Azio Ai Holdings, Inc 8-K/A, filed Apr 22, 2021
Azio Ai Holdings, Inc. (AZIO)
About this 8-K/A
Azio Ai Holdings, Inc filed this 8-K/A on April 22, 2021, reporting on events of March 16, 2021.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 16, 2021
adomani, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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001-38078 |
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46-0774222 |
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(State or other jurisdiction |
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(Commission File Number) |
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(I.R.S. Employer |
1215 Graphite Drive
Corona, California 92881
(Address of principal executive offices) (Zip Code)
(951) 407-9860
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading |
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Name of each exchange on which registered |
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Common stock, $0.00001 par value |
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ADOM |
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OTC Markets Group Inc. |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☒
Explanatory Note
This Current Report on Form 8-K/A (this “Amendment”) amends and supplements the Current Report on Form 8-K of ADOMANI, Inc., a Delaware corporation (the “Company”), filed with the Securities and Exchange Commission (the “Commission”) on March 22, 2021 (the “Original Form 8-K”) reporting that the Company had completed its acquisition of Envirotech Drive Systems, Inc., a Delaware corporation (“EVT”). This Amendment is being filed solely to include the audited financial statements of EVT and unaudited pro forma combined condensed financial information required by Item 9.01 of Form 8-K concerning the Company’s acquisition of EVT. No other amendments to the Original Form 8-K are being made by this Amendment.
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Item 9.01 |
Financial Statements and Exhibits. |
(a) The audited consolidated financial statements of Envirotech Drive Systems, Inc. as of and for the year ended December 31, 2020 and Envirotech Drive Systems, Incorporated as of and for the year ended December 31, 2019 and related notes are attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.
(b) The unaudited pro forma combined condensed financial information for the year ended December 31, 2020 are attached as Exhibit 99.2 to this Current Report on Form 8-K and incorporated herein by reference.
(d) Exhibits.
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Exhibit Number |
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Description |
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23.1 |
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99.1 |
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99.2 |
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Unaudited pro forma combined condensed financial information for the year ended December 31, 2020. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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ADOMANI, Inc. |
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Dated: April 22, 2021 |
By: |
/s/ Michael K. Menerey |
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Michael K. Menerey |
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Chief Financial Officer |
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-3 (333-255341 and 333-226871) and Registration Statement on Form S-8 (333-224152) of ADOMANI, Inc. of our reports dated February 5, 2021 with respect to the audited consolidated financial statements of Envirotech Drive Systems, Inc. and its subsidiaries for the year ended December 31, 2020 and Envirotech Drive Systems, Incorporated for the year ended December 31, 2019.
/s/ Der Vartanian & Associates
Der Vartanian & Associates, Accountancy Corporation
Los Angeles, California
April 21, 2021
Exhibit 99.1
Envirotech Drive Systems, Inc.
Audited Financial Statements
For the year ended December 31, 2020
Envirotech Drive Systems, Inc.
Audited Financial Statements
For the year ended December 31, 2020
Table of Contents
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Opinion on Financial Statements |
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Audited Financial Statements |
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Balance Sheet |
2 |
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Statement of changes in stockholders' equity |
3 |
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Statements of Income & retained earnings |
4 |
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Statement of Cash flows |
5 |
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Notes to Financial Statements |
6-12 |
Der Vartanian & Associates Accty. Corp.
Certified Public Accountants
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Der Vartanian & Associates, Accountancy Corporation Certified Public Accountants |
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1670 Hillhurst Ave, Suite 200 |
License # COR 4982 |
Tel: (818) 244-7700 |
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Los Angeles, CA 90027 |
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Tel: (818) 242-9755 |
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e-mail brian@netcpa.com |
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Fax: (818) 244-8132 |
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INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Envirotech Drive Systems Inc.
We have audited the accompanying financial statements of Envirotech Drive Systems Inc., which comprise the balance sheet as of December 31, 2020, and the related statements of income, retained earnings, and cash flows for the year then ended, and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Envirotech Drive Systems Inc. as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Related Party Transactions
As discussed in Note 4 to the financial statements, the Company engaged related party entities in performing operations, as such our opinion is not modified with respect to that matter.
Der Vartanian & Associates, Accountancy Corporation
Los Angeles, CA
February 05, 2021
1
Envirotech Drive Systems, Inc.
Balance Sheet
For the year ended December 31, 2020
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December 31, 2020 |
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ASSETS: |
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CURRENT ASSETS |
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Cash (Note 2) |
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$ |
1,930,132 |
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Receivables (Note 1) |
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9,000 |
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TOTAL CURRENT ASSETS |
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1,939,132 |
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PROPERTY AND EQUIPMENT |
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Equipment and Properties |
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252,018 |
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Accumulated Depreciation & Amortization (Note 1) |
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(24,457 |
) |
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TOTAL PROPERTY AND EQUIPMENT (NET) |
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227,561 |
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OTHER ASSETS |
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Related Party Receivables (Note 4) |
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23,725 |
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Deferred Tax Asset (Note 1) |
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218,300 |
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TOTAL OTHER ASSETS |
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242,025 |
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TOTAL ASSETS |
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$ |
2,408,718 |
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LIABILITIES |
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CURRENT LIABILITIES |
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Accounts Payable (Note 4) |
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$ |
345,383 |
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Penalties and Interest Payable |
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910 |
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Customer Deposits |
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587,840 |
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Subscription Agreement (Note 2) |
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1,793,910 |
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TOTAL CURRENT LIABILITIES |
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2,728,043 |
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LONG TERM LIABILITIES |
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SBA Loan (Note 3) |
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152,835 |
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TOTAL LONG TERM LIABILITIES |
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152,835 |
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TOTAL LIABILITIES |
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2,880,878 |
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STOCKHOLDERS' EQUITY |
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Common Stock |
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100 |
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Retained Deficit |
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(192,739 |
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Net Loss |
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(279,521 |
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TOTAL SHAREHOLDERS' EQUITY |
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(472,160 |
) |
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY |
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$ |
2,408,718 |
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See Accompanying Notes to Financial Statements |
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Der Vartanian & Associates Accty. Corp. Certified Public Accountants |
2 |
Envirotech Drive Systems, Inc.
Statement of Changes in Stockholders' Equity
For the year ended December 31, 2020
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Common Stock |
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Additional Paid in |
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Retained Deficit |
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Totals |
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Balance as of January 1, 2020 |
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$ |
100 |
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(192,739 |
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$ |
(192,639 |
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Comprehensive Income |
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Net Loss |
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(279,521 |
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(279,521 |
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Additional Paid In Capital |
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Dividends Distribution |
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Total Comprehensive Income |
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(279,521 |
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Balance as of December 31, 2020 |
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$ |
100 |
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(472,260 |
) |
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$ |
(472,160 |
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See Accompanying Notes to Financial Statements |
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Der Vartanian & Associates Accty. Corp. Certified Public Accountants |
3 |
Envirotech Drive Systems, Inc.
