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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission File Number: 001-38078

 

ENVIROTECH VEHICLES, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

46-0774222

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

1215 Graphite Drive

Corona, CA 92881

(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:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.00001 per share

 

ADOM

 

OTC Markets Group Inc.

 

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 S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

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 12b-2 of the Exchange Act). Yes   No

The number of shares outstanding of the registrant’s common stock as of August 16, 2021 was 294,317,605.  

 

 

 


 

ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

 

 

 

PAGE

 

 

 

Part I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements:

1

 

 

 

 

Unaudited Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

1

 

 

 

 

Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020

2

 

 

 

 

Unaudited Consolidated Statements of Stockholders’ Equity (Deficit) for the Six Months Ended June 30, 2021

3

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

4

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

5

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

Item 3. Quantitative and Qualitative Disclosure about Market Risk

27

 

 

 

Item 4. Controls and Procedures

27

 

 

 

Part II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

28

 

 

 

Item 1A. Risk Factors

30

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

Item 3. Defaults Upon Senior Securities

30

 

 

 

Item 4. Mine Safety Disclosures

30

 

 

 

Item 5. Other Information

30

 

 

 

Item 6. Exhibits

31

 

 

 

Signatures

32

 

 

 


 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains “forward-looking statements” that involve substantial risks and uncertainties. Forward-looking statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.

You should not place undue reliance on forward-looking statements. The cautionary 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:

Our ability to generate demand for our zero-emission commercial fleet vehicles in order to generate revenue.

Our ability to achieve independence from external sources for the financing of our operations.

Our ability to effectively execute our business plan.

Our ability and our suppliers’ ability to scale our zero-emission products assembling processes effectively and quickly from low volume production to high volume production.

Our ability to manage our expansion, growth and operating expenses and reduce and adequately control the costs and expenses associated with operating our business.

Our ability to obtain, retain and grow our customers.

Our ability to enter into, sustain and renew strategic relationships on favorable terms.

Our ability to achieve and sustain profitability.

Our ability to evaluate and measure our current business and future prospects.

Our ability to compete and succeed in a highly competitive and evolving industry.

Our ability to respond and adapt to changes in electric vehicle technology.

Our 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)

 

 

 

June 30,

 

December 31,

 

 

2021

 

2020

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,287,286

 

 

$

136,222

 

Restricted cash

 

 

254,913

 

 

 

1,793,910

 

Marketable Securities

 

 

12,010,190

 

 

 

 

Accounts receivable

 

 

159,177

 

 

 

9,000

 

Inventory, net

 

 

1,860,320

 

 

 

 

Prepaid expenses

 

 

3,269,369

 

 

 

 

Total current assets

 

 

25,841,255

 

 

 

1,939,132

 

Property and equipment, net

 

 

241,133

 

 

 

227,561

 

Goodwill

 

 

49,546,910

 

 

 

 

Other non-current assets

 

 

405,999

 

 

 

242,025

 

Total assets

 

$

76,035,297

 

 

$

2,408,718

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

234,357

 

 

$

345,383

 

Accrued liabilities

 

 

1,032,991

 

 

 

2,382,660

 

Notes payable, net

 

 

298,747

 

 

 

 

Total current liabilities

 

 

1,566,095

 

 

 

2,728,043

 

Long-term liabilities

 

 

 

 

 

 

 

 

Other non-current liabilities

 

 

388,887

 

 

 

 

Notes payable, net

 

 

45,298

 

 

 

152,835

 

Total liabilities

 

 

2,000,280

 

 

 

2,880,878

 

Stockholders' equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, 5,000,000 authorized $0.00001 par value, none issued and

   outstanding as of June 30, 2021

 

 

 

 

 

 

Common stock, 350,000,000 authorized $0.00001 par value, 293,959,034 and 1 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

 

 

2,940

 

 

 

100

 

Additional paid-in capital

 

 

76,055,926

 

 

 

 

Accumulated deficit

 

 

(2,023,849

)

 

 

(472,260

)

Total stockholders' equity (deficit)

 

 

74,035,017

 

 

 

(472,160

)

Total liabilities and stockholders' equity (deficit)

 

$

76,035,297

 

 

$

2,408,718

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

1


ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30,

2021

 

 

 

June 30,

2020

 

 

June 30,

2021

 

June 30,

2020

Sales

 

$

188,266

 

 

$

2,000

 

 

$

659,059

 

 

$

88,735

 

Cost of sales

 

 

147,932

 

 

 

250

 

 

 

461,366

 

 

 

73,560

 

Gross profit

 

 

40,334

 

 

 

1,750

 

 

 

197,693

 

 

 

15,175

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

836,246

 

 

 

78,605

 

 

 

1,422,149

 

 

 

168,791

 

Consulting

 

 

95,108

 

 

 

16,800

 

 

 

105,358

 

 

 

37,300

 

Total operating expenses, net

 

 

931,354

 

 

 

95,405

 

 

 

1,527,507

 

 

 

206,091

 

Loss from operations

 

 

(891,020

)

 

 

(93,655

)

 

 

(1,329,814

)

 

 

(190,916

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(4,837

)

 

 

 

 

 

(5,759

)

 

 

 

Other income (expense)

 

 

2,778

 

 

 

7,000

 

 

 

2,284

 

 

 

7,000

 

Total other income (expense)

 

 

(2,059

)

 

 

7,000

 

 

 

(3,475

)

 

 

7,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(893,079

)

 

 

(86,655

)

 

 

(1,333,289

)

 

 

(183,916

)

Income tax expense

 

 

 

 

 

 

