | Total | |||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Financing costs | ||||||||||||||||||||||||||||||||
| Unrealized (gain) loss on convertible note, mortgage loan and warrants | ( | ) | ||||||||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||||||||
| Loss on debt extinguishment | ||||||||||||||||||||||||||||||||
| Other (income) expense, net | ( | ) | ||||||||||||||||||||||||||||||
| Income tax (expense) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
NOTE 15: SUBSEQUENT EVENTS
The Company evaluates subsequent events that have occurred after the balance sheet date but before the condensed consolidated 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 condensed consolidated 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 July 14, 2023, the Company signed an extension for the Mortgage
Loan, which extended the maturity date by six months to February 17, 2024. As a result of the extension, the Company will pay a $
On August 8, 2023, the Company signed
If any event of default occurs, the full principal
amount of the note shall become, at the payee’s election, immediately due and payable in cash. Commencing 3 days after the occurrence
of any event of default that results in the acceleration of the note, interest accrues at the rate of
22
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. 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 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; |
| ● | our dependence on our suppliers, whose ability to supply us may be negatively impacted; |
| ● | 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 of the automotive industry more specifically, 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; |
23
| ● | 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.
24
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 six months ended June 30, 2023 and 2022 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, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on April 14, 2023. 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”) was incorporated in the State of Oregon on November 21, 2007, with the mission to create a right-sized, sustainable transportation system. Recognizing that almost ninety percent of daily drives in the U.S. are ten miles or less, we have created and patented a three-wheeled electric vehicle platform that is one of the most efficient electric vehicles on the market. Featuring dual-motor front wheel drive and an optimized center of gravity for nimble and balanced rides, this vehicle platform provides a 102 city mile range on one charge, and has an industry-leading miles per gallon of gasoline-equivalent of 173.7.
On this platform, we currently manufacture a family of products targeting a wide range of everyday uses: the Fun Utility Vehicle® ("FUV®”) is for daily driving, ridesharing and rental operations. The Modular Utility Vehicle ("MUV”) features a variety of configurations including: a box design with a storage capacity of 25 cubic feet that serves the last-mile delivery of food and goods, a Flatbed design that can serve commercial and logistic needs, and a pickup-with-rails design perfect for agricultural and outdoor jobs. The Company’s Rapid Responder® brings the speed and maneuverability of the platform to emergency services like fire and rescue, along with campus and event security.
Weighing less than half of most internal-combustion-engine vehicles, our platform provides instant torque for an exhilarating and fun ride unlike any other. With a top speed of 75 miles per hour our vehicle platform is freeway-ready, and its smaller footprint provides more parking options for easy maneuverability into compact spaces. While individual drivers will enjoy the cost-savings of an ultra-efficient electric vehicle, we believe companies that own fleets of vehicles will also see the benefits of our vehicles.
The Company’s primary focus is on volume-production planning, and reaching sustainable profitability. On April 19, 2021, the Company purchased an approximately 220,000 square-foot facility to expand production capabilities. The Company produced its 1000th FUV in June 2023, and is executing on its growth strategy while working to secure additional financing.
At the Company, we believe that if we right-size, electrify, and better utilize our vehicles, we can reclaim our shared space, help clean our skies, and make cities more livable for us all.
Platform and Technologies
The Company 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. The Company has teamed with several companies to evaluate the Company’s manufacturing processes and supply chain management in order to drive down costs and increase the volume of production of the Company’s 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.
25
Products
The Company’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®
The Company’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. The Deliverator can carry a wide array of products, from pizza, groceries, and cold goods to the 65 billion parcels delivered worldwide annually.
Arcimoto Flatbed
The Arcimoto Flatbed prototype was introduced at the FUV & Friends Summer Showcase on July 26, 2021. Similar to the Deliverator, it eschews the rear seat, this time for a pickup-style flatbed instead of an enclosed cargo area. Retail sales of the flatbed are in limited production.
TRiO
In February 2021, the Company acquired Tilting Motor Works and is currently selling their TRiO motorcycle upgrade kit, which transforms a traditional two-wheeled motorcycle into a leaning three-wheeled motorcycle. In February 2022, the Company introduced a second vehicle platform prototype and the first product concept on that platform, a class 3 e-trike codenamed the Mean Lean Machine™ ("MLM”). Research and development on the MLM has been put on hold as part of our operating cost-cutting efforts. Sales of the TRiO kits continue.
