AZIO AI HOLDINGS, INC. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS     Page Report of Independent Registered Public Accounting Firm   Barton CPA PLLC (PCAOB Firm ID 6968 ) 50 Report of Independent Registered Public Accounting Firm  MaloneBailey, LLP (PCAOB Firm ID 206) 51 Consolidated Balance Sheets as of December 31, 2022 and 2021 52 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 53 Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2022 and 2021 54 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 55 Notes to Consolidated Financial Statements 56   49 Table of Contents   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   To the Stockholders and Board of Directors of Envirotech Vehicles, Inc.   Osceola, Arkansas   Opinion on the Consolidated Financial Statements   We have audited the accompanying consolidated balance sheet of Envirotech Vehicles, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, 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.   Basis for Opinion   The consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting 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.   Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.   /s/ Barton CPA, PLLC www.bartoncpafirm.com We have served as the Company’s auditor since 2023. Cypress, Texas September 25, 2023   50 Table of Contents   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   To the Stockholders and Board of Directors of Envirotech Vehicles, Inc.   Osceola, Arkansas   Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheet of Envirotech Vehicles, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.   Basis for Opinion   These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting 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.   Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.   /s/ MaloneBailey, LLP www.malonebailey.com We served as the Company’s auditor from 2021 to 2023. Houston, Texas April 26, 2022     51 Table of Contents       ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS       December 31,     December 31,       2022     2021   ASSETS                 Current assets:                 Cash and cash equivalents   $ 2,765,068     $ 4,846,490   Restricted cash     60,399       60,035   Marketable securities     2,336,402       8,002,700   Accounts receivable, net of allowance of $ 271,218 and $ 0 , respectively,     2,073,691       1,428,030   Inventory, net     5,671,326       3,850,541   Inventory deposits     4,829,933       4,503,079   Prepaid expenses     445,963       332,514   Other current assets     156,457       —   Total current assets     18,339,239       23,023,389   Property and equipment, net     368,461       272,113   Goodwill     14,682,620       51,775,667   Other non-current assets     93,369       236,639   Total assets   $ 33,483,689     $ 75,307,808   LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                 Current liabilities:                 Accounts payable   $ 603,744     $ 238,464   Accrued liabilities     652,528       1,280,020   Notes payable - Current     215,766       31,788   Total current liabilities     1,472,038       1,550,272   Long-term liabilities                 Other non-current liabilities     —       2,427   Notes payable - Long Term     16,671       13,245   Total liabilities     1,488,709       1,565,944   Stockholders’ equity:                 Preferred stock, 5,000,000 authorized, $ 0.00001 par value per share, none issued and outstanding as of December 31, 2022 and 2021     —       —   Common stock, 350,000,000 authorized, $ 0.00001 par value per share, 15,021,088 and 14,912,189 issued and outstanding as of December 31, 2022 and 2021, respectively     150       149   Additional paid-in capital     83,923,350       81,866,075   Accumulated deficit     ( 51,928,520 )     ( 8,124,360 ) Total stockholders’ equity     31,994,980       73,741,864   Total liabilities and stockholders’ equity   $ 33,483,689     $ 75,307,808     See accompanying notes to consolidated financial statements.   52 Table of Contents     ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS       Year Ended December 31,       2022     2021   Sales   $ 4,504,621     $ 2,042,844   Cost of sales     2,772,673       1,281,468   Gross profit     1,731,948       761,376   Operating expenses:                 General and administrative     7,996,906       8,238,531   Consulting     339,505       188,703   Research and development     149,912       58,139   Goodwill impairment charge     37,093,047       —   Total operating expenses, net     45,579,370       8,485,373   Loss from operations     ( 43,847,422 )     ( 7,723,997 ) Other income (expense):                 Interest income, net     45,026       4,412   Other (expense) income, net     ( 1,764 )     288,185   Total other income     43,262       292,597   Loss before income taxes     ( 43,804,160 )     ( 7,431,400 ) Income tax expense     —       ( 220,700 ) Net loss   $ ( 43,804,160 )   $ ( 7,652,100 ) Net loss per share to common stockholders:                 Basic and diluted   $ ( 2.92 )   $ ( 0.67 ) Weighted shares used in the computation of net loss per share:                 Basic and diluted     14,991,837       11,451,724     See accompanying notes to consolidated financial statements.   53 Table of Contents     ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY                       Additional                       Common Stock     Paid-In     Accumulated     Stockholders’       Shares     Amount     Capital     Deficit     Equity   Balance, December 31, 2020     1     $ —     $ 100     $ ( 472,260 )   $ ( 472,160 ) EVTDS common stock issued for cash     7,129,887       72       6,415,038       —       6,415,110   ADOMANI INC. common stock issued in Merger     5,635,348       56       55,738,323       —       55,738,379   Post-Merger common stock issued for cash     2,146,953       21       16,486,189       —       16,486,210   Offering costs netted against proceeds from common stock issued for cash     —       —       ( 188,015 )     —       ( 188,015 ) Stock based compensation     —       —       3,414,440       —       3,414,440   Net loss     —       —       —       ( 7,652,100 )     ( 7,652,100 ) Balance, December 31, 2021     14,912,189     $ 149     $ 81,866,075     $ ( 8,124,360 )   $ 73,741,864   Common stock issued for cash     50,000       1       119,999       —       120,000   Common stock issued for litigation settlements accrued in 2021     58,899       —       322,431       —       322,431   Stock based compensation     —       —       1,614,845       —       1,614,845   Net loss     —       —       —       ( 43,804,160 )     ( 43,804,160 ) Balance, December 31, 2022     15,021,088     $ 150     $ 83,923,350     $ ( 51,928,520 )   $ 31,994,980     See accompanying notes to consolidated financial statements.   