 

 

(218,300

)

 

 

 

Net loss

 

$

(893,079

)

 

$

(86,655

)

 

$

(1,551,589

)

 

$

(183,916

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.00)

 

 

$

(86,655

)

 

$

(0.01

)

 

$

(183,916

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted shares used in the computation of

   net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

278,431,602

 

 

 

1

 

 

 

162,757,032

 

 

 

1

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

2


ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

1,325

 

 

 

6,413,785

 

 

 

 

 

 

6,415,110

 

Common stock issued in merger

 

 

112,675,557

 

 

 

1,127

 

 

 

53,508,495

 

 

 

 

 

 

53,509,622

 

Offering costs netted against proceeds

 

 

 

 

 

 

 

 

(156,443)

 

 

 

 

 

 

(156,443

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(658,510

)

 

 

(658,510

)

Balance, March 31, 2021

 

 

255,233,558

 

 

$

2,552

 

 

$

59,765,837

 

 

$

(1,130,770

)

 

$

58,637,619

 

Common stock issued for cash

 

 

38,725,475

 

 

 

388

 

 

 

16,321,661

 

 

 

 

 

 

16,322,049

 

Offering costs netted against proceeds

 

 

 

 

 

 

 

 

(31,572)

 

 

 

 

 

 

(31,572)

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(893,079)

 

 

 

(893,079)

 

Balance, June 30, 2021

 

 

293,959,034

 

 

$

2,940

 

 

$

76,055,926

 

 

$

(2,023,849

)

 

$

74,035,017

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

3


ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Six Months Ended

 

 

June 30,

2021

 

June 30,

2020

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,551,589

)

 

$

(183,915

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

35,376

 

 

 

 

Unrealized gain on marketable securities

 

 

(10,190

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(146,804

)

 

 

(9,000

)

Prepaid expenses

 

 

(2,243,479

)

 

 

 

Inventory

 

 

(1,208,657

)

 

 

 

Other non-current assets

 

 

265,523

 

 

 

 

Accounts payable

 

 

(239,413

)

 

 

(132,502

)

Accrued liabilities

 

 

(1,800,582

)

 

 

 

Other non-current liabilities

 

 

82,348

 

 

 

 

Net cash used in operating activities

 

 

(6,817,467

)

 

 

(325,417

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

(183,076

)

 

 

(30,166

)

Investment in marketable securities

 

 

(12,000,000

)

 

 

 

Cash acquired in merger

 

 

3,373,332

 

 

 

 

Net cash used in investing activities

 

 

(8,809,744

)

 

 

(30,166

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

22,737,159

 

 

 

 

Related-party investment

 

 

 

 

 

49,990

 

Payments for offering costs

 

 

(188,015

)

 

 

 

Principal repayments on long term debt (SBA)

 

 

(309,865

)

 

 

 

Net cash provided by financing activities

 

 

22,239,279

 

 

 

49,990

 

 

 

 

 

 

 

 

 

 

Net change in cash, restricted cash, and cash equivalents

 

 

6,612,067

 

 

 

(305,593

)

Cash, restricted cash, and cash equivalents at the beginning of the period

 

 

1,930,132

 

 

 

324,055

 

Cash, restricted cash, and cash equivalents at the end of the period

 

$

8,542,199

 

 

$

18,461

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash paid for interest expense

 

$

2,283

 

 

$

 

Cash paid for income taxes

 

$

 

 

$

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

4


ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Organization and Operations

 

Envirotech Vehicles, Inc. (“we”, “us”, “our” or the “Company”) is a provider of purpose-built zero-emission electric vehicles focused on reducing the total cost of vehicle ownership and helping fleet operators unlock the benefits of green technology. We serve commercial and last-mile fleets, school districts, public and private transportation service companies and colleges and universities to meet the increasing demand for light to heavy-duty electric vehicles. Our vehicles address the challenges of traditional fuel price cost instability and local, state and federal regulatory compliance.

On March 15, 2021, the Company completed its acquisition of Envirotech Drive Systems, Inc., a Delaware corporation (“EVTDS”), a supplier of zero-emission trucks, cargo vans, chassis and other commercial vehicles. The transaction was completed in accordance with an Agreement and Plan of Merger, dated February 16, 2021 (the “Merger Agreement”), by and among the Company, EVTDS and EVT Acquisition Company, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”). See Note 3.

The Company was formerly known as ADOMANI, Inc. On May 26, 2021, the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation the Company with the Secretary of State of the State of Delaware to change its name from ADOMANI, Inc. to Envirotech Vehicles, Inc., effective as of May 26, 2021. 

2. Summary of Significant Accounting Policies

Basis of Presentation—The consolidated financial statements and related disclosures of EVTDS (see Note 3) as of June 30, 2021, which include the consolidated balance sheet accounts of Envirotech Vehicles, Inc. and subsidiaries, and for the fiscal period ended June 30, 2021, which include the consolidated results of operations of  EVTDS for the entire six month period and include the consolidated results of operations of Envirotech Vehicles, Inc. and subsidiaries for the post-merger period March 16, 2021 through June 30, 2021, are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In our opinion, these unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These unaudited financial statements should be read in conjunction with the EVTDS audited financial statements for the years ended December 31, 2020 and 2019 included in our Current Report on Form 8-K/A filed with the SEC on April 22, 2021. The results of operations for the fiscal period ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year.