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.
26
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.
The Company is currently exploring additive sales channels, such as dealerships, for distribution in states where the direct sales model is currently prohibited or where strong powersports distributors exist. These channels, along with our direct-to-consumer model, could scale both service and sales in states where we currently do business.
Rental Model
The Company is augmenting the direct web purchase process with experience rental in key markets. This rental model gives prospective customers a direct experience with the physical product before purchasing, recovering some of the cost of the test drive with revenue generated by the rental. We opened our first Company-owned rental operations in San Diego, California and Eugene, Oregon in the second quarter of 2021. The first Company-owned rental center in Hawaii opened on August 20, 2022. During the fourth quarter of 2022 we opened a second Company-owned location in Kauai, Hawaii. Additional rental vehicles are available at revenue sharing partner operators across locations in Washington, Florida, California, and Oregon. We have a revenue sharing agreement with GoCars in San Diego and Las Vegas, with additional locations opening in the near future.
Our current partner list includes Island Bike Shop, Adventure Center, Scoot Scoot Rentals and the New Experience Center at Royal Sonesta Kaua’i Resort Line.
Service
Arcimoto Service is provided by the Company or through third-party service providers. The Company has implemented a robust service training program to certify all internal and 3rd party technicians. A service request to support@arcimoto.com will trigger dispatch and notification to mobile technicians. In 2022, the Company launched partnerships with B&H Electric in Pennsylvania and Midas in Oahu to provide service in those regions. Currently, in all other open states, service is provided through Arcimoto directly.
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
Production, Sales Funnel and Order Backlog
The Company temporarily paused vehicle production on January 3, 2023 as the Company sought additional capital. After raising additional capital, the Company resumed production on February 12, 2023.
The Company is focused on generating sales and rental revenue in the states where we have current rental operations and/or delivery options available for customers: California, Florida, Washington, Oregon, Nevada, Hawaii and Arizona. The Company is now accepting orders from customers in 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. The Company intends 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.
27
At June 30, 2023, the order backlog for our vehicles is 8, defined as a vehicle order with a customer deposit, likely configured and expecting delivery. The conversion rate from order backlog to actual sales is approximately 93%. During the first half of 2023, the volume of demo drives made by potential customers was 954.
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 lightweight rapid response electric vehicle. Rapid responders have been well received under these pilot programs. We will continue to build Rapid Responders in low volume through the remainder of 2023, delivered to customers via specialized upfitters, to support commercial new pilot programs.
We have several ongoing Deliverator pilot programs with individuals, municipalities, and corporate fleets. We will continue to build Deliverators in low volume through the remainder of 2023, to support commercial new pilot programs.
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 released the Arcimoto Flatbed during the second quarter of 2023, while ramping manufacturing facilities at our 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 $500,000 to $1,000,000 in 2023. During the fourth quarter of 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. 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. Due to the January 18, 2023 common stock and warrant offering, the Company is restricted from utilizing the equity line of credit or the Canaccord Genuity LLC at-the-market ("ATM”) facility for a period of one year. The shareholders also approved a reverse stock split of the Company’s stock of 1-for-20 that was completed on November 11, 2022. 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. We also completed offerings of our Common Stock and warrants which resulted in proceeds of approximately $13,287,000 for the six months ended June 30, 2023, after deducting placement agent fees and offering expenses.
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Operating expenses decreased by approximately 48% or $5,048,000 for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 and 43% or $8,692,000 for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. This decrease was primarily due to, among other things, a reduction in workforce, as the number of employees decreased by approximately 60%, from 289 as of June 30, 2022, to 116 employees as of June 30, 2023. The decrease in staff was due to a company-wide restructuring program in the fourth quarter of 2022 that was aimed at reducing overall overhead costs. We continue to monitor staffing levels in order to meet operational needs.
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 Consolidated 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 April 14, 2023.
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.
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Convertible Notes, Mortgage Loan and Warrants
We have elected the fair value option under ASC 825-10-25 to account for the $4,500,000 and $10,000,000 convertible notes, as well as the mortgage loan and warrants. We have utilized a binomial lattice methodology in estimating the fair values of the convertible notes. The mortgage loan fair value was estimated using a discounted cash flow model. The warrant fair values were estimated using a Black Scholes model. The fair value measurements are classified as Level 2 under the fair value hierarchy as provided by ASC 820, "Fair Value Measurement”. The fair valuation of these convertible notes, mortgage loan and warrants use inputs other than quoted prices that are observable either directly or indirectly. Under this option, changes in fair value of the convertible notes and warrants are recorded as unrealized gain/loss on changes in’ fair value in the Condensed Consolidated Statements of Operations.
