AZIO AI HOLDINGS, INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our financial statements and related notes included in Part II, Item 8 of this Annual Report. This discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those discussed in Item 1 (Business) and Item 1A (Risk Factors) of Part I of this Annual Report. Overview We are a provider of purpose-built zero-emission electric vehicles focused on reducing the total cost of vehicle ownership and helping fleet operators unlock the benefits of green technology. We serve commercial and last-mile fleets, school districts, public and private transportation service companies and colleges and universities to meet the increasing demand for light to heavy-duty electric vehicles. Our vehicles address the challenges of traditional fuel price instability and local, state and federal regulatory compliance. As discussed in Item 8, Notes 2 and 3 to the consolidated financial statements of Envirotech Vehicles, Inc. contained in this Annual Report on Form 10-K, as a result of the closing of the Merger on March 15, 2021, the historical results discussed in this section of the Annual Report are those of Envirotech Drive Systems, Inc. (“EVTDS”) as of and for the year ended December 31, 2020 and are the results for EVTDS as of and for the year ended December 31, 2021, including the balance sheet accounts of Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.), at December 31, 2021 and the results of operations of Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.), for the period March 16, 2021 through December 31, 2021. On May 26, 2021, the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company with the Secretary of State of the State of Delaware to change its name from ADOMANI, Inc., to Envirotech Vehicles, Inc., effective as of May 26, 2021. For the years ended December 31, 2021 and 2020, respectively, we generated sales revenue of $2,042,844 and $88,375, respectively, and our net losses were $7,652,100 and $279,521, respectively. The 2021 loss includes approximately $3.5 million of non-cash expenses, net of non-cash income of $290,520. 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: • COVID-19 pandemic . Global health concerns related to the ongoing COVID-19 pandemic have resulted in social, economic and labor instability in the countries in which we or the third parties with whom we engage operate, and resulted in unexpected legal and regulatory changes, such as travel, social distancing and quarantine policies, boycotts, curtailment of trade, and other business restrictions that have negatively affected our ability to procure and sell our products and provide our services. Accordingly, our future performance will depend in part upon our ability to successfully respond and adapt to these challenges. We have developed, and continue to develop, plans to address the ongoing effects and help mitigate the potential negative impact of the pandemic on our business. • Availability of government subsidies, rebates and economic incentives . We believe that the availability of government subsidies, rebates, and economic incentives is currently a critical factor considered by our customers when purchasing our zero-emission vehicles, and that our growth depends in large part on the availability and amounts of these subsidies and economic incentives. As an alternative to being dependent on such funding, however, we are exploring the possibility of leasing our vehicles to our customers as well. • 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 52 Table of Contents 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. • Dependence on external sources of financing of our operations. We have historically depended on external sources for capital to finance our operations. Accordingly, our future performance will depend in part upon our ability to achieve independence from external sources for the financing of our operations. • 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 electric vehicles; design, develop and manufacture our commercial fleet vehicles 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 experience. Our dealer and service network is not completely established, although we do have certain agreements in place including our FAR Agreements. One issue they may have, and we may encounter, is finding appropriately trained technicians with zero-emission electric fleet vehicle experience. Our performance will depend on having a robust service network, which will require appropriately trained technicians to be successful. Because vehicles that utilize our technology are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in zero-emission electric 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 solutions for alternative fuel technology, specifically all-electric 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, the amounts of such assistance to our customers, or our ability to access such funds. • Sales 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 report. • Third-party contractors, suppliers and manufacturers . We rely upon third parties to supply us with raw materials, parts, components and services in adequate quantity in a timely manner and at reasonable prices, quality levels, and volumes acceptable to us. Components of Results of Operations Sales Sales are recognized from the sales of new, purpose-built zero-emission electric vehicles and from providing vehicle maintenance and safety inspection services. Sales are recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606, as discussed in Note 2 to our consolidated financial statements included in this Annual Report. 