Principles of Consolidation—The accompanying financial statements reflect the consolidation of the financial statements of EVTDS, its wholly-owned subsidiary Envirotech Drive Systems, Incorporated, and, from March 16, 2021 forward, the financial statements of Envirotech Vehicles, Inc., ADOMANI California, Inc., Adomani (Nantong) Automotive Technology Co. Ltd., ADOMANI ZEV Sales, Inc., Zero Emission Truck and Bus Sales of Arizona, Inc., and ZEV Resources, Inc. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments—The carrying values of our financial instruments, including cash, notes receivable and accounts payable approximate their fair value due to the short-term nature of these financial instruments. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 820, “Fair Value Measurement” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly

5


transaction between market participants on the measurement date. It also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs that are supported by little or no market data and that require the reporting entity to develop its own assumptions.

The Company does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.

Revenue Recognition— The Company recognizes revenue from the sales of zero-emission electric vehicles and vehicle maintenance and inspection services. The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In applying ASC Topic 606, the Company is required to:

(1) Identify any contracts with customers.

(2) Determine if multiple performance obligations exist.

(3) Determine the transaction price.

(4) Allocate the transaction price to the respective obligation; and,

(5) Recognize the revenue as the obligation is satisfied.

Product revenue also includes the sale of electric trucks and cargo vans. These sales represent a single performance obligation with revenue recognition occurring at the time title transfers. Transfer of title occurs when the customer has accepted the vehicle and signed the appropriate documentation acknowledging receipt.

The Company is the recipient of a purchase order issued from GerWeiss EV USA LLC (“GerWeiss”) to produce all-electric tricycles (“e-trikes”), or all-electric light weight commercial vehicles. The Company has agreed to provide deposits to GerWeiss to fund the procurement of the supplies and assembly of the tricycles. The purchase order represents a single performance obligation with the Company recognizing revenue upon notification that the assembled units have been completed by GerWeiss. Upon the recording of revenue, the corresponding deposits are recorded as cost of goods sold.

Other revenue includes performing basic vehicle maintenance and detailing, as well as safety inspections for compliance with United States Department of Transportation guidelines. These sales represent a single performance obligation with revenue recognition occurring at the time services are invoiced.

 

Cash and Cash Equivalents— The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less to be cash equivalents.

Marketable Securities—The Company invests in short-term, highly liquid, marketable securities, such as U.S. Treasury notes, U.S. Treasury bonds, and other government-backed securities. The Company classifies these marketable securities as held-to-maturity, as the intent is not to liquidate them prior to the respective stated maturity date. At June 30, 2021, the aggregate amount of the Company’s investments in marketable securities was $12,010,190. There were no investments in marketable securities at December 31, 2020.

6


Accounts Receivable and Allowance for Doubtful Accounts—The Company establishes an allowance for bad debts through a review of several factors including historical collection experience, current aging status of the customer accounts, and financial condition of its customers. The Company does not generally require collateral for its accounts receivable. The Company had trade accounts receivable of $159,177 and $9,000 as of June 30, 2021 and December 31, 2020, respectively. Because the trade accounts receivable balance at June 30, 2021 is from credit-worthy customers and because the December 31, 2020 balance was collected subsequent to that date, no allowance has been recorded relative to the trade accounts receivable balance as of June 30, 2021 or December 31, 2020.    

Inventory and Inventory Valuation AllowanceThe Company records inventory at the lower of cost or market, and uses a First In, First Out (“FIFO”) accounting valuation methodology. The Company had finished goods inventory on hand of $1,860,320 and zero as of June 30, 2021 and December 31, 2020, respectively. The Company provided no inventory allowance as of June 30, 2021 other than as discussed in Note 3.

Inventory Deposits―The Company records all inventory deposits as prepaid assets. Upon completion of production, and acceptance by the Company, deposits are reclassified to either inventory or cost of goods, depending on whether a sale of the product has occurred.  The Company had inventory deposits of $2,877,875 and zero as of June 30, 2021 and December 31, 2020, respectively.

Income TaxesThe Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.

EVTDS previously recorded deferred tax benefits from net operating losses in current and prior periods. The Company, in light of the uncertainty of generating future taxable income against which those losses can be offset in order to realize such benefits, has determined that recording a valuation allowance to reduce the deferred income tax assets to the amount that is more likely than not to be realized is appropriate. In making such determinations, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. As of June 30, 2020, EVTDS did not recognize a full valuation allowance for all deferred tax assets. In March 2021, the Company recognized a full valuation allowance for all deferred tax assets, and as a result, recorded income tax expense of $218,300 for the three months ended March 31, 2021 in order to establish the reserve. This amount is also an income tax expense for the six months ended June 30, 2021.

The December 31, 2020 audit report for EVTDS stated that corporate income tax returns for 2017, 2018, and 2019 had not been filed; in fact, they were filed on December 15, 2020.  The audit report also stated that corporate income tax returns for 2020 had not been filed; those returns were not due to be filed until May17, 2021, and they were filed in early May, 2021.

Accounting for Uncertainty in Income Taxes—The Company evaluates its uncertain tax positions and will recognize a loss contingency when it is probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can be reasonably estimated. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. At June 30, 2021 and 2020, respectively, management did not identify any uncertain tax positions.

Net Loss Per Share—Basic net loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the diluted weighted average number of shares of common stock outstanding during the period. The diluted weighted average number of shares of common stock outstanding is the basic weighted number of shares of common stock adjusted for any potentially dilutive debt or equity securities.

7


As of June 30, 2021, 12,398,573 shares of the Company’s common stock were subject to issuance upon the exercise of stock options then outstanding and 29,847,994 shares of the Company’s common stock were subject to issuance upon the exercise of warrants then outstanding.

