As filed with the Securities and Exchange
Commission on October 16, 2017.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
ADOMANI, INC.
(Exact name of registrant as specified in its charter)
Delaware
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3714
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46-0774222
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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4740 Green River Road, Suite 106
Corona, California 92880
(949) 200-4613
(Address, including zip code, and telephone
number, including area code, of registrant’s principal executive offices)
Michael K. Menerey
Chief Financial Officer
4740 Green River Road, Suite 106
Corona, California 92880
(949) 200-4613
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copy of all communications to:
Michael A. Hedge
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Andrew D. Thorpe, Esq.
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Matthew A. Susson
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Melissa V. Frayer, Esq.
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K&L Gates LLP
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Orrick, Herrington & Sutcliffe LLP
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1 Park Plaza, Twelfth Floor
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The Orrick Building
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Irvine, California 92614
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405 Howard Street
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(949) 253-0900
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San Francisco, California 94105
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(415) 773-5700
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Approximate date of commencement of proposed
sale to the public
:
As soon as practicable after the effective
date of this registration statement.
If any of the securities
being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box.
☒
If this Form is filed
to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
☐
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
☐
If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
☐
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
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Accelerated filer
☐
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
☐
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Emerging growth company
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If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.
☒
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
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Proposed
Maximum
Aggregate
Offering
Price(1)(2)
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Amount of
Registration
Fee(1)
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Units, each consisting of one share of common stock, par value $0.00001 per share, and a warrant to purchase share of common stock
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$
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$
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Common stock included in the units(3)
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$
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—
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$
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—
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Warrants included in the units(4)
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$
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—
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$
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—
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Common stock underlying the warrants included in the units(3)
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$
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$
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Total:
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$
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103,500,000
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$
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12,887
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(1)
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Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended, or the Securities Act.
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(2)
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Includes the offering price of additional Units that may be sold to investors upon the exercise of the underwriter’s over-subscription option.
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(3)
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Pursuant to Rule 416 under the Securities Act, the securities being registered hereunder include such indeterminate number of securities as may be issuable with respect to the securities being registered hereunder as a result of stock splits, stock dividends or similar transactions.
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(4)
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No additional registration fee is required pursuant to Rule 457(g) under the Securities Act.
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The registrant hereby
amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may determine.
The preliminary prospectus
is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.
Subject
to completion, dated
,
2017
PRELIMINARY
Prospectus
Minimum Offering of
Units
Maximum Offering of
Units
Each Unit Consisting of One Share of
Common Stock and
A Warrant to Purchase
Share
of Common Stock
__________________________
We are offering hereby
a minimum of Units
and a maximum of
Units on a “best efforts” basis. Each Unit consists of one share of our Common Stock, $0.00001 par value per share,
and a warrant to purchase
share of our Common Stock. Each warrant will have an exercise price of $
per share, will be exercisable beginning the
date of issuance and will expire years
from the date of issuance. The Common Stock and warrants are immediately separable and will be issued separately.
Until the underwriter
sells at least
Units, funds received from the offering will be deposited into an interest bearing escrow account pending the closing of the offering
in accordance with Rule 15c2-4 of the Securities Exchange Act of 1934, as amended. If the underwriter does not sell at least
Units within days
after the date this registration statement becomes effective with the Securities and Exchange Commission, all funds will be promptly
returned to investors with interest and without deduction.
Our Common Stock is
listed on the NASDAQ Capital Market under the symbol “ADOM.” On October 13, 2017, the last reported sale price for
our Common Stock on the NASDAQ Capital Market was $6.86 per share. There is no established public trading market for the offered
warrants and we do not expect a market to develop. In addition, we do not intend to apply to list the warrants on the NASDAQ Capital
Market or any other national securities exchange or other nationally recognized trading system.
Investing in the
securities involves a high degree of risk. See “Risk Factors” beginning on page 9 of this prospectus for a discussion
of information that you should consider before investing in our securities.
We are an “emerging
growth company” under the federal securities laws and have elected to take advantage of certain reduced public company reporting
requirements for this prospectus and future filings.
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Per Unit
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Total
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Public offering price
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$
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$
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Underwriting discounts and commissions
(1)
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Proceeds to us, before expenses
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_____________________
(1) See “Underwriting” for additional information
regarding compensation payable to the underwriter.
In addition, we have
granted our underwriter an over-subscription option to sell up to an additional Units
at the public offering price within 30 days from the date of this prospectus.
Neither the Securities
and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is ,
2017.
TABLE OF CONTENTS
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Page
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Prospectus Summary
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1
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The Offering
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7
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Risk Factors
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9
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Special Note Regarding Forward-Looking Statements
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34
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Use of Proceeds
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35
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Market for Registrant’s Common Stock and Related Stockholder Matters
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36
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Capitalization
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37
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Dilution
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39
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Selected Consolidated Financial Data
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40
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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42
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Business
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54
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Management
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72
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Executive Compensation
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78
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Security Ownership of Certain Beneficial Owners and Management
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84
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Certain Relationships and Related Party Transactions
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86
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Description of Capital Stock
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87
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Material U.S. Federal Income Tax Considerations
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92
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Underwriting
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98
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Legal Matters
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100
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Experts
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100
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Where You Can Find Additional Information
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100
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Index to Financial Statements
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F-1
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ABOUT THIS PROSPECTUS
You should rely only
on the information contained in this prospectus or in any free writing prospectus that we may specifically authorize to be delivered
or made available to you. We have not authorized anyone to provide you with any information other than that contained in this prospectus
or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and
can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be
used where it is legal to offer and sell our securities. The information in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or any sale of securities. Our business, financial condition,
results of operations and prospects may have changed since that date. We are not making an offer of these securities in any jurisdiction
where the offer is not permitted.
Unless otherwise indicated,
information contained in this prospectus concerning our industry, including our market opportunity, is based on information from
independent industry analysts, market research, publicly available information and industry publications. The third party sources
from which we have obtained information are generally believed to be reliable, but we cannot assure you that such information is
accurate or complete. Management estimates contained in this prospectus are based on assumptions made by us using our internal
research data and our knowledge of such industry and market, including reference to publicly available information released by
independent industry analysts and third party sources, which we believe to be reasonable. In addition, while we believe the market
opportunity information included in this prospectus is generally reliable and is based on reasonable assumptions, such data involves
risks and uncertainties and is subject to change based on various factors, including those discussed under the heading “Risk
Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates.
See “Special Note Regarding Forward-Looking Statements.”
For investors outside
the United States: We have not done anything that would permit this offering or possession or distribution of this prospectus in
any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States
who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering
of securities and the distribution of this prospectus outside the United States.
As used in this prospectus,
unless the context otherwise requires, the terms “ADOMANI,” “Company,” “we,” “us,”
“our” and “our company” mean ADOMANI, Inc., a Delaware corporation, and our predecessor, ADOMANI, Inc.,
a Florida corporation, and where appropriate, their respective consolidated subsidiaries.
ADOMANI and the ADOMANI
logo and our other trademarks, service marks and trade names appearing in this prospectus are the property of ADOMANI, Inc. Other
trademarks and trade names referred to in this prospectus are the property of their respective owners. Solely for convenience,
the trademarks and trade names in this prospectus are referred to without the symbols ® and ™, but such references should
not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their
rights thereto.
PROSPECTUS
SUMMARY
This summary highlights
selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the
information you should consider before investing in our securities. You should read this entire prospectus carefully, including
the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus,
before making an investment decision.
Overview
We are a provider of
advanced zero-emission electric and hybrid vehicles and replacement drivetrains that is focused on reducing the total cost of vehicle
ownership. Our drivetrain systems are designed to help fleet operators unlock the benefits of green technology and address the
challenges of traditional fuel price cost instability and local, state and federal environmental regulatory compliance.
We design advanced
zero-emission electric and hybrid drivetrain systems for integration in new school buses and medium to heavy-duty commercial fleet
vehicles. We also design patented conversion kits to replace conventional drivetrain systems for combustion powered vehicles with
zero-emission electric or hybrid drivetrain systems. The hybrid drivetrain systems are available in both an assistive hybrid format
and a full-traction format for use in private and commercial fleet vehicles of all sizes. We seek to expand our product offerings
to include the sale of zero-emission systems in vehicles manufactured by outside original equipment manufacturer, or OEM, partners,
but to be marketed, sold, warrantied and serviced through our developing distribution and service network. We refer to these product
offerings collectively as “our zero-emission systems” throughout the remainder of this prospectus.
Market Overview
Concerns regarding
climate change and other environmental considerations have led to the implementation of laws and regulations that restrict, cap,
or tax emissions in the automotive industry and throughout other industries. In particular, Environmental Protection Agency,
or EPA, Tier 4 emission standards, California Air Resources Board, or CARB, regulations, and recently implemented policies in Europe,
generally referred to as Stage I, II, III and IV regulations, are requiring a significant reduction in the level of emissions and
particulate matter produced by diesel power systems. These regulations are taking effect and are expected to increase both
the cost and size of emission-compliant diesel power products, primarily due to the need to incorporate additional combustion and
after-treatment components.
A variety of market
factors are contributing to the increased use of alternative fuels and growth of alternative fuel technology, including economics,
energy independence, environmental concerns, and the widespread availability of alternative fuels. As the price of crude oil
remains volatile and the threat of climate change and air pollution remain public concerns, the search for more cost effective
and cleaner fuels has become more important. Electricity has emerged as one solution to these challenges. The price of
alternative fuels such as electricity is substantially less than diesel or gasoline, and alternative fuels produce lower amounts
of toxic greenhouse gases.
Market Drivers
A number of factors
impact both the supply and demand for various types of electric vehicles and we believe that we are well positioned to benefit
as a result of these driving forces.
We believe prominent
drivers of supply include:
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The cost and availability of energy storage technologies, specifically the cost and capacity of rechargeable lithium ion batteries;
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Grants, loans, tax breaks, and other financial support available for energy storage and electric vehicle research and development;
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Requirements that a specific percentage of automakers’ models be electric or other zero-emission vehicles; and
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Fuel economy standards that require automakers to meet certain fleet-wide benchmarks.
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We believe prominent
drivers of demand include:
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Mandates that government fleets purchase certain percentages of low emission, energy efficient, or alternative fuel vehicles;
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Mandates for transport agencies or school districts to purchase or convert to electric or other alternative fuel vehicles;
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Rebates, tax credits, and other incentives for purchasing or leasing electric or other alternative fuel vehicles;
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The availability of charging stations and other charging infrastructure, driven in turn by government funding, tax credits, rebates, and other incentives aimed at increasing the number of charging stations;
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The cost of electricity to recharge plug-in electric vehicles, or PEVs, impacted by special rates introduced by utilities;
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Preferential treatment in registration, emissions testing, and access to highways, city centers, and high occupancy vehicle, or HOV, lanes; and
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The cost of conventional diesel or gasoline and the resultant incremental costs of owning and operating an electric vehicle versus a conventionally fueled equivalent.
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Fleet Operator Challenges
In addition, fleet
operators and their companies face a number of challenges, including:
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Difficulty complying with existing and new federal and state emission restrictions and compliance requirements;
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Finding cost savings while managing high fuel, maintenance and repair costs;
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Extending the lives of existing vehicles;
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Difficulty planning for the operation of their fleet when fuel supplies are interrupted, such as during a natural disaster; and
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Difficulty in improving the environment around these heavy-duty commercial fleets.
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Our Solution
We design advanced
zero-emission electric and hybrid vehicles and replacement drivetrain systems that improve fuel economy and reduce emissions. Our
drivetrain systems are designed to help vehicles run more efficiently and cost effectively. Specifically, we enable our customers
to:
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Add Emission-Compliant ADOMANI Vehicles and Drivetrain Systems to Their Fleets
. Our commercial fleet vehicles and drivetrain systems are designed to reduce or eliminate the use of traditional fuels that create greenhouse gases and particulate matter.
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Reduce Total Cost of Ownership
. Our technology is designed to reduce fuel budgets by eliminating or reducing the reliance on traditional petroleum-based fuels, instead using the more energy efficient and less variably priced grid-provided electricity.
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Prolong Lives of Existing Vehicles
. Zero-emission electric and hybrid vehicles generally have lower maintenance costs. These reduced maintenance costs may take the form of longer service intervals between brake system maintenance, reduction or elimination of internal combustion engine oil and oil filter changes, reduction or elimination of transmission oil and oil filter changes, reduction or elimination of air filter changes, reduction or elimination of emissions systems services, reduction or elimination of diesel emission fluid use, elimination of emissions tests on traditional fuel vehicles (if converted to a zero-emission electric drivetrain) and the elimination of certification tests of high pressure tanks on propane, liquefied natural gas and compressed natural gas powered vehicles (if converted to a zero-emission electric drivetrain).
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Plan for Natural Disasters When Fuel Supply May be Interrupted
. Our zero-emissions systems can serve as on-site emergency back-up energy storage if grid power becomes intermittent or fails temporarily during natural or man-made disasters.
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Improve the Environment Around Vehicles
. As a result of our zero-emission systems, drivers, operators, customers and the communities they serve have healthier environments in and around these vehicles.
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Our Strengths
We believe the following
attributes and capabilities provide us with long-term competitive advantages:
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Product Diversity
. We have multiple product offerings including zero-emission electric and hybrid drivetrains, new purpose-built zero-emission electric vehicles and stationary energy storage solutions and, as a result, the ability to scale-up, scale-down or refine a specific product line in response to market demands and the evolving local, state and federal incentive programs. Also, within each product area, we have multiple suppliers of key drivetrain components, allowing price flexibility both for our final products and replacement parts required over the product lifespan. This allows us to meet the expectations and budget constraints of public or private commercial fleet operators.
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Regulatory Agency Familiarity
. By taking an active role in many trade industry groups and related events, we have developed and continually strive to maintain strong relationships with key local, state and federal regulatory agencies involved in the growing zero-emission and hybrid vehicle industry. To meet their own aggressive emissions targets, these regulatory agencies have encouraged the growth of zero-emission electric vehicles and hybrid drivetrains, especially in connection with heavy-duty commercial fleets.
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Relationships with Purchasers
. To help shorten the sales cycles for our products, we have identified and built relationships with key commercial operators that have purchasing authority or influence over their organizations. We are also able to leverage past sales and marketing relationships that were built by our experienced management team.
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Additional Sales Potential
. We have additional sales potential with commercial fleet customers. These potential additional sales could include: automated charging infrastructure, intelligent stationary energy storage systems that enable higher levels of vehicle fast-charging, emergency back-up facility power for use during grid power outages, enabling technologies to access the developing grid-connected opportunities for the aggregate power available from groups of large battery packs, or enabling technologies that allow for the avoidance of electric utility demand charges.
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Unique Market Knowledge
. We have specific and unique sales cycle knowledge based on the over 30 years of experience of our management team.
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Our Strategy
We intend to capitalize
on these opportunities by pursuing the following key strategies:
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Develop Sales Staff
. We plan to hire and train our initial sales staff to complement our current group. Training will include familiarizing them with the many and varied funding options available, and how to access those opportunities, or help our customers access them.
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Build Dealership Networks
. We intend to build third party dealership networks for the local sales and service of ADOMANI zero-emission replacement drivetrain vehicles and new purpose-built zero-emission electric and hybrid commercial vehicles either manufactured by or for us.
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Develop Third Party Relationships
. We plan to complete existing negotiations with partners and seek additional partners for the manufacture of our zero-emission systems.
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Provide Demonstrations
. We will seek out and respond to local, state and federal pilot demonstration opportunities in interest areas for which we have relevant current product offerings or, in areas of interest that are congruent with products that are on our product development roadmap but still in early stage development.
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Obtain Approvals From Incentive Programs
. We will seek to have our products approved for various local, state and federal vehicle designations and incentive programs, like the California Heavy Duty Voucher Incentive Project administered by the CARB, meant to accelerate the purchase of cleaner, more efficient trucks and buses in California.
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Develop an Intellectual Property Portfolio, License Our Technology and Enter into Strategic Collaborations
. We plan to build upon our existing intellectual property, knowledge base and patent portfolio while seeking opportunities to license, white-label and collaborate with strategic partners that can provide unique and complementary products and technology.
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Grow Our Manufacturing, Installation and Service Capability
. As facility space and technician time requirements at partners are exceeded, we intend to expand or relocate to larger ADOMANI-owned or leased facilities dedicated to the manufacture, installation and service of our zero-emission systems.
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Introduce New Products
. As new markets develop, we plan to expand our zero-emission systems into ancillary product verticals, such as charging infrastructure also called Electric Vehicle Service Equipment, stationary energy storage, vehicle-to-grid hardware and capabilities.
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Develop Our International Business
. We plan to develop our business internationally. For example, we intend to pursue opportunities in China through our wholly-owned subsidiary, Adomani (Nantong) Automotive Technology Co. Ltd., or ADOMANI China. While we believe that China is an important market for us due in part to its publicly announced emphasis on hybrid and all-electric vehicles and large population, we remain in the early stages of the development of our business plan to pursue such opportunities, including the consideration of a proposal to develop an 18,000 square foot facility in Nantong, China to fulfill conversion kit orders within China, and continue to assess the logistics and costs associated with the production and sale of our zero-emission drivetrains into China.
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Selected
Risks Associated with Our Business and Industry
An
investment in our securities involves a high degree of risk. You should carefully consider the risks summarized below. These risks
are discussed more fully in the “Risk Factors” section immediately following this Prospectus Summary. These risks include,
but are not limited to, the following:
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we may not successfully execute our business plan to generate revenue in 2017 and create a sustainable growth trajectory;
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we have a history of losses and we may not achieve or sustain profitability in the future;
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our independent registered public accounting firm has expressed in its report on our audited consolidated financial statements a substantial doubt about our ability to continue as a going concern;
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our limited operating history makes it difficult to evaluate our current business and future prospects, and may increase the risk of your investment;
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our future growth is dependent upon demand for conversion of existing diesel- and gasoline-powered buses, truck and other fleet vehicles to zero-emission electric or hybrid drivetrain systems and demand for new buses, trucks and other fleet vehicles with zero-emission drivetrains;
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we may not be able to compete successfully against current and future competitors;
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our sales cycle can be long and unpredictable and require considerable time and expense before executing a customer agreement, which may make it difficult to project when, if at all, we will obtain new customers and generate revenue from those customers;
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developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for electric vehicles and our drivetrains;
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we may be unable to keep up with advances in zero-emission electric drivetrain or hybrid vehicle technology;
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the demand for commercial zero-emission electric and hybrid vehicles may decrease, as it depends, in part, on the continuation of current trends resulting from dependence on fossil fuels;
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we may not be able to reduce and adequately control the costs and expenses associated with operating our business;
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we may fail to manage our growth effectively and we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately;
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our zero-emission and hybrid drivetrains may fail to perform as expected;
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we are dependent on third parties to deliver raw materials, parts, components and services in adequate quality and quantity in a timely manner and at reasonable prices, quality levels and volumes;
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our business success depends, in part, on the success of our strategic relationship with third parties;
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we may not be able to scale our manufacturing, assembling, and converting processes effectively and quickly from low volume production to high volume production;
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we may become subject to product liability claims;
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we may be compelled to undertake product recalls;
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we may be unable to design, develop, market and sell our zero-emission electric and hybrid drivetrains or related products and services that address additional market opportunities;
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our growth depends in part on the availability and amounts of government subsidies and incentives and the application of regulations that encourage conversion to electric or hybrid vehicles;
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our service model may be costly for us to operate and may not address the service requirements of our prospective customers;
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our decentralized assembly, sales and service model will present numerous challenges and we may not be able to execute on our plan to establish sales, service and assembly facilities in the urban areas we have targeted and our facilities in any of those markets may underperform relative to our expectations;
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we are subject to substantial regulation, which is evolving, and unfavorable changes or any failure by us to comply with these regulations could substantially harm our business and operating results;
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any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology;
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in many of our zero-emission electric or hybrid drivetrains we use battery packs composed of lithium-ion battery cells, which, if not appropriately managed and controlled, on rare occasions have been observed to catch fire or vent smoke and flames; and
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we may not be able to utilize a significant portion of our net operating loss or research and development tax credit carryforwards, which could adversely affect our profitability.
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Implications
of Being an Emerging Growth Company
We
qualify as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we may take advantage
of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions
include:
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only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
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reduced disclosure about our executive compensation arrangements;
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no non-binding advisory votes on executive compensation or golden parachute arrangements; and
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exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.
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We
may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company.
We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in
which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth
anniversary of the date of the completion of our initial public offering; (iii) the date on which we have issued more than
$1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated
filer under the rules of the SEC. We may choose to take advantage of some but not all of these exemptions. We have taken advantage
of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information
you receive from other public companies in which you hold stock. We have irrevocably elected to “opt out” of the exemption
for the delayed adoption of certain accounting standards and, therefore, will be subject to the same new or revised accounting
standards as other public companies that are not emerging growth companies.
Going
Concern
Our
audited and unaudited consolidated financial statements appearing elsewhere in this prospectus have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of
June 30, 2017 and December 31, 2016, we had working capital of $3.9 million and a working capital deficit of $3.4 million,
respectively, and stockholders’ equity of $4.6 million and a stockholders’ deficit of approximately $2.7 million, respectively.
During the six months ended June 30, 2017 and the year ended December 31, 2016, we incurred a net loss attributable to holders
of our Common Stock of approximately $9.6 million and $10.7 million, respectively. We have not generated any material revenues
and have incurred net losses since inception. Our recurring operating losses and our need for additional sources of capital to
fund our ongoing operations raise substantial doubt about our ability to continue as a going concern. As a result, our independent
registered public accounting firm included an explanatory paragraph in its report on our audited consolidated financial statements
as of December 31, 2016 and 2015 and for the years then ended with respect to this uncertainty. Our consolidated financial statements
do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities
that might be necessary should we be unable to continue as a going concern. On June 9, 2017, however, we completed an offering
under Regulation A, during which we sold 2,852,275 shares of Common Stock for gross proceeds of $14,261,375, of which $1,711,365
was paid to the selling stockholders for 342,273 shares they sold in the offering, as discussed in Note 5 to the unaudited consolidated
financial statements included elsewhere in this prospectus. Based on our management’s plans and the significant capital raised,
that substantial doubt has been alleviated, as discussed in Note 2 to the unaudited consolidated financial statements included
elsewhere in this prospectus.
Company
and Other Information
ADOMANI
was incorporated in Florida on August 6, 2012 and reincorporated in Delaware in November 2016. Our principal executive offices
and mailing address are: 4740 Green River Road, Suite 106, Corona, California 92880. Our telephone number is (951) 407-9860. Our
corporate website address is www.adomanielectric.com. Information contained on, or that can be accessed through, our website does
not constitute part of this prospectus and inclusion of our website address in this prospectus is an inactive textual reference
only.
This
prospectus summary highlights information contained elsewhere and does not contain all of the information that you should consider
in making your investment decision. Before investing in our securities, you should carefully read this entire prospectus, including
our financial statements and the related notes included elsewhere in this prospectus. You should also consider, among other things,
the matters described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in each case appearing elsewhere in this prospectus.
Issuer:
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ADOMANI, Inc.
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Securities offered:
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A minimum of and a maximum of Units, each Unit consisting of one share of our common stock, par value $0.00001, or Common Stock, and a warrant to purchase share of our Common Stock.
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Over-subscription option:
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We have granted our underwriter an over-subscription option to sell up to an additional Units at the public offering price within 30 days from the date of this prospectus.
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Offering price:
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$ per Unit
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Exercisability of warrants included in Units:
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Each warrant offered as part of a Unit is exercisable for shares of Common Stock commencing on the closing of this offering and expiring at 5:00 p.m., New York City time, on the anniversary of the date of issuance.
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Exercise price of warrants included in Units:
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$ per share of Common Stock
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Common stock outstanding before this offering:
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68,070,930 shares
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Common stock to be outstanding after this offering:
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shares, if the minimum number of Units is sold, and shares, if the maximum number of Units is sold.
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Shares of Common Stock issuable upon warrants outstanding before this offering:
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1,799,659 shares
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Shares of Common Stock issuable upon warrants outstanding after this offering:
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shares, if the minimum number of Units is sold, and shares, if the maximum number of Units is sold.
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Best efforts offering:
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We have engaged Boustead Securities, LLC as the underwriter to offer the Units to prospective investors, on a “best efforts” basis. The underwriter is not required to sell any specific number or dollar amount of the Units offered by this prospectus, but will use its best efforts to sell such Units. We will not close this offering unless we sell a minimum of Units, and our underwriter will have the right to engage such other broker-dealers or agents as it determines to assist in such offering.
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Use of proceeds:
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If we sell all of the Units, we estimate that our net proceeds (after underwriting discounts and commissions and our estimated other offering expenses) will be approximately $ . We intend to use the net proceeds to us from this offering primarily for the prepayment of our outstanding secured 9% notes payable and working capital. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments. See “Use of Proceeds” for additional information.
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Risk factors:
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Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 9 of this prospectus for a discussion of factors you should consider before making a decision to invest in our securities.
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Market for common stock and warrants:
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Our common stock is listed on the NASDAQ Capital Market under the symbol “ADOM.” However, there is no established public trading market for the warrants, and we do not expect a market to develop. In addition, we do not intend to apply to list the warrants on any national securities exchange. The warrants are immediately separable from the shares of common stock offered as part of the Units.
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The
number of shares of Common Stock to be outstanding after this offering is based on 68,070,930 shares of Common Stock outstanding
as of June 30, 2017. The number of shares of Common Stock to be outstanding after this offering does not include:
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26,775,000 shares of Common Stock issuable upon the exercise of options outstanding as of June 30, 2017, at an exercise price of $0.10 per share;
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3,600,000 shares of Common Stock issuable upon the exercise of options outstanding as of June 30, 2017, at an exercise price of $10.49 per share;
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15,000,000 shares of Common Stock reserved for issuance under 2017 Equity Incentive Plan as of June 30, 2017;
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1,799,659 shares of Common Stock issuable upon the exercise of warrants outstanding as of June 30, 2017, at a weighted average exercise price of $4.42 per share;
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shares of Common Stock issuable upon full exercise of the warrants offered as part of the Units; and
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securities that may be issued by us upon exercise by the underwriter of its over-subscription option to sell additional securities.
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RISK FACTORS
Investing in our
Common Stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together
with all of the other information in this prospectus, including the consolidated financial statements and the related notes included
elsewhere in this prospectus, before deciding whether to invest in shares of our Common Stock. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties that we are unaware of may also become important factors
that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of
operations and future prospects could be materially and adversely affected. In that event, the market price of our stock could
decline, and you could lose part or all of your investment.
Risks Related to Our Business
We may not successfully execute our
business plan to generate revenue in 2017 and create a sustainable growth trajectory.
We have not generated
significant revenues to date. Our ability to generate revenue and grow our revenue will depend, in part, on our ability to execute
on our business plan, expand our business model and develop new products in a timely manner. We may fail to do so. A variety of
factors outside of our control could affect our ability to generate revenue and our revenue growth. Our success in implementing
our strategy of producing zero-emission conversions and selling new zero-emission buses, trucks and other fleet vehicles could
also slow our revenue growth.
We have a history of losses and we
may not achieve or sustain profitability in the future.
We have incurred losses
in each fiscal year since our incorporation in 2012. In addition, for the six months ended June 30, 2017, our net loss was $9.6
million. As of June 30, 2017, we had working capital of $3.9 million, an accumulated deficit of $30.7 million and stockholders’
equity of $4.6 million. To date, we have financed our operations primarily through issuing equity capital, convertible notes, notes
payable and, most recently, with the completion of an offering of our Common Stock. Our products have been recently developed and
there can be no assurance that they will be commercially successful and generate significant revenue. If we are to ever achieve
profitability it will be dependent upon the successful development and successful commercial introduction and acceptance of zero-emission
electric and hybrid drivetrains such as ours; the demand for new buses, trucks and other fleet vehicles with zero-emission or hybrid
drivetrains; and the demand for conversion of existing buses, trucks and other fleet vehicles to zero-emission electric or hybrid
drivetrains, any of which may not occur. We may not achieve profitability in the future as we anticipate that our operating expenses
will increase significantly in the foreseeable future as we:
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continue to invest in research and development to enhance our zero-emission products and services;
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design, develop and manufacture our drivetrains and their components;
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increase our sales and marketing to acquire new customers; and
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increase our general and administrative functions to support our growing operations.
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Because we will incur
the costs and expenses from these efforts before we receive any significant incremental revenues with respect thereto, our losses
in future periods will be significantly greater than the losses we would incur if we developed our business more slowly. In addition,
these efforts may prove more expensive than we currently anticipate, or may not result in increases in our revenues, and we may
not succeed in increasing our revenue sufficiently to offset these higher expenses. Even if we are successful in generating revenue
and increasing our customer base, we may not become profitable in the future or may be unable to maintain any profitability achieved
if we fail to increase our revenue and manage our operating expenses or if we incur unanticipated liabilities. And even if our
revenue increases, we may not be able to sustain this rate of revenue growth. Revenue growth may slow or revenue may decline for
a number of reasons, including lack of demand for our zero-emission systems, increasing competition, lengthening sales cycles,
decelerating growth of, or declines in, our overall market, or our failure to capitalize on growth opportunities or to introduce
new offerings. Any failure by us to achieve and maintain revenue or profitability could cause the price of our Common Stock to
decline significantly.
On June 9, 2017, we
completed an offering of our Common Stock, in connection with which we sold an aggregate of 2,852,275 shares of Common Stock for
gross proceeds of $14,261,375, of which $1,711,365 was paid to the selling stockholders for the 342,273 shares they sold in the
offering, as discussed in Note 5 to the unaudited consolidated financial statements. While we believe that our existing cash and
cash equivalents, including the net proceeds from the offering, will be sufficient to fund our operations at least through the
end of calendar year 2018, there can be no assurance that we will successfully execute our business plan, and if we do not, we
may need additional capital to continue our operations. We do not expect to be able to satisfy our cash requirements solely through
product sales in the near future, therefore we expect to rely on the net proceeds from our previous offering and this offering
to fund our operations.
Our independent registered public
accounting firm has expressed in its report on our audited consolidated financial statements a substantial doubt about our ability
to continue as a going concern.
We have not yet generated
sufficient revenues from our operations to fund our activities, and we are therefore dependent upon external sources for the financing
of our operations. As a result, our independent registered public accounting firm has expressed in its report on the audited consolidated
financial statements included in the registration statement of which this prospectus forms a part a substantial doubt regarding
our ability to continue as a going concern. Neither our consolidated financial statements nor unaudited consolidated financial
statements included in this prospectus include any adjustments that might result if we are unable to continue as a going concern.
On June 9, 2017, however, we completed an offering of Common Stock, pursuant to which we sold 2,852,275 shares of Common Stock
for gross proceeds of $14,261,375, of which $1,711,365 was paid to the selling stockholders for 342,273 shares they sold in the
offering, as discussed in Note 5 to the unaudited consolidated financial statements included elsewhere in this prospectus. Based
on our management’s plans and the significant capital raised, that substantial doubt has been alleviated, as discussed in
Note 2 to the unaudited consolidated financial statements included elsewhere in this prospectus.
Our limited operating history makes
it difficult to evaluate our current business and future prospects.
Our short operating
history and developing business model make it difficult to evaluate our current business and our future prospects. It is difficult
to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge
and affect our business. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing
companies in rapidly developing and changing industries, including challenges in forecasting accuracy, determining appropriate
investments of our limited resources, market acceptance of our products and services and future products and services, competition
from new and established companies, including those with greater financial and technical resources, acquiring and retaining customers
and increasing revenue from existing customers, enhancing our products and services and developing new products and services. You
should consider our business and prospects in light of the risks and difficulties that we will encounter as we continue to develop
our business model. We may not be able to address these risks and difficulties successfully, which would materially harm our business
and operating results and cause the market price of our Common Stock to decline.
We may experience quarterly fluctuations
in our operating results due to a number of factors which make our future results difficult to predict and could cause our operating
results to fall below expectations.
Our quarterly operating
results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating
results on a period-to-period basis may not be meaningful. You should not consider our past results, including our recent success
in having funding approved in California through Assembly Bill AB 923 for conversions and new zero-emission electric or hybrid
drivetrains in any projected growth rate or as indicative of our future performance.
We expect our period-to-period
operating results to vary based on our operating costs which we anticipate will increase significantly in future periods as we,
among other things, design and develop our zero-emission drivetrains, open new design, sales and service facilities, hire additional
technology staff, increase our travel and operational budgets, increase our facility costs, hire and train service personnel, increase
our sales and marketing activities, and increase our general and administrative functions to support our growing operations. As
a result of these factors, we believe that quarter-to-quarter comparisons of our operating results, especially in the short-term,
are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover,
our operating results may not meet expectations of equity research analysts or investors. If any of this occurs, the trading price
of our stock could fall substantially, either suddenly or over time.
In addition to other
risk factors described in this section, factors that may affect our quarterly operating results include the following: our ability
to hire, train and retain key personnel, develop new products that the market demands, receive government support funding to offset
the increased product cost to the end user, keep our supply chain intact, source required materials to build our zero-emission
systems and maintain them once they are delivered.
Based upon all of the
factors described above, we have a limited ability to forecast our future revenue, costs and expenses and, as a result, our operating
results may from time to time fall below our estimates.
Our future growth is dependent upon
demand for conversion of existing diesel- and gasoline-powered buses, truck and other fleet vehicles to zero-emission electric
or hybrid drivetrain systems and demand for new buses, trucks and other fleet vehicles with zero-emission drivetrains. The bus
and commercial fleet market for zero-emission electric and hybrid vehicles may be smaller or develop more slowly than expected.
The zero-emission drivetrain conversion market is relatively new and evolving. If this market is smaller or develops more slowly
or differently than we expect, our business, growth prospects and financial condition would be adversely affected.
Our growth is highly
dependent upon the market acceptance of, and we are subject to an elevated risk of any reduced demand for, zero-emission vehicles
and conversion of existing buses, trucks and other fleet vehicles to zero-emission electric or hybrid vehicles and the demand for
new buses, truck and other fleet vehicles with zero-emission drivetrains in particular. If this market does not develop as we expect
or develops more slowly than we expect, our business, prospects, financial condition and operating results will be harmed and we
may need to raise additional capital. This market is relatively new, rapidly evolving, characterized by rapidly changing technologies,
price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements
and changing consumer demands and behaviors. Factors that may influence the market acceptance of zero-emission vehicles, and specifically
conversion of existing buses and fleet vehicles to zero-emission electric or hybrid and the demand for new buses and fleet vehicles
with zero-emission drivetrains, include:
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perceptions about zero-emission electric vehicle quality, safety design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of any electric vehicle;
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perceptions about the limitations in the technology resulting in a limited range over which zero-emission electric vehicles may be driven on a single battery charge (increases in distance requires additional batteries, which increases weight, and, at some point, too much weight diminishes the additional distance being sought before requiring a charge);
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perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced technology;
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the availability of alternative fuel vehicles, including competitive vehicles and improvements in the fuel economy of the internal combustion engine may cause a slow-down in the demand to switch to zero-emission electric vehicles;
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the availability of service for zero-emission electric vehicles;
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the environmental consciousness of owners of diesel- and gasoline-powered buses, truck and other fleet vehicles;
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changes in the cost of oil and gasoline;
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government regulations and economic incentives, including a change in the administrations and legislations of federal and state governments, promoting fuel efficiency and alternate forms of energy;
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access to charging stations both public and private, standardization of electric vehicle charging systems and perceptions about convenience and cost to charge an electric vehicle;
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the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles;
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perceptions about and the actual cost of alternative fuel; and
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Additionally, we have
limited experience in introducing new products. Up to this time, we have been a research and development company and we have only
recently commenced production and deliveries of our products. To the extent that we are not able to build our products in accordance
with customer expectations, our future sales could be harmed.
Additionally, we may
become subject to regulations that may require us to alter the design of our vehicles, which could negatively impact consumer interest
in our vehicles.
The influence of any
of the factors described above may cause current or potential customers not to purchase our electric vehicles, which would materially
adversely affect our business, operating results, financial condition and prospects.
We may not be able to compete successfully
against current and future competitors.
The market for commercial
zero-emission electric and hybrid vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies,
price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements
and changing consumer demands and behaviors.
Most of our existing
and potential competitors, including Ford, Navistar, Freightliner, PACCAR, Hino, Fuso, Volvo, BYD, Proterra, TransPower, Lion Bus
or Motiv, have substantially greater financial resources, more extensive engineering, manufacturing, marketing and customer service
and support capabilities, longer operating histories and greater name recognition than we do. They may be able to devote greater
resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Virtually all
of our competitors have more extensive customer bases and broader customer and industry relationships than we do. Our competitors
may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their
products more effectively. As a result, our competitors may be able to compete more aggressively and sustain that competition over
a longer period of time than we can. Each of these competitors has the potential to capture market share in our target market,
which could have an adverse effect on our position in our industry and on our business and operating results.
We expect competition
in our industry to intensify in the future in light of anticipated increased demand for alternative fuel vehicles and to continued
globalization and consolidation in the worldwide automotive industry. Factors affecting competition include product quality and
features, innovation and development time, pricing, reliability, safety, fuel economy, customer service and financing terms. Increased
competition may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and
adversely affect our business, financial condition, operating results and prospects. Our ability to successfully compete in our
industry will be fundamental to our future success in existing and new markets and to our market share. There can be no assurances
that we will be able to compete successfully in our markets. If our competitors introduce new products or services that compete
with or surpass the quality, price or performance of our products or services, we may be unable to satisfy existing customers or
attract new customers at the prices and levels that would allow us to generate attractive rates of return on our investment. A
disruptive technology advancement in the electric vehicle industry by a competitor such as in energy storage, traction motors or
power electronics, could affect the sales of our products.
Demand in the zero-emission
electric and hybrid vehicle industry is volatile, which may lead to lower vehicle unit sales and adversely affect our operating
results. Volatility of demand in the zero-emission electric and hybrid vehicle industry may materially and adversely affect our
business, prospects, operating results and financial condition. The markets in which we currently compete and plan to compete in
the future have been subject to considerable volatility in demand in recent periods. As a low volume producer, we have fewer financial
resources than more established providers have to withstand changes in the market and disruptions in demand. Volatility in demand
may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and adversely
affect our business, prospects, financial condition and operating results. These effects may have a more pronounced impact on our
business given our relatively smaller scale and financial resources as compared to many incumbent providers.
Competition could result
in price reductions and revenue shortfalls, loss of customers and loss of market share. If we cannot compete successfully against
current and future competitors, our business, prospects, results of operations and financial condition could be negatively impacted.
Our sales cycle can be long and unpredictable
and require considerable time and expense before executing a customer agreement, which may make it difficult to project when, if
at all, we will obtain new customers and generate revenue from those customers.
The sales cycle for
our business, from initial contact with a potential lead to contract execution and implementation, typically takes significant
time and is difficult to predict. Our sales cycle in some cases has been up to six to nine months or more. Our sales efforts involve
educating our customers about the use, capabilities and benefits of our products and services. Some of our customers undertake
a significant evaluation process that frequently involves not only our products and services but also the offerings of our competitors.
This process can be costly and time-consuming. As a result, it is difficult to predict when we will obtain new customers and begin
generating revenue from these new customers. As part of our sales cycle, we may incur significant expenses before executing a definitive
agreement with a prospective customer and before we are able to generate any revenue from such agreement. We have no assurance
that the substantial time and money spent on our sales efforts will generate significant revenue. If conditions in the marketplace
generally or with a specific prospective customer change negatively, it is possible that no definitive agreement will be executed,
and we will be unable to recover any of these expenses. If we are not successful in targeting, supporting and streamlining our
sales processes, our ability to grow our business, and our operating results and financial condition may be adversely affected.
If our sales cycles lengthen, our future revenue could be lower than expected, which would have an adverse impact on our consolidated
operating results and could cause our stock price to decline.
Developments in alternative technologies
or improvements in the internal combustion engine may materially adversely affect the demand for electric vehicles and our drivetrains.
Significant developments
in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel
economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently
anticipate. For example, fuel which is abundant and relatively inexpensive in North America, such as compressed natural gas, may
emerge as consumers’ preferred alternative to petroleum-based propulsion. Any failure by us to develop new or enhanced technologies
or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and
enhanced zero-emission electric or hybrid drivetrains which could result in the loss of competitiveness of our drivetrains, decreased
revenue and a loss of market share to competitors.
If we are unable to keep up with
advances in zero-emission electric drivetrain or hybrid vehicle technology, we may suffer an inability to obtain a competitive
position in the market or suffer a decline in our competitive position.
There are companies
in the zero-emission electric and hybrid vehicle industry that have developed or are developing vehicles and technologies that
compete or will compete with our vehicles. We cannot assure that our competitors will not be able to duplicate our technology or
provide products and services similar to ours more efficiently or at greater scale. We may be unable to keep up with changes in
zero-emission electric or hybrid drivetrain technology and, as a result, may suffer a decline in our competitive position. Any
failure to keep up with advances in zero-emission electric or hybrid drivetrain technology would result in a decline in our competitive
position, which would materially and adversely affect our business, prospects, operating results and financial condition. Our research
and development efforts may not be sufficient to adapt to changes in zero-emission electric or hybrid drivetrain technology. As
technologies change, we plan to upgrade or adapt our drivetrains and introduce new drivetrains in order to continue to provide
drivetrains with the latest technology, in particular battery cell technology. However, our drivetrains may not compete effectively
with alternatives if we are not able to source and integrate the latest technology into our drivetrains. For example, we do not
manufacture most of the high cost items required for our conversion kits, including battery cells, which makes us dependent upon
other suppliers of battery cell technology for our battery packs. If for any reason we are unable to keep pace with changes in
commercial electric and hybrid vehicle technology, particularly battery technology, our competitive position may be adversely affected.
The demand for commercial zero-emission
electric and hybrid vehicles depends, in part, on the continuation of current trends resulting from dependence on fossil fuels.
Extended periods of low diesel or other petroleum-based fuel prices could adversely affect demand for our vehicles, which could
adversely affect our business, prospects, financial condition and operating results.
We believe that much
of the present and projected demand for commercial zero-emission electric and hybrid vehicles results from concerns about volatility
in the cost of petroleum-based fuel, the dependency of the United States on oil from unstable or hostile countries, government
regulations and economic incentives promoting fuel efficiency and alternative forms of energy, as well as the belief that climate
change results in part from the burning of fossil fuels. If the cost of petroleum-based fuel decreased significantly, or the long-term
supply of oil in the United States improved, the government may eliminate or modify its regulations or economic incentives related
to fuel efficiency and alternative forms of energy. If there is a change in the perception that the burning of fossil fuels does
not negatively impact the environment, the demand for commercial zero-emission electric or hybrid vehicles could be reduced, and
our business and revenue may be harmed. Diesel and other petroleum-based fuel prices have been extremely volatile, and we believe
this continuing volatility will persist. Lower diesel or other petroleum-based fuel prices over extended periods of time may lower
the current perception in government and the private sector that cheaper, more readily available energy alternatives should be
developed and produced. If diesel or other petroleum-based fuel prices remain at deflated levels for extended periods of time,
the demand for commercial electric or plug-in hybrid vehicles may decrease, which could have an adverse effect on our business,
prospects, financial condition and operating results.
We may not be able to reduce and
adequately control the costs and expenses associated with operating our business, including our material and production costs.
If we are unable to
reduce and/or maintain a sufficiently low level of costs for designing, manufacturing, marketing, selling and distributing and
servicing our zero-emission drivetrains relative to their selling prices, our operating results, gross margins, business and prospects
could be materially and adversely impacted. We have made, and will be required to continue to make, significant investments for
the design, manufacture and sales of our zero-emission drivetrains. Our marginal costs of producing our drivetrains to date have
exceeded our revenue from selling them. This is not expected to change for the foreseeable future until we are able to generate
adequate sales volume to offset the cost of our drivetrains. There can be no assurances that our costs of producing and delivering
our future products will be less than the revenue we generate from sales at the time we introduce our future products or that we
will ever achieve a positive gross margin on sales of our zero-emission drivetrains or future products.
We incur significant
costs related to procuring the materials and components required to build our drivetrains and convert electric and hybrid vehicles.
As a result, without including the impact of government or other subsidies and incentives, our costs and therefore the purchase
prices for our commercial zero-emission electric and hybrid vehicles and/or converting commercial vehicles currently are substantially
higher than the purchase prices for gas or diesel-fueled vehicles with comparable features.
Additionally, in the
future we may be required to incur substantial marketing costs and expenses to promote our zero-emission drivetrains, including
through the use of traditional media such as television, radio and print, even though our marketing expenses to date have been
relatively limited. If we are unable to keep our operating costs aligned with the level of revenues we generate, our operating
results, business and prospects will be harmed. Many of the factors that impact our operating costs are beyond our control. For
example, global demand from all manufacturers of zero-emission vehicles for the same resources could create shortages and drive
the costs of our raw materials and certain components, such as lithium-ion battery cells, to a higher level and reduce profit or
create or increase losses. Indeed, if the popularity of zero-emission electric and hybrid vehicles exceeds current expectations
without significant expansion in battery cell production capacity and advancements in battery cell technology, shortages could
occur which would result in increased materials costs to us, and could also negatively impact our ability to meet production requirements
if the batteries were simply not available.
If we fail to manage our growth effectively,
we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately.
Any failure to manage
our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition.
We have recently expanded our operations and further significant expansion will be required, especially in connection with kit
manufacturing, service and warranty requirements. The requirements of being a public company will significantly increase our general
and administrative costs. Our future operating results depend to a large extent on our ability to manage this expansion and growth
successfully. Risks that we face in undertaking this expansion include:
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establishing sufficient sales, service and service facilities in a timely manner;
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forecasting production and revenue;
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training new personnel;
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controlling expenses and investments in anticipation of expanded operations;
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establishing or expanding design, manufacturing, sales and service facilities;
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implementing and enhancing administrative infrastructure, systems and processes;
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addressing new markets; and
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expanding operations and finding and hiring a significant number of additional personnel, including manufacturing personnel, design personnel, engineers and service technicians.
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We intend to hire a
significant number of additional personnel, including design and manufacturing personnel and service technicians for our zero-emission
electric and hybrid vehicles. Because our vehicles are based on a different technology platform than traditional internal combustion
engines, individuals with sufficient training in zero-emission electric and hybrid vehicles may not be available to hire, and we
may need to expend significant time and expense training the employees we do hire. Competition for individuals with experience
designing, manufacturing and servicing zero-emission electric and hybrid vehicles is intense, and we may not be able to attract,
assimilate, train or retain additional highly qualified personnel in the future, which could seriously harm our business and prospects.
In this regard, we
will be required to continue to improve our operational, financial and management controls and our reporting procedures and we
may not be able to do so effectively. Further, to accommodate our expected growth we must continually improve and maintain our
technology, systems and network infrastructure. We therefore may be unable to manage our expenses effectively in the future, which
would negatively impact our gross margin or operating expenses in any particular quarter. If we fail to manage our anticipated
growth and change in a manner that preserves the quality of our zero-emission systems and services and our ability to deliver in
a timely manner, it will negatively affect our brand and reputation and harm our ability to retain and attract customers.
If our zero-emission electric and
hybrid drivetrains fail to perform as expected, our ability to develop, market and sell our drivetrains could be harmed.
Our zero-emission drivetrains
or vehicles that contain our drivetrains may not perform in a manner that is consistent with our customers’ expectations
for a variety of reasons. If our drivetrains or vehicles that contain our drivetrains were to contain defects in design and manufacture
that cause them not to perform as expected or that require repair, or any other failure of our vehicles to perform as expected
could harm our reputation and result in delivery delays, product recalls, product liability claims, significant warranty and other
expenses, which could have a material adverse impact on our ability to develop, market and sell our zero-emission drivetrains.
For example, should we have a significant sale of either new vehicles or conversion kits and a defect (from supplier-purchased
product or internally assembled components) were to be discovered after delivery that could not be corrected in a timely manner,
we could suffer an adverse public relations event that harms the company in a way that it may not be able to recover from, or which
turns out to be so costly as to cause a significant loss. Although we attempt to remedy any issues we observe in our drivetrains
as effectively and as rapidly as possible, such efforts may not be timely, may hamper production or may not provide satisfaction
to our customers. While we have performed extensive internal testing, we currently have a limited frame of reference by which to
evaluate the long-term performance of our zero-emission drivetrains. There can be no assurance that we will be able to detect and
fix any defects in our products prior to their sale to customers. Further, the performance of our zero-emission drivetrains may
be negatively impacted by other factors, such as limitations inherent in existing battery technology and extreme weather conditions.
Our zero-emission drivetrains have not yet been evaluated by the U.S. National Highway Traffic Safety Administration, or NHTSA,
for its 5-Star Safety Ratings, and while based on our internal testing we expect to obtain acceptable ratings, there is no assurance
this will occur.
Any vehicle product
defects or any other failure of our commercial zero-emission electric or hybrid drivetrains to perform as expected could harm our
reputation and result in delivery delays, product recalls, product liability claims, significant warranty and other expenses, customer
losses and lost revenue, any of which could have a material adverse impact on our business, financial condition, operating results
and prospects.
We are dependent on third parties
to deliver raw materials, parts, components and services in adequate quantity in a timely manner and at reasonable prices, quality
levels, and volumes acceptable to us. Our business, prospects, financial condition and operating results could be adversely affected
if we experience disruptions in our supply chain.
We build zero-emission
electric and hybrid drivetrains and conversion kits for drivetrains from components supplied by third parties. For example, batteries,
traction motors, power electronics, connectors, cables, and metal fabrication for battery storage boxes. As a result, we are particularly
dependent on those third parties to deliver raw materials, parts, components and services in adequate quality and quantity in a
timely manner and at reasonable prices. Some components of our drivetrain systems include materials such as copper, lithium, rare-earth
and strategic metals that have historically experienced price volatility and supply interruptions. In addition, we do not currently
maintain long-term agreements with our suppliers with guaranteed pricing because we cannot at this time guarantee them adequate
volume, which exposes us to fluctuations in component, materials and equipment prices and availability.