54 Table of Contents     ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS       Year Ended December 31,       2022     2021   Cash flows from operating activities:                 Net loss   $ ( 43,804,160 )   $ ( 7,652,100 ) Adjustments to reconcile net loss to net cash used in operating activities:                 Depreciation and amortization     97,242       70,279   Provision for bad debt     245,219       303,879   Stock based compensation expense     1,614,845       3,414,440   Goodwill impairment charge     37,093,047       —   Gain on debt forgiveness     —       ( 290,520 ) Other     ( 10,004 )     4,673   Changes in assets and liabilities:                 Accounts receivable     ( 890,880 )     ( 1,415,657 ) Inventory     ( 1,820,785 )     ( 3,198,877 ) Inventory deposits     ( 326,854 )     ( 4,503,079 ) Prepaid expenses     325,638       693,375   Other current assets     ( 156,457 )     —   Other non-current assets     143,270       123,343   Accounts payable     365,284       ( 235,306 ) Accrued liabilities     ( 305,065 )     ( 10,229 ) Other non-current liabilities     ( 2,427 )     ( 240,976 ) Net cash used in operating activities     ( 7,432,087 )     ( 12,936,755 ) Cash flows from investing activities:                 Purchase of property and equipment, net     ( 168,583 )     ( 27,958 ) Purchases of marketable securities     ( 3,942,940 )     ( 16,233,213 ) Proceeds from sales and maturities of marketable securities     9,619,242       8,210,000   Cash acquired in merger     —       3,373,332   Net cash provided by (used in) investing activities     5,507,719       ( 4,677,839 ) Cash flows from financing activities:                 Proceeds from issuance of common stock     120,000       21,107,410   Payments for deferred offering costs     —       ( 188,015 ) Principal advances from (repayments on) debt     ( 276,690 )     ( 328,408 ) Net cash (used in) provided by financing activities     ( 156,690 )     20,590,987   Net change in cash, restricted cash and cash equivalents     ( 2,081,058 )     2,976,393   Cash, restricted cash and cash equivalents at the beginning of the period     4,906,525       1,930,132   Cash, restricted cash and cash equivalents at the end of the period   $ 2,825,467     $ 4,906,525   Supplemental cash flow disclosures:                 Cash paid for interest expense   $ 16,338     $ 7,705   Cash paid for income taxes   $ —     $ 2,400   Non-cash investing and financing activities:                 Common stock issued in litigation settlements accrued in 2022   $ 322,431     $ —   Notes payable issued to finance prepaid insurance   $ 439,087     $ —   Notes payable issued to finance purchase of property and equipment   $ 25,007     $ —     See accompanying notes to consolidated financial statements.   55 Table of Contents   ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     1. Organization and Operations   Envirotech Vehicles, Inc. (“we,” “us,” “our” or the “Company”) is 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. The Company serves 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. The Company’s vehicles address the challenges of traditional fuel price cost instability and local, state and federal regulatory compliance.   On March 15, 2021, the Company completed its acquisition of Envirotech Drive Systems, Inc., a Delaware corporation (“EVTDS”), a supplier of zero -emission trucks, cargo vans, chassis and other commercial vehicles. The transaction was completed in accordance with an Agreement and Plan of Merger, dated February 16, 2021 ( the “Merger Agreement”), by and among the Company, EVTDS and EVT Acquisition Company, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”). See Note 3 - Merger.   The Company was formerly known as ADOMANI, Inc. On May 26, 2021, the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation 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.   On February 22, 2022, the Company announced Osceola, Arkansas, as the site of its state-of-the-art manufacturing facility and new corporate offices. The Company has moved into an approximately 587,000 square foot facility.   On June 28, 2022, we effected a 1 -for- 20 reverse stock split of our common stock with no change to authorized shares of common stock. All share, restricted stock unit (“RSU”), and per share or per RSU information through this Annual Report on Form 10 -K has been retroactively adjusted to reflect the stock split. The shares of common stock retain a par value of $ 0.00001 per share. Accordingly, an amount equal to the par value of the decreased shares resulting from the reverse stock split was reclassified from “Common stock” to “Additional paid-in capital.”     2. Summary of Significant Accounting Policies   Basis of Presentation —The consolidated financial statements and related disclosures as of December 31, 2022 include the Consolidated Balance Sheet of Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.) and subsidiaries, including EVTDS (see Note 3 - Merger), and for the fiscal period ended December 31, 2022 , include the Consolidated Results of Operations of Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.) and EVTDS for the entire annual period. The consolidated financial statements and related disclosures as of  December 31, 2021 include the Consolidated Balance Sheet of Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.) and its subsidiaries, including EVTDS. The Consolidated Results of Operations for the fiscal period ended December 31, 2021 , include the results of operations of EVTDS for the entire annual period and include the consolidated results of operations of Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.) and its subsidiaries for the post-merger period March 16, 2021 through December 31, 2021.   Principles of Consolidation —The accompanying financial statements reflect the consolidation of the financial statements of EVTDS, its wholly-owned subsidiary Envirotech Drive Systems, Incorporated, and, from March 16, 2021 forward, the financial statements of Envirotech Vehicles, Inc., ADOMANI California, Inc., Adomani (Nantong) Automotive Technology Co. Ltd. (dissolved in December, 2021), ADOMANI ZEV Sales, Inc., Zero Emission Truck and Bus Sales of Arizona, Inc., and ZEV Resources, Inc. All significant intercompany accounts and transactions have been eliminated.   Use of Estimates —The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("GAAP") 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.   Fair Value of Financial Instruments —The carrying values of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these financial instruments. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 820, “Fair Value Measurement” defines fair value 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. It also establishes a three -tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:   Level 1: Observable inputs such as quoted prices in active markets;   Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and   Level 3: Unobservable inputs that are supported by little or no market data and that require the reporting entity to develop its own assumptions.   56 Table of Contents   The Company does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.   Revenue Recognition —The Company recognizes revenue from the sales of zero -emission electric vehicles and vehicle maintenance and inspection services. The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For the year ended December 31, 2022 , three  customers accounted for approximately 43  percent of the annual revenue recorded. At December 31, 2021, the Company did have a concentration of customers; four customers’ balances account for approximately 81 percent of the outstanding accounts receivable; for the year ended December 31, 2021, four customers accounted for approximately 63 percent of the annual revenue recorded.   In applying ASC Topic 606, the Company is required to:     ( 1 ) identify any contracts with customers;     ( 2 ) determine if multiple performance obligations exist;     ( 3 ) determine the transaction price;     ( 4 ) allocate the transaction price to the respective obligation; and     ( 5 ) recognize the revenue as the obligation is satisfied.   Product revenue consists primarily of the sale of electric trucks and cargo vans. These sales represent a single performance obligation with revenue recognition occurring at the time title transfers. Transfer of title generally occurs when the customer has accepted the vehicle and signed the appropriate documentation acknowledging receipt. At this time, the title of the vehicle is transferred to the customer.   