ECD Automotive Design(ECDA) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for ECD Automotive Design, Inc., including balance sheets, statements of operations, changes in stockholders' deficit, and cash flows, along with comprehensive notes detailing the company's operations, accounting policies, and significant financial events Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show a decrease in total assets and an increase in total liabilities from December 31, 2023, to June 30, 2024, primarily driven by changes in current assets, deferred revenue, and convertible notes Condensed Consolidated Balance Sheets (Selected Items) | Item | June 30, 2024 (Unaudited) ($) | December 31, 2023 (Audited) ($) | | :----------------------------- | :------------------------ | :-------------------------- | | Cash and cash equivalents | $5,660,684 | $8,134,211 | | Total current assets | $16,290,771 | $19,967,521 | | Total assets | $21,745,192 | $25,292,622 | | Total current liabilities | $18,728,111 | $20,901,038 | | Total liabilities | $33,833,656 | $35,311,672 | | Total Stockholders' Deficit | $(12,088,467) | $(10,019,053) | - The company's working capital deficit was approximately $2.4 million as of June 30, 2024[15] Unaudited Condensed Consolidated Statements of Operations The statements of operations show significant revenue growth for both the three and six months ended June 30, 2024, compared to the prior year, but also increased operating expenses and interest expense, leading to a net loss Unaudited Condensed Consolidated Statements of Operations (Selected Items) | Item | Three Months Ended June 30, 2024 ($) | Three Months Ended June 30, 2023 ($) | Six Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2023 ($) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $8,872,003 | $3,867,903 | $17,180,042 | $6,575,229 | | Gross profit | $2,817,298 | $1,228,702 | $5,294,237 | $1,532,794 | | Total operating expenses | $2,699,789 | $1,247,313 | $5,267,797 | $2,696,348 | | Income (loss) from operations | $117,509 | $(18,611) | $26,440 | $(1,163,554) | | Net income (loss) | $(926,069) | $36,162 | $(2,476,373) | $(1,086,404) | | Net income (loss) per common share, basic and diluted | $(0.03) | $0.00 | $(0.08) | $(0.05) | - Revenue increased by 129.4% for the three months and 161.3% for the six months ended June 30, 2024, compared to the same periods in 2023[6] - The company reported a net loss of $(926,069) for the three months and $(2,476,373) for the six months ended June 30, 2024, a significant decline from the prior year's net income/smaller loss, primarily due to increased interest and operating expenses[6] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Deficit The statements of changes in stockholders' deficit reflect an increase in the accumulated deficit for both periods in 2024, primarily due to net losses, partially offset by increases in additional paid-in capital from common share issuances Unaudited Condensed Consolidated Statements of Changes in Stockholders' Deficit (Selected Items) | Item | Balance – December 31, 2023 ($) | Balance – June 30, 2024 ($) | | :------------------------------------ | :-------------------------- | :---------------------- | | Redeemable Preferred Stock Amount | $3 | $3 | | Common Stock Amount | $3,187 | $3,210 | | Additional Paid-in Capital | $- | $431,936 | | Accumulated Deficit | $(10,022,240) | $(12,523,613) | | Total Stockholders' Deficit | $(10,019,053) | $(12,088,467) | - The accumulated deficit increased from $(10,022,240) at December 31, 2023, to $(12,523,613) at June 30, 2024, reflecting the net losses incurred[7] - Additional paid-in capital increased significantly from $- to $431,936, primarily due to the issuance of common shares and fair value of share-based compensation[7] Unaudited Condensed Statements of Cash Flows The statements of cash flows indicate a net decrease in cash and cash equivalents for the six months ended June 30, 2024, primarily driven by cash used in operating activities, partially offset by cash provided by financing activities Unaudited Condensed Statements of Cash Flows (Selected Items) | Item | Six Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2023 ($) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(3,722,837) | $(1,077,946) | | Net cash used in investing activities | $(46,690) | $(13,717) | | Net cash provided by (used in) financing activities | $1,296,000 | $(145,149) | | Net decrease in cash and cash equivalents | $(2,473,527) | $(1,236,812) | | Cash and cash equivalents, end of year | $5,660,684 | $2,278,070 | - Operating activities used significantly more cash in the first six months of 2024 ($3.72 million) compared to 2023 ($1.08 million), mainly due to a decrease in deferred revenue[9] - Financing activities provided $1.30 million in cash in 2024, primarily from floor plan payable proceeds, contrasting with cash used in financing activities in 2023[9] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed information on the company's business, significant accounting policies, recent corporate transactions, financial instrument details, and subsequent events, offering crucial context for the condensed consolidated financial statements 1. Nature of Operations ECD Automotive Design, Inc. specializes in the production and sale of customized Land Rover vehicles, generating revenue from vehicle sales, repair/upgrade services, and extended warranties. The company completed a reverse recapitalization in December 2023 and acquired assets of BNMC Continuation Cars LLC in April 2024 - ECD Automotive Design, Inc. (formerly EF Hutton Acquisition Corporation I) produces and sells customized Land Rover vehicles, with revenue also from repair/upgrade services and extended warranties[10] - A business combination with Humble Imports Inc. (ECD) was completed on December 12, 2023, accounted for as a reverse recapitalization where ECD was the accounting acquirer[11][12][13] - In April 2024, the Company acquired certain assets of BNMC Continuation Cars LLC[14] 2. Liquidity and Capital Resources As of June 30, 2024, the company had $5.6 million in cash and a working capital deficit of $2.4 million. Primary funding sources include vehicle sales and loans, with a senior secured convertible note and a new floor plan financing facility secured in late 2023 and May 2024, respectively. Management expects sufficient liquidity for the next year Liquidity and Capital Resources (June 30, 2024) | Item | Amount ($) | | :-------------------------- | :------------- | | Cash and cash equivalents | $5.6 million | | Working capital deficit | $2.4 million | - The company's primary operating funds come from cash receipts from vehicle sales and proceeds from loans[15] - A senior secured convertible note of $15,819,209 was