UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2017
2021
or
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________to_________
Commission file number:
001-38078
ADOMANI,
ENVIROTECH VEHICLES, INC.
(Name of registrant as specified in its charter)
Delaware | 46-0774222 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
4740 Green River
1425 Ohlendorf Road Suite 106
Corona, California 92880
Osceola, AR 72370
(Address of principal executive offices, including zip code)
Registrant’s telephone number including area code: (951)
407-9860
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.00001 par value | OTC Markets Group Inc. | |
Title of class | Name of exchange on which registered |
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark ifwhether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulationand post such files). Yes ☒ No ☐
S-T (§
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, aAct: Act.
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2
of the Exchange | Large accelerated filer | ☐ | Accelerated filer | ||||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☒ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☐ No
☒The aggregate market value of the common stock held byNasdaq Capital MarketOTC Markets Group Inc. on June 30, 2017,2021 was approximately $602.7$56.4 million.
non-affiliates
of the registrant, based on the closing price reported by the As of March 7, 2018, 71,737,597April 8, 2022, 299,929,841 shares of the registrant’s common stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information that is required to be included in Part III of this Annual Report on120135 days of December 31, 2017.2021. Only those portions of any such definitive proxy statement that are specifically incorporated by reference herein shall constitute a part of this Annual Report on
Form 10-K
is incorporated by reference to either a definitive proxy statement or an amendment to this Annual Report onForm 10-K
to be filed by the registrant within Form 10-K.
ADOMANI,
ENVIROTECH VEHICLES, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page | ||||||
PART I | ||||||
| Item 1. | 2 | |||||
| Item 1A. | 20 | |||||
| Item 1B. | 46 | |||||
| Item 2. | 46 | |||||
| Item 3. | 46 | |||||
| Item 4. | 49 | |||||
PART II | ||||||
| Item 5. | 50 | |||||
| Item 6. | 51 | |||||
| Item 7. | 52 | |||||
| Item 7A. | 60 | |||||
| Item 8. | 62 | |||||
| Item 9. | 87 | |||||
| Item 9A. | 87 | |||||
| Item 9B. | 88 | |||||
PART III | ||||||
| Item 10. | ||||||
| 89 | ||||||
| Item 11. | 96 | |||||
| Item 12. | 102 | |||||
| Item 13. | 104 | |||||
| Item 14. | 105 | |||||
PART IV | ||||||
| Item15. | 107 | |||||
| Item 16. | 111 | |||||
FORWARD-LOOKING STATEMENTS
This Annual Report on Formour future financial performance or conditiontrends and involve known and unknown risks, uncertainties and other factorssimilar matters that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements.are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.
10-K (Annual Report)
(“Annual Report”), contains “forward-looking statements” that involve substantial risks and uncertainties. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or terminology intended to identify statements about the future.
You should not place undue reliance on forward-looking statements. The cautionary statements set forth in this Annual Report,prospectus, including in “Risk Factors” and elsewhere, identify important factors, which you should consider in evaluating our forward-looking statements. These factors include, among other things:
things, our:
ability to generate demand for our
zero-emission
commercial fleet vehicles in order to generate revenue;dependence upon external sources for the financing of our operations;
ability to effectively execute our business plan;
ability and our suppliers’ ability to scale our
zero-emission
products assembling processes effectively and quickly from low volume production to high volume production;ability to manage our expansion, growth and operating expenses and reduce and adequately control the costs and expenses associated with operating our business;
ability and our manufacturing partners’ ability to navigate the current disruption to the global supply chain and procure the raw materials, parts, and components necessary to produce our vehicles on terms acceptable to us and our customers;
ability to obtain, retain and grow our customers;
ability to enter into, sustain and renew strategic relationships on favorable terms;
ability to achieve and sustain profitability;
ability to evaluate and measure our current business and future prospects;
ability to compete and succeed in a highly competitive and evolving industry;
ability to respond and adapt to changes in electric vehicle technology; and
ability to protect our intellectual property and to develop, maintain and enhance a strong brand.
You should read this Annual Report and the documents that we reference elsewhere in this Annual Report completely and with the understanding that our actual results may differ materially from what we expect as expressed or implied by our forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in Item 1 (Business) and Item 1A (Risk Factors) of Part I and Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part II of this Annual Report. In light of the significant risks and uncertainties to which our forward-looking statements are subject, you should not place undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. These forward-looking statements represent our estimates and assumptions only as of the date of this Annual Report regardless of the time of delivery of this Annual Report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Annual Report.
Unless expressly indicated or the context requires otherwise, references in this Annual Report to “ADOMANI,“Envirotech,” “the Company,” “we,” “our,” and “us” refer to Envirotech Vehicles, Inc. a Delaware Corporation, and our predecessor, ADOMANI, Inc., a Delaware corporation, and ourEnvirotech Drive Systems, Inc., a Delaware corporation, and where appropriate, their respective consolidated subsidiaries, unless the context indicates otherwise.
1
Part I
Item 1. | BUSINESS |
We designare a provider of purpose-builtcausehelping fleet operators unlock the benefits of green technology. We serve commercial and last-mile fleets, school districts, public and private transportation service companies and colleges and universities to be designed advanced zero-emission electric and hybrid drivetrain systemsmeet the increasing demand for integration in new school buses and mediumlight to heavy-duty commercial fleetelectric vehicles. We also designOur vehicles address the challenges of traditional fuel price cost instability and cause to be designed patented conversion kits to replace conventional drivetrain systems for combustion poweredlocal, state and federal environmental regulatory compliance.
zero-emission
electric vehicles focused on reducing the total cost of vehicle ownership and Our vehicles with zero-emission electric or hybrid drivetrain systems. The hybrid drivetrain systems are available in both an assistive hybrid format and a full-traction format for use in private and commercial fleet vehicles of all sizes. We expect to expand our product offerings to include the sale of zero-emission systems in vehicles manufactured by outside, original equipment manufacture (OEM)OEM partners located in China and Malaysia that can be marketed, sold, warrantied and serviced through our developing distribution and service network.
Our drivetrain systemsvehicles can be built with optionalinclude options for telemetrics for remote monitoring, electric power-export and various levels of grid-connectivity. Our Pending the completion of the transactions contemplated by our letter of intent to purchase certain battery manufacturing equipment from ProGreens New Energy Technology Co. Ltd., our
zero-emission systems
products may also grow to include automated charging infrastructure and “intelligent” stationary energy storage that enables fast vehicle charging, emergencyback-up
facility power, and access to the developing, grid-connected opportunities for the aggregate power available from groups of large battery packs.We are a provider of new zero-emission electric and hybrid vehicles and replacement drivetrains focused on total cost of ownership. Our drivetrain systems are designed to help fleet operators unlock the benefits of green technology and address the challenges of local, state and federal regulatory compliance and traditional-fuel price cost instability.
We generated virtually no revenue from inception through December 31, 2016, and generated $425,000 of revenue in 2017.
For the years ended December 31, 2017, 20162021 and 2015,2020, our net losses were $21.9 million, $10.7 million$7,652,100 and $6.0 million,$279,521, respectively.$11.0 million. Forsuch transaction, Merger Sub was merged with and into EVTDS, with EVTDS surviving as our wholly owned subsidiary (the “Merger”). In accordance with the terms of the Merger Agreement, at the effective time of the Merger, each unit sold inoutstanding share of the offering, we issuedcommon stock of EVTDS was automatically converted into the right to receive one share of ourthe common stock andof the Company. As a warrant to purchase 1.5result of the Merger, we issued an aggregate of 142,558,001 shares of our common stock at an exercise price of $4.50. Net proceeds received after deducting commissions, expenses and fees ofto the former EVTDS stockholders, which shares represented approximately $1.2 million were approximately $9.8 million. As discussed elsewhere in this Annual Report, the proceeds from our offering under Regulation A56% of the Securities Acttotal issued and outstanding shares of 1933,our common stock as amended (Securities Act) of $12.6 million, netimmediately following the effective time of payments to selling stockholdersthe Merger.
On January 9, 2018,March 15, 2021, we completed our acquisition of EVTDS, a public offeringDelaware corporation, a supplier of 3,666,667 units for aggregate gross proceeds
zero-emission
trucks, cargo vans, chassis and other commercial vehicles from which we have previously purchased vehicles designed to meet our specifications. The transaction was completed in accordance with the Merger Agreement, with EVTDS and EVT Acquisition Company, Inc., a Delaware corporation and our wholly owned subsidiary (“Merger Sub”). As a result of Our company was formerly known as ADOMANI, Inc. On May 26, 2021, we filed a Certificate of approximately $1.7 million, when combinedAmendment of our Amended and Restated Certificate of Incorporation with the follow-on raise discussed above is a totalSecretary of approximately $23.6 million, which resulted in net proceedsState of the State of Delaware to uschange our company’s name from ADOMANI, Inc. to Envirotech Vehicles, Inc., effective as of approximately $19.8 million
May 26.
Market Overview
Concerns regarding climate change and other environmental considerations have led to the implementation of laws and regulations that restrict, cap, or tax, emissions in the automotive industry and throughout other industries. In particular, Environmental Protection Agency, (EPA)or EPA, Tier 4 emission standards, California Air Resources Board (CARB)CARB regulations, and recently implemented policies in Europe, generally referred to as Stage I, II, III, IV, V and IVVI regulations, require a significant reduction in the level of emissions and particulate matter produced by diesel power systems and are increasing the costs associated with producing carbon-intensive fuels. On June 28, 2018, China officially released the China VI emission standard for new heavy-duty vehicles, which is equivalent to, or in some respects even more stringent than, the Euro VI emission standard. The China VI standard intends to force diesel particulate filters on all new diesel heavy-duty vehicles introduced to the market after July 2021. If effectively implemented, it will transition all new heavy-duty vehicles in China to soot-free emission levels. In February 2018, the Mexican government announced a new policy that focused on reducing air pollution,
2
improving public health and ultimately saving lives. This policy included the first soot-free standard adopted in Latin America, which required that all heavy-duty vehicles sold in Mexico meet the highest filter-based standards that are currently in place in other countries like the United States, Canada and much of the European Union. On June 25, 2020, the Board of CARB passed arule requiring truck manufacturers to transition from diesel trucks and cargo vans to electric
first-in-the-world
zero-emission
vehicles beginning in 2024. More recently, in December 2021, President Biden signed an executive order directing the federal government to minimize planet- heating emissions from operations and transition to anall-electric
fleet of cars and trucks, with the stated goal of reducing its emissions by 65% by 2030 and reaching carbon neutrality by 2050.These regulations are expected to increase both the cost and size of emission-compliant diesel power products, primarily due to the need to incorporate additional combustion and after-treatment components.
A variety of market factors are contributing to the increased use of alternative fuels and growth of alternative fuel technology, including economics, energy independence, environmental concerns, and the widespread availability of alternative fuels. As the price of crude oil remains volatile and the threats of climate change and air pollution remainincrease as public concerns, we believe the search for more cost effective and cleaner fuels has become more important. Electricity has emerged as a cleaner-fuel solution to these challenges. The price of alternative fuels such as electricity is often substantially less than diesel or gasoline, and alternative fuels can result in the production of lower amounts of greenhouse gases and other air pollutants.
In 2016,addition, several public utilities in California and elsewhere have applied to their states’ PUCs for rate increases to be used for the numberpurchase or leasing of electric cars surpassed twovehicles and infrastructure. Additional requests have been made by the utilities to offer favorable costs for electric bus charging. In fact, the Invest in America Act being debated in Congress would allocate $1.75 billion to various government entities to support electric and other alternative-type chargers.
According to the IEA, the world’s fleet of electric vehicles grew 41% to about 7.2 million in cumulative global car stock2019, and the IEA forecasts electric vehicles will grow from 7 million to date after reaching one140 million by 2030, with government policy being the linchpin for electric vehicle adoption.
Based on the IEA’s view, we believe that existing policies will make China and Europe the biggest adopters. In China, the government has mandated that electric vehicles make up 40% of all auto sales by 2030. Meanwhile, we believe that tightening emissions standards and high fuel taxes in cumulative global car stockEurope will result in September 2015, up from about 665,000 as ofsubstantial increases in the end of 2014. Additionally, in 2016, the numbermarket share of electric buses grew to approximately 345,000 vehicles, double the number on the road in 2015 and an increase from 46,000 in 2014. Despite significant increases, including global sales of over 750,000vehicles. New electric cars in 2016, electric vehicles (EVs) still represent only approximately 0.2% of the total number of passenger light-duty vehicles in circulation as of June 2017 and the EV market share exceeds 1% of total car sales in only six countries: the Netherlands, Norway, Sweden, France, the United Kingdom and China with Norway leading with a 29% market share. Further, while the United States accounted for the largest portion of the global stock of electric carsgrew by 47%, or by approximately 830,000 units, in 2015 and accounted for approximately 20% of all new EVs sold worldwide in 2016, in 2016, China surpassed the United States, accounting for approximately 45% of all new EVs sold worldwide.
2019, which increased total ownership to over 2.5 million vehicles.
In the United States, sales of310,000 new EVs increased by 37% in 2016 as compared to 2015, and more than half of such sales occurred in California, likely driven by the state’s zero-emission vehicle mandate, buy-down and grants for EVs which require that a certain percentage of an automobile manufacturer’s sales must be zero-emission vehicles.
By 2019, global sales of EVs are estimated to exceed two million units, which would represent an increase from the 549,000 unitselectric vehicles were sold in 2015, and by 2020, the global stock of electric cars may range between 9 million and 20 million. Further, in North America, some estimates suggest that the annual sales of hybrid and electric buses and trucks may increase 20.5% and 30.9% year-over-year through 2025, respectively. It is estimated that China has more than 200 million electric two-wheelers, between three and four million low-speed EVs and more than 300,000 electric buses in 2017, up from more than 170,000 and 112,400 buses in 2016 and 2015, respectively, and continues to seek electrification of other modes of transportation. Additionally, the output of the special purpose vehicle market in China increased 10.7 times year-over-year to 47,800 in 2015, and in the first two monthshalf of 2016, increased by2021. In full year of 2020, approximately 116%. In September 2017, China announced that it intends to compel automobile manufacturers to accelerate the production of EVs by 2019, suggesting a concerted effort by the government of China to phase out traditional internal combustion engines as soon as practicable.
322,000 were sold.
The overall market for EVselectric vehicles consists of multiple, discrete markets for various vehicle types, including passenger cars, buses,EVelectric vehicle sales.
two-wheelers
and others. Passenger cars are the most prominent, buttwo-wheelers
are far more prevalent, particularly in Asia, and buses and trucks, although smaller in number, are significantly higher in price and often purchased in bulk by major corporate customers or government or transit agencies. Because light duty passenger vehicles represent the largest potential market and have received the most attention from both analysts and policymakers, most global forecasts look at light duty Charging infrastructure is another important factor in EVelectric vehicle adoption rates. The United States currently has 12,845 public electricAs of December 2021, there were approximately 46,000 charging stations in the United States. GuideHouse Insights is projecting 25% CAGR globally in the number of charging stations now through 2030 and 32,069Bloomberg NEF projects that the need for charging stations will top 290 million by 2040, with a value of $500 billion worldwide. President Biden’s American Jobs Plan includes a transformational $15 billion investment to build a national network of 500,000 charging stations. Through a combination of grant and incentive programs for state and local governments and the private sector, it will support deployment of a mix of chargers in apartment buildings, in public parking, throughout communities, and as a robust fast charging outlets.along our nation’s roadways. Some geographic areas have considerably more charging stations than others, contributing to greater EVelectric vehicle usage in those regions. Examples
3
Trucks
Some of the main markets for electric trucks include delivery vans, shuttle buses, and utility or work trucks, each of which has its own set of challenges. Where PHEVs The table below presents a few of the examples of different kinds of vehicles, battery sizes, and electricity demands.
(Plug-In
Hybrid Electric Vehicle) have greater operational flexibility, and require less charging infrastructure, BEVs (Battery Electric Vehicle) can be either short range, which can charge quickly and operate with limited interruption, or long range, requiring longer charging times but more intraday operational flexibility.Table 1: Electricity Needs of Electric Truck and Bus Types
* For deployments of 4 to 8 buses per fast charger
��
Because of charging needs and restrictions, we believe short-haul fleet vehicles that operate in a limited geographic area and return to central locations, such as delivery vans and shuttle buses, are the best candidates for electrification.
Buses—
Transit
For a number of reasons, we believe buses present a more promising near-term market for electrification than other commercial vehicles. First, most bus purchases are public in nature, coming from transit agencies or school districts. As a later survey of government policies in the United States and abroad will show, many locales require Buses
Some public transportation operators are facing pressure to purchase and operateSecond, electric driveElectric transit buses are likely to have lower fuel and maintenance costs, typically a large cost area for transit operators, compared to conventional diesel buses. Third, we believe electricElectric buses generally have smoother, faster acceleration and provide a quieter smoother ride, benefiting both passengers and the surrounding urban environment.
low-emissions
vehicles. For public entities, cleaner transportation systems can provide benefits beyond reduced operating costs, in the form of less pollution and lower abatement and cleanup costs. Similar to passenger cars andother commercial fleets, highfleet electric vehicles, transit buses have a higher initial costsacquisition cost than their traditional-fueled counterparts, and the logistics of charging remain the greatest drawbacks. As detailed in the table below, depending on the market, hybrid buses can cost at least 40% more than, and sometimes over twice as much as, conventional diesel or CNG buses.remains a challenge. Electric buses can be anywhere from two to nearly five times as expensive as conventional buses.
Table 2: Hybrid
In addition to the public health and Electric Transit Bus Estimated Prices by Region, 2014
Hybrid buses have gained greater traction than pure electric models in China and India, the two largest markets for electric buses. Both countries have someWhile electric transit buses cost approximately $200,000 more than diesel buses (depending on battery pack size) before incentives, lifetime fuel and maintenance savings of electric transit buses are around $400,000. While electric school buses cost around $120,000 more than diesel school buses before incentives, lifetime fuel and maintenance savings of electric school buses are around $170,000.
Electrification in the world’s worst urban pollution, as well as cities where buses form a greater part of public transportation than rail systems. Both Chinamedium- and India have a number of domestic hybrid and electric bus manufacturers, including Yutong, Xiamen King Long Motor Group, BYD, Nanjing Golden Dragon Bus, and Zhongtong Bus in China and Tata and Ashok Leyland in India. Of the 500,000 city buses in operation in China in 2014, analysts estimate that 80,000 were electric (presumably including hybrid electric models), with 27,000 more sold in 2014 and about 20,000 sold through the first half of 2015. The five companies just mentioned accounted for 62.5%, or 17,011, of the buses sold in 2014.
Electric drive or hybrid electric buses made up 17% of bus fleetsheavy-duty vehicle sector is increasing in the United States with California leading the way. Increasing investment in 2014,the sector from public and private sources, however, is expected to generate growth and significantly increase the number of electric trucks and buses on the road in the near term. Upfront costs associated with most being gasoline or diesel hybrids, which made up between 30%electric trucks and 40% of new bus sales. At the end of 2016, there were over 300 zero-emissions buses that is, fully electric or fuel cell-powered buses, operating in transit fleets throughout the nation. A CALSTART executive has estimated that that zero-emissions models will make up 20% of the transit bus market by 2030. As an example of the cost impact of purchasing new electric buses, the Chicago Transit Authority recently committedare expected to purchase 20–30 buses over the next few years, atdecline significantly through 2030 as battery prices fall, making them competitive on a total pre-subsidy cost of $30 million to $40 million.
In the United States, the major sellers of battery electric buses through 2014 were Proterra and BYD, having sold 110 and 102 electric buses respectively. BYD expected to sell an additional 200 electric buses in the United States in 2015, and has sold approximately 5,200 worldwide.
Buses—ownership (TCO) basis.
School
Buses
School buses present another significant potential market for electrification. The United States has approximately 480,000 school buses carrying 25 million children to school every day. The typically short, predictable routes of school busesin service that are particularly suited to running solely on electricity. Traditional diesel school buses, which make up over half the total fleet, not only consume large amounts of fuel—fuel- more than 800 million gallons of diesel a year in the United States, at a fuel economy of only 4 mpg—but 4–5Navistar introducedIncentive programs to help fund the first known hybrid model in 2007, improving fuel economy by 30%, or up to 65% for a plug-in hybrid model, and other manufacturers followed suit, but we are not awarepurchase of any current hybrid manufacturing ofelectric school buses taking place.
mpg-but
also directly impact children with tailpipe emissions. In response, a number of states have included school buses in clean transportation mandates, and some school districts, notably in California and Illinois, have begun to replace diesel buses with electric. As of 2016,in the number of electric buses in China had already reached approximately 343,500 units, including 300,000 BEVs. Efforts by the government of China, including its use of subsidies and ambitious efforts by certain cities regarding electrification of their bus fleets, continue to influence substantially the rate of growth of the electric bus market. For example, Shenzhen has sought to convert 100% of its bus fleet to electric buses in 2017.
United States are significant.
Market Drivers
A number of factors, including the general world-wide desire to improve the health of people, impact both the supply and demand for various types of EVselectric vehicles and we believe that we are well positioned to benefit as a result of these driving forces. Except for energy storage technologies, discussed earlier, subsequent sections will address these market drivers in greater detail.
5
We believe prominent drivers of supply include:
the declining cost and higher availability of energy storage technologies, specifically the cost and capacity of rechargeable
lithium-ion
batteries;grants, loans, tax breaks, and other financial support available for energy storage and electric vehicle research and development;
requirements that a specific percentage of automakers’ models be electric or other
zero-emission
vehicles; andfuel economy standards that require automakers to meet certain fleet-wide miles per gallon benchmarks that effectively require them to sell electric
zero-emission
vehicles.We believe prominent drivers of demand include:
mandates that government fleets purchase certain percentages of low emission, energy efficient, or other alternative fuel vehicles;
mandates for transport agencies, ports or school districts to purchase or convert to electric or other alternative fuel vehicles;
rebates, tax credits, and other incentives for purchasing or leasing electric or other alternative fuel vehicles;
the availability of charging stations and other charging infrastructure, driven in turn by government funding, tax credits, rebates, and other incentives and regulatory initiatives aimed at increasing the number of charging stations;
the desire of state agencies to deploy electric vehicles to reduce the effects of climate change and to reduce the impact of pollutants on the health and well-being of its population;
the cost of electricity to recharge
plug-in
electric vehicles, impacted by special rates introduced by utilities;preferential treatment in registration, emissions testing, and access to highways, city centers, and HOV lanes; and
the cost of traditional petroleum-based fuels compared to the resultant incremental costs of owning and operating an electric vehicle.
United States—Federal Laws and Incentives
As
There are numerous as U.S. policies atlegislative efforts underway to accelerate the state and federal levels may at first appear, unlike in China and many European nations, few federal and state policies directly single out EVs. More broadly, federal U.S. policies encourage greater useadoption of vehicles that run on some kindelectric vehicles. In January 2021, President Biden signed into effect the “Buy America” executive order, which among other objectives, will see a transition of alternative fuel, whether electricity, natural gas, hydrogen, biodiesel or ethanol. In addition, the U.S. Government fleet to U.S.-manufactured electric vehicles, creating a large market opportunity for Class 3, 4 and 5 electric trucks. The order equates to approximately $25 billion in total value and will replace approximately 456,000 government vehicles with U.S. manufactured electric vehicles. The U.S. Department of Energy is also offering federal government has lesstax credits ranging in value from $2,500 to $7,500 for purchasers of qualified electric vehicles, with the size of the credit based on the battery size in the vehicle. Furthermore, federal tax credits are available for electric vehicle charging equipment, with homeowners eligible for a comprehensive, coherent framework aimed at increasing EV use than do countries like China30% tax credit and many European nations.
up to $1,000 depending on installation costs and commercial property owners eligible for a 30% tax credit and up to $30,000 depending on installation costs. These laws and incentives are rapidly accelerating the nationwide adoption of electric vehicles.
United States—State Laws and Incentives
Among U.S. states, California is notable for pioneering a number of measures that have encouraged EVelectric vehicle production and adoption, often laterand that have since been copied by other jurisdictions. These include financial incentives like tax
6
credits and rebates for both individual and fleet owners, HOV lane access, and various grant and loan programs. Besides setting the nation’s most stringent tailpipe emissions standards, California has required automakers to produce increasing percentages ofEVselectric vehicles make up a significant portion, along with creating a market that allows manufacturers to buy and sell credits awarded for selling EVs. Assembly Bill (AB) AB 923 became effective January 1, 2005electric vehicles. California, New York and effective January 1, 2012, AB 470 authorized using AB 923 fundingNew Jersey have also implemented voucher programs that significantly reduce the cost to purchase an electric vehicle in that state, with additional reductions to costs for businesses that meet criteria such as minority-, veteran-, or women- owned or being located in apurchasesale of internal combustion engines and fossil fuel vehicles by 2035. The Governor of California has issued Executive Orderwhich sets 2035 for a 100 percent ban on the sale of internal combustion engines for passenger cars and pickup trucks within California, with later target dates for similar bans on medium- and heavy-duty trucks. In New York, legislation has been passed banning new school buses or retrofitfossil fuel vehicle sales after 2034 and will require all new cars to produce zero emissions. See “—Governmental Programs and Incentives” for an additional discussion of existing buses to accomplish the primary goal of reducing children’s exposure to both cancer-causing and smog-forming pollutants. Administered by CARB, AB 923 authorizes state funding of up to $400,000 per new zero-emission school buses and up to $200,000 for the conversion of existing school buses ten years old or newer. The purchase of new buses, restricted to replacement of existing buses prior to AB 923, is now permitted for fleet expansion as well. The buses’ GVWR to be eligible for funding must exceed 14,000,001 GVWR. All-electric school bus conversions that use technologies already demonstrated on school buses, and with engineering plans, are eligible for AB 923 funding. All vehicles receiving AB 923 funding must have CHP Safety Certifications that are submitted to CARB prior to receiving funding. AB 923 contains other legal and technical requirements for the buses, with which we believe all of our products comply.
zero-emission
vehicles, of which low-income
area. Furthermore, California and New York have introduced legislation to completely ban the N-79-20,
certain relevant incentive programs.
Fleet Operator Challenges
Fleet operators and their companies face a number of challenges in the market today, including:
Difficulty complying with existing and new federal and state emission restrictions and compliance
Finding cost savings while managing high fuel, maintenance and repair costs
Extending the lives of existing vehicles
Difficulty planning for the operation of their fleet when fuel supplies are interrupted, such as during a natural
man-made
disasters. It may be possible for emergency service organizations to use the large battery packs of electric drive, commercial fleet vehicles as a mobile source of stored electrical energy. This electrical energy could supplement traditionally fueledback-up
generators.Difficulty in improving the environment around these heavy-duty commercial fleets
zero-emission
buses, trucks and cars, we believe we are creating a healthier environment in and around the vehicles they operate for their employees, customers and the communities they serve. In February 2021, the Office of Environmental Health Hazard Assessment, on behalf of the California Environmental Protection Agency, released Version 4.0 of the CalEnviroScreen. CalEnviroScreen identifies California communities by census tract that are disproportionately burdened by, and vulnerable to, multiple sources of pollution.7
Our Solution
We design advanced are a provider of purpose-builthybridthe Philippines and marketed, sold, warrantied and serviced through our developing distribution and service network. Our vehicles and replacement drivetrain systems that improve fuel economy and reduce emissions. Our drivetrain systems are designed to help vehicles run more efficientlyfleet operators unlock the benefits of technology that reduces GHG, NOx, PM and other pollutants, as well as to address the challenges of local, state and federal regulatory compliance and traditional-fuel price cost effectively. We subcontract the manufacturing of our completed drivetrains to two facilities in Northern California, to which we provide our patented zero-emission drivetrain design and which is completed under our supervision. At this time, we do not manufacture complete vehicles. We sell our zero-emission drivetrains to third party OEMs with whom we partner and they manufacture the complete vehicle after installing the drivetrain under our supervision.instability. As of December 31, 2017,2021, we have built 15 drivetrains, sixhad a backlog of 37we have installed and the balanceconsists of which we have usedunfilled firm orders for proof-of-concept and testing.
zero-emission
electric vehicles focused on reducing the total cost of ownership. Our vehicles are manufactured by outside, OEM partners located in China, Malaysia and zero-emission
Class 4 trucks and 43zero-emission
Class 4 cargo vans, which products under signed contracts with customers.
We seek to enable our customers to:
Add Emission-Compliant Vehicles to Their Fleets
Reduce Total Cost of Ownership
Prolong Lives of Existing Vehicles
Plan for Natural Disasters When Fuel Supply May be Interrupted.
zero-emissions
systems are designed, when optionally equipped, to serve ason-site
emergencyback-up
energy storage if grid power becomes intermittent or fails temporarily during natural orman-made
disasters.Improve the Environment Around Vehicles
zero-emission
systems, drivers, operators, customers and the communities they serve could have healthier environments in and around these vehicles.Development of the Business to Date
We have developed and commercialized our products and services, which primarily include:
We have taken an active role in building awareness and support for our hybrid drivetrain systems in industry specific target groups and at all levels of government and regulatory agencies and the constituencies they serve. We haveinitially accomplished this through our participation with Blue Bird Corporation (“Blue Bird”) in its United States Department of Energy (“DOE”) grant program to accelerate the adoption of advanced and alternative fuel vehicles. We have also maintained prior and current memberships in industry groups (private and governmental) and participationparticipate in their events;events, speaking engagements;engagements, management interviews;interviews, pilot product exhibits;exhibits, fleet vehicle demonstrations and responses to Requests For Informationrequests for information and Requests For Proposals. In additionrequests for proposals. We regularly engage with electric utility companies across the United States to build awareness of the visibilitymedium to heavy-duty electric vehicles we have achieved through these efforts, we believe that having an office in Silicon Valley will assist us in findingcurrently offer and recruiting appropriately trained engineers and technicians.
zero-emission
electric vehicles andhow their greater adoption could positively increase their customers’ electricity usage.
As discussed below under the section entitled “—Partnerships/Teaming Agreements”,“Other Agreements,” we have entered into a number of agreements with third parties and continue to explore additional alliances, and to establish our decentralized assembly, sales and service model. We believe we can preserve cash resources and yet still scale-upwhile scaling up quickly when demand requires by leveraging the unused or underutilized service technician time, specific vehicle type expertise and service facility equipment of specific partners in ways to
off-load
some defined tasks, providing seasonal demand adjustments to technician headcount that will partially mitigate the human resource costs and challenges associated withscaling-up
or down an employee base.8
On March 15, 2021, we completed our acquisition of EVTDS, a supplier of
zero-emission
trucks, cargo vans, chassis and other commercial vehicles from which we have previously purchased vehicles designed to meet our specifications. The transaction was completed in accordance with the Merger Agreement, with EVTDS and EVT Acquisition Company, Inc., a Delaware corporation and our wholly owned subsidiary (“Merger Sub”). As a result of such transaction, Merger Sub was merged with and into EVTDS, with EVTDS surviving as our wholly owned subsidiary (the “Merger”). We believe that, as a result of the Merger, we possess one of the most comprehensive product lines in our industry, with multiple new products under development that we anticipate will help fuel our growth. In addition, the resulting combination of our operations with those of EVTDS, one of our suppliers, will enable us to eliminate a step in the sales process with respect to certain of our product offerings, which cost savings we expect will allow us to reduce the cost of such vehicles to our customers.Our Strengths
We believe the following attributes and capabilities provide us with long-term competitive advantages:
Product Diversity
scale-up,
scale-down or refine a specific product line in response to market demands and the evolving local, state and federal regulatory and incentive programs. Also, within each product area, we have multiple suppliers of key vehicles, allowing price flexibility both for our final products and replacement parts required over the product lifespan. This allows us to meet the expectations and budget constraints of public or private commercial fleet operators.Regulatory Agency Familiarity
zero-emission
vehicle industry. To meet their own aggressive emissions targets, these regulatory agencies have encouraged the growth ofzero-emission
electric vehicles, especially in connection with heavy-duty commercial fleets.Relationships With Purchasers
Additional Sales Potential
back-up
facility power for use during grid power outages, enabling technologies to access the developing grid-connected opportunities for the aggregate power available from groups of large battery packs, or enabling technologies that allow for the avoidance of electric utility demand charges.Unique Market Knowledge
Our Strategy
We intend to capitalize on these opportunities by pursuing the following key strategies:
Develop Sales Staff
COVID-19
impacts and to other business challenges in 2020, we had to eliminate ourin-house
sales team in 2020. We have not been able to reestablish our sales team during 2021 to help our current and future customer base, and instead relied primarily on Company executives to work on sales activity. Our executives, on a limited basis, also engaged industry consultants with ties to trucking fleets, county and city transportation managers, as well as school districts and an extensive dealer network to assist with the sales activity.Build
and Service Networks
zero-emission
electric commercial9
vehicles either manufactured by or for | ||
| Caribbean. |
Develop Third-Party Relationships
Provide Demonstrations
Obtain Approvals From Incentive Programs
Grow Our Manufacturing, Installation and Service Capability
zero-emission
vehicles as we work towards becoming a fully integrated electric vehicle manufacturer. We currently lease a facility in Corona, California, to support such activities.Technical Support
Introduce New
zero-emission
vehicles and systems into ancillary product verticals, such as charging infrastructure (also called Electric Vehicle Service Equipment), stationary energy storage,vehicle-to-grid
Our Customers
Our current primary focus is school busesClass 3 to Class 5 trucks and transit buses.cab and chassis, class 3 and 4 cargo vans and cutaways. Our target customers primarily include all public and private fleet operators that have an interest in meeting or exceeding local, state and federal emission regulatory guidelines while saving money inon fuel and maintenance costs over the lifecycle of their fleet vehicles and that also have an interest in tangible demonstrations (publicity) of their GHG reducing
GHG-reducing
efforts. These targets include:Public and private schools that operate “white fleet” vehicles for
non-student
transportation use, such as facility service trucks, food service delivery vans/trucks, campus security vehicles and golf cart-type vehicles.Commercial fleet operators that provide high daily mileage vehicles for use on routes in and around airports, hotels and offsite parking facilities.
Last mile delivery companies with fleets of delivery vans, short haul trucks and distribution/sorting facility center vehicles.
Large agricultural and food processing industry-focused companies that operate Class 1 through 7 trucks, buses and/or delivery vans.
Public and private transportation services that are involved in prisoner transportation.
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Large companies that operate shuttle buses, transit style buses and facility-based vehicles, including on and off road-type vehicles for employee transport to/from remote parking areas, to/ from special events, and the various vehicles used for facilities maintenance, services and security.
Private transportation contractors that shuttle large companies’ employees from common public transportation hubs to their campuses.
Public and private colleges and universities that operate shuttle buses, transit-style buses, facility service vans and trucks and utilize golf cart-type vehicles on their campuses.
Community-based, public/privately funded shuttle buses serving special-needs community members.
Retirement communities, municipalities, shopping malls, movie studio lots, and large warehouse facilities that currently use golf cart-type vehicles for moving people and goods.
The current market of approximately 3.5 million
e-trike
users in the Philippines, most of which currently operate gasoline or diesel-powered vehicles.Public and private
K-12
schools that operateType-A,
C and D school buses, and special-needs student buses.Student transportation contractors that serve public and private schools.
Port, railway and distribution center operators that use traditionally-fueled loading equipment, tractors, material handling equipment, forklifts, Class 1 through 7 trucks, delivery vans, yard goats, and other similar vehicles, that could be replaced with
zero-emission
alternatives.Mining companies with fleets of above-ground service vehicles and underground staff transport and support vehicles.
Oil and gas companies with fleets of field trucks.
Electric utility companies with fleets of service trucks that are in the public eye.
Military-based fleet operators that have
non-combat
fleet vehicles of all sizes.Our Products and Services
Our products and services primarily include:
zero-emission vehicles | ||
Zero-emission electric drivetrain systems for use in new school buses and medium to heavy-duty commercial fleet vehicles.
This drivetrain system results in a zero-emission EV with similar performance specifications (except range) to a traditionally fueled version. The major drivetrain components systems include appropriately sized traction motor/generator(s), motor controller(s) and power-flow set up for either a direct-drive configuration, a single speed gearbox (speed reduction) or, a multi-gear ration transmission system. Other integrated drivetrain components include lithium iron phosphate (LiFePO4 or similar) battery packs, a battery management system (BMS), inverters, chargers, electrically driven systems for power steering and power (hydraulic or air) brakes, a vehicle control unit (VCU), wiring harnesses, a flat screen user-interface (dash board) and fleet technician diagnostic tools. We recently entered into an agreement with Blue Bird pursuant to which we intend to supply them with zero-emission electric drivetrains for use in Type C and D school buses on a purchase order basis.
Zero-emission electric conversion drivetrain systems for use in existing fleet, school buses and medium to heavy-duty commercial fleet vehicles.
This drivetrain system results in the same zero-emission EV described immediately above. However, this drivetrain systems allows for the removal of the OEM’s internal combustion engine (ICE), radiator cooling systems, fuel tanks, exhaust and emission systems (manifolds, pipes, mufflers, particulate filters, DEF system, etc.) and usually the OEM transmission and associated transmission cooling system.
Conversion hybrid drivetrain systems in an assistive hybrid format for use in private and commercial fleet vehicles of all sizes to improve overall miles per gallon (mpg) performance.
This conversion drivetrain system integrates a modest sized motor/generator, motor controller, modest sized energy storage system (battery packs) of high C-rated batteries or ultra-capacitors and a user-interface for system monitoring by the vehicle operator.
Conversion hybrid drivetrain systems in a “full-traction” format for use in private and commercial fleet vehicles of all sizes.
This hybrid conversion drivetrain system retains the OEM drivetrain system and adds an electric drive system that results in a vehicle with OEM performance as well as the ability to run the vehicle in various drivetrain power-flow modes including an all-electric mode when zero-emission operations are required. The major drivetrain components systems include the same items enumerated above. Optional equipment for this system can provide significant power export capabilities.
Purpose-built, zero-emission vehicleschassis of all sizes manufactured by outside OEM partners, but to be marketed, sold, warrantied and serviced through theour developing ADOMANI distribution and service network.
GreenPower Motor Company, Inc. (GreenPower),network.
We engage OEMs to design and supply vehicles for us that meet our specifications. Following the closing of our acquisition of EVT, a manufacturer of zero-emission electric transit-style buses and school busesa supplier ofhas appointed us as its authorized factory representative for California for Types A, C and D zero-emission electric school buses on a non-exclusive basis. These vehicles are designed to our specifications where possible. Wewe intend to utilize the services of GreenPowerEVT’s existing supply chain and other OEMsOEM partners to support our efforts to sell, warranty and supplyADOMANI distribution and service network.
zero-emission
trucks, cargo vans, chassis and other commercial vehicles in various sizes, zero-emission electric school, transit and shuttle buses and vans
commercial vehicles through our developing Optional drivetrain components that allow for electric power-export and various levels of grid connectivity.
These systems integrate bi-directional changers and inverters and require additional facility-based, stationary charging hardware and control systems.
In addition, our products and services may in the future include some or all of the following:
Zero-emission electric systems for ship-through integration by outside OEMs into their own privately branded medium to heavy-duty commercial fleet vehicles.
Automated charging infrastructure for commercial fleet vehicles.
“Intelligent” stationary energy storage that enables fast vehicle charging.
“Intelligent” stationary energy storage that enables emergency
back-up
facility power during grid power outages.11
“Intelligent” stationary energy storage that enables access to the developing grid-connected opportunities for the aggregate power available from groups of large battery packs.
“Intelligent” stationary energy storage that enables avoidance of electric utility demand charges for commercial customers integrated with or independent of ADOMANI-supplied,
zero-emission
fleet vehicle(s).Energy storage systems (battery packs) replacements with better energy density and/or expected lifecycles for existing electric vehicles and equipment that has outlived their
OEM-provided
energy storage systems. For example, replace flooded lead acid (“FLA”) battery packs of existing industrial forklifts and underground mining equipment with more energy dense and higher cycle- life battery packs composed oflithium-ion
cells.Testing
Our suppliers are vetted before their products are accepted for use in our products. Our drivetrainsdrivetrain systems and finished products are inspected, road-tested (when applicable) and receive a complete quality control reporttesting prior to delivery.
Customer Service, Support and Training
The
Our sales team both direct and contractors, will behas historically been used as the first point of customer contact for customer support and training. AtHowever, due topoint that theprocess of reestablishing our sales force can no longer handle the volume of these requirements, we will hire, trainteam by hiring sales personnel and other internal staff in 2022 to support an additional internal staff.
COVID-19
impacts and other business challenges in 2020, we eliminated ourin-house
sales team in 2020. We are in the our current and planned operations.
Technology
Zero-emission electric drivetrain systems for purpose-built new vehicles generally include the following;following: electric traction motor/generator of sufficient kW power for grade, speed, acceleration and efficiency requirements, a motor controller/inverter system that modulates electrical power flow between the battery packs and traction motor, a gear reduction system or multispeed transmission, systems to electrify power steering/brakes, a vehicle control unit (VCU),VCU, high-voltage traction battery packs with integrated battery management system (BMS),BMS, battery disconnect units, (BDU), thermal management systems, vehicle charging hardware, electric HVAC systems, DC to DC inverter(s) to reduce traction battery pack voltage sufficient to operatepower management options (such as grid, building, stationary energy storage, etc.) that are being developed by multiple vendors.
on-board,
low voltage systems, wiring harnesses, user/driver interface and remote diagnostic/tracking/fault code/data logging systems. Although clear industry power-export standards have not yet been adopted, systems and options for a variety ofvehicle-to-other
Re-power drivetrain systems to convert existing traditionally-fueled fleet vehicles with internal combustion engines (ICE) to zero-emission operation include many of the same components as described above for purpose-built vehicle systems. For simplicity, cost savingvendors and maintenance technician familiarity, some OEM systems of the subject vehicletheir inclusion may be retained/utilized and these could include cooling systems for the engine and transmission, mounting brackets and bolts, power steering and brake systems and 12 and/or 24 volt systems and accessories. Items that are typically not retained/repurposed include the OEM internal combustion engine, transmission, liquid or gaseous fuel tanks and exhaust/treatment systems.
Our post-transmission hybrid drivetrain systems uses power from an electric motor to assist traditionally-fueled vehicles to allow for a range of either better overall miles-per-gallon fuel use or increased performance levels (when both ICE and electric motor are in use).
Our research and development expenses were $586,899, $37,000 and $549,000 for the years ended December 31, 2017, 2016 and 2015, respectively.The increase in 2017 is primarily due to $420,000 incurredoffered as additional cost options in the second quarter of 2017 to build and install our drivetrain system on a chassis of a Type D school bus, on a promotional basis, for a potential customer. The project also enabled us to evaluate a third party firm that performed the work. The balance of the increase occurred because we were required to pay other research and development consultants under the terms of an employment agreement with our former Chief Technology Officer.The decrease in 2016 was due to much of this work being capitalized related to building a specific demonstration vehicle.
future.
Sales and Marketing
Sales
We intend
Due to expandforce as we open ournetwork by hiring sales service and assembly facilities. We expect that each facility will havepersonnel to form a team of dedicated marketing and sales employees with responsibility for each of the geographic region in whichregions we serve. Additionally, we have been building out an international network of FARs that promote, sell and service our vehicles throughout the facility is located. As a result, we believe we can efficientlyUnited States and cost-effectively build out our marketing and sales network.
the Caribbean.
COVID-19
impacts and other business challenges in 2020, we eliminated ourin-house
sales team in 2020. In 2022, we are building out our marketing and sales Marketing
Marketing
We plan to focus our marketing efforts on increasing brand awareness, generating demand for our products, communicating product advantages and generating qualified leads for our sales force. We intend to rely on a
12
variety of marketing vehicles, including our website and social media, participation in industry conferences and trade shows, public relations industry research and our collaborative relationships with our business and teaming partners to share our technical message and the benefits of our product offering, with customers.
Manufacturing
We also market our products on our website.third partykey step towards our longer-term strategy of becoming a fully integrated electric vehicle manufacturer, with whom we do not haveand are currently exploring potential locations for establishing a long-term or exclusive contractual relationship, and we continue to seek additional third party suppliers and other manufacturing support.
Manufacturing
We intend initially tocurrently contract with third partythird-party suppliers to manufacture our products. Currently,In 2022, we utilizeintend to increase our integration efforts and begin completing the servicesfinal assembly of
sub-assembly
components at our Corona, California, facility. In 2022, we also intend to begin producing our vehicles ourselves in the United States, which will be a facility.
Distribution
We intend to distribute our products both inside and outside of our current U.S. market.
Other Agreements
In addition to regional locations for installation into the motor vehicle.
Partnerships/Teamingour FAR Agreements,
We we have agreements with Blue Bird, GreenPower, Central States Bus Sales Efficient Drivetrains Inc. and with Envirotech Drive Systems Incorporated. NoneElectric Vehicles Inc. (“EEVI”). Neither of these agreements contain any binding purchase or sales minimums.
Blue Bird Corporation
Blue Bird offers a complete line of Type A, C and D school buses in a variety of options and configurations. In October 2017, we entered into a three-year agreement with Blue Bird pursuant to which we will provide them, on an exclusive basis, with zero-emission electric drivetrains for use in their Type C and D school bus product lines. The agreement sets forth the applicable pricing for the products to be purchased thereunder, but does not include any binding minimum purchase obligations on behalf of Blue Bird. During the term of the agreement, Blue Bird must purchase all zero-emission electric drivetrains to be used in their Type C and Type D school bus product lines from us, and we have agreed that we will not sell any zero-emission electric drivetrains to any similar manufacturer of school and activity buses, or to suppliers or subcontractors who would resell such products to such bus manufacturers. The agreement, however, does not prevent us from selling zero-emission electric drivetrains for any other application. The agreement provides that we will indemnify Blue Bird against certain losses resulting from our breach of the agreement and certain other losses. Blue Bird may terminate the agreement immediately for cause upon certain events or without cause upon thirty days prior written notice to us. In November 2017 at the National Association for Pupil Transportation industry event, Blue Bird unveiled the Type C bus in which our zero emission electric drivetrain was installed, and conducted ride-and-drive tours in the Type D bus that they completed after the STN show. We also organized an extensive ride-and-drive tour for them in California in early 2018.
GreenPower Motor Company, Inc.
GreenPower produces a range of bus models deploying electric drivetrain and battery technologies with a lightweight chassis. GreenPower integrates key components from such global suppliers as Siemens, Knorr, ZF and Parker, among others, providing an OEM platform that allows them to meet the specifications of various operators. GreenPower has appointed us as its authorized factory representative for California for Types A, C and D zero-emission electric school buses on a non-exclusive basis pursuant to a three-year agreement. Assuming various milestones are achieved, the agreement with us will be ongoing and may expand into additional states or regions. The agreement may be terminated for cause upon thirty days prior written notice and the failure of the other party to cure the breach that resulted in such cause.
