Azio Ai Holdings, Inc 10-K for FY2021
Azio Ai Holdings, Inc. (AZIO)
10-K
2022-04-26
For: 2021-12-31
View Original
Added on
April 12, 2026
About this 10-K
Azio Ai Holdings, Inc filed this 10-K on April 26, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.04M
- up 2202.2% from $88.74K a year earlier
- Net loss
- $7.65M
- compared with a net loss of $279.52K a year earlier
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 |
For the fiscal year ended December 31 , 2021
or
| 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
(Name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(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:
| |
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 Act. Yes ☐ No ☒
Indicate by check mark whether 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 preceding 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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 such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
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 Rule 12b-2
of the Exchange Act. | Large accelerated filer | ☐ | 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 by 56.4 million.
non-affiliates
of the registrant, based on the closing price reported by the OTC Markets Group Inc. on June 30, 2021 was approximately $As of April 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 on
Form 10-K
is incorporated by reference to either a definitive proxy statement or an amendment to this Annual Report on Form 10-K
to be filed by the registrant within 135 days of December 31, 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.
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 Form
10-K
(“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 trends and similar matters that 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 intended to identify statements about the future. You should not place undue reliance on forward-looking statements. The cautionary statements set forth in this 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, 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 “Envirotech,” “the Company,” “we,” “our,” and “us” refer to Envirotech Vehicles, Inc. a Delaware Corporation, and our predecessor, ADOMANI, Inc., a Delaware corporation, and Envirotech Drive Systems, Inc., a Delaware corporation, and where appropriate, their respective consolidated subsidiaries, unless the context indicates otherwise.
1
Part I
Item 1. |
BUSINESS |
Overview
We are a provider of purpose-built
zero-emission
electric vehicles focused on reducing the total cost of vehicle ownership and helping 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 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. Our vehicles are manufactured by outside, OEM partners located in China and Malaysia that can be marketed, sold, warrantied and serviced through our developing distribution and service network.
Our vehicles can include options for telemetrics for remote monitoring, electric power-export and various levels of grid-connectivity. 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
products may also grow to include automated charging infrastructure and “intelligent” stationary energy storage that enables fast vehicle charging, emergency back-up
facility power, and access to the developing, grid-connected opportunities for the aggregate power available from groups of large battery packs. For the years ended December 31, 2021 and 2020, our net losses were $7,652,100 and $279,521, respectively. On March 15, 2021, we completed our acquisition of EVTDS, a Delaware corporation, 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”). In accordance with the terms of the Merger Agreement, at the effective time of the Merger, each outstanding 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, we issued an aggregate of 142,558,001 shares of our common stock to the former EVTDS stockholders, which shares represented approximately 56% of the total issued and outstanding shares of our common stock as of immediately following the effective time of the Merger. Our company was formerly known as ADOMANI, Inc. On May 26, 2021, we filed a Certificate of Amendment of our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to change our company’s name from ADOMANI, Inc. to Envirotech Vehicles, Inc., effective as of 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, or EPA, Tier 4 emission standards, CARB regulations, and recently implemented policies in Europe, generally referred to as Stage I, II, III, IV, V and VI 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 a rule 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 an all-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 increase 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 addition, several public utilities in California and elsewhere have applied to their states’ PUCs for rate increases to be used for the purchase or leasing of electric vehicles 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 2019, and the IEA forecasts electric vehicles will grow from 7 million to 140 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 Europe will result in substantial increases in the market share of electric vehicles. New electric car sales in China grew by 47%, or by approximately 830,000 units, in 2019, which increased total ownership to over 2.5 million vehicles.
In the United States, 310,000 new electric vehicles were sold in the first half of 2021. In full year of 2020, approximately 322,000 were sold.
The overall market for electric vehicles consists of multiple, discrete markets for various vehicle types, including passenger cars, buses,
two-wheelers
and others. Passenger cars are the most prominent, but two-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 electric vehicle sales. Charging infrastructure is another important factor in electric vehicle adoption rates. As 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 Bloomberg 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 along our nation’s roadways. Some geographic areas have considerably more charging stations than others, contributing to greater electric vehicle usage in those regions.
3
Commercial Vehicles
As relatively simple as the pricing analysis is for individual consumers, the purchase and deployment of heavy-duty commercial vehicles involves consideration of many more variables. Here, the type of customer is a major determinant, whether it is a commercial customer buying trucks for a fleet, a school district, or a municipal entity purchasing buses for public use.
Bloomberg New Energy Finance forecasts that electric passenger vehicle sales will rise from around 3.2 million units in 2020 to comprise 10% of passenger vehicle sales or 6.9 million units in 2025, and to 28% of vehicles sold or 26 million vehicles by 2030. This growth should support the expansion of the passenger electric vehicle fleet from around 7 million vehicles today, or 0.6% of the total fleet, to around 350 million vehicles or 23% of the global passenger fleet by 2030. Major drivers include improving battery costs, strong government support for the superior environmental footprint, stricter fuel economy standards for conventional vehicles, rapidly approaching price parity for electric vehicles, and shifting consumer preferences.
Environmental Benefits
Because heavy-duty commercial vehicles consume considerably more fuel than light duty passenger vehicles, the environmental benefits of replacing conventionally fueled commercial vehicles with electric vehicles can also be substantial. Whereas an electric passenger car may reduce green house gas (“GHG”) emissions by 3 tons per year as compared to a conventional car, replacing a conventional Class 8 port drayage truck with an electric equivalent can bring an 18 metric ton annual reduction in GHG emissions. Replacing a conventional diesel bus with an
all-electric
bus can achieve a 78 metric ton (approximately 171,961 pounds) reduction in GHG emissions. Electric buses can also reduce nitrous oxide emissions by 47 kg (approximately 104 pounds) per year compared to a diesel bus and 19 kg (approximately 42 pounds) compared to a clean natural gas (“CNG”) bus. As discussed below, we believe these pollution reductions have had the greatest impact in the electric bus market, where municipalities are the principal purchasers. A comprehensive study was released in December 2019 assessing the environmental benefits and economics of various alternative fuel truck technologies. The study, conducted by the international research firm (“ICF”), demonstrates that electric trucks and buses are a
first-of-kind,
triple-win
in terms of helping meet California’s climate and air quality targets; the least cost to own and operate across nearly all truck and bus classes by 2030, and provide the greatest job and economic benefits to the state. The study was commissioned by NRDC and the California Electric Transportation Coalition (an industry group representing utilities and vehicle manufacturers) and was sponsored by the Union of Concerned Scientists, Earthjustice, BYD, Ceres, and NextGen Climate America. Advisory support was provided by East Yard Communities for Environmental Justice and University of California, Davis. The study concluded that expected declines in the costs of battery packs, and therefore the cost of electric trucks and buses, will decline such that by 2030, they will be the most attractive technology from a total cost of ownership perspective for nearly all truck and bus classes, even without incentives. Electricity Cost Considerations
Despite the higher electricity consumption of electric trucks, more widespread adoption could lead to more efficient utilization of utility and power generation assets and thus not necessarily lead to higher rates. At this point, deployment of electric trucks and buses is still too small to assess their full impact on electricity prices. As a study by the clean transportation nonprofit CALSTART emphasizes, evaluating this impact will involve weighing potential efficiency benefits, the impact on utility distribution grids, including the cost of potential upgrades, and the need for additional infrastructure. In this regard, several public utilities have applied to their state’s Public Utility Commissions (“PUCs”) for rate increases to be used for the purchase or leasing of electric vehicles and infrastructure. Additional requests have been made by the utilities to offer favorable costs for electric school bus charging.
4
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
(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. 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.
Transit Buses
Some public transportation operators are facing pressure to purchase and operate
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. Electric transit buses are likely to have lower fuel and maintenance costs, typically a large cost area for transit operators, compared to conventional diesel buses. Electric buses generally have smoother, faster acceleration and provide a quieter ride, benefiting both passengers and the surrounding urban environment. Similar to other commercial fleet electric vehicles, transit buses have a higher initial acquisition cost than their traditional-fueled counterparts, and the logistics of charging remains a challenge. Electric buses can be anywhere from two to nearly five times as expensive as conventional buses.
In addition to the public health and environmental benefits, school districts and transit agencies also see cost savings due to the reduced fuel and maintenance costs of electric buses. While 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 medium- and heavy-duty vehicle sector is increasing in the United States with California leading the way. Increasing investment in 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 electric trucks and buses are expected to decline significantly through 2030 as battery prices fall, making them competitive on a total cost of ownership (TCO) basis.
