UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Amendment No. 1
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,MARCH 31, 2022
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)
Delaware | 46-0774222 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
1425 Ohlendorf Road | ||
Osceola, AR 72370 | ||
(Address of principal executive offices, including zip code) | ||
(951) 407-9860 | ||
(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: | ||
Trading | Name of each exchange | |||
| Title of each class | Symbol(s) | on which registered | ||
Common Stock, par value $0.00001 per share | EVTV | Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☐ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☒ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule
The number of shares outstanding of the registrant’s. Commonregistrant’s common stock as of November 10,May 13, 2022 was 15,021,088.
Explanatory Note
This Amendment is being filed to reflect the restatement of the Company’s consolidated financial statements, as discussed in Note 13 thereto, and other information related to such restated financial information. Except for Items 1 and 2 of Part I and Item 6 of Part II, no other information is amended by this Form 10-Q/A.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q10-Q/A FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,MARCH 31, 2022
| PAGE | ||||
| 2 | ||||
Unaudited Consolidated Balance Sheets as of | (as restated) | 2 | ||
| (as restated) | 3 | |||
| (as restated) | 4 | |||
| (as restated) | 5 | |||
| (as restated) | 6 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | |||
Item 3. Quantitative and Qualitative Disclosure about Market Risk | 24 | |||
| 24 | ||||
| 25 | ||||
| 27 | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 27 | |||
| 27 | ||||
| 27 | ||||
| 27 | ||||
| 28 | ||||
| 29 |
i
SPECIAL NOTECAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q10-Q/A (“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 notecautionary statements 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;
• | 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 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 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 obtain, retain and grow our customers; |
ability to enter into, sustain and renew strategic relationships on favorable terms;
• | ability to enter into, sustain and renew strategic relationships on favorable terms; |
ability to achieve and sustain profitability;
• | ability to achieve and sustain profitability; |
ability to evaluate and measure our current business and future prospects;
• | 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 compete and succeed in a highly competitive and evolving industry; |
ability to respond and adapt to changes in electric vehicle technology; and
• | 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. |
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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
(Restated)* | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,040,542 | $ | 4,846,490 | ||||
Restricted cash | 60,063 | 60,035 | ||||||
Marketable securities | 4,998,500 | 8,002,700 | ||||||
Accounts receivable | 1,517,382 | 1,428,030 | ||||||
Inventory, net | 7,286,306 | 3,850,541 | ||||||
Inventory deposits | 3,470,965 | 4,503,079 | ||||||
Prepaid expenses | 207,395 | 332,514 | ||||||
Total current assets | 21,581,153 | 23,023,389 | ||||||
Property and equipment, net | 265,955 | 272,113 | ||||||
Goodwill | 51,775,667 | 51,775,667 | ||||||
Other non-current assets | 75,869 | 236,639 | ||||||
Total assets | $ | 73,698,644 | $ | 75,307,808 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 170,524 | $ | 238,464 | ||||
Accrued liabilities | 753,756 | 1,280,020 | ||||||
Notes payable, net | 31,788 | 31,788 | ||||||
Total current liabilities | 956,068 | 1,550,272 | ||||||
Long-term liabilities | ||||||||
Other non-current liabilities | — | 2,427 | ||||||
Notes payable, net | 5,298 | 13,245 | ||||||
Total liabilities | 961,366 | 1,565,944 | ||||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, 5,000,000 authorized, $0.00001 par value per share, none issued and outstanding as of March 31, 2022, and December 31, 2021 | — | — | ||||||
Common stock, 350,000,000 authorized, $0.00001 par value per share, 299,929,841 and 298,160,160 issued and outstanding as of March 31, 2022, and December 31, 2021, respectively | 2,999 | 2,981 | ||||||
Additional paid-in capital | 83,795,501 | 81,863,243 | ||||||
Accumulated deficit | (11,061,222 | ) | (8,124,360 | ) | ||||
Total stockholders’ equity | 72,737,278 | 73,741,864 | ||||||
Total liabilities and stockholders’ equity | $ | 73,698,644 | $ | 75,307,808 | ||||
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,623,099 | $ | 4,846,490 | ||||
Restricted cash | 60,131 | 60,035 | ||||||
Marketable securities | 1,976,308 | 8,002,700 | ||||||
Accounts receivable | 7,804,369 | 1,428,030 | ||||||
Inventory, net | 3,603,852 | 3,850,541 | ||||||
Inventory deposits | 4,812,439 | 4,503,079 | ||||||
Prepaid expenses | 709,621 | 332,514 | ||||||
Total current assets | 21,589,819 | 23,023,389 | ||||||
Property and equipment, net | 305,617 | 272,113 | ||||||
Goodwill | 51,775,667 | 51,775,667 | ||||||
Other non-current assets | 78,374 | 236,639 | ||||||
Total assets | $ | 73,749,477 | $ | 75,307,808 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 161,545 | $ | 238,464 | ||||
Accrued liabilities | 1,154,026 | 1,280,020 | ||||||
Notes payable, net | 27,444 | 31,788 | ||||||
Total current liabilities | 1,343,015 | 1,550,272 | ||||||
Long-term liabilities | ||||||||
Other non-current liabilities | — | 2,427 | ||||||
Notes payable, net | 18,234 | 13,245 | ||||||
Total liabilities | 1,361,249 | 1,565,944 | ||||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, 5,000,000 authorized, $0.00001 par value per share, none issued and outstanding as of | ||||||||
September 30, 2022, and December 31, 2021 | — | — | ||||||
Common stock, 350,000,000 authorized, $0.00001 par value per share, 15,021,088 and 14,912,189 | ||||||||
Issued and outstanding as of September 30, 2022, and December 31, 2021, respectively | 150 | 149 | ||||||
Additional paid-in capital | 83,923,350 | 81,866,075 | ||||||
Accumulated deficit | (11,535,272 | ) | (8,124,360 | ) | ||||
Total stockholders’ equity | 72,388,228 | 73,741,864 | ||||||
Total liabilities and stockholders’ equity | $ | 73,749,477 | $ | 73,307,808 | ||||
* The Consolidated Balance Sheet as of March 31, 2022 has been restated. See Note 13.
See Accompanying Notes to Unaudited Consolidated Financial Statements.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
(Restated)* | ||||||||
Sales | $ | 89,900 | $ | 470,793 | ||||
Cost of sales | 76,427 | 313,434 | ||||||
Gross profit | 13,473 | 157,359 | ||||||
Operating expenses: | ||||||||
General and administrative | 2,882,848 | 585,903 | ||||||
Consulting | 70,800 | 10,250 | ||||||
Total operating expenses, net | 2,953,648 | 596,153 | ||||||
Loss from operations | (2,940,175 | ) | (438,794 | ) | ||||
Other income (expense): | ||||||||
Interest income (expense), net | 12,272 | (922 | ) | |||||
Other expense | (8,959 | ) | (494 | ) | ||||
Total other income (expense) | 3,313 | (1,416 | ) | |||||
Loss before income taxes | (2,936,862 | ) | (440,210 | ) | ||||
Income tax expense | — | (218,300 | ) | |||||
Net loss | $ | (2,936,862 | ) | $ | (658,510 | ) | ||
Net loss per share to common stockholders: | ||||||||
Basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
Weighted shares used in the computation of net loss per share: | ||||||||
Basic and diluted | 298,537,193 | 45,374,856 | ||||||
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Sales | $ | 3,882,670 | $ | 709,092 | $ | 7,078,870 | $ | 1,368,151 | ||||||||
Cost of sales | 2,046,491 | 469,611 | 3,998,533 | 930,977 | ||||||||||||
Gross profit | 1,836,179 | 239,481 | 3,080,337 | 437,174 | ||||||||||||
Operating expenses | ||||||||||||||||
General and administrative | 1,619,210 | 1,344,840 | 6,142,194 | 2,766,989 | ||||||||||||
Consulting | 94,187 | 36,734 | 264,505 | 142,092 | ||||||||||||
Research and development | 25,000 | — | 112,412 | — | ||||||||||||
Total operating expenses, net | 1,738,397 | 1,381,574 | 6,519,111 | 2,909,081 | ||||||||||||
Income (loss) from operations | 97,782 | (1,142,093 | ) | (3,438,774 | ) | (2,471,907 | ) | |||||||||
Other income (expense): | ||||||||||||||||
Interest income, net | 30,200 | 8,116 | 37,956 | 2,357 | ||||||||||||
Other income | (1,233 | ) | 285,902 | (10,094 | ) | 288,186 | ||||||||||
Total other income | 28,967 | 294,018 | 27,862 | 290,543 | ||||||||||||
Income (loss) before income taxes | 126,749 | (848,075 | ) | (3,410,912 | ) | (2,181,364 | ) | |||||||||
Income tax expense | — | (2,400 | ) | — | (220,700 | ) | ||||||||||
Net income (loss) | $ | 126,749 | $ | (850,475 | ) | $ | (3,410,912 | ) | $ | (2,402,064 | ) | |||||
Net income (loss) per share to common stockholders: | ||||||||||||||||
Basic and diluted | $ | 0.01 | $ | (0.06 | ) | $ | (0.23 | ) | $ | (0.23 | ) | |||||
| Weighted shares used in the computation of net income (loss) per share: | ||||||||||||||||
Basic and diluted | 15,013,236 | 14,715,694 | 14,981,836 | 10,349,101 | ||||||||||||
* The Consolidated Statement of Operations for the three months ended March 31, 2022 has been restated. See Note 13.
