The following discussion and analysis of our financial condition and results of operations for the fiscal year endedDecember 31, 2022 , should be read together with our financial statements and related notes included elsewhere in this Annual Report on Form 10-K. 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. 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." 31
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Table of Contents Overview and 2022 HighlightsArcimoto's mission is to catalyze the shift to a sustainable transportation system. Since our incorporation, we have been engaged primarily in the design, development, manufacture, sale and rental of ultra-efficient three-wheeled electric vehicles.Arcimoto's fundamental thesis: there is a disconnect between the size and efficiency of a car (~4,000 pounds of material that can carry five to seven people) and how people use cars on a daily basis (one or two passengers driving an average of 30 miles a day with cargo).Arcimoto, Inc. (the "Company") was incorporated in theState of Oregon onNovember 21, 2007 . In 2022 we produced 336 vehicles. We sold 228 new vehicles. We deployed 85 vehicles into rental operations and 24 vehicles into fixed assets for marketing and other purposes. We are currently focused on achieving a profitable product through engineering cost down initiatives, increasing factory production capacity, achieving profitable rental operations, building out a national service strategy and optimizing our sales and marketing funnel to prepare for scale.
In 2022, we recognized total revenues of approximately
In 2022, our net loss attributable to common stockholders was approximately
We ended 2022 with approximately$462,800 in cash and cash equivalents, representing a decrease of approximately$16.51 million from the end of 2021. Our cash flows used in operating activities during 2022 was approximately$47.52 million , representing an increase of approximately$8.23 million compared to approximately$39.29 million during 2021, and capital expenditures amounted to approximately$8.06 million during 2022, compared to approximately$17.36 million during 2021. We have mainly funded our business through the sale of equity, the issuance of convertible notes and the issuance of debt on capital equipment. Subject to available funding, we will continue investing in a number of capital-intensive projects in upcoming periods. Since the purchase of the factory,Arcimoto has completed major power upgrades to the site and critical facilities to support production equipment expansion, updated the lighting and facades in all production spaces, installed and put in production our CNC machine shop, installed and put into production the automated Vacuum Forming line for body work and installed and put into production our assembly line. Additionally, improvements were made at our AMP location to improve our battery production. 32
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2022 Press Release Announcements
Milestones:
- Arcimoto Announces Electric Vehicle Financing Now Available Through FreedomRoad Financial
- Arcimoto Announces Strategic Restructuring Plan
- Rental Openings:
Arcimoto and Island Bike Shop Introduce FUVs to Marco Island forBeachside Rentals
Arcimoto and Adventure Center to Begin FUV rentals to Fort
Lauderdale,
Arcimoto and Scoot Scoot Rentals to Begin FUV rentals in St.
Petersburg,
Arcimoto Announces New Experience Center at Royal Sonesta Kaua'i
Resort
Arcimoto Announces Development of Driverless EVs for Tourism
Rentals
with Faction and GoCar Tours
Pilots:
-
- Arcimoto Unveils the Mean Lean Machine
-
-
-
State Openings:
- Arcimoto Now Accepting Vehicle Reservations From Customers In Hawaii
- Arcimoto Opens Vehicle Sales in 4 New States,
Legislation:
- New York Passes Lupardo-Kennedy Autocycle Bill Allowing Three-Wheeled Vehicles to be Operated without a Motorcycle License
- Utah Passes Christofferson-Harper Autocycle Bill Allowing Three-Wheeled Vehicles to be Operated without a Motorcycle License
- Alabama Passes Meadows Autocycle Bill Allowing Three-Wheeled Vehicles to be Operated without a Motorcycle License or Helmet
- Arcimoto Vehicles Reclassified as Autocycles in the
Accolades:
- Arcimoto Named One of
- Arcimoto Deliverator Named Overall Electric Vehicle of the Year in 2022 AutoTech Breakthrough Awards
Management Opportunities, Challenges, Risks and 2023 Outlook
Impact of COVID-19 Pandemic Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of semiconductor supply. We have also previously been affected by temporary manufacturing closures, employment and compensation adjustments, and impediments to administrative activities supporting our product deliveries and deployments. Ultimately, we cannot predict the duration of the COVID-19 pandemic. We will continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure requirements and deploy our production, workforce and other resources accordingly. Production
Retail series production has grown from 56 in 2019, to 117 in 2020, to 331 in 2021, to 336 in 2022.