Concentration of Credit Risk

The Company has credit risks related to cash and cash equivalents on deposit with a federally insured bank, as at times it exceeds the $250,000 maximum amount insured by the Federal Deposit Insurance Corporation (“FDIC”). Additionally, the Company maintains cash and short-term securities invested at Morgan Stanley Private Bank, National Association (“Morgan Stanley”). Between FDIC and the Securities Investor Protection Corporation (“SPIC”) coverage, funds up to $750,000, which may include cash up to $500,000, are insured. In addition, Morgan Stanley provides excess insurance acquired by them from SPIC for an additional $1.9 million in cash and unlimited per customer securities up to a $1 billion cap.

The restricted cash reported by EVTDS as of December 31, 2020, combined with additional cash raised in 2021, was used to fund both the merger closing requirement of $5,000,000 to ADOMANI, Inc. (see Note 3) and to repay liabilities of EVTDS. The amount of restricted cash and corresponding unpaid current liabilities of EVTDS that is included in the consolidated balance sheet at June 30, 2021 is approximately $254,913.

For the three months ended March 31, 2021, total EVTDS sales were to one customer, ADOMANI, Inc., prior to the merger closing (see Note 3). The customer account was collected within two days of invoicing. In addition, the merged entity recorded additional sales during the two weeks post-merger which were made to two other customers and were collected within weeks of invoicing. The Company sold two vehicles during the last week of the three months ended June 30, 2021, and expects to be paid for them promptly and in full. Accordingly, customer accounts are reported at the invoiced amount outstanding.

Impairment of Long-Lived Assets—Long-lived assets, including property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates these assets to determine potential impairment by comparing the carrying amount to the undiscounted estimated future cash flows of the related assets. If the estimated undiscounted cash flows are less than the carrying value of the assets, the assets are written down to their fair value. There was no impairment of long-lived assets, or property and equipment, as of June 30 2021 and December 31, 2020, respectively.

Goodwill. Goodwill represents the excess acquisition cost over the fair value of the net tangible and intangible assets acquired, Goodwill is not amortized and is subject to annual impairment testing on or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, the Company has the option lo first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not required. If the Company concludes otherwise, the Company is required to perform the two-step impairment test, The goodwill impairment test is performed at the reporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not impaired. If the estimated fair value is less than the carrying value, further analysis is necessary to determine the amount of impairment, if any, by comparing the implied fair value of the reporting unit's goodwill to the carrying value of the reporting unit's goodwill.

 

Research and Development—Costs incurred in connection with the development of new products and manufacturing methods are charged to operating expenses as incurred. No research and development costs were incurred for the three or six months ended June 30, 2021 or 2020.

Stock-Based Compensation—The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, “Compensation-Stock Compensation”, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered. Additionally, in June 2018 the FASB issued Accounting Standards Update (“ASU”) No. 2018-07, which simplified several aspects of accounting for

8


nonemployee share-based payment transactions by expanding the scope of ASC Topic 718. The guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. The Company implemented this change beginning in 2019. Because all outstanding unvested employee stock options became fully vested upon the merger close and change in control (see Notes 3 and 8), and because no new options to purchase shares of common stock were granted between March 16, 2021 and June 30, 2021, no stock-based compensation expense is recorded in the consolidated financial statements for the three or six months ended June 30, 2021.

Property and Equipment— Property and equipment are stated at cost, less accumulated depreciation and amortization. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets, which range from three to five years, except leasehold improvements, which are being amortized over the life of the lease term. Property and equipment qualify for capitalization if the purchase price exceeds $2,000. Major repairs and replacements, which extend the useful lives of equipment, are capitalized and depreciated over the estimated useful lives of the property. All other maintenance and repairs are expensed as incurred.

Leases—The Company accounts for leases as required by ASC Topic 842. The guidance requires companies to recognize leased assets and liabilities on the balance sheet and to disclose key information regarding leasing arrangements.

Recent Accounting Pronouncements Management has considered all recent accounting pronouncements issued, but not effective, and does not believe that they will have a significant impact on the Company’s financial statements.

3. Merger

On March 15, 2021, the Company completed its acquisition of EVTDS, a supplier of zero-emission trucks, cargo vans, chassis and other commercial vehicles. The transaction was completed in accordance with the Merger Agreement, by and among the Company, EVTDS and Merger Sub. As a result of such transaction, Merger Sub was merged with and into EVTDS, with EVTDS surviving as our wholly owned subsidiary (the “Merger”). In accordance with the terms of the Merger Agreement, at the effective time of the Merger, each outstanding share of the common stock of EVTDS was automatically converted into the right to receive one share of the common stock of the Company. As a result of the Merger, the Company issued an aggregate of 142,558,001 shares of its common stock to the former EVTDS stockholders, which shares represented approximately 56% of the total issued and outstanding shares of common stock of the Company as of immediately following the effective time of the Merger. This exchange of shares and the resulting controlling ownership of EVTDS constitutes a reverse acquisition resulting in a recapitalization of EVTDS and purchase accounting being applied to ADOMANI, Inc. under ASC 805 due to EVTDS being the accounting acquirer and ADOMANI, Inc. being deemed an acquired business. This requires financial reporting from the Merger close date forward to reflect only the historic consolidated results of EVTDS and to include the consolidated results for Envirotech Vehicles, Inc. and subsidiaries from March 16, 2021 forward.

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 Vehicles, Inc., a Canadian entity, 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 $6,415,210. 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. However, some liabilities were not repaid and are still being negotiated, resulting in $258,083 in cash at March 31, 2021 still being restricted and $258,083 in liabilities remaining outstanding on the March 31, 2021 balance sheet included in the unaudited consolidated financial statements. This number has decreased to $254,913 in both categories as of June 30, 2021.