Furthermore, currency
fluctuations weakening the U.S. dollar against foreign currencies may adversely affect our purchasing power for such raw materials,
parts and components and manufacturing equipment from foreign suppliers. Substantial increases in the prices for such raw materials,
components and equipment would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs
through increased prices. There can be no assurance that we will be able to recoup these increased costs by increasing the prices
of our products.
In cases where we rely
on a sole supplier for a component or system, if there is an interruption of supply or increased industry demand it may be difficult
for us to substitute one supplier for another, increase the number of suppliers or change one component for another in a timely
manner or at all. Additionally, many of our current suppliers are small companies that produce a limited number of specialized
products. If any of these suppliers were to go out of business or be acquired by a competitor of ours or any other third party
that decides to discontinue our supply relationship, we would need to find an alternative supplier, which we may not be able to
do. If we are unable to maintain a consistent, high quality and cost-effective supply chain, our business, prospects, financial
condition and operating results could be adversely affected.
This limited supply
chain exposes us to multiple potential sources of delivery failure or component shortages for the production of our zero-emission
electric or hybrid drivetrains. We may experience delays due to supply chain disruptions with respect to any of our zero-emission
drivetrains and any other future products we may produce. In addition, our currently ongoing transition from low to high volume
production tooling for our zero-emission drivetrains may take longer than expected which may adversely impact our short-term financial
results.
Changes in business
conditions, labor issues, wars, governmental changes, natural disasters and other factors beyond our control or which we do not
presently anticipate, could also affect our suppliers’ ability to deliver components to us on a timely basis. Furthermore,
if we experience significantly increased demand, or need to replace certain existing suppliers, there can be no assurance that
additional supplies of component parts will be available when required on terms that are favorable to us, or that any supplier
would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner, or that we could
engineer replacement components ourselves.
Changes in our supply
chain may result in increased costs in the future. We have also experienced cost increases from certain of our suppliers in order
to meet our quality targets and development timelines as well as due to design changes that we made, and we may experience similar
cost increases in the future. Additionally, we are negotiating with existing suppliers for cost reductions, seeking new and less
expensive suppliers for certain parts, and attempting to redesign certain parts to make them less expensive to produce. If we are
unsuccessful in our efforts to control and reduce supplier costs, our operating results will suffer.
If we encounter unexpected
difficulties with our current suppliers, and if we are unable to fill these needs from other suppliers, we could experience production
delays, which could have a material adverse effect on our financial condition and operating results.
The inability of these
suppliers to deliver, or their refusal to deliver, necessary raw materials, parts and components of our zero-emission drivetrains
and services in a timely manner at prices, quality levels, and volumes acceptable to us would have a material adverse effect on
our financial condition and operating results. Our business, prospects, financial condition and operating results could be adversely
affected if we experience disruptions in our supply chain.
The facilities or operations of our
third party providers could be damaged or adversely affected as a result of disasters or unpredictable events.
Some of our third party
providers have production facilities in California, a state known for seismic activity. If major disasters such as earthquakes,
fires, floods, hurricanes, wars, terrorist attacks, computer viruses, pandemics or other events occur, the production facilities
of some of our third party providers may be seriously damaged, or they may have to stop or delay production and shipment of our
products. We may also experience downtime due to a third party provider’s delay in production and shipment of our products
due to, among other reasons, their inability to obtain supplies and materials. Either of these delays could have a material adverse
impact on our business, operating results and financial condition.
If our suppliers fail to use ethical
business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity.
We do not control our
independent suppliers or their business practices. Accordingly, we cannot guarantee their compliance with ethical business practices,
such as environmental responsibility, fair wage practices, appropriate sourcing of raw materials, and compliance with child labor
laws, among others. A lack of demonstrated compliance could lead us to seek alternative suppliers, which could increase our costs
and result in delayed delivery of our products, product shortages or other disruptions of our operations.
Violation of labor
or other laws by our suppliers or the divergence of an independent supplier’s labor or other practices from those generally
accepted as ethical in the United States or other markets in which we do business could also attract negative publicity for us
and our brand. This could diminish the value of our brand image and reduce demand for our zero-emission drivetrains or hybrid vehicle
technology if, as a result of such violation, we were to attract negative publicity. If we, or others in our industry, encounter
similar problems in the future, it could harm our brand image, business, prospects, financial condition and operating results.
Our business success will depend
in part on the success of our strategic relationships with third parties. We may not be able to identify adequate strategic relationship
opportunities, or form strategic relationships, in the future.
Our business success
will depend in part on our ability to continue to successfully manage and enter into productive strategic relationships with third
parties. We depend on various third parties to provide critical parts for our process. We currently maintain strategic relationships
with all of the key manufacturers of components we require for conversion kit builds. As an example, we source our batteries from
Chinese suppliers. However, several large market leaders in the battery manufacturing arena have gone out of business in the past
several years which requires us to continue to vet and seek new suppliers. Maintaining and expanding our strategic relationships
with third parties is critical to our continued success. Further, our relationships with these third parties are typically non-exclusive
and do not prohibit the other party from working with our competitors. These relationships may not result in additional customers
or enable us to generate significant revenue. Identifying suitable business partners and negotiating and documenting relationships
with them require significant time and resources. If we are unsuccessful in establishing or maintaining our relationships with
these third parties, our ability to successfully sell our products and services, compete in the marketplace or to grow our revenue
could be impaired and our operating results would suffer.
While we may be able
to establish alternate supply relationships or engineer replacement components for our single source components, we may be unable
to do so in the short term, or at all, at prices or costs that are favorable to us. In particular, while we believe that we will
be able to secure alternate sources of supply for most of our single sourced components in a relatively short time frame, qualifying
alternate suppliers or developing our own replacements for certain highly customized components of our drivetrains may be time
consuming, costly and may force us to make additional modifications to a drivetrain’s design, or at a minimum require us
to delay delivery of orders.
We currently have and
are seeking to establish new relationships with third parties to provide alternative parts sources, such as batteries, controllers
and battery management systems. For example, we continue to test additional battery manufacturers’ products in order to have
back-up systems in place should our existing supplier have delivery or quality issues. In addition, this helps keep our prices
in line with our competition and allows us to monitor various output and costs per unit in real time. However, there are no assurances
that we will be able to identify or secure suitable business relationship opportunities in the future or that our competitors will
not capitalize on such opportunities before we do. Our strategic relationships within China for batteries and domestically for
motors and controllers will keep us competitive if maintained properly. We may not be able to offer benefits to companies that
we would like to establish and maintain strategic relationships with. Moreover, identifying such opportunities could demand substantial
management time and resources, and negotiating and financing relationships involves significant costs and uncertainties. If we
are unable to successfully source and execute on strategic relationship opportunities in the future, our overall growth could be
impaired, and our business, prospects and operating results could be materially adversely affected.
We must scale our zero-emission drivetrain
manufacturing, assembling, and converting processes effectively and quickly from low volume production to high volume production.
We have no experience
to date in high volume manufacturing, assembling, and converting to commercial electric and hybrid vehicles. Our existing production
model utilizing third parties may not be well suited for the high-volume production we hope to require to scale our business. We
do not know whether we will be able to develop efficient, low-cost manufacturing, assembly and converting capability and processes,
and reliable sources of component supply that will enable us to meet the quality, price, engineering, design and production standards,
as well as the production volumes required, to successfully develop our business. Any failure to develop such manufacturing, assembly
and converting processes and capabilities and reliable sources of component supply within our projected costs and timelines could
have a material adverse effect on our business, prospects, operating results and financial condition.
Our ability to scale
our zero-emission drivetrain manufacturing, assembling, and converting processes is in part dependent on our supply chain and on
our ability to execute on our decentralized production strategy. Even if we are successful in developing our high-volume manufacturing,
assembly and converting capability and processes, and reliable sources of component supply, we do not know whether we will be able
to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such
as problems with suppliers and vendors, or in time to meet our commercialization schedules or to satisfy the requirements of customers.
In addition, certain components we integrate may not be available on a consistent basis or in large quantities. Our business, prospects,
financial condition and operating results could be adversely affected if we experience disruptions in our supply chain or if we
cannot obtain materials of sufficient quality at reasonable prices.
The complexity in our
business is expected to grow as we introduce new products and services. We have limited experience in simultaneously designing,
testing, manufacturing, upgrading, adapting and selling our zero-emission drivetrains as well as limited experience allocating
our available resources among the design and production of multiple zero-emission drivetrains. As we add complexity to our product
line and introduce new products and services, we may experience unexpected delays.
If we are unable to
scale our existing assembly processes and systems quickly while maintaining our current quality level, including as a result of
supply chain constraints and inability to manage complexity in our business, we may be unable to meet our customers’ vehicle
quality and quantity requirements or our forecasted production schedule or lower our cost of sales. As a result, we may not be
able to meet our customers’ delivery schedules and could face the loss of customers, or be exposed to liability to customers
to which we promised delivery, which could adversely affect our business, prospects, financial condition and operating results.
We may become subject to product
liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against
such claims.
We may become subject
to product liability claims, which could harm our business, prospects, operating results and financial condition if we are not
able to successfully defend or insure against such claims. The zero-emission electric and hybrid vehicle industry experiences significant
product liability claims and we face inherent risk of exposure to claims in the event our zero-emission drivetrains do not perform
as expected or malfunction and personal injury or death results Our risks in this area are particularly pronounced given the limited
field experience of our zero-emission systems, number of vehicles delivered to date and limited field experience of those vehicles.
A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability
claim could generate substantial negative publicity about our drivetrains and business and inhibit or prevent commercialization
of other future vehicle candidates which would have a material adverse effect on our brand, business, prospects and operating results.
We currently do not have product liability insurance coverage, as we have not sold many vehicles. We intend to add product liability
insurance on a claims-made basis for all our zero-emission systems with appropriate annual limits when we commence production.
However, we cannot assure that our insurance will be sufficient to cover all potential product liability claims. Any lawsuit seeking
significant monetary damages either in excess of our coverage, or outside of our coverage, may have a material adverse effect on
our reputation, business and financial condition. We may not be able to secure product liability insurance coverage on commercially
acceptable terms or at reasonable costs when needed, particularly if we do face liability for our products and are forced to make
a claim under any policy we have.
In connection with
the development and sale of our zero-emission drivetrains, we may need to comply with various safety regulations and requirements
with which it may be expensive or difficult to comply. For example, we may be subject to compliance from CARB and NHTSA. In addition,
we may be subject to various other federal and state-level requirements.
We may be compelled to undertake
product recalls.
Any product recall
in the future may result in adverse publicity, damage our brand and adversely affect our business, prospects, operating results
and financial condition. We may at various times, voluntarily or involuntarily, initiate a recall if any of our zero-emission drivetrain
components prove to be defective. Such recalls, voluntary or involuntary, involve significant expense and diversion of management
attention and other resources, which would adversely affect our brand image in our target markets and could adversely affect our
business, prospects, financial condition and results of operations.
Our warranty reserves may be insufficient
to cover future warranty claims which could adversely affect our financial performance
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If our warranty reserves
are inadequate to cover future warranty claims on our vehicles, our business, prospects, financial condition and operating results
could be materially and adversely affected. We provide a two-year warranty on parts and workmanship and a five-year warranty on
batteries with every zero-emission drivetrain. Most of our warranty offering, with the exception of workmanship, is covered by
the component manufacturers’ warranty. In addition, customers have the opportunity to purchase an Extended Service Plan for
the period after the end of the standard warranty to cover additional services for an additional three-year period or 100,000 miles,
whichever comes first. The warranty is similar to other providers’ warranty programs and is intended to cover all parts and
labor to repair defects in material or workmanship in the drivetrain.
We plan to establish a warranty reserve of
1.25% of the cost of each delivery. We plan to record and adjust warranty reserves based on changes in estimated costs and actual
warranty costs. However, because we have not yet begun delivering our first zero-emission drivetrains, and we have extremely limited
operating experience with our drivetrains, we therefore have little experience with warranty claims for these zero-emission drivetrains
or
with estimating warranty reserves. Once we begin initiating sales of our drivetrains, we will monitor our warranty reserves based
on our actual warranty claim experience. We may be required to provide for increases in warranty reserves in the future. As of
June 30, 2017, we had no warranty reserves because we have generated no sales generating any potential warranty claims. There can
be no assurances that our future warranty reserves will be sufficient to cover all claims or that our limited experience with warranty
claims will adequately address the needs of our customers to their satisfaction.
Our insurance strategy may not be
adequate to protect us from all business risks.
We may be subject,
in the ordinary course of business, to losses resulting from products liability, accidents, acts of God and other claims against
us, for which we may have no insurance coverage. Additionally, we cannot be certain that our insurance coverage will be sufficient
to cover all future claims against us. A loss that is uninsured or which exceeds policy limits may require us to pay substantial
amounts, which could adversely affect our financial condition and operating results.
If we are unable to design, develop,
market and sell zero-emission electric and hybrid drivetrains and other product offerings that address additional market opportunities,
our business, prospects and operating results will suffer.
We may not be able
to successfully develop new zero-emission electric or hybrid drivetrains or vehicles containing them, or address new market segments
or develop a broader customer base. To date, we have focused our business on the sale of zero-emission electric drivetrains and
have targeted owners of buses and commercial fleets. We will need to address additional markets and expand our customer demographic
in order to further grow our business. In particular, we intend to additionally target trucks (all classes inclusive of 1–8)
and vans under 14,000 pounds gross vehicle weight rating, which is a much different market from that of our current zero-emission
drivetrains. Successfully offering a drivetrain in this market requires delivering a drivetrain with different characteristics
at a price that is competitive with other similar drivetrains. We have not completed the design, component sourcing or manufacturing
process for these drivetrains, so it is difficult to forecast its eventual cost, manufacturability or quality. Therefore, there
can be no assurance that we will be able to deliver a drivetrain that is ultimately competitive in this market at a compelling
price point and in volumes as we currently intend, if at all. Our failure to address additional market opportunities would harm
our business, financial condition, operating results and prospects.
Our growth depends in part on the
availability and amounts of government subsidies and incentives and the application of regulations that encourage conversion to
electric or hybrid vehicles. These subsidies and incentives are limited and unpredictable and could expire or change to benefit
competing technologies
We believe that the
availability of government subsidies and economic incentives is currently a critical factor considered by our customers when purchasing
our zero-emission systems or converting their existing vehicles to zero-emission-electric or hybrids, and that our growth depends
in large part on the availability and amounts of these subsidies and economic incentives. Any unavailability, reduction, elimination
or adverse application of government subsidies and economic incentives because of budgetary challenges, policy changes, the reduced
need for such subsidies and incentives due to the perceived success of electric or hybrid vehicles or other reasons may result
in the diminished price competitiveness of the alternative fuel vehicle industry generally and our zero-emission electric and hybrid
vehicles in particular, especially prior to our ability to significantly reduce our costs. For example, in the United States, we
and our customers benefit from significant subsidies in connection with the purchase of our vehicles under the California Hybrid
Truck and Bus Voucher Incentive Program, or HVIP, CARB, local air quality management districts, the EV Demonstration Project, and
state-level Clean Cities programs. Under these programs, purchasers of qualifying vehicles and those who convert their existing
vehicles are eligible to receive subsidies or incentives of up to $55,000, $71,000 and $110,000, respectively, per qualifying vehicle
purchased or converted. Certain regulations and programs that encourage sales of zero-emission electric and hybrid vehicles could
be eliminated or applied in a way that adversely impacts sales of our commercial zero-emission electric and hybrid vehicles, either
currently or at any time in the future. For example, the U.S. federal government and many state governments, as well as many national
governments within the European Union, are facing fiscal crises and budgetary constraints, which could result in the elimination
of programs, subsidies and incentives that encourage the purchase or conversion of zero-emission electric and hybrid vehicles.
In addition, grants made by the Department of Energy, or the DOE, under the U.S. Recovery and Reinvestment Act of 2009 to clean
technology companies, such as the EV Demonstration Project grant, may be subject to a high level of scrutiny in part due to recent
financial difficulties experienced by recipients of DOE loan guarantees. In addition, currently some purchase subsidies are limited
in total annual amounts and have been exhausted before all willing buyers have been able to consummate a purchase. We currently
benefit from certain government and economic incentives supporting the development and adoption of zero-emission electric or hybrid
vehicles. If government subsidies and economic incentives to produce and purchase zero-emission electric or hybrid vehicles were
no longer available to us or our customers, or the amounts of such subsidies and incentives were reduced or eliminated, it could
have a negative impact on demand for our vehicles and our business, prospects, financial condition and operating results would
be adversely affected.
In addition, we anticipate
that in the future there may be new opportunities for us to apply for grants, loans and other incentives from federal, state, local
and foreign governments on our own behalf and on behalf of our customers. Our ability to obtain funds or incentives from government
sources is subject to the availability of funds under applicable government programs and approval of our applications to participate
in such programs. The application process for these funds and other incentives is and will continue to be highly competitive.
Our service model may be costly for
us to operate and may not address the service requirements of our prospective customers.
Our business plan is
not to develop company owned and operated service and warranty centers but to leverage existing third party bus and truck facilities
to process our vehicle conversions and new vehicles. This plan may not prove to be workable and we may be forced to establish our
own facilities at some point, resulting in substantial capital expenditures and increased operating costs. Zero-emission electric
and hybrid commercial vehicles incorporate new and evolving technologies and require specialized service. These special service
arrangements are now and in the future may continue to be costly and we may not be able to recoup the costs of providing these
services to our customers. In addition, a number of potential customers may choose not to purchase our commercial zero-emission
electric or hybrid vehicles because of the lack of a more widespread service network. If we are unable to satisfactorily service
our vehicles, our ability to generate customer loyalty, grow our business and sell additional vehicles could be impaired. There
can be no assurance that these service arrangements or our limited experience servicing our vehicles will adequately address the
service requirements of our customers to their satisfaction, or that we will have sufficient resources to meet these service requirements
in a timely manner as the volume of vehicles we are able to deliver annually increases. If we do not adequately address our customers’
service needs, our brand and reputation may be adversely affected, which, in turn, could have an adverse effect on our business,
prospects, financial condition and operating results.
Traditional providers
do not provide maintenance and repair services directly. Customers must instead service their vehicles through franchised dealerships
or through third party maintenance service providers. We are pursuing a number of agreements to provide third party service for
us. However, it is unclear when or even whether such third party service providers will be able to acquire the expertise to service
our zero-emission electric and hybrid commercial vehicles. As our vehicles are placed in more locations, we may encounter negative
reactions from our customers who are frustrated that they cannot use local service stations to the same extent as they have with
their conventional commercial vehicles and this frustration may result in negative publicity and reduced sales, thereby harming
our business and prospects
Our decentralized assembly, sales
and service model will present numerous challenges and we may not be able to execute on our plan to establish sales, service and
assembly facilities in the urban areas we have targeted and our facilities in any of those markets may underperform relative to
our expectations.
Our strategy of establishing
sales, service, and assembly facilities in selected urban areas in the United States is substantially different from the prevailing
centralized manufacturing and franchised distribution and service model used currently by our zero-emission and conversion manufacturing
competitors. For example, we will not be able to utilize long established sales channels developed through a traditional franchise
system to increase our sales volume, which may harm our business, prospects, financial condition and operating results. Moreover,
we will be competing with companies with well established distribution channels. If we determine that our decentralized model is
inadequate, opening our own sales, service and assembly facility in any market generally will be capital intensive and require,
among other things, establishing a local order volume that is sufficient to support the facility, finding a suitable and available
location, negotiating a satisfactory lease agreement for the facility, obtaining permits and approvals from local and state authorities
(which, in the case of facilities to be opened in foreign countries, may require obtaining approvals from national governments),
building out the facility to our specifications and hiring and training employees to assemble, sell and service our zero-emission
electric or hybrid vehicles and converting existing vehicles to zero-emission electric or hybrid vehicles. If we decide we must
open our own facilities, we plan to seek state and local government incentives to defray the costs of opening facilities in the
markets we have selected, but we may not be successful in this effort, or the incentives may not be as significant as we would
like. As with any development project, the development and build-out of a facility will subject us to the risk of cost overruns
and delays, which may be significant. Once our sales, service and assembly facilities are open for business, we will need to ensure
that they maintain a high level of quality in order to satisfy customers and enhance the brand. Even if we are able to address
all of the challenges discussed above, and there are no assurances we will be able to, we have little experience in sales, service
or assembly and our sales, service and assembly facilities in one or more markets may not adequately address customer service needs
or be profitable and we may lose sales and our entire investment in such facilities, damaging our reputation in the process. If
we are unable to establish the local order volume we require in order to open new sales, service and assembly facilities or are
unable to successfully assemble, sell, and service our zero-emission electric and hybrid commercial vehicles adequately for customers
and profitably operate these new facilities in our target markets, our business, prospects, financial condition and operating results
may be adversely affected. If we do not adequately address our customers’ service needs, our brand and reputation will be
adversely affected, which in turn could have a material and adverse impact on our business, financial condition, operating results
and prospects.
We are subject to substantial regulation,
which is evolving, and unfavorable changes or any failure by us to comply with these regulations could substantially harm our business
and operating results.
Our commercial zero-emission
electric and hybrid drivetrains, the sale of motor vehicles in general and the electronic components used in our vehicles are subject
to substantial regulation under international, federal, state and local laws. We may incur in the future increased costs in complying
with these regulations. Regulations related to the electric vehicle industry and alternative energy currently are evolving and
we face risks associated with changes to these regulations or new regulations. These risks include the following:
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Changes to the regulations governing the assembly and transportation of lithium-ion batteries;
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Revisions in motor carrier safety laws in the United States to further enhance motor vehicle safety generally and to ensure that electric vehicles achieve levels of safety commensurate with other cars, trucks, and buses could increase the costs associated with the component parts and the manufacture, assembly, and conversion of our drivetrains; and
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Revisions in consumer protection laws to ensure that consumers are fully informed of the particular operational characteristics of vehicles could increase our costs associated with warning labels or other related customer information dissemination.
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To the extent the laws
governing our business and vehicles change, some or all of our zero-emission drivetrains may not comply with applicable international,
federal, state or local laws, and certain of the competitive advantages of our drivetrains may be reduced or eliminated, which
could have an adverse effect on our business. Furthermore, compliance with changing regulations could be burdensome, time consuming,
and expensive. To the extent compliance with changes in regulations or new regulations is cost prohibitive, our business, prospects,
financial condition and operating results will be adversely affected.
Vehicle dealer and distribution laws
could adversely affect our ability to sell our commercial zero-emission electric or hybrid vehicles.
Sales of our zero-emission
electric and hybrid vehicles are subject to international, state and local vehicle dealer and distribution laws. To the extent
such laws prevent us from selling our drivetrains to customers located in a particular jurisdiction or require us to retain a local
dealer or distributor or establish and maintain a physical presence in a jurisdiction in order to sell drivetrains in that jurisdiction,
our business, prospects, financial condition and operating results could be adversely affected. We intend to contract with vehicle
dealers to sell our drivetrains but we have no assurance at this time that we will successfully contract with vehicle dealers and
distributors to sell our drivetrains.
We may face risks associated with
our international business.
We plan to develop
our business internationally, including the pursuit of certain opportunities in China through our wholly-owned subsidiary, ADOMANI
China. The sale and shipment of our products across international borders, as well as the purchase of components and products from
international sources, would subject us to extensive United States, European Economic Area and other foreign governmental trade,
import and export and customs regulations and laws. Compliance with these regulations and laws would be costly and may expose us
to penalties for non-compliance. If we are successful in developing our international activities, we expect that such operations
would be subject to a variety of risks, including:
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difficulties in staffing and managing foreign and geographically dispersed operations;
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having to comply with various United States and international laws, including export control laws and the U.S. Foreign Corrupt Practices Act of 1977 and anti-money laundering laws;
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differing regulatory requirements for obtaining clearances or approvals to market our products;
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changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to sell our products, perform services or repatriate profits to the United States;
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tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell our products in certain foreign markets;
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fluctuations in foreign currency exchange rates;
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imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures;
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imposition of differing labor laws and standards;
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economic, political or social instability in foreign countries and regions;
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an inability, or reduced ability, to protect our intellectual property, including our patented zero-emission drivetrain design, including any effect of compulsory licensing imposed by government action; and
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availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us.
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While we plan to expand
into other markets in the future, our expansion plans may not be realized, or if realized, may not be successful. We expect each
market to have particular regulatory and funding hurdles to overcome and future developments in these markets, including the uncertainty
relating to governmental policies and regulations, could harm our business. If we expend significant time and resources on expansion
plans that fail or are delayed, our reputation, business and financial condition may be harmed.
We are subject to various environmental
laws and regulations that could impose substantial costs upon us and cause delays in opening our sales, service and assembly facilities.
We and our operations
may, once we begin production of our drivetrains through third party agreements, be subject to national, state and/or local environmental
laws and regulations, including laws relating to the use, handling, storage, transportation, disposal and human exposure to hazardous
substances and wastes. Environmental and health and safety laws and regulations can be complex, and we expect that our business
and operations may be affected by future amendments to such laws or other new environmental and health and safety laws which may
require us to change our operations. These laws can give rise to liability for administrative oversight costs, cleanup costs, property
damage, bodily injury and fines and penalties. Capital and operating expenses needed to comply with environmental laws and regulations
can be significant, and violations may result in substantial fines and penalties, third party damages, suspension of production
or a cessation of our operations.
Contamination at properties
we might in the future own and operate, and properties to which hazardous substances have been and may be sent by us, may result
in liability for us under environmental laws and regulations, including, but not limited to the Comprehensive Environmental Response,
Compensation and Liability Act, which can impose liability for the full amount of remediation-related costs without regard to fault,
for the investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human health
and for damages to natural resources. The costs of complying with environmental laws and regulations and any claims concerning
noncompliance, or liability with respect to contamination in the future, could have a material adverse effect on our financial
condition or operating results. We may face unexpected delays in obtaining the necessary permits and approvals required by environmental
laws in connection with any planned manufacturing facilities that could require significant time and financial resources and delay
our ability to operate these facilities, which would adversely impact our business prospects and operating results.
Any failure to protect our intellectual
property rights could impair our ability to protect our proprietary technology.
Our success and ability
to compete depend in part upon our intellectual property. We primarily rely on intellectual property laws, including trade secret,
copyright, trademark and patent laws in the United States and abroad, and use contracts, confidentiality procedures, non-disclosure
agreements, employee disclosure and invention assignment agreements and other contractual rights to protect our intellectual property.
However, the steps we take to protect our intellectual property rights may be inadequate or we may be unable to secure intellectual
property protection for all of our products and services.
If we are unable to
protect our intellectual property, our competitors could use our intellectual property to market products, services or products
and services similar to ours and our ability to compete effectively would be impaired. Moreover, others may independently develop
technologies that are competitive to ours or infringe our intellectual property. Any of our intellectual property rights may be
challenged by others or invalidated through administrative processes or litigation. The enforcement of our intellectual property
rights depends on our legal actions against these infringers being successful, but we cannot be sure these actions will be successful,
even when our rights have been infringed. In addition, we might be required to spend significant resources to monitor and protect
our intellectual property rights, and our efforts to enforce our intellectual property rights may be met with defenses, counterclaims
and countersuits attacking the validity and enforceability of our intellectual property rights. Litigation to protect and enforce
our intellectual property rights could be costly, time-consuming and distracting to management, whether or not it is resolved in
our favor, and could ultimately result in the impairment or loss of portions of our intellectual property. Any patents issued in
the future may not provide us with competitive advantages or may be successfully challenged by third parties.
Furthermore, legal
standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective
protection of our intellectual property may not be available to us in every country in which our products and services are available.
The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and
mechanisms for enforcement of intellectual property rights may be inadequate. Accordingly, despite our efforts, we may be unable
to prevent third parties from infringing upon or misappropriating our intellectual property.
We could incur substantial costs
as a result of any claim of infringement of another party’s intellectual property rights.
Companies, organizations
or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that could prevent,
limit or interfere with our ability to produce, use, develop or sell our zero-emission electric or hybrid vehicles or components,
which could make it more difficult for us to operate our business. Companies in our industry are increasingly bringing and becoming
subject to suits alleging infringement of proprietary rights, particularly patent rights, and our competitors may hold patents
or have pending patent applications, which could be related to our business. These risks have been amplified by the increase in
third parties, or non-practicing entities, whose sole primary business is to assert such claims. We have not received in the
past, but may receive in the future, notices that claim we or our customers using our products and services have misappropriated
or misused other parties’ intellectual property rights. In those cases, we intend to investigate the validity of these claims
and, if we believe these claims have merit, to respond through licensing or other appropriate actions. If we are sued by a third
party that claims that our technology infringes its rights, the litigation could be expensive and could divert our management resources.
We do not currently have an extensive patent portfolio of our own, which may limit the defenses available to us in any such litigation.
In addition, in many
instances, we have agreed to indemnify our customers against certain claims that our products and services infringe the intellectual
property rights of third parties. The results of any intellectual property litigation to which we might become a party, or for
which we are required to provide indemnification, may require us to do one or more of the following:
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cease offering or using technologies or producing, using, developing or selling vehicles or conversions that incorporate the challenged intellectual property;
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make substantial payments for legal fees, settlement payments or other costs or damages;
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obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or
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redesign technology or our vehicles to avoid infringement.
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If we are required
to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement
claims against us or any obligation to indemnify our customers for such claims, such payments or costs could have a material adverse
effect upon our business and financial results. Furthermore, our business could be adversely affected by any significant disputes
between us and our customers as to the applicability or scope of our indemnification obligations to them.
In many of our zero-emission electric
or hybrid drivetrains we use battery packs composed of lithium-ion battery cells, which, if not appropriately managed and controlled,
on rare occasions have been observed to catch fire or vent smoke and flames. If any such events occur in our commercial electric
vehicles, we could face liability for damage or injury, adverse publicity and a potential safety recall.
The battery packs in
our manufactured or converted vehicles will use lithium-ion cells, which have been used for years in laptop computers, cell phones
and electric vehicles. On rare occasions, if not appropriately managed and controlled, lithium-ion cells can rapidly release the
energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells.
Highly publicized incidents of laptop computers, cell phones, and Tesla, Inc.’s electric vehicles bursting into flames have
focused consumer attention on the safety of these cells. More recently, a limited number of side-impact tests carried out by NHTSA
on non-commercial passenger vehicles containing lithium-ion batteries and thermal management systems containing liquid coolant
have resulted in post-collision fires under certain conditions. Any failure of a competitor’s electric vehicle may cause
indirect adverse publicity for us and our electric vehicles. These events have raised questions about the suitability of lithium-ion
cells for automotive applications. There can be no assurance that a field failure of our battery packs will not occur, particularly
if one of our manufactured or converted vehicles is involved in a collision, which could damage the vehicle or lead to personal
injury or death and may subject us to lawsuits, product recalls, or redesign efforts, all of which would be time consuming and
expensive. Furthermore, there is some risk of electrocution if individuals who attempt to repair battery packs on our manufactured
or converted vehicles do not follow applicable maintenance and repair protocols. Any such damage or injury would likely lead to
adverse publicity and potentially a safety recall. Any such adverse publicity or negative public perceptions regarding the suitability
of lithium-ion cells for automotive applications or any future incident involving lithium-ion cells such as a vehicle or other
fire, even if such incident does not involve our vehicles, could seriously harm our business, prospects, financial condition and
operating results.
Unfavorable conditions in the global
economy, rising interest rates and capital market liquidity issues could limit our ability to grow our business and negatively
affect our operating results.
Revenue growth and
potential profitability of our business depends on the level of demand in the markets we serve. To the extent that weak economic
conditions cause our customers and potential customers to freeze or reduce their capital expenditure or operational budgets, particularly
those for zero-emission electric or hybrid vehicles, demand for our products and services may be negatively affected. Historically,
economic downturns have resulted in overall reductions in these budgets and corresponding spending. If economic conditions deteriorate
or do not materially improve, our customers and potential customers may elect to decrease their operational budgets or defer or
reconsider product and service purchases, which would limit our ability to grow our business and negatively affect our operating
results.
Our business depends on our founders
and management team, retaining and attracting qualified management, key employees and technical personnel and expanding our sales
and marketing capabilities.
Our success depends
upon the continued service of Mr. Reynolds, our Chairman, CEO and President, as well as other members of our senior management
team. It also depends on our ability to continue to attract and retain additional highly qualified management, technical, engineering,
operating and sales and marketing personnel. We do not currently maintain key person life insurance policies on any of our employees.
While we have employment contracts with Mr. Reynolds and Mr. Menerey, our Chief Financial Officer, among other executives, we do
not have fixed term employment agreements with any of our other management employees, all who could terminate their relationship
with us at any time. Our business also requires skilled technical, engineering, product and sales personnel, who are in high demand
and are difficult to recruit and retain. As we continue to innovate and develop our products and services and develop our business,
we will require personnel with expertise in these areas. There is increasing competition, especially in California, for talented
individuals such as design engineers, manufacturing engineers, and other skilled employees with specialized knowledge of electric
vehicles, zero-emission electric and hybrid drivetrains and conversions. This competition affects both our ability to retain key
employees and hire new ones. Key talent may leave us due to various factors, such as a very competitive labor market for talented
individuals with automotive or transportation experience. Our success depends upon our ability to hire new employees in a timely
manner and retain current employees. Additionally, we compete with both mature and prosperous companies that have far greater financial
resources than we do and start-ups and emerging companies that promise short-term growth opportunities. The loss of Mr. Reynolds,
Mr. Menerey or any other member of our senior management team, or an inability to attract, retain and motivate additional highly
skilled employees required for the planned development and expansion of our business, could delay or prevent the achievement of
our business objectives and could materially harm our business.
The forecasts of market growth included
in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot
assure you our business will grow at similar rates, if at all.
Growth forecasts are
subject to significant uncertainty and are based on assumptions and estimates, which may not prove to be accurate. Forecasts relating
to the expected growth in zero-emission electric and hybrid vehicles, electric and hybrid drivetrains and conversions and other
markets, including the forecasts or projections referenced in this prospectus, may prove to be inaccurate. Even if these markets
experience the forecasted growth, we may not grow our business at similar rates, or at all. Our growth is subject to many factors,
including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the
forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.
We will require additional capital
to support business growth, and this capital might not be available on acceptable terms, if at all.
We need sufficient
capital to fund our ongoing operations and continue our development. We intend to continue to make investments to support our business
growth and will require additional funds to respond to business challenges, such as keeping pace with technological developments
in order to remain competitive in our evolving industry, improve our operating infrastructure or acquire complementary businesses
and technologies.
While we believe that our existing cash and cash equivalents, including the net
proceeds from our offering of Common Stock in June 2017, will be sufficient to fund our operations at least through the end of
calendar year 2018
, we will need to engage in additional equity or debt financings to secure additional funds.
We
do not expect to be able to satisfy our cash requirements solely through product sales in the near future, therefore we expect
to rely on the net proceeds from our previous offering and this offering to fund our operations.
If we raise additional
funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution,
and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Common
Stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities
and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue
business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms
favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when and if
we require it, our ability to continue to support our business growth, and to respond to business challenges could be significantly
impaired.
We may selectively pursue acquisitions
of complementary businesses and technologies, which could divert capital and our management’s attention, result in additional
dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.
We may selectively
pursue acquisitions of complementary businesses and technologies that we believe could complement or expand our applications, enhance
our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention
of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether
or not they are consummated.
In addition, we have
limited experience with acquiring other businesses or technologies. If we acquire businesses or technologies, we may not be able
to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following
the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:
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inability to integrate or benefit from acquired technologies or services in a profitable manner;
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unanticipated costs or liabilities associated with the acquisition;
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incurrence of acquisition-related costs;
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difficulty integrating the accounting systems, operations and personnel of the acquired business;
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difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;
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difficulty converting the customers of the acquired business onto our applications and contract terms, including disparities in the revenue, licensing, support or professional services model of the acquired company;
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diversion of management’s attention from other business concerns;
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adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;
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the potential loss of key employees; and
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use of resources that are needed in other parts of our business; and use of substantial portions of our available cash to consummate the acquisition.
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In addition, a significant
portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which
must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be
required to take charges to our operating results based on this impairment assessment process, which could adversely affect our
results of operations.
Acquisitions could
also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results.
We may also unknowingly inherit liabilities from acquired businesses or assets that arise after the acquisition and that are not
adequately covered by indemnities. In addition, if an acquired business fails to meet our expectations, our operating results,
business and financial position may suffer.
If we are unable to implement and
maintain effective internal control over financial reporting and effective disclosure controls and procedures, investors may lose
confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock may be negatively
affected.
As a public company,
we will not be required to comply with the requirements to assess and report on internal control over financial reporting until
the filing of our annual report for the year ending December 31, 2018. Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley
Act, requires that we evaluate and determine the effectiveness of our internal control over financial reporting and, beginning
with our annual report for the fiscal year ending December 31, 2018, provide a management report on the internal control over financial
reporting. Once we are no longer either an “emerging growth company” or a smaller reporting company, such report must
be attested to by our independent registered public accounting firm. While we have not conducted an evaluation of our the effectiveness
of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, in connection with its audit of our
financial statements for the fiscal year ended December 31, 2016, our independent registered public accounting firm identified
material weaknesses in our internal controls that are standard for companies of our size, including limited segregation of duties
and lack of systems in place to keep appropriate records for expenses incurred, specifically regarding operations in China. The
Sarbanes-Oxley Act also requires that our principal executive officer and principal financial officer conclude as to the effectiveness
of our disclosure controls and procedures on a quarterly basis. As of June 30, 2017, our chief executive officer and chief financial
officer concluded that our disclosure controls and procedures were ineffective due to the presence of such material weaknesses
in our internal controls. Due to our size, we rely heavily on key management for day-to-day operations and internal controls, and
our size and correspondingly limited resources give rise to additional internal control weaknesses, including our disclosure controls.
If we fail to remediate
our material weaknesses or find additional material weaknesses in our internal control over financial reporting, we may not detect
errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing
the internal control over financial reporting required to comply with this obligation, which process may be time consuming, costly,
and complicated. While we have taken steps to remediate our material weaknesses, if we fail to remediate our material weaknesses
or find additional material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements
of Section 404 of the Sarbanes-Oxley Act in a timely manner, if we are unable to assert that our internal control over financial
reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness
of our internal control over financial reporting, if and when required, investors may lose confidence in the accuracy and completeness
of our financial reports and the market price of our Common Stock could be negatively affected, and we could become subject to
investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could
require additional financial and management resources.
We are an emerging growth company
and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Common Stock
less attractive to investors.
For as long as we continue
to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are
applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation
in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors
will find our Common Stock less attractive because we will rely on these exemptions. If some investors find our Common Stock less
attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
We will remain an emerging
growth company until the earliest of (i) the date on which we are deemed to be a “large accelerated filer,” (ii) the
end of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year, (iii) the
date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) the end of the fiscal year in
which the fifth anniversary of our initial public offering occurs.
We may not be able to utilize a significant
portion of our net operating loss or research and development tax credit carryforwards, which could adversely affect our profitability.
As of December 31,
2016, we had federal and state net operating loss carryforwards due to prior period losses, which if not utilized will begin to
expire from 2032 through 2036 for federal and state purposes, respectively. These net operating loss carryforwards could expire
unused and be unavailable to offset future income tax liabilities, which could adversely affect our profitability.
In addition, under
Section 382 of the Internal Revenue Code of 1986, as amended, our ability to utilize net operating loss carryforwards or other
tax attributes in any taxable year may be limited if we experience an “ownership change.” A Section 382 “ownership
change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase
their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar
rules may apply under state tax laws.
This offering or future
issuances of our stock could cause an “ownership change.” It is possible that any future ownership change could have
a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our
profitability.
Our reported financial results may
be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted
accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the SEC,
and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations
could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before
the announcement of a change.
Risks Related to the Offering and Ownership
of Our Securities
The price of our Common Stock is
and is likely to continue to be volatile and fluctuate substantially, which could result in substantial losses for our stockholders
and may prevent you from reselling your shares at or above the public offering price.
The market price of
our Common Stock is and is likely to remain volatile and may fluctuate significantly in response to numerous factors, many of which
are beyond our control, including:
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overall performance of the equity markets;
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the development and sustainability of an active trading market for our Common Stock;
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our operating performance and the performance of other similar companies;
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changes in the estimates of our operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our Common Stock;
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press releases or other public announcements by us or others, including our filings with the SEC;
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changes in the market perception of all-electric and hybrid products and services generally or in the effectiveness of our products and services in particular;
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announcements of technological innovations, new applications, features, functionality or enhancements to products, services or products and services by us or by our competitors;
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announcements of acquisitions, strategic alliances or significant agreements by us or by our competitors;
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announcements of customer additions and customer cancellations or delays in customer purchases;
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announcements regarding litigation involving us;
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recruitment or departure of key personnel;
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changes in our capital structure, such as future issuances of debt or equity securities;
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our entry into new markets;
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regulatory developments in the United States or foreign countries;
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the economy as a whole, market conditions in our industry, and the industries of our customers;
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the expiration of market standoff or contractual lock-up agreements;
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the size of our market float; and
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any other factors discussed in this prospectus.
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In addition, the stock
markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity
securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate
to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following
periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs,
divert resources and the attention of management from our business, and adversely affect our business.
We will have broad discretion in
how we use the proceeds, and we may not apply the proceeds in ways that increase the value of your investment.
Our management will
have broad discretion to use the net proceeds from this offering, including for any of the purposes described in “Use of
Proceeds,” and you will be relying on the judgment of our management regarding the application of these proceeds. You will
not have the opportunity to influence our decisions on how to use the proceeds, and we may not apply the net proceeds of this offering
in ways that increase the value of your investment. Because of the number and variability of factors that will determine our use
of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure
by our management to apply these funds effectively could harm our business. Pending their use, we intend to invest the net proceeds
from this offering in marketable securities, which may not yield a favorable return to our stockholders. If we do not invest or
apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results,
which could cause our stock price to decline.
There is no public market for the
warrants to purchase common stock in this offering.
There is no established
public trading market for the warrants that are part of the Units being offered in this offering, and we do not expect a market
to develop. In addition, we do not intend to apply to list the warrants on any national securities exchange or other trading market.
Without an active market, the liquidity of the warrants will be limited.
Due to the speculative nature of
the warrants, there is no guarantee that it will ever be profitable for holders to exercise the warrants.
The warrants being
offered as part of the Units do not confer any rights of Common Stock ownership on their holders, such as voting rights or the
right to receive dividends, but rather, merely represent the right to acquire shares of Common Stock at an exercise price per whole
share of Common Stock of $ for
a period expiring on the anniversary
of the date of issuance. The market value of the warrants is uncertain, and there can be no assurance that the market value of
the warrants will equal or exceed the price that you paid in this offering for the warrants. There can be no assurance that the
market price of the Common Stock will ever equal or exceed the exercise price of the warrants, and, consequently, whether it will
ever be profitable for holders to exercise the warrants.
Holders of the warrants may not be
able to exercise the warrants if we do not maintain a current prospectus and comply with applicable securities laws.
No warrants sold in
this offering as part of the Units will be exercisable unless at the time of exercise a prospectus relating to the Common Stock
issuable upon exercise of the warrants is current and the Common Stock has been registered or qualified or is deemed to be exempt
under the securities laws of the state of residence of the holder of the warrants. Although we intend to register the warrants
and the shares of Common Stock issuable upon exercise of the warrants in the registration statement of which this prospectus is
a part, if we do not maintain a current prospectus related to the Common Stock issuable upon exercise of the warrants or if the
Common Stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, holders
will be unable to exercise their warrants.
While your investment will be held
in an interest bearing escrow account, during this period you will not have access to your investment, nor will you have Units.
Until the underwriter
sells at least Units,
funds received from the offering will be deposited into an interest bearing escrow account pending the closing of the offering
in accordance with Rule 15c2-4 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. If the underwriter does
not sell at least
Units within
days after the date this registration statement becomes effective with the SEC, all funds will be promptly returned to investors
with interest and without deduction. During this period, while your investment will be held in an interest bearing account, you
will not have access to your investment, nor will you have Units.
Because the public offering price
of our securities will be substantially higher than the pro forma net tangible book value per share of our outstanding Common Stock
following this offering, new investors will experience immediate and substantial dilution.
The public offering
price is substantially higher than the pro forma as adjusted net tangible book value per share of our Common Stock immediately
following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase
securities in this offering, based on the assumed public offering price of $ per
Unit, you will experience immediate dilution of $ per
share of Common Stock, based on our pro forma as adjusted net tangible book value per share as of June 30, 2017, after giving effect
to the issuance of shares of the Units in this offering. Additionally, you will experience additional dilution upon the exercise
of stock options and warrants to purchase Common Stock with exercise prices less than the offering price per Unit in this offering.
We will incur increased costs and
demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely
affect our operating results.
As a newly public company,
and particularly after we are no longer an emerging growth company, we are incurring and will continue to incur significant legal,
accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting
and corporate governance requirements. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the
listing requirements of the NASDAQ Capital Market, or NASDAQ, and other applicable securities rules and regulations impose various
requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate
governance practices. Our management and other personnel will have to adapt to the requirements of being a public company and will
need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase
our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that
these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance,
and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar
coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors
or as our executive officers.
The increased costs
associated with operating as a public company will decrease our net income or increase our net loss, and may require us to reduce
costs in other areas of our business or increase the prices of our products or services. Additionally, if these requirements divert
our management’s attention from other business concerns, they could have a material adverse effect on our business, prospects,
financial condition and operating results.
Pursuant to Section
404 of the Sarbanes-Oxley Act, or Section 404, and beginning with our annual report for the fiscal year ending December 31, 2018,
we will be required to furnish a report by our management on our internal control over financial reporting. However, while we remain
either an emerging growth company or a smaller reporting company, we will not be required to include an attestation report on internal
control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section
404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial
reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially
engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial
reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as
documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite
our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal
control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could
result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
NASDAQ may delist our Common Stock
from trading on its exchange, which could limit stockholders’ ability to trade our Common Stock.
As a listed company
on NASDAQ, we are required to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order
to continue the listing of our Common Stock. If we fail to meet these continued listing requirements, our Common Stock may be subject
to delisting. If our Common Stock is delisted and we are not able to list our Common Stock on another national securities exchange,
we expect our securities would be quoted on an over-the-counter market. If this were to occur, our stockholders could face significant
material adverse consequences, including limited availability of market quotations for our Common Stock and reduced liquidity for
the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional
financing in the future.
If securities or industry analysts
do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could
decline.
The trading market
for our Common Stock will depend in part on the research and reports that securities or industry analysts publish about us or our
business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for
our Common Stock would be negatively affected. If one or more of the analysts who cover us downgrade our Common Stock or publish
inaccurate or unfavorable research about our business, our Common Stock price would likely decline. If one or more of these analysts
cease coverage of us or fail to publish reports on us regularly, demand for our Common Stock could decrease, which might cause
our Common Stock price and trading volume to decline.
We may fail to meet our publicly
announced guidance or other expectations about our business, which would cause our stock price to decline.
We expect to provide
guidance regarding our expected financial and business performance, such as projections regarding sales and production, as well
as anticipated future revenues, gross margins, profitability and cash flows. Correctly identifying key factors affecting business
conditions and predicting future events is inherently an uncertain process and our guidance may not ultimately be accurate. Our
guidance is based on certain assumptions such as those relating to anticipated production and sales volumes and average sales prices,
supplier and commodity costs, and planned cost reductions. If our guidance is not accurate or varies from actual results due to
our inability to meet our assumptions or the impact on our financial performance that could occur as a result of various risks
and uncertainties, the market value of our Common Stock could decline significantly.
A significant portion of our total
outstanding shares are eligible to be sold into the market in the near future, which could cause the market price of our Common
Stock to drop significantly, even if our business is doing well.
Sales of a substantial
number of shares of our Common Stock in the public market, or the perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of our Common Stock. As of June 30, 2017, we have outstanding 68,070,930
shares of Common Stock, of which 63,965,569 shares are currently restricted as a result of securities laws or lock-up agreements
but will become eligible to be sold at various times. Based on the total number of shares of our Common Stock outstanding as of
June 30, 2017, upon completion of this offering, we will have
shares of Common Stock outstanding, assuming we sell the maximum number of shares and there is no exercise of our outstanding options
or warrants.
Except for those purchased
by parties to existing lock-up agreements and except for any shares held by our affiliates, as defined in Rule 144 under the Securities
Act of 1933, as amended, or the Securities Act, all of the shares of Common Stock sold in this offering will be freely tradable
without restrictions or further registration under the Securities Act. Other than the shares of Common Stock issued and sold in
connection with our offering of Common Stock in June 2017, substantially all of the remaining shares of Common Stock outstanding
after this offering, based on shares outstanding as of June 30, 2017, will be restricted as a result of securities laws, lock-up
agreements or other contractual restrictions that restrict transfers for at least six months and, in most cases, a year from the
date of our June 2017 offering, subject to certain leak-out periods and exceptions described in “Underwriting”.
We may release all
or some portion of the shares subject to lock-up agreements prior to expiration of the lock-up period. Shares held by directors,
executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act and various
vesting agreements, after the aforementioned lock-up and leak-out periods.
Furthermore, our equity
incentive plan allows us to issue stock options. We intend to register all shares of Common Stock that we may issue under our equity
compensation plans so that such shares may be freely sold in the public market upon issuance, subject to volume limitations applicable
to affiliates and the lock-up agreements executed in connection with our offering of Common Stock in June 2017. Moreover, we may
in the future create additional equity incentive plans, which may at that time require us to file a registration statement under
the Securities Act as soon as practicable after the expiration of the lock-up period to cover the issuance of shares upon the exercise
or vesting of awards granted or otherwise purchased under those plans. As a result, any shares issued or granted under the plans
after the lock-up period has expired also may be freely tradable in the public market. If equity securities are issued under the
plans, if implemented, and it is perceived that they will be sold in the public market, then the price of our Common Stock could
decline substantially.