The Company provides the option of financing (flooring) to Factory Authorized Representatives (“FARs”) for demo vehicles that are used in their selling process. Flooring agreements are made either expressly or implicitly and last no longer than one year with respect to specific vehicles, as payment for the vehicles is due in full before the first anniversary of the agreement, or upon sale by the FAR of the demo vehicle. The interest rate associated with the flooring agreement is agreed upon at the time of executing the FAR agreement. The Company has elected the practical expedient allowed by ASC Topic 606 where consideration does not need to be adjusted for financing components of the agreement.   Other revenue for the year ended December 31, 2021 included performing basic vehicle maintenance and detailing, as well as safety inspections for compliance with United States Department of Transportation guidelines. These sales represent a single performance obligation with revenue recognition occurring at the time services are invoiced. These sales were approximately $ 118,000 for the year ended December 31, 2021 , and did not recur in 2022 . The Company has therefore not provided any additional disaggregation information, as all other revenue relates to the sale of vehicles as discussed above.   Cash and Cash Equivalents —The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The recorded value of our restricted cash and cash equivalents approximates their fair value.     Restricted Cash —The Company classifies certain bank balances as restricted cash as these balances are required to support certain minor activities. See Concentration of Credit Risk below in this Note. The Company had $ 60,399 and $ 60,035 of restricted cash at December 31, 2022 and December  31, 2021, respectively.   Short-term Investments —The Company invests in short-term, highly liquid, marketable securities, such as U.S. Treasury notes, U.S. Treasury bonds, and other government-backed securities. The Company also invests in bank certificates of deposit. The Company classifies these short-term investments as held-to-maturity, as the intent is not to liquidate them prior to the respective stated maturity date. These securities had original maturity dates ranging from 158 days to 200 days, and at December 31, 2022 , the remaining maturity dates on these securities ranged from 1 day to 90 days. At December  31, 2021, the aggregate amount of the Company’s investments in marketable securities was $ 8,002,700 . These securities had original maturity dates ranging from  143  days to  364  days, and at December 31, 2021, the remaining maturity dates on these securities ranged from  13  days to  167  days.     57 Table of Contents   Accounts Receivable and Allowance for Doubtful Accounts —The Company establishes an allowance for doubtful accounts through a review of several factors including historical collection experience, current aging status of the customer accounts, and financial condition of its customers. The Company does not generally require collateral for its accounts receivable. A significant portion of the Company’s sales are made to customers who qualify for state-sponsored grant programs which can cover a significant portion, up to most of, a vehicle’s purchase price. Grant monies are paid directly to vehicle dealers like the Company after the customer and the dealer meet state requirements related to the transaction; reimbursements to the dealer may take two to nine months from the date of request before being received. The Company does not provide an allowance for doubtful accounts related to sales made utilizing state grant funds, as those funds are guaranteed by the state(s) once awarded. The Company had trade accounts receivable of $ 2,344,909 and an allowance for doubtful accounts of $ 271,218 at December 31, 2022. The Company had trade accounts receivable of $ 1,428,030 as of December 31, 2021 with no allowance for bad debt. The trade accounts receivable balance at December 31, 2022 is primarily from credit-worthy customers many of whom are fully or partially funded through state government sponsored programs and the December 31, 2021 balance was in the collection process for guaranteed state grant funding subsequent to that date. The Company did have a concentration of customers; three customers’ balances account for approximately 37  percent of the outstanding accounts receivable; for the year ended December 31, 2022 , At December 31, 2021, four customers’ balances account for approximately 81 percent of the outstanding accounts receivable; for the year ended December 31, 2021, four customers accounted for approximately 63 percent of the annual revenue recorded.   Inventory and Inventory Valuation Allowance —The Company records inventory at the lower of cost or net realizable value, uses a First In, First Out (“FIFO”) accounting valuation methodology and establishes an inventory valuation allowance for vehicles that it does not intend to sell in the future. The Company had finished goods inventory on hand of $ 5,683,755  as of December 31, 2022 and recorded an inventory valuation allowance of $ 12,429 related to three vehicles that the Company does not intend to support in the future, resulting in a net inventory balance of $ 5,671,326  at  December 31, 2022 . The Company had finished goods inventory on hand of $ 3,862,970 as of  December 31, 2021 and recorded an inventory ,valuation allowance of $ 12,429 resulting in a net inventory balance of $ 3,850,541 as of December 31, 2021 .   Inventory Deposits —Certain of our vendors require the Company to pay upfront deposits before they will commence manufacturing our vehicles, and then require progress deposits through the production cycle and before the finished vehicles are shipped. These deposits are classified as inventory deposits in the Consolidated Balance Sheets. Upon completion of production, acceptance by the Company, and passage of title to the Company, deposits are reclassified to inventory. Deposits paid to three vendors accounted for 70 percent of the deposits outstanding at December 31, 2022 . Inventory deposits made in 2021 accounted for $ 2,731,294 of the balance outstanding at December 31, 2022 . The Company had inventory deposits of $ 4,829,933  and $ 4,503,079 as of December 31, 2022 and December 31, 2021, respectively. Deposits paid to two vendors accounted for  96  percent of the deposits outstanding at December 31, 2021; one different vendor with an affiliation to the two vendors just mentioned accounted for approximately  85  percent of the cost of sales for the year ended December 31, 2021.   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.   EVTDS previously recorded deferred tax benefits from net operating losses in current and prior periods. The Company, in light of the uncertainty of generating future taxable income against which those losses can be offset in order to realize such benefits, has determined that recording a valuation allowance to reduce the deferred income tax assets to the amount that is more likely than not to be realized is appropriate. 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, 2020, EVTDS did not recognize a full valuation allowance for all deferred tax assets. In March 2021, the Company recognized a full valuation allowance for all deferred tax assets, and as a result, recorded income tax expense of $ 218,300 for the year ended December 31, 2021 . A full valuation allowance is also recorded at December 31, 2022.     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, 2022 and 2021 , respectively, 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 stockholders by the weighted average number of shares of common stock outstanding during the period.   