UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549









FORM 1-U





CURRENT REPORT PURSUANT TO REGULATION A













Date of Report (Date of earliest event reported):

September 30, 2015





ELIO MOTORS, INC.

(Exact name of issuer as specified in its charter)





Arizona 27-1288581 State of other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.)





2942 North 24 th Street, Suite 114-700, Phoenix, Arizona 85016

(Full mailing address of principal executive offices)





(480) 500-6800

(Issuer’s telephone number, including area code)





Title of each class of securities issued pursuant to Regulation A:

Common Stock, no par value

Item 9. Other Events (Quarterly Financials)





Elio Motors, Inc. (“we,” “us” or “our”) provides the following unaudited financial information for the nine months ended September 30, 2015.





Management’s Discussion and Analysis of Financial Condition and Results of Operations





Since our incorporation in October 2009, we have been engaged primarily in developing the design of the Elio and obtaining loans and funds from investors to fund that development. We are considered to be a development stage company, since we are devoting substantially all of our efforts to establishing our business and planned principal operations have not commenced. We completed the initial design for the Elio as well as our business model in December 2012. We began accepting reservations in January 2013 for the Elio, closed on the purchase of manufacturing equipment in February 2013, built three prototypes from January 2013 through January 2014, secured a manufacturing facility in December 2013, sourced suppliers and services providers during 2014, and applied for the ATVM loan (described below) in August 2014.





Cash investment has totaled $8,599,344, net of related expenses, from incorporation through September 30, 2015 and loans have totaled $41,428,460 from incorporation through September 30, 2015. We have also obtained deposits from persons desiring to reserve an Elio totaling $19,606,890 through September 30, 2015.





Operating Results





We have not yet generated any revenues and do not anticipate doing so until late in 2016 at the earliest, but more likely in 2017.





Nine Months Ended September 30, 2015 Compared to September 30, 2014. Operating expenses for the nine months ended September 30, 2015 decreased by 37% over the comparable 2014 period, due to reduced engineering, research and development.





Interest expense increased by 175% due to the default interest charges on the note to Racer Trust, offsetting the decrease in operating expenses.





As a result, our net loss for the nine months ended September 30, 2015 was $14,462,831, as compared to $13,921,496 for the comparable 2014 period, a slight increase of 4%. Our accumulated deficit was $59,419,070 at September 30, 2015.





Liquidity and Capital Resources





September 30, 2015. As of September 30, 2015, we had cash of $117,879 and a working capital deficit of $18,266,700, as compared to cash of $374,652 and a working capital deficit of $8,446,483 at December 31, 2014. The increase in the working capital deficit results primarily from a note payable to CH Capital Lending, LLC, a related party, in the principal amount of $9,850,000, being classified as a current liability.





We obtained a forbearance agreement until July 31, 2016 with respect to this note due July 31, 2015, which is secured by a first position in equipment in the Shreveport, Louisiana manufacturing facility. The lender, CH Capital Lending, is an affiliate of Stuart Lichter, one of our directors and significant shareholders. We have three loans from Mr. Lichter totaling $1,900,500 which are also due July 31, 2016. We also obtained a deferral of the lease payments on the Shreveport facility until August 1, 2016. Such payments were to have commenced on August 1, 2015. The lessor, Shreveport Business Park, is an affiliate of Mr. Lichter.

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We also have a long-term loan of $23,000,000 from the Racer Trust which was incurred in March 2013 in connection with the purchase of the equipment at the Shreveport facility. This loan was to be repaid in monthly installments of $173,500 beginning on November 1, 2013, with the entire remaining balance due September 1, 2016. We were delinquent on the first payment, which triggered default interest to be charged on the loan at 18% per annum. Payments made in 2014 were applied to this interest. In March 2015, we entered into an amendment to the promissory note which deferred the installment payments until January 1, 2016 and extended the maturity date to July 1, 2017.