Statements of Income & Retained Earnings
For the year ended December 31, 2020
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December 31, 2020 |
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Revenue |
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Revenue (Note 8) |
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$ |
88,735 |
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Total Revenue |
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88,735 |
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Cost of Sales |
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Cost of Sales |
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73,560 |
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Total Cost of Sales |
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73,560 |
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Gross Profit |
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15,175 |
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EXPENSES: |
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Auto |
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24,147 |
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Bank Charges |
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2,297 |
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Computer and Internet |
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4,847 |
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Depreciation (Note 1) |
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17,670 |
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Insurance |
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557 |
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Meals and Entertainment |
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4,328 |
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Office |
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1,455 |
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Professional Fees |
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106,290 |
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Rent (Note 6) |
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154,425 |
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Telephone |
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3,680 |
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Business Licenses and Permits |
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209 |
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Repair & Maintenance |
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3,321 |
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Reimbursed |
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139 |
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Small tools |
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273 |
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Subcontracted Services |
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70,901 |
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Trade Show (Note JO) |
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10,728 |
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Travel |
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20,865 |
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TOTAL EXPENSES |
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426,132 |
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NET LOSS BEFORE INCOME TAXES |
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(410,957 |
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OTHER INCOME: |
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Deferred Tax |
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127,300 |
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EIDL |
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7,000 |
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TOTAL OTHER INCOME |
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134,300 |
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OTHER EXPENSE: |
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Interest Expense |
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2,864 |
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TOTAL OTHER EXPENSE |
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2,864 |
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NET LOSS |
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$ |
(279,521 |
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See Accompanying Notes to Financial Statements |
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Der Vartanian & Associates Accty. Corp. Certified Public Accountants |
4 |
Envirotech Drive Systems, Inc.
Statement of Cash Flows
For the year ended December 31, 2020
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December 31, 2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net Loss |
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$ |
(279,521 |
) |
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ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
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Depreciation and Amortization (Note 1) |
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17,670 |
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Increase / Decrease In: |
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(Increase) in Receivables |
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(9,000 |
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(Increase) in Related Party Receivables (Note 4) |
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(23,725 |
) |
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(Increase) in Deferred Tax assets (Note 1) |
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(127,300 |
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Increase in Accounts Payable |
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80,454 |
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(Decrease) in Advances from Related Parties |
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(164,025 |
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Increase in Penalties and Interest Payable (Note 1) |
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30 |
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Increase in Customer Deposits |
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237,840 |
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Increase in Subscription Agreement (Note 2) |
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1,793,910 |
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TOTAL ADJUSTMENTS |
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1,805,854 |
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NET CASH PROVIDED BY OPERATIONS |
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1,526,333 |
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CASH FLOWS (USED) BY INVESTING ACTIVITIES: |
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Net Acquisition of Property and Equipment |
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(73,091 |
) |
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NET CASH (USED) BY INVESTING ACTIVITIES |
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(73,091 |
) |
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CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: |
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Long term Liabilities |
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152,835 |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
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152,835 |
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NET INCREASE IN CASH |
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1,606,077 |
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CASH AT BEGINNING OF PERIOD |
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324,055 |
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CASH AT END OF PERIOD |
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$ |
1,930,132 |
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SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS |
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Interest Paid |
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Income Tax Paid |
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See Accompanying Notes to Financial Statements |
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Der Vartanian & Associates Accty. Corp. Certified Public Accountants |
5 |
ENVIROTECH DRIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
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Note 1. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Business Operation
The Company was incorporated under the laws of the state of Delaware on December 17, 2020 as a C Corporation and its wholly owned subsidiary, Envirotech Drive Systems Incorporated, a Wyoming based Company, which is registered as a foreign entity in California on October 4, 2019. The Company has exclusive distribution rights in the U.S.A. to sell Envirotech Electric Vehicles Inc. Canada, commercial electric transport vehicles in the United States market.
Method of Accounting
Assets, liabilities, revenues and expenses are recognized on the accrual method of accounting for both financial statements presentation and income tax purposes. Revenue from sales is generally recognized upon the customer taking possession of the product and both title and risk of loss passing, provided that persuasive evidence of an arrangement exists, the sales price is fixed or determinable, and collection of the related receivable is reasonably assured. Provisions for returns are provided for at the time the related sales are recorded.
Property, Vehicles, Equipment and Depreciation
Vehicles and equipment are stated at cost, less accumulated depreciation. Betterments and improvements are capitalized while routine repairs and maintenance are charged to current operating expense. When assets are retired or otherwise disposed of, the assets and related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in income. Depreciation is provided by primarily the straight-line method over the estimated useful lives of property and equipment. The estimated useful lives are as follows:
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Years |
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Machinery and equipment |
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7 - 10 |
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Furniture and fixtures |
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7 - 10 |
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Automobiles, trucks, and trailers |
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5 - 10 |
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Leasehold improvements |
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10 - 15 |
Depreciation for the year ended December 31, 2020 was $17,670.
Income Taxes
Income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management's best estimate of current and future taxes to be paid. The Company is subject to income taxes in the United States. Significant judgments and estimates are required in the determination of the income tax expense. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating the Company's ability to recover deferred tax assets in the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company begins
6
ENVIROTECH DRIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
with historical results and incorporate assumptions about the amount of future state and federal pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates the Company is using to manage the underlying businesses.
The Company did not file Corporate Income Tax returns for 2017, 2018, 2019 and 2020. Income tax returns are subject to filing penalty when filed more than 60 days after the return due date. The minimum penalty is the lesser of two amounts - 100% of the tax required to be shown on the return that the Company did not pay on time, or a specific dollar amount that is adjusted annually for inflation. The estimated amount for penalties and interests is calculated to be $910.
Deferred Income Taxes
For income tax reporting, the Company has incurred tax operating losses of $3,122, $49,395, $217,822, and $279,521 for the years ending December 31, 2017, 2018, 2019 and 2020, respectively. Deferred income taxes have been recorded for combined losses, which will be deductible in future periods when the Company has taxable income. The operating losses expire after 20 years. Deferred tax assets are as follows:
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Years Ending December 31 |
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Company Only |
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Consolidated |
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2017 |
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- |
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$ |
656 |
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2018 |
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12,744 |
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2019 |
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77,600 |
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2020 |
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127,300 |
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Total |
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- |
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$ |
(218,300 |
) |
Accounts Receivable
Trade accounts receivable is recorded net of an allowance for doubtful accounts. The allowance is estimated from historical collections experience and projections of trends. No allowance for bad debts were established as of December 31, 2020.
Statement of Casi, Flows
For the purposes for the statement of cash flows, the Company considers all bank accounts, savings accounts and short-term investments with a maturity of three months or less to be cash equivalents.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from these estimates.
Accounting for Long-Lived Assets
The Companies review vehicles and equipment and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to future net cash flows an asset is expected to
7
ENVIROTECH DRIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
generate. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount at which the carrying amount of the asset exceeds the projected discounted future cash flows from the asset. During the year ended December 31, 2020, no such impairment charges were recognized.
Principles of Consolidation
The consolidated financial statements include the accounts of Envirotech Drive Systems, Inc. (Company), a US corporation, and its wholly owned subsidiary, Envirotech Drive Systems, Incorporated. (Subsidiary), a US corporation.