We are evaluatingArcimoto's manufacturing processes and supply chain management in order to drive down costs and begin 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, 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. Additionally, we have taken service feedback on existing vehicles to improve our manufacturing, customer experience and vehicle reliability. Demand and Sales The long-term success of this business is dependent upon increasing margins through engineering product cost reduction initiatives, purchasing contracts, and decreasing customer acquisition costs over time. Our cost reduction efforts are key to our vehicles' affordability to the customer. We will also continue to generate demand and brand awareness by improving our vehicles' performance and functionality, and by expanding sales in more states, ownership loyalty, owner engagement, increased product exposure and additional sales channels. Moreover, we expect to continue to benefit from the ongoing electrification of the automotive sector and increasing environmental awareness. Key to identifying and effectively engaging the customer is our implementation of a new CRM and an efficient deployment of advertising, driven by data. 33
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Demand for the Retail Series Arcimoto FUV has continued to increase. As of
The average sales price, including custom upgrade options, for the year endedDecember 31, 2022 was$21,393 ,$1,493 or 7.5% above the starting price. 228 model year 2022 FUVs were delivered to customers during the year endedDecember 31, 2022 . 192 model year 2021 FUVs were delivered to customers during the year endedDecember 31, 2021 . This represents an increase of 36 FUVs sold, or an increase of 18.8%.
Trends in Cash Flow and Capital Expenditures
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 have suspended a number of capital expenditure programs. Last year we projected these programs would require capital expenditures to be between$35,000,000 to$40,000,000 per year over a three-year period. Our current projections are approximately$10,000,000 per year over the next three-year period. Under current capital market conditions, we may not be able to obtain the capital funding needed to achieve these goals. Our business has been consistently generating negative cash flow from operations, some of this is offset with working capital management resulting in shorter days sales outstanding than days payable outstanding. We initiated a restructuring plan in the fourth quarter of 2022 to reduce our payroll overhead, but we anticipate continued negative cash flows until engineering cost improvements and increased sales volume are achieved. Operating Expense Trends Operating expenses increased by approximately 10%, or$3,919,000 , for the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 . Operating expenses for 2022, which did not include a non-cash charge for goodwill impairment of$6,824,000 that was recorded in 2021, increased primarily due to increased research and development activities (some of which may not create significant benefit to us in the future), increased hiring within the sales and marketing functions for the first three quarters of 2022, as a result of enhanced marketing initiatives and increased payroll costs with our administrative functions for the first three quarters of 2022 to support our expected future growth. The number of employees decreased by approximately 17%, from 250 full-time employees as ofDecember 31, 2021 to 208 full-time employees and one part-time employee as ofDecember 31, 2022 . 117 of these employees were working and 92 employees were on unpaid leave-furlough atDecember 31, 2022 . No severance costs were incurred as a result of this leave-furlough. 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.
As long as we see expanding sales, we generally expect operating expenses relative to revenues to decrease as we continue to increase operational efficiency and implement process automation.
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Table of Contents New Accounting Pronouncements
For a description of our significant accounting policies and estimates, please refer to the "Summary of Significant Accounting Policies" in Note 2 to the Financial Statements beginning at page F-1 of this Annual Report on Form 10-K.