See Accompanying Notes to Unaudited Consolidated Financial Statements.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’STOCKHOLDERS’ EQUITY
Three Months Ended March 31, 2022 (Restated)* and 2021
(unaudited)
| Additional | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||
Balance, December 31, 2021 | 298,160,160 | $ | 2,981 | $ | 81,863,243 | $ | (8,124,360 | ) | $ | 73,741,864 | ||||||||||
Common stock issued for cash | 1,000,000 | 10 | 119,990 | — | 120,000 | |||||||||||||||
Common stock issued for lawsuit settlement | 769,681 | 8 | 197,423 | — | 197,431 | |||||||||||||||
Stock based compensation | — | — | 1,614,845 | — | 1,614,845 | |||||||||||||||
Net loss | — | — | — | (2,936,862 | ) | (2,936,862 | ) | |||||||||||||
Balance, March 31, 2022 | 299,929,841 | $ | 2,999 | $ | 83,795,501 | $ | (11,061,222 | ) | $ | 72,737,278 | ||||||||||
| Additional | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||
Balance, December 31, 2020 | 1 | $ | 100 | $ | — | $ | (472,260 | ) | $ | (472,160 | ) | |||||||||
Common stock issued for cash | 142,558,000 | 1,425 | 6,413,785 | — | 6,415,210 | |||||||||||||||
Common stock retained in merger | 112,675,558 | 1,027 | 53,508,495 | — | 53,509,522 | |||||||||||||||
Offering costs netted against proceeds common stock | — | — | (156,443 | ) | — | (156,443 | ) | |||||||||||||
Net loss | — | — | — | (658,510 | ) | (658,510 | ) | |||||||||||||
Balance, March 31, 2021 | 255,233,559 | $ | 2,552 | $ | 59,765,837 | $ | (1,130,770 | ) | $ | 58,637,619 | ||||||||||
Common Stock | Additional Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||
Balance, December 31, 2021 | 14,912,189 | $ | 149 | $ | 81,866,075 | $ | (8,124,360 | ) | $ | 73,741,864 | ||||||||||
Common stock issued for cash | 50,000 | 1 | 119,999 | — | 120,000 | |||||||||||||||
Common stock issued for lawsuit settlement | 38,484 | — | 197,431 | — | 197,431 | |||||||||||||||
Stock based compensation | — | — | 1,614,845 | — | 1,614,845 | |||||||||||||||
Net loss | — | — | — | (2,527,397 | ) | (2,527,397 | ) | |||||||||||||
Balance, March 31, 2022 | 15,000,673 | $ | 150 | $ | 83,798,350 | $ | (10,651,757 | ) | $ | 73,146,743 | ||||||||||
Net loss | — | — | — | (1,010,264 | ) | (1,010,264 | ) | |||||||||||||
Balance, June 30, 2022 | 15,000,673 | $ | 150 | $ | 83,798,350 | $ | (11,662,021 | ) | $ | 72,136,479 | ||||||||||
Common stock issued for lawsuit settlement | 20,415 | — | 125,000 | — | 125,000 | |||||||||||||||
Net loss | — | — | — | 126,749 | 126,749 | |||||||||||||||
Balance, September 30, 2022 | 15,021,088 | $ | 150 | $ | 83,923,350 | $ | (11,535,272 | ) | $ | 72,388,228 | ||||||||||
Common Stock | Additional Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||
Balance, December 31, 2020 | 1 | $ | — | $ | 100 | $ | (472,260 | ) | $ | (472,160 | ) | |||||||||
Common stock issued for cash | 7,129,887 | 72 | 6,415,139 | — | 6,415,210 | |||||||||||||||
Common stock retained in merger | 5,635,348 | 56 | 53,509,466 | — | 53,509,522 | |||||||||||||||
Offering costs netted against proceeds common stock | — | — | (156,443 | ) | — | (156,443 | ) | |||||||||||||
Net loss | — | — | — | (658,510 | ) | (658,510 | ) | |||||||||||||
Balance, March 31, 2021 | 12,765236 | $ | 128 | $ | 59,768,262 | $ | (1,130,770 | ) | $ | 58,637,619 | ||||||||||
Common stock issued for cash | 1,936,813 | 19 | 16,322,030 | — | 16,322,049 | |||||||||||||||
Offering costs netted against proceeds | — | — | (31,572 | ) | — | (31,572 | ) | |||||||||||||
Net loss | — | — | — | (893,079 | ) | (893,079 | ) | |||||||||||||
Balance, June 30, 2021 | 14,702,049 | $ | 147 | $ | 76,058,720 | $ | (2,023,849 | ) | $ | 74,035,018 | ||||||||||
Common stock issued for cash | 17,934 | — | 43,028 | — | 43,028 | |||||||||||||||
Stock based compensation | — | — | 121,132 | — | 121,132 | |||||||||||||||
Net loss | — | — | — | (850,475 | ) | (850,475 | ) | |||||||||||||
Balance, September 30, 2021 | 14,719,983 | $ | 147 | $ | 76,222,880 | $ | (2,874,324 | ) | $ | 73,348,703 | ||||||||||
* The Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2022 has been restated. See Note 13.
See Accompanying Notes to Unaudited Consolidated Financial Statements.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
(Restated)* | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,936,862 | ) | $ | (658,510 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 18,659 | 7,996 | ||||||
Unrealized loss on marketable securities | 4,137 | — | ||||||
Stock based compensation expense | 1,614,845 | — | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (89,352 | ) | (151,824 | ) | ||||
Inventory | (3,435,765 | ) | (331,361 | ) | ||||
Inventory deposits | 1,032,114 | — | ||||||
Prepaid expenses | 125,119 | 38,705 | ||||||
Other non-current assets | 160,770 | 244,487 | ||||||
Accounts payable | (67,940 | ) | (416,461 | ) | ||||
Accrued liabilities | (331,259 | ) | (1,530,046 | ) | ||||
Other non-current liabilities | — | (98,866 | ) | |||||
Net cash (used in) operating activities | (3,905,534 | ) | (2,895,880 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment, net | (12,502 | ) | — | |||||
Investment in marketable securities | (999,937 | ) | — | |||||
Sale of marketable securities | 4,000,000 | — | ||||||
Cash acquired in merger | — | 3,373,332 | ||||||
Net cash provided by investing activities | 2,987,561 | 3,373,332 | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | 120,000 | 6,415,110 | ||||||
Payments for deferred offering costs | — | (156,443 | ) | |||||
Principal advances from (repayments on) debt | (7,947 | ) | (152,835 | ) | ||||
Net cash provided by financing activities | 112,053 | 6,105,832 | ||||||
Net change in cash, and restricted cash | (805,920 | ) | 6,583,284 | |||||
Cash, restricted cash and cash equivalents at the beginning of the period | 4,906,525 | 1,930,132 | ||||||
Cash, restricted cash and cash equivalents at the end of the period | $ | 4,100,605 | $ | 8,513,416 | ||||
Supplemental cash flow disclosures: | ||||||||
| Cash paid for interest expense | $ | — | $ | — | ||||
Cash paid for income taxes | $ | — | $ | — | ||||
Non-cash common stock lawsuit settlement | $ | 197,431 | $ | — | ||||
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (3,410,912 | ) | $ | (2,402,064 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 56,700 | 43,031 | ||||||
Unrealized loss on marketable securities | (6,033 | ) | (20,359 | ) | ||||
Stock based compensation expense | 1,614,845 | 121,132 | ||||||
Provision for bad debt | 50,000 | 303,879 | ||||||
Gain on debt forgiveness | — | (290,519 | ) | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (6,426,339 | ) | (734,267 | ) | ||||
Inventory | 246,689 | (792,800 | ) | |||||
Inventory deposits | (309,360 | ) | (4,514,665 | ) | ||||
Prepaid expenses | (377,107 | ) | 637,483 | |||||
Other non-current assets | 158,265 | — | ||||||
Accounts payable | (76,919 | ) | (307,488 | ) | ||||
Accrued liabilities | 192,093 | (1,734,270 | ) | |||||
Other non-current liabilities | 16,328 | (226,421 | ) | |||||
Net cash used in operating activities | (8,271,750 | ) | (9,917,328 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment, net | (90,204 | ) | (27,958 | ) | ||||
Investment in marketable securities | (2,291,036 | ) | (12,000,000 | ) | ||||
Sale of marketable securities | 8,323,461 | 5,000,000 | ||||||
Cash acquired in merger | — | 3,373,332 | ||||||
Net cash provided by (used in) investing activities | 5,942,221 | (3,654,626 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | 120,000 | 22,780,188 | ||||||
Payments for deferred offering costs | — | (188,015 | ) | |||||
Principal repayments on debt | (13,766 | ) | (309,865 | ) | ||||
Net cash provided by financing activities | 106,234 | 22,282,308 | ||||||
Net change in cash, restricted cash and cash equivalents | (2,223,295 | ) | 8,710,354 | |||||
Cash, restricted cash and cash equivalents at the beginning of the period | 4,906,525 | 1,930,132 | ||||||
Cash, restricted cash and cash equivalents at the end of the period | $ | 2,683,230 | $ | 10,640,486 | ||||
Supplemental cash flow disclosures: | ||||||||
Cash paid for interest expense | $ | 2,272 | $ | 4,944 | ||||
Cash paid for income taxes | $ | — | $ | 2,400 | ||||
Non-cash common stock lawsuit settlement | $ | 322,431 | $ | — | ||||
* The Consolidated Statement of Cash Flows for the three months ended March 31, 2022 has been restated. See Note 13.
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
On March 15, 2021, the Company completed its acquisition of Envirotech Drive Systems, Inc., a Delaware corporation (“EVTDS”), a supplier of
The Company was formerly known as ADOMANI, Inc. On May 26, 2021, the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation the Company with the Secretary of State of the State of Delaware to change its name from ADOMANI, Inc. to Envirotech Vehicles, Inc., effective as of May 26, 2021.
On February 22, 2022, the Company announced Osceola, Arkansas, as the site of its
2. | Summary of Significant Accounting Policies |
Basis of Presentation
Principles of Consolidation
Use of Estimates
Fair Value of Financial Instruments
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
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 not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.
Revenue Recognition
In applying ASC Topic 606, the Company is required to:
(1) | identify any contracts with customers; |
(2) | determine if multiple performance obligations exist; |
(3) | determine the transaction price; |
(4) | allocate the transaction price to the respective obligation; and |
(5) | recognize the revenue as the obligation is satisfied. |
Product revenue also includes the sale of electric trucks and cargo vans. These sales represent a single performance obligation withand revenue recognition occurring atis recognized when the time title transfers. Transfer of title occurs whenvehicle is delivered, and the customer has accepted the vehicle and signed the appropriate documentation acknowledging receipt.
The Company provides the option of financing (flooring) to Factory Authorized Representatives (“FARs”) for demo vehicles that are used in their selling process. Flooring agreements are made either expressly or implicitly and last no longer than one year with respect to specific vehicles, as payment for the vehicles is due in full before the first anniversary of the agreement, or upon sale by the FAR of the demo vehicle. The interest rate associated with the flooring agreement is agreed upon at the time of executing the FAR agreement. The Company has elected the practical expedient allowed by ASC Topic 606 where consideration does not need to be adjusted for financing components of the agreement.
