Azio Ai Holdings, Inc 10-Q for FY2023 Q3
Azio Ai Holdings, Inc. (AZIO)
About this 10-Q
Azio Ai Holdings, Inc filed this 10-Q on November 14, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $100.02K
- down 90.3% from $1.03M a year earlier
- Net loss
- $5.99M
- compared with a net loss of $1.32M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED
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:
ENVIROTECH VEHICLES, INC.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
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| (Address of principal executive offices, including zip code) |
| ( |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
| Securities registered pursuant to Section 12(b) of the Act: |
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| Trading | Name of each exchange | ||
| Title of each class | Symbol(s) | on which registered | ||
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of the registrant’s common stock as of November 10, 2023 was
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED September 30, 2023
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains “forward-looking statements” that involve substantial risks and uncertainties. Forward-looking statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. 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 special note set forth in this Quarterly Report, 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:
| • |
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 Quarterly Report and the documents that we reference elsewhere in this Quarterly 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 greater detail, particularly in Part I, Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and in Part II, Item 1A (Risk Factors) of this Quarterly 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 Quarterly Report regardless of the time of delivery of this Quarterly 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 Quarterly Report.
Unless expressly indicated or the context requires otherwise, references in this Quarterly Report to “Envirotech,” the “Company,” “we,” “our,” and “us” refer to Envirotech Vehicles, Inc. and our consolidated subsidiaries, unless the context indicates otherwise.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Marketable securities | ||||||||
| Accounts receivable, net of allowance of $ and $, respectively | ||||||||
| Inventory, net | ||||||||
| Inventory deposits | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Notes payable - current | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Notes payable - long-term | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock, authorized, $ par value per share, issued and outstanding as of September 30, 2023, and December 31, 2022 | ||||||||
| Common stock, authorized, $ par value per share, and issued and outstanding as of September 30, 2023, and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Sales |
$ | $ | $ | $ | ||||||||||||
| Cost of sales |
||||||||||||||||
| Gross profit |
||||||||||||||||
| Operating expenses |
||||||||||||||||
| General and administrative |
||||||||||||||||
| Consulting |
( |
) | ||||||||||||||
| Research and development |
||||||||||||||||
| Goodwill impairment charge |
||||||||||||||||
| Total operating expenses, net |
||||||||||||||||
| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other (expense)/income: |
||||||||||||||||
| Interest (expense)/income, net |
( |
) | ||||||||||||||
| Other expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Total other (expense)/income |
( |
) | ||||||||||||||
| Loss before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax expense |
||||||||||||||||
| Net income 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 Unaudited Consolidated Financial Statements.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Three and Nine Months Ended September 30, 2023 and 2022
(unaudited)
| Additional |
||||||||||||||||||||
| Common Stock |
Paid-In |
Accumulated |
Stockholders’ |
|||||||||||||||||
| Shares |
Amount |
Capital |
Deficit |
Equity (Deficit) |
||||||||||||||||
| Balance, December 31, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock based compensation |
— | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, March 31, 2023 |
$ | $ | $ | ( |
) | |||||||||||||||
| Stock based compensation |
— | $ | ||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, June 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Common stock issued for services |
( |
) | ||||||||||||||||||
| Stock based compensation |
— | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, September 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Additional |
||||||||||||||||||||
| Common Stock |
Paid-In |
Accumulated |
Stockholders’ |
|||||||||||||||||
| Shares |
Amount |
Capital |
Deficit |
Equity (Deficit) |
||||||||||||||||
| Balance, December 31, 2021 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Common stock issued for cash |
||||||||||||||||||||
| Common stock issued for lawsuit settlement |
||||||||||||||||||||
| Stock based compensation |
— | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, March 31, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, June 30, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Common stock issued for lawsuit settlement |
||||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, September 30, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Unrealized loss (gain) on marketable securities |
( |
) | ||||||
| Stock based compensation expense |
||||||||
| Goodwill impairment charge |
||||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ||||||
| Inventory |
( |
) | ( |
) | ||||
| Inventory deposits |
( |
) | ||||||
| Prepaid expenses |
( |
) | ||||||
| Other assets |
( |
) | ||||||