Disclosure About Off-Balance Sheet Arrangements
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles generally accepted in theU.S. ("GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe are reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. See Note 2 - Summary of Significant Accounting Policies. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The estimates used for, but not limited to, the collectability of accounts receivable, inventory valuation, fair value of long-lived assets, goodwill, warranty reserves, and fair value of financial instruments could be impacted. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this Annual Report on Form 10-K. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. Policies Revenue Recognition Vehicle sales revenue include revenue related to deliveries of new and pre-owned vehicles. We recognize revenue on vehicle sales upon delivery to the customer, which is when the control of a vehicle transfers. Payments are typically received at the point control transfers or in accordance with payment terms customary to the business. Amounts billed to customers related to shipping and handling are classified as vehicle sales revenue, and we have elected to recognize the cost for freight and shipping when control over vehicles, parts or accessories have transferred to the customer, as an expense in the cost of goods sold. Our policy is to exclude taxes collected from a customer from the transaction price of automotive contracts. 35
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Table of Contents Business Combination
We allocate the fair value of the consideration transferred to the assets acquired and liabilities assumed, including trade name, proprietary technology, and customer relationships based on their estimated fair values at the acquisition date. Any residual purchase price is recorded as goodwill. The purchase price allocation requires us to make significant estimates and assumptions, especially at the acquisition date, with respect to intangible assets.
Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience and information obtained from the management of the acquired company and are inherently uncertain. Examples of critical estimates used in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:
? future expected cash flows from sales, and acquired developed technologies;
? the acquired company's trade name and customer relationships as well as
assumptions about the period of time the acquired trade name and customer
relationships will continue to be used in our products; and
? discount rates used to determine the present value of estimated future cash
flows.
These estimates are inherently uncertain and unpredictable, and if different
estimates were used the purchase price for the acquisition could be allocated to
the acquired assets and liabilities differently from the allocation that we have
made. In addition, unanticipated events and circumstances may occur, which may
affect the accuracy or validity of such estimates, and, if such events occur, we
may be required to recognize a loss in the statement of operations due to an
overestimation of the value ascribed to an acquired asset or an increase in the
amounts recorded for assumed liabilities.
Estimates
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value. Cost is
computed using standard cost, which approximates actual cost on a first-in,
first-out basis. We also record inventory write-downs for excess or obsolete
inventories based upon assumptions about current and future demand forecasts. If
our inventory on-hand is in excess of our future demand forecast, the excess
amounts are reserved to reduce the carrying value to net realizable value. We
also review our inventory to determine whether its carrying value exceeds the
net amount realizable upon the ultimate sale of the inventory. This requires us
to determine the estimated selling price of our vehicles less the estimated cost
to convert the inventory on-hand into a finished product. Once inventory is
written down, a new, lower cost basis for that inventory is established and
subsequent changes in facts and circumstances do not result in the restoration
or increase in that newly established cost basis.
Should our estimates of future selling prices or production costs change,
additional and potentially material increases to this reserve may be required. A
small change in our estimates may result in a material charge to our reported
financial results.
Goodwill
We test goodwill for potential impairment at least annually, or more frequently
if an event or other circumstance indicates that we may not be able to recover
the carrying amount of the net assets of the reporting unit. In evaluating
goodwill for impairment, we may assess qualitative factors to determine whether
it is more likely than not (that is, a likelihood of more than 50%) that the
fair value of a reporting unit is less than its carrying amount. If we bypass
the qualitative assessment, or if we conclude that it is more likely than not
that the fair value of a reporting unit is less than its carrying value, then we
perform a quantitative impairment test by comparing the fair value of a
reporting unit with its carrying amount.
We calculate the estimated fair value of a reporting unit using a weighting of
the income and market approaches. For the income approach, we use internally
developed discounted cash flow models that include the following assumptions,
among others: projections of revenues, expenses, and related cash flows based on
assumed long-term growth rates and demand trends; expected future investments to
grow new units; and estimated discount rates. For the market approach, we use
internal analyses based primarily on market comparables. We base these
assumptions on our historical data and experience, third party appraisals,
industry projections, micro and macro general economic condition projections,
and our expectations.
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Table of Contents
Warranties
We provide a manufacturer's warranty on all new vehicles we sell for the lesser
of three years or thirty-six thousand miles. We accrue a warranty reserve for
the products sold by us, which includes our best estimate of the projected costs
to repair or replace items under warranties and recalls when identified. These
estimates are based on actual claims incurred to date and an estimate of the
nature, frequency and costs of future claims. These estimates are inherently
uncertain given our relatively short history of sales, and changes to our
historical or projected warranty experience may cause material changes to the
warranty reserve in the future. The portion of the warranty reserve expected to
be incurred within the next 12 months is in the current portion of warranty
reserve, while the remaining balance is in warranty reserve on the balance
sheets. Warranty expense is recorded as a component of cost of goods sold in the
statements of operations.