School Buses
School buses present another significant potential market for electrification. The United States has approximately 480,000 school buses in 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- more than 800 million gallons of diesel a year in the United States, at a fuel economy of only 4–5
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. Incentive programs to help fund the purchase of electric school buses in the 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 electric 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; and |
| • | fuel 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
There are numerous U.S. legislative efforts underway to accelerate the adoption of electric vehicles. In January 2021, President Biden signed into effect the “Buy America” executive order, which among other objectives, will see a transition of 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 tax 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 30% tax credit and 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 electric vehicle production and adoption, and that have since been copied by other jurisdictions. These 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 of which 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 fossil 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 certain relevant incentive programs.
zero-emission
vehicles, of which electric vehicles make up a significant portion, along with creating a market that allows manufacturers to buy and sell credits awarded for selling electric vehicles. California, New York and New 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 a low-income
area. Furthermore, California and New York have introduced legislation to completely ban the sale of internal combustion engines and fossil fuel vehicles by 2035. The Governor of California has issued Executive Order N-79-20,
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 fueled back-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 are a provider of purpose-built
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 the Philippines and marketed, sold, warrantied and serviced through our developing distribution and service network. Our vehicles are designed to help fleet 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 instability. As of December 31, 2021, we had a backlog of 37 zero-emission
Class 4 trucks and 43 zero-emission
Class 4 cargo vans, which consists of unfilled firm orders for 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 as on-site emergency back-up energy storage if grid power becomes intermittent or fails temporarily during natural or man-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 taken an active role in building awareness and support for our
zero-emission
electric vehicles and drivetrain systems in industry specific target groups and at all levels of government and regulatory agencies and the constituencies they serve. We initially 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 participate in their events, speaking engagements, management interviews, pilot product exhibits, fleet vehicle demonstrations and responses to requests for information and requests for proposals. We regularly engage with electric utility companies across the United States to build awareness of the medium to heavy-duty electric vehicles we currently offer and how their greater adoption could positively increase their customers’ electricity usage. As discussed below under the section entitled “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 while 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 with scaling-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 of zero-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 our in-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 commercial |
9
| vehicles either manufactured by or for us, via Factory Authorized Representative (“ FAR”) Agreements. As an example, we have recently entered into a FAR Agreement with Shine Solar, allowing Shine Solar to promote and sell Envirotech products throughout the United States. As of September 17, 2021, we have entered into a total of nine FAR agreements throughout the United States and the 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 Class 3 to Class 5 trucks and cab and chassis, class 3 and 4 cargo vans and cutaways. Our target customers primarily include public and private fleet operators that have an interest in meeting or exceeding local, state and federal emission regulatory guidelines while saving money on fuel and maintenance costs over the lifecycle of their fleet vehicles and that also have an interest in tangible demonstrations of their
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. |
10
| • | 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 operate Type-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 purpose-built,
zero-emission
vehicles and chassis of all sizes manufactured by outside OEM partners, but to be marketed, sold, warrantied and serviced through our developing distribution and service 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 and a supplier of
zero-emission
trucks, cargo vans, chassis and other commercial vehicles in various sizes, we intend to utilize EVT’s existing supply chain and OEM partners to support our efforts to sell, warranty and supply zero-emission
commercial vehicles through our developing distribution and service network. 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 of lithium-ion cells. |
Testing
Our suppliers are vetted before their products are accepted for use in our products. Our drivetrain systems and finished products are inspected, road-tested (when applicable) and receive quality control testing prior to delivery.
Customer Service, Support and Training
Our sales team has historically been used as the first point of customer contact for customer support and training. However, due to
COVID-19
impacts and other business challenges in 2020, we eliminated our in-house
sales team in 2020. We are in the process of reestablishing our sales team by hiring sales personnel and other internal staff in 2022 to support our current and planned operations. Technology
Zero-emission electric drivetrain systems for purpose-built new vehicles generally include the 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 VCU, high-voltage traction battery packs with integrated BMS, battery disconnect units, thermal management systems, vehicle charging hardware, electric HVAC systems, DC to DC inverter(s) to reduce traction battery pack voltage sufficient to operate power management options (such as grid, building, stationary energy storage, etc.) are being developed by multiple vendors and their inclusion may be offered as additional cost options in the future.
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 of vehicle-to-other
Sales and Marketing
Sales
Due to
COVID-19
impacts and other business challenges in 2020, we eliminated our in-house
sales team in 2020. In 2022, we are building out our marketing and sales network by hiring sales personnel to form a team of dedicated sales employees with responsibility for each of the geographic regions we serve. Additionally, we have been building out an international network of FARs that promote, sell and service our vehicles throughout the United States and the Caribbean. 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 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 currently contract with third-party suppliers to manufacture our products. In 2022, we intend to increase our integration efforts and begin completing the final 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 key step towards our longer-term strategy of becoming a fully integrated electric vehicle manufacturer, and are currently exploring potential locations for establishing a manufacturing facility. Distribution
We intend to distribute our products both inside and outside of our current U.S. market.
Other Agreements
In addition to our FAR Agreements, we have agreements with Central States Bus Sales Inc. and with Envirotech Electric Vehicles Inc. (“EEVI”). Neither of these agreements contain any binding purchase or sales minimums.
Central States Bus Sales, or Central States
Central States Bus 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 buses powered by ADOMANI drivetrain systems, they have qualified electric vehicle technicians on staff. We signed an agreement with 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 speaking to Central States about becoming a FAR.
Envirotech Electric Vehicles Incorporated
EEVI is a Canadian company engaged in the design, prototyping and certification of electric components and vehicles, including complete drivetrain 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 EEVI to design and supply a series of
zero-emission
electric Class 3 and 6 trucks, cargo vans and chassis built to our specifications and requirements. The vehicles are initially comprised of a cab, chassis and electric drivetrain system. Any customer can then customize the trucks by adding a box or stake bed to the vehicle in accordance with their needs. We received the first truck and cargo van pursuant to our arrangement with EEVI in December 2018. In 2019, EEVI received the CARB executive order for certification. As the dealer for EEVI, we submitted additional information to the HVIP Department of CARB and received our HVIP listing in November 2019, which renders the trucks and vans eligible for buy-down
funding based on the GVWR. These buy-down
funds are intended to enable companies to purchase zero-emission
electric trucks and receive a discount to aid in the purchase. The HVIP buy-down
funding is currently between $60,000 for Class 3 and Class 4 vehicles ($66,000 if used in a disadvantaged area community census tract). 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 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. 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
As of December 31, 2021, we had a backlog of 37
zero-emission
Class 4 trucks and 43 zero-emission
Class 4 cargo vans, which consists of unfilled firm orders for products under signed contracts with customers. We believe our costs, substantially paid for as of December 31, 2021, associated with the current backlog, will be approximately $5.1 million and that the sale price of the current backlog will be approximately $6.8 million. Employees
As of April 8, 2022, we had 12 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.
Competition
The electric 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. The electric competitors include Ford, which produces the Ford Transit Connect EV
®
and has made recent statements about producing an electric F-150
pickup truck and has announced production of the Mustang Mach-E
SUV; Nissan, which besides the Leaf EV, produces a small electric delivery van called the NV200; Rivian, which intends to introduce the R1T electric pick-up
truck; General Motors, which besides producing the Chevy Bolt EV, has made recent statements about considering the production of an electric pick-up
truck and reintroducing an electric Hummer; Blue Bird has electric drivetrain options for their Type-D,
C and A school buses; Navistar, which produced the Navistar eStar®
and builds the electric drivetrain system for IC Type-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 eM2 and eCascadia electric trucks; Mercedes-Benz,
producing the eActros electric truck and EQV electric vans; Mitsubishi/Fuso produces the eCanter electric truck; Tesla, producing a Class-8
Semi truck and recently introduced a pick-up
truck called the Cybertruck; Bollinger Motors, producing the B2 electric pickup truck; Odyne Systems, which produces plug-in
14
hybrid drivetrain systems for trucks and buses; Lightning Systems, which produces
re-power
electric drivetrain systems for trucks and buses; Lion Electric Company, a Canadian-based manufacturer of Type C all-electric
school buses, mini buses and a Class-8
truck; Nordresa, which produces re-power
electric drivetrain systems for cab-forward
trucks and package delivery vans; Volkswagen has presented an e-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 an all-electric
walk-in
van and an electric prototype pick-up
truck called the W-15;
Chanje, which produces a large electric package delivery van; Volvo is expected to begin selling its FE Electric and 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 trucks and transit buses; TransPower, which has converted Type-C
and D school buses and trucks; and Motiv, which sells electric drivetrain systems for Type A 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, 2021, we own three issued U.S. patents, which will expire in 2030 and 2033. In addition, we maintain a trademark portfolio including common law trademarks and service marks and have three 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, we intend to utilize the services of incentive specialists that work directly with our sales team and our customers on these issues providing updates in near real-time as programs become available.
Overview of Incentive Programs Most Applicable to Our Products
We intend to have our products approved for various local, state and federal incentive programs, including those set forth below. In particular, California’s
zero-emission
vehicle mandate, which requires the percentage of an automobile manufacturer’s sales must be zero-emission
vehicles, has resulted in numerous incentive programs designed to accelerate the purchase and/or repower of cleaner, more efficient vehicles in California. We 15
anticipate that the relevant aggregate funding available in California alone over the next several years may be in excess of $800 million, which includes federal, state and Volkswagen settlement funding sources.