executed immediately prior to the December 2023 business combination. A new floor plan financing agreement for up to $1.5 million was entered into on May 15, 2024, collateralized by inventory[15][16] - Management anticipates sufficient liquidity to meet financing requirements for the one-year period from the issuance of financial statements[16] 3. Summary of Significant Accounting Policies This section outlines the key accounting principles and methods used in preparing the condensed consolidated financial statements, including the basis of presentation, revenue recognition, inventory valuation, income taxes, and fair value measurements. It also details the company's status as an emerging growth company and recent accounting pronouncements Basis of Presentation The financial statements are prepared in accordance with U.S. GAAP for interim financial information, consolidating ECD and ECD Auto Design UK Ltd., and include all normal recurring adjustments - The condensed consolidated financial statements include the accounts of ECD and ECD Auto Design UK Ltd., prepared in accordance with U.S. GAAP for interim financial information[17][18] - Certain information and footnote disclosures are condensed or omitted per Form 10-Q and Regulation S-X rules[18] - A misallocation of revenue and expenses in prior interim financial information was corrected for the three and six months ended June 30, 2023, without affecting full-year consolidated statements[20] Emerging Growth Company Status The company is an emerging growth company and has elected to use the extended transition period for complying with new or revised accounting standards, which may affect comparability with other public companies - The Company is an emerging growth company and has elected to use the extended transition period for complying with new or revised accounting standards[21] Use of Estimates The preparation of financial statements requires management to make significant estimates and assumptions, particularly for revenue recognition, asset useful lives, and allowance for doubtful accounts, which could differ from actual results - Preparation of financial statements requires management to make estimates and assumptions affecting reported amounts, with significant estimates including revenue recognition, useful life of assets, and allowance for doubtful accounts[22] Segment Information The company operates and manages its business as a single operating and reportable segment, as the Chief Operating Decision Maker reviews financial information on a consolidated basis - The Company operates and manages its business as one operating segment and one reportable segment, with the CEO acting as the Chief Operating Decision Maker[23] Cash and Cash Equivalents Cash equivalents include highly liquid investments with original maturities of three months or less, stated at cost which approximates market value - Cash and cash equivalents include highly liquid investments with original maturities of three months or less, stated at cost[24] Credit Risk The company's credit risk primarily relates to cash accounts exceeding FDIC limits, but management believes the risk is not significant due to no past losses - Financial instruments expose the Company to credit risk from cash accounts exceeding FDIC coverage limits, but no significant losses have been experienced[25] Revenue Recognition Revenue is recognized when promised goods or services are transferred to customers, reflecting the expected consideration. This involves a five-step model for identifying performance obligations, determining transaction price, allocating it, and recognizing revenue upon satisfaction of obligations - Revenue is recognized when promised goods or services are transferred to the customer, reflecting the consideration expected[26] - The Company applies a five-step model for revenue recognition, including identifying performance obligations, determining transaction price, allocating it, and recognizing revenue upon satisfaction[26] - Product revenue from vehicle builds is recognized when products are shipped or titled, with initial customer deposits recorded as deferred revenue[27] Product Limited Warranty The company offers a limited assurance-type warranty for work performed on vehicles, which is not considered a separate performance obligation, and does not provide a contractual right of return - The Company offers a limited assurance-type warranty for work performed on vehicles, not considered a separate performance obligation, and customers do not have a contractual right of return[29] Warranty Reserve An estimated cost for product warranties is provided at the time revenue is recognized, based on historical costs, with potential revisions if actual costs differ from estimates - The Company provides for estimated product warranty costs at revenue recognition, based on historical costs, with potential revisions if actual costs differ[30] Other Revenue Policies Sales and other taxes collected for third parties are excluded from revenue. The company uses practical expedients for contracts with no significant financing component (payment and transfer within one year) and accounts for shipping and handling as costs to fulfill promises - Sales, value-added, and other taxes collected on behalf of third parties are excluded from revenue[30] - The Company applies practical expedients for contracts where the period between customer payment and product transfer is one year or less, and accounts for shipping and handling as costs of goods sold[31] Disaggregation of Revenue Revenue is disaggregated into 'Builds' and 'Warranty and other' categories, with 'Builds' being the dominant source. Deferred revenue and remaining performance obligations are also detailed Net Revenues Disaggregated by Product Category | Category | Three Months Ended June 30, 2024 ($) | Three Months Ended June 30, 2023 ($) | Six Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2023 ($) | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Builds | $7,989,055 | $3,824,181 | $16,206,702 | $6,475,431 | | Warranty and other | $882,948 | $43,722 | $973,340 | $99,798 | | Total revenues, net | $8,872,003 | $3,867,903 | $17,180,042 | $6,575,229 | Deferred Revenue and Remaining Performance Obligation | Item | June 30, 2024 ($) | December 31, 2023 ($) | | :------------------------------------ | :-------------- | :---------------- | | Beginning balance, January 1 | $17,596,512 | $14,166,030 | | Additional deposits received | $10,077,812 | $8,212,166 | | Revenue Recognized during the year at a point-in-time | $(16,206,702) | $(4,781,684) | | Ending balance | $11,467,622 | $17,596,512 | | Contract consideration allocated to performance obligations not yet completed | $8,373,028 | $12,253,253 | Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recorded net of an allowance for uncollectible accounts, estimated based on collectability and prior bad debt experience. Management believes credit risks are not material Accounts Receivable and Allowance for Doubtful Accounts | Item | June 30, 2024 ($) | June 30, 2023 ($) | | :------------------------------------ | :-------------- | :-------------- | | Trade accounts receivable | $113,165 | $0 | | Allowance for doubtful accounts | $8,033 | $0 | | Net trade accounts receivable | $105,132 | $0 | Inventories Inventories, including work in progress and finished goods, are carried at the lower of cost or net realizable value, with cost determined by direct and indirect costs using the weighted average method. Overhead costs are allocated based on inventory turnover Inventories | Item | June 30, 2024 ($) | December 31, 2023 ($) | | :------------------------------------ | :-------------- | :---------------- | | Inventory – work in progress | $4,033,933 | $2,842,470 | | Inventory – work in progress shipping and consumables | $425,077 | $332,105 | | Inventory – work in progress labor | $869,611 | $448,280 | | Resale inventory | $995,620 | $1,110,620 | | Finished goods | $3,795,246 | $7,065,829 | | Total Inventories | $10,119,487 | $11,799,304 | - Inventories decreased from $11,799,304 at December 31, 2023, to $10,119,487 at June 30, 2024[35] Property and Equipment Property and equipment are recorded at cost less accumulated depreciation, calculated using the straight-line method over estimated useful lives of 5 to 15 years - Property and equipment are stated at cost, less accumulated depreciation, using the straight-line method over 5 to 15 years[36] Long-Lived Assets Long-lived assets are reviewed for impairment when circumstances indicate carrying amounts may not be recoverable, based on undiscounted cash flows. No impairments were recognized for the periods presented - Long-lived assets are reviewed for impairment based on forecasted undiscounted cash flows, with no impairments recognized for the three and six months ended June 30, 2024 and 2023[37][38] Advertising and Marketing Costs associated with advertising are expensed as incurred - The Company expenses advertising costs as incurred[39] Income Taxes The company transitioned from an S corporation to a C corporation following the business combination, now applying the asset and liability method for income taxes. Deferred tax assets and liabilities are recognized, with valuation allowances established when necessary, and no uncertain tax positions identified - The Company ceased to be taxed as an S corporation after the December 12, 2023 Business Combination, resulting in a change in tax status[40] - The asset and liability method is used for income taxes, with deferred tax assets and liabilities measured using enacted tax rates[40] - No uncertain tax positions requiring adjustment were identified as of June 30, 2024, and December 31, 2023[43][44] Loss Per Share Net loss per share is calculated in accordance with ASC 260-10, presenting basic and diluted EPS. Potentially dilutive securities were excluded from diluted EPS calculations for the periods presented as their effect would be anti-dilutive - Net loss per share is accounted for in accordance with ASC 260-10, presenting basic and diluted EPS[44] - Potentially dilutive securities were excluded from diluted net income (loss) per share calculations for the three months ended June 30, 2024 and 2023, as their effect would be anti-dilutive[44] Leases The company recognizes operating lease right-of-use (ROU) assets and lease liabilities on the balance sheet, measured at the present value of lease payments over the lease term using an incremental borrowing rate - Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term, using an incremental borrowing rate[45][46] - Lease expense is recognized on a straight-line basis over the lease term, with a short-term lease exemption for terms less than 12 months[46] Fair Value of Financial Instruments The fair value of cash, accounts receivable, accounts payable, accrued expenses, and other payables approximates their carrying amounts due to short maturities. Lease liabilities also approximate fair value - The estimated fair value of cash, accounts receivable, accounts payable, accrued expenses, and other payables approximates their carrying amounts due to short maturity[47] Fair Value Measurements Fair value is defined as the price for an orderly transaction between market participants, categorized into a three-tier hierarchy (Level 1, 2, and 3) based on the observability of inputs - Fair value is defined as the price for an orderly transaction between market participants, categorized into a three-tier hierarchy (Level 1, 2, and 3) based on input observability[48] Warrants Warrants are classified as either liability or equity based on ASC 480-10 and ASC 815-40. Liability-classified warrants are fair valued at issuance and subsequently, with changes in fair value recognized in operations, while equity-classified warrants are only fair valued at issuance - Warrants are classified as either liability or equity based on ASC 480-10 and ASC 815-40[50] - Liability-classified warrants require fair value accounting at issuance and subsequent to initial issuance, with changes in fair value recorded in the statements of operations[50] - Equity-classified warrants only require fair value accounting at issuance, with no subsequent changes recognized[50] Stock-based Compensation Stock-based compensation awards to employees and non-employees are recognized as expense based on their grant date fair values in accordance with ASC Topic 718 - Stock-based compensation awards to employees and non-employees are recognized as expense based on their grant date fair values in accordance with ASC Topic 718[51] Reclassification Certain prior period amounts have been reclassified to conform to the current period presentation, with no material impact on the consolidated financial statements - Certain prior period amounts were reclassified to conform to current period presentation, with no material impact on consolidated financial statements[52] Redeemable Preferred Stock Redeemable preferred stock is evaluated for liability classification under ASC 480-10. If not classified as a liability, it is placed in temporary equity and initially measured at proceeds received. Subsequent measurement adjusts the carrying value to the current maximum redemption value if redemption is probable or current - Redeemable preferred stock is evaluated for liability classification under ASC 480-10[53] - Securities not classified as liabilities are placed in temporary equity, initially measured at proceeds received, and subsequently adjusted to the