No holders of any shares
of our Common Stock have rights to require us to file registration statements for the public resale of such shares.
The concentration of our Common Stock
ownership with our executive officers, directors and affiliates will limit your ability to influence corporate matters.
Our executive officers,
directors and owners of 5% or more of our outstanding Common Stock and their respective affiliates beneficially owned, in the aggregate
58.3% of our outstanding Common Stock as of October 9, 2017. This percentage includes both outstanding shares of Common Stock and
stock options that are vested and exercisable as of that date. These stockholders will therefore have significant influence over
management and affairs and over all matters requiring stockholder approval, including the election of directors and significant
corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentrated
control will limit our stockholders’ ability to influence corporate matters and, as a result, we may take actions that our
stockholders do not view as beneficial. This ownership could affect the value of our Common Stock.
We do not intend to pay dividends
for the foreseeable future.
We have never declared
nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion
of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must
rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize any future gains
on their investment.
Provisions in our charter documents
and under Delaware law could discourage a takeover that stockholders may consider favorable.
Provisions in our certificate
of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. These
provisions include the following:
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·
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authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to defend against a takeover attempt;
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·
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establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;
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·
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require that directors only be removed from office for cause and only upon a supermajority stockholder vote;
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·
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provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders;
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·
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prevent stockholders from calling special meetings; and
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·
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prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders.
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In addition, we are
governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation
from engaging in a broad range of business combinations with any “interested” stockholder for a period of three years
following the date on which the stockholder becomes an “interested” stockholder. For a description of our capital stock,
see the sections titled “Underwriting” and “Description of Capital Stock.”
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Some of the statements
under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” “Business” and elsewhere in this prospectus constitute forward-looking
statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events
or trends and similar matters that are not historical facts. In some cases, you can identify forward-looking statements by terms
such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,”
“may,” “plan,” “potential,” “should,” “will” and “would”
or the negatives of these terms or other comparable terminology.
You should not place
undue reliance on forward-looking statements. The cautionary statements set forth in this prospectus, including in “Risk
Factors” and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements.
These factors include, among other things:
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·
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Our ability to generate demand for our zero-emission or hybrid drivetrains and conversion kits in order to generate revenue;
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·
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Our dependence upon external sources for the financing of our operations, particularly given that the report of our independent registered public accounting firm for our consolidated financial statements for the year ended December 31, 2016, which are included as part of this prospectus, contains a statement concerning our ability to continue as a going concern;
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·
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Our ability to effectively execute our business plan;
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·
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Our ability to scale our manufacturing, assembling, and converting processes effectively and quickly from low volume production to high volume production;
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·
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Our ability to manage our expansion, growth and operating expenses and reduce and adequately control the costs and expenses associated with operating our business;
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Our ability to obtain, retain and grow our customers;
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·
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Our ability to enter into, sustain and renew strategic relationships on favorable terms;
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Our ability to achieve and sustain profitability;
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·
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Our ability to evaluate and measure our current business and future prospects;
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Our ability to compete and succeed in a highly competitive and evolving industry;
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Our ability to respond and adapt to changes in electric or hybrid drivetrain technology; and
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Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand.
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Although the forward-looking
statements in this prospectus are based on our beliefs, assumptions and expectations, taking into account all information currently
available to us, future transactions, results, performance, achievements or outcomes are unknown. The expectations reflected in
our forward-looking statements may not be attained, or deviations from them could be material and adverse. We undertake no obligation,
other than as may be required by law, to re-issue this prospectus or otherwise make public statements updating our forward-looking
statements.
USE OF PROCEEDS
Based upon the assumed
public offering price of $
per Unit, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, we estimate that
the net proceeds to us will be approximately $ if
we sell the minimum of Units
in this offering and approximately $ if
we sell the maximum of Units
in this offering.
A $1.00 increase (decrease)
in the assumed public offering price, after deducting the underwriting discounts and commissions, would increase (decrease) the
net proceeds to us by approximately $ ,
assuming that the minimum number of Units offered by us, as set forth on the cover page of this prospectus, remains the same, or
approximately $ ,
assuming that the maximum number of Units offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly,
each increase (decrease) of one million Units in the number of Units offered would increase (decrease) the net proceeds to us from
this offering by approximately $
million, assuming that the assumed public offering price remains the same and after deducting the underwriting discounts and commissions
and estimated offering expenses.
We currently intend
to use the net proceeds to us from this offering primarily for the prepayment of our outstanding secured 9% notes payable, purchase
of inventory, additional staffing and working capital. We may also use a portion of the net proceeds for the acquisition of, or
investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements
to enter into any acquisitions or investments.
The outstanding secured
9% notes payable relates to the issuance in 2015 of two-year secured promissory notes with an aggregate face value of $5,147,525
to third-party lenders for cash. As of June 30, 2017, the aggregate principal amount outstanding under such notes is $4,245,325.
The notes are secured by all of our assets, were originally scheduled to mature between January and November 2017 and bear interest
at 9%. We notified all holders of the 9% secured notes payable with maturities in January through August 2017 that we exercised
our option to extend the maturity dates six months pursuant to the provisions of such notes.
We will retain broad
discretion in the allocation of the net proceeds from this offering and could utilize the proceeds in ways that do not necessarily
improve our results of operations or enhance the value of our securities.
Accordingly, we expect
to use the net proceeds as follows:
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Minimum Offering
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Maximum Offering
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Amount
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|
Percentage
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|
Amount
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|
Percentage
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Repayment of 9% Notes Payable
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$
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|
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%
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$
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%
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Inventory
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$
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|
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%
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$
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|
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%
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Additional staffing
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$
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|
|
|
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%
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$
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|
|
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%
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General working capital
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$
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|
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%
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$
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%
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Total
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$
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100.00
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%
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$
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$
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100.00
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%
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The foregoing information
is an estimate based on our current business plan. We may find it necessary or advisable to re-allocate portions of the net proceeds
reserved for one category to another, and we will have broad discretion in doing so. Pending these uses, we intend to invest the
net proceeds of this offering in short-term, interest-bearing securities.
MARKET FOR REGISTRANT’S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS
On June 15, 2017, our
Common Stock began trading on the NASDAQ Capital Market under the symbol “ADOM”. The following table sets forth the
high and low sale prices for our Common Stock for the periods presented.
Period
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High ($)
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Low ($)
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Fiscal Year Ending December 31, 2017
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Second Quarter (from June 15, 2017 through June 30, 2017)
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17.30
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6.53
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Third Quarter
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18.31
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6.11
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Fourth Quarter (through October 13, 2017)
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7.20
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6.34
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On October 13, 2017,
the closing price of our Common Stock on the NASDAQ Capital Market was $6.86 per share. Prior to June 15, 2017, there was no established
public trading market for our securities.
Holders
As of September 30,
2017, we had approximately 261 record holders of our Common Stock. The actual number of stockholders is greater than this number
of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other
nominees. The number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividend Policy
We have never declared
or paid any dividends on our Common Stock and do not anticipate that we will pay any dividends to holders of our Common Stock in
the foreseeable future. Instead, we currently plan to retain any earnings to finance the growth of our business. Any future determination
relating to dividend policy will be made at the discretion of our board of directors and will depend on our financial condition,
results of operations and capital requirements as well as other factors deemed relevant by our board of directors.
CAPITALIZATION
The following table
sets forth our capitalization as of June 30, 2017:
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·
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on a pro forma basis, assuming the sale in this offering of the minimum amount of shares being offered, at the assumed public offering price to the public of $ per Unit, which was the last reported sale price of our common stock on the NASDAQ Capital Market on , 2017, resulting in net proceeds to us of $ (after deducting underwriting discounts and commissions of $ and our estimated other offering expenses of $ ); and
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·
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on a pro forma basis, assuming the sale in this offering of the maximum amount of shares being offered, at the assumed public offering price to the public of $ per Unit, which was the last reported sale price of our common stock on the NASDAQ Capital Market on , 2017, resulting in net proceeds to us of $ (after deducting underwriting discounts and commissions of $ and our estimated other offering expenses of $ ).
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·
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on a pro forma as adjusted basis, assuming the sale in this offering of the minimum amount of shares being offered, at the assumed public offering price to the public of $ per Unit, which was the last reported sale price of our common stock on the NASDAQ Capital Market on , 2017, resulting in net proceeds to us of $ (after deducting underwriting discounts and commissions of $ and our estimated other offering expenses of $ ), and giving effect to the repayment of our outstanding secured 9% notes payable.
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·
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on a pro forma as adjusted basis, assuming the sale in this offering of the maximum amount of shares being offered, at the assumed public offering price to the public of $ per Unit, which was the last reported sale price of our common stock on the NASDAQ Capital Market on , 2017, resulting in net proceeds to us of $ (after deducting underwriting discounts and commissions of $ and our estimated other offering expenses of $ ), and giving effect to the repayment of our outstanding secured 9% notes payable.
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You should read this
table together with our financial statements and the related notes thereto included elsewhere in this prospectus. Our anticipated
use of proceeds from this offering is discussed under “Use of Proceeds.”
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As of June 30, 2017
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Actual
|
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Pro Forma
Assuming
Minimum
Offering
Amount
(Unaudited)(1)
|
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Pro Forma
Assuming
Maximum
Offering
Amount
(Unaudited)(2)
|
|
Pro Forma As
Adjusted
Assuming
Minimum
Offering
Amount
(Unaudited)(1)(3)
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|
Pro Forma As
Adjusted
Assuming
Maximum
Offering
Amount
(Unaudited)(2)(3)
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Stockholders’ equity (deficit):
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|
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Preferred Stock, $0.00001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2017
|
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—
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—
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—
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—
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—
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Common stock, $0.00001 par value, 2,000,000,000 shares authorized, 68,070,930 shares issued and outstanding as of June 30, 2017
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$
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681
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$
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$
|
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$
|
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|
|
$
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Additional paid-in capital
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35,319,919
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|
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Accumulated deficit
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(30,717,217
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)
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(30,717,217
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)
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(30,717,217
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)
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|
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|
|
|
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Total stockholders’ equity (deficit)
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|
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4,603,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total capitalization
|
|
$
|
9,192,692
|
|
|
|
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|
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$
|
|
|
|
$
|
|
|
|
$
|
|
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(1)
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A $1.00 increase (decrease) in the assumed public offering price would increase (decrease) the net proceeds to us by approximately $ , after deducting the underwriting discounts and commissions, assuming that the minimum number of Units offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, each increase (decrease) of one million Units in the number of Units offered would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming that the assumed public offering price remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses.
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(2)
|
A $1.00 increase (decrease) in the assumed public offering price would increase (decrease) the net proceeds to us by approximately $ , after deducting the underwriting discounts and commissions, assuming that the maximum number of Units offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, each increase (decrease) of one million Units in the number of Units offered would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming that the assumed public offering price remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses.
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(3)
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Pro forma as adjusted information gives effect to the repayment of our outstanding secured 9% notes payable.
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The table above excludes the
following securities (unless stated otherwise above):
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26,775,000 shares of Common Stock issuable upon the exercise of options outstanding as of June 30, 2017, at an exercise price of $0.10 per share;
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·
|
3,600,000 shares of Common Stock issuable upon the exercise of options outstanding as of June 30, 2017, at an exercise price of $10.49 per share;
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·
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15,000,000 shares of Common Stock reserved for issuance under 2017 Equity Incentive Plan as of June 30, 2017;
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1,799,659 shares of Common Stock issuable upon the exercise of warrants outstanding as of June 30, 2017, at a weighted average exercise price of $4.42 per share
|
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·
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shares of Common Stock issuable upon full exercise of the warrants offered as part of the Units; and
|
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·
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securities that may be issued by us upon exercise by the underwriter of its over-subscription option to sell additional securities.
|
Dilution
If you invest in our
Common Stock in this offering, your interest will be diluted to the extent of the difference between the public offering price
per Unit and the net tangible book value per share of our Common Stock immediately after this offering, assuming no value is attributed
to the warrants offered as part of the Units. Net tangible book value per share represents the amount of our total tangible assets
less our total liabilities, divided by the number of shares of Common Stock outstanding.
Our net tangible book
value as of June 30, 2017 was $4,361,903, or approximately $0.06 per share of our Common Stock. Historical net tangible book
value per share represents our total tangible assets less total liabilities divided by the number of shares of our Common Stock
outstanding. After giving effect to our sale of Units
in this offering at a public offering price of $
per Unit, which was the last reported sale price of our common stock on the NASDAQ Capital Market on ,
2017, assuming no value is attributed to the warrants offered as part of the Units, and after deducting underwriting discounts
and estimated offering expenses, our pro forma as adjusted net tangible book value at June 30, 2017 would have been approximately
$ , or $
per share of our Common Stock. This represents an immediate increase in net tangible book value of $
per share to existing stockholders and an immediate dilution in net tangible book value of $
per share to investors purchasing Units in this offering.
The following table
illustrates this per share dilution to investors purchasing shares of Common Stock in this offering:
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|
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|
|
Assumed public offering price per Unit
|
|
|
|
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|
$
|
|
|
Net tangible book value per share as of June 30, 2017
|
|
$
|
4,361,903
|
|
|
|
|
|
Increase in net tangible book value per share attributable to this offering
|
|
|
|
|
|
|
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|
Pro forma as adjusted net tangible book value per share after this offering
|
|
|
|
|
|
|
|
|
Dilution per share to investors in this offering
|
|
|
|
|
|
$
|
|
|
A $1.00 increase (decrease)
in the assumed public offering price, after deducting the underwriting discounts and commissions, would increase (decrease) the
net proceeds to us by approximately $ ,
assuming that the minimum number of Units offered by us, as set forth on the cover page of this prospectus, remains the same, or
approximately $ ,
assuming that the maximum number of Units offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly,
each increase (decrease) of one million Units in the number of Units offered would increase (decrease) the net proceeds to us from
this offering by approximately $
million, assuming that the assumed public offering price remains the same and after deducting the underwriting discounts and commissions
and estimated offering expenses.
If the underwriter
exercises its over-subscription option to sell additional securities in full, the pro forma as adjusted net tangible book value
after giving effect to this offering would be $ per share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution in net tangible book value of $ per share to investors purchasing
Units in this offering, assuming no value is attributed to the warrants offered as part of the Units.
As of June 30, 2017,
options to purchase 26,775,000 shares of Common Stock were outstanding at an exercise price of $0.10 per share, options to purchase
3,600,000 shares of Common Stock were outstanding at an exercise price of $10.49 per share and warrants exercisable for 1,799,659
shares of Common Stock were outstanding at a weighted average exercise price of $4.42 per share. If any shares are issued upon
exercise of outstanding options or warrants, you may experience further dilution.
The table and discussion above
excludes the following securities (unless stated otherwise above):
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·
|
26,775,000 shares of Common Stock issuable upon the exercise of options outstanding as of June 30, 2017, at an exercise price of $0.10 per share;
|
|
·
|
3,600,000 shares of Common Stock issuable upon the exercise of options outstanding as of June 30, 2017, at an exercise price of $10.49 per share;
|
|
·
|
15,000,000 shares of Common Stock reserved for issuance under 2017 Equity Incentive Plan as of June 30, 2017;
|
|
·
|
1,799,659 shares of Common Stock issuable upon the exercise of warrants outstanding as of June 30, 2017, at a weighted average exercise price of $4.42 per share;
|
|
·
|
shares of Common Stock issuable upon full exercise of the warrants offered as part of the Units; and
|
|
·
|
securities that may be issued by us upon exercise by the underwriter of its over-subscription option to sell additional securities.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
You should read the
following selected consolidated financial data together with our financial statements and the related notes thereto appearing elsewhere
in this prospectus and in the section of this prospectus entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” The selected consolidated financial data in this section is not intended to replace
the audited and unaudited consolidated financial statements and accompanying notes.
The following tables
set forth a summary of our historical consolidated financial data as of, and for the periods ended on, the dates indicated. We
have derived the consolidated statements of operations data for the years ended December 31, 2016 and 2015 and the consolidated
balance sheet data as of December 31, 2016 and 2015 from our audited financial statements included elsewhere in this prospectus.
We have derived the consolidated statements of operations data for the six months ended June 30, 2017 and 2016 and the consolidated
balance sheet data as of June 30, 2017 from our unaudited financial statements included elsewhere in this prospectus. The unaudited
consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements included
in this prospectus and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the consolidated financial information set forth in those statements. Our historical results
for any prior period are not necessarily indicative of our future results and our interim results are not necessarily indicative
of results to be expected for the full year ending December 31, 2017 or any other period.
|
|
Year Ended December 31,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
|
|
|
|
|
(unaudited)
|
|
|
(in thousands, except per share data)
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
68
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
68
|
|
Cost of sales
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
Gross profit
|
|
|
18
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll expense
|
|
|
782
|
|
|
|
813
|
|
|
|
912
|
|
|
|
424
|
|
Other general and administrative
|
|
|
8,616
|
|
|
|
3,820
|
|
|
|
5,735
|
|
|
|
1,668
|
|
Consulting
|
|
|
117
|
|
|
|
135
|
|
|
|
2,163
|
|
|
|
238
|
|
Research and development
|
|
|
37
|
|
|
|
549
|
|
|
|
519
|
|
|
|
16
|
|
Total operating expenses
|
|
|
9,552
|
|
|
|
5,317
|
|
|
|
9,329
|
|
|
|
2,346
|
|
Loss from operations
|
|
|
(9,534)
|
|
|
|
(5,317
|
)
|
|
|
(9,329
|
)
|
|
|
(2,328
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,148)
|
|
|
|
(702
|
)
|
|
|
(362
|
)
|
|
|
(557
|
)
|
Other income (expense)
|
|
|
(3
|
)
|
|
|
(16
|
)
|
|
|
49
|
|
|
|
1
|
|
Total other income (expense)
|
|
|
(1,151
|
)
|
|
|
(718
|
)
|
|
|
(313
|
)
|
|
|
(556
|
)
|
Loss before income taxes
|
|
|
(10,685
|
)
|
|
|
(6,035
|
)
|
|
|
(9,642
|
)
|
|
|
(2,884
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
Net loss
|
|
$
|
(10,685
|
)
|
|
$
|
(6,035
|
)
|
|
$
|
(9,644
|
)
|
|
$
|
(2,884
|
)
|
Net loss per share to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.04
|
)
|
Weighted shares used in the computation of net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
66,585,580
|
|
|
|
82,611,477
|
|
|
|
64,978,905
|
|
|
|
73,276,408
|
|
|
|
As of December 31,
|
|
As of June 30,
|
|
|
2016
|
|
2015
|
|
2017
|
|
|
|
|
|
|
(unaudited)
|
|
|
(in thousands, except per share data)
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
938
|
|
|
$
|
4,537
|
|
|
$
|
6,868
|
|
Working capital
|
|
|
(3,369
|
)
|
|
|
4,049
|
|
|
|
3,916
|
|
Total assets
|
|
|
3,406
|
|
|
|
4,700
|
|
|
|
9,193
|
|
Total liabilities
|
|
|
6,113
|
|
|
|
5,546
|
|
|
|
4,589
|
|
Additional paid-in capital
|
|
|
18,366
|
|
|
|
9,542
|
|
|
|
35,321
|
|
Accumulated deficit
|
|
|
(21,074
|
)
|
|
|
(10,389
|
)
|
|
|
(30,718
|
)
|
Total stockholders’ equity (deficit)
|
|
|
(2,707
|
)
|
|
|
(846
|
)
|
|
|
4,604
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read
the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated
financial statements and the related notes to consolidated financial statements included elsewhere in this prospectus. In addition
to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates,
beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially
from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those
discussed below and elsewhere in this prospectus, particularly in “Risk Factors” and “Special Note Regarding
Forward-Looking Statements.”
Overview
We are a provider of
advanced zero-emission electric and hybrid vehicles and replacement drivetrains that is focused on reducing the total cost of vehicle
ownership. Our drivetrain systems are designed to help fleet operators unlock the benefits of green technology and address the
challenges of traditional fuel price cost instability and local, state and federal environmental regulatory compliance.
We design advanced
zero-emission electric and hybrid drivetrain systems for integration in new school buses and medium to heavy-duty commercial fleet
vehicles. We also design patented conversion kits to replace conventional drivetrain systems for combustion powered vehicles with
zero-emission electric or hybrid drivetrain systems. The hybrid drivetrain systems are available in both an assistive hybrid format
and a full-traction format for use in private and commercial fleet vehicles of all sizes. We seek to expand our product offerings
to include the sale of zero-emission systems in vehicles manufactured by outside OEM partners, but to be marketed, sold, warrantied
and serviced through our developing distribution and service network.
Our drivetrain systems
can be built with options for remote monitoring, electric power-export and various levels of grid-connectivity. Our zero-emission
systems may also grow to include automated charging infrastructure and “intelligent” stationary energy storage that
enables fast vehicle charging, emergency back-up facility power, and access to the developing, grid-connected opportunities for
the aggregate power available from groups of large battery packs.
We generated virtually
no revenue from inception through June 30, 2017. For the years ended December 31, 2016 and 2015, our net losses were $10.7 million
and $6.0 million, respectively, for the six months ended June 30, 2017 and 2016, our net losses were $9.6 million and $2.9 million,
respectively, and for the three months ended June 30, 2017 and 2016, our net losses were $8.1 million and $1.3 million, respectively.
Factors Affecting Our Performance
We believe that the
growth and future success of our business depend on various opportunities, challenges and other factors, including the following.
New Customers.
We are competing with other companies and technologies to help fleet managers and their districts/companies more efficiently and
cost-effectively manage their fleet operations. Once these fleet managers have decided they want to buy from us, we still face
challenges helping them obtain financing options to reduce the cost barriers to purchasing. We may also encounter customers with
inadequate electrical services at their facilities that may delay their ability to purchase from us.
Investment in
Growth.
We plan to continue to invest for long-term growth. We anticipate that our operating expenses will increase in
the foreseeable future as we invest in research and development to enhance our zero-emission systems; design, develop and manufacture
our drivetrains and their components; increase our sales and marketing to acquire new customers; and increase our general and administrative
functions to support our growing operations. We believe that these investments will contribute to our long-term growth, although
they will adversely affect our results of operations in the near term. In addition, the timing of these investments can result
in fluctuations in our annual and quarterly operating results.
Zero-emission
electric and hybrid drivetrain experience.
Our dealer and service network is not currently established, although we do
have certain agreements in place. One issue they may have, and we may encounter, is finding appropriately trained technicians with
zero-emission electric and hybrid drivetrain experience. Our performance will depend on having a robust dealer and service network,
which will require appropriately trained technicians to be successful. Because our vehicles are based on a different technology
platform than traditional internal combustion engines, individuals with sufficient training in zero-emission electric and hybrid
vehicles may not be available to hire, and we may need to expend significant time and expense training the employees we do hire.
If we are not able to attract, assimilate, train or retain additional highly qualified personnel in the future, or do so cost-effectively,
our performance would be significantly and adversely affected.
Market Growth.
We believe the market for all-electric and hybrid solutions for alternative fuel technology, specifically all-electric and hybrid
vehicles, will continue to grow as more purchases of new zero emission vehicles and as more conversions of existing fleet vehicles
to zero-emission vehicles are made. However, unless the costs to produce such vehicles decrease dramatically, purchases of our
products will continue to depend in large part on financing subsidies from government agencies. We cannot be assured of the continued
availability or the amounts of such assistance to our customers.
Revenue Growth
from Additional Products
.
We seek to add to our product offerings additional zero-emission vehicles of all sizes manufactured
by outside OEM partners, to be marketed, sold, warrantied and serviced through our developing distribution and service network,
as well as add other ancillary products discussed elsewhere in this prospectus.
Revenue Growth
from Additional Geographic Markets.
We believe that growth opportunities for our products exist internationally in addition
to domestically, and through our wholly-owned subsidiary ADOMANI China, we will be pursuing international growth as well. Our future
performance will depend in part upon the growth of these additional markets. Accordingly, our business and operating results will
be significantly affected by our ability to timely enter and effectively address these emerging markets and the speed with which
and extent to which demand for our products in these markets grows.
Components of Our Results of Operations
Revenue
Revenue is recognized
from the sales of advanced zero-emission electric and hybrid drivetrain systems for fleet vehicles and from the sale of new, purpose-built
zero-emission electric or hybrid vehicles. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery
has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.
Cost of Sales
Cost of sales includes
those costs related to the development, manufacture, and distribution of our products. Specifically, we include in cost of sales
each of the following: material costs (including commodity costs); freight costs; labor and other costs related to the development
and manufacture of our products; and other associated costs.
General and Administrative Expenses
General and administrative
costs include all corporate and administrative functions that support our company. These costs also include stock-based compensation
expense; warranty, including product recall and customer satisfaction program costs; consulting costs; and other costs that cannot
be included in cost of sales.
Consulting and Research and
Development Costs
These costs are substantially
related to our research and development activity.
Other Income/Expenses, Net
Other income/expenses
include non-operating income and expenses, including interest expense.
Provision for Income Taxes
We account for income
taxes in accordance with FASB ASC 740 “Income Taxes,” which requires the recognition of deferred income tax assets
and liabilities for the future tax consequences attributable to differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than
not that we will not realize tax assets through future operations. Because we have incurred only losses to this point, no provision
for income taxes has been made.
Results of Operations
Comparison of the Six Months Ended
June 30, 2017 and 2016 (Unaudited)
|
|
|
Six Months Ended
|
|
|
|
June 30, 2017
|
|
June 30, 2016
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
—
|
|
|
$
|
68
|
|
Cost of sales
|
|
|
|
—
|
|
|
|
50
|
|
Gross profit
|
|
|
|
—
|
|
|
|
18
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative [1]
|
|
|
|
6,647
|
|
|
|
2,092
|
|
Consulting
|
|
|
|
2,163
|
|
|
|
238
|
|
Research and development
|
|
|
|
519
|
|
|
|
16
|
|
Total operating expenses, net
|
|
|
|
9,329
|
|
|
|
2,346
|
|
Loss from operations
|
|
|
|
(9,329
|
)
|
|
|
(2,328
|
)
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
(362
|
)
|
|
|
(557
|
)
|
Other income
|
|
|
|
49
|
|
|
|
1
|
|
Total other income (expense)
|
|
|
|
(313
|
)
|
|
|
(556
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
(9,642
|
)
|
|
|
(2,884
|
)
|
Income tax expense
|
|
|
|
(2
|
)
|
|
|
—
|
|
Net loss
|
|
|
$
|
(9,644
|
)
|
|
$
|
(2,884
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss per share to common shareholders:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted shares used in the computation of net loss per share:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
64,978,905
|
|
|
|
73,276,408
|
|
[1] Includes stock-based compensation expense as follows:
|
|
Six Months Ended
|
|
|
June 30,
2017
|
|
June 30,
2016
|
General and administrative expenses
|
|
|
5,044
|
|
|
|
1,278
|
|
Total stock-based compensation expense
|
|
|
5,044
|
|
|
|
1,278
|
|
Revenue
Revenue
for the six months ended June 30, 2017 was $0, as compared to revenue of $68,000 for the six months ended June 30, 2016. We expect
to begin generating revenue in the fourth quarter of 2017.
General and Administrative
Expenses
General
and administrative expenses consist primarily of the following:
|
·
|
personnel-related expenses, including stock-based compensation costs;
|
|
·
|
costs related to raising capital and becoming a public reporting company; and
|
|
·
|
business development-related expenses.
|
General
and administrative expenses increased by $4.6 million for the six months ended June 30, 2017, as compared to the prior-year period.
The increase is primarily due to an increase in stock-based compensation expense of $3.82 million for the six months ended June
30, 2017, as compared to the prior-year period, due to the additional options granted in March 2017. We anticipate stock-based
compensation expense to continue to increase as we expand our infrastructure in order to begin generating revenue. Other increases
in the current-year period over the prior-year period include payroll, sales and marketing, and investor relations expenses, which
increased by $604,277 for the six months ended June 30, 2017, as compared to the prior-year period, due to our need to expand our
sales and marketing infrastructure, as well as the incurrence of certain costs associated with its status as a public company
Consulting Expenses
Consulting expenses
increased by $1.9 million for the six months ended June 30, 2017, respectively, as compared to the prior-year period. The increase
is primarily due to the issuance of a warrant to purchase 350,000 shares of Common Stock as part of a settlement agreement, which
was valued at $1.2 million, and a payment of $800,000 required under the same agreement. Additionally, $75,000 previously paid
to the party involved in the settlement agreement, and originally classified as deferred offering costs, was reclassified as consulting
expense. See Note 5 of the unaudited consolidated financial statements contained in this prospectus.
Research and Development Expenses
Research and development
expenses increased by $512,577 for the six months ended June 30, 2017, as compared to the prior-year period. This increase is primarily
due to $420,000 incurred in the second quarter of 2017 to build and install our drivetrain system on a chassis of a Type D school
bus, on a promotional basis, for a potential customer. The project also enabled us to evaluate a third party firm that performed
the work.
Cash
Flows
The following table
summarizes our cash flows used in operating, investing, and financing activities for the six months ended June 30, 2017 and 2016.
|
|
Six Months Ended
|
|
|
June 30, 2017
|
|
June 30, 2016
|
Consolidated Statements of Cash Flow Data:
|
|
|
|
|
|
|
|
|
Cash flows used in operating activities
|
|
$
|
(3,408
|
)
|
|
$
|
(1,656
|
)
|
Cash flows used in investing activities
|
|
|
(534
|
)
|
|
|
(56
|
)
|
Cash flows provided by (used in) financing activities
|
|
|
9,872
|
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
5,930
|
|
|
$
|
(1,954
|
)
|
Operating Activities
Cash
used in operating activities is primarily the result of our operating losses, reduced by the impact of the non-cash stock-based
compensation amounts. These numbers are further impacted by adjustments for non-cash interest expense.
Net
cash used in operating activities during the six months ended June 30, 2017 was $3.4 million, as a result of a net loss of $9.6
million, stock-based compensation of $5.0 million, other non-cash charges of $1.3 million, and changes in operating assets and
liabilities that used $138,293 in cash. Other current assets increased by $103,114, inventory increased by $120,000, accounts payable
increased by $72,634, accrued liabilities increased by $9,279, and other non-current assets decreased by $2,908.
Net
cash used in operating activities during the six months ended June 30, 2016 was $1.7 million, as a result of a net loss of $2.9
million, stock-based compensation of $1.3 million, other non-cash charges of $306,179, and changes in operating assets and liabilities
that used $356,781 in cash.
We
expect cash used in operating activities to fluctuate significantly in future periods as a result of a number of factors, some
of which are outside of our control, including, among others: the success we achieve in generating revenue; the success we have
in helping our customers obtain financing to subsidize their purchases of our products; our ability to efficiently develop our
dealer and service network; the costs of batteries and other materials utilized to make our products; the extent to which we need
to invest additional funds in research and development; and the amount of expense we incur to satisfy future warranty claims..
Investing Activities
Net
cash used in investing activities during the six months ended June 30, 2017 was $533,652. This was due to the acquisition of property
and equipment and issuing a note to a third party.
Net
cash used in investing activities during the six months ended June 30, 2016 was $55,990. This was due to the acquisition of $45,990
of property and equipment and a $10,000 investment in Silicon Turbine Solutions.
Financing Activities
Net
cash provided by financing activities during the six months ended June 30, 2017 was $9.9 million. This is due to net proceeds of
$12.6 million received from the closing of our offering of Common Stock in June 2017, a $1.5 million repayment of notes payable
principal and related accrued and unpaid interest, and net notes payable proceeds of $500,000. This is offset by payments for costs
related to our offering of Common Stock of $1.7 million. See Note 5 to the unaudited consolidated financial statements contained
in this prospectus.
Net
cash used by financing activities during the six months ended June 30, 2016 was $241,445. This is due to net proceeds of $184,900
from sales of capital stock, $64,000 paid for a stock rescission, and to a $7,500 repayment of notes payable principal, offset
by payments for costs related to our offering of Common Stock of $354,845.
Comparison of the Years Ended December
31, 2016 and 2015
|
|
December 31,
2016
|
|
December 31,
2015
|
Net sales
|
|
$
|
68
|
|
|
$
|
—
|
|
Cost of sales
|
|
|
50
|
|
|
|
—
|
|
Gross profit
|
|
|
18
|
|
|
|
—
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative (1)
|
|
|
9,398
|
|
|
|
4,633
|
|
Consulting
|
|
|
117
|
|
|
|
135
|
|
Research and development
|
|
|
37
|
|
|
|
549
|
|
Total operating expenses
|
|
|
9,552
|
|
|
|
5,317
|
|
Loss from operations
|
|
|
(9,534
|
)
|
|
|
(5,317
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,148
|
)
|
|
|
(702
|
)
|
Other expense
|
|
|
(3
|
)
|
|
|
(16
|
)
|
Total other income (expense)
|
|
|
(1,151
|
)
|
|
|
(718
|
)
|
Loss before income taxes
|
|
|
(10,685
|
)
|
|
|
(6,035
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(10,685
|
)
|
|
$
|
(6,035
|
)
|
Net loss per share to common shareholders:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.07
|
)
|
Weighted shares used in the computation of net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
66,585,580
|
|
|
|
82,611,477
|
|
(1)
|
Includes compensation-based stock expense as follows:
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
Cost of sales
|
|
|
—
|
|
|
|
—
|
|
Marketing expenses
|
|
|
—
|
|
|
|
—
|
|
General and administrative expenses
|
|
|
7,565
|
|
|
|
3,035
|
|
Total stock-based compensation expense
|
|
|
7,565
|
|
|
|
3,035
|
|
Revenues
Revenues were $68,000
and $0 for the years ended December 31, 2016 and 2015.
Research and Development Expenses
Research and development
expenses have historically comprised a significant portion of our operating expenses. Research and development expense was $37,273
and $548,889 for 2016 and 2015, respectively. A substantial amount of research and development expenditures made during 2016 were
capitalized related to building a specific demonstration vehicle, which was the reason for lower expense in 2016.
General and Administrative Expenses
General and administrative
expense was $9.397 million and $4.633 million in 2016 and 2015 respectively. This increase is primarily due to an increase in stock-based
compensation charges of $4.530 million; legal, accounting and other professional fees of $556,205 and decreases in other accounts
of $322,205 during 2016. We anticipate the stock-based compensation expenses may continue to increase as we expand our infrastructure
in order to begin generating revenues and due to our new status as a public company.
Interest Expense
Interest expense consists
of the following:
|
·
|
accrued third party finance charge amortization;
|
|
·
|
accrued benefit conversion features applicable to debt instruments; and
|
|
·
|
accrued interest on existing debt.
|
Interest expense was
$1.148 million and $702,134 for 2016 and 2015 respectively. This increase is due to the accrual of a beneficial conversion expense
related to existing debt instruments, the amortization of finance charges incurred on debt issued during 2015, and the amortization
of the fair market value of a warrant issued during 2016 that related to 2015.
Cash Flows
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
Consolidated Statements of Cash Flow Data:
|
|
|
|
|
|
|
|
|
Cash flows used in operating activities
|
|
$
|
(2,908
|
)
|
|
$
|
(2,103
|
)
|
Cash flows used in investing activities
|
|
|
(871
|
)
|
|
|
(113
|
)
|
Cash flows provided by financing activities
|
|
|
180
|
|
|
|
6,635
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(3,599
|
)
|
|
$
|
4,419
|
|
Operating Activities
Cash used in operating
activities is primarily the result of our operating losses, reduced by the impact of the non-cash stock-based compensation amounts.
These numbers were further impacted by adjustments for non-cash interest expense and, in 2015, an increase in accrued liabilities.
The increase in accrued liabilities is largely due to payroll-related accruals that were paid in 2016.
Net cash used in operating
activities during 2016 was $2.908 million, as a result of a net loss of $10.685 million, stock-based compensation of $7.565 million,
other non-cash charges of $676,482, and changes in operating assets and liabilities that used $460,689 in cash. Inventory increased
by $313,772; accrued expenses decreased by $238,580 due to the payment of accrued compensation of $344,914 and an increase in accrued
interest on debt of $32,695; and other accruals of $73,639; accounts payable increased by $199,441; other non-current assets increased
by $100,043 due to payment of several deposits; deferred revenue decreased by $68,000; and other current assets decreased by $60,265.
Net cash used by operating
activities during 2015 was $2.103 million, as a result of a net loss of $6.035 million, stock-based compensation of $3.035 million,
other non-cash charges of $430,722, and changes in operating assets and liabilities that provided $466,808 in cash.
We expect cash used
by operating activities to fluctuate significantly in future periods as a result of a number of factors, some of which are outside
of our control, including, among others: the success we achieve in generating revenue; the success we have in helping our customers
obtain financing to subsidize their purchases of our products; our ability to efficiently develop our dealer and service network;
the costs of batteries and other materials utilized to make our products; the extent to which we need to invest additional funds
in research and development; and the amount of expense we incur to satisfy future warranty claims.
Investing Activities
Net cash used by investing
activities during 2016 was $871,474. This was due to the acquisition of $411,474 of property and equipment; $450,000 net proceeds
of a loan to a third party; and $10,000 invested in Silicon Turbine Solutions.
Net cash used by investing
activities during 2015 was $113,332. This was primarily due to a $110,000 investment in Silicon Turbine Solutions.
Financing Activities
Net cash provided by
financing activities during 2016 was $180,236 due to net proceeds of $1.042 million from the issuance of debt, net proceeds of
$187,900 from the sale of stock, payment for stock rescission of $54,000, and to a $7,500 repayment of convertible debt principle.
Other non-current assets increased $988,324 due to the capitalization of costs from our offering of Common Stock.
Net cash provided by
financing activities during 2015 was $6.635 million, primarily due to net proceeds of $4.723 million from the issuance of convertible
debt, net proceeds of $1.982 in sales of stock, and to a $70,000 repayment of convertible debt principle.
Liquidity and Capital Resources
From
our incorporation in 2012 until the completion of our offering of Common Stock under Regulation A in June 2017, we financed our
operations and capital expenditures through issuing equity capital, convertible notes and notes payable. A significant portion
of this funding has been provided by affiliated stockholders, although significant equity capital was also raised in late 2015,
and the majority of the convertible notes outstanding was also raised in 2015 from non-affiliated third parties, as discussed below
and in Note 3 to the unaudited consolidated financial statements contained in this prospectus.
As
of June 30, 2017, we had cash and cash equivalents of $6.9 million. We believe that our existing cash and cash equivalents will
be sufficient to fund our operations at least through the end of calendar year 2018. However, there can be no assurance that we
will successfully execute our business plan, and if we do not, we may need additional capital to continue our operations. While
we
have not generated any material revenue
to date and do not expect to be able to satisfy
our cash requirements solely through product sales in the near future, we have received several purchase orders for zero-emission
electric school buses in the second half of 2017 and we expect to begin generating revenue in the fourth quarter of 2017. The sale
of additional equity securities in the future could result in additional dilution to our stockholders and those securities may
have rights senior to those of our Common Stock. The incurrence of additional indebtedness in the future would result in increased
debt service obligations and could result in operating and financing covenants that would restrict our operations. Such capital,
if required, may not be available on terms that are favorable to us or at all. We are currently incurring operating deficits that
are expected to continue for the foreseeable future, and as we begin to execute our marketing plan, we expect our operating deficit
will continue to grow until we begin to generate a sufficient level of revenue from our sales and marketing efforts.
Equity Financings
In
a series of closings during the fiscal years ended 2012, 2013, 2014, 2015 and 2016, we sold an aggregate of 58,542,350, shares
of Common Stock to certain of our officers, directors and other related parties for an aggregate purchase price of $5,270,860.
Regulation A Offering
On
June 9, 2017, we completed an offering of Common Stock under Regulation A. We sold 2,852,275 shares of Common Stock for gross proceeds
of $14,261,375, of which $1,711,365 was paid to the selling stockholders for 342,273 shares they sold in the offering. For more
information about the offering, see Note 5 to our unaudited consolidated financial statements.
2015 Note Financing
and Warrants to Purchase Common Stock
During
2015, we issued two-year secured promissory notes to third party lenders in an aggregate principal amount of $5,147,525, or the
Note Financing. In January 2016, we repaid $7,500 of the aggregate principal amount outstanding under the notes, and in March 2017,
we repaid another $10,000 of such outstanding amount. The secured promissory notes are due on various dates between January 31
and November 30, 2017, unless extended by us at our option for an additional six months. The notes bear interest at an annual rate
of 9%, payable monthly in arrears. The note obligations are secured by a lien on all our assets. On September 1, 2016, holders
of $884,700 of principal amount of the notes exchanged their notes for 884,700 shares of Common Stock, thereby reducing the principal
amount outstanding under the notes to $4,245,325.
In
connection with the Note Financing, in 2015, we agreed to issue a warrant to a third party to purchase 1,250,000 shares of Common
Stock at $4.00 per share, exercisable through September 1, 2021. On September 1, 2016, we issued the warrant.
We
intend to repay our secured promissory notes from proceeds from this offering. Any subsequent extension requires the consent of
the noteholders. As of June 30, 2017, we have extended the maturity dates for those notes maturing in January through August 2017.
Credit Facilities
We
do not have any credit facilities or other access to bank credit. If, however, we elect to repay the secured promissory notes at
maturity, or believe that making an acquisition is appropriate, or see that sales of product are more rapidly using working capital
than anticipated, we may seek to obtain a credit facility to address these issues.
Capital Expenditures
We
do not have any contractual obligations for ongoing capital expenditures at this time. We do, however, purchase equipment necessary
to conduct our operations on an as needed basis.
Going Concern
As of June
30, 2017, we had working capital of $3.9 million and stockholders’ equity of approximately $4.6 million. During the six months
ended June 30, 2017, we incurred a net loss attributable to holders of our Common Stock of approximately $9.6 million. We have
not generated any material revenues and have incurred net losses since inception. Our recurring operating losses and our need for
additional sources of capital to fund our ongoing operations raise substantial doubt about our ability to continue as a going concern.
As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our audited consolidated
financial statements as of December 31, 2016 and 2015 and for the years then ended with respect to this uncertainty. However, on
June 9, 2017, we completed an offering of Common Stock under Regulation A. We sold 2,852,275 shares of Common Stock for gross proceeds
of $14,261,375, of which $1,711,365 was paid to the selling stockholders, as discussed in Note 5 to the unaudited consolidated
financial statements, for 342,273 shares they sold in the offering.
Based on our management’s plans and the significant
capital raised, that substantial doubt has been alleviated, as discussed in Note 2 to the unaudited consolidated financial statements
included elsewhere in this prospectus.
Contractual Obligations
The following table
summarizes our future minimum payments under contractual commitments as of December 31, 2016:
|
|
Payments due by period
|
|
|
Total
|
|
Less than
one year
|
|
1–3 years
|
|
3–5 years
|
|
More than
5 years
|
Operating lease obligations
|
|
$
|
900
|
|
|
$
|
900
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Debt principal repayments
|
|
$
|
5,900,325
|
|
|
$
|
3,641,325
|
|
|
$
|
2,259,000
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,901,225
|
|
|
$
|
3,642,225
|
|
|
$
|
2,259,000
|
|
|
|
—
|
|
|
|
—
|
|
The contractual commitment
amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts
that we can cancel without a significant penalty are not included in the table above.
Off-Balance Sheet Arrangements
We did not have during
the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations
of the SEC.
Indemnification Agreements
As we begin producing
revenue, we will provide customers with indemnification of varying scope against claims of intellectual property infringement by
third parties arising from the use of our products. We do not estimate the costs related to these indemnification provisions to
be significant and are unable to determine the maximum potential impact of these indemnification provisions on our future results
of operations. In addition, we have directors and officers liability coverage to further mitigate our indemnification exposure.
No demands have been made upon us to provide indemnification and there are no claims that we are aware of that could have a material
effect on our consolidated balance sheet, consolidated statement of operations, or consolidated cash flows.
Critical Accounting Policies and Estimates
Our consolidated financial
statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation
of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates
are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our
actual results could differ from these estimates.
We believe that the
assumptions and estimates associated with the preparation of the financial statement information presented in this prospectus are
not significant because we have not generated any appreciable revenue. Therefore, we have not had to make assumptions or estimates
related to a reserve for bad debt expense, or for future warranty costs to be incurred, two items that will have the greatest potential
impact on our consolidated financial statements in the future. We also have no significant current litigation on which we have
to provide reserves or estimate accruals and our investment to date in property, plant and equipment has not been significant.
We therefore have not had to rely on estimates related to impairment. We have not generated any taxable income to date, so have
not had to make any decisions about future profitability that would impact recording income tax expense. Assuming we are able to
generate future profits by executing our business plan, these areas, among others, will most likely be our critical accounting
policies and estimates.
Convertible Instruments
GAAP requires companies
to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments
according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the
embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract,
(b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at
fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings
as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered
a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described
under applicable GAAP.
When we determine that
the embedded conversion options should not be bifurcated from their host instruments, we record, when necessary, discounts to convertible
notes for the intrinsic value of conversion options embedded in debt instruments (the beneficial conversion feature) based upon
the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective
conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt
to their stated date of redemption.
Contingencies
Certain conditions
may exist as of the date the financial statements are issued, which may result in a loss to us, but which will only be resolved
when one or more future events occur or fail to occur. Our management, in consultation with its legal counsel as appropriate, assesses
such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related
to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we, in consultation
with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits
of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that
a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued
in our financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably
possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the
range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not
disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Stock-Based Compensation
We measure the cost
of services received in exchange for an award of equity instruments based on the fair value of the award. For employees, the fair
value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on
vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized
over the period during which services are required to be provided in exchange for the award, usually the vesting period. The fair
value of our Common Stock was estimated by management based on observations of the cash sales prices of its common shares. Awards
granted to directors are treated on the same basis as awards granted to employees.
Fair Value Measurement
We measure the fair
value of financial assets and liabilities based on applicable accounting guidance, which defines fair value, establishes a framework
for measuring fair value, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the measurement date.
The guidance also establishes
a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. Three levels of inputs are used to measure fair value:
Level 1—quoted prices in
active markets for identical assets or liabilities
Level 2—quoted prices for
similar assets and liabilities in active markets or inputs that are observable
Level 3—inputs that are
unobservable (for example, cash flow modeling inputs based on assumptions)
The fair value of our
cash, accounts receivable, accounts payable, and accrued expenses approximates the carrying amounts of such instruments due to
their short maturity. The fair value of the convertible promissory notes approximates the carrying amount because the rate and
terms currently available to us approximate the rate and terms on the existing debt.
Jumpstart Our Business Startups Act
of 2012 (JOBS Act)
We are an “emerging
growth company,” or an EGC, as defined in the JOBS Act. The JOBS Act contains provisions that, among other things, reduce
certain reporting requirements for EGCs. We have irrevocably elected not to avail ourselves of this exemption from new or revised
accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies
that are not emerging growth companies. We have chosen to rely on the other exemptions and reduced reporting requirements provided
by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an EGC we are not required to, among other things,
(i) being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial
statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” disclosure, (ii) not being required to comply with the auditor attestation requirements in the assessment of
our internal control over financial reporting, (iii) not being required to comply with any requirement that may be adopted by the
Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report
providing additional information about the audit and the financial statements, (iv) reduced disclosure obligations regarding executive
compensation or (v) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved.
We will retain our
EGC status until the first to occur of: (i) the end of the fiscal year in which the fifth anniversary of the completion of our
initial public offering occurs, (ii) the end of the fiscal year in which our annual revenues exceed $1.07 billion, (iii) the date
on which we issue more than $1 billion in non-convertible debt during any three-year period or (iv) the date on which we qualify
as a “large accelerated filer.”
Recent Accounting Pronouncements
In August 2014, the
Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-15, “Presentation
of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern.” ASU 2014-15, which is effective for annual reporting periods ending after December 15, 2016, extends the responsibility
for performing the going-concern assessment to management and contains guidance on how to perform a going-concern assessment and
when going-concern disclosures would be required under GAAP. We do not anticipate that the adoption of ASU 2014-15 will have a
material impact on our consolidated financial condition or results from operations. Management’s evaluations regarding the
events and conditions that raise substantial doubt regarding our ability to continue as a going concern are discussed in the notes
to our consolidated financial statements included elsewhere in this prospectus.
The FASB has issued
ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating
leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability)
and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months
or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets
and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the
earliest period presented using a modified retrospective approach. Public business entities are required to apply the amendments
in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early
application is permitted for all public business entities and all nonpublic business entities upon issuance. We have not yet determined
the effect of the adoption of this standard on our financial position and results of operations.
In March 2016, the
FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): “Improvements to Employee Share-Based Payment
Accounting.” This ASU makes targeted amendments to the accounting for employee share-based payments. This guidance is to
be applied using various transition methods such as full retrospective, modified retrospective, and prospective based on the criteria
for the specific amendments as outlined in the guidance. The guidance is effective for annual periods, and interim periods within
those annual periods, beginning after December 15, 2016. Early adoption is permitted, as long as all of the amendments are adopted
in the same period. We are currently evaluating the provisions of this guidance and assessing its impact on our financial statements
and disclosures.
In March 2016, the
FASB issued ASU 2016-03, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments,”
which clarifies the requirements for assessing whether contingent call or put options that can accelerate the repayment of principal
on debt instruments are clearly and closely related to their debt hosts. This guidance will be effective for annual reporting periods
beginning after December 15, 2016, including interim periods within those annual reporting periods, and early adoption is
permitted. We do not anticipate a material impact to our consolidated financial statements as a result of the adoption of this
guidance.
