UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

��� QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2017June 30, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission File Number 001-38213

 

ARCIMOTO, INC.

(Exact name of registrant as specified in its charter)

 

Oregon 26-1449404

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

544 Blair Boulevard,2034 West 2nd Avenue, Eugene, OR 97402

(Address of principal executive offices and zip code)

 

(541) 683-6293

(Registrant’s telephone number, including area code)

 

N/ASecurities registered pursuant to Section 12(b) of the Act:

(Former name, former address and former fiscal year, if changed since last report)

 

Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common stock, no par valueFUVThe Nasdaq Stock Market LLC

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 filedfile such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).Yes. Yes ☒ No  No  ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if smaller reporting company)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 November 8, 2017,August 9, 2023, there were approximately 15,872,0018,805,897 shares of the registrant’s common stock issued and outstanding.

 

 

 

 

EXPLANATORY NOTE

Arcimoto, Inc. (the “Company”) became subject to the filing requirements of Sections 13 and 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) when its Registration Statement on Form 8-A became effective on September 21, 2017 (the “Effective Date”). The Company’s Post-Qualification Offering Statement on Form 1-A (File No. 024-10710), filed with the Securities and Exchange Commission (the “SEC”) on September 18, 2017, as amended (“Form 1-A”), included financial statements for the fiscal years ended December 31, 2015 and December 31, 2016. This Quarterly Report on Form 10-Q is being filed pursuant to Rule 13a-13 of the Exchange Act, in order to file financial statements for the first fiscal quarter subsequent to the most recent periods reported in the Form 1-A.

 

Arcimoto, Inc.ARCIMOTO, INC.

FORM 10-Q

For the Quarterly Period Ended March 31, 2017June 30, 2023

 

TABLE OF CONTENTS

 

  Page
PART I.FINANCIAL INFORMATION 1
   
Item 1.Condensed Consolidated Financial Statements (Unaudited)1
 Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 20161
 Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 20162
 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016Stockholders’ Equity3
 Condensed Consolidated Statements of Cash Flows5
Notes to Condensed Consolidated Financial Statements (Unaudited)46
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1525
Item 3.Quantitative and Qualitative Disclosures about Market Risk1836
Item 4.Controls and Procedures1836
   
PART II.OTHER INFORMATION 37
   
Item 1.Legal Proceedings19
Item 1A.1.Risk FactorsLegal Proceedings1937
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds19
Item 3.Defaults Upon Senior Securities19
Item 4.Mine Safety Disclosures19
Item 5.Other Information19
Item 6.Exhibits2037
   
 SIGNATURES2138

 

i

 

 

ARCIMOTO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited).

 

ARCIMOTO, INC.

BALANCE SHEETS

(Unaudited)

  June 30,
2023
  December 31,
2022
 
ASSETS      
Current assets:      
Cash and cash equivalents $1,346,048  $462,753 
Accounts receivable, net  98,409   262,643 
Inventory  11,056,862   12,324,017 
Prepaid inventory  1,746,952   1,439,060 
Other current assets  970,199   1,594,218 
Total current assets  15,218,470   16,082,691 
         
Property and equipment, net  28,159,603   29,822,794 
Intangible assets, net  8,623,089   9,045,290 
Operating lease right-of-use assets  996,999   1,336,826 
Security deposits  134,963   120,431 
Total assets $53,133,124  $56,408,032 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Liabilities:        
Current liabilities:        
Accounts payable $6,007,456  $7,668,359 
Accrued liabilities  890,030   455,808 
Customer deposits  789,860   962,346 
Mortgage loan  7,590,085    
Short-term convertible note     5,639,231 
Notes payable - related party  250,000    
Warrant liabilities  7,829,500   374,474 
Current portion of finance lease obligations  401,917   441,523 
Current portion of equipment notes payable  351,966   388,940 
Current portion of warranty reserve  639,776   519,889 
Current portion of deferred revenue  99,697   207,556 
Current portion of operating lease liabilities  563,781   666,542 
Total current liabilities  25,414,068   17,324,668 
         
Finance lease obligations  1,061,557   858,488 
Equipment notes payable  788,402   962,351 
Convertible note issued to related party  4,604,130   4,887,690 
Warranty reserve  330,672   264,748 
Operating lease liabilities  495,600   744,142 
Total long-term liabilities  7,280,361   7,717,419 
         
Total liabilities  32,694,429   25,042,087 
         
Commitments and contingencies (Note 12)        
         
Stockholders’ equity:        
Series A-1 Preferred Stock, no par value, 1,500,000 authorized; none issued and outstanding as of June 30, 2023 and December 31, 2022, respectively      
Class C Preferred Stock, no par value, 2,000,000 authorized; none issued and outstanding as of June 30, 2023 and December 31, 2022, respectively      
Preferred Stock, no par value, 1,500,000 authorized, none issued and outstanding as of June 30, 2023 and December 31, 2022, respectively      
Common Stock, no par value, 200,000,000 shares authorized; 8,805,897 and 3,209,838 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively  191,778,708   184,682,027 
Additional paid-in capital  15,630,758   13,555,718 
Accumulated deficit  (186,970,771)  (166,871,800)
Total stockholders’ equity  20,438,695   31,365,945 
         
Total liabilities and stockholders’ equity $53,133,124  $56,408,032 

 

  March 31, 2017  December 31, 2016 
ASSETS      
Current assets:      
Cash and cash equivalents $597,485  $414,405 
Accounts receivable  30,530   583 
Inventory  36,661   26,825 
Other current assets  23,947   28,207 
Total current assets  688,623   470,020 
         
Property and equipment, net  8,136   8,805 
Deferred offering cost  42,924   40,000 
         
Total assets $739,683  $518,825 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
Liabilities:        
Current liabilities        
Accounts payable $65,794  $81,045 
Accrued liabilities  150,031   102,776 
Customer deposits  406,777   386,035 
Notes payable  248,793   250,000 
Convertible notes payable, current portion  75,000   - 
Total current liabilities  946,395   819,856 
Long-term convertible notes payable  300,000   275,000 
Long-term convertible notes payable to related parties  150,000   50,000 
Total liabilities  1,396,395   1,144,856 
         
Commitments and contingencies (Note 8)        
         
Stockholders’ deficit:        
Series A-1 preferred stock, no par value, 1,500,000 authorized, 0 issued and outstanding as of March 31, 2017 and December 31, 2016, respectively.  -   - 
Common stock, no par value, 20,000,000 authorized, 12,512,266 and 12,337,466 issued and outstanding as of March 31, 2017 and December 31, 2016, respectively.  8,074,494   7,637,494 
Additional paid-in capital  378,886   336,606 
Accumulated deficit  (9,110,092)  (8,600,131)
Total stockholders’ deficit  (656,712)  (626,031)
         
Total liabilities and stockholders’ deficit $739,683  $518,825 

See accompanying notes to condensed consolidated financial statements.

 

1

 

 

ARCIMOTO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

  Three Months Ended
March 31,
 
  2017  2016 
Grant revenue $40,580  $- 
         
Operating expenses        
Research and development  268,104   267,062 
Sales and marketing  84,995   152,717 
General and administrative  186,961   96,357 
Total operating expenses  540,060   516,136 
         
Loss from operations  (499,480)  (516,136)
         
Other income and expense        
Interest expense  (10,493)  (1)
Other income, net  12   179 
Net loss $(509,961) $(515,958)
         
Weighted-average common shares outstanding - basic and diluted  12,369,017   9,957,884 
Net loss per common share - basic and diluted $(0.04) $(0.05)
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
  2023  2022  2023  2022 
             
Revenue $1,760,346  $1,499,341  $3,113,874  $2,149,574 
Cost of goods sold  3,523,909   6,104,337   6,465,739   10,151,609 
Gross loss  (1,763,563)  (4,604,996)  (3,351,865)  (8,002,035)
                 
Operating expenses:                
Research and development  1,537,695   3,716,431   2,553,468   7,623,016 
Sales and marketing  1,486,376   3,070,280   2,920,918   5,996,785 
General and administrative  2,503,284   3,785,661   5,715,954   6,484,614 
Loss (gain) on sale of asset  (3,150)     221,741    
Total operating expenses  5,524,205   10,572,372   11,412,081   20,104,415 
                 
Loss from operations  (7,287,768)  (15,177,368)  (14,763,946)  (28,106,450)
                 
Other (income) expense:                
Interest expense  210,687   124,171   311,786   173,906 
Financing costs  4,138,027      5,243,824    
Unrealized (gain) loss on convertible notes, mortgage loan and warrants fair value  1,516,506   2,145,540   (3,169,138)  2,145,540 
Other (income) expense, net  48,419   (45,937)  15,901   (71,196)
Loss on debt extinguishment        2,925,610    
Total other (income) expense  5,913,639   2,223,774   5,327,983   2,248,250 
                 
Loss before income tax expense  (13,201,407)  (17,401,142)  (20,091,929)  (30,354,700)
Income tax expense  (7,042)  (3,200)  (7,042)  (3,200)
Net loss $(13,208,449) $(17,404,342) $(20,098,971) $(30,357,900)
                 
Weighted average common shares - basic and diluted  7,733,452   1,978,666   7,124,307   1,938,729 
Net loss per common share - basic and diluted $(1.71) $(8.80) $(2.82) $(15.66)

 

See accompanying notes to condensed consolidated financial statements.

 

2

 

 

ARCIMOTO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY

FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2023 and 2022

(Unaudited)

 

  Three Months Ended
March 31,
 
  2017  2016 
OPERATING ACTIVITIES      
Net loss $(509,961) $(515,958)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  669   2,045 
Stock-based compensation  42,280   12,004 
Changes in operating assets and liabilities:        
Accounts receivable  (29,947)  1,100 
Inventory  (9,836)  - 
Other current assets  4,261   (13,005)
Accounts payable  (15,252)  24,588 
Accrued liabilities  47,255   38,231 
Customer deposits  20,742   39,100 
Net cash used in operating activities  (449,789)  (411,895)
         
FINANCING ACTIVITIES        
Proceeds from sale of stock  437,000   4,945 
Payment of offering costs  (2,924)  (10,000)
Proceeds from convertible notes payable to related parties  100,000   - 
Proceeds from convertible notes payable  100,000   - 
Repayment of note payable  (1,207)  - 
Net cash provided by (used in) financing activities  632,869   (5,055)
         
Net cash increase (decrease) for period  183,080   (416,950)
         
Cash at beginning of period  414,405   1,000,665 
Cash at end of period $597,485  $583,715 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid during the period for interest $3,127  $1 
Cash paid during the period for income taxes $-  $- 
  Common Stock  Additional     Total 
  Number of
Shares
  Amount  Paid-In
Capital
  Accumulated
Deficit
  Stockholders’
Equity
 
Balance at March 31, 2022  1,911,285  $154,283,555  $8,434,961  $(116,945,960) $45,772,556 
Issuance of common stock for cash, net of offering costs of $392,960  175,305   12,602,091         12,602,091 
Issuance of common stock for RSU, net of tax  460   46,746   (76,200)     (29,454)
Common stock to external consultant  200      23,115      23,115 
Equity awards issued to external consultants        351,572      351,572 
Exercise of warrants  400   20,000         20,000 
Exercise of stock options  889   47,570   (17,179)     30,391 
Stock-based compensation        1,812,019      1,812,019 
Net loss           (17,404,342)  (17,404,342)
Balance at June 30, 2022  2,088,539  $166,999,962  $10,528,288  $(134,350,302) $43,177,948 
                     