Results of Operations
Three Months Ended June 30, 2023 versus Three Months Ended June 30, 2022
The following table summarizes the Company’s results of operations:
| Three Months Ended June 30, | Change | |||||||||||||||
| 2023 | 2022 | Dollars | Percentage | |||||||||||||
| Revenue | $ | 1,760,346 | $ | 1,499,341 | $ | 261,005 | 17 | % | ||||||||
| Cost of goods sold | 3,523,909 | 6,104,337 | (2,580,428 | ) | (42 | )% | ||||||||||
| Gross loss | (1,763,563 | ) | (4,604,996 | ) | 2,841,433 | (62 | )% | |||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 1,537,695 | 3,716,431 | (2,178,736 | ) | (59 | )% | ||||||||||
| Sales and marketing | 1,486,376 | 3,070,280 | (1,583,904 | ) | (52 | )% | ||||||||||
| General and administrative | 2,503,284 | 3,785,661 | (1,282,377 | ) | (34 | )% | ||||||||||
| Loss on sale of asset | (3,150 | ) | — | (3,150 | ) | N/A | ||||||||||
| Total operating expenses | 5,524,205 | 10,572,372 | 5,048,167 | (48 | )% | |||||||||||
| Loss from operations | (7,287,768 | ) | (15,177,368 | ) | 7,889,600 | (52 | )% | |||||||||
| Other (income) expense: | ||||||||||||||||
| Financing costs | 4,138,027 | — | 4,138,027 | N/A | ||||||||||||
| Unrealized loss on convertible notes, mortgage loan and warrants fair value | 1,516,506 | 2,145,540 | (629,034 | ) | (29 | )% | ||||||||||
| Interest expense | 210,687 | 124,171 | 86,516 | 70 | % | |||||||||||
| Other (income) expense, net | 48,419 | (45,937 | ) | 94,356 | (205 | )% | ||||||||||
| Total other (income) expense | 5,913,639 | 2,223,774 | (3,689,865 | ) | 166 | % | ||||||||||
| Loss before income tax expense | (13,201,407 | ) | (17,401,142 | ) | 4,199,735 | (24 | )% | |||||||||
| Income tax expense | (7,042 | ) | (3,200 | ) | (3,842 | ) | 120 | % | ||||||||
| Net Loss | $ | (13,208,449 | ) | $ | (17,404,342 | ) | $ | 4,195,893 | (24 | )% | ||||||
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Revenues
Total revenue increased approximately $261,000 or 17% for the three months ended June 30, 2023, compared to the same period last year. The increase was primarily due to having sold 23 more vehicles (both new and used) and an increase in outside services revenue which relates to the fabrication of service parts for a customer using the Company’s manufacturing equipment.
The Company had approximately $1,760,000 in revenue, comprising approximately $1,537,000 in revenue, net of discounts, from the sales of our vehicles and related products and accessories, approximately $157,000 in TMW net revenue and approximately $66,000 in net revenue from rental operations during the three months ended June 30, 2023. We had approximately $1,499,000 in revenue, comprising approximately $1,015,000 in net revenue from the sales of our vehicles, approximately $430,000 in TMW net revenue and approximately $54,000 in net revenue from rental operations during the three months ended June 30, 2022.
Cost of Goods Sold ("COGS”)
Cost of goods sold decreased by approximately $2,580,000 or 42%, primarily driven by the reduction in workforce and decreases in certain manufacturing-related materials, as we scaled purchasing to match demand.
The Company had approximately $3,524,000 in COGS, comprising approximately $1,836,000 in manufacturing labor and overhead, $1,275,000 for FUV material and freight costs from the sale of our vehicles, $183,000 related to our rental operations, $118,000 related to TMW, $203,000 in warranty costs, and $(91,000) from a favorable adjustment in the reserve and adjustments to inventory for purchase price variance and scrap during the three months ended June 30, 2023. Included in the manufacturing, labor and overhead costs are payroll and employee-related costs of approximately $773,000 while the remaining costs consist of consulting services, freight, and depreciation, among other things.