53 Table of Contents 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. Cost of sales also includes costs related to the valuation of inventory due to impairment, obsolescence, or shrinkage. General and Administrative Expenses Selling, general and administrative expenses include all corporate and administrative functions that support our company, including personnel-related expense and stock-based compensation costs; costs related to investor relations activities; warranty costs, including product recall and customer satisfaction program costs; consulting costs; marketing-related expenses; and other expenses that cannot be included in cost of sales. Consulting and Research and Development Costs These expenses are substantially related to our consulting and research and development activity. Other Income/Expenses, Net Other income/expenses include non-operating income and expenses, including interest income and expense. Provision for Income Taxes We account for income taxes in accordance with Financial Accounting Standards Board (“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 in 2021, and the income tax benefit recorded in 2020 has been reversed and effectively reserved as well. Results of Operations The following discussion compares operating data for the year ended December 31, 2021 to the data for the year ended December 31, 2020: Sales Year Ended December 31, 2021 2020 $ Change % Change Sales $ 2,042,844 $ 88,735 $ 1,954,109 2,202 % Sales were $2,042,844 for the year ended December 31, 2021, compared to $88,735 for the year ended December 31, 2020. Sales for the year ended December 31, 2021 consisted of 21 vehicles, (cargo vans and trucks) sold to customers and FAR distributors, as well as maintenance and inspection services provided. 54 Table of Contents Cost of Goods Sold Year Ended December 31, 2021 2020 $ Change % Change Cost of goods sold $ 1,281,468 $ 73,560 $ 1,207,908 1,642 % Cost of sales related to the sales revenue described above and were approximately $1.28 million for the year ended December 31, 2021, compared to $73,560 for the year ended December 31, 2020. Operating Expenses Year Ended December 31, 2021 2020 $ Change % Change General and administrative 1 $ 8,238,530 $ 355,231 $ 7,883,299 2,219 % Consulting 188,703 70,901 117,802 166 % Research and Development 58,139 — 58,139 100 % Total operating expenses, net $ 8,485,372 $ 426,132 $ 8,059,240 1,8918 % 1 Includes stock-based compensation expense as follows: Year Ended December 31, 2021 2020 $ Change % Change Stock-based compensation expense $ 3,414,440 $ — $ 3,414,440 100 % General and Administrative Expenses General and administrative expenses for the year ended December 31, 2021 were $8,238,530, compared to $355,231 for 2020, an increase of $7,883,299, which was primarily related to an increase in non-cash stock based compensation expense of $3,414,440 and to legal and professional fees of $1,745,523, which included $685,000 in 2021 settlement of lawsuits expense and $749,067 in legal fees. Other general and administrative expenses increased by $2,844,468, which related to increases of $939,500 in salaries and benefits; insurance costs of $373,501; $303,879 in bad debt expense related to notes receivable and an unfulfilled purchase order; $222,972 in investor relations expenses; $225,847 in travel and entertainment expenses primarily related to locating a manufacturing location in the United States, and $657,637 in other general and administrative expenses. The 2021 general and administrative expenses include approximately $3,788,598 in non-cash charges, including $3,414,440 in non-cash stock-based compensation expense, $303,879 in bad debt expense not related to receivables and $70,279 in depreciation expense. The 2020 general and administrative expenses include non-cash charges of $17,670 in depreciation expense. Consulting Consulting expenses were approximately $188,703 for the year ended December 31, 2021, as compared to $70,901 for 2020, primarily the result of increased operations. Interest (Expense)Income Year Ended December 31, 2021 2020 $ Change % Change Interest (expense) income, net $ 4,412 $ (2,864 ) $ 7,276 254 % 55 Table of Contents Interest income in 2021 of $9,703 consisted primarily of marketable security interest and interest payments from FARs utilizing flooring. There was no interest income earned in 2020. Interest expense was $5,293 and $2,864 for the years ended December 31, 2021 and 2020, respectively. Expense in 2021 relates to the repayment of the two outstanding SBA loans and to the note payable entered into during 2021. Interest (expense) income, net was therefore approximately $4,411 and $(2,864) for the years ended December 31, 2021 and 2020, respectively. Cash Flows The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2021 and 2020: Year Ended December 31, In thousands 2021 2020 Cash flows (used in) provided by operating activities $ (12,936,755 ) $ 1,526,333 Cash flows (used in) investing activities (4,677,839 ) (73,091 ) Cash flows provided by financing activities 20,590,987 152,835 Net increase in cash and cash equivalents $ 2,976,393 $ 1,606,077 Operating Activities Cash (used in) provided by operating activities is primarily the result of our operating losses, reduced by the impact of non-cash expenses, including non-cash stock-based compensation, and changes in the asset and liability accounts. Net cash (used in) operating activities for the year ended December 31, 2021 was $12,936,755 versus net cash provided by operations of $1,526,333 for the year ended December 31, 2020, a decrease of $14,463,088. The decrease in net cash provided by operating activities was due to an increase in net loss of $7,372,579, increased inventory deposits of $4,503,079, inventory additions of $3,198,877, decreased accrued liabilities of $1,914,709, an increase of $1,218,907 in accounts receivable related to sales, and to a decrease in prepaid expenses of $693,375, reduced by cash provided from non-cash items and changes in the remaining balance sheet amounts of $3,051,688, which includes $3,414,440 of non-cash stock-based compensation expense. 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 expenses we incur to satisfy future warranty claims. Investing Activities Net cash used in investing activities during the year ended December 31, 2021 increased by $4,604,748 to $4,677,839, as compared to cash used in investing activities of $73,091 during the year ended December 31, 2020. The increase in net cash used in investing activities during the year ended December 31, 2021 is primarily due to the net use of cash of $8,023,213 from the purchase and sale of marketable securities, partially reduced by cash acquired in the Merger. 56 Table of Contents Financing Activities Net cash provided by financing activities during the year ended December 31, 2021 increased by $20,438,152 from cash provided by financing activities in 2020 of $152,835. The increase consisted of $21,107,410 proceeds from the issuance of common stock, $4,621,200 of which was raised by EVTDS in anticipation of the Merger; $16,274,991 from the May, 2021 second closing of the PIPE financing, and $211,219 of which was from the issuance of stock for stock options that were exercised. This cash provided was reduced by offering costs of $188,015, and further reduced by EVTDS and ADOMANI, Inc., repaying their SBA EIDL loans in the amounts $152,835 and $157,030, versus EVTDS receiving proceeds from its SBA loan in 2020, a change of $481,243. Liquidity and Capital Resources As discussed above and in Note 3 to the consolidated financial statements contained in this Annual Report on Form 10-K, ADOMANI, Inc., had approximately $3.4 million in cash and cash equivalents at the Merger closing date, primarily the result of the approximately $5.3 million net proceeds from the December 2020 closing of the Financing discussed below. EVTDS delivered $5 million cash at the Merger closing. As of December 31, 2021, we had cash and cash equivalents of $4,846,490 and marketable securities of $8,002,700, a combined total of $12,849,190, and working capital of $21,473,117. We believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our present operations during the next 12 months and beyond. However, we may not successfully execute our business plan, and if we do not, we may need additional capital to continue our operations and support the increased working capital requirements associated with the fulfillment of purchase orders. In February 2022, we were successful in acquiring a U.S. manufacturing facility in Osceola, Arkansas. However, additional debt and/or equity capital will be required in order to purchase related equipment and set up production lines and is expected to require up to $80 million of additional investment through 2027. Investments and employee hiring requirements over the next 10 years allow for local tax incentives granted to the Company of up to $27 million. On December 24, 2020, ADOMANI, Inc. entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional and accredited investors, whereby the Company agreed to sell, and the investors agreed to purchase, shares of common stock of the Company, and warrants (the “Warrants”) to purchase additional shares of the Company’s common stock (the “Financing”). The first closing of the Financing occurred on December 29, 2020. ADOMANI, Inc., raised cash proceeds, net of offering costs, of approximately $5.3 million through the sale and issuance of 11,500,000 shares of its common stock at a purchase price equal to $0.50 per share and Warrants to purchase up to an aggregate of 8,625,001 shares of its common stock at an exercise price of $0.50 per share. The share and Warrant amounts issued include 650,000 shares and a Warrant to purchase 487,500 shares issued to the underwriter in lieu of paying $325,000 of fees in cash. Since this ADOMANI, Inc., activity occurred before the close of the Merger, it is not reflected in the EVTDS financial statements for the year ended December 31, 2020, but as stated above, is discussed here because it was primarily the source of the approximate $3.3 million cash acquired by EVTDS in the Merger that closed on March 15, 2021 (see Note 