| Accounts payable |
( |
) | ||||||
| Accrued liabilities |
( |
) | ( |
) | ||||
| Other liabilities |
||||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment, net |
( |
) | ( |
) | ||||
| Investment in marketable securities |
( |
) | ||||||
| Sale of marketable securities |
||||||||
| Net cash provided by investing activities |
||||||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
||||||||
| Principal repayments on debt |
( |
) | ( |
) | ||||
| Net cash (used in) 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, restricted cash and cash equivalents at the end of the period |
$ | $ | ||||||
| Supplemental cash flow disclosures: |
||||||||
| Cash paid for interest expense |
$ | $ | ||||||
| Non-cash common stock issued for services |
$ | $ | ||||||
| Non-cash common stock lawsuit settlement |
$ | $ | ||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED 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 February 22, 2022, the Company announced Osceola, Arkansas, as the site of its state-of-the-art manufacturing facility and new corporate offices. The Company has moved into an approximately
On June 28, 2022, we effected a
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation—The consolidated financial statements and related disclosures include the consolidated balance sheet accounts as of September 30, 2023 and the consolidated results of operations for the three and nine months ended September 30, 2023 of Envirotech Vehicles, Inc. and subsidiaries. These consolidated financial statements are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States ("U.S.") generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the Company’s opinion, these unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These unaudited financial statements should be read in conjunction with the Envirotech Vehicles, Inc.'s audited financial statements for the years ended December 31, 2022 and 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on September 25, 2023. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year.
Principles of Consolidation—The accompanying financial statements reflect the consolidation of the financial statements of EVTDS, its wholly-owned subsidiary Envirotech Drive Systems Incorporated, Envirotech Vehicles, Inc., ADOMANI California, Inc., Adomani (Nantong) Automotive Technology Co. Ltd. (for periods in 2021 only), ADOMANI ZEV Sales, Inc., Zero Emission Truck and Bus Sales of Arizona, Inc., Envirotech Vehicles, Inc. (Philippines) and ZEV Resources, Inc. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates—The preparation of financial statements 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—The carrying values of the Company’s financial instruments, including cash, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these financial instruments. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 820, “Fair Value Measurement” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs that are supported by little or no market data and that require the reporting entity to develop its own assumptions.
The Company does have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.
Revenue Recognition—The Company recognizes revenue from the sales of 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 September 30, 2023, the Company did have a concentration of customers;
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 includes the sale of electric trucks and cargo vans. These sales represent a single performance obligation and revenue is recognized when the vehicle is delivered and the customer has accepted the vehicle and signed the appropriate documentation acknowledging receipt of the vehicle. At this time, the title of the vehicle is transferred to the customer.
Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less to be cash equivalents. The recorded value of our restricted cash and cash equivalents approximates their fair value. The Company had
Marketable Securities—The Company invests in short-term, highly liquid, marketable securities, such as U.S. Treasury notes, U.S. Treasury bonds, and other government-backed securities. The Company classifies these marketable securities as held-to-maturity, as the intent is not to liquidate them prior to the respective stated maturity date. At September 30, 2023, the aggregate amount of the Company’s investments in marketable securities was zero. Investments in marketable securities at December 31, 2022 were .
Accounts Receivable and Allowance for Doubtful Accounts—The Company establishes an allowance for bad debts through a review of several factors, including historical collection experience, current aging status of the customer accounts, and financial condition of its customers. The Company does not generally require collateral for its accounts receivable. The Company had trade accounts receivable of $
Inventory and Inventory Valuation Allowance—The Company records inventory at the lower of cost or market, and uses a First In, First Out (“FIFO”) accounting valuation methodology and establishes an inventory valuation allowance for vehicles that it does not intend to sell in the future. The Company had finished goods inventory on hand of $
Inventory Deposits—Certain of our vendors require the Company to pay upfront deposits before they will commence manufacturing our vehicles, and then require progress deposits through the production cycle and before the finished vehicles are shipped. These deposits are classified as inventory deposits in the consolidated balance sheet. Upon completion of production acceptance by the Company, and passage of title to the Company, deposits are reclassified to inventory. The Company had inventory deposits of $
Income Taxes—The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.