Stock-Based Compensation
We use the fair value method of accounting for our stock options and restricted
stock units ("RSUs") granted to employees and directors to measure the cost of
employee services received in exchange for the stock-based awards. The fair
value of stock option awards with only service and/or performance conditions is
estimated on the grant or offering date using the Black-Scholes option-pricing
model. The Black-Scholes option-pricing model requires inputs such as the
risk-free interest rate, expected term and expected volatility. The fair value
of RSUs is measured on the grant date based on the closing fair market value of
our common stock. The resulting cost is recognized over the period during which
an employee is required to provide service in exchange for the awards, usually
the vesting period, which is generally three years for stock options and on
issuance for RSUs as these are issued at the end of each quarter for that
quarter's service. Stock-based compensation expense is recognized on a
straight-line basis, net of actual forfeitures in the period.
For performance-based awards, stock-based compensation expense is recognized
over the expected performance achievement period of individual performance
milestones when the achievement of each individual performance milestone becomes
probable.
As we accumulate additional employee stock-based award data over time and as we
incorporate market data related to our common stock, we may calculate
significantly different volatilities and expected lives, which could materially
impact the valuation of our stock-based awards and the stock-based compensation
expense that we will recognize in future periods. Stock-based compensation
expense is recorded in cost of goods sold, research and development expense,
sales and marketing and general and administrative expense in the statements of
operations.
Property, Plant and Equipment and Finite-lived Intangible Assets
Our property, plant and equipment primarily consists of land, leasehold improvements, buildings, machinery and equipment, FUV fleets, computer equipment and software and furniture and fixtures. Our intangible assets are finite-lived intangibles and consist primarily of trade names/trademarks, proprietary technology, and customer relationships. In the event of a triggering event that may result in a potential impairment, we assess the recoverability of our property, plant and equipment and finite-lived intangible assets using an undiscounted cash flow test. If the undiscounted cash flows are greater than the net book values, we conclude that there is no impairment. If the undiscounted cash flows are less than the net book values of such assets, then we conduct the second step of the impairment test. The second step is carried out by comparing the discounted forecasted cash flows (using an appropriate discount rate) with the carrying value of these assets. This difference is recorded as an impairment on the Statement of Operations, if applicable. Convertible Notes Our convertible notes are measured at fair value on a recurring basis. 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 difference between the book values and fair values are recorded on the Statements of Operations as unrealized gain or loss on convertible note fair value. Income Taxes We are subject to taxes in theU.S. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans. Tax laws, regulations and administrative practices may be subject to change due to economic or political conditions including fundamental changes to the tax laws applicable to corporate multinationals. TheU.S. is actively considering changes in this regard. As ofDecember 31, 2022 , we had recorded a full valuation allowance on our netU.S. deferred tax assets because we expect that it is more likely than not that ourU.S. deferred tax assets will not be realized. Should the actual amounts differ from our estimates, the amount of our valuation allowance could be materially impacted. 37
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Table of Contents Results of Operations
Year ended
The following table summarizes the Company's results of operations:
Years Ended
December 31, Change
2022 2021 Dollars PercentageRevenue$ 6,557,526 $ 4,386,222 $ 2,171,304 50 % Cost of goods sold 23,254,184 17,148,948 6,105,236 36 % Gross loss (16,696,658 ) (12,762,726 ) (3,933,932 ) 31 % Operating expenses: Research and development 18,933,270 12,106,489 6,826,781 56 % Sales and marketing 11,190,746 6,999,999 4,190,747 60 % General and administrative 12,343,991 12,948,147 (604,156 ) (5 )% Loss on asset disposal 329,946 - 329,946 N/A Loss on impairment of goodwill - 6,824,209 (6,824,209 ) (100 )% Total operating expenses 42,797,953 38,878,844 3,919,109 10 % Loss from operations (59,494,611 ) (51,641,570 ) (7,853,041 ) 15 % Other expense/(income): Gain on forgiveness of PPP loan - (1,078,482 ) 1,078,482 (100 )% Unrealized loss on convertible notes and warrants fair value 1,827,474 - 1,827,474 N/A Interest expense 1,083,365 216,473 866,892 400 % Other expense/(income) 469,974 (281,755 ) 751,729 (267 )% Total other expense/(income) 3,380,813 (1,143,764 ) 4,524,577 396 %
Loss before income tax (expense)/benefit (62,875,424 ) (50,497,806 ) (12,377,618 )
25 %
Income tax (expense)/benefit (3,974 ) 2,934,055 (2,938,029 ) (100 )%
Net loss $ (62,879,398 ) $ (47,563,751 ) $ (15,315,647 ) 32 %
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Table of Contents Revenues Total revenue increased approximately$2,171,000 or 50% for the year endedDecember 31, 2022 , compared to the same period last year. This increase was primarily due to an increase in product sales of approximately$1,130,000 from higher sales volume and a slight increase in average sales price in our FUV segment, an increase of approximately$726,000 of TMW segment revenue due to the acquisition of TMW in the first quarter of 2021 and increased marketing efforts, an increase in rental segment revenue of approximately$167,000 compared to the same period last year as we opened new rental locations and entered into partnership agreements with other rental partners, and approximately a$148,000 increase in service and merchandise revenues, primarily due to an increase in service revenue from our fabrication department. Cost of Goods Sold Cost of goods sold increased by approximately$6,105,000 or 36%, primarily driven by an increase in FUV material costs due to a higher number of FUV units sold, 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 and lower-of-cost or market adjustment, higher TMW and rental cost of goods sold due to increased activities compared to the same period last year. TMW was acquired during the first quarter of 2021 and as such, the results of operations for TMW for 2021 did not fully reflect 12 months of operations in 2021. We had approximately$23,254,000 in cost of goods sold ("COGS"), comprising approximately$4,862,000 for FUV material and freight costs from the sale of our vehicles, approximately$256,000 of parts and other costs, approximately$637,000 in warranty costs, approximately$768,000 in TMW COGS, approximately$801,000 in rental COGS, approximately$1,820,000 from adjustments to inventory for unrecoverable excess costs and purchase price variance as well as loss and scrap, and approximately$14,110,000 in manufacturing labor and overhead for the year endedDecember 31, 2022 . We had approximately$17,149,000 in COGS, comprising approximately$3,998,000 for FUV material and freight costs from the sale of our vehicles, approximately$64,000 of parts and other costs, approximately$959,000 in warranty costs, approximately$178,000 in TMW COGS, approximately$148,000 in rental COGS, approximately$1,050,000 from adjustments to inventory for unrecoverable excess costs and purchase price variance as well as loss and scrap, and approximately$10,752,000 in manufacturing labor and overhead for the year endedDecember 31, 2021 . Operating Expenses
Research and Development ("R&D") Expenses
R&D expenses were
R&D expenses increased by approximately$6,827,000 or 56% for the year endedDecember 31, 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. Some of these projects were canceled as part of our restructuring efforts to reduce future spending.