The Company had approximately $6,104,000 in COGS, comprising approximately $4,024,000 in manufacturing, labor, and overhead, $999,000 for FUV material and freight costs from the sale of our vehicles, $151,000 related to our rental operations, $316,000 related to TMW, $130,000 in warranty costs, and $486,000 from an adjustment to inventory for purchase price variance and scrap, during the three months ended June 30, 2022. Included in the manufacturing, labor and overhead costs are payroll and employee-related costs of $2,192,000 while the remaining costs consist of consulting services, freight, and depreciation, among other things.
Operating Expenses
Research and Development ("R&D”) Expenses
R&D expenses decreased by $2,179,000 or 59% during the three months ended June 30, 2023 as compared to the same period last year primarily due to the reduction in workforce, a corresponding reduction in stock-based compensation relating from fewer employees, and a 58% reduction in consulting services. R&D expenses for the three months ended June 30, 2023 and 2022 were approximately $1,538,000 and $3,716,000, respectively.
Sales and Marketing ("S&M”) Expenses
S&M expenses for the three months ended June 30, 2023 and 2022 were approximately $1,486,000 and $3,070,000, respectively. The primary reasons for the decrease in S&M expenses during the three months ended June 30, 2023 of approximately $1,584,000, or 52%, as compared to the prior period were the reduction in workforce, a corresponding reduction in stock-based compensation resulting from fewer employees, and a 27% reduction in advertising expenses.
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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 June 30, 2023 were approximately $2,503,000 as compared to approximately $3,786,000 for the same period last year, representing an decrease of approximately $1,282,000, or 34%. The decrease was primarily due to, among other things, the reduction in workforce, the corresponding reduction in stock-based compensation resulting from fewer employees and a 47% reduction in legal fees associated with a case that was dismissed in 2022.
Financing Costs
We recorded financing costs of approximately $4,138,000 for the three months ended June 30, 2023 comprised of $3,767,000 related to the excess of the issuance date fair value of the warrants and Common Stock issued in June 2023 over the cash proceeds received, and $371,000 of offering costs for liability classified warrants.
Unrealized Gain on Convertible Note, Mortgage Loan and Warrants
We recorded an unrealized loss of approximately $1,517,000 for the three months ended June 30, 2023, as a result of the mark-to-market to fair value for our convertible notes, mortgage loan and warrant liabilities in accordance with the election of the fair value option under ASC 825-10. For the three months ended June 30, 2022, we recorded an unrealized loss of approximately $2,145,540 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.
Interest Expense
Interest expense for the three months ended June 30, 2023 was approximately $211,000, as compared to $124,000 during the three months ended June 30, 2022. The increase in interest expense was due to a $74,000 payment made to an equipment vendor for interest on an outstanding payable balance, and $75,000 for interest on the notes payable - related party.
Other (income) expense, net
Other (income) expense, net for the three months ended June 30, 2023 was approximately $48,000, as compared to $(46,000) during the three months ended June 30, 2022. The increase in expense was due to a purchase order cancellation charge paid to a vendor.
