ARCIMOTO INC Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)
The following discussion and analysis of our financial condition and results of operations for the three and six months endedJune 30, 2022 and 2021 should be read together with our unaudited condensed financial statements and related notes included elsewhere in this report and in conjunction with the audited financial statements and notes thereto for the year endedDecember 31, 2021 included in the Company's Annual Report on Form 10-K filed with theSEC onMarch 31, 2022 . The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those set forth above. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see "Cautionary Note Regarding Forward-Looking Statements." OverviewArcimoto, Inc. (the "Company", "We", "Us", or "Our") was incorporated in theState of Oregon onNovember 21, 2007 , with the mission to catalyze the shift to a sustainable transportation system. We build light, electric, ultra-efficient vehicles that are incredibly fun to drive for a reason. Put simply, our vision is an untouched planet and more livable cities. Today's city is dominated by the traditional four-wheeled vehicle. We pave almost half our urban land for these giant, multi-ton, extractive machines that we almost always drive alone or with just one other person and leave parked and rusting for most of their useful lives. AtArcimoto , we believe that if we rightsize, electrify, and better utilize our vehicles, we can reclaim our shared space, help clean our skies, and make cities more livable for us all. We have developed a new, human-scale three-wheeled electric vehicle platform, featuring dual-motor front wheel drive, a battery pack sized to meet the range needs of the vast majority of typical trips, and an optimized center of gravity for a nimble, balanced driving experience. On this platform, we currently manufacture a family of products targeting a wide range of everyday uses: the Fun Utility Vehicle® ("FUV®"), for daily driving, rideshare and rental, the Deliverator for last-mile delivery of essential food and goods, the Rapid Responder® for emergency services and security, the Flatbed for general fleet utility, and the Roadster, a pure fun machine that drives like nothing else on the road. The following table depicts our production, deployment and sales by quarter: Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021
Q1 2022 Q2 2022 Overall Finished Good Inventory 0 8 20 12 10 9 23 61 45 35 18 55 Deployed into rental 0 0 0 0 0 0 7 12 15 25 19 20 98 Deployed into fixed assets 0 2 1 7 0 11 7 4 15 28 0 4 79 Sales 2 44 27 11 31 28 60 31 64 37 24 41 400 Production 2 54 40 10 29 38 88 85 78 80 26 102 632 The Company's primary focus is on volume production planning in order to push to sustainable profitability. OnApril 19, 2021 , the Company purchased an approximately 220,000 square foot facility to expand production capabilities. The Company has continued to execute its growth strategy while preparing to secure lower cost non-dilutive financing. Platform and TechnologiesArcimoto is fundamentally a technology company. Its first decade was spent developing and refining eight generations of a new three-wheeled electric vehicle platform: a light-footprint, nimble reverse-trike architecture that features a low center of gravity for stability on the road; dual-motor front-wheel drive for enhanced traction; can be parked three to a space while carrying two large adults comfortably, and is more efficient, by an order of magnitude, than today's gas-powered cars. The Company has secured 13 utility patents on various constituent technologies and vehicle platform architectures.Arcimoto has teamed with several companies to evaluateArcimoto's manufacturing processes and supply chain management in order to drive down costs and increase the volume of production ofArcimoto 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. 18
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Table of Contents ProductsArcimoto's vehicle products are based on the Arcimoto Platform, which includes the basic lower framed structure and certain key components of our vehicles. While intended to serve very different market segments, an estimated 90% of the constituent parts are the same between all products currently in production and development. FUV®Arcimoto's flagship product is the FUV. The FUV delivers a thrilling ride experience, exceptional maneuverability, comfort for two passengers with cargo, highly-efficient parking (three FUVs to a single parking space), and ultra-efficient operation, all at an affordable price. Over time, we anticipate offering the FUV with several option packages to meet the needs of a variety of customers. We led with a consumer product because we are a consumer-first brand. We believe individuals should be able to choose more efficient, more affordable, and lighter-footprint mobility solutions, so that more of us can participate in the transition to a sustainable transportation future. Rapid Responder® The Rapid Responder® was announced onFebruary 