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 MARCH 31, 2018

 

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

 

ADOMANI, 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.)

 

4740 Green River Road, Suite 106

Corona, CA 92880

(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)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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	☒ (Do not check if a smaller reporting company)	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 only class of common stock as of May 10, 2018 was 71,737,597.

 

 

 

 

ADOMANI, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

 

Part I. FINANCIAL INFORMATION

 

		PAGE
Item 1. Financial Statements:
	Unaudited Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017	2
	Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017	3
	Unaudited Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2018	4
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3. Quantitative and Qualitative Disclosure about Market Risk		20
Item 4. Controls and Procedures		20
Part II. OTHER INFORMATION
Item 1. Legal Proceedings		21
Item 1A. Risk Factors		21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3. Defaults Upon Senior Securities		21
Item 4. Mine Safety Disclosures		21
Item 5. Other Information		21
Item 6. Exhibits		21
Signatures		22

 

 

 

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 or hybrid drivetrains and conversion kits in order to generate revenue;

 

•

Our dependence upon external sources for the financing of our operations;

 

•

Our ability to effectively execute our business plan;

 

•

Our ability to scale our assembling and converting 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 or hybrid drivetrain technology; and

 

•

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 on Form 10-Q to “ADOMANI,” “Company,” “we,” “our,” and “us” refer to ADOMANI, Inc. and our subsidiaries, unless the context indicates otherwise.

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

 

ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

         

		March 31,				December 31,
		2018				2017
ASSETS
Current assets:
Cash and cash equivalents		$	8,199			$	2,446
Accounts receivable			464				-
Notes receivable, net			1,000				1,000
Inventory, net			210				225
Other current assets			1,658				778
Total current assets			11,531				4,449
Property and equipment, net			482				487
Other non-current assets			368				386
Total assets		$	12,381			$	5,322
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	176			$	30
Accrued liabilities			904				514
Notes payable, net			-				2,149
Total current liabilities			1,080				2,693
Long-term liabilities
Other non-current liabilities			271				289
Total liabilities			1,351				2,982
Commitments and contingencies
Stockholders' equity:
Preferred stock, 100,000,000 authorized $0.00001 par value none issued and outstanding, respectively			-				-
Common stock, 2,000,000,000 authorized $0.00001 par value,  71,737,597 and 68,070,930 issued and outstanding, respectively			1				1
Additional paid-in capital			58,083				45,316
Accumulated deficit			(47,054	)			(42,977	)
Total stockholders' equity			11,030				2,340
Total liabilities and stockholders' equity		$	12,381			$	5,322

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

  

 

ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share data)

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

ADOMANI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

The following discussion of our financial condition and the results of operations should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (“Quarterly Report”). This discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, those identified under the “Cautionary Statement Regarding Forward-Looking Statements” above, and elsewhere in this Quarterly Report, particularly in Part II. Item 1A. “Risk Factors,” below.

 

Overview

 

We are a provider of advanced zero-emission electric and hybrid vehicles and replacement drivetrains that is focused on reducing the total cost of vehicle ownership. Our drivetrain systems are designed to help fleet operators unlock the benefits of green technology and address the challenges of traditional fuel price cost instability and local, state and federal environmental regulatory compliance.

 

We design and cause to be designed advanced zero-emission electric and hybrid drivetrain systems for integration in new school buses and medium to heavy-duty commercial fleet vehicles. We also design and cause to be designed patented conversion kits to replace conventional drivetrain systems for combustion powered vehicles with zero-emission electric or hybrid drivetrain systems. The hybrid drivetrain systems are available in both an assistive hybrid format and a full-traction format for use in private and commercial fleet vehicles of all sizes. We seek to expand our product offerings to include the sale of zero-emission systems in vehicles manufactured by outside original equipment manufacturer (“OEM”) partners, but to be marketed, sold, warrantied and serviced through our developing distribution and service network.

 

Our drivetrain systems can be built with options for remote monitoring, electric power-export and various levels of grid-connectivity. Our zero-emission systems may also grow to include automated charging infrastructure and “intelligent” stationary energy storage that enables fast vehicle charging, emergency back-up facility power, and access to the developing, grid-connected opportunities for the aggregate power available from groups of large battery packs.

 

 

We have generated minimal revenue from inception through March 31, 2018. We generated $425,000 in the fourth quarter of 2017 and $463,731 for the three months ended March 31, 2018. For the years ended December 31, 2017 and 2016, our net losses were $21.9 million and $10.7 million, respectively. For the three months ended March 31, 2018 and 2017, our net losses were $4.1 million and $1.6 million, respectively.

 

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:

 

New Customers. We are competing with other companies and technologies to help fleet managers and their districts/companies more efficiently and cost-effectively manage their fleet operations. Once these fleet managers have decided they want to buy from us, we still face challenges helping them obtain financing options to reduce the cost barriers to purchasing. We may also encounter customers with inadequate electrical services at their facilities that may delay their ability to purchase from us.

 

Investment in Growth. We plan to continue to invest for long-term growth. We anticipate that our operating expenses will increase in the foreseeable future as we invest in research and development to enhance our zero-emission systems; design and develop our drivetrains and their components and coordinate the manufacturing thereof; 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 and hybrid drivetrain experience. Our dealer and service network is not currently established, although we do have certain agreements in place. One issue they may have, and we may encounter, is finding appropriately trained technicians with zero-emission electric and hybrid drivetrain 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 use our technology are based on a different platform than traditional internal combustion engines, individuals with sufficient training in zero-emission electric and hybrid 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 and hybrid solutions for alternative fuel technology, and all-electric and hybrid vehicles in particular, will continue to grow as more purchases of new zero emission vehicles and as more conversions of existing fleet vehicles to zero-emission vehicles are made. However, unless the costs to produce such vehicles decrease dramatically, purchases of our products will continue to depend in large part on financing subsidies from government agencies. We cannot be assured of the continued availability or the amounts of such assistance to our customers.

 

Revenue Growth from Additional Products. We seek to add to our product offerings additional zero-emission vehicles of all sizes manufactured by outside OEM partners, to be marketed, sold, warrantied and serviced through our developing distribution and service network, as well as add other ancillary products discussed elsewhere in this Quarterly Report.

 

Revenue Growth from Additional Geographic Markets. We believe that growth opportunities for our products exist internationally in addition to domestically, and through our wholly-owned subsidiary Adomani (Nantong) Automotive Technology Co. Ltd. (“ADOMANI China”), we will be pursuing international growth as well. Our future performance will depend in part upon the growth of these additional markets. Accordingly, our business and operating results will be significantly affected by our ability to timely enter and effectively address these emerging markets and the speed with which and extent to which demand for our products in these markets grows.

 

Components of Our Results of Operations

 

Sales

 

Sales are recognized from the sales of advanced zero-emission electric and hybrid drivetrain systems for fleet vehicles and from contracting to provide engineering services. Sales are recognized in accordance with 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 for long-term contracts are recognized proportionate to the prescribed gross profit of each contract. Cost of sales also includes costs related to the valuation of inventory due to impairment, obsolescence, or shrinkage.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses include all corporate and administrative functions that support our company. These expenses also include stock-based compensation expense; warranty, including product recall and customer satisfaction program costs; consulting costs; and other costs 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 expense.

 

Provision for Income Taxes

 

We account for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 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 Topic 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.

 

 

Results of Operations

 

The following table compares operating data for the three months ended March 31, 2018 and 2017:

 

ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share data)

 

		Three Months Ended
		March 31, 2018				March 31, 2017
Net sales		$	464			$	-
Cost of sales			479				-
Gross profit			(15	)			-
Operating expenses:
General and administrative [1]			3,917				1,297
Consulting			47				19
Research and development			156				59
Total operating expenses, net			4,120				1,375
Loss from operations			(4,135	)			(1,375	)
Other income (expense):
Interest expense, net			(5	)			(215	)
Other income (expense)			66				26
Total other income (expense)			61				(189	)
Loss before income taxes			(4,074	)			(1,564	)
Income tax expense			(3	)			(2	)
Net loss		$	(4,077	)		$	(1,566	)
Net loss per share to common stockholders:
Basic and diluted		$	(0.06	)		$	(0.02	)
Weighted shares used in the computation of net loss per share:
Basic and diluted			71,370,930				63,121,402

 

[1]   Includes stock-based compensation expense as follows:        

 

		Three Months Ended
		March 31, 2018				March 31, 2017
General and administrative expenses			2,964				606
Total stock-based compensation expense			2,964				606

 

Sales

 

Sales were $463,731 and $0 for the three months ended March 31, 2018 and 2017, respectively. All sales for the three months ended March 31, 2018 were related to a U.S. Department of Energy (“DOE”) grant awarded to Blue Bird Corporation for which we were selected to provide products and services. Sales are recognized in accordance with ASC Topic 606, as discussed in Note 2 of the unaudited consolidated financial statements included in this Quarterly Report.

 

Cost of Sales

 

Cost of sales was $478,731 and $0 for the three months ended March 31, 2018 and 2017, respectively. During the three months ended March 31, 2018, we recorded $463,731 in cost of sales with respect to the DOE grant described in “Sales” above. The additional $15,000 in cost of sales during the three months ended March 31, 2018 related to a write-down of inventory recorded during the period.

 

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of the following:

 

•

personnel-related expenses, including stock-based compensation costs;

 

•

costs related to investor relations activities;

 

•

sales and marketing-related expenses; and

 

•

other expenses relating to the operations of the Company.

 

General and administrative expense was $3.9 million and $1.3 million for the three months ended March 31, 2018 and 2017, respectively. The increase is primarily due to an increase in stock-based compensation expense of $2.4 million for the three months ended March 31, 2018 as compared to the prior year period, which related to certain stock options granted in June 2017 (see “Options to Purchase Common Stock” below and Note 8 to the unaudited consolidated financial statements included in this Quarterly Report), as well as the requirement to remeasure non-employee stock options, as required by ASC Topic 718 and ASC Topic 505. We anticipate that stock-based compensation expense will continue to increase as we expand our infrastructure in order to generate more substantial revenue.

 

Other increases in the current year period over the prior year period include payroll-related expenses, legal and professional fees, investor relations expenses, taxes and licenses expense, insurance, rent, and travel, which increased by a total of $342,779, offset by decreases in advertising and marketing and other general and administrative expenses of $79,995. The increases are primarily due to the hiring of additional staff, as well as to the incurrence of certain costs associated with our becoming a public company in June 2017.

 

Consulting Expenses

 

Consulting expense was $47,181 and $19,000 for the three months ended March 31, 2018 and 2017, respectively. The increase in the current year period is due to an increase in required payments to various consultants for this period.

 

Research and Development Expenses

 

Research and development expense was $155,933 and $58,621 for the three months ended March 31, 2018 and 2017, respectively. The increase in the current year period is due to our engagement of a firm to develop bus and truck drivetrain prototypes for us.

 

Liquidity and Capital Resources

 

From our incorporation in 2012 until the completion of our offering of common stock under Regulation A in June 2017, we financed our operations and capital expenditures through the issuance of equity capital, convertible notes and notes payable. A significant portion of this funding was provided by affiliated stockholders, although we also raised significant equity capital in late 2015, and we raised the majority of our previously outstanding convertible notes in 2015 from non-affiliated third parties. On January 9, 2018, we completed a public offering of 3,666,667 units for net proceeds, after deducting commissions, expenses and fees of approximately $1.2 million, of approximately $9.8 million.

 

As of March 31, 2018, we had cash and cash equivalents of $8.2 million. We believe that our existing cash and cash equivalents will be sufficient to fund our operations for the next 12 months and beyond. However, we may not successfully execute our business plan, and if we do not, we may need additional capital to continue our operations. While we have generated minimal revenues to date and do not expect to be able to satisfy our cash requirements solely through product sales in the near future, we received purchase orders for six zero-emission electric school buses and two zero-emission electric drivetrains in the second half of 2017, and orders for an additional 11 zero-emission electric drivetrains in the first quarter of 2018. We recorded revenue of $425,000 in the fourth quarter of 2017 and $463,731 in the first quarter of 2018.

 

 

The sale of additional equity securities in the future could result in additional dilution to our stockholders and those securities may have rights senior to those of our common stock. The incurrence of additional indebtedness in the future would result in increased debt service obligations and could result in operating and financial covenants that would restrict our operations. Such capital, if required, may not be available on terms that are favorable to us or at all. We are currently incurring operating deficits that are expected to continue for the foreseeable future, and as we begin to execute our marketing plan, we expect our operating deficit will continue to grow until we begin to generate a sufficient level of revenue from our sales and marketing efforts.

 

Debt

 

As of March 31, 2018, we have no debt, as we repaid the $2,149,000 secured notes payable outstanding as of December 31, 2017 in January 2018.

 

Regulation A Offering

 

On June 9, 2017, we completed an offering of common stock under Regulation A. We sold 2,852,275 shares of common stock for gross proceeds of $14,261,375, of which $1,711,365 was paid to the selling stockholders for 342,273 shares they sold in the offering.

 

Follow-On Public Offering

 

On January 9, 2018, we completed a public offering of 3,666,667 units for net proceeds, after deducting commissions, expenses, and fees of approximately $1.2 million, of approximately $9.8 million. Each unit sold in the offering consisted of one share of our common stock and a warrant to purchase 1.5 shares of our common stock at an exercise price of $4.50.

 

Options to Purchase Common Stock

 

As of March 31, 2018, we had granted options to purchase 30,077,306 shares of common stock, net of cancellations discussed below and in Note 8 to the unaudited consolidated financial statements included in this Quarterly Report. As of March 31, 2018, 9,682,721 shares of common stock were issuable upon the exercise of options vested at such date at an exercise price of $0.10 per share, and 1,215,055 shares of common stock were issuable upon the exercise of options vested as at such date at an exercise price of $10.49 per share. If all vested options to purchase common stock were exercised, we would receive proceeds of $13,714,196 and we would be required to issue 10,897,776 shares of common stock. There can be no assurance, however, that any such options will be exercised.

 

On March 6, 2018, Edward R. Monfort ceased serving as our Chief Technology Officer. Upon Mr. Monfort’s separation from service, our board of directors suspended Mr. Monfort’s outstanding options. Although such options remain outstanding, they were unexercisable as of March 31, 2018 and through the date of this Quarterly Report. As of March 31, 2018, outstanding options to purchase an aggregate of 15,150,000 shares of common stock are attributable to Mr. Monfort, as discussed in Note 8 to the unaudited consolidated financial statements included in this Quarterly Report.

 

In March 2018, we determined that certain non-employees, to whom we previously granted options, were no longer providing services for us. As a result, we canceled unvested options to purchase 297,694 shares of common stock, effective February 28, 2018. Because of this cancellation, and in accordance with GAAP, we reversed $423,308 of expense previously recorded with respect to these unvested options.

 

Credit Facilities

 

As of March 31, 2018, we did not have any conventional credit facilities or other access to bank credit. If we believe that making an acquisition is appropriate, or see that sales of product are more rapidly using working capital than anticipated, we may seek to obtain additional borrowing capacity under a credit facility to address these issues.

 

 

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.

 

Cash Flows

 

The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2018 and 2017.

 

		Three Months Ended
		March 31, 2018				March 31, 2017
Consolidated Statements of Cash Flow Data:
Cash flows used in operating activities		$	(1,974	)		$	(741	)
Cash flows used in investing activities			(3	)			(35	)
Cash flows provided by (used in) financing activities			7,730				302
Increase (decrease) in cash and cash equivalents		$	5,753			$	(474	)

 

Operating Activities

 

Cash used in operating activities is primarily the result of our operating losses, reduced by the impact of the non-cash stock-based compensation amounts. These numbers are further impacted by adjustments for non-cash interest expense.