Accounting for Uncertainty in Income Taxes—The Company evaluates its uncertain tax positions and will recognize a loss contingency when it is probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can be reasonably estimated. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. At September 30, 2023 and December 31, 2022, respectively, management did not identify any uncertain tax positions.
Net Income (Loss) Per Share—Basic net income (loss) per share is calculated by dividing the Company’s net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.
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 September 30, 2023,
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 Arvest Bank, National Association (“Arvest”). Between FDIC and the Securities Investor Protection Corporation (“SIPC”) coverage, funds up to $
Impairment of Long-Lived Assets—Long-lived assets, including property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates these assets to determine potential impairment by comparing the carrying amount to the undiscounted estimated future cash flows of the related assets. If the estimated undiscounted cash flows are less than the carrying value of the assets, the assets are written down to their fair value. There was
Goodwill—Goodwill represents the excess acquisition cost over the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing on or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value 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, if any. The Company has determined that it has reporting unit, and based on both qualitative and quantitative analysis, it is management’s assessments at September 30, 2023, that $
Research and Development—Costs incurred in connection with the development of new products and manufacturing methods are charged to operating expenses as incurred. Research and development costs were $
Stock-Based Compensation—The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, “Compensation-Stock Compensation”, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered. Non-cash stock-based compensation expense of $
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 years, except leasehold improvements, which are being amortized over the life of the lease term. Property and equipment qualify for capitalization if the purchase price exceeds $2,000. Major repairs and replacements, which extend the useful lives of equipment, are capitalized and depreciated over the estimated useful lives of the property. All other maintenance and repairs are expensed as incurred.
Leases—The Company accounts for leases as required by ASC Topic 842. The guidance requires companies to recognize leased assets and liabilities on the balance sheet and to disclose key information regarding leasing arrangements.
| 3. |
Property and Equipment, Net |
Components of property and equipment, net, consist of the following as of September 30, 2023 and December 31, 2022:
| September 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Furniture and fixtures |
$ | $ | ||||||
| Leasehold improvements |
||||||||
| Machinery & equipment |
||||||||
| Vehicles |
||||||||
| Test/Demo vehicles |
||||||||
| Total property and equipment |
||||||||
| Less accumulated depreciation |
( |
) | ( |
) | ||||
| Net property and equipment |
$ | $ | ||||||
Depreciation expense was $
| 4. |
Debt |
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 $
On July 15, 2022, the Company entered into an equipment financing agreement with Wells Fargo in connection with the purchase of facility grounds equipment. The $
Effective June 15, 2022, the Company entered into a premium financing agreement with First Insurance Funding to finance certain insurance coverage. The $
Effective August 20, 2023, the Company entered into a second premium financing agreement with First Insurance Funding to finance other insurance coverages. The $
Effective August 4, 2022, EVT secured a line of credit from Centennial Bank. Borrowings under the line of credit bear interest at
| 5. |
Stock Warrants |
The Company’s outstanding warrants as of September 30, 2023 are summarized as follows, and all were exercisable at that date.
| Number of | Exercise | Remaining | ||||||||||
| Shares | Price | Contractual Life (years) | ||||||||||
| Outstanding warrants expiring | $ | |||||||||||
| Outstanding warrants expiring | $ | |||||||||||
| Outstanding warrants on September 30, 2023 | $ | |||||||||||
The Warrants issued as part of the Purchase Agreement related to the Financing 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.
