ECD Automotive Design(ECDA) - 2023 Q4 - Annual Report

PART I ITEM 1. BUSINESS. The company is a custom builder of Restomod British classic vehicles, targeting high-net-worth individuals with an in-house production model - ECD is an award-winning custom-car builder in the Restomod sector, focusing on British classic motor vehicles such as Land Rover Defenders, Range Rover Classic, Land Rover Series, and Jaguar E-Types[23][24] - The company's mission is to create fully-customized, 1-of-1 luxury vehicle designs with a client-centered experience, with all production stages completed in-house[23][24][25] - ECD targets high-net-worth individuals and aims for annual revenues of $70.0 million - $80.0 million and a gross margin of 35.0% - 40.0% when its anticipated third production line operates at full capacity[26] - The company offers a 'white-glove' immersive client experience with bi-weekly contact points for design decisions, resulting in 20% of sales from repeat clients[28] - Additional upgrades average $83,000, potentially reaching $150,000 over a $230,000 base contract price per vehicle, contributing to higher margins[28] - ECD estimates its production represented over a quarter of the Land Rover Defender restoration and customization market in the US in 2023[34] - Currently operating two production lines, ECD plans to convert a third line for iconic American vehicles in Q1 2024[25][66] - ECD has an exclusive 2-year agreement with Ampere EV for electric drivetrain systems for its key vehicle models in the United States[41][42] Key Financial Performance (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $15.1 million | $12.3 million | | Net Loss | $1.6 million | $1.5 million | | 2022 Gross Margin | 28.1% | (vs. mass market auto industry average of 17.3%) | ITEM 1A. RISK FACTORS. The company faces risks from its limited operating history, history of losses, and dependence on a specialized luxury market - ECD has a limited operating history with a history of losses and expects to incur significant expenses in the near term[127] - Failure to effectively manage growth, including launching new products and increasing production capacity, could materially harm the business[128] - Customer dissatisfaction with highly customized vehicles, which are not test-driven prior to delivery, could negatively affect ECD's reputation[131] - The business is highly dependent on the price, availability, and quality of used base vehicles and relies on a limited number of international and single-source component suppliers, creating supply chain risks[132][171][173] - ECD's business is highly specialized, focusing on Land Rover Series, Land Rover Defenders, Range Rover Classics, and Jaguar E-Types, lacking diversification[136][137] - The company's ability to manufacture and deliver high-quality electric vehicles (EVs) at scale is unproven[138][139] - Future growth is dependent on the continuing demand for high-end custom passenger vehicles, a market sensitive to economic downturns[140][167] - The company relies on contractual rights and trade secret laws to protect its proprietary methods, as regulatory protection like patents or trademarks is largely unavailable[141] - The company may require additional financing, and events of default have occurred under its Convertible Note[166][197] - Stockholders will experience significant dilution from the conversion of the Convertible Note and the exercise of outstanding warrants[199] - Management identified a material weakness in internal control over financial reporting as of December 31, 2023, which required the restatement of prior financial statements[236][384] ITEM 1B. UNRESOLVED STAFF COMMENTS. The company reports no unresolved staff comments - No unresolved staff comments are applicable[249] ITEM 1C. CYBERSECURITY. Cybersecurity risk is overseen by the Board, with no incidents reported in fiscal years 2023 or 2022 - The Board has overall oversight responsibility for cybersecurity risk management, with management reporting significant incidents to the audit committee[251] - The company relies on third-party service providers for cybersecurity protections, utilizing two-factor authorization and password protections[250] - No cybersecurity incidents were experienced in fiscal years 2023 or 2022[251] ITEM 2. PROPERTIES. The company leases its primary manufacturing facility in Florida and a logistics center in the UK - ECD leases its primary 100,000-square-foot manufacturing facility, known as the 'Rover Dome,' in Kissimmee, Florida[24][253] - A wholly-owned subsidiary leases a 7,432-square-foot facility in the UK, serving as a logistics center[253] - All properties are believed to be adequately maintained, in good condition, and suitable for the company's business[254] ITEM 3. LEGAL PROCEEDINGS. The company is not aware of any legal proceedings that would materially affect its business - The company is not currently aware of any legal proceedings or claims that are expected to have a material adverse effect on its business, financial condition, or operating results[255] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. The company's stock is listed on Nasdaq, with no dividends planned as earnings are retained for growth - ECD's Common Stock (ECDA) and Warrants (ECDAW) are listed on the Nasdaq Global Market[3][257] - The company has not paid cash dividends on its Common Stock to date and does not anticipate paying dividends in the foreseeable future[186][215][259] - Recent sales of unregistered securities include founder shares, private units, a $15,819,209 Senior Secured Convertible Note, and shares issued to underwriters and a director[260][263][265][266][267][268] - The company is authorized to issue 1,000,000,000 shares of common stock and 20,000,000 shares of preferred stock[270] - Series A Convertible Preferred Stock ranks senior to Common Stock regarding dividends, distributions, and liquidation preferences[271][272][275] - Warrants issued to Defender SPV LLC include a Common Shares Warrant for 1,091,525 shares and a Preferred Shares Warrant for 15,819 shares[278][279] Holders of Record (May 1, 2024) | Security | Number of Holders | | :--- | :--- | | Common Stock | 29 | | Public Warrants | 7 | ITEM 6. [Reserved] This item is reserved and contains no information - This item is reserved[281] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The company's revenue increased in 2023, driven by higher vehicle selling prices, though net loss also grew slightly - ECD is an award-winning custom-car builder focusing on British classic vehicles, generating revenue primarily from customized vehicle sales[282] - The company completed a business combination with EF Hutton Acquisition Corporation I on December 12, 2023[286][522][585] - A Senior Secured Convertible Note with an aggregate principal amount of $15,819,209 was issued to Defender SPV LLC on December 12, 2023[289][342][537] - Adjusted EBITDA increased by $2.4 million in 2023, driven by improved gross margins from higher average selling prices and production efficiencies[304] - Total operating expenses increased by $2,227,947 (60.9%) in 2023, driven by higher G&A expenses, including $950,000 in Merger-related legal and accounting fees[331][332][333] - As of December 31, 2023, the company had cash and cash equivalents of $8,134,211 and working capital of $198,824[344][536] - Prior financial statements were restated to correct misstatements in revenue recognition, inventory, warranty reserve, and other areas[526][528][529][531][532][533][534] - The company ceased to be taxed as an S corporation after the Business Combination, becoming directly liable for federal and state income taxes[369][568] - As of December 31, 2023, the company had a net deferred tax asset of $515,444[373][617] Consolidated Statements of Operations (2023 vs. 2022, As Restated) | Item | 2023 | 2022 (As Restated) | Variance ($) | Variance (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $15,123,596 | $12,343,745 | $2,779,851 | 22.5% | | Gross profit | $4,249,238 | $1,694,877 | $2,554,361 | 150.7% | | Loss from operations | $(1,635,540) | $(1,961,954) | $326,414 | (16.6)% | | Net Loss | $(1,602,013) | $(1,459,050) | $(142,963) | 9.8% | Net Revenue by Product Category (2023 vs. 2022, As Restated) | Category | 2023 | 2022 (As Restated) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Parts | $41,341 | $95,293 | $(53,952) | (56.6)% | | Builds | $14,932,419 | $12,074,752 | $2,857,667 | 23.7% | | Service | $30,950 | $161,705 | $(130,755) | (80.9)% | | Warranty | $118,886 | $11,995 | $106,891 | 891.1% | | Total | $15,123,596 | $12,343,745 | $2,779,851 | 22.5% | Gross Profit and Gross Margin Percentage (2023 vs. 2022, As Restated) | Category | 2023 Gross Profit | 2023 Gross Margin | 2022 Gross Profit | 2022 Gross Margin | Change in Gross Profit ($) | Change in Gross Margin (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Parts | $33,408 | 80.8% | $86,246 | 90.5% | $(52,838) | (9.7)% | | Builds | $4,190,379 | 28.1% | $1,521,345 | 12.6% | $2,668,985 | 15.5% | | Service | $15,475 | 50.0% | $85,437 | 0.0% | $(69,962) | 50.0% | | Warranty | $9,976 | 8.4% | $1,799 | 15.0% | $8,177 | (6.6)% | | Total | $4,249,238 | 28.1% | $1,694,877 | 13.7% | $2,554,362 | 16.6% | Cash Flow Summary (2023 vs. 2022, As Restated) | Activity | 2023 | 2022 (As Restated) | | :--- | :--- | :--- | | Operating Activities | $(5,007,963) | $1,494,130 | | Investing Activities | $(554,815) | $(509,730) | | Financing Activities | $10,182,107 | $(278,161) | | Net increase (decrease) in cash | $4,619,329 | $706,239 | Contractual Lease Obligations (as of December 31, 2023) | Year | Amount | | :--- | :--- | | 2024 | $557,703 | | 2025 | $575,360 | | 2026 | $535,720 | | 2027 | $492,318 | | 2028 | $508,885 | | And thereafter | $2,765,297 | | Total | $5,435,283 | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This item is not applicable to the company - This item is not applicable[378] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. This section refers to the audited consolidated financial statements starting on page F-1 of the annual report - The full text of the audited consolidated financial statements begins on page F-1 of this annual report[379][500][506] - Included statements are Consolidated Balance Sheets, Statements of Operations, Statements of Changes in Stockholders' Equity, and Statements of Cash Flows for the years ended December 31, 2023 and 2022 (as restated)[500][506] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. This item is not applicable to the company - This item is not applicable[381] ITEM 9A. CONTROLS AND PROCEDURES. Management concluded disclosure controls were not effective due to a material weakness in internal control over financial reporting - As of December 31, 2023, management concluded that disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting[384] - The material weakness was identified in the application of accounting policies for revenue recognition, inventory, and technical accounting areas[384] - Management plans to implement remediation steps, including expanding review processes and considering additional qualified staff[385] - Despite the material weakness, management believes the financial statements in this Annual Report fairly present the company's financial position[384] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2023, other than the ongoing implementation of the remediation plan[386] ITEM 9B. OTHER INFORMATION. No other information is reported in this section - No other information is reported[387] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. No disclosures are reported in this section - No disclosure regarding foreign jurisdictions that prevent inspections[388] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The company's board consists of seven members with a majority of independent directors and three standing committees - The board of directors consists of seven members, divided into three staggered classes[410] - A majority of directors qualify as independent, ensuring board independence[417] - Key executive officers include Scott Wallace (CEO), Emily Humble (CPO), Thomas Humble (CXO), Elliot Humble (CTO), and Raymond Cole (CFO)[391][392][394][397][408][409] - The Board has extensive involvement in risk management, with oversight accomplished through the audit committee[414] - The company has three standing committees: Audit, Compensation, and Nominating, all composed of independent directors[419][421][422] - A Code of Business Conduct and Ethics has been adopted, applicable to all employees, officers, and directors[427] ITEM 11. EXECUTIVE COMPENSATION. Executive compensation consists primarily of base salary and benefits, with non-employee directors receiving cash and stock options - The Named Executive Officers (NEOs) for 2023 include Scott Wallace (CEO), Thomas Humble (CXO), Elliot Humble (CTO), Raymond Cole (CFO), and Emily Humble (CPO)[438] - Raymond Cole was appointed Chief Financial Officer in May 2023, with an annual base salary of $350,000[442] - Post-Business Combination, NEOs' employment agreements include a base salary, discretionary bonuses, a $2,000.00 per month automobile allowance, and other benefits[445] - ECD maintains a 401(k) plan, matching 100% of the first 3% and 50% of the next 2% of employee contributions[449] - The company adopted an Equity Incentive Plan, reserving 400,000 shares for awards[450][452] - Non-employee directors receive a cash payment of $12,500 per quarterly meeting and a one-time grant of stock options to purchase up to 15,000 shares[456] Summary Compensation Table (2023 vs. 2022) | Name | Title | Year | Salary | Bonus | Other Compensation | | :--- | :--- | :--- | :--- | :--- | :--- | | Elliot Humble | Chief Technology Officer | 2023 | $100,000 | $320,000 | $4,000 | | | | 2022 | $99,999 | $21,852 | $6,000 | | Scott Wallace | Chief Executive Officer and Director | 2023 | $125,000 | $425,000 | $5,200 | | | | 2022 | $130,000 | $23,900 | $7,200 | | Thomas Humble | Chief Experience Officer and Director | 2023 | $125,000 | $320,000 | $5,000 | | | | 2022 | $40,000 | $24,150 | $3,600 | | Raymond Cole | Chief Financial Officer | 2023 | $350,000 | - | - | | Emily Humble | Chief Product Officer and Director | 2023 | $130,000 | $320,000 | $5,000 | | | | 2022 | $80,000 | $10,400 | $4,000 | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Directors and executive officers as a group beneficially own 77.3% of outstanding common stock, indicating high ownership concentration - As of May 1, 2024, there were 31,899,633 shares of Common Stock outstanding[458] - 400,000 shares of Common Stock were authorized for issuance under the company's incentive plans as of December 31, 2023[461] Beneficial Ownership of Common Stock (as of May 1, 2024) | Name and Address of Beneficial Owner | Number of Shares of Common Stock | % | | :--- | :--- | :--- | | Emily Humble | 12,240,000 | 38.4% | | Thomas Humble | 5,280,000 | 16.6% | | Elliot Humble | 1,200,000 | 3.8% | | Scott Wallace | 5,280,000 | 16.6% | | Raymond Cole | - | - | | Patrick Lavelle | - | - | | Robert Machinist | - | - | | Thomas Wood | 50,000 | * | | Benjamin Piggott | 631,640 | 2.0% | | All directors and executive officers as a group (9 individuals) | 24,658,640 | 77.3% | | Five Percent Holders: Defender SPV LLC | 2,020,203 | 6.3% | (* Less than 1%) ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The company discloses related party transactions and has adopted a policy for their review and approval - EF Hutton Partners, LLC (Sponsor) initially purchased 3,450,000 founder shares for $25,000[462][463][464] - No Working Capital Loans or Extension Loans from the Sponsor were outstanding as of December 31, 2023[466][467] - ECD made payments of $196,425 (2023) and $247,193 (2022) to a transportation company owned by Thomas Humble's father[474] - ECD made payments of $51,996 (2022) to a company owned by Scott Wallace for administrative services[475] - A written Related Party Transactions Policy was adopted, requiring audit committee review for transactions exceeding $120,000[485][486][488][489][490][491] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. BF Borgers was appointed as the independent auditor for fiscal year 2023, with all services pre-approved by the audit committee - BF Borgers Certified Public Accountants P.C. was appointed as the independent registered public accounting firm for fiscal year 2023[493] - The Audit Committee's policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm[496] Independent Registered Public Accounting Firm Fees and Services (in thousands) | Fee Category | 2023 | 2022 | | :--- | :--- | :--- | | Audit Fees | $225 | $- | | Audit-Related Fees | $- | $- | | Tax Fees | $- | $- | | All Other Fees | $- | $- | | Total | $225 | $- | PART IV ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES. This section lists all documents filed as part of the report, including financial statements and exhibits - This item lists documents filed as part of the report, including an Index to Financial Statements and an Index to Exhibits[500] - The company's financial statements begin on page F-1 of this annual report[499][506] - Financial statement schedules have been omitted because the required information is included in the financial statements or the notes thereto[500]