current maximum redemption value if redemption is probable or current[53] New Accounting Pronouncements This section details recently adopted and upcoming accounting pronouncements, including ASU 2022-04 on supplier finance programs and ASU 2021-08 on contract assets/liabilities, and upcoming ASU 2023-07 on segment reporting and ASU 2023-09 on income tax disclosures - The Company adopted ASU No. 2022-04 (Supplier Finance Programs) and ASU No. 2021-08 (Contract Assets and Liabilities) with no material impact on financial statements[54][55][57] - The Company is evaluating the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures), effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively[58][59] 4. Recapitalization On December 12, 2023, ECD completed a business combination with EF Hutton Acquisition Corporation I, treated as a reverse recapitalization where ECD was the accounting acquirer. This resulted in EFHT changing its name to ECD Automotive Design, Inc. and the issuance of common and preferred stock, and warrants to Humble security holders - On December 12, 2023, ECD completed a business combination with EF Hutton Acquisition Corporation I, with EFHT changing its name to ECD Automotive Design, Inc.[11][60][61] - The transaction was accounted for as a reverse recapitalization, with ECD deemed the accounting acquirer based on factors like voting interest, control, and ongoing operations[12][61][62] Merger Consideration Paid to Humble Security Holders | Item | Amount | | :------------------------------------ | :------------- | | Shares of Company Common Stock (Shares) | 26,500,000 | | Shares of Company Preferred Stock (Shares) | 25,000 | | Warrant to purchase Common Stock (Warrants) | 1,091,525 | | Warrant to purchase Preferred Stock (Warrants) | 15,819 | | Cash Payment ($) | $2,000,000 | - Prior to closing, 11,477,525 shares of EFHAC Class A common stock were redeemed for $119,759,997[64] 5. BNMC Continuation Cars LLC Asset Acquisition On April 3, 2024, the company acquired certain assets, including the 'Brand New Muscle Car' trademark, from BNMC Continuation Cars LLC for up to $1.25 million, paid through the issuance of common stock. This acquisition was accounted for as an asset acquisition - On April 3, 2024, the Company entered into an Asset Purchase Agreement to acquire certain assets, including the 'Brand New Muscle Car' trademark, from BNMC Continuation Cars LLC for up to $1.25 million[14][65] - The purchase price was to be paid by issuing common stock, with an additional $300,000 earned for new vehicle builds referred by the sellers[65] - The acquisition was accounted for as an asset acquisition, with an excess acquisition cost over fair value of $1,309,098[67] 6. Inventories Inventories, including work in progress, resale inventory, and finished goods, decreased from $11.8 million at December 31, 2023, to $10.1 million at June 30, 2024. Overhead costs allocated to inventory were $320,646 and $589,895 for the three and six months ended June 30, 2024, respectively Inventories Breakdown | Category | June 30, 2024 ($) | December 31, 2023 ($) | | :------------------------------------ | :-------------- | :---------------- | | Inventory – work in progress | $4,033,933 | $2,842,470 | | Inventory – work in progress shipping and consumables | $425,077 | $332,105 | | Inventory – work in progress labor | $869,611 | $448,280 | | Resale inventory | $995,620 | $1,110,620 | | Finished goods | $3,795,246 | $7,065,829 | | Total Inventories | $10,119,487 | $11,799,304 | Overhead Costs Allocated to Inventory | Period | 2024 ($) | 2023 ($) | | :------------------------------------ | :----------- | :----------- | | Three months ended June 30 | $320,646 | $177,712 | | Six months ended June 30 | $589,895 | $362,862 | 7. Prepaids and Other Current Assets Prepaid and other current assets significantly increased to $405,468 at June 30, 2024, from $34,006 at December 31, 2023, primarily due to an increase in prepaid insurance Prepaid and Other Current Assets | Category | June 30, 2024 ($) | December 31, 2023 ($) | | :------------------------------------ | :-------------- | :---------------- | | Prepaid expenses other assets | $174,171 | $34,006 | | Prepaid insurance | $231,297 | $- | | Total | $405,468 | $34,006 | 8. Property and Equipment Net property and equipment decreased to $607,603 at June 30, 2024, from $968,677 at December 31, 2023, mainly due to a reduction in vehicles and increased accumulated depreciation. Depreciation expense for the three and six months ended June 30, 2024, was $34,636 and $82,290, respectively Property and Equipment, Net | Category | June 30, 2024 ($) | December 31, 2023 ($) | | :------------------------------------ | :-------------- | :---------------- | | Computer equipment | $74,279 | $72,175 | | Office furniture | $38,994 | $36,412 | | Manufacturing equipment | $693,771 | $654,858 | | Vehicles | $61,360 | $456,360 | | Building improvements | $3,092 | $- | | Less: accumulated depreciation | $(263,893) | $(251,128) | | Total | $607,603 | $968,677 | Depreciation Expense | Period | 2024 ($) | 2023 ($) | | :------------------------------------ | :----------- | :----------- | | Three months ended June 30 | $34,636 | $27,685 | | Six months ended June 30 | $82,290 | $54,993 | 9. Leases The company's leases primarily relate to office and warehouse space in Florida and the UK. Total lease cost for the six months ended June 30, 2024, was $335,284. The weighted-average remaining lease term is 9.02 years with a weighted-average discount rate of 6.3% - Leases are for office space in Kissimmee, Florida, and the UK, and a leased warehouse in Kissimmee, Florida, starting March 23, 2024[73] Lease Expenses and Other Information | Item | Three Months Ended June 30, 2024 ($) | Three Months Ended June 30, 2023 ($) | Six Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2023 ($) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease expenses | $150,278 | $150,278 | $300,556 | $288,845 | | Variable and other lease costs | $25,900 | $(9,313) | $34,728 | $(2,821) | | Total lease cost | $176,178 | $140,965 | $335,284 | $286,024 | | Weighted-average remaining lease term (in years) | 9.02 | 9.88 | 9.02 | 9.88 | | Weighted-average discount rate | 6.3% | 6.3% | 6.3% | 6.3% | Maturity Analysis of Lease Agreement (June 30, 2024) | Year | Total ($) | | :------------------------------------ | :------------- | | 2024 | $280,053 | | 2025 | $575,360 | | 2026 | $535,720 | | 2027 | $492,318 | | 2028 and beyond | $3,274,183 | | Total | $5,157,634 | | Less: present value discount | $(1,269,325) | | Lease liability | $3,888,309 | 10. Accrued Expenses Accrued expenses significantly increased to $1,411,058 at June 30, 2024, from $687,000 at December 31, 2023, primarily driven by higher