| 6. |
Stock Options and Restricted Shares |
The outstanding options at September 30, 2023 consisted of the following:
| Weighted | ||||||||||||
| Average | ||||||||||||
| Remaining | ||||||||||||
| Number of | Exercise | Contractual Life | ||||||||||
| Shares | Price | (years) | ||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||
| Options granted (expired) during 9 months ended September 30, 2023: | ||||||||||||
| Options Granted at $2.65 Exercise Price | $ | |||||||||||
| Options Granted at $2.10 Exercise Price | $ | |||||||||||
| Options expired at $9.00 Exercise Price | ( | ) | $ | |||||||||
| Options expired at $3.62 Exercise Price | ( | ) | $ | |||||||||
| Subtotal, as follows: | ||||||||||||
| Outstanding Options at $2.00 Exercise Price | $ | |||||||||||
| Outstanding Options at $2.40 Exercise Price | $ | |||||||||||
| Outstanding Options at $9.00 Exercise Price | $ | |||||||||||
| Outstanding Options at $26.20 Exercise Price | $ | |||||||||||
| Outstanding options at $2.65 Exercise Price | $ | |||||||||||
| Outstanding Options Granted at $2.10 Exercise Price | $ | |||||||||||
| Outstanding at September 30, 2023 | $ | |||||||||||
The number of options exercisable on September 30, 2023 is
On January 7, 2022, the Company’s Compensation Committee granted Phillip W. Oldridge, the Company’s Chief Executive Officer, options to purchase
On January 7, 2022, the Company’s Compensation Committee granted Susan M. Emry, the Company’s Executive Vice President, options to purchase
On January 31, 2022, the Company’s Compensation Committee granted Christian S. Rodich, the Company’s Chief Financial Officer, options to purchase
On March 15, 2022, options to purchase
On April 19, 2023 options to purchase
On July 11, 2023, the Company’s Compensation Committee granted the Board of Directors options to purchase
As of September 30, 2023, the outstanding options had
Restricted Shares
During the first quarter of 2023, the Company awarded
| 7. |
Related Party Transactions |
The Company has entered into lease agreements with SRI Professional Services, Incorporated (“SRI”), pursuant to which the Company leases equipment used in connection with the operation of its business (the “SRI Equipment Leases”). Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, serves as an executive officer and a member of the board of directors of SRI. The SRI Equipment Leases provide for the leasing of two vehicles that commenced on January 1, 2020 and the combined rent under such leases is $
The Company has entered into a cancelable month-to-month 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 $
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 $
During the first nine months of 2023, the Company reimbursed Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, $
During the second quarter of 2023, the Company purchased a vehicle from Phillip W. Oldridge for $
| 8. |
Commitments |
Other Agreements
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 $
In March 2023, the Company entered into an agreement with Berthaphil, Inc. to sublease approximately
Future minimum payments under operating leases are as follows:
| Payments due by period |
||||||||||||||||||||
| More |
||||||||||||||||||||
| Less than |
than 5 |
|||||||||||||||||||
| Total |
one year |
1 - 3 years |
4 - 5 years |
years |
||||||||||||||||
| Operating lease obligations |
$ | $ | $ | $ | — | $ | ||||||||||||||
| Total |
$ | $ | $ | $ | — | $ | ||||||||||||||
| 9. |
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.
GreenPower Litigation
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, 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. Fact discovery, through document disclosure and examinations for discoveries, in this matter remain ongoing. The Company has denied all claims, believes the lawsuit is without merit, and intends 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 filed a complaint captioned GreenPower Motor Company, Inc. v. Phillip 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. 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. On May 10, 2022, the Company, together with other defendants, filed a Motion to Dismiss and/or Stay the lawsuit pending the outcome of the Canadian litigation. The Court issued stay of this case pending resolution of parallel litigation in Canada between similar parties. GreenPower and defendants have agreed that the U.S. GreenPower case will not proceed while Canadian litigation is pending. The Company believes that the lawsuit is without merit and intends to vigorously defend the action.
Mollik Litigation
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 the Company, certain of its executive officers, Edward R. Monfort, the former Chief Technology Officer and a former director of ADOMANI, Inc., and the two underwriters of the Company’s 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 the Company 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 recessionary damages; and (v) equitable relief at the discretion of the court. 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 June 19, 2023, counsel for Electric Drivetrains and counsel for the Company participated in a mediation at which Electric Drivetrains and the Company executed a binding term sheet to completely resolve this matter. On July 18, 2023, Electric Drivetrains and all defendants executed a Settlement Agreement for complete resolution of the case and dismissal against all defendants with prejudice. No Company proceeds were paid in the settlement. On September 30, 2023, the Court dismissed this action with prejudice and the matter is completely resolved.