9


EVTDS entered into an exclusive 50-year distribution agreement as of October 4, 2017 to become the sole USA distributor of Envirotech Electric Vehicles, Inc., a Canadian entity. This agreement grants EVTDS the exclusive right in the United States to promote sales, including the right to use trademarks, trade names, service marks and logos and to obtain orders based on sales targets for orders. The agreement also provides that Envirotech Electric Vehicles, Inc. may not independently appoint additional distributors. The Company obtained this agreement in the Merger.

The following table presents the estimated allocation of the purchase price of the assets acquired and liabilities assumed for the acquisition by EVTDS of ADOMANI, Inc. via the reverse acquisition:

 

Purchase Price Allocation of ADOMANI, Inc.

Accounts receivable and other current assets

 

$

1,680,926

 

Property and equipment

 

 

86,873

 

Right of use asset

 

 

369,987

 

Other assets

 

 

59,510

 

Goodwill

 

 

49,546,910

 

Accounts payable and accrued expenses

 

 

(820,389

)

Lease liability

 

 

(369,987

)

Notes payable

 

 

(417,540

)

Purchase price, net of $3,373,332 cash acquired

 

$

50,136,290

 

 

This preliminary allocation is based on management’s estimated fair value of the ADOMANI Inc. assets and liabilities at March 15, 2021 and is subject to adjustment when a third party valuation to determine the fair value of the assets for ASC 805, Business Combinations reporting purposes is received. That report is not yet completed as of the date of filing this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021. Accordingly, there have been no adjustments made to the initial estimates of fair value. Adjustments made to the ADOMANI, Inc. assets are derived from a total value of $53,509,622, based on 112,675,558 shares of common stock outstanding on March 15, 2021 and the closing price that day of $0.4749 per share. From that amount, total assets acquired of $5,570,628 (including a reduction in the carrying value of finished goods inventory of $26,400 to reflect fair value) was deducted, and total acquired liabilities of $1,607,916 were added back to arrive at the $49,546,910 of Goodwill recorded. The Company incurred approximately $415,472 in transaction costs related to the Merger.

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 10 and 12), all accounting subsequent to the closing of the Merger has been and will continue to be done on a consolidated basis. We therefore are not able to segregate the operating results of operations between the formerly separate entities in the current periods.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations for the Company and gives effect to the Merger discussed above as if it had occurred on January 1, 2020 and on January 1, 2021. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations for the three and six months ended June 30, 2020 and 2021, respectively, that would have been realized if the Merger had occurred on January 1, 2020 or January 1, 2021, nor does it purport to project the results of the merged entity in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the merged entities.

 

 

 

For the three months ended

 

For the six months ended

 

 

June 30,

 

June 30,

 

 

2021

 

2020

 

2021

 

 

2020

 

Sales

 

$

188,266

 

 

$

131,590

 

 

$

363,470

 

 

$

422,047

 

Net loss

 

$

(893,079

)

 

$

(1,191,907

)

 

$

(4,195,513

)

 

$

(2,557,146

)

 

10


 

For purposes of the pro forma disclosures above, there were no adjustments required for the three months ended June 30, 2020 because there were no transactions between EVTDS and ADOMANI, Inc. during that period.  For the three months ended June 30,2021, there were also no adjustments required, as the quarter reflects the results of operations of the merged entity. The adjustments for the six months ended June 30, 2020 resulted in a reduction in sales of $79,735 and a $15 decrease in net loss. The adjustments for the six months ended June 30, 2021 resulted in a reduction of sales of $319,000 and a $91,800 increase in net loss. Both sales adjustments resulted from sale of vehicles by EVTDS to ADOMANI, Inc. However, the actual loss for ADOMANI, Inc. for the period January 1, 2021 through March 15, 2021 that is included in this pro forma information included an adjustment to fully amortize the unamortized stock-based compensation expense related to outstanding stock options that fully vested at the closing of the Merger. This adjustment increased pro forma expenses, and therefore the pro forma net loss, for both the three months ended March 31, 2021 and the six months ended June 30, 2021 by approximately $1,826,623 more than would otherwise have been recorded absent the consummation of the Merger.

4. Property and Equipment, Net

Components of property and equipment, net, consist of the following as of June 30, 2021 and December 31, 2020:

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Furniture and fixtures

 

$

41,799

 

 

$

 

Leasehold improvements

 

 

28,112

 

 

 

30,166

 

Machinery & equipment

 

 

86,266

 

 

 

92,853

 

Vehicles

 

 

186,842

 

 

 

128,999

 

Test/Demo vehicles

 

 

15,784

 

 

 

 

Total property and equipment

 

$

358,802

 

 

$

252,018

 

Less accumulated depreciation

 

 

(117,669

)

 

 

(24,457

)

Net property and equipment

 

$

241,133

 

 

$

227,561

 

 

EVTDS sold all its property and equipment owned at December 31, 2020, reflected above, to Envirotech Electric Vehicles, Inc. in the first quarter of 2021and after recording $6,560 depreciation expense for the three months ended March 31, 2021, recognized no gain or loss on the sale. The balances above at June 30, 2021 therefore reflect Envirotech Vehicles, Inc. assets acquired in the Merger (see Note 3) and assets purchased subsequent to the Merger closing.

Depreciation expense was $27,380 and $0 and was $35,376 and $0 for the three and six months ended June 30, 2021 and 2020, respectively.