All significant intercompany transactions and balances have been eliminated in the consolidated financial statements. The Company-only financial statements include only the accounts of Envirotech Drive Systems, Inc. on the equity method of accounting.
During the year 2020, the Company and Subsidiary had the following transactions and balances eliminated in the consolidated financial statements:
|
Envirotech Drive Systems, Incorporated |
|
|
|
|
|
Common stock |
|
$ |
100 |
|
The carrying value of the Companies' cash and cash equivalents; accounts receivable, less the allowance for doubtful accounts; accounts payable approximates the fair value due to short maturities of such instruments. The carrying value of notes payable approximates fair value as interest rates and terms currently available to the Company for the remaining maturities of the notes have not materially changed from the rates available at the original issuance date. The fair value of the notes payable to shareholder is not determinable due to the related party nature of the balance.
Date of Management's Review
Management has evaluated subsequent events through February 05, 2021, the date on which the financial statements were available to be issued.
|
Note 2. |
CONCENTRATIONS |
Concentrations of Credit Risk Arising from Casi, Deposits in Excess of Insured Limits
The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limit of $250,000. The Company has not experienced any losses in such accounts. Management believes they are not exposed to any significant credit risk on cash and cash equivalents. On December 31, 2020 the Company's uninsured cash balances are as follows:
|
Years Ending December 31 |
|
Company Only |
|
|
Consolidated |
|
||
|
Uninsured cash balances |
|
$ |
1,680,132 |
|
|
$ |
1,680,132 |
|
8
ENVIROTECH DRIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
The Company has Subscription restricted cash, and it is conditional to the merger. The balance as of December 31, 2020 is as follows:
|
Years Ending December 31 |
|
Company Only |
|
|
Consolidated |
|
||
|
Subscription restricted cash |
|
$ |
1,793,910 |
|
|
$ |
1,793,910 |
|
Concentrations of Credit Risk
For the year ended December 31, 2020, 100% of total sales are with two customers. The credit risk for customer accounts receivable is concentrated because the balance due is with one customer representing the entire carrying amount. However, the customer account is typically collected within a short period of time, and based on its assessment of current conditions, management believes realization losses on amounts outstanding at the end of 2020 will be immaterial. Accordingly, customer accounts are reported at the amount of principal outstanding.
|
Note 3. |
LONG-TERM DEBT |
|
$150,000 Note payable with interest accruing at 3.5%, monthly principal and interest of $731 beginning July 2021, expiring June 2050, secured by substantially all the Company's assets. |
|
$ |
152,835 |
|
|
Total |
|
|
152,835 |
|
|
Less current portion of long-term debt |
|
|
1,410 |
|
|
Long term-debt |
|
$ |
151.425 |
|
Maturities of long-term debt are as follows:
|
Years Ending December 31 |
|
Company Only |
|
|
Consolidated |
|
||
|
2021 |
|
|
- |
|
|
$ |
1,410 |
|
|
2022 |
|
|
|
|
|
|
3,040 |
|
|
2023 |
|
|
|
|
|
|
3,156 |
|
|
2024 |
|
|
|
|
|
|
3,276 |
|
|
2025 |
|
|
|
|
|
|
3,401 |
|
|
Thereafter |
|
|
|
|
|
|
138,552 |
|
|
Total |
|
|
- |
|
|
$ |
152,835 |
|
|
Note 4. |
RELATED PARTY TRANSACTIONS |
The Company purchased electric transport vehicle components for assembly from a related party that owns a minority interest (less than 1% of common stock issued) in the Company. As of December 31, 2020, the Company had $23,725 in cash advances due from and $109,486 in accounts payable due to the minority interest.
The Company has engaged SRI Professional Services as an intermediary for the purposes of day-to-day operations. The internal control over financial reporting and overrides might be compromised due to control over approvals of the transactions. SRI Professional Services Inc performs activity as a related party, issuing invoices and making payments.
9
ENVIROTECH DRIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
|
Note 5. |
UNCERTAINTY IN INCOME TAXES |
The Company recognizes tax benefits only to the extent that the Company believes it is "more likely than not" that its tax positions will be sustained upon examination by taxing authorities. The Company has not been examined by taxing authorities. However, the Company's tax returns are generally still open for examination by tax authorities for three years after they are filed. Management believes that all of its tax positions will be sustained if examined by taxing authorities, therefore no additional tax liabilities or related penalties and interest due to uncertain tax positions have been recorded.
|
Note 6. |
COMMITMENTS AND CONTINGENCIES |
Leases
The Company leases its corporate offices and various equipment under cancelable, month to month operating leases. The agreements provide for minimum monthly lease payments ranging from $910 to $3,891 with total monthly commitments of $12,826. Rent expense recorded under the lease for the year ended December 31, 2020 was $154,425.
Legal Matters
From time to time, the Company is subject to various legal actions in the ordinary course of business. Management is aware of any significant legal matters, refer to Note 11.
|
Note 7. |
EXCLUSIVE DISTRIBUTION AGREEMENT |
The Company entered into an Exclusive Distribution Agreement as of October 04, 2017 to become the sole distributor of Envirotech Electric Vehicles, Inc., a Canadian entity in the U.S.A. This appointment grants the Company the executive right to promote sales and obtain orders based on sales targets for the period of orders. Envirotech Electric Vehicles Inc Canada appoints exclusively the rights of distribution of its procedures in the U.S.A to Envirotech Drive Systems Inc. Envirotech Electric Vehicles Inc Canada may not independently advertise solely or appoint additional distributions. This exclusive right expires at the end of fifty (50) years from the effective date.
|
Note 8. |
REVENUE RECOGNITION |
The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from contracts with Customers (Topic 606)". The ASU and all subsequently issued clarifying ASUs replaced most existing revenue recognition guidance in U.S. GAAP. The ASU also required expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The Company generates revenue through vehicle sales and consulting services. Revenue is recognized when it is realized or realizable and earned. The Company considered revenue realized or realizable and earned when it has persuasive evidence
10
ENVIROTECH DRIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
of an arrangement, delivery has occurred the billable work is fixed or determinable and collectively is reasonable assured. Delivery does not occur until the vehicles have been delivered to the customer, risk ofloss has transferred to the customer and either customer acceptance has been obtained, customer acceptance provisions have lapsed, or the Company has objective evidence that the criteria specified in the customer acceptance provisions have been satisfied. The billable sale amount is not considered to be fixed or determined until all contingencies related to the sale have been resolved.