Cash and Cash Equivalents
Marketable Securities
Accounts Receivable and Allowance for Doubtful Accounts—
Inventory and Inventory Valuation Allowance
Inventory Deposits—
Income Taxes
Accounting for Uncertainty in Income Taxes—
Net Income (Loss)Loss Per Share
Diluted net loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the diluted weighted average number of shares of common stock outstanding during the
Concentration of Credit Risk
During the ninethree months ended September 30,March 31, 2022, the Company’s bank required compensating balances for a subsidiary’s potential lease exposure and for the Company’s credit card limit, resulting in restricted cash of $60,131 at September 30, 2022.$60,063.
Impairment of Long-Lived Assets
Goodwill
Research and Development
Stock-Based Compensation
Property and Equipment
Leases
Recent Accounting Pronouncements
3. | Merger |
On March 15, 2021, the Company completed its acquisition of EVTDS, a supplier of
The primary reasons EVTDS consummated the merger with ADOMANI, Inc. were the opportunity to immediately become a public company without the process of doing its own initial public offering, affording it the opportunity to more quickly raise capital and provide liquidity options to its stockholders, at the same time acquiring the infrastructure required of a public company run by people experienced in investor relations and the public company regulatory compliance issues and filings required. In addition, since ADOMANI, Inc. had been the sole customer of EVTDS, the two management teams had experience working with each other and anticipated a smooth transition in addition to obtaining synergies, chief of which was a layer of profit required when two2 separate entities were involved in making and selling a vehicle that was immediately eliminated upon the Merger close, enabling the purchase price of vehicles to customers to be reduced. The combined entity also was able to exert more pressure on suppliers to reduce vehicle costs, which also supported the price reductions to customers.
At December 31, 2020, EVTDS had subscription restricted cash of $1,793,910 on its balance sheet as a result of offering a restricted subscription agreement to the stockholders of Envirotech Electric Vehicles, Inc., a Canadian entity (“EVT Canada”), to have the right to purchase two shares of EVTDS for every one common share of EVT Canada they owned. The purpose of this subscription agreement was to raise the necessary capital to close the Merger and to provide working capital for EVTDS so that it could pay off certain liabilities and pay for ongoing expenses through the closing of the Merger. A corresponding liability account was also recorded as of December 31, 2020. The total amount raised just prior to the Merger closing was $6,415,110. At the closing of the Merger, EVTDS satisfied its obligation to deliver $5 million in cash to ADOMANI, Inc. and repaid the majority of the items discussed above. This number has decreased to zero in both categories as of December 31, 2021.
EVTDS entered into an exclusive
The following table presents the estimated allocation of the purchase price of the assets acquired and liabilities assumed for the acquisition by EVTDS of ADOMANI, Inc. via the reverse acquisition:
Accounts receivable and other current assets | $ | 1,680,926 | ||
Property and equipment | 86,873 | |||
Right of use asset | 369,987 | |||
Other assets | 59,510 | |||
Goodwill | 51,775,667 | |||
Accounts payable and accrued expenses | (820,389 | ) | ||
Lease liability | (369,987 | ) | ||
Notes payable | (417,540 | ) | ||
Purchase price, net of $3,373,332 cash acquired | $ | 52,365,047 | ||
Purchase Price Allocation of ADOMANI, Inc. | ||||
Accounts receivable and other current assets | $ | 1,680,926 | ||
Property and equipment | 86,873 | |||
Right of use asset | 369,987 | |||
Other assets | 59,510 | |||
Goodwill | 51,775,667 | |||
Accounts payable and accrued expenses | (820,389 | ) | ||
Lease liability | (369,987 | ) | ||
Notes payable | (417,540 | ) | ||
Purchase price, net of $3,373,332 cash acquired | $ | 52,365,047 | ||
This allocation is based on management’s estimated fair value of the ADOMANI Inc. assets and liabilities at March 15, 2021. ADOMANI, Inc. assets were derived from a total value of $53,509,522,$53,509,622, based on 5,635,347112,675,558 shares of common stock outstanding on March 15, 2021 and the closing price that day of $0.4749 per share. The fair value of certain of the stock options assumed by EVTDS in the Merger of $2,228,757 (see Note 7)7) was added to reach an adjusted value of $55,738,379. From that amount, total assets acquired of $5,570,628 (including a reduction in the carrying value of finished goods inventory of $26,400 to reflect fair value) were deducted, and total acquired liabilities of $1,607,916 were added in order to arrive at the $51,775,667 of Goodwill recorded, none of which will be deductible for future income tax purposes. The Company incurred approximately $415,472 in transaction costs related to the Merger, which were expensed.
The unaudited consolidated statement of operations for the three months ended March 31, 2021 included $151,793 of revenue and a loss from operations of $(144,015) contributed by ADOMANI, Inc. and its subsidiaries, excluding EVTDS. Since the closing of the Merger on March 15, 2021, primarily due to the fact that EVTDS brought no employees or sales people to the merged entity, and that sales and operating activities have been conducted on a company-wide basis, not on the basis of either EVTDS alone or the ADOMANI entities alone, other than nominal expense items related to EVTDS leases assumed in the Merger, (see Notes 9 and 11), all accounting subsequent to the closing of the Merger has been and will continue to be done on a consolidated basis. Therefore, the Company cannot segregate the operating results of operations between the formerly separate entities in the current periods.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations for the Company and gives effect to the Merger discussed above as if it had occurred on January 1, 2021. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations for the ninethree months ended September 30,March 31, 2021 that would have been realized if the Merger had occurred on January 1, 2021, nor does it purport to project the results of the merged entity in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the merged entities.
Pro forma combined results of operations | For the three months ended | For the nine months ended | ||||||||
September 30, 2021 | September 30, 2021 | |||||||||
Sales | $ | 709,092 | $ | 1,065,562 | ||||||
Net income (loss) | $ | (850,475 | ) | $ | (5,045,988 | ) | ||||
For the three months | ||||
| ended | |||
| Pro forma combined results of operations | March 31, 2021 | |||
Sales | $ | 168,204 | ||
Net loss | $ | (3,302,434 | ) | |
For purposes of the pro forma disclosures above, the adjustments for the ninethree months ended September 30,March 31, 2021, reduced sales by $
4. | Property and Equipment, Net |
Components of property and equipment, net, consist of the following as of September 30,March 31, 2022 and December 31, 2021:
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Furniture and fixtures | $ | 60,082 | $ | 41,799 | ||||
Leasehold improvements | 40,112 | 28,112 | ||||||
Machinery & equipment | 144,406 | 86,266 | ||||||
Vehicles | 252,725 | 252,724 | ||||||
Test/Demo vehicles | 15,784 | 15,784 | ||||||
Total property and equipment | 513,108 | 424,685 | ||||||
Less accumulated depreciation | (207,491 | ) | (152,572 | ) | ||||
Net property and equipment | $ | 305,617 | $ | 272,113 | ||||
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
Furniture and fixtures | $ | 54,300 | $ | 41,799 | ||||
Leasehold improvements | 28,112 | 28,112 | ||||||
Machinery & equipment | 86,266 | 86,266 | ||||||
Vehicles | 252,724 | 252,724 | ||||||
Test/Demo vehicles | 15,784 | 15,784 | ||||||
Total property and equipment | 437,186 | 424,685 | ||||||
Less accumulated depreciation | (171,231 | ) | (152,572 | ) | ||||
Net property and equipment | $ | 265,955 | $ | 272,113 | ||||
Depreciation expense was $19,093$18,659 and $7,655 and was $56,700 and $43,031$7,996, respectively, for the three and nine months ended September 30,March 31, 2022, and 2021, respectively.
5. | 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 $63,576 loan is payable over twenty-four months, beginning in July 2021, with monthly payments of $2,648.99.
Effective
$8.1 million; there was no principal amount outstanding at that date. The line of credit and related interest expense was repaid in full on September 30, 2022 andFebruary 3, 2020. The line of credit is still available to the Company, but there is no current plan to borrow from it.
6. | Stock Warrants |
As a result of the Merger closing (see Note 3)3), as of March 15, 2021, the Company had outstanding warrants to purchase an aggregate of 534,06710,681,327 shares of common stock, 102,8172,056,326 of which were exercisable. The warrants were previously issued by ADOMANI, Inc. and assumed in the Merger. In connection with the second closing of the Financing discussed in the Company’s Annual Report on Form
Number of | Exercise | Remaining | ||||||||||
Shares | Price | Contractual Life (years) | ||||||||||
Outstanding warrants expiring January 9, 2023 | 12,833 | $ | 75.00 | 0.33 | ||||||||
Outstanding warrants expiring January 28, 2025 | 431,250 | $ | 10.00 | 2.33 | ||||||||
Outstanding warrants expiring May 7, 2026 | 958,334 | $ | 20.00 | 3.60 | ||||||||
Outstanding warrants on September 30, 2022 | 1,402,417 | $ | 17.43 | 3.18 | ||||||||
Number of | Exercise | Remaining | ||||||||||
Shares | Price | Contractual Life (years) | ||||||||||
Outstanding warrants expiring June 9, 2022 | 199,659 | $ | 6.00 | 0.21 | ||||||||
Outstanding warrants expiring June 9, 2022 | 350,000 | $ | 5.00 | 0.21 | ||||||||
Outstanding warrants expiring January 9, 2023 | 256,667 | $ | 3.75 | 0.78 | ||||||||
Outstanding warrants expiring January 28, 2025 | 8,625,001 | $ | 0.50 | 3.75 | ||||||||
Outstanding warrants expiring May 7, 2026 | 19,166,667 | $ | 1.00 | 3.46 | ||||||||
Outstanding warrants on December 31, 2021 | 28,597,994 | $ | 0.96 | 4.10 | ||||||||
Outstanding warrants on March 31, 2022 | 28,597,994 | $ | 0.96 | 3.89 | ||||||||
The Warrants issued as part of the Purchase Agreement related to the Financing contain a call provision whereby the Company, after the
As of September 30,March 31, 2022, the outstanding warrants have no intrinsic value.