5. Debt

As of December 31, 2020, EVTDS had a $150,000 loan outstanding payable to the U.S. Small Business Administration (“SBA”) under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”). The EIDL loan was evidenced by a promissory note, with interest accruing on the outstanding principal at the rate of 3.75% per annum. As of December 31, 2020 the principal and accrued interest on the EIDL loan was $152,835, which was reflected on the consolidated balance sheets as long-term notes payable. In connection with the Merger (see Note 3), EVTDS repaid the loan and accrued interest in full in the amount of $153,668.

On May 6, 2020, ADOMANI, Inc. received $261,244 in loan funding from the Paycheck Protection Program (the “PPP”) established pursuant to the CARES Act and administered by the SBA. The unsecured loan (the “PPP Loan”) is evidenced by a promissory note of the Company, dated May 3, 2020 (the “PPP Note”) in the principal amount of $261,244 with Wells Fargo Bank, N.A. (“Wells Fargo”), the lender. The PPP provides for loans to be forgiven under certain circumstances if provisions are met. Under the terms of the PPP Note and the PPP, interest accrues on the outstanding principal at the rate of 1.0% per annum. The term of the PPP Note is two years, though it may be payable sooner in connection with an event of default under the PPP Note. To the extent the loan amount is not forgiven under the PPP, the Company will be obligated to make equal monthly payments of principal and interest beginning on

11


November 1, 2020 through the maturity date of May 3, 2022. The Company filed its forgiveness application on October 16, 2020 and was notified by Wells Fargo on January 6, 2021 that its PPP Loan had been approved internally for 100% forgiveness, and had been forwarded to SBA for their approval. The Company anticipates the net amount forgiven will be $251,244, which is the principal amount of $261,244, less $10,000 that was advanced as part of the Company’s application for the EIDL loan (see below). As of June 30, 2021 the principal and accrued interest on the PPP Note was $280,469, of which $266,959 is reflected on the consolidated balance sheets as current notes payable, while $13,510 is reflected on the consolidated balance sheets as long-term notes payable.

On May 20, 2020 ADOMANI, Inc. received $150,000 in loan funding from the SBA under the EIDL program administered by the SBA, which program was expanded pursuant to the CARES Act. The EIDL loan is evidenced by a promissory note, dated May 17, 2020 (the “EIDL Note”) in the original principal amount of $150,000 with the SBA, the lender. Under the terms of the EIDL Note, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of the EIDL Note is thirty years, though it may be payable sooner upon an event of default under the EIDL Note. Under the EIDL Note, the Company will be obligated to make equal monthly payments of principal and interest beginning on May 18, 2022 through the maturity date of May 18, 2050. The EIDL Note may be prepaid in part or in full, at any time, without penalty. The loan and accrued interest in the amount of $154,817 was repaid on May 17, 2021.

On June 15, 2021, the Company entered into an equipment financing agreement with Navitas Credit Corp. in connection with the purchase of certain inventory management software. The $63,576 loan is payable over twenty four months, beginning in July, 2021, with monthly payments of $2,648.99. As of June 30, 2021, $31,788 is reflected on the consolidated balance sheet as current notes payable while $31,788 is classified as long-term notes payable.

Effective May 2, 2018, ADOMANI, Inc. secured a line of credit from Morgan Stanley. Borrowings under the line of credit bear interest at 30-day LIBOR plus 2.0%. There is no maturity date for the line, but Morgan Stanley may at any time, in its sole discretion and without cause, demand the Company immediately repay any and all outstanding obligations under the line of credit in whole or in part. The line is secured by the cash and cash equivalents maintained by the Company in its Morgan Stanley accounts. Borrowings under the line may not exceed 95% of such cash, cash equivalents, and marketable securities balances. The maximum amount the Company could borrow at June 30, 2021, was approximately $17.1 million; there was no principal amount outstanding at that date. The line of credit and related interest expense was repaid in full on February 3, 2020.  The line of credit is still available to the Company, but there is no current plan to borrow from it.

6. Common Stock 

On March 15, 2021, in connection with the closing of the Merger, the Company issued 142,558,001 shares of its common stock to the former stockholders of EVTDS in exchange for their shares of EVTDS (see Note 3), increasing the total number of outstanding shares of common stock of the Company to 255,233,559 as of immediately following the closing of the Merger.

On December 24, 2020, ADOMANI, Inc. entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional and accredited investors, whereby the Company agreed to sell, and the investors agreed to purchase, shares of common stock of the Company, and warrants (the “Warrants”) to purchase additional shares of the Company’s common stock (the “Financing”).

The first closing of the Financing occurred on December 29, 2020. ADOMANI, Inc. raised net cash proceeds, net of offering costs, of approximately $5.3 million through the sale and issuance of 11,500,000 shares of its common stock at a purchase price equal to $0.50 per share and Warrants to purchase up to an aggregate of 8,625,001 shares of its common stock at an exercise price of $0.50 per share. The share and warrant amounts issued include 650,000 shares and 487,500 warrants issued to the underwriter in lieu of paying $325,000 of fees in cash. The share and warrant amounts issued include 650,000 shares and Warrants to purchase up to 487,500 shares issued to the underwriter in lieu of paying $325,000 of fees in cash.