accrued convertible note interest and accrued payroll Accrued Expenses | Category | June 30, 2024 ($) | December 31, 2023 ($) | | :------------------------------------ | :-------------- | :---------------- | | Accrued convertible note interest | $699,121 | $113,000 | | Accrued bonuses | $- | $150,000 | | Accrued interest | $7,449 | $- | | Accrued expenses, other | $255,673 | $137,859 | | Warranty reserve | $130,000 | $89,430 | | Accrued payroll | $318,815 | $196,711 | | Total | $1,411,058 | $687,000 | 11. Other Payable Other payable increased to $641,621 at June 30, 2024, from $168,256 at December 31, 2023, mainly due to an increase in 'Other' payables, while the PPG payable decreased Other Payable | Category | June 30, 2024 ($) | December 31, 2023 ($) | | :------------------------------------ | :-------------- | :---------------- | | PPG payable | $117,612 | $168,256 | | Other | $524,009 | $- | | Total | $641,621 | $168,256 | - The PPG payable relates to an exclusive supplier agreement from February 2022, with an outstanding balance of $117,612 at June 30, 2024[76] 12. Debt The company has a senior secured convertible note with a principal of $15.8 million, accruing interest at Prime + 5% (or 8% if paid in securities), convertible at $10.00 per share (subject to adjustments and a $6.00 floor). Events of default have occurred, leading to default interest. A new floor plan financing for up to $1.5 million was also secured in May 2024 - A senior secured convertible note (Convertible Note) for $15,819,209 was issued on October 6, 2023, with a maturity date of December 12, 2026[78][79] - The Convertible Note accrues interest at Prime + 5% (or 8% if paid in securities) and is convertible at the Lender's option at $10.00 per share, subject to downward adjustments and a $6.00 floor[78] - Events of default have occurred due to failure to file registration statements and restatement of financial statements, resulting in $165,233 in default interest for the three months ended June 30, 2024, treated as paid-in-kind (PIK) interest[80] Outstanding Convertible Note | Item | June 30, 2024 ($) | December 31, 2023 ($) | | :------------------------------------ | :-------------- | :---------------- | | Principal value of Convertible Note | $15,819,209 | $15,819,209 | | Debt discount, net of amortization | $(4,267,742) | $(5,135,757) | | Convertible Note payable | $11,551,467 | $10,683,452 | - A Floor Plan Financing agreement for up to $1.5 million was entered into on May 15, 2024, collateralized by inventory, with an outstanding balance of $1,321,000 at June 30, 2024[83] Disaggregation of Interest Expense | Item | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2024 ($) | | :------------------------------------ | :------------------------------- | :----------------------------- | | Contractual interest expense | $709,932 | $1,243,557 | | Debt discount amortization | $176,601 | $353,202 | | Debt issuance cost amortization | $257,407 | $514,814 | | Finance costs and other | $7,618 | $10,752 | | Total | $1,151,548 | $2,122,325 | 13. Redeemable Preferred Stock The company has 25,000 shares of Series A Convertible Preferred Stock outstanding, which rank senior to common stock. These shares have no dividend rights until the initial exercise of Preferred Warrants, after which dividends accrue and are payable in common stock or cash. Holders have conversion rights (subject to a 4.99% blocker) and redemption rights upon a Triggering Event - 25,000 shares of Series A Convertible Preferred Stock are issued and outstanding, ranking senior to common stock[85] - Dividends on Series A Convertible Preferred Stock commence after the Initial Preferred Warrant Exercise Date, payable in common stock or cash[86] - Holders have conversion rights into common stock (subject to a 4.99% blocker) and redemption rights upon a Triggering Event[88] 14. Stockholders' Equity The company is authorized to issue 1 billion shares of common stock, with 32,099,662 shares outstanding as of June 30, 2024. It also has public and private warrants outstanding, which are equity-classified. The Equity Incentive Plan allows for grants of various awards, with 400,000 shares reserved. Stock-based compensation was recognized for consulting agreements - 1,000,000,000 shares of common stock are authorized, with 32,099,662 shares issued and outstanding as of June 30, 2024[90] - 11,500,000 Public Warrants and 257,500 Private Warrants are outstanding, exercisable at $11.50 per share, and are equity-classified[92][94] - The Equity Incentive Plan reserves 400,000 shares for awards, with no awards granted as of June 30, 2024, but non-employee directors are expected to receive stock options[95][96][98] - In the six months ended June 30, 2024, the Company recognized $60,000 for 100,000 fully paid up shares and $20,000 for incentive shares with market conditions, related to consulting agreements[102] 15. Commitments and Contingencies The company records liabilities for probable and estimable claims. As of June 30, 2024, there were no pending claims, charges, or litigation expected to have a material adverse impact on its financial position - The Company records liabilities for probable and estimable claims[103] - As of June 30, 2024, there were no pending claims, charges, or litigation expected to have a material adverse impact on its financial position, results of operations, or cash flows[104] 16. Related Party Transactions The company engages in transactions with related parties, including transportation services from Luxury Automotive Transport, Inc. (owned by a director's father) and food services from British Food Stop (owned by a director's parents) - The Company has independent contractor agreements with Luxury Automotive Transport, Inc., owned by the father of a director, for vehicle transportation and delivery services[105] Expenses from Luxury Automotive Transport, Inc. | Period | 2024 ($) | 2023 ($) | | :------------------------------------ | :----------- | :----------- | | Six months ended June 30 | $57,292 | $46,733 | | Three months ended June 30 | $32,702 | $46,733 | - The Company recorded expenses totaling $26,157 for the six months ended June 30, 2024, and $15,684 for the three months ended June 30, 2024, for food services from British Food Stop, owned by the parents of a director[106] 17. Subsequent Events Subsequent events include ongoing events of default under the December 2023 Convertible Note and Series A Convertible Preferred Stock, for which the company plans to negotiate waiver agreements. Additionally, the company completed an unregistered sale of equity securities to a director and entered into a new securities purchase agreement with Defender SPV LLC, including a second senior secured convertible note and commitment