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Six Months Ended June 30, 2023 versus Six Months Ended June 30, 2022
The following table summarizes the Company’s results of operations:
| Six Months Ended June 30, | Change | |||||||||||||||
| 2023 | 2022 | Dollars | Percentage | |||||||||||||
| Revenue | $ | 3,113,874 | $ | 2,149,574 | $ | 964,300 | 45 | % | ||||||||
| Cost of goods sold | 6,465,739 | 10,151,609 | (3,685,870 | ) | (36 | )% | ||||||||||
| Gross loss | (3,351,865 | ) | (8,002,035 | ) | 4,650,170 | (58 | )% | |||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 2,553,468 | 7,623,016 | (5,069,548 | ) | (67 | )% | ||||||||||
| Sales and marketing | 2,920,918 | 5,996,785 | (3,075,867 | ) | (51 | )% | ||||||||||
| General and administrative | 5,715,954 | 6,484,614 | (768,660 | ) | (12 | )% | ||||||||||
| Loss on sale of asset | 221,741 | — | 221,741 | N/A | ||||||||||||
| Total operating expenses | 11,412,081 | 20,104,415 | 8,692,334 | (43 | )% | |||||||||||
| Loss from operations | (14,763,946 | ) | (28,106,450 | ) | 13,342,504 | (47 | )% | |||||||||
| Other (income) expense: | ||||||||||||||||
| Financing costs | 5,243,824 | — | 5,243,824 | N/A | ||||||||||||
| Unrealized (gain) loss on convertible notes, mortgage loan and warrants fair value | (3,169,138 | ) | 2,145,540 | (5,314,678 | ) | (248 | )% | |||||||||
| Loss on debt extinguishment | 2,925,610 | — | 2,925,610 | N/A | ||||||||||||
| Interest expense | 311,786 | 173,906 | 137,880 | 79 | % | |||||||||||
| Other (income) expense, net | 15,901 | (71,196 | ) | 87,097 | (122 | )% | ||||||||||
| Total other (income) expense | 5,327,983 | 2,248,250 | (3,079,733 | ) | 137 | % | ||||||||||
| Loss before income tax expense | (20,091,929 | ) | (30,354,700 | ) | 10,262,771 | (34 | )% | |||||||||
| Income tax expense | (7,042 | ) | (3,200 | ) | (3,842 | ) | 120 | % | ||||||||
| Net Loss | $ | (20,098,971 | ) | $ | (30,357,900 | ) | $ | 10,258,929 | (34 | )% | ||||||
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Revenues
Total revenue increased approximately $964,000 or 45% for the six months ended June 30, 2023, compared to the same period last year. The increase was primarily due to having sold 37 more vehicles (both new and used) and an increase in outside services revenue which relates to the fabrication of service parts for a customer using the Company’s manufacturing equipment.
The Company had approximately $3,114,000 in revenue, net of discounts, comprising approximately $2,636,000 in net revenue from the sales of our vehicles and related products and accessories, approximately $381,000 in TMW net revenue and approximately $97,000 in net revenue from rental operations during the six months ended June 30, 2023. We had approximately $2,150,000 in revenue, comprising approximately $1,530,000 in net revenue from the sales of our vehicles, approximately $553,000 in TMW net revenue and approximately $67,000 in net revenue from rental operations during the six months ended June 30, 2022.
Cost of Goods Sold ("COGS”)
Cost of goods sold decreased by approximately $3,686,000 or 36%, primarily driven by the reduction in workforce, the corresponding reduction in stock-based compensation resulting from fewer employees, and an 84% and 87% reduction in freight and consumable costs, respectively.
The Company had approximately $6,466,000 in COGS, comprising approximately $3,456,000 in manufacturing, labor and overhead, $2,126,000 for FUV material and freight costs from the sale of our vehicles, $399,000 related to our rental operations, $267,000 related to TMW, $335,000 in warranty costs. Also included was $(117,000) from a favorable adjustment to the inventory reserve, as the gap between the average selling price and the material cost of our FUVs narrowed to just $205, and adjustments to inventory for purchase price variance and scrap during the six months ended June 30, 2023. Included in the manufacturing, labor and overhead costs are payroll and employee-related costs of approximately $1,457,000 while the remaining costs consist of consulting services, freight, and depreciation, among other things.
The Company had approximately $10,152,000 in COGS, comprising approximately $7,073,000 in manufacturing, labor, and overhead, $1,492,000 for FUV material and freight costs from the sale of our vehicles, $287,000 related to our rental operations, $407,000 related to TMW, $200,000 in warranty costs, and $692,000 from an adjustment to inventory for purchase price variance and scrap, during the six months ended June 30, 2022. Included in the manufacturing, labor and overhead costs are payroll and employee-related costs of $3,034,000 while the remaining costs consist of consulting services, freight, and depreciation, among other things.
Operating Expenses
Research and Development ("R&D”) Expenses
R&D expenses decreased by $5,070,000 or 67% during the six months ended June 30, 2023, as compared to the same period last year primarily due to the reduction in workforce, the corresponding reduction in stock-based compensation resulting from fewer employees, and a 78% reduction in consulting services. R&D expenses for the six months ended June 30, 2023 and 2022 were approximately $2,553,000 and $7,623,000, respectively.
Sales and Marketing ("S&M”) Expenses
S&M expenses for the six months ended June 30, 2023 and 2022 were approximately $2,921,000 and $5,997,000, respectively. The primary reasons for the decrease in S&M expenses during the six months ended June 30, 2023 of approximately $3,076,000, or 51%, as compared to the prior period were the reduction in workforce, the corresponding reduction in stock-based compensation resulting from fewer employees, and a 52% reduction in advertising expenses.