12


The second closing of the Financing was completed on May 7, 2021, following the closing of the Merger (see Note 3) and the subsequent effectiveness of the Registration Statement on Form S-3 (File No. 333-255341) filed with the SEC on April 19, 2021, registering for resale the shares of the Company’s common stock sold, and the shares issuable under the Warrants issued, in connection with the Financing. At the second closing of the Financing, the Company raised aggregate net cash proceeds of approximately $16.3 million through the sale and issuance of an additional 38,333,333 shares of its common stock at a purchase price equal to $0.45 per share, and additional Warrants to purchase up to an aggregate of 19,166,667 shares of its common stock at an exercise price of $1.00 per share. The share and Warrant amounts issued include 2,166,666 shares and a Warrant to purchase 1,083,330 shares issued to the underwriter in lieu of paying $975,000 of fees in cash. See Note 8.

7. Stock Warrants

As a result of the Merger closing (see Note 3), as of March 31, 2021, the Company had outstanding warrants to purchase an aggregate of 10,681,327 shares of common stock, 2,056,326 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 Note 6, the Company issued additional warrants to purchase up to 19,166,667 shares of its common stock, all of which were exercisable as of June 30, 2021. The Company’s outstanding warrants as of June 30, 2021 is summarized as follows, and all were exercisable at that date (see Note 6):

 

 

 

Number of

 

 

Exercise

 

 

Remaining

 

 

 

Shares

 

 

Price

 

 

Contractual Life (years)

 

Outstanding warrants expiring August 31, 2021

 

 

 

1,250,000

 

 

$

4.00

 

 

 

 

0.17

 

Outstanding warrants expiring June 9, 2022

 

 

 

199,659

 

 

$

6.00

 

 

 

 

0.94

 

Outstanding warrants expiring June 9, 2022

 

 

 

350,000

 

 

$

5.00

 

 

 

 

0.94

 

Outstanding warrants expiring January 9, 2023

 

 

 

256,667

 

 

$

3.75

 

 

 

 

1.58

 

Outstanding warrants expiring January 28, 2025

 

 

 

8,625,001

 

 

$

0.50

 

 

 

 

3.58

 

Outstanding warrants expiring May 7, 2026

 

 

 

19,166,667

 

 

$

1.00

 

 

 

 

4.85

 

Outstanding on June 30, 2021

 

 

 

29,847,994

 

 

$

1.09

 

 

 

 

3.54

 

 

The Warrants issued as part of the Purchase Agreement (see Note 6) contain a call provision whereby the Company, after the 13-month anniversary of the issuance date, and if the volume weighted average price of the common stock for such date exceeds four times the exercise price of the warrants for 20 consecutive trading days, may call the Warrants that have not previously been exercised, and the Warrant holders have ten trading days within which to exercise before the Warrants may be cancelled.  

As of June 30, 2021, the outstanding warrants have no intrinsic value.

13


8. Stock Options

 

As a result of the Merger closing (see Notes 2 and 3) there were 12,992,857 fully vested stock options outstanding at March 30, 2021 that were previously issued by ADOMANI, Inc. and assumed in the Merger.  The outstanding options at June 30, 2021 consisted of the following:

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

 

Number of

Shares

 

 

Exercise

Price

 

 

Contractual Life

(years)

 

Outstanding at March 31, 2021

 

 

12,992,857

 

 

$

0.29

 

 

 

4.61

 

Exercised

 

 

(392,142

)

 

$

  0.12

 

 

 

 

 

Cancelled / Forfeited at $0.12 Exercise Price

 

 

(67,144

)

 

$

  0.12

 

 

 

 

 

Cancelled / Forfeited at $0.45 Exercise Price

 

 

(75,000

)

 

$

  0.45

 

 

 

 

 

Cancelled / Forfeited at $1.31 Exercise Price

 

 

(60,000

)

 

$

  1.31

 

 

 

 

 

Outstanding Options at $0.10 Exercise Price

 

 

5,000,000

 

 

$

0.10

 

 

 

0.71

 

Outstanding Options at $0.12 Exercise Price

 

 

1,358,571

 

 

$

0.12

 

 

 

0.54

 

Outstanding Options at $0.45 Exercise Price

 

 

5,770,000

 

 

$

0.45

 

 

 

8.37

 

Outstanding Options at $1.31 Exercise Price

 

 

270,000

 

 

$

1.31

 

 

 

3.32

 

Outstanding at June 30, 2021

 

 

12,398,573

 

 

$

0.29

 

 

 

4.31

 

 

On June 14, 2021, options to purchase 33,571 shares of common stock were exercised at a price of $0.12 per share, resulting in a payment to the Company of $4,029. Also on June 14, 2021, options to purchase an aggregate of 67,144 shares of common stock with an exercise price of $0.12 per share, options to purchase 75,000 shares of common stock with an exercise price of $0.45 per share, and options to purchase 60,000 shares of common stock with an exercise price of $1.31 per share were forfeited by the former holder thereof, as they were not exercised prior to the expiration date specified with respect to such options.

 

On June 25, 2021, options to purchase 358,571 shares of common stock were exercised by an officer of the Company at a price of $0.12 per share, resulting in a payment to the company of $43,029.

 

As of June 30, 2021, outstanding options have an intrinsic value of $2,356,000.

9. 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 day-to-day operations of the Company, including the issuing of invoices to customers and making payments on behalf of the Company with respect to month-to-month leases of facilities, vehicles and trailers under separate agreements between the Company and SRI, including the SRI Equipment Leases and the SRI Office Leases further described in the following paragraphs in this Note 9, as well as Notes 10, 12 and 13. The term of the SRI Services Agreement will continue for a period of three months unless earlier terminated by the parties in accordance therewith, and it is contemplated that an aggregate of $26,042 will be paid by the Company to SRI in consideration of the services rendered under the SRI Services Agreement. Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, serves as an executive officer and a member of the board of directors of SRI.