In May 2017, the FASB
issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): “Scope of Modification Accounting.” The amendments
provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply
modification accounting under Topic 718. The guidance is effective for annual periods, and interim periods within those annual
periods, beginning after December 15, 2017. Early adoption is permitted, including any interim period, for reporting periods for
which financial statements have not been issued. We are currently evaluating the provisions of this guidance and assessing its
impact on our financial statements and disclosures
We have implemented
all other new accounting pronouncements that are in effect and that may impact our financial statements and we do not believe that
there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial
position or results of operations.
Trend Information
As discussed above
under “Risk Factors” and “Business,” we have generated very little revenue to date and face many challenges
to successfully generating revenue in the future. Assuming we can execute our business plan successfully, we believe we will be
poised to generate revenue and profit in the following twelve months and beyond. We have no historical results to provide a basis
for our revenue projections other than our management’s knowledge of and experience in our industry and our belief in our
product offerings and in our strategies to take advantage of the market opportunities we believe are available to us. We believe
that our expenses will increase as our sales volume increases, but we also believe we will be able to realize certain economies
of scale in the production process attributable to more production experience and refinements, as well as higher purchase volumes,
creating cost savings for us that will partially offset other marketing, sales and administrative cost increases. We believe the
proceeds of this offering, together with our existing cash and cash equivalents, will be sufficient to fund our future expanded
operations, including international expansion. We may experience, however, quarterly fluctuations in our operating results due
to a number of factors discussed elsewhere in this prospectus.
Quantitative and Qualitative Disclosures
about Market Risks
We are exposed to market
risks in the ordinary course of our business. We do not currently face material market risks such as interest rate fluctuation
risk and foreign currency exchange risk. Our cash and cash equivalents include cash in readily available checking and money market
accounts. These investments are not dependent on interest rate fluctuations that may cause the principal amount of these investments
to fluctuate, and we do not expect such fluctuation will have a material impact on our financial conditions. If we issue additional
debt in the future, we will be subject to interest rate risk. The majority of our expenses are denominated in the U.S. dollar.
As we continue our
commercialization efforts internationally, we may generate revenue and incur expenses denominated in currencies other than the
U.S. dollar, a majority of which we expect to be denominated in Chinese Yuan. As a result, as operations of ADOMANI China expand
in the future, our revenue may be significantly impacted by fluctuations in foreign currency exchange rates. We may face risks
associated with the costs of raw materials, primarily batteries, as we go into production. To the extent these and other risks
materialize, they could have a material effect on our operating results or financial condition. We currently anticipate that our
international selling, marketing and administrative costs related to foreign sales will be largely denominated in the same foreign
currency, which may mitigate our foreign currency exchange risk exposure.
BUSINESS
Overview
We design advanced
zero-emission electric and hybrid drivetrain systems for integration in new school buses and medium to heavy-duty commercial fleet
vehicles. We also design patented conversion kits to replace conventional drivetrain systems for combustion powered vehicles with
zero-emission electric or hybrid drivetrain systems. The hybrid drivetrain systems are available in both an assistive hybrid format
and a full-traction format for use in private and commercial fleet vehicles of all sizes. We seek to expand our product offerings
to include the sale of zero-emission systems in vehicles manufactured by outside OEM partners, but to be marketed, sold, warrantied
and serviced through our developing distribution and service network.
Our drivetrain systems
can be built with options for remote monitoring, electric power-export and various levels of grid-connectivity. Our zero-emission
systems may also grow to include automated charging infrastructure and “intelligent” stationary energy storage that
enables fast vehicle charging, emergency back-up facility power, and access to the developing, grid-connected opportunities for
the aggregate power available from groups of large battery packs.
We are a provider of
new zero-emission electric and hybrid vehicles and replacement drivetrains focused on total cost of ownership. Our drivetrain systems
are designed to help fleet operators unlock the benefits of green technology and address the challenges of local, state and federal
regulatory compliance and traditional-fuel price cost instability.
We generated virtually
no revenue from inception through June 30, 2017. For the years ended December 31, 2016 and 2015, our net losses were $10.7
million and $6.0 million, respectively.
Market Overview
Concerns regarding
climate change and other environmental considerations have led to the implementation of laws and regulations that restrict, cap,
or tax emissions in the automotive industry and throughout other industries. In particular, EPA Tier 4 emission standards, CARB
regulations, and recently implemented policies in Europe, generally referred to as Stage I, II, III and IV regulations, require
a significant reduction in the level of emissions and particulate matter produced by diesel power systems. These regulations
are expected to increase both the cost and size of emission-compliant diesel power products, primarily due to the need to incorporate
additional combustion and after-treatment components.
A variety of market
factors are contributing to the increased use of alternative fuels and growth of alternative fuel technology, including economics,
energy independence, environmental concerns, and the widespread availability of alternative fuels. As the price of crude oil
remains volatile and the threats of climate change and air pollution remain public concerns, the search for more cost effective
and cleaner fuels has become more important. Electricity has emerged as one solution to these challenges. The price of
alternative fuels such as electricity is substantially less than diesel or gasoline, and alternative fuels produce lower amounts
of toxic greenhouse gases.
In 2016,
the number of electric cars surpassed two million in cumulative global car stock to date after reaching one million in
cumulative global car stock in September 2015, up from about 665,000 as of the end of 2014. Additionally, in 2016, the number
of electric buses grew to approximately 345,000 vehicles, double the number on the road in 2015 and an increase from 46,000
in 2014. Despite significant increases, including global sales of over 750,000 electric cars in 2016, electric
vehicles still represent only approximately 0.2% of the total number of passenger light-duty vehicles in circulation as of
June 2017 and the electric vehicle market share exceeds 1% of total car sales in only six countries: the Netherlands, Norway,
Sweden, France, the United Kingdom and China, with Norway leading with a 29% market share. Further, while the United States
accounted for the largest portion of the global stock of electric cars in 2015 and accounted for approximately 20% of all new
electric vehicles sold worldwide in 2016, in 2016, China surpassed the United States, accounting for approximately 45% of all
new electric vehicles sold worldwide.
In the United States,
sales of new electric vehicles increased by 37% in 2016 as compared to 2015, and more than half of such sales occurred in California,
likely driven by the state’s zero-emission vehicle mandate, which requires that a certain percentage of an automobile manufacturer’s
sales must be zero-emission vehicles.
By 2019, global sales
of electric vehicles are estimated to exceed two million units, which would represent an increase from the 549,000 units sold in
2015, and by 2020, the global stock of electric cars may range between 9 million and 20 million. Further, in North America, some
estimates suggest that the annual sales of hybrid and electric buses and trucks may increase 20.5% and 30.9% year-over-year through
2025, respectively. It is estimated that China has more than 200 million electric two-wheelers, between three and four million
low-speed electric vehicles and more than 300,000 electric buses in 2017, up from more than 170,000 and 112,400 buses in 2016 and
2015, respectively, and continues to seek electrification of other modes of transportation. Additionally, the output of the special
purpose vehicle market in China increased 10.7 times year-over-year to 47,800 in 2015, and in the first two months of 2016, increased
by approximately 116%. In September 2017, China announced that it intends to compel automobile manufacturers to accelerate the
production of electric vehicles by 2019, suggesting a concerted effort by the government of China to phase out traditional internal
combustion engines as soon as practicable.
The overall market
for electric vehicles consists of multiple, discrete markets for various vehicle types, including passenger cars, buses, two-wheelers
and others. Passenger cars are the most prominent, but two-wheelers are far more prevalent, particularly in Asia, and buses and
trucks, although smaller in number are significantly higher in price and often purchased in bulk by major corporate customers or
government or transit agencies. Because light duty passenger vehicles represent the largest potential market and have received
the most attention from both analysts and policymakers, most global forecasts look at light duty electric vehicle sales.
Charging infrastructure
is another important factor in electric vehicle adoption rates. The United States currently has 12,845 public electric charging
stations and 32,069 public charging outlets. Some areas have considerably more charging stations than others, contributing to greater
electric vehicle usage in those regions. Examples of particularly well equipped areas include the East and West Coasts of the United
States, Japan, and Western Europe.
Electric Vehicle Markets
Electric vehicles include
those that plug in to sources of electricity to recharge: plug-in hybrid electric vehicles, or PHEVs, and pure electric battery
electric vehicles, or BEVs, as well as simple hybrid vehicles that combine a conventional powertrain with some kind of electric
propulsion. Electric motors all share simple mechanics and high energy conversion efficiency, which can reach 90% over a range
of speeds and power outputs. Especially in start-stop city driving, regenerative braking can help convert motive energy back into
electricity and reduce wear on brakes. Electric motors can also provide high torque from rest and do not need multiple gears to
match power curves, obviating the need for gearboxes and torque converters.
Passenger Vehicles
Total worldwide sales
of passenger EVs only surpassed two million in 2016. Despite recent growth, this still represents only 10% of the multi-nation
Electric Vehicles Initiative’s goal of 20 million passenger EVs on the roads by 2020, or 2% of global cars.
In 2015, sales of plug-in
electric vehicles (including both pure PEVs and PHEVs, light trucks in the United States and Canada and light commercial vehicles
in Europe) significantly increased. Global sales reached almost 540,000, a nearly 70% increase from 2014, which itself saw about
a 50% increase from 2013. Notwithstanding this positive trend, electric vehicles still comprised only 0.86% of the global auto
market in 2016. In 2016, sales of plug-in electric vehicles (including both pure PEVs and PHEVs, light trucks in the United States
and Canada and light commercial vehicles in Europe) increased further to 773,600, a 42% increase from 2015.
Regionally, the largest
increase occurred in China, which more than tripled electric vehicle sales in 2015 and accounted for more than 40% of the electric
cars sold in the world in 2016, more than double the amount sold in the United States, followed by Europe and the United States.
Globally, approximately 95% of electric car sales occur in just ten countries: China, the United States, Japan, Canada, Norway,
the United Kingdom, France, Germany, the Netherlands and Sweden. China and Europe, in particular, have been able to accelerate
sales growth, likely due to stronger government support, particularly in the form of rebates, tax abatements, and other financial
incentives for purchasing electric vehicles.
Commercial Vehicles
As relatively simple
as the pricing analysis is for individual consumers, the purchase and deployment of heavy duty commercial vehicles involve consideration
of many more variables. Here, the type of customer is a major determinant, whether it is a commercial customer buying trucks for
a fleet or a municipal entity purchasing buses for public use. Navigant Research forecasts global sales of electric drive and electric-assisted
medium and heavy duty commercial vehicles (over 10,000 pounds) to grow from 16,000 in 2014 to almost 160,000 in 2023, for total
sales of over 800,000 of such vehicles during the period. Navigant expects electric vehicles’ market share to increase from
0.4% to 2.9% of all medium and heavy duty commercial vehicle sales over the same period.
Environmental Benefits
Because heavy-duty
commercial vehicles consume considerably more fuel than light duty passenger vehicles, the environmental benefits of replacing
conventionally fueled commercial vehicles with EVs can also be substantial. Whereas an electric passenger car will reduce greenhouse
gas (GHG) emissions by 3 tons per year as compared to a conventional car, replacing a conventional Class 8 port drayage truck with
an electric equivalent can bring an 18 metric ton annual reduction in GHG emissions. Replacing a conventional diesel bus with an
all-electric bus can achieve a 78 metric ton reduction in GHG emissions. Electric buses can also reduce NO
x
emissions
by 47 kg per year compared to a diesel bus and 19 kg compared to a CNG bus. As discussed below, these pollution reductions have
had the greatest impact in the electric bus market, where public-minded municipalities are the principal purchasers.
Electricity Cost Considerations
Despite the higher
electricity consumption of electric trucks, more widespread adoption could lead to more efficient utilization of utility assets
and thus not necessarily lead to higher rates. At this point, deployment of electric trucks and buses is still too small to assess
their full impact on electricity prices. As a study by the clean transportation nonprofit CALSTART emphasizes, evaluating this
impact will involve weighing potential efficiency benefits, the impact on utility distribution grids, including the cost of potential
upgrades, and the need for additional infrastructure.
Trucks
Some of the main markets
for electric trucks include delivery vans, shuttle buses, and utility or work trucks, each of which has its own set of challenges.
Where PHEVs have greater operational flexibility and require less charging infrastructure, battery electric vehicles (BEVs) can
be either short range, which can charge quickly and operate with limited interruption, or long range, requiring longer charging
times but more intraday operational flexibility. The table below presents some examples of different kinds of vehicles, battery
sizes, and electricity demands.
Table 1: Electricity Needs of Electric
Truck and Bus Types
Technology Type
|
Example
|
Average Peak Demand
|
Battery Size
|
Short Range PHEV
|
Volvo PHEV Class 8 Drayage Truck
|
10 kW
|
10kWh
|
Work Truck PHEV
|
Odyne Advanced Diesel PHEV Truck
|
3.3 kW
|
14/28 kWh
|
Long Range PHEV
|
Efficient Drivetrain PHEV/CNG Class 4 Truck
|
Up to 6.6 kW
|
40 kWh
|
Short Range BEV
|
Proterra Fast Charge Catalyst
|
280 to 380 kW*
|
53 or 131 kWh
|
Medium Range BEV
|
Transpower Electric Drayage Drive
|
70 kW
|
215 kWh
|
Long Range BEV
|
BYD 40-foot Electric Transit Bus
|
80 kW or 200 kW
|
324 kWh
|
* For
deployments of 4 to 8 buses per fast charger
Because of charging
needs and restrictions, short-haul fleet vehicles that operate in a limited geographic area and return to central locations, such
as delivery vans and shuttle buses, are the best candidates for electrification. Smith Electric Vehicles, for example, has sold
step trucks and vans to companies like FedEx and Frito-Lay to use on local delivery routes.
Buses—Transit
For a number of reasons,
buses probably present a more promising near-term market for electrification than other commercial vehicles. First, most bus purchases
are public in nature, coming from transit agencies or school districts. As a later survey of government policies in the United
States and abroad will show, many locales require public transportation operators to purchase and operate low-emissions vehicles.
For public entities, cleaner transportation systems can provide benefits beyond reduced operating costs, in the form of less pollution
and lower abatement and cleanup costs. Second, electric drive buses are likely to have lower fuel and maintenance costs, typically
a large cost area for transit operators, compared to conventional diesel buses. Third, electric buses have smoother, faster acceleration
and provide a quieter, smoother ride, benefiting both passengers and the surrounding urban environment.
Similarly to passenger
cars and commercial fleets, high initial costs and the logistics of charging remain the greatest drawbacks. As detailed in the
table below, depending on the market, hybrid buses can cost at least 40% more than, and sometimes over twice as much as, conventional
diesel or CNG buses. Electric buses can be anywhere from twice to nearly five times as expensive as conventional buses.
Table 2: Hybrid and Electric Transit
Bus Estimated Prices by Region, 2014
Market
|
|
Conventional (Diesel and CNG)
|
|
Hybrid
|
|
Electric
|
China
|
|
$
|
60,000–90,000
|
|
|
$
|
125,000–200,000
|
|
|
$
|
280,000–350,000
|
|
India
|
|
$
|
75,000–110,000
|
|
|
$
|
175,00–255,000
|
|
|
$
|
325,000–410,000
|
|
Russia
|
|
$
|
130,000–180,000
|
|
|
$
|
245,000–325,000
|
|
|
$
|
400,000–500,000
|
|
South America
|
|
$
|
200,000–225,000
|
|
|
$
|
280,000–340,000
|
|
|
$
|
410,000–500,000
|
|
North America
|
|
$
|
420,000–580,000
|
|
|
$
|
620,000–700,000
|
|
|
$
|
850,000–980,000
|
|
Europe
|
|
$
|
300,000–410,000
|
|
|
$
|
450,000–540,000
|
|
|
$
|
595,000–680,000
|
|
Rest of World
|
|
$
|
100,000–350,000
|
|
|
$
|
195,000–500,000
|
|
|
$
|
300,000–700,000
|
|
Hybrid buses have gained
greater traction than pure electric models in China and India, the two largest markets for electric buses. Both countries have
some of the world’s worst urban pollution, as well as cities where buses form a greater part of public transportation than
rail systems. Both China and India have a number of domestic hybrid and electric bus manufacturers, including Yutong, Xiamen King
Long Motor Group, BYD, Nanjing Golden Dragon Bus, and Zhongtong Bus in China and Tata and Ashok Leyland in India. Of the 500,000
city buses in operation in China in 2014, analysts estimate that 80,000 were electric (presumably including hybrid electric models),
with 27,000 more sold in 2014 and about 20,000 sold through the first half of 2015. The five companies just mentioned accounted
for 62.5%, or 17,011, of the buses sold in 2014.
Electric drive or hybrid
electric buses made up 17% of bus fleets in the United States in 2014, with most being gasoline or diesel hybrids, which made up
between 30% and 40% of new bus sales. At the end of 2014, there were only 130 zero-emissions buses, that is, fully electric or
fuel cell-powered buses, in operation or on order in the United States. A CALSTART executive has estimated that this number will
double in 2016, and that zero-emissions models will make up 20% of the transit bus market by 2030. As an example of the cost impact
of purchasing new electric buses, the Chicago Transit Authority recently committed to purchase 20–30 buses over the next
few years, at a total pre-subsidy cost of $30 million to $40 million.
In the United States,
the major sellers of battery electric buses through 2014 were Proterra and BYD, having sold 110 and 102 electric buses respectively.
BYD, a Warren Buffet-backed Chinese manufacturer, expected to sell an additional 200 electric buses in the United States in 2015,
and has sold about 5,200 worldwide.
Buses—School
School buses present
another significant potential market for electrification. The United States has 480,000 school buses carrying 25 million children
to school every day. The typically short, predictable routes of school buses are particularly suited to running solely on electricity.
Traditional diesel school buses, which make up over half the total fleet, not only consume large amounts of fuel—more than
800 million gallons of diesel a year in the United States, at a fuel economy of only 4 mpg—but also directly impact children
with tailpipe emissions. In response, a number of states have included school buses in clean transportation mandates, and some
school districts, notably in California and Illinois, have begun to replace diesel buses with electric. Navistar introduced the
first hybrid model in 2007, improving fuel economy by 30%, or up to 65% for a plug-in hybrid model, and other manufacturers followed
suit, but we are not aware of any current hybrid manufacturing of school buses taking place.
As of 2016, the number
of electric buses in China had already reached approximately 343,500 units, including 300,000 BEVs. Efforts by the government of
China, including its use of subsidies and ambitious efforts by certain cities regarding electrification of their bus fleets, continue
to influence substantially the rate of growth of the electric bus market. For example, Shenzhen has sought to convert 100% of its
bus fleet to electric buses in 2017.
Market Drivers
A number of factors
impact both the supply and demand for various types of electric vehicles and we believe that we are well positioned benefit as
a result of these driving forces. Except for energy storage technologies, discussed earlier, subsequent sections will address these
market drivers in greater detail.
We believe prominent
drivers of supply include:
|
·
|
The cost and availability of energy storage technologies, specifically the cost and capacity of rechargeable lithium ion batteries;
|
|
·
|
Grants, loans, tax breaks, and other financial support available for energy storage and electric vehicle research and development;
|
|
·
|
Requirements that a specific percentage of automakers’ models be electric or other zero-emission vehicles; and
|
|
·
|
Fuel economy standards that require automakers to meet certain fleet-wide benchmarks.
|
We believe prominent
drivers of demand include:
|
·
|
Mandates that government fleets purchase certain percentages of low emission, energy efficient, or alternative fuel vehicles;
|
|
·
|
Mandates for transport agencies or school districts to purchase or convert to electric or other alternative fuel vehicles;
|
|
·
|
Rebates, tax credits, and other incentives for purchasing or leasing electric or other alternative fuel vehicles;
|
|
·
|
The availability of charging stations and other charging infrastructure, driven in turn by government funding, tax credits, rebates, and other incentives aimed at increasing the number of charging stations;
|
|
·
|
The cost of electricity to recharge PEVs, impacted by special rates introduced by utilities;
|
|
·
|
Preferential treatment in registration, emissions testing, and access to highways, city centers, and HOV lanes; and
|
|
·
|
The cost of conventional diesel or gasoline and the resultant incremental costs of owning and operating an electric vehicle versus a conventionally fueled equivalent.
|
United States—Federal Laws and
Incentives
As numerous as U.S.
policies at the state and federal levels may at first appear, unlike in China and many European nations, few federal, and fewer
state policies directly single out electric vehicles. Most often, U.S. policies encourage greater use of vehicles that run on some
kind of alternative fuel, whether electricity, natural gas, hydrogen, or biodiesel. In addition, the United States has less of
a comprehensive, coherent framework aimed at increasing electric vehicle use than do countries like China and many European nations.
United States—State Laws and Incentives
Among U.S. states,
California is notable for pioneering a number of measures that have encouraged electric vehicle production and adoption, often
later copied by other jurisdictions. These include financial incentives like tax credits and rebates for both individual and fleet
owners, HOV lane access, and various grant and loan programs. Besides setting the nation’s most stringent emissions standards,
California has required automakers to produce increasing percentages of zero-emission vehicles, of which EVs make up a significant
portion, along with creating a market that allows manufacturers to buy and sell credits awarded for selling EVs. AB 923 became
effective January 1, 2005 and effective January 1, 2012, Assembly Bill 470 authorized using AB 923 funding for the purchase
of new school buses or retrofit of existing buses to accomplish the primary goal of reducing children’s exposure to both
cancer-causing and smog-forming pollutants. Administered by the CARB, AB 923 authorizes state funding of up to $400,000 per new
zero-emission school buses and up to $200,000 for the conversion of existing school buses ten years old or newer. The purchase
of new buses, restricted to replacement of existing buses prior to AB 923, is now permitted for fleet expansion as well. There
are no longer any limits on the buses’ gross vehicle weight rating. All-electric school bus conversions that use technologies
already demonstrated on school buses, and with engineering plans, are eligible for AB923 funding. All vehicles receiving AB 923
funding must have CHP Safety Certifications that are submitted to CARB prior to funding. AB 923 contains other technical requirements
for the buses, all of which our products comply with.
Fleet Operator Challenges
Fleet operators and
their companies face a number of challenges in the market today, including:
|
·
|
Difficulty complying with existing and new federal and state emission restrictions and compliance requirement
. Federal regulatory agencies, such as the EPA, and state regulatory agencies, such as CARB, have set forth mandates designed to reduce emissions from mobile sources. At least 10 other states follow the CARB rules and regulations making similar requirements and more are expected to join along with the EPA at the federal level.
|
|
·
|
Finding cost savings while managing high fuel, maintenance and repair costs
. The Global Warming Pollution Reduction Act of 2007 set strict air quality standards for PM, NOx and GHG reductions from new manufactured vehicles which were further tightened in 2010 to further reduce the amounts of PM, NOx and GHG emitted by newly manufactured vehicles.
|
|
·
|
Extending the lives of existing vehicles
. Due to reductions in capital expenditure budgets and the legislatively mandated addition of expensive and limiting emission reduction equipment it is challenging to prolong the lives of existing vehicles because of the increased cost of expensive maintenance, service and repairs.
|
|
·
|
Difficulty planning for the operation of their fleet when fuel supplies are interrupted, such as during a natural disaster
. Existing vehicles rely on fuel that must be pumped (using electricity) which may be a challenge to source when supply is interrupted during natural or man-made disasters. It may be possible for emergency service organizations to use the large battery packs of electric drive, commercial fleet vehicles as a mobile source of stored electrical energy. This electrical energy could supplement traditionally fueled back-up generators.
|
|
·
|
Difficulty in improving the environment around these heavy-duty commercial fleets
. Many studies have shown that the air quality in and around vehicles fueled by fossil-fuels pose a health risk not only to drivers of these vehicles but to their passengers and those in and around these vehicles. Especially at risk are children as passengers on older diesel fueled buses, as their lungs, brains and other organs have not fully developed and the air quality surrounding a typical school bus using diesel fuel can pose serious health risks. By using zero emission buses, trucks and cars we are creating a healthier environment in and around the vehicles they operate for their employees, customers and the communities they serve.
|
Our Solution
We design advanced
zero-emission electric and hybrid vehicles and replacement drivetrain systems that improve fuel economy and reduce emissions. Our
drivetrain systems are designed to help vehicles run more efficiently and cost effectively. We subcontract the manufacturing
of our completed drivetrains to two facilities in Northern California, to which we provide our patented zero-emission drivetrain
design and which is completed under our supervision. At this time, we do not manufacture complete vehicles. We sell our zero-emission
drivetrains to third party OEMs with whom we partner and they manufacture the complete vehicle after installing the drivetrain
under our supervision. As of September 30, 2017, we have built 15 drivetrains, six of which we have installed and the balance of
which we have used for proof-of-concept and testing.
We enable our customers
to:
|
·
|
Add Emission-Compliant ADOMANI Vehicles and Drivetrain Systems to Their Fleets
. Our commercial fleet vehicles and drivetrain systems are designed to reduce or eliminate the use of traditional fuels that create greenhouse gases and particulate matter.
|
|
·
|
Reduce Total Cost of Ownership
. Our technology is designed to reduce fuel budgets by eliminating or reducing the reliance on traditional petroleum-based fuels, instead using the more energy efficient and less variably priced grid-provided electricity.
|
|
·
|
Prolong Lives of Existing Vehicles
. Zero-emission electric and hybrid vehicles generally have lower maintenance costs. These reduced maintenance costs may take the form of longer service intervals between brake system maintenance, reduction or elimination of internal combustion engine oil and oil filter changes, reduction or elimination of transmission oil and oil filter changes, reduction or elimination of air filter changes, reduction or elimination of emissions systems services, reduction or elimination of diesel emission fluid use, elimination of emissions tests on traditional fuel vehicles (if converted to a zero-emission electric drivetrain) and the elimination of certification tests of high pressure tanks on propane, liquefied natural gas and compressed natural gas powered vehicles (if converted to a zero-emission electric drivetrain).
|
|
·
|
Plan for Natural Disasters When Fuel Supply May be Interrupted
.
Our zero-emissions systems can serve as on-site emergency back-up energy storage if grid power becomes intermittent or fails temporarily during natural or man-made disasters.
|
|
·
|
Improve the Environment Around Vehicles
. As a result of our zero-emission systems, drivers, operators, customers and the communities they serve have healthier environments in and around these vehicles.
|
Development of the Business to Date
We have developed and
commercialized our products and services, which primarily include:
|
·
|
Zero-emission electric drivetrain systems for use in “new” school bus and medium to heavy-duty commercial fleet vehicles.
|
|
·
|
Zero-emission electric drivetrain systems for use in “existing fleet” school bus and medium to heavy-duty commercial fleet vehicles.
|
|
·
|
Conversion hybrid drivetrain systems in an assistive hybrid format for use in private and commercial fleet vehicles of all sizes.
|
|
·
|
Conversion hybrid drivetrain systems in a “full-traction” format for use in private and commercial fleet vehicles of all sizes.
|
|
·
|
Purpose-built, zero-emission vehicles of all sizes manufactured by outside OEM partners but to be marketed, sold, warrantied and serviced through the developing ADOMANI distribution and service network.
|
|
·
|
Optional drivetrain components that allow for advanced remote monitoring features of vehicle location (geofencing), driver behavior, drivetrain health (error codes) and battery management systems.
|
|
·
|
Optional drivetrain components that allow for electric power-export and various levels of grid connectivity.
|
We have taken an active
role in building awareness and support for our zero-emission electric and hybrid drivetrain systems in industry specific target
groups and at all levels of government and regulatory agencies and the constituencies they serve. We have accomplished this through
prior and current memberships in industry groups (private and governmental) and participation in their events; speaking engagements;
management interviews; pilot product exhibits; fleet vehicle demonstrations and responses to Requests For Information and Requests
For Proposals. In addition to the visibility we have achieved through these efforts, we believe that having an office in Silicon
Valley will assist us in finding and recruiting appropriately trained engineers and technicians.
As discussed below
under Partnerships/Teaming Agreements, we have entered into a number of agreements with third parties and continue to explore additional
alliances, to establish our decentralized assembly, sales and service model. We believe we can preserve cash resources and yet
still scale-up quickly when demand requires by leveraging the unused or underutilized service technician time, specific vehicle
type expertise and service facility equipment of specific partners in ways to off-load some defined tasks, providing seasonal demand
adjustments to technician headcount that will partially mitigate the human resource costs and challenges associated with scaling-up
or down an employee base.
Our Strengths
We believe
the following attributes and capabilities provide us with long-term competitive advantages:
|
·
|
Product Diversity
. We have multiple product offerings including zero-emission electric and hybrid drivetrains, new purpose-built zero-emission electric vehicles and stationary energy storage solutions and, as a result, the ability to scale-up, scale-down or refine a specific product line in response to market demands and the evolving local, state and federal incentive programs. Also, within each product area, we have multiple suppliers of key drivetrain components, allowing price flexibility both for our final products and replacement parts required over the product lifespan. This allows us to meet the expectations and budget constraints of public or private commercial fleet operators.
|
|
·
|
Regulatory Agency Familiarity
. By taking an active role in many trade industry groups and related events, we have developed and continually strive to maintain strong relationships with key local, state and federal regulatory agencies involved in the growing zero-emission and hybrid vehicle industry. To meet their own aggressive emissions targets, these regulatory agencies have encouraged the growth of zero-emission electric vehicles and hybrid drivetrains, especially in connection with heavy-duty commercial fleets.
|
|
·
|
Relationships With Purchasers
. To help shorten the sales cycles for our products, we have identified and built relationships with key commercial operators that have purchasing authority or influence over their organizations. We are also able to leverage past sales and marketing relationships that were built by our experienced management team.
|
|
·
|
Additional Sales Potential
. We have additional sales potential with commercial fleet customers. These potential additional sales could include: automated charging infrastructure, intelligent stationary energy storage systems that enable higher levels of vehicle fast-charging, emergency back-up facility power for use during grid power outages, enabling technologies to access the developing grid-connected opportunities for the aggregate power available from groups of large battery packs, or enabling technologies that allow for the avoidance of electric utility demand charges.
|
|
·
|
Unique Market Knowledge
. We have specific and unique sales cycle knowledge based on the over 30 years of experience of our management team.
|
Our Strategy
We intend to capitalize
on these opportunities by pursuing the following key strategies:
|
·
|
Develop Sales Staff
. We plan to hire and train our initial sales staff to complement our current group. Training will include familiarizing them with the many and varied funding options available, and how to access those opportunities, or help our customers access them.
|
|
·
|
Build Dealership Networks
. We intend to build dealership networks for the local sales and service of our zero-emission replacement drivetrain vehicles and new purpose-built zero-emission electric and hybrid commercial vehicles either manufactured by or for us.
|
|
·
|
Develop Third Party Relationships
. We plan to complete existing negotiations with partners and seek additional partners for the manufacture of our zero-emission systems.
|
|
·
|
Provide Demonstrations
. We will seek out and respond to local, state and federal pilot demonstration opportunities in interest areas for which we have relevant current product offerings or, in areas of interest that are congruent with product(s) that are on our product development roadmap but still in early stage development.
|
|
·
|
Obtain Approvals From Incentive Programs
. We will seek to have our products approved for various local, state and federal vehicle designations and incentive programs, like the California Heavy Duty Voucher Incentive Project administered by the CARB, meant to accelerate the purchase of cleaner, more efficient trucks and buses in California.
|
|
·
|
Develop an Intellectual Property Portfolio, License Our Technology and Enter into Strategic Collaborations
. We plan to build upon our existing intellectual property, knowledge base and patent portfolio while seeking opportunities to license, white-label and collaborate with strategic partners that can provide unique and complementary products and technology.
|
|
·
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Grow Our Manufacturing, Installation and Service Capability
. As facility space and technician time requirements at partners are exceeded, we intend to expand or relocate to larger ADOMANI-owned or leased facilities dedicated to the manufacture, installation and service of our zero-emission systems.
|
|
·
|
Introduce New Products
. As new markets develop, we plan to expand our zero-emission systems into ancillary product verticals, such as charging infrastructure also called Electric Vehicle Service Equipment, stationary energy storage, vehicle-to-grid hardware and capabilities.
|
|
·
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Develop Our International Business
. We plan to develop our business internationally. For example, we intend to pursue opportunities in China through our wholly-owned subsidiary, ADOMANI China. While we believe that China is an important market for us due in part to its publicly announced emphasis on hybrid and all-electric vehicles and large population, we remain in the early stages of the development of our business plan to pursue such opportunities, including the consideration of a proposal to develop an 18,000 square foot facility in Nantong, China to fulfill conversion kit orders within China, and continue to assess the logistics and costs associated with the production and sale of our zero-emission drivetrains into China.
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Our Customers
Our current primary
focus is school buses and transit buses. Our target customers primarily include all public and private fleet operators that have
an interest in meeting or exceeding local, state and federal emission regulatory guidelines while saving money in fuel and maintenance
costs over the lifecycle of their fleet vehicles and that also have an interest in tangible demonstrations (publicity) of their
green-house-gas (GHG) reducing efforts. These targets include:
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Public and private K-12 schools that operate Type-A, C and D school buses and special-needs student buses.
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Public and private schools that operate “white fleet” vehicles for non-student transportations use, such as facility service trucks, food service delivery vans/trucks and campus security vehicles.
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Student transportation contractors that serve public and private schools (First Student, etc.).
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Community based, public/privately funded shuttle buses serving special-needs community members (Merced Transportation Company).
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Public and private colleges and universities that operate shuttle buses, transit style buses, facility service vans and trucks on their campuses.
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Large companies that operate shuttle buses, transit style buses and facility based vehicles for employee transport to/from remote parking areas, to/from special events and the various vehicles used for facilities maintenance, services and security. (Apple, Google, Facebook, Yahoo, etc.).
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Private transportation contractors that shuttle large companies’ employees from common public transportation hubs to their campuses (Bauer Intelligent Transportation, Storer Transportation Services, MV Transportation Inc., among others).
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Commercial fleet operators that provide high daily mileage vehicles for use on routes in and around airports, hotels and offsite parking facilities.
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Port, railway, distribution center operators that use traditionally-fueled loading equipment, tractors, material handling equipment, forklifts, Class 1 through 8 trucks, delivery vans, yard goats, etc., that could be replaced with zero-emission alternatives.
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Large agricultural (farming) and food processing industry focused companies that operate Class 1 through 8 trucks, buses and/or delivery vans.
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Mining companies with fleets of above ground service vehicles and underground staff transport and support vehicles.
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Oil and gas companies with fleets of field trucks.
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Electric utility companies with fleets of service trucks (PG&E, Edison, Southern Company) that are in the public eye.
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Package delivery companies with fleets of delivery vans, short haul trucks and distribution/sorting facility center vehicles (UPS, FedEx).
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Military based fleet operators that have non-combat fleet vehicles of all sizes.
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Our Products and Services
Our products and services
primarily include:
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Zero-emission electric drivetrain systems for use in new school buses and medium to heavy-duty commercial fleet vehicles.
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Zero-emission electric drivetrain systems for use in existing fleet school buses and medium to heavy-duty commercial fleet vehicles.
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Conversion hybrid drivetrain systems in either an assistive hybrid or a full traction format for use in private and commercial fleet vehicles of all sizes.
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Purpose-built, zero-emission vehicles of all sizes manufactured by outside OEM partners but to be marketed, sold, warrantied and serviced through the developing ADOMANI distribution and service network.
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Optional drivetrain components that allow for advanced remote monitoring features of vehicle location (geofencing), driver behavior, drivetrain health (error codes) and battery management systems.
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Optional drivetrain components that allow for electric power-export and various levels of grid connectivity.
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Zero-emission electric drivetrain
systems for use in new school buses and medium to heavy-duty commercial fleet vehicles.
This drivetrain system
results in a zero-emission electric vehicle with similar performance specifications (except range) to a traditionally fueled version.
The major drivetrain components systems include appropriately sized traction motor/generator(s), motor controller(s) and power-flow
set up for either a direct-drive configuration, a single speed gearbox (speed reduction) or, a multi-gear ration transmission system.
Other integrated drivetrain components include lithium iron phosphate (LiFePO4 or similar) battery packs, a battery management
system (BMS), inverters, chargers, electrically driven systems for power steering and power (hydraulic or air) brakes, a vehicle
control unit (VCU), wiring harnesses, a flat screen user-interface (dash board) and fleet technician diagnostic tools. An additional
feature of our drivetrain system is that it uses many existing OEM parts, permitting easy access to parts and facilitating maintenance,
repair and warranty activity. We recently entered into an agreement with Blue Bird pursuant to which we intend to supply them with
zero-emission electric drivetrains for use in Type C and D school buses on a purchase order basis.
Zero-emission electric conversion
drivetrain systems for use in existing fleet, school buses and medium to heavy-duty commercial fleet vehicles.
This drivetrain system
results in the same zero-emission electric vehicle described immediately above. However, this drivetrain systems allows for the
removal of the OEM’s internal combustion engine (ICE), radiator cooling systems, fuel tanks, exhaust and emission systems
(manifolds, pipes, mufflers, particulate filters, DEF system, etc.) and usually the OEM transmission and associated transmission
cooling system.
Conversion hybrid drivetrain systems
in an assistive hybrid format for use in private and commercial fleet vehicles of all sizes to improve overall miles per gallon
(mpg) performance.
This conversion drivetrain
system integrates a modest sized motor/generator, motor controller, modest sized energy storage system (battery packs) of high
C-rated batteries or ultra-capacitors and a user-interface for system monitoring by the vehicle operator.
Conversion hybrid drivetrain systems
in a “full-traction” format for use in private and commercial fleet vehicles of all sizes
.
This hybrid conversion
drivetrain system retains the OEM drivetrain system and adds an electric drive system that results in a vehicle with OEM performance
as well as the ability to run the vehicle in various drivetrain power-flow modes including an all-electric mode when zero-emission
operations are required. The major drivetrain components systems include the same items enumerated above. Optional equipment for
this system can provide significant power export capabilities.
Purpose-built, zero-emission vehicles
of all sizes manufactured by outside OEM partners but to be marketed, sold, warrantied and serviced through the developing ADOMANI
distribution and service network
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We currently have an
arrangement with GreenPower Motor Company, Inc., or GreenPower, a manufacturer of zero-emission electric transit-style buses and
school buses of various sizes that has appointed us as its authorized factory representative for California for Types A, C and
D zero-emission electric school buses on a non-exclusive basis. These vehicles are designed to our specifications where possible,
and will utilize the drivetrains systems described above. We intend to utilize the services of GreenPower and other OEMs to support
our efforts to sell, warranty and supply zero-emission electric school, transit and shuttle buses and vans through our developing
ADOMANI distribution and service network.
Optional drivetrain components that
allow for electric power-export and various levels of grid connectivity.
These systems integrate
bi-directional changers and inverters and require additional facility based, stationary charging hardware and control systems.
In addition, our products
and services may in the future include some or all of the following:
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Zero-emission electric drivetrain systems for ship-through integration by outside OEMs into their own privately branded medium to heavy-duty commercial fleet vehicles.
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Automated charging infrastructure for commercial fleet vehicles.
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“Intelligent” stationary energy storage that enables fast vehicle charging.
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“Intelligent” stationary energy storage that enables emergency back-up facility power during grid power outages.
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“Intelligent” stationary energy storage that enables access to the developing grid-connected opportunities for the aggregate power available from groups of large battery packs.
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“Intelligent” stationary energy storage that enables avoidance of electric utility demand charges for commercial customers integrated with or independent of ADOMANI-supplied, zero-emission fleet vehicle(s).
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Energy storage systems (battery packs) replacements with better energy density and/or expected lifecycles for existing electric vehicles and equipment that has outlived their OEM-provided energy storage systems. For example, replace Flooded Lead Acid (FLA) battery packs of existing industrial forklifts and underground mining equipment with more energy dense and higher cycle-life battery packs composed of Lithium Iron Phosphate (LiFePO4) or similar cell chemistry.
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Testing
Our suppliers are completely
vetted before their products are accepted for use in our products. Our drivetrains and finished products are inspected, road-tested
and receive a complete quality control report prior to delivery.
Customer Service, Support and Training
The sales team, both
direct and contractors, will be used as the first point of customer contact for customer support and training. At the point that
the sales force can no longer handle the volume of these requirements, we will hire, train and support an additional internal staff.
Technology
Zero-emission electric
drivetrain systems for purpose-built new vehicles generally include a wide range of traction drivetrain systems utilizing OEM original
specs with multi-ratio options, traction battery pack chemistries with options for 2C (normal), 5C (modest) or 20C (fast charging),
using thermal management systems; battery management systems, or BMS, with full CAN bus control at a cellular level; options for
vehicle-to-grid (bi-directional) power management; and options for HVAC, and utilizing a more powerful and efficient high voltage
system of 600 volts or higher. As previously mentioned, the systems also use many existing OEM parts, permitting easy to find,
order and obtain almost any part, and facilitating maintenance, repair and warranty activity.
Gas/diesel to all-electric
conversion systems include similar features as purpose-built vehicle systems, and typically retain the OEM transmission, cooling
systems for the engine and transmission, mounting brackets and bolts, power steering and air brake systems, alternators for 12
and/or 24 volt systems, and accessories like belts, pulleys, pumps and related components. The conversion kits only replace the
engine block with an electric motor and the gas tank with a battery pack. Almost all other moving OEM parts remain in the vehicle,
facilitating a straightforward, easy to work on conversion and providing the benefits described in the preceding paragraph with
respect to parts.
Our hybrid drivetrain
systems use electric power assist to allow vehicles to drive in economy mode, or increases the power of a conventional gas or diesel
engine if operated in regular mode. Our patented electric driveshaft replaces only the OEM driveshaft with an electric motor driveshaft.
The hybrid driveshaft kit doesn’t affect the OEM components, parts or computer and the entire hybrid system can be installed
within hours on most vehicles. Our patented system allows rear-wheel driveshaft trucks and buses to become a hybrid simply by replacing
the driveshaft and adding a battery pack and controller box.
Our research and development
expenses were $0.1 million, $0.5 million and $37,000 for the years ended December 31, 2014, 2015 and 2016, respectively. The decrease
in 2016 was due to much of this work being capitalized related to building a specific demonstration vehicle.
Sales and Marketing
Sales
We intend to expand
our marketing and sales force as we open our sales, service and assembly facilities. We expect that each facility will have a team
of dedicated marketing and sales employees with responsibility for the geographic region in which the facility is located. As a
result, we believe we can efficiently and cost-effectively build out our marketing and sales network.
Marketing
We plan to focus our
marketing efforts on increasing brand awareness, generating demand for our products, communicating product advantages and generating
qualified leads for our sales force. We intend to rely on a variety of marketing vehicles, including participation in industry
conferences and trade shows, public relations, industry research and our collaborative relationships with our business and teaming
partners to share our technical message with customers. We also market our products on our website.
Manufacturing
We intend initially
to contract with third party suppliers to manufacture our products. Currently, we utilize the services of a third party manufacturer
with whom we do not have a long-term or exclusive contractual relationship, and we continue to seek additional third party suppliers
and other manufacturing support.
Distribution
We intend to distribute
products to regional locations for installation into the motor vehicle.
Partnerships/Teaming Agreements
We have agreements
with Blue Bird, GreenPower, Central States Bus Sales, ADOMANI/Redwood/TSI, and China Low-Carbon Industry Investment Center
International Committee. None of these agreements contain any binding purchase or sales minimums.
Blue Bird Corporation
Since 1927, Blue Bird
has offered a complete line of Type A, C and D school buses in a variety of options and configurations. Blue Bird has more than
1,500 employees and an extensive network of dealers and parts and service facilities throughout North America. At the STN EXPO
in Reno, Nevada in July 2017, Blue Bird publicly stated that we are their technology partner in building all-electric drivetrain
systems for their new Type C and D school bus product lines. In October 2017, we entered into a three-year agreement with Blue
Bird pursuant to which we will provide them, on an exclusive basis, with zero-emission electric drivetrains for use in their Type
C and D school bus product lines. The agreement sets forth the applicable pricing for the products to be purchased thereunder,
but does not include any binding minimum purchase obligations on behalf of Blue Bird. During the term of the agreement, Blue Bird
must purchase all of zero-emission electric drivetrains to be used in their Type C and Type D school bus product lines from us,
and we have agreed that we will not sell any zero-emission electric drivetrains to any similar manufacturer of school and activity
buses, or to supplier or subcontractors who would resell such products to such bus manufacturers. The agreement, however, does
not prevent us from selling zero-emission electric drivetrains for any other application. The agreement provides that we will indemnify
Blue Bird against certain losses resulting our breach of the agreement and certain other losses. Blue Bird may terminate the agreement
immediately for cause upon certain events or without cause upon thirty days prior written notice to us.
GreenPower Motor Company, Inc.
GreenPower produces
a range of bus models deploying electric drivetrain and battery technologies with a lightweight chassis. GreenPower integrates
key components from such global suppliers as Siemens, Knorr, ZF and Parker, among others, providing an OEM platform that allows
them to meet the specifications of various operators. GreenPower has appointed us as its authorized factory representative for
California for Types A, C and D zero-emission electric school buses on a non-exclusive basis pursuant to a three-year agreement.
Assuming various milestones are achieved, the agreement with us will be ongoing and may expand into additional states or regions.
The agreement may be terminated for cause upon 30 days prior written notice and the failure of the other party to cure the breach
that resulted in such cause.
Central States Bus Sales, or Central
States
Central States, a large
Blue Bird school bus dealer and a large commercial bus dealer covering Arkansas, Illinois, Kentucky, Tennessee and Missouri, entered
into a teaming agreement with us pursuant to which both companies have agreed to work together on the conversion, marketing, selling
and servicing of the many types of buses that Central States currently sells. Either party may request the other’s participation
in the development of a project pursuant to the agreement. The agreement may be terminated by either party, for cause, on ninety
days prior written notice.
Redwood/TSI, or Redwood
Redwood, an affiliate
of Redwood Group International Limited, an advisor to us, entered into a teaming agreement with us to assist us in pursuing certain
opportunities in the China market involving medium and heavy-duty trucks and buses. Either party may request the other’s
participation in the development of a project pursuant to the agreement. The agreement may be terminated by either party, for cause,
on ninety days prior written notice.
China Low-Carbon Industry Investment
Center International Committee, or Low Carbon
To assist with its
efforts to gain access to the China market through ADOMANI China, we entered into an agreement with Low Carbon, who is tasked with
reducing carbon emissions in China, to assist us with converting new and used buses and trucks to zero-emission electric or hybrid
vehicles through marketing, public relations, sales and financing activity, including compliance with regulatory requirements.
Either party may request the other’s participation in the development of a project pursuant to the agreement. The agreement
may be terminated by either party, for cause, on ninety days prior written notice.
Raw Materials and Supply Chain
Prices for the systems,
components and raw materials we use in our drivetrain systems, many of which are OEM items used by many companies in different
applications, can fluctuate depending on market conditions and global demand. Our purchase of raw materials is currently limited
due to sales volume, but we attempt to limit our exposure to raw material price increases and availability fluctuations by having
relationships with a dynamic group of vendors that sell us value-added hardware, components and systems. We have further mitigated
these supply chain risks by establishing purchasing relationships with multiple vendors that are diversified by type of product
offered, brand of products offered, country of origin of products (which is relevant for “Buy American” provisions
that we encounter with our customers), individual specification requirements, purchase quantity requirements, quality, availability
and price. Our drivetrain systems allow for component substitution, which further mitigates our exposure to any one supplier or
component. For example, for different drivetrain systems, our recent traction motor choices have included the following brands:
UQM (US), Yasa (UK) and TM4 (China). We believe that we have adequate supplies and access to the sources of the systems, components
and materials to meet our current and anticipated future production and supply requirements.
Employees
As of September 30,
2017, we had ten full-time employees. None of our employees are covered by collective bargaining agreements and we believe our
employee relations are good.
Seasonality
While we are not generally
prone to seasonal fluctuations in our business, many state and federal agencies operate on a July 1 to June 30 fiscal year and,
as such, in the event that grants are over-subscribed during a given fiscal year, we may be unable to obtain funds in connection
with any such state or federal grants until after June 30 of the subsequent fiscal year.
Competition
The power conversion
vehicle market is highly competitive and we expect it to become even more so in the future as additional companies launch competing
products and vehicle offerings. We compete with other alternative energy technologies, such as natural gas and hybrid technologies.
These competitors include Ford, which produces the Ford Transit Connect EV
®
; Navistar, which produces the Navistar
eStar
®
; Freightliner, which produces the MT E-CELL; Odyne Systems, which produces plug-in hybrid heavy- and medium-duty
trucks; ZeroTruck, which produces an all-electric medium-duty truck; Electric Vehicles International, which produces an all-electric
walk-in van and light- and medium-duty commercial electric trucks; BYD which manufactures new electric transit buses; Proterra,
which manufactures new electric transit buses; TransPower which converts Type D school buses; and Motiv, which converts Type A
school buses.
Intellectual Property
The protection of our
technology and intellectual property is an important component of our success. We rely on intellectual property laws, including
trade secret, copyright, trademark and patent laws in the United States and abroad, and use contracts, confidentiality procedures,
non-disclosure agreements, employee disclosure and invention assignment agreements and other contractual rights to protect our
intellectual property.
As of September 30,
2017, we own three issued U.S. Patents which will expire in 2030 and 2033, and one issued Chinese patent that will expire in 2026.
Domestic and foreign applications are also pending on new inventions. In addition, we maintain a trademark portfolio including
common law trademarks and service marks and have two service marks registered in the United States.
Circumstances outside
of our control could pose a threat to our intellectual property rights. Effective intellectual property protection may not be available
in the United States or other countries in which we provide our solution. In addition, the efforts we have taken to protect our
intellectual property rights may not be sufficient or effective. Any impairment of our intellectual property rights could harm
our business, our ability to compete and harm our operating results. In addition, as the number of competitors grows and solutions
of competitors overlap, we may in the future face claims by third parties that we infringe upon or misappropriate their intellectual
property rights, and we may be found to be infringing upon or to have misappropriated such rights. In the future, we, or our customers,
may be the subject of legal proceedings alleging that our solutions or underlying technology infringe or violate the intellectual
property rights of others.