Balance at March 31, 2023  7,333,449  $189,415,794  $14,696,255  $(173,762,322) $30,349,727 
Issuance of common stock for cash, net of offering costs of $427,304  1,467,648   2,362,914         2,362,914 
Issuance of common stock for RSU, net of tax  4,800             
Stock-based compensation        934,503      934,503 
Net loss           (13,208,449)  (13,208,449)
Balance at June 30, 2023  8,805,897  $191,778,708  $15,630,758  $(186,970,771) $20,438,695 

 

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  1,882,180  $150,502,566  $7,038,124  $(103,992,402) $53,548,288 
Issuance of common stock for cash, net of offering costs of $597,723  203,320   16,315,741         16,315,741 
Issuance of common stock for RSU, net of tax  460   46,746   (76,200)     (29,454)
Common stock to external consultant  200      23,115      23,115 
Equity awards issued to external consultants        351,572      351,572 
Exercise of warrants  400   20,000         20,000 
Exercise of stock options  1,979   114,909   (31,453)     83,456 
Stock-based compensation        3,223,130      3,223,130 
Net loss           (30,357,900)  (30,357,900)
Balance at June 30, 2022  2,088,539  $166,999,962  $10,528,288  $(134,350,302) $43,177,948 
                     
Balance at December 31, 2022  3,209,838  $184,682,027  $13,555,718  $(166,871,800) $31,365,945 
Issuance of common stock  for cash, net of offering costs of $427,304  4,767,647   5,984,111         5,984,111 
Issuance of common stock for partial payment of convertible note  123,612   1,112,500         1,112,500 
Issuance of common stock for RSU, net of tax  4,800             
Exercise of warrants  700,000   70         70 
Stock-based compensation        2,075,040      2,075,040 
Net loss           (20,098,971)  (20,098,971)
Balance at June 30, 2023  8,805,897  $191,778,708  $15,630,758  $(186,970,771) $20,438,695 

See accompanying notes to condensed consolidated financial statements.


ARCIMOTO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

  Six Months Ended
June 30,
 
  2023  2022 
OPERATING ACTIVITIES      
Net loss $(20,098,971) $(30,357,900)
Adjustments to reconcile net loss to net cash used in operating activities        
Depreciation and amortization  1,803,104   1,727,863 
Non-cash operating lease costs  339,827   281,405 
Non-cash financing costs  3,767,288    
Non-cash offering costs  95,740    
Interest expense paid in common stock  31,839    
Debt issuance costs expensed - mortgage loan  600,000    
Warrant issuance costs - expensed  780,796    
Loss on extinguishment of debt  2,925,610    
Unrealized loss (gain) on convertible notes, mortgage loan and warrants fair value  (3,169,138)  2,145,540 
Common stock to external consultant     23,115 
Equity awards issued to external consultants     351,572 
Stock-based compensation  2,075,040   3,223,130 
Loss on disposal of asset  221,741    
Changes in operating assets and liabilities        
Accounts receivable  164,234   (196,324)
Inventory  1,667,366   (3,584,362)
Prepaid inventory  (307,892)  (111,543)
Other current assets  624,019   (291,630)
Accounts payable  (1,661,630)  200,797 
Accrued liabilities  434,222   410,932 
Customer deposits  (172,486)  261,790 
Operating lease liabilities  (351,303)  (284,946)
Warranty reserve  185,811   119,419 
Deferred revenue  (107,859)  (24,030)
Net cash used in operating activities  (10,152,642)  (26,105,172)
         
INVESTING ACTIVITIES        
Purchase of property and equipment  (327,088)  (5,608,086)
Refund from return of equipment  455,142    
Security deposits  (14,532)   
Net cash provided by (used in) investing activities  113,522   (5,608,086)
         
FINANCING ACTIVITIES        
Proceeds from the sale of common stock and warrants  14,494,896   16,913,464 
Payment of offering costs  (1,208,100)  (597,723)
Proceeds from notes payable - related party  500,000    
Payment of notes payable - related party  (250,000)   
Proceeds from the exercise of warrants  70   20,000 
Proceeds from mortgage loan  6,000,000    
Proceeds from convertible note     4,500,000 
Debt issuance costs - mortgage loan  (600,000)   
Proceeds from the exercise of stock options     83,456 
Payment on finance lease obligations  (303,528)  (194,660)
Payment of equipment notes  (210,923)  (245,451)
Proceeds from equipment notes     65,243 
Payment of convertible note  (7,500,000)   
Payment of notes payable     (789,367)
Net cash provided by financing activities  10,922,415   19,754,962 
         
Net cash and cash equivalents (decrease)/increase for period  883,295   (11,958,296)
Cash and cash equivalents at beginning of period  462,753   16,971,320 
Cash and cash equivalents at end of period $1,346,048  $5,013,024 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION        
Cash paid during the period for interest $55,520  $98,524 
Cash paid during the period for income taxes $7,042  $150 
         
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES        
Accounts payable for purchase of property and equipment $727  $522,198 
Notes payable and accrued interest converted to common stock $1,112,500  $ 
Transfers from FUV Rental Fleet to Inventory $400,211  $ 
Equipment acquired through finance leases $466,991  $69,000 

See accompanying notes to condensed consolidated financial statements.


ARCIMOTO, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: NATURE OF OPERATIONS

 

Arcimoto, Inc. (the “Company”) was originally formedincorporated in the State of Oregon on November 21, 2007 as WTP Incorporated, an Oregon Corporation, and on December 29, 2011, changed its name2007. The Company’s mission is to Arcimoto, Inc. The Company was founded in order to build products that catalyze the global shift to a sustainable transportation system. The first step in this shift has been developing an affordable, daily utility, pure electric vehicle. Over the past ten16 years, the Company has worked towards developingdeveloped a new vehicle platform designed around the needs of everyday drivers. Its main product isHaving approximately one-third the SRK®,weight and one-third of the first real fossil-free alternative for the vast majorityfootprint of daily trips. Compared to the average car, the Company believes the SRK has dropped 3/4 of the weight and 2/3 of the footprint in orderArcimoto platform’s purpose is to bring the joy of affordable, ultra-efficient, pure electric driving to the masses.

NOTE 2: MANAGEMENT’S PLANS

The accompanying financial statements have been prepared on a basis that the Company is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, the Company has experienced recurring operating losses and negative operating cash flows since inception.

To date, the Company currently has not generated revenues fromtwo vehicle products built on this platform that target specific niches in the vehicle market: its flagship product, sales to achieve positive earningsthe Fun Utility Vehicle® (“FUV®”), for everyday consumer trips, and operating cash flows to enablethe Deliverator® for last-mile delivery and general fleet utility.

In February 2023, two wholly-owned subsidiaries of the Company to finance its operations internally. Fundingwere 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 $6,000,000 that is secured by a guarantee provided by Arcimoto, Inc. and the business to date has come primarily throughreal estate owned by the issuance of equity securities.Company.

 

Although the Company’s objective is to increase its revenues from the sales of its products within the next few years sufficient to generate positive operating and cash flow levels, there can be no assurance that the Company will be successful in this regard. The Company estimates it will need to raise approximately $10 million in additional capital in order to fund its operations, which it intends to obtain through debt and/or equity offerings. The Company intends to use the proceeds from any such offerings, including its Regulation A Offering (see Note 9) to fund the Company through the end of 2018. Funds on hand and any follow-on capital, if needed, will be used to invest in its business to expand sales and marketing efforts, enhance its current product by continuing research and development to bring the SRK® to retail production, to build out a leased production facility, and fund operations until positive cash flow is achieved. The need for additional capital may be adversely impacted by uncertain market conditions or approval by regulatory bodies.

NOTE 3:2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Unaudited Interim Financial Information1-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 $100,000,000, and on October 4, 2022, the Company signed an equity line of credit (“ELOC”) agreement with Tumim Stone Capital LLC whereby the investor will provide up to $50,000,000 of financing with certain restrictions. On January 18, 2023, the Company obtained additional funds totaling $12.0 million via a confidentially marketed public equity offering. Due to the terms of this offering, the Company is restricted from variable rate transactions and, thus, unable to utilize the ATM and ELOC to raise additional capital for a period of one year from January 18, 2023, the date the Prospectus Supplement was filed. The terms of this offering also restricted equity transactions for a period of 90 days unless approved by more than 50% of the investors in the offering filed on January 18, 2023. After that 90 day period, the Company became able to offer to sell its securities in a public offering under its S-3 registration. However, this ability to obtain additional financing is dependent on the price and volume of the Company’s common stock and may be further restricted by certain Securities and Exchange Commission (“SEC”) rules that limit the number of shares the Company is able to sell under its Form S-3 registration statement.

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 $6,000,000 and includes a discount of $600,000. The interest rate on this loan is 20% and the loan was originally due in August 2023 unless an additional six-month extension is granted. The extension can only be granted under certain conditions, which include, in part, payment of all accrued interest and a facility fee of $300,000 and that no event or potential event of a default exists. On July 14, 2023, the Company was granted an additional six-month extension and the loan is now due in February 2024 (see Note 15 Subsequent Events). The Company also received a $500,000 loan from a related party in May 2023 and raised approximately $2,300,000, net of fees, from a registered direct offering in June 2023. Furthermore, the Company’s accounts payable balance is approximately $8,200,000 at August 9, 2023, of which a significant amount is more than 30 days past due.


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 condensedconsolidated 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 SEC.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 March 31, 2017,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 three-months then ended.six months ended June 30, 2023 and 2022. Results for the three-monthsthree and six months ended March 31, 2017June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2017.2023. 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, 20162022 included in the Company’s Annual Report on Form 1-A.

4

ARCIMOTO, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Use of Estimates10-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, and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.and its related disclosures. Actual resultsamounts could differ materially from those estimates.

 

Fair Value MeasurementsThe consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.

 

The Company’s financial instruments consist primarily of cash and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments. The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows. The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10, “Fair Value Measurements and Disclosures,” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.Inventory

 

The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

The three-level hierarchy for fair value measurementsInventory is defined as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly including inputs in markets that are not considered to be active; and

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

5

ARCIMOTO, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The carrying amounts reported in the accompanying financial statements for current assets and current liabilities approximate the fair value because of the immediate or short-term maturities of the financial instruments. As of March 31, 2017 and December 31, 2016, the Company did not have any level 2 or level 3 instruments.

Risks and Uncertainties

The Company expects to commence revenue generating activities later this year, with its first delivery of the SPK Fun Utility Vehicle (“FUV”) expected in November 2017.  The Company’s business and operations are sensitive to general business and economic conditions in the United States and worldwide along with governmental policy decisions. Several factors beyond the Company’s control could cause fluctuations in these conditions. Adverse developments may also include: economic recessions, trends in car manufacturing, consumer taste, availability of inventory, and changes in government policy related to cars and motorcycles could have a material adverse effect on the Company’s financial condition and the results of its operations.