In addition to the agreements made with our lenders to defer cash outlays, we have funded our operations during the nine months ended September 30, 2015 primarily through the receipt of customer reservations $3,841,000 and the gross proceeds from a placement of convertible subordinated secured notes due September 30, 2022 of $3,677,960.





These notes, which were offered and sold only to accredited investors, are convertible into shares of our common stock at any time prior to their maturity in 2022 at a conversion price equal to $5.98 per share for the first $5,000,000 of notes issued and $9.65 for the next $10,000,000 of notes issued. Interest of 5% per annum accrues on the unpaid principal balance and all unpaid principal and interest are to be paid at maturity. The notes are secured, but subordinated to the liens of CH Capital Lending, the Racer Trust, and IAV Automotive Engineering. We have granted piggyback registration rights covering the shares issuable upon conversion of the notes and holders of the notes have a right of participation for an amount equal to 25% of future equity or convertible financings (“Subsequent Financings”) undertaken by us at the valuation of such future financings. If a note holder decides not to participate in a Subsequent Financing, the note holder will lose its right to participate in future Subsequent Financings.





In August 2015, we filed an offering statement pursuant to Regulation A of the Securities Act of 1933 with the Securities and Exchange Commission. We are offering a minimum of 1,050,000 shares of common stock and a maximum of 2,090,000 shares of common stock on a “best efforts” basis, at a price of $12.00 per share. At September 30, 2015, we had $105,130 of deferred offering costs, which will be offset against offering proceeds upon the completion of the offering or expensed upon abandonment of the offering. The offering statement was qualified in November 2015 and the minimum offering amount was sold in December 2015. The offering was closed in February 2016, with a total of 1,410,048 shares sold for gross proceeds of $16,920,576.





Future Financing





Much of the vehicle engineering has been completed, and we are finalizing our engineering simulations, which suggest that the important vehicle performance milestones can be achieved. To date, $17.9 million has been invested in vehicle engineering and development. Funding from our Regulation A offering will be used to build and test 25 prototypes. Upon completion of this phase, which management expects to take six months, the vehicle production costs, as well as the performance and safety profiles, will be understood to a level that will allow for the kick-off of hard tooling. With the development risks addressed, we will then be in a position to raise larger amounts of capital - to be up to another estimated $240 million to fund production activities.





We are pursuing multiple options for such funding, rather than relying on one source. We believe funding will come from a combination of short-term and long-term sources and from one or more of the sources discussed below, as well as more traditional sources (not discussed), such as venture debt arrangements and capital leasing on equipment.

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Customer Reservations. Customer reservations have provided significant funding for us in the past and we expect reservations to be a significant source of short-term liquidity in the future. With each progressive step in our development, we have experienced a surge in reservations. In addition, as we achieve subsequent milestones in the development of the Elio , customer confidence increases. Accordingly, we expect to see surges in reservations as the following milestones are achieved and announced: completion of prototypes, testing results, confirmation of mileage, guarantee of the sales price, hiring at the manufacturing facility, and, hopefully before production commences, scarcity.





Through September 30, 2015, we have $19,606,890 in reservations, an average over $600,000 per month. Of this amount, $4.6 million is held by credit card processing companies as a percentage of non-refundable reservations, which will be released no later than start of production.





Sale of Excess Equipment . We will not use all of the equipment purchased at the Shreveport facility. Through September 30, 2015, sales of excess equipment has yielded $3,594,019. We will continue to sell excess equipment and use the proceeds to pay down the CH Capital Lending loan.