shares, and amended the BNMC Asset Purchase Agreement - Certain events of default occurred under the December 2023 Senior Secured Convertible Note and Series A Convertible Preferred Stock due to failure to file registration statements and restatement of financial statements. The Company plans to negotiate waiver agreements with the lender/holder[108][109] - On August 8, 2024, the Company sold 1,000,000 shares of common stock and a warrant to purchase 100,000 shares to Theodore Duncan for $1,000,000 in a private transaction[110] - On August 9, 2024, the Company entered into a new securities purchase agreement with Defender SPV LLC, waiving pre-existing defaults and issuing a second senior secured convertible note (August Note) for $1,154,681 (net proceeds of $1,000,000), along with 300,000 commitment shares and a warrant[113][118] - The August Note matures on December 12, 2026, accrues interest at Prime + 5% (or 8% if paid in securities), and is convertible at $10.00 per share (subject to adjustments and a $2.00 floor)[114][115][116] - On August 11, 2024, the A&R Asset Purchase Agreement was amended to fix the purchase price at $1,250,000, payable through the issuance of 1,250,000 shares of common stock[119] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and cash flows for the periods presented. It covers business overview, recent developments, key factors affecting performance, detailed financial comparisons, liquidity, capital resources, and critical accounting policies Cautionary Note Regarding Forward-Looking Statements This section advises readers that the report contains forward-looking statements subject to risks and uncertainties, which may cause actual results to differ materially from projections. The company disclaims any obligation to update these statements - The report contains forward-looking statements based on current expectations and projections, subject to known and unknown risks and uncertainties[122] - The company disclaims any intention or obligation to update or revise forward-looking statements[122] Business Overview and Strategy ECD is an award-winning custom-car builder specializing in British classic vehicles, offering a luxury design experience and generating revenue from vehicle sales, services, and warranties. The company's operations are based in a 100,000-square-foot facility in Kissimmee, FL, with a UK logistics center for parts sourcing. The business is subject to retail industry trends, economic conditions, and material/labor cost fluctuations - ECD is an award-winning custom-car builder focused on British classic vehicles, providing a luxury automotive design experience[123] - Revenue is primarily from customized vehicle sales, repair/upgrade services, and extended warranties[123] - Operations are based in a 100,000-square-foot 'RoverDome' facility in Kissimmee, FL, with a UK logistics center for parts sourcing[125] - The business is subject to retail industry trends, economic conditions, and price fluctuations in materials and labor costs[124] Merger with EF Hutton Acquisition Corporation I On December 12, 2023, ECD completed a business combination with EF Hutton Acquisition Corporation I, resulting in EFHT changing its name to ECD Automotive Design, Inc. The merger involved the issuance of common and preferred stock, and warrants to Humble security holders, and was accounted for as a reverse recapitalization - On December 12, 2023, ECD completed a business combination with EF Hutton Acquisition Corporation I, with EFHT changing its name to ECD Automotive Design, Inc.[126][128] Merger Consideration Paid to Humble Security Holders | Item | Amount | | :------------------------------------ | :------------- | | Shares of Company Common Stock (Shares) | 26,500,000 | | Shares of Company Preferred Stock (Shares) | 25,000 | | Warrant to purchase Common Stock (Warrants) | 1,091,525 | | Warrant to purchase Preferred Stock (Warrants) | 15,819 | | Cash Payment ($) | $2,000,000 | Other Recent Developments Recent developments include the amendment of articles of incorporation to authorize more common and preferred stock, the closing of a Securities Purchase Agreement with Defender SPV LLC involving convertible preferred stock, common stock, and warrants, and the issuance of a senior secured convertible note for $15.8 million - ECD amended its articles of incorporation to authorize 500,000,000 shares of common stock and 20,000,000 shares of Preferred Stock, designating 54,819 shares as 'Series A Convertible Preferred Stock'[128] - On October 11, 2023, ECD closed a Securities Purchase Agreement with Defender SPV LLC, issuing Series A Convertible Preferred Stock, common stock, and warrants for $300,000[128] - On October 6, 2023, the Company issued a senior secured convertible note for $15,819,209, accruing interest at Prime + 5% (or 8% if paid in securities) and convertible at $10.00 per share (subject to adjustments)[129] - The Convertible Note has a maturity date of December 12, 2026, and is secured by a first priority perfected security interest in all existing and future assets of the Company and its subsidiaries[130] - The Convertible Note includes an original issue discount of $2,119,209 and debt issuance costs of $3,088,883, with $868,016 amortization expense for the six months ended June 30, 2024[131] - On April 3, 2024, the Company entered into an Asset Purchase Agreement to acquire assets, including the 'Brand New Muscle Car' trademark, from BNMC Continuation Cars LLC for up to $1.25 million, payable in common stock[132][133] Key Factors Affecting Results of Operations This section discusses the key factors influencing the company's financial performance, including supply chain management challenges from the COVID-19 pandemic, manufacturing facility expansion, and strategic growth plans such as new vehicle models and marketing channels Supply Chain Management The COVID-19 pandemic caused disruptions in the global supply chain and increased material/shipping costs. The company mitigated these impacts by diversifying shipping routes and stocking raw materials, maintaining full production capacity in 2022 - The COVID-19 pandemic significantly impacted operations through global supply chain disruptions and increased material/shipping costs[135][136] - Mitigation strategies included adding shipping routes (Ports of Baltimore, Jacksonville, Everglades) and stocking raw materials[136] - The North Line operated at full capacity in 2022, completing four to five full builds per month[137] Manufacturing Facility Expansion The company leased a 100,000 sq. ft. manufacturing facility in Kissimmee, Florida, in 2021, which increased production by approximately 20% in 2023. Plans include adding another 10,000 sq. ft. in H2 2024 for vehicle storage - On August 11, 2021, the Company leased a 100,000 sq. ft. manufacturing, warehouse, and office space in Kissimmee, Florida, for 125 months[138] - The new facility increased production by approximately 20% in 2023 and plans include adding an additional 10,000 sq. ft. in the second half of 2024 for vehicle storage[138] Our Growth Plans Growth plans include introducing new vehicle models like the Jaguar E-type (2022) and Mustangs (2024-2025), relocating quality/warranty services to a new facility to free up production space, and expanding marketing channels domestically and internationally - Introduced Jaguar E-type in 2022, which offers higher price points and gross margins[139] - Acquired assets of Brand New Muscle Car (BNMC) in April 2024, planning Mustang production in 2024 and 2025, with 6 Mustang contracts already secured[139] - Plans to relocate quality and warranty services to a new facility in 2024 to create a third production area for iconic American vehicles, expecting improved margins with increased scale[139] - New marketing channels in 2024 include outreach events, on-site events with market influencers, expanded press/social influencer relationships, and international market expansion (Europe, Canada, UAE)[140] Key Business Metrics The company uses Adjusted EBITDA as a non-GAAP financial measure to evaluate performance, excluding non-cash and non-recurring charges for better industry comparison Adjusted EBITDA Adjusted EBITDA increased by $0.4 million for the three months and $1.8 million for the six months ended June 30, 2024, compared to the prior year, driven by higher average selling prices per vehicle and improved gross margins for Builds, despite increased public company expenses - Adjusted EBITDA increased $0.4 million for the three months ended June 30, 2024, and $1.8 million for the six months ended June 30, 2024, compared to the same periods in 2023[142][143] - The increase was driven by higher average selling prices per vehicle ($46,604 for 3 months, $52,650 for 6 months) and significant improvement in gross margins for Builds, offset by high public company expenses[142][143] Reconciliation of Net Loss to Adjusted EBITDA | Item | Three Months Ended June 30, 2024 ($) | Three Months Ended June 30, 2023 ($) | Six Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2023 ($) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(926,069) | $36,162 | $(2,476,373) | $(1,086,404) | | Interest expense | $1,151,548 | $- | $2,122,325 | $- | | Income tax (benefit) expense | $(9,712) | $- | $522,568 | $- | | Non-recurring professional fees | $- | $- | $408,936 | $210,099 | | Equity compensation expense | $139,459 | $- | $256,959 | $- | | Other (income) expense, net | $(103,865) | $(54,773) | $(152,391) | $(77,150) | | Foreign exchange loss | $5,607 | $- | $10,311 | $- | | Depreciation | $143,728 | $27,685 | $191,382 | $54,993 | | Adjusted EBITDA | $400,696 | $9,074 | $883,717 | $(898,462) | Components of Results of Operations This section details the various components of the company's results of operations, including net revenues (product builds, warranty, and other services), cost of goods sold, and operating expenses such as advertising, general and administrative, depreciation, and other income/expenses Net Revenues Net revenues consist of product revenue from custom vehicle builds (Land Rover Defender, Range Rover Classics, Land Rover Series, Jaguar E-Types) and warranty/other revenue from extended warranties and repair services. Revenue from builds is recognized upon transfer of title or shipping - Net Revenues consist of product revenue from custom vehicle builds (Land Rover Defender, Range Rover Classics, Land Rover Series, Jaguar E-Types) and warranty/other revenue[146][147][148] - Product revenue from builds is recognized when products are shipped or titled, based on contract terms[146] - Warranty and other revenue includes extended warranties (typically two years) and repair services, recognized when repair work is completed[147][148] Cost of Goods Sold Cost of goods sold primarily includes material costs, labor costs (direct, warranty, quality control), shipping, customs, outside services, and tools/supplies used in manufacturing - Cost of goods sold primarily consists of cost of materials, labor costs (direct, warranty, quality control), shipping and freight, customs and duty, outside services, and tools and supplies[150] Advertising and Marketing Sales and marketing expenses include advertising, public relations, promotional expenses, travel, and printing. These expenses are expected to increase with business growth and new marketing channels - Sales and marketing expenses include advertising, public relations, marketing and promotional expenses, travel costs, and printing expenses[151] - These expenses are expected to increase in absolute terms with continued business growth and the introduction of new marketing channels[151] General and Administrative Expenses General and administrative expenses primarily consist of salaries, benefits, professional fees, information technology, outside services, transportation, and occupancy costs. These are expected to increase in absolute terms due to business growth and operating as a public company (legal, audit, investor relations, insurance, compliance costs), but decline as a percentage of total revenue over time - General and administrative expenses primarily consist of salaries, benefits, professional fees, information technology, outside services, transportation, and occupancy costs[152] - These expenses are expected to increase in absolute terms due to business growth and operating as a public company (legal, audit, investor relations, insurance, compliance costs)[152] - Management expects these expenses to decline as a percentage of total revenue over time as the business grows[152] Depreciation and Amortization Expense Depreciation expense relates to long-term assets, calculated using the straight-line method. Amortization expense is for intangible assets, such as the Brand New Muscle Car brand name, over a two-year period - Depreciation expense relates to long-term assets, building improvements, manufacturing equipment, office equipment, and furniture, calculated using the straight-line method over 5 to 15 years[153] - Intangible assets related to the Brand New Muscle Car acquisition are amortized over two years[153] Other Income and Expenses Other income and expenses primarily include interest income and expense, and foreign currency exchange gains and losses. Interest expense is mainly from the Convertible Note and amortization of debt issuance costs - Other income and expenses primarily consist of interest income and expense, and foreign currency exchange gains and losses[154] - Interest expense represents