Central States Bus Sales, (Central States)
or Central States
Central States a largeBus Sales Inc. (“Central States”) in business for 45 years, is the official Blue Bird bus dealership in Illinois, Tennessee, Kentucky, Arkansas and is headquartered in Fenton, Missouri. They are partnered with many of the best manufacturers and vendors available in the transportation industry to provide dedicated transportation solutions through exceptional service. They sell and service a wide variety of bus manufacturers, and as a result of Blue Bird’s sale of electric school bus dealer and a large commercial bus dealer covering Arkansas, Illinois, Kentucky, Tennessee and Missouri, entered into a teamingbuses powered by ADOMANI drivetrain systems, they have qualified electric vehicle technicians on staff. We signed an agreement with us pursuant to which both companies have agreed to work together on the conversion, marketing, selling and servicing of the many types of buses that Central States and will use them to provide warranty and maintenance services for electric fleet vehicles sold by us in certain Central States service areas. We are currently sells. Either party may request the other’s participation in the development ofspeaking to Central States about becoming a project pursuant to the agreement. The agreement may be terminated by either party, for cause, on ninety days prior written notice.
FAR.
Efficient Drivetrains, Inc.
Efficient Drivetrains, Inc. (EDI) develops and markets a range of state-of-the-art PHEV and EV drivetrain solutions worldwide. EDI’s leading-edge hybrid-electric and electric drivetrain systems and technologies enable OEMs to meet zero-emissions requirements while providing cost and efficiency advantages across nearly all platform classes and configurations. In October 2017, we entered into a three-year agreement with EDI pursuant to which EDI will build for ADOMANI, on an exclusive basis, zero-emission electric drivetrains for sale to Blue Bird’s Type C and D school bus product lines. The agreement sets forth the applicable pricing for the products to be purchased thereunder, but does not include any binding minimum purchase obligations on behalf of ADOMANI. During the term of the agreement, we must purchase all of our production requirements of zero-emission electric drivetrains to be used in Type C and Type D school bus product lines from EDI, and we have agreed that we will not contract with any other manufacturer to produce any zero-emission electric drivetrains for use in any Type C or Type D school buses. The agreement, however, does not prevent us from purchasing zero-emission electric drivetrains for any other application. The agreement provides that we and EDI will indemnify each other against certain losses resulting from our breach of the agreement and certain other losses. Either party may terminate the agreement for cause upon certain events occurring and not being cured within prescribed time frames or without cause upon one hundred eighty days prior written notice to the other.
Envirotech Drive SystemsElectric Vehicles IncorporatedEnvirotech Drive Systems Incorporated (Envirotech)
EEVI is a Canadian-basedCanadian company that is engaged in the design, prototyping and certification of electric components and vehicles, including complete drivetrains. ADOMANI hasdrivetrain systems. Prior to the completion of our acquisition of EVTDS, EEVI was the parent company of EVTDS. Prior to the completion of the Merger, we engaged EnvirotechEEVI to design and buildsupply a series of3-63 and 6 trucks, cargo vans and chassis built to ADOMANIour specifications and requirements. The trucksvehicles are initially comprised of a cab, chassis and electric drivetrain.drivetrain system. Any customer can then customize the trucks by adding a box or stake bed to the vehicle as perin accordance with their needs. Once testedWe received the first truck and validated by ADOMANI, Envirotech will submitcargo van pursuant to our arrangement with EEVI in December 2018. In 2019, EEVI received the vehicle emissions information to CARB executive order for certification and sale viacertification. As the issuing of an Executive Order (EO). Once the EO is received, ADOMANI will be able to provide the EO along withdealer for EEVI, we submitted additional information to the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP)HVIP Department of CARB and apply forreceived our HVIP listing makingin November 2019, which renders the trucks and vans eligible forwillare intended to enable companies to purchase$55,000$60,000 for Class 3 trucks and $100,000Class 4 vehicles ($66,000 if used in a disadvantaged area community census tract).
zero-emission
electric Class buy-down
funding based on the GVWR. Thesebuy-down
funds zero-emission
electric trucks and receive a discount to aid in the purchase. The HVIPbuy-down
funding is currently between As a result of our acquisition of EVTDS, we acquired EVTDS’s rights and assumed its obligations under an Exclusive Supply Agreement entered into between EVTDS and EEVI (the “Exclusive Distribution Agreement”). Pursuant to the Exclusive Distribution Agreement, EEVI appointed EVTDS as the exclusive distributor of certain
13
of EEVI’s products in the United States on the terms and subject to the conditions set forth therein. Unless earlier terminated in accordance with the terms thereof, the Exclusive Distribution Agreement will remain in effect for Class 6 trucks.
a term expiring on December 17, 2070. The Exclusive Distribution Agreement provides us certainty of product supply and consistency of design between different classes or type of vehicles; allows us to license the products to third party resellers, distributors and others which should enhance our ability to sell vehicles and permits us to use trademarks associated with the vehicles, all of which we believe is very advantageous to executing our business plan.
Raw Materials and Supply Chain
Prices for the systems, components and raw materials we use in our vehicles and drivetrain systems, many of which are OEM items used by many companies in different applications, can fluctuate depending on market conditions and global demand. Our purchase of raw materials is currently limited due to sales volume, but we attempt to limit our exposure to raw material price increases and availability fluctuations by having relationships with a dynamic group of vendors that sell us value-added hardware, components and systems. We have further mitigated these supply chain risks by establishing purchasing relationships with multiple vendors that are diversified by type of product offered, brand of products offered, country of origin of products (which is relevant for “Buy American” provisions that we encounter with our customers), individual specification requirements, purchase quantity requirements, quality, availability and price. Our drivetrain systems allow for component substitution, which further mitigates our exposure to any one supplier or component. For example, for different drivetrain systems, our recent traction motor choices have included the following brands: UQM (US), Yasa (UK) and TM4 (China). We believe that we have adequate supplies and access to the sources of the systems, components and materials to meet our current and anticipated future production and supply requirements.
Backlog
Backlog
As of March 7, 2018, our backlog consisted of purchase orders for 6 zero-emission electric school buses and 10 zero-emission electric drivetrains.
As of December 31, 2017, our2021, we had a backlog consisted of purchaser374 zero-emission electric school buses and 2 zero-emission electric drivetrains.products under signed contracts with customers. We believe our costcosts, substantially paid for as of December 31, 2021, associated with the current backlog, will be approximately $3.85$5.1 million (against which deposits of $1.02 million have been made), and that the sale price of the current backlog will be in excess of $4.0approximately $6.8 million. We believe that deliveries will begin in the second half of 2018.
zero-emission
Class 4 trucks and 43zero-emission
Class 4 cargo vans, which consists of unfilled firm orders for Employees
As of March 7, 2018,April 8, 2022, we had eleven12 employees in total, which are all full-time employees. None of our employees are covered by collective bargaining agreements and we believe our employee relations are good.
Seasonality
While we are not generally prone to seasonal fluctuations in our business, many state and federal agencies operate on a July 1 to June 30 fiscal year and, as such, in the event that grants are over-subscribed during a given fiscal year, we may be unable to obtain funds in connection with any such state or federal grants until after June 30 of the subsequent fiscal year.
Competition
The power conversionelectric vehicle market is highly competitive, and we expect it to become even more so in the future as additional companies launch competing products and vehicle offerings. We compete with other alternative energy technologies, such as natural gas, propane and hybrid technologies. TheseThe electric competitors include Ford, which produces the Ford Transit Connect EVproducesproduced the Navistar eStarMT E-CELL;eM2 and eCascadia electric trucks;
®;
and has made recent statements about producing an electricF-150
pickup truck and has announced production of the MustangMach-E
SUV; Nissan, which besides the Leaf EV, produces a small electric delivery van called the NV200; Rivian, which intends to introduce the R1T electricpick-up
truck; General Motors, which besides producing the Chevy Bolt EV, has made recent statements about considering the production of an electricpick-up
truck and reintroducing an electric Hummer; Blue Bird has electric drivetrain options for theirType-D,
C and A school buses; Navistar, which ®;
and builds the electric drivetrain system for ICType-C
school buses, unveiled a prototype battery-electric version of its medium-duty International MV truck in late 2019 and a regular production eMV model is said to be coming to the market in 2021; Freightliner, which produces the Mercedes-Benz,
producing the eActros electric truck and EQV electric vans; Mitsubishi/Fuso produces the eCanter electric truck; Tesla, producing aClass-8
Semi truck and recently introduced apick-up
truck called the Cybertruck; Bollinger Motors, producing the B2 electric pickup truck; Odyne Systems, which producesplug-in
14
hybrid heavy-drivetrain systems for trucks and medium-duty trucks; ZeroTruck,buses; Lightning Systems, which produces an Electric Vehicles International,Nordresa, which produceslight-an electric prototypemedium-duty commercial electric trucks;FL Electric semi-trucks by the end of 2021; Peterbilt has said they will have three battery-electric truck models available for sale in 2021; Nikola Motors has said it will produce the Nikola One and Nikola Two model semi-trucks; BYD, which manufactures new electric transit buses; Proterra, which manufactures new electrictrucks and transit buses; TransPower, which converts Typehas convertedbuses;buses and trucks; and Motiv, which convertssells electric drivetrain systems for Type A school buses.
re-power
electric drivetrain systems for trucks and buses; Lion Electric Company, a Canadian-based manufacturer of Type Call-electric medium-duty
school buses, mini buses and aClass-8
truck; re-power
electric drivetrain systems forcab-forward
trucks and package delivery vans; Volkswagen has presented ane-Delivery
truck and a Volksbuse-Flex prototypes; Proterra has a full line of electric transit buses and is providing electric drivetrain systems for Thomas Bus, electric school buses; Workhorse, which builds anall-electric
walk-in
van and pick-up
truck called theW-15;
Chanje, which produces a large electric package delivery van; Volvo is expected to begin selling its FE Electric and Type-C
and D school buses and package delivery vans.
Intellectual Property
The protection of our technology and intellectual property is an important component of our success. We rely on intellectual property laws, including trade secret, copyright, trademark and patent laws in the United States and abroad, and use contracts, confidentiality procedures,
non-disclosure
agreements, employee disclosure and invention assignment agreements and other contractual rights to protect our intellectual property.As of December 31, 2017,2021, we own three issued U.S. Patentspatents, which will expire in 2030 and 2033, and one issued Chinese utility model that will expire in 2026. Domestic and foreign applications are also pending on new inventions.2033. In addition, we maintain a trademark portfolio including common law trademarks and service marks and have twothree service marks registered and two trademark registrations in the United States.
We have one pending trademark and service mark application in Ukraine, and one allowed trademark application pending in the Philippines.
Circumstances outside of our control could pose a threat to our intellectual property rights. Effective intellectual property protection may not be available in the United States or other countries in which we provide our solution. In addition, the efforts we have taken to protect our intellectual property rights may not be sufficient or effective. Any impairment of our intellectual property rights could harm our business, our ability to compete and harm our operating results. In addition, as the number of competitors grows and solutions of competitors overlap, we may in the future face claims by third parties that we infringe upon or misappropriate their intellectual property rights, and we may be found to be infringing upon or to have misappropriated such rights. In the future, we, or our customers, may be the subject of legal proceedings alleging that our solutions or underlying technology infringe or violate the intellectual property rights of others.
Governmental Programs and Incentives
We believe that the availability of government subsidies and incentives currently is an important factor considered by our customers when purchasing vehicles that utilize our technology, and that our growth depends in part on the availability and amounts of these subsidies and incentives. Over time, we believe that the importance of the availability of government subsidies and incentives will decrease, as we continue to reduce the upfront cost of vehicles that utilize our technology. In order to help ensure that we and our customers benefit from available subsidies and incentive programs in the United States, Canada, and Mexico, Asia and in Europe, we haveintend to utilize the services of incentive specialists that work directly with our sales team and our customers on these issues.
issues providing updates in near real-time as programs become available.
Overview of Incentive Programs Most Applicable to Our Products
We intend to seek to have our products approved for various local, state and federal incentive programs, including those set forth below. In particular, California’sthat a certainthe percentage of an automobile manufacturer’s sales must bemeantdesigned to accelerate the purchase and/or repower of cleaner, more efficient vehicles in California. We
zero-emission
vehicle mandate, which requires zero-emission
vehicles, has resulted in numerous incentive programs 15
anticipate that the relevant aggregate funding available in California alone over the next several years may be in excess of $500 million.
$800 million, which includes federal, state and Volkswagen settlement funding sources.
California Hybrid and Zero-Emissions Truck and Bus Voucher Incentive Project
We believe our customers may be eligible for purchase under HVIP. (HVIP)
HVIP is a partnership between CARB andprogram administered by CALSTART, the purpose of which is to help speed the early market introduction of clean,first-servefirst-served basis, up to the funding amount available for that year, to reduce the cost of purchasing hybrid and
low-carbon
hybrid and electric trucks and buses. Under HVIP, dealers and fleet operators may request vouchers from HVIP on a first-come zero-emission
medium- and heavy-duty trucks and buses.It is a statewide program. While the HVIP program is currently, as announced to release $197 million on March 30, 2022, working on the specific guidelines in an implementation manual to guide the release of the approximate $197 million funding currently reserved for voucher requests, we believe our customers may become eligible to request vouchers for purchase under HVIP as funds are made available quarterly throughout 2022.
HVIP vouchers range in amount of up to $220,000,amounts depending on the gross vehicle weight of the purchased vehicle and the number of vehicles purchased. School buses wouldZero-emission Class 3 trucks are currently eligible for up to $45,000. Class 4 and Class 5 vehicles are funded at the $60,000 level and Class 6 and Class 7 vehicles are eligible for $85,000. Depending on project location (i.e. if in a disadvantaged area community census tract) those amounts can be entitledincreased to $220,000$49,500, $66,000, and $93,500, respectively. However, HVIP may also be revising per vehicle amounts available for each new school bus.
future grant periods.
HVIP funds the purchase of only fully commercialized hybrid and school buses and vehicles for the HVIP vouchers. Blue Bird received HVIP approval for a school bus powered by the ADOMANI drivetrain on November 7, 2017.
zero-emission
trucks and buses. Vehicles still in the demonstration or evaluation stage are not eligible for inclusion in HVIP. Vehicle manufacturers must apply to have their hybrid andzero-emissions
trucks and buses included in HVIP’s voucher program. Once a make and model is included in the program, the manufacturer is not required to submit a full application for the succeeding year’s program unless the vehicle has been modified. We intend to comply with the HVIP guidelines and continue to qualify ourNew York Truck Voucher Incentive Program (NYT-VIP)
(NYTVIP)
NYT-VIP
is a first-come, first-servedall-electric,
hybrid-electric, and CNG trucks and New York City Clean Trucks Voucher Program (NYCCTVP)
In support of the Blue Bird bus mentioned above, ADOMANI has secured eligibilitytransition to
all-electric
vehicles, in early February, 2020, New York City Mayor Bill de Blasio signed an executive order requiring electrification of the city’s entire municipal vehicle fleet by 2040.In October 2020, we were named an approved dealership and our vehicles have been listed on the NYT-VIPeligible vehicles list for the New York City Clean Trucks Program. This program provides funding for new electric truck purchases by New York City customers to replace and currently qualifiesscrap older polluting ICE vehicles. The rebate incentive funding program provides New York City fleet owners $100,000 per vehicle for an$150,000Class 5
all-electric
Class 4 truck sold to them by ADOMANI, and $110,000 for a all-electric
truck. The amounts increase forClass 6-Class
8 trucks.16
New Jersey Zero Emissions Incentive Program (NJZIP)
The New Jersey Zero Emissions Incentive Program is a $15 million pilot voucher per vehicle.
Drive Clean Chicago—Drive Clean Truckprogram that supports businesses and institutions purchasing new,zero-emissionvehicles operating in the greater Newark and greater Camden areas by offering up to $100,000 towards the purchase of battery-electric vehicles. In June 2021, we were named an approved vendor in the Program. The Program
Drive Clean Chicago will fund 100 to 300 vouchers ranging in value from $25,000 to $100,000 for businesses and institutional organizations looking to transition their fleets to zero emissions. Bonuses will be available for small businesses and minority-, women-, and veteran-owned businesses. NJ ZIP is acceleratingfunded by proceeds allocated to the adoption of advanced vehicle technologiesNew Jersey Economic Development Authority by the Regional Greenhouse Gas Initiative (“RGGI”) for the commercial truckpurposes of reducing harmful emissions, especially in communities disproportionately impacted by transportation emissions, and taxi sectors increating economic opportunity within the Chicago six-county area by reducing the cost of new alternative fuel vehicles and public alternative fuel stations. state.
Maryland FY22 Clean Fuels Incentive Program (CFIP)
The Maryland FY22 Clean Fuels Incentive Program is a $1 million voucher program from the Chicago Department of Transportation (CDOT) offers incentives including $10,000 for CNG and electric taxis, up to $150,000 for hybrid and all-electric trucks, and 30% of the capital cost for CNG and fast-charge electric fueling stations.60% ofapply for the cost an all-electric repower conversion.
vouchers.
In addition to these programs, there are many other state and federal programs that range from providing tax credits to providing funding to providing grants and loansprovides financial assistance for the purchase of zero-emissionnew and hybrid vehicles. Manyconverted alternative fueled fleet vehicles registered in the state of Maryland. The primary goal of CFIP is to reduce the programs provide fundingconsumption of imported petroleum resulting in a cleaner and greener transportation sector within Maryland. The application period opened on September 1, 2021 and closed at 5 pm EST on December 31, 2021. The Program will fund vouchers for up
Class 3-8
vehicles with a maximum cap of $80,000 per vehicle. CFIP is funded by the Strategic Energy Investment Fund (“SEIF”) for the purposes of reducing harmful emissions. SEIF is primarily funded from Regional Greenhouse Gas Initiative (“RGGI”) auctions. As in the NJ ZIP program, end users apply for the vouchers; we have encouraged our customers who have customers in Maryland to Volkswagen Environmental Mitigation Trust FundsWe anticipate that the 23
Beginning in 2018, several states that we have prioritized may allocate approximately $260 millionallocated millions in funds per year for three years beginning in 2018 toare currentlyhave been in the process of funding their initial rounds or are developing specific funding plans and weplans. We have successfully engaged with several of these states to support the development of such plans. We expect that these plans, will be developed byincluding funding the endpurchase of the first half of 2018 andother commercial vehicles, provided that the first rounds of funding may become available thereafterbuyer surrenders a qualifying existing fossil-fueled vehicle in 2018.
on-road
vehicle projects. Several individual states have provided carve outs specifically for electric vehicles and, in some cases, electric school buses. For example, California, Illinois, Indiana, Michigan and Ohio have each allocated funds directly to electric school bus projects. The California program will provide per vehicle incentives of $750,000. These states order to qualify for the funding.
California Air Resources Board
(“CARB”)
CARB gathers air quality data for the State of California, ensures the quality of this data, designs and implements air models, and sets ambient air quality standards for the state, with a particular focus on regulating tailpipe emissions and other mobile sources. CARB compiles the state’s emissions inventory and performs air quality and emissions inventory special studies. CARB uses the Emissions Inventory and Air Quality Models to evaluate air quality and reduce emissions in each of California’s 35 local air districts.
CARB also manages several incentive and rebate programs and awards hundreds of millions of dollars in grants to reduce emissions from;, the Carl Moyer Program;Program, the Voucher Incentive Program for enhanced fleet modernization and emission reduction;reduction, and the Lower-Emission School Bus Program/School Bus Retrofit and Replacement Account.
on-
andoff-road
vehicles and equipment. CARB is responsible for program oversight. CARB awards grants and funds through the Air Quality Improvement Program (AB 118) In February 2020, the CARB staff held a workshop to discuss a new fleet rule that will target a 100%zero-emissiontruck and bus fleet for the state of California by 2045. The rule making being considered enjoys broad political support, and has some precedent (e.g., the Advanced Clean Transit rule). We will monitor future actions on the proposal.
17
California Energy Commission
(“CEC”)
The California Energy Commission (CEC) has several core responsibilities, including but not limited to setting energy policy, developing renewable energy, achieving energy efficiency, and transforming California’s transportation infrastructure. One goal of the CEC is to mitigate GHG emissions and reduce the impact of climate change. The CEC carries out its responsibilities pursuant to several of California’s landmark environmental laws. In 2006, the Legislature passed and then Governor Arnold Schwarzenegger signed two landmark pieces of legislation with11 percent11% reduction from then-current emissions levels and nearly a 30 percent30% reduction from projectedlevels in 2020. In 2015, California passed Senate Bill (SB) 350, which further committed California to reducing GHG emissions by establishing a 2030 greenhouse gas reduction target of 40 percent40% below 1990 levels.levels and to achieve 100% clean energy by 2045. The transportation sector represents a significant portion of California’s GHG emissions.
far-reaching
implications for energy policy. The most comprehensive is AB 32, the California Global Warming Solutions Act of 2006, which sets an economy-wide cap on California GHG emissions at 1990 levels by no later than 2020. At the time, this was an aggressive goal that represented an approximately business-as-usual
This bill was amended with respect to implementation, but the targeted goals remain the same as originally passed. In 2007, AB 118 created the Alternative and Renewable Fuel and Vehicle Technology Program. The program is intended to increase the use of alternative and renewable fuels and innovative technologies that will transform California’s fuel and vehicle types to help attain the state’s climate change policies. AB 118 authorizes the CEC to provide approximately $100 million annually as incentives to public agencies, vehicle and technology consortia, businesses, public-private partnerships, workforce training partnerships and collaboratives, fleet owners, consumers, recreational boaters, and academic institutions for projects that: develop and improve alternative and renewable
low-carbon
fuels; optimize alternative and renewable fuels for existing and developing engine technologies; improve light-, medium-, and heavy-duty vehicle technologies; and retrofitmedium-and
heavy-dutyon-road
andnon-road
vehicle fleets.Air Quality Management Districts (AQMD)(“AQMD”) and Air Pollution Control Districts (APCD)
(“APCD”)
California’s AQMDs/APCDs are responsible for controlling emissions primarily from stationary sources of air pollution such as large power plants and refineries, but also have a role in distributing funds and administering incentive programs from mobile sources—primarilysources-primarily cars, trucks and buses, but also construction equipment, ships and trains, from which approximately seventy five percent75% of emissions are generated. The largest AQMD/APCDs are the South Coast AQMD, Bay Area AQMD, San Joaquin Valley APCD, and the San Diego APCD. Local AQMDs/APCDs develop and adopt an Air Quality Improvement Plans, (AQIP), which serves as the blueprint to bring the respective areas into compliance with federal and state clean air standards. Rules are adopted to reduce emissions from various sources, including specific types of equipment, industrial processes, paints and solvents, even consumer products. Permits are issued to many businesses and industries to ensure compliance with air quality rules. Local AQMDs award grants to help reduce emissions in their local communities. These grants and incentive programs include programs aimed at reducing emissions from mobile sources such as buses and trucks.
For example, the San Joaquin Valley Air District’s Truck Replacement Program is a program open year-round, which offers grant funding equal to HVIP. In some cases, air district funding programs such as this can be combined with other sources including state and federal grants.
Clean Cities
Clean Cities is a program administered by the federal Department of Energy’s (DOE)DOE’s Office of Efficiency and Renewable Energy, Vehicle Technology Program. According to the DOE, the mission of Clean Cities is to advance the energy, economic, and environmental security of the United States by supporting local decisions to adopt practices that reduce the use of petroleum in the transportation sector. Clean Cities is a government-industry partnership. Under the program, public and private stakeholders from businesses, city and state governments, the automotive industry, fuel providers, and community organizations form coalitions throughout the country, which then work with the DOE to establish a plan for reducing petroleum consumption in their respective geographic areas.
National Clean Diesel Program / Diesel Emissions Reduction Act
The National Clean Diesel Funding Assistance Program, which is administered by the EPA National Clean Diesel Campaign, provides funding under the Diesel Emissions Reduction Act for projects that seek to reduce emissions from existing diesel engines. Eligible applicants include U.S. regional, state and local agencies that have jurisdiction over transportation or air quality and certain nonprofit institutions that provide pollution reduction or educational services to owners and operators
18
Congestion Mitigation and Air Quality (CMAQ)(“CMAQ”) Improvement Program
The CMAQ Improvement program,Program, which is jointly administered by the Department of Transportation Federal Highway Administration and Federal Transit Administration, provides funding to states to support surface transportation projects and other related efforts that contribute air quality improvements and provide congestion relief. CMAQ funding is allocated to the states annually based on a statutory formula that is based on population and air quality classification as designated by the EPA. Each state’s transportation department then is responsible for distributing the funds. State transportation departments may spend CMAQ funds on projects that reduce ozone precursors, and at least 16 states have used CMAQ funds for alternative fuel vehicle projects (such as purchasing electric or hybrid vehicles).
Other State Incentives
A number of states and municipalities in the United States, as well as certain private enterprises, offer incentive programs to encourage the adoption of alternative fuel vehicles, including tax exemptions, tax credits, exemptions and special privileges. For example, Maryland has introduced a voucher program that provides financial assistance for the purchase of electric trucks registered in that state, and Arizona exempts use tax and lowers registration fees for the purchase of an EV.electric vehicle. Other states, including Colorado, Georgia, Utah, Florida and West Virginia, provide for substantial state tax credits for the purchase of EVs.
electric vehicles.
Government Regulation
Our products are designed to comply with a significant number of governmental regulations and industry standards, some of which are evolving as new technologies are deployed. Government regulations regarding the manufacture, sale and implementation of products and systems similar to ours are subject to future change. We cannot predict what impact, if any, such changes may have upon our business. We believe that vehicles that utilize our technology are in conformity with all applicable laws in all relevant jurisdictions.
Emission and Fuel Economy Standards
Government regulation related to climate change is under consideration at the U.S. federal and state levels. The EPA and National Highway Traffic Safety Administration (NHTSA)(“NHTSA”) issued a final rule for greenhouse gas emissions and fuel economy requirements for trucks and heavy-duty engines on August 9, 2011, which had an initial
phase-in
starting with model year 2014 and a finalphase-in
occurring in model year 2017. NHTSA standards for model years 2014 and 2015 were voluntary, while mandatory standards first went into effect in 2016. In August 2016, the EPA and NHTSA jointly finalized Phase 2 standards for medium- and heavy-duty vehicles through model year 2027 to improve fleet fuel efficiency and cut carbon emissions.The rule provides emission standards for carbon dioxide and fuel consumption standards for three main categories of vehicles: (i) combination tractors, (ii) heavy-duty pickup trucks and vans, and (iii) vocational vehicles. According to the EPA and NHTSA, vocational vehicles consist of a wide variety of truck and bus types, including delivery, refuse, utility, dump, cement, transit bus, shuttle bus, school bus, emergency vehicles, motor homes and tow trucks, and are characterized by a complex build process, with an incomplete chassis often built with an engine and transmission purchased from other manufacturers, then sold to a body manufacturer.
The EPA and NHTSA rule also establishes multiple flexibility and incentive programs for manufacturers of alternatively fueled vehicles, including an engine averaging banking and trading (ABT),(“ABT”) program, a vehicle ABT program and additional credit programs for early adoption of standards or deployment of advanced or innovative technologies. The ABT programs allows for emission and/or fuel consumption credits to be averaged, banked or traded within defined groupings of the regulatory subcategories. The additional credit programs allow manufacturers of engines and vehicles to be eligible to generate credits if they demonstrate improvements in excess of the standards established in the rule prior to the model year the standards become effective or if they introduce advanced or innovative technology engines or vehicles.
19
Vehicle Safety and Testing
The National Traffic and Motor Vehicle Safety Act of 1966 (Safety Act)(“Safety Act”), regulates motor vehicles and motor vehicle equipment in the United States in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable motor vehicle safety standards established by NHTSA. Meeting or exceeding many safety standards is costly, in part because the standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns. A manufacturer is obligated to recall vehicles if it determines that the vehicles do not comply with a safety standard. Should we or NHTSA determine that either a safety defect or noncompliance exists with respect to any of our modified vehicles, the cost of such recall campaigns could be substantial.
Battery Safety and Testing
We believe our battery packs conform to mandatory regulations that govern transport of “dangerous goods,” which includesPHMSA,the Pipeline and Hazardous Materials Safety Administration, are based on the UN Recommendations on the Safe Transport of Dangerous Goods Model Regulations, and related UN Manual of Tests and Criteria. The requirements for shipments of these goods vary by mode of transportation, such as ocean vessel, rail, truck and air.
lithium-ion
batteries that may present a risk in transportation. The governing regulations, which are issued by Our battery suppliers have completed the applicable transportation tests including:
altitude simulation, which involves simulating air transport;
thermal cycling, which involves assessing cell and battery seal integrity;
vibration, which involves simulating vibration during transport;
shock, which involves simulating possible impacts during transport;
external short circuit, which involves simulating an external short circuit; and
overcharge, which involves evaluating the ability of a rechargeable battery to withstand overcharging.
Item 1A. | ||
RISK FACTORS |
Available Information
We were incorporated in Florida on August 6, 2012 and reincorporated in Delaware in November 2016. Our principal executive offices and mailing address are: 4740 Green River Road, Suite 106, Corona, California 92880. Our telephone number is (951) 407-9860. Our corporate website address is www.adomanielectric.com. Information contained on, or that can be accessed through, our website does not constitute part of this Annual Report and inclusion of our website address in this report is an inactive textual reference only. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are accessible free of charge at our website. The Securities and Exchange Commission (SEC) also maintains an internet site that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov.
Investing in our securities involves significant risks, including the potential loss of all or part of your investment. These risks could materially affect our business, financial condition and results of operations and cause a decline in the market price of our common stock. You should carefully consider all of the risks described in this Annual Report, in addition to the other information contained in this Annual Report, before you make an investment in our securities.In addition to other matters identified or described by us from time to time in filings with the SEC, there are several important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or results that are reflected from time to time in any forward-looking statement. Some of these important factors, but not necessarily all important all-importantfactors, include the following:
Risks Related to Our Business
Business interruptions resulting from the
COVID-19
pandemic have adversely affected, and could continue to adversely affect, our business, results of operations, and financial condition.In December 2019, a novel strain of a virus named(severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease, or
SARS-CoV-2
COVID-19,
was reported to have surfaced in Wuhan, China, and has reached multiple other regions and countries, including the United States and, more specifically, Southern California, where our primary office is located. In March 2020, the World Health20
Organization declared
COVID-19
a global pandemic. Since that time, the coronavirus pandemic has continued to spread, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions, and other public health safety measures that have adversely affected workforces, organizations, economies, and financial markets globally, leading to economic uncertainty and increased market volatility. Global health concerns related to theCOVID-19
pandemic have resulted in social, economic and labor instability in the countries in which we or the third parties with whom we engage operate, and resulted in unexpected legal and regulatory changes, such as travel, social distancing and quarantine policies, boycotts, curtailment of trade, and other business restrictions that have negatively affected our ability to procure and sell our products and provide our services. More recently, theCOVID-19
pandemic has led to a disruption of the global supply chain, which has adversely impacted, and may continue to adversely impact, our ability and that of our manufacturing partners’ to procure the components needed to produce our vehicles on terms acceptable to us and has resulted in delays in the delivery of our products to customers. If we are unable to effectively address such challenges and mitigate the potentially negative impacts of the pandemic and related supply chain disruptions on our business, it could result in additional delivery delays and canceled orders, reduced demand for our products and solutions, and adversely affect our customers’ ability to pay for our products and solutions.Additionally, the
COVID-19
pandemic has negatively impacted our ability to market our vehicles to new and existing customers, increased our production and sales cycle times and harmed our business, results of operations, financial condition, and could have other currently unforeseen negative impacts on us. We expect these negative impacts, among others, will continue due to the ongoing effects of theCOVID-19
pandemic. While we have developed, and continue to develop, plans to address such ongoing effects and help mitigate the potential negative impact of the pandemic on our business, these efforts may not be effective and a protracted economic downturn will likely limit the ability of our mitigation efforts to be successful. Accordingly, our future performance will depend in part upon our ability to successfully respond and adapt to these challenges and we have developed, and continue to develop, plans to address the ongoing effects and help mitigate the potential negative impact of the pandemic on our business. It is not possible for us to predict the duration or magnitude of the adverse results of theCOVID-19
pandemic and its effects on our business, results of operations, or financial condition at this time. To the extent theCOVID-19
pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.We may not successfully execute our business plan to generate revenue and create a sustainable growth trajectory.
We havedid not generatedgenerate significant revenues for the years ended December 31, 2021 and 2020, due in part to date.the combined impact of on our business plan, expand our business model and develop new products in a timely manner. We may fail to do so. A variety of factors outside of our control could affect our ability to generate revenue and our revenue growth. Our success in implementing our strategy of producing zero-emission conversions and selling new purpose-built
COVID-19
restrictions and the absence of HVIP funding available to our customers. Our ability to continue to generate revenue and grow our revenue will depend, in part, on our ability to executezero-emission buses, trucks and other fleet
vehicles could also slow our revenue growth.We have a history of losses and we may not achieve or sustain profitability in the future.
We have incurred losses in each fiscal year since our incorporation in 2012. In
For the years ended December 31, 2017, 20162021 and 2015,2020, we incurred net losses of $21.9$7,652,100 and $279,521, respectively. The 2021 loss includes approximately $3.5 million $10.69 million, and $6.03 million, respectively.of non-cash expenses, net of non-cash income of $290,520. As of December 31, 2017,2021, we had working capital of $1.8approximately $21.5 million anand accumulated deficit of $43 million and stockholders’ equity of $2.3approximately $8.1 million. To date, we have financed our operations primarily through issuing equity capital convertible notes, notes payable and, most recently, with the completion of an offering of ourraises from issuing common stock. Our products have been recently developed and they may not be commercially successful or generate significant revenue, if at all. If we are to ever achieve profitability it will be dependent upon the successful development and successful commercial introduction and acceptance of zero-emission electric and hybrid drivetrains such as ours; the demand for new buses, trucks and other fleet vehicles with zero-emission or hybrid drivetrains; and the demand for conversion of existing buses, trucks and other fleet vehicles to zero-emission electric or hybrid drivetrains, any of which may not occur. We may not achieve profitability in the future as we anticipate that our operating expenses will increase significantly in the foreseeable future as we:
make investments required to move our assembly operations to our facility in Arkansas;
design, develop and manufacture our light to medium to heavy-duty fleet vehicles and their components;
21
increase our sales and marketing to acquire new customers; and
increase our general and administrative functions to support our growing operations.
Because we willmay incur the costs and expenses from these efforts before we receive any significant incremental revenues with respect thereto, our losses in future periods will likely be significantly greater than the losses we would incur if we developed our business more slowly. In addition, these efforts may prove more expensive than we currently anticipate, or may not result in increases in our revenues, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. Even if we are successful in generating revenue and increasing our customer base, we may not become profitable in the future or may be unable to maintain any profitability achieved if we fail to increase our revenue and manage our operating expenses or if we incur unanticipated liabilities. And evenEven if our revenue increases, we may not be able to sustain thisthe rate of revenue growth. Revenue growth may be slow or revenue may decline for a number of reasons, including continued problems accessing various incentive programs to assist our customers with their purchase of our vehicles, lack of demand for ourdecline significantly.
zero-emission
vehicles and drivetrain systems, increasing competition, lengthening sales cycles, decelerating growth of, or declines in, our overall market, or our failure to capitalize on growth opportunities or to introduce new offerings. Any failure by us to achieve and maintain revenue or profitability could cause the price of our common stock to decline.
While we believe that our existing cash and cash equivalents including the net proceeds from the foregoing offerings,as of December 31, 2021 will be sufficient to fund our operations at least through April 2019,during the next twelve months, we may not successfully execute our business plan, and if we do not, we may need additional capital to continue our operations.
In February, 2022, we acquired a US manufacturing facility in Osceola Arkansas that will require additional debt and/or equity capital in order to purchase related equipment and set up production lines which is expected to require up to $80 million of additional investment through 2027.
Our limited operating history and the pandemic makes it difficult to evaluate our current business and future prospects.
Our relatively short operating history, and developingrecent changes to our business model, the lack of available HVIP funding to assist our customers, and our inability to predict the ultimate duration and severity ofour products and services and developing newour products and services. You should consider our business and prospects in light of the risks and difficulties that we will encounter as we continue to develop our business model. We may not be able to address these risks and difficulties successfully, which would materially harm our business and operating results and cause the market price of our Common Stockcommon stock to decline.
COVID-19
impacts on our business make it difficult to evaluate our current business and our future prospects. It is difficult to predict our future revenues and appropriately budget for our expenses, although we recently significantly decreased our operating expenses and intend to only increase them as we perceive that theCOVID-19
pandemic is subsiding and that customers are willing to move forward with our vehicles. We have limited insight into other trends that may emerge and affect our business. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly developing and changing industries, including challenges in forecasting accuracy, determining appropriate investments of our limited resources, market acceptance of our products and services and future products and services, competition from new and established companies, including those with greater financial and technical resources, acquiring and retaining customers and increasing revenue from existing customers, enhancing We may experience quarterly fluctuations in our operating results due to a number of factors, which make our future results difficult to predict and could cause our operating results to fall below expectations.
Our quarterly operating results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on abasis may not be meaningful. You should not consider our past results including our recent success in having funding approved in California through AB 923 for conversions and new zero-emission electric or hybrid drivetrains in any projected growth rate or as indicative of our future performance.
period-to-period
22
We expect ouroperating results to vary based on our operating costs, which we anticipate will increase significantly in future periods as we, among other things, design and develop ourcomparisons of our operating results, especially in the short-term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, our operating results may not meet expectations of equity research analysts or investors. If any of this occurs, the trading price of our stock could fall substantially,decline, either suddenly or over time.
period-to-period
zero-emission drivetrains,
vehicles and drivetrain systems, open new design, sales and service facilities, hire additional technology staff, increase our travel and operational budgets, increase our facility costs, hire and train service personnel, increase our sales and marketing activities, and increase our general and administrative functions to support our growing operations. As a result of these factors, we believe thatquarter-to-quarter
In addition to other risk factors described in this section, factors that may affect our quarterly operating results include the following: our ability to hire, train and retain key personnel, develop new products that the market demands, receive government support funding to offset the increased product cost to the end user, keep our supply chain intact, source required materials to build our zero-emission systems and maintain them once they are delivered.
Based upon all of the factors described above, we have a limited ability to forecast our future revenue, costs and expenses and, as a result, our operating results may from time to time fall below our estimates.
Our future growth is dependent upon demand for conversion of existing diesel-newgasoline-powered buses, truckcargo vans, and other fleet vehicles to zero-emission electric or hybrid drivetrain systems and demand for new buses, trucks and other fleet vehicles with zero-emission drivetrains.
mid-sized
zero-emission
trucks and Our growth is highly dependent upon the market acceptance of, and we are subject to an elevated risk of any reduced demand for, newvehicles to zero-emission electric or hybrid vehicles and the demand for new buses, truck and other fleet vehicles with zero-emission drivetrains in particular.vehicles. If this market does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be harmed, and we may need to raise additional capital. This market is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors. Factors that may influence the market acceptance of new
zero-emission vehicles and conversion of existing buses,
trucks and other fleet zero-emission
vehicles include:perceptions about
zero-emission
electric vehicle quality, safety design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of any electric vehicle;perceptions about the limitations in the technology resulting in a limited range over which
zero-emission
electric vehicles may be driven on a single battery charge (increases in distance requires additional batteries, which increases weight, and, at some point, too much weight diminishes the additional distance being sought before requiring a charge);perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced technology;
the availability of alternative fuel vehicles, including competitive vehicles and specifically conversionimprovements in the fuel economy of existingthe internal combustion engine may cause a slow-down in the demand to switch to
zero-emission
electric vehicles;the availability of service for
zero-emission
electric vehicles;the environmental consciousness of owners of diesel- and gasoline-powered buses, truck and other fleet vehicles;
changes in the cost of oil and gasoline;
government regulations and economic incentives, including a change in the administrations and legislations of federal and state governments, promoting fuel efficiency and alternate forms of energy;
access to charging stations both public and private, standardization of electric vehicle charging systems and perceptions about convenience and cost to charge an electric vehicle;
the availability of tax and other governmental incentives and rebates to purchase and operate electric vehicles to or future regulation requiring increased use of
zero-emission electric
or hybrid vehicles;23
perceptions about and the demand for new busesactual cost of alternative fuel; and fleet vehicles with zero-emission drivetrains, include:
macroeconomic factors.
Additionally, we have limited experience in introducing new products. To date,products, as we have been a research and development company and we have only recently commenced production and deliveries of our products.products within the most recent few years. To the extent that we are not able to build our products in accordance with customer expectations, our future sales could be harmed.
Additionally, we
We may also become subject to regulations that may require us to alter the design of our drivetrains,vehicles, which could negatively impact consumer interest in our drivetrains.
products.
The influence of any of the factors described above may cause current or potential customers not to purchase our EVs or drivetrains,electric vehicles, which would materially adversely affect our business, operating results, financial condition and prospects.
We may not be able to compete successfully against current and future competitors.
The market for commercial and hybrid vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors.
zero-emission
electricMost of our existing and potential competitors, including Ford, Nissan, Navistar, Freightliner, PACCAR, Hino, Volvo, BYD, Proterra, TransPower, Lion Bus or Motiv,Electric Company, Rivian, GreenPower Motor Company, General Motors, Blue Bird, Tesla, Volkswagen, Volvo, PeterBilt, Nikola, and Motiv. Our competitors have substantially greater financial resources, more extensive engineering, manufacturing, marketing and customer service and support capabilities, longer operating histories and greater name recognition than we do. They may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively. As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer period of time than we can. Each of these competitors has the potential to capture market share in our target market, which could have an adverse effect on our position in our industry and on our business and operating results.
Mercedes-Benz,
Odyne Systems, Lightning Systems, Nordresa, Workhorse, Mitsubishi/Fuso,We expect competition in our industry to intensify in the future in light of anticipated increased demand for alternative fuel vehicles and to continued globalization and consolidation in the worldwide automotive industry.
Factors affecting competition include product quality and features, innovation and development time, pricing, reliability, safety, fuel economy, customer service and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and adversely affect our business, financial condition, operating results and prospects. Our ability to successfully compete in our industry will be fundamental to our future success in existing and new markets and to our market share. There can be no assurances that we will be able to compete successfully in our markets. If our competitors introduce new products or services that compete with or surpass the quality, price or performance of our products or services, we may be unable to satisfy existing customers or attract new customers at the prices and levels that would allow us to generate attractive rates of return on our investment. A disruptive technology advancement in the EVelectric vehicle industry by a competitor, such as in energy storage, traction motors or power electronics, could affect the sales of our products.
Demand in the and hybrid vehicle industry is volatile, which may lead to lower vehicle unit sales, which could adversely affect our operating results. Volatility of demand in the and hybrid
zero-emission
electriczero-emission
electric24
vehicle industry may materially and adversely affect our business, prospects, operating results and financial condition. The markets in which we currently compete and plan to compete in the future have been subject to considerable volatility in demand in recent periods. As a low volume producer, we have fewer financial resources than more established providers have to withstand changes in the market and disruptions in demand. Volatility in demand may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and adversely affect our business, prospects, financial condition and operating results. These effects may have a more pronounced impact on our business given our relatively smaller scale and financial resources as compared to many incumbent providers.
Competition could result in price reductions and revenue shortfalls, loss of customers and loss of market share. If we cannot compete successfully against current and future competitors, our business, prospects, results of operations and financial condition could be negatively impacted.
Our sales cycle can be long and unpredictable and require considerable time and expense before executing a customer agreement, which may make it difficult to project when, if at all, we will obtain new customers and generate revenue from those customers.
The sales cycle for our business, from initial contact with a potential lead to contract execution and implementation, typically takes significant time and is difficult to predict. Our sales cycle in some cases has beenlasted up to six to nine months or more. Our sales efforts involve educating our customers about the use, capabilities and benefits of our products and services. Some of our customers undertake a significant evaluation process that frequently involves not only our products and services but also the offerings of our competitors. This process can be costly and time-consuming. In addition, once a customer is inclined to purchase our products, their ability in most cases to issue a purchase order is dependent on being granted funding toward the purchase. It is very difficult for us, or our customers, to predict the timing of the release of such funding, and specifically whether they will receive any of it. As a result, it is difficult to predict when we will obtain new customers and begin generating revenue from these new customers. As part of our sales cycle, we may incur significant expenses before executing a definitive agreement with a prospective customer and before we are able to generate any revenue from such agreement. The substantial time and money spent on our sales efforts may not generate significant revenue. If conditions in the marketplace generally or with a specific prospective customer change negatively, it is possible that no definitive agreement will be executed, and we will be unable to recover any of these expenses. If we are not successful in targeting, supporting and streamlining our sales processes, our ability to grow our business, and our operating results and financial condition may be adversely affected. If our sales cycles lengthen, our future revenue could be lower than expected, which would have an adverse impact on our consolidated operating results and could cause our stock price to decline.
Developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for EVselectric vehicles and our drivetrains.
products.
Significant developments in alternative technologies, such as advanced diesel, ethanol and other renewable fuels, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently anticipate. For example, fuelcompressed natural gas or propane, which isare abundant and relatively inexpensive in North America, such as compressed natural gas, may emerge as consumers’ preferred alternative to petroleum-based propulsion.preference. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhancedhybrid drivetrainsdrivetrain systems, which could result in the loss of competitiveness of our drivetrains,products, decreased revenue and a loss of market share to competitors.
zero-emission
electric vehicles or If we are unable to keep up with advances in drivetrain or hybrid vehicle technology, we may suffer an inability to obtain a competitive position in the market or suffer a decline in our competitive position.
zero-emission
electricThere are companies in the and hybrid vehicle industry that have developed or are developing vehicles and technologies that compete or will compete with the vehicles that utilize our technology.vehicles. Our competitors could be able to duplicate our technology or
zero-emission
electric25
provide products and services similar to ours more efficiently or at greater scale. We may be unable to keep up with changes inor hybrid drivetrainvehicle technology and, as a result, may suffer a decline in our competitive position. Any failure to keep up with advances inor hybrid drivetrainvehicle technology would result in a decline in our competitive position, which would materially and adversely affect our business, prospects, operating results and financial condition. Our research and development efforts may not be sufficient to adapt to changes inor hybrid drivetrainvehicle technology. As technologies change, we plan to upgrade or adapt our drivetrainsvehicles and introduce new drivetrainsvehicles in order to continue to provide drivetrainsvehicles with the latest technology, in particular battery cell technology. However, our drivetrainsvehicles may not compete effectively with alternatives if we are not ableunable to source and integrate the latest technology into our drivetrains.vehicles. For example, we do not currently manufacture most of the high cost items required forto produce our conversion kits,vehicles, including battery cells, which makes us dependent upon other suppliers of battery cell technology for our battery packs.packs, motors and other components of our electric vehicles. If for any reason we are unable to keep pace with changes in commercial electric and hybrid vehicle technology, particularly battery technology, our competitive position may be adversely affected.