15, 2019 . The pure-electric Rapid Responder® is developed on theArcimoto platform, and designed to perform specialized emergency, security and law enforcement services at a fraction of the cost and environmental impact of traditional combustion vehicles. The Rapid Responder® aims to deliver first responders to incidents more quickly and affordably than traditional emergency response vehicles.Arcimoto is initially targeting the more than 50,000 fire stations acrossthe United States that use traditional fire engines and large automobiles to respond to calls.Arcimoto also plans to market the Rapid Responder® as a solution for campus security and law enforcement applications. Deliverator® Development of the Deliverator was officially announced onMarch 19, 2019 with the reveal of the first Deliverator prototype. The Deliverator is currently in production. The Deliverator is a pure electric, last-mile delivery solution designed to more quickly, efficiently, and affordably get goods where they need to go. We plan for the Deliverator to be customizable to carry a wide array of products, from pizza, groceries, and cold goods to the 65 billion parcels delivered worldwide annually. 19
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Table of Contents Cameo (™)Arcimoto completed a prototype of the Cameo, an FUV equipped with a rear-facing rear seat and a modified roof built for on-road filming inSeptember 2020 . We teased the Cameo prototype in severalArcimoto videos inSeptember 2020 and have used the Cameo to shoot all of our own driving footage since its on-roading. Development of the Cameo is still in the planning stages.
The Cameo is aimed at the film industry, as well as the growing influencer and Do-It-Yourself (“DIY”) film market. The Cameo is currently available to prospective customers as a custom-modified FUV.
Arcimoto Roadster The Arcimoto Roadster prototype was first introduced in a video releasedOctober 30, 2020 . Conceived as a pure platform fun machine, the Roadster offers a lower center of gravity, lower overall weight, and potentially improved aerodynamics. We announced the formal development of the Roadster product, in collaboration with industry partners onNovember 16, 2020 . The first production Roadster was unveiled onJuly 26, 2021 . Arcimoto Flatbed The Arcimoto Flatbed prototype was introduced at the FUV &Friends Summer Showcase onJuly 26, 2021 . Similar to the Deliverator, it eschews the rear seat, this time for a pickup-style flatbed instead of an enclosed cargo area.Arcimoto announced a collaboration with aEugene -based industry partner, and displayed a modular, expandable flatbed that could be used for the Flatbed model.
Autonomous Driverless Arcimoto
Our long-term goal is to offer the market one of the lowest cost, most efficient "last mile" human and goods shared transport solutions for the future road. We intend that our platform will provide a ready foundation for remote control and self-driving technology deployment, and have begun to demonstrate that capability.
At the FUV & Friends Summer Showcase on
The first step toward that driverless control system was also on display at the Summer Showcase. A technology company, based inSouth San Francisco , demonstrated the first ever driverless FUV using remote control, a step toward ride-on-demand, where riders will be able to summon a vehicle to their location and then hop in and drive.
Development has continued to progress to the point where a vehicle was operated without a human on board.
Sales and Distribution ModelArcimoto's sales and distribution model is direct. Customers place vehicle orders on our website, and the vehicle product will be delivered directly to the end user via a common carrier or our own delivery fleet. The website ordering and vehicle configuration system is functional, with additional development planned to further automate the sales process.
We are also developing relationships with commercial fleet management companies to accelerate commercial sales.
OnOctober 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. 20
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Table of Contents Rental and Rideshare Model We plan to augment this direct web purchase process with experiential rental operations in key markets. This rental model gives prospective customers a direct experience with the physical product before purchasing. We opened our first Company-owned rental operations inSan Diego, California andEugene, Oregon in the second quarter of 2021. The Company-owned rental center inHawaii is scheduled to openAugust 20, 2022 . Additional rental vehicles are available at our franchise rental location, Arcimoto Key West inKey West, Florida and at revenue sharing partner operators across locations inWashington ,Florida ,California , andOregon . We entered into an agreement with theGraduate Hotel inEugene, Oregon in the third quarter of 2021 to rent FUVs to hotel guests. We have a revenue sharing agreement with GoCars inSan Diego with additional locations opening in the second half of 2022.