Brooks Litigation
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
| 10. |
Leases |
As of September 30, 2023, the Company is a party to nine operating leases. Six of these leases are office or warehouse leases; the remaining are equipment leases. 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. In applying the guidance in ASC 842, the Company has determined that all current leases (except for the Philippines lease as described below) as of September 30, 2023 should be classified as short-term operating leases.
The Company has entered into the SRI Equipment Leases. Rent expense under the SRI Equipment Leases was $
The Company has entered into the SRI Office Lease. Rent expense under the SRI Office Lease was $
The Company has entered into the ABCI Office Lease. Rent expense under the ABCI Office Leases was $
The Company has entered into the Toledo Jet Center Lease for office space in the Ft. Lauderdale, Florida area effective February 15, 2022. The lease has a -year term with the option to renew after year. Rent expense for the Toledo Jet Center Lease for the three and nine months ended September 30, 2023 was $
In February 2017, the Company signed a lease for storage space in Stockton, California to serve as a location to store vehicles and other equipment utilized for marketing and trade-show purposes. The lease is on a month-to-month basis and can be terminated by either party with 30-days’ notice. The total amount due monthly is $
In December 2019, the Company 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 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 36 months, commencing on January 1, 2020, and terminating on December 31, 2022. The base rent for the term of the lease was $
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 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 $
As required by ASC 842, in conjunction with the Corona, California lease, the Company recognized an operating liability with a corresponding 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 31, 2022, the ROU asset and related liability accounts were written off against each other due to the Company leaving the Corona California office and warehouse effective April 1, 2022 and to Masters taking over the remaining lease obligation for the facility.
In March 2023, the Company entered into an agreement with Berthaphil, Inc. to sublease approximately
The Company’s total net rent expense for the three and nine months ended September 30, 2023 was $
Quantitative information regarding the Company’s leases is as follows:
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
|||||||
| 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 |
% | % | ||||||
| 11. |
Subsequent Events |
The Company evaluates subsequent events that have occurred after the balance sheet date but before the consolidated financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. There were no material transactions that occurred subsequently to September 30, 2023 that would require the Company to disclose in this filing.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and the results of operations should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (“Quarterly Report”). This discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, those identified under the “Special Note Regarding Forward-Looking Statements” above, and elsewhere in this Quarterly Report, particularly in Part II, Item 1A “Risk Factors,” below.
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.
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. Global health concerns related to the ongoing 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 impacted 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. 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. As an alternative to being dependent on such funding, however, we are exploring the possibility of leasing our vehicles to our customers as well.
New customers. We are competing with other companies and technologies to help fleet managers and their districts/companies more efficiently and cost-effectively manage their fleet operations. Once these fleet managers have decided they want to buy from us, we still face challenges helping them obtain financing options to reduce the cost barriers to purchasing. We may also encounter customers with inadequate electrical services at their facilities that may delay their ability to purchase from us.
Dependence on external sources of financing of our operations. We have historically depended on external sources of capital to finance our operations. Accordingly, our future performance will depend in part upon our ability to achieve independence from external sources for the financing of our operations.
Investment in growth. We plan to continue to invest for long-term growth. We anticipate that our operating expenses will increase in the foreseeable future as we invest in research and development to enhance our zero-emission electric vehicles and systems; 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 vehicle experience. Our dealer and service network is not currently completely established, although we do have certain agreements in place. One issue they may have, and we may encounter, is finding appropriately trained technicians with zero-emission electric fleet vehicle experience. Our performance will depend on having a robust dealer and 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. We believe the market for 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, purchasers 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. We seek to add to our product offerings additional zero-emission vehicles of all sizes 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. We rely upon third parties to supply us with raw materials, parts, components and services in adequate quantity in a timely manner and at reasonable prices, quality levels, and volumes acceptable to us.