However, our recently announced plans to require ProGreens mentioned above will mitigate these issues as it pertains to batteries and battery packs.
zero-emission
electric zero-emission
electric zero-emission
electric The demand for commercialzero-emissionelectric and hybrid vehicles depends, in part, on the continuation of current trends resulting from historical dependence on fossil fuels. Extended periods of low diesel or other petroleum-based fuel prices could adversely affect demand for vehicles that utilize our technology, which could adversely affect our business, prospects, financial condition and operating results.
We believe that much of the present and projected demand for commercial and hybrid vehicles results from concerns about volatility in the cost of petroleum-based fuel, the dependency of the United States on oil from unstable or hostile countries, government regulations and economic incentives promoting fuel efficiency and alternative forms of energy, as well as the belief that poor air quality and climate change results in part from the burning of fossil fuels. If the cost of petroleum-based fuel decreased significantly, or the long-term supply of oil in the United States improved, the government may eliminate or modify its regulations or economic incentives related to fuel efficiency and alternative forms of energy. If there is a change in the perception that the burning of fossil fuels does not negatively impact the environment, the demand for commercial or hybrid vehicles could be reduced, and our business and revenue may be harmed. Diesel and other petroleum-basedpetroleum- based fuel prices have been extremely volatile, and we believe this continuing volatility will persist. Lower diesel or other petroleum-based fuel prices over extended periods of time may lower the current perception in government and the private sector that cheaper, more readily available energy alternatives should be developed and produced. If diesel or other petroleum-based fuel prices remain at deflated levels for extended periods of time, the demand for commercial electric or plug-in hybrid vehicles may decrease, which could have an adverse effect on our business, prospects, financial condition and operating results.
zero-emission
electriczero-emission
electricWe may not be able to reduce and adequately control the costs and expenses associated with operating our business, including our material and production costs.
If we are unable to reduce and/or maintain a sufficiently low level of costs for designing, manufacturing, marketing, selling and distributing and servicing our
zero-emission drivetrains
electric vehicles relative to their selling prices, our operating results, gross margins, business and prospects could be materially and adversely impacted. We have made, and will be required to continue to make, significant investments for the design, manufacture, and sales of ourzero-emission drivetrains. Our marginal costs of producing our drivetrains to date have exceeded our revenue from selling them. This is not expected to change for the foreseeable future until we are able to generate adequate sales volume to offset the cost of our drivetrains. Our costs of producing and delivering any future products may not be less than the revenue we generate from sales at the time we introduce any future products and we may never ever achieve a positive gross margin on sales of our zero-emission drivetrains or future products, if any.
vehicles.We incur significant costs related to procuring the materials and components required to build our drivetrains and convert electric and hybrid vehicles. As a result, without including the impact of government or other subsidies, and incentives, or tariffs, our costs and therefore the purchase prices for our commercial and hybrid vehicles and/or converting commercial vehicles currently are substantially higher than the purchase prices for gas or diesel-fueled vehicles with comparable features.
zero-emission
electricAdditionally, in the future we may be required to incur substantial marketing costs and expenses to promote our
zero-emission drivetrains,
vehicles, including through the use of traditional media such as television, radio and print,26
even though our marketing expenses to date have been relatively limited. If we are unable to keep our operating costs aligned with the level of revenues we generate, our operating results, business and prospects will be harmed. Many of the factors that impact our operating costs are beyond our control. For example, global demand from all manufacturers of and hybrid vehicles exceeds current expectations without significant expansion in battery cell production capacity and advancements in battery cell technology, shortages could occur which would result in increased materialsmaterial and component parts costs to us and could also negatively impact our ability to meet production requirements if the batteries were simply not available.
zero-emission
vehicles for the same resources could create shortages and drive the costs of our raw materials and certain components, such aslithium-ion
battery cells, to a higher level and reduce profit or create or increase losses. Indeed, if the popularity ofzero-emission
electricIf we fail to manage our anticipated growth effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately.
Any failure to manage our anticipated growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. We have recently expandedDuring the fourth quarter of 2020 and the first quarter of 2021, we significantly shrunk our operations in response to poor business conditions, but we began expanding our operations in the fourth quarter of 2021 as our business prospects improved and we believe that further significant expansion will be required beyond 2021, especially in connection with kitelectric vehicle component assembly and manufacturing, service and warranty requirements. The requirements of being a public company willhave significantly increaseincreased our general and administrative costs. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Risks that we face in undertaking this expansion include:
establishing sufficient sales, service and service facilities in a timely manner;
forecasting production and revenue;
training new personnel;
controlling expenses and investments in anticipation of expanded operations;
expanding design, manufacturing, sales and service facilities;
implementing and enhancing administrative infrastructure, systems and processes;
addressing new markets; and
expanding operations and finding and hiring a significant number of additional personnel, including manufacturing personnel, design personnel, engineers and service technicians.
We intend tomay in the future hire a significant number of additional personnel, including design and manufacturing personnel and service technicians for ourand hybrid vehicles.vehicles, the timing of which will depend on the success of our sales efforts. Because vehicles that utilize our technology are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in and hybrid vehicles may not be available to hire, and we may need to expend significant time and expense training the employees we do hire. Competition for individuals with experience designing, manufacturing and servicing and hybrid vehicles is intense, and we may not be able to attract, assimilate, train or retain additional highly qualified personnel in the future, which could seriously harm our business and prospects.
zero-emission
electric zero-emission
electriczero-emission
electricIn this regard, we will be required to continue to improve our operational, financial and management controls and our reporting procedures and we may not be able to do so effectively. Further, to accommodate our expected growth we must continually improve and maintain our technology, systems and network infrastructure. We therefore may be unable to manage our expenses effectively in the future, which would negatively impact our gross margin or operating expenses in any particular quarter. If we fail to manage our anticipated growth and change in a manner that preserves the quality of our
zero-emission systems
vehicles and services and our ability to deliver27
in a timely manner, it will negatively affect our brand and reputation and harm our ability to retain and attract customers.
If ourand hybrid drivetrainsvehicles fail to perform as expected, our ability to develop, market and sell our drivetrainsvehicles could be harmed.
zero-emission
electric Our that contain our drivetrains may not perform in a manner that is consistent with our customers’ expectations for a variety of reasons. If our drivetrains or vehicles that contain our drivetrains were to contain defects in design and manufacture that cause them not to perform as expected or that require repair, or experience any other failure of vehicles that contain our drivetrains to perform as expected, it could harm our reputation and result in delivery delays, product recalls, product liability claims, significant warranty and other expenses, which could have a material adverse impact on our ability to develop, market and sell ourdrivetrainsproducts as effectively and as rapidly as possible, such efforts may not be timely, may hamper production or may not provide satisfaction to our customers. While we have performed extensive internal testing, we currently have a limited frame of reference by which to evaluate the long-term performance of our Our zero-emission drivetrains have not yet been evaluated by NHTSA for its 5-Star Safety Ratings, and while based on our internal testing we expect to obtain acceptable ratings, this may not occur.
or hybrid drivetrainsvehicles to perform as expected could harm our reputation and result in delivery delays, product recalls, product liability claims, significant warranty and other expenses, customer losses and lost revenue, any of which could have a material adverse impact on our business, financial condition, operating results and prospects.
zero-emission drivetrains or
vehicleszero-emission drivetrains.
vehicles. For example, should we have a significant sale of either new vehicles orre-power
conversion kits and a defect (from a supplier-purchased product or internally assembled components) were to be discovered after delivery that could not be corrected in a timely manner, we could suffer an adverse public relations event that harms the company in a way that it may not be able to recover from, or which turns out to be so costly as to cause a significant loss. Although we attempt to remedy any issues we observe in our zero-emission drivetrains.
products. There can be no assurance that we will be able to detect and fix any defects in our products prior to their sale to customers. Further, the performance of ourzero-emission drivetrains
products may be negatively impacted by other factors, such as limitations inherent in existing battery technology and extreme weather conditions.Any vehicle product defects or any other failure of our commercial
zero-emission
electric We are dependent on third parties to deliver raw materials, parts, components and services in adequate quantity in a timely manner and at reasonable prices, quality levels, and volumes acceptable to us. Our business, prospects, financial condition and operating results could be adversely affected if we experience disruptions in our supply chain.
We build provideand hybrid drivetrains and conversion kits for drivetrainsvehicles assembled from components supplied by third parties. For example, we rely on third parties for batteries, traction motors, power electronics, connectors, cables, and metal fabrication for battery storage boxes. As a result, we are particularly dependent on those third parties to deliver raw materials, parts, components and services in adequate quality and quantity in a timely manner and at reasonable prices. Some components of our vehicles and drivetrain systems include materials such as copper, lithium, rare-earth and strategic metals that have historically experienced price volatility and supply interruptions. In addition, we do not currently maintain long-term agreements with our suppliers with guaranteed pricing because we cannot at this time guarantee them adequate volume, which exposes us to fluctuations in component, materials and equipment prices and availability.
zero-emission
electric There have been significant changes to U.S. trade policies, treaties and tariffs, which have resulted in uncertain economic and political conditions that have made it difficult for us and our suppliers to accurately forecast and plan future business activities. For example, the U.S. has imposed tariffs on certain products imported into the U.S. from China, the European Union and other countries, and could impose additional tariffs or trade restrictions. Such changes to U.S. policies related to global trade and tariffs have resulted in uncertainty surrounding the future of the global economy and have resulted in certain retaliatory trade measures and tariffs implemented by other countries. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States.
28
Any of these factors could depress economic activity and have a material adverse effect on the business and financial condition of our suppliers, which, in turn, would negatively impact us.
Furthermore, currency fluctuations weakening the U.S. dollar against foreign currencies may adversely affect our purchasing power for such raw materials, parts and components and manufacturing equipment from foreign suppliers. Substantial increases in the prices for such raw materials, components and equipment would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased prices. We may not be able to recoup these increased costs by increasing the prices of our products.
In addition, the impact of the
COVID-19
pandemic has led to a disruption of the global supply chain, which has adversely impacted, and may continue to adversely impact, our ability and that of our manufacturing partners’ to procure the components needed to produce our vehicles on terms acceptable to us and has resulted in delays in the delivery of our products to customers. If we are unable to effectively address such challenges and mitigate the potentially negative impacts of the pandemic and related supply chain disruptions on our business, it could result in additional delivery delays and canceled orders, reduced demand for our products and solutions, and adversely affect our customers’ ability to pay for our products and solutions.In cases where we rely on a sole supplier for a component or system, if there is an interruption of supply or increased industry demand it may be difficult for us to substitute one supplier for another, increase the number of suppliers or change one component for another in a timely manner or at all. Additionally, many of our current suppliers are small companies that produce a limited number of specialized products. If any of these suppliers were to go out of business or be acquired by a competitor of ours or any other third party that decides to discontinue our supply relationship, we would need to find an alternative supplier, which we may not be able to do. If we are unable to maintain a consistent, high quality and cost-effective supply chain, our business, prospects, financial condition and operating results could be adversely affected.
This limited supply chain exposes us to multiple potential sources of delivery failure or component shortages for the production of ouror hybrid drivetrains.products. We may experience delays due to supply chain disruptions with respect to any of our
zero-emission
electric zero-emission drivetrains and any other future
electric products we may produce. In addition, our currently ongoing transition from low to high volume production tooling for ourzero-emission drivetrains
electric products may take longer than expected, which may adversely impact our short-term financial results.Changes in business conditions, domestic and foreign regulations (including tariffs), labor issues, wars, governmental changes, natural disasters and other factors beyond our control or which we do not presently anticipate, could also affect our suppliers’ ability to deliver components to us on a timely basis. Furthermore, if we experience significantly increased demand, or need to replace certain existing suppliers, there can be no assurance that additional supplies of component parts will be available when required on terms that are favorable to us, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner, or that we could engineer replacement components ourselves.
Changes in our supply chain may result in increased costs in the future.future costs. We have also experienced cost increases from certain of our suppliers in order to meet our quality targets and development timelines as well as due to design changes that we made, and we may experience similar cost increases in the future. Additionally, we are negotiating with existing suppliers for cost reductions, seeking new and less expensive suppliers for certain parts, and attempting to redesign certain parts to make them less expensive to produce. If we are unsuccessful in our efforts to control and reduce supplier costs, our operating results will suffer.
If we encounter unexpected difficulties with our current suppliers, and if we are unable to fill these needs from other suppliers, we could experience production delays, which could have a material adverse effect on our financial condition and operating results.
The inability of these suppliers to deliver, or their refusal to deliver, necessary raw materials, parts and components of our
zero-emission drivetrains
drivetrain systems and services in a timely manner at prices, quality levels, and29
volumes acceptable to us would have a material adverse effect on our financial condition and operating results. Our business, prospects, financial condition and operating results could be adversely affected if we experience disruptions in our supply chain.
The facilities or operations of our third party providers could be damaged or adversely affected as a result of disasters or unpredictable events.
Some of our third party providers have production facilities in California, a state known for seismic activity and wildfires.
If major disasters such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, computer viruses, pandemics or other events occur, the production facilities of some of our third party providers may be seriously damaged, or they may have to stop or delay production and shipment of our products. We may also experience downtime due to a third partythird-party provider’s delay in production and shipment of our products due to, among other reasons, their inability to obtain supplies and materials. Either of these delays could have a material adverse impact on our business, operating results and financial condition.
We have become increasingly dependent on information technology and any breakdown, interruption or breach of our information technology systems could subject us to liability or interrupt the operation of our business, which could have a material adverse effect on our business, financial condition, cash flows and results of operations.
We are increasingly dependent upon information technology systems and infrastructure in connection with the conduct of our business. We must routinely update our information technology infrastructure and our various information technology systems throughout the organization may not continue to meet our current and future business needs. Furthermore, modification, upgrade or replacement of such systems may be costly. In addition, any breakdown, interruption, corruption or unauthorized access to or cyber-attack on these systems could create system disruptions, shutdowns or unauthorized disclosure of confidential information. While we attempt to take appropriate security and cyber-security measures to protect our data and information technology systems and to prevent such breakdowns and unauthorized breaches and cyber-attacks, these measures may not be successful and these breakdowns and breaches in, or attacks on, our systems and data may not be prevented. Such breakdowns, breaches or attacks may cause business interruption and could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common stock to decline, and we may suffer financial damage or other losses as a result of lost or misappropriated information.
If our suppliers fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity.
We do not control our independent suppliers or their business practices. A Theypractices and, as such, they may not comply with ethical or legal business practices, such as environmental responsibility, fair wage practices, appropriate sourcing of raw materials, and compliance with child labor laws, among others. A lack of demonstrated compliance could lead us to seek alternative suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.
Violation of labor or other laws by our suppliers or the divergence of an independent supplier’s labor or other practices from those generally accepted as ethical in the United States or other markets in which we do business could also attract negative publicity for us and our brand. This could diminish the value of our brand image and reduce demand for our
zero-emission drivetrains or hybrid vehicle
vehicles and drivetrain systems technology if, as a result of such violation, we were to attract negative publicity. If we, or others in our industry, encounter similar problems in the future, it could harm our brand image, business, prospects, financial condition and operating results.30
Our business success will depend in part on the success of our strategic relationships with third parties. We may not be able to identify adequate strategic relationship opportunities, or form strategic relationships, in the future.
Our business success will depend in part on our ability to continue to successfully manage and enter into productive strategic relationships with third parties. We depend on various third parties to provide critical parts for our process. We currently maintain strategic relationships with all of the key manufacturers of components we require for conversion kit builds. As an example, we source our batteries from Chinese suppliers. However, several large market leaders in the battery manufacturing arena have gone out of business in the past several years which requires us to continue to vet and seek new suppliers.
zero-emission
electric products. Maintaining and expanding our strategic relationships with third parties is critical to our continued success. Further, our relationships with these third parties are typicallynon-exclusive
and do not prohibit the other party from working with our competitors. These relationships may not result in additional customers or enable us to generate significant revenue. Identifying suitable business partners and negotiating and documenting relationships with them require significant time and resources. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to successfully sell our products and services, compete in the marketplace or to grow our revenue could be impaired and our operating results would suffer.While we may be able to establish alternate supply relationships or engineer replacement components for ourany single source components, we may be unable to do so in the short term, or at all, at prices or costs that are favorable to us. In particular, while we believe that we will be able to secure alternate sources of supply for most of our single sourced components in a relatively short time frame, qualifying alternate suppliers or developing our own replacements for certain highly customized components of our drivetrainsproducts may be time consuming, costly and may force us to make additional modifications to a drivetrain’sproduct’s design, or at a minimum require us to delay delivery of orders.
We currently have and are seeking to establish new relationships with third parties to provide alternative parts sources, such as batteries, controllers and battery management systems. For example, we continue to test additional battery manufacturers’ products in order to have In addition, this helps keep our prices in line with our competition and allows us to monitor various output and costs per unit in real time. However, we may not be able to identify or secure suitable business relationship opportunities in the future or to insure that our competitors will not capitalize on such opportunities before we do. Our strategic relationships within China for batteries, and domestically for motors and controllers will keep us competitive if maintained properly. We may not be able to offer benefits to companies that we would like to establish and maintain strategic relationships with. Moreover, identifying such opportunities could demand substantial management time and resources, and negotiating and financing relationships involves significant costs and uncertainties. If we are unable to successfully source and execute on strategic relationship opportunities in the future, our overall growth could be impaired, and our business, prospects and operating results could be materially adversely affected.
back-up systems in place
options should our existing supplier have delivery or quality issues.We
Our suppliers must scale our theirassembling, and convertingassembling processes effectively and quickly from low volume production to high volume production.
zero-emission drivetrain
vehicle manufacturing We have no experience to date in high volume manufacturing, assembling, and converting to commercial electric and hybrid vehicles.
Our existing production model utilizing third parties may not be well suited for the high-volume production we hope to require to scale our business. We do not know whether we or our existing suppliers will be able to develop efficient,assembly and convertingassembly capability and processes, and reliable sources of component supply that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes required, to successfully develop our business. Any failure by us or our suppliers to develop such manufacturing assembly and convertingassembly processes and capabilities and reliable sources of component supply within our projected costs and timelines could have a material adverse effect on our business, prospects, operating results and financial condition.
low-cost
manufacturing Our
The ability of our suppliers to scale our zero-emission drivetraintheir manufacturing assembling, and convertingassembling processes is in part dependent on ourours and their supply chain and on our collective ability to execute on our decentralized production strategy. Even if we and our suppliers are successful in developing our high-volume manufacturing assembly and converting assembly
31
capability and processes, and reliable sources of component supply, we do not know whether we will be able to do so in a manner that avoids significant delays and cost overruns, including, as a result of factors beyond our control, such as problems with suppliers and vendors, or in time to meet our commercialization schedules or to satisfy the requirements of customers. In addition, certain components we or our third-party suppliers integrate may not be available on a consistent basis or in large quantities. Our business, prospects, financial condition and operating results could be adversely affected if we or our suppliers experience disruptions in our respective supply chainchains or if we or they cannot obtain materials of sufficient quality at reasonable prices.
The complexity in our business is expected to grow as we introduce new products and services. We have limited experience in simultaneously designing, testing, manufacturing, upgrading, adapting and selling our
zero-emission drivetrains
products as well as limited experience allocating our available resources among the design and production of multiplezero-emission drivetrains.
units. As we add complexity to our product line and introduce new products and services, we may experience unexpected delays.If we and our suppliers are unable to scale our respective existing assembly processes and systems quickly while maintaining our current quality level, including as a result of supply chain constraints and inability to manage complexity in our business, we may be unable to meet our customers’ vehicle quality and quantity requirements or our forecasted production schedule or lower our cost of sales. As a result, we may not be able to meet our customers’ delivery schedules and could face the loss of customers, or be exposed to liability to customers to which we promised delivery, which could adversely affect our business, prospects, financial condition and operating results.
We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
We may become subject to product liability claims, which could harm our business, prospects, operating results and financial condition if we are not able to successfully defend or insure against such claims. The and hybrid vehicle industry experiencesmay experience significant product liability claims and we face inherent risk of exposure to claims in the event ourdrivetrainsproducts and business and inhibit or prevent commercialization of other future vehicle candidates, which would have a material adverse effect on our brand, business, prospects and operating results. We currently do not have product liability insurance coverage, as we have not sold many vehicles. We intend to addadded product liability insurance on a claims-made basis for all ourlimits when we commence production.limits. However, our insurance may not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our coverage, may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liability for our products and are forced to make a claim under any policy we have.
zero-emission
electriczero-emission drivetrains
products do not perform as expected or malfunction and personal injury or death results. Our risks in this area are particularly pronounced given the limited field experience of ourzero-emission systems,
vehicles, number of vehicles delivered to date and limited field experience of those vehicles. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our zero-emission systems
products with appropriate annual In connection with the development and sale of ourCARB and NHTSA.CARB. In addition, we may be subject to various other federal and state-level requirements.
zero-emission drivetrains,
products, we may need to comply with various safety regulations and requirements with which it may be expensive or difficult to comply. For example, we may be subject to compliance from We may be compelled to undertake product recalls.
Any product recall in the future may result in adverse publicity, damage our brand and adversely affect our business, prospects, operating results and financial condition. We may at various times, voluntarily or involuntarily, initiate a recall if any of our
zero-emission
drivetrain system components prove to be defective. Such recalls, voluntary or involuntary, involve significant expense and diversion of management attention and other resources, which would adversely affect our brand image in our target markets and could adversely affect our business, prospects, financial condition and results of operations.32
Our warranty reserves may be insufficient to cover future warranty claims, which could adversely affect our financial performance.
performance.
If our warranty reserves are inadequate to cover future warranty claims on vehicles that utilize our technology, our business, prospects, financial condition and operating results could be materially and adversely affected. We provide a two-yearthree-year warranty on parts and workmanship and a five-year warranty on powertrain and batteries with everydrivetrain.We plan to establish an initial warranty reserve of 3.0% of the cost of each delivery.product. We plan to record and adjust warranty reserves based on changes in estimated costs and actual warranty costs. However, because we have not yetonly recently begun delivering our firstour drivetrains,them, we therefore have little experience with warranty claims for theseOnce we begin initiating sales of our drivetrains, weWe will monitor our warranty reserves based on our actual warranty claim experience. We may be required to provide for increases in warranty reserves in the future. As of December 31, 2017, we recorded warranty reserves of $12,750 against the sale recorded in November. Our future warranty reserves may not be sufficient to cover all claims or our limited experience with warranty claims may not adequately address the needs of our customers to their satisfaction.
zero-emission drivetrain.
electric product. Most of our warranty offering, with the exception of workmanship, is covered by the component manufacturers’ warranty. In addition, customers have the opportunity to purchase an Extended Service Plan for the period after the end of the standard warranty to cover additional services for an additional three-year period or 100,000 miles, whichever comes first. The warranty is similar to other providers’ warranty programs and is intended to cover all parts and labor to repair defects in material or workmanship in the zero-emission drivetrains,
vehicles, and we have extremely limited operating experience with zero-emission drivetrains
vehicles or with estimating warranty reserves. Our insurance strategy may not be adequate to protect us from all business risks.
We may be subject, in the ordinary course of business, to lossesclaims resulting from products liability, employment-related actions, class-action lawsuits, accidents, acts of God and other claimsactions against us, for which we may have no insurance coverage.us. Additionally, our insurance coverage may not be sufficientinsufficient to cover all existing and future claims against us. AWe may be compelled to expend significant time and resources defending any such claims, and a loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which could adversely affect our financial condition and operating results.
If we are unable to design, develop, market and selland hybrid drivetrainsvehicles and other product offerings that address additional market opportunities, our business, prospects and operating results will suffer.
zero-emission
electric We may not be able to successfully develop newor hybrid drivetrains or vehicles containing them, or address new market segments or develop a broader customer base. To date, we have focused our business on the sale of zero-emission electric drivetrains and have targeted owners of buses and commercial fleets. We will need to address additional markets and expand our customer demographic in order to further grow our business. In particular, we intendhave recently transitioned to additionally target owners of trucks (all classes inclusive of 1–8)3–7) and vans under 14,000between 10,000 pounds GVWR which is a much different market from thatto 19,500 pounds GVWR, commercial fleets, including white fleets of our current zero-emission drivetrains.school districts and other fleet users of these vehicles, including government entities. Successfully offering a drivetrainall electric vehicles in this market requires delivering a drivetrainvehicle with different characteristics than andrivetrains. We have not completedvehicles. Because the design, component sourcing or manufacturing process for these drivetrains, somarkets are only recently increasing acceptance of our newforecast its eventual cost, manufacturability or quality. Therefore, there can be no assurance that we will be ableproject increases in market acceptance and our ability to deliver a drivetrain that is ultimately competitive in this market at a compelling price point andgenerate sales in volumes as we currently intend, if at all.intend. Our failure to address additional market opportunities would harm our business, financial condition, operating results and prospects.
zero-emission
electric ICE-powered
vehicle at a price that is competitive with other similar all-electric
products, it is difficult to Our growth depends in part on the availability and amounts of government subsidies and incentives and the application of regulations that encourage conversion to electric or hybrid vehicles. These subsidies and incentives are limited and unpredictable and could expire or change to benefit competing technologies
technologies.
We believe that the availability of government subsidies, rebates, and economic incentives is currently a critical factor considered by our customers when purchasing our
zero-emission
systems or converting their existing vehicles tozero-emission-electric
or hybrids, and that our growth depends in large part on the availability and amounts of these subsidies and economic incentives. Any unavailability, reduction, elimination33
or adverse application of government subsidies, rebates, and economic incentives because of administrative mistakes made by those in charge of the programs, budgetary challenges, expiration, policy changes, the reduced need for such subsidies, rebates, and incentives due to the perceived success of electric or hybrid vehicles or other reasons may result in the diminished price competitiveness of the alternative fuel vehicle industry generally and ourof upfrom $55,000 to $55,000, $71,000 and $110,000,$220,000, respectively, per qualifying vehicle purchased or converted. Certain regulations and programs that encourage sales of or hybrid vehicles. If government subsidies and economic incentives to produce and purchase or hybrid vehicles were no longer available to us or our customers, or the amounts of such subsidies and incentives were reduced or eliminated, it couldwould have a negative impact on demand for our vehicles and our business, prospects, financial condition and operating results would be adversely affected.
zero-emission
electric and hybrid vehicles in particular, especially prior to our ability to significantly reduce our costs. For example, in the United States, we and our customers benefit from significant subsidies in connection with the purchase of our vehicles under the California HVIP, CARB, New York Truck Voucher Incentive Program (“NYTVIP”), New York City Clean Trucks Voucher Program (“NYCCTP”), New Jersey Zero Emissions Incentive Program(“NJ-Zip”),
Maryland Clean Fuels Incentive Program (“CFIP”), local air quality management districts, the EV Demonstration Project, and state-level Clean Cities programs. Under these programs, purchasers of qualifying vehicles and those who convert their existing vehicles are eligible to receive subsidies or incentives zero-emission
electric and hybrid vehicles could expire, be exhausted, be eliminated or applied in a way that adversely impacts sales of our commercialzero-emission
electric and hybrid vehicles, either currently or at any time in the future. For example, the U.S. federal government and many state governments, as well as many national governments within the European Union, are facing political changes, fiscal crises and budgetary constraints, which could result in the elimination of programs, subsidies and incentives that encourage the purchase or conversion ofzero-emission
electric and hybrid vehicles. In addition, grants made by the DOE under the U.S. Recovery and Reinvestment Act of 2009 to clean technology companies, such as the EV Demonstration Project grant, may be subject to a high level of scrutiny in part due to recent financial difficulties experienced by recipients of DOE loan guarantees. In addition, currently some purchase subsidies are limited in total annual amounts and have been exhausted before all willing buyers have been able to consummate a purchase. We currently benefit from certain government and economic incentives supporting the development and adoption ofzero-emission
electriczero-emission
electricIn addition, we anticipate that in the future there may be new opportunities for us to apply for grants, loans and other incentives from federal, state, local and foreign governments on our own behalf and on behalf of our customers. Our ability to obtain funds or incentives from government sources is subject to the availability of funds under applicable government programs and approval of our applications to participate in such programs.
The application process for these funds and other incentives is and will continue to be highly competitive.
Our service model may be costly for us to operate and may not address the service requirements of our prospective customers.
Our business plan is not to develop company owned and operated service and warranty centers but to leverage existing third partythird-party bus and truck facilities to processsell and to service our vehicle conversions and new vehicles.vehicles through our FAR network. This plan, while off to a good start, may not prove to be workable and we may be forced to establish our own facilities at some point, resulting in substantial capital expenditures and increased operating costs. Zero-emission electric and hybrid commercial vehicles incorporate new and evolving technologies and require specialized service. These special service arrangements are now and in the future may continue to be costly and we may not be able to recoup the costs of providing these services to our customers. In addition, a number of potential customers may choose not to purchase our commercial or hybrid vehicles because of the lack of a more widespread service network. If we are unable to satisfactorily service vehicles that utilize our technology, our ability to generate customer loyalty, grow our business and sell additional vehicles could be impaired. There can be no assurance that these service arrangements or our limited experience servicing vehicles that utilize our technology will adequately address the service requirements of our customers to their satisfaction, or that we will have sufficient resources to meet these service requirements in a timely manner as the volume of vehicles we are able to deliver
zero-emission
electric34
annually increases. If we do not adequately address our customers’ service needs, our brand and reputation may be adversely affected, which, in turn, could have an adverse effect on our business, prospects, financial condition and operating results.
Traditional providers do not necessarily provide maintenance and repair services directly. Customers must instead service their vehicles through franchised dealerships or through third party maintenance service providers. We are pursuing a number of agreements to provide third party service for us. However, it is unclear when or even whether such third party service providers will be able to acquire the expertise to service our and hybrid commercial vehicles. As vehicles that utilize our technology are placed in more locations, we may encounter negative reactions from our customers who are frustrated that they cannot use local service stationslocations to the same extent as they have with their conventional commercial vehicles and this frustration may result in negative publicity and reduced sales, thereby harming our business and prospects
zero-emission
electricprospects.
Our decentralized assembly, sales and service model will present numerous challenges and we may not be able to execute on our plan to establish sales, service and assembly facilities in the urban areas we have targeted and our facilities in any of those markets may underperform relative to our expectations.
Our strategy of establishing sales, service, and assembly facilities in selected urban areas in the United States is substantially different from the prevailing centralized manufacturing and franchised distribution and service model used currently by ourwillmay not be able to utilize long established sales channels developed through a traditional franchise system to increase our sales volume, which may harm our business, prospects, financial condition and operating results. Moreover, we will be competing with companies with well established distribution channels. If we determine that our decentralized model is inadequate, opening our own sales, service and assembly facility in any market generally will be capital intensive and require, among other things, establishing a local order volume that is sufficient to support the facility, finding a suitable and available location, negotiating a satisfactory lease agreement for the facility, obtaining permits and approvals from local and state authorities (which, in the case of facilities to be opened in foreign countries, may require obtaining approvals from national governments), building out the facility to our specifications and hiring and training employees to assemble, sell and service our or hybrid vehicles and converting existing vehicles to or hybrid vehicles. If we decide we must open our own facilities, we plan to seek state and local government incentives to defray the costs of opening facilities in the markets we have selected, but we may not be successful in this effort, or the incentives may not be as significant as we would like. As with any development project, the development and and hybrid commercial vehicles adequately for customers and profitably operate these new facilities in our target markets, our business, prospects, financial condition and operating results may be adversely affected. If we do not adequately address our customers’ service needs, our brand and reputation will be adversely affected, which in turn could have a material and adverse impact on our business, financial condition, operating results and prospects.
zero-emission and conversion
manufacturing competitors. For example, we zero-emission
electriczero-emission
electricbuild-out
of a facility will subject us to the risk of cost overruns and delays, which may be significant. Once our sales, service and assembly facilities are open for business, we will need to ensure that they maintain a high level of quality in order to satisfy customers and enhance the brand. Even if we are able to address all of the challenges discussed above, we have little experience in sales, service or assembly and our sales, service and assembly facilities in one or more markets may not adequately address customer service needs or be profitable and we may lose sales and our entire investment in such facilities, damaging our reputation in the process. If we are unable to establish the local order volume we require in order to open new sales, service and assembly facilities or are unable to successfully assemble, sell, and service ourzero-emission
electricWe are subject to substantial regulation, which is evolving, and unfavorable changes or any failure by us to comply with these regulations could substantially harm our business and operating results.
Our commercialand hybrid drivetrains,vehicles, the sale of motor vehicles in general and the electronic components used in vehicles are subject to substantial regulation under international, federal, state and local laws. We may incur in the future increased costs in complying with these regulations. Regulations related to the EV
zero-emission
electric 35
electric vehicle industry and alternative and renewable energy currently are evolving and we face risks associated with changes to these regulations or new regulations. These risks include the following:
changes to the regulations governing the assembly, transportation and disposal of
lithium-ion
batteries;revisions in motor carrier safety laws in the United States to further enhance motor vehicle safety generally and to ensure that electric vehicles achieve levels of safety commensurate with other cars, trucks, and buses could increase the costs associated with the component parts and the manufacture, assembly, and conversion of our drivetrain systems; and
revisions in consumer protection laws to ensure that consumers are fully informed of the particular operational characteristics of vehicles could increase our costs associated with warning labels or other related customer information dissemination.
To the extent the laws governing our business and vehicles change, some or all of ourdrivetrainsproducts may be reduced or eliminated, which could have an adverse effect on our business. Furthermore, compliance with changing regulations could be burdensome, time consuming, and expensive. To the extent compliance with changes in regulations or new regulations is cost prohibitive, our business, prospects, financial condition and operating results will be adversely affected.
zero-emission drivetrains
electric products may not comply with applicable international, federal, state or local laws, and certain of the competitive advantages of our Vehicle dealer and distribution laws could adversely affect our ability to sell our commercialor hybrid vehicles.
zero-emission
electric Sales of our and hybrid vehicles are and/or may be subject to international, state and local vehicle dealer and distribution laws. To the extent such laws prevent us from selling our drivetrainsvehicles to customers located in a particular jurisdiction or require us to retain a local dealer or distributor or establish and maintain a physical presence in a jurisdiction in order to sell drivetrainsvehicles in that jurisdiction, our business, prospects, financial condition and operating results could be adversely affected. We intend to contract with vehicle dealers to sell and/or service our drivetrainsvehicles, but we have no assurance at this time that we will successfully contract with vehicle dealers and distributors to sell and/or service our drivetrains.
vehicles.
zero-emission
electricWe may face risks associated with our international business.
We plan to develop our business internationally, including the pursuit of certain opportunities in China through our wholly-owned subsidiary, ADOMANI China. The sale and shipment of our products across international borders, as well as the purchase of components and products from international sources, would subject us to extensive United States, European Economic Area and other foreign governmental trade, import and export and customs regulations and laws. Compliance with these regulations and laws would be costly and may expose us to penalties for non-compliance. If we are successful in developing our international activities, we expect that such operations would be subject to a variety of risks, including:
While we plan to expand into other markets in the future, our expansion plans may not be realized, or if realized, may not be successful. We expect each market to have particular regulatory and funding hurdles to overcome and future developments in these markets, including the uncertainty relating to governmental policies and regulations, could harm our business. If we expend significant time and resources on expansion plans that fail or are delayed, our reputation, business and financial condition may be harmed.
We are subject to various environmental laws and regulations that could impose substantial costs upon us and cause delays in opening our sales, service and assembly facilities.
We and our operations may, once we begin production of our drivetrains through third party agreements, beare subject to federal, state and/or local environmental laws and regulations, including laws relating to the use, handling, storage, transportation, disposal and human exposure to hazardous substances and wastes. Environmental and health and safety laws and regulations can be complex, and we expect that our business and operations may be affected by future amendments to such laws or other new environmental and health and safety laws which may require us to change our operations. These laws can give rise to liability for investigatory costs, administrative oversight costs, cleanup costs, property damage, bodily injury and fines and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be significant, and violations may result in substantial fines and penalties, third party damages, responsibilities to investigate and take corrective or remedial actions, suspension of production or a cessation of our operations.
Contamination at properties we might in the future own and operate, and properties to which hazardous substances and wastes have been and may be sent by us,our facilities may result in liability for us under environmental laws and regulations, including, but not limited to the Comprehensive Environmental Response, Compensation and Liability Act, which can impose liability for the full amount of remediation-related costs without regard to fault, for the investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human health and for damages to natural resources. The costs of complying with environmental laws and regulations and any claims concerning noncompliance, or liability with respect to contamination in the future, could have a material adverse effect on our financial condition or operating results. We may face unexpected delays in obtaining the necessary permits and approvals required by environmental laws and regulations in
36
connection with any planned manufacturing or operational facilities that could require significant time and financial resources and delay our ability to operate these facilities, which would adversely impact our business prospects and operating results.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology.
Our success and ability to compete depend in part upon our intellectual property. We primarily rely on intellectual property laws, including trade secret, copyright, trademark and patent laws in the United States and abroad, and use contracts, confidentiality procedures,
non-disclosure
agreements, employee disclosure and invention assignment agreements and other contractual rights to protect our intellectual property. However, the steps we take to protect our intellectual property rights may be inadequate or we may be unable to secure intellectual property protection for all of our products and services.If we are unable to protect our intellectual property, our competitors could use our intellectual property to market products, services or products and services similar to ours and our ability to compete effectively would be impaired. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property. Any of our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. The enforcement of our intellectual property rights depends on our legal actions against these infringers being successful, but e these actions may not be successful, even when our rights have been infringed. In addition, we might be required to spend significant resources to monitor and protect our intellectual property rights, and our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Litigation to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management, whether or not it is resolved in our favor, and could ultimately result in the impairment or loss of portions of our intellectual property. Any patents issued in the future may not provide us with competitive advantages or may be successfully challenged by third parties.
Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective protection of our intellectual property may not be available to us in every country in which our products and services are available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.
We could incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.
Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that could prevent, limit or interfere with our ability to produce, use, develop or sell our
zero-emission
electric or hybrid vehicles or components, which could make it more difficult for us to operate our business. Companies in our industry are increasingly bringing and becoming subject to suits alleging infringement of proprietary rights, particularly patent rights, and our competitors may hold patents or have pending patent applications, which could be related to our business. These risks have been amplified by the increase in third parties, ornon-practicing
entities, whose sole primary business is to assert such claims. We have not received in the past, but may receive in the future, notices that claim we or our customers using our products and services have misappropriated or misused other parties’ intellectual property rights. In those cases, we intend to investigate the validity of these claims and, if we believe these claims have merit, to respond through licensing or other appropriate actions. If we are sued by a third party that claims that our technology infringes its rights, the litigation could be expensive and could divert our management resources. We do not currently have an extensive patent portfolio of our own, which may limit the defenses available to us in any such litigation.37
In addition, in many instances, we have agreed to indemnify our customers against certain claims that our products and services infringe the intellectual property rights of third parties. The results of any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:
cease offering or using technologies or producing, using, developing or selling vehicles or conversions that incorporate the challenged intellectual property;
make substantial payments for legal fees, settlement payments or other costs or damages;
obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or
redesign technology or vehicles that utilize our technology to avoid infringement.
If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement claims against us or any obligation to indemnify our customers for such claims, such payments or costs could have a material adverse effect upon our business and financial results. Furthermore, our business could be adversely affected by any significant disputes between us and our customers as to the applicability or scope of our indemnification obligations to them.
We may be involved in legal proceedings that could result in substantial liabilities.
We may be involved from time to time in various legal and other proceedings, such as title, royalty or contractual disputes, regulatory compliance matters and personal injury or property damage matters, in the ordinary course of business. Such proceedings are inherently uncertain, and their results cannot be predicted. Regardless of the outcome, such proceedings could have an adverse impact on us because of legal costs, diversion of management and other personnel and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in liability, penalties or sanctions, as well as judgments, consent decrees or orders requiring a change in our business practices, which could materially and adversely affect our business, operating results and financial condition. Accruals for such liability, penalties or sanctions may be insufficient, and judgments and estimates to determine accruals or range of losses related to legal and other proceedings could change from one period to the next, and such changes could be material.
Current or future litigation or administrative proceedings could have a material adverse effect on our business, our financial condition and our results of operations.
We may be involved in legal proceedings, administrative proceedings, claims, and other litigation that arise in the ordinary course of business. In addition, we may become involved in securities class action litigation or shareholder litigation in connection with our offering of common stock under Regulation A. Such legal proceedings could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation. Further, if any such proceedings were to result in an unfavorable outcome, it could have a material adverse effect on our business, financial position and results of operations.
In many of ouror hybrid drivetrainsvehicles we use battery packs composed ofEVs,electric vehicles, we could face liability for damage or injury, adverse publicity and a potential safety recall.
zero-emission
electric lithium-ion
battery cells, which, if not appropriately managed and controlled, on rare occasions have been observed to catch fire or vent smoke and flames. If any such events occur in our commercial The battery packs in our manufactured or converted vehicles will useEVs.electric vehicles. On rare occasions, if not appropriately managed and controlled,
lithium-ion
cells, which have been used for years in laptop computers, cell phones and lithium-ion
cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as otherlithium-ion
cells. Highly publicized incidents of laptop38
computers, cell phones, and Tesla, Inc.’s EVselectric vehicles bursting into flames have focused consumer attention on the safety of these cells. More recently, a limited number of side-impact tests carried out by NHTSA onEVelectric vehicle may cause indirect adverse publicity for us and our EVs.electric vehicles. These events have raised questions about the suitability of
non-commercial
passenger vehicles containinglithium-ion
batteries and thermal management systems containing liquid coolant have resulted in post-collision fires under certain conditions. Any failure of a competitor’s lithium-ion
cells for automotive applications. A field failure of our battery packs may occur, particularly if one of our manufactured or converted vehicles is involved in a collision, which could damage the vehicle or lead to personal injury or death and may subject us to lawsuits, product recalls, or redesign efforts, all of which would be time consuming and expensive. Furthermore, there is some risk of electrocution if individuals who attempt to repair battery packs on our manufactured or converted vehicles do not follow applicable maintenance and repair protocols. Any such damage or injury would likely lead to adverse publicity and potentially a safety recall. Any such adverse publicity or negative public perceptions regarding the suitability oflithium-ion
cells for automotive applications or any future incident involvinglithium-ion
cells such as a vehicle or other fire, even if such incident does not involve vehicles that utilize our technology, could seriously harm our business, prospects, financial condition and operating results.Unfavorable conditions in the global economy, rising interest rates and capital market liquidity issues could limit our ability to grow our business and negatively affect our operating results.
Revenue growth and potential profitability of our business depends on the level of demand in the markets we serve. To the extent that weak economic conditions cause our customers and potential customers to freeze or reduce their capital expenditure or operational budgets, particularly those for
zero-emission
electricOur business depends on our foundersChief Executive Officer and management team, retaining and attracting qualified management, key employees and technical personnel and expanding our sales and marketing capabilities.
Our success depends upon the continued service of Mr. Reynolds,Phillip Oldridge, our Chairman, CEO and President,Chief Executive Officer, as well as other members of our senior management team. It also depends on our ability to continue to attract and retain additional highly qualified management, technical, engineering, operating and sales and marketing personnel. We do not currently maintain key person life insurance policies on any of our employees. While we have employment contracts with Mr. Reynolds and Mr. Menerey, our Chief Financial Officer, we do not have fixed termWe recently entered into employment agreements with any ofMr. Oldridge and with Mrs. Susan M. Emry, our other management employees, all who could terminate their relationship with us at any time.Executive Vice President. Our business also requires skilled technical, engineering, product and sales personnel, who are in high demand and are difficult to recruit and retain. As we continue to innovate and develop our products and services and develop our business, we will require personnel with expertise in these areas. There is increasing competition especially in California, for talented individuals such as design engineers, manufacturing engineers, and other skilled employees with specialized knowledge of EVs, zero-emission electric and hybrid drivetrains and conversions.vehicles. This competition affects both our ability to retain key employees and hire new ones. Key talent may leave us due to various factors, such as a very competitive labor market for talented individuals with automotive or transportation experience. Our success depends upon our ability to hire new employees in a timely manner and retain current employees. Additionally, we compete with both mature and prosperous companies that have far greater financial resources than we do andReynolds, Mr. MenereyOldridge or any other member of our senior management team,Mrs. Emry or an inability to attract, retain and motivate additional highly skilled employees required for the planned development and expansion of our business, could delay or prevent the achievement of our business objectives and could materially harm our business.
start-ups
and emerging companies that promise short-term growth opportunities. The loss of Mr. 39
The forecasts of market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business may not grow at similar rates, if at all.
Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates, which may not prove to be accurate. Forecasts relating to the expected growth in and hybrid vehicles, electric and hybrid drivetrainsdrivetrain systems and conversions and other markets may prove to be inaccurate. Even if these markets experience the forecasted growth, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties.
zero-emission
electricWe willmay require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.
We need sufficient capital to fund our ongoing operations and continue our development.development, especially if we begin manufacturing our vehicles in the United States. We intend to continue to make investments to support our business growth and willmay require additional funds to respond to business challenges, such as keeping pace with technological developments in order to remain competitive in our evolving industry, improve our operating infrastructure or acquire complementary businesses and technologies.While we believe that our existing cash and cash equivalents including the net proceeds from our equity offerings in June 2017 and January 2018, respectively, will be sufficient to fund our operations at least through April 2019,during the next eighteen months, we willmay need to engage in additional equity or debt financings to secure additional funds.We do not expect to be able to satisfy our cash requirements solely through product sales in the near future, therefore we expect to rely on the net proceeds from our previous offeringofferings and this offeringavailable debt financing to fund our operations. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders couldwould suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when and if we require it, our ability to continue to support our business growth, and to respond to business challenges could be significantly impaired.
We may selectively pursue acquisitions of complementary businesses and technologies, which could divert capital and our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.
We may selectively pursue acquisitions of complementary businesses and technologies that we believe could complement or expand our applications, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
In addition, we have limited experience with acquiring other businesses or technologies. If we acquire businesses or technologies, we may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:
inability to integrate or benefit from acquired technologies or services in a profitable manner;
unanticipated costs or liabilities associated with the acquisition;
incurrence of acquisition-related costs;
difficulty integrating the accounting systems, operations and personnel of the acquired business;
difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;
40
difficulty converting the customers of the acquired business onto our applications and contract terms, including disparities in the revenue, licensing, support or professional services model of the acquired company;
diversion of management’s attention from other business concerns;
adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;
the potential loss of key employees;
use of resources that are needed in other parts of our business; and
use of substantial portions of our available cash to consummate the acquisition.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.
Acquisitions could also result in dilutive issuances of equity securities, as in the case of our recent acquisition of EVT per the Merger Agreement, and/or the incurrence of debt, which could adversely affect our operating results. We may also unknowingly inherit liabilities from acquired businesses or assets that arise after the acquisition and that are not adequately covered by indemnities. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial position may suffer.