We plan to open additional
Service
We are pursuing three different models for service of the FUV:
Service-on-demand Our initial model is on-demand and on-site vehicle service byArcimoto technicians orArcimoto -authorized technicians. Service-on-demand will likely be the primary model during ourWest Coast release as the majority of the vehicles will be geographically located relatively near the factory or a mobile technician. We intend for customers to request service either through theArcimoto mobile app or by calling a 24-hour service number. In-market partnership We are currently reviewing potential service partners located in our key distribution regions. We have contracted withAgero Driver Assistance Services, Inc. to provide our customers with roadside assistance. We are currently reviewing Agero's network of pre-approved third-party service providers, as well as other third-party service providers, to perform service onArcimoto vehicles. We are currently selecting, training, and certifying providers as we expand. Rental facility service
We employ
Vehicle Financing We have secured multiple partners nationwide to apply for consumer financing on our website. We have expanded financing options for customers to pursue personal financing to purchase our FUVs.
Management Opportunities, Challenges and Risks
Sales Funnel, Order Backlog, etc.
We are focused on building our sales and rental revenue in the states where we have current rental operations and delivery options available for customers:California ,Florida ,Washington ,Oregon ,Nevada , andArizona . We recently addedHawaii which is scheduled to open rentalsAugust 20th 2022 . Also, we plan to expand our business in other states as we scale our production. While we expand geographical boundaries of our business operations, we also plan to expand and improve on the customers' retail experiences by including additional rental partnerships and pop-up demo drive experiences through new Customer Experience Centers. Our current conversion rate from our rental operations and demo drives is pacing YTD at approximately 8%. In Q2 we converted 4% of drives to order with anticipation of continued conversion in the months ahead in line with longer selling cycles for vehicle purchases. We aim to increase our conversion rate for both our rental operations and demo drives through increased engagement at each step of our customer journey and grow our drive volume by expanding our geographical footprint through various channels. These various channels include, but are not limited to, our rental operations, pop-up demo centers in high traffic flagship markets, strategic events and shows throughout the country and identifying new markets and expanding our brand awareness.
At
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Currently, we are dependent on a single supplier for our battery cells. During the third quarter of 2021, we received two types of battery cells, one of which has been discontinued. In order to use these cells, our engineering team is currently developing a module that will enable the utilization of these battery cell types. Upon development, regulatory testing will be conducted for compliance with government safety standards. This development and testing will occur concurrently with the planned pause in production discussed in the paragraph above. One of the battery cells was certified while another cell is expected to complete certification by the fourth quarter of 2022. We do not expect any challenges in regard to the certification process. We also expect that future battery cell purchases may have to be certified if these purchased cells have different specifications than what already has been certified. We have contracted with a constellation of industry partners to evaluateArcimoto's manufacturing processes and supply chain management in order to drive down costs and begin high-volume production ofArcimoto ultra-efficient electric vehicles. To date, substantial progress has been made in understanding the cost models for future vehicles based on current and anticipated supply chain conditions, ergonomic studies, planning for failure modes and effects analysis ("FMEA"), baseline ride-drive characteristics, mapping outEuropean Union ("EU") certification, cost reduction for manufacturing, lean manufacturing analysis, vehicle architecture sourcing-selection for all major subsystems and the technology roadmap for future vehicles and marketing roadmap. We have conducted multiple pilot programs with various partners to add credence to the business case for a light weight rapid response electric vehicle. Rapid responders have been well received under these pilot programs. We have several ongoing Deliverator pilot programs with individuals, municipalities, and corporate fleets. We have completed the first phase of tool-up for manufacture and production of the Deliverator, and we will continue to build Deliverators in low volume through the remainder of 2022, to support commercial new pilot programs. Mean-Lean-Machine ("MLM")
We currently have received 1,000 pre-orders or
Trends in Cash Flow, Capital Expenditures and Operating Expenses