Sales and Marketing ("S&M") Expenses
S&M expenses were
S&M expenses for the year endedDecember 31, 2022 increased by approximately$4,191,000 , or 60%, as compared to the same period last year. The primary reasons for the increase in S&M expenses in 2022 as compared to the prior period was due to higher costs related to the expansion of the sales and marketing department and increased activities to market our product lines via various forms of customer communications during the first three quarters of 2022. As markets opened up after the COVID-19 pandemic, we expanded into new markets, conducted road shows and incurred expenses to increase our brand awareness. We hired key sales and marketing personnel to support our sales growth strategy which increased our payroll and employee-related costs during the first three quarters of 2022. During the fourth quarter of 2022, we reduced payroll costs by reducing headcount. The higher levels of marketing activities resulted in higher travel and marketing costs. 39
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General and Administrative ("G&A") Expenses
G&A expenses consist primarily of personnel and facilities costs related to executives, finance, human resources, information technology, as well as legal fees for professional and contract services. G&A expenses for the year endedDecember 31, 2022 were approximately$12,344,000 as compared to approximately$12,948,000 for the year endedDecember 31, 2021 , representing a decrease of approximately$604,000 , or 5%. The primary reasons for the decrease in the current period was due to the reversal of accrued legal expenses for litigation from 2021, partially offset by an increase in payroll costs as we increased the number of employees for the first three quarters of 2022 needed to support the business as well as increased payroll for cost-of-living adjustments. During the fourth quarter of 2022, we initiated a restructuring program in order to reduce our payroll costs. Loss on Disposal of Asset We recorded approximately$330,000 loss on disposal of our FUV units from our FUV rental fleet. These units, mainly our roadsters, were disposed primarily due to failure in satisfying certain regulations that would enable these units to be used under ordinary circumstances and to a lesser extent, damage from hurricane. Impairment of goodwill During the fourth quarter of 2021, we concluded, upon a qualitative assessment of the relevant economic factors, that it would be more likely than not that the fair values of our TMW reporting unit was less than the carrying amount. As a result, we proceeded to conduct a quantitative analysis of estimating the reporting unit's fair value by using a weighted average of both an income approach and a market approach. These valuation approaches consider several factors that include, but are not limited to, prospective financial information, growth rates, terminal value, discount rate and comparable multiples from market participants in our industry. These approaches also require us to make certain assumptions and estimates regarding industry economic factors and future profitability of our related business. These approaches resulted in the conclusion that the fair value of the TMW reporting unit was less than the reporting unit's carrying value. This was primarily due to, among other things, the unexpected continuation of the COVID-19 pandemic which caused further and unexpected disruptions within our supply chain, a retooling of our TRiO product line which delayed production, and a change in strategy toward electric tricycles that required us to change our forecasted net cash flows and the timing of these cash flows as we enter into new markets. Therefore, we recorded a non-cash impairment charge of$6,824,000 in our Statements of Operations for the year endedDecember 31, 2021 .
Gain on Forgiveness of PPP Loan
OnMay 5, 2020 , we received a Paycheck Protection Program ("PPP") loan in the amount of approximately$1,069,000 . The loan had an interest rate of 1% and monthly payments of approximately$60,000 for 18 months beginningDecember 5, 2020 . This loan was 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.
Unrealized Loss on Convertible Notes and Warrants
We recorded an unrealized loss of approximately$1,827,000 in 2022 as a result of the mark-to-market to fair value for our convertible notes in accordance with the election of the fair value option under ASC 825-10 and the bifurcated warrants issued in conjunction with our notes. Interest Expense
Interest expense for the year ended
Other Expense/(Income) Other expense for the year endedDecember 31, 2022 was approximately$470,000 , as compared to other income of approximately$282,000 during the year endedDecember 31, 2021 . Other expense for the year endedDecember 31, 2022 was primarily debt offering costs related to our convertible note. Other income for the year endedDecember 31, 2021 was primarily rental income from one of our buildings. 40
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Liquidity and Capital Resources
We have not achieved positive earnings and operating cash flows that are sufficient to finance our operations internally. Funding for the business to date has come primarily through the issuance of debt and equity securities. We will require additional funding to continue to operate. Although our objective is to increase our revenues from the sale of our products to generate sufficient positive operating and cash flow levels, there can be no assurance that we will be successful in this regard. We will need to raise additional capital in order to fund our operations, which we intend to obtain through debt and/or equity offerings. Funds on hand and any follow-on capital, will be used to invest in our business to expand sales and marketing efforts, including Company-owned and partner-rental operations and the systems to support them, enhance our current product lines by continuing research and development to enhance and reduce the cost of the FUV and to bring future variants to retail production, continue to build out and optimize our production facility, debt repayment, 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. Under current business conditions, we believe that there can be no assurance that we will be able to secure additional financing, or if available, that it will be sufficient to meet our needs or be on favorable terms. As a result, we have concluded that our plans do not alleviate substantial doubt about the Company's ability to continue as a going concern. See Note 2 - Summary of Significant Accounting Policies, in our Notes to our Financial Statements, for further disclosures regarding our ability to continue as a going concern.