3 to the consolidated financial statements for the year ended December 31, 2021). The second closing of the Financing was completed on May 7, 2021. The Company raised cash proceeds, net of offering costs, of approximately $16.3 million through the sale and issuance of 38,333,333 shares of common stock at a purchase price equal to $0.45 per share and Warrants to purchase up to an aggregate of 19,166,667 shares of its common stock at an exercise price of $1.00 per share. The share and Warrant amounts issued include 2,166,666 shares and a Warrant to purchase 1,083,330 shares issued to the underwriter in lieu of paying $975,000 of fees in cash. 57 Table of Contents At December 31, 2020, EVTDS had $1,793,910 restricted cash related to subscription agreements for equity investments in anticipation of the Merger. EVTDS ultimately raised total equity of $6,415,110 (including that $1,793,910) that funded its obligation to provide $5 million cash at the Merger closing; the balance was used to pay other liabilities and expenses (See Note 3 to the consolidated financial statements for the year ended December 31, 2021). Options to Purchase Common Stock Because all outstanding unvested options to purchase ADOMANI, Inc.’s common stock became fully vested upon the closing of the Merger, the Company had 12,992,857 fully vested options outstanding as of March 15, 2021. On June 14, 2021, options to purchase 33,571 shares of common stock were exercised at a price of $0.12 per share. Also on June 14, 2021, options to purchase an aggregate of 67,144 shares of common stock with an exercise price of $0.12 per share, options to purchase 75,000 shares of common stock with an exercise price of $0.45 per share, and options to purchase 60,000 shares of common stock with an exercise price of $1.31 per share were forfeited by the former holders thereof, as they were not exercised prior to the expiration date with respect to such options. On June 25, 2021, options to purchase 358,571 shares of common stock were exercised by an officer of the Company at a price of $0.12 per share. On July 23, 2021, options to purchase 358,571 shares of common stock were exercised by a former officer of the Company. On July 29, 2021, options to purchase an aggregate of 270,000 shares of common stock were forfeited by the same former officer of the Company. On August 4, 2021, the Company’s Compensation Committee granted Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, options to purchase 440,000 shares of common stock, exercisable at an exercise price of $0.2753 per share. The Committee determined that Mr. Oldridge would be immediately vested in the options granted. Mr. Oldridge exercised these options on November 30, 2021. On December 7, 2021, options to purchase 5,000,000 shares of common stock were exercised by the former President and CEO of the Company at a price of $0.10 per share. The former officer elected to pay the $500,000 exercise price for the shares with shares, so was issued 3,402,555 shares. As a result of the activity described above during the year ended December 31, 2021, the number of fully vested options outstanding as of December 31, 2021 was 6,770,000. See Notes 2, 3 and 9 to the consolidated financial statements included in this Annual Report on Form 10-K. As of December 31, 2021, the 6,770,000 vested options were comprised of options to purchase 1,000,000 shares with an exercise price of $0.12 per share; options to purchase 5,635,000 shares with an exercise price of $0.45 per share, and 135,000 shares with an exercise price of $1.31 per share. If all vested options to purchase common stock were exercised, we would receive proceeds of approximately $2.8 million and we would be required to issue 6,770,000 shares of common stock. There can be no assurance, however, that any such options will be exercised. See Notes 2, 3, 9 and 14 to the consolidated financial statements included in this Annual Report on Form 10-K. Credit Facilities Effective May 2, 2018, the Company secured a line of credit from Morgan Stanley Private Bank, National Association (“Morgan Stanley”). Borrowings under the line of credit bear interest at 30-day LIBOR plus 2.0%. There is no maturity date for the line, but Morgan Stanley may at any time, in its sole discretion and without cause, demand the Company immediately repay any and all outstanding obligations under the line of credit in whole or in part. The line is secured by the cash and cash equivalents maintained by the Company in its Morgan Stanley accounts, which was approximately $5 million as of December 31, 2021. Borrowings under the line may not exceed 95% of such cash, cash equivalents, and marketable securities balances. The maximum amount the Company could borrow at December 31, 2021, was approximately $10.4 million; there was no principal amount 58 Table of Contents outstanding at that date. The line of credit and related interest expense was repaid in full on February 3, 2020. The line of credit is still available to the Company, but there is no current plan to use it. 