
markdown [PART I. FINANCIAL INFORMATION](index=4&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) This section provides a comprehensive overview of the company's financial performance, position, and cash flows, along with detailed accounting policies and notes [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for ADOMANI, Inc. and its subsidiaries, including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, significant accounting policies, and specific financial line items for the period ended September 30, 2019 [Unaudited Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) This table presents the company's assets, liabilities, and stockholders' equity at specific points in time | ASSETS (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $3,068 | $3,759 | | Marketable securities | $4,778 | $3,949 | | Accounts receivable | $3,068 | $997 | | Total current assets | $13,001 | $10,180 | | Total assets | $13,604 | $10,833 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | | | | Accounts payable | $3,204 | $342 | | Line of credit | $4,950 | $1,700 | | Total current liabilities | $9,018 | $3,010 | | Total liabilities | $9,184 | $3,229 | | Stockholders' equity | $4,420 | $7,604 | [Unaudited Consolidated Statements of Operations](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations) This table details the company's revenues, costs, and net loss over specific reporting periods | (in thousands, except per share data) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Sales | $5,743 | $2,619 | $10,551 | $3,827 | | Cost of sales | $5,320 | $2,528 | $9,774 | $3,729 | | Gross profit | $423 | $91 | $777 | $98 | | Loss from operations | $(1,218) | $(1,525) | $(4,024) | $(9,996) | | Net loss | $(1,218) | $(1,481) | $(3,961) | $(9,742) | | Net loss per share (Basic and diluted)| $(0.02) | $(0.02) | $(0.05) | $(0.14) | [Unaudited Consolidated Statement of Stockholders' Equity](index=6&type=section&id=Unaudited%20Consolidated%20Statement%20of%20Stockholders%27%20Equity) This table outlines changes in the company's equity, including common stock, paid-in capital, and accumulated deficit | (in thousands, except shares) | Common Shares | Stock Amount | Additional Paid-In Capital | Accumulated Deficit | Stockholders' Equity | | :---------------------------- | :------------ | :----------- | :------------------------- | :------------------ | :------------------- | | Balance, December 31, 2018 | 72,732,292 | $1 | $61,628 | $(54,025) | $7,604 | | Common stock issued for services | 180,664 | — | $25 | — | $25 | | Stock based compensation | — | — | $730 | — | $730 | | Common stock issued for stock options exercised | 71,084 | — | $7 | — | $7 | | Net loss | — | — | — | $(3,961) | $(3,961) | | Balance, September 30, 2019 | 72,984,040 | $1 | $62,405 | $(57,986) | $4,420 | [Unaudited Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) This table summarizes the cash inflows and outflows from operating, investing, and financing activities | (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------- | :----------------------------- | :----------------------------- | | Net loss | $(3,961) | $(9,742) | | Net cash used in operating activities | $(3,069) | $(4,093) | | Net cash provided by (used in) investing activities | $(879) | $229 | | Net cash provided by financing activities | $3,257 | $9,229 | | Net change in cash and cash equivalents | $(691) | $5,365 | | Cash and cash equivalents at end of period | $3,068 | $7,811 | [Notes to Unaudited Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements [1. Organization and Operations](index=8&type=section&id=1.%20Organization%20and%20Operations) This note describes ADOMANI's business, including its products and strategic objectives - ADOMANI, Inc. designs and provides **zero-emission electric drivetrain systems** for new school buses and medium to heavy-duty commercial fleet vehicles, **re-power conversion kits** for combustion vehicles, and new **zero-emission electric vehicles**, aiming to help fleet operators with green technology and regulatory compliance[28](index=28&type=chunk) [2. Summary of Significant Accounting Policies](index=8&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the financial statements - The financial statements are unaudited and prepared in accordance with GAAP, consolidating ADOMANI, Inc. and its subsidiaries. Revenue recognition follows ASC Topic **606**, with an **unexpected adjustment** related to DOE work recognized in **Q3 2019** after the Blue Bird supply agreement and DOE grant participation terminated in **May 2019**[29](index=29&type=chunk)[30](index=30&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - Trade accounts receivable **increased significantly** from **$997k** at Dec **31, 2018**, to **$3.068M** at Sep **30, 2019**, with **no allowance for bad debt** due to the single, credit-worthy customer[39](index=39&type=chunk) - Research and development costs **decreased significantly**, from **$641k** for the nine months ended September **30, 2018**, to **$158k** for the same period in **2019**, primarily due to the timing of expenditures[45](index=45&type=chunk) [3. Property and Equipment, Net](index=11&type=section&id=3.