The Company currently has limited sales and marketing and/or distribution capabilities. The Company has limited experience in developing, training and managing a sales force and will incur substantial additional expenses when it begins marketing of its products and services. Developing a marketing and sales force is also time consuming and could delay launch of the Company’s products and services. In addition, the Company will compete with companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies.

The Company’s industry is characterized by rapid changes in technology and customer demands. As a result, the Company’s products and services may quickly become obsolete and unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and services and enhance our current products and services on a timely and cost-effective basis. Further, the Company’s products and services must remain competitive with those of other companies with substantially greater resources. The Company may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products and services or enhanced versions of existing products and services. Also, the Company may not be able to adapt new or enhanced products and services to emerging industry standards, and the Company’s new products and services may not be favorably received. In addition, we may not have the capital resources to further the development of existing and/or new ones.

Cash and Cash Equivalents

The Company considers deposits that can be redeemed on demand and investments that have original maturities of less than three months, when purchased, to be cash equivalents. As of March 31, 2017 and December 31, 2016, the Company’s cash and cash equivalents were deposited in one financial institution, which at times exceed the federally insured limits.

6

ARCIMOTO, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Customer Deposits

Customer deposits are generally held in a separate deposit account. Revenue is not recognized on customer deposits until the vehicle is shipped to the customer.

Offering Costs

The Company accounts for offering costs in accordance with FASB ASC 340, “Other Assets and Costs.” Prior to the completion of an equity offering, offering costs will be capitalized as deferred offering costs on the balance sheet. The deferred offering costs will be charged to stockholders’ equity (deficit) upon the completion of an equity offering or to expense if the offering is not completed. As of March 31, 2017 and December 31, 2016, $42,924 and $40,000 offering costs were capitalized in the accompanying balance sheets, respectively.

Grant Revenue

Revenue from grant revenue is recognized in the period during which the conditions under the grant have been met and the Company has made payment for the related expense. Grant revenue of $40,580 for the three-month period ended March 31, 2017 and $0 for the three-month period ended March 31, 2016, are recorded as grant revenue in the accompanying financial statements. Grant revenue makes up 100% of revenue in each period. Management believes the loss of such revenues will not have a material effect on the Company’s operations.

Inventories

Inventories are stated at the lower of cost (using the first-in, first-out method “FIFO”(“FIFO”)) or market.net realizable value. Inventories consist mainly of purchased electric motors, electrical storage and transmission equipment, and component parts. Inventories consist entirelyRaw materials include parts that have been sub-assembled and manufactured parts.

  June 30,
2023
  December 31,
2022
 
Raw materials $10,036,060  $11,491,555 
Work in progress  142,924    
Finished goods  877,878   832,462 
Total $11,056,862  $12,324,017 


ARCIMOTO, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

The Company is required to remit partial prepayments for some purchases of raw materialsits 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 component partsoverhead as period costs and recorded an allowance to reduce certain inventories to net realizable value of approximately $948,000 and $1,280,000 as of March 31, 2017June 30, 2023 and December 31, 2016.2022, respectively. The amount expensed for all labor and overhead was approximately $3,456,000 and $7,073,000 for the six months ended June 30, 2023 and 2022, respectively, and $1,836,000 and $4,024,000 for the three months ended June 30, 2023 and 2022, respectively.

 

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 10 to 14 years. The Company assesses the recoverability of its finite-lived intangible assets when there are indications of potential impairment.

Net Earnings or Loss per Share

 

The Company’s computation of earningsloss per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss)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., Series A-1 Preferred Stock, 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.

 

Loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted loss per common share is the same for all periods presented because all Series A-1 Preferred Stock, common stock warrants and common stock options outstanding were anti-dilutive.

 

As ofDuring the periodsthree and six months ended March 31, 2017June 30, 2023 and 2016,2022, the Company excluded the outstanding Employee Equity Plans (“EEP”) and other securities summarized below calculated using the Treasury Stock Method for options and other instruments and the If-Converted Method for convertible notes, which entitleentitled the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

  

  March 31, 2017  March 31, 2016 
Warrants to purchase common stock  980,004   980,004 
Stock options to purchase common stock  742,700   275,200 
Total  1,722,704   1,255,204 
  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     40,708      53,350 
Conversion of convertible notes, if-converted method  58,126   38,368   58,126   13,991 
Total  58,126   79,076   58,126   67,341 

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 $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 are recorded as unrealized gain/loss on convertible notes, mortgage loan and warrants fair value in the Condensed Consolidated Statements of Operations.

7


 

 

ARCIMOTO, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

Recent Accounting Pronouncements Recently Adopted

 

In July 2017,June 2016, the FASB issued ASU No. 2017-11, I “Accounting for Certain2016-13, Financial Instruments With Down Round Features” and II “Replacement– Credit Losses (Topic 326): Measurement of the Indefinite Deferral for Mandatorily RedeemableCredit 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 Certain Nonpublic Entitiescredit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivables and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception.” The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would betrade 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 derivative liability at fair valuelessor 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 result ofwrite-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 existence of a down round feature. The amendments in Part IIprovisions of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments doASU effective January 1, 2023. The adoption did not have an accounting effect. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on the financial statements and disclosures.

In May 2017, FASB issued ASU-2017-09, “Compensation-Stock Compensation (Topic 718) –Modification Accounting” to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2017-09 on the Company’s financial statements.

Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s condensed consolidated financial statement presentation or disclosures.statements.

NOTE 3: PROPERTY AND EQUIPMENT

 

NOTE 4: NOTES PAYABLE

Notes payable and accrued interest asAs of March 31, 2017June 30, 2023 and December 31, 20162022, the Company’s property and equipment consisted of the following:

  June 30,
2023
  December 31,
2022
 
Land $4,743,526  $4,743,526 
Buildings  8,006,474   8,006,474 
Machinery and equipment  9,496,537   8,443,047 
Fixed assets in process  7,875,370   8,569,163 
Leasehold improvements  1,193,771   1,193,771 
FUV fleet  645,818   1,089,888 
FUV rental fleet  1,994,281   2,646,379 
Computer equipment and software  226,915   226,915 
Vehicles  748,707   748,707 
Furniture and fixtures  52,007   52,007 
Total property and equipment  34,983,406   35,719,877 
Less: Accumulated depreciation  (6,823,803)  (5,897,083)
Total $28,159,603  $29,822,794 

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 $677,000 and $1,381,000 during the three and six months ended June 30, 2023 and $810,000 and $1,307,000 during the three and six months ended June 30, 2022, respectively.


ARCIMOTO, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 4: INTANGIBLE ASSETS

The following table summarizes the Company’s intangible assets:

     June 30, 2023 
  Estimated
Useful Life
(Years)
  Gross Carrying
Amount at
June 30,
2023
  Accumulated
Amortization
  Net Book Value 
Tradename and trademarks  14  $2,052,000  $(346,794) $1,705,206 
Proprietary technology  13   7,010,000   (1,296,722)  5,713,278 
Customer relationships  10   1,586,000   (381,395)  1,204,605 
      $10,648,000  $(2,024,911) $8,623,089 

     December 31, 2022 
  Estimated
Useful Life
(Years)
  Gross Carrying
Amount at
December 31,
2022
  Accumulated
Amortization
  Net Book Value 
Tradename and trademarks  14  $2,052,000  $(273,508) $1,778,492 
Proprietary technology  13   7,010,000   (1,027,107)  5,982,893 
Customer relationships  10   1,586,000   (302,095)  1,283,905 
      $10,648,000  $(1,602,710) $9,045,290 

Amortization expense was approximately $211,000 and $422,000 during the three and six months ended June 30, 2023 and approximately $210,000 and $421,000 during the three and six months ended June 30, 2022, respectively.

NOTE 5: CUSTOMER DEPOSITS

The Company has received refundable customer pre-orders ranging from $100 to $500 per vehicle for purposes of securing a place in a line to order its utility vehicle. As of June 30, 2023 and December 31, 2022, these refundable pre-orders total $402,100 and $410,000, respectively. In addition, the Company also received non-refundable customer deposits of $2,500, which was reduced to $500 during the quarter ended June 30, 2022, that are required for the Company to start production of their vehicles. When a customer’s order is ready to enter the production process, the customer is notified that if they would like to proceed with the purchase of a vehicle, their pre-orders will no longer be refundable and additional deposit required must be paid prior to the start of the manufacturing process. As of June 30, 2023 and December 31, 2022, these non-refundable deposits total $170,100 and $268,300, respectively and are presented as Customer Deposits on the Company’s Condensed Consolidated Balance Sheets.

The Company has also received approximately $68,000 and $112,000 of refundable deposits related to its TMW product line as of June 30, 2023 and December 31, 2022, respectively. The Company also receives non-refundable deposits as final payment prior to delivery of the final product. These non-refundable deposits total approximately $28,200 and $51,400 as of June 30, 2023 and December 31, 2022, respectively, and are presented as Customer Deposits on the Company’s Condensed Consolidated Balance Sheets.

During the second quarter of 2022, the Company began to receive refundable deposits of $100 per unit for the recently announced Mean-Lean-Machine (“MLM”), the electric tilting trike. As of June 30, 2023 and December 31, 2022, the balance of such deposits was $121,400 and $120,600, respectively and are included as part of Customer Deposits on the Company’s Condensed Consolidated Balance Sheets.

As of June 30, 2023 and December 31, 2022, the Company’s balance of deposits received was approximately $789,800 and $962,300, respectively. Deposits are included in current liabilities in the accompanying Condensed Consolidated Balance Sheets. The Company also has customer deposits from its employees. However, the balances of these deposits as of June 30, 2023 and December 31, 2022 are not material.


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 $6,000,000 loan secured by all the real properties of the Borrower and all equity interests of Borrower. The loan (i) has an initial term of six months with the possibility of a further six month extension upon the satisfaction of certain conditions; (ii) has an interest rate equal to 20% per annum of the first six months (with the possibility of retroactive reduction to 10% if repaid in full within such six (6) months without an event of default having occurred) and zero percent (0%) per annum for the six (6) month extension period; (iii) requires an upfront fee to Lender of $600,000 on the date the loan is made (and an additional facility fee to Lender of $300,000 if the loan is not repaid in full within the first six (6) months or if an event of default occurs); (iv) requires that, in the event of prepayment, a minimum of $600,000 in interest must have been paid (with the possibility of reduction to $300,000 if repaid in full within the first six (6) months if no event of default has occurred); (v) provides that $500,000 of the loan amount is retained as a holdback by Lender for disbursement to Borrower only after certain construction is completed at the real property and the cost of such construction is paid in full by Borrower; (vi) contemplates an increase in the interest rate if an event of default occurs; (vii) is fully guaranteed by Holdings and is subject to a limited recourse guaranty by the Company. The $500,000 holdback was received by the Company during the quarter ended June 30, 2023. On July 14, 2023, the Company extended the maturity date of the loan six months to February 2024.

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 $336,194. For the three and six months ended June 30, 2023 the Company recorded an unrealized loss of $1,367,125 and $1,590,085, respectively. The fair value of the loan was $7,590,085 as of June 30, 2023. The Company recorded the $600,000 upfront fee to lender as financing costs in the Statement of Operations.