As of
OnJanuary 14, 2022 , we entered into an Equity Distribution Agreement (the "Sales Agreement") withCanaccord Genuity LLC (the "Agent"), pursuant to which the Company may offer and sell, from time to time, through or to the Agent, as sales agent, up to$100,000,000 of shares ("Shares") of its common stock. Any Shares offered and sold in the Offering will be issued pursuant to our Registration Statement on Form S-3 (File No. 333-261955) filed with theSEC onDecember 30, 2021 (the "Form S-3") and declared effective onJanuary 13, 2022 , and the 424(b) prospectus supplement relating to the Offering datedJanuary 14, 2022 . We have raised approximately$27,198,000 by issuing 429,743 common shares throughDecember 31, 2022 . This financing option is not available for us to utilize for twelve months from the date of the registered direct offering agreement that was entered into onJanuary 18, 2023 . See Note 18 - Subsequent Events for additional disclosures regarding the registered direct offering. OnApril 25, 2022 , we entered into a$4,500,000 convertible promissory note agreement withDucera Investments LLC - 2022 Series A ("Creditor") whereby we agreed to pay the Creditor the amount borrowed plus interest accrued at an annual rate of 10% compounded quarterly. Subject to certain conditions, interest on the promissory note accrues as additional principal. The term of theApril 2022 Note is five years unless conversion privileges are exercised. OnAugust 31, 2022 , we entered into a Securities Purchase Agreement (the "SPA") with a third party investor (the "Buyer" or the "Holder"). Under the terms of the SPA, we will issue to the Buyer the notes and warrants pursuant to a currently effective shelf registration statement on Form S-3 (File No. 333-261955) filed with theSEC onDecember 30, 2021 (the "Form S-3") and declared effective onJanuary 13, 2022 , and the 424(b) prospectus supplement relating to the Offering datedSeptember 1, 2022 . OnSeptember 1, 2022 (the "Issuance Date"), one note (the "September 2022 Note") in the amount of$10,000,000 with 500,000 accompanying warrants (the "Warrants") were issued to the Buyer. TheSeptember 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 ofSeptember 1, 2024 . At our option, periodic installments can be paid in either cash or common stock (at an 8% discount) to the Holder. Payments in cash are subject to an additional premium and are recorded as additional interest expense. In the event of a default, the interest rate is increased to 15%, which is the default rate. However, this financing option is not available for us to utilize for twelve months from the date of the registered direct offering agreement that was entered into onJanuary 18, 2023 . See Note 18 - Subsequent Events for additional disclosures regarding the registered direct offering. OnNovember 11, 2022 , the shareholders approved up to$50,000,000 of financing through an equity line of credit with certain restrictions with a third-party investor. For the year endedDecember 31, 2022 , we issued 488,637 shares of common stock with prices ranging from$3.71 to$8.02 for total proceeds of$2,155,025 . This facility is not available for us to utilize for twelve months from the date of the registered direct offering agreement that was entered into onJanuary 18, 2023 . See Note 18 - Subsequent Events for additional disclosures regarding the registered direct offering.
The following table summarizes our sources and uses of cash:
Years Ended December 31,
2022 2021
Net cash used in operating activities $ (47,520,722 ) $ (39,291,481 )
Net cash used in investing activities (8,065,397 ) (19,125,829 )
Net cash provided by financing activities 39,077,552 35,937,229
Net cash decrease for period $ (16,508,567 ) $ (22,480,081 )
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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 year endedDecember 31, 2022 , cash used in operating activities was approximately$47,521,000 , which included a net loss of approximately$62,879,000 , non-cash charge related to depreciation and amortization of approximately$3,765,000 , non-cash charge related to stock-based compensation of approximately$6,184,000 , other non-cash charges of$3,602,000 , debt issuance costs related to our convertible note of$801,000 and changes in accounts receivable, inventory, prepaid inventory, other current assets, accounts payable, accrued liabilities, customer deposits, warranty reserve, deferred revenue, and operating lease liabilities of approximately$1,006,000 which positively impacted operating cash flow, of which approximately$5,633,000 and$4,468,000 relate to increases in accounts payable and inventory, respectively. During the year endedDecember 31, 2021 , cash used in operating activities was approximately$39,291,000 , which included a net loss of approximately$47,564,000 , non-cash charge related to depreciation and amortization of approximately$2,348,000 , gain on forgiveness of Payment Protection Program loan totaling approximately$1,078,000 (including accrued interest), non-cash charge related to stock-based compensation of approximately$3,628,000 , an approximately$6,824,000 charge related to goodwill impairment in conjunction with the TMW acquisition, a deferred tax credit of approximately$2,939,000 recorded that was the result of a release in valuation allowance from the acquisition, and changes in accounts receivable, inventory, prepaid inventory, other current assets, accounts payable, accrued liabilities, customer deposits, warranty reserve, deferred revenue, and deferred rent of approximately$510,000 , of which approximately$2,410,000 relates to inventory.