Our management has determined that our disclosure controls were not effective as of December 31, 2021. If we are unable to implement and maintain effective internal control over financial reporting and effective disclosure controls and procedures, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.As a public company, we will not be required to comply with the requirements to assess
Our management is responsible for establishing and report onmaintaining adequate internal control over financial reporting untildesigned to provide reasonable assurance regarding the filingreliability of our annual reportfinancial reporting and the preparation of financial statements for the year ending December 31, 2018.external purposes in accordance with GAAP. Section 404 of the Sarbanes-OxleySarbanes- Oxley Act of 2002 (Sarbanes-Oxley Act),(the “Sarbanes-Oxley Act”) requires that we evaluate and determine the effectiveness of our internal control over financial reporting and beginning with our annual report for the fiscal year ending December 31, 2018, provide a management report on the internal control over financial reporting. Once we are no longer either an “emerging growth company” or a smaller reporting company, such report must be attested to by our independent registered public accounting firm. The Sarbanes-Oxley Act also requires that our principal executive officer and principal financial officer conclude as to the effectiveness of our disclosure controls and procedures on a quarterly basis. As of December 31, 2017,
Based on such evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2021, our disclosure controls and procedures (a) were effective. Duenot effective to ensure that information that we are required to disclose in reports that we file or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our size,management, including chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In making such conclusion, our management determined that such deficiencies were primarily due to certain staff reductions and voluntary resignations we rely heavilyexperienced beginning in the fourth quarter of 2020 and continuing through the closing of the Merger in March 2021, during such periods and for all periods thereafter through the date of such determination, we increased our reliance on keyoutsourced accounting help. As a result of such changes, our management for day-to-day operationsconcluded that we were unable to maintain the levels of segregation of duties during such periods at the levels of prior periods, and internalthat such changes to our disclosure controls and procedures significantly affected our size and correspondingly limited resources give rise to additional internal control weaknesses, includingover financial reporting during the year ended December 31, 2021.
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Although we have yet to fully resolve such deficiencies as of the date of this prospectus, we have engaged, and continue to seek the assistance of additional, experienced accounting professionals with relevant expertise to supplement our efforts and mitigate the negative effects of the above-described deficiencies in the effectiveness of our disclosure controls.
controls and procedures.
If we fail to detect errors on a timely basis, our financial statements may be materially misstated and if we are unable to comply with the requirements of Section 404 of the Sarbanes Oxley Act, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, if and when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Investors may find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We will remain an emerging growth company until the earliestearlier of (i)(1) the date on which we are deemed to be a “large accelerated filer,” (ii)last day of the endfiscal year following the fifth anniversary of our initial public offering, or December 31, 2022, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, or more during such fiscal year, (iii)(3) the day we are deemed to be a large accelerated filer, which means the market value of our common stock held byissuehave issued more than $1$1.0 billion in non-convertiblenonconvertible debt in aduring the prior three-year period or (iv) the end of the fiscal year in which the fifth anniversary of our initial public offering occurs.
non-affiliates
exceeds $700 million as measured as of each June 30th, and (4) the date on which we period.
We may not be able to utilize a significant portion of our net operating loss or research and development tax credit carryforwards, which could adversely affect our profitability.
As of December 31, 2017,2021, we had federal and state net operating loss carryforwards (“NOLs”) due to prior period losses, whichlosses. Federal and state NOLs generated prior to 2018 have afrom 2032 through 2036in 2032. Similarly, state NOLs generated for federaltax years 2018 and state purposes, respectively.after will also have anet operating loss carryforwards could expireNOLs may go unused and be unavailable to offset future income tax liabilities, which could adversely affect our profitability.
20-year
carryforward and, if not utilized, will begin to expire 20-year
carryforward and, if not utilized, will begin to expire in 2038. These Federal NOLs generated for tax years 2018, 2019, 2020 and 2021 will carryover indefinitely due to changes in the CARES act of 2020. California tax law has not changed to conform to the new federal law on NOLs generated in tax years 2018, 2019, 2020.
Federal NOL Treatment | ||||
Year NOL Generated | Taxable Income Limitation | Carryforward | ||
Pre-2018 taxable years (2012-2017) | 100% of taxable income | 20 years | ||
2018-2020 taxable years | 80% of taxable income | Indefinite | ||
California NOL Treatment | ||||
Year NOL Generated | Taxable Income Limitation | Carryforward | ||
Pre-2018 taxable years (2012-2017) | 100% of taxable income | 20 years | ||
2018-2020 taxable years | 100% of taxable income | 20 years | ||
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In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws.
As discussed elsewhere in this prospectus, the Merger with Envirotech Drive Systems, Inc. resulted in their shareholders owning approximately 56% of the Company’s outstanding shares at the Merger closing date, which is an ownership change under Section 382. As a result, the future utilization of the ADOMANI, Inc. NOL carryforwards will be limited to a number of factors, which cannot be calculated at this time.
Following the completion of the Merger, we assessed our ability to use certain deferred tax benefits from net operating losses that were recorded by EVTDS in certain prior periods and determined that, in light of the uncertainty of generating future taxable income against which those losses can be offset in order to realize such benefits, recording a valuation allowance to reduce the deferred income tax assets to the amount that is more likely than not to be realized is appropriate. In making such determination, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. As of December 31, 2020, EVTDS did not recognize a full valuation allowance for all deferred tax assets. In March 2021, the Company recognized a full valuation allowance for all deferred tax assets, and as a result, recorded income tax expense of $218,300 for the three months ended March 31, 2021 in order to establish the reserve. This amount is also an income tax expense for the year ended December 31, 2021.
Future
In addition, future issuances of our stock could cause an “ownership change.” It is possible that any future ownership change could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our profitability.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.
Risks Related to the Ownership of Our Securities
The price of our common stock is and is likely to continue to be volatile and fluctuate substantially, which could result in substantial losses for our stockholders and may prevent you from reselling your shares at or above the price you paid for your shares.
The market price of our common stock is and is likely to remain volatile and may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
overall performance of the equity markets; the development and sustainability of an active trading market for our common stock; our operating performance and the performance of other similar companies; changes in the estimates of our operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock; press releases or other public announcements by us or others, including our filings with the SEC; 43 changes in the market perception of all-electric and hybrid products and services generally or in the effectiveness of our products and services in particular;announcements of technological innovations, new applications, features, functionality or enhancements to products, services or products and services by us or by our competitors; announcements of acquisitions, strategic alliances or significant agreements by us or by our competitors; announcements of customer additions and customer cancellations or delays in customer purchases; announcements regarding litigation involving us; recruitment or departure of key personnel; changes in our capital structure, such as future issuances of debt or equity securities; our entry into new markets; regulatory developments in the United States or foreign countries; the economy as a whole, market conditions in our industry, and the industries of our customers; the expiration of market standoff or contractual lock-up agreements;the size of our market float; and any other factors discussed in this report. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. As discussed elsewhere in this prospectus, the Merger with Envirotech Drive Systems, Inc. resulted in their shareholders owning approximately 56% of the Company’s outstanding shares at the Merger closing date, which is an ownership change under Section 382. As a result, the future utilization of the ADOMANI, Inc. NOL carryforwards will be limited to a number of factors, which cannot be calculated at this time. Following the completion of the Merger, we assessed our ability to use certain deferred tax benefits from net operating losses that were recorded by EVTDS in certain prior periods and determined that, in light of the uncertainty of generating future taxable income against which those losses can be offset in order to realize such the | ||
The market price and volume of our common stock could fluctuate, and in the past has fluctuated, relative to our limited public float. We are particularly subject to fluctuations—fluctuations as reported on the Nasdaq Capital Market (Nasdaq) duringOTC Markets Group Inc. During the year endedperiod January 1, 2021 through December 31, 2017,2021, the closing price of a share of our common stock price reached highsa high of $18.31$0.81 and lowsa low of $2.35,$0.19, with daily trade volumes reaching a high of 2,694,0007,020,552 and a low of 18,000.71,878. During the year, ended December 31, 2020, the closing price of a share of our common stock reached a high of $0.97 and a low of $0.06, with daily trade volumes reaching a high of 21,076,000 and a low of 15,100. In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies.
In the past, stockholders
We have filed securities class action litigation following periods of market volatility. We could in the future be the target of similar litigation. If we wereand will continue to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business, results of operations and financial condition.
We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our operating results.
As a newly public company, and particularly after we are no longer an emerging growth company, we are incurring and will continue to incur significant legal, accounting and other expenses that we did not incur as a
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private company, including costs associated with public company reporting, and corporate governance requirements.requirements, and investor relations expenses. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will have to adaptadapted to the requirements of being a public company and will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increasehave increased our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may makehave made it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incurhave incurred substantially higher costs to obtain the same or similarincreased coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.
The increased costs associated with operating as a public company have and will continue to decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, prospects, financial condition and operating results.
Nasdaq may delist our common stock from trading on its exchange, which could limit stockholders’ ability to trade our common stock.
As a listed company on Nasdaq, we are required to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing of our common stock. If we fail to meet these continued listing requirements, our common stock may be subject to delisting. If our common stock is delisted and we are not able to list our common stock on another national securities exchange, we expect our securities would be quoted on an over-the-counter market. If this were to occur, our stockholders could face significant material adverse consequences, including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing in the future.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.
We may fail to meet our publicly announced guidance or other expectations about our business, which would cause our stock price to decline.
We may provide guidance regarding our expected financial and business performance, such as projections regarding sales and production, as well as anticipated future revenues, gross margins, profitability and cash flows. Correctly identifying key factors affecting business conditions and predicting future events is inherently an uncertain process and our guidance may not ultimately be accurate. Our guidance is based on certain assumptions such as those relating to anticipated production and sales volumes and average sales prices, supplier and commodity costs, and planned cost reductions. If our guidance is not accurate or varies from actual results due to our inability to meet our assumptions or the impact on our financial performance that could occur as a result of various risks and uncertainties, the market value of our common stock could decline significantly.
A significant portion of our total outstanding shares are eligible to be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. Other than the shares of common stock issued and sold in connection with our offerings of common stock in June 2017 and January 2018, substantially all of the remaining shares of common stock outstanding, based on shares outstanding as of March 7, 2018, will be restricted as a result of securities laws, lock-up agreements or other contractual restrictions that restrict transfers through June 15, 2018, subject to certain leak-out periods and exceptions.
We may release all or some portion of the shares subject to lock-up agreements prior to expiration of the lock-up period. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements, after the aforementioned lock-up and leak-out periods.
Furthermore, our equity incentive plan allows us to issue stock options. We intend to register all shares of common stock that we may issue under our equity compensation plans so that such shares may be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements executed in connection with our offering of common stock in June 2017. Moreover, we may in the future create additional equity incentive plans, which may at that time require us to file a registration statement under the Securities Act as soon as practicable after the expiration of the lock-up period to cover the issuance of shares upon the exercise or vesting of awards granted or otherwise purchased under those plans. As a result, any shares issued or granted under the plans after the lock-up period has expired also may be freely tradable in the public market. If equity securities are issued under the plans, if implemented, and it is perceived that they will be sold in the public market, then the price of our common stock could decline substantially.
No holders of any shares of our common stock have rights to require us to file registration statements for the public resale of such shares.
The concentration of our common stock ownership with our executive officers, directors and affiliates will limit your ability to influence corporate matters.
Our executive officers, directors and owners of 5% or more of our outstanding common stock and their respective affiliates beneficially owned, in the aggregate 39.9% of our outstanding common stock as of March 7, 2018. This percentage includes both outstanding shares of common stock and stock options that are vested and exercisable as of that date. These stockholders will therefore have significant influence over management and affairs and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentrated control will limit our stockholders’ ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. This ownership could affect the value of our common stock.
We do not intend to pay dividends for the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
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Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:
authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to defend against a takeover attempt;
establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;
require that directors only be removed from office for cause and only upon a supermajority stockholder vote;
provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders;
prevent stockholders from calling special meetings; and
prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders.
In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder becomes an “interested” stockholder.
Item1B. | Unresolved Staff Comments |
Not applicable.
Item2. | PROPERTIES |
We maintain our principal office
In February 2022, we announced the acquisition of a manufacturing facility located in Osceola, Arkansas. The facility of approximately 580,000 square feet will be the headquarters and primary manufacturing facility for the Company. The leased warehouse and production facility in Corona, California and additionalwas assigned to our formerLos Altos, Pomona, Santa AnaPorterville and Stockton, California as well as Phoenix, Arizona, under a combination of leaseswhich areleased facilities that will expire at various times between now and subleases that are month-to-month or expire in February 2023.
sub-lease
tenant effective April 1, 2022, leaving office and storage space in month-to-month
Item 3. | LEGAL PROCEEDINGS |
Except as set forth below, we know of no material, existing or pending, legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.
On December 17, 2019, GreenPower Motor Company Inc., a public company incorporated under the laws of British Columbia (“GreenPower”), of which Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, previously served as a senior officer and a member of its board of directors, filed a notice of civil claim, captioned GreenPower Motor Company Inc. v. Phillip Oldridge et al., Action No.
S-1914285,
in the Supreme Court of British Columbia, against Phillip Oldridge, his trust, EVTDS and certain other companies affiliated therewith. The notice of civil claim alleges that Mr. Oldridge breached certain fiduciary duties owed to GreenPower by working with certain parties in direct46
competition with and at the expense of GreenPower. GreenPower alleges that the Company conspired with Mr. Oldridge to build its business, competing products and unfairly compete with GreenPower. GreenPower seeks general damages, special damages and punitive damages, plus interest and costs against EVTDS. On February 2, 2020, the Company and the other companies affiliated therewith named in the notice of civil claim filed a response to the civil claim in which they denied certain of the allegations and asserted that certain other facts were outside of their knowledge. Fact discovery, through document disclosure and examinations for discoveries, in this matter remain ongoing. We believe that our facilities are adequatethe lawsuit is without merit and intend to meet our needsvigorously defend the action.
On or about July 18, 2021, GreenPower and GP GreenPower Industries Inc. (collectively “the GreenPower entities”), filed a counterclaim against David Oldridge, Phillip Oldridge, the Company and other companies in Supreme Court of British Columbia Action No. S207532. The counterclaim alleges that David Oldridge, Phillip Oldridge, the Company and other companies committed the tort of abuse of process by causing 42 Design Works Inc., to commence a lawsuit against the GreenPower entities. Additionally, the GreenPower entities also advanced claims against David Oldridge, Phillip Oldridge, the Company and other companies for conspiracy. The pleadings in this lawsuit have not closed and we intend to vigorously defend the counterclaim.
On February 8, 2022, GreenPower Motor Company, Inc., a Delaware Corporation, and GreenPower Motor Company Inc., a Canadian Corporation , filed a complaint captioned GreenPower Motor Company, Inc. v. Philip Oldridge, et al., Case No. 5:22-cv-00252 in the United States District Court for the immediate future,Central District of California. The complaint names the Company and the following affiliated entities, officers, or directors: Phillip Oldridge, Envirotech Electric Vehicles Inc., Envirotech Drive Systems Incorporated US, Envirotech Drive Systems Incorporated Canada, Sue Emry, David Oldridge, S&P Financial and Corporate Services, Inc. GreenPower also named the Philip Oldridge Trust and a purported entity called EVT Motors, Inc., but has since dismissed those parties. The complaint alleges (i) RICO violations, (ii) conspiracy to commit RICO violations, (iii) breach of fiduciary duties, (iv) breach of an employment contract, (v) conversion of GreenPower property, (vi) violation of the Defend Trade Secrets Act, and (vii) violations of California’s Business and Profession Code. The complaint seeks an undisclosed amount of compensatory and punitive damages, injunctive relief to prevent the alleged anti-Competitive behavior, restitution for harm, an award of treble damages, and associate fees and costs. The complaint’s allegations are centered around the same assertions in the pending Canadian litigation.
The Company has been served and its response to the Complaint is due May 10, 2022. We believe that the lawsuit is without merit and intend to vigorously defend the action.
On August 23, 2018, a purported class action lawsuit captioned M.D. Ariful Mollik v. ADOMANI, Inc. et al., Case No. RIC 1817493, was filed in the Superior Court of the State of California for the County of Riverside against us, certain of our executive officers, Edward R. Monfort, the former Chief Technology Officer and a former director of ADOMANI, Inc., and the two underwriters of our offering of common stock under Regulation A in June 2017. This complaint alleges that documents related to our offering of common stock under Regulation A in June 2017 contained materially false and misleading statements and that all defendants violated Section 12(a)(2) of the Securities Act, and that we and the individual defendants violated Section 15 of the Securities Act, in connection therewith. The plaintiff seeks on behalf of himself and all class members: (i) certification of a class under California substantive law and procedure; (ii) compensatory damages and interest in an amount to be proven at trial; (iii) reasonable costs and expenses incurred in this action, including counsel fees and expert fees; (iv) awarding of rescission or rescissionary damages; and (v) equitable relief at the discretion of the court. Plaintiff’s counsel has subsequently filed a first amended complaint, a second amended complaint, a third amended complaint, and a fourth amended complaint. Plaintiff Mollik was replaced by putative class representatives Alan K. Brooks and Electric Drivetrains, LLC. Alan K. Brooks was subsequently dropped as a putative class representative. On October 27, 2020, we answered the fourth amended complaint, generally denying the allegations and asserting affirmative defenses. On November 5, 2019, Network 1 and Boustead Securities (together the “Underwriters”) filed a cross-complaint against the Company seeking indemnification under the terms of the underwriting agreement the Company and the Underwriters entered for the Company’s
47
initial public offering (the “Underwriting Agreement”). On December 10, 2019, the Company filed its answer to the Underwriters’ cross-complaint, generally denying the allegations and asserting affirmative defenses. Also on this date, the Company filed a cross-complaint against the Underwriters seeking indemnification under the terms of the Underwriting Agreement. On January 14, 2020, Mr. Monfort filed a cross-complaint against the Underwriters seeking indemnification under the terms of the Underwriting Agreement. On January 15, 2020, Mr. Monfort filed a cross-complaint against the Company seeking indemnification under the terms of the Company’s Amended and Restated Bylaws and Section 145 of the Delaware General Corporation Law. On February 18, 2020, we filed an answer to Mr. Monfort’s cross-complaint, generally denying the allegations and asserting affirmative defenses.
On March 2, 2021, Electric Drivetrains filed its motion for class certification. On March 17, 2021, the court held a case management conference. At the case management conference, the court set a tentative schedule for class discovery and briefing on the motion for class certification. On June 2, 2021, Electric Drivetrains and ADOMANI filed a stipulation extending the deadline for class certification discovery proposing the following deadlines: close of class discovery on September 28, 2021; defendants’ opposition to the motion for class certification due on October 28, 2021; plaintiff’s reply in support of its motion due on November 29, 2021; a case management conference on December 13, 2021 to set a date for hearing on the merits of the motion for class certification. Electric Drivetrains settled its claims against Mr. Monfort. The Underwriters have reached settlements with Electric Drivetrains on the primary claims in this matter. All defendants are maintaining their cross claims against each other. On July 13, 2021, Electric Drivetrains’ counsel moved to be relieved as counsel and on August 23, 2021, the court granted this motion. Also on August 23, 2021, the Clerk of Court issued an order to show cause why the complaint should not be stricken and matter dismissed for failure to retain new counsel to Electric Drivetrains. On October 28, 2021, Electric Drivetrains filed a substitution of attorney, substituting J. Ryan Gustafson of Good Gustafson Aumais LLP as its new counsel. On December 10, 2021, the Court vacated the order to show cause. On January 20, 2022, Mr. Monfort dismissed his cross-complaint for indemnification against the Company. On March 28, 2022, Electric Drivetains forwarded its proposed Fifth Amended Complaint, in which it: i) drops certain class allegations; ii) adds certain state law claims (various violations of California Corporations Code), aider and abettor liability, and negligent misrepresentation, but leaves the remaining claims against defendants intact. Electric Drivetrains LLC has until April 11, 2022 to determine whether it will stipulate to the filing of the amended complaint. A status conference is scheduled for June 16, 2022. We believe that the lawsuit is without merit and intend to vigorously defend the action.
On January 20, 2022, Mr. Monfort dismissed his cross-complaint for indemnification against the Company in the Mollik action. On April 8, 2022, the Company and Boustead Securities, LLC (“Boustead”) settled their respective cross-claims against each other in both the Mollik action and Brooks action (see below) in exchange for the Company paying fifty thousand dollars ($50,000) in cash and $125,000 (one hundred twenty five thousand dollars) in stock and mutual releases between parties. There are no longer any cross claims pending in the Mollik action.
On June 19, 2019, Alan K. Brooks, an ADOMANI investor, filed a complaint, captioned Alan K. Brooks v. ADOMANI, Inc., et al., Case No. 1-CV-349153 in the Superior Court of California for the County of Santa Clara, against the Company, certain of the Company’s executive officers and directors, two of the underwriters of the Company’s offering of common stock under Regulation A in June 2017, and certain of the underwriters’ personnel, among others. The complaint alleges that the Company and other defendants breached the terms of an agreement between Mr. Brooks and the Company by refusing to release 1,320,359 shares of ADOMANI, Inc. stock to Mr. Brooks. Mr. Brooks seeks damages of $13,500,000.00 plus interest and attorney’s fees. On September 20, 2019, Mr. Brooks filed his first amended complaint (“FAC”) reasserting his breach of contract claim and alleging five additional claims for (i) violations of Cal. Corp. Code Section 25401, (ii) fraud, (iii) negligent misrepresentation, (iv) elder abuse, and (v) unfair competition. We answered the FAC on November 12, 2019, generally denying the allegations in the FAC and asserting affirmative defenses. Fact discovery in this matter remains ongoing. On August 10, 2021, we filed a motion for summary judgement and dismissal of plaintiff’s FAC. The parties participated in two days of mediation with Mark LeHocky. Mr. LeHocky provided
48
the parties with a mediator’s proposal. Both parties accepted the proposal and reduced the proposal to a written settlement agreement. Pursuant to the settlement agreement, the Company has agreed to pay plaintiffs $197,500 in cash and $197,500 in shares of common stock. In addition, the Company’s insurance carrier has agreed to pay plaintiffs $170,000. On January 14, 2022, the parties filed a joint motion for an order approving the fairness of the terms of the settlement agreement. On March 7, 2022, the Court issued an Order approving the settlement and the parties are in the process of effectuating its terms. On April 5, 2022, the Company and Boustead resolved Boustead’s cross claim for indemnification in the Brooks action. This settlement is still subject to court approval. There are no further claims pending in the Brooks action and, if and when the Court approves the settlement, it should be needed, we will bedismissed.
On February 3, 2020, the Company acquired substantially all of the assets of Ebus in a foreclosure sale through a credit bid in the amount of $582,000, representing the amount then owed by Ebus to the Company evidenced by a secured promissory note. Following the Company’s successful credit bid at the foreclosure sale, Ebus’s obligations under the note were extinguished and the Company was entitled to take possession of substantially all of the assets of Ebus. While the Company was able to secure additional spacetake possession of some of the assets, Ebus prevented the Company from taking possession of all of the assets purchased at the foreclosure sale. As a result, on April 13, 2020, the Company filed a complaint captioned ADOMANI, Inc. v. Ebus, Inc., et al., in the Superior Court of California for the County of Los Angeles, Case No. 20ST CV 14275, against Ebus and certain of its insiders and affiliates seeking to accommodate any such expansionrecover the remainder of our operations.the assets and related damages. On January 14, 2021, a cross-complaint was filed against the Company by Ebus, Inc. and Anders B. Eklov for Unjust Enrichment and Conversion of Domain Name, seeking monetary damages and injunctive relief. A settlement agreement was entered into on March 15, 2022.
Item 4. |
We are not currently a party to any legal proceedings, litigation, or claims that could materially affect our business, results of operations, cash flows, or financial position. We may, from time to time, be party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of any future matters could materially affect our future results of operations, cash flows or financial position.
| MINE SAFETY DISCLOSURES |
Not applicable.
applicable
applicable
49
Part II
Item 5. |
Part II
| Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
On June 15, 2017, our
Our common stock began tradingtrades on the NasdaqOTCQX market under the symbol “ADOM”. The following table sets forth the high“EVTV.”market quotations reflect inter-dealer prices, without retaillow sale prices for our common stock for the periods presented.
Over-the-counter
mark-up,
mark-down or commission and | Period | High ($) | Low ($) | ||||||
| Fiscal Year Ended December 31, 2017 | ||||||||
| Second Quarter (from June 15, 2017 through June 30, 2017) | 17.30 | 6.53 | ||||||
| Third Quarter | 18.31 | 6.11 | ||||||
| Fourth Quarter | 7.20 | 2.35 | ||||||
Prior to June 15, 2017, there was no established public trading market for our securities.
may not necessarily represent actual transactions.
Holders
As of March 7, 2018,April 8, 2022, we had approximately 261206 record holders of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. The number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividend Policy
We have never declared or paid any dividends on our common stock and do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future. Instead, we currently plan to retain any earnings to finance the growth of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on our financial condition, results of operations and capital requirements as well as other factors deemed relevant by our board of directors.
Securities Authorized for Issuance under Equity Compensation Plans
The information required hereunder is incorporated herein by reference to either a definitive proxy statement or an amendment to this Annual Report on Form 10-K to be filed within 120 days of December 31, 2017.
Recent Sales of Unregistered Securities
Set forth below
PIPE Financing
On December 24, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional and accredited investors, whereby the Company will sell, and the investors will purchase, shares of common stock of the Company, par value $0.00001 (the “Common Stock”), and warrants (the “Warrants”) to purchase additional shares of Common Stock (the “Financing”).
The first closing of the Financing occurred on December 29, 2020. The Company raised gross cash proceeds of $5,425,000 through the sale and issuance of 11,500,000 shares of Common Stock at a purchase price equal to $0.50 per share and Warrants to purchase up to an aggregate of 8,625,001 shares of Common Stock at an exercise price of $0.50 per share. The share and warrant amounts issued include 650,000 shares and 487,500 warrants issued to the underwriter in lieu of paying $325,000 of fees in cash. Proceeds net of related offering costs were approximately $5.3 million and will be used by the Company for general corporate purposes.
The second closing of the Financing is information regarding securitiessubject to, and contingent upon, the effectiveness of a registration statement filed with the SEC registering the shares of Common Stock sold, and issued by us during the year ended December 31, 2017 that were not registeredor issuable under the Securities Act, as well as the consideration received by us for such securities and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.
No underwriters were involved in the foregoing sales of securities. The securities described in (1) and (2) were issued to investors in reliance upon the exemption from the registration requirements of the Securities Act, as set forth in Section 3(a)(9) and/or Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required. All purchasers described above represented to usWarrants, in connection with theirthe Financing, and the closing of the Merger with EVTDS. Upon the second closing, the Company will raise aggregate gross cash proceeds of approximately $16,2750,000 through the sale and issuance of 38,333,334 shares of Common Stock at a purchase that they were accredited investorsprice equal to $0.45 per share and were acquiringWarrants to purchase up to an aggregate of 19,166,670 shares of its Common Stock at an exercise price of $1.00 per share. The share and warrant amounts to be issued include 2,166,667 shares and 1,083,333 warrants to be issued to the underwriter in lieu of paying $975,000 of fees in cash.
In connection with the Financing, the Company’s officers and directors agreed not to sell or otherwise dispose of any of the shares of Common Stock or securities convertible into or exchangeable or exercisable for their own accountany shares of Common Stock held by them for investment purposes only and not with a viewperiod ending 30 days after the Effective Date (as defined in the Purchase Agreement), subject to or for salecertain exceptions.
50
The securities to be sold in connection with, any distribution thereof and that they could bear the risks of the investment and could hold the securities for an indefinite period of time. The purchasers received written disclosures that the securities hadFinancing have not been registered under the Securities Act or any state securities laws and that any resale mustmay not be made pursuant tooffered or sold in the United States absent registration or an applicable exemption from registration. However, in conjunction with the first closing of the Financing, the Company has also entered into a registration statement orrights agreement (the “Registration Rights Agreement”) whereby the Company agreed to register, on behalf of the investors, the shares of Common Stock and the shares of Common Stock underlying the Warrants.
Acquisition of Envirotech Drive Systems, Inc.
On March 15, 2021, the Company completed its acquisition of Envirotech Drive Systems, Inc., a Delaware corporation (“EVTDS”), a supplier ofavailable exemption fromAgreement and Plan of Merger, dated February 16, 2021 (the “Merger Agreement”), by and among the Company, EVTDS and EVT Acquisition Company, Inc., a Delaware corporation and our wholly owned subsidiary (“Merger Sub”). As a result of such registration. We did not engage in any general solicitation or advertisingtransaction, Merger Sub was merged with and into EVT, with EVT surviving as our wholly owned subsidiary (the “Merger”). In accordance with the terms of the Merger Agreement, at the effective time of the Merger, each outstanding share of the common stock of EVT was automatically converted into the right to receive one share of the common stock of the Company. As a result of the Merger, the Company issued an aggregate of 142,558,001 shares of its common stock to the former EVTDS stockholders, which shares represented approximately 56% of the total issued and outstanding shares of common stock of the Company as of immediately following the effective time of the Merger. The shares of common stock issued in connection with the foregoing issuances.
zero-emission
trucks, cargo vans, chassis and other commercial vehicles. The transaction was completed in accordance with an All ofMerger were issued in reliance upon the foregoing securities are deemed restricted securities for purposes of the Securities Act. All certificates representing the issued shares of capital stock described here included appropriate legends setting forth that the securities had not been registered and the applicable restrictions on transfer.
Use of Proceedsexemption from Registered Securities
On April 25, 2017, our Offering Statement on Form 1-A (File No. 024-10656) was declared qualifiedregistration provided by the SEC for our public offering of common stock under Regulation ASection 4(a)(2) of the Securities Act pursuant to which we sold an aggregate of 2,510,002 shares1933, as amended (the “Securities Act”), and Rule 506 of our common stock at a public offering price of $5.00 per share. There has been no material change inRegulation D promulgated thereunder, and Regulation S promulgated under the planned use of proceeds from our public offering as described in our Offering Statement on Form 1-A (File No. 024-10656) filed with the SEC.
Securities Act.
Repurchases of Equity Securities
We did not purchase any of our equity securities during the period covered by this Annual Report.
Performance Graph
The following graph reflects the total cumulative return on our common stock as compared to the NASDAQ Composite Index and a composite index
Item 6. | [Reserved] |
51
*Note: Stock price performance shown in the Performance Graph for our common stock is historical and not necessarily indicative of future price performance.
The material in this performance graph shall not be considered “soliciting material” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing of ADOMANI under the Securities Act, or the Exchange Act, whether made on, before or after the date hereof and irrespective of any general incorporation language in such filing.
The following table sets forth our selected consolidated financial data. The consolidated statement of operations data for the years ended December 31, 2017, 2016, and 2015, and the selected consolidated balance sheet data as of December 31, 2017 and 2016 are derived from our audited consolidated financial statements and related notes included elsewhere in this Annual Report. Our historical results are not necessarily indicative of the results to be expected in any future period. You should read the following selected consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report.
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Consolidated Statement of Operations: | ||||||||||||
| Gross profit (loss) | $ | (54 | ) | $ | 18 | $ | - | |||||
| Loss from operations | $ | (21,598 | ) | $ | (9,534 | ) | $ | (5,317 | ) | |||
| Net loss | $ | (21,903 | ) | $ | (10,685 | ) | $ | (6,035 | ) | |||
| Net loss per share to common shareholders: | ||||||||||||
| Basic and diluted | $ | (0.33 | ) | $ | (0.16 | ) | $ | (0.07 | ) | |||
| Weighted shares used in the computation of net loss per share: | ||||||||||||
| Basic and diluted | 66,537,525 | 66,585,580 | 82,611,477 | |||||||||
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Consolidated Balance Sheet: | ||||||||
| Current assets | $ | 4,449 | $ | 2,745 | ||||
| Working capital | $ | 1,756 | $ | (3,368 | ) | |||
| Total assets | $ | 5,322 | $ | 3,406 | ||||
| Total liabilities | $ | 2,982 | $ | 6,113 | ||||
| Total stockholders' equity (deficit) | $ | 2,340 | $ | (2,707 | ) | |||
(1) See Note 2 of the notes to our consolidated financial statements included in Item 8 “Financial Statements and Supplementary Data” for a description of how we compute basic and diluted net loss per share attributable to common shareholders.
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
of non-cash expenses, net of non-cash income of $290,520. following:The following discussion should be read in conjunction with our financial statements and related notes included in Part IVII, Item 8 of this Annual Report. This discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those discussed in Item 1 (Business) and Item 1A (Risk Factors) of Part I of this Annual Report.OverviewWe are a provider of advanced purpose-builtzero-emissionelectric and hybrid vehicles and replacement drivetrains that is focused on reducing the total cost of vehicle ownership. Our drivetrain systems are designed to helpownership and helping fleet operators unlock the benefits of green technologytechnology. We serve commercial and last-mile fleets, school districts, public and private transportation service companies and colleges and universities to meet the increasing demand for light to heavy-duty electric vehicles. Our vehicles address the challenges of traditional fuel price cost instability and local, state and federal environmental regulatory compliance.We designAs discussed in Item 8, Notes 2 and cause to be designed advanced zero-emission electric and hybrid drivetrain systems for integration in new school buses and medium to heavy-duty commercial fleet vehicles. We also design and cause to be designed patented conversion kits to replace conventional drivetrain systems for combustion powered vehicles with zero-emission electric or hybrid drivetrain systems. The hybrid drivetrain systems are available in both an assistive hybrid format and a full-traction format for use in private and commercial fleet vehicles of all sizes. We seek to expand our product offerings to include the sale of zero-emission systems in vehicles manufactured by outside OEM partners, but to be marketed, sold, warrantied and serviced through our developing distribution and service network.Our drivetrain systems can be built with options for remote monitoring, electric power-export and various levels of grid-connectivity. Our zero-emission systems may also grow to include automated charging infrastructure and “intelligent” stationary energy storage that enables fast vehicle charging, emergency back-up facility power, and access3 to the developing, grid-connected opportunitiesconsolidated financial statements of Envirotech Vehicles, Inc. contained in this Annual Report on Form10-K,as a result of the closing of the Merger on March 15, 2021, the historical results discussed in this section of the Annual Report are those of Envirotech Drive Systems, Inc. (“EVTDS”) as of and for the aggregate power available from groupsyear ended December 31, 2020 and are the results for EVTDS as of large battery packs.51We generated virtually no revenue from inceptionand for the year ended December 31, 2021, including the balance sheet accounts of Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.), at December 31, 2021 and the results of operations of Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.), for the period March 16, 2021 through December 31, 2016,2021. On May 26, 2021, the Company filed a Certificate of Amendment of Amended and generated $425,000 in 2017. Restated Certificate of Incorporation of the Company with the Secretary of State of the State of Delaware to change its name from ADOMANI, Inc., to Envirotech Vehicles, Inc., effective as of May 26, 2021.For the years ended December 31, 2017, 2016,2021 and 2015,2020, respectively, we generated sales revenue of $2,042,844 and $88,375, respectively, and our net losses were $21.9$7,652,100 and $279,521, respectively. The 2021 loss includes approximately $3.5 million $10.7 million, and $6 million, respectively.Factors Affecting Our PerformanceWe believe that the growth and future success of our business depend on various opportunities, challenges and other factors, including the following.COVID-19pandemicGlobal health concerns related to the ongoing.COVID-19pandemic have resulted in social, economic and labor instability in the countries in which we or the third parties with whom we engage operate, and resulted in unexpected legal and regulatory changes, such as travel, social distancing and quarantine policies, boycotts, curtailment of trade, and other business restrictions that have negatively affected our ability to procure and sell our products and provide our services. Accordingly, our future performance will depend in part upon our ability to successfully respond and adapt to these challenges. We have developed, and continue to develop, plans to address the ongoing effects and help mitigate the potential negative impact of the pandemic on our business.Availability of government subsidies, rebates and economic incentivesWe believe that the availability of government subsidies, rebates, and economic incentives is currently a critical factor considered by our customers when purchasing our.zero-emissionvehicles, and that our growth depends in large part on the availability and amounts of these subsidies and economic incentives. As an alternative to being dependent on such funding, however, we are exploring the possibility of leasing our vehicles to our customers as well.New Customers.We are competing with other companies and technologies to help fleet managers and their districts/companies more efficiently and cost-effectively manage their fleet operations. Once these fleet managers have decided they want to buy from us, we still face challenges helping them obtain52
financing options to reduce the cost barriers to purchasing. We may also encounter customers with inadequate electrical services at their facilities that may delay their ability to purchase from us. |
Dependence on external sources of financing of our operations.
We have historically depended on external sources for capital to finance our operations. Accordingly, our future performance will depend in part upon our ability to
external sources for the financing of our operations.
Investment in Growth.
We plan to continue to invest for long-term growth. We anticipate that our operating expenses will increase in the foreseeable future as we invest in research and development to enhance our
zero-emission systems;
electric vehicles; design, develop and manufacture our Zero-emission electric and hybrid drivetrain experience.
Our dealer and service network is not
zero-emission
electric zero-emission
electricMarket Growth.
We believe the market for
all-electric and hybrid
solutions for alternative fuel technology, specificallyall-electric and hybrid
vehicles, will continue to grow as more purchases of newzero-emission
vehicles and as more conversions of existing fleet vehicles tozero-emission
vehicles are made. However, unless the costs to produce such vehicles decrease dramatically, purchases of our products will continue to depend in large part on financing subsidies from government agencies. We cannot be assured of the continued availability, Revenue Growthcustomers, or our ability to access such funds.
Sales revenue growth from Additional Productsadditional products
.
zero-emission
vehicles of all sizes manufactured by outside OEM partners, to be marketed, sold, warrantied and serviced through our developing distribution and service network, as well as add other ancillary products discussed elsewhere in this report.Revenue Growth from Additional Geographic Markets.
Third-party contractors, suppliers and manufacturers
.
Components of Our Results of Operations
Sales
Sales are recognized from the sales of advanced new, purpose-built and hybrid drivetrain systems for fleet vehicles and from the sale of new, purpose-built zero-emission electric or hybrid vehicles.providing vehicle maintenance and safety inspection services. Sales are recognized when (i) persuasive evidencein accordance with Accounting Standards Codification (“ASC”) Topic 606, as discussed in Note 2 to our consolidated financial statements included in this Annual Report.
zero-emission
electric53
Cost of Sales
Cost of sales includes those costs related to the development, manufacture, and distribution of our products. Specifically, we include in cost of sales each of the following: material costs (including commodity costs); freight costs; labor and other costs related to the development and manufacture of our products; and other associated costs.
Selling, Cost of sales also includes costs related to the valuation of inventory due to impairment, obsolescence, or shrinkage.
General and Administrative Expenses
Selling, general and administrative expenses include all corporate and administrative functions that support our company. These expenses also includecompany, including personnel-related expense and stock-based compensation expense;costs; costs related to investor relations activities; warranty expense,costs, including product recall and customer satisfaction program costs; consulting costs; marketing-related expenses; and other costsexpenses that cannot be included in cost of sales.
Consulting and Research and Development Expenses
Costs
These expenses are substantially related to our consulting and research and development activity.
Other Income/Expenses, Net
Other income/expenses include
non-operating
income and expenses, including interest income and expense.Provision for Income Taxes
We account for income taxes in accordance with FASBFinancial Accounting Standards Board (“FASB”) ASC 740 “Income Taxes,” which requires the recognition of deferred income tax assets and liabilities for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations. Because we have incurred only losses to this point, no provision for income taxes has been made.
made in 2021, and the income tax benefit recorded in 2020 has been reversed and effectively reserved as well.
Results of Operations
Comparison of
The following discussion compares operating data for the Years Endedyear ended December 31, 20172021 to the data for the year ended December 31, 2020:
Sales
Year Ended December 31, | ||||||||||||||||
2021 | 2020 | $ Change | % Change | |||||||||||||
Sales | $ | 2,042,844 | $ | 88,735 | $ | 1,954,109 | 2,202 | % | ||||||||
Sales were $2,042,844 for the year ended December 31, 2021, compared to $88,735 for the year ended December 31, 2020. Sales for the year ended December 31, 2021 consisted of 21 vehicles, (cargo vans and 2016trucks) sold to customers and FAR distributors, as well as maintenance and inspection services provided.
54
Cost of Goods Sold
Year Ended December 31, | ||||||||||||||||
2021 | 2020 | $ Change | % Change | |||||||||||||
Cost of goods sold | $ | 1,281,468 | $ | 73,560 | $ | 1,207,908 | 1,642 | % | ||||||||
Cost of sales related to the sales revenue described above and were approximately $1.28 million for the year ended December 31, 2021, compared to $73,560 for the year ended December 31, 2020.
Operating Expenses
Year Ended December 31, | ||||||||||||||||
2021 | 2020 | $ Change | % Change | |||||||||||||
General and administrative 1 | $ | 8,238,530 | $ | 355,231 | $ | 7,883,299 | 2,219 | % | ||||||||
Consulting | 188,703 | 70,901 | 117,802 | 166 | % | |||||||||||
Research and Development | 58,139 | — | 58,139 | 100 | % | |||||||||||
Total operating expenses, net | $ | 8,485,372 | $ | 426,132 | $ | 8,059,240 | 1,8918 | % | ||||||||
ADOMANI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| Year Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Sales | $ | 425 | $ | 68 | ||||
| Cost of sales | 479 | 50 | ||||||
| Gross profit | (54 | ) | 18 | |||||
| Operating expenses: | ||||||||
| General and administrative [1] | 18,705 | 9,398 | ||||||
| Consulting | 2,252 | 117 | ||||||
| Research and development | 587 | 37 | ||||||
| Total operating expenses, net | 21,544 | 9,552 | ||||||
| Loss from operations | (21,598 | ) | (9,534 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense, net | (322 | ) | (1,148 | ) | ||||
| Other income (expense) | 20 | (3 | ) | |||||
| Total other income (expense) | (302 | ) | (1,151 | ) | ||||
| Loss before income taxes | (21,900 | ) | (10,685 | ) | ||||
| Income tax expense | (3 | ) | - | |||||
| Net loss | $ | (21,903 | ) | $ | (10,685 | ) | ||
| Net loss per share to common shareholders: | ||||||||
| Basic and diluted | $ | (0.33 | ) | $ | (0.16 | ) | ||
| Weighted shares used in the computation of net loss per share: | ||||||||
| Basic and diluted | 66,537,525 | 66,585,580 | ||||||
| Includes |
| Year Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| General and administrative expenses | 15,039 | 7,565 | ||||||
| Total stock-based compensation expense | 15,039 | 7,565 | ||||||
Sales
Sales
Year Ended December 31, | ||||||||||||||||
2021 | 2020 | $ Change | % Change | |||||||||||||
Stock-based compensation expense | $ | 3,414,440 | $ | — | $ | 3,414,440 | 100 | % | ||||||||
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2021 were $425,000$8,238,530, compared to $355,231 for 2020, an increase of $7,883,299, which was primarily related to an increase in non-cash stock based compensation expense of $3,414,440 and $68,000to legal and professional fees of $1,745,523, which included $685,000 in 2021 settlement of lawsuits expense and $749,067 in legal fees. Other general and administrative expenses increased by $2,844,468, which related to increases of $939,500 in salaries and benefits; insurance costs of $373,501; $303,879 in bad debt expense related to notes receivable and an unfulfilled purchase order; $222,972 in investor relations expenses; $225,847 in travel and entertainment expenses primarily related to locating a manufacturing location in the United States, and $657,637 in other general and administrative expenses. The 2021 general and administrative expenses include approximately $3,788,598 in
non-cash
charges, including $3,414,440 innon-cash
stock-based compensation expense, $303,879 in bad debt expense not related to receivables and $70,279 in depreciation expense. The 2020 general and administrative expenses includenon-cash
charges of $17,670 in depreciation expense.Consulting
Consulting expenses were approximately $188,703 for the year ended December 31, 2021, as compared to $70,901 for 2020, primarily the result of increased operations.
Interest (Expense)Income
Year Ended December 31, | ||||||||||||||||
2021 | 2020 | $ Change | % Change | |||||||||||||
Interest (expense) income, net | $ | 4,412 | $ | (2,864 | ) | $ | 7,276 | 254 | % | |||||||
55
Interest income in 2021 of $9,703 consisted primarily of marketable security interest and interest payments from FARs utilizing flooring. There was no interest income earned in 2020. Interest expense was $5,293 and $2,864 for the years ended December 31, 20172021 and 2016,2020, respectively. The increaseExpense in sales was due2021 relates to the salerepayment of a zero-emission electric Type C busthe two outstanding SBA loans and to Blue Bird Corporation in November 2017 for use at the NAPT Exponote payable entered into during 2021. Interest (expense) income, net was therefore approximately $4,411 and other future demonstrations.
Cost of Goods Sold
Cost of goods sold was $478,772 and $50,000$(2,864) for the years ended December 31, 20172021 and 2016,2020, respectively. Cost of goods sold for 2017 includes $390,000 relating to the $425,000 in revenues recorded, plus $88,772 recorded as a valuation allowance against existing inventory that is unrelated to the revenue.
Research
Cash Flows
The following table summarizes our cash flows from operating, investing, and Development Expenses
2020:
Research and development expenses have historically comprised a significant portion of our operating expenses. Research and development expense was $586,899 and $37,273financing activities for the years ended December 31, 20172021 and 2016, respectively.The increase in 2017 is primarily due to $420,000 incurred in the second quarter of 2017 to build and install our drivetrain system on a chassis of a Type D school bus, on a promotional basis, for a potential customer. The project also enabled us to evaluate a third party firm that performed the work. The balance of the increase occurred because we were required to pay other research and development consultants under the terms of an employment agreement with our former Chief Technology Officer. That employment agreement was terminated in early March 2018.
General and Administrative Expenses
General and administrative expenses were $18.7 million and $9.4 million for the years ended December 31, 2017 and 2016, respectively.The increase is primarily due to an increase in stock-based compensation expense of $7.5 million due to the additional options granted in March 2017 (see “Options to Purchase Common Stock” below and Note 9 to the consolidated financial statements included in this Annual Report) and also to the remeasurement of non-employee stock options, as required by ASC 718 and ASC 505. We anticipate stock-based compensation expense to continue to increase as we expand our infrastructure in order to begin generating revenue.
Payroll and payroll-related expenses increased by $1.2 million due to increased staff hired during 2017; investor relations expenses increased by $224,493, taxes and licenses increased by $104,315 primarily due to an accrual for the Delaware franchise tax; advertising and marketing expense increased by $93,955; travel-related expenses increased by $69,156; insurance expense increased by $62,782; rent expense increased by $56,457; and other general and administrative expenses increased by $230,213, offset by a decrease in legal and professional fees of $200,267 as compared to the prior-year period. These increases are primarily due to our need to expand our sales and marketing infrastructure, as well as the incurrence of certain costs associated with our status as a public company.
Interest Expense
Interest expense consists of the following:
Interest expense was $501,857 and $1.1 million for the years ended December 31, 2017 and 2016 respectively. This decrease is due to the full amortization of the beneficial conversion features, finance charges, and warrants early in 2017, the repayment of a portion of the principal balance of outstanding 9% notes, as well as the debt converted to equity on January 30, 2017(see Note 6to the consolidated financial statements included in this Annual Report).