The Company has entered into lease agreements with SRI (the “SRI Equipment Leases”), pursuant to which the Company leases equipment used in connection with the operation of its business. The SRI Equipment Leases provide for the leasing of 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 month-to-month lease with SRI (the “SRI Office Lease”), pursuant to which EVTDS has leased office and warehouse space in the Porterville, California area for a term that commenced on  January 1, 2020. The monthly rent under the SRI Office Lease is $910.

14


In addition to the SRI Services Agreement, the SRI Equipment Leases, and the SRI Office Lease, during the three months ended June 30, 2021, the Company purchased a heavy-duty pick-up truck and a trailer from SRI for $81,293. The Company intends to use such equipment to transport its electric vehicles to and from customer demonstration sites and to and from equipment outfitters when the vehicles have custom bodies and accessories added for specific customers.

The Company has entered into a commercial lease agreement (the “ABCI Office Lease”) with Alpha Bravo Charlie, Inc. (“ABCI”) that commenced on April 1, 2020, for the lease of office space in Porterville, California. The monthly rent for this facility is $2,800. See Notes 10, 12 and 13. Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, is a director of ABCI.  

During the three months ended June 30, 2021, the Company purchased two used automobiles from Mr. Oldridge for an aggregate purchase price of $33,250. The Company purchased such vehicles from Mr. Oldridge for use by the Company’s employees for sales calls and other business purposes and are housed at the Company’s Corona, California, corporate offices.

In connection with the closing of the Merger in March 2021, the Company purchased two electric trucks from Mr. Oldridge for an aggregate purchase price of $128,000. The purchase price for such vehicles was paid in full to Mr. Oldridge during the three months ended June 30, 2021.

Prior to the closing of the Merger, Mr. Oldridge had permitted the vehicles to be used by the Company as customer demonstration vehicles for no cost. The purchase price of $64,000 per vehicle was less than the purchase price of $83,000 per vehicle that ADOMANI, Inc. had paid to EVTDS for similar vehicles in prior transactions. One of the vehicles purchased by the Company was subsequently sold to a customer of the Company in March 2021 and the second truck remains in the Company’s inventory at June 30, 2021.

10. Commitments

Operating Leases

The Company has entered into the SRI Equipment Leases (see Note 9). Rent expense under the SRI Equipment Leases for the three and six months ended June 30, 2021 was $23,313 and $42,745, respectively, and was  $29,312 and $52,624 for the three and six months ended June 30, 2020, respectively.

The Company has entered into the SRI Office Lease (see Note 9). Rent expense under the SRI Office Lease for the three and six months ended June 30, 2021 was $2,730 and $5,460, respectively, and was also $2,730 and $5,460 for the three and six months ended June 30, 2020, respectively.

The Company has entered into the ABCI Office Lease (see Note 9). Rent expense under the ABCI Office Lease for the three and six months ended June 30, 2021 was $8,400 and $16,800, respectively, and was $8,400 for both the three and six months ended June 30, 2020, respectively, as it commenced on April 1, 2020.

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-days’ notice. The total amount due monthly is $1,000.

In October 2017, ADOMANI, Inc. signed a non-cancellable lease for its former corporate office space in Corona, California, to serve as its corporate headquarters. The lease was for a period of 65 months, terminating February 28, 2023. The base rent for the term of the lease was $568,912. The total amount due monthly is $7,600 at commencement and would have escalated to $10,560 by its conclusion had ADOMANI, Inc. remained a tenant. In November 2020, ADOMANI, Inc. vacated this space following staff reductions and moved remaining staff into the space discussed in the following paragraph. Through June 30, 2021, the Company had not paid the rent on this facility since October 2020, but the expense was accrued. On July 2, 2021 a resolution was reached with the landlord. Two of the four suites covered by this lease were re-leased by the building management in March and April 2021, ending the Company’s obligation on those two suites. ADOMANI, Inc.’s $11,616 deposit with the landlord has been applied against the outstanding amounts by the landlord, and the net outstanding amount at June 30, 2021 was approximately $53,735. In June, the landlord advised the Company that the remaining 2 suites were re-leased with a commencement date of September 1, 2021, and the landlord agreed to terminate the Company’s obligation as of July 31, 2021.  Accordingly,

15


the Company paid the landlord $60,630 on July 2, 2021 in exchange for a full release from the lease obligation. See Notes 12 and 13.

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 is for a period of 36 months, commencing on January 1, 2020, and terminating on December 31, 2022. The base rent for the term of the lease was $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 will escalate to $13,906 by its conclusion.

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.

The Company’s total net rent expense for the three and six months ended June 30, 2021 was $132,949 and $190,796, respectively. The total expense for the three and six months ended June 30, 2020 was $46,252 and $78,104, respectively.

Other Agreements

Effective January 1, 2017, the Company entered into an employment agreement with Michael Menerey, its Chief Financial Officer. The term of the employment agreement was five years and the agreement provides for an initial annual base salary of $200,000. Effective January 1, 2020, Mr. Menerey’s annual base salary was increased to $215,000. On November 1, 2020, Mr. Menerey agreed to reduce his compensation to $150,000 indefinitely.

The following table summarizes the Company’s future minimum payments under contractual commitments, excluding debt, as of June 30, 2021:

 

 

 

Payments due by period

 

 

 

Total

 

 

Less than

one year

 

 

1 - 3 years

 

 

4 - 5 years

 

 

More than 5

years

 

Operating lease obligations

 

$

150,000

 

 

$

96,680

 

 

$

53,140

 

 

$

 

 

$

 

Employment contract