Properties
We maintain our principal
office in Corona and additional office and storage space in Los Altos, Santa Ana and Stockton, California, as well as Phoenix,
Arizona, under a combination of leases and subleases that are month-to-month or expire in February 2023. We believe that our facilities
are adequate to meet our needs for the immediate future, and that, should it be needed, we will be able to secure additional space
to accommodate any such expansion of our operations.
Governmental Programs and Incentives
We believe that the
availability of government subsidies and incentives currently is an important factor considered by our customers when purchasing
our vehicles, and that our growth depends in part on the availability and amounts of these subsidies and incentives. Over time,
we believe that the importance of the availability of government subsidies and incentives will decrease, as we continue to reduce
the upfront cost of our vehicles. In order to help ensure that we and our customers benefit from available subsidies and incentive
programs in both the United States, Canada, Mexico, Asia and in Europe, we have incentive specialists that work directly with our
sales team and our customers on these issues.
Overview of Incentive Programs Most
Applicable to Our Products
We intend to seek to
have our products approved for various local, state and federal incentive programs, including those set forth below. In particular,
California’s zero-emission vehicle mandate, which requires that a certain percentage of an automobile manufacturer’s
sales must be zero-emission vehicles, has resulted in numerous incentive programs meant to accelerate the purchase and repower
of cleaner, more efficient vehicles in California. We anticipate that the relevant aggregate funding available in California alone
over the next several years may be in excess of $180 million.
California Hybrid and Zero-Emissions
Truck and Bus Voucher Incentive Project
We believe our customers
may be eligible for purchase under HVIP. HVIP is a partnership between CARB and CALSTART, the purpose of which is to help speed
the early market introduction of clean, low-carbon hybrid and electric trucks and buses. Under HVIP, dealers and fleet operators
may request vouchers from HVIP on a first-come first-serve basis, up to the funding amount available for that year, to reduce the
cost of purchasing hybrid and zero-emission medium- and heavy-duty trucks and buses. HVIP vouchers range in amount from $6,000
to $110,000, depending on the gross vehicle weight of the purchased vehicle and the number of vehicles purchased. School buses
would be entitled to $95,000 to $110,000 for each new school bus.
HVIP funds the purchase
of only fully commercialized hybrid and zero-emission trucks and buses. Vehicles still in the demonstration or evaluation stage
are not eligible for inclusion in HVIP. Vehicle manufacturers must apply to have their hybrid and zero-emissions trucks and buses
included in HVIP’s voucher program. Once a make and model is included in the program, the manufacturer is not required to
submit a full application for the succeeding year’s program unless the vehicle has been modified. We intend to comply with
the HVIP guidelines and qualify our school buses and vehicles for the HVIP vouchers.
New York Truck Voucher Incentive
Program
NYT-VIP is a first-come,
first-served $19 million incentive program funded by the New York State Energy Research & Development Authority (NYSERDA).
Eligible vehicles include all-electric, hybrid-electric, and CNG trucks and buses, along with retrofit diesel-emission control
devices (DECD). Funding for eligible vehicles domiciled in New York State and New York City can reach $150,000 per vehicle.
Drive Clean Chicago—Drive Clean
Truck Program
Drive Clean Chicago
is accelerating the adoption of advanced vehicle technologies for the commercial truck and taxi sectors in the Chicago six-county
area by reducing the cost of new alternative fuel vehicles and public alternative fuel stations. The program from the Chicago Department
of Transportation (CDOT) offers incentives including $10,000 for CNG and electric taxis, up to $150,000 for hybrid and all-electric
trucks, and 30% of the capital cost for CNG and fast-charge electric fueling stations.
In addition to these
programs, there are many other state and federal programs that range from providing tax credits to providing funding to providing
grants and loans for the purchase of zero-emission and hybrid vehicles. Many of the programs provide funding for up to 60% of the
cost an all-electric repower conversion.
California Air Resources Board
CARB gathers air quality
data for the State of California, ensures the quality of this data, designs and implements air models, and sets ambient air quality
standards for the state. CARB compiles the state’s emissions inventory and performs air quality and emissions inventory special
studies. CARB uses the Emissions Inventory and Air Quality Models to evaluate air quality and reduce emissions in each of the 35
local air districts.
CARB has programs and
awards hundreds of millions of dollars in grants to reduce emissions from on- and off-road vehicles and equipment. CARB is responsible
for program oversight. CARB awards grants and funds through the Air Quality Improvement Program (AB 118); the Carl Moyer Program;
the Voucher Incentive Program for enhanced fleet modernization and emission reduction; and the Lower-Emission School Bus Program/School
Bus Retrofit and Replacement Account.
California Energy Commission
The goal of the California
Energy Commission is to mitigate greenhouse gas emissions and reduce the impact of climate change. In 2006 the Legislature passed
and then Governor Arnold Schwarzenegger signed two landmark pieces of legislation with far-reaching implications for energy policy.
The most comprehensive is Assembly Bill 32, the California Global Warming Solutions Act of 2006, which sets an economy-wide cap
on California greenhouse gas emissions at 1990 levels by no later than 2020. This is an aggressive goal that represents approximately
an 11 percent reduction from current emissions levels and nearly a 30 percent reduction from projected business-as-usual levels
in 2020. Thirty-eight percent of the state’s greenhouse gas emissions is attributable to the transportation sector. In 2007,
Assembly Bill 118 created the Alternative and Renewable Fuel and Vehicle Technology Program. The program is intended to increase
the use of alternative and renewable fuels and innovative technologies that will transform California’s fuel and vehicle
types to help attain the state’s climate change policies. AB 118 authorizes the Energy Commission to provide approximately
$100 million annually as incentives to public agencies, vehicle and technology consortia, businesses, public-private partnerships,
workforce training partnerships and collaboratives, fleet owners, consumers, recreational boaters, and academic institutions for
projects that: Develop and improve alternative and renewable low-carbon fuels; Optimize alternative and renewable fuels for existing
and developing engine technologies; Improve light-, medium-, and heavy-duty vehicle technologies; and Retrofit medium-and heavy-duty
on-road and non-road vehicle fleets.
Air Quality Management Districts,
or AQMD, and Air Pollution Control Districts, or APCD
AQMD/APCD are responsible
for controlling emissions primarily from stationary sources of air pollution. The largest AQMD/APCDs are the South Coast AQMD,
Bay Area AQMD, San Joaquin Valley APCD, and the San Diego APCD. These can include anything from large power plants and refineries
to the corner gas station. Seventy-five percent of emissions come from mobile sources–mainly cars, trucks and buses, but
also construction equipment, ships, trains and airplanes. Local AQMD/APCD develop and adopt an Air Quality Improvement Plans (AQIP),
which serves as the blueprint to bring the respective areas into compliance with federal and state clean air standards. Rules
are adopted to reduce emissions from various sources, including specific types of equipment, industrial processes, paints and solvents,
even consumer products. Permits are issued to many businesses and industries to ensure compliance with air quality rules.
Local AQMDs award grants to help reduce emissions in their local communities.
Clean Cities
Clean Cities is a program
administered by the DOE’s Office of Efficiency and Renewable Energy, Vehicle Technology Program. According to the DOE, the
mission of Clean Cities is to advance the energy, economic, and environmental security of the United States by supporting local
decisions to adopt practices that reduce the use of petroleum in the transportation sector. Clean Cities is a government-industry
partnership. Under the program, public and private stakeholders from businesses, city and state governments, the automotive industry,
fuel providers, and community organizations form coalitions throughout the country, which then work with the DOE to establish a
plan for reducing petroleum consumption in their respective geographic areas.
National Clean Diesel Program / Diesel
Emissions Reduction Act
The National Clean
Diesel Funding Assistance Program, which is administered by the EPA National Clean Diesel Campaign, provides funding under the
Diesel Emissions Reduction Act for projects that seek to reduce emissions from existing diesel engines. Eligible applicants include
U.S. regional, state and local agencies that have jurisdiction over transportation or air quality and certain nonprofit institutions
that provide pollution reduction or educational services to owners and operators of diesel fleets or that have as their principal
purpose the promotion of transportation or air quality. Among the eligible uses of funding under this program are the purchase
of buses and medium and heavy-duty trucks that result in reduced diesel emissions.
Congestion Mitigation and Air Quality,
or CMAQ, Improvement Program
The CMAQ Improvement
program, which is jointly administered by the DOT Federal Highway Administration and Federal Transit Administration, provides funding
to states to support surface transportation projects and other related efforts that contribute air quality improvements and provide
congestion relief. CMAQ funding is allocated to the states annually based on a statutory formula that is based on population and
air quality classification as designated by the EPA. Each state’s transportation department then is responsible for
distributing the funds. State transportation departments may spend CMAQ funds on projects that reduce ozone precursors, and at
least 16 states have used CMAQ funds for alternative fuel vehicle projects (such as purchasing electric or hybrid vehicles).
Other State Incentives
A number of states
and municipalities in the United States, as well as certain private enterprises, offer incentive programs to encourage the adoption
of alternative fuel vehicles, including tax exemptions, tax credits, exemptions and special privileges. For example, Maryland has
introduced a voucher program that provides financial assistance for the purchase of electric trucks registered in that state, and
Arizona exempts use tax and lowers registration fees for the purchase of an electric vehicle. Other states, including Colorado,
Georgia, Utah, Florida and West Virginia, provide for substantial state tax credits for the purchase of electric vehicles.
Volkswagen Environmental Mitigation
Trust Funds
We anticipate that
the 23 states that we have prioritized may allocate approximately $260 million in funds by the end of 2018 to on-road vehicle projects.
These states have not yet developed specific funding plans, however, although we expect that such states may develop funding plans
by the end of the first quarter of 2018 and that the first rounds of funding may become available thereafter in 2018.
Government Regulation
Our products are designed
to comply with a significant number of governmental regulations and industry standards, some of which are evolving as new technologies
are deployed. Government regulations regarding the manufacture, sale and implementation of products and systems similar to ours
are subject to future change. We cannot predict what impact, if any, such changes may have upon our business. We believe that our
vehicles are in conformity with all applicable laws in all relevant jurisdictions.
Emission and Fuel Economy Standards
Government regulation
related to climate change is under consideration at the U.S. federal and state levels. The EPA and NHTSA issued a final rule for
greenhouse gas emissions and fuel economy requirements for trucks and heavy-duty engines on August 9, 2011, which will have an
initial phase in starting with model year 2014 and a final phase in occurring in model year 2017. NHTSA standards for model year
2014 and 2015 will be voluntary, while mandatory standards will first come into effect in 2016.
The rule provides emission
standards for CO
2
and fuel consumption standards for three main categories of vehicles: (i) combination tractors, (ii)
heavy-duty pickup trucks and vans, and (iii) vocational vehicles. According to the EPA and NHTSA, vocational vehicles consist of
a wide variety of truck and bus types, including delivery, refuse, utility, dump, cement, transit bus, shuttle bus, school bus,
emergency vehicles, motor homes and tow trucks, and are characterized by a complex build process, with an incomplete chassis often
built with an engine and transmission purchased from other manufacturers, then sold to a body manufacturer.
The EPA and NHTSA rule
also establishes multiple flexibility and incentive programs for manufacturers of alternatively fueled vehicles, including an engine
averaging banking and trading, or ABT, program, a vehicle ABT program and additional credit programs for early adoption of standards
or deployment of advanced or innovative technologies. The ABT programs will allow for emission and/or fuel consumption credits
to be averaged, banked or traded within defined groupings of the regulatory subcategories. The additional credit programs will
allow manufacturers of engines and vehicles to be eligible to generate credits if they demonstrate improvements in excess of the
standards established in the rule prior to the model year the standards become effective or if they introduce advanced or innovative
technology engines or vehicles.
Vehicle Safety and Testing
The National Traffic
and Motor Vehicle Safety Act of 1966, or the Safety Act, regulates motor vehicles and motor vehicle equipment in the United States
in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not
conform to applicable motor vehicle safety standards established by NHTSA. Meeting or exceeding many safety standards is costly,
in part because the standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy
standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns.
A manufacturer is obligated to recall vehicles if it determines that the vehicles do not comply with a safety standard. Should
we or NHTSA determine that either a safety defect or noncompliance exists with respect to any of our modified vehicles, the cost
of such recall campaigns could be substantial.
Battery Safety and Testing
Our battery packs conform
to mandatory regulations that govern transport of “dangerous goods,” which includes lithium-ion batteries that may
present a risk in transportation. The governing regulations, which are issued by PHMSA, are based on the UN Recommendations on
the Safe Transport of Dangerous Goods Model Regulations, and related UN Manual of Tests and Criteria. The requirements for shipments
of these goods vary by mode of transportation, such as ocean vessel, rail, truck and air.
Our battery suppliers
have completed the applicable transportation tests including:
|
·
|
Altitude simulation, which involves simulating air transport;
|
|
·
|
Thermal cycling, which involves assessing cell and battery seal integrity;
|
|
·
|
Vibration, which involves simulating vibration during transport;
|
|
·
|
Shock, which involves simulating possible impacts during transport;
|
|
·
|
External short circuit, which involves simulating an external short circuit; and
|
|
·
|
Overcharge, which involves evaluating the ability of a rechargeable battery to withstand overcharging.
|
Legal Proceedings
We are not currently
a party to any legal proceedings, litigation, or claims that could materially affect our business, results of operations, cash
flows, or financial position. We may, from time to time, be party to litigation and subject to claims incident to the ordinary
course of business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The
outcome of litigation and claims cannot be predicted with certainty, and the resolution of any future matters could materially
affect our future results of operations, cash flows or financial position.
MANAGEMENT
The following table
sets forth information regarding our executive officers and directors as of the date of this prospectus:
Name
|
Position
|
Age
|
Term of Office
|
James L. Reynolds
|
Chief Executive Officer, President, Chairman and Director
|
71
|
September 2014
|
Michael K. Menerey
|
Chief Financial Officer, Treasurer and Director
|
66
|
March 2016
|
Richard A. Eckert
|
Chief Operating Officer
|
45
|
March 2017
|
John Roselli
|
Vice President of Sales and Marketing
|
66
|
February 2017
|
Kevin G. Kanning
|
Vice President of Business Development and Investor Relations
|
51
|
November 2012
|
Edward R. Monfort
|
Chief Technology Officer
|
51
|
August 2012
|
Robert E. Williams
|
Vice President
|
59
|
November 2012
|
Gary W. Nettles
|
Director(1)(2)
|
66
|
June 2017
|
Janet L. Boydell
|
Director(1)(2)(3)
|
64
|
June 2017
|
John F. Perkowski
|
Director(1)(3)
|
69
|
June 2017
|
|
(1)
|
Member of our Audit Committee.
|
|
(2)
|
Member of our Nominating and Corporate Governance Committee.
|
|
(3)
|
Member of our Compensation Committee.
|
All of our executive
officers and significant employees work full-time for us unless otherwise disclosed in this prospectus. There are no family relationships
between any director, executive officer or significant employee. During the past five years, none of the persons identified above
has been involved in any bankruptcy or insolvency proceeding or convicted in a criminal proceeding, excluding traffic violations
and other minor offenses.
Executive Officers and Directors
James L. Reynolds, President, Chief
Executive Officer, Chairman and Director
James L. Reynolds has
served as our President and Chief Executive Officer and a Director since September 2014 and a Director since July 2014. Mr. Reynolds
was elected to Chairman of our Board in July 2016. Prior to joining us, he served in various executive roles at A-Z Bus Sales most
recently as Chief Executive Officer from March 2010 until June 2014 and President from June 2006 until August 2013. Prior to his
senior executive positions, Mr. Reynolds also held positions of Vice-President and General Manager and Vice-President of New Bus
Sales. Prior to his tenure at A-Z Bus Sales, he was the Regional Manager of Tyco Corporation and managed direct sales. Mr. Reynolds
holds a B.A. in Business Administration from Pepperdine University. We believe that Mr. Reynolds is qualified to serve as a director
due to his experience with bus sales and in the automotive industry, as well as his previous executive-level experience, coupled
with his position as our Chief Executive Officer and President.
Kevin G. Kanning, Vice President
of Business Development and Investor Relations
Kevin G. Kanning has
served as our Vice President of Business Development and Investor Relations since February 2017. Mr. Kanning previously served
as our Chief Operating Officer and Secretary from November 2012 through February 2017 and served as a Director from November 2012
until June 2017. Previously, Mr. Kanning served as Chief Operating Officer of Greentech Mining, Inc., a technology company focused
on sustainable mining practices and precious metal recovery. He has also held a variety of positions over the last 27 years with
real estate and technology related businesses and private corporations including Seville Properties, RE/MAX Valley Properties,
Realty World-Galley One, Voelker Sensors, Inc., Cryotherm USA, Inc., Greentech Mining Ventures, Inc., and Klever Technologies,
Inc. Mr. Kanning has held a broker’s license with the California Bureau of Real Estate since 1990 and has participated in
both residential and commercial real estate sales/leasing, sales team recruitment/training and office management. Mr. Kanning earned
a B.S. in Business Administration from the Haas School of Business, University of California Berkeley.
Michael K. Menerey, Chief Financial
Officer, Treasurer and Director
Michael K. Menerey
has served as our Chief Financial Officer since March 2016 and a Director since January 2017. Mr. Menerey is an inactive partner
with CFO Edge LLC, or CFO Edge, with respect to which he provided interim and project-related services to various entities as a
Chief Financial Officer from September 2011 through December 2016. Prior to joining us and to CFO Edge, Mr. Menerey was employed
by Mapleton Investments, LLC from early 2000 through 2010; initially as Executive Vice president, and then as President and Chief
Operating Officer from 2005 through 2010. Mr. Menerey served as Executive Vice President, Chief Financial Officer and Secretary
of Falcon Communications and its predecessors from mid-1984 until the company sold in November 1999. Mr. Menerey is a Certified
Public Accountant, and received his undergraduate degree in Business Administration from the University of Michigan. We believe
that Mr. Menerey is qualified to serve as a director due to his extensive experience as our Chief Financial Officer and chief financial
officer of other companies, as well as his familiarity with our business and operations, both prior to and subsequent to our listing
on a national securities exchange.
Richard A. Eckert, Chief Operating
Officer
Richard A. Eckert has
served as our Chief Operating Officer since March 2017. From 2000 through February 2017, Mr. Eckert held various leadership positions
and most recently served as General Manager of Operations for A-Z Bus Sales, Inc., with responsibility for both the Sacramento
and Colton locations. From 2000 to 2016, Mr. Eckert was also involved in the start-up and management of several new divisions within
A-Z Bus Sales. During his tenure, he had responsibilities for the Body Shop, Service, Parts, Facilities, Emissions, Warranty and
Fire Apparatus division, where he managed both sales and operations. Further, Mr. Eckert served as the Blue Bird Dealer Service
Council Co-Chair for all dealers nationwide from January 2016 to February 2017. From 1993 to 2000, Mr. Eckert managed large vehicle
collision repair centers, working with school districts and construction companies throughout California. Mr. Eckert studied Criminal
Justice while attending Mount San Antonio College.
Edward R. Monfort, Chief Technology
Officer
Edward R. Monfort,
our Founder, has served as our Chief Technology Officer since September 2014 and served as a Director from our inception in August
2012 until June 2017, during which time he served as our Chairman until July 2016. From our inception in August 2012 to September
2014, Mr. Monfort served as our President and Chief Executive Officer. From 2010 until forming ADOMANI in 2012, he was President
of Cryotherm USA, Inc. From 2005 to 2009, Mr. Monfort designed and developed the Ronaele Mustang. From 1999 to 2005 Mr. Monfort
developed and patented the COLDfire thermal cycling machine and the COLDfire programs and process. From 1997 to 1999 Mr. Monfort
was employed by Watlow Corp, where he assisted with prototype development and engineering projects for major U.S. companies who
were Watlow Corp customers. Mr. Monfort holds a Bachelor of Science degree in Finance from Western Carolina University.
John Roselli, Vice President of Sales
and Marketing
John Roselli has served
as our Vice President of Sales and Marketing since February 2017. Mr. Roselli has over thirteen years of experience in the school
bus and alternative fuel arena and most recently served as Manager of Alternative Fuels at Thomas Built Bus from January 2016 to
January 2017. From June 2012 to September 2015, Mr. Roselli served as Director of Alternative Fuel Sales and Director of Dealer
Development at Blue Bird Corporation. Previously, from January 2004 to May 2012, Mr. Roselli as Director of New School Bus Sales
for AZ Bus Sales, the Blue Bird dealer for California and Hawaii. Mr. Roselli holds a Masters degree from Thunderbird Graduate
School of International Management in Glendale, Arizona.
Robert E. Williams, Vice President
Robert E. Williams
has served as our Vice President since November 2012 and served as a Director from November 2012 until June 2017. Prior to joining
us, he served from 1991 through May 2015 as Senior Production Manager and Key Account Manager for Event Beverage Catering and continues
to consult for them periodically. From 1984 through 2000, Mr. Williams served as Operations Manager and was a partner in STARD,
Inc.
Gary W. Nettles, Director and Chairman
of the Audit Committee
Gary W. Nettles. Mr.
Nettles has served as a Director since June 2017. Mr. Nettles serves as the Chief Operating Officer, Chief Financial Officer and
Director of Allen Tel Products, Inc., a supplier and manufacturer of data and telecommunication components. From 1987 to 2003,
Mr. Nettles was a certified public accountant and president of Guchereau & Nettles, an accounting firm. In 1996, Mr. Nettles
was elected to the Board of Directors of Cost-U-Less, Inc., an international operator of mid-sized warehouse club-style stores),
where he served in various capacities until the company was sold in 2007, including as Chairman of the Audit Committee and as a
member of the Nominating and Corporate Governance Committee and Compensation Committee. Mr. Nettles received his Bachelor of Science
degree, Magna Cum Laude, from the United States International University, San Diego California. We believe that Mr. Nettles is
qualified to serve as a director due to his extensive experience as a director of other U.S. companies, including his experience
as a director of a U.S. public company, along with his financial literacy.
Janet L. Boydell, Director and Chairman
of the Nominating and Corporate Governance Committee
Janet Boydell. Ms.
Boydell has served as a Director since June 2017. Ms. Boydell is currently a Vice President for The Code Group, Inc., a staffing
agency. Previously, from 2006 to 2015, Ms. Boydell served as CEO of A Hire Connection, Inc., a professional services firm providing
strategic management consulting and retained executive search services for C-Level functions. Ms. Boydell was an Assistant
Controller in the field of investment banking. Ms. Boydell graduated from Cal Poly Pomona where she received a Bachelor of Science
in Business Administration. We believe that Ms. Boydell is qualified to serve as a director due to her experience in finance and
investment banking and as an officer of a U.S. public company.
John F. Perkowski, Director and Chairman
of the Compensation Committee
John F. Perkowski has
served as a Director since June 2017. Mr. Perkowski is the founder and managing partner of JFP Holdings, a merchant bank focused
primarily on transactions in China. From 1994 through 2008, Mr. Perkowski served as the Chairman and Chief Executive Officer of
ASIMCO Technologies, a supplier and manufacturer of automotive components. From 1973 to 1993, Mr. Perkowski held various positions
with PaineWebber. Mr. Perkowski serves on numerous boards of directors, including the China Advisory Council of Magna International,
Inc. and Transmetrics, Inc, a European logistics software firm. Mr. Perkowski received his Bachelor of Science degree in American
Studies from Yale, and his Masters degree in Business Administration from Harvard Business School. We believe that Mr. Perkowski
is qualified to serve as a director due to his experience in finance, investment banking, mergers and acquisitions and the automotive
industry, including his experience in China, as well as his experience as a director of a U.S. public company.
Board Composition
Our business and affairs
are managed under the direction of our board of directors. Initially, our board of directors has fixed the number of directors
at five, which number will be fixed from time to time exclusively by the board of directors, subject to our amended and restated
certificate of incorporation and our amended and restated bylaws.
Our board of directors
is divided into three classes with staggered three-year terms as follows:
|
·
|
the Class I director is Mr. Perkowski, and his term will expire at the annual general meeting of stockholders to be held in 2018;
|
|
·
|
the Class II directors are Mr. Menerey and Ms. Boydell, and their terms will expire at the annual general meeting of stockholders to be held in 2019; and
|
|
·
|
the Class III directors are Messrs. Reynolds and Nettles, and their terms will expire at the annual general meeting of stockholders to be held in 2020.
|
The authorized number
of directors may be changed only by resolution of our board of directors. This classification of our board of directors into three
classes with staggered three-year terms may have the effect of delaying or preventing changes in our control of our company or
management.
Director Independence
Our board of directors
has undertaken a review of the independence of each director. Based on information provided by each director concerning his or
her background, employment and affiliations, our board of directors has determined that Messrs. Nettles and Perkowski and Ms. Boydell
do not have a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying
out his or responsibilities and that each of these directors is “independent” as that term is defined under the listing
standards of NASDAQ.
Board Leadership Structure and Board’s
Role in Risk Oversight
Our board of directors
has a Chairman, Mr. James L. Reynolds. The Chairman has authority, among other things, to preside over board of directors meetings
and set the agenda for board of directors meetings. Accordingly, the Chairman has substantial ability to shape the work of our
board of directors. Because of the addition of our independent board members, we currently believe that separation of the roles
of Chairman and Chief Executive Officer is not necessary to ensure appropriate oversight by the board of directors of our business
and affairs. However, no single leadership model is right for all companies and at all times. The board of directors recognizes
that depending on the circumstances, other leadership models, such as the appointment of a lead independent director, might be
appropriate. Accordingly, the board of directors may periodically review its leadership structure. In addition, the board of directors
will hold executive sessions in which only independent directors are present.
Our board of directors
is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities. Our principal
source of risk falls into two categories, financial and product commercialization. The Audit Committee will oversee management
of financial risks; our board of directors regularly reviews information regarding our cash position, liquidity and operations,
as well as the risks associated with each. The board of directors regularly reviews plans, results and potential risks related
to our product development, commercialization efforts and clinical trial progress. Our Compensation Committee is expected to oversee
risk management as it relates to our compensation plans, policies and practices for all employees including executives and directors,
particularly whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks
which could have a material adverse effect on us.
Board Committees
Our board of directors
has established three standing committees—the Audit, Compensation and Nominating and Corporate Governance Committees—each
of which operates under a charter that has been approved by our board of directors. We intend to appoint persons to the board of
directors and committees of the board of directors, as required from time to time to satisfy the corporate governance requirements
of NASDAQ.
Audit Committee
The Audit Committee
currently consists of Ms. Boydell, and Messrs. Nettles (Chairman) and Perkowski. The Audit Committee operates under a written charter,
which is available on our website at www.adomanielectric.com. Our board of directors has determined that Mr. Nettles is an “audit
committee financial expert” as defined by the regulations promulgated by the SEC and within the meaning of the NASDAQ Stock
Market Rules.
Our Audit Committee
is responsible for, among other things:
|
·
|
appointing, compensating, retaining and overseeing our independent registered public accounting firm;
|
|
·
|
approving the audit and non-audit services to be performed by our independent registered public accounting firm;
|
|
·
|
reviewing, with our independent registered public accounting firm, all critical accounting policies and procedures;
|
|
·
|
reviewing with management the adequacy and effectiveness of our internal control structure and procedures for financial reports;
|
|
·
|
reviewing and discussing with management and our independent registered public accounting firm our annual audited financial statements and any certification, report, opinion or review rendered by our independent registered public accounting firm;
|
|
·
|
reviewing and investigating conduct alleged to be in violation of our code of conduct;
|
|
·
|
reviewing and approving related party transactions;
|
|
·
|
preparing the Audit Committee report required in our annual proxy statement; and
|
|
·
|
reviewing and evaluating, at least annually, its own performance and the adequacy of the committee charter.
|
Compensation Committee
The Compensation Committee
currently consists of Ms. Boydell, and Mr. Perkowski (Chairman). The Compensation Committee operates under a written charter, which
is available on our website at www.adomanielectric.com.
Our Compensation Committee
will assist our board of directors in the discharge of its responsibilities relating to the compensation of our executive officers
and is responsible for, among other things:
|
·
|
reviewing and approving corporate goals and objectives relevant to compensation of our Chief Executive Officer and other executive officers;
|
|
·
|
reviewing and approving the following compensation for our Chief Executive Officer and our other executive officers: salaries, bonuses, incentive compensation, equity awards benefits and perquisites;
|
|
·
|
recommending the establishment and terms of our incentive compensation plans and equity compensation plans, and administering such plans;
|
|
·
|
recommending compensation programs for directors;
|
|
·
|
preparing disclosures regarding executive compensation and any related reports required by the rules of the SEC;
|
|
·
|
making and approving grants of options and other equity awards to all executive officers, directors and all other eligible individuals; and
|
|
·
|
reviewing and evaluating, at least annually, its own performance and the adequacy of the committee charter.
|
In carrying out these
responsibilities, the Compensation Committee will review all components of executive compensation for consistency with our compensation
philosophy and with the interests of our stockholders.
Nominating and Corporate Governance
Committee
The Nominating and
Corporate Governance Committee currently consists of Ms. Boydell (Chairman) and Mr. Nettles. The Nominating and Corporate Governance
Committee operates under a written charter, which is available on our website at www.adomanielectric.com.
Our Nominating and
Corporate Governance Committee is responsible for, among other things:
|
·
|
assisting our board of directors in identifying qualified director nominees and recommending nominees for each annual meeting of stockholders;
|
|
·
|
developing, recommending and reviewing corporate governance principles and a code of conduct applicable to us;
|
|
·
|
assisting our board of directors in its evaluation of the performance of our board of directors and each committee thereof; and
|
|
·
|
reviewing and evaluating, at least annually, its own performance and the adequacy of the committee charter.
|
Code of Business Conduct and Ethics
We have adopted a written
code of business conduct and ethics, which outlines the principles of legal and ethical business conduct under which we do business.
The code is applicable to all of our directors, officers and employees and is available on our website at www.adomanielectric.com.
We intend to disclose any amendments to our code of business conduct and ethics, or waivers of its requirements, on our website
or in filings under the Exchange Act to the extent required by applicable rules and exchange requirements.
Executive
Compensation
Overview
As an emerging growth
company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,”
as such term is defined in the rules promulgated under the Securities Act. The following tables and accompanying narrative disclosure
set forth information about the compensation provided to certain of our executive officers during the years ended December 31,
2015 and 2016. These executive officers, who include our principal executive officer and the two most highly-compensated executive
officers (other than our principal executive officer) who were serving as executive officers as of December 31, 2016, the end of
our last completed fiscal year, were:
|
·
|
James L. Reynolds, our President and Chief Executive Officer;
|
|
·
|
Edward R. Monfort, our Chief Technology Officer; and
|
|
·
|
Michael K. Menerey, our Chief Financial Officer and Treasurer (2016 only).
|
We refer to these individuals
in this section as our “Named Executive Officers.”
Summary Compensation Table
The following table
presents summary information regarding the total compensation that was awarded to, earned by or paid to our Named Executive Officers
for services rendered during the years ended December 31, 2015 and 2016.
Name and principal position
|
|
Year
|
|
Salary
($)
|
|
Stock
Awards
($)(1)
|
|
Other
Compensation
($)
|
|
Total ($)
|
James L. Reynolds
|
|
|
2016
|
|
|
|
240,000
|
|
|
|
4,990,000
|
|
|
|
—
|
|
|
|
5,230,000
|
|
President, Chief Executive Officer and Director
|
|
|
2015
|
|
|
|
240,000
|
|
|
|
499,000
|
|
|
|
—
|
|
|
|
739,000
|
|
Edward R. Monfort
|
|
|
2016
|
|
|
|
170,000
|
|
|
|
—
|
|
|
|
114,000
|
|
|
|
284,000
|
|
Chief Technology Officer(2)
|
|
|
2015
|
|
|
|
240,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
240,000
|
|
Michael K. Menerey
|
|
|
2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
290,455
|
|
|
|
290,455
|
|
Chief Financial Officer and Director(3)
|
|
|
2015
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(1)
|
The amounts shown in this column represent the aggregate grant date fair value of stock awards granted in the year computed in accordance with FASB ASC Topic 718.
|
(2)
|
Resigned from our board of directors effective June 9, 2017.
|
(3)
|
Mr. Menerey became our Chief Financial Officer effective March 2016 and a Director in January 2017. We did not employ or consult with Mr. Menerey during the year ended December 31, 2015. Prior to January 1, 2017, we paid Mr. Menerey as a consultant through CFO Edge, which is reported as “Other Compensation.”
|
Narrative Disclosure to Summary Compensation
Table
James L. Reynolds
Mr. Reynolds is our
president, Chief Executive Officer and a Director. Pursuant to an employment agreement entered into in September 2014, Mr. Reynolds’
base salary is $240,000 per annum, although the agreement stipulated that he would receive a reduced salary of $5,000 per month
from September 1, 2014 until the earlier of the closing of a financing or December 31, 2014, during which time such salary accrued
but remained unpaid. In addition to his base salary, Mr. Reynolds is entitled to receive a bonus of five percent of our net
profits on an annual basis. As we did not generate any net profits during the years ended December 31, 2016 and 2015, we did not
make any bonus payments to Mr. Reynolds. During 2015, we issued Mr. Reynolds 500,000 shares of our Common Stock with a fair value
of $500,000 in exchange for cash of $1,000. As the shares were fully vested at the issuance date and the aggregate grant date fair
value of such stock award was $499,000. During 2016, Mr. Reynolds purchased 5,000,000 shares from one of our shareholders in a
transaction that required us to recognize $4,990,000 in stock-based compensation.
Edward R. Monfort
Mr. Monfort is our
Chief Technology Officer and served as a Director from our in inception in August 2012 until June 9, 2017. Pursuant to an employment
agreement entered into in September 2014, or the 2014 Employment Agreement, Mr. Monfort’s base salary was $240,000 per annum,
although the 2014 Employment Agreement stipulated that he would receive a reduced salary of $5,000 per month from September 1,
2014 until the earlier of the closing of a financing or December 31, 2014, during which time such salary accrued but remained unpaid.
Pursuant to the 2014 Employment Agreement, we paid Mr. Monfort a portion of his salary until February 2016, at which time we began
paying him the full amount. In addition to his base salary, Mr. Monfort was entitled to receive a bonus of five percent of
our net profits on an annual basis. As we did not generate any net profits during the years ended December 31, 2016 and 2015, we
did not make any bonus payments to Mr. Monfort. In June 2016, we entered into an employment agreement with Mr. Monfort that superseded
the 2014 Employment Agreement and reduced his salary to $120,000 per annum, effective June 1, 2016. During the year ended
December 31, 2016, Mr. Monfort earned a total base salary of $170,000, less $18,811 in certain other non-reimbursable expenses
incurred by Mr. Monfort, for a net payment of $151,189. Additionally, we pay up to $7,000 per month for invoiced expenses relating
to research and development services to ELO, LLC, which is owned by Mr. Monfort. During the year ended December 31, 2016, we paid
ELO, LLC a total of $49,000, which is reported as “Other Compensation” in the table above. Further, in June 2016, we
paid ELO, LLC a lump sum of $200,000, which represented $135,000 in certain accrued and unpaid salary and expenses owed to Mr.
Monfort and $65,000 in consideration for Mr. Monfort’s execution of a general release, which is also reported as “Other
Compensation” in the table above.
Michael K. Menerey
Mr. Menerey is
our Chief Financial Officer and a Director. We entered into a written employment agreement with Mr. Menerey effective January 1,
2017. Before that time, we paid Mr. Menerey as a consultant through CFO Edge. During the year ended December 31, 2016, we
paid CFO Edge $192,455 in cash for both Mr. Menerey’s services and fees incurred in connection with the preparation of the
offering circular related to our offering of Common Stock under Regulation A, issued 86,500 shares of Common Stock to Mr. Menerey,
valued at $1.00 per share, and issued 11,500 shares of Common Stock to the founder of CFO Edge, valued at $1.00 per share, for
total compensation of $290,455.
Outstanding Equity Awards at 2016 Fiscal
Year-End
The following table
sets forth information regarding outstanding stock options held by our Named Executive Officers as of December 31, 2016. Our Named
Executive Officers did not hold any restricted stock or other awards as of December 31, 2016.
|
|
Option Awards
|
Name
|
|
Grant Date
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
Option
Exercise
Price
($)
(1)
|
|
Option
Expiration
Date
|
James L. Reynolds
|
|
11/28/2016
|
(1)(2)(3)
|
|
|
2,250,000
|
|
|
|
2,750,000
|
|
|
$
|
0.10
|
|
|
|
9/1/2022
|
|
Edward R. Monfort
|
|
11/1/2012
|
(1)(2)
|
|
|
9,800,000
|
|
|
|
2,200,000
|
|
|
$
|
0.10
|
|
|
|
11/1/2020
|
|
|
|
11/28/2016
|
(1)(2)(4)
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
$
|
0.10
|
|
|
|
6/1/2022
|
|
Michael K. Menerey
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(1)
|
The shares subject to the stock option vest over a five-year period with respect to 1/60
th
of the shares vesting each month, subject to continued service with us through each vesting date.
|
|
|
(2)
|
Option is subject to 100% acceleration upon a qualifying Transfer of Control (as defined in the related award agreement).
|
|
|
(3)
|
On September 1, 2014, we granted Mr. Reynolds an option to purchase 5,000,000 shares of Common Stock pursuant to the 2012 Stock Option Plan. On May 4, 2016, our board of directors agreed to convert such option from an option to purchase Common Stock to an option to purchase shares of preferred stock pursuant to the 2012 Preferred Stock Option Plan. In connection with the termination of the 2012 Preferred Stock Option Plan, on November 28, 2016, the board of directors subsequently canceled such option and issued to Mr. Reynolds a new option to purchase 5,000,000 of Common Stock, with a vesting commencement date of September 1, 2014.
|
(4)
|
On June 1, 2014, we granted Mr. Monfort an option to purchase 3,000,000 shares of Common Stock pursuant to the 2012 Preferred Stock Option Plan. In connection with the termination of the 2012 Preferred Stock Option Plan, on November 28, 2016, the board of directors subsequently canceled such option and issued to Mr. Monfort a new option to purchase 3,000,000 of Common Stock, with a vesting commencement date of June 1, 2014.
|
Employment Agreements with Named Executive
Officers
We have entered into
an employment agreement with our Chief Executive Officer, James L. Reynolds, with an effective date of September 1, 2014.
Pursuant to his employment agreement, Mr. Reynolds receives an annual base salary of $240,000. In addition to his base salary,
Mr. Reynolds is entitled to receive a bonus of up to five percent of our net profits and he was granted an option to purchase
5,000,000 shares of Common Stock. Mr. Reynolds’ employment agreement is for a five-year term and we cannot terminate
his employment thereunder at any time without cause, as defined therein. If Mr. Reynold’s employment with us ceases
due to his death or disability, any unvested stock options will fully vest upon the date of such termination. The employment agreement
also provides that, in the event of Mr. Reynold’s termination for cause, we will have right to repurchase any vested stock
options awarded under our 2012 Stock Option and Stock Incentive Plan, or 2012 Stock Option Plan.
We have entered into
an employment agreement with our Chief Financial Officer and Treasurer, Michael K. Menerey, with an effective date of January 1,
2017. Pursuant to his employment agreement, Mr. Menerey receives an annual base salary of $200,000. In addition to his base salary,
Mr. Menerey is eligible to receive a bonus, as determined by the Compensation Committee of our board of directors in its sole
discretion. The employment agreement provides that we may from time to time grant stock options to Mr. Menerey and that such options
will vest monthly over a five-year period. Mr. Menerey’s employment agreement is for a five-year term and we cannot
terminate his employment thereunder at any time without cause, as defined therein. If Mr. Menerey’s employment with
us ceases due to his death or disability, his employment agreement provides that his unvested stock options will fully vest upon
the date of termination.
We have entered into
an employment agreement with our Chief Technology Officer, Edward R. Monfort, with an effective date of June 1, 2016.
The term of the employment agreement is two years, with an annual base salary of $120,000. Additionally, we pay up to $7,000 per
month for invoiced expenses relating to research and development to ELO, LLC which is owned by Mr. Monfort. Further, in June
2016, we paid ELO, LLC a lump sum of $200,000, which represented $135,000 in certain accrued and unpaid salary and expenses owed
to Mr. Monfort and $65,000 in consideration for Mr. Monfort’s execution of a general release.
Severance and Change in Control Payments
and Benefits
Our Named Executive
Officers are not entitled to any severance or change in control payments or benefits, other than as provided in award agreements
that set forth the terms and conditions of the stock options granted to such individuals pursuant to our 2012 Stock Option Plan.
Each such award agreement provides that, in the event of a “transfer of control,” any unvested portion of such option
will vest immediately. For such purposes, a “transfer of control” includes the direct or indirect sale or exchange
by our stockholders of all or substantially all of our capital stock, where our stockholders before such sale or exchange do not
retain, directly or indirectly, at least a majority of the beneficial interest in our voting stock after such sale or exchange;
(b) a merger in which we are not the surviving corporation; (c) a merger in which we are the surviving corporation and our stockholders
such merger do not retain, directly or indirectly, at least a majority of the beneficial interest in the our voting stock after
such merger; (d) the sale, exchange, or transfer of all or substantially all of our assets; or (e) our liquidation or dissolution.
Limitations of Liability; Indemnification
of Directors and Officers
Section 145 of
the Delaware General Corporation Law authorizes a corporation’s board of directors to grant, and authorizes a court to award,
indemnity to officers, directors and other corporate agents. As permitted by Delaware law, our amended and restated certificate
of incorporation provides that, to the fullest extent permitted by Delaware law, no director will be personally liable to us or
our stockholders for monetary damages for breach of fiduciary duty as a director. Pursuant to Delaware law such protection would
be not available for liability:
|
·
|
for any breach of a duty of loyalty to us or our stockholders;
|
|
·
|
for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
|
|
·
|
for any transaction from which the director derived an improper personal benefit; or
|
|
·
|
for an act or omission for which the liability of a director is expressly provided by an applicable statute, including unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law.
|
Our amended and restated
certificate of incorporation also provides that if Delaware law is amended after the approval by our stockholders of the amended
and restated certificate of incorporation to authorize corporate action further eliminating or limiting the personal liability
of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law.
Our amended and restated
certificate of incorporation and amended and restated bylaws further provide that we must indemnify our directors and officers
to the fullest extent permitted by Delaware law. Our amended and restated bylaws also authorize us to indemnify any of our employees
or agents and authorize us to secure insurance on behalf of any officer, director, employee or agent for any liability arising
out of his or her action in that capacity, whether or not Delaware law would otherwise permit indemnification.
In addition, our amended
and restated bylaws provide that we are required to advance expenses to our directors and officers as incurred in connection with
legal proceedings against them for which they may be indemnified and that the rights conferred in the amended and restated bylaws
are not exclusive.
The limitation of liability
and indemnification provisions in our amended and restated certificate of incorporation and bylaws may discourage stockholders
from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood
of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders.
Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage
awards against directors and officers as required by these indemnification provisions.
At present, there is
no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought,
and we are not aware of any threatened litigation that may result in material claims for indemnification. We believe that our indemnity
agreements and our amended and restated certificate of incorporation and amended and restated bylaw provisions are necessary to
attract and retain qualified person as directors and executive officers.
Indemnity Agreements
In addition to the
indemnification required in our amended and restated certificate of incorporation and amended and restated bylaws, we have entered
into indemnification agreements with each of our directors and executive officers. These agreements generally provide for the indemnification
of such persons for all reasonable expenses and liabilities, including attorneys’ fees, judgments, penalties, fines and settlement
amounts, incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were
serving in such capacity, to the extent indemnifiable under the law. We believe that these charter and bylaw provisions and indemnity
agreements are necessary to attract and retain qualified persons as directors and executive officers. Furthermore, as is typical,
we have director and officer liability insurance to cover both us and our directors and officers for liabilities that may be incurred
in connection with their services to us.
Employee Benefit and Equity Incentive
Plans
We currently maintain
the 2012 Stock Option Plan and our board of directors and stockholders have approved our 2017 Equity Incentive Plan, or the 2017
Plan. No options have been issued under the 2017 Plan to date. Although we previously maintained a 2012 Preferred Stock Option
Plan, we have since terminated such plan and the participants thereunder elected to cancel their options to purchase shares of
preferred stock.
2017 Equity Incentive Plan
On June 9, 2017, we
terminated our 2012 Stock Option Plan, at which time our 2017 Plan replaced our 2012 Stock Option Plan. The 2017 Plan is intended
to make available incentives that will assist us to attract, retain and motivate employees, including officers, consultants and
directors. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted
stock units, performance shares and units and other cash-based or stock-based awards.
A total of 15,000,000
shares of our Common Stock were initially authorized and reserved for issuance under the 2017 Plan. This reserve will automatically
increase on January 1, 2018 and each subsequent anniversary through 2027, by an amount equal to the smaller of (a) 3% of the number
of shares of Common Stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the board.
Appropriate adjustments
will be made in the number of authorized shares and other numerical limits in the 2017 Plan and in outstanding awards to prevent
dilution or enlargement of participants’ rights in the event of a stock split or other change in our capital structure. Shares
subject to awards which expire or are cancelled or forfeited will again become available for issuance under the 2017 Plan. The
shares available will not be reduced by awards settled in cash or by shares withheld to satisfy tax withholding obligations. Only
the net number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise
or by tender of previously owned shares will be deducted from the shares available under the 2017 Plan.
The 2017 Plan is generally
administered by the Compensation Committee of our board of directors. Subject to the provisions of the 2017 Plan, the Compensation
Committee will determine in its discretion the persons to whom and the times at which awards are granted, the sizes of such awards
and all of their terms and conditions. However, the Compensation Committee may delegate to one or more of our officers the authority
to grant awards to persons who are not officers or directors, subject to certain limitations contained in the 2017 Plan and award
guidelines established by the committee. The Compensation Committee has the authority to construe and interpret the terms of the
2017 Plan and awards granted under it. The 2017 Plan provides, subject to certain limitations, for indemnification by us of any
director, officer or employee against all reasonable expenses, including attorneys’ fees, incurred in connection with any
legal action arising from such person’s action or failure to act in administering the 2017 Plan.
The 2017 Plan authorizes
the Compensation Committee, without further stockholder approval, to provide for the cancellation of stock options or stock appreciation
rights with exercise prices in excess of the fair market value of the underlying shares of Common Stock in exchange for new options
or other equity awards with exercise prices equal to the fair market value of the underlying Common Stock or a cash payment.
The 2017 Plan limits
the grant date fair value of all equity awards and the amount of cash compensation that may be provided to a non-employee director
in any fiscal year to an aggregate of $300,000.
Awards may be granted
under the 2017 Plan to our employees, including officers, directors or consultants or those of any present or future parent or
subsidiary corporation or other affiliated entity. All awards will be evidenced by a written agreement between us and the holder
of the award and may include any of the following:
|
·
|
Stock options
. We may grant nonstatutory stock options or incentive stock options (as described in Section 422 of the Internal Revenue Code), each of which gives its holder the right, during a specified term (not exceeding 10 years) and subject to any specified vesting or other conditions, to purchase a number of shares of our Common Stock at an exercise price per share determined by the administrator, which may not be less than the fair market value of a share of our Common Stock on the date of grant.
|
|
·
|
Stock appreciation rights
. A stock appreciation right gives its holder the right, during a specified term (not exceeding 10 years) and subject to any specified vesting or other conditions, to receive the appreciation in the fair market value of our Common Stock between the date of grant of the award and the date of its exercise. We may pay the appreciation in shares of our Common Stock or in cash.
|
|
·
|
Restricted stock
. The administrator may grant restricted stock awards either as a bonus or as a purchase right at such price as the administrator determines. Shares of restricted stock remain subject to forfeiture until vested, based on such terms and conditions as the administrator specifies. Holders of restricted stock will have the right to vote the shares and to receive any dividends paid, except that the dividends will be subject to the same vesting conditions as the related shares.
|
|
·
|
Restricted stock units
. Restricted stock units represent rights to receive shares of our Common Stock (or their value in cash) at a future date without payment of a purchase price, subject to vesting or other conditions specified by the administrator. Holders of restricted stock units have no voting rights or rights to receive cash dividends unless and until shares of Common Stock are issued in settlement of such awards. However, the administrator may grant restricted stock units that entitle their holders to dividend equivalent rights subject to the same vesting conditions as the related units.
|
|
·
|
Performance shares and performance units
. Performance shares and performance units are awards that will result in a payment to their holder only if specified performance goals are achieved during a specified performance period. Performance share awards are rights denominated in shares of our Common Stock, while performance unit awards are rights denominated in dollars. The administrator establishes the applicable performance goals based on one or more measures of business performance enumerated in the 2017 Plan, such as revenue, gross margin, net income or total stockholder return. To the extent earned, performance share and unit awards may be settled in cash or in shares of our Common Stock. Holders of performance shares or performance units have no voting rights or rights to receive cash dividends unless and until shares of Common Stock are issued in settlement of such awards. However, the administrator may grant performance shares that entitle their holders to dividend equivalent rights subject to the same vesting conditions as the related units.
|
|
·
|
Cash-based awards and other stock-based awards
. The administrator may grant cash-based awards that specify a monetary payment or range of payments or other stock-based awards that specify a number or range of shares or units that, in either case, are subject to vesting or other conditions specified by the administrator. Settlement of these awards may be in cash or shares of our Common Stock, as determined by the administrator. Their holder will have no voting rights or right to receive cash dividends unless and until shares of our Common Stock are issued pursuant to the award. The administrator may grant dividend equivalent rights with respect to other stock-based awards.
|
In the event of a
change in control as described in the 2017 Plan, the acquiring or successor entity may assume or continue all or any awards outstanding
under the 2017 Plan or substitute substantially equivalent awards. Any awards which are not assumed or continued in connection
with a change in control or are not exercised or settled prior to the change in control will terminate effective as of the time
of the change in control. The Compensation Committee may provide for the acceleration of vesting of any or all outstanding awards
upon such terms and to such extent as it determines, except that the vesting of all awards held by members of the board of directors
who are not employees will automatically be accelerated in full. The 2017 Plan also authorizes the Compensation Committee, in its
discretion and without the consent of any participant, to cancel each or any outstanding award denominated in shares upon a change
in control in exchange for a payment to the participant with respect to each share subject to the cancelled award of an amount
equal to the excess of the consideration to be paid per share of Common Stock in the change in control transaction over the exercise
price per share, if any, under the award.