Cash Flows
| Year Ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Consolidated Statements of Cash Flow Data: | ||||||||
| Cash flows used in operating activities | $ | (5,578 | ) | $ | (2,908 | ) | ||
| Cash flows used in investing activities | (614 | ) | (871 | ) | ||||
| Cash flows provided by (used in) financing activities | 7,700 | 180 | ||||||
| Increase (decrease) in cash and cash equivalents | $ | 1,508 | $ | (3,599 | ) | |||
| Year Ended December 31, | ||||||||
| In thousands | 2021 | 2020 | ||||||
| Cash flows (used in) provided by operating activities | $ | (12,936,755 | ) | $ | 1,526,333 | |||
| Cash flows (used in) investing activities | (4,677,839 | ) | (73,091 | ) | ||||
| Cash flows provided by financing activities | 20,590,987 | 152,835 | ||||||
| Net increase in cash and cash equivalents | $ | 2,976,393 | $ | 1,606,077 | ||||
Operating Activities
Cash used in(used in) provided by operating activities is primarily the result of our operating losses, reduced by the impact of the warrant amounts. These numbers are further impacted by adjustments for non-cash interest expense.
changes in the asset and liability accounts.operating assets and liabilities that used $460,689 in cash. Inventory increased by $313,772; accrued expenses decreased by $238,580 due to the paymentremaining balance sheet amounts of accrued$3,051,688, which includes $3,414,440 of non-cash stock-based compensation of $344,914, net of an increase in accrued interest on debt of $32,695; and other accruals of $73,639; accounts payable increased by $199,441; other non-current assets increased by $100,043 due to payment of several deposits; deferred revenue decreased by $68,000; and other current assets decreased by $60,265.
non-cash
expenses, includingnon-cash
stock-based compensation, and Net cash used by(used in) operating activities duringfor the year ended December 31, 20172021 was $5.6 million, as a result$12,936,755 versus net cash provided by operations of a net loss of $21.9 million, stock-based compensation of $15.0 million, other non-cash charges of $1.6 million, and changes in operating assets and liabilities that used $367,124 in cash. Other current assets increased by $672,150 due primarily to increases in other receivables of $276,314, and prepaid expenses of $395,836, primarily relating to deposits$1,526,333 for inventory; accrued liabilities increased by $359,265 due primarily to the accrual of employee bonuses of $105,594, accrued franchise taxes of $99,400, a current liability established relating to the new lease accounting standard of $70,492, and other accrued expenses of $83,779; non-current liabilities increased by $289,012 due to the addition of a non-current liability established in conjunction with the new lease accounting standard; other non-current assets increased by $266,904 due primarily to the $359,504 addition of a right-of-use asset established in conjunction with the new lease accounting standard , offset by a decrease in deposits of $92,600 primarily due to reclassifying payments to a third party manufacturer from deposits to prepaid expenses; and accounts payable decreased by $76,345.
Net cash used in operating activities during the year ended December 31, 20162020, a decrease of $14,463,088. The decrease in net cash provided by operating activities was $2.9 million, as a result of adue to an increase in net loss of $10.7 million, stock-based compensation$7,372,579, increased inventory deposits of $7.6 million, other non-cash charges$4,503,079, inventory additions of $672,511,$3,198,877, decreased accrued liabilities of $1,914,709, an increase of $1,218,907 in accounts receivable related to sales, and to a decrease in prepaid expenses of $693,375, reduced by cash provided from
non-cash
items and changes in expense.
We expect cash used byin operating activities to fluctuate significantly in future periods as a result of a number of factors, some of which are outside of our control, including, among others: the success we achieve in generating revenue; the success we have in helping our customers obtain financing to subsidize their purchases of our products; our ability to efficiently develop our dealer and service network; the costs of batteries and other materials utilized to make our products; the extent to which we need to invest additional funds in research and development; and the amount of expenseexpenses we incur to satisfy future warranty claims.
Investing Activities
Net cash used byin investing activities during the year ended December 31, 2017 was $612,856.This was due2021 increased by $4,604,748 to issuing a $500,000 note$4,677,839, as compared to a third party, and $112,856 for the acquisition of property and equipment relating to the lease of our new office facility. See Notes 4, 5, and 12 to the consolidated financial statements contained in this Annual Report.
Net cash used byin investing activities of $73,091 during the year ended December 31, 2020. The increase in net cash used in investing activities during the year ended December 31, 2016 was $871,474. This was2021 is primarily due to the acquisitionnet use of $411,474cash of property$8,023,213 from the purchase and equipment; $450,000 net proceedssale of a loan to a third party; and $10,000 investedmarketable securities, partially reduced by cash acquired in Silicon Turbine Solutions.
the Merger.
56
Financing Activities
Net cash provided by financing activities during the year ended December 31, 2017 was $7.7 million due tonet2021 increased by $20,438,152 from cash provided by financing activities in 2020 of $152,835. The increase consisted of $21,107,410 proceeds of $12.6 million received from the issuance of common stock, $4,621,200 of which was raised by EVTDS in anticipation of the Merger; $16,274,991 from the May, 2021 second closing of our initial publicoffering under Regulation Athe PIPE financing, and $211,219 of which was from the Securities Act and net notes payable proceedsissuance of $500,000,stock for stock options that were exercised. This cash provided was reduced by $3.6 million repaymentoffering costs of notes payable principal,$188,015, and related interestfurther reduced by EVTDS and ADOMANI, Inc., repaying their SBA EIDL loans in the amounts $152,835 and $157,030, versus EVTDS receiving proceeds from its SBA loan in 2020, a change of $346,736. The net increase was further offset by payments for costs related to ouroffering under Regulation A of $1,668,339$481,243.
Liquidity and payments made for our follow-on offering of $75,500.See Notes 7Capital Resources
As discussed above and 12in Note 3 to the consolidated financial statements contained in this Annual Report.provided by financing activities duringand cash equivalents at the year ended December 31, 2016 was $180,236 due to net proceeds of $1.0 million from the issuance of debt, net proceeds of $187,900 from the sale of stock, payment for stock rescission of $54,000, and to a $7,500 repayment of convertible debt principal. Other non-current assets increased $988,324 due to the capitalization of costs from our offering of common stock.
Merger closing.
NetReport on Form
10-K,
ADOMANI, Inc., had approximately $3.4 million in cash Comparison of the Years Ended December 31, 2016 and 2015
ADOMANI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Sales | $ | 68 | $ | - | ||||
| Cost of sales | 50 | - | ||||||
| Gross profit | 18 | - | ||||||
| Operating expenses: | ||||||||
| General and administrative (1) | 9,398 | 4,633 | ||||||
| Consulting | 117 | 135 | ||||||
| Research and development | 37 | 549 | ||||||
| Total operating expenses, net | 9,552 | 5,317 | ||||||
| Loss from operations | (9,534 | ) | (5,317 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense, net | (1,148 | ) | (702 | ) | ||||
| Other income (expense) | (3 | ) | (16 | ) | ||||
| Total other income (expense) | (1,151 | ) | (718 | ) | ||||
| Loss before income taxes | (10,685 | ) | (6,035 | ) | ||||
| Income tax expense | - | - | ||||||
| Net loss | $ | (10,685 | ) | $ | (6,035 | ) | ||
| Net loss per share to common shareholders: | ||||||||
| Basic and diluted | $ | (0.16 | ) | $ | (0.07 | ) | ||
| Weighted shares used in the computation of net loss per share: | ||||||||
| Basic and diluted | 66,585,580 | 82,611,477 | ||||||
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| General and administrative expenses | 7,565 | 3,035 | ||||||
| Total stock-based compensation expense | 7,565 | 3,035 | ||||||
Sales
Sales were $68,000 and $0 for the years ended December 31, 2016 and 2015.
Research and Development Expenses
Research and development expenses have historically comprised a significant portion of our operating expenses. Research and development expense was $37,273 and $548,889 for the years ended December 31, 2016 and 2015, respectively. A substantial amount of research and development expenditures made during 2016 were capitalized related to building a specific demonstration vehicle, which was the reason for lower expense in 2016.
General and Administrative Expenses
General and administrative expenses were $9.4 million and $4.6 million for the years ended December 31, 2016 and 2015, respectively. This increase is primarily due to an increase in stock-based compensation charges of $4.5 million; legal, accounting and other professional fees of $556,205 and decreases in other accounts of $322,205 during the year ended December 31, 2016. We anticipate the stock-based compensation expenses may continue to increase as we expand our infrastructure in order to begin generating revenues and due to our new status as a public company.
Interest Expense
Interest expense was $1.1 million and $702,134 for the years ended December 31, 2016 and 2015, respectively. This increase is due to the recognition of a beneficial conversion expense related to existing debt instruments, the amortization of finance charges incurred on debt issued during 2015, and the amortization of the fair market value of a warrant issued during 2016 that related to 2015.
Cash Flows
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Consolidated Statements of Cash Flow Data: | ||||||||
| Cash flows used in operating activities | $ | (2,908 | ) | $ | (2,103 | ) | ||
| Cash flows used in investing activities | (871 | ) | (113 | ) | ||||
| Cash flows provided by (used in) financing activities | 180 | 6,635 | ||||||
| Increase (decrease) in cash and cash equivalents | $ | (3,599 | ) | $ | 4,419 | |||
Operating Activities
Cash used in operating activities isMerger closing date, primarily the result of our operating losses, reduced by the impactapproximately $5.3 million net proceeds from the December 2020 closing of the non-cash stock-based compensation amounts. These numbers were further impacted by adjustments for non-cash interest expense and, in 2015, an increase in accrued liabilities. The increase in accrued liabilities is largely due to payroll-related accruals that were paid in 2016.
NetFinancing discussed below. EVTDS delivered $5 million cash used in operating activities duringat the year ended December 31, 2016 was $2.9 million, as a result of a net loss of $10.7 million, stock-based compensation of $7.6 million, other non-cash charges of $672,511, and changes in operating assets and liabilities that used $460,689 in cash. Inventory increased by $313,772; accrued expenses decreased by $238,580 due to the payment of accrued compensation of $344,914, net of an increase in accrued interest on debt of $32,695; and other accruals of $73,639; accounts payable increased by $199,441; other non-current assets increased by $100,043 due to payment of several deposits; deferred revenue decreased by $68,000; and other current assets decreased by $60,265.
Net cash used by operating activities during the year ended December 31, 2015 was $2.1 million, as a result of a net loss of $6.035 million, stock-based compensation of $3.0 million, other non-cash charges of $430,722, and changes in operating assets and liabilities that provided $466,808 in cash.
We expect cash used by operating activities to fluctuate significantly in future periods as a result of a number of factors, some of which are outside of our control, including, among others: the success we achieve in generating revenue; the success we have in helping our customers obtain financing to subsidize their purchases of our products; our ability to efficiently develop our dealer and service network; the costs of batteries and other materials utilized to make our products; the extent to which we need to invest additional funds in research and development; and the amount of expense we incur to satisfy future warranty claims.
Investing Activities
Net cash used by investing activities during the year ended December 31, 2016 was $871,474. This was due to the acquisition of $411,474 of property and equipment; $450,000 net proceeds of a loan to a third party; and $10,000 invested in Silicon Turbine Solutions.
Net cash used by investing activities during the year ended December 31, 2015 was $113,332. This was primarily due to a $110,000 investment in Silicon Turbine Solutions.
Financing Activities
Net cash provided by financing activities during the year ended December 31, 2016 was $180,236 due to net proceeds of $1.0 million from the issuance of debt, net proceeds of $187,900 from the sale of stock, payment for stock rescission of $54,000, and to a $7,500 repayment of convertible debt principal. Other non-current assets increased $988,324 due to the capitalization of costs from our offering of common stock.
Net cash provided by financing activities during the year ended December 31, 2015 was $6.6 million, primarily due to net proceeds of $4.7 million from the issuance of convertible debt, net proceeds of $2.0 million in sales of stock, and to a $70,000 repayment of convertible debt principal.
Quarterly Results of Operations
The following table set forth selected, unaudited, quarterly consolidated statements of operations for each of the eight quarters beginning with the three months ended March 31, 2016. The information for each of these quarters has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K and, in the opinion of management, reflects normal recurring adjustments necessary for the fair treatment of our consolidated results of operations for these periods. This data should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report. These quarterly results are not necessarily indicative of our results of operations to be expected for any future period.
| Three Months Ended | ||||||||||||||||
| 3/31/2017 | 6/30/2017 | 9/30/2017 | 12/31/2017 | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Sales | $ | - | $ | - | $ | - | $ | 425 | ||||||||
| Cost of sales | - | - | - | 479 | ||||||||||||
| Gross profit (loss) | - | - | - | (54 | ) | |||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 1,297 | 5,350 | 11,716 | 342 | ||||||||||||
| Consulting | 19 | 2,143 | 49 | 41 | ||||||||||||
| Research and development | 59 | 460 | 38 | 30 | ||||||||||||
| Total operating expenses, net | 1,375 | 7,953 | 11,803 | 413 | ||||||||||||
| Loss from operations | (1,375 | ) | (7,953 | ) | (11,803 | ) | (467 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | (215 | ) | (147 | ) | (47 | ) | 87 | |||||||||
| Other income (expense) | 26 | 22 | (116 | ) | 88 | |||||||||||
| Total other income (expense) | (189 | ) | (125 | ) | (163 | ) | 175 | |||||||||
| Loss before income taxes | (1,564 | ) | (8,078 | ) | (11,966 | ) | (292 | ) | ||||||||
| Income tax expense | (2 | ) | - | (1 | ) | - | ||||||||||
| Net loss | $ | (1,566 | ) | $ | (8,078 | ) | $ | (11,967 | ) | $ | (292 | ) | ||||
| Net loss per share to common shareholders: | ||||||||||||||||
| Basic and diluted | $ | (0.02 | ) | $ | (0.12 | ) | $ | (0.18 | ) | $ | (0.00 | ) | ||||
| Weighted shares used in the computation of net loss per share: | ||||||||||||||||
| Basic and diluted | 63,121,402 | 66,815,898 | 68,070,930 | 68,070,930 | ||||||||||||
| Three Months Ended | ||||||||||||||||
| 3/31/2016 | 6/30/2016 | 9/30/2016 | 12/31/2016 | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Sales | $ | - | $ | 68 | $ | - | $ | - | ||||||||
| Cost of sales | - | 50 | - | - | ||||||||||||
| Gross profit (loss) | - | 18 | - | - | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 1,092 | 953 | 5,872 | 1,481 | ||||||||||||
| Consulting | 114 | 124 | - | (121 | ) | |||||||||||
| Research and development | 63 | - | 112 | (138 | ) | |||||||||||
| Total operating expenses, net | 1,269 | 1,077 | 5,984 | 1,222 | ||||||||||||
| Loss from operations | (1,269 | ) | (1,059 | ) | (5,984 | ) | (1,222 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | (272 | ) | (285 | ) | (274 | ) | (317 | ) | ||||||||
| Other income (expense) | 1 | - | (11 | ) | 7 | |||||||||||
| Total other income (expense) | (271 | ) | (285 | ) | (285 | ) | (310 | ) | ||||||||
| Loss before income taxes | (1,540 | ) | (1,344 | ) | (6,269 | ) | (1,532 | ) | ||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net loss | $ | (1,540 | ) | $ | (1,344 | ) | $ | (6,269 | ) | $ | (1,532 | ) | ||||
| Net loss per share to common shareholders: | ||||||||||||||||
| Basic and diluted | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.03 | ) | ||||
| Weighted shares used in the computation of net loss per share: | ||||||||||||||||
| Basic and diluted | 84,297,745 | 66,551,134 | 57,163,882 | 58,542,350 | ||||||||||||
Liquidity and Capital Resources
From our incorporation in 2012 until the completion of our initial public offering of common stock under Regulation A of the Securities Act in June 2017, we financed our operations and capital expenditures through issuing equity capital, convertible notes and notes payable. A significant portion of this funding has been provided by affiliated stockholders, although significant equity capital was also raised in late 2015, and the majority of the convertible notes outstanding were issued in 2015 to non-affiliated third parties, as discussed below and in Note 6 to the consolidated financial statements contained elsewhere in this Annual Report.
As of December 31, 2017,2021, we had cash and cash equivalents of $2.4 million.On January 9, 2018, we completed$4,846,490 and marketable securities of $8,002,700, a public offeringcombined total of 3,666,667 units for gross proceeds$12,849,190, and working capital of $11.0 million. Net proceeds received, after deducting commissions, expenses and fees of approximately $1.2 million, were approximately $9.8 million.$21,473,117. We believe that our existing cash, and cash equivalents and marketable securities will be sufficient to fund our present operations at least throughduring the end of April 2019.next 12 months and beyond. However, we may not successfully execute our business plan, and if we do not, we may need additional capital to continue our operations. Whileoperations and support the increased working capital requirements associated with the fulfillment of purchase orders.
In February 2022, we have not generated any material revenues were successful in acquiring a U.S. manufacturing facility in Osceola, Arkansas. However, additional debt and/or equity capital will be required in order to datepurchase related equipment and do not expectset up production lines and is expected to be ablerequire up to satisfy our cash requirements solely through product sales in the near future, we received several purchase orders for zero-emission electric school buses in the second half of 2017 and we recorded revenue of $425,000 in the fourth quarter of 2017. The sale$80 million of additional equity securities ininvestment through 2027. Investments and employee hiring requirements over the future could result in additional dilutionnext 10 years allow for local tax incentives granted to our stockholdersthe Company of up to $27 million.
On December 24, 2020, ADOMANI, Inc. entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional and those securities may have rights senioraccredited investors, whereby the Company agreed to those of our common stock. The incurrence of additional indebtedness insell, and the future would result in increased debt service obligations and could result in operating and financial covenants that would restrict our operations. Such capital, if required, may not be available on terms that are favorableinvestors agreed to us or at all. We are currently incurring operating deficits that are expected to continue for the foreseeable future, and as we begin to execute our marketing plan, we expect our operating deficit will continue to grow until we begin to generate a sufficient level of revenue from our sales and marketing efforts.
Debt
As of December 31, 2016, we had borrowed $645,000 from Acaccia Family Trust, formerly a related party, and other parties by issuing notes convertible into our common stock at prices ranging from $0.10 per share to $0.50 per share. On January 30, 2017, the notes plus accrued interest, a total of $725,584, converted into 6,868,578 shares of our common stock. As of December 31, 2016, we also had outstanding a total of $4,255,325 of secured promissory notes, net of $884,700 principal amount of these secured notes that were exchanged for 884,700purchase, shares of common stock on September 1, 2016. In November 2016, we borrowed $500,000 from an unaffiliated stockholder for working capital needsof the Company, and in March 2017, borrowed anwarrants (the “Warrants”) to purchase additional $500,000 fromshares of the same stockholder for additional working capital required due to delays in completing our offering under Regulation A. In December 2016, we borrowed $500,000 from a third party pursuant to a secured promissory note, and immediately made a $500,000 loan to another third party who operates in the zero-emissions drivetrain technology industry. All notes referenced in this paragraph were scheduled to mature in 2017. In connection with the initialCompany’s common stock (the “Financing”).
The first closing of ourthe Financing occurred on December 29, 2020. ADOMANI, Inc., raised cash proceeds, net of offering under Regulation A, on May 12, 2017, we repaidcosts, of approximately $5.3 million through the $1,500,000 outstanding under the three unsecured notes that we issued in November 2016, December 2016sale and March 2017, respectively. See Note 6 to the consolidated financial statements contained elsewhere in this report.
Regulation A Offering
On June 9, 2017, we completed a public offeringissuance of our11,500,000 shares of its common stock under Regulation Aat a purchase price equal to $0.50 per share and Warrants to purchase up to an aggregate of the Securities Act. We sold 2,852,2758,625,001 shares of our common stock for gross proceeds of approximately $14.6 million, of which approximately $1.7 million was paid to the selling stockholders for 342,273 shares of common stock they sold in the offering. Net proceeds, after deducting commissions, expenses, and fees of approximately $2.5 million, amounted to approximately $10.0 million.
Follow-On Public Offering
On January 9, 2018, we completed a public offering of 3,666,667 units for gross proceeds of $11.0 million. For each unit sold in the offering, we issued one share of our common stock and a warrant to purchase 1.5 shares of ourits common stock at an exercise price of $4.50. Net$0.50 per share. The share and Warrant amounts issued include 650,000 shares and a Warrant to purchase 487,500 shares issued to the underwriter in lieu of paying $325,000 of fees in cash. Since this ADOMANI, Inc., activity occurred before the close of the Merger, it is not reflected in the EVTDS financial statements for the year ended December 31, 2020, but as stated above, is discussed here because it was primarily the source of the approximate $3.3 million cash acquired by EVTDS in the Merger that closed on March 15, 2021 (see Note 3 to the consolidated financial statements for the year ended December 31, 2021).
The second closing of the Financing was completed on May 7, 2021. The Company raised cash proceeds, after deducting commissions, expenses, and feesnet of offering costs, of approximately $1.2$16.3 million amountedthrough the sale and issuance of 38,333,333 shares of common stock at a purchase price equal to approximately $9.8 million.
2015 Note Financing$0.45 per share and Warrants to purchase up to an aggregate of 19,166,667 shares of its common stock at an exercise price of $1.00 per share. The share and Warrant amounts issued include 2,166,666 shares and a Warrant to purchase 1,083,330 shares issued to the underwriter in lieu of paying $975,000 of fees in cash.
57
At December 31, 2020, EVTDS had $1,793,910 restricted cash related to subscription agreements for equity investments in anticipation of the Merger. EVTDS ultimately raised total equity of $6,415,110 (including that $1,793,910) that funded its obligation to provide $5 million cash at the Merger closing; the balance was used to pay other liabilities and expenses (See Note 3 to the consolidated financial statements for the year ended December 31, 2021).
Options to Purchase Common Stock
During 2015, we issued two-year secured promissory notes
Because all outstanding unvested options to third party lenders inpurchase ADOMANI, Inc.’s common stock became fully vested upon the closing of the Merger, the Company had 12,992,857 fully vested options outstanding as of March 15, 2021. On June 14, 2021, options to purchase 33,571 shares of common stock were exercised at a price of $0.12 per share. Also on June 14, 2021, options to purchase an aggregate principal amount of $5,147,525 (Note Financing).67,144 shares of common stock with an exercise price of $0.12 per share, options to purchase 75,000 shares of common stock with an exercise price of $0.45 per share, and options to purchase 60,000 shares of common stock with an exercise price of $1.31 per share were forfeited by the former holders thereof, as they were not exercised prior to the expiration date with respect to such options. On June 25, 2021, options to purchase 358,571 shares of common stock were exercised by an officer of the Company at a price of $0.12 per share. On July 23, 2021, options to purchase 358,571 shares of common stock were exercised by a former officer of the Company. On July 29, 2021, options to purchase an aggregate of 270,000 shares of common stock were forfeited by the same former officer of the Company.
On August 4, 2021, the Company’s Compensation Committee granted Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, options to purchase 440,000 shares of common stock, exercisable at an exercise price of $0.2753 per share. The Committee determined that Mr. Oldridge would be immediately vested in the options granted. Mr. Oldridge exercised these options on November 30, 2021.
On December 7, 2021, options to purchase 5,000,000 shares of common stock were exercised by the former President and CEO of the Company at a price of $0.10 per share. The former officer elected to pay the $500,000 exercise price for the shares with shares, so was issued 3,402,555 shares.
As a result of the activity described above during the year ended December 31, 2021, the number of fully vested options outstanding as of December 31, 2021 was 6,770,000. See Notes 2, 3 and 9 to the consolidated financial statements included in this Annual Report on Form
10-K.
As of December 31, 2017,2021, the 6,770,000 vested options were comprised of options to purchase 1,000,000 shares with an exercise price of $0.12 per share; options to purchase 5,635,000 shares with an exercise price of $0.45 per share, and 135,000 shares with an exercise price of $1.31 per share. If all vested options to purchase common stock were exercised, we had repaid $2,106,325would receive proceeds of principal outstanding underapproximately $2.8 million and we would be required to issue 6,770,000 shares of common stock. There can be no assurance, however, that any such notes,options will be exercised. See Notes 2, 3, 9 and related cumulative interest of $986,007. The secured promissory notes were due initially on various dates between January 31 and November 30, 2017. Prior14 to the maturity datesconsolidated financial statements included in this Annual Report on Form
10-K.
Credit Facilities
Effective May 2, 2018, the Company secured a line of credit from Morgan Stanley Private Bank, National Association (“Morgan Stanley”). Borrowings under the notes, we exercised our option to extend the maturity dates six months pursuant to the provisionsline of such notes. The notescredit bear interest at an annual rate9%, payable monthlycredit in arrears.whole or in part. The note obligations areline is secured by a lien on allthe cash and cash equivalents maintained by the Company in its Morgan Stanley accounts, which was approximately $5 million as of our assets. On September 1, 2016, holders of $884,700 of principal amount of the notes exchanged their notes for 884,700 shares of our common stock, thereby reducing the principal amount outstandingDecember 31, 2021. Borrowings under the notes to $3,195,325.line may not exceed 95% of such cash, cash equivalents, and marketable securities balances. The remaining outstanding balance of $2,149,000maximum amount the Company could borrow at December 31, 20172021, was approximately $10.4 million; there was no principal amount
30-day
LIBOR plus 2.0%. There is no maturity date for the line, but Morgan Stanley may at any time, in its sole discretion and without cause, demand the Company immediately repay any and all outstanding obligations under the line of 58
outstanding at that date. The line of credit and related interest expense was repaid in early January 2018 fromfull on February 3, 2020. The line of credit is still available to the proceeds of the follow-on offering discussed above.
In connection with the Note Financing, in 2015, we agreedCompany, but there is no current plan to issue a warrant to a third party to purchase 1,250,000 shares of our common stock at $4.00 per share, exercisable through September 1, 2021. On September 1, 2016, we issued the warrant to such third party.
Credit Facilities
We do not have any credit facilities or other access to bank credit. If, however, we believe that making an acquisition is appropriate, or see that sales of product are more rapidly using working capital than anticipated, we may seek to obtain a credit facility to address these issues.
use it.
Capital Expenditures
We do not have any contractual obligations for ongoing capital expenditures at this time. We do, however, purchase equipment necessary to conduct our operations on an as needed basis.
Going Concern
As
Contractual Obligations
On February 4, 2020, the Company signed a sublease agreement with Masters Transportation, Inc. (“Masters”) for Masters to occupy a portion of the Corona, California facility that the Company occupied effective January 1, 2020 (see above). The effective date of the Masters’ sublease is February 1, 2020, and it expires when the Company’s lease on the property expires on December 31, 2017, we had working capital2022. Under the sublease, Masters is obligated to pay the Company monthly rent payments in an amount equal to $6,000 at commencement and thereafter escalating to $6,365 by its conclusion. Beginning April 1, 2022 the Corona lease was assigned to Masters through the end of $1.8 million and stockholders’ equity of approximately $2.3 million. During the year endedlease obligation at December 31, 2017, we incurred a net loss attributable to holders of our common stock of approximately $21.9 million. Of2022. Masters’ sublease agreement with the $21.9 million loss incurred forCompany was also terminated on April 1, 2022. See Note 14 below.
On October 30, 2020, James L. Reynolds resigned from his employment with the year ended December 31, 2017, approximately $15.0 million is attributable to non-cash stock-based compensation expense,Company, including his positions as the President and another $1.2 million is related to non-cash consulting expense discussed above. The foregoing non-cash expenses had no impact on our cash flows during the year ended December 31, 2017. Stock-based compensation expense represents the amortizationChairman of the fair market valueBoard of stock options granted over their respective vesting period. The fair market value for both items is determined using the Black-Scholes model. Because some of these stock options were granted to non-employees, Accounting Standards Codification (ASC) 505 also require that we remeasure the fair market value of each of these options for each interim vesting period based on the market value of our stock on the interim vesting date. Therefore, the expense associated with these options is sensitive to changes in our stock price.
We have not generated any material revenues and have incurred net losses since inception. Our recurring operating losses and our need for additional sources of capital to fund our ongoing operations raise substantial doubt about our ability to continueCompany, as a going concern. Asmember of the board of directors of the Company, and any and all other positions, directorships, and committee memberships that Mr. Reynolds held with the Company or any of its subsidiaries or other affiliated entities, in each case, effective as of October 30, 2020. Mr. Reynolds’ resignation did not result from a result, our independent registered public accounting firm included an explanatory paragraph indisagreement with the Company on any matter relating to its report on our auditedoperations, policies, or practices. In connection with Mr. Reynolds’ resignation, the Company and Mr. Reynolds entered into Separation Agreement and General Release, dated October 30, 2020, pursuant to which Mr. Reynolds received certain separation benefits. See Notes 9, 11 and 13 to the consolidated financial statements included in this Annual Report.
On December 31, 2021, the Company entered into employment agreements with Phillip W. Oldridge (the “Oldridge Agreement”), its Chief Executive Officer, and with Susan M. Emry (the “Emry Agreement”), its Executive Vice President. According to the Oldridge Agreement, effective as of December 31, 2016March 1, 2021, Mr. Oldridge will receive an annual base salary of $300,000, payable in semi-monthly installments consistent with the Company’s payroll practices. Mr. Oldridge will also receive participation in medical insurance, dental insurance, and 2015the Company’s other benefit plans. Under the Oldridge Agreement, Mr. Oldridge will also receive an amount equal to five percent of the net income of the Company on an annual basis and will be eligible for a bonus at the years then endedsole discretion of the Company’s Board of Directors (the “Board”). The Oldridge Agreement also provides for an automobile monthly allowance of $1,500. Mr. Oldridge’s employment shall continue until terminated in accordance with respectthe Oldridge Agreement. If Mr. Oldridge is terminated without cause or if he terminates his employment for good reason, Mr. Oldridge will be entitled to this uncertainty. However, on June 9, 2017, we completed our offering under Regulation A. We sold 2,852,275 shares receiveour common stock for gross proceedsbase salary, (ii) reimbursement of $14,261,375,reimbursable expenses in accordance with the Oldridge Agreement, (iii) any bonus that would have been payable within the twelve months following the date of which $1,711,365 wastermination, and (iv) the value of any accrued and unused paid time off as of the date of termination. According to the selling stockholders for 342,273 shares they sold in the offering. Furthermore,Emry Agreement, effective on January 9, 2018, we received approximately $9.8 million net proceeds1, 2022, Mrs. Emry will receive an annual base salary of $200,000 and will be eligible for a bonus at the sole discretion of the Board. Mrs. Emry will also receive participation in medical insurance, dental insurance, and the Company’s other benefit plans. Mrs. Emry’s employment shall continue until terminated in accordance with the Emry Agreement. If Mrs. Emry is terminated without cause or if she terminates her employment for good reason, Mrs. Emry will be entitled to receive
(i) one-year
of (i) one-year
of base salary, (ii) reimbursement of reimbursable expenses in accordance with the Emry Agreement, and (iii) the value of any accrued and unused paid time off as of the date of termination.59
On January 2, 2022, Michael K. Menerey retired and resigned from his position as Chief Financial Officer of the follow-on offering discussed above. Based onCompany and also as a member of the significant capital then raised and inBoard. Mr. Menerey’s decision to resign was not the follow-on offering, that substantial doubt has been resolved.
result of any disagreement with the Company, the Board, management, or any matter relating to the Company’s operations, policies, or practices.
Off-Balance
Contractual Obligations
At December 31, 2017, our operating lease obligations and other contractual financial obligations that will affect our future liquidity were as follows:
| Payments due by period | ||||||||||||||||||||
| Total | Less than one year | 1 - 3 years | 4 - 5 years | More than 5 years | ||||||||||||||||
| Operating lease obligations | 570,238 | 74,626 | 350,364 | 145,248 | - | |||||||||||||||
| Employment contracts | 1,241,846 | 481,846 | 760,000 | - | - | |||||||||||||||
| Total | 1,812,084 | 556,472 | 1,110,364 | 145,248 | - | |||||||||||||||
The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance
sheet arrangements, as defined in the rules and regulations of the SEC.Indemnification Agreements
As we begin producing revenue,have generated sales, we will providehave provided customers with indemnification of varying scope against claims of intellectual property infringement by third parties arising from the use of our products. We do not estimate the costs related to these indemnification provisions to be significant and are unable to determine the maximum potential impact of these indemnification provisions on our future results of operations. In addition, we have directors and officers liability coverage to further mitigate our indemnification exposure. No demands have been made upon us to provide indemnification and there are no claims that we are aware of that could have a material effect on our consolidated balance sheet, consolidated statement of operations, or consolidated cash flows.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
We believe that the assumptions and estimates associated with the preparation of the financial statement information presented in this report are not significant because we have not generated any appreciable revenue. Therefore, we have not had to make assumptions or estimates related to a reserve for bad debt expense. As to future warranty costs to be incurred, we recorded a warranty reserve against 2017 revenue and will continue to evaluate the provision for such expenses in the future. These two items will have significant potential impact on our consolidated financial statements in the future. We also have no significant current litigation on which we have to provide reserves or estimate accruals and our investment to date in property, plant and equipment has not been significant. We therefore have not had to rely on estimates related to impairment. We have not generated any taxable income to date, so have not had to make any decisions about future profitability that would impact recording income tax expense. Assuming we are able to generate future profits by executing our business plan, these areas, among others, will most likely be our
No critical accounting policies and estimates.
2021.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This amendment supersedes Topic 605 by establishing core principles that an entity should follow when recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2015-14 amended the guidance to be effective for annual reporting periods after December 15, 2017, including interim periods within that reporting period. We will adopt ASU 2014-09 in the first quarter of 2018. Because we are currently a party to only one contract, and the contract provides for a single performance obligation, we anticipate no impact on our consolidated financial statements.
We have early-adopted ASU No. 2016-02, Leases (Topic 842). The amendment requires companies to recognize leased assets and liabilities on the balance sheet and to disclose key information regarding leasing arrangements. This guidance is effective for annual periods, and interim periods within those annual periods, after December 15, 2018. Early application of this amendment is permitted for all entities. While we do not anticipate that, going forward, leases will be material to our balance sheet, we chose to early-adopt as ofestimates existed at December 31, 2017 due to our entering into new leases during the year. These new leases are the only leases required to be included on our balance sheet under the new standard. Consequently, the adoption of the new lease standard did not have any impact to prior period information. Further, these leases are operating leases and, therefore, have no income statement impact resulting from the adoption of this standard.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. Our management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Stock-Based Compensation
We measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. The fair value of our common stock was estimated by management based on observations of the cash sales prices of its common shares. Awards granted to directors are treated on the same basis as awards granted to employees.
Fair Value Measurement
The carrying values of our financial instruments, including cash, notes receivable and accounts payable approximate their fair value due to the short-term nature of these financial instruments. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 820, “Fair Value Measurement” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
We do not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.
Jumpstart Our Business Startups Act of 2012 (JOBS Act)
(“JOBS Act”)
We are an “emerging growth company,” as defined in the JOBS Act. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for emerging growth companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We have chosen to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, aswill remain an emerging growth company we are not required to, among other things, (i) being permitted to provide only two yearsuntil the earlier of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis(1) the last day of Financial Condition and Results of Operations” disclosure, (ii) not being required to comply with the auditor attestation requirements infiscal year following the assessmentfifth anniversary of our internal control over financial reporting, (iii) not being required to comply with any requirement that may be adopted byinitial public offering, or December 31, 2022, (2) the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, (iv) reduced disclosure obligations regarding executive compensation or (v) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.the fiscal year in which our annual revenues exceed $1.07 billion, (iii)each June 30th, and (4) the date on which we issuehave issued more than $1$1.0 billion in non-convertiblenonconvertible debt during anythe prior three-year period or (iv) the date on which we qualify as a “large accelerated filer.”
We will retain our emerging growth company status until the first to occur of: (i) the endlast day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the fifth anniversary ofday we are deemed to be a large accelerated filer, which means the completionmarket value of our initial public offering occurs, (ii) the endcommon stock held by
non-affiliates
exceeds $700 million as measured as of period.
Recent Accounting Pronouncements
InMay2014,the FASBissuedASU No.2014-09,RevenuefromContracts withCustomers(Topic 606).ThisamendmentsupersedesTopic 605byestablishingcore principles thatan entity shouldfollow when recognizing revenue to depict the transferofpromisedgoodsorservicestocustomersin anamountthatreflectsthe consideration to which theentity expectsto beentitledinexchangefor thosegoodsorservices.ASUNo. 2015-14amended theguidance tobeeffective for annualreporting periodsafter December15,2017,including interim periodswithin thatreporting period. Wewill adopt ASU 2014-09 in the first quarter of 2018. Because we are currently a party to only one contract, and the contract provides for a single performance obligation, we anticipate no impact on our consolidated financial statements.
In May 2017, the FASB issued ASU No. 201 7-09, Compensation-Stock Compensation (Topic 718): “Scope of Modification Accounting. “The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including any interim period, for reporting periods for which financial statements have not been issued.
We have implemented
Management has considered all other newrecent accounting pronouncements that are in effectissued, but not effective, and that may impact our financial statements and we dodoes not believe that there are any other new accounting pronouncements that have been issued that mightthey will have a materialsignificant impact on our consolidatedthe Company’s financial position or results of operations.statements.
Item | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to market risks in the ordinary course of our business. We do not currently face material market risks such as interest rate fluctuation risk and foreign currency exchange risk. Our cash and cash equivalents include cash in readily available checking and money market accounts. These investments are not dependent on interest rate fluctuations that may cause the principal amount of these investments to fluctuate, and we do not expect such fluctuation will have a material impact on our financial conditions. If we issue additional debt in the future, we will be subject to interest rate risk. The majority of our expenses are denominated in the U.S. dollar.
As we continue our commercialization efforts internationally, we may generate revenue and incur expenses denominated in currencies other than the U.S. dollar, a majority
60
We may face risks associated with the costs of raw materials, primarily batteries, as we go into production. To the extent these and other risks materialize, they could have a material effect on our operating results or financial condition. We currently anticipate that our international selling, marketing and administrative costs related to foreign sales will be largely denominated in the same foreign currency, which may mitigate our foreign currency exchange risk exposure.
61
Item | Financial Statements and Supplementary Data |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
| 63 | ||||
| 64 | ||||
| 65 | ||||
| 66 | ||||
| 67 | ||||
| 68 | ||||
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the ShareholdersStockholders and Board of Directors of
ADOMANI,
Envirotech Vehicles, Inc.
Newport Beach, California
Osceola, Arkansas
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of ADOMANI,Envirotech Vehicles, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2017 and 2016,2021, and the related consolidated statements of operations, stockholders’ equity, (deficit), and cash flows for each of the years in the three-year periodyear then ended, December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016,2021, and the results of their operations and their cash flows for each of the years in the three-year periodyear then ended, December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our auditsaudit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our auditsaudit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company’s auditor since 2014.
2021.
Houston, Texas
March 12, 2018
April
26
, 20226
3
Table of ContentsADOMANI,
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors and
Stockholders of Envirotech Drive Systems Inc.
We have audited the accompanying financial statements of Envirotech Drive Systems Inc., which comprise the balance sheet as of December 31, 2020, and the related statements of income, retained earnings, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Envirotech Drive Systems Inc. as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Related Party Transactions
As discussed in Note 4 to the financial statements, the Company engaged related party entities in performing operations, as such our opinion is not modified with respect to that matter.
Der Vartanian & Associates, Accountancy Corporation
Los Angeles, CA
February 05, 2021
6
4
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| December 31, | December 31, | |||||||
| 2017 | 2016 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 2,446 | $ | 938 | ||||
| Notes receivable, net | 1,000 | 454 | ||||||
| Inventory, net | 225 | 314 | ||||||
| Other current assets | 778 | 1,039 | ||||||
| Total current assets | 4,449 | 2,745 | ||||||
| Property and equipment, net | 487 | 417 | ||||||
| Other investments | - | 120 | ||||||
| Other non-current assets | 386 | 124 | ||||||
| Total assets | $ | 5,322 | $ | 3,406 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 30 | $ | 107 | ||||
| Accrued liabilities | 514 | 236 | ||||||
| Deferred revenue | - | - | ||||||
| Notes payable, net | 2,149 | 5,177 | ||||||
| Convertible debt, net | - | 593 | ||||||
| Total current liabilities | 2,693 | 6,113 | ||||||
| Long-term liabilities | ||||||||
| Other non-current liabilities | 289 | - | ||||||
| Notes payable, net | - | - | ||||||
| Convertible debt, net | - | - | ||||||
| Total liabilities | 2,982 | 6,113 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity (deficit): | ||||||||
| Preferred stock, 100,000,000 authorized $0.00001 par value none issued and outstanding, respectively | - | - | ||||||
| Common stock, 2,000,000,000 authorized $0.00001 par value, 68,070,930 and 58,542,350 issued and outstanding, respectively | 1 | 1 | ||||||
| Additional paid-in capital | 45,316 | 18,366 | ||||||
| Accumulated deficit | (42,977 | ) | (21,074 | ) | ||||
| Total stockholders' equity (deficit) | 2,340 | (2,707 | ) | |||||
| Total liabilities and stockholders' equity (deficit) | $ | 5,322 | $ | 3,406 | ||||
December 31, 2021 | December 31, 2020 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,846,490 | $ | 136,222 | ||||
| Restricted cash | 60,035 | 1,793,910 | ||||||
| Marketable securities | 8,002,700 | — | ||||||
| Accounts receivable | 1,428,030 | 9,000 | ||||||
| Inventory, net | 3,850,541 | — | ||||||
Inventory deposits | 4,503,079 | — | ||||||
| Prepaid expenses | 332,514 | — | ||||||
| Total current assets | 23,023,389 | 1,939,132 | ||||||
| Property and equipment, net | 272,113 | 227,561 | ||||||
| Goodwill | 51,775,667 | — | ||||||
Other non-current assets | 236,639 | 242,025 | ||||||
| Total assets | $ | 75,307,808 | $ | 2,408,718 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 238,464 | $ | 345,383 | ||||
| Accrued liabilities | 1,280,020 | 2,382,660 | ||||||
| Notes payable, net | 31,788 | — | ||||||
| Total current liabilities | 1,550,272 | 2,728,043 | ||||||
| Long-term liabilities | ||||||||
Other non-current liabilities | 2,427 | — | ||||||
| Notes payable, net | 13,245 | 152,835 | ||||||
| Total liabilities | 1,565,944 | 2,880,878 | ||||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, 5,000,000 authorized, $0.00001 par value per share, NaN issued and outstanding as of December 31, 2021, and December 31, 2020 | 0— | 0— | ||||||
| Common stock, 350,000,000 authorized, $0.00001 par value per share, 298,160,160 and 1 issued and outstanding as of December 31, 2021, and December 31, 2020, respectively | 2,981 | 100 | ||||||
Additional paid-in capital | 81,863,243 | — | ||||||
| Accumulated deficit | (8,124,360 | ) | (472,260 | ) | ||||
Total stockholders’ equity (deficit) | 73,741,864 | (472,160 | ) | |||||
Total liabilities and stockholders’ equity (deficit) | $ | 75,307,808 | $ | 2,408,718 | ||||
See accompanying notes to consolidated financial statements.
6
5
Table of ContentsADOMANI,
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Sales | $ | 425 | $ | 68 | $ | - | ||||||
| Cost of sales | 479 | 50 | - | |||||||||
| Gross profit (loss) | (54 | ) | 18 | - | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 18,705 | 9,398 | 4,633 | |||||||||
| Consulting | 2,252 | 117 | 135 | |||||||||
| Research and development | 587 | 37 | 549 | |||||||||
| Total operating expenses, net | 21,544 | 9,552 | 5,317 | |||||||||
| Loss from operations | (21,598 | ) | (9,534 | ) | (5,317 | ) | ||||||
| Other income (expense): | ||||||||||||
| Interest expense, net | (322 | ) | (1,148 | ) | (702 | ) | ||||||
| Other income (expense) | 20 | (3 | ) | (16 | ) | |||||||
| Total other income (expense) | (302 | ) | (1,151 | ) | (718 | ) | ||||||
| Loss before income taxes | (21,900 | ) | (10,685 | ) | (6,035 | ) | ||||||
| Income tax expense | (3 | ) | - | - | ||||||||
| Net loss | $ | (21,903 | ) | $ | (10,685 | ) | $ | (6,035 | ) | |||
| Net loss per share to common shareholders: | ||||||||||||
| Basic and diluted | $ | (0.33 | ) | $ | (0.16 | ) | $ | (0.07 | ) | |||
| Weighted shares used in the computation of net loss per share: | ||||||||||||
| Basic and diluted | 66,537,525 | 66,585,580 | 82,611,477 | |||||||||
Year Ended December 31, | ||||||||
2021 | 2020 | |||||||
| Sales | $ | 2,042,844 | $ | 88,735 | ||||
| Cost of sales | 1,281,468 | 73,560 | ||||||
| Gross profit | 761,376 | 15,175 | ||||||
| Operating expenses: | ||||||||
| General and administrative | 8,238,530 | 355,231 | ||||||
| Consulting | 188,703 | 70,901 | ||||||
| Research and development | 58,139 | — | ||||||
| Total operating expenses, net | 8,485,372 | 426,132 | ||||||
| Loss from operations | (7,723,996 | ) | (410,957 | ) | ||||
| Other income (expense): | ||||||||
Interest income (expense), net | 4,412 | (2,864 | ) | |||||
Gain on debt forgiveness, net of other expense | 288,185 | 7,000 | ||||||
| Total other income (expense) | 292,597 | 4,136 | ||||||
| Loss before income taxes | (7,431,399 | ) | (406,821 | ) | ||||
| Income tax recovery (expense) | (220,700 | ) | 127,300 | |||||
| Net loss | $ | (7,652,100 | ) | $ | (279,521 | ) | ||
| Net loss per share to common stockholders: | ||||||||
| Basic and diluted | $ | (0.03 | ) | $ | (279,521 | ) | ||
| Weighted shares used in the computation of net loss per share: | ||||||||
| Basic and diluted | 229,034,470 | 1 | ||||||
See accompanying notes to consolidated financial statements.