Our capital expenditures are typically difficult to project beyond the short term given the number and breadth of our core projects at any given time and may further be impacted by uncertainties in future market conditions. We are simultaneously ramping new products in the Deliverator and Roadster, micro mobility, ramping manufacturing facilities in the new 10-acre campus and piloting the development and manufacture of new battery module technologies, and the pace of our capital spend may vary depending on overall priority among projects, the pace at which we meet milestones, production adjustments to and among our various products, increased capital efficiencies and the addition of new projects. Owing and subject to the foregoing as well as the pipeline of announced projects under development and all other continuing infrastructure growth, we currently expect our capital expenditures to be between$35,000,000 to$40,000,000 in 2022 and each of the next two fiscal years. Our business has been consistently generating negative cash flow from operations, some of this is offset with better working capital management resulting in shorter days sales outstanding than days payable outstanding. We are also likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and rising material prices and increasing supply chain and labor expenses resulting from changes in global trade conditions and labor availability associated with the COVID-19 pandemic. Moreover, while our stock price was significantly elevated during parts of 2021, we saw higher levels of exercise of investor warrants and options from employee equity plans, which obligates us to deliver shares pursuant to the terms of those agreements. Overall, 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. Operating expenses increased by approximately 55% or$3,750,000 for the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 and 59%, or$7,470,000 , for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 . This increase was primarily due to, among other things, increased sales and marketing costs and research and development ("R&D") expenses. Sales and marketing expenses increased as we ramped up our marketing efforts to achieve higher levels of sales growth. Research and development expenses increased as we pursued new and more efficient methods of production processes and continued to improve our technological design and development of our product lines. The number of employees increased by approximately 46%, from 198 as ofJune 30, 2021 , to 289 employees as ofJune 30, 2022 . The increased staff was needed to build out all parts of the Company for selling and servicing vehicles. 22
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Table of Contents 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.
Our current cost structure, along with other factors including market penetration in the states we are currently doing business, does not allow us to achieve profitability. Although we are constantly trying to improve our cost structure and market penetration, we may not succeed to the point where we can achieve profitability consistently. Also,Arcimoto may not be able to reduce costs to the level necessary to unlock the market potential for our products. We may, from time to time, be subject to recalls due to, among other things, software glitches and/or faulty parts which may require us to provide warranty repairs to our customers. These additional warranties may have a negative impact on our financial resources, which may in turn, negatively impact our financial results.
Although we expect our acquisition of
New Accounting Pronouncements For a description of new accounting pronouncements, please refer to the "Summary of Significant Accounting Policies" in Note 2 to our Condensed Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K filed with theSEC onMarch 31, 2022 . 23
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Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with GAAP. The preparation
of these financial statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, costs and expenses
and related disclosures. We base our estimates on historical experience, as
appropriate, and on various other assumptions that we believe are reasonable
under the circumstances. Changes in the accounting estimates are reasonably
likely to occur from period to period. Accordingly, actual results could differ
significantly from the estimates made by our management. We evaluate our
estimates and assumptions on an ongoing basis. To the extent that there are
material differences between these estimates and actual results, our future
financial statement presentation, financial condition, results of operations and
cash flows will be affected. See Note 2 to our Condensed Financial Statements
under Part I, Item I of this Quarterly Report on Form 10-Q.
Inventory
Inventory is stated at the lower of cost (using the first-in, first-out method
("FIFO")) or net realizable value. We expense all labor and overhead costs as we
are currently selling vehicles below the base cost of a finished unit. As such,
our inventory costs consist mainly of material costs. Due to external economic
conditions, including supply chain issues and inflation, among other things,
such costs may fluctuate significantly over time and affect our results of
operations. There had been no significant fluctuations in costs of the materials
used in our inventory during the first half of 2022.
Convertible Note
We have elected the fair value option under ASC 825-10-25 to account for the
convertible note. We have utilized a binomial lattice methodology in estimating
the fair value. 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/loss on
convertible note fair value in the Condensed Statements of Operations.