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 unaudited consolidated financial statements included in this Quarterly Report.
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; 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 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 2023.
Results of Operations
The following discussion compares operating data for the three and nine months ended September 30, 2023 to the corresponding periods ended September 30, 2022:
Sales
Sales for the three months ended September 30, 2023 and 2022 were $100,024 and $1,029,280, respectively. Sales for both the three months ended September 30, 2023 and September 30, 2022 consisted of logistics cargo vans. The decrease in sales was primarily due to delays in certain administrative processes due to state policy changes beyond our control.
Sales for the nine months ended September 30, 2023 and 2022 were $2,756,103 and $2,625,090, respectively. The slight increase in sales was primarily due to an increase in the number of units sold as a result of favorable market conditions. A significant number of these sales were primarily to customers in New Jersey who utilized a voucher from the NJ ZIP program.
Cost of Sales
Cost of sales for the three months ended September 30, 2023 and 2022 were $80,283 and $677,855, respectively. Cost of sales for the nine months ended September 30, 2023 and 2022 were $1,739,005 and $1,599,290, respectively. These costs consisted of the costs related to the sale of the vehicles sold as described above.
General and Administrative ("G&A") Expenses
G&A expenses were $2,578,727 and $1,584,973 for the three months ended September 30, 2023 and 2022, respectively. G&A expenses increased by $993,754 primarily due to an increase of $1,105,074 in stock-compensation expense due to equity awarded during the third quarter of 2023 that vested immediately, an increase of $59,760 in payroll costs in anticipation of business growth, an increase of $92,384 in accounting and compliance costs as a public company and an increase of $6,821 in overall G&A expenses for costs incurred with running the business, partially offset by a decrease of $143,813 in advertising and marketing costs as we focus on certain marketing priorities, a decrease in travel expenses of $41,145 as we reduced expenses as a cost saving initiative during the third quarter of 2023, a decrease in legal fees of $47,569 due to lower litigation costs, and a decrease of $37,758 in investor relations expenses as a result of our cost cutting measures noted above.
G&A expenses were $6,785,405 and $6,113,957 for the nine months ended September 30, 2023 and 2022, respectively. G&A expenses increased by $674,448 primarily due toan increase in contract labor costs of $240,833 to assist in our operations, an increase in payroll costs of $158,330 in anticipation of business growth, an increase in travel expenses of $200,151 as we explore business markets globally, an increase of $117,962 in investor relations expenses as we explore incentives by the federal and state governments across the United States, an increase of $126,470 in accounting and compliance costs as a public company, and an overall increase of $371,564 in G&A expenses for costs incurred with running the operations, partially offset by a decrease of $174,459 in legal costs due to lower litigation costs, a decrease in advertising and marketing expenses of $48,942 as we focus on certain marketing priorities and a decrease of $317,461 related to stock-based compensation costs due to lower fair valuations of equity awards.
Consulting Expenses
Consulting expenses were ($13,312) and $94,187 for the three months ended September 30, 2023 and 2022, respectively. The decrease in consulting expenses was due to a reduction in public affairs activities (which also included a credit for certain expenses) in 2023 versus 2022. Consulting expenses were $207,930 and $264,505 for the nine months ended September 30, 2023 and 2022, respectively. The decrease in consulting expenses was primarily due to a decrease in costs related to public affairs consulting, partially offset by increased search costs for key employees.
Research and Development ("R&D") Expenses
R&D expenses were $46,734 and $25,000 for the three months ended September 30, 2023 and 2022, respectively. The increase was primarily due to an increase in R&D activities related to the development of new product lines during the three months ended September 30, 2023 compared to the same period in 2022. R&D expenses were $175,546 and $112,412 for the nine months ended September 30, 2023 and 2022, respectively. The increase in R&D expenses was primarily due to activities pertaining to the development of new product lines.
Goodwill Impairment Charge
Due to our declining stock price, we conducted an impairment test related to our goodwill. As a result of this test, we recorded an impairment charge of $3,392,129 related to our goodwill for the three and nine months ended September 30, 2023. No impairment charges were recorded for the three and nine months ended September 30, 2022.