6
6
Table of ContentsADOMANI,
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except per share data)
| Additional | ||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders' | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||
| Balance, December 31, 2014 | 81,594,250 | $ | 1 | $ | 4,155 | $ | (4,354 | ) | $ | (198 | ) | |||||||||
| Common stock issued | 2,659,000 | - | 1,982 | - | 1,982 | |||||||||||||||
| Beneficial conversion feature on convertible debt | - | - | 21 | - | 21 | |||||||||||||||
| Stock based compensation | - | - | 3,035 | - | 3,035 | |||||||||||||||
| Stock warrant | - | - | 349 | - | 349 | |||||||||||||||
| Net loss | - | - | - | (6,035 | ) | (6,035 | ) | |||||||||||||
| Balance, December 31, 2015 | 84,253,250 | $ | 1 | $ | 9,542 | $ | (10,389 | ) | $ | (846 | ) | |||||||||
| Common stock issued for cash | 206,400 | - | 188 | - | 188 | |||||||||||||||
| Stock issued for third-party services rendered | 98,000 | 98 | 98 | |||||||||||||||||
| Stock issued for prepaid services | 100,000 | 100 | 100 | |||||||||||||||||
| Founders shares rescinded | (27,000,000 | ) | - | (54 | ) | - | (54 | ) | ||||||||||||
| Conversion of debt to common shares | 884,700 | - | 885 | - | 885 | |||||||||||||||
| Beneficial conversion feature on convertible debt | - | - | 42 | - | 42 | |||||||||||||||
| Stock based compensation | - | - | 7,565 | - | 7,565 | |||||||||||||||
| Net loss | - | - | - | (10,685 | ) | (10,685 | ) | |||||||||||||
| Balance, December 31, 2016 | 58,542,350 | $ | 1 | $ | 18,366 | $ | (21,074 | ) | $ | (2,707 | ) | |||||||||
| Common stock issued due to debt conversion | 6,868,578 | - | 726 | - | 726 | |||||||||||||||
| Common stock issued for cash | 2,510,002 | - | 12,550 | - | 12,550 | |||||||||||||||
| Offering costs netted against proceeds from common stock issued for cash | - | - | (4,437 | ) | - | (4,437 | ) | |||||||||||||
| Common stock issued for prepaid services cancelled | (100,000 | ) | - | (100 | ) | - | (100 | ) | ||||||||||||
| Common stock issued as offering costs | 250,000 | - | 1,250 | 1,250 | ||||||||||||||||
| Warrants issued for services | - | - | 1,241 | 1,241 | ||||||||||||||||
| Warrants issued as offering costs | - | - | 681 | 681 | ||||||||||||||||
| Stock based compensation | - | - | 15,039 | - | 15,039 | |||||||||||||||
| Net loss | - | - | - | (21,903 | ) | (21,903 | ) | |||||||||||||
| Balance, December 31, 2017 | 68,070,930 | $ | 1 | $ | 45,316 | $ | (42,977 | ) | $ | 2,340 | ||||||||||
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Stockholders’ Equity (Deficit) | |||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance, December 31, 2019 | 1 | $ | 100 | $ | 0 | $ | (192,739 | ) | $ | (192,739 | ) | |||||||||
| Net loss | — | — | — | (279,521 | ) | (279,521 | ) | |||||||||||||
Balance, December 31, 2020 | 1 | $ | 100 | $ | 0 | $ | (472,260 | ) | $ | (472,160 | ) | |||||||||
EVTDS common stock issued for cash | 142,558,000 | 1,325 | 6,413,785 | — | 6,415,110 | |||||||||||||||
ADOMANI INC. common stock issued in Merger | 112,675,558 | 1,127 | 55,737,252 | — | 55,738,379 | |||||||||||||||
Post-Merger common stock issued for cash | 42,926,601 | 429 | 16,485,781 | — | 16,486,210 | |||||||||||||||
| Offering costs netted against proceeds from common stock issued for cash | — | — | (188,015 | ) | — | (188,015 | ) | |||||||||||||
| Stock based compensation | — | — | 3,414,440 | — | 3,414,440 | |||||||||||||||
| Net loss | — | — | — | (7,652,100 | ) | (7,652,100 | ) | |||||||||||||
Balance, December 31, 2021 | 298,160,160 | $ | 2,981 | $ | 81,863,243 | $ | (8,124,360 | ) | $ | 73,741,864 | ||||||||||
See accompanying notes to consolidated financial statements.
6
7
Table of ContentsADOMANI,
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | (21,903 | ) | (10,685 | ) | $ | (6,035 | ) | |||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation and amortization | 19 | 13 | 7 | |||||||||
| Accretion of discount on note receivable | (46 | ) | - | - | ||||||||
| Amortization of debt discount | 130 | 660 | 424 | |||||||||
| Provision for bad debt | 70 | - | ||||||||||
| Stock based compensation expense | 15,039 | 7,565 | 3,035 | |||||||||
| Warrant issued for services | 1,241 | - | - | |||||||||
| Loss on write-down of property and equipment | 25 | - | - | |||||||||
| Write-down of inventory | 89 | - | - | |||||||||
| Write-off of investment | 120 | - | - | |||||||||
| Write-off of patents | 5 | - | - | |||||||||
| Changes in assets and liabilities: | ||||||||||||
| Inventory | - | (314 | ) | - | ||||||||
| Other current assets | (672 | ) | 60 | (2 | ) | |||||||
| Other non-current assets | (267 | ) | (100 | ) | (4 | ) | ||||||
| Accounts payable | (76 | ) | 199 | - | ||||||||
| Accrued liabilities | 359 | (238 | ) | 404 | ||||||||
| Deferred revenue | - | (68 | ) | 68 | ||||||||
| Other non-current liabilities | 289 | - | - | |||||||||
| Net cash used in operating activities | (5,578 | ) | (2,908 | ) | (2,103 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of property and equipment, net | (114 | ) | (411 | ) | (3 | ) | ||||||
| Investment in note receivable | (500 | ) | (450 | ) | - | |||||||
| Other Investments | - | (10 | ) | (110 | ) | |||||||
| Net cash used in investing activities | (614 | ) | (871 | ) | (113 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from issuance of common stock | 12,550 | 188 | 1,982 | |||||||||
| Payments for stock rescission | - | (54 | ) | - | ||||||||
| Proceeds from issuance of debt, net of issuance costs | 500 | 1,042 | 4,723 | |||||||||
| Principal repayments of debt | (3,606 | ) | (8 | ) | (70 | ) | ||||||
| Payments for deferred offering costs | (1,744 | ) | (988 | ) | - | |||||||
| Net cash provided by financing activities | 7,700 | 180 | 6,635 | |||||||||
| Net change in cash and cash equivalents | 1,508 | (3,599 | ) | 4,419 | ||||||||
| Cash and cash equivalents at the beginning of the year | 938 | 4,537 | 118 | |||||||||
| Cash and cash equivalents at the end of the year | $ | 2,446 | $ | 938 | $ | 4,537 | ||||||
| Non-cash transactions: | ||||||||||||
| Original issuance discount of notes payable | $ | - | $ | 50 | $ | - | ||||||
| Debt discount due to BCF | $ | - | $ | 42 | $ | - | ||||||
| Stock issued for third-party services rendered | $ | - | $ | 98 | $ | - | ||||||
| Stock issued for prepaid services | $ | - | $ | 100 | $ | - | ||||||
| Common stock issued for conversion of notes payable | $ | - | $ | 885 | $ | - | ||||||
| Common stock issued due to debt conversion | $ | 726 | $ | - | $ | - | ||||||
| Deferred offering costs reclassified to equity | $ | 838 | $ | - | $ | - | ||||||
| Common stock issued for prepaid services rescinded | $ | 100 | $ | - | $ | - | ||||||
| Common stock issued as offering costs | $ | 1,250 | $ | - | $ | - | ||||||
| Warrants issued as offering costs | $ | 681 | $ | - | $ | - | ||||||
| Supplemental cash flow disclosures: | ||||||||||||
| Cash paid for interest expense | $ | 347 | $ | 408 | $ | 234 | ||||||
| Cash paid for income taxes | $ | - | $ | - | $ | - | ||||||
Year Ended December 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
| Net loss | $ | (7,652,100 | ) | $ | (279,521 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 70,279 | 17,670 | ||||||
| Unrealized loss on marketable securities | 4,673 | — | ||||||
| Provision for bad debt | 303,879 | — | ||||||
| Stock based compensation expense | 3,414,440 | — | ||||||
| Gain on debt forgiveness | (290,520 | ) | — | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (1,415,657 | ) | (196,750 | ) | ||||
| Inventory | (3,198,877 | ) | — | |||||
Inventory deposits | (4,503,079 | ) | — | |||||
| Prepaid expenses | 693,375 | — | ||||||
Other non-current assets | 123,343 | — | ||||||
| Accounts payable | (235,306 | ) | 80,454 | |||||
| Accrued liabilities | (10,229 | ) | 1,904,480 | |||||
Other non-current liabilities | (240,976 | ) | — | |||||
| Net cash (used in), provided by operating activities | $ | (12,936,755 | ) | $ | 1,526,333 | |||
Cash flows from investing activities: | ||||||||
| Purchase of property and equipment, net | $ | (27,958 | ) | $ | (73,091 | ) | ||
Investment in marketable securities | (16,233,213 | ) | — | |||||
Sale of marketable securities | 8,210,000 | — | ||||||
| Cash acquired in merger | 3,373,332 | — | ||||||
Net cash | $ | (4,677,839 | ) | $ | (73,091 | ) | ||
Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock | $ | 21,107,410 | $ | — | ||||
| Payments for deferred offering costs | (188,015 | ) | — | |||||
Principal advances from (repayments on) debt | �� | (328,408 | ) | 152,835 | ||||
| Net cash provided by financing activities | 20,590,987 | 152,835 | ||||||
| Net change in cash, restricted cash and cash equivalents | 2,976,393 | 1,606,077 | ||||||
| Cash, restricted cash and cash equivalents at the beginning of the period | 1,930,132 | 324,055 | ||||||
| Cash and cash equivalents at the end of the period | $ | 4,906,525 | $ | 1,930,132 | ||||
| Supplemental cash flow disclosures: | ||||||||
| Cash paid for interest expense | $ | 7,705 | $ | — | ||||
| Cash paid for income taxes | $ | 2,400 | $ | — | ||||
See accompanying notes to consolidated financial statements.
68
Table of ContentsADOMANI,
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIESNOTESSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ADOMANI,
1. Organization and Operations
Envirotech Vehicles, Inc. (“we”, “us”,we,” “us,” “our” or the “Company”) is a provider of purpose-builtand hybrid vehicles and replacement drivetrains that is focused on reducing the total cost of vehicle ownership. ADOMANI’s drivetrain systems are designed to helpownership and helping fleet operators unlock the benefits of green technologytechnology. The Company serves commercial and last-mile fleets, school districts, public and private transportation service companies and colleges and universities to meet the increasing demand for light to heavy-duty electric vehicles. The Company’s vehicles address the challenges of traditional fuel price cost instability and local, state and federal environmental regulatory compliance.
zero-emission
electric On March 15, 2021, the Company completed its acquisition of Envirotech Drive Systems, Inc., a Delaware corporation (“EVTDS”), a supplier of
zero-emission
trucks, cargo vans, chassis and other commercial vehicles. The transaction was completed in accordance with an Agreement and Plan of Merger, dated February 16, 2021 (the “Merger Agreement”), by and among the Company, EVTDS and EVT Acquisition Company, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”). See Note 3.The Company was formerly known as ADOMANI, designs advanced zero-emission electricInc. On May 26, 2021, the Company filed a Certificate of Amendment of Amended and hybrid drivetrain systems for integration in new school buses and mediumRestated Certificate of Incorporation the Company with the Secretary of State of the State of Delaware to heavy-duty commercial fleet vehicles.change its name from ADOMANI, Inc. to Envirotech Vehicles, Inc., effective as of May 26, 2021.
2.Summary of Significant Accounting Policies
Basis of Presentation
The Company has incurred lossesconsolidated results of operations of EVTDS for the past several years while developing infrastructureentire annual period and planning a public offeringinclude the consolidated results of equity securities. The Company incurred net lossesoperations of $21.9 million, $10.7 million,Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.) and $6 million duringsubsidiaries for the years endedpost-merger period March 16, 2021 through December 31, 2017, 2016, and 2015, respectively. The Company completed an offering of common stock under Regulation A on June 9, 2017, as discussed in Note 7 below. The Company’s independent registered public accounting firm expressed in its report on the Company’s financial statements for the years ended December 31, 2016 and 2015 that there was substantial doubt about the Company’s ability to continue as a going concern. Based on management’s plans and the significant capital raised during the year ended December 31, 2017, and on January 9, 2018 (see Note 12), that substantial doubt has been resolved.
2021.
Principles of Consolidation
mpa
nying financial statements reflect the consolidation of the Use of Estimates
ent
s in conformity with Fair Value of Financial Instruments
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
6
9
Level 3: Unobservable inputs in which there isthat are supported by little or no market data whichand that require the reporting entity to develop its own assumptions.
The Company does not
d
oes 0t have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.—The Company recognizes revenue from the sales ofRevenue Recognition advanced zero-emissionelectric drivetrain systemsvehicles and vehicle maintenance and inspection services. The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for fleet vehicles. Revenue is recognized when (i) persuasive evidencethose goods or services. At December 31, 2021, the Company did have a concentration of an arrangement exists, (ii) delivery has occurred and title has passed, (iii)customers; four customers’ balances account for approximately 81 percent of the price is fixed or determinable and (iv) collectability is reasonably assured. The revenue recordedoutstanding accounts receivable; for the year ended December 31, 2017 was received from2021, four customers accounted for approximately 63 percent of the annual revenue recorded.
In applying ASC Topic 606, the Company is required to:
(1) identify any contracts with customers;
(2) determine if multiple performance obligations exist;
(3) determine the transaction price;
(4) allocate the transaction price to the respective obligation; and
(5) recognize the revenue as the obligation is satisfied.
Product revenue also includes the sale of electric trucks and cargo vans. These sales represent a single performance obligation with revenue recognition occurring at the time title transfers. Transfer of title occurs when the customer has accepted the vehicle and signed the appropriate documentation acknowledging receipt. See discussion below related to vehicle maintenance revenue.
The Company provides the option of financing (flooring) to Factory Authorized Representatives (“FARs”) for
demo vehicles that are used in their selling process. Flooring agreements are made either expressly or
implicitly and last no longer than one sale.
year with respect to specific vehicles, as payment for the vehicles is due
in full before the first anniversary of the agreement, or upon sale by the FAR of the demo vehicle. The interest
rate associated with the flooring agreement is agreed upon at the time of executing the FAR agreement. The
Company has elected the practical expedient allowed by ASC Topic 606 where consideration does not need to
be adjusted for financing components of the agreement.
Other revenue for the year ended December 31, 2021 included performing basic vehicle maintenance and detailing, as well as safety inspections for compliance with United States Department of Transportation guidelines. These sales represent a single performance obligation with revenue recognition occurring at the time services are invoiced. These sales did 0t exist in 2020; were approximately $118,000 for the year ended December 31, 2021, and will not recur in 2022. The Company has therefore not provided any additional disaggregation information, as all other revenue relates to the sale of vehicles as discussed above.
Cash and Cash Equivalents–
The recorded value of our restricted cash and cash equivalents approximates their fair value. The Company had $60,035 and $1,793,910 restricted cash at December 31, 2021 and 2020, respectively. The amount at December 31, 2021 relates to balances required by our bank to support certain minor activities. The amount at December 31, 2020 related to subscription agreements outstanding at that date that related to the Merger and was used to fund the Merger requirements. See Concentration of Credit Risk below in this Note.
70
Marketable Securities
held-to-maturity,
Accounts Receivable and Allowance for Doubtful Accounts—Accounts—
1
, 2021 or December 31, 2020. As discussed above, at December 31, 2021, four customers’ balances account for approximately 81 percent of the outstanding accounts receivable; for the year ended December 31, 2021, four customers accounted for approximately 63 percent of the annual revenue recorded.
Inventory and Inventory Valuation Allowance
—
The Company provided anhad finished goods inventory allowanceon hand of $88,772, $0, and $0$3,862,970 as of December 31, 2017, 2016,2021 and 2015,recorded an inventory valuation allowance of $12,429 related to three vehicles that the Company does not intend to support in the future, resulting in a net inventory balance of $3,850,541 as of December 31, 2021. The Company had 0 finished goods inventory on hand and 0 related inventory valuation allowance as of December 31, 2020.
Inventory Deposits—
Deposits paid to two vendors accounted for 96 percent of the deposits outstanding at December 31, 2021; one different vendor with an affiliation to the two vendors just mentioned accounted for approximately 85 percent of the cost of sales for the year ended December 31, 2021.
Income Taxes
EVTDS previously recorded deferred tax benefits from net operating losses in current and prior periods. The Company, recordsin light of the uncertainty of generating future taxable income against which those losses can be offset in order to realize such benefits, has determined that recording a valuation allowance to reduce the deferred income tax assets to the amount that is more likely than not to be realized.realized is appropriate. In making such determinations, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial
71
operations. As of December 31, 2017, 2016, and 2015,2020, EVTDS did not recognize a full valuation allowance for all deferred tax assets. In March 2021, the Company recognized a full valuation allowance for all deferred tax assets.
assets, and as a result, recorded income tax expense of $218,300 for the year ended December 31, 2021.
Accounting for Uncertainty in Income Taxes—Taxes—
Net Loss Per Share
Diluted net loss per share is calculated by dividing the Company’s net loss applicable to common shareholdersstockholders by the diluted weighted average number of shares of common stock outstanding during the year.period. The diluted weighted average number of shares of common stock outstanding is the basic weighted number of shares of common stock adjusted for any potentially dilutive debt or equity securities.
As of December 31, 2021, 6,770,000 shares of the Company’s common stock were subject to issuance upon the exercise of stock options then outstanding and 28,597,994 shares of the Company’s common stock were subject to issuance upon the exercise of warrants then outstanding. There were no outstanding dilutive instruments at December 31, 2020.
Concentration of Credit Risk—Risk—The Company has credit risks related to cash and cash equivalents on deposit with a federally insured bank, as at times it exceeds the $250,000 maximum amount insured by the Federal Deposit Insurance Corporation.
Stock-Based Compensation—The Company accounts for employee stock-based compensation in accordance with the guidance of Financial Accounting Standards BoardCorporation (“FASB”FDIC”) Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered.
The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to. Additionally, the Company maintains cash and short-term securities invested at Morgan Stanley Private Bank, National Association (“Morgan Stanley”). Between FDIC and the Securities Investor Protection Corporation (“SPIC”) coverage, funds up to $750,000, which may include cash up to $500,000, are accountedinsured. In addition, Morgan Stanley provides excess insurance acquired by them from SPIC for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. an additional $1.9 million in cash and unlimited per customer securities up to a $1 billion cap.
The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered.
Property and Equipment—Property and equipment are stated at cost, less accumulated depreciation. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets, which range from three to five years, except leasehold improvements, which are being depreciated over the life of the lease term. Property and equipment qualify for capitalization if the purchase price exceeds $2,000. Major repairs and replacements, which extend the useful lives of equipment, are capitalized and depreciated over the estimated useful lives of the property. All other maintenance and repairs are expensed as incurred.
Leases—The Company has early-adopted ASU No. 2016-02, Leases (Topic 842). The amendment requires companies to recognize leased assets and liabilities on the balance sheet and to disclose key information regarding leasing arrangements. This guidance is effective for annual periods, and interim periods within those annual periods, after December 15, 2018. Early application of this amendment is permitted for all entities. While we do not anticipate that, going forward, leases will be material to our balance sheet, we chose to early-adoptrestricted cash reported by EVTDS as of December 31, 2017 due2020, combined with additional cash raised in 2021, was used to our entering into new leases duringfund both the year. These new leases aremerger closing requirement of $5,000,000 to ADOMANI, Inc. (see Note 3) and to repay liabilities of EVTDS. The amount of restricted cash and corresponding unpaid current liabilities of EVTDS that is included in the only leases required to be included on ourconsolidated balance sheet underat December 31, 2021 is zero. During the new standard. Consequently,year ended December 31, 2021, the adoptionCompany’s bank required compensating balances for a subsidiary’s potential lease exposure and for the Company’s credit card limit, resulting in restricted cash of the new lease standard did not have any impact to prior period information. Further, these leases are operating leases and, therefore, have no income statement impact resulting from the adoption of this standard.
approximately $60,000.
Impairment of Long-Lived Assets
Goodwill—
72
of a reporting unit is less than its carrying amount, it can conclude the assessment. If the Company concludes otherwise, the Company is required to perform a quantitative analysis to determine the amount of impairment. A qualitative analysis is performed at the reporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value to determine the amount of impairment, if any. The Company has determined that it has one reporting unit, and based on both qualitative and quantitative analysis, it is management’s assessment at December 31, 2021 that $51,775,667 in goodwill related to the ADOMANI, Inc. and EVTDS Merger did not experience impairment. See Note 3.
Research and Development
in connection with the development of new products and manufacturing methods are charged to operating expenses as incurred. During 2017, 2016, and 2015, $586,899, $37,273, and $548,889, respectively, were expensed as researchResearch and development costs.
58,139Recent Accounting Pronouncementscosts were $
for the year ended December 31, 2021.
NaNcosts were incurred in 2020.
Stock-Based Compensation
paid-in
capital over the period during
which services are rendered. Additionally, in June 2018 the FASB issued No. 2018-07,
which In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): “Scope of Modification Accounting.” The amendments provide guidance on determining which changes to the terms and conditions ofnonemployee share-based payment awards require an entity to apply modification accounting undertransactions by expanding the scope of ASC Topic 718. The guidance is effective for annual periods, andincluding interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including any interim period, for reporting periods for which financial statements have not been issued.2018. The Company implemented this change beginning in
2021, as it had no share-based payments to employees prior to the Merger.
With respect to the options to purchase
440,000shares of common stock issued on August 4, 2021
(see Note 9), non-cash stock-based compensation expense
was
$
121,132. An additional $3,293,308 was recorded related to the value of certain options assumed by the merged entity, bringing the total amount recorded for the year ended December 31, 2021 to $3,414,440.
Property
and Equipment
—Property and equipment are stated at cost, less accumulated depreciation and amortization. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets, which range from
threeto
five years, except leasehold improvements, which are being amortized over the life of the lease term. Property and equipment qualify for capitalization if the purchase price exceeds $
2,000. Major repairs and replacements, which extend the useful lives of equipment, are capitalized and depreciated over the estimated useful lives of the property. All other maintenance and repairs are expensed as incurred.
Leases
Recent Accounting Pronouncements
agem
ent has 3. Merger
On March 15, 2021, the Company completed its acquisition of EVTDS, a supplier of
zero-emission
trucks, cargo vans, chassis and other commercial vehicles. The transaction was completed in accordance with the Merger Agreement, by and among the Company, EVTDS and Merger Sub. As a result of such transaction, Merger Sub was merged with and into EVTDS, with EVTDS surviving as a wholly owned subsidiary of the Company (the “Merger”). In accordance with the terms of the Merger Agreement, at the effective time of the Merger, eachoutstanding share of the common stock of EVTDS was automatically converted into the right to receive one share of the common stock of the Company. As a result of the Merger, the Company issued an aggregate of 142,558,001 shares of its common stock to the former EVTDS stockholders, which shares represented
73
approximately 56% of the total issued and outstanding shares of common stock of the Company as of immediately following the effective time of the Merger. This exchange of shares and the resulting controlling ownership of EVTDS constitutes a reverse acquisition resulting in a recapitalization of EVTDS and purchase accounting being applied to ADOMANI, Inc. under ASC 805 due to EVTDS being the accounting acquirer and ADOMANI, Inc. being deemed an acquired business. This requires financial reporting from the Merger close date forward to reflect only the historic consolidated results of EVTDS and to include the consolidated results for Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.) and subsidiaries from March 16, 2021 forward.
The primary reasons EVTDS consummated the merger with ADOMANI, Inc. were the opportunity to immediately become a public company without the process of doing its own initial public offering, affording it the opportunity to more quickly raise capital (see Note 7) and provide liquidity options to its stockholders, at the same time acquiring the infrastructure required of a public company run by people experienced in investor relations and the public company regulatory compliance issues and filings required. In addition, since ADOMANI, Inc. had been the sole customer of EVTDS, the two management teams had experience working with each other and anticipated a smooth transition in addition to obtaining synergies, chief of which was a layer of profit required when 2 separate entities were involved in making and selling a vehicle that was immediately eliminated upon the Merger close, enabling the purchase price of vehicles to customers to be reduced. The combined entity also was able to exert more pressure on suppliers to reduce vehicle costs, which also supported the price reductions to customers.
At December 31, 2020, EVTDS had subscription restricted cash of $1,793,910 on its balance sheet as a result of offering a restricted subscription agreement to the stockholders of Envirotech Electric Vehicles, Inc., a Canadian entity (“EVT Canada”), to have the right to purchase two shares of EVTDS for every one common share of EVT Canada they owned. The purpose of this change.
Reclassification
Certain amountssubscription agreement was to raise the necessary capital to close the Merger and to provide working capital for EVTDS so that it could pay off certain liabilities and pay for ongoing expenses through the closing of the Merger. A corresponding liability account was also recorded as o
f
December 31, 2020. The total amount raised just prior to the Merger closing was $
6,415,110. At the closing of the Merger, EVTDS satisfied its obligation to deliver $
5 million in cash to ADOMANI, Inc. and repaid the majority of the items discussed above. This number has decreased to
0in both categories as of December 31, 2021.
EVTDS entered into an exclusive2016 financial statementsUnited States to promote sales, including the right to use trademarks, trade names, service marks and logos and to obtain orders based on sales targets for orders. The agreement also provides that EVT Canada. may not independently appoint additional distributors. The Company obtained this agreement in the Merger.
50-year
distribution agreement as of October 4, 2017 to become the sole USA distributor of EVT Canada. This agreement grants EVTDS the exclusive right in the The following table presents the estimated allocation of the purchase price of the assets acquired and liabilities assumed for the acquisition by EVTDS of ADOMANI, Inc. via the reverse acquisition:
Purchase Price Allocation of ADOMANI, Inc. | ||||
| Accounts receivable and other current assets | $ | 1,680,926 | ||
| Property and equipment | 86,873 | |||
| Right of use asset | 369,987 | |||
| Other assets | 59,510 | |||
| Goodwill | 51,775,667 | |||
| Accounts payable and accrued expenses | (820,389 | ) | ||
| Lease liability | (369,987 | ) | ||
| Notes payable | (417,540 | ) | ||
| Purchase price, net of $3,373,332 cash acquired | $ | 52,365,047 | ||
This allocation is based on management’s estimated fair value of the ADOMANI Inc. assets and liabilities at March 15, 2021. ADOMANI, Inc. assets were derived from a total value of
$
53,509,622, based on
112,675,558shares of common
stock outstanding on March 15, 2021 and the closing price that day of $0.4749 per share. The fair value of certain of the stock options assumed by EVTDS in the Merger of $2,228,757 (see Note 9) was added to reach an adjusted value of
74
$55,738,379. From that amount, total assets acquired of $5,570,628 (including a reduction in the carrying value of finished goods inventory of $26,400 to reflect fair value) was deducted, and total acquired liabilities of $1,607,916 were added, in order to arrive at the $51,775,667 of goodwill recorded, none of which will be deductible for future income tax purposes. The Company incurred approximately $415,472 in transaction costs related to the Merger, which were expensed.
Since the closing of the Merger on March 15, 2021, primarily due to the fact that EVTDS brought no employees or sales people to the merged entity, and that sales and operating activities have been reclassifiedconducted on a company-wide basis, not on the basis of either EVTDS alone or the ADOMANI entities alone, other than nominal expense items
related to conformEVTDS leases assumed in the Merger (see Notes 11 and 13), all accounting subsequent to the 2017closing of the Merger has been and will continue to be done on a consolidated basis. The Company therefore is not able to segregate the operating results of operations between the formerly separate entities in the current periods.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial presentation. These reclassificationsinformation presents the combined results of operations for the Company and gives effect to the Merger discussed above as if it had occurred on January 1, 2020 and on January 1, 2021. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations for the years ended December 31, 2020 and 2021, respectively, that would have no impactbeen realized if the Merger had occurred on January 1, 2020 or January 1, 2021, nor does it purport to project the results of the merged entity in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the merged
entities.
For the years ended December 31 | ||||||||
Pro forma combined results of operations | 2021 | 2020 | ||||||
| Sales | $ | 1,740,255 | $ | 627,166 | ||||
| Net loss | $ | (10,296,024 | ) | $ | (4,666,079 | ) | ||
The adjustments for the year ended December 31, 2020 resulted in a reduction in sales of $79,735 and a $15 decrease in net loss. The adjustments for the year ended December 31, 2021 resulted in a reduction of sales of $319,000 and a $91,800
increase in net loss. Both sales adjustments resulted from sale of vehicles by EVTDS to ADOMANI, Inc. However, the actual loss for ADOMANI, Inc. for the period January 1, 2021 through March 15, 2021 that is included in this pro forma information included an adjustment to fully amortize the unamortized stock-based compensation expense related to outstanding stock options that fully vested at the closing of the Merger. This adjustment increased pro forma expenses, and therefore the pro forma net loss for the year ended December 31, 2021 by approximately
$1,826,623 more than would otherwise have been recorded absent the consummation of the Merger.4. Property and equipment, net
Components of property and equipment, net consist of the following as of December 31, 20172021 and 2016:
| December 31, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Furniture and fixtures | $ | 38,540 | $ | - | ||||
| Leasehold improvements | 11,638 | - | ||||||
| Computers | 53,704 | 4,657 | ||||||
| Vehicles | - | 16,378 | ||||||
| Test/Demo vehicles | 407,612 | 414,023 | ||||||
| Total property and equipment | 511,494 | 435,058 | ||||||
| Less accumulated depreciation | (24,427 | ) | (17,868 | ) | ||||
| Net property and equipment | $ | 487,067 | $ | 417,190 | ||||
December 31, 2021 | December 31, 2020 | |||||||
| Furniture and fixtures | $ | 41,799 | $ | — | ||||
| Leasehold improvements | 28,112 | 30,166 | ||||||
| Machinery & equipment | 86,266 | 92,853 | ||||||
| Vehicles | 252,724 | 128,999 | ||||||
| Test/Demo vehicles | 15,784 | — | ||||||
| Total property and equipment | 424,685 | 252,018 | ||||||
| Less accumulated depreciation | (152,572 | ) | (24,457 | ) | ||||
| Net property and equipment | $ | 272,113 | $ | 227,561 | ||||
75
Depreciation expense
5. Income Taxes
The cumulative estimated net operating loss (“NOL”) carry-forward is $14,594,776, $7,991,399,$31,347,786 (including $745,047 for EVTDS through 2020) and $5,055,663$0 at December 31, 2017, 2016,2021 and 2015, respectively, and2020, respectively. $16,955,180 of carry-forward may be carried forward indefinitely while $14,393,606 will expire by 2027. EVTDS recognized a cumulative tax benefit of $218,300
on its financial statements through the year ended December 31, 2020, and therefore did not reserve the deferred tax asset. As mentioned in Note 2, that benefit has been reversed and recorded as income tax expense in the years 2037, 2036, and 2035, respectively.consolidated results of operations for the year ended December 31. 2021, effectively establishing a valuation allowance for it. Due to the enactment of the Tax ReformCuts and Jobs Act of 2018,2017, the corporate tax rate for those tax years beginning with 2018 has been reduced to 21%. Therefore, the cumulative tax effect of the NOL carryforward at the expected rate of 21% comprising ourthe Company’s net deferred tax amount is as follows:
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Net operating loss | 1,179,117 | 580,655 | ||||||
| Deferred tax asset attributable to: | ||||||||
| Net operating loss carryover | 3,064,903 | 1,678,194 | ||||||
| Valuation allowance | (3,064,903 | ) | (1,678,194 | ) | ||||
| Net deferred tax asset | - | - | ||||||
| Cumulative NOL | 14,594,776 | 7,991,399 | ||||||
| Cumulative NOL @ 21% | 3,064,903 | 1,678,194 | ||||||
December 31, | ||||||||
2021 | 2020 | |||||||
Tax effected net operating loss | $ | 866,991 | $ | 0 | ||||
Deferred tax asset attributable to: | ||||||||
Net operating loss carryover | 5,716,044 | 0 | ||||||
Research and development tax credit carryforward | 274,891 | 0 | ||||||
Sub-total | 6,857,926 | 0 | ||||||
Valuation allowance | (6,857,926 | ) | 0 | |||||
Net deferred tax asset | 0 | 0 | ||||||
Cumulative NOL | $ | 31,347,786 | $ | 0 | ||||
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryover for Federalfederal income tax reporting purposes are subject to annual limitations. The net operating loss carry-forward includes the years 2012 through 2017. Should2021 for the Envirotech Vehicles, Inc./ADOMANI, Inc. losses, and includes the years 2014 through 2020 for EVTDS, as the 2021 EVTDS loss is included in the consolidated Envirotech Vehicles, Inc. loss. Because a change in ownership occur,occurred as a result of the Merger, net operating loss carryover maywill be limited as to use in future years.
On June 29, Federal tax returns for tax years since 2017 are still open for examination by the Company loaned $500,000Internal Revenue Service.
6
. DebtAs of December
020
, EVTDS had a $150,000 loan outstanding payable to During 2016, 2015 and 2014, the Company issued convertible notes for total proceeds of $42,160, $20,275 and $207,465, respectively, to Acaccia Family Trust (“Acaccia”), formerly a related party.3.75% per annum. As of December 31, 2016,2020 the outstanding balance of such convertible notes was $359,000. During 2014, the Company issued convertible notes for total proceeds of $286,000 to various third parties. As of December 31, 2016, and 2015, the aggregate face value of the convertible notes issued to third and related parties was $645,000 and $601,840, respectively. All notes had a three-year maturity and bore interest at rates of 3% or 5% per annum. The terms of such loans permitted conversion of all outstanding principal and accrued interest into shareson the EIDL loan was $152,835, which was reflected on the consolidated balance sheets as long-term notes payable. In connection with the Merger (see Note 3), EVTDS repaid the loan and accrued interest in full in the amount of common stock, with loans totaling $45,000 convertible at$153,668.
On May 6, 2020, ADOMANI, Inc. received $261,244 in loan funding from the Paycheck Protection Program (the “PPP”) established pursuant to the CARES Act and administered by the SBA. The unsecured loan (the “PPP Loan”) was evidenced by a rate of $0.50 per share and loans totaling $600,000, including the convertible notes issued to Acaccia, convertible at $0.10 per share. During 2016, the Company’s CFO purchased $25,000promissory note of the $645,000 convertible notes outstanding from Acaccia. Effective January 30, 2017, all holdersCompany, dated May 3, 2020 (the “PPP Note”) in the principal amount of such convertible debt converted their debt, which totaled $725,584, consisting$261,244 with Wells Fargo Bank, N.A. (“Wells Fargo”), the lender. The PPP provides for loans to be forgiven under certain circumstances if provisions are met. Under the terms of the PPP Note and the PPP, interest accrues on the outstanding principal amount and accrued and unpaid interest asat the rate of 1.0% per annum. The term of the PPP Note is two years
, though it may be payable sooner in connection with an event of default under the PPP Note. To the extent the loan amount is not forgiven under the PPP, the Company will be obligated to make equal monthly payments
76
of principal and interest beginning on November 1, 2020 through the
As these notes had an effective conversion price that was less than the fair market valueforgiveness of the Common Stock, these notes gave rise to a beneficial conversion feature totaling $42,160 and $20,275 during 2016 and 2015, respectively, which was recognized as an increase to paid-in capital and a corresponding debt discount. The debt discount was being amortized to interest expense on an effective interest basis over the maturity of the notes. For the years ended December 31, 2017, 2016 and 2015, debt discount amortization associated with these notes was $51,935, $156,955 and $94,660, respectively, which was recognized as interest expense in the accompanying consolidated statements of operations. The unamortized discount of these convertible notes was $0, $51,935, and $163,015 at December 31, 2017, 2016, and 2015, respectively.
During 2015, the Company issued two-year secured promissory notes with an aggregate face value of $5,147,525 to third-party lenders for cash. The notes are secured by all the assets of the Company, matured between January and November 2017 and bear interest at 9%. The Company has notified all holders of the 9% secured notes payable that it was exercising its option to extend the maturity dates six months pursuant to the provisions of the notes. In connection with these notes, the Company incurred debt issuance costs of $514,753, which are being recognized as debt discount and amortized over the life of the notes. During the years ended December 31, 2017, 2016 and 2015, the debt discount amortization associated with these notes was $29,006, $328,609 and $157,138, respectively, which was recognized as interest expense in the accompanying consolidated statements of operations. As of December 31, 2017, the debt issuance costs associated with these notes have been fully amortized. As of December 31, 2017, the Company has repaid in cash $2,106,325 in principal relative to these notes. In September 2016, the Company authorized the exchange of $884,700 principal amount of these notes for 884,700 shares of Common Stock. There was no gain or loss that resulted from the conversion of the notes to equity.
On November 18, 2016, the Company issued a promissory note with a principal amount of $500,000 to a stockholder in order to insure adequate working capital through the close of its IPO. The loan, evidenced by the note was for a period of one year, at an interest rate of 5% per annum, with the principal and any unpaid interest due and payable in cash at maturity. On March 17, 2017, due to unforeseen delays in the closing of the IPO, the Company issued a second promissory note with a principal amount of $500,000 to the same stockholder in order to address additional liquidity concerns. The second note also bore interest at a rate of 5% per annum, with the principal and any unpaid interest due and payable in cash at maturity. The loans were scheduled to mature on November 15, 2017, unless previously repaid in accordance with the terms thereof. On May 12, 2017, the Company repaid both notes, plus accrued and unpaid interest of $15,685, from the proceeds of the initial closing of the IPO.
In December 2016, the Company borrowed $500,000 from an unaffiliated third party. The loan was scheduled to mature on June 15, 2017. It contained no stipulated interest rate, but the Company was obligated to payinformed on August 23,2021 that its loan fees of $50,000 to the lender. The proceedshad been forgiven in May and that there was no balance due. Wells Fargo subsequently provided a copy of the loan were immediately usedMay 26, 2021 letter to loan $500,000 to an unaffiliated company in
the zero-emissions technology industryCompany. Accordingly, the $10,000 that specializes in drivetrain solutions for zero-emission and hybrid vehicles. The loan, carriedwas advanced as a note receivable on the balance sheet, contains the same provisions, including the loan fees payable to the Company, as the note payable discussed above in this paragraph, and also was scheduled to mature on June 15, 2017. The Company repaid the loan to the unaffiliated third party on May 12, 2017 from the proceedspart of the initial closingCompany’s application for the EIDL
On May 20, 2020 ADOMANI, Inc. received $150,000 in loan funding from the related amortization expense recognizedSBA under the EIDL program administered by the SBA, which program was expanded pursuant to the CARES Act. The EIDL loan was evidenced by a promissory note, dated May 17, 2020 (the “EIDL Note”) in the original principal amount of $150,000 with the SBA, the lender. Under the terms of the EIDL Note, interest accrues on thisthe outstanding principal at the rate of 3.75% per annum. The term of the EIDL Note is thirty years, though it may be payable sooner upon an event of default under the EIDL Note. Under the EIDL Note, the Company would have been obligated to make equal monthly payments of principal and interest beginning on May 18, 2022 through the maturity date of May 18, 2050. The EIDL loan amounted to $45,833. The noteand accrued interest in the amount of $154,817 was not repaid when duewithout penalty on December 31, 2017, but has been extended to April 30, 2018. (See Note 12).
May 17, 2021.
In January 2015,On June 15, 2021, the Company entered into an equipment financing agreement with Navitas Credit Corp. in connection with the 2015 9% securedpurchase of certain inventory management software. The $63,576 loan is payable over twenty four months, beginning in July, 2021, with monthly payments of $2,648.99. As of December 31, 2021, $31,788 is reflected on the consolidated balance sheet as current notes payable financing discussed above,while $13,245 is classified as long-term notes payable.
Effective May 2, 2018, ADOMANI, Inc. secured a line of credit from Morgan Stanley. Borrowings under the line of credit bear interest at
30-day
LIBOR plus 2.0%. There is no maturity date for the line, but Morgan Stanley may at any time, in its sole discretion and without cause, demand the Company immediately repay any and all outstanding obligations under the line of credit in whole or in part. The line is secured by the cash and cash equivalents maintained by the Company in its Morgan Stanley accounts. Borrowings under the line may not exceed 95% of such cash, cash equivalents, and marketable securities balances. The maximum amount the Company could borrow at December 31, 2021, was approximately $10.4 million; there was no principal amount outstanding at that date. The line of credit and related interest expense was repaid in full on February 3, 2020. The line of credit is still available to the Company, but there is no current plan to borrow from it.7
. Common StockOn March 15, 2021, in connection with the closing of the Merger, the Company issued 142,558,001 shares of its common stock to the former stockholders of EVTDS in exchange for their shares of EVTDS (see Note 3), increasing the total number of outstanding shares of common stock of the Company to 255,233,559 as of immediately following the closing of the Merger.
On December 24, 2020, ADOMANI, Inc. entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional and accredited investors, whereby the Company agreed to issue a warrant exercisable for 1,250,000sell, and the investors agreed to purchase, shares of Common Stockcommon stock of the Company, and warrants (the “Warrants”) to purchase additional shares of the Company’s common stock (the “Financing”).
The first closing of the Financing occurred on December 29, 2020. ADOMANI, Inc. raised net cash proceeds, net of offering costs, of approximately $5.3 million through the sale and issuance of 11,500,000 shares of its common stock at a purchase price equal to $0.50
per share and Warrants to purchase up to an aggregate of
77
8,625,001 shares of its common stock at an exercise price of $4.00$0.50 per share. The warrant, actuallyshare and Warrant amounts issued include 650,000 shares and 487,500 Warrants issued to the underwriter in September 2016, was valued usinglieu of paying $325,000
of fees in cash. Since this ADOMANI, Inc. activity occurred before the Black Scholes valuation model and the resulting fair market value of $349,042 was recorded in 2015 as debt discount and is being amortized over the termclose of the notes. Interest expense relating to the amortization of this discount was $3,347, $174,998, and $170,698 for the years ended December 31, 2017, 2016, and 2015, respectively. As of December 31, 2017, the fair market value of the warrant was fully amortized.
Details of notes payable at December 31, 2017 and 2016 are as follows:
| As of December 31, | As of December 31, | |||||||
| 2017 | 2016 | |||||||
| Convertible Debt | ||||||||
| Principal amount outstanding | $ | - | $ | 645,000 | ||||
| Cumulative discount for notes with beneficial conversion feature | - | (349,560 | ) | |||||
| Cumulative amortization of debt discount | - | 297,625 | ||||||
| Subtotal of convertible notes @ $0.10 or $.50/share | - | 593,065 | ||||||
| Notes Payable | ||||||||
| Principal amount outstanding | 2,149,000 | 5,255,325 | ||||||
| Cumulative discount for finance charges incurred | (514,753 | ) | (514,753 | ) | ||||
| Cumulative discount for warrant | (349,042 | ) | (349,042 | ) | ||||
| Cumulative discount for 9% notes | (50,000 | ) | (50,000 | ) | ||||
| Cumulative amortization of finance charges | 514,753 | 485,747 | ||||||
| Cumulative amortization of warrant expense | 349,042 | 345,695 | ||||||
| Cumulative amortization of 9% notes | 50,000 | 4,167 | ||||||
| Subtotal of notes payable | 2,149,000 | 5,177,139 | ||||||
| Total of debt | $ | 2,149,000 | $ | 5,770,204 | ||||
Effective January 30, 2017, all holders of the $645,000 original principal amount of convertible debt converted their debt, which totaled $725,584, consisting of the outstanding principal amount and accrued and unpaid interest as of the date of conversion, into 6,868,578 shares of Common Stock. (See Note 6).
In March 2017, Dennis Di Ricco, who formerly served as the trustee of Acaccia, along with his family members and trusts) relinquished voting and investment power over all securities of the Company they owned, which constituted approximately 22% of the outstanding Common Stock of the Company. Mr. Di Ricco also surrendered his options to purchase up to 7,000,000 shares of common stock for forfeiture and cancellation (see Note 10), and sold (in a private transaction to which the Company wasMerger, it is not a party) all 2,500,000 shares of Common Stock held as of record by his IRA. In connection with the foregoing, the Company and Mr. Di Ricco also terminated their consulting relationship. See Note 11.
In March 2016, the Company entered into a consulting agreement with Redwood Group International Limited (“Redwood”). In exchange for its services, Redwood received $5,000 per month in retainer payments and was eligible to receive other fees and warrants, as set forthreflected in the consulting agreement. The initial term of the consulting agreement was 12 months, ending on February 28, 2017, although the term would automatically extend for an additional 12 months unless terminated by either party. On September 29, 2016, the Company executed a letter agreement with Redwood, pursuant to which it issued to Redwood an additional 100,000 shares of Common Stock, subject to Redwood satisfying certain performance thresholds. If Redwood failed to meet such performance thresholds, the agreement provided the Company with an exclusive option to reacquire all or a portion of the shares of Common Stock at $0.00001 per share. On November 15, 2016, the Company and Redwood agreed to terminate the original consulting agreement and entered into a new consulting agreement that was set to expire upon thirty days’ written notice by either party following the successful completion of the Company’s IPO. The new consulting agreement was substantially similar to the prior agreement with respect to fees and warrants due to Redwood, and provided that the Company would pay Redwood a sum of $800,000 and issue Redwood a warrant to acquire 350,000 shares of Common Stock. In May 2017, the Company and Redwood mutually agreed to terminate this agreement. On June 8, 2017, the Company paid a fee of $800,000 to Redwood and issued Redwood a warrant to purchase 350,000 shares of Common Stock, in connection with which the Company cancelled the 100,000 shares of Common Stock it had previously issued pursuant to the September 2016 letter agreement. The warrant to purchase 350,000 shares of Common Stock was valued using the Black Scholes method resulting in a fair market value of $1.24 million, which was charged to consulting expenseEVTDS financial statements for the year ended December 31, 2017.2020, but as stated above, is discussed here because it was primarily the source of the approximate $3.3 million cash acquired by EVTDS in the Merger that closed on March 15, 2021. See Note 3.
The second closing of the Financing was completed on May 7, 2021, following the closing of the Merger (see Note 3) and the subsequent effectiveness of the Registration Statement on Form
$16,274,991 through the sale and issuance of an additional 38,333,333 shares of its common stock at a purchase price equal to $0.45 per share, and additional Warrants to purchase up to an aggregate of 19,166,667 shares of its common stock at an exercise price of $1.00 per share. The share and Warrant amounts issued include 2,166,666 shares and a Warrant to purchase 1,083,330 shares issued to the underwriter in lieu of paying $975,000S-3
(FileNo. 333-255341)
filed with the SEC on April 19, 2021, registering for resale the shares of the Company’s common stock sold, and the shares issuable under the Warrants issued, in connection with the Financing. At the second closing of the Financing, the Company raised aggregate net cash proceeds ofof fees in cash.
In addition to the $16,274,991 cash equity proceeds discussed in the previous paragraph, the Company also received $211,219 cash equity proceeds from the exercise of various stock option agreements as discussed in Note 9.