Results of Operations
Three Months Ended
The following table summarizes the Company’s results of operations:
Three Months Ended
June 30, Change
2022 2021 Dollars Percentage
Revenue $ 1,499,341 $ 717,379 $ 781,962 109 %
Cost of goods sold 6,104,337 3,248,061 2,856,276 88 %
Gross loss (4,604,996 ) (2,530,682 ) (2,074,314 ) 82 %
Operating expenses:
Research and development 3,716,431 2,646,071 1,070,360 40 %
Sales and marketing 3,070,280 1,589,475 1,480,805 93 %
General and administrative 3,785,661 2,586,719 1,198,942 46 %
Total operating expenses 10,572,372 6,822,265 3,750,107 55 %
Loss from operations (15,177,368 ) (9,352,947 ) (5,824,421 ) 62 %
Other (income) expense:
Gain on forgiveness of PPP
loan - (1,078,482 ) 1,078,482 (100 )%
Unrealized loss on
convertible note fair value 2,145,540 - 2,145,540 NA
Interest expense 124,171 47,348 76,823 162 %
Other income (45,937 ) (75,279 ) 29,342 (39 )%
Loss before income tax
benefit (17,401,142 ) (8,246,534 ) (9,154,608 ) 111 %
Income tax benefit (3,200 ) (150 ) (3,050 ) 2033 %
Net loss $ (17,404,342 ) $ (8,246,684 ) $ (9,157,658 ) 111 %
Revenues
Total revenue increased approximately $782,000 or 109% for the three months
ended June 30, 2022 , compared to the same period last year. The increase was
primarily due to an increase in the number of FUV units sold, partially offset
by slightly lower average sales price for the quarter, an increase in TMW
revenue and a slight increase in rental revenue. These increases were due to the
ramp up of our marketing and sales activities.
We had approximately $1,499,000 in revenue, comprising approximately
$1,015,000 in net revenue from the sales of our vehicles and related products
and accessories, approximately $430,000 in TMW net revenue and approximately
$54,000 in net revenue from rental operations during the three months ended June
30, 2022 . We had approximately $717,000 in revenue, comprising approximately
$670,000 in revenue from the sales of our vehicles, approximately $31,000 in TMW
revenue and approximately $17,000 in revenue from our rental operation during
the three months ended June 30, 2021 .
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Table of Contents Cost of Goods Sold Cost of goods sold increased by approximately$2,856,000 or 88%, primarily driven by higher materials cost due to increased production and rising costs due to global supply chain issues, higher payroll costs due to additional hiring and company-wide cost of living payroll increases and higher manufacturing overhead as a result of ramping up our production operations and to a lesser extent, higher inventory losses due to purchase price variance and higher TMW COGS as a result of higher TMW revenues. We had approximately$6,104,000 in cost of goods sold ("COGS"), comprising approximately$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,$486,000 from an adjustment to inventory for purchase price variance, obsolescence and scrap, and approximately$4,024,000 in manufacturing, labor, and overhead, during the three months endedJune 30, 2022 . Included in the manufacturing, labor and overhead costs are payroll and employee-related costs of$2,192,000 while the remaining costs consist of consulting services, freight, and depreciation, among other things. We had approximately$3,248,000 in COGS, comprising approximately$655,000 for FUV material costs from the sale of our vehicles,$87,000 in warranty reserves,$26,000 in TMW COGS and$83,000 in other material-related costs, and approximately$2,397,000 in manufacturing, labor, and overhead, during the three months endedJune 30, 2021 Operating Expenses
Research and Development (“R&D”) Expenses
R&D expenses increased by$1,070,000 or 40% during the three months endedJune 30, 2022 as compared to the same period last year primarily due to higher costs incurred in developing and/or improving new technology in connection with our product lines and also designing production processes in anticipation of future increases in production volume. The increase was due to higher consulting services and payroll costs as a result of additional hiring and cost of living payroll increases. R&D expenses for the three months endedJune 30, 2022 and 2021 were approximately$3,716,000 and$2,646,000 , respectively.