On January 01, 2019, the Company adopted ASC 606. The following schedule shows Company's revenues:
|
|
|
December 31, 2020 |
|
|||
|
Revenues |
|
Company Only |
|
Consolidated |
|
|
|
From Vehicle Sale |
|
|
|
$ |
79,735 |
|
|
From Consulting |
|
|
|
|
9,000 |
|
|
Total Revenues |
|
|
|
$ |
88,735 |
|
|
Note 9. |
SUBSCRIPTION RIGHTS AND AGREEMENT |
The Company offered a restricted subscription agreement only to EVT Canada's Stockholders to have the right to purchase for each one common share of Canada owned at least two shares of common stock of the Company. All purchases are payable in cash upon subscription acceptance. The subscribers are accredited investors based on the subscription documents booklet Purchaser Questionnaire section, which was marked and signed by subscribers. The purpose of this subscription offering is to raise the necessary capital to close the company's merger with Adomani, Inc through the letter of intent presented to the Company on December 18, 2020. If the merger fails to be realized the funds needs to be returned to the investors according to the subscription documents. The funds received from the subscribers as of December 31, 2020 is $1,793,910 and a liability account "Subscription Agreement" has been established.
|
|
|
December 31, 2020 |
|
|||||
|
|
|
Company Only |
|
|
Consolidated |
|
||
|
Subscription Agreements |
|
$ |
1,793,910 |
|
|
$ |
1,793,910 |
|
|
Note 10. |
ADVERTISING |
The Company expenses advertising costs as they are incurred if the future benefit of it is less than a year. Otherwise, the cost will be capitalized. The Company does not have long-term advertising costs, so all is expensed. Advertising expenses for the year ended December 31, 2020 were $10,728.
|
Note 11. |
CONTINGENCIES AND LITIGATIONS |
The Company has recorded in its financial statements all material liabilities, including an estimate for situations which are not yet resolved but where, based on available information, management believes it is probable that the company will have to make payment. In the opinion of management, the company are adequate to pay all know or
11
ENVIROTECH DRIVE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
pending claims. The company has been named as a defendant to a civil claim under Canadian laws. The management is denying any liabilities as no evidence to breach of contract exist. The management believes that the amount of the liability is insignificant. The legal opinion provided to us indicates denying any liability to the plaintiff, however the ability to assess the likelihood of a favorable outcome or an estimate of the potential range of loss is not determinable.
|
Note 12. |
SUBSEQUENT EVENT |
|
|
a) |
COVID-19 |
The Company's operations may be affected by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which was declared a pandemic by the World Health Organization in March 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in an adverse impact on the Company's financial position, operations and cash flows. Possible effects may include, but are not limited to, disruption to the Company's customers and revenue, absenteeism in the Company's labor workforce, unavailability of products and supplies used in operations, and a decline in value of assets held by the Company, including inventories, property and equipment.
|
|
b) |
Potential Acquisition |
A letter of intent of potential acquisition have been submitted from Adomani, Inc. to acquire the Company on December 18, 2020. The transaction will be based on certain conditions where the total assets should include at least $5 million in cash. The Company's management achieved the required cash milestone as of the date of the issuance of the audited financial statements.
12
Envirotech Drive Systems, Incorporated
Audited Financial Statements
For the year ended December 31, 2019
Envirotech Drive Systems, Incorporated
Audited Financial Statements
For the year ended December 31, 2019
Table of Contents
|
Opinion on Financial Statements |
|
|
|
|
|
Audited Financial Statements |
|
|
|
|
|
Balance Sheet |
2 |
|
Statement of changes in stockholders' equity |
3 |
|
Statements of Income & retained earnings |
4 |
|
Statement of Cash flows |
5 |
|
Notes to Financial Statements |
6-11 |
Der Vartanian & Associates Accty. Corp.
Certified Public Accountants
|
|
|
|
|
|
|
Der Vartanian & Associates, Accountancy Corporation Certified Public Accountants |
|
|||
|
1670 Hillhurst Ave, Suite 200 |
License # COR 4982 |
Tel: (818) 244-7700 |
||
|
Los Angeles, CA 90027 |
|
Tel: (818) 242-9755 |
||
|
e-mail brian@netcpa.com |
|
Fax: (818) 244-8132 |
||
|
|
||||
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Envirotech Drive Systems Incorporated
We have audited the accompanying financial statements of Envirotech Drive Systems Incorporated, which comprise the balance sheet as of December 31, 2019, 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, 2019, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Related Party Transactions
As discussed in Note 4 to the financial statements, the Company engaged related party entities in performing operations, as such our opinion is not modified with respect to that matter.
Der Vartanian & Associates, Accountancy Corporation
Los Angeles, CA
February 05, 2021
Envirotech Drive Systems, Incorporated
Balance Sheet
For the year ended December 31, 2019
|
|
|
December 31, 2019 |
|
|
|
ASSETS: |
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
Cash (Note 3) |
|
$ |
324,055 |
|
|
Deferred Tax Asset (Note 1) |
|
|
91,000 |
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
|
|
415,055 |
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|
|
Equipment and Properties |
|
|
178,927 |
|
|
Accumulated Depreciation & Amortization (Note 1) |
|
|
(6,787 |
) |
|
|
|
|
|
|
|
TOTAL PROPERTY AND EQUIPMENT (NET) |
|
|
172,140 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
587,195 |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable (Note 4) |
|
$ |
264,929 |
|
|
Advances from Related Parties (Note 4) |
|
|
164,025 |
|
|
Penalties and Interest Payable (Note 1) |
|
|
880 |
|
|
Customer Deposits |
|
|
350,000 |
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
|
|
779,834 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
779,834 |
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
100 |
|
|
Retained Deficit |
|
|
(52,517 |
) |
|
Net Loss |
|
|
(140,222 |
) |
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS' EQUITY |
|
|
(192,639 |
) |
|
|
|
|
|
|
|
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY |
|
$ |
587,195 |
|
|
See Accompanying Notes to Financial Statements |
|
|
|
|
|
|
|
|
Der Vartanian & Associates Accty. Corp. Certified Public Accountants |
2 |
Envirotech Drive Systems, Incorporated
Statement of Changes in Stockholders' Equity
For the year ended December 31, 2019
|
|
|
Common Stock |
|
|
Additional Paid in |
|
Retained Deficit |
|
|
Totals |
|
|||
|
Balance as of January 1, 2019 |
|
$ |
100 |
|
|
|
|
|
(52,517 |
) |
|
$ |
(52,417 |
) |
|
Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
|
|
|
|
|
(140,222) |
|
|
(140,222) |
|
||
|
Additional Paid In Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
(140,222) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019 |
|
$ |
100 |
|
|
|
|
(192,739) |
|
|
$ |
(192,639 |
) |
|
|
See Accompanying Notes to Financial Statements |
|
|
|
|
|
|
|
|
Der Vartanian & Associates Accty. Corp. Certified Public Accountants |
3 |
Envirotech Drive Systems, Incorporated
Statements of Income & Retained Earnings
For the year ended December 31, 2019
|
|
|
December 31, 2019 |
|
|
|
Revenue |
|
|
|
|
|
Revenue (Note 7) |
|
$ |
467,500 |
|
|
Total Revenue |
|
|
467,500 |
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
Cost of Sales |
|
|
410,000 |
|
|
Total Cost of Sales |
|
|
410,000 |
|
|
|
|
|
|
|
|
Gross Profit |
|
|
57,500 |