California Hybrid and Zero-Emissions Truck and Bus Voucher Incentive Project (HVIP)
HVIP is a CARB program administered by CALSTART, the purpose of which is to help speed the early market introduction of clean,
low-carbon
hybrid and electric trucks and buses. Under HVIP, dealers and fleet operators may request vouchers from HVIP on a first-come first-served basis, up to the funding amount available for that year, to reduce the cost of purchasing hybrid and 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 amounts depending on the gross vehicle weight of the purchased vehicle and the number of vehicles purchased. Zero-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 increased to $49,500, $66,000, and $93,500, respectively. However, HVIP may also be revising per vehicle amounts available for future grant periods.
HVIP funds the purchase of only fully commercialized hybrid and
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 and zero-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 our vehicles for the HVIP vouchers. New York Truck Voucher Incentive Program (NYTVIP)
NYT-VIP
is a first-come, first-served incentive program funded by the New York State Energy Research & Development Authority. The structure and process for fleets to secure incentives is similar to that of HVIP discussed above. Eligible vehicles include all-electric,
hybrid-electric, and CNG trucks and buses. Funding for eligible vehicles domiciled in New York State can reach $150,000 per vehicle. Class 4 and 5 all electric trucks are eligible for up to $100,000 and $110,000 in funds respectively (i.e., up to 95% of the incremental cost over diesel). We were named an approved dealership in the summer of 2020, and our vehicles are included on the NYTVIP eligible vehicle list for the program, which reopened in late 2019 and has $18.4 million in funds available. New York City Clean Trucks Voucher Program (NYCCTVP)
In support of the transition 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 eligible 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 scrap older polluting ICE vehicles. The rebate incentive funding program provides New York City fleet owners $100,000 per vehicle for an
all-electric
Class 4 truck sold to them by ADOMANI, and $110,000 for a Class 5 all-electric
truck. The amounts increase for Class 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 program that supports businesses and institutions purchasing new,
zero-emission
vehicles 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 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 funded by proceeds allocated to the New Jersey Economic Development Authority by the Regional Greenhouse Gas Initiative (“RGGI”) for the purposes of reducing harmful emissions, especially in communities disproportionately impacted by transportation emissions, and creating economic opportunity within the state. Maryland FY22 Clean Fuels Incentive Program (CFIP)
The Maryland FY22 Clean Fuels Incentive Program is a $1 million voucher program that provides financial assistance for the purchase of new and converted alternative fueled fleet vehicles registered in the state of Maryland. The primary goal of CFIP is to reduce the consumption 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
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 apply for the vouchers. Volkswagen Environmental Mitigation Trust Funds
Beginning in 2018, several states have allocated millions in funds per year to
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 have been in the process of funding their initial rounds or are developing specific funding plans. We have engaged with several of these states to support the development of such plans, including funding the purchase of other commercial vehicles, provided that the buyer surrenders a qualifying existing fossil-fueled vehicle in 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
on-
and off-road
vehicles and equipment. CARB is responsible for program oversight. CARB awards grants and funds through the Air Quality Improvement Program (AB 118), the Carl Moyer Program, the Voucher Incentive Program for enhanced fleet modernization and emission reduction, and the Lower-Emission School Bus Program/School Bus Retrofit and Replacement Account. In February 2020, the CARB staff held a workshop to discuss a new fleet rule that will target a 100% zero-emission
truck 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 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 with levels 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% below 1990 levels and to achieve 100% clean energy by 2045. The transportation sector represents a significant portion of California’s GHG emissions. 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
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 11% reduction from then-current emissions levels and nearly a 30% reduction from projected business-as-usual
low-carbon
fuels; optimize alternative and renewable fuels for existing and developing engine technologies; improve light-, medium-, and heavy-duty vehicle technologies; and retrofit medium-and
heavy-duty on-road
and non-road
vehicle fleets. Air Quality Management Districts (“AQMD”) and Air Pollution Control Districts (“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-primarily cars, trucks and buses, but also construction equipment, ships and trains, from which approximately 75% 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, 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 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.
18
Congestion Mitigation and Air Quality (“CMAQ”) Improvement Program
The CMAQ Improvement 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, Arizona exempts use tax and lowers registration fees for the purchase of an electric vehicle. Other states, including Colorado, Georgia, Utah, Florida and West Virginia, provide for substantial state tax credits for the purchase of 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”) 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 final phase-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”) 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”), 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 includes
lithium-ion
batteries that may present a risk in transportation. The governing regulations, which are issued by 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. 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 |
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
factors, 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 Health 20
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 the COVID-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, 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. 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 the COVID-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 the COVID-19
pandemic and its effects on our business, results of operations, or financial condition at this time. To the extent the COVID-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 did not generate significant revenues for the years ended December 31, 2021 and 2020, due in part to the combined impact of
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 execute 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 and selling new purpose-built zero-emission
vehicles could also slow our revenue growth. We have a history of losses and we may not achieve or sustain profitability in the future.
For the years ended December 31, 2021 and 2020, we incurred net losses of $7,652,100 and $279,521, respectively. The 2021 loss includes approximately $3.5 million of non-cash expenses, net of non-cash income of $290,520. As of December 31, 2021, we had working capital of approximately $21.5 million and accumulated deficit of approximately $8.1 million. To date, we have financed our operations primarily through capital raises from issuing common stock. 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 may 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 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. Even if our revenue increases, we may not be able to sustain the 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 our
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 as of December 31, 2021 will be sufficient to fund our operations 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, recent 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 of
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 the COVID-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 and developing our 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 stock to decline. 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 a basis may not be meaningful. You should not consider our past results in any projected growth rate or as indicative of our future performance.
period-to-period
22
We expect our operating 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 our comparisons 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 decline, either suddenly or over time.
period-to-period
zero-emission
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 that quarter-to-quarter
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 new
mid-sized
zero-emission
trucks and cargo vans, and other fleet vehicles Our growth is highly dependent upon the market acceptance of, and we are subject to an elevated risk of any reduced demand for, new
zero-emission
trucks and other fleet 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 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 improvements in the fuel economy of the 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 or future regulation requiring increased use of zero-emission or hybrid vehicles; |
23
| • | perceptions about and the actual cost of alternative fuel; and |
| • | macroeconomic factors. |
Additionally, we have limited experience in introducing new products, as we commenced production and deliveries of our 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.
We may also become subject to regulations that require us to alter the design of our vehicles, which could negatively impact consumer interest in our products.
The influence of any of the factors described above may cause current or potential customers not to purchase our 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
zero-emission
electric 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. Most of our existing and potential competitors, including Ford, Nissan, Navistar, Freightliner,
Mercedes-Benz,
Odyne Systems, Lightning Systems, Nordresa, Workhorse, Mitsubishi/Fuso, BYD, Proterra, TransPower, Lion 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. 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 electric 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
zero-emission
electric vehicle industry is volatile, which may lead to lower vehicle unit sales, which could adversely affect our operating results. Volatility of demand in the zero-emission
electric 24
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 lasted 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 electric vehicles and our 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, compressed natural gas or propane, which are abundant and relatively inexpensive in North America, may emerge as consumers’ 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 enhanced
zero-emission
electric vehicles or drivetrain systems, which could result in the loss of competitiveness of our products, decreased revenue and a loss of market share to competitors. If we are unable to keep up with advances in
zero-emission
electric vehicle technology, we may suffer an inability to obtain a competitive position in the market or suffer a decline in our competitive position. There are companies in the
zero-emission
electric vehicle industry that have developed or are developing vehicles and technologies that compete or will compete with our vehicles. Our competitors could be able to 25
provide products and services similar to ours more efficiently or at greater scale. We may be unable to keep up with changes in
zero-emission
electric vehicle technology and, as a result, may suffer a decline in our competitive position. Any failure to keep up with advances in zero-emission
electric vehicle 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 in zero-emission
electric vehicle technology. As technologies change, we plan to upgrade or adapt our vehicles and introduce new vehicles in order to continue to provide vehicles with the latest technology, in particular battery cell technology. However, our vehicles may not compete effectively with alternatives if we are unable to source and integrate the latest technology into our vehicles. For example, we do not currently manufacture the items required to produce our vehicles, including battery cells, which makes us dependent upon other suppliers of technology for our battery packs, motors and other components of our electric vehicles. If for any reason we are unable to keep pace with changes in commercial electric 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. The demand for commercial
zero-emission
electric 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
zero-emission
electric 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 zero-emission
electric vehicles could be reduced, and our business and revenue may be harmed. Diesel and other petroleum- 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 vehicles may decrease, which could have an adverse effect on our business, prospects, financial condition and operating results. We 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
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 our zero-emission
vehicles. We incur significant costs related to procuring the materials and components required to build our vehicles. As a result, without including the impact of government or other subsidies, incentives, or tariffs, our costs and therefore the purchase prices for our commercial
zero-emission
electric vehicles currently are higher than the purchase prices for gas or diesel-fueled vehicles with comparable features. Additionally, in the future we may be required to incur substantial marketing costs and expenses to promote our
zero-emission
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
zero-emission
vehicles for the same resources could create shortages and drive the costs of our raw materials and certain components, such as lithium-ion
battery cells, to a higher level and reduce profit or create or increase losses. Indeed, if the popularity of zero-emission
electric 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 material and component parts costs to us and could also negatively impact our ability to meet production requirements if the batteries were simply not available. If 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. During 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 expansion will be required beyond 2021, especially in connection with electric vehicle component assembly and manufacturing, service and warranty requirements. The requirements of being a public company have significantly increased 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 may in the future hire a significant number of additional personnel, including design and manufacturing personnel and service technicians for our
zero-emission
electric 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 zero-emission
electric 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 zero-emission
electric 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. In 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
vehicles and services and our ability to deliver 27
in a timely manner, it will negatively affect our brand and reputation and harm our ability to retain and attract customers.