Sales and Marketing (“S&M”) Expenses
S&M expenses for the three months endedJune 30, 2022 and 2021 were approximately$3,070,000 and$1,589,000 , respectively. The primary reasons for the increase in sales and marketing expenses during the three months endedJune 30, 2022 of approximately$1,481,000 , or 93%, as compared to the prior period were increased costs related to the expansion of the sales and marketing department and higher activities to market our product lines via various forms ofcustomer communications. As markets opened up after the COVID-19 pandemic, we have expanded into new markets, conducted road shows and incurred expenses to increase our brand awareness. We have hired key sales and marketing personnel to support our sales growth strategy which increased our payroll and employee-related costs. The higher levels of marketing activities resulted in higher travel and marketing costs.
General and Administrative (“G&A”) Expenses
G&A expenses consist primarily of personnel and facilities costs related to executives, finance, human resources, information technology, as well as legal fees for professional and contract services. G&A expenses for the three months endedJune 30, 2022 were approximately$3,786,000 as compared to approximately$2,587,000 for the same period last year, representing an increase of approximately$1,199,000 , or 46%. The increase was primarily due to, among other things, higher payroll and payroll-related costs as a result of cost of living payroll increases and additional employees needed to support anticipated business growth, higher consulting costs to support our technology infrastructure, higher insurance costs from higher business activities, higher legal costs, partially offset by lower accounting and professional fees.
Gain on forgiveness of PPP Loan
OnMay 5, 2020 , the Company received a Paycheck Protection Program ("PPP") loan in the amount of approximately$1,069,000 , referred to on the balance sheet as Note payable to bank. The loan has an interest rate of 1% and monthly payments of approximately$60,000 for 18 months beginningDecember 5, 2020 . This loan is eligible for the limited loan forgiveness provisions of Section 1102 of the CARES Act, and the SBA Interim Final Rule datedApril 2, 2020 . OnApril 27, 2021 all of the outstanding principal and interest of approximately$1,069,000 and$10,000 , respectively, were forgiven as ofJune 30, 2021 . No such transaction took place in 2022.
Unrealized Loss on Convertible Note Fair Value
We recorded an unrealized loss of
Interest Expense Interest expense for the three months endedJune 30, 2022 was approximately$124,000 , as compared to$47,000 during the three months endedJune 30, 2021 . The increase in interest expense was primarily due to the interest accrued on the convertible note. Other Income
Other income was approximately
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Six Months Ended
The following table summarizes the Company’s results of operations:
Six Months Ended
June 30, Change
2022 2021 Dollars Percentage
Revenue: 2,149,574 2,111,355 38,219 2 %
Cost of goods sold 10,151,609 6,472,812 3,678,797 57 %
Gross loss (8,002,035 ) (4,361,457 ) (3,640,578 ) 83 %
Operating expenses:
Research and development 7,623,016 5,070,511 2,552,505 50 %
Sales and marketing 5,996,785 2,554,078 3,442,707 135 %
General and
administrative 6,484,614 5,010,188 1,474,426 29 %
Total operating expenses 20,104,415 12,634,777 7,469,638 59 %
Loss from operations (28,106,450 ) (16,996,234 ) (11,110,216 ) 65 %
Other (income) expense:
Gain on forgiveness of
PPP loan - (1,078,482 ) 1,078,482 (100 )%
Unrealized loss on
convertible note fair
value 2,145,540 - 2,145,540 NA
Interest expense 173,906 99,575 74,331 75 %
Other income (71,196 ) (89,433 ) 18,237 (20 )%
Loss before income tax
benefit (30,354,700 ) (15,927,894 ) (14,426,806 ) 91 %
Income tax (expense)
benefit (3,200 ) 2,938,698 (2,941,898 ) (100 )%
Net loss $ (30,357,900 ) $ (12,989,196 ) $ (17,368,704 ) 134 %
Revenues
Total revenue increased slightly by approximately $38,000 or 2% for the six
months ended June 30, 2022 , compared to the same period last year. The increase
was primarily due to an increase in TWM revenue and rental revenue, partially
offset by a decline in our FUV sales as we temporarily ceased production in the
first quarter of 2022 in order to move into our new production facilities in
anticipation of future production growth. TMW was acquired during the first
quarter of 2021 and therefore, TMW revenues for the six months ended June 30,
2021 were from the time of acquisition till June 30, 2021 .