Cash Flows
The following table summarizes our cash flows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022:
| Nine months ended September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Cash flows used in operating activities |
$ | (4,039,576 | ) | $ | (8,271,750 | ) | ||
| Cash flows provided by investing activities |
2,306,312 | 5,942,221 | ||||||
| Cash flows (used in) provided by financing activities |
(213,161 | ) | 106,234 | |||||
| Net change in cash, restricted cash and cash equivalents |
$ | (1,946,425 | ) | $ | (2,223,295 | ) | ||
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2023 was $4,039,576, primarily due to a net loss of $9,510,360, partially offset by changes in operating assets and liabilities, net of $677,631 and non-cash operating charges of $4,793,153, of which $3,392,192 was related to a non-cash goodwill impairment charge and $1,297,384 was related to non-cash stock-based compensation expense. The changes in operating assets and liabilities, net was due to a decrease in accounts receivable of $449,322 as cash collections outpaced sales, a decrease of $1,696,180 in inventory deposits, a decrease in prepaid expenses of $3,190, an increase in accounts payable of $90,272, partially offset by an increase in inventory of $1,210,921, an increase in other assets of $112,382 and decrease in accrued liabilities of $238,030.
Net cash used in operating activities for the nine months ended September 30, 2022 was $8,271,750, primarily due to a net loss of $5,437,212 and changes in operating assets and liabilities, net of $4,500,050, partially offset by non-cash operating charges of $1,665,512, of which $1,614,845 was related to stock-based compensation expense. The changes in operating assets and liabilities, net was due to an increase in inventory of $2,103,834, an increase in accounts receivable of $1,956,906, a decrease in accrued liabilities of $194,907 and in increase in inventory deposits of $351,970, a decrease in accounts payable of $76,919 and an increase in prepaid expenses of $377,107, partially offset by a decrease in other assets of $158,265, a decrease in prepaid expenses of $60,246 and an increase in other liabilities of $403,328.
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 and government incentives 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 provided by investing activities during the nine months ended September 30, 2023 was $2,306,312, primarily due to the sale of our marketable securities of $2,342,643, partially offset by $36,331 of capital expenditures. Net cash provided by investing activities during the nine months ended September 30, 2022 was $5,942,221, primarily due to the net sale of our marketable securities of $6,032,425, partially offset by $90,204 of capital expenditures.
Financing Activities
Net cash used in financing activities during the nine months ended September 30, 2023 was $213,161 as a result of repayment of certain notes payable. Net cash provided by financing activities during the nine months ended September 30, 2022 was $106,234, primarily from the issuance of common stock of $120,000, partially offset by payments on notes payable of $13,766.
Liquidity and Capital Resources
As of September 30, 2023, we had cash and cash equivalents of $879,042 and working capital of approximately $12.0 million. We believe that our existing cash and cash equivalents will be sufficient to fund our operations during the next twelve 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.
On February 2022, we announced Osceola, Arkansas as the site of our state-of-the-art manufacturing facility and new corporate offices. We moved into an approximately 580,000 square foot facility and are currently in final stages of due diligence and contract negotiation with the City of Osceola and the Arkansas Economic Development Commission. 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 will provide an opportunity for us to obtain local tax incentives of up to $27 million, provided that the qualifying expenditures are made. We are not currently contractually obligated to make the expenditures.
Line of Credit
Effective August 4, 2022, we secured a line of credit from Centennial Bank. Borrowings under the line of credit bear interest at 2.75% annually. There is no maturity date for the line, but Centennial Bank may at any time, in its sole discretion and without cause, demand us to 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 us in our Centennial Bank accounts. Borrowings under the line may not exceed cash, cash equivalents, and marketable securities balances up to $1,000,000. This line was closed during the third quarter of 2023 and there was no principal amount outstanding at the time of closing.
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 and will begin increasing those expenditures as we transfer assembly and corporate functions to the Osceola Arkansas facility.