7. | Stock Options |
As a result of the Merger closing (see Notes 2 and 3)3) there were 649,64312,992,857 fully vested stock options outstanding at March 15, 2021 that were previously issued by ADOMANI, Inc. and assumed in the Merger. The outstanding options at September 30,March 31, 2022 consisted of the following:
Number of Shares | Exercise Price | Weighted Average Remaining Contractual Life (years) | ||||||||||
Outstanding at December 31, 2021 | 338,500 | $ | 5.80 | 6.98 | ||||||||
Options granted during 9 months ended September 30, 2022: | ||||||||||||
Options Granted at $2.00 Exercise Price | 250,000 | $ | 2.00 | |||||||||
Options Granted at $2.40 Exercise Price | 90,893 | $ | 2.40 | |||||||||
Options Granted at $3.62 Exercise Price | 2,762 | $ | 3.62 | |||||||||
Options Granted at $9.00 Exercise Price | 1,111 | $ | 9.00 | |||||||||
Exercised | (50,000 | ) | $ | 2.40 | ||||||||
Cancelled / Forfeited at $9.00 Exercise Price | (25,000 | ) | $ | 9.00 | ||||||||
Subtotal, as follows: | 608,266 | |||||||||||
Outstanding Options at $2.00 Exercise Price | 250,000 | $ | 2.00 | 9.30 | ||||||||
Outstanding Options at $2.40 Exercise Price | 90,893 | $ | 2.40 | 9.30 | ||||||||
Outstanding Options at $3.62 Exercise Price | 2,762 | $ | 3.62 | 4.34 | ||||||||
Outstanding Options at $9.00 Exercise Price | 257,861 | $ | 9.00 | 8.21 | ||||||||
Outstanding Options at $26.20 Exercise Price | 6,750 | $ | 26.20 | 5.55 | ||||||||
Outstanding at September 30, 2022 | 608,266 | $ | 5.30 | 8.77 | ||||||||
Weighted | ||||||||||||
Average | ||||||||||||
|
| Remaining | ||||||||||
| Number of | Exercise | Contractual Life | ||||||||||
Shares | Price | (years) | ||||||||||
Outstanding at December 31, 2021 | 6,770,000 | $ | 0.29 | 6.98 | ||||||||
Options granted during 3 months ended March 31, 2022: | ||||||||||||
Options Granted at $0.10 Exercise Price | 5,000,000 | $ | 0.10 | |||||||||
Options Granted at $0.12 Exercise Price | 1,817,855 | $ | 0.12 | |||||||||
Options Granted at $0.181 Exercise Price | 55,249 | $ | 0.181 | |||||||||
Options Granted at $0.45 Exercise Price | 22,222 | $ | 0.45 | |||||||||
Exercised | (1,000,000 | ) | $ | 0.12 | ||||||||
Cancelled / Forfeited at $0.45 Exercise Price | (500,000 | ) | $ | 0.45 | ||||||||
Subtotal, as follows: | 12,165,326 | |||||||||||
Outstanding Options at $0.10 Exercise Price | 5,000,000 | $ | 0.10 | 9.80 | ||||||||
Outstanding Options at $0.12 Exercise Price | 1,817,855 | $ | 0.12 | 9.80 | ||||||||
Outstanding Options at $0.181 Exercise Price | 55,249 | $ | 0.181 | 4.84 | ||||||||
Outstanding Options at $0.45 Exercise Price | 5,157,222 | $ | 0.45 | 8.71 | ||||||||
Outstanding Options at $1.31 Exercise Price | 135,000 | $ | 1.31 | 6.05 | ||||||||
Outstanding at March 31, 2022 | 12,165,326 | $ | 0.27 | 9.27 | ||||||||
On January 7, 2022, the Company’s Compensation Committee granted Phillip W. Oldridge, the Company’s Chief Executive Officer,CEO, options to purchase 150,0003,000,000 shares of common stock at an exercise price of $2.00$0.10 per share and options to purchase 50,0001,000,000 shares of common stock at an exercise price of $2.40$0.12 per share. The options vested immediately and expire on the tenth anniversary of grant.
On January 7, 2022, the Company’s Compensation Committee granted Susan M. Emry, the Company’s Executive Vice President, options to purchase 100,0002,000,000 shares of common stock at an exercise price of $2.00$0.10 per share and options to purchase 40,893817,855 shares of common stock at an exercise price of $2.40$0.12 per share. The options vested immediately and expire on the tenth anniversary of grant.
On January 31, 2022, the Company’s Compensation Committee granted Christian S. Rodich, the Company’s Chief Financial Officer, options to purchase 2,76355,249 shares of common stock at an exercise price of $3.62$0.181 per share and options to purchase 1,11122,222 shares of common stock at an exercise price of $9.00$0.45 per share. The options vest ratably at 1/60th per month over five years and expire on the tenth anniversary of grant.
On March 15, 2022, options to purchase 50,0001,000,000 shares of common stock were exercised by the former President and CEO of the Company at a price of $2.40$0.12 per share, resulting in a payment to the Company of $120,000. Also on March 15, 2022, options to purchase an aggregate of 25,000500,000 shares of common stock with an exercise price of $9.00$0.45 per share were forfeited by the former executive, as they were not exercised prior to their expiration on March 15, 2022.
As of September 30,March 31, 2022, outstanding options had intrinsic value of $873,288.$1,491,870.
8. | Related Party Transactions |
The Company has entered into an engagement agreement (the “SRI Services Agreement”) with SRI Professional Services, Incorporated (“SRI”), pursuant to which the Company engaged SRI to provide certain services in connection with the
The Company has entered into lease agreements with SRI (the “SRI Equipment Leases”), pursuant to which the Company leases equipment used in connection with the operation of its business. The SRI Equipment Leases provide for the leasing of two vehicles that commenced on January 1, 2020 and the combined rent under such leases is $3,880 per month, and a separate SRI Equipment Lease provides for a trailer lease that commenced on December 1, 2019, under which the rent is $3,891 per month. The total monthly payment obligations of the Company under the SRI Equipment Leases is $7,771.
EVTDS has entered into a cancelable
The Company has entered into a commercial lease agreement (the “ABCI Office Lease”) with Alpha Bravo Charlie, Inc. (“ABCI”) that commenced on April 1, 2020, for the lease of office space in Porterville, California. The monthly rent for this facility is $2,800. See Notes 9 and 11. Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, is a director of ABCI.
In connection with the closing of the Merger in March, 2021, the Company purchased two electric trucks from Mr. Oldridge for an aggregate purchase price of $128,000. The purchase price for such vehicles was paid in full to Mr. Oldridge during the three months ended June 30, 2021.
Prior to the closing of the Merger, Mr. Oldridge had permitted the two vehicles to be used by the Company as customer demonstration vehicles for no cost. The purchase price of $64,000 per vehicle was less than the purchase price of $83,000 per vehicle that ADOMANI, Inc. had paid to EVTDS for similar vehicles in prior transactions. One of the vehicles purchased by the Company was subsequently sold to a customer of the Company in March 2021 and the second truck remains in the Company’s inventory at September March 31, 2022.
9. | Commitments |
Operating Leases
The Company has entered into the SRI Equipment Leases (see Note 8). Rent expense under the SRI Equipment Leases for the three months ended March 31, 2022 was $23,312, and was $19,432 for the three months ended March 31, 2021.
The Company has entered into the SRI Office Lease (see Note 8). Rent expense under the SRI Office Lease for the three months ended March 31, 2022 was $2,730, and was $5,810 for the three months ended March 31, 2021.
The Company has entered into the ABCI Office Lease (see Note 8). Rent expense under the ABCI Office Lease for both the three months ended March 31, 2022 and March 31, 2021, respectively was $8,400.
The Company has entered into the Toledo Jet Center Lease for office space in the Ft. Lauderdale Florida area commencing February 15, 2022.
The lease has a one year term with the option to renew after one year. Rent expense for the Toledo Jet Center Lease for the three months ended March 31, 2022 was $2,405.
In February 2017, ADOMANI, Inc. signed a lease for storage space in Stockton, California to serve as a location to store vehicles and other equipment utilized for marketing and trade-show purposes. The lease is on a month-to-month basis and can be terminated by either party with 30 2022.-days’ notice. The total amount due monthly is $1,000.
In December 2019, ADOMANI, Inc. signed a lease for combined office space and warehouse location in Corona, California. The facility had been used to conduct research and development activity, stage materials, assemble and/or manufacture vehicles, perform 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 was 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 $495,720, with $265 due per month for fire sprinkler alarm monitoring and landscape maintenance. The base rent amount due monthly was $13,108 at commencement and would have escalate to $13,906 by its conclusion. However, the Company vacated the premises effective March 31. 2022, and the lease was taken over on April 1, 2022 by its sublease tenant, as discussed below.
On February 4, 2020, ADOMANI, Inc. signed a sublease agreement with Masters Transportation, Inc. (“Masters”) for Masters to occupy a portion of the Corona, California, facility that the Company occupied effective January 1, 2020 (see above). The effective date of the Masters’ sublease was February 1, 2020, and it expires when the Company’s lease on the Corona, California facility expires on December 31, 2022. Under the sublease, Masters is obligated to pay the Company monthly rent payments in an amount equal to $6,000 at commencement and thereafter escalating to $6,365 by its conclusion. On April 1, 2022 Masters took over the remaining lease obligation for the facility. See Note 12.
The Company’s total net rent expense for the three months ended March 31, 2022 and 2021 was $73,049 and $57,846 respectively. See Notes 11 and 12.
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 $300,000, payable in semi-monthly installments consistent with the Company’s payroll practices. Mr. Oldridge will also receive participation in medical insurance, dental insurance, and the Company’s other benefit plans. Under the Oldridge Agreement, Mr. Oldridge will also receive an amount equal to five percent of the net income of the Company on an annual basis and will be eligible for a bonus at the sole discretion of the Company’s Board of Directors (the “Board”). The Oldridge Agreement also provides for an automobile monthly allowance of $1,500. Mr. Oldridge’s employment shall continue until terminated in accordance with the Oldridge Agreement. If Mr. Oldridge is terminated without cause or if he terminates his employment for good reason, Mr. Oldridge will be entitled to receive
The following table summarizes the Company’s future minimum payments under contractual commitments, excluding debt, as of September 30,March 31, 2022:
Payments due by period | ||||||||||||||||||||
More | ||||||||||||||||||||
Less than | 44 -55 | than 5 | ||||||||||||||||||
Total | one year | 1 - 3 years | years | years | ||||||||||||||||
Operating lease obligations | $ | 19,292 | $ | 16,853 | $ | 2,439 | $ | — | $ | — | ||||||||||
Employment contracts | 2,375,000 | 500,000 | 1,500,000 | 375,000 | — | |||||||||||||||
Total | $ | 2,394,292 | $ | 516,853 | $ | 1,502,439 | $ | 375,000 | $ | — | ||||||||||
Payments due by period | ||||||||||||||||||||
Total | Less than one year | 1 - 3 years | 4 - 5 years | More than 5 years | ||||||||||||||||
Operating lease obligations | $ | 11,491 | $ | 10,881 | $ | 610 | $ | — | $ | — | ||||||||||
Employment contracts | 2,125,000 | 500,000 | 1,500,000 | 125,000 | — | |||||||||||||||
Total | $ | 2,136,491 | $ | 510,881 | $ | 1,500,610 | $ | 125,000 | $ | — | ||||||||||
10. | Contingencies |
Except as set forth below, we know of no material, existing or pending, legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.