We had approximately $2,150,000 in revenue, comprising approximately
$1,530,000 in net revenue from the sales of our vehicles and related products
and accessories, 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 . We had approximately $2,111,000 in revenue, comprising approximately
$1,964,000 in revenue from the sales of our vehicles and related products and
accessories, approximately $123,000 and approximately $24,000 in revenue from
rental operations during the six months ended June 30, 2021 .
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Table of Contents Cost of Goods Sold Cost of goods sold increased by approximately$3,679,000 or 57%, primarily driven by higher payroll costs due to additional hiring and company-wide cost of living payroll increases and higher manufacturing overhead as a result of ramping up our production operations and higher inventory losses due to purchase price variance, higher freight charges as a result of macroeconomic factors related to transportation costs, higher TMW and rental COGS due to increased activity compared to the same period last year. As noted above, TMW was acquired during the first quarter if 2021 and as such, the results of operations for TMW did not fully reflect six months of operations in 2021. We had approximately$10,152,000 in cost of goods sold ("COGS"), comprising approximately$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,$692,000 from an adjustment to inventory for purchase price variance, obsolescence and scrap, and approximately$7,073,000 in manufacturing, labor, and overhead, during the six months endedJune 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. We had approximately$6,473,000 in COGS, comprising approximately$1,931,000 for FUV material and freight costs from the sale of our vehicles,$93,000 related to TMW,$237,000 in warranty costs,$28,000 from an adjustment to inventory for purchase price variance and scrap and other costs, and approximately$4,184,000 in manufacturing, labor, and overhead, during the six months endedJune 30, 2021 . Operating Expenses
Research and Development (“R&D”) Expenses
R&D expenses increased by$2,553,000 or 50% during the six months endedJune 30, 2022 as compared to the same period last year primarily due to higher costs incurred in developing and/or improving new technology in connection with our product lines and also designing production processes in anticipation of future increases in production volume. The increase was due to higher consulting services and payroll costs as a result of additional hiring and cost of living payroll increases. R&D expenses for the six months endedJune 30, 2022 and 2021 were approximately$7,623,000 and 5,070,511, respectively.
Sales and Marketing (“S&M”) Expenses
S&M expenses for the six months endedJune 30, 2022 and 2021 were approximately$5,997,000 and$2,554,000 , respectively. The primary reasons for the increase in sales and marketing expenses during the six months endedJune 30, 2022 of approximately$3,443,000 , or 135%, as compared to the prior period was increased costs related to the expansion of the sales and marketing department and higher activities to market our product lines via various forms ofcustomer communications. As markets opened up after the COVID-19 pandemic, we have expanded into new markets, conducted road shows and incurred expenses to increase our brand awareness. We have hired key sales and marketing personnel to support our sales growth strategy which increased our payroll and employee-related costs. The higher levels of marketing activities resulted in higher travel and marketing costs.