NOTE 7: EQUIPMENT NOTES PAYABLE

As of June 30, 2023, the Company has financed a total of approximately $1,936,000 of its capital equipment purchases with notes payable having monthly payments ranging from approximately $300 to $12,000, repayment terms ranging from 60 to 72 months, and effective interest rates ranging from 1.99% to 9.90%. Monthly payments for all equipment financing notes payable as of June 30, 2023 are approximately $36,300. These equipment notes mature ranging from November 2023 through May 2028. The balance of equipment financing notes payable was approximately $1,140,000 and $1,351,000 as of June 30, 2023 and December 31, 2022, respectively.

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.


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.

The components of operating lease expense recorded in the condensed consolidated statements of operations were as follows:

  Three Months Ended June 30,  Six Months Ended June 30, 
  2023  2022  2023  2022 
Operating lease cost $195,808  $183,514  $391,616  $355,979 
Short-term lease cost  24,818   34,520   67,497   52,251 
Total lease cost $220,626  $218,034  $459,113  $408,230 

Variable lease cost for the three and six months ended June 30, 2023 and 2022 was not material.

Right of use assets and lease liabilities for operating leases were recorded in the condensed consolidated balance sheets as follows:

  June 30,
2023
  December 31,
2022
 
Operating lease right-of-use assets $996,999  $1,336,826 
         
Operating lease liabilities, current $563,781  $666,542 
Operating lease liabilities, long-term  495,600   744,142 
Total operating lease liabilities $1,059,381  $1,410,684 

The weighted-average remaining lease term for operating leases was 2.02 years and the weighted-average incremental borrowing rate was 8.7% as of June 30, 2023.

Supplemental cash flow information related to the Company’s operating leases was as follows:

  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 $202,199  $186,887  $403,092  $360,396 


ARCIMOTO, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

As of June 30, 2023, future minimum lease payments required under operating leases are as follows:

 

  Principal  Accrued Interest 
  March 31, 2017  December 31, 2016  March 31, 2017  December 31, 2016 
Business Development Loan $248,793  $250,000  $-  $- 
Convertible Notes Payable  375,000   275,000   8,128   3,322 
Convertible Notes Payable to Related Parties  150,000   50,000   2,255   384 
  $773,793  $575,000  $10,383  $3,706 
2023 (Remainder) $353,195 
2024  511,786 
2025  230,858 
2026  58,433 
2027   
Thereafter   
Total minimum lease payments  1,154,272 
Less: imputed interest  (94,891)
Total $1,059,381 

Finance Leases

As of June 30, 2023, the Company has financed through lease agreements a total of approximately $2,211,000 of its capital equipment purchases with monthly payments ranging from approximately $1,500 to $14,000, repayment terms ranging from 48 to 60 months, and effective interest rates ranging from 2.67% to 8.51%. Monthly lease payments for all finance leases as of June 30, 2023, are approximately $61,000. These lease obligations mature ranging from August 2023 through February 2028 and are secured by approximately $3,901,000 in underlying assets which have approximately $879,000 in accumulated depreciation as of June 30, 2023. The balance of finance lease obligations was approximately $1,463,474 and $1,300,011 as of June 30, 2023, and December 31, 2022, respectively.

Right of use assets and lease liabilities for finance leases were recorded in the condensed consolidated balance sheets as follows:

  June 30,
2023
  December 31,
2022
 
Property and equipment, net $3,021,927  $2,672,177 
         
Finance lease liabilities, current $401,917  $441,523 
Finance lease liabilities, long-term  1,061,557   858,488 
Total finance lease liabilities $1,463,474  $1,300,011 

The weighted-average remaining lease term for finance leases was 3.56 years and the weighted-average incremental borrowing rate was 4.55% as of June 30, 2023.

 

Supplemental cash flow information related to the Company’s finance leases was as follows:

  Six Months Ended June 30, 
  2023  2022 
Operating cash flows from finance leases $(42,475) $29,978 
Financing cash flows from finance leases $(303,528) $(194,660)

8


 

 

ARCIMOTO, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Amortization and interest expense information related to the Company’s finance leases was as follows:

(Unaudited)

  Three Months Ended June 30,  Six Months Ended June 30, 
  2023  2022  2023  2022 
Amortization expense $73,871  $50,143  $130,082  $95,105 
                 
Interest expense $23,169  $14,703  $42,475  $29,979 

As of June 30, 2023, future minimum lease payments required under finance leases are as follows:

2023 (Remainder) $245,226 
2024  463,547 
2025  463,547 
2026  327,444 
2027  110,937 
Thereafter  18,490 
Total minimum lease payments $1,629,191 
Less: imputed interest  (165,717)
Total $1,463,474 

NOTE 9: CONVERTIBLE NOTES

$4,500,000 Convertible Promissory Note (“April 2022 Note”)

 

On December 4, 2015,April 25, 2022, the Company (“Debtor”) entered into a $250,000 loan$4,500,000 convertible promissory note agreement with Ducera Investments LLC - 2022 Series A (“Creditor”) whereby the CityDebtor agrees to pay the Creditor the amount borrowed plus interest accrued at an annual rate of Eugene Business Development Fund; however,10% compounded quarterly. Subject to certain conditions, interest on the funds for the loan were not received until April 1, 2016, and accordingly no debt was owedpromissory note accrues as of December 31, 2015. This loan was secured by substantially all assetsadditional principal. The term of the Company and had an interest rate of 5% per annum. Interest only payments were due monthly fromApril 2022 Note is five years unless conversion privileges are exercised. Conversion can occur at the date of disbursement. The entire unpaid principal balanceoption of the loan, plus accrued interest, was dueCreditor, the Debtor or upon maturity and payable uponis described below:

(i) The Creditor has the earlier of closing of a Regulation A offering or October 1, 2017. Theoption to convert the promissory note was repaid on September 21, 2017at any time prior to the maturity date, in full afteror in part, into the initial closingnumber of the Regulation A Offering.

Through September 30, 2017 and the year ended December 31, 2016, the Company issued a series of convertible notes with original principal balances of $200,000 and $325,000, respectively, all with the same terms as disclosed below. Of these notes $100,000 and $50,000, respectively, were issued to related parties. The notes and all accrued interest were due on March 31, 2018. The notes were secured by substantially all assets of the Company and had a stated interest rate of 6% per annum. The notes were convertible on demand at the greater of $5.00 per share or 90% of the active selling price of the Series A-1 Preferred Stock at the time of conversion. Notes totaling $450,000, of which $150,000 were to related parties, with accrued interest thereon of approximately $23,000 were converted to 80,832 shares of common stock on August 31, 2017,(“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 $140.00 ($7.00 - pre reverse split), subject to adjustment (as adjusted, the “Conversion Price”); (ii) at aany time prior to the maturity date, the Debtor may convert the note, in full or in part, at the Conversion Price provided that, in order to exercise the conversion, the closing share price of $5.85 per share, which represented 90% of the $6.50Common Stock on the Nasdaq Stock Market LLC (the “Closing Share Price”) for the thirty (30) consecutive trading days prior to, and including, the conversion date exceeds the per share price inrequired to provide the Regulation A Offering. Notes totaling $75,000 were repaid in cash alongCreditor with shares having a market value of at least 4.5 times $4,500,000 upon conversion; and (iii) if none of a Creditor’s election to convert shares or the Company’s election to convert shares has occurred, then upon the maturity date, the outstanding principal plus accrued interest thereon of $354 subsequent to March 31, 2017.

During September 2017,on the Company issued two convertible notes to related parties in the total principal amount of $70,000. The notes and all accrued interest were due on March 31, 2018. These notes were secured by substantially all assets of the Company and had a stated interest rate of 6% per annum. The notes were convertible on demand at the greater of $6.50 per share of common stock or 90% of the active selling pricenote shall convert into shares of the common stock at the timelesser of conversion.the Conversion Price and the greater of (x) the per share price required to provide the Creditor with shares having a market value of at least 4 times $4,500,000, and (y) $86.60 (the “Floor Conversion Price”) ($4.33 pre reverse split). In the event that the notes are converted at the Floor Conversion Price, the Company shall also pay to the Creditor on the maturity date a cash payment equal to (x) the principal amount of the note at the maturity date minus (y) the Converted Equity Market Value (as defined below) divided by 4. “Converted Equity Market Value” means the value of the shares of common stock delivered to the Creditor based on a share price equal to the lower of: (i) 10-day volume weighted average price of the common stock for the 10-days immediately prior to, but excluding, the maturity date and (ii) the Closing Share Price on the day immediately prior to the maturity date.


ARCIMOTO, 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 $(534,030) and $283,560 for the three and six months ended June 30, 2023, and $(2,145,540) for both the three and six months ended June 30, 2022, respectively. The balance on this note is $4,604,130 and $4,887,690 at June 30, 2023 and December 31, 2022, respectively, and is classified as a long-term liability on the Company’s Condensed Consolidated Balance Sheets.

$10,000,000 Senior Secured Convertible Note ( “September 2022 Note”)

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 $20,000,000. Such notes shall be convertible into shares of common stock, no par value per share, of the Company. Further, the Company authorized the issuance of warrants to acquire up to an aggregate of 25,000 shares of common stock. The notes principal balancewill rank senior to all outstanding and future indebtedness of $70,000the Company and accruedits subsidiaries and will be secured by a second priority perfected security interest in all of $232 was repaid in cash on September 29, 2017.the existing and future assets of the Company and its direct and indirect subsidiaries, if any, including a pledge of all of the capital stock of each of the subsidiaries.

 

On September 11, 2017,1, 2022 (the “Issuance Date”), one note (the “September 2022 Note”) in the amount of $10,000,000 with 25,000 accompanying warrants (the “Warrants”) were issued to the Buyer. The issuance of the remaining $10,000,000 requires shareholder approval in accordance with NASDAQ listing requirements. The September 2022 Note was issued with a principal amount of $10,000,000 and an original issue discount of $600,000, payable in 24 periodic installments with a coupon rate of 6%, and with a maturity date of September 1, 2024. At the option of the Company, borrowed $5,000 fromperiodic installments can be paid in either cash or common stock (at an 8% discount) to the Holder. Payments in cash are subject to an additional premium and are recorded as additional interest expense. In the event of a related party. No security was issued fordefault, the loan. The loan was meantinterest rate is increased to be15%, which is the default rate. At any time on or after the Issuance Date, the Holder is entitled to convert any unpaid principal plus accrued interest at a short-term advance and due on demand. The loan was repaid on October 26, 2017, and there is no interest associated with this advance.

None of the above convertible notes contained a beneficial conversion feature due to the conversion price of $5.00 per share. The SPA also provides for the notes beingHolder to require payment of principal and unpaid interest up to four times per period. This provision allows the September 2022 Note to be settled in full over a six-month period at the Holder’s option. In addition, a certain percentage of cash received from issuances of shares in conjunction with the ATM discussed in Note 2 - Summary of Significant Accounting Policies will be used to pay down the principal of the September 2022 Note.

The Warrants are exercisable at any time or abovetimes 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 $200.00.