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 six months ended June 30, 2023 were approximately $5,716,000 as compared to approximately $6,485,000 for the same period last year, representing a decrease of approximately $769,000, or 12%. The decrease was primarily due to, among other things, the reduction in workforce, the corresponding reduction in stock-based compensation resulting from fewer employees, an 88% reduction in lobbying costs, and a 47% reduction in legal fees associated with a case that was dismissed in 2022.
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Financing Costs
We recorded financing costs of approximately $5,244,000 for the six months ended June 30, 2023, consisting of $600,000 related to the loan fee on the Mortgage Loan, $3,767,000 related to the excess of the issuance date fair value of the warrants and Common Stock issued in June 2023 over the cash proceeds received, and $877,000 of offering costs for liability classified warrants.
Unrealized Gain on Convertible Note, Mortgage Loan and Warrants
We recorded an unrealized gain of approximately $3,169,000 during the six months ended June 30, 2023 as compared to approximately $(2,146,000) of unrealized loss for the same period last year, as a result of the mark-to-market to fair value for our convertible notes, mortgage loan and warrant liabilities in accordance with the election of the fair value option under ASC 825-10.
Loss on debt extinguishment
Loss on debt extinguishment for the six months ended June 30, 2023 was approximately $2,926,000 related to the extinguishment of the September 2022 Convertible Note.
Interest Expense
Interest expense for the six months ended June 30, 2023 was approximately $312,000, as compared to $174,000 during the six months ended June 30, 2022. The increase in interest expense was related to the $74,000 payment made to a capital equipment vendor for interest on an outstanding payable balance, and $75,000 for interest on the notes payable - related party.
Other (income) expense, net
Other (income) expense, net for the six months ended June 30, 2023 was approximately $(16,000), as compared to $71,000 during the six months ended June 30, 2022. The increase in expense was due to a purchase order cancellation charge paid to a vendor.
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, S&M 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 six months ended June 30, 2023 cash used in operating activities was approximately $10,153,000, which included a net loss of approximately $20,099,000, non-cash charges of $9,472,000 and changes in net working capital and other items that contributed to cash and cash equivalent reduction of approximately $474,000. Our net loss was primarily due to, among other things, sales volume not currently commensurate to operating expenses.
During the six months ended June 30, 2022 cash used in operating activities was approximately $26,105,000, which included a net loss of approximately $30,358,000, non-cash charges of $7,753,000 and changes in net working capital and other items that contributed to cash and cash equivalent reduction of approximately $3,500,000. Our net loss was primarily due to, among other things, (1) a decrease in revenue compared to the same period last year as we temporarily ceased production to move into our new production facilities, (2) 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 (3) spending on S&M expenses as we increased our sales force in order to ramp up our marketing efforts and activities to increase our brand awareness and conduct road shows. Our inventory increased in anticipation of future sales and production growth while our accounts payable increased, primarily due to timing.
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On August 8, 2023, the Company signed two promissory notes totaling $660,000 at an original issue discount purchase price of $600,000. The principal of $660,000 is due on August 15, 2023. Prior to the maturity on August 15, 2023, the notes shall not bear interest. The noteholders have the right to convert any outstanding principal balance of the note, in whole or in part, into securities of the Company at a rate of 125% of the converted principal amount in connection with any new financing of the Company.
If any event of default occurs, the full principal amount of the note shall become, at the payee’s election, immediately due and payable in cash. Commencing 3 days after the occurrence of any event of default that results in the acceleration of the note, interest accrues at the rate of 18% per annum, or such lower maximum amount of interest permitted to be charged under applicable law.
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 six months ended June 30, 2023 we received a refund of approximately $455,000 from the return of property and equipment.
During the six months ended June 30, 2023 and 2022, we paid approximately $327,000 and $5,608,000, respectively, to purchase property and equipment in anticipation of our future production growth.
Cash Flows from Financing Activities
During the six months ended June 30, 2023, net cash provided by financing activities was approximately $10,922,000 compared to net cash provided by financing activities of approximately $19,755,000 during the six months ended June 30, 2022. Cash flows provided by financing activities during the six months ended June 30, 2023 comprised of proceeds from the issuance of common stock and warrants through our registered offerings of approximately $13,287,000 (net of offering costs of approximately $1,208,000), proceeds from mortgage loan of approximately $6,000,000, reduced by debt issuance costs of approximately $600,000, proceeds from related party notes payable of $500,000, reduced by payments of related party notes payable of $250,000, payments on capital lease obligations and equipment notes of approximately $515,000 and repayment of convertible notes of $7,500,000.
