I'm an early Arcimoto backer with an early pre-order reservation number of #129. There's a lot that I like about the company's effort to design, manufacture, and sell an innovative electric three-wheeled motorcycle, which they call a FUV (Fun Utility Vehicle).
But there's also a lot to be wary about.
Notably, initial purchasers of the FUV have to make a bet on two things: (1) the quality of the final design of the FUV that will be used in retail sales (the design isn't finalized yet), and (2) the ability of Arcimoto, a start-up company, to stay in business through the three-year/36,000 mile warranty, and to be able to handle local repair, servicing, warranty, and recall needs that FUV purchasers have.
Regarding (2), I've been paying closer attention to Arcimoto financial reports as the projected date of the first retail sales draws closer. A November 2018 video indicates that this will happen in the first quarter of 2019. (Screenshot above; video is below.)
So here's my take on the company's recent third quarter 2018 earnings report, and the stock offering that following immediately after the report.
Earnings report. I'll repeat an excerpt from the 3rd quarter earnings report that I included in a November 17 blog post:
"The Company incurred an operating and net loss of $3.2 million, or ($0.20) per share in the third quarter of 2018, compared to an operating and net loss of $0.7 million, or ($0.05) per share in the third quarter of 2017.
The Company had $2.4 million in cash and cash equivalents and $0.8 million in short-term investments as of September 30, 2018, compared to $2.1 million cash and cash equivalents and $5.2 million in short-term investments as of June 30, 2018. As explained in more detail in our Quarterly Report on Form 10-Q for the periods ended September 30, 2018, our current resources are only sufficient to fund our intended operations through the end of November 2018."
Since Arcimoto only had $8,000 of revenue in July-September 2018, the loss of $3.2 million in the third quarter is all due to expenses incurred by the company, which averaged about $1.1 million per month.
Above is a more detailed look at Arcimoto finances, which I found on a GuruFocus.com page. It shows that total operating expenses for the 3rd quarter were indeed $3.2 million. Expenses have gone up markedly from the year before in all three areas, R&D, sales/marketing, and general/administrative.
Another way of looking at how quickly Arcimoto is burning up cash (not literally, obviously) is the fact that at the end of June, 2018 the company had $7.3 million in cash and short-term investments, while at the end of September, 2018 the company had $3.2 million in cash and short-term investments.
So the company had $4.1 million less in cash and short-term investments at the end of the 3rd quarter, compared to the end of the 2nd quarter. This decline in cash isn't a surprise as the company made progress in 2018 on the design and promotion of its FUV product, which involved increased expenses.
Still, since the 3rd quarter earnings report was released on November 16, a month and a half into the 4th quarter, it is easy to see why the company said that current resources were only sufficient to fund operations through the end of November -- given that only $3.2 million was available at the beginning of the quarter, and expenses in the previous quarter were running at about $1.1 million to $1.4 million per month.
(Expenses also may be running higher in the 4th quarter, given the ramp-up toward retail sales.)
Stock offering. On the same day as the earnings report, November 16, Arcimoto announced a public stock offering of 2,500,000 shares priced at the higher of $3/share or the closing price as of that day, which was $2.94/share. So $3 turned out to be the price.
It's a bit confusing as to how many shares actually were offered for direct sale via wiring money to Arcimoto by 5 pm EST on Monday, November 19. Here's how I understand what happened, which may not be totally correct.
The October 17, 2018 prospectus spoke of 2,500,000 shares being offered. But a "Subject to Completion" note dated November 16 says that "the information in this preliminary prospectus is not complete and may be changed." This fits with a BusinessWire document (partial screenshot below) that says 504,900 shares were being offered at $3 per share. Note: the offering date is wrong. Friday was November 16, not the 18th.
It appears that the company decided to offer less than the maximum number of 2,500,000 shares. I've been curious about how the stock offering went, but hadn't been able to learn how many shares were sold. The email address for the media/public relations person listed on the Arcimoto website isn't working, something I've pointed out to Arcimoto staff.
[UPDATE: It turned out that while Donahue's email address was correct on two Arcimoto web site pages, the underlying "mailto:" link had a typo in her last name, so I got the wrong address when I clicked on the email link. Arcimoto has corrected the problem, and I've re-emailed Donahue with my question about how many shares were sold in the stock offering.]