8. Stock Warrants
As a result of the Merger closing (see Note 3), as of March
15
, 2021, the Company had outstanding warrants to purchase an aggregate of 10,681,327 shares of common stock, 2,056,326of which were exercisable. The warrants were previously issued by ADOMANI, Inc. and assumed in the Merger. Of the 10,681,327 outstanding at the Merger date, 1,250,000 expired unexercised on August 31, 2021. In connection with the second closing of the Financing discussed in Note 6, the Company issued additional warrants to purchase up to
19,166,667
shares of its common stock, all of which were exercisable as of December 31, 2021. The Company’s outstanding warrants as of December 31, 2021 is summarized as follows, and all were exercisable at that date (see Note
7
):Number of Shares | Exercise Price | Remaining Contractual Life (years) | ||||||||||
| Outstanding warrants expiring June 9, 2022 | 199,659 | $ | 6.00 | 0.46 | ||||||||
| Outstanding warrants expiring June 9, 2022 | 350,000 | $ | 5.00 | 0.46 | ||||||||
| Outstanding warrants expiring January 9, 2023 | 256,667 | $ | 3.75 | 1.03 | ||||||||
| Outstanding warrants expiring January 28, 2025 | 8,625,001 | $ | 0.50 | 4.00 | ||||||||
| Outstanding warrants expiring May 7, 2026 | 19,166,667 | $ | 1.00 | 4.35 | ||||||||
| Outstanding warrants on December 31, 2021 | 28,597,994 | $ | 0.96 | 4.14 | ||||||||
The Warrants issued as part of the Purchase Agreement (see Note 6) contain a call provision whereby the Company, after the
13-month
anniversary of the issuance date, and if the volume weighted average price of the common stock for such date exceeds four times the exercise price of the warrants for 20 consecutive trading days, may call the Warrants that have not previously been exercised, and the Warrant holders have ten trading days within which to exercise before the Warrants may be cancelled.As of December 31, 2021, the outstanding warrants have no intrinsic value..
7
8
9
. Stock OptionsAs a result of the Merger closing (see Notes 2 and 3) there were 12,992,857 fully vested stock options outstanding at March
15
, 2021 that were previously issued by ADOMANI, Inc. and assumed in the Merger. The outstanding options at December 31, 2021 consisted of the following:Number of Shares | Exercise Price | Weighted Average Remaining Contractual Life (years) | ||||||||||
Outstanding EVTDS at December 31, 2020 | — | — | — | |||||||||
Options acquired in Merger | 12,992,857 | $ | 0.29 | 4.61 | ||||||||
| Exercised | (5,750,713 | ) | $ | 0.12 | ||||||||
| Cancelled / Forfeited at $0.12 Exercise Price | (67,144 | ) | $ | 0.12 | ||||||||
| Cancelled / Forfeited at $0.45 Exercise Price | (210,000 | ) | $ | 0.45 | ||||||||
| Cancelled / Forfeited at $1.31 Exercise Price | (195,000 | ) | $ | 1.31 | ||||||||
| Subtotal, as follows: | 6,770,000 | |||||||||||
| Outstanding Options at $0.12 Exercise Price | 1,000,000 | $ | 0.12 | 0.21 | ||||||||
| Outstanding Options at $0.45 Exercise Price | 5,635,000 | $ | 0.45 | 8.20 | ||||||||
| Outstanding Options at $1.31 Exercise Price | 135,000 | $ | 1.31 | 6.30 | ||||||||
| Outstanding at December 31, 2021 | 6,770,000 | $ | 0.42 | 6.98 | ||||||||
On June 14, 2021, options to purchase 33,571 shares of common stock were exercised at a price of $0.12 per share, resulting in a payment to the Company of $4,029. Also on June 14, 2021, options to purchase an aggregate of 67,144 shares of common stock with an exercise price of $0.12 per share, options to purchase 75,000 shares of common stock with an exercise price of $0.45 per share, and options to purchase 60,000 shares of common stock with an exercise price of $1.31 per share were forfeited by the former holder thereof, as they were not exercised prior to the expiration date specified with respect to such options.
On June 25, 2021, options to purchase 358,571 shares of common stock were exercised by an officer of the Company at a price of $0.12 per share, resulting in a payment to the company of $43,029.
On July 23, 2021, options to purchase 358,571 shares of common stock were exercised by a former officer of the Company at a price of $0.12 per share, resulting in a payment to the company of $43,029. On July 29, 2021, options to purchase an aggregate of 135,000 shares of common stock with an exercise price of $0.45 per share and options to purchase 135,000 shares of common stock with an exercise price of $1.31 per share were forfeited by the same former officer of the Company as they were not exercised prior to the 90th day following his resignation of employment.
On August 4, 2021, the Company’s Compensation Committee granted Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, options to purchase 440,000 shares of common stock at an exercise price of $0.2753 per share. The Committee determined that Mr. Oldridge would be immediately vested in the options granted. The options were valued using the Black-Scholes option-pricing model, resulting in fair market value of $121,132 for the options which expire on August 3, 2031. The assumptions used in the valuation of the options included thean expected term of 5ten years, the exercise price of $5.00 per share, volatility of 92%172.40%, and a risk-free interest rate of 1.75%1.56%. TheBecause these options were fully vested and
7
9
exercisable as of the grant date, the fair market value of the warrant $121,132
was recorded as consultingstock-based compensation expense at the date of grant. Mr. Oldridge exercised these options on November 30, 2021.
On December 7, 2021, options to purchase 5,000,000 shares of common stock were exercised by the former President and CEO of the Company at a price of $0.10 per share. The former officer elected to pay the $500,000 exercise price for the shares with shares, so was issued 3,402,555 shares.
As of December 31, 2021, outstanding options had intrinsic value of $152,800.
10
. Related Party TransactionsThe Company has entered into an engagement agreement (the “SRI Services Agreement”) with SRI Professional Services, Incorporated (“SRI”), pursuant to which the Company engaged SRI to provide certain services in connection with theoperations of the Company, including the issuing of invoices to customers and making payments on behalf of the Company with respect toleases of facilities, vehicles and trailers under separate agreements between the Company and SRI, including the SRI Equipment Leases and the SRI Office Leases further described in the following paragraphs in this Note
day-to-day
month-to-month
10
, as well as Notes 11
and 13. The term of the SRI Services Agreement will continue for a period of three months unless earlier terminated by the parties in accordance therewith, and it is contemplated that an aggregate of $26,042 will be paid by the Company to SRI in consideration of the services rendered under the SRI Services Agreement. Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, serves as an executive officer and a member of the board of directors of SRI.The Company has entered into lease agreements with SRI (the “SRI Equipment Leases”), pursuant to which the Company leases equipment used in connection with the operation of its business. The SRI Equipment Leases provide for the leasing of 2vehicles that commenced on January 1, 2020 and the combined rent under such leases is $3,880
per month, and a separate SRI Equipment Lease provides for a trailer lease that commenced on December 1, 2019, under which the rent is $3,891 per month. The total monthly payment obligations of the Company under the SRI Equipment Leases is $7,771.
EVTDS has entered into a cancelablelease with SRI (the “SRI Office Lease”), pursuant to which EVTDS has leased office and warehouse space in the Porterville, California area for a term that commenced on January 1, 2020. The monthly rent under the SRI Office Lease is $910.
month-to-month
In addition to the SRI Services Agreement, the SRI Equipment Leases, and the SRI Office Lease, during the three months ended June 30, 2021, the Company purchased a heavy-duty
pick-up
truck and a trailer from SRI for $81,293. The Company intends to use such equipment to transport its electric vehicles to and from customer demonstration sites and to and from equipment outfitters when the vehicles have custom bodies and accessories added for specific customers.The Company has entered into a commercial lease agreement (the “ABCI Office Lease”) with Alpha Bravo Charlie, Inc. (“ABCI”) that commenced on April 1, 2020, for the lease of office space in Porterville, California. The monthly rent for this facility is $2,800. See
Notes 11 and 13
. Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, is a director of ABCI.During the three months ended June 30, 2021, the Company purchased 2 used automobiles from Mr. Oldridge for an aggregate purchase price of $33,250. The Company purchased such vehicles from Mr. Oldridge for use by the Company’s employees for sales calls and other business purposes and are housed at the Company’s Corona, California, corporate
offices.
80
In connection with the closing of the Merger in March 2021, the Company purchased 2 electric trucks from Mr. Oldridge for an aggregate purchase price of $128,000. The purchase price for such vehicles was paid in full to Mr. Oldridge during the three months ended June 30, 2021.
Prior to the closing of the Merger, Mr. Oldridge had permitted the vehicles to be used by the Company as customer demonstration vehicles for no cost. The purchase price of $64,000 per vehicle was less than the purchase price of $83,000 per vehicle that ADOMANI, Inc. had paid to EVTDS for similar vehicles in prior transactions. One of the vehicles purchased by the Company was subsequently sold to a customer of the Company in March 2021 and the second truck remains in the Company’s inventory at December 31, 2021.
1
1
. CommitmentsOperating Leases
The Company has entered into the SRI Equipment Leases (see Note2017.
10
). Rent expense under the SRI Equipment Leases for the year ended December 31, On June 9, 2017, the Company consummated the final closing of the IPO, as discussed in Note 2 above. The Company sold an aggregate of 2,852,275 shares of Common Stock, of which 342,273 shares were sold on behalf of certain stockholders of the Company who elected to participate in the IPO,2021 was $93,247, and was $99,247 for aggregate gross proceeds of $14,261,375. Net proceeds received after deducting commissions, expenses and fees of approximately $2.5 million and the $1,711,365 proceeds remitted to selling shareholders for the sale of their shares, amounted to approximately $10.0 million. As such, the Company issued and sold an aggregate of 2,510,002 shares of Common Stock in connection with the IPO, excluding the shares sold by the selling stockholders. In connection with the final closing of the IPO on June 9, 2017, the Company issued an additional 250,000 shares of Common Stock, valued at $1,250,000 under the terms of a consulting agreement. Under the terms of the underwriting agreement executed in connection with the IPO, the Company issued to Boustead Securities, LLC a warrant to purchase 199,659 shares of Common Stock. The warrant to purchase 199,659 shares of Common Stock was valued using the Black Scholes method resulting in a fair market value of $680,543. The assumptions used in the valuation included the term of 5 years, the exercise price of $6.00 per share, volatility of 92% and a risk-free interest rate of 1.75%. The fair value of the warrant was recorded as offering costs and netted against additional paid in capital during the year ended December 31, 2017.
During 2016, the Company issued 206,400 shares of its common stock to third party investors for net proceeds of $188,000 and issued 98,000 shares as payment for services valued at $98,000. 86,500 of these shares were issued to the Company’s CFO. The CFO also purchased 10,000 shares from Acaccia.
In 2012, one of our shareholders advanced the sum of $64,000 for the anticipated purchase of 32,000,000 shares of common stock by one of the Company’s Officers and Directors with the condition that the Officer/Director either pay the Company $64,000 for the shares in which case the $64,000 advanced by the shareholder would be returned to the shareholder by the Company; or the Officer/Director reimburse the shareholder for the $64,000 so advanced. The conditional action by the Officer/Director never occurred and the shareholder rescinded the $64,000 advanced and requested that the Company return the $64,000 so advanced by him. On May 4, 2016, the Board of Directors of the Company approved the rescission and the return of the $64,000 plus statutory interest to the shareholder and to cancel the proposed issuance of the 32,000,000 shares.
On July 8, 2016, the Board of Directors approved a modification to the May 2016 rescission agreement such that 5,000,000 shares were returned to the shareholder, who in turn repaid the Company the pro-rata amount of the payment he received in May. The shareholder subsequently sold the 5,000,000 shares to the CEO at his cost, which was substantially less than the market value. As a result, $4,990,000 was recorded as stock-based compensation in July 2016.
During 2015, the Company issued 2,659,000 shares of its common stock to third party investors for proceeds of $1,982,000. Included in that amount, as part of its compensation strategy, the Company issued 500,000 shares of its Common Stock to its CEO at below fair market value. See Note 9.
As of December 31, 2017, theThe Company has issued warrants to purchase 1,799,659 shares of Common Stock, consisting of a warrant to purchase 199,659 shares of Common Stock with a measurement price of $5.00 and an exercise price of $6.00, a warrant to purchase 350,000 shares of Common Stock with a measurement price of $5.00 and an exercise price of $5.00, and a warrant to purchase 1,250,000 shares of Common Stock with a measurement price of $1.00 and an exercise price of $4.00.
The Company’s stock warrant activityentered into the SRI Office Lease (see Note
10
). Rent expense under the SRI Office Lease for| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Average | Remaining | |||||||||||
| Number of Shares | Exercise Price | Contractual Life (years) | ||||||||||
| Outstanding at December 31, 2014 | - | $ | - | |||||||||
| Granted | 1,250,000 | 4.00 | ||||||||||
| Forfeited | - | - | ||||||||||
| Outstanding at December 31, 2015 | 1,250,000 | $ | 4.00 | |||||||||
| Granted | - | - | ||||||||||
| Forfeited | - | - | ||||||||||
| Outstanding at December 31, 2016 | 1,250,000 | $ | 4.00 | |||||||||
| Granted | 549,659 | 5.36 | ||||||||||
| Forfeited | - | |||||||||||
| Outstanding at December 31, 2017 | 1,799,659 | $ | 4.42 | 3.87 | ||||||||
| Exercisable at December 31, 2017 | 1,799,659 | $ | 4.42 | 3.87 | ||||||||
As of December 31, 2017, the outstanding warrants have an intrinsic value of approximately $500,000.
In March 2017, Dennis Di Ricco surrendered his options to purchase up to 7,000,000 shares of Common Stock for forfeiture or cancellation.
In March 2017, the board of directors of the Company (the “Board”) consented to the grant of options to purchase an aggregate of 3,600,000 shares of Common Stock to 13 people (employees and current Board members). The options vest over a three-year period, and the exercise price was determined based on the average of the trading price of the Company’s Common Stock on the Nasdaq Capital Market for the first ten days following the close of its IPO, which was $10.49. The options were valued using the Black Scholes method, resulting in a fair market value of $37.6 million. The assumptions used in the valuation included an expected term of 4.75 years; volatility of 86% and a risk-free interest rate of 2.02%.
In 2016, as discussed above, the 5,000,000 shares purchased by the CEO from the shareholder required the Company to recognize $4,990,000 stock-based compensation.
During 2015, as part of its compensation strategy, the Company issued 500,000 shares of its Common Stock with a fair value of $500,000 to its CEO in exchange for cash of $1,000. As the shares were fully vested at the issuance date, the Company immediately recognized stock-based compensation of $499,000.
Stock option activity for the years ended December 31, 2017, 2016, and 2015 is as follows:
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Average | Remaining | |||||||||||
| Number of Shares | Exercise Price | Contractual Life (years) | ||||||||||
| Outstanding at December 31, 2014 | 33,500,000 | $ | 0.10 | |||||||||
| Granted | 275,000 | 0.10 | ||||||||||
| Forfeited | - | - | ||||||||||
| Outstanding at December 31, 2015 | 33,775,000 | $ | 0.10 | |||||||||
| Granted | - | - | ||||||||||
| Forfeited | - | - | ||||||||||
| Outstanding at December 31, 2016 | 33,775,000 | $ | 0.10 | |||||||||
| Granted | 3,600,000 | 10.49 | ||||||||||
| Forfeited | (7,000,000 | ) | ||||||||||
| Outstanding at December 31, 2017 | 30,375,000 | $ | 1.33 | 4.0 | ||||||||
| Exercisable at December 31, 2017 | 24,396,007 | $ | 0.51 | 3.6 | ||||||||
Stock-based compensation expense was $15 million, $7.6 million, and $3 million for the years ended December 31, 2017, 2016, and 2015, respectively, and is included in general and administrative expense in the accompanying consolidated statements of operations. For the year ended December 31, 2017, this expense includes an adjustment due to2021 was $24,711, and was $10,920 for the remeasurement of the fair market value of non-employee stock options, in accordance with ASC 505. ASC 505 requires a remeasurement of the fair market value of non-employee stock options at each interim vesting period, based on the Company’s stock price on the interim vesting date, and the related stock-based compensation expense is adjusted accordingly at each balance sheet date. As ofyear ended December 31, 2017,2020, respectively.
The Company has entered into the Company expects to recognize $39.1 million of stock-based compensationABCI Office Lease (see Notenon-vested outstanding options over a weighted-average period of 2.09 years.
10
). Rent expense under the ABCI Office Lease for the As ofyear ended December 31, 2017,2021 was $30,800, and was $25,200 for the outstanding options have an intrinsic value of approximately $115.1 million.
|
Employment Agreements—Effective September 1, 2014, the Company executed an employment agreement with James Reynolds, its Chief Executive Officer. The term of the employment agreement is 5 years, and the agreement provides for an annual base salary of $240,000 and entitles Mr. Reynolds to receive a bonus of five percent of the Company’s net profits on an annual basis.
Effective September 1, 2014, the Company executed an employment agreement with Edward Monfort, its now former Chief Technology Officer. The term of the employment agreement was 5 years, and the agreement provided for an annual base salary of $240,000 and entitled Mr. Monfort to receive a bonus of five percent of the Company’s net profits. In June 2016, Mr. Monfort entered into a new employment agreement with a two-year term, which superseded the 2014 employment agreement, pursuant to which his salary was reduced to $120,000 per annum. Additionally, the Company pays up to $7,000 per month to ELO, LLC, an entity owned by Mr. Monfort, for invoiced expenses relating to research and development pursuant to a consulting relationship, as well as up to $3,000 per month for services to another consultant selected by Mr. Monfort. Mr. Monfort’s employment agreement was terminated by the Company, effective March 6, 2018.
Effective January 1, 2017, the Company entered into an employment agreement with Michael Menerey, its Chief Financial Officer. The term of the employment agreement is five years and the agreement provides for an annual base salary of $200,000.
Operating Leases—In 2015, the Company signed an office and warehouse lease agreement for a facility in Orange, California, to serve as its primary facility for research and development activity. The initial term of the lease expired on February 29, 2016, at which time the Company extended the lease for two additional years, until February 28, 2018. The total amount due annually under the lease was $44,856. This lease was terminated, effective August 15, 2017 and, because of the early termination, required the refundable deposit, in the amount of $3,524, to be forfeited.
The Company signed a one-year office lease for office space in Newport Beach, California, to serve as office space for its headquarters. The initial term of the lease expired onyear ended December 31, 2016, at which time the Company extended the lease on a month-to-month basis. The total amount due monthly was approximately $3,400. This lease was terminated, effective September 30,2020.
In February 2017, due to signing a lease for office space in Corona, California.basis and can be terminated by either party with 30-days
In 2016, the Company signed a lease for office space in Los Altos, California, to serve as office space for its Northern California operations. The lease expired February 28, 2017 and the Company executed a new one-year lease in February 2017. The total amount due under the lease is $5,200 and the lease period is from March 1, 2017 through February 28, 2018.
In 2017, the Company signed a lease for storage space in Phoenix, Arizona to serve as a location to store vehicles and other equipment utilized for marketing and trade-show purposes. The lease is on a month-to-month basis and can be terminated by either party with 30-days notice. The total due monthly is $500.
In 2017, the CompanyADOMANI, Inc. signed a lease for storage space in Stockton, California to serve as a location to store vehicles and other equipment utilized for marketing and trade-show purposes. The lease is on a
month-to-month
30-days’
notice. The total amount due monthly is $1,000.In October 2017, the CompanyADOMANI, Inc. signed aiswas for a period of 65 months, terminating February 28, 2023. The base rent for the term of the lease iswas $568,912. The lease contains a rent escalation provision that begins attotal amount due monthly is $7,600 per month at commencement and becomeswould have escalated to $10,560 per month by its conclusion.
non-cancellable
lease for its former corporate office space in Corona, California, to serve as its corporate headquarters. The lease conclusion had ADOMANI, Inc. remained a tenant. In 2017,November 2020, ADOMANI, Inc. vacated this space following staff reductions and moved remaining staff into the space discussed in the following paragraph. The Company ceased paying the rent on this facility after October 2020, but the expense was accrued. Two of the four suites covered by this lease were
re-leased
by the building management in March and April 2021, ending the Company’s obligation on those two suites. In June 2021, the landlord advised the Company that the remaining two suites werere-leased
with a commencement date of September 1, 2021. On July 2, 2021, a resolution was reached with the landlord, whereby the parties mutually agreed to terminate the lease as of July 31, 2021 and the Company would be released from all obligations under the lease, in consideration of the Company’s agreement to pay the landlord an amount equal to $60,630, representing the aggregate amount then owed to the landlord under the lease net of the Company’s $11,616 security deposit retained by the landlord, which amount was paid in full on July 2, 2021. See Note 13.In December 2019, ADOMANI, Inc. signed a lease for two copiers forcombined office space and warehouse location in Corona, California. The facility had been used to conduct research and development activity, stage materials, assemble and/or manufacture vehicles, performoffices.office space in Corona, California, and made such facility the new corporate office location in addition to its prior use. The lease is for a period of 2436 months, commencing on January 1, 2020, and terminating September 30, 2019.on December 31, 2022. The totalbase rent for the term of the lease was $495,720, with $265 due per
pre-delivery
inspections, test demo vehicles, and securely store vehicles, equipment, parts and finished goods vehicle inventories prior to November 2020 when ADOMANI, Inc. vacated its former corporate 81
month for fire sprinkler alarm monitoring and landscape maintenance. The base rent amount due monthly is $380.
Other Agreements—In 2015,was $13,108 at commencement and will escalate to $13,906 by its conclusion. See Note 1
4
.On February 4, 2020, ADOMANI, Inc. signed a sublease agreement with Masters Transportation, Inc. (“Masters”) for Masters to occupy a portion of the Corona, California, facility that the Company entered into a contract with THINKP3 to provide services with the goal of securing federal grant assistance for developmentoccupied effective January 1, 2020 (see above). The effective date of the Masters’ sublease was February 1, 2020, and it expires when the Company’s zero-emission and hybrid transportation solutions for school bus, commercial, government and utility fleets. The initial term of this contract waslease on the Corona, California facility expires on December 1, 2015 through November 30, 2016. On November 21, 2016,31, 2022. Under the parties renewed the agreement through November 30, 2017. On November 7, 2017, the agreement was renewed through November 30, 2018. Fees for these services are $8,000 per month. The contract can be terminated by either party with 30-days advance notice.
In March 2015,sublease, Masters is obligated to pay the Company signed a licensing option agreement with Silicon Turbines Systems, Inc.monthly rent payments in an amount equal to $6,000 at commencement and thereafter escalating to $6,365 by its conclusion. See Note 1
4
.The Company’s total net rent expense for use of its patent in manufacturing. The option calls for a payment of $10,000 per month, beginning March 1, 2015, up to a full investment amount of $3,000,000. The agreement provided that the original option would terminate on August 31, 2015, but the parties agreed verbally to both extend the date of termination of the option and delay the Company’s obligation to make any additional monthly payments under the option agreement while both companies evaluate the relationship. As a result, no payments were made in 2017. For the year ended December 31, 2016,2021 was $252,546, respectively. The total net rent expense for the Company made one $10,000 payment. In Septemberyear ended December 31, 2020 was $154,425
.
Other Agreements
Effective January 1, 2017, the Company determined they no longer desiredentered into an employment agreement with Michael Menerey, its Chief Financial Officer. The term of the employment agreement was five years and the agreement provides for an initial annual base salary of $200,000. Effective January 1, 2020, Mr. Menerey’s annual base salary was increased to continue this relationship. Therefore, effective September 30, 2017, the $120,000 investment was written off.
In 2016,$215,000. On November 1, 2020, Mr. Menerey agreed to reduce his compensation to $150,000 indefinitely. Mr. Menerey retired on January 2, 2022.
On December 31, 2021, the Company signed an advisor agreemententered into employment agreements with Dennis Di Ricco, formerly a related partyPhillip W. Oldridge (the “Oldridge Agreement”), its Chief Executive Officer, and stockholder, pursuant to which Mr. Di Ricco would provide consulting serviceswith Susan M. Emry (the “Emry Agreement”), its Executive Vice President. According to the Company. InOldridge Agreement, effective as of March 2017,1, 2021, Mr. Oldridge will receive an annual base salary of $300,000, payable in semi-monthly installments consistent with the Company’s payroll practices. Mr. Oldridge will also receive participation in medical insurance, dental insurance, and the Company’s other benefit plans. Under the Oldridge Agreement, Mr. Oldridge will also receive an amount equal to five percent of the net income of the Company on an annual basis and will be eligible for a bonus at the sole discretion of the Company’s Board of Directors (the “Board”). The Oldridge Agreement also provides for an automobile monthly allowance of $1,500. Mr. Oldridge’s employment shall continue until terminated this agreement (see Note 9).in accordance with the Oldridge Agreement. If Mr. Oldridge is terminated without cause or if he terminates his employment for good reason, Mr. Oldridge will be entitled to receive
(i) one-yearof base salary, (ii) reimbursement of reimbursable expenses in accordance with the Oldridge Agreement, (iii) any bonus that would have been payable within the twelve months following the date of termination, and (iv) the value of any accrued and unused paid time off as of the date of termination. According to the Emry Agreement, effective on January 1, 2022, Mrs. Emry will receive an annual base salary of $200,000 and will be eligible for a bonus at the sole discretion of the Board. Mrs. Emry will also receive participation in medical insurance, dental insurance, and the Company’s other benefit plans. Mrs. Emry’s employment shall continue until terminated in accordance with the Emry Agreement. If Mrs. Emry is terminated without cause or if she terminates her employment for good reason, Mrs. Emry will be entitled to receive
(i) one-year
of base salary, (ii) reimbursement of reimbursable expenses in accordance withthe
Emry Agreement, and (iii) the value of any accrued and unused paid time off as of the date of termination.The following table summarizes ourthe Company’s future minimum payments under contractual commitments, excluding debt, as of December 31, 2017:
| Payments due by period | ||||||||||||||||||||
| Total | Less than one year | 1 - 3 years | 4 - 5 years | More than 5 years | ||||||||||||||||
| Operating lease obligations | 570,238 | 74,626 | 350,364 | 145,248 | - | |||||||||||||||
| Employment contracts | 1,241,846 | 481,846 | 760,000 | - | - | |||||||||||||||
| Total | 1,812,084 | 556,472 | 1,110,364 | 145,248 | - | |||||||||||||||
| Payments due by period | ||||||||||||||||||||
| Total | Less than one year | 1 - 3 years | 4 - 5 years | More than 5 years | ||||||||||||||||
| Operating lease obligations | $ | 46,173 | $ | 46,173 | $ | — | $ | — | $ | — | ||||||||||
| Employment contracts | 2,500,000 | 500,000 | 1,500,000 | 500,0000 | — | |||||||||||||||
| Total | $ | 2,546,173 | $ | 546,173 | $ | 1,500,000 | $ | 500,000 | $ | — | ||||||||||
8
2
1
2
. ContingenciesExcept as set forth below, we know of no material, existing or pending, legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.
On December 17, 2019, GreenPower Motor Company Inc., a public company incorporated under the laws of British Columbia (“GreenPower”), of which Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, previously served as a senior officer and a member of its board of directors, filed a notice of civil claim, captioned GreenPower Motor Company Inc. v. Phillip Oldridge et al., Action No.
S-1914285,
in the Supreme Court of British Columbia, against Phillip Oldridge, his trust, EVTDS and certain other companies affiliated therewith. The notice of civil claim alleges that Mr. Oldridge breached certain fiduciary duties owed to GreenPower by working with certain parties in direct competition with and at the expense of GreenPower. GreenPower alleges that the Company conspired with Mr. Oldridge to build its business, competing products and unfairly compete with GreenPower. GreenPower seeks general damages, special damages and punitive damages, plus interest and costs against EVTDS. On February 2, 2020, the Company and the other companies affiliated therewith named in the notice of civil claim filed a response to the civil claim in which they denied certain of the allegations and asserted that certain other facts were outside of their knowledge. Fact discovery, through document disclosure and examinations for discoveries, in this matter remain ongoing. We believe that the lawsuit is without merit and intend to vigorously defend the action.On or about July 18, 2021, GreenPower and GP Greenpower Industries Inc., (collectively “the GreenPower entities”) filed a counterclaim against David Oldridge, Phillip Oldridge, the Company and other companies in Supreme Court of British Columbia Action No. S207532. The counterclaim alleges that David Oldridge, Phillip Oldridge, the Company and other companies committed the tort of abuse of process by causing 42 Design Works Inc., to commence a lawsuit against the GreenPower entities. Additionally, GreenPower entities also advanced claims against David Oldridge, Phillip Oldridge, the Company and other companies for conspiracy. The pleadings in this lawsuit have not closed and we intend to vigorously defend the counterclaim.
On February 8, 2022, GreenPower Motor Company, Inc., a Delaware Corporation, and GreenPower Motor Company Inc., a Canadian Corporation , filed a complaint captioned GreenPower Motor Company, Inc. v. Philip Oldridge, et al., Case No. 5:22-cv-00252 in the United States District Court for the Central District of California. The complaint names the Company and the following affiliated entities, officers, or directors: Phillip Oldridge, Envirotech Electric Vehicles Inc., Envirotech Drive Systems Incorporated US, Envirotech Drive Systems Incorporated Canada, Sue Emry, David Oldridge, S&P Financial and Corporate Services, Inc. GreenPower also named the Philip Oldridge Trust and a purported entity called EVT Motors, Inc., but has since dismissed those parties. The complaint alleges (i) RICO violations, (ii) conspiracy to commit RICO violations, (iii) breach of fiduciary duties, (iv) breach of an employment contract, (v) conversion of GreenPower property, (vi) violation of the Defend Trade Secrets Act, and (vii) violations of California’s Business and Profession Code. The complaint seeks an undisclosed amount of compensatory and punitive damages, injunctive relief to prevent the alleged anti-Competitive behavior, restitution for harm, an award of treble damages, and associate fees and costs. The complaint’s allegations are centered around the same assertions in the pending Canadian litigation.
The Company has been served and its response to the Complaint is due May 10, 2022. We believe that the lawsuit is without merit and intend to vigorously defend the action.
On August 23, 2018, a purported class action lawsuit captioned M.D. Ariful Mollik v. ADOMANI, Inc. et al., Case No. RIC 1817493, was filed in the Superior Court of the State of California for the County of Riverside against us, certain of our executive officers, Edward R. Monfort, the former Chief Technology Officer and a former director of ADOMANI, Inc., and the two underwriters of our offering of common stock under Regulation
83
A in June 2017. This complaint alleges that documents related to our offering of common stock under Regulation A in June 2017 contained materially false and misleading statements and that all defendants violated Section 12(a)(2) of the Securities Act, and that we and the individual defendants violated Section 15 of the Securities Act, in connection therewith. The plaintiff seeks on behalf of himself and all class members: (i) certification of a class under California substantive law and procedure; (ii) compensatory damages and interest in an amount to be proven at trial; (iii) reasonable costs and expenses incurred in this action, including counsel fees and expert fees; (iv) awarding of rescission or rescissionary damages; and (v) equitable relief at the discretion of the court. Plaintiff’s counsel has subsequently filed a first amended complaint, a second amended complaint, a third amended complaint, and a fourth amended complaint. Plaintiff Mollik was replaced by putative class representatives Alan K. Brooks and Electric Drivetrains, LLC. Alan K. Brooks was subsequently dropped as a putative class representative. On October 27, 2020, we answered the fourth amended complaint, generally denying the allegations and asserting affirmative defenses. On November 5, 2019, Network 1 and Boustead Securities (together the “Underwriters”) filed a cross-complaint against the Company seeking indemnification under the terms of the underwriting agreement the Company and the Underwriters entered for the Company’s initial public offering (the “Underwriting Agreement”). On December 10, 2019, the Company filed its answer to the Underwriters’ cross-complaint, generally denying the allegations and asserting affirmative defenses. Also on this date, the Company filed a cross-complaint against the Underwriters seeking indemnification under the terms of the Underwriting Agreement. On January 14, 2020, Mr. Monfort filed a cross-complaint against the Underwriters seeking indemnification under the terms of the Underwriting Agreement. On January 15, 2020, Mr. Monfort filed a cross-complaint against the Company seeking indemnification under the terms of the Company’s Amended and Restated Bylaws and Section 145 of the Delaware General Corporation Law. On February 18, 2020, we filed an answer to Mr. Monfort’s cross-complaint, generally denying the allegations and asserting affirmative defenses.
On March 2, 2021, Electric Drivetrains filed its motion for class certification. On March 17, 2021, the court held a case management conference. At the case management conference, the court set a tentative schedule for class discovery and briefing on the motion for class certification. On June 2, 2021, Electric Drivetrains and ADOMANI filed a stipulation extending the deadline for class certification discovery proposing the following deadlines: close of class discovery on September 28, 2021; defendants’ opposition to the motion for class certification due on October 28, 2021; plaintiff’s reply in support of its motion due on November 29, 2021; a case management conference on December 13, 2021 to set a date for hearing on the merits of the motion for class certification. Electric Drivetrains settled its claims against Mr. Monfort. The Underwriters have reached settlements with Electric Drivetrains on the primary claims in this matter. All defendants are maintaining their cross claims against each other. On July 13, 2021, Electric Drivetrains’ counsel moved to be relieved as counsel and on August 23, 2021, the court granted this motion. Also on August 23, 2021, the Clerk of Court issued an order to show cause why the complaint should not be stricken and matter dismissed for failure to retain new counsel to Electric Drivetrains. On October 28, 2021, Electric Drivetrains filed a substitution of attorney, substituting J. Ryan Gustafson of Good Gustafson Aumais LLP as its new counsel. On December 10, 2021, the Court vacated the order to show cause. On January 20, 2022, Mr. Monfort dismissed his cross-complaint for indemnification against the Company. On March 28, 2022, Electric Drivetains forwarded its proposed Fifth Amended Complaint, in which it: i) drops certain class allegations; ii) adds certain state law claims (various violations of California Corporations Code), aider and abettor liability, and negligent misrepresentation, but leaves the remaining claims against defendants intact. Electric Drivetrains LLC has until April 11, 2022 to determine whether it will stipulate to the filing of the amended complaint. A status conference is scheduled for June 16, 2022. We believe that the lawsuit is without merit and intend to vigorously defend the action.
On January 20, 2022, Mr. Monfort dismissed his cross-complaint for indemnification against the Company in the Mollik action. On April 8, 2022, the Company and Boustead Securities, LLC (“Boustead”) settled their respective cross-claims against each other in both the Mollik action and Brooks action (see below) in exchange for the Company paying fifty thousand dollars ($50,000) in cash and $125,000 (one hundred twenty five thousand dollars) in stock and mutual releases between parties. There are no longer any cross claims pending in the Mollik action.
84
On June 19, 2019, Alan K. Brooks, an ADOMANI investor, filed a complaint, captioned Alan K. Brooks v. ADOMANI, Inc., et al., Case No. 1-CV-349153 in the Superior Court of California for the County of Santa Clara, against the Company, certain of the Company’s executive officers and directors, two of the underwriters of the Company’s offering of common stock under Regulation A in June 2017, and certain of the underwriters’ personnel, among others. The complaint alleges that the Company and other defendants breached the terms of an agreement between Mr. Brooks and the Company by refusing to
of ADOMANI, Inc. stock to Mr. Brooks. Mr. Brooks seeks
interest and attorney’s fees. On September 20, 2019, Mr. Brooks filed his first amended complaint (“FAC”) reasserting his breach of contract claim and alleging five additional claims for (i) violations of Cal. Corp. Code Section 25401, (ii) fraud, (iii) negligent misrepresentation, (iv) elder abuse, and (v) unfair competition. We answered the FAC on November 12, 2019, generally denying the allegations in the FAC and asserting affirmative defenses. Fact discovery in this matter remains ongoing. On August 10, 2021, we filed a motion for summary judgement and dismissal of plaintiff’s FAC. The parties participated in two days of mediation with Mark LeHocky. Mr. LeHocky provided the parties with a mediator’s proposal. Both parties accepted the proposal and reduced the proposal to a written settlement agreement. Pursuant to the settlement agreement, the Company has agreed to pay plaintiffs
cash and
shares of common stock. In addition, the Company’s insurance carrier has agreed to pay plaintiffs
January 14, 2022, the parties filed a joint motion for an order approving the fairness of the terms of the settlement agreement. On March 7, 2022, the Court issued an Order approving the settlement and the parties are in the process of effectuating its
terms. On April 5, 2022, the Company and Boustead resolved Boustead’s cross claim for indemnification in the Brooks action. This settlement is still subject to court approval. There are no further claims pending in the Brooks action and, if and when the Court approves the settlement, it should be dismissed.
On February 3, 2020, the Company acquired substantially all the assets of Ebus in a foreclosure sale through a credit bid in the amount of $582,000, representing the amount then owed by Ebus to the Company evidenced by a secured promissory note. Following the Company’s successful credit bid at the foreclosure sale, Ebus’s obligations under the note were extinguished and the Company was entitled to take possession of substantially all of the assets of Ebus. While the Company was able to take possession of some of the assets, Ebus prevented the Company from taking possession of all of the assets purchased at the foreclosure sale. As a result, on April 13, 2020, the Company filed a complaint captioned ADOMANI, Inc. v. Ebus, Inc., et al., in the Superior Court of California for the County of Los Angeles, Case No. 20ST CV 14275, against Ebus and certain of its insiders and affiliates seeking to recover the remainder of the assets and related damages. On January 14, 2021, a cross- complaint was filed against the Company by Ebus, Inc. and Anders B. Eklov for Unjust Enrichment and Conversion of Domain Name, seeking monetary damages and injunctive relief. A settlement agreement was entered into on March 15, 2022.
1
3
. LeasesAs of December 31, 2017,2021, the Company is a party to fivenine operating leases. Four ofNaNof these leases are office or warehouse leases; the remaining 5are equipment leases and the fourth is an equipment lease (See(see Note 10)1early adoptedaccounts for leases as required by ASC 842 to our existing leases.Topic 842. The Company has elected to apply the short-term lease exception to all leases of one year or less. As such, we appliedof December 31, 2021, this exception applies to the six EVTDS leases and to the ADOMANI Inc. Stockton, California lease, which are allIn applying the guidance in ASC 842, to our corporate office and equipment leases and havethe Company has determined that theseall current leases should be classified as operating leases. Consequently, as
1
). As disclosed in Note 2, the Company month-to-month.
As a result of applying the adoptionguidance of ASC 842 weto its former corporate office lease (see Note 10) entered into in 2017, the Company recognized an operating liability of $377,129 with a corresponding(“ROU”) asset of the same amounts based on the present value of the minimum rental payments of such leases.lease. As of March 15, 2021, that balance was $131,622. As of June 30, 2021, the ROU asset and related liability accounts were written off against each other due to the settlement of the outstanding amounts discussed in
Right-Of-Use
Note 11.
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During the year ended December 31, 2020, the Company entered into an operating lease for warehouse space in Corona, California (see Note 10). As required by ASC 842, in conjunction with this lease, the Company recognized an operating liability with a corresponding2017, this exception applies to2021, the Phoenix, AZ and Stockton, CA leases, which are month-to-month, and the Los Altos, CACompany’s warehouse operating lease which is forhad a weighted-average remaining lease term of one 1.0
Right-Of-Use
(“ROU”) asset of the same amounts based on the present value of the minimum rental payments of such lease. As of March 15, 2021, the ROU asset had a balance of $
238,365. As of December 31, 2017,2021, the ROU asset hashad a balance of $359,504$
133,672, which is included in other
non-current
assets in the consolidated balance sheets and current liabilities and non-currentsheet. Current liabilities relating to the ROU asset, were $70,492, and $289,012, respectively which are included in accrued liabilities andin the consolidated balance sheet, were $
131,245at December 31,2021.
Non-current
liabilities relating to the ROU asset, which are included in other
non-current
liabilities in the consolidated balance sheets, respectively. The discount rate used for leases accounted under ASC 842 is the Company’s estimated borrowing ratesheet, were $
2,427as of 14%. The corporate office lease provides for one three-year option to renew with nine months advanced notice to the landlord. The option to renew the corporate office lease was not considered when assessing the value of the ROU asset because the Company was not reasonably certain that it will assert its option to renew the lease.
As of December 31, December 31, 2021.
year.
See Note 1
1
.
Quantitative information regarding the Company’s leases is as follows:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Lease Cost | ||||||||||||
| Operating lease cost | $ | 27,397 | $ | 77,375 | $ | 62,250 | ||||||
| Short-term lease cost | 107,575 | - | - | |||||||||
| Total lease cost | $ | 134,972 | $ | 77,375 | $ | 62,250 | ||||||
| Other Information | ||||||||||||
| Cash paid for the amounts included in the measurement of lease liabilities for operating leases: | ||||||||||||
| Operating cash flows | 8,740 | - | - | |||||||||
| Weighted-average remaining lease term (in years): | ||||||||||||
| Operating leases | 5.05 | N/A | N/A | |||||||||
| Weighted-average discount rate: | ||||||||||||
| Operating leases | 14 | % | N/A | N/A | ||||||||
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
Lease expenses | ||||||||
| Operating lease expenses | $ | 164,234 | $ | 0 | ||||
| Short-term lease expenses | $ | 88,312 | $ | 154,425 | ||||
| Total lease cost | $ | 252,546 | $ | 154,425 | ||||
| Other information | ||||||||
| Cash paid for the amounts included in the measurement of lease liabilities for operating leases: | ||||||||
| Operating cash flows | $ | 212,955 | $ | — | ||||
| Weighted-average remaining lease term (in years): | ||||||||
| Operating leases | 1.03 | — | ||||||
| Weighted-average discount rate: | ||||||||
| Operating leases | 14% | — | ||||||
14. Subsequent Events
On
January 9, 2018,7, 2022, the Company consummatedCompany’s Compensation Committee granted Phillip W. Oldridge, the closing of a follow-on offering. The Company sold an aggregate of 3,666,667 units for aggregate gross proceeds of $11,000,001. Each unit consists of one share of Common Stock and a warrantCompany’s CEO, options to purchase 1.5
3,000,000shares of Common Stockcommon stock at an exercise price of $4.50. Net proceeds received after deducting commissions, expenses$
0.10per share and feesoptions to purchase
1.000,000shares of common stock at an exercise price of $
0.12per share. The options vested immediately and expire on the
tenthanniversary of grant.
On January 7, 2022, the Company’s Compensation Committee granted Susan M. Emry, the Company’s Executive Vice President, options to purchase 2,000,000 shares of common stock at an exercise price of $0.10 per share and options to purchase 817,855 shares of common stock at an exercise price of $0.12 per share. The options vested immediately and expire on the tenth anniversary of grant.
On February 28, 2022, the Company’s Compensation Committee granted Christian S. Rodich, the Company’s Chief Financial Officer, options to purchase 55,249 shares of common stock at an exercise price of $0.181 per share and options to purchase 22,222 shares of common stock at an exercise price of $0.45 per share. The options vest ratably at 1/60
th
per month over five years and expire on the tenth anniversary of grant.On February 22, 2022, the Company announced Osceola, Arkansas as the site of itsmanufacturing facility and new corporate offices. The Company has purchased an approximately 580,000 square foot facility. The total cost of the project will require an estimated investment of more than $80 million over five years, and includes the cost of the building, equipment, and other costs. The company was incentivized by the Arkansas Economic Development Commission, the ADEC, which included future tax incentives with an estimated value of approximately $1.2 million amounted$27
state-of-the-art
million.
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On March 15, 2022, options to approximately $9.8 million. Underpurchase 1,000,000 shares of common stock were exercised by the termsformer President and CEO of the underwriting agreement executed in connection with the follow-on offering, the Company issued to Boustead Securities, LLC and to Roth Capital Partners, LLC warrants to purchase 256,667 sharesat a price of Common Stock. The warrants to purchase 256,667 shares of Common Stock were valued using the Black Scholes method$0.12 per share, resulting in a fair market valuepayment to the Company of $598,737. The assumptions used in the valuation included the term$120,000. Also on March 15, 2022, options to purchase an aggregate of five years, the500,000 shares of common stock with an exercise price of $3.75$0.45 per share volatilityand options to purchase an aggregate of 92.20%135,000 shares of common stock with an exercise price of $1.31 per share were forfeited by the former executive, as they were not exercised prior to their expiration on March 15, 2022.
Beginning April 1, 2022 the lease discussed above in Note 10 and a risk-free interest rate of 2.13%. The fair valueNote 12 for the Corona, CA office and warehouse facility was assigned to Masters (see Note 10) through the end of the warrants will be recorded as offering costs and netted against additional paid in capital during the three months ended Marchlease obligation at December 31, 2018.
On January 10, 2018, as a result of receiving the proceeds at the closing of our follow-on offering described above, all remaining outstanding principal on the 9% secured notes was repaid along2022. Masters’ sublease agreement with any accrued, but unpaid, interest (See Note 6).
By mutual consent, the Company agreed to extend the note to the unaffiliated third party in the zero-emissions technology industry untilwas also terminated on April 30, 2018 (see Notes 5 and 6). The extension was executed on January 12, 2018. In exchange for extending the maturity date, the borrower agreed to pay ADOMANI an extension fee of $25,000 due no later than the April 30, 2018 maturity date.
By mutual consent, the Company agreed to extend the note to the unaffiliated third party with engineering expertise in the electric bus technology industry until June 30, 2018 (see Note 5). The extension was executed in February 2018. In exchange for extending the maturity date, the borrower agreed to pay ADOMANI 11% interest for January 2018, which is the “default rate” under the existing note (“Applicable Rate plus 2%”), and an extension fee of $25,000 due no later than the June 30, 2018 maturity date.
In early March 2018, due to the termination of an executive officer, 15,000,000 options exercisable at $0.10 per share (14,150,602 vested), and 150,000 options exercisable at $10.49 per share (40,511 vested) were forfeited.
| Item 9. | Changes in and |
None.
Item | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules
13a-15(e)
and15d-15(e)
under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of the period covered by this Annual Report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures (a) were not effective to ensure that information that we are required to disclose in reports that we file or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.Management’s Report on Internal Control over Financial Reporting
This Annual Report does not include a report of management’s assessment regarding
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Section 404 of the Sarbanes- Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on the internal control over financial reporting. Once we are no longer either an “emerging growth company” or a smaller reporting company, such report must be attested to by our independent registered public accounting firm. The Sarbanes-Oxley Act also requires that our principal executive officer and principal financial officer conclude as to the effectiveness of our disclosure controls and procedures on a quarterly basis.
Based on such evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2021, our disclosure controls and procedures (a) were not effective to ensure that information that we are required to disclose in reports that we file or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In making such conclusion, our management determined that such deficiencies were determined to be material weaknesses that are primarily due to certain staff reductions and voluntary resignations we experienced beginning
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in the fourth quarter of 2020 and continuing through the date of this filing. During such periods and for all periods thereafter through the date of such determination, we increased our reliance on outsourced accounting help. As a result of such changes, our management concluded that we were unable to maintain the levels of segregation of duties during such periods at the levels of prior periods, and that such changes to our disclosure controls and procedures significantly affected our internal control over financial reporting during the year ended December 31, 2021.
Although we have yet to fully resolve such deficiencies as of the date of this prospectus, we have engaged, and continue to seek the assistance of additional, experienced accounting professionals with relevant expertise to supplement our efforts and mitigate the negative effects of the above-described deficiencies in the effectiveness of our disclosure controls and procedures.