If our
zero-emission
electric vehicles fail to perform as expected, our ability to develop, market and sell our vehicles could be harmed. Our
zero-emission
vehicles may not perform in a manner that is consistent with our customers’ expectations for a variety of reasons. If our vehicles 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 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 our zero-emission
vehicles. For example, should we have a significant sale of either new vehicles or re-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 products 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 zero-emission
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 our zero-emission
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 vehicles 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. 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 provide
zero-emission
electric vehicles 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. 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.
This limited supply chain exposes us to multiple potential sources of delivery failure or component shortages for the production of our
zero-emission
electric products. We may experience delays due to supply chain disruptions with respect to any of our zero-emission
electric products we may produce. In addition, our currently ongoing transition from low to high volume production tooling for our zero-emission
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 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
drivetrain systems and services in a timely manner at prices, quality levels, and 29
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.
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-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 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
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 key manufacturers of components we require for our
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 typically non-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 any 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 products may be time consuming, costly and may force us to make additional modifications to a product’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
back-up
options should our existing supplier have delivery or quality issues. 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 for batteries, 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. Our suppliers must scale their
zero-emission
vehicle manufacturing and assembling processes effectively and quickly from low volume production to high volume production. 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,
low-cost
manufacturing and assembly 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 and assembly 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. The ability of our suppliers to scale their manufacturing and assembling processes is in part dependent on ours 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 and 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, 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 chains 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
products as well as limited experience allocating our available resources among the design and production of multiple zero-emission
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
zero-emission
electric vehicle industry may experience significant product liability claims and we face inherent risk of exposure to claims in the event our zero-emission
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 our zero-emission
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 products 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 have added product liability insurance on a claims-made basis for all our zero-emission
products with appropriate annual 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. In connection with the development and sale of our
zero-emission
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 CARB. In addition, we may be subject to various other federal and state-level requirements. 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.
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 three-year warranty on parts and workmanship and a five-year warranty on powertrain and batteries with every
zero-emission
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 product. We plan to record and adjust warranty reserves based on changes in estimated costs and actual warranty costs. However, because we have only recently begun delivering our first zero-emission
vehicles, and we have extremely limited operating experience with them, we therefore have little experience with warranty claims for these zero-emission
vehicles or with estimating warranty reserves. We 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. 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. 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 claims resulting from products liability, employment-related actions, class-action lawsuits, accidents, acts of God and other actions against us. Additionally, our insurance coverage may be insufficient to cover all existing and future claims against us. We 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 sell
zero-emission
electric vehicles and other product offerings that address additional market opportunities, our business, prospects and operating results will suffer. We may not be able to successfully develop new
zero-emission
electric vehicles or address new market segments or develop a broader customer base. We will need to address additional markets and expand our customer demographic in order to further grow our business. In particular, we have recently transitioned to target owners of trucks (all classes inclusive of 3–7) and vans between 10,000 pounds GVWR to 19,500 pounds GVWR, commercial fleets, including white fleets of school districts and other fleet users of these vehicles, including government entities. Successfully offering all electric vehicles in this market requires delivering a vehicle with different characteristics than an ICE-powered
vehicle at a price that is competitive with other similar vehicles. Because the markets are only recently increasing acceptance of our new all-electric
products, it is difficult to project increases in market acceptance and our ability to generate sales in volumes as we currently intend. Our failure to address additional market opportunities would harm our business, financial condition, operating results and prospects. 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 vehicles. These subsidies and incentives are limited and unpredictable and could expire or change to benefit competing 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 to zero-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, elimination 33
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 our
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 from $55,000 to $220,000, respectively, per qualifying vehicle purchased or converted. Certain regulations and programs that encourage sales of zero-emission
electric and hybrid vehicles could expire, be exhausted, be eliminated or applied in a way that adversely impacts sales of our commercial zero-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 of zero-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 of zero-emission
electric vehicles. If government subsidies and economic incentives to produce and purchase zero-emission
electric vehicles were no longer available to us or our customers, or the amounts of such subsidies and incentives were reduced or eliminated, it would have a negative impact on demand for our vehicles and our business, prospects, financial condition and operating results would be adversely affected. In 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-party bus and truck facilities to sell and to service our new 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 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
zero-emission
electric 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 34
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
zero-emission
electric 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 locations 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. 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 our
zero-emission
manufacturing competitors. For example, we may 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 zero-emission
electric vehicles and converting existing vehicles to zero-emission
electric 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 build-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 our zero-emission
electric 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. We 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 commercial
zero-emission
electric 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 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 our
zero-emission
electric products may not comply with applicable international, federal, state or local laws, and certain of the competitive advantages of our products 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. Vehicle dealer and distribution laws could adversely affect our ability to sell our commercial
zero-emission
electric vehicles. Sales of our
zero-emission
electric 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 vehicles 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 vehicles 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 vehicles, but we have no assurance at this time that we will successfully contract with vehicle dealers and distributors to sell and/or service our vehicles. 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 are 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 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 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, or non-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 our
zero-emission
electric vehicles we use battery packs composed of 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 electric vehicles, we could face liability for damage or injury, adverse publicity and a potential safety recall. The battery packs in our manufactured vehicles use
lithium-ion
cells, which have been used for years in laptop computers, cell phones and electric vehicles. On rare occasions, if not appropriately managed and controlled, 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 other lithium-ion
cells. Highly publicized incidents of laptop 38
computers, cell phones, and Tesla, Inc.’s electric 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 on
non-commercial
passenger vehicles containing lithium-ion
batteries and thermal management systems containing liquid coolant have resulted in post-collision fires under certain conditions. Any failure of a competitor’s electric vehicle may cause indirect adverse publicity for us and our electric vehicles. These events have raised questions about the suitability of 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 of lithium-ion
cells for automotive applications or any future incident involving lithium-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
electric vehicles, demand for our products and services may be negatively affected. Historically, economic downturns have resulted in overall reductions in these budgets and corresponding spending. If economic conditions deteriorate or do not materially improve, our customers and potential customers may elect to decrease their operational budgets or defer or reconsider product and service purchases, which would limit our ability to grow our business and negatively affect our operating results. Our business depends on our Chief 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. Phillip Oldridge, our 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. We recently entered into employment agreements with Mr. Oldridge and with Mrs. Susan M. Emry, our 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 for talented individuals such as design engineers, manufacturing engineers, and other skilled employees with specialized knowledge of electric 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 and
start-ups
and emerging companies that promise short-term growth opportunities. The loss of Mr. Oldridge or 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. 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
zero-emission
electric vehicles, electric drivetrain 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. We may 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, especially if we begin manufacturing our vehicles in the United States. We intend to continue to make investments to support our business growth and may 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 will be sufficient to fund our operations during the next eighteen months, we may 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 offerings and available debt financing to fund our operations. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders would suffer 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 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.
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 primarily due to certain staff reductions and voluntary resignations we experienced 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 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.
41
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.
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 earlier of (1) the last day of the fiscal 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, (3) the day we are deemed to be a large accelerated filer, which means the market value of our common stock held by
non-affiliates
exceeds $700 million as measured as of each June 30th, and (4) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior three-year 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, 2021, we had federal and state net operating loss carryforwards (“NOLs”) due to prior period losses. Federal and state NOLs generated prior to 2018 have a
20-year
carryforward and, if not utilized, will begin to expire in 2032. Similarly, state NOLs generated for tax years 2018 and after will also have a 20-year
carryforward and, if not utilized, will begin to expire in 2038. These NOLs may go unused and be unavailable to offset future income tax liabilities, which could adversely affect our profitability. 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 | ||
42
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.
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 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 as reported on the OTC Markets Group Inc. During the period January 1, 2021 through December 31, 2021, the closing price of a share of our common stock reached a high of $0.81 and a low of $0.19, with daily trade volumes reaching a high of 7,020,552 and a low of 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.
We have and will continue to incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which adversely affect our operating results.