The 2017 Plan will
continue in effect until it is terminated by the administrator, provided, however, that all awards will be granted, if at all,
within 10 years of its effective date. The administrator may amend, suspend or terminate the 2017 Plan at any time, provided that
without stockholder approval, the plan cannot be amended to increase the number of shares authorized, change the class of persons
eligible to receive incentive stock options, or effect any other change that would require stockholder approval under any applicable
law or listing rule.
2012 Stock Option Plan
Our board of directors
adopted, and our stockholders approved, our 2012 Stock Option Plan, on September 1, 2012. The 2012 Stock Option Plan was assumed
by the Delaware company in our reincorporation in November 2016. Our 2012 Stock Option Plan provides for the grant of incentive
stock options to our employees, and for the grant of nonstatutory stock options to our directors, officers, employees, consultants
and advisors. In connection with our adoption of the 2017 Plan, we no longer will make award grants under the 2012 Stock Option
Plan.
Authorized Shares
.
The maximum aggregate number of shares that may be issued under the 2012 Stock Option Plan was 40,000,000 shares of our Common
Stock. As of June 9, 2017, options to purchase 30,375,000 shares of our Common Stock were outstanding, taking into consideration
the conversion of the options to purchase preferred stock into options to purchase Common Stock. Due to our adoption of the 2017
Plan, we will no longer make award grants under the 2012 Stock Option Plan.
Plan Administration
.
Our board of directors, or a committee appointed by the board of directors, administers the 2012 Stock Option Plan and any stock
awards granted under the 2012 Stock Option Plan. The administrator has the power and authority to determine the terms of the awards,
including eligibility, the form of agreements for use under the 2012 Stock Option Plan, the exercise price, the number of shares
covered by each such award, the vesting schedule and exercisability of awards, and the form of consideration payable upon exercise.
The administrator also has the power and authority to construe and interpret the terms of the 2012 Stock Option Plan and awards
granted pursuant to the 2012 Stock Option Plan.
Stock Options
.
With respect to all stock options granted under the 2012 Stock Option Plan, the exercise price of such options must equal at least
the fair market value of our Common Stock on the date of grant. The term of an option may not exceed eight years; provided, however,
that an incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of
our stock, or of certain of our subsidiary corporations, may not have a term in excess of five years and must have an exercise
price of at least 110% of the fair market value of our Common Stock on the grant date. The administrator will determine the methods
of payment of the exercise price of an option, which may include cash or other methods of payment acceptable to the administrator.
Subject to the provisions of the 2012 Stock Option Plan, the administrator determines the vesting terms of options granted under
the 2012 Stock Option Plan. After the termination of service of an employee, director or consultant, the participant may exercise
his or her option, to the extent vested as of such date of termination, for the period of time stated in his or her option agreement.
Transferability
of Awards.
Unless otherwise determined by the administrator, the 2012 Stock Option Plan generally does not allow for the sale
or transfer of awards under the 2012 Stock Option Plan other than by will or the laws of descent and distribution, and may be exercised
during the lifetime of the participant only by such participant.
Merger or Change
in Control.
In the event of a merger, the sale of substantially all of our assets or any other acquisition, the 2012 Stock
Option Plan provides that the outstanding options and stock rights will be treated as set forth in the agreement of merger, consolidation,
or asset sale, which shall provide for any of the following: (i) the assumption of the awards by the surviving corporation or its
parent or (ii) the continuation of the awards by the company if the company is the surviving corporation.
Plan Amendment,
Termination.
Our board of directors may at any time amend, suspend or terminate the 2012 Stock Option Plan, provided such action
does not impair the existing rights of any participant.
Non-Employee Director Compensation
Prior to June 9, 2017,
we had no non-employee directors. We reimburse our officers and directors for reasonable expenses incurred during the course of
their performance. We currently have no long-term incentive plans.
Directors who are also
our employees receive no additional compensation for their service as a director. During the years ended December 31, 2016 and
2015, our directors who also served as employees were Mr. Reynolds, our President and Chief Executive Officer, Mr. Monfort, our
Chief Technology Officer, Mr. Kanning, our Chief Operating Officer, and Mr. Williams, our Vice President.
We have implemented
a formal policy pursuant to which our non-employee directors are eligible to receive equity awards and annual cash retainers as
compensation for service on our board of directors and committees of our board of directors as follows. This policy includes
an annual compensation of $15,000, with an additional $5,000 annually to the chairpersons of the Audit, Compensation and Nominating
and Corporate Governance Committees, including reimbursement of expenses. In addition, for each year of service directors would
be awarded stock options to purchase 10,000 shares of our Common Stock, exercisable at the public trading price on the date of
issuance, with vesting over the ensuing twenty-four months of continuous board service.
Security
Ownership of Certain Beneficial Owners and Management
The following table
sets forth information known to us regarding the beneficial ownership of our Common Stock as of October 9, 2017, as adjusted to
reflect the shares of Common Stock included in the Units to be issued and sold by us in this offering, for:
|
·
|
each person, or group of affiliated persons, known to us to beneficially own more than 5% of our Common Stock;
|
|
·
|
each of our Named Executive Officers; and
|
|
·
|
all of our directors and executive officers as a group.
|
Beneficial ownership
of shares is determined under the rules of the SEC and generally includes any shares over which a person exercises sole or shared
voting or investment power. Except as indicated by footnote, and subject to applicable community property laws, we believe each
person identified in the table has sole voting and investment power with respect to all shares of Common Stock beneficially owned
by them. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Section 13(d)
and 13(g) of the Securities Act.
Applicable percentage
ownership in the following table is based on 68,070,930 shares of our Common Stock outstanding as of October 9, 2017. We have based
our calculation of the percentage of beneficial ownership after this offering on shares
of our Common Stock outstanding after the completion of this offering, assuming the minimum amount of Units offered by us, as set
forth on the cover page of this prospectus, and excluding the shares included in the Units subject to the underwriter’s over-subscription
option to sell additional securities. Shares of our Common Stock subject to stock options or warrants that are currently exercisable
or exercisable within 60 days of October 9, 2017 are deemed to be outstanding and to be beneficially owned by the person holding
the stock option or warrant for the purpose of computing the number and percentage ownership of outstanding shares of that person.
We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Consequently,
the denominator for calculating beneficial ownership percentages may be different for each beneficial owner.
|
|
Shares Beneficially Owned
Prior to this Offering(2)(3)
|
|
Prior to this
Offering
|
|
After this
Offering(4)
|
|
After this
Offering(5)
|
Name of Beneficial Owner
(1)
|
|
Shares of
Common Stock
|
|
% of total
voting
power
|
|
% of total
voting
power
|
|
% of total
voting
power
|
Directors and Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
James L. Reynolds(6)
|
|
|
9,110,218
|
|
|
|
12.71
|
%
|
|
%
|
|
%
|
Michael K. Menerey(7)
|
|
|
449,829
|
|
|
|
*
|
|
|
%
|
|
%
|
Edward R. Monfort(8)
|
|
|
18,135,939
|
|
|
|
22.06
|
%
|
|
%
|
|
%
|
Gary W. Nettles(9)
|
|
|
4,092,089
|
|
|
|
6.01
|
%
|
|
%
|
|
%
|
Janet Boydell(10)
|
|
|
12,089
|
|
|
|
*
|
|
|
%
|
|
%
|
James Perkowski(11)
|
|
|
12,089
|
|
|
|
*
|
|
|
%
|
|
%
|
All directors and executive officers as a group (10 persons)(12)
|
|
|
41,638,448
|
|
|
|
46.24
|
%
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
James Rogers(13)
|
|
|
3,914,020
|
|
|
|
5.75
|
%
|
|
%
|
|
%
|
Julie A. Minuskin(14)
|
|
|
3,523,700
|
|
|
|
5.18
|
%
|
|
%
|
|
%
|
Daniel L. Sheehan(15)
|
|
|
3,415,333
|
|
|
|
5.02
|
%
|
|
%
|
|
%
|
* Represents beneficial ownership
of less than 1%.
(1)
|
The address of those listed is c/o ADOMANI, Inc., 4740 Green River Road, Suite 106 Corona, California 92880.
|
(2)
|
Unless otherwise indicated, all shares are owned directly by the beneficial owner.
|
|
|
(3)
|
Shares of Common Stock subject to options or warrants currently exercisable or exercisable within 60 days of October 9, 2017 are deemed outstanding for purposes of computing the percentage ownership of the person holding such options or warrants, and for the Directors and executive officers as a group, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
|
|
|
(4)
|
Assuming that the minimum amount of shares offered by us, as set forth on the cover page of this prospectus.
|
|
|
(5)
|
Assuming that the maximum amount of shares offered by us, as set forth on the cover page of this prospectus.
|
|
|
(6)
|
Includes (i) 5,500,000 shares of Common Stock held of record by The Reynolds Irrevocable Family Trust II, Dated July 30, 2016 and (ii) 3,610,218 shares of Common Stock that Mr. Reynolds will have the right to acquire through the exercise of stock options.
|
|
|
(7)
|
Includes (i) 353,114 shares of Common Stock held of record by the Menerey Living Trust u/t/d 4/12/96 and (ii) 96,715 shares of Common Stock that Mr. Menerey will have the right to acquire through the exercise of a stock option.
|
|
|
(8)
|
Includes (i) 4,000,000 shares of Common Stock held of record by the Monfort Revocable Living Trust, Dated 8/19/16 and (ii) 14,135,939 shares of Common Stock that Mr. Monfort will have the right to acquire through the exercise of stock options.
|
|
|
(9)
|
Includes (i) 4,000,000 shares held of record by Provident Trust Group FBO Cornelia P. Doherty ROTH IRA and 80,000 shares held of record by Connie Doherty Living Trust Dated May 1, 1996, over which Mr. Nettles has voting and investment control pursuant to a Voting Trust Agreement dated March 20, 2017, and (ii) 12,089 shares of Common Stock that Mr. Nettles will have the right to acquire through the exercise of a stock option.
|
|
|
(10)
|
Includes 12,089 shares of Common Stock that Ms. Boydell will have the right to acquire through the exercise of a stock option.
|
|
|
(11)
|
Includes 12,089 shares of Common Stock that Mr. Perkowski will have the right to acquire through the exercise of a stock option.
|
|
|
(12)
|
Includes (i) 19,663,114 shares of Common Stock and (ii) options to acquire up to 21,975,334 shares of Common Stock.
|
|
|
(13)
|
Based on information provided to us by such stockholder, includes (i) 2,034,020 shares of Common Stock held of record by Spirit of California Entertainment Group, Inc., (ii) 130,000 shares of Common Stock held of record by James B. Rogers Irrevocable Family Trust and (iii) 1,750,000 shares of Common Stock held of record by Mobile Grow, Inc.
|
|
|
(14)
|
Based on information provided to us by such stockholder, includes (i) 3,133,700 shares of Common Stock held of record by the Julie A. Minuskin Irrevocable Trust, of which Ms. Minuskin is trustee, (ii) 50,000 shares of Common Stock held of record by Land Jewels, Inc., (iii) 90,000 shares of Common Stock held of record by Retire Happy LLC, and (iv) 250,000 shares of Common Stock held of record by UBAT Holdings, Inc.
|
|
|
(15)
|
Based on information provided to us by such stockholder, includes 3,415,333 shares of Common Stock held of record by the Acaccia Family Trust, for which Mr. Sheehan serves as trustee.
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Certain
Relationships and Related PARTY Transactions
Other than compensation
arrangements for our directors and Named Executive Officers, which are described in the sections titled “Management”
and “Executive Compensation,” below we describe transactions since January 1, 2014 to which we were a party or will
be a party, in which:
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the amounts involved exceeded or will exceed $120,000; and
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any of our directors, director nominees, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect material interest.
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Agreements with Consultants
Per the terms of Mr.
Monfort’s employment agreement, we pay up to $7,000 per month for invoiced expenses relating to research and development
services to ELO, LLC, which is owned by Mr. Monfort. During the year ended December 31, 2016, we paid ELO, LLC a total of $49,000
pursuant to such arrangement. In addition, in June 2016, we paid ELO, LLC a lump sum of $200,000, which represented $135,000 in
certain accrued and unpaid salary and expenses owed to Mr. Monfort and $65,000 in consideration for Mr. Monfort’s execution
of a general release.
Transactions with Chief Financial Officer
In July and August
of 2016, our Chief Financial Officer, Mr. Menerey, purchased an aggregate of $25,000 of the outstanding convertible notes from
Acaccia Family Trust, another shareholder, or Acaccia. In July 2016, Mr. Menerey also purchased 10,000 shares of Common Stock from
Acaccia for an aggregate purchase price of $20 and we issued 86,500 shares of Common Stock to him, valued at $1.00 per share, pursuant
to a contract for providing CFO services.
Indemnification of Directors and Officers
Our amended and restated
bylaws provide that we will indemnify each of our directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. Further, we have entered into indemnification agreements with each of our directors and executive officers. These
agreements require us, among other things, to indemnify these individuals for certain expenses (including attorneys’ fees),
judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by
or in our right, on account of any services undertaken by such person on behalf of our company or that person’s status as
a member of our Board of Directors to the maximum extent allowed under Delaware law. We also maintain directors’ and officers’
liability insurance. For further information, see the section titled “Executive Compensation—Limitations of Liability;
Indemnification of Directors and Officers.”
Policies and Procedures for Related
Person Transactions
All future transactions,
if any, between us and our officers, directors and principal stockholders and their affiliates, as well as any transactions between
us and any entity with which our officers, directors or principal stockholders are affiliated will be reviewed and approved or
ratified in accordance with policies and procedures adopted by our board of directors. Such policies and procedures require that
related person transactions be approved by the Audit Committee or our board of directors or otherwise in accordance with the then
applicable SEC rules and regulations governing the approval of such transactions. The Audit Committee and the board of directors
have adopted policies and procedures for review of, and standards for approval of related party transactions. These policies and
procedures have not been and will not be applied to the related party transactions described above.
All future affiliated
transactions will be made or entered into on terms that are no less favorable to us than those that can be obtained from any unaffiliated
third party. A majority of the independent, disinterested members of our board of directors will approve future affiliated transactions,
and we will maintain at least two independent directors on our board of directors to review all material transactions with affiliates.
DESCRIPTION OF CAPITAL STOCK
General
The following description
summarizes certain terms of our capital stock. Because it is only a summary, it does not contain all the information that may be
important to you. For a complete description of the matters set forth in this section you should refer to our amended and restated
certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus
forms a part, and to the applicable provisions of Delaware law.
Our authorized capital
stock consists of 2,100,000,000 shares of capital stock, of which 2,000,000,000 shares are designated as Common Stock, $0.00001
par value per share, and of which 100,000,000 shares are designated as preferred stock, $0.00001 par value per share.
As of September 30,
2017, there were 68,070,930 shares of our Common Stock outstanding and held of record by 261 stockholders. The rights, preferences
and privileges of the holders of our Common Stock are subject to the rights of the holders of shares of any series of preferred
stock which we may issue in the future.
Units
Each Unit consists
of one share of our Common Stock and a warrant to purchase share
of our Common Stock. The shares of our Common Stock and warrants that comprise each Unit are immediately separable and will be
issued separately. We do not intend to make a market in the Units and do not expect that one will develop.
Common Stock
Dividend Rights
Subject to preferences
that may apply to any shares of our preferred stock outstanding at the time, for as long as such stock is outstanding, the holders
of our Common Stock are entitled to receive ratably any dividends as may be declared by our board of directors out of funds legally
available for dividends. See the section titled “Dividend Policy” for additional information.
Voting Rights
Holders of our Common
Stock are entitled to one vote per share on any matter to be voted upon by stockholders. We have not provided for cumulative voting
for the election of directors in our amended and restated certificate of incorporation. Our amended and restated certificate of
incorporation establishes a classified board of directors that is divided into three classes with staggered three-year terms. Only
the directors in one class will be subject to election at each annual meeting of stockholders, with the directors in other classes
continuing for the remainder of their three-year terms.
No Preemptive or Similar Rights
Our Common Stock is
not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Liquidation Rights
If we become subject
to a liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable
ratably among the holders of our Common Stock outstanding at that time, subject to prior satisfaction of all outstanding debt and
liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred
stock.
Undesignated Preferred Stock
Subject to limitations
prescribed by Delaware law, our board of directors may issue preferred stock in one or more series, establish from time to time
the number of shares to be included in each series, and determine for each such series of preferred stock the voting powers, designations,
preferences, and special rights, qualifications, limitations, or restrictions as permitted by law, in each case without further
vote of action by our stockholders. Our board of directors may also increase or decrease the number of shares of any series of
preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our
stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could
adversely affect the voting power or other rights of the holders of Common Stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of
delaying, deferring or preventing a change in control of our company and might adversely affect the market price of our Common
Stock and the voting and other rights of the holders of our Common Stock. We have no current plan to issue any shares of preferred
stock.
Warrants Issued In This Offering
The warrants sold in
this offering as part of the Units will have an exercise price per whole share of Common Stock of $ .
The warrants will be exercisable beginning the
date of issuance for
share of Common Stock and will expire on the
anniversary of the date of issuance. The Common Stock and warrants may be transferred separately immediately upon issuance. Exercise
of the warrants requires payment against delivery of the underlying shares of Common Stock; in no event will we be obligated to
“net cash settle” or allow “net exercise” of the warrants. All shares of Common Stock issued upon the proper
exercise or surrender of warrants on their terms shall be validly issued, fully paid and nonassessable.
Subject to compliance
with any applicable securities laws and limits on fractional warrants, the warrants may be transferred by the warrant holder upon
surrender of the warrant. There is currently no established trading market for the warrants and we do not intend to apply to list
the warrants on a securities exchange. We do not intend to make a market in the warrants and do not expect that one will develop.
Therefore, the warrant holders may have to hold the warrants they purchase in this offering, until such time, if any, as they wish
to exercise them. The warrant holders do not have the rights or privileges of holders of Common Stock and any voting rights until
they exercise their warrants and receive shares of Common Stock. After the issuance of shares of Common Stock upon exercise of
the warrants, each holder will be entitled to one vote for each share held on record on all matters to be voted on by stockholders.
The exercise price
and number of shares of Common Stock issuable on exercise of the warrants may be adjusted in certain circumstances including in
the event of our recapitalization, reorganization, merger or consolidation. We may, in our sole discretion, upon due notice to
holders of the then outstanding warrants, lower the exercise price at any time prior to the expiration date of the warrants, provided,
that such reduction is in effect for no less than ten business days and such reduction is identical in percentage terms among all
of the then outstanding warrants. We may also extend the duration of the warrants by delaying the expiration date; provided, that
we provide notice of not less than 20 days to holders of such extension and that such extension is identical in duration among
all of the then outstanding warrants.
We will attempt to
maintain the effectiveness of a current prospectus covering the Common Stock issuable upon exercise of the warrants until the expiration
of the warrants. However, we cannot assure you that we will be able to do so and we may not be able to maintain our eligibility
to use such current prospectus. If the prospectus relating to the Common Stock issuable upon the exercise of the warrants is not
current or if we are not eligible to use such current prospectus or if the Common Stock is not qualified or exempt from qualification
in the jurisdictions in which the holders of the warrants reside, the warrants may have no value.
Warrants
On September 1, 2016,
we issued a warrant to purchase up to 1,250,000 shares of Common Stock at a price per share of $4.00 to a placement agent
for services rendered in connection with a private placement of debt in January 2015. The term of the warrant extends until five years
from the grant date and is exercisable at any time during that 10-year period.
On June 19, 2017, pursuant
to a settlement and release agreement, we issued to Redwood Group International Limited a warrant to purchase up to 350,000 shares
of Common Stock at a price per share of $5.00. The term of the warrant extends until five years from the grant date and is exercisable
from the earlier of December 16, 2017 or a change of control transaction, through the end of the five-year period. Additionally,
the warrant contains a cashless exercise provision.
On June 26, 2017, in
connection with our offering of Common Stock under Regulation A, we issued to Boustead Securities, LLC, a warrant to purchase up
to 199,659 shares of Common Stock, which represented seven percent of the aggregate number of shares sold in our offering, at a
price per share of $6.00, which is 120% of the price of the shares of Common Stock sold in the offering. The term of the warrant
extends until five years from the grant date and the warrant is exercisable from October 22, 2017 through the end of the five-year
period. Additionally, the warrant contains a cashless exercise provision, as well as certain registration rights, as described
in “Description of Capital Stock—Registration Rights.”
In connection with
this offering, we will issue a warrant to the underwriter to purchase up to shares
of Common Stock at a price per share of $ .
The warrant will expire in and
will be immediately exercisable.
Options
As of June 30, 2017,
there were
26,775,000
shares of Common Stock issuable upon the exercise of options outstanding
as of June 30, 2017, at an exercise price of $0.10 per share, and 3,600,000 shares of Common Stock issuable upon the exercise of
options outstanding as of June 30, 2017, at an exercise price of $10.49 per share.
Registration Rights
We previously granted
registration rights to certain holders of our Common Stock. We filed a registration statement on Form S-1 to comply with the
registration rights, although we later withdrew the registration statement in connection with our offering of Common Stock under
Regulation A. We believe that we have satisfied our obligations to such holders and do not believe that any holders of our Common
Stock are entitled to any additional registration rights. Additionally, pursuant to the warrant issued on June 26, 2017, Boustead
Securities, LLC may demand registration of the shares of Common Stock underlying such warrant. Subject to certain exceptions, within
60 days after receipt of such a demand notice, we are obligated to file a registration statement with the SEC covering such shares
of Common Stock and use our reasonable best efforts to have such registration statement declared effective promptly thereafter.
Such demand right expires four years after the initial exercise date of the warrant. Further, unless all the shares of Common Stock
underlying the warrant are included in an effective registration statement with a current prospectus, Boustead Securities, LLC
is entitled, at any time during the five-year period beginning December 22, 2017, to include such shares as part of certain other
registration statements we file, subject to exceptions. Boustead Securities, LLC has waived its piggyback rights with respect to
the registration statement of which this prospectus forms a part.
Anti-Takeover Matters
Certificate of Incorporation and
Bylaw Provisions
The provisions of Delaware
law, our amended and restated certificate of incorporation and amended and restated bylaws include a number of provisions that
may have the effect of delaying, deferring or discouraging another person from acquiring control of our company and discouraging
takeover bids. These provisions may also have the effect of encouraging persons considering unsolicited tender offers or other
unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These
provisions include the items described below.
Board Composition and Filling Vacancies
Our amended and restated
bylaws provide that directors may be removed only for cause by the affirmative vote of the holders of a majority of the voting
power of all the outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as
a single class. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase
in the size of our board of directors, may only be filled by the affirmative vote of a majority of our directors then in office
even if less than a quorum.
Classified Board of Directors
Our amended and restated
certificate of incorporation establishes a classified board of directors, as a result of which the successors to the directors
whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following
their election.
No Cumulative Voting
The Delaware General
Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless
our amended and restated certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation
and our amended and restated bylaws provide that there will be no cumulative voting.
No Written Consent of Stockholders
Our amended and restated
certificate of incorporation and amended and restated bylaws provide that all stockholder actions are required to be taken by a
vote of the stockholders at an annual or special meeting, and that stockholders may not take any action by written consent in lieu
of a meeting.
Meetings of Stockholders
Our amended and restated
bylaws provide that a majority of the members of our board of directors then in office, the Chairman of the Board, the Chief Executive
Officer or the President may call special meetings of stockholders and only those matters set forth in the notice of the special
meeting may be considered or acted upon at a special meeting of stockholders. Our amended and restated bylaws will limit the business
that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.
Advance Notice Requirements
Our amended and restated
bylaws include advance notice procedures for stockholders seeking to bring business before an annual or special meeting of stockholders
or to nominate candidates for election as directors at our annual meeting of stockholders. These procedures provide that notice
of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is
to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 120 days prior to
the first anniversary date of the annual meeting for the preceding year. The notice must contain certain information specified
in the amended and restated bylaws.
Amendment to Bylaws and Charter
The amendment of the
provisions in our amended and restated certificate of incorporation require approval by holders of at least 66
2
/
3
%
of our outstanding capital stock entitled to vote generally in the election of directors, in addition to any rights of the holders
of our outstanding capital stock to vote on such amendment under the Delaware General Corporation Law. The amendment of the provisions
in our amended and restated bylaws require approval by either a majority of our board of directors or holders of at least 66
2
/
3
%
of our outstanding capital stock entitled to vote generally in the election of directors, in addition to any rights of the holders
of our outstanding capital stock to vote on such amendment under the Delaware General Corporation Law.
Blank Check Preferred Stock
Our amended and restated
certificate of incorporation provides for authorized shares of preferred stock. The existence of authorized but unissued shares
of preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of
us by means of a merger, tender offer, proxy contest, or otherwise. For example, if in the due exercise of its fiduciary obligations,
our board of directors were to determine that a takeover proposal is not in the best interests of us or our stockholders, our board
of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or
other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder
group. In this regard, our amended and restated certificate of incorporation grants our board of directors broad power to establish
the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could
decrease the amount of earnings and assets available for distribution to holders of shares of Common Stock. The issuance may also
adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring,
or preventing a change in control of us.
Delaware General Corporation Law
We are subject to the
provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation
from engaging in a “business combination” with an “interested stockholder” for a three-year period following
the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner.
A “business combination” includes, among other things, a merger, asset or stock sale, or other transaction resulting
in a financial benefit to the interested stockholder. An “interested stockholder” is a person or entity who, together
with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status,
15% or more of the corporation’s voting stock. Under Section 203, a business combination between a corporation and an interested
stockholder is prohibited unless it satisfies one of the following conditions:
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before the stockholder became interested, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
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upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or
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at or after the time the stockholder became interested, the business combination was approved by our board of directors and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
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Any provision of our
amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying,
preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares
of our Common Stock, and could also affect the price that some investors are willing to pay for our Common Stock.
Exclusive Forum
Our amended and restated
bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding
brought on our behalf; any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us
or our stockholders; any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation
Law, our amended and restated certificate of incorporation or the Bylaws; or any action asserting a claim against us that is governed
by the internal affairs doctrine. The enforceability of similar choice of forum provisions in other companies’ certificates
of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions
to be inapplicable or unenforceable.
Limitations of Director Liability and
Indemnification of Directors and Officers
As permitted by the
Delaware General Corporation Law, provisions in our amended and restated certificate of incorporation and amended and restated
bylaws limit or eliminate the personal liability of our directors. Consequently, directors will not be personally liable to us
or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:
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any breach of the director’s duty of loyalty to us or our stockholders;
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any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
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any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or
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any transaction from which the director derived an improper personal benefit.
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These limitations of
liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies,
such as an injunction or rescission.
In addition, our amended
and restated bylaws provide that:
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we will indemnify our directors, officers and, in the discretion of our board of directors, certain employees, to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions, including an exception for indemnification in connection with a proceeding (or counterclaim) initiated by such persons; and
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we will advance expenses, including attorneys’ fees, to our directors and, in the discretion of our board of directors, certain officers and employees, in connection with legal proceedings, subject to limited exceptions.
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We have entered into
indemnification agreements with each of our executive officers and directors. These agreements provide that, subject to limited
exceptions and among other things, we will indemnify each of our executive officers and directors to the fullest extent permitted
by law and advance expenses to each indemnitee in connection with any proceeding in which a right to indemnification is available.
We also intend to maintain
general liability insurance that covers certain liabilities of our directors and officers arising out of claims based on acts or
omissions in their capacities as directors or officers, including liabilities under the Securities Act. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers, or persons who control us, we have been
informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is
therefore unenforceable.
These provisions may
discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions may
also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action,
if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely
affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification
provisions. We believe that these provisions, the indemnification agreements and the insurance are necessary to attract and retain
talented and experienced directors and officers.
At present, there is
no pending litigation or proceeding involving any of our directors or officers where indemnification will be required or permitted.
We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification.
Exchange Listing
Our Common Stock trades
on the NASDAQ Capital Market under the symbol “ADOM”.
Transfer Agent and Registrar
The transfer agent
and registrar for our Common Stock is Issuer Direct Corporation. The transfer agent’s address is 500 Perimeter Park Drive
Suite D, Morrisville, North Carolina 27560, and its telephone number is (919) 744-2722.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a
summary of the material U.S. federal income tax considerations relating to the purchase, ownership and disposition of shares of
our Units or components thereof (Common Stock and warrants), which we refer to collectively as our securities, issued pursuant
to this offering. This summary does not purport to be a complete analysis of all the potential tax considerations relevant to holders
of our securities. This summary is based upon the Internal Revenue Code of 1986, as amended, or the Code, the Treasury regulations
promulgated or proposed thereunder and administrative and judicial interpretations thereof, all as of the date hereof and all of
which are subject to change or differing interpretations at any time, possibly with retroactive effect.
This summary assumes
that our securities are held as “capital assets” within the meaning of Section 1221 of the Code (generally, property
held for investment). This summary does not purport to deal with all aspects of U.S. federal income and estate taxation that might
be relevant to particular holder in light of their particular investment circumstances or status, nor does it address specific
tax considerations that may be relevant to particular persons subject to special treatment under U.S. federal income tax laws (including,
for example, financial institutions, broker-dealers, insurance companies, partnerships or other pass-through entities or arrangements,
certain U.S. expatriates or former long-term residents of the U.S., tax-exempt organizations (including private foundations), pension
plans, regulated investment companies, real estate investment trusts, “controlled foreign corporations,” “passive
foreign investment companies,” corporations that accumulate earnings to avoid U.S. federal income tax, or persons in special
situations, such as those who have elected to mark securities to market or those who hold shares of our Common Stock as part of
a straddle, hedge, conversion transaction, synthetic security or other integrated investment or persons who have a functional currency
other than the U.S. dollar). In addition, this summary does not address estate or any gift tax considerations or considerations
arising under the tax laws of any state, local or non-U.S. jurisdiction or any consideration relating to the alternative minimum
tax or the 3.8% tax on net investment income.
For purposes of this
summary, a “U.S. Holder” means a beneficial owner of our securities that for U.S. federal income tax purposes is:
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an individual who is a citizen or resident of the United States;
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a corporation, or any other organization taxable as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
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an estate, the income of which is included in gross income for U.S. federal income tax purposes regardless of its source; or
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a trust if (1) a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons (as defined in the Internal Revenue Code) have the authority to control all of the trust’s substantial decisions or (2) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
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For purposes of this
summary, a “Non-U.S. Holder” means a beneficial owner of our securities that for U.S. federal income tax purposes is
an individual, corporation, estate or trust other than a U.S. Holder.
If an entity or arrangement
that is classified as a partnership for U.S. federal income tax purposes holds our securities, the tax treatment of persons treated
as its partners for U.S. federal income tax purposes generally will depend upon the status of the partner and the activities of
the partnership. Partnerships and other entities that are classified as partnerships for U.S. federal income tax purposes and persons
holding our securities through a partnership or other entity classified as a partnership for U.S. federal income tax purposes are
urged to consult their own tax advisors.
There can be no assurance
that the IRS will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend
to obtain, a ruling from the IRS or an opinion of counsel with respect to the U.S. federal income tax consequences of the purchase,
ownership or disposition of our securities.
THIS SUMMARY IS
NOT INTENDED TO BE TAX ADVICE. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME
TAXATION AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR SECURITIES, AS WELL AS THE APPLICATION
OF STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX LAWS.
General Treatment of Units and Allocation
of Purchase Price
There is no authority
directly addressing the treatment, for U.S. federal income tax purposes, of instruments with terms substantially the same as the
Units and, therefore, the treatment of a Unit is not entirely clear. The acquisition of a Unit should be treated for U.S. federal
income tax purposes as the acquisition of one share of our Common Stock and one warrant to acquire share
of our Common Stock. We intend to treat the acquisition of a Unit in this manner and, by purchasing a Unit, you agree to adopt
such treatment for U.S. federal income tax purposes. Each holder of a Unit must allocate the purchase price paid by such holder
for such Unit between the share of Common Stock and the warrant based on their respective relative fair market values at the time
of issuance. A holder’s initial tax basis in the Common Stock and the warrant included in each Unit should equal the portion
of the purchase price of the Unit allocated thereto. Any disposition of a Unit should be treated for U.S. federal income tax purposes
as a disposition of the share of Common Stock and one warrant comprising the Unit, and the amount realized on the disposition should
be allocated between the Common Stock and the warrant based on their respective relative fair market values at the time of disposition.
The separation of the Common Stock and warrant comprising a Unit should not be a taxable event for U.S. federal income tax purposes.
The foregoing treatment
of the Units and a holder’s purchase price allocation are not binding on the IRS or the courts. Because there is no authority
that directly addresses instruments that are similar to the Units, no assurance can be given that the IRS or the courts will agree
with the characterization described above or the discussion below. Each prospective investor is urged to consult its tax advisors
regarding the U.S. federal, state, local and any foreign tax consequences of an investment in a Unit (including alternative characterizations
of a Unit and its components). The following discussion is based on the assumption that the characterization of the Common Stock
and warrants and the allocation described above are accepted for U.S. federal income tax purposes.
U.S. Holders
Distributions on Shares of our Common
Stock
As described above
under the heading “—Dividend Policy,” we do not anticipate declaring or paying any cash dividends on our Common
Stock in the foreseeable future. However, if we do make distributions on our Common Stock, those payments generally will constitute
dividends for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits, as determined
under U.S. federal income tax principles. To the extent those distributions exceed our current and accumulated earnings and profits,
they will constitute a return of the U.S. Holder’s investment, up to such holder’s adjusted tax basis in our Common
Stock, as determined on a share-per-share basis. Any remaining excess will be treated capital gain as described below under the
heading “—U.S. Holders - Gain or Loss on Sale, Exchange or Other Taxable Disposition of our Common Stock and Warrants.”
Dividends we pay to
a U.S. Holder that is a taxable corporation generally will qualify for the dividends received deduction if the requisite holding
period is satisfied. With certain exceptions (including dividends treated as investment income for purposes of investment interest
deduction limitations), and provided certain holding period requirements are met, dividends we pay to a non-corporate U.S. Holder
generally will constitute “qualified dividends” that will be subject to tax at the maximum tax rate accorded to long-term
capital gains.
Gain or Loss on Sale, Exchange or Other
Taxable Disposition of our Common Stock and Warrants
A U.S. Holder will
recognize gain or loss on the sale or other taxable disposition (which, in general, would include a complete, and in some cases,
a partial, redemption of such holder’s Common Stock as described below) of our Common Stock or warrants. Any such gain or
loss will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder’s holding period for the
Common Stock or warrants so disposed of exceeds one year. The amount of gain or loss recognized generally will be equal to the
difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition (or,
if the Common Stock or warrants are held as part of a Unit at the time of the disposition, the portion of the amount realized on
such disposition that is allocated to the Common Stock or warrants based upon the then fair market values of the Common Stock and
the warrants included in the Unit) and (ii) the U.S. Holder’s adjusted tax basis in its Common Stock or warrants so disposed
of. A U.S. Holder’s adjusted tax basis in its Common Stock or warrants generally will equal the U.S. Holder’s acquisition
cost (that is, as discussed above, the portion of the purchase price of a Unit allocated to a share of Common Stock or one warrant)
or, as discussed below, the U.S. Holder’s initial basis for the Common Stock received upon exercise of a warrant) less, in
the case of a share of Common Stock, any prior distributions treated as a return of capital. The deductibility of capital losses
is subject to limitations.
Redemption of Shares of our Common Stock
In the event that a
U.S. Holder’s Common Stock is redeemed, the treatment of the transaction for U.S. federal income tax purposes will depend
on whether the redemption qualifies as sale of the Common Stock under Section 302 of the Code. If the redemption qualifies as a
sale of Common Stock under the tests described below, the tax consequences to the U.S. Holder will be the same as described above
under “—U.S. Holders - Gain or Loss on Sale, Exchange or Other Taxable Disposition of our Common Stock and Warrants.”
If the redemption does not qualify as a sale of Common Stock, the U.S. Holder will be treated as receiving a corporate distribution,
the tax consequences of which are described above under “—U.S. Holders - Distributions on Shares of our Common Stock.”
Whether the redemption qualifies for sale treatment will depend primarily on the total number of shares of our stock treated as
held by the U.S. Holder (including any stock constructively owned by the U.S. Holder as a result of owning warrants) both before
and after the redemption. The redemption of Common Stock generally will be treated as a sale of the Common Stock (rather than as
a corporate distribution) if the redemption (i) is “substantially disproportionate” with respect to the U.S. Holder,
(ii) results in a “complete termination” of the U.S. Holder’s interest in us or (iii) is “not essentially
equivalent to a dividend” with respect to the U.S. Holder. These tests are explained more fully below.
In determining whether
any of the foregoing tests are satisfied, a U.S. Holder takes into account not only stock actually owned by the U.S. Holder, but
also shares of our stock that are constructively owned by it. A U.S. Holder may constructively own, in addition to stock owned
directly, stock owned by certain related individuals and entities in which the U.S. Holder has an interest or that have an interest
in such U.S. Holder, as well as any stock the U.S. Holder has a right to acquire by exercise of an option, which would generally
include Common Stock which could be acquired pursuant to the exercise of the warrants. A redemption of a U.S. Holder’s stock
will be substantially disproportionate with respect to the U.S. Holder if the percentage of our outstanding voting stock actually
and constructively owned by the U.S. Holder immediately following the redemption of common stock is, among other requirements,
less than 80% of the percentage of our outstanding voting stock actually and constructively owned by the U.S. Holder immediately
before the redemption. There will be a complete termination of a U.S. Holder’s interest if either (i) all of the shares of
our stock actually and constructively owned by the U.S. Holder are redeemed or (ii) all of the shares of our stock actually owned
by the U.S. Holder are redeemed and the U.S. Holder is eligible to waive, and effectively waives in accordance with specific rules,
the attribution of stock owned by certain family members and the U.S. Holder does not constructively own any other stock. The redemption
of the Common Stock will not be essentially equivalent to a dividend if the redemption results in a “meaningful reduction”
of the U.S. Holder’s proportionate interest in us. Whether the redemption will result in a meaningful reduction in a U.S.
Holder’s proportionate interest in us will depend on the particular facts and circumstances. The IRS has indicated in a published
ruling that even a small reduction in the proportionate interest of a small minority stockholder in a publicly held corporation
who exercises no control over corporate affairs may constitute such a “meaningful reduction.” A U.S. Holder is urged
to consult its tax advisors as to the tax consequences of a redemption, including the application of the constructive ownership
rules described above.
If none of the foregoing
tests is satisfied, the redemption will be treated as a corporate distribution, the tax consequences of which are described above
under “—U.S. Holders - Distributions on Shares of our Common Stock.” After the application of those rules, any
remaining tax basis of the U.S. Holder in the redeemed Common Stock should be added to the U.S. Holder’s adjusted tax basis
in its remaining stock, or, if it has none, to the U.S. Holder’s adjusted tax basis in its warrants or possibly in other
stock constructively owned by it.
Exercise or Lapse of a Warrant
Except as discussed
below with respect to the cashless exercise of a warrant, a U.S. Holder will not recognize gain or loss upon the exercise of a
warrant for cash. The U.S. Holder’s tax basis in the share of our Common Stock received upon exercise of the warrant generally
will be an amount equal to the sum of the U.S. Holder’s initial investment in the warrant (i.e., the portion of the U.S.
Holder’s purchase price for a Unit that is allocated to the warrant, as described above under “—General Treatment
of Units and Allocation of Purchase Price”) and the exercise price of such warrant. It is unclear whether a U.S. Holder’s
holding period for the Common Stock received upon exercise of a warrant would commence on the date of exercise of the warrant or
the day following the date of exercise of the warrant; however, in either case the holding period will not include the period during
which the U.S. Holder held the warrants. If a warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a
capital loss equal to such holder’s tax basis in the warrant.
As described above
under the heading “—Description of Capital Stock - Warrants Issued in This Offering,” we will not be obligated
to “net cash settle” or allow “net exercise,” or cashless exercise, of the warrants. However, if we do
permit cashless exercise of the warrants, the tax consequences of such cashless exercise are not clear under current tax law. A
cashless exercise may be nontaxable, either because the exercise is not a realization event or because the exercise is treated
as a recapitalization for U.S. federal income tax purposes. In either nontaxable situation, a U.S. Holder’s tax basis in
the Common Stock received generally would equal the holder’s tax basis in the warrant. If the cashless exercise were treated
as not being a realization event, it is unclear whether a U.S. Holder’s holding period for the Common Stock would commence
on the date of exercise of the warrant or the day following the date of exercise of the warrant. If, however, the cashless exercise
were treated as a recapitalization, the holding period of the Common Stock would include the holding period of the warrant.
It also is possible
that a cashless exercise could be treated as a taxable exchange in which gain or loss is recognized because a U.S. Holder may be
deemed to have surrendered a portion of its warrants in a taxable transaction to pay the exercise price for the balance of warrants
deemed exercised. In such event, a U.S. Holder would recognize capital gain or loss in an amount equal to the difference between
the fair market value of the warrants deemed surrendered and the U.S. Holder’s tax basis in such warrants. In this case,
a U.S. Holder’s tax basis in the shares of Common Stock received would equal the sum of the U.S. holder’s initial investment
in the warrants deemed exercised (i.e., the portion of the U.S. Holder’s purchase price for a unit that is allocated to the
warrant, as described above under “—General Treatment of Units and Allocation of Purchase Price”) and the exercise
price of such warrants. It is unclear whether a U.S. Holder’s holding period for the Common Stock would commence on the date
of exercise of the warrant or the day following the date of exercise of the warrant.
Due to the absence
of authority on the U.S. federal income tax treatment of a cashless exercise, including when a U.S. Holder’s holding period
would commence with respect to the Common Stock received, there can be no assurance which, if any, of the alternative tax consequences
and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders are urged to consult
their tax advisors regarding the tax consequences of a cashless exercise.
Possible Constructive Distributions
The terms of each warrant
provide for an adjustment to the number of shares of Common Stock for which the warrant may be exercised or to the exercise price
of the warrant in certain events, as discussed in the section of this prospectus captioned “—Description of Capital
Stock - Warrants Issued in This Offering.” An adjustment which has the effect of preventing dilution is generally not a taxable
event. Nevertheless, a U.S. Holder of warrants would be treated as receiving a constructive distribution from us if, for example,
the adjustment increases the holder’s proportionate interest in our assets or earnings and profits (e.g., through an increase
in the number of shares of Common Stock that would be obtained upon exercise) as a result of a distribution of cash to the holders
of shares of our Common Stock which is taxable to such holders as described above under “—U.S. Holders - Distributions
on Shares of our Common Stock.” Such constructive distribution would be subject to tax as described under that section in
the same manner as if such U.S. Holder received a cash distribution from us equal to the fair market value of such increased interest.
Non-U.S. Holders
Distributions on Shares of our Common
Stock
As described above
under the heading “—Dividend Policy,” we do not anticipate declaring or paying any cash dividends on our Common
Stock in the foreseeable future. However, if we do make distributions on our Common Stock, those payments generally will constitute
dividends for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits, as determined
under U.S. federal income tax principles, and will be subject to withholding as described below. To the extent those distributions
exceed our current and accumulated earnings and profits, they will constitute a return of the Non-U.S. Holder’s investment,
up to such holder’s adjusted tax basis in our Common Stock, as determined on a share-per-share basis. Any remaining excess
will be treated capital gain as described below under the heading “—Non-U.S. Holders - Gain on Sale, Exchange or Other
Taxable Disposition of our Common Stock and Warrants.” In addition, if we determine that we are classified as a “United
States real property holding corporation,” as defined in the Code, or USRPHC (see “—Non-U.S. Holders - Gain on
Sale, Exchange or Other Taxable Disposition of our Common Stock and Warrants,” below), we may withhold 15% of any distribution
that exceeds our current and accumulated earnings and profits.
Any dividends paid
to a Non-U.S. Holder with respect to shares of our Common Stock generally will be subject to a 30% U.S. federal withholding tax
unless such Non-U.S. Holder provides the applicable withholding agent with an appropriate and validly completed IRS Form W-8, such
as:
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IRS Form W-8BEN (or successor form) or IRS Form W-8BEN-E (or successor form) certifying, under penalties of perjury, that such Non-U.S. Holder is entitled to a reduction in withholding under an applicable income tax treaty; or
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·
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IRS Form W-8ECI (or successor form) certifying, under penalties of perjury, that a dividend paid on shares of our Common Stock is not subject to withholding tax because it is effectively connected with conduct of a trade or business in the United States of the Non-U.S. Holder (in which case such dividend generally will be subject to regular graduated U.S. federal income tax rates on a net income basis as described below).
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The certifications
described above must be provided to the applicable withholding agent prior to the payment of dividends and must be updated periodically.
The certification also may require a Non-U.S. Holder that provides an IRS form or that claims treaty benefits to provide its U.S.
taxpayer identification number. Special certification and other requirements apply in the case of certain Non-U.S. Holders that
are intermediaries or pass-through entities for U.S. federal income tax purposes.
If dividends are effectively
connected with the conduct of a trade or business in the United States of the Non-U.S. Holder (and, if required by an applicable
income tax treaty, are attributable to a permanent establishment or fixed base maintained by such Non-U.S. Holder in the United
States), the Non-U.S. Holder, although exempt from the withholding tax described above (provided that the certifications described
above are satisfied), generally will be subject to U.S. federal income tax on such dividends on a net income basis in the same
manner as if it were a resident of the U.S. In addition, if such Non-U.S. Holder is taxable as a corporation for U.S. federal income
tax purposes, such Non-U.S. Holder may be subject to an additional “branch profits tax” equal to 30% of its effectively
connected earnings and profits for the taxable year, unless an applicable income tax treaty provides otherwise.
Non-U.S. Holders that
do not timely provide the applicable withholding agent with the required certification, but which are eligible for a reduced rate
of U.S. federal withholding tax pursuant to an applicable income tax treaty may obtain a refund or credit of any excess amount
withheld by timely filing an appropriate claim for refund with the IRS.
Any distribution described
in this section would also be subject to the discussion below in the section titled “—Foreign Account Tax Compliance
Act.”
Exercise or Lapse of a Warrant
The U.S. federal income
tax treatment of a Non-U.S. Holder’s exercise of a warrant generally will correspond to the U.S. federal income tax treatment
of the exercise of a warrant by a U.S. Holder, as described above under “—U.S. Holders - Exercise or Lapse of a Warrant,”
although to the extent a cashless exercise results in a taxable exchange, the tax consequences to the Non-U.S. Holder would be
the same as those described below in “—Non-U.S. Holders—Gain on Sale, Exchange or Other Taxable Disposition of
Common Stock and Warrants.”
Gain on Sale, Exchange or Other Taxable
Disposition of our Common Stock and Warrants
Subject to the discussion
below under “—Backup Withholding and Information Reporting” and “—Foreign Account Tax Compliance
Act,” in general, a Non-U.S. Holder will not be subject to U.S. federal income tax or withholding tax on any gain realized
upon such holder’s sale, exchange or other disposition of our Common Stock or warrants (including a redemption of our Common
Stock, but only if the redemption would be treated as a sale or exchange rather than a distribution for U.S. federal income tax
purposes, as described below), in each case regardless of whether those securities are held as part of a Unit, unless (i) such
Non-U.S. Holder is an individual who is present in the U.S. for 183 days or more in the taxable year of disposition, and certain
other conditions are met, (ii) we are or have been a USRPHC at any time within the shorter of the five-year period preceding the
disposition and the Non-U.S. Holder’s holding period with respect to the applicable shares of our Common Stock, and certain
other conditions are met, or (iii) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business
in the U.S. (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained
by such Non-U.S. Holder in the U.S.).
If the first exception
applies, the Non-U.S. Holder generally will be subject to U.S. federal income tax at a rate of 30% (unless an applicable income
tax treaty provides otherwise) on the amount by which such Non-U.S. Holder’s capital gains allocable to U.S. sources exceed
capital losses allocable to U.S. sources during the taxable year of the disposition.
With respect to the
second exception above, although there can be no assurance, we believe we are not, and we do not currently anticipate becoming,
a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property
relative to the fair market value of other business assets, there can be no assurance that we are not currently or will not become
a USRPHC in the future. Generally, a corporation is a USRPHC only if the fair market value of its U.S. real property interests
(as defined in the Code) equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus
certain other assets used or held for use in a trade or business. Even if we are or become a USRPHC, a Non-U.S. Holder would not
be subject to U.S. federal income tax on a sale, exchange or other taxable disposition of our Common Stock or warrants by reason
of our status as a USRPHC so long as (a) our Common Stock is regularly traded on an established securities market (within the meaning
of Code Section 897(c)(3)) during the calendar year in which such sale, exchange or other taxable disposition of our Common Stock
or warrants occurs and (b) such Non-U.S. Holder does not own and is not deemed to own (directly, indirectly or constructively)
more than 5% of our Common Stock at any time during the relevant period. If we are a USRPHC and the requirements of (a) or (b)
are not met, gain on the disposition of shares of our Common Stock or warrants generally will be taxed in the same manner as gain
that is effectively connected with the conduct of a U.S. trade or business, except that the “branch profits tax” generally
will not apply. In addition, a buyer of our Common Stock or warrants from a Non-U.S. Holder may be required to withhold U.S. income
tax at a rate of 15% of the amount realized upon such disposition. Prospective investors are urged to consult their own tax advisors
regarding the possible consequences to them if we are, or were to become, a USRPHC.