If we fail to detect errors on a timely basis, our financial statements may be materially misstated and if we are unable to comply with the requirements of Section 404 of the Sarbanes Oxley Act, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, if and when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
This report does not include an attestation report of our independent registered public accounting firm dueregarding internal control over financial reporting. Management’s report was not subject to a transition period establishedattestation by our independent registered public accounting firm pursuant to exemptions available to issuers that arerules of the SEC for newly public companies.
non-accelerated
files or qualify as “emerging growth companies,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act.
Changes in Internal Control over Financial Reporting
There
Other than the material weakness described above, there were no changes in our internal control over financial reporting that occurred(as defined in Rules 13a15(f) and 15d-15(f) under the Exchange Act) during the fourthmost recent fiscal quarter of 2017covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. | Other Information |
None.
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Part III
Item |
None.
Part III
| DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
MANAGEMENT
The following table sets forth information regarding our executive officers and directors as of the date of this prospectus:
Name | Age | Position | ||
Executive Officers | ||||
Phillip W. Oldridge | 61 | Chief Executive Officer, Chairman of the Board and Director | ||
Christian S. Rodich | 47 | Chief Financial Officer | ||
Susan M. Emry | 45 | Executive Vice President and Director | ||
Directors | ||||
Melissa Barcellos (1)(2)(3) | 38 | Director | ||
Michael Di Pietro (1)(2)(3) | 66 | Director | ||
Bradley J. Dixon (2)(3) | 47 | Director | ||
Terri White Elk (1)(2) | 52 | Director |
| (1) | Member of our Audit Committee. |
| (2) | Member of our Compensation Committee. |
| (3) | Member of our Nominating and Corporate Governance Committee. |
Executive Officers
Phillip W. Oldridge, Chief Executive Officer, Chairman of the Board, and Director
Philip W. Oldridge has served as our Chief Executive Officer since September 2020 and as our Chairman of the Board and a director since March 2021. Prior to joining us, Mr. Oldridge was the founder and the Chief Executive Officer of GreenPower Motor Company, Inc., a publicly traded designer and manufacturer of passenger transit and shuttle buses, from November 2011 until June 2019, where he also served as a member of the board of directors from December 2012 until June 2019. From November 2006 until January 2010, Mr. Oldridge served as the Chief Executive Officer of Bus and Coach International, a manufacturer of busses and coaches. Before that, Mr. Oldridge was the Chief Executive Officer of Nevada Charter Inc., a bus and coach charter company, from October 1994 until December 2001. Mr. Oldridge holds a Master of Business Administration from Richmond, the American University in London, from which he also received a Bachelor of Science degree.
Christian S. Rodich, Chief Financial Officer
Christian S. Rodich has served as our Chief Financial Officer since January 31, 2022. Mr. Rodich has over 20 years of finance and accounting experience in a variety of industries. From January, 2014 through October, 2021, Mr. Rodich was employed by Masterbrand Cabinets, a provider of premier cabinetry; from January, 2014 through May 2015 as Director of Corporate Accounting and Compliance and from May 2015 through October 2021 as Senior Director Commercial (Channel) Finance. From October 2007 through December, 2013, Mr. Rodich was Director of Internal Audit-North America for Smith & Nephew, a portfolio medical technology business with global operations. He has prior experience as an Internal Audit Manager with Mueller Industries and as a
Level-2
System Support with Pfizer. Mr. Rodich is a licensed CPA in Tennessee, with experience as a Senior Internal Auditor at Thomas & Betts/Arthur Andsersen. Mr. Rodich holds a BS in Business administration as well as a Master of Accountancy degree from the University of Tennessee.Susan M. Emry, Executive Vice President, Interim Chief Financial Officer, and Director
Susan M. Emry has served as our Executive Vice President since December 2021 and as a Director since January 7, 2022. Ms. Emry has over 30 years of experience in the transportation, vehicle manufacturing and
89
financial industries. In April 2021, Ms. Emry was appointed to serve as the Company’s Controller. From 2017 until March 2021, Ms. Emry was a Director, and the President, Chief Financial Officer and Secretary, of Envirotech Drive Systems, Inc. until we acquired that company upon the closing of the Merger. In addition, from 2006 to 2020, Ms. Emry also served as Chief Financial Officer of Sardo Bus and Coach Upholstery, a company specializing in transit vehicle refurbishment. From 1992 to 2020, Ms. Emry held various roles of increasing responsibility with Michael Di Pietro, CPA, where she provided management advisory and tax preparation services primarily in theclient division.
high-net-worth
Non-Employee
DirectorsMelissa Barcellos, Director
Melissa Barcellos has served as a director since March 2021. Ms. Barcellos is the Manager of Economic Development of the City of Prince George, British Columbia, a position she has held since September 2015. She has also served as Principal and Benefit Auctioneer of Melissa Lynn Auctions in Prince George, British Columbia, since May 2011. From February 2013 through September 2015, Ms. Barcellos was an Economic Development Officer of Initiatives of the City of Prince George. Ms. Barcellos received a Bachelor of Commerce in Marketing and General Business from the University of Northern British Columbia, a Post Graduate Certificate in Economic Development from the University of Waterloo, and a Post Graduate Certificate in Real Property Valuation from the Sauder School of Business of the University of British Columbia.
Michael Di Pietro, Director
Michael Di Pietro has served as a director since March 2021. Mr. Di Pietro is the President of Michael DiPietro, CPA, Inc., a full-service public accounting firm he founded in 1991. Since July 2018, Mr. Di Pietro has served on the board of directors of Cathedral High School, a private, college preparatory Catholic
all-boys
school located in Los Angeles, California, where he is currently the chair of the finance committee. Mr. Di Pietro also previously served as a Director of Chino Commercial Bank, a community bank located in Chino, California, from April 2012 until April 2019. Mr. Di Pietro holds a Bachelor of Arts degree in Accounting from the University of South Florida, a Master of Arts in Accounting from the University of Notre Dame, and a Master of Divinity and Biblical Studies from Fuller Theological Seminary.Bradley J. Dixon, Director
Bradley J. Dixon has served as a director since April 2021. Mr. Dixon is a partner at the law firm Givens Pursley LLP, a position he has held since October 2015, and where he currently serves as a
co-chair
of the firm’s litigation group. Prior to joining Givens Pursley, Mr. Dixon was a partner at the law firm of Stoel Rives LLP from July 2005 to October 2015. Mr. Dixon holds a Bachelor of Science in Political Science from Boise State University and received his Juris Doctorate from Willamette University College of Law.Terri White Elk, Director
Terri White Elk has served as a director since March 2021. Ms. White Elk is a member of the Real Estate Investment Sales team at Keller Williams Realty SW in Las Vegas, Nevada, a position she has held since July 2003. Ms. White Elk also served as Operations Manager of Innovative Real Estate Strategies, a real estate and investment firm based in Las Vegas, Nevada, from July 2009 until May 2018, and was a Sales Executive at Legacy Partners Inc., a real estate development firm, from March 2005 until September 2008. Ms. White Elk received a Bachelor of Arts degree in Political Science from Arizona State University.
Board Composition and Filling Vacancies
Currently, our board of directors consists of six directors. The authorized number of directors may be changed only by resolution of our board of directors. Our amended and restated certificate of incorporation provides that our board of directors is divided into three classes, with each class holding office for a three-year
90
term. This classification of our board of directors may have the effect of delaying or preventing changes in control of our company or management. Each director serves until such director’s successor is duly elected and qualified or such director’s earlier resignation, death or removal. Our board of directors is responsible for our business and affairs and considers various matters that require its approval.
Our amended and restated bylaws provide that directors may be removed only for cause by the affirmative vote of the holders of a majority of the voting power of all the outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of our board of directors, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum.
Director Independence
Our board of directors has undertaken a review of the independence of each director. The OTCQX tier of the OTC Market, on which our common stock is quoted, does not have any director independence requirements. For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). Based on information provided by each director concerning his or her background, employment and affiliations, our board of directors has determined that Mr. Di Pietro and Mmes. Barcellos and White Elk do not have a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or responsibilities and that each of these directors is “independent” as that term is defined under the NASDAQ Listing Rules.
Board Leadership Structure and Board’s Role in Risk Oversight
The Chairman of our board of directors is Phillip W. Oldridge. The Chairman has authority, among other things, to preside over meetings of our board of directors and set the agenda for meetings of our board of directors. Accordingly, the Chairman has substantial ability to shape the work of our board of directors. Because of the addition of the independent members of our board of directors, we currently believe that separation of the roles of Chairman and Chief Executive Officer is not necessary to ensure appropriate oversight by of our board of directors of our business and affairs. However, no single leadership model is right for all companies and at all times. Our board of directors recognizes that depending on the circumstances, other leadership models, such as the appointment of a lead independent director, might be appropriate. Accordingly, of our board of directors may periodically review its leadership structure. In addition, of our board of directors will hold executive sessions in which only independent directors are present.
Our board of directors is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities and, either as a whole or through its committees, regularly liaises with management to assess and manage our major risk exposures, the potential impact of such risks on our business and the steps we should take to mitigate or manage such risks. Our board of directors’ risk oversight process complements and supplements management’s risk assessment and mitigation processes, which include reviews of strategic and operational planning, executive development and evaluation, regulatory and legal compliance, and financial reporting and internal controls. The risk oversight process also includes receiving reports from committees of our board of directors and members of senior management to enable our board of directors to understand our risk identification, management and mitigation strategies with respect to areas of potential material risk.
Our principal sources of risk fall into two categories: (1) financial and (2) product commercialization. The Audit Committee oversees management of financial risks and communications with our independent registered public accounting firm regarding our risk exposures and the actions management has taken to limit, monitor or control such exposures, and our board of directors regularly reviews information regarding our cash position, liquidity an operations, as well as the risks associated with each. Our board of directors also regularly reviews plans, results and potential risks related to our product development and commercialization efforts. Our
91
Compensation Committee is expected to oversee risk management as it relates to our compensation plans, policies and practices for all employees including executives and directors, particularly whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks, which could have a material adverse effect on us. Our Nominating and Corporate Governance Committee manages risks associated with the independence of the Board, corporate disclosure practices and potential conflicts of interest. While each of our committees is responsible for evaluating certain risks and overseeing the management of such risks, our entire board of directors is regularly informed about such risks and matters involving significant risk are considered by our board of directors as a whole.
Information Regarding Committees of the Board
Our board of directors has established three standing committees, an Audit Committee, a Compensation Committee and Nominating, and a Corporate Governance Committee, each of which operates under a charter that has been approved by our board of directors. We intend to appoint persons to our board of directors and its committees as required hereunderfrom time to time to satisfy the corporate governance requirements under the NASDAQ Listing Rules.
Audit Committee
Our Audit Committee currently consists of Mr. Di Pietro (Chairperson) and Mmes. Barcellos and White Elk. The Audit Committee operates under a written charter, which is incorporated hereinavailable on our website at www.evtvusa.com. Our board of directors has determined that Mr. Di Pietro is an “audit committee financial expert” as defined by reference to either a definitive proxy statement or an amendment to this Annual Report on Form 10-Kthe regulations promulgated by the SEC and within the meaning of the NASDAQ Listing Rules.
Our Audit Committee is responsible for, among other things:
appointing, compensating, retaining and overseeing our independent registered public accounting firm;
approving the audit andfiled within 120 daysperformed by our independent registered public accounting firm;
non-audit
services to be reviewing, with our independent registered public accounting firm, all critical accounting policies and procedures;
reviewing with management the adequacy and effectiveness of our internal control structure and procedures for financial reports;
reviewing and discussing with management and our independent registered public accounting firm our annual audited financial statements and any certification, report, opinion or review rendered by our independent registered public accounting firm;
reviewing and investigating conduct alleged to be in violation of our code of business conduct and ethics;
reviewing and approving related party transactions;
preparing the Audit Committee report required in our annual proxy statement; and
reviewing and evaluating, at least annually, its own performance and the adequacy of the committee charter.
The Audit Committee met as a committee three times during the fiscal year ended December 31, 2021.
Compensation Committee
Our Compensation Committee currently consists of Messrs. Di Pietro and Dixon, and Mmes. Barcellos and White Elk (Chairperson). The Compensation Committee operates under a written charter, which is available on our website at www.evtvusa.com.
92
Our Compensation Committee assists our board of directors in the discharge of its responsibilities relating to the compensation of our executive officers and is responsible for, among other things:
reviewing and approving corporate goals and objectives relevant to compensation of our Chief Executive Officer and other executive officers;
reviewing and approving the following compensation for our Chief Executive Officer and our other executive officers: salaries, bonuses, incentive compensation, equity awards, benefits and perquisites;
recommending the establishment and terms of our incentive compensation plans and equity compensation plans, and administering such plans;
recommending compensation programs for directors;
preparing disclosures regarding executive compensation and any related reports required by the rules of the SEC;
making and approving grants of options and other equity awards to all executive officers, directors and all other eligible individuals; and
reviewing and evaluating, at least annually, its own performance and the adequacy of the committee charter.
In carrying out these responsibilities, the Compensation Committee will review all components of executive compensation for consistency with our compensation philosophy and with the interests of our stockholders. The Compensation Committee met as a committee three times during the fiscal year ended December 31, 2021.
Compensation Committee Interlocks and Insider Participation
There are not currently, and during the fiscal year ended December 31, 2021, there were not any, interlocks of any of our executive officers or directors serving on the compensation committee or equivalent committee of another entity that has any director or executive officer serving on our Compensation Committee, any of our other committees, or our board of directors.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee currently consists of Mmes. Barcellos (Chairperson), White Elk, Mr. Di Pietro, and Mr. Dixon. The Nominating and Corporate Governance Committee operates under a written charter, which is available on our website at www.evtvusa.com.
Our Nominating and Corporate Governance Committee is responsible for, among other things:
determining criteria for selecting new directors, including desired skills, experience and attributes, and identifying and actively seeking individuals qualified to become directors;
evaluating and selecting, or recommending to our board of directors, nominees for each election of directors;
considering any nominations of director candidates validly made by our stockholders;
reviewing and making recommendations to our board of directors concerning qualifications, appointment and removal of committee members;
developing, recommending for approval by our board of directors, and reviewing on an ongoing basis the adequacy of, our corporate governance principles, including director qualification standards, director responsibilities, committee responsibilities, director access to management and independent advisors, director compensation, director orientation and continuing education, management succession and annual performance evaluation of our board of directors and its committees;
93
assisting our board of directors in developing criteria for the evaluation of the performance of our board of directors and its committees;
if requested by our board of directors, assisting it in its evaluation of the performance of our board of directors and each of its committees; and
reviewing and reassessing the adequacy of its charter.
The Nominating and Corporate Governance Committee identifies potential director candidates through a variety of sources, including recommendations made by members of our board of directors and members of our executive management. When appropriate, the Nominating and Corporate Governance Committee may retain a search firm to identify director candidates.
In evaluating potential director candidates, the Nominating and Corporate Governance Committee may take into consideration such factors and criteria as it deems appropriate in evaluating a candidate, including:
his or her knowledge, expertise, skills, integrity, diversity, judgment, business, leadership or other experience;
his or her reputation in the business community;
the interplay of the candidate’s experience with the experience of other members of our board of directors;
the availability of such candidate to perform all responsibilities that will be expected of them as a member of our board and any committees; and
the extent to which the candidate would be a desirable addition to our board of directors and any committees.
The Nominating and Corporate Governance Committee reviews and assesses at least annually the skills and characteristics of the members of our board of directors, as well as the composition of our board of directors as a whole. The Nominating and Corporate Governance Committee’s assessment includes a review of our directors’ respective independence qualifications, skills and experience in the context of the needs of our board of directors. Additionally, the Nominating and Corporate Governance Committee considers diversity of experience at policy-making levels in business and technology, and in areas that are relevant to our activities. While we do not have a specific policy regarding diversity, when considering the nomination of directors, the Nominating and Corporate Governance Committee considers the diversity of its directors and nominees in terms of knowledge, experience, background, skills, expertise and other demographic factors.
In assessing the composition of our board of directors, the Nominating and Corporate Governance Committee considers the current and anticipated needs of our board of directors, and seeks to maintain an appropriate balance of different business backgrounds, skills and expertise based on the nature and requirements of our business. In evaluating potential director candidates, the Nominating and Corporate Governance Committee considers all relevant information regarding such candidates, including the membership criteria stated above, and whether such candidates would meet the Nominating and Corporate Governance Committee’s objectives for the overall composition of our board of directors, as well as the candidates’ ability and willingness to devote adequate time to the related responsibilities. When appropriate, the Nominating and Corporate Governance Committee will recommend qualified candidates for nomination by our entire board of directors. The Nominating and Corporate Governance met as a committee two times during the fiscal year ended December 31, 2021.
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics, which outlines the principles of legal and ethical business conduct under which we do business. The code is applicable to all of our directors, officers and employees and is available on our website at www.evtvusa.com. We intend to disclose any amendments to our code of business conduct and ethics, or waivers of its requirements, on our website or in filings under the Exchange Act, to the extent required by applicable rules and exchange requirements.
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Board Leadership Structure and Board’s Role in Risk Oversight
The Chairman of our board of directors is Phillip W. Oldridge. The Chairman has authority, among other things, to preside over meetings of our board of directors and set the agenda for meetings of our board of directors. Accordingly, the Chairman has substantial ability to shape the work of our board of directors. Because of the addition of the independent members of our board of directors, we currently believe that separation of the roles of Chairman and Chief Executive Officer is not necessary to ensure appropriate oversight by of our board of directors of our business and affairs. However, no single leadership model is right for all companies and at all times. Our board of directors recognizes that depending on the circumstances, other leadership models, such as the appointment of a lead independent director, might be appropriate. Accordingly, our board of directors may periodically review its leadership structure. In addition, of our board of directors will hold executive sessions in which only independent directors are present.
Our board of directors is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities and, either as a whole or through its committees, regularly liaises with management to assess and manage our major risk exposures, the potential impact of such risks on our business and the steps we should take to mitigate or manage such risks. Our board of directors’ risk oversight process complements and supplements management’s risk assessment and mitigation processes, which include reviews of strategic and operational planning, executive development and evaluation, regulatory and legal compliance, and financial reporting and internal controls. The risk oversight process also includes receiving reports from committees of our board of directors and members of senior management to enable our board of directors to understand our risk identification, management and mitigation strategies with respect to areas of potential material risk.
Our principal sources of risk fall into two categories: (1) financial and (2) product commercialization. The Audit Committee oversees management of financial risks and communications with our independent registered public accounting firm regarding our risk exposures and the actions management has taken to limit, monitor or control such exposures, and our board of directors regularly reviews information regarding our cash position, liquidity and operations, as well as the risks associated with each. Our board of directors also regularly reviews plans, results and potential risks related to our product development and commercialization efforts. Our Compensation Committee is expected to oversee risk management as it relates to our compensation plans, policies and practices for all employees including executives and directors, particularly whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks, which could have a material adverse effect on us. Our Nominating and Corporate Governance Committee manages risks associated with the independence of the Board, corporate disclosure practices and potential conflicts of interest. While each of our committees is responsible for evaluating certain risks and overseeing the management of such risks, our entire board of directors is regularly informed about such risks and matters involving significant risk are considered by our board of directors as a whole.
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Item 11 | EXECUTIVE COMPENSATION |
EXECUTIVE COMPENSATION
Overview
As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act. The following tables and accompanying narrative disclosure set forth information about the compensation provided to certain of our executive officers during the years ended December 31, 2021 and 2020. These executive officers, who include our current principal executive officer and the two most highly- compensated executive officers (other than our principal executive officers), for the year ended December 31, 2021, were:
Phillip W. Oldridge, our Chief Executive Officer;
Susan M. Emry, our Executive Vice President and Interim Chief Financial Officer; and
Michael K. Menerey, our former Chief Financial Officer, Secretary and Treasurer.
We refer to these individuals in this section as our “Named Executive Officers.”
Summary Compensation Table
The following table presents summary information regarding the total compensation that was awarded to, earned by or paid to our Named Executive Officers for services rendered during the years ended December 31, 2021 and 2020:
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($) (1) | All Other Compensation ($) | Total ($) | ||||||||||||||||||
| Phillip W. Oldridge | 2021 | 250,000 | (2) | — | 1,835,581 | — | 2,085,581 | |||||||||||||||||
Chief Executive Officer | 2020 | — | — | — | — | — | ||||||||||||||||||
| Susan M. Emry | ||||||||||||||||||||||||
Executive Vice President and Interim Chief Financial Officer | 2021 | 68,000 | (4) | — | — | — | 68,000 | |||||||||||||||||
Michael K. Menerey (3) | 2021 | 150,400 | — | — | 18,511 | 168,911 | ||||||||||||||||||
Former Chief Financial Officer | 2020 | 204,233 | — | 32,878 | — | 237,111 | ||||||||||||||||||
| (1) | The amounts shown in this column represent the aggregate grant date fair value of option awards granted in the year computed in accordance with FASB ASC Topic 718. The grant date fair values have been determined based on the assumptions and methodologies set forth in Note 9 to our financial statements included in the ADOMANI, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on March 31, 2021. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that may be recognized by our Named Executive Officers. |
| (2) | This amount represents base salary paid to Mr. Oldridge for his services from September 2, 2020, through December 31, 2020. During such period, Mr. Oldridge’s base salary was $1.00 per year, which he deferred. For the year ended December 31, 2021, Mr. Oldridge was paid $250,000 of the annual $300,000 included in his employment agreement that was effective March 1, 2021. |
| (3) | Mr. Menerey retired effective as of January 2, 2022. |
| (4) | This amount represents the salary paid to Ms. Emry from her April 16, 2021 hire date as Controller through December 31, 2021. Ms. Emry was an unpaid officer of Envirotech Drive Systems, Inc. in 2020 and from January 1, 2021 through April 15, 2021. |
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Outstanding Equity Awards at 2021 Fiscal
Year-End
The following table sets forth information regarding outstanding stock options held by our Named Executive Officers as of December 31, 2017.
The information required hereunder is incorporated herein by reference to either a definitive proxy statement2021. Our Named Executive Officers did not hold any restricted stock or an amendment to this Annual Report on Form 10-K to be filed within 120 daysother awards as of December 31, 2017.
Name | Number of Securities Underlying Unexercised Options (#) Exercisable (1) | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | ||||||||||||
Phillip W. Oldridge | 5,000,000 | 0.45 | 1/7/2031 | |||||||||||||
Chief Executive Officer | ||||||||||||||||
Michael K. Menerey | 135,000 | — | 1.31 | 4/18/2028 | ||||||||||||
Former Chief Financial Officer | 135,000 | — | 0.45 | 4/24/2029 | ||||||||||||
Compensation Arrangements with Named Executive Officers
Phillip W. Oldridge
Mr. Oldridge is our President and a member of our board of directors. We recently entered into an employment agreement with Mr. Oldridge. Mr. Oldridge’s base salary increased to $300,000 per year from the previously disclosed $1 per year effective March 31, 2021. He was paid $250,000 of that amount in 2021. The auto allowance contained in his contract will commence being paid in 2022. During the year ended December 31, 2020, Mr. Oldridge was not paid any cash amount in consideration of his services from September 2, 2020, through December 31, 2020. On January 7, 2021, we granted Mr. Oldridge an option to purchase 5,000,000 shares of our common stock under the 2017 Equity Incentive Plan (the “2017 Plan”) at an exercise price of $0.45 per share with an accounting value of $1,714,449. The shares subject to such option were initially scheduled to vest over a three-year period, with
one-third
of the shares vesting on theone-year
anniversary of the grant date and the remainder vesting in equal monthly installments thereafter, subject to continued service with us through each vesting date; however, upon the closing of our acquisition of Envirotech Drive Systems, Inc. on March 16, 2021, our board of directors elected to accelerate the vesting of all outstanding options, whereupon such option vested in full and became exercisable by Mr. Oldridge. On August 4, 2021, we granted Mr, Oldridge an option to purchase 440,000 shares of our common stock under the 2017 Plan at an exercise price of $0.2753, with an accounting value of $121,132. Mr. Oldridge was immediately vested in the option on the grant date, and exercised it on November 30, 2021.Susan M. Emry
Mrs. Emry has been our Executive Vice President since December 1, 2021 and has been our Interim Chief Financial Officer since December 31, 2021. She was appointed as a member of our board of directors on January 7, 2022. We recently entered into an employment agreement with Mrs. Emry, whose base salary was increased to $200,000 per year, which became effective on January 1, 2022. Mrs. Emry, formerly an executive with Envirotech Drive Systems, Inc., as described above who did not get paid a salary, joined the Company on April 16, 2021 as Controller. The compensation paid to Mrs. Emry in 2021 reflects the Controller salary for the period April 16, 2021 through December 31, 2021.
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Michael K. Menerey
Mr. Menerey is our former Chief Financial Officer, Secretary, Treasurer and member of our board of directors who retired and resigned from such positions on January 2, 2022. We entered into a written employment agreement with Mr. Menerey effective January 1, 2017. Prior to that time, we paid Mr. Menerey as a consultant through CFO Edge. During the year ended December 31, 2020, Mr. Menerey was to have received a total base salary of $215,000 pursuant to his employment agreement, but voluntarily and indefinitely reduced that amount to $150,000 effective November 1, 2020 due to our liquidity concerns; he continued to be paid at that rate through 2021. In 2020, we issued Mr. Menerey an option to purchase 358,571 shares of common stock under the 2017 Plan with an accounting value of $32,878. The shares subject to Mr. Menerey’s stock option were subject to vesting over a three-year period, with
one-third
of the shares vesting on theone-year
anniversary of the grant date and the remainder vesting in equal monthly installments thereafter, subject to continued service with us through each vesting date; however, upon the closing of our acquisition of Envirotech Drive Systems, Inc. on March 16, 2021, our board of directors elected to accelerate the vesting of all outstanding options, whereupon such option vested in full and became exercisable by Mr. Menerey. On June 25, 2021, Mr. Menerey exercised the option to purchase 358,371 shares of common stock under the 2017 Plan. Additionally, on April 18, 2018, the Company issued Mr. Menerey an option to purchase 135,000 shares of common stock exercisable at $1.31 per share under the 2017 Plan. On April 24, 2019, the Company issued Mr. Menerey the option to purchase 135,000 shares of common stock exercisable at $0.45 per share under the 2017 Plan. The options to purchase an aggregate 270,000 shares also vested in full on March 16, 2021 and became exercisable by Mr. Menerey.Severance and Change in Control Payments and Benefits
Our Named Executive Officers are not entitled to any severance or change in control payments or benefits, other than as provided in the section entitled “Compensation Arrangements with Named Executive Officers” above and in award agreements that set forth the terms and conditions of the stock options granted to such individuals pursuant to the 2017 Plan. Each such award agreement provides that, in the event of a “transfer of control,” any unvested portion of such option may vest immediately, subject to the Compensation Committee deciding that. For such purposes, a “transfer of control” includes the direct or indirect sale or exchange by our stockholders of all or substantially all of our capital stock, (a) where our stockholders before such sale or exchange do not retain, directly or indirectly, at least a majority of the beneficial interest in our voting stock after such sale or exchange; (b) a merger in which we are not the surviving corporation; (c) a merger in which we are the surviving corporation and our stockholders such merger do not retain, directly or indirectly, at least a majority of the beneficial interest in the our voting stock after such merger; (d) the sale, exchange, or transfer of all or substantially all of our assets; or (e) our liquidation or dissolution.
Limitations of Liability; Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a corporation’s board of directors to grant, and authorizes a court to award, indemnity to officers, directors and other corporate agents. As permitted by Delaware law, our amended and restated certificate of incorporation provides that, to the fullest extent permitted by Delaware law, no director will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. Pursuant to Delaware law such protection would be not available for liability:
for any breach of a duty of loyalty to us or our stockholders;
for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
for any transaction from which the director derived an improper personal benefit; or
for an act or omission for which the liability of a director is expressly provided by an applicable statute, including unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law.
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Our amended and restated certificate of incorporation also provides that if Delaware law is amended after the approval by our stockholders of the amended and restated certificate of incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law.
Our amended and restated certificate of incorporation and amended and restated bylaws further provide that we must indemnify our directors and officers to the fullest extent permitted by Delaware law. Our amended and restated bylaws also authorize us to indemnify any of our employees or agents and authorize us to secure insurance on behalf of any officer, director, employee or agent for any liability arising out of his or her action in that capacity, whether or not Delaware law would otherwise permit indemnification.
In addition, our amended and restated bylaws provide that we are required to advance expenses to our directors and officers as incurred in connection with legal proceedings against them for which they may be indemnified and that the rights conferred in the amended and restated bylaws are not exclusive.
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in material claims for indemnification. We believe that our indemnity agreements and our amended and restated certificate of incorporation and our amended and restated bylaws provisions are necessary to attract and retain qualified person as directors and executive officers.
Indemnity Agreements
In addition to the indemnification required in our amended and restated certificate of incorporation and amended and restated bylaws, we have entered into indemnification agreements with each of our directors and executive officers. These agreements generally provide for the indemnification of such persons for all reasonable expenses and liabilities, including attorneys’ fees, judgments, penalties, fines and settlement amounts, incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were serving in such capacity, to the extent indemnifiable under the law. We believe that these charter and bylaw provisions and indemnity agreements are necessary to attract and retain qualified persons as directors and executive officers. Furthermore, as is typical, we have director and officer liability insurance to cover both us and our directors and officers for liabilities that may be incurred in connection with their services to us.
Employee Benefit and Equity Incentive Plans
We currently maintain the 2017 Plan.
2017 Equity Incentive Plan
On June 9, 2017, we terminated our 2012 Stock Option Plan, at which time our 2017 Plan replaced our 2012 Stock Option Plan. The 2017 Plan is intended to make available incentives that will assist us to attract, retain and motivate employees, including officers, consultants and directors. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units and other cash-based or stock-based awards.
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Authorized Shares
Plan Administration
non-employee
director in any fiscal year to an aggregate of $300,000.Awards
Merger or Change in Control
Plan Amendment, Termination
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Non-Employee
Director CompensationDirectors who are also our employees receive no additional compensation for their service as a director. During the year ended December 31, 2021, our directors who also served as employees were Mr. Oldridge, our Chief Executive Officer, and Mr. Menerey our former Chief Financial Officer, Secretary and Treasurer.
We have a formal policy pursuant to which our
non-employee
directors are eligible to receive equity awards and annual cash retainers as compensation for service on our Board and committees of our Board. With respect to the year ended December 31, 2020 and the period January 1, 2021 through March 15, 2021, this policy included annual compensation of $25,000, with an additional $5,000 annually to the chairpersons of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, and reimbursement for all directors of reasonable expenses incurred during the course of their performance. With respect to the period from March 16, 2021 through December 31, 2021, such policy was modified and currently provides for annual compensation of $12,000 and reimbursement for all directors of reasonable expenses incurred during the course of their performance.The table below sets forth the compensation earned by each of our
non-employee
directors during the fiscal year December 31, 2021:Name | Fees earned or paid in cash ($) | |||||||
Gary W. Nettles (1) | 5,139 | — | ||||||
Janet L. Boydell (2) | 5,139 | — | ||||||
John F. Perkowski (3) | 5,139 | — | ||||||
Terri White Elk (4) | 9,533 | |||||||
Michael A. DiPietro (5) | 9,533 | |||||||
Melissa Barcellos (6) | 9,533 | |||||||
Bradley Dixon (7) | 8,267 | |||||||
Pam Compton (8) | 3,533 | |||||||
| (1) | Mr. Nettles resigned from our board of directors effective March 16, 2021. |
| (2) | Ms. Boydell resigned from our board of directors effective March 16, 2021. |
| (3) | Mr. Perkowski resigned from our board of directors effective March 16, 2021. |
| (4) | Ms. White Elk was paid the amount reflected above from March 16, 2021 through December 31, 2021. |
| (5) | Mr. Di Pietro was paid the amount reflected above from March 16, 2021 through December 31, 2021. |
| (6) | Ms. Barcellos was paid the amount reflected above from March 16, 2021 through December 31, 2021. |
| (7) | Mr. Dixon joined the board of directors in April 23, 2021 and was paid the amount reflected in the table above through December 31, 2021. |
| (8) | Ms. Compton was a member of the board of directors from March 16, 2021 through June 28, 2021. Ms. Compton resigned as a member of the board of directors to become an employee of the Company. |
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Item 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required hereunder is incorporated herein by reference to either a definitive proxy statement or an amendment to this Annual Report on Form 10-K to be filed within 120 days of December 31, 2017.
Securities Authorized for Issuance Under Equity Compensation Plans
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to us regarding the beneficial ownership of our common stock as of April 1, 2022, as adjusted to reflect the shares of our common stock to be issued and sold by us in this offering, for:
each person, or group of affiliated persons, known to us to beneficially own more than 5% of our common stock;
each of our directors and nominees for election to the Board;
each of our executive officers named in the summary compensation table included in the Annual Report; and
all of our directors and executive officers as a group.
Beneficial ownership of shares is determined under the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as indicated by footnote, and subject to applicable community property laws, we believe each person identified in the table has sole voting and investment power with respect to securities authorizedall shares of our common stock beneficially owned by them. The information does not necessarily indicate beneficial ownership for issuance underany other purpose, including for purposes of Section 13(d) and Section 13(g) of the Securities Act.
Applicable percentage ownership in the following table is based on 298,160,160 shares of our equity compensation planscommon stock outstanding as of DecemberApril 1, 2022. Shares of our common stock subject to options, warrants or other convertible securities that are currently exercisable or exercisable within 60 days after January 31, 2017:
| Number of securities to be issued upon exercise of outstanding options, warrants, and rights | Weighted-average exercise price of outstanding options, warrants, and rights | Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||||
| Plan Category | (a) | (b) | (c)(1) | |||||||||
| Equity compensation plans approved by security holders | 24,396,007 | $ | 1.33 | 15,000,000 | ||||||||
| Equity compensation plans not approved by security holders | 0 | $ | - | 0 | ||||||||
| Total | 24,396,007 | $ | 1.33 | 15,000,000 | ||||||||
Name of Beneficial Owner (1) | Number of Shares | Percent of Shares | ||||||
Directors and Executive Officers | ||||||||
Phillip W. Oldridge (2) | 9,440,000 | 3.1 | % | |||||
Susan M. Emry (3) | 4,919,901 | 1.6 | % | |||||
Michael K. Menerey (4) | 1,153,571 | * | ||||||
Melissa Barcellos (5) | 2,284.020 | * | ||||||
Michael A. Di Pietro | 176,600 | * | ||||||
Bradley J. Dixon | — | * | ||||||
Terri White Elk | — | * | ||||||
All directors and executive officers as a group (7 persons) (6) | 17,974,092 | 5.8 | % | |||||
5% Stockholders | ||||||||
Gerald Douglas Conrod (7) | 48,656,533 | 16.2 | % | |||||
162315 Family Trust (8) | 26,892,689 | 8.9 | % | |||||
| * | Represents beneficial ownership of less than 1%. |
| (1) | Unless otherwise indicated, all shares are owned directly by the beneficial owner. |
| (2) | Consists of |
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| (3) | Consists of (i) 2,102,046 shares of our common stock held of record by Susan M. Emry and (ii) 2,817,855 shares of our common stock underlying options that are currently exercisable or exercisable within 60 days after January 31, 2022. |
| (4) | Consists of (i) 525,000 shares of our common stock held of record by the Menerey Living Trust u/t/d 4/12/96, (ii) 358,571 shares of our common stock held of record by Michael K. Menerey and (iii) 270,000 shares of our common stock underlying options that are currently exercisable or exercisable within 60 days after January 31, 2022. |
| (5) | Represents (i) 2,275,850 shares of our common stock held of record by Provident Trust Group FBO Cornelia P. Doherty ROTH IRA, over which Ms. Barcellos has voting and investment control pursuant to |
| (6) | Consists of (i) 5,886,237 shares of our common stock and (ii) 12,087,855 shares of our common stock underlying options that are currently exercisable or exercisable within 60 days after January 31, 2022. |
| (7) | The information reported is based in part on, and in reliance upon, and without independent investigation of, information provided by Gerald Douglas Conrod in a Schedule 13G filed with the SEC on March 26, 2021. As reported in such Schedule 13G, Gerald Douglas Conrod is the beneficial owner of 21,763,844 shares of our common stock, and has sole voting and dispositive power over such shares. Mr. Conrod serves as co-trustee of 162315 Family Trust and, in such capacity, shares voting and dispositive power over the 22,017,689 shares held of record by the trust. Mr. Conrod disclaims beneficial ownership of the shares held by the trust. In addition to the |
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Item 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required hereunder is incorporated herein by reference
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other than compensation arrangements for our directors and Named Executive Officers, which are described in the sections titled “Management” and “Executive Compensation,” below we describe transactions since January 1, 2020 to eitherwhich we were a definitive proxyparty or will be a party, in which:
the amounts involved exceeded or will exceed $120,000; and
any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect material interest.
As more fully discussed in the audited financial statement or an amendment toof Envirotech Drive Systems, Inc. for the year ended December 31, 2020 and in the consolidated financial statements for Envirotech Vehicles, Inc. for the year ended December 31, 2021 located elsewhere in this Annual Reportreport on Form 10-Koperations of the Company, including the issuing of invoices to customers and making payments on behalf of the Company with respect toleases of facilities, vehicles and trailers under separate agreements between the Company and SRI, including the SRI Equipment Leases and the SRI Office Leases that are more fully described in the referenced financial statements. Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, serves as an executive officer and a member of the board of directors of SRI.
S-1,
the Company has entered into an engagement agreement (the “SRI Services Agreement”) with SRI Professional Services, Incorporated (“SRI”), pursuant to which the Company engaged SRI to provide certain services in connection with theday-to-day
month-to-month
In addition to the SRI Services Agreement, the SRI Equipment Leases, and the SRI Office Leases, during the three months ended June 30, 2021, the Company purchased a heavy-duty
pick-up
truck and a trailer from SRI for $81,293. The Company uses such equipment to transport its electric vehicles to and from customer demonstration sites and to and from equipment outfitters when the vehicles have custom bodies and accessories added for specific customers.During the three months ended June 30, 2021, the Company purchased two used automobiles from Mr. Oldridge for an aggregate purchase price of $33,250. The Company purchased such vehicles from Mr. Oldridge for use by the Company’s employees for sales calls and other business purposes and are housed at the Company’s Corona, California, corporate offices.
In connection with the closing of the Merger in March 2021, the Company purchased two electric trucks from Mr. Oldridge for an aggregate purchase price of $128,000. The purchase price for such vehicles was paid in full to Mr. Oldridge during the three months ended June 30, 2021.
Prior to the closing of the Merger, Mr. Oldridge had permitted the vehicles to be filed within 120 daysused by the Company as customer demonstration vehicles for no cost. The purchase price of $64,000 per vehicle was less than the purchase price of $83,000 per vehicle that ADOMANI, Inc. had paid to Envirotech Drive Systems, Inc. for similar vehicles in prior transactions. One of the vehicles purchased by the Company was subsequently sold to a customer of the Company in March 2021 and the second truck remains in the Company’s inventory at December 31, 2017.2021.
The Company has also entered into a commercial lease agreement (the “ABCI Office Lease”) with Alpha Bravo Charlie, Inc. (“ABCI”) that commenced on April 1, 2020, for the lease of office space in Porterville, California. Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, is a director of ABCI.
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The following table summarizes these related party transactions for the years ending December 31, 2020 and 2021:
Year Ended December 31, | ||||||||
2020 | 2021 | |||||||
SRI Equipment Leases | $ | 93,274 | $ | 116,559 | ||||
SRI Office Leases | 24,477 | 14,000 | ||||||
Truck & trailer purchase from SRI | 0 | 81,293 | ||||||
Total SRI | 117,725 | 211,852 | ||||||
Vehicles purchased from Phillip W. Oldridge | 0 | 161,250 | ||||||
ABCI Office leases | 0 | 50,610 | ||||||
Total | $ | 142,925 | $ | 423,712 | ||||
Indemnification of Directors and Officers
Our amended and restated bylaws provide that we will indemnify each of our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. Further, we have entered into indemnification agreements with each of our directors and executive officers. These agreements require us, among other things, to indemnify these individuals for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on behalf of our company or that person’s status as a member of our Board of Directors to the maximum extent allowed under Delaware law. We also maintain directors’ and officers’ liability insurance. For further information, see the section titled “Executive Compensation—Limitations of Liability; Indemnification of Directors and Officers.”
Policies and Procedures for Related Person Transactions
All future transactions, if any, between us and our officers, directors and principal stockholders and their affiliates, as well as any transactions between us and any entity with which our officers, directors or principal stockholders are affiliated will be reviewed and approved or ratified in accordance with policies and procedures adopted by our board of directors. Such policies and procedures require that related person transactions be approved by the Audit Committee or our board of directors or otherwise in accordance with the then applicable SEC rules and regulations governing the approval of such transactions. The Audit Committee and the board of directors have adopted policies and procedures for review of, and standards for approval of related party transactions. These policies and procedures have not been and will not be applied to the related party transactions described above.
All future affiliated transactions will be made or entered into on terms that are no less favorable to us than those that can be obtained from any unaffiliated third party. A majority of the independent, disinterested members of our board of directors will approve future affiliated transactions, and we will maintain at least two independent directors on our board of directors to review all material transactions with affiliates.
Item14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required hereunder is incorporated herein by reference to either a definitive proxy statement or an amendment to this Annual Report on Form 10-K to be filed within 120 days of
MaloneBailey, LLP served as our independent registered public accounting firm for the fiscal year ended December 31, 2017.2021 and served in this capacity for ADOMANI, Inc. each of the eight fiscal years ended December 31, 2020. During this time, through and including December 31, 2021, there were no disagreements between us and MaloneBailey, LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. Der Vartanian & Associates Accountancy Corporation (“Der Vartanian”), served as the independent registered public accounting firm for Envirotech Drive Systems, Inc. for the fiscal year ended December 31, 2020. There were no disagreements between Envirotech Drive Systems, Inc. and Der Vartanian on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.
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Independent Registered Public Accounting Firm Fees
The following table shows the fees that were billed for audit and other services provided during the fiscal years ended December 31, 2021 and 2020:
For the Fiscal Year Ended December 31, | ||||||||
2021 | 2020 | |||||||
Audit Fees (1) | $ | 164,000 | $ | 4,000 | ||||
Audit-Related Fees (2) | — | — | ||||||
Tax Fees (3) | — | — | ||||||
All Other Fees (4) | — | — | ||||||
Total | $ | 164,000 | $ | 4,000 | ||||
| (1) | Audit Fees consist of professional services rendered in connection with the audit of our annual financial statements, including the audited financial statements presented in our 2021 Annual Report on Form 10-K, and the review of our financial statements included in 2021 quarterly reports, along with services that are normally provided by the independent registered accountants in connection with statutory and regulatory filings or engagements for those fiscal years and timely review of our quarterly consolidated financial statements. |
| (2) | Audit-related fees consist of fees for professional services rendered for assurance and related services that were reasonably related to the performance of the audit or review of our consolidated financial statements that are not reported under “Audit Fees.” There were no separate charges in either period related to such services. |
| (3) | Tax Fees consist of fees for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state, and international tax compliance. Neither firm provided any tax services in either period. |
| (4) | All other fees consist of fees billed for products and services provided other than the services reported for the other categories; there were no such fees in either period. |
Pre-Approval
Policies and Procedures of the Audit Committee
Consistent with the rules and regulations promulgated by the SEC, the Audit Committee approves the engagement of our independent registered public accounting firm and is also required to
pre-approve
all audit andnon-audit
expenses. All of the services described above were approved by the Audit Committee in accordance with its procedure.106
Part IV
Item15. | Exhibits, Financial Statement Schedules |
(a) The following documents are filed as part of this Annual Report:
(1) Financial Statements.
| (a) | The following documents are filed as part of this Annual Report: |
| (1) | Financial Statements |
The financial statements filed as part of this Annual Report are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report.
(2) Financial Statement Schedules.
| (2) | Financial Statement Schedules |
Schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is given in the consolidated financial statements or the notes thereto.
(3) Exhibits.
| (3) | Exhibits |
The following exhibits are filed (or incorporated by reference herein) as part of this Annual Report:
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Exhibit Index
108
109
Incorporated by Reference | ||||||||||||
Exhibit Number | Description of Exhibit | Form | File No. | Filing Date | Exhibit No. | Filed Herewith | ||||||
| 21.1 | Subsidiaries of the Company | X | ||||||||||
| 23.1 | Consent of MaloneBailey, LLP, independent registered public accounting firm | 10-K | 001-38078 | 2/19/2019 | 23.1 | |||||||
| 24.1 | Power of Attorney (included on signature page) | X | ||||||||||
| 31.1 | Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer | X | ||||||||||
| 31.2 | Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer | X | ||||||||||
| 32.1# | 18 U.S.C. Section 1350 Certification of Chief Executive Officer and Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).* | X | ||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | X | ||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | X | ||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | X | ||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | X | ||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definitions Linkbase Document* | X | ||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||||||
| + | Indicates a management contract or compensatory plan. |
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| # | The information in Exhibit 32.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Act, or the Exchange Act (including this report), unless the Registrant specifically incorporates the foregoing information into those documents by reference. |
| * | In accordance with Rule 402 of Regulation S-T, this interactive data file is deemed not filed or part of this Annual Report on Form10-K for purposes of Sections 11 or 12 of the Securities Act or Section 18 of the Exchange Act and otherwise is not subject to liability under these sections. |
Item | 16. Form 10-K Summary |
None.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENVIROTECH VEHICLES INC. | ||||
| Date: | By: | /s/ | ||
Phillip W. Oldridge Chief Executive Officer | ||||
POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James L. ReynoldsPhillip W. Oldridge, Christian S. Rodich and Michael K. Menerey,Susan M. Emry, jointly and severally, hiseach with the power of substitution, for him in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of saidattorneys-in-fact,or his substitute or substitutes, may do or cause to be done by virtue hereof.attorneys-in-fact,Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.Signature Title Date/s/ Phillip W. OldridgePhillip W. Oldridge /s/ James L. ReynoldsChief Executive Officer President, Chairman of the Board (Principaland Director(Principal Executive Officer) March 12, 2018April 26, 2022James L. Reynolds/s/ Michael K. MenereyChristian S. RodichChristian S. Rodich Chief Financial Officer and Director (Principal Financial Officer and Principal Accounting Officer) March 12, 2018April 26, 2022Michael K. Menerey/s/ Susan M. EmrySusan M. Emry Executive Vice President & Director April 26, 2022 /s/ Gary W. NettlesMelissa BarcellosMelissa Barcellos Director March 12, 2018April 26, 2022Gary W. Nettles/s/ Janet BoydellDirectorMarch 12, 2018Janet Boydell/s/ John F. PerkowskiMichael Di PietroMichael Di Pietro Director March 12, 2018April 26, 2022John F. Perkowski/s/ Bradley J. DixonBradley J. Dixon Director April 26, 2022 /s/ Terri White ElkTerri White ElkDirector April 26, 2022
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