interest on the Convertible Note and amortization of debt issuance costs[154] Results of Operations This section provides a detailed comparison of the company's financial results for the three and six months ended June 30, 2024, versus 2023, analyzing changes in net revenue, gross profit, operating expenses, and other income/expenses Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023 For the three months ended June 30, 2024, net revenue significantly increased by 129.4% to $8.87 million, driven by higher average selling prices and increased production. Gross profit also rose by 129.3%. However, total operating expenses surged by 116.4%, and interest expense increased substantially due to the Convertible Note, leading to a net loss of $(926,069) compared to a net income of $36,162 in the prior year Consolidated Results of Operations (Three Months Ended June 30) | Item | 2024 ($) | 2023 ($) | Variance ($) | Variance (%) | | :------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Revenue, net | $8,872,003 | $3,867,903 | $5,004,100 | 129.4% | | Cost of goods sold | $6,054,705 | $2,639,201 | $3,415,504 | 129.4% | | Gross profit | $2,817,298 | $1,228,702 | $1,588,596 | 129.3% | | Total operating expenses | $2,699,789 | $1,247,313 | $1,452,476 | 116.4% | | Income (loss) from operations | $117,509 | $(18,611) | $136,120 | (731.4)% | | Interest expense | $(1,151,548) | $- | $(1,151,548) | 100.0% | | Net loss | $(926,069) | $36,162 | $(1,144,349) | 3,164.5% | Net Revenue by Product Category (3 months) For the three months ended June 30, 2024, 'Builds' revenue increased by 108.9% to $7.99 million, primarily due to a $46,604 increase in average selling price per vehicle and increased production efficiency. 'Warranty and other' revenue also saw a substantial increase of 1,919.5% to $0.88 million Net Revenue by Product Category (Three Months Ended June 30) | Category | 2024 ($) | 2023 ($) | Change ($) | Change (%) | | :---------------- | :----------- | :----------- | :----------- | :----------- | | Builds | $7,989,055 | $3,824,181 | $4,164,874 | 108.9% | | Warranty | $882,948 | $43,722 | $839,226 | 1,919.5% | | Total revenues, net | $8,872,003 | $3,867,903 | $5,004,100 | 129.4% | - The primary driver for the increase in 'Builds' revenue was a $46,604 increase in average selling price per vehicle and increased production due to efficiency improvements[157] Gross Profit and Gross Profit Margin Percentage (3 months) Gross profit for 'Builds' increased by 112.7% for the three months ended June 30, 2024, driven by higher average selling prices and improved build process efficiencies, leading to a slight increase in 'Builds' gross margin to 33.37%. Overall gross profit margin remained stable at 31.8% Gross Profit and Gross Profit Margin Percentage (Three Months Ended June 30) | Category | 2024 ($) | 2023 ($) | Change ($) | Change (%) | | :---------------- | :----------- | :----------- | :----------- | :----------- | | Builds Gross Profit | $2,665,796 | $1,253,375 | $1,412,421 | 112.7% | | Builds Gross Margin (%) | 33.37% | 32.8% | 0.6% | | | Warranty and others Gross Profit | $151,502 | $(24,673) | $176,175 | (714.0)% | | Warranty and others Gross Margin (%) | 17.2% | (56.4)% | 73.6% | | | Total Gross Profit | $2,817,298 | $1,228,702 | $1,588,596 | 129.3% | | Total Gross Margin (%) | 31.8% | 31.8% | 0.0% | | - Higher average selling prices and efficiencies in the build process drove higher profit margins in the second quarter of 2024[158] Operating Expenses (3 months) Total operating expenses increased by $1,452,476 (116.4%) for the three months ended June 30, 2024. This was primarily due to a 166.9% increase in sales and marketing expenses from expanded marketing efforts, and a 104.4% increase in general and administrative expenses driven by public company costs, including higher staff salaries, insurance, and professional fees Operating Expenses (Three Months Ended June 30) | Category | 2024 ($) | 2023 ($) | Change ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Sales and marketing expenses | $271,063 | $101,568 | $169,495 | 166.9% | | General and administrative expenses | $2,284,998 | $1,118,060 | $1,166,938 | 104.4% | | Depreciation and amortization expenses | $143,728 | $27,685 | $116,043 | 419.2% | | Total operating expenses | $2,699,789 | $1,247,313 | $1,452,476 | 116.4% | - Sales and marketing expenses increased due to expanded marketing footprint and the launch of Mustangs[159] - General and administrative expenses increased due to public company costs, including $470,038 in staff salaries, $116,570 in insurance, and $391,954 in professional fees[160] - Depreciation and amortization expense increased primarily due to the amortization of the Brand New Muscle Car brand name[161] Other (Expense)Income (3 months) Total other income (loss) for the three months ended June 30, 2024, was a loss of $(1,053,290), a significant change from income of $54,773 in the prior year. This was primarily driven by a new interest expense of $1,151,548 from the Convertible Note and amortization of debt issuance costs Other (Expense)Income (Three Months Ended June 30) | Category | 2024 ($) | 2023 ($) | Change ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Interest expense | $(1,151,548) | $- | $(1,151,548) | 100.0% | | Foreign exchange loss | $(5,607) | $- | $(5,607) | 100.0% | | Other income (expense), net | $103,865 | $54,773 | $49,092 | 89.6% | | Total other income (loss) | $(1,053,290) | $54,773 | $(1,206,247) | 2,202.3% | - Interest expense increased by $1,151,548 due to accrued interest and amortization of debt issuance costs on the Convertible Note[163] Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023 For the six months ended June 30, 2024, net revenue increased by 161.3% to $17.18 million, driven by higher average selling prices and production efficiency. Gross profit surged by 245.4%. However, total operating expenses increased by 95.4%, and interest expense significantly rose due to the Convertible Note and Floor Plan Payable, resulting in a net loss of $(2,476,373) compared to $(1,086,404) in the prior year Consolidated Results of Operations (Six Months Ended June 30) | Item | 2024 ($) | 2023 ($) | Variance ($) | Variance (%) | | :------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Revenue, net | $17,180,042 | $6,575,229 | $10,604,813 | 161.3% | | Cost of goods sold | $11,885,805 | $5,042,435 | $6,843,370 | 135.7% | | Gross profit | $5,294,237 | $1,532,794 | $3,761,443 | 245.4% | | Total operating expenses | $5,267,797 | $2,696,348 | $2,571,449 | 95.4% | | Income (loss) from operations | $26,440 | $(1,163,554) | $1,189,994 | (102.3)% | | Interest expense | $(2,122,325) | $- | $(2,122,325) | 100.0% | | Net loss | $(2,476,373) | $(1,086,404) | $(1,389,969) | 127.9% |