The net proceeds of $9,400,000 (after discount) are bifurcated between the Warrants and the September 2022 Note. The amount allocated to the Warrants is $598,670, which is the fair value on the Issuance Date. The remaining amount (before debt issuance costs) of $8,801,330 is allocated to the September 2022 Note on the Issuance Date. The Company has elected to measure the note at fair value. In estimating the fair value of this debt, a binomial lattice model was used. The required inputs include the Series A-1 Preferred Stockrisk-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.” Under this option, changes in fair value of the convertible debt are recorded as an unrealized gain or common stock, as applicable,loss on convertible note fair value in the Condensed Consolidated Statements of Operations. As a result of this election, debt issuance costs incurred were approximately $232,669 and are expensed in Other expense/(income) on the issuance date.

Condensed Consolidated Statements of Operations. The Company also recorded an unrealized loss of zero and $15,820 for the three and six months ended June 30, 2023, respectively. The note was repaid in full on January 23, 2023 with a loss on extinguishment of $2,925,610 recognized for the difference between the carrying value of the note and unamortized discount and the payment made to satisfy the note. The balance of the September 2022 Note was $5,639,231 at December 31, 2022.

 

9

 

 

ARCIMOTO, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

The Warrants were recorded at fair value on the September 1, 2022 issuance date at $598,670 and are remeasured at fair value quarterly and are classified as a current liability on the Condensed Consolidated Balance Sheet. The Warrants were valued at June 30, 2023 using the Black-Scholes model with approximately a 4.67 year expected term, risk free interest rate of 4.15%, a dividend yield of 0%, and an annualized standard deviation of stock price volatility of 116.5%. As a result, the Company recorded an unrealized (loss) gain of $(33,046) and $249,452 for the three and six months ended June 30, 2023, respectively. The balance of the Warrants at June 30, 2023 and December 31, 2022 is $125,022 and $374,474, respectively, and is recorded as Warrant liabilities in the current liabilities section of the Company’s Condensed Consolidated Balance Sheets.

NOTE 10: STOCKHOLDERS’ EQUITY

 

NOTE 5: STOCKHOLDERS’ DEFICIT

Stock-Split

On July 21, 2017, the Company’s board of directors and a majority of its common stockholders voted to enact a two-for-one common stock split and increase the authorized common shares to 20,000,000. On July 25, 2017, a majority of the Series A-1 Preferred stockholders voted to convert all shares of 1,434,891 Series A-1 Preferred Stock to 2,869,782 common shares. The July 21, 2017, the two-for-one common stock split resulted in a conversion rate of two shares of common stock for each share of Series A-1 Preferred Stock. In accordance with SEC reporting guidelines, the retrospective application of the stock split has been applied to historical financial information, and the Series A-1 Preferred to common stock conversion was reflected in the accompanying financial statements as if it occurred as of December 31, 2016.

Preferred Stock

 

The Company is authorized to issue 5,000,000 shares of preferred stock, no par value, of which 1,500,000 shares were designated as Series A-1 Preferred Stock. As of March 31, 2017 and December 31, 2016, there were no shares of Series A-1Stock, 2,000,000 are designated as Class C Preferred Stock, issued and outstanding.1,500,000 are undesignated Preferred Stock.

 

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 iswas also subject to mandatory conversion provisions upon an initial public offering raising $15 million or more and is not redeemable. To prevent dilution, the conversion price of the Series A-1 Preferred Stock is to be adjusted for any issuance of securities, excluding exempt securities, which change the number of shares of common stock outstanding. The Series A-1 Preferred Stockholders are entitled to equal voting rights to common stockholders on an as-converted basis and receive preference to the common stockholders upon liquidation. During

Except as otherwise required by law or expressly provided in the first quarterCompany’s Second Amended and Restated Articles of 2017, 87,400 sharesIncorporation, as amended, each share of Series A-1Class C Preferred Stock were soldhas one vote for cash proceedsthe election of $437,000 in a Regulation D offering. Of these shares, 10,000 were issueddirectors and on all matters submitted to a related party. The Series A-1 Preferred Stock was converted to common stock as noted above.

Common Stock

vote of shareholders of the Company. The Company is authorizednot obligated to issue 20,000,000redeem or repurchase any shares of common stock, no par value, asClass C Preferred Stock. Shares of March 31, 2017Class 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, 2016.2022, there were no shares of preferred stock issued or outstanding.

Common Stock

 

The Company has reserved a total of 2,000,000363,577 and 378,296 shares of its common stock pursuant to itsthe equity incentive plans (see Note 6).11 – Stock-Based Payments) as of June 30, 2023 and December 31, 2022, respectively. The Company has 1,722,704363,577 and 1,247,704278,296 stock units, options and warrants outstanding under these plans as of March 31, 2017June 30, 2023 and December 31, 2016,2022, respectively.

NOTE 6: SHARE-BASED PAYMENTS

2015 Stock Incentive Plan

On March 1, 2017, pursuant to the Company’s Amended and Restated 2015 Stock Incentive Plan, the Compensation Committee of the Company’s board of directors authorized the grant of 430,000 employee incentive stock options (“ESOPs”) at a strike price of $2.50 per share, 20,000 employee stock options at a strike price of $2.75 per share and 25,000 non-qualified stock options (“NQSOs”) at a strike price of $2.50 per share.

 

The Company measures employee stock-based awards at grant-date fair valuehas 7,033,825 shares and recognizes employee compensation expense on a straight-line basis over the vesting period25,000 shares of its common stock reserved for warrants issued outside of the award.

equity incentive plans as of June 30, 2023 and December 31, 2022, respectively.

 

Exercise of Stock Options and Warrants

A total of 889 employee options, with an exercise price of $34.20 per share, were exercised for total proceeds to the Company of $30,391 during the three months ended June 30, 2022. A total of 1,978 employee options, with exercise prices ranging from $34.20 to $50.00 per share were exercised for total proceeds to the Company of $83,456 during the six months ended June 30, 2022. No employee options were exercised during the three and six months ended June 30, 2023.

10


 

 

ARCIMOTO, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

A total of 700,000 warrants were exercised with an exercise price of $0.0001 per share for total proceeds to the Company of $70 during the three and six months ended June 30, 2023. A total of 400 employee warrants, with an exercise price of $50.00 per share, were exercised for total proceeds to the Company of $20,000 during the three and six months ended June 30, 2022.

 

DeterminingA total of 4,800 employee restricted stock units vested and were converted into common shares during the appropriate fairthree and six months ended June 30, 2023. A total of 460 employee restricted stock units vested and were converted into common shares during the three and six months ended June 30, 2022.

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) 3,300,000 shares (the “Shares”) of the Company’s common stock, no par value per Share (the “Common Stock”), (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 700,000 shares of stock-based awards requirescommon stock and (iii) warrants (the “Common Warrants” and, together with the inputShares and the Pre-Funded Warrants, the “Securities”) to purchase up to 4,000,000 shares of subjective assumptions, includingcommon stock. The offering price per Share and associated Common Warrants is $3.00. The offering price per Pre-Funded Warrant and associated Common Warrant is $2.9999.

The Pre-Funded Warrants are immediately exercisable subject to certain ownership limitations, have an exercise price of $0.0001 per share, and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. The Pre-Funded Warrants were exercised immediately upon issuance. Each Common Warrant has an exercise price of $3.00 per share, will be exercisable immediately upon issuance subject to certain ownership limitations and will expire on the fifth anniversary of the date on which the Common Warrants become exercisable.

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 $1,735,941. As the Pre-Funded Warrants were immediately exercised, the fair value is recorded in equity. The Common Warrants are recorded at fair value on January 18, 2023 at $7,951,393 and are remeasured at a fair value of $4,249,751 at June 30, 2023 and are classified as a current liability on the Condensed Consolidated Balance Sheet. As a result, the Company recorded an unrealized (loss) gain of $(122,694) and $3,701,642 for the three and six months ended June 30, 2023, respectively.

The offering resulted in gross proceeds to the Company of approximately $12 million. The net proceeds to the Company from the offering were approximately $11 million, after deducting placement agent fees and other expenses. The Company used $7,500,000 of the net proceeds from the offering to repay the September 2022 Note as disclosed in Note 9 - Convertible Notes, and the remainder of the proceeds for working capital and general corporate purposes.

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 1,467,648 shares (the “Shares”) of the Company’s common stock, no par value per share (the “Common Stock”), in a registered direct offering and for stock options,warrants (the “Warrants” and, together with the expected lifeShares, the “Securities”) to purchase up to 2,935,296 shares of Common Stock in a concurrent private placement (the transactions contemplated by the Second Purchase Agreements are referred to herein as the “Second Offering”). The offering price per Share and associated Warrant is $1.70. Each Warrant has an exercise price of $1.75 per share, will be exercisable six months after issuance subject to certain ownership limitations and will expire on the fifth anniversary of the option,date on which the Warrants become exercisable.


ARCIMOTO, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

The Second Offering resulted in gross proceeds to the Company of approximately $2.5 million. The net proceeds to the Company from the Second Offering were approximately $2.3 million, after deducting placement agent fees and expected stock price volatility.expenses and offering expenses payable by the Company. The Company used $250,000 of the Black-Scholes option pricing modelnet proceeds from the offering to value its stock option awards. The assumptions used in calculatingpartially repay the fair value of stock-based awards represent management’s best estimates and involve inherent uncertaintiesNote payable - related party, and the applicationremainder of management’s judgment. As a result, if factors changethe proceeds for working capital and management uses different assumptions, stock-based compensation expense could be materially different for future awards. See below for the weighted average variables used in assessing the fair value at the grant date of March 1, 2017:

March 1,
2017
Annual dividend yield-
Expected life (years)6.21
Risk-free interest rate2.16%
Expected volatility21.33%

The total grant date fair value of employee incentive stock options issued during the three-month period ended March 31, 2017 was $290,040. Employee stock-based compensation expense related to stock options included in general and administrative expenses for the three -month period ended March 31, 2017 and 2016 was $19,835 and $12,004, respectively.

As of March 31, 2017, 102,142 employee stock options were vested and 7,500 stock options previously issued to employees were forfeited.

Grants to non-employees are expensed at the earlier of (i) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached and (ii) the date at which the counterparty’s performance is complete. For the NQSOs issued in 2017, performance was completed on the date of issue. The fair value of non-employee awards was $22,445 and $0 for the three-month periods ended March 31, 2017 and 2016, respectively, which is included in general and administrative expenses in the accompanying statements of operations.

2012 Employee Stock Benefit Plan

As of March 31, 2017, the Company had issued warrants under its Seconded Amended and Restated 2012 Employee Stock Benefit Plan, exercisable immediately, for approximately 980,000 shares of Company common stock

NOTE 7: CUSTOMER DEPOSITScorporate purposes.

 

The Company has received customer deposits ranging from $100paid the Placement Agent a cash fee equal to $10,100 per order for retail production vehicles and $42,000 per order for signature series vehicles for purposes$275,000 which was 5.0% of securing its vehicle production slot. As of March 31, 2017 and December 31, 2016, the Company’s balance of refundable deposits received was $406,777 and $386,035, respectively, which are refundable upon demand. Refundable deposits are includedaggregate purchase price paid by all Purchasers in current liabilities in the accompanying balance sheets. Production of retail vehicles is expected to begin in the first half of 2018; production of signature series vehicles has begun and the first delivery is scheduled for November 2017. When a customer’s order is ready to enter the production process, the customer is notified that if they would like to proceedconnection with the purchase of a vehicle, their deposit will no longer be refundable and any additional deposit required must be paid prior to the start of the manufacturing process.  If the customer elects to proceed with their order, their deposit becomes no longer refundable. Customer deposits from related parties total $43,700 as of March 31, 2017 and December 31, 2016.