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
Auto |
|
|
36,951 |
|
|
Bank Charges |
|
|
8,896 |
|
|
Computer and Internet |
|
|
2,721 |
|
|
Depreciation (Note 1) |
|
|
6,787 |
|
|
Insurance |
|
|
8,899 |
|
|
Interest Expense (Note 1) |
|
|
25 |
|
|
Meals and Entertainment |
|
|
9,216 |
|
|
Office |
|
|
8,570 |
|
|
Penalties (Note 1) |
|
|
855 |
|
|
Professional Fees |
|
|
48,161 |
|
|
Rent (Note 2) |
|
|
58,882 |
|
|
Telephone |
|
|
211 |
|
|
Taxes and Licenses |
|
|
978 |
|
|
Repair & Maintenance |
|
|
4,074 |
|
|
Trade Show (Note 9) |
|
|
25,360 |
|
|
Travel |
|
|
54,736 |
|
|
TOTAL EXPENSES |
|
|
275,322 |
|
|
|
|
|
|
|
|
NET LOSS BEFORE INCOME TAXES |
|
|
(217,822 |
) |
|
Income Tax Benefit (Note 5) |
|
|
77,600 |
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(140,222 |
) |
|
See Accompanying Notes to Financial Statements |
|
|
|
|
|
|
|
|
Der Vartanian & Associates Accty. Corp. Certified Public Accountants |
4 |
Envirotech Drive Systems, Incorporated
Statement of Cash Flows
For the year ended December 31, 2019
|
|
|
December 31, 2019 |
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
Net Loss |
|
$ |
(140,222 |
) |
|
|
|
|
|
|
|
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization (Note 1) |
|
|
6,787 |
|
|
|
|
|
|
|
|
Cash flow from Operations: |
|
|
|
|
|
(Increase) in Deferred Tax assets (Note 1) |
|
|
(77,600 |
) |
|
Increase in Accounts Payable |
|
|
252,929 |
|
|
Increase in Advances from Related Parties (Note 4) |
|
|
164,025 |
|
|
Increase in Penalties and Interest Payable (Note 1) |
|
|
880 |
|
|
Increase in Customer Deposits |
|
|
350,000 |
|
|
|
|
|
|
|
|
TOTAL ADJUSTMENTS |
|
|
697,021 |
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATIONS |
|
|
556,799 |
|
|
|
|
|
|
|
|
CASH FLOWS (USED) BY INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
Net Acquisition of Property and Equipment |
|
|
(178,927 |
) |
|
|
|
|
|
|
|
NET CASH (USED) BY INVESTING ACTIVITIES |
|
|
(178,927 |
) |
|
CASH FLOWS (USED) BY FINANCING ACTIVITIES: |
|
|
|
|
|
Long term Liabilities |
|
|
(54,125 |
) |
|
|
|
|
|
|
|
NET CASH (USED) BY FINANCING ACTIVITIES |
|
|
(54,125 |
) |
|
|
|
|
|
|
|
NET INCREASE IN CASH |
|
|
323,747 |
|
|
CASH AT BEGINNING OF PERIOD |
|
|
308 |
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD |
|
$ |
324,055 |
|
|
|
|
|
|
|
|
SUPPLEMENT AL INFORMATION TO STATEMENT OF CASH FLOWS |
|
|
|
|
|
Interest Paid |
|
|
|
|
|
Income Tax Paid |
|
|
|
|
|
See Accompanying Notes to Financial Statements |
|
|
|
|
|
|
|
|
Der Vartanian & Associates Accty. Corp. Certified Public Accountants |
5 |
ENVIROTECH DRIVE SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
|
Note 1. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Business Operation
The Company was incorporated under the laws of the state of Delaware on December 17, 2020 as a C Corporation and its wholly owned subsidiary, Envirotech Drive Systems Incorporated, a Wyoming based Company, which is registered as a foreign entity in California on October 4, 2019. The Company has exclusive distribution rights in the U.S.A. to sell Envirotech Electric Vehicles Inc. Canada, commercial electric transport vehicles in the United States market.
Method of Accounting
Assets, liabilities, revenues and expenses are recognized on the accrual method of accounting for both financial statements presentation and income tax purposes. Revenue from sales is generally recognized upon the customer taking possession of the product and both title and risk of loss passing, provided that persuasive evidence of an arrangement exists, the sales price is fixed or determinable, and collection of the related receivable is reasonably assured. Provisions for returns are provided for at the time the related sales are recorded.
Vehicles, Equipment and Depreciation
Vehicles and equipment are stated at cost, less accumulated depreciation. Betterments and improvements are capitalized while routine repairs and maintenance are charged to current operating expense. When assets are retired or otherwise disposed of, the assets and related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in income. Depreciation is provided by primarily the straight-line method over the estimated useful lives of property and equipment. The estimated useful lives are as follows:
|
|
Years |
|
|
Machinery and equipment |
|
7 - 10 |
|
Furniture and fixtures |
|
7 - 10 |
|
Automobiles, trucks and trailers |
|
5 - 10 |
Depreciation for the year ended December 31, 2019 was $6,787.
Income Taxes
Income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management's best estimate of current and future taxes to be paid. The Company is subject to income taxes in the United States. Significant judgments and estimates are required in the determination of the income tax expense. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating the Company's ability to recover deferred tax assets in the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company begins with historical results and incorporate assumptions about the amount of future state
6
ENVIROTECH DRIVE SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
and federal pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates the Company is using to manage the underlying businesses.
The Company did not file Corporate Income Tax returns for 2017, 2018 and 2019. Income tax returns are subject to filing penalty when filed more than 60 days after the return due date. The minimum penalty is the lesser of two amounts - 100% of the tax required to be shown on the return that the Company did not pay on time, or a specific dollar amount that is adjusted annually for inflation. The estimated amount for penalties and interests payable is calculated to be $880.
Deferred Income Taxes
For income tax reporting, the Company has incurred tax operating losses of $3,122, $49,395 and $217,822 for the years ending December 3I, 2017, December 31, 2018 and December 31, 2019, respectively. Deferred income taxes have been recorded for combined losses, which will be deductible in future periods when the Company has taxable income. The operating losses expire after 20 years. Deferred tax assets are as follows:
|
|
|
31-Dec-19 |
|
|
|
2017 |
|
$ |
656 |
|
|
2018 |
|
|
12,744 |
|
|
2019 |
|
|
77,600 |
|
|
Total |
|
$ |
91,000 |
|
Accounts Receivable
Trade accounts receivable is recorded net of an allowance for doubtful accounts. The allowance is estimated from historical collections experience and projections of trends.
Statement of Cash Flows
For the purposes for the statement of cash flows, the Company considers all bank accounts, savings accounts and short-term investments with a maturity of three months or less to be cash equivalents.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from these estimates.
Accounting for Long-Lived Assets
The Companies review vehicles and equipment and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to future net cash flows an asset is expected to generate. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount at which the carrying amount of the asset exceeds the
7
ENVIROTECH DRIVE SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
projected discounted future cash flows from the asset. During the year ended December 31, 2019, no such impairment charges were recognized.
Financial Instruments
The carrying value of the Companies' cash and cash equivalents; accounts receivable, less the allowance for doubtful accounts; accounts payable approximates the fair value due to short maturities of such instruments. The carrying value of notes payable approximates fair value as interest rates and terms currently available to the Company for the remaining maturities of the notes have not materially changed from the rates available at the original issuance date. The fair value of the notes payable to shareholder is not determinable due to the related party nature of the balance.