Contractual Obligations
Other than as disclosed in the unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q for the period ended September 30, 2023, we have no contractual obligations.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
We define our critical accounting policies as those accounting principles generally accepted in the United States of America that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles.
Smaller Reporting Company Status
We are a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million as of the last business day of our most recently completed second fiscal quarter. We may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies, including reduced disclosure about our executive compensation arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.
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, if any, will be largely denominated in United States dollars, which may create foreign currency exchange risk exposure.
ITEM 4. 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 (the “Exchange Act”)) as of September 30, 2023. 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 submit 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.
Changes in Internal Control over Financial Reporting
Due to the staff reductions and voluntary resignations, we experienced beginning in the fourth quarter of 2020 and continuing through the date of this filing, we have been unable to maintain the levels of segregation of duties during such periods at the levels of prior periods, and such changes to our disclosure controls and procedures have significantly affected our internal control over financial reporting during the period ended September 30, 2023. We have yet to fully resolve such deficiencies as of the date of this filing. We have engaged, and continue to seek additional, experienced accounting professionals with relevant expertise to provide additional accounting services intended to supplement our efforts and mitigate the negative effects of such recent changes to our disclosure controls and procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
There were no material developments during the quarter ended September 30, 2023 in the legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2022, except as follows:
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 the Company, certain of its executive officers, Edward R. Monfort, the former Chief Technology Officer and a former director of ADOMANI, Inc., and the two underwriters of the Company’s 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 the Company 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 recessionary damages; and (v) equitable relief at the discretion of the court. 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 June 19, 2023, counsel for Electric Drivetrains and counsel for the Company participated in a mediation at which Electric Drivetrains and the Company executed a binding term sheet to completely resolve this matter. On July 18, 2023, Electric Drivetrains and all defendants executed a Settlement Agreement for complete resolution of the case and dismissal against all defendants with prejudice. No Company proceeds were paid in the settlement. On September 30, 2023, the Court dismissed this action with prejudice and the matter is completely resolved.
There were no material changes during the quarter ended September 30, 2023 from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
A list of exhibits is set forth at the end of this Quarterly Report on Form 10-Q for the information required by this item.
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Incorporated by Reference |
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| Exhibit Number |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing Date |
Filed Herewith |
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| 31.1 |
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
X |
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| 31.2 |
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
X |
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| 32.1# |
X | |||||||||||
| 32.2# |
X | |||||||||||
| 101.INS |
Inline XBRL Instance Document* |
X |
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| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document* |
X |
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| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document* |
X |
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| 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 |
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| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | |||||||||||
| # |
The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this Quarterly 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 Quarterly Report 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. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Envirotech Vehicles, Inc. |
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| Date: November 14, 2023 |
By: |
/s/ Phillip W. Oldridge |
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| Phillip W. Oldridge |
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| Chief Executive Officer |
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| (Principal Executive Officer) |
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| Date: November 14, 2023 |
By: |
/s/ Douglas M. Campoli |
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| Douglas M. Campoli |
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| Chief Financial Officer and Treasurer |
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| (Principal Financial and Accounting Officer) |
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Exhibit 31.1
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
I, Phillip W. Oldridge, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of Envirotech Vehicles, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 14, 2023
By: /s/ Phillip W. Oldridge
Phillip W. Oldridge
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act Of 1934
I, Douglas M. Campoli, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of Envirotech Vehicles, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 14, 2023
By: /s/ Douglas M. Campoli
Douglas M. Campoli
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Envirotech Vehicles, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Phillip W. Oldridge, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
|
(i) |
the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
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(ii) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 14, 2023
By: /s/ Phillip W. Oldridge
Name Phillip W. Oldridge
Title: Chief Executive Officer
(Principal Executive Officer)
A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification will not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Envirotech Vehicles, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas M. Campoli, Chief Financial Officer and Treasurer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
|
(i) |
the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
|
(ii) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 14, 2023
By: /s/ Douglas M. Campoli
Douglas M. Campoli
Chief Financial Officer and Treasurer
(Principal Financial Officer)
A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification will not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference.