UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
ENVIROTECH VEHICLES, INC.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
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| (Address of principal executive offices, including zip code) |
| ( |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
| Securities registered pursuant to Section 12(b) of the Act: |
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| Trading | Name of each exchange | ||
| Title of each class | Symbol(s) | on which registered | ||
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of the registrant’s common stock, $0.00001 par value per share, as of August 9, 2024 was
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED June 30, 2024
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology intended to identify statements about the future.
You should not place undue reliance on forward-looking statements. The special note set forth in this Quarterly Report, including in “Risk Factors” and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:
| • |
our ability to generate demand for our zero-emission commercial fleet vehicles 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 successfully integrate and realize the benefits of strategic acquisitions; |
| • |
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; |
|
| • | the potential impact of product recalls and product liability claims relating to the products we distribute and other litigation; |
| • |
our ability and our manufacturing partners’ ability to navigate current and future disruptions to the global supply chain and to procure the raw materials, parts, and components necessary to produce our vehicles on terms acceptable to us and our customers; |
| • |
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; |
|
| • | the impact of legislation and/or government regulation on our business and industry, including, without limitation, the status of government subsidies, rebates and economic incentivs that support the development and demand for our products and services; |
| • |
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; |
|
| • | the cost and adequacy of insurance coverage and increases in the number of severity of insurance and claims expenses; |
| • |
our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; and |
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| • |
disruptions in our information technology systems, including, but not limited to, system failures, cyber-attacks, unauthorized physical or electronic access, or other natural or mad-made incidents or disasters. |
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 as we as in Part I, Item 1 (Business) and Item 1A (Risk Factors and Part II, Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the "SEC") on March 28, 2024. In light of the significant risks and uncertainties to which our forward-looking statements are subject, you should not place undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report regardless of the time of delivery of this Quarterly Report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report.
Unless expressly indicated or the context requires otherwise, references in this Quarterly Report to “Envirotech,” the “Company,” “we,” “our,” and “us” refer to Envirotech Vehicles, Inc. and our consolidated subsidiaries, unless the context indicates otherwise.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance of $ and $ respectively | ||||||||
| Inventory, net | ||||||||
| Inventory deposits | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use asset | ||||||||
| Goodwill | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Operating lease liability - short-term | ||||||||
| Options liability, at fair value | ||||||||
| Notes payable - current | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Operating lease liability - long-term | ||||||||
| Notes payable - long-term | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, authorized, $ par value per share, issued and outstanding as of June 30, 2024, and December 31, 2023 | ||||||||
| Common stock, authorized, $ par value per share, and issued and outstanding as of June 30, 2024, and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Consulting | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses, net | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense)/income: | ||||||||||||||||
| Interest (expense) income, net | ( | ) | ( | ) | ||||||||||||
| Unrealized gain (loss) on financial instruments at fair value | ( | ) | ||||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other (expense)/income | ( | ) | ||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net income loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share to common stockholders: | ||||||||||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted shares used in the computation of net loss per share: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Three and Six Months Ended June 30, 2024 and 2023
(unaudited)
| Additional |
||||||||||||||||||||
| Common Stock |
Paid-In |
Accumulated |
Stockholders’ |
|||||||||||||||||
| Shares |
Amount |
Capital |
Deficit |
Equity |
||||||||||||||||
| Balance, December 31, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Common stock issued for cash |
$ | |||||||||||||||||||
| Stock based compensation |
— | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, March 31, 2024 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Common stock issued for cash |
||||||||||||||||||||
| Stock based compensation |
— | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, June 30, 2024 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Additional |
||||||||||||||||||||
| Common Stock |
Paid-In |
Accumulated |
Stockholders’ |
|||||||||||||||||
| Shares |
Amount |
Capital |
Deficit |
Equity |
||||||||||||||||
| Balance, December 31, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock based compensation |
— | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, March 31, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock based compensation |
— | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, June 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Six Months Ended |
||||||||
| June 30, |
||||||||
| 2024 |
2023 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Unrealized loss on marketable securities |
||||||||
| Unrealized loss on financial instruments at fair value |
||||||||
| Stock based compensation expense |
||||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ( |
) | ||||
| Inventory |
( |
) | ||||||
| Inventory deposits |
||||||||
| Prepaid expenses |
||||||||
| Other assets |
( |
) | ||||||
| Accounts payable |
||||||||
| Accrued liabilities |
( |
) | ||||||
| Other liabilities |
( |
) | ||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
( |
) | ( |
) | ||||
| Sale of marketable securities |
||||||||
| Net cash (used in) provided by investing activities |
( |
) | ||||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock |
||||||||
| Proceeds from issuance of convertible note |
||||||||
| Proceeds from debt |
||||||||
| Principal repayments on debt |
( |
) | ( |
) | ||||
| Net cash provided by (used in) by financing activities |
( |
) | ||||||
| Net change in cash, restricted cash and cash equivalents |
( |
) | ( |
) | ||||
| Cash, restricted cash and cash equivalents at the beginning of the period |
||||||||
| Cash, restricted cash and cash equivalents at the end of the period |
$ | $ | ||||||
| Supplemental cash flow disclosures: |
||||||||
| Cash paid for interest expense |
$ | $ | ||||||
| Cancellation of Convertible note cancelled and transferred to Notes payable - current |
$ | $ | ||||||
| Capital expenditures unpaid on June 30, 2024 |
$ | $ | ||||||
See Accompanying Notes to Unaudited Consolidated Financial Statements.
ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Organization and Operations |
Envirotech Vehicles, Inc. (the “Company”), including its consolidated subsidiaries, is a provider of purpose-built zero-emission electric vehicles focused on reducing the total cost of vehicle ownership and helping fleet operators unlock the benefits of green technology. The Company serves commercial and last-mile fleets, school districts, public and private transportation service companies, and colleges and universities to meet the increasing demand for light to heavy-duty electric vehicles. The Company’s vehicles address the challenges of traditional fuel price cost instability and local, state, and federal regulatory compliance.
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation—The consolidated financial statements and related disclosures include the consolidated balance sheet accounts as of June 30, 2024 and the consolidated results of operations for the three and six months ended June 30, 2024 of Envirotech Vehicles, Inc. and subsidiaries. These consolidated financial statements are unaudited, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States ("U.S.") generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the Company’s opinion, these unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These unaudited financial statements should be read in conjunction with the Company's audited financial statements for the years ended December 31, 2023 and 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2024. The results of operations for the three and six months ended June 30, 2024 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 Envirotech Vehicles, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments—The carrying values of the Company’s financial instruments, including cash, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these financial instruments. Accounting Standards Codification ("ASC") 820, Fair Value Measurements ("ASC 820") defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs that are supported by little or no market data and that require the reporting entity to develop its own assumptions.
The Company does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis other than the options liability disclosed in Note 4 - Debt, in which the Company has elected the fair value option.
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 606, Revenue from Contracts with Customers ("ASC 606"), which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. At June 30, 2024, the Company did have a concentration of customers;
In applying ASC 606, the Company is required to:
| (1) | identify any contracts with customers; |
| (2) | determine if multiple performance obligations exist; |
| (3) | determine the transaction price; |
| (4) | allocate the transaction price to the respective obligation; and |
| (5) | recognize the revenue as the obligation is satisfied. |
Product revenue includes the sale of electric trucks and cargo vans. These sales represent a single performance obligation and revenue is recognized when the vehicle is delivered and the customer has accepted the vehicle and signed the appropriate documentation acknowledging receipt of the vehicle. At this time, the title of the vehicle is transferred to the customer.
Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less to be cash equivalents. The recorded value of our restricted cash and cash equivalents approximates their fair value. The Company had restricted cash at June 30, 2024 and December 31, 2023, respectively. The amounts at both dates relate to balances required by our bank to support certain minor activities. See Concentration of Credit Risk below in this Note.
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. The Company had zero marketable securities at June 30, 2024 and December 31, 2023, respectively.
Accounts Receivable and Allowance for Doubtful Accounts—The Company establishes an allowance for bad debts through a review of several factors, including historical collection experience, current aging status of the customer accounts, and financial condition of its customers. The Company does not generally require collateral for its accounts receivable. The Company had trade accounts receivable of $
Inventory and Inventory Valuation Allowance—The Company records inventory at the lower of cost or market, and uses a First In, First Out (“FIFO”) accounting valuation methodology and establishes an inventory valuation allowance for vehicles that it does not intend to sell in the future. The Company had finished goods inventory on hand of $
Inventory Deposits—Certain of our vendors require the Company to pay upfront deposits before they commence manufacturing our vehicles, and then require progress deposits through the production cycle and before the finished vehicles are shipped. These deposits are classified as inventory deposits in the consolidated balance sheet. Upon completion of production acceptance by the Company, and passage of title to the Company, deposits are reclassified to inventory. The Company had inventory deposits of $
Income Taxes—The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.
Accounting for Uncertainty in Income Taxes—The Company evaluates its uncertain tax positions and will recognize a loss contingency when it is probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can be reasonably estimated. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. At June 30, 2024 and December 31, 2023, respectively, management did not identify any uncertain tax positions.
Net Income (Loss) Per Share—Basic net income (loss) per share is calculated by dividing the Company’s net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.
Diluted net loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the diluted weighted average number of shares of common stock outstanding during the period. The diluted weighted average number of shares of common stock outstanding is the basic weighted number of shares of common stock adjusted for any potentially dilutive debt or equity securities. As of June 30, 2024,
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 may maintain cash and short-term securities invested at Arvest Bank, National Association (“Arvest”). Between FDIC and the Securities Investor Protection Corporation (“SIPC”) coverage, funds up to $
Impairment of Long-Lived Assets—Long-lived assets, including property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates these assets to determine potential impairment by comparing the carrying amount to the undiscounted estimated future cash flows of the related assets. If the estimated undiscounted cash flows are less than the carrying value of the assets, the assets are written down to their fair value. There was
Goodwill—Goodwill represents the excess acquisition cost over the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing on or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it can conclude the assessment. If the Company concludes otherwise, the Company is required to perform a quantitative analysis to determine the amount of impairment, if any.
The Company has determined that it has reporting unit, and based on both qualitative and quantitative analysis, it is management’s assessment at June 30, 2024, that $
Research and Development—Costs incurred in connection with the development of new products and manufacturing methods are charged to operating expenses as incurred. Research and development costs were $
Stock-Based Compensation—The Company accounts for employee stock-based compensation in accordance with the guidance of ASC 718, Stock-Based Compensation ("ASC 718"), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered. Non-cash stock-based compensation expense of $
Property and Equipment— Property and equipment are stated at cost, less accumulated depreciation and amortization. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets, which range from to years, except leasehold improvements, which are being amortized over the life of the lease term. Property and equipment qualify for capitalization if the purchase price exceeds $2,000. Major repairs and replacements, which extend the useful lives of equipment, are capitalized and depreciated over the estimated useful lives of the property. All other maintenance and repairs are expensed as incurred.
Leases—The Company accounts for leases in accordance with ASC 842, Leases (“ASC 842”). At the inception or modification of a contract, the Company determines whether a lease exists and classifies its leases as an operating or finance lease at commencement. Right-of-use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent their obligation to make lease payments arising from the lease. See Note 10 - Leases.
As most of the Company’s leases do not provide an implicit interest rate, the lease liability is calculated at lease commencement as the present value of unpaid lease payments using the Company’s estimated incremental borrowing rate. The incremental borrowing rate represents the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the lease.
The lease asset also reflects any prepaid rent, initial direct costs incurred and lease incentives received. The Company’s lease terms may include optional extension periods when it is reasonably certain that those options will be exercised.
Leases with an initial expected term of 12 months or less are not recorded in the Company's consolidated balance sheets and the related lease expense is recognized on a straight-line basis over the lease term. For certain classes of underlying assets, the Company has elected to not separate fixed lease components from the fixed non-lease components.
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 consolidated financial statements.
| 3. | Property and Equipment, Net |
Components of property and equipment, net, consist of the following as of June 30, 2024 and December 31, 2023:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Furniture and fixtures | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Machinery & equipment | ||||||||
| Vehicles | ||||||||
| Test/Demo vehicles | ||||||||
| Total property and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
Depreciation expense was $
| 4. | Debt |
Notes Payable
On July 15, 2022, the Company entered into an equipment financing agreement with Wells Fargo Bank, N.A. in connection with the purchase of facility grounds equipment. The $
Effective August 20, 2023, the Company entered into a premium financing agreement with First Insurance Funding to finance insurance coverages other than its directors' and officers' insurance coverages. The $
Effective June 15, 2024, the Company entered into a premium financing agreement with First Insurance Funding to finance its directors' and officers' insurance coverages. The $
Convertible Note
On January 18, 2024, the Company entered into a convertible promissory note agreement ("Note") for $
The Company has elected to measure the Note and Options at fair value. In estimating the fair value of the Note, a Monte Carlo simulation model is applied. The required inputs include the current stock price, the risk-free rate and volatility of the common stock. The Note's fair value is classified as Level 2 under the fair value hierarchy as provided by ASC 820. In estimating the fair value of the Options, the Black-Scholes Merton Model is used. The required inputs include the current stock price, the exercise price, the term of the Options, the risk-free rate and the volatility of the common stock. The Options' fair value is classified a Level 2 under the air value hierarchy as provided by ASC 820. The fair valuation of the Note and Options uses inputs other than quoted prices that are observable either directly or indirectly.
The net proceeds of $
On May 1, 2024, the Note was cancelled and replaced with a short-term note. The balance of this note at June 30, 2024, is $
| Amount | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total Payments | $ | |||
| 5. | Stock Warrants |
The Company’s outstanding warrants as of June 30, 2024 are summarized as follows, and all were exercisable at that date.
| Number of Shares | Exercise Price | Remaining Contractual Life (years) | ||||||||||
| Outstanding warrants expiring | $ | |||||||||||
| Outstanding warrants expiring | $ | |||||||||||
| Outstanding warrants on June 30, 2024 | $ | |||||||||||
The warrants issued pursuant to that certain Securities Purchase Agreement, dated as of December 24, 2020 (the "Purchase Agreement"), that we entered into with certain institutional and accredited investors and pursuant to which, among other things, we sold and issued, and the investors purchases, shares of our common stock and related warrants to purchase additional shares of our common stock in a series of two closings (the "Financing") contain a call provision whereby the Company, after the 13-monhth 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. Warrants for
| 6. | Stock Options and Restricted Shares |
The outstanding options at June 30, 2024 consisted of the following:
| Weighted | ||||||||||||
| Average | ||||||||||||
| Remaining | ||||||||||||
| Number of | Exercise | Contractual Life | ||||||||||
| Shares | Price | (years) | ||||||||||
| Outstanding at December 31, 2023 | $ | |||||||||||
| Options granted (expired) during 3 months ended June 30, 2024: | ||||||||||||
| Options Granted at $2.11 Exercise Price | $ | |||||||||||
| Options Granted at $2.66 Exercise Price | $ | |||||||||||
| Options Granted at $2.44 Exercise Price | $ | |||||||||||
| Options Granted at $1.50 Exercise Price | $ | |||||||||||
| Options Granted at $2.75 Exercise Price | $ | |||||||||||
| Options forfeited at $2.65 Exercise Price | ( | ) | $ | |||||||||
| Options Granted at $1.76 Exercise Price | $ | |||||||||||
| Options Granted at $1.49 Exercise Price | $ | |||||||||||
| Options Granted at $2.20 Exercise Price | $ | |||||||||||
| Outstanding at June 30, 2024 | ||||||||||||
| Outstanding Options at $2.00 Exercise Price | $ | |||||||||||
| Outstanding Options at $2.40 Exercise Price | $ | |||||||||||
| Outstanding Options at $9.00 Exercise Price | $ | |||||||||||
| Outstanding Options at $26.20 Exercise Price | $ | |||||||||||
| Outstanding options at $2.65 Exercise Price | $ | |||||||||||
| Outstanding Options Granted at $2.10 Exercise Price | $ | |||||||||||
| Outstanding Options at $2.11 Exercise Price | $ | |||||||||||
| Outstanding Options at $2.66 Exercise Price | $ | |||||||||||
| Outstanding Options at $2.44 Exercise Price | $ | |||||||||||
| Outstanding Options at $1.50 Exercise Price | $ | |||||||||||
| Outstanding Options at $2.75 Exercise Price | $ | |||||||||||
| Options Granted at $1.76 Exercise Price | $ | |||||||||||
| Options Granted at $1.49 Exercise Price | $ | |||||||||||
| Options Granted at $2.20 Exercise Price | $ | |||||||||||
| Outstanding at June 30, 2024 | $ | |||||||||||
At June 30, 2024
On January 18, 2024, in conjunction with the Note disclosed in Note 4 - Debt, the Company issued
On February 14, 2024, the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") granted an employee options to purchase
On February 23, 2024, the Compensation Committee granted to Franklin Lim, the Company’s Chief Financial Officer, options to purchase
On April 17, 2024, the Compensation Committee granted to an employee options to purchase
On June 3, 2024, the Compensation Committee granted to an employee options to purchase
On June 17, 2024, the Compensation Committee granted to an employee options to purchase
As of June 30, 2024, the outstanding stock options had intrinsic value of $
On February 28, 2024, the company issued options to an external party to purchase
Restricted Shares
In November 2023, the Company awarded
| 7. | Related Party Transactions |
The Company has entered into lease agreements with SRI Professional Services, Incorporated (“SRI”), pursuant to which the Company leases equipment used in connection with the operation of its business (the “SRI Equipment Leases”). Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Company's Board of Directors (the "Board"), serves as an executive officer and a member of the board of directors of SRI. The SRI Equipment Leases provide for the leasing of two vehicles that commenced on January 1, 2020 and the combined rent under such leases is $
The Company has entered into a 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 approximately $
The Company incurred $
| 8. | Commitments |
Other Agreements
On December 31, 2021, the Company entered into employment agreements with Phillip W. Oldridge (the “Oldridge Agreement”), its Chief Executive Officer, and with Susan M. Emry (the “Emry Agreement”), its Executive Vice President. According to the Oldridge Agreement, effective as of March 1, 2021, Mr. Oldridge will receive an annual base salary of $
On March 28, 2023, the Company entered into an agreement with Berthaphil, Inc. ("Berthaphil") to sublease approximately
On March 18, 2024, the Company entered into a Sale and Purchase Agreement (the "PlugD Agreement") with PlugD Commercial Electric Leasing and Rentals Inc. ("PlugD"), a Texas-based commercial electric vehicle leasing company. Under the terms of the PlugD Agreement, the Company will deliver 200 electric high roof vans and trucks to PlugD for a total of approximately $
| 9. | Contingencies |
Except as set forth below, we know of no material, existing or pending, legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder of more than 5% of our common stock, or any associate of any of the foregoing persons, is an adverse party or has a material interest adverse to our interest.
GreenPower Litigation
On December 17, 2019, GreenPower Motor Company Inc., a public company incorporated under the laws of British Columbia (“GreenPower”), of which Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, previously served as a senior officer and a member of its board of directors, filed a notice of civil claim, captioned GreenPower Motor Company Inc. v. Phillip Oldridge et al., Action No. S-1914285, in the Supreme Court of British Columbia, against Phillip Oldridge, his trust, Envirotech Drive systems, Inc. and certain other companies affiliated therewith. On February 2, 2020, the Company and the other companies affiliated therewith named in the notice of civil claim filed a response to the civil claim in which they denied certain of the allegations. Fact discovery, through document disclosure and examinations for discoveries, in this matter remain ongoing. The Company believes it has meritorious defenses against GreenPower's claims and intends to vigorously defend itself against those claims.
On or about July 18, 2021, GreenPower and GP GreenPower Industries Inc. (collectively “the GreenPower entities”), filed a counterclaim against David Oldridge, Phillip Oldridge, the Company and other companies in Supreme Court of British Columbia Action No. S207532. The pleadings in this lawsuit have not closed and the Company intends to vigorously defend itself against the counterclaim.
On February 8, 2022, GreenPower Motor Company, Inc., a Delaware corporation, and GreenPower Motor Company Inc., a Canadian corporation, filed a complaint captioned GreenPower Motor Company, Inc. v. Phillip Oldridge, et al., Case No. 5:22-cv-00252 in the United States District Court for the Central District of California. The complaint’s allegations are centered around the same assertions in the pending Canadian litigation.
On May 10, 2022, the Company, together with other defendants, filed a Motion to Dismiss and/or Stay the lawsuit in the United States District Court for the Central District of California pending the outcome of the Canadian litigation. The Court issued stay of this case pending resolution of parallel litigation in Canada between similar parties. GreenPower and defendants have agreed that the U.S. GreenPower case will not proceed while Canadian litigation is pending. The Company believes that it has meritorious defenses against the Greenpower entities' claims and intends to vigorously defend itself against such claims.
| 10. | Leases |
Operating leases
The Company has active operating lease arrangements for office space and warehouse facilities. The Company is typically required to make fixed minimum rent payments relating to its right to use the underlying leased assets. Although these leases have terms that are either month-to-month or terms that are one year or less (with renewal options), the Company concluded in the fourth quarter of 2023 that the term renewal options are reasonably certain to be exercised. As a result of changes in certain circumstances related to some of the Company's short-term leases, the Company was required to classify such leases as operating leases in accordance with the provisions of ASC 842. Therefore, the Company recognized operating lease liabilities with corresponding Right-Of-Use ("ROU") assets based on the present value of the minimum rental payments of such leases.
On March 28, 2023, the Company entered into the Berthaphil Sublease with Berthphil to sublease approximately
The Company's lease agreements do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate incremental borrowing rate. The Company benchmarked itself against other companies of similar credit ratings and comparable credit quality and derived an incremental borrowing rate to discount each of its lease liabilities based on the remaining lease terms.
ROU assets at June 30, 2024 were $
Quantitative information regarding the Company’s leases is as follows:
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Lease expenses | ||||||||
| Operating lease expenses | $ | $ | ||||||
| Short-term lease expenses | ||||||||
| Total lease cost | $ | $ | ||||||
| Other information | ||||||||
| Cash paid for the amounts included in the measurement of lease liabilities for operating leases: | ||||||||
| Operating cash flows | $ | $ | ||||||
| Weighted-average remaining lease term (in years): | ||||||||
| Operating leases | — | |||||||
| Weighted-average discount rate: | ||||||||
| Operating leases | % | % | ||||||
Future minimum payments under operating leases are as follows:
| 2024 | $ | |||
| 2025 | ||||
| Total payments | $ |
| 11. | Subsequent Events |
The Company evaluates subsequent events that have occurred after the balance sheet date but before the consolidated financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date.
On August 9, 2024, the Company received an award from the U.S. Environmental Protection Agency ("EPA") to produce electric school buses und the Clean School Bus Program for up to $
On August 13, 2024, the Company entered into a long-term loan arrangement with Phillip W. Oldridge ("Mr. Oldridge") whereby Mr. Oldridge agrees to loan $
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”) and the audited financial statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC on March 28, 2024. This discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, those identified under the “Special Note Regarding Forward-Looking Statements” above in this Quarterly Report.
Overview
We are a provider of purpose-built zero-emission electric vehicles focused on reducing the total cost of vehicle ownership and helping fleet operators unlock the benefits of green technology. We serve commercial and last-mile fleets, school districts, public and private transportation service companies and colleges and universities to meet the increasing demand for light to heavy-duty electric vehicles. Our vehicles address the challenges of traditional fuel price instability and local, state and federal regulatory compliance.
Factors Affecting Our Performance
We believe that the growth and future success of our business depend on various opportunities, challenges and other factors, including the following:
Availability of government subsidies, rebates and economic incentives. We believe that the availability of government subsidies, rebates, and economic incentives is currently a critical factor considered by our customers when purchasing our zero-emission systems or converting their existing vehicles to zero-emission-electric or hybrids, and that our growth depends in large part on the availability and amounts of these subsidies and economic incentives. As an alternative to being dependent on such funding, however, we are exploring the possibility of leasing our vehicles to our customers as well.
New customers. We are competing with other companies and technologies to help fleet managers and their districts/companies more efficiently and cost-effectively manage their fleet operations. Once these fleet managers have decided they want to buy from us, we still face challenges with helping them to obtain financing options to reduce the cost barriers to purchasing. We may also encounter customers with inadequate electrical services at their facilities that may delay their ability to purchase from us.
Dependence on external sources of financing of our operations. We have historically depended on external sources of capital to finance our operations. Accordingly, our future performance will depend in part upon our ability to achieve independence from external sources for the financing of our operations.
Investment in growth. We plan to continue to invest for long-term growth. We anticipate that our operating expenses will continue increasing for the foreseeable future as we invest in research and development to enhance our zero-emission electric vehicles and systems; design, develop and manufacture our commercial fleet vehicles and their components; increase our sales and marketing to acquire new customers; and increase our general and administrative functions to support our growing operations. We believe that these investments will contribute to our long-term growth, although they will adversely affect our results of operations in the near term. In addition, the timing of these investments can result in fluctuations in our annual and quarterly operating results.
Zero-emission electric vehicle experience. Our dealer and service network is not currently completely established, although we do have certain agreements in place. One issue they may have, and we may encounter, is finding appropriately trained technicians with zero-emission electric fleet vehicle experience. Our performance will depend on having a robust dealer and service network, which will require appropriately trained technicians to be successful. Because vehicles that utilize our technology are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in zero-emission electric vehicles may not be available to hire, and we may need to expend significant time and expense training the employees we do hire. If we are not able to attract, assimilate, train or retain additional highly qualified personnel in the future, or do so cost-effectively, our performance would be significantly and adversely affected.
Market growth. We believe the market for all-electric solutions for alternative fuel technology, specifically all-electric vehicles, will continue to grow as more purchases of new zero-emission vehicles and as more conversions of existing fleet vehicles to zero-emission vehicles are made. However, unless the costs to produce such vehicles decrease dramatically, purchasers of our products will continue to depend in large part on financing subsidies from government agencies. We cannot be assured of the continued availability, the amounts of such assistance to our customers, or our ability to access such funds.
Sales revenue growth from additional products. We seek to add to our product offerings additional zero-emission vehicles of all sizes to be marketed, sold, warrantied and serviced through our developing distribution and service network, as well as add other ancillary products discussed elsewhere in this report.
Third-party contractors, suppliers and manufacturers. We rely upon third parties to supply us with raw materials, parts, components and services in adequate quantity in a timely manner and at reasonable prices, quality levels, and volumes acceptable to us.
Components of Results of Operations
Sales
Sales are recognized from the sales of new, purpose-built zero-emission electric vehicles and from providing vehicle maintenance and safety inspection services. Sales are recognized in accordance with ASC 606, as discussed in Note 2 to our unaudited consolidated financial statements included in this Quarterly Report.
Cost of Sales
Cost of sales includes those costs related to the development, manufacture, and distribution of our products. Specifically, we include in cost of sales each of the following: material costs (including commodity costs); freight costs; labor and other costs related to the development and manufacture of our products; and other associated costs. Cost of sales also includes costs related to the valuation of inventory due to impairment, obsolescence, or shrinkage.
General and Administrative Expenses
Selling, general and administrative expenses include all corporate and administrative functions that support our company, including personnel-related expense and stock-based compensation costs; costs related to investor relations activities; including product recall and customer satisfaction program costs; consulting costs; marketing-related expenses; and other expenses that cannot be included in cost of sales.
Consulting and Research and Development Costs
These expenses are related to our consulting and research and development activity.
Other (Expense)Income, Net
Other (expense)/income include non-operating income and expenses, including interest income and expense.
Provision for Income Taxes
We account for income taxes in accordance with ASC 740 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 ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations. Because we have incurred only losses to this point, no provision for income taxes has been made in 2024.
Results of Operations
The following discussion compares our results of operations for the three and six months ended June 30, 2024 to the corresponding periods ended June 30, 2023:
Sales
Sales for the three months ended June 30, 2024 and 2023 were $812,770 and $2,132,880, respectively. Sales for the three months ended June 30, 2024 consisted primarily of five logistics cargo vans, one cab and chassis truck, one electric sweeper and one passenger van. Sales for the three months ended June 30, 2023 consisted of 19 logistics cargo vans and one cab and chassis truck. The decrease in sales was primarily due to among other things, lower number of units sold, unfavorable product mix and less favorable market conditions in 2024 as compared to 2023.
Sales for the six months ended June 30, 2024 and 2023 were $1,623,260 and $2,656,079, respectively. Sales for the six months ended June 30, 2024 consisted primarily of 11 logistics cargo van, three cab and chassis trucks, one passenger van, two zippers, one sweeper and one forklift. Sales for the six months ended June 30, 2023 consisted of 25 logistics cargo vans and one cab and chassis truck. The decrease in sales was primarily due to among other things, lower number of units sold, unfavorable product mix and less favorable market conditions in 2024 as compared to 2023.
Cost of Sales
Cost of sales for the three months ended June 30, 2024 and 2023 were $608,947 and $1,253,886, respectively. Cost of sales for the six months ended June 30, 2024 and 2023 were $1,111,218 and $1,658,722, respectively. These costs consisted of the costs related to the sale of the vehicles sold as described above. The decrease in cost of sales was due to the decrease in sales during the periods in 2024 as compared to 2023.
Gross margin percentage were 25% and 41% three months ended June 30, 2024 and 2023, respectively. Gross margin percentage were 32% and 38% six months ended June 30, 2024 and 2023, respectively. The decrease in gross margin percentage was primarily due to less favorable product mix.
General and Administrative ("G&A") Expenses
G&A expenses were $1,466,748 and $2,041,146 for the three months ended June 30, 2024 and 2023, respectively. G&A expenses decreased by $574,398 primarily due to a decrease of $70,119 in stock compensation expense as a result of lower fair valuation of equity awards, lower payroll costs of $37,486, lower legal fees of $69,117as a result of lower litigation activities, lower marketing costs of $86,910, lower travel costs of $92,060, lower contract labor costs of $110,053, lower dues and subscription costs of $119,996 and lower investor relations costs of $194,420, most of which were due to our cost savings initiative implemented to conserve spending, partially offset by higher insurance costs of $108,098 due to increased premiums and coverages and an increase in other expenses of $27,546 to support our operations.
G&A expenses were $4,660,999 and $4,206,678 for the six months ended June 30, 2024 and 2023, respectively. G&A expenses increased by $454,321 primarily due to an increase of $1,661,118 in stock compensation expense due to equity awarded during the first quarter of 2024 that vested immediately, partially offset by, among other things, lower litigation costs of $198,975, lower marketing costs of $251,687, lower travel costs of $261,687, lower contract labor costs of $269,944, lower payroll costs of $56,054 and lower overall other expenses of $168,450, most of which were due to our cost savings initiative implemented to conserve spending.
Consulting Expenses
Consulting expenses were $0 and $46,433 for the three months ended June 30, 2024 and 2023, respectively. Consulting expenses were $0 and $221,242 for the six months ended June 30, 2024 and 2023, respectively. The decrease in consulting expenses was due to a decrease in search costs for key employees.
Research and Development ("R&D") Expenses
R&D expenses were $61,616 and $57,924 for the three months ended June 30, 2024 and 2023, respectively, as the level of activity remained significantly unchanged. R&D expenses were $131,880 and $128,812 for the six months ended June 30, 2024 and 2023, respectively as the level of activity remained significantly unchanged.
Unrealized loss on financial instruments at fair value
We recorded a non-cash unrealized gain of $570,519 and an unrealized loss of $999,408 for the three and six months ended June 30, 2024, respectively, on our financial instruments that we elected to measure at fair value.
Cash Flows
The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2024 and 2023:
| Six months ended June 30, |
||||||||
| 2024 |
2023 |
|||||||
| Cash flows used in operating activities |
$ | (1,700,563 | ) | $ | (3,073,334 | ) | ||
| Cash flows (used in) provided by investing activities |
(135,288 | ) | 1,293,268 | |||||
| Cash flows provided by (used in) financing activities |
1,816,196 | (212,119 | ) | |||||
| Net change in cash, restricted cash and cash equivalents |
$ | (19,655 | ) | $ | (1,992,185 | ) | ||
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2024 was $1,700,563, primarily due to a net loss of $5,287,455, partially offset by changes in operating assets and liabilities, net of $658,185 and non-cash operating charges of $2,928,519. The changes in operating assets and liabilities, net was due to a decrease in inventory deposits of $443,074, a decrease in prepaid expenses of $187,474, a decrease in inventory of $127,372, a decrease in other assets of $164,467, an increase in accounts payable of $195,786 and an increase in accrued liabilities of $438,089, partially offset by an increase in accounts receivable of $733,998 and a decrease in other liabilities of $164,079.
Net cash used in operating activities for the six months ended June 30, 2023 was $3,073,334, primarily due to a net loss of $3,521,937, partially offset by changes in operating assets and liabilities, net of $233,300 and non-cash operating charges of $260,519. The changes in operating assets and liabilities, net was due to a decrease in inventory deposits of $1,771,454, a decrease in prepaid expenses of $356,742 and an increase in accounts payable of $317,469, partially offset by an increase in inventory of $1,266,924, an increase in accounts receivable of $660,028 and a decrease in accrued liabilities of $264,486.
We expect cash used in operating activities to fluctuate significantly in future periods as a result of a number of factors, some of which are outside of our control, including, among others: the success we achieve in generating revenue; the success we have in helping our customers obtain financing and government incentives to subsidize their purchases of our products; our ability to efficiently develop our dealer and service network; the costs of batteries and other materials utilized to make our products; the extent to which we need to invest additional funds in research and development; and the amount of expenses we incur to satisfy future warranty claims.
Investing Activities
Net cash used in investing activities during the six months ended June 30, 2024 was $135,288, primarily from the purchase of property and equipment that is used in our current operations.
Net cash provided by investing activities during the six months ended June 30, 2023 was $1,293,268, primarily due to the sale of our marketable securities of $1,329,599, partially offset by $36,331 of capital expenditures.
Financing Activities
Net cash provided by in financing activities during the six months ended June 30, 2024 was $1,816,196, primarily due to proceeds from the issuance of our common stock of $949,248, proceeds from the issuance of a convertible note of $901,000, and proceeds from issuance of debt for $232,067, partially offset by the repayment of debt of $266,119. See Note 4 - Debt to our unaudited consolidated financial statements included in this Quarterly Report for additional information regarding these financing activities.
Net cash used in financing activities during the six months ended June 30, 2023 was $212,119 as a result of our repayment of certain notes payable.
Liquidity and Capital Resources
As of June 30, 2024, we had cash and cash equivalents of $437,064 and working capital of approximately $7,706,057. We believe that our existing cash and cash equivalents will be sufficient to fund our operations during the next twelve months and beyond. However, we may not successfully execute our business plan, and if we do not, we may need additional capital to continue our operations and support the increased working capital requirements associated with the fulfillment of purchase orders.
In February 2022, we announced Osceola, Arkansas as the site of our state-of-the-art manufacturing facility and new corporate offices. The facility of approximately 580,000 square feet is currently our headquarters and is planned to become our primary manufacturing facility. We are currently in final stages of due diligence and contract negotiation with the City of Osceola and the Arkansas Economic Development Commission. However, additional debt and/or equity capital will be required in order to purchase related equipment and set up production lines and is expected to require significant investment through the foreseeable future. We expect that investments and employee hiring requirements over the next 10 years will provide an opportunity for us to obtain significant local tax incentives, provided that the qualifying expenditures are made, and other related conditions are met. We are not currentlycontractually obligated to make these expenditures.
Line of Credit
Effective August 4, 2022, we secured a line of credit from Centennial Bank. Borrowings under the line of credit bear interest at 2.75% annually. There is no maturity date for the line, but Centennial Bank may at any time, in its sole discretion and without cause, demand us to immediately repay any and all outstanding obligations under the line of credit in whole or in part. The line is secured by the cash and cash equivalents maintained by us in our Centennial Bank accounts. Borrowings under the line may not exceed cash, cash equivalents, and marketable securities balances up to $1,000,000. This line was closed during the third quarter of 2023 and there was no principal amount outstanding at the time of closing.
Capital Expenditures
We do not have any contractual obligations for ongoing capital expenditures at this time. We do, however, purchase equipment necessary to conduct our operations on an as needed basis and will continue increasing those expenditures as we transfer assembly and corporate functions to the Osceola Arkansas facility.
Contractual Obligations
Other than as disclosed in the unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q for the period ended June 30, 2024, we have no contractual obligations.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
We define our critical accounting policies as those accounting principles under GAAP that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles.
Smaller Reporting Company Status
We are a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million as of the last business day of our most recently completed second fiscal quarter. We may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies, including reduced disclosure about our executive compensation arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business. We do not currently face material market risks such as interest rate fluctuation risk and foreign currency exchange risk. Our cash and cash equivalents include cash in readily available checking and money market accounts. These investments are not dependent on interest rate fluctuations that may cause the principal amount of these investments to fluctuate, and we do not expect such fluctuation will have a material impact on our financial conditions. If we issue additional debt in the future, we will be subject to interest rate risk. The majority of our expenses are denominated in the U.S. dollar.
We may face risks associated with the costs of raw materials, primarily batteries, as we go into production. To the extent these and other risks materialize, they could have a material effect on our operating results or financial condition. We currently anticipate that our international selling, marketing and administrative costs related to foreign sales, if any, will be largely denominated in United States dollars, which may create foreign currency exchange risk exposure.
ITEM 4. CONTROLS AND PROCEDURES
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.
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 June 30, 2024. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of such time due to the material weakness described below:
We have been unable to maintain appropriate segregation of duties. We have yet to fully resolve such deficiencies as of the date of this filing. We have engaged, and continue to seek additional, experienced accounting professionals with relevant expertise to provide additional accounting services to supplement our efforts and mitigate the negative effects of our limited accounting staff.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting during the most recent three-month period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s 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.
There were no material developments during the quarter ended June 30, 2024 in the legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2023
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, 2023.
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.
A list of exhibits is set forth at the end of this Quarterly Report on Form 10-Q for the information required by this item.
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Incorporated by Reference |
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| Exhibit Number |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing Date |
Filed Herewith |
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| 31.1 |
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
X |
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| 31.2 |
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
X |
||||||||||
| 32.1# |
X | |||||||||||
| 32.2# |
X | |||||||||||
| 101.INS |
Inline XBRL Instance Document* |
X |
||||||||||
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document* |
X |
||||||||||
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document* |
X |
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| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document* |
X |
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| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document* |
X |
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| 101.DEF |
Inline XBRL Taxonomy Extension Definitions Linkbase Document* |
X |
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| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | |||||||||||
| # |
The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this Quarterly Report), unless the Registrant specifically incorporates the foregoing information into those documents by reference. |
| * |
In accordance with Rule 402 of Regulation S-T, this interactive data file is deemed not filed or part of this Quarterly Report for purposes of Sections 11 or 12 of the Securities Act or Section 18 of the Exchange Act and otherwise is not subject to liability under these sections. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Envirotech Vehicles, Inc. |
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| Date: August 14, 2024 |
By: |
/s/ Phillip W. Oldridge |
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| Phillip W. Oldridge |
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| Chief Executive Officer |
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| (Principal Executive Officer) |
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| Date: August 14, 2024 | By: |
/s/ Franklin Lim |
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| Franklin Lim |
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| Chief Financial Officer |
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| (Principal Financial and Accounting Officer) |
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