On December 17, 2019, GreenPower Motor Company Inc., a public company incorporated under the laws of British Columbia (“GreenPower”), of which Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, previously served as a senior officer and a member of its board of directors, filed a notice of civil claim, captioned GreenPower Motor Company Inc. v. Phillip Oldridge et al., Action No.S-1914285,
On or about July 18, 2021, GreenPower and GP Greenpower Industries Inc., (collectively “the GreenPower entities”) filed a counterclaim against David Oldridge, Phillip Oldridge, the Company and other companies in Supreme Court of British Columbia Action No.S207532. The counterclaim alleges that David Oldridge, Phillip Oldridge, the Company and other companies committed the tort of abuse of process by causing 42 Design Works Inc., to commence a lawsuit against the GreenPower entities. Additionally, GreenPower entities also advanced claims against David Oldridge, Phillip Oldridge, the Company and other companies for conspiracy. The pleadings in this lawsuit have not closed and we intend to vigorously defend the counterclaim.
On February 8, 2022, GreenPower Motor Company, Inc., a Delaware Corporation, and GreenPower Motor Company Inc., a Canadian Corporation, filed a complaint captioned GreenPower Motor Company, Inc. v. Philip Oldridge, et al., Case No.22-cv-00252
The Company has been served and its response to the Complaint is due 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. While hearing on this Motion was set for October 7, 2022, on October 4 the Court cancelled the hearing and indicated it would rule on the Motion without argument. The Court’s ruling on the Motion is still pending. 2022. We believe that the lawsuit is without merit and intend to vigorously defend the action.
On August 23, 2018, a purported class action lawsuit captioned M.D. Ariful Mollik v. ADOMANI, Inc. et al., Case No. RIC 1817493, was filed in the Superior Court of the State of California for the County of Riverside against us, certain of our executive officers, Edward R. Monfort, the former Chief Technology Officer and a former director of ADOMANI, Inc., and the two underwriters of our offering of common stock under Regulation A in June 2017. This complaint alleges that documents related to our offering of common stock under Regulation A in June 2017 contained materially false and misleading statements and that all defendants violated Section 12(a)(2)12(a)(2) of the Securities Act, and that we and the individual defendants violated Section 15 of the Securities Act, in connection therewith. The plaintiff seeks on behalf of himself and all class members: (i) certification of a class under California substantive law and procedure; (ii) compensatory damages and interest in an amount to be proven at trial; (iii) reasonable costs and expenses incurred in this action, including counsel fees and expert fees; (iv) awarding of rescission or recessionary damages; and (v) equitable relief at the discretion of the court.
On January 20, 2022, Mr. Monfort dismissed his cross-complaint for indemnification against the Company in the Mollik action. On April 8, 2022, the Company and Boustead Securities, LLC (“Boustead”) settled their respective cross-claims against each other in both the Mollik action and Brooks action (see below) in exchange for the Company paying fifty thousand dollars ($50,000) in cash and $125,000 (one hundred twentyfive thousand dollars) in stock and mutual releases between parties. There are no longer any cross claims pending in the Mollik action.
On June 19, 2019, Alan K. Brooks, an ADOMANI investor, filed a complaint, captioned Alan K. Brooks v. ADOMANI, Inc., et al., Case No.1-CV-349153 in the Superior Court of California for the County of Santa Clara, against the Company, certain of the Company’s executive officers and directors, two of the underwriters of the Company’s offering of common stock under Regulation A in June 2017, and certain of the underwriters’ personnel, among others (the “Brooks Case”). The complaint alleges that the Company and other defendants breached the terms of an agreement between Mr. Brooks and the Company by refusing to release 1,320,359 shares of ADOMANI, Inc. stock to Mr. Brooks. Mr. Brooks seeks damages of $13,500,000.00 plus interest and attorney’s fees. On September 20, 2019, Mr. Brooks filed his first amended complaint (“FAC”) reasserting his breach of contract claim and alleging five additional claims for (i) violations of Cal. Corp. Code Section 25401, (ii) fraud, negligent misrepresentation, (iv) elder abuse, and (v) unfair competition. We answered the FAC on November 12, 2019, generally denying the allegations in the FAC and asserting affirmative defenses. Fact discovery in this matter remains ongoing. On August 10, 2021, we filed a motion for summary judgement and dismissal of plaintiff’s FAC. The parties participated in two days of mediation with Mark LeHocky. Mr. LeHocky provided the parties with a mediator’s proposal. Both parties accepted the proposal and reduced the proposal to a written settlement agreement. Pursuant to the settlement agreement, the Company has agreed to pay plaintiffs $197,500 in cash and $197,500 in shares of common stock. In addition, the Company’s insurance carrier has agreed to pay plaintiffs $170,000. On January 14, 2022, the parties filed a joint motion for an order approving the fairness of the terms of the settlement agreement. On March 7, 2022, the Court issued an Order approving the settlement and the parties are in the process of effectuating its terms. On April 5, 2022, the Company and Boustead resolved Boustead’s cross claim for indemnification in the Brooks action. This settlement is still subject to court approval. There are no further claims pending in the Brooks action and, if and when the Court approves the settlement, it should be dismissed.
On February 3, 2020, the Company acquired substantially all the assets of Ebus in a foreclosure sale through a credit bid in the amount of $582,000, representing the amount then owed by Ebus to the Company evidenced by a secured promissory note. Following the Company’s successful credit bid at the foreclosure sale, Ebus’s obligations under the note were extinguished and the Company was entitled to take possession of substantially all of the assets of Ebus. While the Company was able to take possession of some of the assets, Ebus prevented the Company from taking possession of all of the assets purchased at the foreclosure sale. As a result, on April 13, 2020, the Company filed a complaint captioned ADOMANI, Inc. v. Ebus, Inc., et al., in the Superior Court of California for the County of Los Angeles, Case No.20ST CV 14275, against Ebus and certain of its insiders and affiliates seeking to recover the remainder of the assets and related damages. On January 14, 2021, a cross-complaint was filed against the Company by Ebus, Inc. and Anders B. Eklov for Unjust Enrichment and Conversion of Domain Name, seeking monetary damages and injunctive relief. A settlement agreement was entered into on March 15, 2022.
11. | Leases |
As of September 30,March 31, 2022, the Company is a party to nine operating leases. Four of these leases are office or warehouse leases; the remaining five are equipment leases (see Note 8)9). As disclosed in Note 2, the Company accounts for leases as required by ASC Topic 842. The Company has elected to apply the short-term lease exception to all leases of one year or less. As of September 30,March 31, 2022, this exception applies to the six EVTDS leases and to the ADOMANI Inc. Stockton, California lease, which are all
During the year ended December 31, 2020, the Company has entered into the SRI Equipment Leases (see Note 8). Rent expense under the SRI Equipment Leases for the three and nine months ended September 30, 2022 was $23,312 and $69,936, respectively, and for the three and nine months ended September 30, 2021 was $38,853 and $66,055, respectively.
Quantitative information regarding the Company’s leases is as follows:
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Lease expenses | ||||||||
Operating lease expenses | $ | 44,641 | $ | 11,415 | ||||
Short-term lease expenses | $ | 28,408 | $ | 57,846 | ||||
Total lease cost | $ | 73,049 | $ | 69,261 | ||||
Other information | ||||||||
Cash paid for the amounts included in the measurement of lease liabilities for operating leases: | ||||||||
Operating cash flows | $ | 45,430 | $ | 28,673 | ||||
Weighted-average remaining lease term (in years): | ||||||||
Operating leases | 1.02 | 2.04 | ||||||
Weighted-average discount rate: | ||||||||
Operating leases | 14 | % | 14 | % | ||||
12. | Subsequent Event |
The Company evaluates subsequent events through September 22, 2023, which is the date the financial statements were issued or available to be issued.
Beginning April 1, 2022 the lease discussed above in Note 9 and Note 11 for the Corona, CA office and warehouse facility was assigned to Masters through the end of the lease obligation at December 31, 2022. Masters’ sublease agreement with the Company was also terminated on April 1, 2022.
On August 5, 2022 the Santa Clara Superior Court approved the settlement reached on April 8, 2022 between the Company and Boustead Securities, LLC. rending it finally effective, with consideration to be paid by the Company of fifty thousand dollars ($50,000) in cash and 20,415 shares of common stock and mutual releases between parties being forthcoming (see note 10).
Effective August 4, 2022, EVT secured a line of credit from Centennial Bank. Borrowings under the line of credit bears interest of 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 the Company immediately repay any and all outstanding obligations under the line of credit in whole or in part. The line is secured by the cash and cash equivalents maintained by the Company in its Centennial Bank accounts. Borrowings under the line may not exceed $1,000,000 of such cash, cash equivalents, and marketable securities balances.
In March 2023, the Company ("Sublessee") entered into an agreement with Berthaphil, Inc. ("Sublessor") to sublease approximately 3,600 square yards of a warehouse building based in the Clark Freeport Zone in the Philippines. The term of the lease is two years and two months with a turnover date of July 1, 2023 ("turnover date") and a rental commencement date of September 1, 2023. There is a grace period of two months for rental payments, starting from the turnover date. The monthly rent for the first year is $15,000, escalating to $15,750 for the second year and $16,530 for the remaining term. The sublease may be renewed for an additional period that is mutually agreed upon subject to certain terms and conditions. The Company intends to use the leased space as a production facility as it seeks to expand its business presence both in the region and the United States of America.
13. | Restatement |
During the preparation of its Form 10-K for the year ended December 31, 2022, the Company identified misstatements with respect to recognition of sales revenue and related cost of sales during each of the three month periods ended March 31, 2022, June 30, 2022 and September 30, 2022. Management identified vehicle sales transactions where sales revenue and related cost of sales were incorrectly recognized upon approval of customer purchase incentives by certain government-sponsored electric vehicle incentive programs. Management determined that such approval did not coincide with a transfer of control under ASC Topic 606,Revenue from Contracts with Customers, and that revenue should have been recognized upon delivery of the vehicles to the customer.