%20Property%20and%20Equipment%2C%20Net) This note details the company's property and equipment, including depreciation and recent transfers | Components (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :------------------------ | :----------- | :----------- | | Total property and equipment | $237,436 | $217,868 | | Less accumulated depreciation | $(103,691) | $(67,777) | | Net property and equipment | $133,745 | $150,091 | - In June **2019**, Ebus, Inc. transferred property **valued at approximately $7,000** to the Company, reducing the **outstanding promissory note balance**[50](index=50&type=chunk)[52](index=52&type=chunk) [4. Notes Receivable](index=11&type=section&id=4.%20Notes%20Receivable) This note describes the company's outstanding notes receivable, including loan details and allowances - A **$500,000** loan to Ebus, Inc. **defaulted** on September **30, 2018**, leading to a **$200,000** allowance for bad debt and the transfer of **$7,000** in vehicles to **reduce the note**[52](index=52&type=chunk) - The Company also has a **$200,000 secured promissory note** (plus an additional **$38,000** loan in **May 2019**) with an energy storage technology company, **convertible into preferred stock** of the borrower[53](index=53&type=chunk) [5. Debt](index=12&type=section&id=5.%20Debt) This note provides information on the company's debt obligations, specifically its line of credit - As of September **30, 2019**, the Company had **approximately $5 million principal outstanding** on its variable-interest line of credit with Morgan Stanley, secured by cash and cash equivalents, with **approximately $2 million** in **undrawn borrowing availability**[55](index=55&type=chunk) [6. Common Stock](index=12&type=section&id=6.%20Common%20Stock) This note details the company's common stock activities, including public offerings and shares issued - In January **2018**, the Company completed a public offering of **3,666,667 units**, generating **approximately $9.8 million** in **net proceeds**[56](index=56&type=chunk) - As of September **30, 2019**, **180,664 shares** of common stock were **issued to a consultant** as part of their monthly compensation[58](index=58&type=chunk) [7. Stock Warrants](index=12&type=section&id=7.%20Stock%20Warrants) This note provides information on outstanding stock warrants, including exercise prices and contractual lives | Stock Warrants | Number of Shares | Average Exercise Price | Average Remaining Contractual Life (years) | | :------------- | :--------------- | :--------------------- | :----------------------------------------- | | Outstanding at Sep 30, 2019 | 7,556,323 | $4.45 | 3.0 | | Exercisable at Sep 30, 2019 | 7,556,323 | $4.45 | 3.0 | - As of September **30, 2019**, all **outstanding warrants** had **no intrinsic value**[59](index=59&type=chunk) [8. Stock-Based Compensation](index=13&type=section&id=8.%20Stock-Based%20Compensation) This note explains the company's stock-based compensation plans and related expenses - **Stock-based compensation expense decreased significantly** from **$6.1 million** for the nine months ended September **30, 2018**, to **$730,192** for the same period in **2019**[65](index=65&type=chunk) - Options to purchase **1,095,000 shares** of common stock were granted to employees and directors in **April 2019**, with an exercise price of **$0.45** per share and a fair market value of **$205,118**[64](index=64&type=chunk) - As of September **30, 2019**, **outstanding options** to purchase **14,297,902 shares** of common stock attributable to the former CTO, Edward R. Monfort, **remained suspended and unexercisable**[62](index=62&type=chunk) [9. Commitments](index=13&type=section&id=9.%20Commitments) This note outlines the company's contractual obligations, including operating leases and employment contracts | Contractual Commitments (as of Sep 30, 2019) | Total | Less than one year | 1 - 3 years | 4 - 5 years | | :------------------------------------------- | :------------ | :----------------- | :------------ | :------------ | | Operating lease obligations | $413,643 | $117,771 | $243,072 | $52,800 | | Employment contracts | $1,984,000 | $512,000 | $874,000 | $598,000 | | **Total** | **$2,397,643**| **$629,771** | **$1,117,072**| **$650,800** | - The Company renewed its CEO's employment agreement for **five years** with an **annual base salary of $294,000**, **effective September 16, 2019**[73](index=73&type=chunk) - A month-to-month facility-sharing arrangement with Ebus in Downey, California, requires monthly reimbursements of **approximately $10,600** for R&D, assembly, and storage[71](index=71&type=chunk) [10. Contingencies](index=14&type=section&id=10.%20Contingencies) This note describes potential liabilities arising from legal proceedings and other uncertain events - The Company is **vigorously defending** a lawsuit filed by former CTO Edward R. Monfort alleging breach of contract, fraud, and equity ownership disputes, with a **motion for summary judgment** scheduled for October **31, 2019**[74](index=74&type=chunk) - A **purported class action lawsuit** alleging materially false and misleading statements in the **2017** Regulation A offering is proceeding to **preliminary discovery** after the court overruled defendants' joint demurrer to the third amended complaint[76](index=76&type=chunk) - An investor, Alan Brooks, filed a lawsuit **seeking $13.5 million in damages**, **alleging breach of contract, fraud, and other violations** related to the **non-release of common stock shares**[77](index=77&type=chunk) [11. Subsequent Events](index=15&type=section&id=11.%20Subsequent%20Events) This note discloses significant events that occurred after the reporting period but before financial statement issuance - On October **4, 2019**, **$680,000** was **transferred to reduce the principal balance** on the Morgan Stanley line of credit, resulting in a **new balance of $4.3 million** and **$6.65 million in maximum available borrowing**[78](index=78&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of the Company's business, discusses key factors influencing its performance, details the components of its financial results, and analyzes its liquidity and capital resources - As of September **30, 2019**, the Company had **$3.1 million** in cash and cash equivalents and **$4.8 million** in marketable securities, which management believes will be **sufficient to fund operations** for the next **12 months**, though additional capital may be needed if the business plan is not successfully executed[107](index=107&type=chunk) - The Company has a **backlog** of **three zero-emission electric school buses**, **eight drivetrain systems**, **four zero-emission cargo vans**, **10 zero-emission Class 4 trucks**, and **10 e-trikes**[107](index=107&type=chunk) - The Company's line of credit with Morgan Stanley had a **principal outstanding of approximately $5 million** and **undrawn availability of approximately $2 million** as of September **30, 2019**, which was subsequently reduced to **approximately $4.3 million** outstanding with **approximately $6.65 million** available after a **$680,000** transfer on October **4, 2019**[114](index=114&type=chunk)[78](index=78&type=chunk) [Overview](index=16&type=section&id=Overview) This section provides a high-level summary of ADOMANI's business model, products, and financial performance trends - ADOMANI designs **zero-emission electric drivetrain systems** and **re-power conversion kits** for school buses and commercial fleet vehicles, and provides new **zero-emission electric vehicles**, with plans to expand product offerings and international sales through OEM partners[81](index=81&type=chunk)[83](index=83&type=chunk) | Net Loss (in millions) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Loss | $(1.2) | $(1.5) | $(4.0) | $(9.7) | [Factors Affecting Our Performance](index=16&type=section&id=Factors%20Affecting%20Our%20Performance) This section discusses the critical internal and external elements that influence the company's operational and financial outcomes - Key performance factors include the ability to attract new customers amidst competition, overcome financing barriers and inadequate electrical infrastructure, and manage increased operating expenses from investments in R&D, manufacturing, sales, and marketing[85](index=85&type=chunk)[86](index=86&type=chunk) - The Company's success depends on establishing a robust dealer and service network with appropriately trained technicians for **zero-emission electric drivetrain systems**, as well as the continued availability of government subsidies for electric vehicle purchases[88](index=88&type=chunk)[89](index=89&type=chunk) - Future growth is anticipated from expanding product offerings through OEM partnerships and entering additional geographic markets, particularly internationally in regions like China, Malaysia, and the Philippines[90](index=90&type=chunk)[91](index=91&type=chunk) [Components of Results of Operations](index=17&type=section&id=Components%20of%20Results%20of%20Operations) This section breaks down the key revenue and expense categories that constitute the company's financial results - Sales are recognized from **zero-emission electric drivetrain systems**, new electric vehicles, **re-power conversion kits**, and engineering services, in accordance with ASC Topic **606**[92](index=92&type=chunk) - Cost of sales includes material, freight, labor, and other costs related to product development, manufacturing, distribution, and inventory valuation adjustments[93](index=93&type=chunk) - General and administrative expenses encompass corporate, personnel, stock-based compensation, investor relations, warranty, and marketing costs[94](index=94&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance over specific periods, highlighting sales, costs, and expenses | Financial Metric (in millions) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | | :----------------------------- | :------ | :------ | :------ | :------ | | Sales | $5.7 | $2.6 | $10.6 | $3.8 | | Cost of Sales | $5.3 | $2.5 | $9.8 | $3.7 | | General and Administrative Expenses | $1.6 | $1.5 | $4.4 | $9.3 | | Consulting Expenses | $0.066 | $0.038 | $0.220 | $0.133 | | Research and Development Expenses | $0.010 | $0.045 | $0.158 | $0.641 | - Sales for both the three and nine months ended September **30, 2019**, primarily consisted of products and services sold to Blue Bird Corporation, with an **unexpected adjustment** related to DOE work recognized in **Q3 2019**[99](index=99&type=chunk) - General and administrative expenses for the nine months ended September **30, 2019**, **decreased by $4.9 million**, primarily due to a **$5.3 million decrease** in non-cash stock-based compensation expense compared to the prior year[103](index=103&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to generate and manage cash, fund operations, and meet its financial obligations [Cash Flows](index=20&type=section&id=Cash%20Flows) This section details the sources and uses of cash from operating, investing, and financing activities | Cash Flow Activity (in millions) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(3.961) | $(9.742) | | Net cash used in operating activities | $(3.1) | $(4.1) | | Net cash provided by (used in) investing activities | $(0.9) | $0.2 | | Net cash provided by financing activities | $3.3 | $9.2 | | Net change in cash and cash equivalents | $(0.7) | $5.4 | - Net cash used in operating activities **decreased by approximately $1 million**, from **$4.1 million** in **2018** to **$3.1 million** in **2019**, **primarily due to reduced operating losses and changes in working capital**[120](index=120&type=chunk)[121](index=121&type=chunk) - Net cash provided by financing activities **decreased by approximately $6 million**, from **$9.2 million** in **2018** (**driven by a public offering**) to **$3.2 million** in **2019** (**primarily from the line of credit**)[124](index=124&type=chunk)[125](index=125&type=chunk) [Contractual Obligations](index=22&type=section&id=Contractual%20Obligations) This section outlines the company's future payment commitments under various agreements - There were **no material changes** to contractual obligations from the prior Annual Report on Form **10-K**, and Blue Bird Corporation **assumed all warranty liabilities** for drivetrain systems sold prior to the termination of their supply agreement on **May 31, 2019**[127](index=127&type=chunk)[128](index=128&type=chunk) [Off-Balance Sheet Arrangements](index=22&type=section&id=Off-Balance%20Sheet%20Arrangements) This section discloses any financial arrangements that are not recognized on the company's balance sheet - The Company did not have any **off-balance sheet arrangements** during the periods presented and does not currently have any[129](index=129&type=chunk) [Contingencies](index=22&type=section&id=Contingencies) This section addresses potential future liabilities arising from uncertain events, such as legal disputes - Management assesses contingent liabilities related to legal proceedings, **accruing estimated liabilities when probable and estimable**, and **disclosing reasonably possible losses**[130](index=130&type=chunk) [Stock-Based Compensation](index=22&type=section&id=Stock-Based%20Compensation) This section explains the accounting treatment and impact of equity awards on the company's financial statements - The cost of services received for equity instrument awards is **measured at fair value on the grant date** and **recognized over the vesting period**[131](index=131&type=chunk) [Fair Value Measurement](index=22&type=section&id=Fair%20Value%20Measurement) This section describes how the company measures the fair value of its financial instruments - The **carrying values of short-term financial instruments** like cash, notes receivable, and accounts payable **approximate their fair value**, and the Company does **not have assets or liabilities measured at fair value on a recurring basis**[132](index=132&type=chunk)[133](index=133&type=chunk) [Jumpstart Our Business Startups Act of 2012 ("JOBS Act")](index=23&type=section&id=Jumpstart%20Our%20Business%20Startups%20Act%20of%202012%20%28%22JOBS%20Act%22%29) This section explains the company's status as an emerging growth company and its election regarding accounting standards - As an "**emerging growth company**" under the JOBS Act, ADOMANI has **elected not to use the extended transition period** for new accounting standards but **relies on other exemptions**, such as **reduced reporting requirements**[135](index=135&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) This section addresses the Company's exposure to market risks, specifically interest rate risk and foreign currency exchange rate risk, concluding that it does not currently face material market risks - The Company is exposed to interest rate risk on its **variable-rate line of credit**; a **hypothetical 10% adverse movement** in **30-day LIBOR** would **increase annual interest expense** by **approximately $8,700** based on the October **4, 2019** outstanding balance[138](index=138&type=chunk) - While **most expenses are USD-denominated**, **future international commercialization efforts** may **expose the Company to foreign currency exchange rate risk**, particularly with the Chinese Yuan, though anticipated matching of foreign sales and costs may **mitigate this**[140](index=140&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures, concluding their effectiveness, and reports no material changes in internal control over financial reporting during the period - Management, with CEO and CFO participation, **concluded that the Company's disclosure controls and procedures were effective** as of September **30, 2019**, **ensuring timely and accurate reporting**[141](index=141&type=chunk) - There were **no changes in internal control over financial reporting** during the nine months ended September **30, 2019**, that **materially affected** or are **reasonably likely to materially affect** the Company's internal control over financial reporting[142](index=142&type=chunk) [PART II. OTHER INFORMATION](index=25&type=section&id=Part%20II.%20OTHER%20INFORMATION) This section details legal proceedings, updated risk factors, and other required disclosures for the reporting period [ITEM 1. LEGAL PROCEEDINGS](index=25&type=section&id=Item%201.%20Legal%20Proceedings) This section outlines the material legal proceedings against the Company, including lawsuits from a former CTO, a purported class action, and an investor, all of which the Company believes are without merit and intends to vigorously defend - The Company is defending against a lawsuit by former CTO Edward R. Monfort, alleging breach of contract and fraud, and has **filed counterclaims**[147](index=147&type=chunk) - A **class action lawsuit**, M.D. Ariful Mollik v. ADOMANI, Inc. et al., alleging false and misleading statements in a **2017** offering, is proceeding to **preliminary discovery**[148](index=148&type=chunk) - Investor Alan Brooks filed a complaint **seeking $13.5 million in damages**, **alleging breach of contract, fraud, and other violations** related to the **non-release of common stock shares**[150](index=150&type=chunk) [ITEM 1A. RISK FACTORS](index=27&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors, primarily focusing on the recent delisting of the Company's common stock from NASDAQ and its transition to trading on the OTCQB Venture Market, and the potential adverse consequences for stockholders - ADOMANI's common stock was **delisted from NASDAQ** on August **22, 2019**, due to **failure to comply with the minimum bid price requirement**, and now **trades on the OTCQB Venture Market** under the symbol 'ADOM'[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk) - **Trading on the OTC Markets could lead to significant adverse consequences** for stockholders, including **limited market quotations**, **reduced liquidity**, and a **decreased ability** for the Company to **issue additional securities or obtain future financing**[156](index=156&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds during the reporting period - **None**[156](index=156&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=27&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities during the reporting period - **None**[157](index=157&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the Company - **Not applicable**[158](index=158&type=chunk) [ITEM 5. OTHER INFORMATION](index=27&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report - **None**[159](index=159&type=chunk) [ITEM 6. EXHIBITS](index=28&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including employment agreements, certifications, and XBRL documents - **Exhibits include** the **Employment Agreement with James L. Reynolds**, Rule **13a-14(a)/15d-14(a) Certifications of the CEO and CFO**, **18 U.S.C. Section 1350 Certifications**, and various **XBRL Taxonomy Extension Documents**[161](index=161&type=chunk) [SIGNATURES](index=29&type=section&id=Signatures) This section contains the official certifications and signatures of the company's principal executive and financial officers - The report was **duly signed** on October **24, 2019**, by James L. Reynolds, President and Chief Executive Officer, and Michael K. Menerey, Chief Financial Officer[169](index=169&type=chunk)[170](index=170&type=chunk)