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. Contractual Obligations On February 4, 2020, the Company signed a sublease agreement with Masters Transportation, Inc. (“Masters”) for Masters to occupy a portion of the Corona, California facility that the Company occupied effective January 1, 2020 (see above). The effective date of the Masters’ sublease is February 1, 2020, and it expires when the Company’s lease on the property expires on December 31, 2022. Under the sublease, Masters is obligated to pay the Company monthly rent payments in an amount equal to $6,000 at commencement and thereafter escalating to $6,365 by its conclusion. Beginning April 1, 2022 the Corona lease was assigned to Masters through the end of the lease obligation at December 31, 2022. Masters’ sublease agreement with the Company was also terminated on April 1, 2022. See Note 14 below. On October 30, 2020, James L. Reynolds resigned from his employment with the Company, including his positions as the President and Chairman of the Board of the Company, as a member of the board of directors of the Company, and any and all other positions, directorships, and committee memberships that Mr. Reynolds held with the Company or any of its subsidiaries or other affiliated entities, in each case, effective as of October 30, 2020. Mr. Reynolds’ resignation did not result from a disagreement with the Company on any matter relating to its operations, policies, or practices. In connection with Mr. Reynolds’ resignation, the Company and Mr. Reynolds entered into Separation Agreement and General Release, dated October 30, 2020, pursuant to which Mr. Reynolds received certain separation benefits. See Notes 9, 11 and 13 to the consolidated financial statements included in this Annual Report. On December 31, 2021, the Company entered into employment agreements with Phillip W. Oldridge (the “Oldridge Agreement”), its Chief Executive Officer, and with Susan M. Emry (the “Emry Agreement”), its Executive Vice President. According to the Oldridge Agreement, effective as of March 1, 2021, Mr. Oldridge will receive an annual base salary of $300,000, payable in semi-monthly installments consistent with the Company’s payroll practices. Mr. Oldridge will also receive participation in medical insurance, dental insurance, and the Company’s other benefit plans. Under the Oldridge Agreement, Mr. Oldridge will also receive an amount equal to five percent of the net income of the Company on an annual basis and will be eligible for a bonus at the sole discretion of the Company’s Board of Directors (the “Board”). The Oldridge Agreement also provides for an automobile monthly allowance of $1,500. Mr. Oldridge’s employment shall continue until terminated in accordance with the Oldridge Agreement. If Mr. Oldridge is terminated without cause or if he terminates his employment for good reason, Mr. Oldridge will be entitled to receive (i) one-year of base salary, (ii) reimbursement of reimbursable expenses in accordance with the Oldridge Agreement, (iii) any bonus that would have been payable within the twelve months following the date of termination, and (iv) the value of any accrued and unused paid time off as of the date of termination. According to the Emry Agreement, effective on January 1, 2022, Mrs. Emry will receive an annual base salary of $200,000 and will be eligible for a bonus at the sole discretion of the Board. Mrs. Emry will also receive participation in medical insurance, dental insurance, and the Company’s other benefit plans. Mrs. Emry’s employment shall continue until terminated in accordance with the Emry Agreement. If Mrs. Emry is terminated without cause or if she terminates her employment for good reason, Mrs. Emry will be entitled to receive (i) one-year of base salary, (ii) reimbursement of reimbursable expenses in accordance with the Emry Agreement, and (iii) the value of any accrued and unused paid time off as of the date of termination. 59 Table of Contents On January 2, 2022, Michael K. Menerey retired and resigned from his position as Chief Financial Officer of the Company and also as a member of the Board. Mr. Menerey’s decision to resign was not the result of any disagreement with the Company, the Board, management, or any matter relating to the Company’s operations, policies, or practices. 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 have generated sales, we have provided 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 No critical accounting policies or estimates existed at December 31, 2021. Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) We are an “emerging growth company,” as defined in the JOBS Act. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for emerging growth companies. 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 will remain an emerging growth company until the earlier of (1) the last day of the fiscal year following the fifth anniversary of our initial public offering, or December 31, 2022, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the day we are deemed to be a large accelerated filer, which means the market value of our common stock held by non-affiliates exceeds $700 million as measured as of each June 30th, and (4) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior three-year period. Recent Accounting Pronouncements Management has considered all recent accounting pronouncements issued, but not effective, and does not believe that they will have a significant impact on the Company’s financial statements.