The Company has restated its Consolidated Balance Sheet as of March 31, 2022, and the related Consolidated Statement of Operations, Consolidated Statement of Stockholders’ Equity and Consolidated Statement of Cash Flows for the three months ended March 31, 2022 to correct the misstatements described above.
Nine Months Ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
Lease expenses | ||||||||
Operating lease expenses | $ | 56,101 | $ | 122,001 | ||||
Short-term lease expenses | 124,645 | 76,160 | ||||||
Total lease cost | $ | 180,746 | $ | 198,161 | ||||
Other information | ||||||||
Cash paid for the amounts included in the measurement of lease liabilities for operating leases: | ||||||||
Operating cash flows | $ | 56,890 | $ | 163,707 | ||||
Weighted-average remaining lease term (in years): | ||||||||
Operating leases | 0.62 | 1.28 | ||||||
Weighted-average discount rate: | ||||||||
Operating leases | 14 | % | 14 | % | ||||
The following table summarizes the effects of the restatement as of and for the three months ended March 31, 2022. Corresponding changes were made in the Consolidated Statement of Stockholders’ Equity and Consolidated Statement of Cash Flows. The restatement had no net effect on the cash flows of the Company.
As Previously Reported | As Restated | |||||||
Consolidated Balance Sheet Information: | ||||||||
Accounts receivable | $ | 2,535,982 | $ | 1,517,382 | ||||
Inventory, net | 6,736,161 | 7,286,306 | ||||||
Total current assets | 21,990,618 | 21,581,153 | ||||||
Total assets | 74,108,109 | 73,698,644 | ||||||
Accumulated deficit | (10,651,757 | ) | (11,061,222 | ) | ||||
Total stockholders’ equity | 73,146,743 | 72,737,278 | ||||||
Total liabilities and stockholders’ equity | 74,108,109 | 73,698,644 | ||||||
Consolidated Statement of Operations Information: | ||||||||
Sales | $ | 1,108,500 | $ | 89,900 | ||||
Cost of sales | 691,562 | 76,427 | ||||||
Gross profit | 416,938 | 13,473 | ||||||
Loss from operations | (2,530,710 | ) | (2,940,175 | ) | ||||
Loss before income taxes | (2,527,397 | ) | (2,936,862 | ) | ||||
Net loss | (2,527,397 | ) | (2,936,862 | ) | ||||
Net loss per share – basic and diluted | (0.01 | ) | (0.01 | ) | ||||
ITEM 2. MANAGEMENT’SMANAGEMENT’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”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“Cautionary Statement Regarding Forward-Looking Statements”Statements” above, and elsewhere in this Quarterly Report, particularly in Part II, Item 1A “Risk“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.
As discussed in Item 1, Notes 2 and 3 to the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q, as a result of the closing of the Merger on March 15, 2021, the historical results discussed in this section of the Quarterly Report on Form 10-Q are those of EVTDS as of September 30,March 31, 2022, which include the consolidated balance sheet accounts of Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.) and subsidiaries, and for the fiscal periodsperiod ended September 30,March 31, 2022, which include the consolidated results of operations of EVTDS and Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.) and subsidiaries for the entire three and nine month periods.period. The consolidated financial statements and related disclosures as of March 31, 2021 include the consolidated balance sheet accounts of Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.) and subsidiaries, including EVTDS. The consolidated results of operations for the three months ended March 31, 2021 include the results of operations of EVTDS for the entire period and include the consolidated results of operations of Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.) and subsidiaries for the post-merger period March 16, 2021 through March 31, 2021. On May 26, 2021, the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company with the Secretary of State of the State of Delaware to change its name from ADOMANI, Inc. to Envirotech Vehicles, Inc., effective as of May 26, 2021.
For the three months ended September 30,March 31, 2022 and 2021, respectively, we generated sales revenue of $3,882,670$89,900 and $709,092, respectively, and our net income for the three months ended September 30, 2022 was $126,749. Our net loss for the three months ended September 30, 2021 was $850,475. For the nine months ended September 30, 2022 and 2021, we generated sales revenue of $7,078,870 and $1,368,151,$470,793, respectively, and our net losses were $3,410,912$2,936,862 and $2,402,064,$658,510, respectively. The 2022 loss includes approximately $1.72$1.6 million of non-cash net expenses.
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 thecountries 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 economicincentives 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 andcost-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 for capital to finance ouroperations. Accordingly, our future performance will depend in part upon our ability to achieve independence from external sources for the financing of our operations.
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Investment in growth. We plan to continue to invest for long-term growth. We anticipate that our operating expenses will increase in the foreseeablefuture 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 certainagreements 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 asmore purchases of new zero-emission vehicles and as more conversions of existing fleet vehicles to zero-emission vehicles are made. However, unless the costs to produce such vehicles decrease dramatically, purchases of our products will continue to depend in large part on financing subsidies from government agencies. We cannot be assured of the continued availability, the amounts of such assistance to our customers, or our ability to access such funds.
Sales revenue growth from additional products.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 inadequate 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; warranty costs, including product recall and customer satisfaction program costs; consulting costs; marketing-related expenses; and other expenses that cannot be included in cost of sales.
Consulting and Research and Development Costs
These expenses are 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 2022.
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Results of Operations
The following discussion compares operating data for the three and nine months ended September 30,March 31, 2022 to the corresponding periods ended September 30,March 31, 2021:
Sales
Sales were $3,882,670$89,900 and $709,092$470,793 for the three months ended September 30, 2022 and 2021, respectively, and $7,078,870 and $1,368,151 for the nine months ended September 30,March 31, 2022 and 2021, respectively. Sales for the three months ended September 30,March 31, 2022 consisted of three cab and chassis trucksone cargo van sold to a dealer and 34 logistic cargo vans sold primarily to customers in New Jerseycustomer who utilized a voucher from the NJ ZIPZip program. Sales for the ninethree months ended September 30, 2022March 31, 2021 consisted of the sales in the third quarter plus 13four cargo vans sold to factory authorized representatives,and one logistics cargo van sold to a dealer and 11 logistics cargo vans sold primarily to New Jersey customers utilizing the NJ ZIP program. In addition, three cab and chassis trucks and three used buses were also sold. Sales attributable to higher vehicle selling price were $585,125 and $746,390 for the three and nine months ended September 30, 2022, respectively.Class 4 truck.
Cost of Sales
Cost of sales were $2,046,491$76,427 and $469,611$313,434 for the three months ended September 30, 2022 and 2021, respectively, and $3,998,533 and $930,977 for the nine months ended September 30,March 31, 2022 and 2021, respectively. Cost of sales for the three and nine months ended September 30,March 31, 2022 and 2021 consisted of the costs related to the sale of the vehicles sold as described above and, in early 2022, for the three months ended March 31, 2021 only, the costs of providing maintenance and inspection services that have been discontinued.services.
General and Administrative Expenses
General and administrative expenses were $1,619,210$2,882,848 and $1,344,840$585,903 for the three months ended September 30,March 31, 2022 and 2021, respectively, an increase of $274,370.$2,296,945. The increase was primarily related to $1,614,845 non-cash stock-based compensation expense recorded with respect to the stock options granted during the 2022 quarter compared to no similar expense recorded during the 2021 period. Other increases were due to $143,821payroll-related expenses of professional fees (primarily legal fees); to insurance costs of $136,252, to $100,692 of increased payroll expense; to rents of $94,952,$342,769; to contract labor costs of $82,503$101,856 primarily related to engineering and technical assistance; to advertising and marketing expenses of $78,871;$93,150; to insurance costs of $82,835; and to travel and related expenses of $53,003 related primarily to tradeshows and sales. These increases were partially reduced by a reduction in bad debt expenses of $253,879, non cash stock-based compensation expense of $121,132, and reductions of $40,713 in other general and administrative expenses compared to the 2021 period. The third quarter 2022 general and administrative expenses include $50,000 of non-cash bad debt expense and $19,092 of non-cash depreciation expense. The general and administrative expenses for the three months ended September 30, 2021 included non-cash depreciation expense of $7,655.
General and administrative expenses were $6,142,194 and $2,766,989 for the nine months ended September 30, 2022 and 2021, respectively, an increase of $3,375,205. The increase was primarily related to $1,493,713 non-cash stock-based compensation expense recorded with respect to the stock options granted during the first quarter of 2022. Other increases were due to payroll-related expenses of $643,101; to professional fees of $372,903 (primarily legal fees); to contract labor costs of $273,421 primarily related to engineering and technical assistance; to insurance costs of $271,654; to advertising and marketing expenses of $247,944; to travel and related expenses of $151,594$79,213 related primarily to finalizing logistics and moving into the Osceola, Arkansas manufacturing location and tradeshows, information and communications technologies of $78,388, subscriptions and continuing education of $47,162,location; and to increases in other general and administrative expenses of $75,204.$147,119. These increases were partially reduced by a reduction in bad debtlegal fees of $279,879$164,842 compared to the 2021 period. The first quarter 2022 general and administrative expenses include $1,633,504 in non-cash charges, with depreciation expense of $18,659 being added to the stock-based compensation expense discussed above. The general and administrative expenses for the ninethree months ended September 30, 2022 include $1,721,545 in March 31. 2021 included non-cash charges, with depreciation expense of $56,700 and bad debt expense related to trade receivables of $50,000 being added to stock-based compensation expense of $1,614,845. The general and administrative expenses for the nine months ended September 30, 2021 included $468,042 in non-cash charges, including $303,879 in bad debt expense unrelated to trade accounts receivable, $121,132 in stock-based compensation expense and depreciation expense of $43,031.$7,996.
Consulting Expenses
Consulting expenses were $94,187$70,800 and $36,735$10,250 for the three months ended September 30, 2022 and 2021, respectively, and $264,505 and $142,092 for the nine months ended September 30,March 31, 2022 and 2021, respectively. The increase in the current year period was due primarily to payments to an Arkansas state relationship and incentive consulting firm that assisted the Company in securing the manufacturing facility in Osceola, Arkansas and to the cost of the ASC 805 valuation report related to the Merger.