As a 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
44
private company, including costs associated with public company reporting, corporate governance 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 have adapted to the requirements of being a public company and devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these rules and regulations have made it more expensive for us to obtain director and officer liability insurance, and we have incurred substantially higher costs to obtain increased 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.
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.
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.
45
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.
Item 1B. |
Unresolved Staff Comments |
Not applicable.
Item 2. |
PROPERTIES |
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 was assigned to our former leased facilities that will expire at various times between now and February 2023.
sub-lease
tenant effective April 1, 2022, leaving office and storage space in Porterville and Stockton, California which are 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 direct 46
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, 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 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 dismissed.
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 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.
Item 4. |
MINE SAFETY DISCLOSURES |
Not applicable
49
Part II
Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
Our common stock trades on the OTCQX market under the symbol “EVTV.” market quotations reflect inter-dealer prices, without retail
Over-the-counter
mark-up,
mark-down or commission and may not necessarily represent actual transactions. Holders
As of April 8, 2022, we had approximately 206 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.
Recent Sales of Unregistered Securities
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 subject to, and contingent upon, the effectiveness of a registration statement filed with the SEC registering the shares of Common Stock sold, or issuable under the Warrants, in connection with the 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 price equal to $0.45 per share and Warrants 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 any shares of Common Stock held by them for a period ending 30 days after the Effective Date (as defined in the Purchase Agreement), subject to certain exceptions.
50
The securities to be sold in the Financing have not been registered under the Securities Act or any state securities laws and may not be offered 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 rights 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 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 our wholly owned subsidiary (“Merger Sub”). As a result of such transaction, 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 Merger were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder, and Regulation S promulgated under the Securities Act. Repurchases of Equity Securities
We did not purchase any of our equity securities during the period covered by this Annual Report.
Item 6. |
[Reserved] |
51
Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with our financial statements and related notes included in Part II, 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.
Overview
We are a provider of purpose-built
zero-emission
electric vehicles focused on reducing the total cost of vehicle ownership and helping 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 meet the increasing demand for light to heavy-duty electric vehicles. Our vehicles address the challenges of traditional fuel price instability and local, state and federal regulatory compliance. As discussed in Item 8, Notes 2 and 3 to the consolidated financial statements of Envirotech Vehicles, Inc. contained in this Annual Report on Form
10-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 year ended December 31, 2020 and are the results for EVTDS as of and 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, 2021. On May 26, 2021, the Company filed a Certificate of Amendment of Amended and 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, 2021 and 2020, respectively, we generated sales revenue of $2,042,844 and $88,375, respectively, and our net losses were $7,652,100 and $279,521, respectively. The 2021 loss includes approximately $3.5 million of non-cash expenses, net of non-cash income of $290,520.
Factors Affecting Our Performance
We believe that the growth and future success of our business depend on various opportunities, challenges and other factors, including the following:
| • | COVID-19 pandemic. COVID-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. 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 incentives . zero-emission vehicles, 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. |
52
| 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. |
| • | Investment in Growth. zero-emission electric vehicles; design, develop and manufacture our commercial fleet vehicles and their components; increase our sales and marketing to acquire new customers; and increase our general and administrative functions to support our growing operations. We believe that these investments will contribute to our long-term growth, although they will adversely affect our results of operations in the near term. In addition, the timing of these investments can result in fluctuations in our annual and quarterly operating results. |
| • | Zero-emission electric experience. zero-emission electric fleet vehicle experience. Our performance will depend on having a robust service network, which will require appropriately trained technicians to be successful. Because vehicles that utilize our technology are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in zero-emission electric vehicles may not be available to hire, and we may need to expend significant time and expense training the employees we do hire. If we are not able to attract, assimilate, train or retain additional highly qualified personnel in the future, or do so cost-effectively, our performance would be significantly and adversely affected. |
| • | Market Growth. all-electric solutions for alternative fuel technology, specifically all-electric vehicles, will continue to grow as more purchases of new zero-emission vehicles and as more conversions of existing fleet vehicles to zero-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, the amounts of such assistance to our customers, or our ability to access such funds. |
| • | Sales revenue growth from additional 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. |
| • | Third-party contractors, suppliers and manufacturers . |
Components of Results of Operations
Sales
Sales are recognized from the sales of new, purpose-built
zero-emission
electric vehicles and from providing vehicle maintenance and safety inspection services. Sales are recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606, as discussed in Note 2 to our consolidated financial statements included in this Annual Report. 53
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. 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, including personnel-related expense and stock-based compensation costs; costs related to investor relations activities; warranty costs, including product recall and customer satisfaction program costs; consulting costs; marketing-related expenses; and other expenses that cannot be included in cost of sales.
Consulting and Research and Development 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 Financial 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 in 2021, and the income tax benefit recorded in 2020 has been reversed and effectively reserved as well.
Results of Operations
The following discussion compares operating data for the year ended December 31, 2021 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 trucks) 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 | % | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
1 |
Includes stock-based compensation expense as follows: |
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 $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 to 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 in non-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 include non-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, 2021 and 2020, respectively. Expense in 2021 relates to the repayment of the two outstanding SBA loans and to the note payable entered into during 2021. Interest (expense) income, net was therefore approximately $4,411 and $(2,864) for the years ended December 31, 2021 and 2020, respectively.
Cash Flows
The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2021 and 2020:
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) provided by operating activities is primarily the result of our operating losses, reduced by the impact of
non-cash
expenses, including non-cash
stock-based compensation, and changes in the asset and liability accounts. Net cash (used in) operating activities for the year ended December 31, 2021 was $12,936,755 versus net cash provided by operations of $1,526,333 for the year ended December 31, 2020, a decrease of $14,463,088. The decrease in net cash provided by operating activities was due to an increase in net loss of $7,372,579, increased inventory deposits of $4,503,079, inventory additions of $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 the remaining balance sheet amounts of $3,051,688, which includes $3,414,440 of non-cash stock-based compensation expense. We expect cash used in 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 expenses we incur to satisfy future warranty claims.
Investing Activities
Net cash used in investing activities during the year ended December 31, 2021 increased by $4,604,748 to $4,677,839, as compared to cash used in 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, 2021 is primarily due to the net use of cash of $8,023,213 from the purchase and sale of marketable securities, partially reduced by cash acquired in the Merger.
56
Financing Activities
Net cash provided by financing activities during the year ended December 31, 2021 increased by $20,438,152 from cash provided by financing activities in 2020 of $152,835. The increase consisted of $21,107,410 proceeds 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 the PIPE financing, and $211,219 of which was from the issuance of stock for stock options that were exercised. This cash provided was reduced by offering costs of $188,015, and further 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 $481,243.
Liquidity and Capital Resources
As discussed above and in Note 3 to the consolidated financial statements contained in this Annual Report on Form
10-K,
ADOMANI, Inc., had approximately $3.4 million in cash and cash equivalents at the Merger closing date, primarily the result of the approximately $5.3 million net proceeds from the December 2020 closing of the Financing discussed below. EVTDS delivered $5 million cash at the Merger closing. As of December 31, 2021, we had cash and cash equivalents of $4,846,490 and marketable securities of $8,002,700, a combined total of $12,849,190, and working capital of $21,473,117. We believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our present operations during the 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 and support the increased working capital requirements associated with the fulfillment of purchase orders.
In February 2022, we 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 purchase related equipment and set up production lines and is expected to require up to $80 million of additional investment through 2027. Investments and employee hiring requirements over the next 10 years allow for local tax incentives granted to the 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 accredited investors, whereby the Company agreed to sell, and the investors agreed to purchase, shares of common 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 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 8,625,001 shares of its common stock at an exercise price of $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, net of offering costs, of approximately $16.3 million through the sale and issuance of 38,333,333 shares of common stock at a purchase price equal to $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
Because all outstanding unvested options to purchase 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 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 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, 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 would receive proceeds of approximately $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 options will be exercised. See Notes 2, 3, 9 and 14 to the consolidated 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 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, which was approximately $5 million as of December 31, 2021. 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 58
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 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.
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, 2022. 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 the lease obligation at December 31, 2022. Masters’ sublease agreement with the Company was also terminated on April 1, 2022. See Note 14 below.
On October 30, 2020, James L. Reynolds resigned from his employment with the Company, including his positions as the President and Chairman of the Board of the Company, as a member 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 disagreement with the Company on any matter relating to its operations, 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 March 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 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-year
of 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 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 Company and also as a member of the Board. Mr. Menerey’s decision to resign was not the result of any disagreement with the Company, the Board, management, or any matter relating to the Company’s operations, policies, or practices.
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 have generated sales, we have 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
No critical accounting policies or estimates existed at December 31, 2021.
Jumpstart Our Business Startups Act of 2012 (“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 will remain an emerging growth company until the earlier of (1) the last day of the fiscal 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, (3) the day we are deemed to be a large accelerated filer, which means the market value of our common stock held by
non-affiliates
exceeds $700 million as measured as of each June 30th, and (4) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior three-year period. Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued, but not effective, and does not believe that they will have a significant impact on the Company’s financial statements.