So at the moment I'm having to assume that information posted on the Arcimoto SRK "FUV" Club on Facebook is accurate, though I'm not sure how the person who posted this knew that $1.5 million was raised through the public offering. That appears to have been the goal, but I'm not aware of any public documents confirming that amount.
Well... damn, when I clicked on the post to generate a link to it, Facebook told me that the post had either been deleted or I don't have access to it. Since I'm still a member of the Facebook Club, I'm assuming that it was deleted. Fortunately, I'd made a screenshot of the post before it disappeared.
Again, I don't know how Colverson learned that $1.5 million was raised by the recent stock offering, or if this information is accurate. If he got the information from Arcimoto personnel prior to it being released publicly, that might be a violation of SEC rules.
At any rate, it does appear to be correct that Arcimoto insiders/executives bought 274,247 shares of stock in the offering on Monday, November 19. At least, that's what the GuruFocus link says. CEO Frohnmayer -- 139,903 shares. CFO Campoli -- 800 shares. COO Becker -- 210 shares. Director Eisler -- 75,000 shares. Director Scherer -- 33,334 shares. Director Curl -- 25,000 shares.
That brought in $822,741, at $3 per share. So Colverson was off a bit, when he said that company insiders put down $750,000 of their own money. Actually it was a bit more.
Now that I've re-read Colverson's post, one reason he deleted it might be the mention of Arcimoto directors heading off to Mexico and assuming new identities if they thought the company was just weeks away from going under. Sure, the remark was made in jest, I'm pretty sure, but it is a strange remark nonetheless.
For one thing, it was the company itself that said in the 3rd quarter earnings report that Arcimoto would run out of funding for current operations by the end of November 2018, given current resources. It wasn't "naysayers," which might have been a reference to me. Or to people on the Facebook forum who think like me.
Like so many others, I want Arcimoto to succeed with its FUV. I sure need more fun in my life. But I'm also a big believer in doing as much research as possible before making a significant purchase. I poured over VW GTI reviews and company information about the car for weeks, maybe months, before deciding to buy one in 2017.
And I believe I've got the 7th generation GTI, which has a long track record, as does VW, obviously. So research is way more important when considering a purchase of a new vehicle from a new company, which is the case with the FUV/Arcimoto.
Regarding the outcome of the stock offering, if all of the 504,900 shares put up for sale sold at the $3 price, that's great. Arcimoto now has $1,514,700 to keep the company operating. But as I noted above, this amount would only pay for about a month of a half of expenses, at best.
Which gets the company through the end of the year, or thereabouts. Again, assuming that all of the 504,900 shares were sold, something the company hasn't reported itself so far.
There are different ways to look upon the purchase of 274,247 shares by company insiders. In his Facebook post, Colverson thought this was a great endorsement of the company's prospects by people who know the most about what is happening with Arcimoto. OK, that's one perspective.
Here's another one.
All of the shares were bought on November 19, the last day of the stock offering. The reason might simply be that this was the first business day after the earnings report, and the insiders weren't able to wire money for the share purchases any earlier. (Assuming they were required to wire money, like other purchasers were.)
It also could be that the Arcimoto insiders knew that few "retail" investors were biting on the $3 share price, since the price of Arcimoto stock dropped dramatically on Monday. See above. I'd be surprised if anyone outside of the company was willing to pay $3 a share for FUV stock that was trading well under $2.50 a share soon after the opening bell on November 19.
Maybe only a few people were willing to do this. And maybe when company insiders realized the stock offering wasn't going to meet its $1,514,700 goal, they stepped in with share purchases of their own. After all, these insiders have the most to lose if Arcimoto were to cease operations, and the most to gain if the company hangs on and becomes a success.
Maybe. What I've just said is opinion, based on some facts. Here's another fact: CEO and founder Mark Frohnmayer's shares in Arcimoto were worth about $39 million after the first stock offering in 2017. So Frohnmayer and other insiders have good reason to invest more money in Arcimoto, if this is necessary to preserve the value of their stock holdings.
Question is: Will more money be needed by the company in addition to what was just raised by the stock offering? And if the main source of additional funds is company insiders, to what extent will they be willing to continue to buy shares of Arcimoto, if this is needed?