 

Net cash used in operating activities during the three months ended March 31, 2018 was $2.0 million, as a result of a net loss of $4.1 million, stock-based compensation of $3.0 million, other non-cash charges of $23,237, and changes in operating assets and liabilities that used $883,606 in cash. Other current assets increased by $955,992, accounts receivable increased by $463,731, accrued liabilities increased by $390,487, accounts payable increased by $145,653, other non-current liabilities decreased by $17,625, and other non-current assets decreased by $17,602.

 

Net cash used in operating activities during the three months ended March 31, 2017 was $740,877, as a result of a net loss of $1.6 million, stock-based compensation of $606,216, other non-cash charges of $85,820, and changes in operating assets and liabilities that provided $132,843 in cash.

 

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 expense we incur to satisfy future warranty claims.

 

Investing Activities

 

Net cash used in investing activities during the three months ended March 31, 2018 was $3,260. This was due to the acquisition of property and equipment.

 

Net cash used in investing activities during the three months ended March 31, 2017 was $34,837. This was primarily due to the acquisition of property and equipment.

 

Financing Activities

 

Net cash provided by financing activities during the three months ended March 31, 2018 was $7.7 million. This is due to net proceeds of approximately $9.8 million received from the closing of our follow-on offering on January 9, 2018, offset by the $2.1 million repayment of notes payable principal and related accrued and unpaid interest.

 

 

Net cash provided by financing activities during the three months ended March 31, 2017 was $302,451. This is due to notes payable proceeds of $500,000 and a $10,000 repayment of notes payable principal, offset by payments for costs related to our offering under Regulation A of $187,549.

 

Contractual Obligations

 

Except as set forth below, during the three months ended March 31, 2018, there were no material changes in our contractual obligations and commitments.

 

On March 6, 2018, Edward R. Monfort ceased serving as our Chief Technology Officer.

 

Off-Balance Sheet Arrangements

 

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

 

Critical Accounting Policies Judgments and Estimates

 

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

 

We believe that the assumptions and estimates associated with the preparation of the financial statement information presented in this Quarterly Report are not significant because we have not generated any substantial revenue. Therefore, we have not had to make assumptions or estimates related to a reserve for bad debt expense. As to future warranty costs to be incurred, we recorded a warranty reserve against 2017 revenue and will continue to evaluate the provision for such expenses in the future. These two items will have significant potential impact on our consolidated financial statements in the future. We also have no significant current litigation on which we have to provide reserves or estimate accruals and our investment to date in property, plant and equipment has not been significant. We therefore have not had to rely on estimates related to impairment. We have not generated any taxable income to date, so have not had to make any decisions about future profitability that would impact recording income tax expense. Assuming we are able to generate future profits by executing our business plan, these areas, among others, will most likely be our critical accounting policies and estimates.

 

We recognize revenue from the sales of advanced zero-emission electric drivetrain systems for fleet vehicles and from contracting to provide engineering services. In May 2014, the FASB issued new accounting guidance, ASC Topic 606, “Revenue from Contracts with Customers”, to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP. The amendments in this guidance state an entity should 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. This new guidance requires enhanced disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. On January 1, 2018, we adopted ASC Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC Topic 605. The adoption of ASC Topic 606 did not result in a cumulative impact on us as of January 1, 2018 and the application of ASC Topic 606 had no impact on our statement of operations for the three months ended March 31, 2018.

 

We have early-adopted ASU No. 2016-02, “Leases (Topic 842)”. The amendment requires companies to recognize leased assets and liabilities on the balance sheet and to disclose key information regarding leasing arrangements. This guidance is effective for annual periods, and interim periods within those annual periods, after December 15, 2018. Early application of this amendment is permitted for all entities. While we do not anticipate that, going forward, leases will be material to our balance sheet, we chose to early-adopt as of December 31, 2017 due to our entering into new leases during the year. These new leases are the only leases required to be included on our balance sheet under the new standard. Consequently, the adoption of the new lease standard did not have any impact to prior period information. Further, these leases are operating leases and, therefore, have no income statement impact resulting from the adoption of this standard.