Cash flows provided by financing activities during the six months ended June 30, 2022 comprised of proceeds from the issuance of common stock through our registered offerings of approximately $16,315,000 (net of offering costs of approximately $598,000, proceeds from exercise of warrants of approximately $20,000, proceeds from equipment notes of approximately $65,000, proceeds from the exercise of options of approximately $83,000, and proceeds from convertible note of $4,500,000, reduced by payments of notes payable of approximately $789,000, payments on finance lease obligations of approximately $195,000 and equipment notes of approximately $245,000.
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 ineffective 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 three months ended June 30, 2023, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company does not currently have any material litigation matters to disclose.
Item 6. Exhibits.
EXHIBIT INDEX
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 | |||||
| 3.1(c) | Second Articles of Amendment to the Second Amended and Restated Articles of Incorporation of Arcimoto, Inc. | 8-K | 001-38213 | 3.1(i) | May 16, 2019 | |||||
| 3.1(d) | Third Articles of Amendment to the Second Amended and Restated Articles of Incorporation of Arcimoto, Inc. | 10-K | 001-38213 | 3.1(d) | March 31, 2022 | |||||
| 3.1(e) | Fourth Articles of Amendment to Second Amended and Restated Articles of Incorporation of Arcimoto, Inc. | 8-K | 001-38213 | 3.1 | November 14, 2022 | |||||
| 3.2 | Second Amended and Restated Bylaws of Arcimoto, Inc | 1-A | 024-10710 | 2.2 | August 8, 2017 | |||||
| 4.1 | Form of Warrant | 8-K | 001-38213 | 4.1 | June 12, 2023 | |||||
| 4.2 | Form of Placement Agent Warrant | 8-K | 001-38213 | 4.2 | June 12, 2023 | |||||
| 10.1 | Promissory Note | 8-K | 001-38213 | 99.1 | June 2, 2023 | |||||
| 10.2 | Amended and Restated Promissory Note | 8-K | 001-38213 | 10.1 | June 12, 2023 | |||||
| 10.3+ | Form of Securities Purchase Agreement | 8-K | 001-38213 | 10.2 | June 12, 2023 | |||||
| 10.4 | Amendment to Arcimoto, Inc. 2022 Omnibus Stock Incentive Plan. | S-8 | 333-273487 | 99.2 | July 27, 2023 | |||||
| 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 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | — | — | — | 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). | — | — | — | Filed herewith |
| + | Pursuant to Item 601(a)(5) of Regulation S-K, schedules have been omitted and will be furnished on a supplemental basis to the Securities and Exchange Commission upon request. |
37
SIGNATURES
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: August 10, 2023 | By: | /s/ Christopher W. Dawson | |
| Name: | Christopher W. Dawson | ||
| Title: | Chief Executive Officer | ||
| Date: August 10, 2023 | By: | /s/ Christina J. Cook | |
| Name: | Christina J. Cook | ||
| Title: | Chief Financial Officer | ||
38
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Christopher W. Dawson, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Arcimoto, Inc. (the registrant); |
| 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; |
| 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; |
| 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: |
| (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; |
| (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; |
| (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 |
| (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 |
| 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): |
| (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 |
| (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. |
| Date: August 10, 2023 | By: | /s/ Christopher W. Dawson |
| Christopher W. Dawson | ||
| Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Christina J. Cook, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Arcimoto, Inc. (the registrant); |
| 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; |
| 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; |
| 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: |
| (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; |
| (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; |
| (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 |
| (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 |
| 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): |
| (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 |
| (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. |
| Date: August 10, 2023 | By: | /s/ Christina J. Cook |
| Christina J. Cook | ||
| 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/her knowledge:
| 1. | The Quarterly Report on Form 10-Q for the period ended June 30, 2023 (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 |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 10, 2023 | By: | /s/ Christopher W. Dawson |
| Christopher W. Dawson | ||
| Chief Executive Officer | ||
| /s/ Christina J. Cook | ||
| Christina J. Cook | ||
| Chief Financial Officer (Principal Financial Officer) |