Diluted net loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the diluted weighted average number of shares of common stock outstanding during the period. The diluted weighted average number of shares of common stock outstanding is the basic weighted number of shares of common stock adjusted for any potentially dilutive debt or equity securities. As of December 31, 2022 , 608,266 shares of the Company’s common stock were subject to issuance upon the exercise of stock options then outstanding and 1,402,417 shares of the Company’s common stock were subject to issuance upon the exercise of warrants then outstanding. As of December 31, 2021 , 338,500 shares of the Company’s common stock were subject to issuance upon the exercise of stock options then outstanding and 1,429,900 shares of the Company’s common stock were subject to issuance upon the exercise of warrants then outstanding. Stock options and warrants were not included in the diluted weighted average number of shares outstanding for the years ended December 31, 2022 and 2021 , as the effect would be anti-dilutive.   58 Table of Contents   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 (“FDIC”). Additionally, the Company maintains cash and short-term securities invested at Arvest Bank, National Association (“Arvest”). Between FDIC and the Securities Investor Protection Corporation (“SIPC”) coverage, funds up to $ 750,000 , which may include cash up to $ 500,000 , are insured. In addition, Arvest provides excess insurance acquired by them from SIPC for unlimited per customer securities up to a $ 1 billion cap.   The Company’s bank requires compensating balances, which are reported as Restricted Cash on the Company's Consolidated Balance Sheets as disclosed above, for a subsidiary’s potential lease exposure and for the Company’s credit card limit, resulting in restricted cash of $ 60,399 and approximately $ 60,000  at December 31, 2022 and 2021 , respectively.   Impairment of Long-Lived Assets —Long-lived assets, including property and equipment, 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 these assets to determine potential impairment by comparing the carrying amount to the undiscounted estimated future cash flows of the related assets. If the estimated undiscounted cash flows are less than the carrying value of the assets, the assets are written down to their fair value. There was no impairment of long-lived assets, or property and equipment, as of  December 31, 2022 and December 31, 2021 , respectively.   Goodwill —Goodwill represents the excess of acquisition cost over the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing on or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it can conclude the assessment. If the Company concludes otherwise, the Company is required to perform a quantitative analysis to determine the amount of impairment. A quantitative analysis is performed at the r eporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value to determine the amount of impairment, if any. The Company has determined that it has one reporting unit. Based on the annual impairment test, which predominantly utilized the Company's quoted market price and the number of outstanding shares toward the end of the fourth quarter of 2022 as inputs, the Company recorded a non-cash goodwill impairment charge of $37,093,047  as of December 31, 2022 . See Note 3 - Merger.   Research and Development ("R&D") —Costs incurred in connection with the development of new products and manufacturing methods are charged to operating expenses as incurred. R&D expenses were $ 149,912 and $ 58,139 for the years ended December 31, 2022 and December 31, 2021, respectively.   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 grant date fair values using the Black-Scholes option pricing model and is recognized as compensation expense ratably over the requisite service period, which is generally the option or warrant vesting period. With respect to options to purchase 340,893 shares of common stock issued on January 7, 2022 and options to purchase 3,874 shares of common stock issued on January 31, 2022 ( see Note 9 - Stock Options), the Company recorded non-cash stock-based compensation expense of $ 1,614,845 for the year ended December 31, 2022 . With respect to the options to purchase 22,000 shares of common stock issued on August 4, 2021 ( see Note 9 - Stock Options), non-cash stock-based compensation expense was $ 121,132 for the year ended December 31, 2021 . An additional $ 3,293,308 was recorded related to the value of certain options assumed by the merged entity, bringing the total amount recorded for the year ended December 31, 2021 to $3,414,440.     Property and Equipment —Property and equipment are stated at cost, less accumulated depreciation and amortization. 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, except leasehold improvements, which are being amortized over the shorter of its useful life or the lease term. 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.   Leases —The Company accounts for leases as required by ASC Topic 842 - Leases. The guidance requires companies to recognize leased assets and liabilities on the balance sheet and to disclose key information regarding leasing arrangements.   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.   59 Table of Contents     3. Merger   On March 15, 2021, the Company completed its acquisition of EVTDS, a supplier of zero -emission trucks, cargo vans, chassis and other commercial vehicles. The transaction was completed in accordance with the Merger Agreement, by and among the Company, EVTDS and Merger Sub. As a result of such transaction, Merger Sub was merged with and into EVTDS, with EVTDS surviving as a wholly owned subsidiary of the Company (the “Merger”). In accordance with the terms of the Merger Agreement, at the effective time of the Merger, each outstanding share of the common stock of EVTDS was automatically converted into the right to receive one share of the common stock of the Company. As a result of the Merger, the Company issued an aggregate of 7,129,887 shares of its common stock to the former EVTDS stockholders, which shares represented approximately 56 % of the total issued and outstanding shares of common stock of the Company as of immediately following the effective time of the Merger. This exchange of shares and the resulting controlling ownership of EVTDS constitutes a reverse acquisition resulting in a recapitalization of EVTDS and purchase accounting being applied to ADOMANI, Inc. under ASC 805 due to EVTDS being the accounting acquirer and ADOMANI, Inc. being deemed an acquired business. This requires financial reporting from the Merger close date forward to reflect only the historic consolidated results of EVTDS and to include the consolidated results for Envirotech Vehicles, Inc. (formerly ADOMANI, Inc.) and subsidiaries from March 16, 2021 forward.   The primary reasons EVTDS consummated the merger with ADOMANI, Inc. were the opportunity to immediately become a public company without the process of doing its own initial public offering, affording it the opportunity to more quickly raise capital (see Note 7 - Common Stock) and provide liquidity options to its stockholders, at the same time acquiring the infrastructure required of a public company run by people experienced in investor relations and the public company regulatory compliance issues and filings required. In addition, since ADOMANI, Inc. had been the sole customer of EVTDS, the two management teams had experience working with each other and anticipated a smooth transition in addition to obtaining synergies, chief of which was a layer of profit required when two  separate entities were involved in making and selling a vehicle that was immediately eliminated upon the Merger close, enabling the purchase price of vehicles to customers to be reduced. The combined entity also was able to exert more pressure on suppliers to reduce vehicle costs, which also supported the price reductions to customers.   