Envirotech Vehicles(EVTV) - 2018 Q4 - Annual Report

PART I Business ADOMANI, Inc. designs and facilitates the manufacturing of zero-emission electric and hybrid drivetrain systems for commercial fleet vehicles, achieving its first significant revenue of $5.0 million in 2018 while continuing to operate at a net loss - The company's core business is designing advanced zero-emission electric and hybrid drivetrain systems for new commercial vehicles and as re-power conversion kits for existing combustion-powered vehicles[18] Financial Performance Snapshot (2017-2018) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Revenue | $5.0 million | Minimal | | Net Loss | $11.0 million | $21.9 million | - As of December 31, 2018, the company has shipped 22 drivetrain systems and has 34 additional systems in production for scheduled delivery in 2019[51] - The company has established key partnerships, including an exclusive supply agreement with Blue Bird for Type C and D school bus drivetrains and a manufacturing agreement with Efficient Drivetrains, Inc. (EDI), a subsidiary of Cummins[83][86] Market Overview and Drivers The electric commercial vehicle market is driven by stringent environmental regulations, climate change concerns, volatile fuel prices, and government incentives, with significant growth projected globally - Stricter emissions standards from the EPA, CARB, and international bodies are increasing the costs of traditional diesel power systems and driving adoption of alternative fuels[22] - The International Energy Agency (IEA) forecasts the global electric vehicle fleet will grow from 3.1 million in 2017 to 125 million by 2030, with government policy being a key driver[25] - Buses represent a promising near-term market for electrification due to public purchasing, lower fuel and maintenance costs, and significant environmental benefits, such as a 78 metric ton annual reduction in GHG emissions per electric bus compared to diesel[31][36] - The U.S. has 480,000 school buses, making it a significant potential market for electrification due to short, predictable routes and the health benefits of reducing children's exposure to tailpipe emissions[41] Business Strategy and Products ADOMANI's strategy focuses on expanding its sales network, forming manufacturing partnerships, securing government incentive approvals, and developing zero-emission electric drivetrain systems for commercial vehicles - Key strategies include developing an experienced sales staff, building dealership networks, seeking manufacturing partners, and obtaining approvals for incentive programs like the California HVIP[59] - The company's target customers are public and private fleet operators, including K-12 schools, universities, transit agencies, and package delivery companies[61] - Core products include zero-emission electric drivetrain systems for new vehicles and re-powering existing vehicles, as well as purpose-built zero-emission vehicles manufactured by OEM partners[62][64][65][66] Partnerships and Competition The company relies on strategic partnerships, including an exclusive agreement with Blue Bird, but faces the potential termination of a key manufacturing agreement with EDI and intense competition from established automotive and specialized EV manufacturers - ADOMANI has a three-year exclusive agreement to provide Blue Bird with zero-emission electric drivetrain systems for its Type C and D school buses[83] - The manufacturing agreement with Efficient Drivetrains, Inc. (EDI) is set to be terminated by its parent company, Cummins, effective May 30, 2019, with ADOMANI in discussions regarding future manufacturing[86] - The company faces competition from established automotive giants (Ford, GM, Mercedes-Benz) and specialized electric vehicle manufacturers (Proterra, Lion Electric, BYD, Motiv)[93] Governmental Programs and Regulation Government subsidies and incentives are crucial for customer purchasing decisions, with ADOMANI targeting programs like California's HVIP, while its products must comply with extensive environmental and safety regulations - The company's growth depends significantly on the availability of government subsidies and incentives, which are crucial for customers[98] - Key incentive programs include the California HVIP, offering vouchers up to $220,000 per new school bus, and the NYT-VIP, offering up to $150,000 per vehicle[100][101][104] - The company's products are subject to extensive government regulation, including EPA and NHTSA emission and fuel economy standards, the National Traffic and Motor Vehicle Safety Act, and battery safety testing protocols[118][119][122][124] Risk Factors The company faces significant risks including a history of net losses, dependence on market acceptance of electric vehicles, intense competition, reliance on third-party suppliers, and potential delisting from Nasdaq due to low stock price - The company has a history of losses, incurring net losses of $11.0 million in 2018 and $21.9 million in 2017, and may not achieve or sustain profitability[130] - Growth is highly dependent on market demand for zero-emission vehicles, which can be affected by perceptions of quality, cost, range limitations, and the availability of charging infrastructure[138][139] - The company faces intense competition from established manufacturers like Ford, Nissan, and Freightliner, who have substantially greater financial and operational resources[145] - Dependence on third-party suppliers for components creates risks of supply chain disruption, highlighted by the intended termination of the manufacturing agreement by Cummins/EDI effective May 30, 2019[165][168] - The company's common stock is at risk of being delisted from The NASDAQ Capital Market for failing to meet the minimum $1.00 per share bid price requirement, with an extension granted until August 12, 2019, to regain compliance[249] Unresolved Staff Comments This section is not applicable as the company has no unresolved staff comments - Not applicable[260] Properties The company's principal office is located in Corona, California, supplemented by additional leased office and storage spaces across several other California locations - The company's principal office is in Corona, California, with additional leased spaces in Los Altos, Pomona, Santa Ana, San Francisco, and Stockton, California[261] Legal Proceedings The company is involved in two significant legal proceedings: a lawsuit from its former CTO regarding equity ownership and a purported class action lawsuit alleging misleading statements in its 2017 Regulation A offering - The company is defending a lawsuit from its former CTO, Edward R. Monfort, concerning breach of contract and fraud related to equity, and has filed counterclaims[263] - A purported class action lawsuit has been filed against the company, alleging materially false and misleading statements in its June 2017 Regulation A offering documents[265] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[266] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ADOMANI's common stock trades on the Nasdaq Capital Market, with approximately 122 record holders as of February 7, 2019, and the company has never paid dividends, intending to retain earnings for growth - The company's common stock trades on Nasdaq under the symbol "ADOM"[267] - The company has never declared or paid dividends and does not plan to in the foreseeable future, retaining earnings for growth[269] Selected Financial Data This section is not applicable - Not applicable[272] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2018, ADOMANI generated $5.0 million in revenue, a significant increase from 2017, and reduced its net loss to $11.0 million due to lower stock-based compensation, with $7.7 million in cash and marketable securities supporting operations for the next eighteen months Results of Operations For the year ended December 31, 2018, sales dramatically increased to $5.0 million from $425,000 in 2017, primarily driven by sales to Blue Bird, leading to a reduced net loss of $11.0 million due to lower non-cash stock-based compensation expense Comparison of Operations (2018 vs. 2017) | In thousands | 2018 | 2017 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales | $5,011 | $425 | $4,586 | 1,079.1% | | Cost of goods sold | $4,878 | $479 | $4,399 | 918.4% | | Gross profit (loss) | $133 | $(54) | - | - | | Total operating expenses | $11,508 | $21,544 | $(10,036) | -46.6% | | Net loss | $(11,048) | $(21,903) | $10,855 | -49.6% | - The decrease in operating expenses was primarily due to an $8.6 million reduction in non-cash stock-based compensation expense, which fell from $15.0 million in 2017 to $6.4 million in 2018[298] Liquidity and Capital Resources As of December 31, 2018, the company held $3.8 million in cash and $3.9 million in marketable securities, bolstered by $9.8 million in net proceeds from a January 2018 public offering, which management believes is sufficient to fund operations for the next eighteen months Cash Flow Summary (in thousands) | Activity | 2018 | 2017 | | :--- | :--- | :--- | | Cash used in operating activities | $(4,511) | $(5,578) | | Cash used in investing activities | $(3,705) | $(614) | | Cash provided by financing activities | $9,529 | $7,700 | - In January 2018, a follow-on public offering of units raised gross proceeds of $11.0 million, resulting in net proceeds of approximately $9.8 million[320] - The company repaid the remaining $2.1 million balance of its 9% secured notes in January 2018 using proceeds from the follow-on offering[302][321] - As of December 31, 2018, the company had cash and cash equivalents of $3.8 million and short-term liquid marketable securities of $3.9 million[315] Quantitative and Qualitative Disclosures About Market Risk The company currently faces minimal market risks from interest rate fluctuations or foreign currency exchange, though future international expansion could introduce foreign currency exposure - The company does not currently face material market risks from interest rate fluctuations or foreign currency exchange[343] - Future international commercialization efforts, especially in China, may expose the company to foreign currency exchange rate risks[344] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2018 and 2017, including balance sheets, statements of operations, stockholders' equity, and cash flows, with an unqualified opinion from MaloneBailey, LLP Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Total Current Assets | $10,180 | $4,449 | | Total Assets | $10,833 | $5,322 | | Total Current Liabilities | $3,010 | $2,693 | | Total Liabilities | $3,229 | $2,982 | | Total Stockholders' Equity | $7,604 | $2,340 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Sales | $5,011 | $425 | | Gross Profit (Loss) | $133 | $(54) | | Loss from Operations | $(11,375) | $(21,598) | | Net Loss | $(11,048) | $(21,903) | | Net Loss Per Share | $(0.15) | $(0.33) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure during the period - None[456] Controls and Procedures The company's CEO and CFO concluded that disclosure controls and procedures were effective, and management also deemed internal control over financial reporting effective, with no material changes reported in Q4 2018 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[459] - Management concluded that the company's internal control over financial reporting was effective[460] Other Information There is no other information to report in this section - None[463] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's definitive proxy statement or an amendment to this Form 10-K, to be filed within 120 days of December 31, 2018 - Information is incorporated by reference from a future proxy statement filing[465] Executive Compensation Information for this item is incorporated by reference from the company's definitive proxy statement or an amendment to this Form 10-K, to be filed within 120 days of December 31, 2018 - Information is incorporated by reference from a future proxy statement filing[466] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's definitive proxy statement or an amendment to this Form 10-K, to be filed within 120 days of December 31, 2018 - Information is incorporated by reference from a future proxy statement filing[467] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's definitive proxy statement or an amendment to this Form 10-K, to be filed within 120 days of December 31, 2018 - Information is incorporated by reference from a future proxy statement filing[468] Principal Accounting Fees and Services Information for this item is incorporated by reference from the company's definitive proxy statement or an amendment to this Form 10-K, to be filed within 120 days of December 31, 2018 - Information is incorporated by reference from a future proxy statement filing[469] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements indexed under Item 8 and provides a detailed index of exhibits filed with the Annual Report, including corporate governance documents and material contracts - This section contains the index of financial statements and a list of all exhibits filed with the Form 10-K[471][472] Form 10-K Summary There is no Form 10-K summary provided - None[479]