Research and Development Expenses
Research and development expenses were $25,000 and $112,412 for the three and nine months ended September 30, 2022 and no expense was incurred for the three and nine months ended September 30, 2021. The increase in the current year period was due to the development of new product lines which includes a school bus and Class 5 cab over chassis truck.Cash Flows
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Cash Flows
The following table summarizes our cash flows from operating, investing, and financing activities for the ninethree months ended September 30,March 31, 2022 and 2021:
| Nine months ended September 30, | Three months ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Cash flows (used in), provided by operating activities | $ | (8,271,750 | ) | $ | (9,917,328 | ) | $ | (3,905,534 | ) | $ | (2,895,880 | ) | ||||
Cash flows provided by investing activities | 5,942,221 | (3,654,626 | ) | 2,987,561 | 3,373,332 | |||||||||||
Cash flows provided by financing activities | 106,234 | 22,282,308 | 112,053 | 6,105,832 | ||||||||||||
|
| |||||||||||||||
Net change in cash, restricted cash and cash equivalents | $ | (2,223,295 | ) | $ | 8,710,354 | $ | (805,920 | ) | $ | 6,583,284 | ||||||
|
| |||||||||||||||
Operating Activities
Cash (used in) operating activities is primarily the result of our operating losses, reduced by the impact of non-cash expenses, including non-cash stock-based compensation, and changes in the asset and liability accounts.
Net cash used in operating activities for the ninethree months ended September 30,March 31, 2022 was $8,271,750$3,905,534 versus net cash used in operating activities of $9,917,328$2,895,880 for the ninethree months ended September 30,March 31, 2021, a decreasean increase of $1,645,578.$1,009,654. The decreaseincrease in net cash used in operating activities was due to decreases in the cash used for inventory deposits of $4,205,305; increasesan increase in net non cash itemsloss of $1,558,348 (primarily stock-based compensation expense$2,278,352 and an increase in inventory additions of $1,493,713), a decrease in cash used to reduce accrued liabilities of $1,926,363; a decrease in cash used to purchase inventory of $1,039,489; a decrease in cash used to increase other non-current liabilities of $242,749; a decrease in cash used to reduce accounts payable of $230,569; and a decrease in other non-current assets of $158,265.$3,104,404. These sourcesuses of cash were partially offset by an increase in net loss of $1,008,848; an increase in accounts receivable of $5,692,072, and an increase in prepaidnon-cash expenses of $1,014,590, resulting$1,629,645 (primarily stock-based compensation expense of $1,614,845); a reduction in decreased accrued liabilities of $1,198,787, a reduction in inventory deposits of $1,032,114; a decrease in the use of cash to reduce accounts payable of $348,521, and to a $164,035 net reductiondecrease in the use of $1,645,578. .cash in the remaining balance sheet accounts.
We expect cash used in operating activities to fluctuate significantly in future periods as a result of a number of factors, some of which are outside of our control, including, among others: the success we achieve in generating revenue; the success we have in helping our customers obtain financing to subsidize their purchases of our products; our ability to efficiently develop our dealer and service network; the costs of batteries and other materials utilized to make our products; the extent to which we need to invest additional funds in research and development; and the amount of expenses we incur to satisfy future warranty claims.
Investing Activities
Net cash provided by investing activities during the ninethree months ended September 30,March 31, 2022 increaseddecreased by $9,596,847$385,771 to $5,942,221,$2,987,561, as compared to cash used inprovided by investing activities of $3,654,626$3,373,332 during the ninethree months ended September 30, 2021.March 31,2021. The increasedecrease in net cash provided by investing activities during the ninethree months ended September 30,March 31, 2022 is primarily due to a decrease in investments in marketable securities of $9,708,964 and the increased sale of marketable securities of $3,323,461, partially offset by the absence in 2022 of the $3,373,332 cash acquired in merger in 2021 and an increaseto capital expenditures in 2022 of $62,246$12,502 versus none in capital expenditures.2021, partially offset by net provision of cash of $3,000,063 from the purchase and sale of marketable securities.
Financing Activities
Net cash provided by financing activities during the ninethree months ended September 30,March 31, 2022 decreased by $22,176,074 to $106,234$5,993,779 from cash provided by financing activities in 2021 of $22,282,308.$6.105,832. The decrease consisted primarily of the pre-merger $6,415,110 proceeds from the issuance of common stock raised by EVTDS in the 2021 quarter in anticipation of the Merger; a second common stock offering post-merger which raised $16,274,991, and $90,087 raised in 2021 from the issuance of stock for stock options that were exercisedMerger versus $120,000 raised in the 2022 quarter from the issuance of stock for stock options that were exercised. The 2021 cash provided was reduced by offering costs of $188,015;$156,443; there were no offering costs incurred in the 2022 period.quarter. The proceeds from the issuance of common stock were further reduced in 2022 by the Company making installment payments of $13,766 on its debt, and in 2021 by EVTDS and ADOMANI, Inc. both repaying their SBA EIDL loansloan in the combined amount of $309,865.amounts $152,835.
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Liquidity and Capital Resources
As of September 30,March 31, 2022, we had cash and cash equivalents of $2,683,230$4,040,542 and marketable securities of $1,976,308,$4,998,500, a combined total of $4,659,538$9,039,042 and working capital of approximately $20.3$20.6 million. We believe that our existing cash, cash equivalents and marketable securities 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
In February 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 580,000 square foot facility and is 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 the Company to obtain local tax incentives granted to the Company of up to $27 million, provided that the qualifyingQualifying expenditures are made. The Company is not currently contractually obligated to make the expenditures.
Line of Credit
Effective August 4, 2022, EVTMay 2, 2018, the Company secured a line of credit from Centennial Bank.Morgan Stanley Private Bank, National Association (“Morgan Stanley”). Borrowings under the line of credit bear interest at 2.75% annually.30-day LIBOR plus 2.0%. There is no maturity date for the line, but Centennial BankMorgan Stanley may at any time, in its sole discretion and without cause, demand the Company 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 the Company in its Centennial Bank accounts.Morgan Stanley accounts, which was approximately $5.7 million as of March 31, 2021. Borrowings under the line may not exceed 95% of such cash, cash equivalents, and marketable securities balances up to $1,000,000.balances. The maximum amount the Company could borrow on March 31, 2022, was approximately $8.1 million. There was no principal amount outstanding at that date. The line of credit and related interest expense was repaid in full on September 30, 2022 andFebruary 3, 2020. While the line of credit is still available to the Company with Morgan Stanley, there is no current plan to borrow from ituse it.
Capital Expenditures
We do not have any contractual obligations for ongoing capital expenditures at this time. We do, however, purchase equipment necessary to conduct our operations on an as needed basis and will begin increasing those expenditures as the Company transfers assembly and corporate functions to the newly announced 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 three and nine months ended September 30,March 31, 2022, the Company has 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.
Emerging Growth Company and Smaller Reporting Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. We may take advantage of these exemptions until the last day of the fiscal year following the fifth anniversary of our initial public offering or until such earlier time that we are no longer an “emerging growth company.”
We are also 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. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.
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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, 2022.the end of the period covered by this Quarterly Report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures (a) were not effective to ensure that information that we are required to disclose in reports that we file or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
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 increased our reliance on outsourced accounting help during such periods and for all periods thereafter through the date of this filing. As a result of such changes, 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 three months ended September 30,March 31, 2022. 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as set forth below, we know of no material, existing or pending, legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.
GreenPower Actions:
On December 17, 2019, GreenPower Motor Company Inc., a public company incorporated under the laws of British Columbia (“GreenPower”), of which Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, previously served as a senior officer and a member of its board of directors, filed a notice of civil claim, captioned GreenPower Motor Company Inc. v. Phillip Oldridge et al., Action No. S-1914285, in the Supreme Court of British Columbia, against Phillip Oldridge, his trust, EVTDS and certain other companies affiliated therewith. The notice of civil claim alleges that Mr. Oldridge breached certain fiduciary duties owed to GreenPower by working with certain parties in direct competition with and at the expense of GreenPower. GreenPower alleges that the Company conspired with Mr. Oldridge to build its business, competing products and unfairly compete with GreenPower. GreenPower seeks general damages, special damages and punitive damages, plus interest and costs against EVTDS. On February 2, 2020, the Company and the other companies affiliated therewith named in the notice of civil claim filed a response to the civil claim in which they denied certain of the allegations and asserted that certain other facts were outside of their knowledge. Fact discovery, through document disclosure and examinations for discoveries, in this matter remain ongoing. We believe that the lawsuit is without merit and intend to vigorously defend the action.
On or about July 18, 2021, GreenPower and GP Greenpower Industries Inc., (collectively “the GreenPower entities”) filed a counterclaim against David Oldridge, Phillip Oldridge, the Company and other companies in Supreme Court of British Columbia Action No. S207532. The counterclaim alleges that David Oldridge, Phillip Oldridge, the Company and other companies committed the tort of abuse of process by causing 42 Design Works Inc., to commence a lawsuit against the GreenPower entities. Additionally, GreenPower entities also advanced claims against David Oldridge, Phillip Oldridge, the Company and other companies for conspiracy. The pleadings in this lawsuit have not closed and we intend to vigorously defend the counterclaim.
On February 8, 2022, GreenPower Motor Company, Inc., a Delaware Corporation, and GreenPower Motor Company Inc., a Canadian Corporation, filed a complaint captioned GreenPower Motor Company, Inc. v. Philip Oldridge, et al., Case No. 5:22-cv-00252 in the United States District Court for the Central District of California. The complaint names the Company and the following affiliated entities, officers, or directors: Phillip Oldridge, Envirotech Electric Vehicles Inc., Envirotech Drive Systems Incorporated US, Envirotech Drive Systems Incorporated Canada, Sue Emry, David Oldridge, S&P Financial and Corporate Services, Inc. GreenPower also named the Philip Oldridge Trust and a purported entity called EVT Motors, Inc., but has since dismissed those parties. The complaint alleges (i) RICO violations, (ii) conspiracy to commit RICO violations, (iii) breach of fiduciary duties, (iv) breach of an employment contract, (v) conversion of GreenPower property, (vi) violation of the Defend Trade Secrets Act, and (vii) violations of California’s Business and Profession Code. The complaint seeks an undisclosed amount of compensatory and punitive damages, injunctive relief to prevent the alleged anti- Competitive behavior, restitution for harm, an award of treble damages, and associate fees and costs. The complaint’s allegations are centered around the same assertions in the pending Canadian litigation.