Date of Management's Review
Management has evaluated subsequent events through February 05, 2021, the date on which the financial statements were available to be issued.
|
Note 2. |
COMMITMENTS |
Leases
The Company leases its corporate offices under a cancelable operating lease. The agreement provides for a minimum lease payment of $1,689. Rent expense recorded under the lease for the year ended December 31, 2019 was $32,351.
Legal Matters
From time to time, the Company is subject to various legal actions in the ordinary course of business. Management is aware of any significant legal matters, refer to Note 10.
|
Note 3. |
CONCENTRATIONS |
Concentrations of Credit Risk Arising from Cash Deposits in Excess of Insured Limits
The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limit of $250,000. The Company has not experienced any losses in such accounts. Management believes they are not exposed to any significant credit risk on cash and cash equivalents. On December 31, 2019 the Company's uninsured cash balances total $74,055.
Concentrations of Credit Risk
For the year ended December 31, 2019, I00% of total sales are with a single customer. There is no credit risk for trade receivables because all amounts were collected prior to year-end.
|
Note 4. |
RELATED PARTY TRANSACTIONS |
The Company purchased electric transport vehicle components for assembly from a related party that owns a minority interest (less than 1% of common stock issued) in the Company. The cost of materials paid and accrued during 2019 was $408,000. As
8
ENVIROTECH DRIVE SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
of December 31, 2019, the Company had $164,125 in cash advances and $109,486 in accounts payable due to the minority interest.
The Company has engaged SRI Professional Services as an intermediary for the purposes of day-to-day operations. The internal control over financial reporting and overrides might be compromised due to control over approvals of the transactions. SRI Professional Services Inc performs activity as a related party, issuing invoices and making payments.
|
Note 5. |
UNCERTAINTY IN INCOME TAXES |
The Company recognizes tax benefits only to the extent that the Company believes it is "more likely than not" that its tax positions will be sustained upon examination by taxing authorities. The Company has not been examined by taxing authorities. However, the Company's tax returns are generally still open for examination by tax authorities for three years after they are filed. Management believes that all of its tax positions will be sustained if examined by taxing authorities, therefore no additional tax liabilities or related penalties and interest due to uncertain tax positions have been recorded.
|
Note 6. |
EXCLUSIVE DISTRIBUTION AGREEMENT |
The Company entered into an Exclusive Distribution Agreement as of October 04, 2017 to become the sole distributor of Envirotech Electric Vehicles, Inc., a Canadian entity in the U.S.A. This appointment grants the Company the executive right to promote sales and obtain orders based on sales targets for the period of orders. Envirotech Electric Vehicles Inc Canada appoints exclusively the rights of distribution of its procedures in the U.S.A to Envirotech Drive Systems Inc. Envirotech Electric Vehicles Inc Canada may not independently advertise solely or appoint additional distributions. This exclusive right expires at the end of fifty (50) years from the effective date.
|
Note 7. |
REVENUE RECOGNITION |
The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from contracts with Customers (Topic 606)". The ASU and all subsequently issued clarifying ASUs replaced most existing revenue recognition guidance in U.S. GAAP. The ASU also required expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The Company generates revenue through vehicle sales. Revenue is recognized when it is realized or realizable and earned. The Company considered revenue realized or realizable and earned when it has persuasive evidence of an arrangement, delivery has occurred the billable work is fixed or determinable and collectively is reasonable assured. Delivery does not occur until the vehicles have been delivered to the customer, risk of loss has transferred to the customer and either customer acceptance has been obtained, customer acceptance provisions have lapsed, or the Company has objective evidence that the criteria specified in the customer acceptance provisions have been satisfied. The billable sale amount is not considered to be fixed or determined until all contingencies related to the sale have been resolved.
9
ENVIROTECH DRIVE SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
On January 01, 2019, the Company adopted ASC 606. The following schedule shows Company's revenues:
|
|
|
December 31, 2019 |
|
|
|
Revenues |
|
|
|
|
|
From Vehicle Sale |
|
$ |
467,500 |
|
|
Total Revenues |
|
$ |
467,500 |
|
|
Note 8. |
SUBSCRIPTION RIGHTS AND AGREEMENT |
The Company offered a restricted subscription agreement only to EVT Canada's Stockholders to have the right to purchase for each one common share of Canada owned at least two shares of common stock of the Company. All purchases are payable in cash upon subscription acceptance. The subscribers are accredited investors based on the subscription documents booklet Purchaser Questionnaire section, which was marked and signed by subscribers. The purpose of this subscription offering is to raise the necessary capital to close the company's merger with Adomani Inc. through the letter of intent presented to the Company on December 18, 2020. If the merger fails to be realized the funds need to be returned to the investors according to the subscription documents. There were no funds received from the subscribers as of December 31, 2019.
|
Note 9. |
ADVERTISING |
The Company expenses advertising costs as they are incurred if the future benefit of it is less than a year. Otherwise, the cost will be capitalized. The Company does not have long-term advertising costs, so all is expensed. Advertising expenses for the year ended December 31, 2019 were $25,360.
|
Note 10. |
CONTINGENCIES AND LITIGATIONS |
The Company has recorded in its financial statements all material liabilities, including an estimate for situations which are not yet resolved but where, based on available information, management believes it is probable that the company will have to make payment. In the opinion of management, the company are adequate to pay all know or pending claims. The company has been named as a defendant to a civil claim under Canadian laws. The management is denying any liabilities as no evidence to breach of contract exist. The management believes that the amount of the liability is insignificant. The legal opinion provided to us indicates denying any liability to the plaintiff, however the ability to assess the likelihood of a favorable outcome or an estimate of the potential range of loss is not determinable.
|
Note 11. |
SUBSEQUENT EVENT |
|
|
a) |
COVID-19 |
The Company's operations may be affected by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which was declared a pandemic by the World Health Organization in March 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in an adverse impact on the
10
ENVIROTECH DRIVE SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Company's financial position, operations and cash flows. Possible effects may include, but are not limited to, disruption to the Company's customers and revenue, absenteeism in the Company's labor workforce, unavailability of products and supplies used in operations, and a decline in value of assets held by the Company, including inventories, property and equipment.
|
|
b) |
Potential Acquisition |
A letter of intent of potential acquisition have been submitted from Adomani Inc. to acquire the Company on December 18, 2020. The transaction will be based on certain conditions where the total assets should include at least $5 million in cash. The Company's management achieved the required cash milestone as of the date of the issuance of the audited financial statements.
11
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet as of December 31, 2020 is presented as if the merger (the “Merger”) among ADOMANI, Inc. (“ADOMANI”), EVT Acquisition Company, Inc. and Envirotech Drive Systems, Inc. (“Envirotech”) had occurred as of December 31, 2020. The unaudited pro forma combined condensed statements of operations for the year ended December 31, 2020 are presented as if the Merger had occurred on January 1, 2020.
The pro forma consolidated financial statements of ADOMANI and Envirotech have been adjusted to reflect certain reclassifications in order to conform ADOMANI’s historical financial statement presentation to Envirotech’s financial statement presentation for the combined company. The unaudited pro forma combined condensed financial statements give effect to the Merger under the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standard Topic 805, Business Combinations, with Envirotech treated as the acquirer.