11

ARCIMOTO, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 8: COMMITMENTS AND CONTINGENCIES

On September 3, 2017, the Company entered into a Triple Net Lease for an approximately 30,000 square foot commercial industrial office and manufacturing space in Eugene, Oregon. The lease began on October 1, 2017 and will terminate on March 31, 2021. Rent was $25,000 for the first month, then is $12,500 per month for months two through forty-one, and one dollar for month forty-two. See the following table for future minimum rent payments by year.

Years ending December 31:

2017 $50,000 
2018 $150,000 
2019 $150,000 
2020 $150,000 
2021 $25,001 
Total $525,001 

Total rent expense for the three-month periods ended March 31, 2017 and 2016 was $16,035 and $15,135, respectively.

Underwriter Agreement

In connection with its offering of common stock under Regulation Asale of the Securities, Act (the “Regulation A Offering”), the Company agreed to issue the underwriter in the Regulation A Offeringand warrants to purchase a number of shares of Common Stock equal to 5% of the Shares (the “Placement Agent Warrants”). The Company issued 73,529 Placement Agent Warrants. The Placement Agent Warrants have a five-year term, and are exercisable beginning six months after the closing of the Offering at a price of $1.87 per share. The Company recorded the aggregate placement agent fees as financing costs in the Statement of Operations.

The Warrants issued to the Purchasers are recorded at fair value on June 12, 2023 at $3,906,366 and are remeasured at a fair value of $3,495,168 at June 30, 2023 and are classified as a current liability on the Condensed Consolidated Balance Sheet. As the fair value of the Warrants was greater than the cash proceeds received from the offering, the Company recorded the excess of warrant fair value over proceeds received of $1,404,374 as financing costs. The 1,467,648 common shares issued in the offering had a fair value of $2,362,914. The fair value of the common stock equal to 5.0%shares issued were recorded as additional financing costs in the transaction because the aggregate fair value of the totalliability classified warrants and the common shares issued exceeded the offering proceeds. The Placement Agent Warrants are recorded at fair value on June 12, 2023 at $95,740 and are remeasured at a fair value of $85,320 at June 30, 2023 and are also classified as a current liability on the Condensed Consolidated Balance Sheet. As a result, the Company recorded an unrealized gain of $421,618 for the three and six months ended June 30, 2023 for the Warrants and Placement Agent Warrants.

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 $100,000,000 of its common stock. The Company intends to use the net proceeds of the sales pursuant to the Sales Agreement primarily for working capital and general corporate purposes.

We issued and sold 175,306 shares of common stock sold in any closing ofduring the Regulation A Offering, excluding shares purchased by investors sourced via alternative funding platforms (the “Underwriter Warrants”). The Underwriter Warrants are exercisable commencing on the Qualification Date (as such term is defined in the Underwriter Warrants), and have a term of five years. The Underwriter Warrants are not redeemable by the Company. The exercise price for the Underwriter Warrants will be the amount that is 15% greater than the offering price, or $7.475. In the fourth quarter of 2017, the Company granted 122,238 Underwriter Warrantsthree months ended June 30, 2022, in connection with the Regulation A Offering.Sales Agreement at per share prices between $64.60 and $97.80, resulting in net proceeds to the Company of $12,602,091 after subtracting offering expenses. We issued and sold 203,320 shares of common stock during the six months ended June 30, 2022, in connection with the Sales Agreement at per share prices between $64.60 and $143.60, resulting in net proceeds to the Company of $16,315,741 after subtracting offering expenses. There were no transactions during the three and six months ended June 30, 2023 under the Sales Agreement due to the one-year restrictions discussed in Note 2.

 

Litigation


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”).

Stock-based compensation, including stock options, warrants and stock issued for compensation and services is involved in claims and litigation from time to timeincluded in the normal coursecondensed consolidated statements of business. At March 31, 2017, Company management believes there are no pending matters that are expected to have a material adverse effect onoperations as follows:

  Three Months Ended June 30,  Six Months Ended June 30, 
  2023  2022  2023  2022 
Cost of goods sold $330,714  $576,650  $649,600  $971,077 
Research and development  154,711   292,675   310,846   622,576 
Sales and marketing  216,662   408,215   436,876   689,654 
General and administrative  232,416   534,479   677,718   939,823 
Total $934,503  $1,812,019  $2,075,040  $3,223,130 

2022 Omnibus Stock Incentive Plan

On July 29, 2022, Arcimoto’s shareholders approved the business of2022 Omnibus Stock Incentive Plan (the “2022 Plan”). The Plan enables the Company their financial condition, resultsto provide additional incentives or awards to Employees, Directors and Consultants. The maximum aggregate number of operations or cash flows.

shares which may be issued pursuant to all awards is 100,000 shares. The 2022 Plan was amended on June 16, 2023 to increase the number of shares available for issuance to 1,600,000.

 

12

ARCIMOTO, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 9: SUBSEQUENT EVENTS

Offering Costs

As of September 30, 2017, all deferred offering costs were charged to stockholders’ equity upon the initial close of the Regulation A Offering (see Note 2). As of September 30, 2017, offering costs charged to stockholders’ equity was $1,299,021 which includes the offering cost for the Regulation A Offering through the nine months ended September 30, 2017.

Common Stock

During September 2017,The 2022 Plan provides the Company issued 2,936,757the 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 a Regulation A Offering at a public offering price of $6.50 per share. The Company received net proceeds of $18,031,525 in this closing after deducting underwriter commissions of $1,049,395 and escrow closing fees of $8,000. See Note 8 for fees paid toaccordance with IRS guidelines. During the underwriter in the Regulation A Offering.

On October 4, 2017,six months ended June 30, 2023, the Company issued 4,000100,000 restricted stock awards under the plan, which vested immediately. There is no non-vested compensation expense as of June 30, 2023. Awards that are forfeited generally become available for grant under the 2022 Plan.

Stock-based compensation expense under the 2022 Plan for the three and six months ended June 30, 2023 was $82,122 and $258,923, respectively. There was no stock-based compensation expense under the 2022 Plan for the three and six months ended June 30, 2022.

2018 Omnibus Stock Incentive Plan

The 2018 Plan authorizing 50,000 shares was approved by the Board of Directors and the Company’s shareholders at the Company’s 2018 annual meeting of shareholders held on June 9, 2018. At the 2019 Annual Meeting, the shareholders approved an additional 50,000 shares of common stock to be issued under the 2018 Plan. On April 20, 2020, the board of directors approved an increase from 100,000 to 200,000 shares; at the annual shareholder meeting on June 20, 2020, the increase was approved by a vendor in paymentmajority of video production services.the shareholders. At the annual shareholder meeting on June 11, 2021, a majority of the shareholders approved an increase from 200,000 to 300,000 shares.

 

On October 17, 2017,The 2018 Plan provides the Company issued 8,900the ability to grant to employees, directors, consultants or advisors shares of common stock in a subsequent close of the Regulation A offering atCompany 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 public offering priceremaining reserve of $6.50 per share. The Company received net proceeds222,339 shares of $56,115 in this closing after deducting underwriting commissionscommon stock under the 2018 Plan for outstanding grants. Since approval of $1,735. See Note 8the 2022 Plan, awards that are forfeited no longer become available for fees paid togrant under the underwriter in the Regulation A Offering.2018 Plan.

 

Preferred StockStock-based compensation expense under the 2018 Plan for the three and six months ended June 30, 2023 was $851,912 and $1,814,442, respectively. Stock-based compensation expense under the 2018 Plan for the three and six months ended June 30, 2022 was $1,809,842 and $3,202,222, respectively.

 

During the second quarterfirst half of 2017, the Company sold 157,7002022, unqualified and qualified options to purchase 67,565 shares of Series A-1 Preferred Stock for cash proceeds of $788,500 in a Regulation D offering. Of these shares, 2,000 were sold to a related party. As discussed in Note 2, these shares were converted to common stock on July 25, 2017.

2012 Employee Stock Benefit Plan

On May 1, 2017, 8,000 warrants were issuedgranted to employees and vendors/consultants under the Second Amended and Restated 2012 Employee Stock Benefit2018 Plan towith a lobbying contractor with an exercise price of $2.50 per share and a five-year term. The Black-Scholes variables used in assessing thegrant date fair value atof approximately $5,803,000. The options were valued using the grant date were anBlack-Scholes option pricing model with approximately a 6.1 year expected life of 5 years,term, risk free interest rate of 1.84%1.8%, a dividend yield of 0%, and expectedan annualized standard deviation of stock price volatility of 21.34% resulting97.14%. These options vest over three years.


ARCIMOTO, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

During the first half of 2022, 19,764 restricted stock were issued to certain personnel and outside consultants with a grant date fair value of approximately $1,406,000. These shares were valued by using the closing date of the Company’s stock price on the date of the grant. The majority of awards to external consultants vest over a one to three-year period except for 2,964 of the awarded units, which vested immediately upon issuance.

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 $3,518,861 and will be recognized on a straight-line basis through July 2025 based on the respective vesting periods. The amount of future stock option compensation expense could be affected by any future option grants or forfeitures.

2015 Stock Incentive Plan

The 2015 Plan provides the Company the ability to grant to employees, directors, consultants, or advisors shares of common stock of the Company through the grant of options that are incentive stock options or NQSOs and/or the grant of restricted stock, provided that only employees are entitled to receive incentive stock options in accordance with IRS guidelines. 50,000 shares of common stock were authorized for issuance under the 2015 Plan. Since approval of the 2022 Plan, awards that are forfeited no longer become available for grant under the 2015 Plan. As of June 30, 2023, 25,688 shares of common stock were reserved for issuance pursuant to stock options that are outstanding.

Stock-based compensation expense under the 2015 Plan for the three and six months ended June 30, 2023 was $469 and $1,675, respectively. Stock-based compensation expense under the 2015 Plan for the three and six months ended June 30, 2022 was $2,177 and $20,908, respectively.

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 $500,000 promissory note with a director of the Company (the “Related Party Note”). The principal was due and payable in cash on the earlier of (a) June 25, 2023; or (b) the date the Company raises third-party capital in an amount equal to or in excess of the principal (“Maturity Date”) in either cash or, at the option of the holder, in the event the Arcimoto issues convertible promissory notes in an offering led, or participated, by Ducera Investments LLC (“Ducera”) to third parties before the Maturity Date, in a valueconvertible promissory note on the same terms as purchased by such third parties. On the Maturity Date, the Company will pay the holder a fixed interest amount of $0.57 per warrant. $75,000 in the Company’s common stock calculated based on the closing stock price on the Maturity Date.

The total valueRelated 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 $4,550$500,000, the principal amount shall be paid 50% in cash and 50% in the Company’s common stock based on the closing stock price on the Maturity Date.