 

 

Contingencies

 

Certain conditions may exist as of the date the financial statements are issued which may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. Our management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we, in consultation with legal counsel, evaluate the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

 

Stock-Based Compensation

 

We measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. The fair value of our common stock was estimated by management based on observations of the cash sales prices of its common shares. Awards granted to directors are treated on the same basis as awards granted to employees.

 

Fair Value Measurement

 

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. FASB ASC Topic 820, “Fair Value Measurement” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

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

 

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

 

Level 3: Unobservable inputs for which there is little or no market data, and which require the reporting entity to develop its own assumptions.

 

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

 

Jumpstart Our Business Startups Act of 2012 (“JOBS Act”)

 

We are an “emerging growth company” (“EGC”), as defined in the JOBS Act. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for EGCs. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We have chosen to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an EGC we are not required to, among other things, (i) being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure, (ii) not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting, (iii) not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, (iv) reduced disclosure obligations regarding executive compensation or (v) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

 

We will retain our EGC status until the first to occur of: (i) the end of the fiscal year in which the fifth anniversary of the completion of our initial public offering occurs, (ii) the end of the fiscal year in which our annual revenues exceed $1 billion, (iii) the date on which we issue more than $1 billion in non-convertible debt during any three-year period or (iv) the date on which we qualify as a “large accelerated filer.”

 

Recent Accounting Pronouncements

 

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

 

ITEM 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.

 

As we continue our commercialization efforts internationally, we may generate revenue and incur expenses denominated in currencies other than the U.S. dollar, a majority of which we expect to be denominated in Chinese Yuan. As a result, as operations of ADOMANI China expand in the future, our revenue may be significantly impacted by fluctuations in foreign currency exchange rates. We may face risks associated with the costs of raw materials, primarily batteries, as we go into production. To the extent these and other risks materialize, they could have a material effect on our operating results or financial condition. We currently anticipate that our international selling, marketing and administrative costs related to foreign sales will be largely denominated in the same foreign currency, which may mitigate our foreign currency exchange risk exposure.

 

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 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 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

 

There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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.

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

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.

 

ITEM 1A. RISK FACTORS

 

There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on March 12, 2018.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

A list of exhibits is set forth on the Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q and is incorporated herein by reference.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

 

	ADOMANI, INC.
Date: May 10, 2018	By:	/s/ James L. Reynolds
		James L. Reynolds President and Chief Executive Officer (Principal Executive Officer)
Date: May 10, 2018	By:	/s/ Michael K. Menerey
		Michael K. Menerey Chief Financial Officer (Principal Financial and Accounting Officer)

 

 

 

 

 

 

Exhibit Index

 

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

Filed Herewith

4.1

Form of Common Stock Purchase Warrant

8-K

001-38078

4.1

1/8/2018

4.2

Form of Placement Agent Warrant

8-K

001-38078

4.2

1/8/2018

10.1

Securities Purchase Agreement, dated January 5, 2018, by and among ADOMANI, Inc. and certain investors set forth therein

8-K

001-38078

10.1

1/8/2018

10.2

Form of Leak-Out Agreement, dated January 5, 2018

8-K

001-38078

10.2

1/8/2018

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

X

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

X

32.1#

18 U.S.C. Section 1350 Certification of Chief Executive Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

32.2#

18 U.S.C. Section 1350 Certification of Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

101.INS

XBRL Instance Document*

X

101.SCH

XBRL Taxonomy Extension Schema Document*

X

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document*

X

101.LAB

XBRL Taxonomy Extension Label Linkbase Document*

X

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document*

X

101.DEF

XBRL Taxonomy Extension Definitions Linkbase Document*

X

 

#       The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act (including this report), unless the Registrant specifically incorporates the foregoing information into those documents by reference.

 

*       In accordance with Rule 402 of Regulation S-T, this interactive data file is deemed not filed or part of this Quarterly Report for purposes of Sections 11 or 12 of the Securities Act or Section 18 of the Exchange Act and otherwise is not subject to liability under these sections.

 

 

 

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