Assumptions and estimates underlying the unaudited adjustments to the pro forma combined condensed financial statements are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma combined condensed financial statements. The historical consolidated financial statements have been adjusted in the unaudited pro forma combined condensed financial statements to give effect to pro forma events that are: (i) directly attributable to the Merger; (ii) factually supportable; and (iii) with respect to the unaudited pro forma combined condensed statements of operations, expected to have a continuing impact on the combined results of Envirotech and ADOMANI following the Merger.
The pro forma amounts in the tables below are presented for informational purposes. You should not rely on the pro forma amounts as being indicative of the financial position or the results of operations of the combined company that would have actually occurred had the Merger been consummated on the date or during the periods presented or of the future financial position or future results of operations of ADOMANI and Envirotech operating together.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
OF ADOMANI AND ENVIROTECH
As of December 31, 2020
|
|
|
Historical |
|
|
Pro Forma |
|
|
Pro Forma |
|
|||||||
|
|
|
ADOMANI |
|
|
Envirotech |
|
|
Adjustments |
|
|
Combined |
|
||||
|
Cash and cash equivalents(c)(d) |
|
$ |
4,136,476 |
|
|
$ |
1,930,132 |
|
|
$ |
3,640,937 |
|
|
$ |
9,707,545 |
|
|
Accounts receivable |
|
|
13,609 |
|
|
|
9,000 |
|
|
|
– |
|
|
|
22,609 |
|
|
Inventory, net |
|
|
353,730 |
|
|
|
– |
|
|
|
– |
|
|
|
353,730 |
|
|
Prepaid expenses(a) |
|
|
1,083,511 |
|
|
|
– |
|
|
|
(587,840) |
|
|
|
495,671 |
|
|
Other current assets |
|
|
15,029 |
|
|
|
– |
|
|
|
– |
|
|
|
15,029 |
|
|
Total current assets |
|
|
5,602,355 |
|
|
|
1,939,132 |
|
|
|
3,053,097 |
|
|
|
10,594,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
101,661 |
|
|
|
227,561 |
|
|
|
– |
|
|
|
329,222 |
|
|
Other non-current assets |
|
|
463,876 |
|
|
|
23,725 |
|
|
|
– |
|
|
|
487,601 |
|
|
Deferred tax asset |
|
|
– |
|
|
|
218,300 |
|
|
|
– |
|
|
|
218,300 |
|
|
Goodwill(g) |
|
|
– |
|
|
|
– |
|
|
|
40,095,753 |
|
|
|
40,095,753 |
|
|
Total Assets |
|
$ |
6,167,892 |
|
|
$ |
2,408,718 |
|
|
$ |
43,148,850 |
|
|
$ |
51,725,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable(d) |
|
|
9,071 |
|
|
|
345,383 |
|
|
|
(345,383) |
|
|
|
9,071 |
|
|
Accrued liabilities(d) |
|
|
897,453 |
|
|
|
910 |
|
|
|
(910 |
) |
|
|
897,453 |
|
|
Customer deposits(a) |
|
|
– |
|
|
|
587,840 |
|
|
|
(587,840) |
|
|
|
– |
|
|
Subscription agreement(b) |
|
|
– |
|
|
|
1,793,910 |
|
|
|
(1,793,910) |
|
|
|
– |
|
|
Notes payable, net |
|
|
203,867 |
|
|
|
– |
|
|
|
– |
|
|
|
203,867 |
|
|
Total current liabilities |
|
|
1,110,391 |
|
|
|
2,728,043 |
|
|
|
(2,728,043) |
|
|
|
1,110,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities |
|
|
215,757 |
|
|
|
152,835 |
|
|
|
(152,835) |
|
|
|
215,757 |
|
|
Notes payable, net |
|
|
207,277 |
|
|
|
– |
|
|
|
– |
|
|
|
207,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,533,425 |
|
|
|
2,880,878 |
|
|
|
(2,880,878) |
|
|
|
1,533,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
1,127 |
|
|
|
100 |
|
|
|
1,325 |
|
|
|
2,552 |
|
|
Additional paid-in capital(g)
|
|
|
68,197,358 |
|
|
|
– |
|
|
|
(17,535,615) |
|
|
|
50,661,743 |
|
|
Accumulated deficit |
|
|
(63,564,018 |
) |
|
|
(472,260 |
) |
|
|
63,564,018 |
|
|
|
(472,260) |
|
|
Total stockholders’ equity (deficit)(b) |
|
|
4,634,467 |
|
|
|
(472,160) |
|
|
|
46,029,728 |
|
|
|
50,192,035 |
|
|
Total liabilities and Stockholders’ equity |
|
$ |
6,167,892 |
|
|
$ |
2,408,718 |
|
|
$ |
43,148,850 |
|
|
$ |
51,725,460 |
|
The accompanying notes are an integral part of these unaudited pro forma combined condensed consolidated financial statements
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF OPERATIONS OF ADOMANI AND ENVIROTECH
For the year ended December 31, 2020
|
|
|
Historical |
|
|
Pro Forma |
|
|
Pro Forma |
|
|||||||
|
|
|
ADOMANI |
|
|
Envirotech |
|
|
Adjustments |
|
|
Combined |
|
||||
|
Revenues(e) |
|
$ |
618,166 |
|
|
$ |
88,735 |
|
|
$ |
(79,735) |
|
|
$ |
627,166 |
|
|
Cost of sales(e)(f) |
|
|
302,940 |
|
|
|
73,560 |
|
|
|
(79,750) |
|
|
|
296,750 |
|
|
Gross profit |
|
|
315,226 |
|
|
|
15,175 |
|
|
|
15 |
|
|
|
330,416 |
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
4,421,793 |
|
|
|
365,925 |
|
|
|
– |
|
|
|
4,787,718 |
|
|
Sales and marketing |
|
|
155,397 |
|
|
|
60,207 |
|
|
|
– |
|
|
|
215,604 |
|
|
Research and development |
|
|
75,110 |
|
|
|
– |
|
|
|
– |
|
|
|
75,110 |
|
|
Total operating expenses, net |
|
|
4,652,300 |
|
|
|
426,132 |
|
|
|
– |
|
|
|
5,078,432 |
|
|
Loss from operations |
|
|
(4,337,074 |
) |
|
|
(410,957 |
) |
|
|
(159,485) |
|
|
|
(4,748,016 |
) |
|
Other income (expense) |
|
|
(335) |
|
|
|
– |
|
|
|
– |
|
|
|
(335) |
|
|
Interest income (expense) |
|
|
(49,165) |
|
|
|
2,864 |
|
|
|
– |
|
|
|
(46,301) |
|
|
Loss before taxes |
|
|
(4,386,574 |
) |
|
|
(413,821 |
) |
|
|
(159,485) |
|
|
|
(4,794,652 |
) |
|
Income tax (expense) benefit |
|
|
– |
|
|
|
(127,300) |
|
|
|
– |
|
|
|
127,300 |
|
|
Net loss from continuing operations |
|
|
(4,386,574 |
|
|
|
(286,521) |
|
|
|
(159,485) |
|
|
|
(4,667,352) |
|
|
Net income from discontinued operations |
|
|
– |
|
|
|
7,000 |
|
|
|
– |
|
|
|
7,000 |
|
|
Net loss |
|
$ |
(4,386,574 |
) |
|
$ |
(279,521 |
) |
|
$ |
(159,485) |
|
|
$ |
(4,660,352 |
) |
|
Net loss per share, basic and diluted |
|
$ |
(0.06 |
) |
|
$ |
(279,521 |
) |
|
|
– |
|
|
$ |
(0.02 |
) |
|
Weighted-average shares(g) |
|
|
76,752,444 |
|
|
|
1 |
|
|
|
178,476,135 |
|
|
|
255,228,580 |
|
The accompanying notes are an integral part of these unaudited pro forma combined condensed consolidated financial statements
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
|
|
1. |
Basis of Presentation |
The unaudited pro forma combined condensed financial statements are prepared under the acquisition accounting method in accordance with ASC 805, with Envirotech treated as the acquirer. Under the acquisition accounting method, the total estimated purchase price allocation is calculated as described in Note 4. In accordance with ASC 805, the assets acquired and the liabilities assumed have been measured at fair value based on various preliminary estimates, and these estimates are subject to change pending further review of the fair value of assets acquired and liabilities assumed. The final amounts recorded for the merger may differ materially from the information presented herein.