Cash Flows from Investing Activities
Cash flows used in investing activities for the year endedDecember 31, 2022 , relates to the capital expenditures to support our growth in operations, including investments in manufacturing equipment and tooling. During the year endedDecember 31, 2022 , we paid approximately$8,062,000 for manufacturing equipment and fixed asset purchases, and approximately$3,000 for security deposits. Cash flows used in investing activities for the year endedDecember 31, 2021 , relates to the capital expenditures to support our growth in operations, including investments in manufacturing equipment and tooling. During the year endedDecember 31, 2021 , we paid approximately$17,356,000 for manufacturing equipment and fixed asset purchases, and approximately$16,000 for security deposits. We also acquired TMW through a combination of cash paid of approximately$1,754,000 and non-cash common stock issuance of approximately$13,038,000 .
Cash Flows from Financing Activities
During the year endedDecember 31, 2022 , net cash provided by financing activities was approximately$39,078,000 , compared to approximately$35,937,000 during the year endedDecember 31, 2021 . Cash flows provided by financing activities during the year endedDecember 31, 2022 comprised of proceeds from the equity line of credit of approximately$2,155,000 , proceeds from the issuance of convertible notes of approximately$13,900,000 , the issuance of common stock through our registered offerings of approximately$28,209,000 , offering costs of approximately$987,000 related to the sale of common stock, proceeds from the exercise of stock options of approximately$91,000 , proceeds from the exercise of warrants of approximately$20,000 , proceeds from equipment notes of approximately$177,000 , repayments of notes payable of approximately$2,039,000 , payment for debt issuance costs of$801,000 , payment of equipment notes of$504,000 , payments on finance lease obligations amounting to approximately$441,000 , and payment on convertible note of$703,000 . During the year endedDecember 31, 2021 net cash provided by financing activities was approximately$35,937,000 . Cash flows provided by financing activities during the year endedDecember 31, 2021 comprised of proceeds from the issuance of common stock through our registered offerings of approximately$34,238,000 , offering costs of approximately$1,132,000 , proceeds from the exercise of stock options of approximately$1,707,000 , payments on finance lease obligations amounting to approximately$385,000 , proceeds from equipment notes of approximately$366,000 , repayments of notes payable of approximately$282,000 , payments of deferred offering costs of approximately$24,000 and proceeds from the exercise of warrants of approximately$1,728,000 . 42
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Non-Cash Investing and Financing Activities
During the year endedDecember 31, 2022 , approximately$4,625,000 in shares of our common stock were issued as partial payment of our convertible note and approximately$68,000 in stock was issued for payment of accounts payable and approximately$676,000 of equipment purchases were financed through finance leases. During the year endedDecember 31, 2021 , approximately$13,038,000 in shares of our common stock were issued as part of the purchase price of acquiring TMW, approximately$221,000 in stock was issued for payment of accounts payable, approximately$1,250,000 of notes payable was incurred for the purchase of property, plant, and equipment, approximately$593,000 in insurance expense was financed, and approximately$669,000 of equipment purchases were financed through finance leases.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Because we are allowed to comply with the disclosure obligations applicable to a "smaller reporting company," as defined by Rule 12b-2 of the Exchange Act, with respect to this Annual Report on Form 10-K, we are not required to provide the information required by this Item.
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