If the third exception
applies, the Non-U.S. Holder generally will be subject to U.S. federal income tax on a net income basis with respect to such gain
in the same manner as if such holder were a resident of the U.S., unless otherwise provided in an applicable income tax treaty.
In addition, a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes may also be subject to a “branch
profits tax” on its effectively connected earnings and profits at a rate of 30%, unless an applicable income tax treaty provides
otherwise.
Redemption of Shares of our Common Stock
The characterization
for U.S. federal income tax purposes of the redemption of a Non-U.S. Holder’s Common Stock generally will correspond to the
U.S. federal income tax characterization of such a redemption of a U.S. Holder’s Common Stock, as described above under “—U.S.
Holders - Redemption of Shares of our Common Stock,” and the consequences of the redemption to the Non-U.S. Holder will be
as described above under “—Non-U.S. Holders - Distributions on Shares of our Common Stock” and “—Non-U.S.
Holders - Gain on Sale, Exchange or Other Taxable Disposition of our Common Stock and Warrants,” as applicable.
Possible Constructive Distributions
The terms of each warrant
provide for an adjustment to the number of shares of Common Stock for which the warrant may be exercised or to the exercise price
of the warrant in certain events, as discussed in the section of this prospectus captioned “—Description of Capital
Stock - Warrants Issued in This Offering.” An adjustment which has the effect of preventing dilution is generally not a taxable
event. Nevertheless, a Non-U.S. Holder of warrants would be treated as receiving a constructive distribution from us if, for example,
the adjustment increases the holder’s proportionate interest in our assets or earnings and profits (e.g., through an increase
in the number of shares of Common Stock that would be obtained upon exercise) as a result of a distribution of cash to the holders
of shares of our Common Stock which is taxable to such holders as described above under “Non-U.S. Holders - Distributions
on Shares of our Common Stock.” A Non-U.S. Holder would be subject to U.S. federal income tax withholding under that section
in the same manner as if such Non-U.S. Holder received a cash distribution from us equal to the fair market value of such increased
interest without any corresponding receipt of cash.
Foreign Account Tax Compliance Act
Legislation commonly
referred to as the Foreign Account Tax Compliance Act, as modified by Treasury regulations and subject to any official interpretations
thereof, any applicable intergovernmental agreement between the U.S. and non-U.S. government to implement these rules and improve
international tax compliance, or any fiscal or regulatory legislation or rules adopted pursuant to any such intergovernmental agreement,
or, collectively, FATCA, generally will impose a U.S. federal withholding tax of 30% on payments to certain non-U.S. entities (including
certain intermediaries), including dividends on and the gross proceeds from a sale or other disposition of our securities unless
such persons comply with a complicated U.S. information reporting, disclosures and certification requirements. This regime requires,
among other things, a broad class of persons to obtain disclose and report information about their investors and account holders.
These requirements are different from and in addition to the certification requirements described elsewhere in this discussion.
The withholding rules apply currently to payments of dividends on shares of our Common Stock, and are scheduled to apply to payments
of gross proceeds from the sale or other dispositions of our securities paid after December 31, 2018. If a dividend payment is
both subject to withholding under FATCA and subject to the withholding tax discussed above under “—Non-U.S. Holders
- Distributions on Shares of our Common Stock,” the withholding under FATCA may be credited against, and therefore reduce,
such other withholding tax. Prospective investors should consult their own tax advisors regarding the possible impact of these
rules on their investment in our securities, and the entities through which they hold our securities, including, without limitation,
the process and deadlines for meeting the applicable requirements to prevent the imposition of this 30% withholding tax under FATCA.
Backup Withholding and Information Reporting
We or a financial intermediary
must report annually to the IRS and to each Non-U.S. Holder the gross amount of the distributions on shares of our Common Stock
paid to such holder and the tax withheld, if any, with respect to such distributions. These information reporting requirements
apply even if withholding was not required. In addition to the requirements described above under “—Foreign Account
Tax Compliance Act,” a Non-U.S. Holder generally will be subject to backup withholding at the then applicable rate for dividends
paid to such holder unless such holder furnishes a valid IRS Form W-8BEN or IRS Form W-8BEN-E (or such other applicable form and
documentation as required by the Code or the Treasury regulations promulgated thereunder) certifying under penalties of perjury
that it is a Non-U.S. Holder (and the payor does not have actual knowledge or reason to know that such holder is a U.S. person
as defined under the Code). Dividends paid to Non-U.S. Holders subject to the U.S. federal withholding tax, as described above
under “—Non-U.S. Holders - Distributions on Shares of our Common Stock,” generally will be exempt from U.S. backup
withholding.
Information reporting
and backup withholding generally will apply to the payment of the proceeds of a disposition of shares of our Common Stock or warrants
by a Non-U.S. Holder effected by or through the U.S. office of any broker, U.S. or non-U.S., unless the holder certifies that it
is not a U.S. person (as defined in the Code) and satisfies certain other requirements, or otherwise establishes an exemption.
For information reporting purposes, dispositions effected through a non-U.S. office of a broker with substantial U.S. ownership
or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker, and dispositions
otherwise effected through a non-U.S. office generally will not be subject to information reporting. Generally, backup withholding
will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected through a non-U.S.
office of a U.S. broker or non-U.S. office of a non-U.S. broker. Prospective investors are urged to consult their own tax advisors
regarding the application of the information reporting and backup withholding rules to them.
Copies of information
returns may be made available to the tax authorities of the country in which the Non-U.S. Holder resides or is incorporated, under
the provisions of a specific treaty or agreement.
Backup withholding
is not an additional tax. Any amounts withheld under the backup withholding rules from a payment made to a Non-U.S. Holder can
be refunded or credited against such Non-U.S. Holder’s U.S. federal income tax liability, if any, provided that an appropriate
claim is timely filed with the IRS.
UNDERWRITING
We
expect to enter into an underwriting agreement with respect to the Units in this offering with Boustead Securities, LLC, or the
underwriter. The underwriter is not purchasing or selling any securities offered by this prospectus, nor is the underwriter required
to arrange the purchase or sale of any specific number or dollar amount of the securities, but rather the underwriter has agreed
to use its best efforts to arrange for the sale of all of the securities offered hereby. Under the terms and subject to the conditions
contained in the underwriting agreement, we have agreed to issue and sell to the public through the underwriter, and the underwriter
has agreed to offer and sell, on a best efforts basis, at the public offering price less the underwriting fees and commissions
set forth below, a minimum of Units and a maximum of Units.
The
underwriting agreement provides that the obligation of the underwriter to arrange for the offer and sale of the Units, on a best
efforts basis, is subject to certain conditions precedent. The underwriter is under no obligation to purchase any Units for its
own account. As a “best efforts” offering, there can be no assurance that the offering contemplated hereby will ultimately
be consummated. The underwriter may, but is not obligated to, retain other selected dealers that are qualified to offer and sell
the Units and that are members of the Financial Industry Regulatory Authority, Inc. The underwriter proposes to offer the Units
to investors at the public offering price, and will receive the underwriting commissions, set forth on the cover of this prospectus.
The gross proceeds of this offering will be deposited in an escrow account established by us, until we have sold a minimum of Units
in accordance with Rule 15c2-4 under the Exchange Act. The underwriter will instruct its customers to transfer funds from their
respective accounts directly to the escrow agent via wire transfer. Unless sooner withdrawn or canceled by us or the underwriter,
the offering will continue until (i) not less than Units have been sold, or (ii) close of business on , unless extended by us and
the underwriter to not later than ( days
after the date of this prospectus), or the expiration date. Once we satisfy the minimum Unit sale, the funds will be released to
us.
The
following table and the two succeeding paragraphs summarize the underwriting compensation and estimated expenses we will pay:
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Public Offering
Price
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Underwriting
Commissions
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Proceeds to Us,
Before Expenses
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Per Unit
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$
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$
|
|
|
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$
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Total minimum offering
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$
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|
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$
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|
|
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$
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Total maximum offering
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$
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$
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$
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We
have agreed to reimburse the underwriter for expenses incurred relating to the offering, including all actual fees and expenses
incurred by the underwriter in connection with, among other things, due diligence costs, the underwriter’s “road show”
expenses, which shall not exceed $100,000, and the fees and expenses of the underwriter’s counsel. The fees and expenses
of the underwriter’s counsel shall not exceed $ . We estimate that the total expenses of this offering, excluding underwriting
commissions described above, will be approximately $ . Except as disclosed in this prospectus, the underwriter has not received
and will not receive from us any other item of compensation or expense in connection with this offering considered by FINRA to
be underwriting compensation under FINRA Rule 5110.
As
additional compensation to the underwriter, upon consummation of this offering, we will issue to the underwriter or its designees
warrants to purchase an aggregate number of shares of our Common Stock equal to 7% of the number of shares of Common Stock issued
in this offering, at an exercise price per share equal to %
of the public offering price, or the Underwriter Warrants. The Underwriter Warrants and the underlying shares of Common Stock will
not be exercised, sold, transferred, assigned, or hypothecated or be the subject of any hedging, short sale, derivative, put or
call transaction that would result in the effective economic disposition of the Underwriter Warrants by any person for a period
of 180 days from the effective date of the registration statement for this offering in accordance with FINRA Rule 5110. The Underwriter
Warrants will expire on the fifth anniversary of the effective date of the offering, in accordance with FINRA Rule 5110(f)(2)(G)(i).
The
underwriter has informed us that it may provide an allowance not in excess of $ per Unit to other dealers out of its commission
of $ per Unit.
We have granted our
underwriter an over-subscription option to sell up to an additional Units
at the public offering price within 30 days from the date of this prospectus.
A
prospectus in electronic format may be made available on the websites maintained by the underwriter, or selling group members,
if any, participating in the offering. The underwriter may agree to allocate a number of Units to selling group members for
sale to their online brokerage account holders. Internet distributions will be allocated by the underwriter and selling group members
that may make Internet distributions on the same basis as other allocations.
We,
our executive officers and directors, and holders of substantially all of our Common Stock entered into lock-up agreements in connection
with our initial public offering, which remain in effect. Under the lock-up agreements, subject to certain exceptions, we and each
of these persons may not, without the prior written approval of the underwriter, offer, sell, contract to sell, pledge, or otherwise
dispose of, directly or indirectly, or hedge our Common Stock or securities convertible into or exchangeable or exercisable for
our Common Stock. These restrictions remain in effect and will generally terminate on June 15, 2018. Certain of our stockholders
will have less stringent restrictions in place based on the price of our Common Stock as reported on the NASDAQ Capital Market,
beginning on December 13, 2017, the 181
st
day following the date of our initial public offering, and terminating on
June 15, 2018.
In
connection with our initial public offering, we agreed that we will not: (i) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of capital stock of our company or any securities convertible into or
exercisable or exchangeable for shares of capital stock of our company; (ii) file or cause to be filed any registration statement
with the SEC relating to the offering of any shares of capital stock of our company or any securities convertible into or exercisable
or exchangeable for shares of capital stock of our company; or (iii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of capital stock of our company, whether any such transaction
described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of capital stock of our company or such
other securities, in cash or otherwise, in each case without the prior consent of the underwriters in the initial public offering,
which include Boustead Securities, LLC, for a period of 12 months after the date of the offering circular for our initial public
offering, other than (A) the shares of our Common Stock sold in the initial public offering, (B) the issuance by us of shares of
our Common Stock upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date of the
initial public offering, hereafter issued pursuant to our currently existing or hereafter adopted equity compensation plans or
employment or consulting agreements or arrangements of which the underwriters of the initial public offering have been advised
in writing or which have been filed with the Commission or (C) the issuance by us of stock options or shares of capital stock of
our company under any currently existing or hereafter adopted equity compensation plan or employment/consulting agreements or arrangements
of our company. There are exceptions to these restrictions if our price per share exceeds certain amounts for a five-day period.
The
underwriting agreement provides that we will indemnify the underwriter against certain liabilities, including liabilities under
the Securities Act, or contribute to payments the underwriter may be required to make in respect thereof.
Our
Common Stock is listed on the NASDAQ Capital Market under the symbol “ADOM.” There is no established public trading
market for the offered warrants and we do not expect a market to develop. In addition, we do not intend to apply to list the warrants
on the NASDAQ Capital Market or any other national securities exchange or other nationally recognized trading system.
The address of Boustead Securities,
LLC is 898 N. Sepulveda Blvd., Suite 475, El Segundo, California 90245.
LEGAL
MATTERS
The validity of the
securities offered by this prospectus will be passed upon for us by K&L Gates LLP, Irvine, California. Certain matters will
be passed on for the underwriter by Orrick, Herrington & Sutcliffe LLP, San Francisco, California.
EXPERTS
The consolidated financial
statements of the Company at December 31, 2016 and December 31, 2015 appearing elsewhere in this prospectus have been included
herein in reliance upon the report, which includes an explanatory paragraph as to the Company’s ability to continue as a
going concern, of MaloneBailey, LLP, an independent registered public accounting firm, appearing elsewhere herein, and upon the
authority of MaloneBailey, LLP as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with
the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities offered in this prospectus.
This prospectus, filed as part of the registration statement, does not contain all of the information set forth in the registration
statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the
SEC. For further information about us and our securities, we refer you to the registration statement and to its exhibits and schedules.
Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and,
in each instance, we refer you to the copy of such contract, agreement or document filed as an exhibit to the registration statement,
with each such statement being qualified in all respects by reference to the document to which it refers. Anyone may inspect and
copy the registration statement and its exhibits and schedules at the Public Reference Room the SEC maintains at 100 F Street,
NE, Washington, D.C. 20549. You may obtain further information about the operation of the SEC’s Public Reference Room by
calling the SEC at 1-800-SEC-0330. You may also inspect the registration statement and its exhibits and schedules and other information
without charge at the website maintained by the SEC. The address of this site is www.sec.gov.
We also file periodic
reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available
for inspection and copying at the public reference room and website of the SEC referred to above. We also maintain a website at
www.adomanielectric.com, by which you may access these materials free of charge as soon as reasonably practicable after they are
electronically filed with, or furnished to, the SEC. The information that is contained on, or that may be accessed through, our
website is not a part of this prospectus. We have included our website in this prospectus solely as an inactive textual reference.
ADOMANI, INC. AND SUBSIDIARIES
Index to Financial Statements
|
Page
|
Audited Financial Statements
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated Balance Sheets as of December 31, 2016 and December 31, 2015
|
F-3
|
|
|
Consolidated Statements of Operations as of December 31, 2016 and 2015
|
F-4
|
|
|
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2016 and December 31, 2015
|
F-5
|
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015
|
F-6
|
|
|
Notes to Consolidated Financial Statements
|
F-7
|
|
|
Unaudited Financial Statements
|
|
|
|
Unaudited Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016
|
F-16
|
|
|
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016
|
F-17
|
|
|
Unaudited Consolidated Statement of Stockholders’ Equity (Deficit) for the Six Months Ended June 30, 2017
|
F-18
|
|
|
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016
|
F-19
|
|
|
Notes to Unaudited Consolidated Financial Statements
|
F-20
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
ADOMANI, Inc.
Newport Beach, California
We have audited the accompanying consolidated
balance sheets of ADOMANI, Inc. and subsidiaries (collectively, the “Company”) as of December 31, 2016 and 2015,
and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years then
ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of ADOMANI, Inc. and subsidiaries
as of December 31, 2016 and 2015 and the results of their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the
Company suffered recurring losses from operations. These conditions raise significant doubt about the Company’s ability to
continue as a going concern. Management’s plans in this regard are described in Note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
February 12, 2017, except for Note 11 as to which the date is
April 7, 2017
ADOMANI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share information)
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
938
|
|
|
$
|
4,537
|
|
Note receivable, net
|
|
|
454
|
|
|
|
—
|
|
Inventory
|
|
|
314
|
|
|
|
—
|
|
Other current assets
|
|
|
1,039
|
|
|
|
10
|
|
Total current assets
|
|
|
2,745
|
|
|
|
4,547
|
|
Property, plant and equipment, net
|
|
|
417
|
|
|
|
19
|
|
Other investments
|
|
|
120
|
|
|
|
110
|
|
Other non-current assets
|
|
|
124
|
|
|
|
24
|
|
Total assets
|
|
$
|
3,406
|
|
|
$
|
4,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
107
|
|
|
$
|
5
|
|
Accrued liabilities
|
|
|
236
|
|
|
|
425
|
|
Deferred revenue
|
|
|
—
|
|
|
|
68
|
|
Notes payable, net
|
|
|
5,177
|
|
|
|
—
|
|
Convertible debt, net
|
|
|
593
|
|
|
|
—
|
|
Total current liabilities
|
|
|
6,113
|
|
|
|
498
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Notes payable, net
|
|
|
—
|
|
|
|
4,612
|
|
Convertible debt, net
|
|
|
—
|
|
|
|
436
|
|
Total liabilities
|
|
|
6,113
|
|
|
|
5,546
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, 100,000,000 authorized $0.00001 par value none issued and outstanding, respectively
|
|
|
—
|
|
|
|
—
|
|
Common stock, 2,000,000,000 authorized $0.00001 par value, 58,542,350 and 84,253,250 issued and outstanding, respectively
|
|
|
1
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
18,366
|
|
|
|
9,542
|
|
Accumulated deficit
|
|
|
(21,074
|
)
|
|
|
(10,389
|
)
|
Total stockholders’ deficit
|
|
|
(2,707
|
)
|
|
|
(846
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
3,406
|
|
|
$
|
4,700
|
|
See accompanying notes to consolidated
financial statements
ADOMANI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share information)
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
Net sales
|
|
$
|
68
|
|
|
$
|
—
|
|
Cost of sales
|
|
|
50
|
|
|
|
—
|
|
Gross profit
|
|
|
18
|
|
|
|
—
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Payroll expense
|
|
|
782
|
|
|
|
813
|
|
Legal and professional fees
|
|
|
715
|
|
|
|
158
|
|
Other general and administrative
|
|
|
7,901
|
|
|
|
3,662
|
|
Consulting
|
|
|
117
|
|
|
|
135
|
|
Research and development
|
|
|
37
|
|
|
|
549
|
|
Total operating expenses
|
|
|
9,552
|
|
|
|
5,317
|
|
Loss from operations
|
|
|
(9,534
|
)
|
|
|
(5,317
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,148
|
)
|
|
|
(702
|
)
|
Other expense
|
|
|
(3
|
)
|
|
|
(16
|
)
|
Total other income (expense)
|
|
|
(1,151
|
)
|
|
|
(718
|
)
|
Loss before income taxes
|
|
|
(10,685
|
)
|
|
|
(6,035
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
$
|
(10,685
|
)
|
|
$
|
(6,035
|
)
|
Net loss per share to common shareholders:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.07
|
)
|
Weighted shares used in the computation of net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
66,585,580
|
|
|
|
82,611,477
|
|
See accompanying notes to consolidated
financial statements
ADOMANI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
(in thousands, except for share information)
|
|
Common Stock
|
|
Additional
Paid-In
|
|
Accumulated
|
|
Stockholders’
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
|
81,594,250
|
|
|
$
|
1
|
|
|
$
|
4,155
|
|
|
$
|
(4,354
|
)
|
|
$
|
(198
|
)
|
Common stock issued
|
|
|
2,659,000
|
|
|
|
—
|
|
|
|
1,982
|
|
|
|
—
|
|
|
|
1,982
|
|
Beneficial conversion feature on convertible debt
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
|
|
|
—
|
|
|
|
21
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
3,035
|
|
|
|
—
|
|
|
|
3,035
|
|
Stock warrant
|
|
|
—
|
|
|
|
—
|
|
|
|
349
|
|
|
|
—
|
|
|
|
349
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,035
|
)
|
|
|
(6,035
|
)
|
Balance, December 31, 2015
|
|
|
84,253,250
|
|
|
$
|
1
|
|
|
$
|
9,542
|
|
|
$
|
(10,389
|
)
|
|
$
|
(846
|
)
|
Common stock issued for cash
|
|
|
206,400
|
|
|
|
—
|
|
|
|
188
|
|
|
|
—
|
|
|
|
188
|
|
Stock issued for accrued third-party services
|
|
|
98,000
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
98
|
|
Stock issued for prepaid services
|
|
|
100,000
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
100
|
|
Founders shares rescinded
|
|
|
(27,000,000
|
)
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
—
|
|
|
|
(54
|
)
|
Conversion of debt to common shares
|
|
|
884,700
|
|
|
|
—
|
|
|
|
885
|
|
|
|
—
|
|
|
|
885
|
|
Beneficial conversion feature on convertible debt
|
|
|
—
|
|
|
|
—
|
|
|
|
42
|
|
|
|
—
|
|
|
|
42
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
7,565
|
|
|
|
—
|
|
|
|
7,565
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,685
|
)
|
|
|
(10,685
|
)
|
Balance, December 31, 2016
|
|
|
58,542,350
|
|
|
$
|
1
|
|
|
$
|
18,366
|
|
|
$
|
(21,074
|
)
|
|
$
|
(2,707
|
)
|
See accompanying notes to consolidated
financial statements
ADOMANI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,685
|
)
|
|
$
|
(6,035
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13
|
|
|
|
7
|
|
Amortization of debt discount
|
|
|
660
|
|
|
|
424
|
|
Stock based compensation expense
|
|
|
7,565
|
|
|
|
3,035
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
(314
|
)
|
|
|
—
|
|
Other current assets
|
|
|
60
|
|
|
|
(2
|
)
|
Other non-current assets
|
|
|
(100
|
)
|
|
|
(4
|
)
|
Accounts payable
|
|
|
199
|
|
|
|
—
|
|
Accrued liabilities
|
|
|
(238
|
)
|
|
|
404
|
|
Deferred revenue
|
|
|
(68
|
)
|
|
|
68
|
|
Net cash used in operating activities
|
|
|
(2,908
|
)
|
|
|
(2,103
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment, net
|
|
|
(411
|
)
|
|
|
(3
|
)
|
Investment in note receivable, net
|
|
|
(450
|
)
|
|
|
—
|
|
Other Investments
|
|
|
(10
|
)
|
|
|
(110
|
)
|
Net cash used in investing activities
|
|
|
(871
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
188
|
|
|
|
1,982
|
|
Payments for stock rescission
|
|
|
(54
|
)
|
|
|
|
|
Proceeds from issuance of debt, net of issuance costs
|
|
|
1,042
|
|
|
|
4,723
|
|
Principal repayments of long term debt
|
|
|
(8
|
)
|
|
|
(70
|
)
|
Payments for deferred offering costs
|
|
|
(988
|
)
|
|
|
|
|
Net cash provided by financing activities
|
|
|
180
|
|
|
|
6,635
|
|
Net change in cash and cash equivalents
|
|
|
(3,599
|
)
|
|
|
4,419
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
4,537
|
|
|
|
118
|
|
Cash and cash equivalents at the end of the year
|
|
$
|
938
|
|
|
$
|
4,537
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Original issuance discount on notes payable
|
|
$
|
50
|
|
|
$
|
—
|
|
Debt discount due to BCF
|
|
$
|
42
|
|
|
$
|
—
|
|
Stock issued for accrued third-party services
|
|
$
|
98
|
|
|
$
|
—
|
|
Stock issued for prepaid services
|
|
$
|
100
|
|
|
$
|
—
|
|
Common stock issued for conversion of notes payable
|
|
$
|
885
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
$
|
408
|
|
|
$
|
234
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
See accompanying notes to consolidated
financial statements
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Consolidated Financial Statements
|
|
1.
|
Organization and operations
|
ADOMANI, Inc. (the
“Company) was incorporated in Florida in August 2012 and was reincorporated in Delaware in November 2016. The Company is
a provider of new purpose-built zero-emission electric and hybrid vehicles and replacement drivetrains and as a result is focused
on reducing the total cost of vehicle ownership for fleet operators. The Company also provides gas/diesel to all-electric and gas/electric
to plug-in hybrid vehicle conversions to school bus and medium to heavy-duty fleet operators. ADOMANI, Inc. is the parent company
of its wholly-owned subsidiaries, ADOMANI California, Inc. and ADOMANI China. The Company is located in Newport Beach, CA.
|
2.
|
Summary of Significant Accounting Policies
|
Principles of
Consolidation
—The accompanying financial statements reflect the consolidation of the individual financial statements
of ADOMANI, Inc. and ADOMANI California, Inc. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
—The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
—The
Company recognizes revenue from the sales of advanced zero-emission electric drivetrain systems for fleet vehicles. Revenue is
recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the
price is fixed or determinable and (iv) collectability is reasonably assured.
The Company recognizes
revenue upon delivery or acceptance by the customer of the goods. Deferred revenue includes advance billings and payments for implementation,
consulting services or products not yet delivered. Deferred revenue was $0 and $68,000 at December 31, 2016 and 2015 respectively.
Cash and Cash
Equivalents
—The Company considers all highly liquid investments purchased with an original or remaining maturity
of three months or less to be cash equivalents.
Accounts Receivable
and Allowance for Doubtful Accounts
—The Company establishes an allowance for bad debts through a review of several
factors including historical collection experience, current aging status of the customer accounts, and financial condition of our
customers. We do not generally require collateral for our accounts receivable. There was no allowance at December 31, 2016
and 2015.
Inventory
—Inventory
is stated at the lower of cost or market determined on the basis of first-in-first-out (“FIFO”). The Company currently
has only finished goods inventory; in the future we will also have parts, materials and supplies, and most likely work-in-process
inventory as well. Management estimates the amount of excess and obsolete inventory based on age, utility, and current market demand.
Intangible Assets
—Acquired
intangible assets are amortized over their useful lives unless the lives are determined to be indefinite. Acquired intangible assets
are carried at cost, less accumulated amortization. Amortization of finite-lived intangible assets is computed over the useful
lives of the respective assets. As of December 31, 2016, and 2015 the Company had not capitalized any patent costs.
Property, Plant
and Equipment
—Property and equipment are stated at cost, less accumulated depreciation. Depreciation and amortization
is provided over the estimated useful lives or lease terms of the related assets using the straight-line method for financial reporting
and leasehold improvements are amortized over the life of the lease for financial reporting purposes. Various accelerated depreciation
methods are utilized for income tax reporting purposes. Major repairs and replacements, which extend the useful lives of equipment,
are capitalized and depreciated over the estimated useful lives of the property. All other maintenance and repairs are expensed
as incurred. Depreciation expense was $12,804 and $7,102 during 2016 and 2015, respectively.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Consolidated Financial Statements (Continued)
|
Impairment of
Long-Lived Assets
—Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company evaluates long-lived assets to determine potential impairment
by comparing the carrying amount to the undiscounted estimated future cash flows of the related assets. There was no impairment
of the long-lived assets as of December 31, 2016, and 2015, respectively.
Research and
Development
—Costs incurred in connection with the development of new products and manufacturing methods are charged
to operating expenses as incurred. During 2016 and 2015, $37,273 and $548,889, respectively, were expensed as research and development
costs.
Income Taxes
—The
Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences
of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.
The Company records
a valuation allowance to reduce the deferred income tax assets to the amount that is more likely than not to be realized. In making
such determinations, management considers all available positive and negative evidence, including scheduled reversals of deferred
tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. As of December 31,
2016, and 2015, the Company recognized a full valuation allowance for all deferred tax assets.
Accounting for
Uncertainty in Income Taxes
—The Company evaluates its uncertain tax positions and will recognize a loss contingency
when it is probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can
be reasonably estimated. The amount recognized is subject to estimate and management judgment with respect to the likely outcome
of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain
tax positions in the aggregate could differ from the amount recognized. At December 31, 2016 and 2015, management did not
identify any uncertain tax positions.
Net Loss Per
Share
—Basic net loss per share is calculated by dividing the Company’s net loss applicable to common shareholders
by the weighted average number of common shares during the period. Diluted net loss per share is calculated by dividing the Company’s
net loss applicable to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted
weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt
or equity securities.
Concentration
of Credit Risk
—The Company has credit risks related to cash and cash equivalents on deposit with a federally insured
bank, as at times it exceeds the $250,000 maximum amount insured by the Federal Deposit Insurance Corporation.
Stock-Based Compensation
—The
Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation –
Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized
in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation
expense and credited to additional paid-in capital over the period during which services are rendered.
The Company follows
ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring,
or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees.
In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company
are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant,
whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and
additional paid-in capital over the period during which services are rendered.
Segment Information
—FASB
ASC No. 280, “Segment Reporting” establishes standards for reporting information about reportable segments. Operating
segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly
by the chief operating decision maker, or decision-making group (“CODM”), in deciding how to allocate resources and
in assessing performance. The Company currently operates in a single reportable segment.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Consolidated Financial Statements (Continued)
|
Recent Accounting
Pronouncements
—In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts
with Customers
(ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle
of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects
the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process
to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process
than are required under existing U.S. GAAP. As amended by the FASB in July 2015, the standard is effective for annual periods beginning
after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective
approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients,
or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption
(which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU
2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard in 2018.
In August 2014, the
FASB issued ASU No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
,
to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s
ability to continue as a going concern and to provide related footnote disclosures requirement. ASU 2014-15 (1) provides a
definition of the term substantial doubt, (2) requires an evaluation every reporting period including interim periods, (3) provides
principles for considering the mitigating effect of management’s plans, (4) requires certain disclosures when substantial
doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement and other
disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date
that the financial statements are issued (or available to be issued). ASU 2014-15 is effective for the annual reporting period
ending after December 15, 2016, and for annual periods and interim periods thereafter. See Note 3.
In April 2015, the
FASB issued ASU 2015-03,
Interest-Imputation of Interest (subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
The
amendment allows for debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability, consistent with debt discounts. The requirement is that companies adopt this standard,
effective in fiscal years following December 31, 2015. However, a company may early-adopt where financial statements have
not already been issued. The Company has chosen to early-adopt this standard.
In November 2015, the
FASB issued ASU 2015-17,
Income Taxes (Topic 470): Balance Sheet Classification of Deferred Taxes
. The amendments in ASU
2015-17 eliminate the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires
that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. The amendments for ASU-2015-17 can be
applied retrospectively or prospectively and early adoption is permitted. The Company is currently evaluating the impact of this
standard, if any, on its consolidated financial position, results of operations, or cash flows.
As shown in the accompanying
financial statements, the Company has incurred net losses of $10,684,649 and $6,053,033 during 2016 and 2015, respectively. Additionally,
as of December 31, 2016, the Company had a working capital deficit of approximately $3.4 million. These conditions raise substantial
doubt as to our ability to continue as a going concern. In response to this condition, we are currently attempting to raise additional
capital through the sale of equity securities through an offering statement pursuant to Regulation A (“IPO”). The Company
also raised modest amounts of capital in 2016 through the private sale of equity securities and the additional issuance of additional
amounts of convertible debt, as discussed in Notes 6 and 7 below. The financial statements do not include any adjustments that
might be necessary if we are unable to continue as a going concern.
As of December 31,
2016, the Company has incurred $988,324 in costs relating to the preparation and filing of the offering statement pursuant to Regulation
A. These costs are currently capitalized on the consolidated balance sheets as other current assets.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Consolidated Financial Statements (Continued)
|
With respect to the
offering discussed above, the Company entered into a contract with DLA Piper LLP to assist the Company in connection with corporate,
securities, and related legal matters. In exchange for its services, the Company provided a $50,000 retainer. This contract was
effective February 29, 2016. There is no stipulated term for this contract, however, it may be terminated by either party
at any time.
The Company entered
into a consulting agreement with Redwood Group International Limited (“Redwood”) in March 2016. In exchange for its
services, Redwood received $5,000 per month retainer payments and was also eligible to receive other fees and warrants as prescribed
in the agreement. The initial term was for 12 months, from March 2016 through February 28, 2017 and will continue beyond 12
months unless terminated by either party. The Company executed an additional agreement with Redwood on September 29, 2016,
issuing to Redwood an additional 100,000 shares subject to Redwood satisfying certain performance thresholds. If the performance
thresholds are not met, the Company has an exclusive option to reacquire all or a portion of the shares at $0.00001 per share.
The original consulting agreement with Redwood was cancelled in November 15, 2016 and replaced with a consulting agreement
that expires upon thirty days’ written notice by either party following the successful completion of the Company’s
initial public offering described above. The new agreement is similar to the original agreement with respect to fees and warrants
due to Redwood, requiring an $800,000 fee payment and issuance of warrants to acquire 350,000 shares of common stock.
The Company entered
into a contract with Boustead Securities, LLC (“Boustead”) to act as financial advisor to the Company with respect
to its pre-IPO and IPO financing activities. In exchange for its services, Boustead will receive success fees and warrants as prescribed
in the agreement. The Company paid a $50,000 advisory fee upon execution of the contract, and paid another $50,000 in November
2016 upon the filing of its application for listing on one of the national securities exchanges. The initial term is for 12 months
from the execution date of February 12, 2016 and can be extended for an additional six months, under the same terms and conditions,
by agreement of the parties.
With respect to the
contract with Boustead, the Company agreed to pay for the services of Orrick, Herrington & Sutcliffe LLP to advise Boustead
in connection with the corporate, securities, and related legal matters discussed above. In exchange for those services, the Company
provided a $50,000 retainer in March 2016. There is no stipulated term for this contract, however, it may be terminated by either
party at any time.
The Company entered
into a contract with TriplePoint, LLC to provide an in-depth industry report, updates to the report, and to assist with the marketing
function related to the Company’s IPO financing activities. Assuming the transaction is completed, TriplePoint will provide
subsequent support. In exchange for its services, TriplePoint will receive $15,000 per month until the Company completes an IPO
transaction, and will receive $10,000 per month thereafter until termination of the agreement. TriplePoint will also receive shares
of ADOMANI common stock on the date the transaction is completed. The initial term is for 12 months from the effective date of
February 19, 2016, and can be terminated for any reason by either party upon 30-day notice.
|
4.
|
Property and Equipment
|
The Company provides
for depreciation using the straight-line method over the estimated useful lives of the assets, which range from three to five years.
Property and equipment qualify for capitalization if the purchase price exceeds $2,000. Property and equipment are evaluated for
impairment when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows to be generated
from those assets are less than their carrying value. If the estimated undiscounted cash flows are less than the carrying value
of the assets, the assets are written down to their fair value. No impairment losses were recorded for the years ended December
31, 2016 or December 31, 2015.
Components of property
and equipment consist of the following items (in thousands):
|
|
December 31,
2016
|
|
December 31,
2015
|
Furniture and fixtures
|
|
$
|
—
|
|
|
$
|
20,326
|
|
Leasehold improvements
|
|
|
—
|
|
|
|
—
|
|
Computers
|
|
|
4,657
|
|
|
|
16,988
|
|
Vehicles
|
|
|
16,378
|
|
|
|
—
|
|
Test/demo vehicles
|
|
|
414,023
|
|
|
|
—
|
|
Total property & equipment
|
|
|
435,058
|
|
|
|
37,314
|
|
Less accumulated depreciation
|
|
|
(17,868
|
)
|
|
|
(18,794
|
)
|
Net property and equipment
|
|
$
|
417,190
|
|
|
$
|
18,520
|
|
Depreciation expense
was $12,804 and $7,102 for the years ended December 31, 2016 and December 31, 2015, respectively.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Consolidated Financial Statements (Continued)
|
The cumulative estimated
net operating loss carry-forward is $7,991,380 at December 31, 2016, and $5,226,359 at December 31, 2015 and will expire
in the years 2036 and 2035, respectively. The cumulative tax effect at the expected rate of 34% of significant items comprising
our net deferred tax amount is as follows:
|
|
December 31,
|
|
|
2016
|
|
2015
|
Net operating loss
|
|
|
940,107
|
|
|
|
961,517
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
|
2,717,069
|
|
|
|
1,776,962
|
|
Valuation allowance
|
|
|
(2,717,069
|
)
|
|
|
(1,776,962
|
)
|
Net deferred tax asset
|
|
|
—
|
|
|
|
—
|
|
Due to the change
in ownership provisions of the Tax Reform Act of 1986, net operating loss carryover for Federal income tax reporting purposes are
subject to annual limitations. The net operating loss carry-forward includes the years 2012 through 2016. Should a change in ownership
occur, net operating loss carryover may be limited as to use in future years.
During 2016, 2015 and
2014, the Company issued convertible notes for total proceeds of $42,160, $20,275 and $207,465, respectively, to Acaccia Family
Trust (“Acaccia”), a related party, bringing the outstanding balance as of December 31, 2016, and 2015 up to $359,000
and $315,840, respectively. During 2014, the Company issued convertible notes for total proceeds of $286,000 to various third parties.
As of December 31, 2016 and 2015, the aggregate face value of the convertible notes issued to third and related parties was
$645,000 and $601,840, respectively. All notes have a three-year maturity and bear interest at rates of 3% or 5% per annum.
All loans and any accrued interest may be converted into common shares, with loans totaling $45,000 convertible at a rate of $0.50
per share and loans totaling $600,000, including the Acaccia notes, convertible at $0.10 per share. During 2016, the Company’s
CFO purchased $25,000 of the $645,000 convertible notes outstanding from Acaccia. There were no repayments or conversions associated
with these notes during 2016 and 2015. See Note 11.
As these notes had
an effective conversion price that was less than the fair market value of the stock, these notes gave rise to a beneficial conversion
feature totaling $42,160 and $20,275 during 2016 and 2015, respectively, which was recognized as an increase to paid-in capital
and a corresponding debt discount. The debt discount is being amortized to interest expense on an effective interest basis over
the maturity of the notes. For the years ended December 31, 2016 and 2015, debt discount amortization associated with these
notes was $156,955 and $94,660, which was recognized as interest expense in the accompanying consolidated statement of operations.
The unamortized discount of these convertible notes was $51,935 and $163,015 at December 31, 2016 and 2015, respectively.
During 2015, the Company
issued two year secured promissory notes with a face value of $5,147,525 to third-party lenders for cash. The notes are secured
by all the assets of ADOMANI, mature between January and November 2017 and bear interest at 9%. In connection with these notes,
the Company incurred debt issuance costs of $514,753, which are being recognized as a debt discount and amortized over the life
of the notes. During the years ended December 31, 2016 and 2015, the debt discount amortization associated with this note
was $328,609 and $157,138, respectively, which was recognized as interest expense in the accompanying consolidated statements of
operations. A $7,500 repayment of principal was issued to a lender in January 2016. In September 2016, the Company authorized the
exchange of $884,700 of these notes for 884,700 common shares. There was no gain or loss that resulted from the conversion of the
notes to equity.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Consolidated Financial Statements (Continued)
|
On November 18,
2016, the Company borrowed $500,000 from a 3.8% shareholder in order to insure adequate working capital through the close of its
equity offering under Regulation A. The loan is for a period of one year, at an interest rate of 5% annually, with the principal
and any unpaid interest due at maturity. The Company intends to repay the note from the proceeds of the offering.
In December 2016, the
Company borrowed $500,000 from an unaffiliated third party. The loan matures June 15, 2017. It contains no stipulated interest
rate, but the Company is obligated to pay loan fees of $50,000 to the lender. The proceeds of the loan were immediately used to
loan $500,000 to a company in the zero emissions technology industry that specializes in drivetrain solutions for zero emission
and hybrid vehicles. The loan carried as a note receivable on the balance sheet, contains the same provisions, including the loan
fees payable to the Company, as the note payable discussed above, and also matures on June 15, 2017.
In January 2015, in
connection with the 2015 9% secured notes payable financing discussed above, the Company agreed to issue a warrant exercisable
for $5,000,000 of common stock of the Company at an exercise price of $4.00 per share. The warrant, actually issued in September
2016, was valued using the Black-Scholes valuation model and the resulting fair market value of $349,042 was recorded in 2015 as
debt discount and is being amortized over the term of the notes. Interest expense relating to the amortization of this discount
was $174,998 and $170,697 for the years ended December 31, 2016 and 2015, respectively.
Details of notes payable
at December 31, 2016 and 2015 are as follows:
|
|
As of December 31,
2016
|
|
As of December 31,
2015
|
Convertible Debt
|
|
|
|
|
|
|
|
|
Principal amount outstanding as of December 31, 2016 and December 31, 2015
|
|
$
|
645,000
|
|
|
$
|
601,840
|
|
Cumulative discount for notes with beneficial conversion feature
|
|
|
(349,560
|
)
|
|
|
(306,275
|
)
|
Cumulative amortization of debt discount
|
|
|
297,625
|
|
|
|
140,670
|
|
Subtotal of convertible notes @ $0.10 or $.50/share
|
|
|
593,065
|
|
|
|
436,235
|
|
Notes Payable
|
|
|
|
|
|
|
|
|
Principal amount outstanding as of December 31, 2016 and December 31, 2015
|
|
|
5,255,325
|
|
|
|
5,147,525
|
|
Cumulative discount for finance charges incurred
|
|
|
(514,753
|
)
|
|
|
(514,753
|
)
|
Cumulative discount for warrant
|
|
|
(349,042
|
)
|
|
|
(349,042
|
)
|
Cumulative discount for 9% notes
|
|
|
(50,000
|
)
|
|
|
—
|
|
Cumulative amortization of finance charges
|
|
|
485,747
|
|
|
|
157,138
|
|
Cumulative amortization of warrant expense
|
|
|
345,695
|
|
|
|
170,697
|
|
Cumulative amortization of 9% notes
|
|
|
4,167
|
|
|
|
—
|
|
Subtotal of notes payable
|
|
|
5,177,139
|
|
|
|
4,611,565
|
|
Total of debt
|
|
$
|
5,770,204
|
|
|
$
|
5,047,800
|
|
During 2015, the Company
issued 2,659,000 shares of its common stock to third party investors for proceeds of $1,982,000. Included in that amount, as part
of its compensation strategy, the Company issued 500,000 shares of its Common Stock to its CEO at below fair market value. See
Note 8.
During 2016, the Company
issued 206,400 shares of its common stock to third party investors for net proceeds of $188,000 and issued 98,000 shares as payment
for services valued at $98,000. 86,500 of these shares were issued to the Company’s CFO. The CFO also purchased 10,000 shares
from Acaccia (see Note 6). During September 2016, an additional 100,000 shares of common stock, valued at $100,000, were issued
to Redwood Group International Limited as discussed above in Note 3.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Consolidated Financial Statements (Continued)
|
In 2012, one of our
shareholders advanced the sum of $64,000 for the anticipated purchase of 32,000,000 shares of common stock by one of the Company’s
Officers and Directors with the condition that the Officer/Director either pay the Company $64,000 for the shares in which case
the $64,000 advanced by the shareholder would be returned to the shareholder by the Company; or the Officer/Director reimburse
the shareholder for the $64,000 so advanced. The conditional action by the Officer/Director never occurred and the shareholder
rescinded the $64,000 advanced and requested that the Company return the $64,000 so advanced by him. On May 4, 2016, the Board
of Directors of the Company approved the rescission and the return of the $64,000 plus statutory interest to the shareholder and
to cancel the proposed issuance of the 32,000,000 shares.
On July 8, 2016,
the Board of Directors approved a modification to the May 2016 rescission agreement such that 5,000,000 shares were returned to
the shareholder, who in turn repaid the Company the pro-rata amount of the payment he received in May. The shareholder subsequently
sold the 5,000,000 shares to the CEO at his cost, which was substantially less than the market value. As a result, $4,990,000 was
recorded as stock-based compensation in July 2016. See Note 8.
|
8.
|
Stock-Based Compensation
|
During 2015, as part of its compensation
strategy, the Company issued 500,000 shares of its Common Stock with a fair value of $500,000 to its CEO in exchange for cash of
$1,000. As the shares were fully vested at the issuance date, the Company immediately recognized stock based compensation of $499,000.
In 2016, as discussed
above, the 5,000,000 shares purchased by the CEO from the shareholder required the Company to recognize $4,990,000 stock-based
compensation.
The Company has historically
granted stock options to officers, employees and consultants as part of its compensation strategies. The grant-date fair value
of options were estimated using a Black-Scholes valuation model using the following assumptions for options granted during the
years ended December 31:
|
2016
|
|
2015
|
Stock price
|
$1.00
|
|
$0.10 – $1.00
|
Expected volatility
|
108.3%
|
|
108.5% – 114.6%
|
Risk-free interest rate
|
0.8%
|
|
1.7% – 2.3%
|
Expected term (in years)
|
5.3
|
|
5.3 – 8.0
|
Expected dividend yield
|
0%
|
|
0%
|
During 2015, the Company
issued stock options to consultants to acquire an aggregate of 275,000 shares of Common Stock with an exercise price of $0.10.
These shares contain a five-year vesting period with an expiration date 10 years from the date of issue. The grant date fair value
of these awards was $267,667.
No options were issued
in 2016.
Stock option activity
is as follows:
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
Weighted Average
|
|
|
Number of
|
|
Exercise
|
|
Remaining
|
|
|
Shares
|
|
Price
|
|
Contractual Life (years)
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
33,500,000
|
|
|
$
|
0.10
|
|
|
|
|
|
Granted
|
|
|
275,000
|
|
|
|
0.10
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
33,775,000
|
|
|
$
|
0.10
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
33,775,000
|
|
|
$
|
0.10
|
|
|
|
4.8
|
|
Exercisable at December 31, 2016
|
|
|
22,124,583
|
|
|
$
|
0.10
|
|
|
|
4.7
|
|
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Consolidated Financial Statements (Continued)
|
Stock based compensation
expense was $7,564,980 and $3,034,863 for the years ended December 31, 2016 and 2015, respectively and is included in general
and administrative expense in the accompanying consolidated statements of operations. As of December 31, 2016, the Company
expects to recognize $5,870,964 of stock-based compensation for the non-vested outstanding options over a weighted-average period
of 2.43 years.
Employment Agreements
—The
Company has signed an employment agreement for the Chief Executive Officer with an effective date of September 1, 2014. The
term of the employment agreement is 5 years, with an annual base salary of $240,000 and 5% of Company’s Net Profits. The
Company has signed an employment agreement for the Chief Technology Officer (“CTO”), with an effective date of September 1,
2014. The term of the employment agreement is 5 years, with an annual base salary of $240,000 and 5% of Company’s Net Profits.
In June 2016, the CTO entered into an employment agreement superseding the 2014 employment agreement, and his salary was reduced
to $120,000 per annum effective June 1, 2016. Additionally, the Company pays up to $7,000 per month for invoiced expenses
relating to research and development to ELO, LLC which is owned by the CTO.
Operating Leases
—In
2015, the Company signed an office and warehouse lease agreement for a facility in Orange, CA. in to serve as its primary facility
for research and development activity. The lease expired on February 29, 2016, and the Company continues to lease the facility
month-to-month. The Company signed a one year office lease for office space in Newport Beach, CA to serve as office space for its
headquarters; the lease expired on December 31, 2016, and the Company has extended the lease on a month to month basis. The
Company signed an office lease for office space in Los Altos, CA to serve as office space for its Northern California operations.
The total lease amount is $5,400 and the lease period is March 1, 2016 through February 28, 2017.
Other Agreements
—In
2015, the Company entered into a contract with THINKP3 to provide services with the goal of helping secure Federal grant assistance
for development of the Company’s zero-emission and hybrid transportation solutions for school bus, commercial, government
and utility fleets. The initial term of this contract was December 1, 2015 through November 30, 2016, on November 21,
2016 it was renewed through November 30, 2017. Fees for these services are $8,000 per month. The contract can be terminated
by either party with a 30-day advance notice.
In 2015, the Company
signed a licensing option agreement with Silicon Turbines Systems, Inc. (STS) for use of its patent in manufacturing. The option
calls for $10,000 payments per month, beginning March 1, 2015, up to the full investment amount of $3,000,000. The original
option was to terminate on August 31, 2015, but has verbally been placed on hold while both companies evaluate the relationship
and until the Company’s completion of its Regulation A equity offering. For the years ending December 31, 2016, and
2015, $10,000 and $110,000 in payments have been made, respectively. These amounts appear as Other Investments on the balance sheet.
In 2016, the Company
signed an advisor agreement with Dennis Di Ricco, a related party lender and shareholder, to provide consulting services to the
Company.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Consolidated Financial Statements (Continued)
|
|
10.
|
Future Minimum Payment Obligations
|
The following table
summarizes our future minimum payments under contractual commitments, excluding debt, as of December 31, 2016:
|
|
Payments due by period
|
|
|
Total
|
|
Less than
one year
|
|
1–3 years
|
|
3–5 years
|
|
More than
5 years
|
Operating lease obligations
|
|
|
900
|
|
|
|
900
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Employment contracts
|
|
|
979,068
|
|
|
|
480,000
|
|
|
|
499,068
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
979,968
|
|
|
|
480,900
|
|
|
|
499,068
|
|
|
|
—
|
|
|
|
—
|
|
The Company has evaluated
subsequent events through April 7, 2017, the date the financial statements were available to be issued, and has concluded
that, other than as disclosed below, no other events or transactions took place which would require disclosure herein.
Effective January 1,
2017, the Company entered into an employment agreement with its Chief Financial Officer. The term of the employment agreement is
five years with an annual base salary of $200,000.
Effective January 30,
2017, all holders of the $645,000 principal convertible debt converted their debt and accrued interest of $725,584 into 6,868,578
common shares in anticipation of the pending IPO conclusion (see Note 3)
In December 2016 and
in January, February and March 2017, the Company notified holders of the 9% secured promissory notes payable who had scheduled
January, February, March and April 2017 maturity dates that it was exercising its option to extend the maturity dates six months
pursuant to the provisions of the notes.
Dennis Di Ricco was
the Trustee of Acaccia (see Note 6); was party to a consulting agreement with the Company (see Note 9); and together with Acaccia
and his wife beneficially owned approximately 21.8% of the Company’s Common Stock. In connection with the Company’s
IPO (see Note 3), in March 2017, Mr. Di Ricco resigned as Trustee of Acaccia and was replaced by an independent third party;
as a result, Acaccia is no longer a related party.
Mr. Di Ricco also (including
family members and trusts), relinquished voting and investment power over all securities of the Company they owned; Mr. Di
Ricco also surrendered all of his 7,000,000 options to acquire Common Stock for forfeiture and cancellation and sold (in a private
transaction to which the Company was not a party) all 2,500,000 shares held as of record by his IRA. The Company and Mr. Di
Ricco also terminated their consulting relationship.
In March 2017, due
to liquidity concerns related to delays in completing its equity offering under Regulation A, the Company borrowed an additional
$500,000 from the same shareholder discussed in Note 6. The loan matures November 15, 2017 and bears interest at 5%. The Company
also intends to repay this note from the proceeds of the offering.
In March 2017, 3,600,000
new stock options were granted to 13 people (employees, current and prospective Board members). The options will vest over a three
year period, and the exercise price will be determined based on the average of the Company’s trading price for the first
ten days following the close of its pending IPO.
ADOMANI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
|
|
June 30,
2017
|
|
December 31,
2016
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,868
|
|
|
$
|
938
|
|
Notes receivable, net
|
|
|
1,000
|
|
|
|
454
|
|
Inventory
|
|
|
434
|
|
|
|
314
|
|
Other current assets
|
|
|
203
|
|
|
|
1,039
|
|
Total current assets
|
|
|
8,505
|
|
|
|
2,745
|
|
Property, plant and equipment, net
|
|
|
446
|
|
|
|
417
|
|
Other investments
|
|
|
120
|
|
|
|
120
|
|
Other non-current assets
|
|
|
122
|
|
|
|
124
|
|
Total assets
|
|
$
|
9,193
|
|
|
$
|
3,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
179
|
|
|
$
|
107
|
|
Accrued liabilities
|
|
|
165
|
|
|
|
236
|
|
Notes payable, net
|
|
|
4,245
|
|
|
|
5,177
|
|
Convertible debt, net
|
|
|
—
|
|
|
|
593
|
|
Total current liabilities
|
|
|
4,589
|
|
|
|
6,113
|
|
Total liabilities
|
|
|
4,589
|
|
|
|
6,113
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred stock, 100,000,000 authorized $0.00001 par value none issued and outstanding, respectively
|
|
|
—
|
|
|
|
—
|
|
Common stock, 2,000,000,000 authorized $0.00001 par value, 68,070,930 and 58,542,350 issued and outstanding, respectively
|
|
|
1
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
35,321
|
|
|
|
18,366
|
|
Accumulated deficit
|
|
|
(30,718
|
)
|
|
|
(21,074
|
)
|
Total stockholders’ equity (deficit)
|
|
|
4,604
|
|
|
|
(2,707
|
)
|
Total liabilities and stockholders’ equity (deficit)
|
|
$
|
9,193
|
|
|
$
|
3,406
|
|
See Accompanying Notes to Unaudited Consolidated
Financial Statements.
ADOMANI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2017
|
|
June 30, 2016
|
|
June 30, 2017
|
|
June 30, 2016
|
|
|
|
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
68
|
|
|
$
|
—
|
|
|
$
|
68
|
|
Cost of sales
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
|
|
50
|
|
Gross profit
|
|
|
—
|
|
|
|
18
|
|
|
|
—
|
|
|
|
18
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll expense
|
|
|
528
|
|
|
|
181
|
|
|
|
912
|
|
|
|
424
|
|
Other general and administrative
|
|
|
4,822
|
|
|
|
772
|
|
|
|
5,735
|
|
|
|
1,668
|
|
Consulting
|
|
|
2,143
|
|
|
|
124
|
|
|
|
2,163
|
|
|
|
238
|
|
Research and development
|
|
|
460
|
|
|
|
—
|
|
|
|
519
|
|
|
|
16
|
|
Total operating expenses
|
|
|
7,953
|
|
|
|
1,077
|
|
|
|
9,329
|
|
|
|
2,346
|
|
Loss from operations
|
|
|
(7,953
|
)
|
|
|
(1,059
|
)
|
|
|
(9,329
|
)
|
|
|
(2,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(147
|
)
|
|
|
(285
|
)
|
|
|
(362
|
)
|
|
|
(557
|
)
|
Other income
|
|
|
22
|
|
|
|
—
|
|
|
|
49
|
|
|
|
1
|
|
Total other income (expense)
|
|
|
(125
|
)
|
|
|
(285
|
)
|
|
|
(313
|
)
|
|
|
(556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(8,078
|
)
|
|
|
(1,344
|
)
|
|
|
(9,642
|
)
|
|
|
(2,884
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
Net loss
|
|
$
|
(8,078
|
)
|
|
$
|
(1,344
|
)
|
|
$
|
(9,644
|
)
|
|
$
|
(2,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares used in the computation of net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
66,815,898
|
|
|
|
66,551,134
|
|
|
|
64,978,905
|
|
|
|
73,276,408
|
|
See Accompanying Notes to Unaudited Consolidated
Financial Statements.
ADOMANI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY (DEFICIT)
(in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Common Stock
|
|
Paid-In
|
|
Accumulated
|
|
Stockholders'
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity (Deficit)
|
Balance, December 31, 2016
|
|
|
58,542,350
|
|
|
$
|
1
|
|
|
$
|
18,366
|
|
|
$
|
(21,074
|
)
|
|
$
|
(2,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued due to debt conversion
|
|
|
6,868,578
|
|
|
|
—
|
|
|
|
726
|
|
|
|
—
|
|
|
|
726
|
|
Common stock issued for cash
|
|
|
2,510,002
|
|
|
|
—
|
|
|
|
12,550
|
|
|
|
—
|
|
|
|
12,550
|
|
Offering costs netted against proceeds from common stock issued for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,437
|
)
|
|
|
—
|
|
|
|
(4,437
|
)
|
Common stock issued for prepaid services cancelled
|
|
|
(100,000
|
)
|
|
|
—
|
|
|
|
(100
|
)
|
|
|
—
|
|
|
|
(100
|
)
|
Common stock issued as offering costs
|
|
|
250,000
|
|
|
|
—
|
|
|
|
1,250
|
|
|
|
|
|
|
|
1,250
|
|
Warrants issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
1,241
|
|
|
|
|
|
|
|
1,241
|
|
Warrants issued as offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
681
|
|
|
|
|
|
|
|
681
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
5,044
|
|
|
|
—
|
|
|
|
5,044
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,644
|
)
|
|
|
(9,644
|
)
|
Balance, June 30, 2017
|
|
|
68,070,930
|
|
|
$
|
1
|
|
|
$
|
35,321
|
|
|
$
|
(30,718
|
)
|
|
$
|
4,604
|
|
See Accompanying Notes to Unaudited Consolidated
Financial Statements.
ADOMANI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Six Months Ended
|
|
|
June 30, 2017
|
|
June 30, 2016
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(9,644
|
)
|
|
|
(2,884
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6
|
|
|
|
8
|
|
Accretion of discount on note receivable
|
|
|
(46
|
)
|
|
|
—
|
|
Amortization of debt discount
|
|
|
130
|
|
|
|
211
|
|
Stock based compensation expense
|
|
|
5,044
|
|
|
|
1,278
|
|
Warrant issued for services
|
|
|
1,241
|
|
|
|
87
|
|
Gain on disposal of property and equipment
|
|
|
(1
|
)
|
|
|
—
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
(120
|
)
|
|
|
—
|
|
Other current assets
|
|
|
(103
|
)
|
|
|
(46
|
)
|
Other non-current assets
|
|
|
3
|
|
|
|
2
|
|
Accounts payable
|
|
|
73
|
|
|
|
78
|
|
Accrued liabilities
|
|
|
9
|
|
|
|
(322
|
)
|
Deferred revenue
|
|
|
—
|
|
|
|
(68
|
)
|
Net cash used in operating activities
|
|
|
(3,408
|
)
|
|
|
(1,656
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment, net
|
|
|
(34
|
)
|
|
|
(46
|
)
|
Investment in note receivable, net
|
|
|
(500
|
)
|
|
|
—
|
|
Other Investments
|
|
|
—
|
|
|
|
(10
|
)
|
Net cash used in investing activities
|
|
|
(534
|
)
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
12,550
|
|
|
|
184
|
|
Payments for stock rescission
|
|
|
—
|
|
|
|
(64
|
)
|
Proceeds from issuance of debt, net of issuance costs
|
|
|
500
|
|
|
|
—
|
|
Principal repayments of debt
|
|
|
(1,510
|
)
|
|
|
(8
|
)
|
Payments for deferred offering costs
|
|
|
(1,668
|
)
|
|
|
(354
|
)
|
Net cash provided (used) by financing activities
|
|
|
9,872
|
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
5,930
|
|
|
|
(1,954
|
)
|
Cash and cash equivalents at the beginning of the year
|
|
|
938
|
|
|
|
4,537
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
$
|
6,868
|
|
|
$
|
2,583
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Common stock issued due to debt conversion
|
|
$
|
726
|
|
|
$
|
—
|
|
Deferred offering costs reclassified to equity
|
|
$
|
838
|
|
|
$
|
—
|
|
Common stock issued for prepaid services rescinded
|
|
$
|
100
|
|
|
$
|
—
|
|
Common stock issued as offering costs
|
|
$
|
1,250
|
|
|
$
|
—
|
|
Warrants issued as offering costs
|
|
$
|
681
|
|
|
$
|
—
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
$
|
207
|
|
|
$
|
214
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
See Accompanying Notes to Unaudited Consolidated
Financial Statements.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Unaudited Consolidated Financial Statements
|
1.
|
Organization and operations
|
ADOMANI,
Inc. (“we”, “us”, “our”, the “Company) was incorporated in Florida in August 2012 and
was reincorporated in Delaware in November 2016. The Company is a provider of new purpose-built zero-emission electric and hybrid
vehicles and replacement drivetrains and as a result is focused on reducing the total cost of vehicle ownership for fleet operators.
The Company also provides gas/diesel to all-electric and gas/electric to plug-in hybrid vehicle conversions to school bus and medium
to heavy-duty fleet operators. ADOMANI, Inc. is the parent company of its wholly-owned subsidiaries, ADOMANI California, Inc. and
ADOMANI China. The Company is headquartered in Newport Beach, CA.
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation
—The
consolidated financial statements and related disclosures as of June 30, 2017 and for the six months ended June 30, 2017 and 2016,
are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.
In our opinion, these unaudited financial statements include all adjustments (consisting only of normal recurring adjustments)
necessary for the fair statement of the results for the interim periods. These unaudited financial statements should be read in
conjunction with our audited financial statements for the years ended December 31, 2016 and 2015 included in our Form 253(g)(2)
filed with the SEC on June 19, 2017. The results of operations for the six months ended June 30, 2017 are not necessarily indicative
of the results to be expected for the full year.
The Company has incurred
losses for the past several years while developing infrastructure and planning an initial public offering (“IPO”).
The Company incurred net losses of $9.6 million and $2.9 million during the six months ended June 30, 2017 and 2016, respectively.
The Company completed its IPO on June 9, 2017, as discussed in Note 5 below.
The Company’s
independent registered public accounting firm expressed in its report on the Company’s financial statements for the year
ended December 31, 2016 disclosed substantial doubt about the Company’s ability to continue as a going concern. Based on
management’s plans and the significant capital raised during the six months ended June 30, 2017, that substantial doubt has
been alleviated.
Principles of
Consolidation
—The accompanying financial statements reflect the consolidation of the individual financial statements
of ADOMANI, Inc., ADOMANI California, Inc. and ADOMANI China. All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition
—The
Company recognizes revenue from the sales of advanced zero-emission electric drivetrain systems for fleet vehicles. Revenue is
recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price
is fixed or determinable and (iv) collectability is reasonably assured.
Stock-Based Compensation
—The
Company accounts for employee stock-based compensation in accordance with the guidance of Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation, which
requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements
based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to
additional paid-in capital over the period during which services are rendered.
The Company follows
ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring,
or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees.
In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company
are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant,
whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and
additional paid-in capital over the period during which services are rendered.
Recent Accounting
Pronouncements
—In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): “Scope
of Modification Accounting.” The amendments provide guidance on determining which changes to the terms and conditions of
share-based payment awards require an entity to apply modification accounting under Topic 718. The guidance is effective for annual
periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including
any interim period, for reporting periods for which financial statements have not been issued. The Company is currently evaluating
the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Unaudited Consolidated Financial Statements (Continued)
|
Reclassification
Certain amounts in
the 2016 financial statements have been reclassified to conform to the 2017 financial presentation. These reclassifications have
no impact on net loss.
On June 29, 2017, the
Company loaned $500,000 to an unaffiliated third party with engineering expertise in the electric bus technology industry, with
whom the Company may seek an alliance at some future date, in order to provide it with working capital. The stated interest rate
is 9% per annum, with interest payments due monthly beginning July 31, 2017. The note is secured by the assets of the borrower
and matures on December 31, 2017. The Company loaned an additional $500,000 to another third party in December 2016 (see Note 4).
During 2016, 2015 and
2014, the Company issued convertible notes for total proceeds of $42,160, $20,275 and $207,465, respectively, to Acaccia Family
Trust (“Acaccia”), formerly a related party. As of December 31, 2016, the outstanding balance of such convertible notes
was $359,000. During 2014, the Company issued convertible notes for total proceeds of $286,000 to various third parties. As of
December 31, 2016, the aggregate face value of the convertible notes issued to third and related parties was $645,000. All notes
had a three-year maturity and bore interest at rates of 3% or 5% per annum. The terms of such loans permitted conversion of all
outstanding principal and accrued interest into shares of common stock of the Company (“Common Stock”), with loans
totaling $45,000 convertible at a rate of $0.50 per share and loans totaling $600,000, including the convertible notes issued to
Acaccia, convertible at $0.10 per share. During 2016, the Company’s CFO purchased $25,000 of the $645,000 convertible notes
outstanding from Acaccia. Effective January 30, 2017, all holders of such convertible debt converted their debt, which totaled
$725,584, consisting of the outstanding principal amount and accrued and unpaid interest as of the date of conversion, into 6,868,578
shares of Common Stock in anticipation of our IPO. As of June 30, 2017, all such convertible notes have been converted and no balance
remains outstanding thereunder. No gain or loss resulted from the conversion of this debt to equity.
As these notes had
an effective conversion price that was less than the fair market value of the Common Stock, these notes gave rise to a beneficial
conversion feature totaling $42,160 and $20,275 during 2016 and 2015, respectively, which was recognized as an increase to paid-in
capital and a corresponding debt discount. The debt discount was being amortized to interest expense on an effective interest basis
over the maturity of the notes. For the six months ended June 30, 2017 and 2016, debt discount amortization associated with these
notes was $51,935 and $50,532, respectively, which was recognized as interest expense in the accompanying consolidated statement
of operations. The unamortized discount of these convertible notes was $0 and $51,935 at June 30, 2017 and December 31, 2016, respectively.
During 2015, the Company
issued two-year secured promissory notes with an aggregate face value of $5,147,525 to third-party lenders for cash. The notes
are secured by all the assets of the Company, mature between January and November 2017 and bear interest at 9%. The Company has
notified all holders of the 9% secured notes payable with maturities in January through August 2017 that it was exercising its
option to extend the maturity dates six months pursuant to the provisions of the notes. In connection with these notes, the Company
incurred debt issuance costs of $514,753, which are being recognized as a debt discount and amortized over the life of the notes.
During the six months ended June 30, 2017 and 2016, the debt discount amortization associated with these notes was $29,006 and
$160,688, respectively, which was recognized as interest expense in the accompanying unaudited consolidated statements of operations.
As of June 30, 2017, the debt issuance costs associated with these notes have been fully amortized. A $7,500 repayment of principal
was issued to a lender in January 2016 and another $10,000 repayment was issued to a different lender in March 2017. In September
2016, the Company authorized the exchange of $884,700 principal amount of these notes for 884,700 shares of Common Stock. There
was no gain or loss that resulted from the conversion of the notes to equity.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Unaudited Consolidated Financial Statements (Continued)
|
On November 18, 2016,
the Company issued a promissory note with a principal amount of $500,000 to a stockholder in order to insure adequate working capital
through the close of its IPO. The loan evidenced by the note is for a period of one year, at an interest rate of 5% per annum,
with the principal and any unpaid interest due and payable in cash at maturity. On March 17, 2017, due to unforeseen delays in
the closing of the IPO, the Company issued a second promissory note with a principal amount of $500,000 to the same stockholder
in order to address additional liquidity concerns. The second note also bears interest at a rate of 5% per annum, with the principal
and any unpaid interest due and payable in cash at maturity. The loans mature on November 15, 2017, unless previously repaid in
accordance with the terms thereof. On May 12, 2017, the Company repaid both notes, plus accrued and unpaid interest of $15,685,
from the proceeds of the initial closing of the IPO.
In December 2016, the
Company borrowed $500,000 from an unaffiliated third party. The loan matured on June 15, 2017. It contains no stipulated interest
rate, but the Company was obligated to pay loan fees of $50,000 to the lender. The proceeds of the loan were immediately used to
loan $500,000 to a company in the zero-emissions technology industry that specializes in drivetrain solutions for zero emission
and hybrid vehicles. The loan, carried as a note receivable on the balance sheet, contains the same provisions, including the loan
fees payable to the Company, as the note payable discussed above in this paragraph, and also matured on June 15, 2017. The Company
repaid the loan to the unaffiliated third party on May 12, 2017 from the proceeds of the initial closing of the IPO. The maturity
date for the note receivable has been extended to December 31, 2017. During the six months ended June 30, 2017, the related amortization
expense recognized on this loan amounted to $45,833.
In January 2015, in
connection with the 2015 9% secured notes payable financing discussed above, the Company agreed to issue a warrant exercisable
for 1,250,000 shares of Common Stock of the Company at an exercise price of $4.00 per share. The warrant, actually issued in September
2016, was valued using the Black-Scholes valuation model and the resulting fair market value of $349,042 was recorded in 2015 as
debt discount and is being amortized over the term of the notes. Interest expense relating to the amortization of this discount
was $3,347 and $87,022 for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017, the fair market value
of the warrant was fully amortized
Details of notes payable
at June 30, 2017 and December 31, 2016 are as follows:
|
|
As of June 30,
2017
|
|
As of December 31,
2016
|
Convertible Debt
|
|
|
|
|
|
|
|
|
Principal amount outstanding
|
|
$
|
—
|
|
|
$
|
645,000
|
|
Cumulative discount for notes with beneficial conversion feature
|
|
|
—
|
|
|
|
(349,560
|
)
|
Cumulative amortization of debt discount
|
|
|
—
|
|
|
|
297,625
|
|
Subtotal of convertible notes @ $0.10 or $.50/share
|
|
|
—
|
|
|
|
593,065
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
|
|
|
|
|
|
|
Principal amount outstanding
|
|
|
4,245,325
|
|
|
|
5,255,325
|
|
Cumulative discount for finance charges incurred
|
|
|
(514,753
|
)
|
|
|
(514,753
|
)
|
Cumulative discount for warrant
|
|
|
(349,042
|
)
|
|
|
(349,042
|
)
|
Cumulative discount for 9% notes
|
|
|
(50,000
|
)
|
|
|
(50,000
|
)
|
Cumulative amortization of finance charges
|
|
|
514,753
|
|
|
|
485,747
|
|
Cumulative amortization of warrant expense
|
|
|
349,042
|
|
|
|
345,695
|
|
Cumulative amortization of 9% notes
|
|
|
50,000
|
|
|
|
4,167
|
|
Subtotal of notes payable
|
|
|
4,245,325
|
|
|
|
5,177,139
|
|
Total of debt
|
|
$
|
4,245,325
|
|
|
$
|
5,770,204
|
|
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Unaudited Consolidated Financial Statements (Continued)
|
Effective January 30,
2017, all holders of the $645,000 original principal amount of convertible debt converted their debt, which totaled $725,584, consisting
of the outstanding principal amount and accrued and unpaid interest as of the date of conversion, into 6,868,578 shares of Common
Stock. (see Note 4).
In March 2017, Dennis
Di Ricco, who formerly served as the trustee of Acaccia, along with his family members and trusts) relinquished voting and investment
power over all securities of the Company they owned, which constituted approximately 22% of the outstanding Common Stock of the
Company. Mr. Di Ricco also surrendered his options to purchase up to 7,000,000 shares of Common Stock for forfeiture and cancellation,
and sold (in a private transaction to which the Company was not a party) all 2,500,000 shares of Common Stock held as of record
by his IRA. In connection with the foregoing, the Company and Mr. Di Ricco also terminated their consulting relationship. See Note
8.
In March 2016, the
Company entered into a consulting agreement with Redwood Group International Limited (“Redwood”). In exchange for its
services, Redwood received $5,000 per month in retainer payments and was eligible to receive other fees and warrants, as set forth
in the consulting agreement. The initial term of the consulting agreement was 12 months, ending on February 28, 2017, although
the term would automatically extend for an additional 12 months unless terminated by either party. On September 29, 2016, the Company
executed a letter agreement with Redwood, pursuant to which it issued to Redwood an additional 100,000 shares of Common Stock,
subject to Redwood satisfying certain performance thresholds. If Redwood failed to meet such performance thresholds, the agreement
provided the Company with an exclusive option to reacquire all or a portion of the shares of Common Stock at $0.00001 per share.
On November 15, 2016, the Company and Redwood agreed to terminate the original consulting agreement and entered into it a new consulting
agreement that was set to expires upon thirty days’ written notice by either party following the successful completion of
the Company’s IPO. The new consulting agreement was substantially similar to the prior agreement with respect to fees and
warrants due to Redwood, and provided that the Company would pay Redwood a sum of $800,000 and issue Redwood a warrant to acquire
350,000 shares of Common Stock. In May 2017, the Company and Redwood mutually agreed to terminate this agreement. On June 8, 2017,
the Company paid a fee of $800,000 to Redwood and issued Redwood a warrant to purchase 350,000 shares of Common Stock, in connection
with which the Company cancelled the 100,000 shares of Common Stock it had previously issued pursuant to the September 2016 letter
agreement. The warrant to purchase 350,000 shares of Common Stock was valued using the Black-Scholes method resulting in a fair
market value of $1.24 million. The assumptions used in the valuation included the term of 5 years, the exercise price of $5.00
per share, volatility of 92% and a risk-free interest rate of 1.75%. The fair value of the warrant was recorded as consulting expense
during the three months ended June 30, 2017.
On June 9, 2017, the
Company consummated the final closing of the IPO, as discussed in Note 2 above. The Company sold an aggregate of 2,852,275 shares
of Common Stock, of which 342,273 shares were sold on behalf of certain stockholders of the Company who elected to participate
in the IPO, for aggregate gross proceeds of $14,261,375. Net proceeds received after deducting commissions, expenses and fees of
approximately $2.5 million and the $1,711,365, amounted to approximately $10.0 million. The Company remitted the $1,711,365 in
aggregate gross proceeds resulting from the sale of shares on behalf of the selling stockholders to such stockholders. As such,
the Company issued and sold an aggregate of 2,510,002 shares of Common Stock in connection with the IPO, excluding the shares sold
by the selling stockholders. In connection with the final closing of the IPO on June 9, 2017, the Company issued an additional
250,000 shares of Common Stock under the terms of a consulting agreement. Under the terms of the underwriting agreement executed
in connection with the IPO, the Company issued to Boustead Securities, LLC a warrant to purchase 199,659 shares of Common Stock.
The warrant to purchase 199,659 shares of Common Stock was valued using the Black-Scholes method resulting in a fair market value
of $680,543. The assumptions used in the valuation included the term of 5 years, the exercise price of $6.00 per share, volatility
of 92% and a risk-free interest rate of 1.75%. The fair value of the warrant was recorded as offering costs and netted against
additional paid in capital during the three months ended June 30, 2017.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Unaudited Consolidated Financial Statements (Continued)
|
The Company's stock warrant activity for the six months ended June 30, 2017 is summarized as follows:
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Life
(years)
|
Outstanding at December 31, 2016
|
|
|
1,250,000
|
|
|
$
|
4.00
|
|
|
|
|
|
Granted
|
|
|
549,659
|
|
|
|
5.36
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
|
|
1,799,659
|
|
|
$
|
4.42
|
|
|
|
4.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2017
|
|
|
1,250,000
|
|
|
$
|
4.00
|
|
|
|
4.18
|
|
7.
|
Stock-Based Compensation
|
In March 2017, Dennis
Di Ricco surrendered his options to purchase up to 7,000,000 shares of Common Stock for forfeiture or cancellation (see Note 5).
In March 2017, the
board of directors of the Company (the “Board”) consented to the grant of options to purchase an aggregate of 3,600,000
shares of Common Stock to 13 people (employees and current and prospective Board members). The options will vest over a three-year
period, and the exercise price was determined based on the average of the trading price of the Company’s Common Stock on
the Nasdaq Capital Market for the first ten days following the close of its IPO, which was $10.49. The options were valued using
the Black-Scholes method, resulting in a fair market value of $37.6 million. The assumptions used in the valuation included an
expected term of 4.75 years; volatility of 86% and a risk-free interest rate of 2.02%.
Stock option activity
for the six months ended June 30, 2017 is as follows
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Life
(years)
|
Outstanding at December 31, 2016
|
|
|
33,775,000
|
|
|
$
|
0.10
|
|
|
|
|
|
Granted
|
|
|
3,600,000
|
|
|
|
10.49
|
|
|
|
|
|
Forfeited
|
|
|
(7,000,000
|
)
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
|
|
30,375,000
|
|
|
$
|
3.56
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2017
|
|
|
21,586,495
|
|
|
$
|
3.56
|
|
|
|
3.9
|
|
Stock-based compensation
expense was $5.0 million and $1.3 million for the six months ended June 30, 2017 and 2016, respectively, and is included in general
and administrative expense in the accompanying unaudited consolidated statements of operations. As of June 30, 2017, the Company
expects to recognize $38.1 million of stock-based compensation for the non-vested outstanding options over a weighted-average period
of 2.62 years.
Employment Agreements
—Effective
September 1, 2014, the Company executed an employment agreement with James Reynolds, its Chief Executive Officer. The term of the
employment agreement is 5 years, and the agreement provides for an annual base salary of $240,000 and entitles Mr. Reynolds to
receive a bonus of five percent of the Company’s net profits on an annual basis.
ADOMANI, INC. AND SUBSIDIARIES
|
Notes to Unaudited Consolidated Financial Statements (Continued)
|
Effective September
1, 2014, the Company executed an employment agreement with Edward Monfort, its Chief Technology Officer. The term of the employment
agreement was 5 years, and the agreement provided for an annual base salary of $240,000 and entitled Mr. Monfort to receive a bonus
of five percent of the Company’s net profits. In June 2016, Mr. Monfort entered into a new employment agreement with a two-year
term, which superseded the 2014 employment agreement, pursuant to which his salary was reduced to $120,000 per annum Additionally,
the Company pays up to $7,000 per month to ELO, LLC, an entity owned by Mr. Monfort, for invoiced expenses relating to research
and development pursuant to a consulting relationship.
Effective January 1,
2017, the Company entered into an employment agreement with Michael Menerey, its Chief Financial Officer. The term of the employment
agreement is five years and the agreement provides for an annual base salary of $200,000.
Operating Leases
—In
2015, the Company signed an office and warehouse lease agreement for a facility in Orange, California, to serve as its primary
facility for research and development activity. The initial term of the lease expired on February 29, 2016, at which time the Company
extended the lease for two additional years, until February 28, 2018. The total amount due annually under the lease is $44,856.
The Company signed a one-year office lease for office space in Newport Beach, California, to serve as office space for its headquarters.
The initial term of the lease expired on December 31, 2016, at which time the Company extended the lease on a month-to-month basis.
The total amount due monthly is approximately $3,400. In 2016, the Company also signed a lease for office space in Los Altos, California,
to serve as office space for its Northern California operations. The lease expired February 28, 2017 and the Company executed a
new one-year lease in February 2017. The total amount due under the lease is $5,200 and the lease period is from March 1, 2017
through February 28, 2018.
Other Agreements
—In
2015, the Company entered into a contract with THINKP3 to provide services with the goal of securing federal grant assistance for
development of the Company’s zero-emission and hybrid transportation solutions for school bus, commercial, government and
utility fleets. The initial term of this contract was December 1, 2015 through November 30, 2016. On November 21, 2016, the parties
renewed the agreement through November 30, 2017. Fees for these services are $8,000 per month. The contract can be terminated by
either party with 30-days advance notice.
In March 2015, the
Company signed a licensing option agreement with Silicon Turbines Systems, Inc. for use of its patent in manufacturing. The option
calls for a payment of $10,000 per month, beginning March 1, 2015, up to a full investment amount of $3,000,000. The agreement
provided that the original option would terminate on August 31, 2015, but the parties agreed verbally to both extend the date of
termination of the option and delay the Company’s obligation to make any monthly payments under the option agreement while
both companies evaluate the relationship. As such, no payments have been made in 2017. For the year ended December 31, 2016, the
Company made one $10,000 payments. This amount appears as Other Investments on the unaudited consolidated balance sheets.
In 2016, the Company
signed an advisor agreement with Dennis Di Ricco, formerly a related party and stockholder, pursuant to which Mr. Di Ricco would
provide consulting services to the Company. In March 2017, we terminated this agreement (see Note 5).
The following table
summarizes our future minimum payments under contractual commitments, excluding debt, as of June 30, 2017:
|
|
Payments due by period
|
|
|
Total
|
|
Less than
one year
|
|
1–3 years
|
|
3–5 years
|
|
More than
5 years
|
Operating lease obligations
|
|
|
33,688
|
|
|
|
33,688
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Employment contracts
|
|
|
1,640,000
|
|
|
|
660,000
|
|
|
|
680,000
|
|
|
|
300,000
|
|
|
|
—
|
|
Total
|
|
|
1,673,688
|
|
|
|
693,688
|
|
|
|
680,000
|
|
|
|
300,000
|
|
|
|
—
|
|
During July and August
2017, the Company repaid principal of $739,500, plus accrued interest of $1,877, to holders of two-year 9% secured promissory notes
whose original maturity dates were in January and February 2017, before the Company exercised its option to extend for six months
(see Note 4).
On July 28, 2017, the
Company repaid principal of $60,000, less $6,000 withheld for finance charges, for a net payment of $54,000 to another secured
promissory note holder (see Note 4).
Minimum Offering of
Units
Maximum Offering of
Units
Each Unit Consisting of One Share of
Common Stock and
A Warrant to Purchase
Share of Common Stock
__________________________
PROSPECTUS
, 2017
__________________________
Through and including ,
2017 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13.
|
Other Expenses of Issuance and Distribution.
|
The following table
sets forth all costs and expenses (other than underwriting discounts and commissions) we expect to incur in connection with the
offering described in this registration statement, all of which will be paid by us. All amounts shown are estimates except for
the SEC registration fee.
|
|
Amount
|
Securities and Exchange Commission Registration Fee
|
|
$
|
12,887
|
|
FINRA Filing Fee
|
|
|
16,025
|
|
Printing Expenses
|
|
|
*
|
|
Legal Fees and Expenses
|
|
|
*
|
|
Accounting Fees and Expenses
|
|
|
*
|
|
Transfer Agent and Registrar Fees and Expenses
|
|
|
*
|
|
Miscellaneous Expenses
|
|
|
*
|
|
Total
|
|
$
|
*
|
|
* To be provided by amendment.
Item 14.
|
Indemnification of Directors and Officers.
|
Section 102 of the
General Corporation Law of the State of Delaware permits a corporation to eliminate the personal liability of directors of a corporation
to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except for breaches of
the director’s duty of loyalty to the corporation or its stockholders, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of a law, authorizations of the payments of a dividend or approval of a stock repurchase
or redemption in violation of Delaware corporate law or for any transactions from which the director derived an improper personal
benefit. Our certificate of incorporation provides that no director will be liable to us or our stockholders for monetary damages
for breach of fiduciary duties as a director, subject to the same exceptions as described above. We have entered into indemnification
agreements with each of our directors which may, in some cases, be broader than the specific indemnification provisions contained
under Delaware law. We also expect to maintain standard insurance policies that provide coverage (1) to our directors and officers
against loss arising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification
payments we may make to such officers and directors.
Section 145 of the
General Corporation Law of the State of Delaware provides that a corporation has the power to indemnify a director, officer, employee,
or agent of the corporation and certain other persons serving at the request of the corporation in related capacities against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by the person
in connection with a threatened, pending, or completed action, suit or proceeding to which he or she is or is threatened to be
made a party by reason of such position, if such person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and, in any criminal action or proceeding, had no reasonable cause
to believe his or her conduct was unlawful, except that, in the case of actions brought by or in the right of the corporation,
indemnification is limited to expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection
with defense or settlement of such action or suit and no indemnification shall be made with respect to any claim, issue, or matter
as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of
Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other
court shall deem proper. In addition, to the extent that a present or former director or officer of a corporation has been successful
on the merits or otherwise in defense of any action, suit, or proceeding described above (or claim, issue, or matter therein),
such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person
in connection therewith. Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil,
criminal, administrative, or investigative action, suit, or proceeding may be advanced by the corporation upon receipt of an undertaking
by such person to repay such amount if it is ultimately determined that such person is not entitled to indemnification by the corporation
under Section 145 of the General Corporation Law of the State of Delaware.
Our certificate of
incorporation provides that we will, to the fullest extent permitted by law, indemnify any person made or threatened to be made
a party to an action or proceeding by reason of the fact that he or she (or his or her testators or intestate) is or was our director
or officer or serves or served at any other corporation, partnership, joint venture, trust or other enterprise in a similar capacity
or as an employee or agent at our request, including service with respect to employee benefit plans maintained or sponsored by
us, against expenses (including attorneys’), judgments, fines, penalties and amounts paid in settlement incurred in connection
with the investigation, preparation to defend, or defense of such action, suit, proceeding, or claim. However, we are not required
to indemnify or advance expenses in connection with any action, suit, proceeding, claim, or counterclaim initiated by us or on
behalf of us. Our bylaws provide that we will indemnify and hold harmless each person who was or is a party or threatened to be
made a party to any action, suit, or proceeding by reason of the fact that he or she is or was our director or officer, or is or
was serving at our request in a similar capacity of another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans (whether the basis of such action, suit, or proceeding is an action in
an official capacity as a director or officer or in any other capacity while serving as a director of officer) to the fullest extent
authorized by the Delaware General Corporation Law against all expense, liability and loss (including attorneys’ fees, judgments,
fines, ERISA excise taxes, or penalties and amounts paid in settlement) reasonably incurred or suffered by such person in connection
with such action, suit or proceeding, and this indemnification continues after such person has ceased to be an officer or director
and inures to the benefit of such person’s heirs, executors and administrators. The indemnification rights also include the
right generally to be advanced expenses, subject to any undertaking required under Delaware General Corporation Law, and the right
generally to recover expenses to enforce an indemnification claim or to defend specified suits with respect to advances of indemnification
expenses.
Item 15.
|
Recent Sales of Unregistered Securities.
|
Set forth below is
information regarding securities sold and issued by us within the last three years that were not registered under the Securities
Act, as well as the consideration received by us for such securities and information relating to the section of the Securities
Act, or rule of the Securities and Exchange Commission, under which exemption from registration was claimed.
|
(a)
|
Issuances of Capital Stock, Warrants to Purchase Capital Stock and Debt Securities
|
In September 2014,
we sold and issued an aggregate of 130,150 shares of our common stock to 29 accredited investors at $1.00 per share in private
placement transactions in exchange for gross cash proceeds of $130,150.
On September 23, 2014,
we issued a convertible secured promissory note with a principal amount of $15,000 to an accredited investor in exchange for gross
cash proceeds of $15,000.
In November 2014, we
sold and issued an aggregate of 5,500 shares of our common stock to two accredited investors at $1.00 per share in private placement
transactions in exchange for gross cash proceeds of $5,500.
In December 2014, we
sold and issued an aggregate of 21,600 shares of our common stock to four accredited investors at $1.00 per share in private placement
transactions in exchange for gross cash proceeds of $21,600.
On December 31, 2014,
we issued a convertible secured promissory note with a principal amount of $36,947 to an accredited investor in exchange for gross
cash proceeds of $36,947.
From January 6, 2015
through November 19, 2015, we issued secured promissory notes with an aggregate principal amount of $5,147,525 to 124 accredited
investors in exchange for gross aggregate proceeds of $5,147,525, which were offset by finance charges of $514,753 paid by us.
On February 13, 2015,
we sold and issued 300,000 shares of our common stock to an accredited investor at $1.00 per share in a private placement transaction
in exchange for gross cash proceeds of $300,000.
In March 2015, we sold
and issued an aggregate of 7,000 shares of our common stock to two accredited investors at $1.00 per share in private placement
transactions in exchange for gross cash proceeds of $7,000.
In June 2015, we sold
and issued an aggregate of 91,000 shares of our common stock to eight accredited investors at $1.00 per share in private placement
transactions in exchange for gross cash proceeds of $91,000.
On July 23, 2015, we
sold and issued 5,000 shares of our common stock to an accredited investor at $1.00 per share in a private placement transaction
in exchange for gross cash proceeds of $5,000.
In August 2015, we
sold and issued an aggregate of 51,500 shares of our common stock to three accredited investors at $1.00 per share in private placement
transactions in exchange for gross cash proceeds of $51,500.
In October 2015, we
sold and issued an aggregate of 104,500 shares of our common stock to nine accredited investors at $1.00 per share in private placement
transactions in exchange for gross cash proceeds of $104,500.
On October 15, 2015,
we issued a convertible secured promissory note with a principal amount of $21,400 to an accredited investor in exchange for gross
cash proceeds of $21,400.
In November 2015, we
sold and issued an aggregate of 1,600,000 shares of our common stock to three accredited investors at $1.00 per share in private
placement transactions in exchange for gross cash proceeds of $1,600,000.
On December 31, 2015,
we sold and issued 500,000 shares of our common stock to an accredited investor at $1.00 per share in a private placement transaction
in exchange for gross cash proceeds of $500,000.
In January 2016, we
sold and issued an aggregate of 20,000 shares of our common stock to two accredited investors at $1.00 per share in private placement
transactions in exchange for gross cash proceeds of $20,000.
In February 2016, we
sold and issued an aggregate of 20,000 shares of our common stock to two accredited investors at $1.00 per share in private placement
transactions in exchange for gross cash proceeds of $20,000.
In March 2016, we sold
and issued an aggregate of 11,400 shares of our common stock to two accredited investors at $1.00 per share in private placement
transactions in exchange for gross cash proceeds of $11,400.
In May 2016, we sold
and issued an aggregate of 45,000 shares of our common stock to two accredited investors at $1.00 per share in private placement
transactions in exchange for gross cash proceeds of $45,000.
In June 2016, we sold
and issued an aggregate of 110,000 shares of our common stock to two accredited investors at $1.00 per share in private placement
transactions in exchange for gross cash proceeds of $110,000.
On July 13, 2016, we
issued a convertible secured promissory note with a principal amount of $42,160 to an accredited investor in exchange for gross
cash proceeds of $42,160. The note has a conversion price of $0.10 per share. Principal and accrued interest are payable on December
31, 2016, if the note is not converted prior to that date.
On June 24, 2016, we
issued 2,000,000 shares of common stock to our Chief Technology Officer in exchange for a patent.
In July 2016, we issued
an aggregate of 98,000 shares of common stock to two accredited investors in exchange for services rendered.
On September 1, 2016,
we issued a warrant to purchase 1,250,000 shares of our common stock, subject to stock splits or other similar changes in our capital
structure, to a placement agent for services rendered in connection with a private placement of debt in January 2015. The warrant
has an exercise price of $4.00 per share, became exercisable on September 1, 2016 and expires on September 1, 2021.
On September 1, 2016,
we issued 884,700 shares of our common stock to 12 accredited investors upon conversion by such investors of outstanding principal,
plus accrued and unpaid interest, from debentures, originally issued during 2015, at a conversion price of $1.00 per share.
On January 30, 2017,
we issued 6,771,762 shares of our common stock to 23 accredited investors upon conversion by such investors of outstanding principal,
plus accrued interest, under convertible secured promissory notes issued during 2013, 2014, 2015 and 2016 at a conversion price
of $0.10 per share.
On January 30, 2017,
we issued 96,816 shares of our common stock to two accredited investors upon conversion by such investors of outstanding principal,
plus accrued interest, under convertible secured promissory notes issued during 2014 at a conversion price of $0.50 per share.
On May 12, 2017, we
issued a warrant to purchase 199,659 shares of our common stock, subject to stock splits or other similar changes in our capital
structure, to an underwriter for services rendered in connection with the closing of our offering of Common Stock under Regulation
A in June 2017. The warrant has an exercise price of $6.00 per share, becomes exercisable on October 22, 2017 and expires on April
25, 2022.
On June 19, 2017, we
issued a warrant to purchase 350,000 shares of our common stock, subject to stock splits or other similar changes in our capital
structure, to a consultant under the terms of a settlement agreement. The warrant has an exercise price of $5.00 per share, becomes
exercisable on December 16, 2017 and expires on June 19, 2022.
No underwriters were
involved in the foregoing sales of securities. The securities described in this section (a) of Item 15 were issued to investors
in reliance upon the exemption from the registration requirements of the Securities Act, as set forth in Section 3(a)(9) and/or
Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder relative to transactions by an issuer not involving
any public offering, to the extent an exemption from such registration was required. All purchasers described above represented
to us in connection with their purchase that they were accredited investors and were acquiring the shares for their own account
for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that they could
bear the risks of the investment and could hold the securities for an indefinite period of time. The purchasers received written
disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a
registration statement or an available exemption from such registration. We did not engage in any general solicitation or advertising
in connection with the foregoing issuances.
|
(b)
|
Plan-Related Issuances of Stock Options
|
In the last three years,
we have granted stock options to certain of our employees, consultants, and directors in connection with services provided to by
such persons to purchase an aggregate of 8,875,000 shares of common stock with exercise prices ranging from $0.10 per share to
$10.49 per share, and a weighted average exercise price of $8.54 per share.
The stock options and
the common stock issuable upon the exercise of such options as described in this section (b) of Item 15 were issued pursuant to
written compensatory plans or arrangements in reliance on the exemption from the registration requirements of the Securities Act
provided by Rule 701 promulgated under the Securities Act and/or the exemption set forth in Section 4(a)(2) under the Securities
Act and Regulation D promulgated thereunder relative to transactions by an issuer not involving any public offering. All recipients
either received adequate information about us or had access, through employment or other relationships, to such information.
All of the foregoing
securities are deemed restricted securities for purposes of the Securities Act. All certificates representing the issued shares
of capital stock described in this Item 15 included appropriate legends setting forth that the securities had not been registered
and the applicable restrictions on transfer.
Item 16.
|
Exhibits and Financial Statement Schedules.
|
See Exhibit Index immediately
following the signature page to this registration statement.
|
(b)
|
Financial Statement Schedules
|
All other schedules
are omitted because they are not required, are not applicable, or the information is included in the consolidated financial statements
or the related notes to consolidated financial statements thereto.
The undersigned registrant
hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus
required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the
prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (§230.424(b)
of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) To include any
material information with respect to the plan of distribution not previously disclosed in the registration statement or any material
change to such information in the registration statement;
(2) That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That,
for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution
of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant
pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if
the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule
424 (§230.424 of this chapter);
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to
by the undersigned registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(5) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(6) For
purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
(7) For
the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements
of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Corona, State of California, on this 16th day of October, 2017.
|
ADOMANI, INC.
|
|
|
|
|
By:
|
/s/ James L. Reynolds
|
|
|
James L. Reynolds
|
|
|
Chief Executive Officer and President
|
POWER OF ATTORNEY
We, the undersigned
directors and officers of ADOMANI, Inc., hereby severally constitute and appoint James L. Reynolds and Michael K. Menerey, and
each of them, our true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution for him or
her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and any subsequent registration statements pursuant to Rule 462 of the Securities Act
of 1933, as amended and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and
purposes as we might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ James L. Reynolds
|
|
Chief Executive Officer, President, Chairman and Director
|
|
October 16, 2017
|
James L. Reynolds
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/ Michael K. Menerey
|
|
Chief Financial Officer and Director
|
|
October 16, 2017
|
Michael K. Menerey
|
|
(Principal Financial Officer and Principal
|
|
|
|
|
Accounting Officer)
|
|
|
|
|
|
|
|
/s/ Gary W. Nettles
|
|
Director
|
|
October 16, 2017
|
Gary W. Nettles
|
|
|
|
|
|
|
|
|
|
/s/ Janet L. Boydell
|
|
Director
|
|
October 16, 2017
|
Janet L. Boydell
|
|
|
|
|
|
|
|
|
|
/s/ John F. Perkowski
|
|
Director
|
|
October 16, 2017
|
John F. Perkowski
|
|
|
|
|
EXHIBIT INDEX
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
Filing
|
|
|
|
Filed
|
Number
|
|
Description of Exhibit
|
|
Form
|
|
File No.
|
|
Date
|
|
Exhibit
|
|
Herewith
|
1.1*
|
|
Form of Underwriting Agreement
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of the Company
|
|
1-A POS
|
|
024-10656
|
|
6/15/2017
|
|
2.7
|
|
|
3.2
|
|
Amended and Restated Bylaws of the Company
|
|
1-A POS
|
|
024-10656
|
|
6/15/2017
|
|
2.8
|
|
|
4.1*
|
|
Specimen common stock certificate
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Form of Secured Promissory Note
|
|
1-A
|
|
024-10656
|
|
12/21/2016
|
|
3.1
|
|
|
4.3
|
|
Form of Common Stock Purchase Warrant, dated June 26, 2017, issued to Boustead Securities, LLC
|
|
10-Q
|
|
001-38078
|
|
8/14/17
|
|
4.1
|
|
|
4.4
|
|
Form of Common Stock Purchase Warrant, dated June 19, 2017, issued to Redwood Group International Limited
|
|
10-Q
|
|
001-38078
|
|
8/14/17
|
|
4.2
|
|
|
4.5*
|
|
Form of Warrant Agreement, dated 2017, by and between the Company and
|
|
|
|
|
|
|
|
|
|
|
5.1*
|
|
Opinion of K&L Gates LLP
|
|
|
|
|
|
|
|
|
|
|
9.1
|
|
Voting Trust Agreement, by and among Provident Trust Group FBO Cornelia P. Doherty ROTH IRA, Connie Doherty Living Trust Dated May 1, 1996, Gary Nettles as Voting Trustee, and the Company, dated March 20, 2017
|
|
1-A/A
|
|
024-10656
|
|
4/7/2017
|
|
5.1
|
|
|
10.1+
|
|
2012 Stock Option and Stock Incentive Plan, and forms of agreement thereunder
|
|
1-A
|
|
024-10656
|
|
12/21/2016
|
|
6.4
|
|
|
10.2+
|
|
Employment Offer Letter, by and between James L. Reynolds and the Company, dated September 1, 2014
|
|
1-A
|
|
024-10656
|
|
12/21/2016
|
|
6.6
|
|
|
10.3+
|
|
Employment Offer Letter, by and between Edward R. Monfort and the Company, effective June 1, 2016
|
|
1-A
|
|
024-10656
|
|
12/21/2016
|
|
6.7
|
|
|
10.4+
|
|
Form of Indemnity Agreement
|
|
1-A
|
|
024-10656
|
|
12/21/2016
|
|
6.8
|
|
|
10.5
|
|
Patent License—Use and Manufacturing Agreement, by and between Silicon Turbine Systems, Inc. and the Company, dated November 7, 2014
|
|
1-A
|
|
024-10656
|
|
12/21/2016
|
|
6.9
|
|
|
10.6
|
|
Consulting Agreement, by and between Redwood Group International Limited and the Company, dated November 14, 2016
|
|
1-A
|
|
024-10656
|
|
12/21/2016
|
|
6.10
|
|
|
10.7
|
|
Consulting Services Agreement, by and between TriplePoint, LLC and the Company, dated February 17, 2016
|
|
1-A
|
|
024-10656
|
|
12/21/2016
|
|
6.12
|
|
|
10.8
|
|
Advisor Agreement, by and between Dennis R. Di Ricco and the Company, dated September 1, 2016, as amended
|
|
1-A
|
|
024-10656
|
|
12/21/2016
|
|
6.14
|
|
|
10.9+
|
|
Employment Agreement, by and between Michael K. Menerey and the Company, dated January 1, 2017
|
|
1-A/A
|
|
024-10656
|
|
1/17/2017
|
|
6.15
|
|
|
10.10
|
|
Termination Agreement, by and between Dennis Di Ricco and the Company, dated March 20, 2017
|
|
1-A/A
|
|
024-10656
|
|
4/7/2017
|
|
6.16
|
|
|
10.11+
|
|
2017 Equity Incentive Plan
|
|
1-A/A
|
|
024-10656
|
|
4/7/2017
|
|
6.17
|
|
|
10.12+
|
|
Form of Stock Option Agreement for 2017 Equity Incentive Plan
|
|
1-A/A
|
|
024-10656
|
|
4/7/2017
|
|
6.18
|
|
|
10.13+
|
|
Form of Notice of Grant of Stock Option for 2017 Equity Incentive Plan
|
|
1-A/A
|
|
024-10656
|
|
4/7/2017
|
|
6.19
|
|
|
10.14
|
|
Office Lease, dated July 11, 2017, by and between HGN Corona Partners, LLC and the Company
|
|
|
|
|
|
|
|
|
|
X
|
*
|
To be filed by amendment.
|
+
|
Indicates a management contract or compensatory plan.
|
II-8