At December 31, 2020, EVTDS had subscription restricted cash of $ 1,793,910 on its balance sheet as a result of offering a restricted subscription agreement to the stockholders of Envirotech Electric Vehicles, Inc., a Canadian entity (“EVT Canada”), to have the right to purchase two shares of EVTDS for every one common share of EVT Canada they owned. The purpose of this subscription agreement was to raise the necessary capital to close the Merger and to provide working capital for EVTDS so that it could pay off certain liabilities and pay for ongoing expenses through the closing of the Merger. A corresponding liability account was also recorded as of December 31, 2020. The total amount raised just prior to the Merger closing was $ 6,415,110 . At the closing of the Merger, EVTDS satisfied its obligation to deliver $ 5 million in cash to ADOMANI, Inc. and repaid the majority of the items discussed above. This number has decreased to zero in both categories as of December 31, 2021.   EVTDS entered into an exclusive 50 -year distribution agreement as of October 4, 2017 to become the sole USA distributor of EVT Canada. This agreement grants EVTDS the exclusive right in the United States to promote sales, including the right to use trademarks, trade names, service marks and logos and to obtain orders based on sales targets for orders. The agreement also provides that EVT Canada may not independently appoint additional distributors. The Company obtained this agreement in the Merger.   The following table presents the estimated allocation of the purchase price of the assets acquired and liabilities assumed for the acquisition by EVTDS of ADOMANI, Inc. via the reverse acquisition:   Purchase Price Allocation of ADOMANI, Inc. Accounts receivable and other current assets   $ 1,680,926   Property and equipment     86,873   Right of use asset     369,987   Other assets     59,510   Goodwill     51,775,667   Accounts payable and accrued expenses     ( 820,389 ) Lease liability     ( 369,987 ) Notes payable     ( 417,540 ) Purchase price, net of $3,373,332 cash acquired   $ 52,365,047     This allocation is based on management’s estimated fair value of the ADOMANI Inc. assets and liabilities at March 15, 2021. ADOMANI, Inc. assets were derived from a total value of $ 53,509,622 , based on 5,635,247 shares of common stock outstanding on March 15, 2021 and the closing price that day of $ 9.498 per share. The fair value of certain of the stock options assumed by EVTDS in the Merger of $ 2,228,757 (see Note 9 - Stock Options) was added to reach an adjusted value of $ 55,738,379 . From that amount, total assets acquired of $ 5,570,628 (including a reduction in the carrying value of finished goods inventory of $ 26,400 to reflect fair value) was deducted, and total acquired liabilities of $ 1,607,916 were added, in order to arrive at the $ 51,775,667 of goodwill recorded, none of which will be deductible for future income tax purposes. The Company incurred approximately $ 415,472 in transaction costs related to the Merger, which were expensed.   Since the closing of the Merger on March 15, 2021, primarily due to the fact that EVTDS brought no employees or sales people to the merged entity, and that sales and operating activities have been conducted on a company-wide basis, not on the basis of either EVTDS alone or the ADOMANI entities alone, other than nominal expense items related to EVTDS leases assumed in the Merger (see Notes 11 - Commitments and 13 - Leases), all accounting subsequent to the closing of the Merger has been and will continue to be done on a consolidated basis. The Company therefore is not able to segregate the operating results of operations between the formerly separate entities in the current periods.   60 Table of Contents   Unaudited Pro Forma Financial Information   The following unaudited pro forma financial information presents the combined results of operations for the Company and gives effect to the Merger discussed above as if it had occurred on January 1, 2021. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations for the year ended December 31, 2021 that would have been realized if the Merger had occurred on January 1, 2021, nor does it purport to project the results of the merged entity in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the merged entities.       For the year ended December 31,   Pro forma combined results of operations   2021   Sales   $ 1,740,255   Net loss   $ ( 10,296,024 )   The adjustments for the year ended December 31, 2021 resulted in a reduction of sales of $ 319,000 and a $ 91,800 increase in net loss. The sales adjustment resulted from sale of vehicles by EVTDS to ADOMANI, Inc. However, the actual loss for ADOMANI, Inc. for the period January 1, 2021 through March 15, 2021 that is included in this pro forma information included an adjustment to fully amortize the unamortized stock-based compensation expense related to outstanding stock options that fully vested at the closing of the Merger. This adjustment increased pro forma expenses, and therefore the pro forma net loss for the year ended December 31, 2021 by approximately $ 1,826,623 more than would otherwise have been recorded absent the consummation of the Merger.   Goodwill   The following table presents a reconciliation of the carrying amount of goodwill for the year ended December 31, 2022 :   Goodwill, December 31, 2021   $ 51,775,667   Goodwill impairment charge     ( 37,093,047 ) Goodwill, December 31, 2022   $ 14,682,620       4. Property and equipment, net   Components of property and equipment, net consist of the following as of December 31, 2022 and 2021 :       December 31, 2022     December 31, 2021   Furniture and fixtures   $ 56,646     $ 41,799   Leasehold improvements     122,711       28,112   Machinery & equipment     165,753       86,266   Vehicles     252,724       252,724   Test/Demo vehicles     15,784       15,784   Total property and equipment     613,618       424,685   Less accumulated depreciation     ( 245,157 )     ( 152,572 ) Net property and equipment   $ 368,461     $ 272,113     Depreciation expense was $ 97,242 and $ 70,729 for the years ended December 31, 2022 and 2021 , respectively.     5. Income Taxes   The cumulative estimated net operating loss (“NOL”) carry-forward is $37,312,984 and $ 31,347,786 at December 31, 2022 and 2021 , respectively. $22,935,645  of this carry-forward may be carried forward indefinitely while $ 14,377,339  is subject to expiration over a 20 -year period. EVTDS recognized a cumulative tax benefit of $ 218,300 on its financial statements through the year ended December 31, 2020, and therefore did not reserve the deferred tax asset. As mentioned in Note 2, that benefit has been reversed and recorded as income tax expense in the consolidated results of operations for the year ended December 31, 2021 , effectively establishing a valuation allowance for it. Due to the enactment of the Tax Cuts and Jobs Act of 2017, the corporate tax rate for those tax years beginning with 2018 has been reduced to 21%. Therefore, the cumulative tax effect of the NOL carryforward at the expected rate of 21% comprising the Company’s net deferred tax amount is as follows:       December 31,       2022     2021   Tax effected net operating loss   $ 1,169,392     $ 866,991   Deferred tax asset attributable to:                 Net operating loss carryover     6,666,335       5,716,044   Research and development tax credit carryforward     274,891       274,891   Sub-total     8,110,618       6,857,926   Valuation allowance     ( 8,110,618 )     ( 6,857,926 ) Net deferred tax asset   $ —     $ —   Cumulative NOL   $ 37,312,984     $ 31,347,786     61 Table of Contents   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 2022 for the Envirotech Vehicles, Inc./ADOMANI, Inc. losses, and includes the years 2014 through 2020 for EVTDS, as the 2021 EVTDS loss is included in the consolidated Envirotech Vehicles, Inc. loss. Because a change in ownership occurred as a result of the Merger, net operating loss carryover will be limited as to use in future years. Federal tax returns for tax years since 2019  are still open for examination by the Internal Revenue Service.     