Item 7A. |
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.
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 8. |
Financial Statements and Supplementary Data |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page |
||||
63 |
||||
64 |
||||
65 |
||||
66 |
||||
67 |
||||
68 |
||||
69 |
||||
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Envirotech Vehicles, Inc.
Osceola, Arkansas
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Envirotech Vehicles, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, 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, 2021, and the results of their operations and their cash flows for the year then ended, 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 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company’s auditor since 2021.
April
26
, 2022 6
3
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.
February 05, 2021
6
4
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2021 |
December 31, 2020 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash |
||||||||
| Marketable securities |
— | |||||||
| Accounts receivable |
||||||||
| Inventory, net |
— | |||||||
| Inventory deposits |
|
|
|
|
|
|
— |
|
| Prepaid expenses |
— | |||||||
| |
|
|
|
|||||
| Total current assets |
||||||||
| Property and equipment, net |
||||||||
| Goodwill |
— | |||||||
| Other non-current assets |
||||||||
| |
|
|
|
|||||
| Total assets |
$ | $ | ||||||
| |
|
|
|
|||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | $ | ||||||
| Accrued liabilities |
||||||||
| Notes payable, net |
— | |||||||
| |
|
|
|
|||||
| Total current liabilities |
||||||||
| Long-term liabilities |
||||||||
| Other non-current liabilities |
— | |||||||
| Notes payable, net |
||||||||
| |
|
|
|
|||||
| Total liabilities |
||||||||
| |
|
|
|
|||||
| Stockholders’ equity (deficit): |
||||||||
| Preferred stock, issued and outstanding as of December 31, 2021, and December 31, 2020 |
||||||||
| Common stock, |
||||||||
| Additional paid-in capital |
— | |||||||
| Accumulated deficit |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total stockholders’ equity (deficit) |
( |
) | ||||||
| |
|
|
|
|||||
| Total liabilities and stockholders’ equity (deficit) |
$ | $ | ||||||
| |
|
|
|
|||||
See accompanying notes to consolidated financial statements.
6
5
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, |
||||||||
2021 |
2020 |
|||||||
| Sales |
$ | $ | ||||||
| Cost of sales |
||||||||
| |
|
|
|
|||||
| Gross profit |
||||||||
| Operating expenses: |
||||||||
| General and administrative |
||||||||
| Consulting |
||||||||
| Research and development |
— | |||||||
| |
|
|
|
|||||
| Total operating expenses, net |
||||||||
| |
|
|
|
|||||
| Loss from operations |
( |
) | ( |
) | ||||
| Other income (expense): |
||||||||
| Interest income (expense), net |
( |
) | ||||||
| Gain on debt forgiveness, net of other expense |
||||||||
| |
|
|
|
|||||
| Total other income (expense) |
||||||||
| |
|
|
|
|||||
| Loss before income taxes |
( |
) | ( |
) | ||||
| Income tax recovery (expense) |
( |
) | ||||||
| |
|
|
|
|||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| |
|
|
|
|||||
| Net loss per share to common stockholders: |
||||||||
| Basic and diluted |
$ | ( |
) | $ | ( |
) | ||
| |
|
|
|
|||||
| Weighted shares used in the computation of net loss per share: |
||||||||
| Basic and diluted |
||||||||
| |
|
|
|
|||||
See accompanying notes to consolidated financial statements.
6
6
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Stockholders’ Equity (Deficit) |
|||||||||||||||||
Shares |
Amount |
|||||||||||||||||||
| Balance, December 31, 2019 |
|
|
|
|
$ |
|
|
$ |
|
$ |
( |
) | |
$ |
( |
) | ||||
| Net loss |
|
|
— | |
|
|
— | |
|
|
— | |
|
( |
) |
|
|
( |
) | |
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Balance, December 31, 2020 |
|
|
|
|
$ |
|
|
$ |
|
$ |
( |
) | |
$ |
( |
) | ||||
| EVTDS common stock issued for cash |
|
|
|
|
|
|
|
|
|
|
— | |
|
|
||||||
| ADOMANI INC. common stock issued in Merger |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
| Post-Merger common stock issued for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
| Offering costs netted against proceeds from common stock issued for cash |
|
|
— | |
|
|
— | |
|
|
( |
) | |
|
— | |
|
|
( |
) |
| Stock based compensation |
|
|
— | |
|
|
— | |
|
|
|
|
— | |
|
|
||||
| Net loss |
|
|
— | |
|
|
— | |
|
|
— | |
|
( |
) | |
|
( |
) | |
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Balance, December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
$ |
( |
) | |
$ |
||||||
See accompanying notes to consolidated financial statements.
6
7
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, |
||||||||
2021 |
2020 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Unrealized loss on marketable securities |
— | |||||||
| Provision for bad debt |
— | |||||||
| Stock based compensation expense |
— | |||||||
| Gain on debt forgiveness |
( |
) | — | |||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ( |
) | ||||
| Inventory |
( |
) | — | |||||
| Inventory deposits |
|
|
( |
) | |
|
— |
|
| Prepaid expenses |
— | |||||||
| Other non-current assets |
— | |||||||
| Accounts payable |
( |
) | ||||||
| Accrued liabilities |
( |
) | ||||||
| Other non-current liabilities |
( |
) | — | |||||
| |
|
|
|
|||||
| Net cash (used in), provided by operating activities |
$ | ( |
) | $ | ||||
| |
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment, net |
$ | ( |
) | $ | ( |
) | ||
| Investment in marketable securities |
( |
) | — | |||||
| Sale of marketable securities |
— | |||||||
| Cash acquired in merger |
— | |||||||
| |
|
|
|
|||||
| Net cash |
$ | ( |
) | $ | ( |
) | ||
| |
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
$ | $ | — | |||||
| Payments for deferred offering costs |
( |
) | — | |||||
| Principal advances from (repayments on) debt |
( |
) | ||||||
| |
|
|
|
|||||
| Net cash provided by financing activities |
||||||||
| |
|
|
|
|||||
| Net change in cash, restricted cash and cash equivalents |
||||||||
| Cash, restricted cash and cash equivalents at the beginning of the period |
||||||||
| |
|
|
|
|||||
| Cash and cash equivalents at the end of the period |
$ | $ | ||||||
| |
|
|
|
|||||
| Supplemental cash flow disclosures: |
||||||||
| Cash paid for interest expense |
$ | $ | — | |||||
| |
|
|
|
|||||
| Cash paid for income taxes |
$ | $ | — | |||||
| |
|
|
|
|||||
See accompanying notes to consolidated financial statements.
6
8
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Operations
Envirotech Vehicles, Inc. (“we,” “us,” “our” or the “Company”) is a provider of purpose-built
zero-emission
electric vehicles focused on reducing the total cost of vehicle ownership and helping fleet operators unlock the benefits of green technology. 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 regulatory compliance. 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, Inc. On May 26, 2021, the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation 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.
2.
Summary of Significant Accounting Policies
Basis of Presentation
Principles of Consolidation
mpa
nying financial statements reflect the consolidation of the financial statements of EVTDS, its wholly-owned subsidiary Envirotech Drive Systems, Incorporated, and, from March 16, 2021 forward, the financial statements of Envirotech Vehicles, Inc., ADOMANI California, Inc., Adomani (Nantong) Automotive Technology Co. Ltd. (dissolved in December, 2021), ADOMANI ZEV Sales, Inc., Zero Emission Truck and Bus Sales of Arizona, Inc., and ZEV Resources, Inc. All significant intercompany accounts and transactions have been eliminated. Use of Estimates
ent
s in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 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 that are supported by little or no market data and that require the reporting entity to develop its own assumptions.
The Company
d
oes Revenue Recognition
zero-emission
electric vehicles 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 those goods or services. At December 31, 2021, the Company did have a concentration of customers; four customers’ balances account for approximately 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 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 no t 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
70
Marketable Securities
held-to-maturity,
Accounts Receivable and Allowance for Doubtful Accounts—
1
, 2021 or December 31, 2020. As discussed above, at December 31, 2021, four customers’ balances account for approximately Inventory and Inventory Valuation Allowance
—
The Company had finished goods inventory on hand of $3,862,970 as of December 31, 2021 and 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 no finished goods inventory on hand and no related inventory valuation allowance as of December 31, 2020.
Inventory Deposits—
Income Taxes
EVTDS previously recorded deferred tax benefits from net operating losses in current and prior periods. The Company, in 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 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, 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 year ended December 31, 2021.
Accounting for Uncertainty in Income Taxes—
Net Loss Per Share
Diluted net loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the diluted weighted average number of shares of common stock outstanding during the 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—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 (“FDIC”). 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 insured. In addition, Morgan Stanley provides excess insurance acquired by them from SPIC for an additional $1.9 million in cash and unlimited per customer securities up to a $1 billion cap.