On
The Company has been served and its response to the Complaint is due 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. While hearing on this Motion was set for October 7, 2022, on October 4 the Court cancelled the hearing and indicated it would rule on the Motion without argument. The Court’s ruling on the Motion is still pending.2022. We believe that the lawsuit is without merit and intend to vigorously defend the action.
Mollick/Electric DriveTrain Action:
On August 23, 2018, a purported class action lawsuit captioned M.D. Ariful Mollik v. ADOMANI, Inc. et al., Case No. RIC 1817493, was filed in the Superior Court of the State of California for the County of Riverside against us, certain of our executive officers, Edward R. Monfort, the former Chief Technology Officer and a former director of ADOMANI, Inc., and the two underwriters of our offering of common stock under Regulation A in June 2017. This complaint alleges that documents related to our offering of common stock under Regulation A in June 2017 contained materially false and misleading statements and that all defendants violated Section 12(a)(2) of the Securities Act, and that we and the individual defendants violated Section 15 of the Securities Act, in connection therewith. The plaintiff seeks on behalf of himself and all class members: (i) certification of a class under California substantive law and procedure; (ii) compensatory damages and interest in an amount to be proven at trial; (iii) reasonable costs and expenses incurred in this action, including counsel fees and expert fees; (iv) awarding of rescission or recessionary damages; and (v) equitable relief at the discretion of the court.
Plaintiff’s counsel has subsequently filed a first amended complaint, a second amended complaint, a third amended complaint, and a fourth amended complaint. Plaintiff Mollik was replaced by putative class representatives Alan K. Brooks and Electric Drivetrains, LLC (“Electric Drivetrains”).LLC. Alan K. Brooks was subsequently dropped as a putative class representative. On October 27, 2020, the Companywe answered the fourth amended complaint, generally denying the allegations and asserting affirmative defenses. On November 5, 2019, Network 1 and Boustead Securities (together the “Underwriters”) filed a cross-complaint against the Company seeking indemnification under the terms of the underwriting agreement the Company and the Underwriters entered for the Company’s initial public offering (the “Underwriting Agreement”). On December 10, 2019, the Company filed its answer to the Underwriters’ cross-complaint, generally denying the allegations and asserting affirmative defenses. Also on this date, the Company filed a cross-complaint against the Underwriters seeking indemnification under the terms of the Underwriting Agreement. On January 14, 2020, Mr. Monfort filed a cross- complaint against the Underwriters seeking indemnification under the terms of the Underwriting Agreement. On January 15, 2020, Mr. Monfort filed a cross-complaint against the Company seeking indemnification under the terms of the Company’s Amended and Restated Bylaws and Section 145 of the Delaware General Corporation Law. On February 18, 2020, we filed an answer to Mr. Monfort’s cross-complaint, generally denying the allegations and asserting affirmative defenses.
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On March 2, 2021, Electric Drivetrains filed its motion for class certification. On March 17, 2021, the court held a case management conference. At the case management conference, the court set a tentative schedule for class discovery and briefing on the motion for class certification. On June 2, 2021, Electric Drivetrains and ADOMANI filed a stipulation extending the deadline for class certification discovery proposing the following deadlines: close of class discovery on September 28, 2021; defendants’ opposition to the motion for class certification due on October 28, 2021; plaintiff’s reply in support of its motion due on November 29, 2021; a case management conference on December 13, 2021 to set a date for hearing on the merits of the motion for class certification. Electric Drivetrains settled its claims against Mr. Monfort. The Underwriters have reached settlements with Electric Drivetrains on the primary claims in this matter. All defendants are maintaining their cross claims against each other. On July 13, 2021, Electric Drivetrains’ counsel moved to be relieved as counsel and on August 23, 2021, the court granted this motion. OnAlso on August 23, 2021, the Clerk of Court issued an order to show cause why the complaint should not be stricken and matter dismissed for failure to retain new counsel to Electric Drivetrains. On October 28, 2021, Electric Drivetrains filed a substitution of attorney, substituting J. Ryan Gustafson of Good Gustafson Aumais LLP as its new counsel. On December 10, 2021, the Court vacated the order to show cause. OverOn January 20, 2022, Mr. Monfort dismissed his cross-complaint for indemnification against the tenureCompany. On March 28, 2022, Electric Drivetrains forwarded its proposed Fifth Amended Complaint, in which it: i) drops certain class allegations; ii) adds certain state law claims (various violations of California Corporations Code), aider and abettor liability, and negligent misrepresentation, but leaves the remaining claims against defendants intact. The Company has agreed to stipulate to the filing of the action, Electric Drivetrain has dismissed all defendants inamended complaint. A status conference is scheduled for June 16, 2022. We believe that the action except forlawsuit is without merit and intend to vigorously defend the Company and two former Company executives. Any and all pending cross claims between or among defendants have been resolved and dismissed.action.
On January 20, 2022, Mr. Monfort dismissed his cross-complaint for indemnification against the Company in the Mollik action. On April 8, 2022, the Company and Boustead Securities, LLC (“Boustead”) settled their respective cross-claims against each other in both the Mollik action and Brooks action (see below) in exchange for the Company paying fifty thousand dollars ($50,000) in cash and 20,415 shares of common$125,000 (one hundred twenty five thousand dollars) in stock and mutual releases between parties. On August 5, 2022, the Santa Clara Superior Court approved this Settlement rendering it finally effective, with consideration being forthcoming. There are no longer any cross claims pending in the Mollik action.
On June 19, 2019, Alan K. Brooks, an ADOMANI investor, filed a complaint, captioned Alan K. Brooks v. ADOMANI, Inc., et al., Case No. 1-CV-349153 in the Superior Court of California for the County of Santa Clara, against the Company, certain of the Company’s executive officers and directors, two of the underwriters of the Company’s offering of common stock under Regulation A in June 2017, and certain of the underwriters’ personnel, among others. The complaint alleges that the Company and other defendants breached the terms of an agreement between Mr. Brooks and the Company by refusing to release 1,320,359 shares of ADOMANI, Inc. stock to Mr. Brooks. Mr. Brooks seeks damages of $13,500,000.00 plus interest and attorney’s fees. On September 20, 2019, Mr. Brooks filed his first amended complaint (“FAC”) reasserting his breach of contract claim and alleging five additional claims for (i) violations of Cal. Corp. Code Section 25401, (ii) fraud, (iii) negligent misrepresentation, (iv) elder abuse, and (v) unfair competition. We answered the FAC on November 12, 2019, generally denying the allegations in the FAC and asserting affirmative defenses. Fact discovery in this matter remains ongoing. On August 31,10, 2021, we filed a motion for summary judgement and dismissal of plaintiff’s FAC. The parties participated in two days of mediation with Mark LeHocky. Mr. LeHocky provided the parties with a mediator’s proposal. Both parties accepted the proposal and reduced the proposal to a written settlement agreement. Pursuant to the settlement agreement, the Company has agreed to pay plaintiffs $197,500 in cash and $197,500 in shares of common stock. In addition, the Company’s insurance carrier has agreed to pay plaintiffs $170,000. On January 14, 2022, Electric Drivetrainsthe parties filed a joint motion for an order approving the fairness of the terms of the settlement agreement. On March 7, 2022, the Court issued an Order approving the settlement and the parties are in the process of effectuating its Fifth Amended Complaint, which: i) drops certain class allegations; ii) adds certain state law claims; iii) and drops certain factual allegations but leaves the remaining claims against defendants intact.terms. On October 6,April 5, 2022, the Company and remaining defendants filed their respective answer denyingBoustead resolved Boustead’s cross claim for indemnification in the allegationsBrooks action. This settlement is still subject to court approval. There are no further claims pending in the Brooks action and, asserting counterclaims. if and when the Court approves the settlement, it should be dismissed.
On the same day,February 3, 2020, the Company cross claimedacquired substantially all the assets of Ebus in a foreclosure sale through a credit bid in the amount of $582,000, representing the amount then owed by Ebus to the Company evidenced by a secured promissory note. Following the Company’s successful credit bid at the foreclosure sale, Ebus’s obligations under the note were extinguished and the Company was entitled to take possession of substantially all of the assets of Ebus. While the Company was able to take possession of some of the assets, Ebus prevented the Company from taking possession of all of the assets purchased at the foreclosure sale. As a result, on April 13, 2020, the Company filed a complaint captioned ADOMANI, Inc. v. Ebus, Inc., et al., in the Superior Court of California for the County of Los Angeles, Case No. 20ST CV 14275, against Electric DrivetrainsEbus and certain of its managing member. The Court has setinsiders and affiliates seeking to recover the remainder of the assets and related damages. On January 14, 2021, a trial setting conferencecross-complaint was filed against the Company by Ebus, Inc. and Anders B. Eklov for Unjust Enrichment and Conversion of Domain Name, seeking monetary damages and injunctive relief. A settlement agreement was entered into on December 21,March 15, 2022. We believe that the lawsuit is without merit and intend to vigorously defend the action.
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ITEM 1A. RISK FACTORS
There were no material changes from the risk factors previously disclosed in the audited financial statements of Envirotech Vehicles, Inc. for the year ended December 31, 2021 as described in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on April 26, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In connection with the settlement of the Mollik action and Brooks action,Case, the Company issued 20,415769,681 shares to Mr. Brooks for a total value of $197,500 on July 12,March 10, 2022. These securities were issued in reliance on the exemption under Section 3(a)(10) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
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.
| Incorporated by Reference | |||||||||||
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| Filing | Filed | ||||||
Number | Exhibit Description | Form | File No. | Exhibit | Date | Herewith | ||||||
10.1 | Offer Letter with Christian S. Rodich dated February 3, 2022 | 8-K | 001-38078 | 10.1 | 2/8/2022 | |||||||
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | X | ||||||||||
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | X | ||||||||||
32.1# | X | |||||||||||
32.2# | X | |||||||||||
101.INS | Inline XBRL Instance Document* | X | ||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document* | X | ||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | X | ||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | X | ||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | X | ||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definitions Linkbase Document* | X | ||||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | |||||||||||
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* | 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 |
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SIGNATURES
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. | |||||
Date: September 22, 2023 | |||||
By: | /s/ Phillip W. Oldridge | ||||
Phillip W. Oldridge | |||||
Chief Executive Officer | |||||
(Principal Executive Officer) | |||||
Date: September 22, 2023 | By: | /s/ Douglas M. Campoli | |||
| Douglas M. Campoli | |||||
| |||||
(Principal Financial and Accounting Officer) | |||||
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