Advanced Technology Vehicles Manufacturing (ATVM) Loan Program. In 2007, the Advanced Technology Vehicles Manufacturing (ATVM) Program was established by Congress to support the production of fuel-efficient, advanced technology vehicles and components in the United States. To date, the program, which is administered by the U.S. Department of Energy’s Loan Programs Office, has made over $8 billion in loans, including loans to Ford ($5.9 billion), Nissan ($1.45 billion) and Tesla ($465 million). This loan program provides direct loans to automotive or component manufacturers for re-equipping, expanding, or establishing manufacturing facilities in the United States that produce fuel-efficient advanced technology vehicles (ATVs) or qualifying components, or for engineering integration performed in the U.S. for ATVs or qualifying components. The ATVM loans are made attractive to applicants due to their low interest rates (set at U.S. Treasury rates (approximately 2% to 4%), minimal fees (no application fees or interest rate spread and only a closing fee of 0.1% of loan principal amount), and long loan term life of up to 25 years (set at the assets’ useful life). In order to qualify, auto manufacturers must be able to deliver “light duty vehicles” having 25% greater fuel economy than comparable models produced in 2005 or “ultra efficient vehicles” that achieve at least 75 miles per gallon. In addition, ATVM borrowers must remain financially viable over the life of the loan without the receipt of additional federal funding associated with the proposed project.





We have engaged Black Swan LLC to provide lobbying services on our behalf. We issued 62,500 shares of our common stock to Black Swan as partial compensation for these lobbying services and owe Black Swan a $400,000 cash payment. In the event we obtain funds as a result of the ATVM loan program, or its successor program if ATMV were to be modified, we have agreed to pay a success fee to Black Swan in the amount of $1,000,000.





The ATVM application process is comprised of 4 stages:

1. Application – Part I: Determine basic eligibility

2. Application – Part II: Confirmatory due diligence

3. Conditional Commitment: Negotiate term sheet

4. Loan Guarantee: Negotiate final agreements

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Elio Motors has completed the first stage by submitting an application for a loan of approximately $185 million, the proceeds of which would be used to partly fund the purchase of equipment and equipment installation into the Shreveport facility prior to and ramp up after the start of production. As of January 15, 2015, the Department of Energy (DOE) has confirmed that the Company has achieved the technical criteria for the loan. Due diligence has been pending upon the confirmation of the Company’s financial backing, which includes the proceeds from the Regulation A offering. The Company has shared its production timing plans with the DOE, including the financing milestones to be achieved to kickoff production tooling in order to meet the Company’s start of production date. While the DOE has acknowledged and seems to be sensitive to the Company’s requirements, it has not made any commitments regarding its ability to meet these funding milestones. The specific terms and conditions of the ATVM loan will be negotiated with each applicant during the conditional commitment stage. As indicated in this discussion, if the Company is unable to obtain a loan under the ATVM Program, it will rely on funding through customer reservations, selling debt securities, and possibly CAFE credits.



CAFE Credits . In 1975 in response to the Arab oil embargo, the U.S. Congress enacted Corporate Average Fuel Economy (CAFE) standards in an effort to reduce U.S. dependence on foreign oil and save on fuel costs through the improvement of U.S. automobile fuel efficiencies. The National Highway Traffic Safety Administration (NHTSA) is responsible for administering the CAFE program, which was amended in 2007 to establish a trading credit program to incentivize auto manufacturers to further improve vehicle fuel efficiencies. Auto manufacturers may earn CAFE credits (or be penalized) by exceeding (or failing to meet) increasingly more ambitious compliance standards for the model year of each passenger car or light duty truck produced. Accumulated CAFE credits are transferable and saleable to other auto manufacturers and can be carried forward up to five years. Credits (or penalties) are totaled for the manufacturer’s entire production fleet for a particular model year, and are applied at a rate of $55 per 1 mpg above (or below) the standard. The CAFE standard has been amended to increase mpg for cars and light trucks to 48.7 to 49.7 mpg by 2025.





According to the estimated fuel economy of the Elio , it is expected that we could be well positioned to earn a substantial number of credits, from which we could generate extensive future revenues through the sale and transfer of these credits to other auto industry manufacturers. We have received indications from auto industry manufacturers that they would purchase our credits upon confirmation that we can participate in the CAFE program. Currently, we do not qualify for participation in the CAFE program, since the Elio is not an automobile. We have been working with members of Congress and with the former acting head of the NHTSA to permit participation in the program by autocycles.





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