6. Notes Payable   On June 15, 2021, the Company entered into an equipment financing agreement with Navitas Credit Corp. in connection with the purchase of certain inventory management software. The $ 63,576 loan is payable over twenty-four months, beginning in July 2021, with monthly payments of $ 2,649 . The balance of this note on  December 31, 2022 is $ 13,245 and is classified as Notes Payable - Current on the Company's Consolidated Balance Sheets.   On August 10, 2022, the Company entered into an equipment financing agreement with Wells Fargo in connection with the purchase of facility grounds equipment. The $ 25,007 loan is payable over 48 months, beginning in August 2022, with monthly payments of $ 521 . The balance of this note on December 31, 2022  is $ 22,923 of which $ 6,252 is classified as Notes Payable - current and $ 16,671 is classified as Notes Payable - Long Term on the Company's Consolidated Balance Sheets.   Effective August 4, 2022, EVT secured a line of credit from Centennial Bank. Borrowings under the line of credit bearing interest at 3.25 % annually. There is no maturity date for the line, but Centennial Bank 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 Centennial Bank accounts. Borrowings under the line may not exceed cash, cash equivalents, and marketable securities balances up to $ 1,000,000 . There was no principal amount outstanding on December 31, 2022, and there is no current plan to borrow from it.   Effective May  2, 2018, ADOMANI, Inc. secured a line of credit from 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. 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 outstanding at that date. This line is currently closed.   Effective June 15, 2022, the Company entered into a premium financing agreement with First Insurance Funding to finance certain insurance coverage. The $ 225,000 loan is payable over nine months, beginning in July 2022, and bears interest at 5.8 % with monthly payments of $ 25,608 . The balance of this note is $ 76,087 and is classified as Notes Payable - Current on the Company's Consolidated Balance Sheets.   Effective August 20, 2022, the Company entered into a second premium financing agreement with First Insurance Funding to finance other insurance coverages. The $ 214,088 loan is payable over nine months, beginning in September 2022, and bears interest at 6.3 % with monthly payments of $ 24,416 . The balance of this note is $ 120,182  and is classified as Notes Payable - Current on the Company's Consolidated Balance Sheets.     7. Common Stock   On March 15, 2021, in connection with the closing of the Merger, the Company issued 7,129,887 shares of its common stock to the former stockholders of EVTDS in exchange for their shares of EVTDS (see Note 3 ), increasing the total number of outstanding shares of common stock of the Company to 12,765,236 as of immediately following the closing of the Merger.   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 net cash proceeds, net of offering costs, of approximately $ 5.3 million through the sale and issuance of 575,000 shares of its common stock at a purchase price equal to $ 10.00 per share and Warrants to purchase up to an aggregate of 431,250 shares of its common stock at an exercise price of $ 10.00 per share. The share and Warrant amounts issued include 32,500 shares and 24,375 Warrants issued to the underwriter in lieu of paying $ 325,000 of fees in cash. Although this ADOMANI, Inc. activity occurred before the close of the Merger, it is discussed here because it was primarily the source of the $ 3,373,332  cash acquired by EVTDS in the Merger that closed on March 15, 2021. See Note 3.   The second closing of the Financing was completed on May 7, 2021, following the closing of the Merger (see Note 3 ) and the subsequent effectiveness of the Registration Statement on Form S- 3 (File No. 333 - 255341 ) filed with the SEC on April 19, 2021, registering for resale the shares of the Company’s common stock sold, and the shares issuable under the Warrants issued, in connection with the Financing. At the second closing of the Financing, the Company raised aggregate net cash proceeds of $ 16,274,991 through the sale and issuance of an additional 1,916,667 shares of its common stock at a purchase price equal to $ 9.00 per share, and additional Warrants to purchase up to an aggregate of 958,334 shares of its common stock at an exercise price of $ 20.00 per share. The share and Warrant amounts issued include 108,333 shares and a Warrant to purchase 54,167 shares issued to the underwriter in lieu of paying $ 975,000 of fees in cash.   62 Table of Contents   In addition to the $ 16,274,991 cash equity proceeds received during the year ended December 31, 2021 discussed in the previous paragraph, the Company also received $ 120,000 and $ 211,219 cash equity proceeds from the exercise of various stock option agreements during the years ended December 31, 2022 and 2021 , respectively, as discussed in Note 9.     8. Stock Warrants   As a result of the Merger closing (see Note 3 ), as of March 15, 2021, the Company had outstanding warrants to purchase an aggregate of 534,067 shares of common stock, 102,817 of which were exercisable. The warrants were previously issued by ADOMANI, Inc. and assumed in the Merger. Of the 534,067 outstanding at the Merger date, 27,483 and 62,500 expired unexercised during 2022 and 2021, respectively. In connection with the second closing of the Financing discussed in Note 7, the Company issued additional warrants to purchase up to 958,334 shares of its common stock. The Company’s outstanding warrants as of December 31, 2022 are summarized as follows, and all were exercisable at that date:       Number of Shares     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life (years)   Outstanding warrants expiring January 9, 2023     12,833     $ 75       0.02   Outstanding warrants expiring January 28, 2025     431,250     $ 10       2.08   Outstanding warrants expiring May 7, 2026     958,334     $ 20       3.35   Outstanding warrants on December 31, 2022     1,402,417     $ 17       2.93     The Warrants issued as part of the Purchase Agreement (see Note 7 ) contain a call provision whereby the Company, after the 13 -month anniversary of the issuance date, and if the volume weighted average price of the common stock for such date exceeds four times the exercise price of the warrants for 20 consecutive trading days, may call the Warrants that have not previously been exercised, and the Warrant holders have ten trading days within which to exercise before the Warrants may be cancelled.   As of December 31, 2022 and 2021, the outstanding warrants have no intrinsic value.     9. Stock Options   The following is a summary of stock option activity under the Company’s 2017 Equity Incentive Plan for the year ended December 31, 2022 :       Number of Shares     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life (years)   Outstanding EVTDS at December 31, 2020     -                 Options acquired in Merger     649,643     $ 5.80       4.61   Exercised     ( 287,536 )   $ 2.40           Cancelled/Forfeited at $2.40 Exercise Price     ( 3,357 )   $ 2.40           Cancelled/Forfeited at $9.00 Exercise Price     ( 10,500 )   $ 9.00           Cancelled/Forfeited at $26.20 Exercise Price     ( 9,750 )   $ 26.20           Subtotal, as follows:     338,500                   Outstanding options at $2.40 Exercise Price     50,000     $ 2.40           Outstanding options at at $9.00 Exercise Price     281,750     $ 9.00           Outstanding options at $26.20 Exercise Price     6,750     $ 26.20           Outstanding at December 31, 2021     338,500     $ 8.40       6.98   Options Granted during 2022:                         Options Granted at $2.00 Exercise Price     250,000     $ 2.00           Options Granted at $2.40 Exercise Price     90,893     $ 2.40           Options Granted at $3.62 Exercise Price     2,762     $ 3.62           Options Granted at $9.00 Exercise Price     1,111     $ 9.00           Exercised     ( 50,000 )   $ 2.40           Canceled/Forfeited     ( 25,000 )   $ 9.00           Subtotal, as follows:     608,266                   Outstanding Options at $2.00 Exercise Price     250,000     $ 2.00       9.05   Outstanding Options at $2.40 Exercise Price     90,893     $ 2.40       9.05   Outstanding Options at $3.62 Exercise Price     2,762     $ 3.62       4.09   Outstanding Options at $9.00 Exercise Price     257,861     $ 9.00       7.96   Outstanding Options at $26.20 Exercise Price     6,750     $ 9.00       5.30   Outstanding at December 31, 2022     608,266     $ 5.30       8.52   Exercisable at December 31, 2022     605,101     $ 5.30       8.54     63 Table of Contents   On January 7, 2022, the Company’s Compensation Committee granted Phillip W. Oldridge, the Company’s Chief Executive Officer, options to purchase 150,000 shares of common stock at an exercise price of $ 2.00 per share and options to purchase 50,000 shares of common stock at an exercise price of $ 2.40 per share. The options vested immediately and expire on the tenth anniversary of grant.   On January 7, 2022, the Company’s Compensation Committee granted Susan M. Emry, the Company’s Executive Vice President, options to purchase 100,000 shares of common stock at an exercise price of $ 2.00 per share and options to purchase 40,893 shares of common stock at an exercise price of $ 2.40 per share. The options vested immediately and expire on the tenth anniversary of grant.   On January 31, 2022, the Company’s Compensation Committee granted Christian S. Rodich, the Company’s Chief Financial Officer, options to purchase 2,762 shares of common stock at an exercise price of $ 3.62 per share and options to purchase 1,111 shares of common stock at an exercise price of $ 9.00 per share. The options vest ratably at 1/60th per month over five years and expire on the tenth anniversary of grant.   On March 15, 2022, options to purchase 50,000 shares of common stock were exercised by the former President and CEO of the Company at a price of $ 2.40 per share, resulting in a payment to the Company of $ 120,000 . Also on March 15, 2022, options to purchase an aggregate of 25,000 shares of common stock with an exercise price of $ 9.00 per share were forfeited by the former executive, as they were not exercised prior to their expiration on March 15, 2022.   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 22,000 shares of common stock at an exercise price of $ 5.506 per share. The Committee determined that Mr. Oldridge would be immediately vested in the options granted.   The options granted during 2022  were valued using the Black-Scholes option pricing model, resulting in a weighted average fair market value of approximately $ 4.71  per option for the years ended December 31, 2022. The weighted average assumptions used in the valuation of the options are summarized in the following table:       2022   Risk-free interest rate     1.76 % Expected volatility     146.3 % Expected option term (years)     9.7   Expected dividend yield     0 %   As of December 31, 2022 , outstanding options had intrinsic value of $ 32,500 , all of which was exercisable.     10. Related Party Transactions   The Company has entered into lease agreements with SRI Professional Services, Incorporated (“SRI”), pursuant to which the Company leases equipment used in connection with the operation of its business (the “SRI Equipment Leases”). Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, serves as an executive officer and a member of the board of directors of SRI. The SRI Equipment Leases provide for the leasing of two vehicles that commenced on January 1, 2020 and the combined rent under such leases is $ 3,880 per month, and a separate SRI Equipment Lease provides for a trailer lease that commenced on December 1, 2019, under which the rent is $ 3,891 per month. The total monthly payment obligation of the Company under the SRI Equipment Leases is $ 7,771 .   EVTDS has entered into a cancelable month-to-month lease with SRI (the “SRI Office Lease”), pursuant to which EVTDS has leased office and warehouse space in the Porterville, California area for a term that commenced on January 1, 2020. The monthly rent under the SRI Office Lease is $ 2,730 .   In addition to the SRI Equipment Leases and the SRI Office Lease, during 2021, the Company purchased a heavy-duty pick-up truck and a trailer from SRI for $ 81,293 . The Company uses such equipment to transport its electric vehicles to and from customer demonstration sites and to and from equipment outfitters when the vehicles have custom bodies and accessories added for specific customers.   The Company has entered into a commercial lease agreement (the “ABCI Office Lease”) with Alpha Bravo Charlie, Inc. (“ABCI”) that commenced on April 1, 2020, for the lease of office space in Porterville, California. The monthly rent for this facility was $ 2,800 . On January 13, 2023, based on a review of office and warehousing space in the Porterville market, the Company’s audit committee approved an increase in the monthly rent to $ 5,000 for 2023. See Notes 11 and 13. Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, is a director of ABCI.   64 Table of Contents   During 2021, the Company purchased two used automobiles from Mr. Oldridge for an aggregate purchase price of $ 33,250 . The Company purchased such vehicles from Mr. Oldridge for use by the Company’s employees for sales calls and other business purposes.   In connection with the closing of the Merger in March 2021, the Company purchased two electric trucks from Mr. Oldridge for an aggregate purchase price of $ 128,000 . Prior to the closing of the Merger, Mr. Oldridge had permitted the vehicles to be used by the Company as customer demonstration vehicles for no cost. The purchase price of $ 64,000 per vehicle was less than the purchase price of $ 83,000 per vehicle that ADOMANI, Inc. had paid to EVTDS for similar vehicles in prior transactions. One of the vehicles purchased by the Company was subsequently sold to a customer of the Company in March 2021 and the second truck remains in the Company’s inventory at December 31, 2022 .   The following table summarizes these related party transactions for the years ending December 31, 2022 and 2021 :       Year Ended December 31,       2022     2021   SRI Equipment Leases   $ 93,247     $ 116,559   SRI Office Lease     26,390       14,000   Truck & trailer purchase from SRI     —       81,293   Total SRI     119,637       211,852   Vehicles purchased from Phillip W. Oldridge     —       161,250   ABCI Office leases     33,600       50,610   Total   $ 153,237     $ 423,712       11. Commitments   Other Agreements   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.   The following table summarizes the Company's future minimum payments under contractual commitments, excluding debt, as of December 31, 2021:       Payments due by period       Total     Less than one year     1-3 years     4-5 years     More than 5 years   Operating lease obligations   $ 46,173     $ 46,173     $ -     $ -     $ -   Employment contracts     2,500,000       500,000       1,500,000       500,000       -   Total   $ 2,546,173     $ 546,173     $ 1,500,000     $ 500,000     $ -       12. Contingencies   Except as set forth below, we know of no material, existing or pending, legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.   