ARCIMOTO, INC.

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

On June 12, 2023, the Company completed an equity offering raise in excess of $500,000. The Related Party Note matured in connection with the offering, as described above, and was recorded as lobbying expense. On September 20, 2017, 15,000 employee warrants were exercisedpartially repaid with $250,000 in a cashless transaction resulting incash. The remaining principal balance and interest are to be settled by the issuance of 13,846 common shares.201,863 shares of Common Stock, which have not yet been issued.

 

SeeOn April 25, 2022, the Company entered into a $4,500,000 convertible promissory note agreement with Ducera, a related party because a partner at Ducera is also Notes 4, 5 and 8 for additional subsequent events.a member of the Company’s Board of Directors. Further disclosures are presented in Note 9 - Convertible Notes.

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. The following tables disclose the financial information used by the CODM in allocating the Company’s resources.

  For the Three Months Ended 
  June 30, 2023 June 30, 2022 
  FUV  Rental  TMW  Total  FUV  Rental  TMW  Total 
Revenues $1,537,412  $65,793  $157,141  $1,760,346  $1,015,038  $53,818  $430,485  $1,499,341 
                                 
Operating loss  (6,904,608)  (160,630)  (222,530)  (7,287,768)  (14,352,646)  (513,128)  (311,594)  (15,177,368)
Financing costs              4,138,027                
Unrealized loss on convertible note, mortgage loan and warrants              1,516,506               2,145,540 
Interest expense, net              210,687               124,171 
Other (income) expense, net              48,419               (45,937)
Income tax (expense)              (7,042)              (3,200)
Net loss             $(13,208,449)             $(17,404,342)

13


 

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 $2,635,663  $96,867  $381,344  $3,113,874  $1,530,355  $66,317  $552,902  $2,149,574 
                                 
Operating loss  (13,959,457)  (433,272)  (371,217)  (14,763,946)  (26,344,494)  (940,494)  (821,462)  (28,106,450)
Financing costs              5,243,824                
Unrealized (gain) loss on convertible note, mortgage loan and warrants              (3,169,138)              2,145,540 
Interest expense, net              311,786               173,906 
Loss on debt extinguishment              2,925,610                
Other (income) expense, net              15,901               (71,196)
Income tax (expense)              (7,042)              (3,200)
Net loss             $(20,098,971)             $(30,357,900)

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 $300,000 facility fee and an additional $600,000 fee.

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.


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 consumer demand for,U.S. and acceptanceforeign trade policy, including the imposition of our products;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 effectively executedesign, produce and market our business plan;vehicles within projected timeframes given that a vehicle consists of several thousand unique items and we can only go as fast as the slowest item;

 

our experience to date in manufacturing and our ability to manufacture increasing numbers of vehicles at the volumes that we need in order to meet our goals;

our reliance on as well as our ability to attract and retain key personnel;

changes in the price of oil and electricity;

 


changes in laws or regulations governing our business and operations;

 

our ability to maintain adequate liquidity and financing sources and an appropriate level of debt, if any, on terms favorable to our company;

 

our ability to design, produce and market future vehicle models;

the number of reservations and cancellations for the SRK®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;strategy and any additional distribution strategies we may deem appropriate;

 

costs and risks associated with litigation;

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;earnings or losses;

 

interest rates and the credit markets;

 

our ability to maintain our Nasdaq listing;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 of thepotential 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.

 

14

 

 

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 March 31, 2017June 30, 2023 and 2022 should be read together with our unaudited consolidatedcondensed financial statements and related notes included elsewhere in this report and in conjunction with the audited financial statements ofand notes thereto for the Companyyear ended December 31, 2022 included in ourthe Company’s Annual Report on Form 1-A.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.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

 

OverviewArcimoto, 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. 

 

WeOn 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 develop, manufacture,with a storage capacity of 25 cubic feet that serves the last-mile delivery of food and sell high-performance fullygoods, 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.


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 devise newoffer 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 patternsjust over 100 miles of mobility that raiserange while transporting up to 500 pounds of cargo.

Pilot projects are in current deployment with additional scale/sites being added.


Sales and Distribution Model

Arcimoto’s sales and distribution model is direct. Customers place vehicle orders on our website, and the barvehicle 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 environmental efficiency, footprintdistribution 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 affordability. We plan to achieve our mission by replacingsales in states where we currently do business.

Rental Model

The Company is augmenting the global urban and suburban use of an approximately 4,000 lb. internal combustion engine vehicles for regular daily tripsdirect web purchase process with experience rental in key markets. This rental model gives prospective customers a direct experience with the SRK, a pure electric solution that is approximately a quarterphysical product before purchasing, recovering some of the weight, a thirdcost of the cost to purchase and far more efficient thantest drive with revenue generated by the U.S. fleet average passenger car.rental. We continue to enhance our vehicle offerings with Beta design which we expect to complete later this year and then deliveropened our first signature series vehicle with serial pilot production expected to beginCompany-owned rental operations in early 2018. We continue to increase our pre-ordersSan Diego, California and Eugene, Oregon in preparation for serial production of an estimated 2,000 units in 2018. As of March 31, 2017, we had 1,296 pre-orders representing an increase of 643, or 98.5%, from the 653 pre-orders as of March 31, 2016.

On July 21, 2017, we effected a two-for-one common stock split and increased our authorized common shares to 20,000,000. On July 25, 2017, a majority of the Series A-1 Preferred stockholders voted to convert all 1,434,891 shares of Series A-1 Preferred Stock to 2,869,782 common shares. The July 21, 2017, two-for-one common stock split resulted in a conversion rate of two shares of common stock for each share of Series A-1 Preferred Stock. In accordance with SEC reporting guidelines, the retrospective application of the stock split has been applied to historical financial information, and the Series A-1 Preferred to common stock conversion was reflected in the accompanying financial statements as if it occurred as of December 31, 2016.

During the three months ended March 31, 2017, we issued 87,400 shares of Series A-1 Preferred Stock for aggregate gross proceeds of approximately $437,000 in a Regulation D offering and also received aggregate gross proceeds of $200,000 from the issuance of convertible debt. During the second quarter 2017,of 2021. The first Company-owned rental center in Hawaii opened on August 20, 2022. During the fourth quarter of 2022 we issued 157,700 shares of Series A-1 Preferred Stock for aggregate gross proceeds of approximately $789,000opened 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 Regulation D offering, of which 2,000 shares were sold to a related party.

During September 2017, we sold 2,936,757 shares of common stockrevenue sharing agreement with GoCars in San Diego and Las Vegas, with additional locations opening in the initial closing ofnear 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 Regulation A offering at a public offering price of $6.50 per share.website. We received net proceeds of approximately $18,032,000 in this closing after deducting underwriter commissions of approximately $1,049,000 and escrow closing fees of $8,000.have expanded financing options for customers to pursue personal financing to purchase our FUVs.

 

On October 17, 2017, in a subsequent closing of our Regulation A offering, we issued 8,900 common shares in exchange for gross proceeds of $58,000. Net proceeds to us were approximately $56,000 after deducting underwriting commissions of approximately $2,000.

On September 3, 2017, we entered into a Triple Net Lease for 30,000 square feet of commercial industrial office and manufacturing space in Eugene, Oregon. The lease began on October 1, 2017 and will terminate on March 31, 2021. Rent was $25,000 for the first month, then is $12,500 per month for months two through forty-one, and one dollar for month forty-two.

Management Opportunities, Challenges and Risks

Production, Sales Funnel and Order Backlog

 

Demand, ProductionThe 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 Capital

We are currently takingrental revenue in the knowledge we learned from the Alpha SRK vehicles to finalize the design of the Beta SRK Fun Utility Vehicle (“FUV”).  We believestates where we have broadened the appealcurrent 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 electric vehiclesbusiness operations, we also plan to expand and improve on the customers’ retail experiences by improving range, performance,including additional rental partnerships and value,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 we expectdemo 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, introduce additional vehicle versionsour rental operations, pop-up demo centers in high traffic flagship markets, strategic events and functionality over time.  Overall, we expect that demandshows throughout the country and identifying new markets and expanding our brand awareness.


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 increase as more people drivebuild 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 become aware of our vehicles, and as we strive to grow our customer sales and potentially offer less expensive vehicles than other electric vehicles in the market, and wecorporate fleets. We will continue to further develop our vehicle design.

We continue to make progress toward vehicle production and plan to outfit a facilitybuild Deliverators in low volume through the remainder of 2023, to support serial vehicle production beginning in 2018.

commercial new pilot programs.

15

 

Trends in Cash Flow, Capital Expenditures and Operating Expenses

 

We planOur capital expenditures are typically difficult to initiate serial productionproject beyond the short term given the number and breadth of our vehicles beginningcore projects at any given time and may further be impacted by uncertainties in 2018.  Given this plan,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 expenditure needs includespend 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 costs forefficiencies and the tooling, production equipment and constructionaddition of the SRK Acrimoto production line.

new projects. We currently expect operatingour 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 growdeliver 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.


Operating expenses decreased by approximately 30% in 201748% or $5,048,000 for the three months ended June 30, 2023 as compared to 2016.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 increasedecrease 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 driven by increased hiringprioritized for manufacturing engineering and production operations expected to begin later this year, and marketing and other non-capitalizable expenses associated with a potential equity and/or debt offering.  immediate revenue-generating activities.

Although we continuehave taken strategic steps to remain on trackimprove our cost structure, our current cost structure, along with our progress toward vehicle manufacturing, given the size and complexity of this undertaking, it is possible that future events could resultother 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 of buildingstructure and operatingmarket penetration, we may not succeed to the production facility exceedingpoint 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 current expectations and taking longer to bring online than we currently anticipate.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

 

See Note 3For a description of new accounting pronouncements, please refer to the “Summary of Significant Accounting Policies” in Note 2 to our Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q which includes a discussion of recent accounting pronouncements that may impact us.and the Company’s Annual Report on Form 10-K filed with the SEC on April 14, 2023.

 

Disclosure About Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

 

Our financial statements are prepared in accordance with GAAP.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.

For a description of our critical accounting policies and estimates, please refer to the “Summary of Significant Accounting Policies” in See Note 32 to our Condensed Financial Statements in the Company’s Form 1-A andunder 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.


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)%


Three months ended March 31, 2017 versusRevenues

Total revenue increased approximately $261,000 or 17% for the three months ended March 31, 2016June 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.

Revenues

 

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 noapproximately $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 quarterly periodsthree months ended March 31, 2017June 30, 2022.

Cost of Goods Sold (“COGS”)

Cost of goods sold decreased by approximately $2,580,000 or 2016. We did recognize grant revenue42%, 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 current period amounting to approximately $41,000. Revenues from grants are recognizedthree months ended June 30, 2023. Included in the periodmanufacturing, 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 which the conditions underthree months ended June 30, 2022. Included in the grant have been metmanufacturing, labor and overhead costs are payroll and employee-related costs of $2,192,000 while the Company has made payment for the related expense. We believe the lossremaining costs consist of such grant revenues will not have a material effect on the Company’s operations.consulting services, freight, and depreciation, among other things.