General and Administrative (“G&A”) Expenses
G&A expenses consist primarily of personnel and facilities costs related to executives, finance, human resources, information technology, as well as legal fees for professional and contract services. G&A expenses for the six months endedJune 30, 2022 were approximately$6,485,000 as compared to approximately$5,010,000 for the same period last year, representing an increase of approximately$1,474,000 , or 29%. The increase was primarily due to, among other things, higher payroll and payroll-related costs as a result of cost of living payroll increases and additional employees needed to support anticipated business growth, higher consulting costs to support our technology infrastructure, higher insurance costs from higher business activities, partially offset by lower legal, accounting and professional fees. 27
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Gain on forgiveness of PPP Loan
OnMay 5, 2020 , the Company received a Paycheck Protection Program ("PPP") loan in the amount of approximately$1,069,000 , referred to on the balance sheet as Note payable to bank. The loan has an interest rate of 1% and monthly payments of approximately$60,000 for 18 months beginningDecember 5, 2020 . This loan is eligible for the limited loan forgiveness provisions of Section 1102 of the CARES Act, and the SBA Interim Final Rule datedApril 2, 2020 . OnApril 27, 2021 all of the outstanding principal and interest of approximately$1,069,000 and$10,000 , respectively, were forgiven as ofJune 30, 2021 . No such transaction took place in 2022.
Unrealized Loss on Convertible Note Fair Value
We recorded an unrealized loss of
Interest Expense
Interest expense for the six months endedJune 30, 2022 was approximately$174,000 , as compared to$100,000 during the six months endedJune 30, 2021 . The increase in interest expense was primarily due to the interest accrued on the convertible note. Other Income
Other income was approximately
Liquidity and Capital Resources
Cash Flows from Operating Activities
Our cash flows from operating activities are significantly affected by our cash outflows to support the growth of our business in areas such as R&D, sales and marketing and G&A expenses. Our operating cash flows are also affected by our working capital needs to support personnel related expenditures, accounts payable, inventory purchases and other current assets and liabilities. During the six months endedJune 30, 2022 cash used in operating activities was approximately$26,105,000 , which included a net loss of approximately$30,358,000 , non-cash charges of$7,753,000 and changes in net working capital and other items that contributed to cash and cash equivalent reduction of approximately$3,500,000 . Our net loss was primarily due to, among other things, (1) spending on R&D expenditures to develop and improve new technology in connection with our product lines and new designs of our production processes in anticipation of future increases in production volume, and (2) spending on S&M expenses as we increased our sales force in order to ramp up our marketing efforts and activities to increase our brand awareness and conduct road shows. Our inventory increased in anticipation of future sales and production growth while our accounts payable increased, primarily due to timing. 28
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During the six months endedJune 30, 2021 , cash used in operating activities was approximately$14,021,000 , which included a net loss of approximately$12,989,000 , non-cash charges of approximately$1,660,000 , and changes in net working capital items of approximately$629,000 .
Cash Flows from Investing Activities
Cash flows from investing activities primarily relate to the capital expenditures to support our growth in operations, including investments in manufacturing equipment and tooling. During the six months ended
During the six months endedJune 30, 2021 , we paid approximately$13,737,000 to purchase property and equipment, approximately$24,000 for security deposits, and$1,754,000 as part of the TMW acquisition.
Cash Flows from Financing Activities
During the six months endedJune 30, 2022 net cash provided by financing activities was approximately$19,755,000 , compared to net cash provided by financing activities of approximately$28,558,000 during the six months endedJune 30, 2021 . Cash flows provided by financing activities during the six months endedJune 30, 2022 comprised of proceeds from the issuance of common stock through our registered offerings of approximately$16,315,000 (net of offering costs of approximately$598,000 , proceeds from exercise of warrants of approximately$20,000 , proceeds from equipment notes of approximately$65,000 , proceeds from the exercise of options of approximately$83,000 , and proceeds from convertible note of$4,500,000 , reduced by payments of notes payable of approximately$789,000 , payments on finance lease obligations of approximately$195,000 and equipment notes of approximately$245,000 . During the six months endedJune 30, 2021 , net cash provided by financing activities was approximately$28,558,000 . Cash flows provided by financing activities during the six months endedJune 30, 2021 mainly comprised of proceeds from the issuance of common stock through our S-3 offering of approximately$26,383,000 (net of offering costs of approximately$924,000 ), proceeds from exercise of stock options and warrants of approximately$932,000 , proceeds from equipment notes of approximately$294,000 , reduced by repayments of notes payable of approximately$429,000 , repayment of equipment notes of approximately$329,000 .
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