The restricted cash reported by EVTDS as of December 31, 2020, combined with additional cash raised in 2021, was used to fund both the merger 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 consolidated balance sheet at December 31, 2021 is zero. During the year ended December 31, 2021, the Company’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 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
Research and Development
in connection with the development of new products and manufacturing methods are charged to operating expenses as incurred. Research and development costs were $
for the year ended December 31, 2021.
costs 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 Accounting Standards Update (“ASU”) No. 2018-07,
which simplified several aspects of accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718. The guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. The Company implemented this change beginning in2021, as it had no share-based payments to employees prior to the Merger.
With respect to the options to purchase
shares of common stock issued on August 4, 2021
(see Note 9), non-cash stock-based compensation expense
was
$
. 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
to
, 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 $
. 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 considered all recent accounting pronouncements issued, but not effective, and does not believe that they will have a significant impact on the Company’s financial statements. 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, each73
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 subscription 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 o6,415,110 5 zero
f
December 31, 2020. The total amount raised just prior to the Merger closing was $
. At the closing of the Merger, EVTDS satisfied its obligation to deliver $
million in cash to ADOMANI, Inc. and repaid the majority of the items discussed above. This number has decreased to
in both categories as of December 31, 2021.
EVTDS entered into an exclusive
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 United 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. 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 |
$ | |||
Property and equipment |
||||
Right of use asset |
||||
Other assets |
||||
Goodwill |
||||
Accounts payable and accrued expenses |
( |
) | ||
Lease liability |
( |
) | ||
Notes payable |
( |
) | ||
Purchase price, net of $3,373,332 cash acquired |
$ | |||
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 of53,509,622 112,675,558
$
, based on
shares of common
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 conducted on a company-wide basis, not on the basis of either EVTDS alone or the ADOMANI entities alone, other than nominal expense items
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information 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 been 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 |
$ | $ | ||||||
Net loss |
$ | ( |
) | $ | ( |
) | ||
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 1,826,623 more than would otherwise have been recorded absent the consummation of the Merger.
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
$4. Property and equipment, net
Components of property and equipment, net consist of the following as of December 31, 2021 and 2020:
December 31, 2021 |
December 31, 2020 |
|||||||
Furniture and fixtures |
$ | $ | — | |||||
Leasehold improvements |
||||||||
Machinery & equipment |
||||||||
Vehicles |
||||||||
Test/Demo vehicles |
— | |||||||
Total property and equipment |
||||||||
Less accumulated depreciation |
( |
) | ( |
) | ||||
Net property and equipment |
$ | $ | ||||||
75
Depreciation expense
5. Income Taxes
The cumulative estimated net operating loss (“NOL”) carry-forward is $31,347,786 (including $745,047 for EVTDS through 2020) and $0 at December 31, 2021 and 2020, 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 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 Cuts and Jobs Act of 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 the Company’s net deferred tax amount is as follows:
December 31, |
||||||||
2021 |
2020 |
|||||||
Tax effected net operating loss |
$ |
$ |
||||||
Deferred tax asset attributable to: |
||||||||
Net operating loss carryover |
||||||||
Research and development tax credit carryforward |
||||||||
Sub-total |
||||||||
Valuation allowance |
( |
) |
||||||
Net deferred tax asset |
||||||||
Cumulative NOL |
$ |
$ |
||||||
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryover for federal income tax reporting purposes are subject to annual limitations. The net operating loss carry-forward includes the years 2012 through 2021 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 occurred as a result of the Merger, net operating loss carryover will be limited as to use in future years. Federal tax returns for tax years since 2017 are still open for examination by the Internal Revenue Service.
6
. Debt As of December
020
, EVTDS had a $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 promissory note of the Company, dated May 3, 2020 (the “PPP Note”) in the principal amount of $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 at 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
the Company. Accordingly, the $10,000 that was advanced as part of the Company’s application for the EIDL
On May 20, 2020 ADOMANI, Inc. received $150,000 in loan funding from the SBA 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 the 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 and accrued interest in the amount of $154,817 was repaid without penalty on May 17, 2021.
On June 15, 2021, the Company entered into an equipment financing agreement with Navitas Credit Corp. in connection with the purchase 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 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 Stock On 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 sell, and the investors agreed to purchase, shares of common 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
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.
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
$S-3
(File No. 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 of of 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 10,681,327 shares of common stock, 2,056,326
15
, 2021, the Company had outstanding warrants to purchase an aggregate of of 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
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 |
$ | |||||||||||
Outstanding warrants expiring |
$ | |||||||||||
Outstanding warrants expiring |
$ | |||||||||||
Outstanding warrants expiring |
$ | |||||||||||
Outstanding warrants expiring |
$ | |||||||||||
Outstanding warrants on December 31, 2021 |
$ | |||||||||||
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 Options As a result of the Merger closing (see Notes 2 and 3) there were 12,992,857 fully vested stock options outstanding at March The outstanding options at December 31, 2021 consisted of the following:
15
, 2021 that were previously issued by ADOMANI, Inc. and assumed in the Merger. Number of Shares |
Exercise Price |
Weighted Average Remaining Contractual Life (years) |
||||||||||
Outstanding EVTDS at December 31, 2020 |
— |
— |
— |
|||||||||
Options acquired in Merger |
$ | |||||||||||
Exercised |
( |
) | $ | |||||||||
Cancelled / Forfeited at $0.12 Exercise Price |
( |
) | $ | |||||||||
Cancelled / Forfeited at $0.45 Exercise Price |
( |
) | $ | |||||||||
Cancelled / Forfeited at $1.31 Exercise Price |
( |
) | $ | |||||||||
Subtotal, as follows: |
||||||||||||
Outstanding Options at $0.12 Exercise Price |
$ | |||||||||||
Outstanding Options at $0.45 Exercise Price |
$ | |||||||||||
Outstanding Options at $1.31 Exercise Price |
$ | |||||||||||
Outstanding at December 31, 2021 |
$ | |||||||||||
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 an expected term of ten years, volatility of 172.40 %, and a risk-free interest rate of 1.56 %. Because these options were fully vested and
7
9
exercisable as of the grant date, the fair market value of $121,132
was recorded as stock-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 Transactions 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 the operations of the Company, including the issuing of invoices to customers and making payments on behalf of the Company with respect to leases 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 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.
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 $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 two vehicles 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 cancelable lease 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 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.
pick-up
truck and a trailer from SRI for $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 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.
80
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 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
. Commitments Operating Leases
The Company has entered into the SRI Equipment Leases (see Note 93,247 , and was $99,247 for the year ended December 31, 2020, respectively.
10
). Rent expense under the SRI Equipment Leases for the year ended December 31, 2021 was $The Company has entered into the SRI Office Lease (see Note 24,711 , and was $10,920 for the year ended December 31, 2020, respectively.
10
). Rent expense under the SRI Office Lease for the year ended December 31, 2021 was $The Company has entered into the ABCI Office Lease (see Note 30,800 , and was $25,200 for the year ended December 31, 2020.
10
). Rent expense under the ABCI Office Lease for the year ended December 31, 2021 was $In February 2017, ADOMANI, 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 basis and can be terminated by either party with 30 -days’ notice. The total amount due monthly is $1,000 .
month-to-month
In October 2017, ADOMANI, Inc. signed a 65 months, terminating February 28, 2023 . The base rent for the term of the lease was $568,912 . The total amount due monthly is $7,600 at commencement and would have escalated to $10,560 by its conclusion had ADOMANI, Inc. remained a tenant. In 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 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.
non-cancellable
lease for its former corporate office space in Corona, California, to serve as its corporate headquarters. The lease was for a period of 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 were re-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 $In December 2019, ADOMANI, Inc. signed a lease for combined 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, perform 36 months, commencing on January 1, 2020 , and terminating on December 31, 2022 . The base 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 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 81
month for fire sprinkler alarm monitoring and landscape maintenance. The base rent amount due monthly 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 occupied effective January 1, 2020 (see above). The effective date of the Masters’ sublease was February 1, 2020 , and it expires when the Company’s lease on the Corona, California facility expires on December 31, 2022 . 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. See Note 1
4
. The Company’s total net rent expense for the year ended December 31, 2021 was $252,546 , respectively. The total net rent expense for the year ended December 31, 2020 was $154,425
.
Other Agreements
Effective January 1, 2017, the Company entered 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 $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 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 March 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 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 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 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 $(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. The following table summarizes the Company’s future minimum payments under contractual commitments, excluding debt, as of December 31, 2021:
Payments due by period |
||||||||||||||||||||
Total |
Less than one year |
1 - 3 years |
4 - 5 years |
More than 5 years |
||||||||||||||||
| Operating lease obligations |
$ | $ | $ | — | $ | — | $ | — | ||||||||||||
| Employment contracts |
— | |||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | $ | |
$ | |
$ | $ | — | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
8
2
1
2
. Contingencies 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 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
. Leases As of December 31, 2021, the Company is a party to nine operating leases. Four of these leases are office or warehouse leases; the remaining five are equipment leases (see Note 1 In applying the guidance in ASC 842, the Company has determined that all current leases should be classified as operating leases.
1
). As disclosed in Note 2, the Company accounts for leases as required by ASC Topic 842. The Company has elected to apply the short-term lease exception to all leases of one year or less. As of December 31, 2021, this exception applies to the six EVTDS leases and to the ADOMANI Inc. Stockton, California lease, which are all month-to-month.
As a result of applying the guidance of ASC 842 to its former corporate office lease (see Note 10) entered into in 2017, the Company recognized an operating liability with a corresponding (“ROU”) asset of the same amounts based on the present value of the minimum rental payments of such 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.
85
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 corresponding 238,365 133,672 131,245 2,427 As of December 31, 2021, the Company’s warehouse operating lease had a weighted-average remaining lease term of 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 $
. As of December 31, 2021, the ROU asset had a balance of $
, which is included in other
non-current
assets in the consolidated balance sheet. Current liabilities relating to the ROU asset, which are included in accrued liabilities in the consolidated balance sheet, were $
at December 31, 2021.
Non-current
liabilities relating to the ROU asset, which are included in other
non-current
liabilities in the consolidated balance sheet, were $
as of December 31, 2021.
year. See Note 1
1
.
Quantitative information regarding the Company’s leases is as follows:
Year Ended December 31, |
||||||||
2021 |
2020 |
|||||||
Lease expenses |
||||||||
Operating lease expenses |
$ | $ | ||||||
Short-term lease expenses |
$ | $ | ||||||
Total lease cost |
$ | $ | ||||||
Other information |
||||||||
Cash paid for the amounts included in the measurement of lease liabilities for operating leases: |
||||||||
Operating cash flows |
$ | $ | — | |||||
Weighted-average remaining lease term (in years): |
||||||||
Operating leases |
— | |||||||
Weighted-average discount rate: |
||||||||
Operating leases |
— | |||||||
14. Subsequent Events
On
January 7, 2022, the Company’s Compensation Committee granted Phillip W. Oldridge, the Company’s CEO, options to purchase
shares of common stock at an exercise price of $
per share and options to purchase
shares of common stock at an exercise price of $
per share. The options vested immediately and expire on the
anniversary 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 1/60five years and expire on the anniversary of grant.
th
per month over On February 22, 2022, the Company announced Osceola, Arkansas as the site of its manufacturing 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 $27
state-of-the-art
million.
86
On March 15, 2022, options to purchase 1,000,000 shares of common stock were exercised by the former President and CEO of the Company at a price of $0.12 per share, resulting in a payment to the Company of $120,000 . Also on March 15, 2022, options to purchase an aggregate of 500,000 shares of common stock with an exercise price of $0.45 per share and options to purchase an aggregate of 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 Note 12 for the Corona, CA office and warehouse facility was assigned to Masters (see Note 10) through the end of the lease obligation at December 31, 2022. Masters’ sublease agreement with the Company was also terminated on April 1, 2022.
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Item 9A. |
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)
and 15d-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
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
87
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 regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to exemptions available to issuers that are
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
Other than the material weakness described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter covered 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.
88
Part III
Item 10. |
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 the client division.
high-net-worth
Non-Employee
Directors Melissa 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 from 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 available 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 the 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 and non-audit services to be performed by our independent registered public accounting firm; |
| • | 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.
94
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.
95
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 $300,000 included in his employment agreement that was effective March 1, 2021. |
| (3) | Mr. Menerey retired effective as of January 2, 2022. |
| (4) | This amount represents the salary paid to Ms. Emry from her April 16, 2021 hire date as Controller through December 31, 2021. Ms. Emry was an unpaid officer of Envirotech Drive Systems, Inc. in 2020 and from January 1, 2021 through April 15, 2021. |
96
Outstanding Equity Awards at 2021 Fiscal
Year-End
The following table sets forth information regarding outstanding stock options held by our Named Executive Officers as of December 31, 2021. Our Named Executive Officers did not hold any restricted stock or other awards as of December 31, 2021:
| Name |
Number of Securities Underlying Unexercised Options (#) Exercisable (1) |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Option Exercise Price ($) |
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 | ||||||||||||
| (1) | The shares were initially subject to vesting over a three-year period, with one-third of the options vesting on the one-year anniversary of the grant date and the remainder vesting in equal monthly installments thereafter, subject to continued service through such 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 options vested in full and became exercisable by the holder thereof on or before their respective expiration dates. |
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 the one-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.
97
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 the one-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. |
98
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.
99
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
100
Non-Employee
Director Compensation Directors 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. |
101
Item 12 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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 all shares of our common stock beneficially owned by them. The information does not necessarily indicate beneficial ownership for any 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 common stock outstanding as of April 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, 2022 are deemed to be outstanding and to be beneficially owned by the person or entity holding such option, warrant or convertible security for the purpose of computing the number and percentage ownership of outstanding shares of that person or entity. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person or entity. Consequently, the denominator for calculating beneficial ownership percentages may be different for each beneficial owner. Except as otherwise noted, the address of each person or entity in the following table is c/o Envirotech Vehicles, Inc., 1425 Ohlendorf Road, Osceola, AR 72370.
| 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 (i) 440,000 shares of our common stock held of record by Phillip W. Oldridge and (ii) 9,000,000 shares of our common stock underlying options that are currently exercisable or exercisable within 60 days after January 31, 2022. |
102
| (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 a Voting Trust Agreement dated March 20, 2017 and (ii) 8,170 shares of our common stock held of record by Melissa Barcellos. |
| (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 information reported in such Schedule 13G, the information set forth above includes: (i) an additional 3,250,000 shares of our common stock purchased by 162315 Family Trust at the second closing of our previously announced private investment in public equity, or PIPE, transaction, on May 7, 2021, pursuant to that certain Securities Purchase Agreement, dated as of December 24, 2020 (the “Purchase Agreement”), that we entered into with certain institutional and accredited investors and pursuant to which, among other things, we sold and issued, and the investors purchased, shares of our common stock and related warrants to purchase additional shares of our common stock in a series of two closings (the “Financing”); and (ii) an additional 1,625,000 shares of common stock underlying warrants issued to 162315 Family Trust at the second closing of the Financing that are exercisable as of June 1, 2021. The address of Gerald Douglas Conrod is 1961 Douglas Street, Victoria, British Columbia, V8T 4K7, Canada. |
| (8) | The information reported is based in part on, and in reliance upon, and without independent investigation of, information provided by 162315 Family Trust in a Schedule 13G filed with the SEC on March 26, 2021. As reported in such Schedule 13G, 162315 Family Trust is the beneficial owner of 22,017,689 shares of our common stock, and has sole voting and dispositive power over such shares. In addition to the information reported in such Schedule 13G, the information set forth above includes: (i) an additional 3,250,000 shares of our common stock purchased by 162315 Family Trust at the second closing of the Financing on May 7, 2021; and (ii) an additional 1,625,000 shares of common stock underlying warrants issued to 162315 Family Trust at the second closing of the Financing that are exercisable as of June 1, 2021. The address of 162315 Family Trust is 1103 Goldstream Avenue, Victoria, British Columbia, V9B 2Y9, Canada. |
103
Item 13 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
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 which we were a party 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 of 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 report on Form operations of the Company, including the issuing of invoices to customers and making payments on behalf of the Company with respect to leases 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 the day-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 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 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, 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.
104
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.
Item 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES |
MaloneBailey, LLP served as our independent registered public accounting firm for the fiscal year ended December 31, 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.
105
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 and non-audit
expenses. All of the services described above were approved by the Audit Committee in accordance with its procedure. 106
Part IV
Item 15. |
Exhibits, Financial Statement Schedules |
| (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 |
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 |
The following exhibits are filed (or incorporated by reference herein) as part of this Annual Report:
107
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. |
110
| # | 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 Form 10-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.
111
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: April 26, 2022 | By: | /s/ Phillip W. Oldridge | ||
| Phillip W. Oldridge Chief Executive Officer | ||||
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Phillip W. Oldridge, Christian S. Rodich and Susan M. Emry, jointly and severally, his each 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 said or his substitute or substitutes, may do or cause to be done by virtue hereof.
attorneys-in-fact,
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. Oldridge Phillip W. Oldridge |
Chief Executive Officer and Director (Principal Executive Officer) |
April 26, 2022 | ||
| /s/ Christian S. Rodich Christian S. Rodich |
Chief Financial Officer | April 26, 2022 | ||
| /s/ Susan M. Emry Susan M. Emry |
Executive Vice President & Director | April 26, 2022 | ||
| /s/ Melissa Barcellos Melissa Barcellos |
Director | April 26, 2022 | ||
| /s/ Michael Di Pietro Michael Di Pietro |
Director | April 26, 2022 | ||
| /s/ Bradley J. Dixon Bradley J. Dixon |
Director | April 26, 2022 | ||
| /s/ Terri White Elk Terri White Elk |
Director | April 26, 2022 | ||
112