 

Operating Expenses

 

Research and Development Expenses

Research and development (“R&D”) Expenses

R&D expenses consistdecreased by $2,179,000 or 59% during the three months ended June 30, 2023 as compared to the same period last year primarily of personnel costs for our engineeringdue to the reduction in workforce, a corresponding reduction in stock-based compensation relating from fewer employees, and research teams, and prototyping materials expense.a 58% reduction in consulting services. R&D expenses for the three months ended March 31, 2017June 30, 2023 and 20162022 were approximately $268,000$1,538,000 and $267,000,$3,716,000, respectively. The primary reason for the increase in R&D expenses of $1,000, or 0.4%, in March 31, 2017 is because of an increase in engineering salaries and wages of approximately $59,000 offset by a decrease in contract labor of $13,000 and a reduction in R&D materials of approximately $42,000.

 

16

Sales and Marketing (“S&M”) Expenses

 

Sales and marketing expenses consist primarily of costs associated with booking pre-orders and selling our high-performance fully electric vehicles. Sales and marketingS&M expenses for the three months ended March 31, 2017June 30, 2023 and 20162022 were approximately $85,000$1,486,000 and $153,000,$3,070,000, respectively. The primary reasonreasons for the decrease in sales and marketingS&M expenses of $68,000, or 44%, induring the three months ended March 31, 2017 is attributedJune 30, 2023 of approximately $1,584,000, or 52%, as compared to the prior period were the reduction in workforce, a decreasecorresponding reduction in stock-based compensation resulting from fewer employees, and a 27% reduction in advertising and marketing expenses during that quarter. Sales and marketing expense was higher during the three- month period ended March 31, 2016 due to the Alpha SRK (initial test design) being completed in November 2015 and the Company undertaking various road show test drive events in 2016. For the three months ended March 31, 2017, funds were directed to R&D to incorporate the knowledge gained from the test drive events and incorporating it into the Beta SRK design.expenses.

 


General and Administrative

General and administrative (“G&A”) Expenses

G&A expenses consist primarily of personnel and facilities costs related to executive,executives, finance, human resources, information technology, and legal organizations, as well as litigation settlements andlegal fees for professional and contract services. G&A expenses for the three months ended March 31, 2017 wasJune 30, 2023 were approximately $187,000$2,503,000 as compared to $96,000approximately $3,786,000 for the same period last year, representing an increasedecrease of approximately $91,000$1,282,000, or 95%34%. The primary reasondecrease 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 increasethree 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 current period was due to a $30,000 increase in non-cash compensation expensecash 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 grantingthree months ended June 30, 2023, as a result of employee stock options,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 $26,000 increaseresult of the mark-to-market to fair value for accrued vacation expense, a $15,000 increaseour convertible notes in lobbying expenses, an $11,000 increase in professional services, and an $8,000 increase in insurance expense.accordance with the election of the fair value option under ASC 825-10.

 

Interest Expense

 

Interest expense for the three months ended March 31, 2017June 30, 2023 was approximately $10,000$211,000, as compared to $0$124,000 during the three months ended March 31, 2016.June 30, 2022. The increase in interest expense was due to higher balances ofa $74,000 payment made to an equipment vendor for interest on an outstanding debtpayable 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 current period.three 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 

Six Months Ended June 30, 2023 versus Six Months Ended June 30, 2022

 

AsThe following table summarizes the Company’s results of March 31, 2017, weoperations:

  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)%


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 $597,000$3,114,000 in cashrevenue, net of discounts, comprising approximately $2,636,000 in net revenue from the sales of our vehicles and cash equivalents representingrelated 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 increase of84% and 87% reduction in freight and consumable costs, respectively.

The Company had approximately $183,000 from December 31, 2016. Sources of cash are predominately$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 equityour 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 convertible debt. We anticipate thatthe material cost of our current sources of liquidity, including cashFUVs narrowed to just $205, and cash equivalents, together with our current projections of cash flow from operating activities, may provide us with adequate liquidity based on our current plans. We may raise fundsadjustments to inventory for purchase price variance and scrap during the six months ended June 30, 2023. Included in the future, including potential equitymanufacturing, 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 debt offerings, subject67% during the six months ended June 30, 2023, as compared to market conditionsthe same period last year primarily due to the reduction in workforce, the corresponding reduction in stock-based compensation resulting from fewer employees, and recognizing that we cannot be certain that additional funds would be availablea 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 us on favorable terms or at all. The amountthe prior period were the reduction in workforce, the corresponding reduction in stock-based compensation resulting from fewer employees, and timinga 52% reduction in advertising expenses.

General and Administrative (“G&A”) Expenses

G&A expenses consist primarily of funds that we may raise is undeterminedpersonnel and would vary based on a number of factors, including our liquidity needsfacilities costs related to executives, finance, human resources, information technology, as well as accesslegal 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 currentapproximately $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 future sourcesa 47% reduction in legal fees associated with a case that was dismissed in 2022.


Financing Costs

We recorded financing costs of liquidity.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

 

Our estimatesWe 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 tooling and manufacturing capital expendituresthe same period last year, as a result of the mark-to-market to fair value for our planned SRK production facility will require approximately $10 million, which we expect to raiseconvertible notes, mortgage loan and warrant liabilities in future equity and/oraccordance with the election of the fair value option under ASC 825-10.

Loss on debt offerings.  We are currently in the process of evaluating our capital expenditure needsextinguishment

Loss on debt extinguishment for the remaindersix months ended June 30, 2023 was approximately $2,926,000 related to the extinguishment of 2017. the September 2022 Convertible Note.

 

DuringInterest Expense

Interest expense for the second quarter of 2017, we issued 157,700 shares of Series A-1 Preferred Stock for aggregate gross proceeds ofsix months ended June 30, 2023 was approximately $789,000$312,000, as compared to $174,000 during the six months ended June 30, 2022. The increase in a Regulation D offering, of which 2,000 shares were soldinterest 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.

 

During September 2017, we sold 2,936,757 shares of common stockOther (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 an initial closing of our Regulation A offering atexpense was due to a public offering price of $6.50 per share. We received net proceeds of approximately $18,032,000 in this closing after deducting underwriter commissions of approximately $1,049,000purchase order cancellation charge paid to a vendor.

Liquidity and escrow closing fees of $8,000.Capital Resources

 

On October 17, 2017, in a subsequent close of our Regulation A offering, we issued 8,900 common shares in exchange for gross proceeds of $58,000. Net proceeds to us were approximately $56,000 after deducting underwriting commissions of approximately $2,000.

Cash Flows from Operating Activities

 

Our cash flows from operating activities are significantly affected by our cash investmentsoutflows to support the growth of our business in areas such as researchR&D, S&M and development, sales and marketing and general and administrativeG&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.

17

 

During the threesix months ended March 31, 2017,June 30, 2023 cash used in operating activities was approximately $450,000$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 result of our net loss incurred of approximately $510,000, an increase$30,358,000, non-cash charges of $7,753,000 and changes in accounts receivablenet working capital and other items that contributed to cash and cash equivalent reduction of $30,000,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 of $15,000, and an increase in inventories of $10,000 for materials for our electric vehicles partially offset by stock-based compensation of $42,000, an increase in accrued liabilities of $47,000 mainly for payroll related liabilities, and an increase in customer deposits of $21,000increased, primarily as a result of SRK reservations.       due to timing.

 


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. No cash was used in investing activities forDuring the threesix months ended March 31, 2017June 30, 2023 we received a refund of approximately $455,000 from the return of property and 2016. The Company’s plan isequipment.

During the six months ended June 30, 2023 and 2022, we paid approximately $327,000 and $5,608,000, respectively, to implement the manufacturing capital expenditures afterpurchase property and equipment in anticipation of our future equity and/or debt financings.production growth.

Cash Flows from Financing Activities

 

During the threesix months ended March 31, 2017,June 30, 2023, net cash provided by financing activities was approximately $633,000 as$10,922,000 compared to net cash used inprovided by financing activities of approximately $5,000$19,755,000 during the threesix months ended March 31, 2016.June 30, 2022. Cash flows fromprovided by financing activities during the threesix months ended March 31, 2017 consisted primarilyJune 30, 2023 comprised of $437,000 in gross proceeds from our Regulation D offering in that period of 87,400 shares of Series A Preferred Stock and 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 debtnotes of $200,000. $7,500,000.

Cash flows fromprovided by financing activities during the threesix months ended March 31, 2016 consisted primarilyJune 30, 2022 comprised of proceeds from the issuance of common stock through our registered offerings of approximately $5,000 in gross$16,315,000 (net of offering costs of approximately $598,000, proceeds from our Regulation D offering in that periodexercise of 1,200 shareswarrants of preferred stock offsetapproximately $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 $10,000 in legal costs associated with the preparation for a future equity and/or debt financings.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.

 

Not applicable.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 Mark Frohnmayer, our Chief Executive Officer and Douglas M. Campoli, our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation 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.

In designing and evaluating our 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, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.procedures.

 

Based on the management’sthis evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of March 31, 2017, our disclosure controls and procedures were designed to, and were effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosuresineffective as of March 31, 2017.the end of the period covered by this report.

 

(b) Changes in Internal Control Over Financial Reporting

 

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 any changes in our internal controls over financial reporting (as such terms are defined in Rules 13a-15(f) and 15d-15(f)) under the Exchange Act that occurred during the quarter ended March 31, 2017. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that thereThere has not been any material change in our internal control over financial reporting occurred(as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the periodthree months ended March 31, 2017,June 30, 2023, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

18

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

The Company is involved in claims anddoes not currently have any material litigation from timematters to time in the normal course of business. At March 31, 2017, the management of the Company believes there are no pending matters that are expected to have a material adverse effect on the business of the Company, their financial condition, results of operations or cash flows.disclose.

 

Item 1A. Risk Factors.6. Exhibits.

 

For information concerning risks associated with our business and industry and risks associated with an investment in our common stock, please refer to the “Risk Factors” section of our Form 1-A.EXHIBIT INDEX

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.


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

 

During the three months ended March 31, 2017, we issued 87,400 shares of Series A-1 Preferred Stock in a Regulation D offering for gross proceeds of $437,000. The proceeds were used to fund operations. In July 2017, these shares of Series A-1 Preferred Stock were converted into 174,800 shares of common stock.

+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.

 

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

19

 

Item 6.  Exhibits.

EXHIBIT INDEX

Incorporated by Reference

(Unless Otherwise Indicated)

Exhibit NumberExhibit DescriptionFormFile No.ExhibitFiling Date
31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Filed herewith
31.2Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Filed herewith
32.1Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.Filed herewith
101.INS*XBRL Instance Document.Filed herewith
101.SCH*XBRL Taxonomy Extension Schema Document.Filed herewith
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document.Filed herewith
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document.Filed herewith
101.LAB*XBRL Taxonomy Extension Label Linkbase Document.Filed herewith
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document.Filed herewith

20

 

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, 2023By:/s/ Christopher W. Dawson
  Name: 
  Date: November 13, 2017By:/s/ Mark FrohnmayerChristopher W. Dawson
  Mark FrohnmayerTitle:Chief Executive Officer

Date: August 10, 2023By:/s/ Christina J. Cook
  Name:Christina J. Cook 
Title:Chief ExecutiveFinancial Officer

 

 

2138

 

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