The unaudited pro forma combined condensed financial statements were prepared in accordance with GAAP and pursuant to SEC Regulation S-X Article 11, and present the pro forma financial position and results of operations of the combined companies based upon the historical information after giving effect to the mergers and adjustments described in these Notes to the unaudited pro forma combined condensed financial statements. The unaudited pro forma combined condensed balance sheet is presented as if the merger had occurred on December 31, 2020; and the unaudited pro forma combined condensed statements of operations for the year ended December 31, 2020 are presented as if the merger had occurred on January 1, 2020.
|
|
2. |
Accounting Policies |
As a result of the continuing review of ADOMANI’s accounting policies, Envirotech may identify differences between the accounting policies of the two businesses that, when conformed, could have an impact on the combined financial statements. The unaudited pro forma combined condensed financial statements do not assume any differences in accounting policies other than the reclassification of certain of ADOMANI’s operating expenses to conform with Envirotech operating expenses.
|
|
3. |
Preliminary Estimated Purchase Price Consideration |
Subject to the terms and conditions of the merger agreement, each outstanding share of Envirotech common stock will be exchanged for one share of ADOMANI common stock.
The requirement to determine the final purchase price using the number of Envirotech shares outstanding at the closing date and the closing price of ADOMANI’s common stock as of the closing date could result in a total purchase price different from the price assumed in these unaudited pro forma combined condensed financial statements, and that difference may be material. Therefore, the estimated consideration expected to be transferred reflected in these unaudited pro forma combined condensed financial statements does not purport to represent what the actual consideration transferred will be when the merger is completed.
The final determination of the allocation of the purchase price will be based on the fair value of assets and liabilities as of the date of closing of the merger. Such final determination of the purchase price allocation may be significantly different from the preliminary estimates used in these unaudited pro forma combined condensed financial statements.
|
|
4. |
Preliminary Estimated Purchase Price Allocation |
The following allocation of the preliminary estimated purchase price assumes, with the exception of goodwill, carrying values approximate fair value. Fair value of goodwill is based on a preliminary estimated
purchase price of $44,730,220. Based upon these assumptions, the total purchase price consideration was allocated to ADOMANI’s assets and liabilities, as of December 31, 2020, as follows:
|
|
|
Estimated Fair |
|
|
|
Cash and cash equivalents |
|
$ |
4,136,476 |
|
|
Accounts receivable, net |
|
|
13,609 |
|
|
Prepaid expenses and other current assets |
|
|
1,452,270 |
|
|
Total current assets |
|
|
5,602,355 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
101,661 |
|
|
Other assets |
|
|
463,876 |
|
|
Total assets acquired |
|
$ |
6,167,892 |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
9,071 |
|
|
Accrued expenses and other current liabilities |
|
|
897,453 |
|
|
Notes payable |
|
|
203,867 |
|
|
Total current liabilities |
|
|
1,110,391 |
|
|
|
|
|
|
|
|
Notes payable |
|
|
207,277 |
|
|
Other long-term liabilities |
|
|
215,757 |
|
|
Total liabilities assumed |
|
$ |
1,533,425 |
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
6,167,892 |
|
|
|
|
|
|
|
|
Shares of ADOMANI common stock outstanding at December 31, 2020 |
|
|
112,670,580 |
|
|
Closing price per share of ADOMANI common stock on December 31, 2020 |
|
$ |
0.3970 |
|
|
|
|
|
|
|
|
Total estimated purchase price |
|
44,730,220 |
|
|
|
Less: net assets acquired |
|
|
(6,167,892) |
|
|
Plus: total liabilities assumed |
|
|
1,533,425 |
|
|
Goodwill |
|
$ |
40,095,753 |
|
The final determination of the purchase price allocation will be based on the actual net tangible and intangible assets of ADOMANI that will exist on the date of the merger and completion of the valuation of the fair value of such net assets. Envirotech anticipates that the ultimate purchase price allocation of balance sheet amounts such as current assets and liabilities, property and equipment, intangible assets and long-term assets and liabilities will differ from the preliminary assessment outlined above. Any changes to the initial estimates of the fair value of the acquired assets and assumed liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.
|
|
5. |
Preliminary Pro Forma Financial Statement Adjustments |
Adjustments included in the column under the heading “Pro Forma Adjustments” represent the following which are shown on the face of the financial statements:
|
|
Note (a) |
Eliminate ADOMANI asset and Envirotech liability for vehicle deposits that ADOMANI has given Envirotech, which deposits relate to four vans and six trucks. |
|
|
Note (b) |
Reclassify December 31, 2020 Envirotech subscription agreement liability (cash held in trust) to equity. and then increase from $1,793,910 to the required $5,000,000 at closing. |
|
|
Note (c) |
As of March 8, 2021, a total capital raise of $6,415,110 was completed by EVT and held in escrow until March 16, 2021 when it was released based on the merger closing on March 15, |
|
|
2021, resulting inadjustments to operating cash and additional paid-in capital. Acquisition costs are estimated at an additional approximate 7.5% of gross subscription funds raise of approximately $481,135. |
|
|
Note (d) |
Assumes, as of December 31, 2020, all debt has been paid pursuant to capital raised under subscription agreements. |
|
|
Note (e) |
Eliminate Envirotech sale of one vehicle to ADOMANI in 2020. |
|
|
Note (f) |
Eliminate purchase of one vehicle from Envirotech sold by ADOMANI. |
|
|
Note (g) |
Assumes that the 112,670,580 shares of ADOMANI common stock outstanding on December 31, 2020 and the 142,558,000 shares of ADOMANI common stock to be issued to Envirotech stockholders in the merger were outstanding on January 1, 2020 for a total of 255,228,580 shares of common stock for purposes of recording the purchase price allocation and related adjustments to the capital accounts. |