On December 17, 2019, GreenPower Motor Company Inc., a public company incorporated under the laws of British Columbia (“GreenPower”), of which Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, previously served as a senior officer and a member of its board of directors, filed a notice of civil claim, captioned GreenPower Motor Company Inc. v. Phillip Oldridge et al., Action No. S- 1914285, in the Supreme Court of British Columbia, against Phillip Oldridge, his trust, EVTDS and certain other companies affiliated therewith. The notice of civil claim alleges that Mr. Oldridge breached certain fiduciary duties owed to GreenPower by working with certain parties in direct competition with and at the expense of GreenPower. GreenPower alleges that the Company conspired with Mr. Oldridge to build its business, competing products and unfairly compete with GreenPower. GreenPower seeks general damages, special damages and punitive damages, plus interest and costs against EVTDS. On February 2, 2020, the Company and the other companies affiliated therewith named in the notice of civil claim filed a response to the civil claim in which they denied certain of the allegations and asserted that certain other facts were outside of their knowledge. Fact discovery, through document disclosure and examinations for discoveries, in this matter remain ongoing. We believe that the lawsuit is without merit and intend to vigorously defend the action.   65 Table of Contents   On or about July 18, 2021, GreenPower and GP Greenpower Industries Inc., (collectively “the GreenPower entities”) filed a counterclaim against David Oldridge, Phillip Oldridge, the Company and other companies in Supreme Court of British Columbia Action No. S207532. The counterclaim alleges that David Oldridge, Phillip Oldridge, the Company and other companies committed the tort of abuse of process by causing 42 Design Works Inc., to commence a lawsuit against the GreenPower entities. Additionally, GreenPower entities also advanced claims against David Oldridge, Phillip Oldridge, the Company and other companies for conspiracy. The pleadings in this lawsuit have not closed and we intend to vigorously defend the counterclaim.   On February 8, 2022, GreenPower Motor Company, Inc., a Delaware Corporation, and GreenPower Motor Company Inc., a Canadian Corporation, filed a complaint captioned GreenPower Motor Company, Inc. v. Phillip Oldridge, et al., Case No. 5:22 -cv- 00252 in the United States District Court for the Central District of California. The complaint names the Company and the following affiliated entities, officers, or directors: Phillip Oldridge, Envirotech Electric Vehicles Inc., Envirotech Drive Systems Incorporated US, Envirotech Drive Systems Incorporated Canada, Sue Emry, David Oldridge, S&P Financial and Corporate Services, Inc. GreenPower also named the Phillip Oldridge Trust and a purported entity called EVT Motors, Inc., but has since dismissed those parties. The complaint alleges (i) RICO violations, (ii) conspiracy to commit RICO violations, (iii) breach of fiduciary duties, (iv) breach of an employment contract, (v) conversion of GreenPower property, (vi) violation of the Defend Trade Secrets Act, and (vii) violations of California’s Business and Profession Code. The complaint seeks an undisclosed amount of compensatory and punitive damages, injunctive relief to prevent the alleged anti-Competitive behavior, restitution for harm, an award of treble damages, and associate fees and costs. The complaint’s allegations are centered around the same assertions in the pending Canadian litigation.   On May 10, 2022, the Company, together with other defendants, filed a Motion to Dismiss and/or Stay the lawsuit pending the outcome of the Canadian litigation. The Court issued stay of this case pending resolution of parallel litigation in Canada between similar parties. GreenPower and defendants have agreed that the U.S. GreenPower case will not proceed while Canadian litigation is pending. We believe that the lawsuit is without merit and intend to vigorously defend the action.   On August 23, 2018, a purported class action lawsuit captioned M.D. Ariful Mollik v. ADOMANI, Inc. et al., Case No. RIC 1817493, was filed in the Superior Court of the State of California for the County of Riverside against us, certain of our executive officers, Edward R. Monfort, the former Chief Technology Officer and a former director of ADOMANI, Inc., and the two underwriters of our offering of common stock under Regulation A in June 2017. This complaint alleges that documents related to our offering of common stock under Regulation A in June 2017 contained materially false and misleading statements and that all defendants violated Section 12 (a)( 2 ) of the Securities Act, and that we and the individual defendants violated Section 15 of the Securities Act, in connection therewith. The plaintiff seeks on behalf of himself and all class members: (i) certification of a class under California substantive law and procedure; (ii) compensatory damages and interest in an amount to be proven at trial; (iii) reasonable costs and expenses incurred in this action, including counsel fees and expert fees; (iv) awarding of rescission or recessionary damages; and (v) equitable relief at the discretion of the court.   Plaintiff’s counsel subsequently filed a first amended complaint, a second amended complaint, a third amended complaint, and a fourth amended complaint. Plaintiff Mollik was replaced by putative class representatives Alan K. Brooks and Electric Drivetrains, LLC (“Electric Drivetrains”). Alan K. Brooks was subsequently dropped as a putative class representative. On October 27, 2020, the Company answered the fourth amended complaint, generally denying the allegations and asserting affirmative defenses.   On July 13, 2021, Electric Drivetrains’ counsel moved to be relieved as counsel and on August 23, 2021, the court granted this motion. On August 23, 2021, the Clerk of Court issued an order to show cause why the complaint should not be stricken and matter dismissed for failure to retain new counsel to Electric Drivetrains. On October 28, 2021, Electric Drivetrains filed a substitution of attorney, substituting J. Ryan Gustafson of Good Gustafson Aumais LLP as its new counsel. On December 10, 2021, the Court vacated the order to show cause. Over the tenure of the action, Electric Drivetrain has dismissed all defendants in the action except for the Company and two former Company executives. Any and all pending cross claims between or among defendants have been resolved and dismissed.   On August 31, 2022, Electric Drivetrains filed its Fifth Amended Complaint, which: i) drops certain class allegations; ii) adds certain state law claims; iii) and drops certain factual allegations but leaves the remaining claims against defendants intact. On October 6, 2022, the Company and remaining defendants filed their respective answer denying the allegations and asserting counterclaims. On the same day, the Company cross claimed against Electric Drivetrains and its managing member. The Court has set a trial setting conference on December 21, 2022. We believe that the lawsuit is without merit and intend to vigorously defend the action.   On June 19, 2019, Alan K. Brooks, an ADOMANI investor, filed a complaint, captioned Alan K. Brooks v. ADOMANI, Inc., et al., Case No. 1 -CV- 349153 in the Superior Court of California for the County of Santa Clara, against the Company, certain of the Company’s executive officers and directors, two of the underwriters of the Company’s offering of common stock under Regulation A in June 2017, and certain of the underwriters’ personnel, among others (the “Brooks Case”). The complaint alleges that the Company and other defendants breached the terms of an agreement between Mr. Brooks and the Company by refusing to release 1,320,359 shares of ADOMANI, Inc. stock to Mr. Brooks. Mr. Brooks seeks damages of $ 13,500,000.00 plus interest and attorney’s fees. On September 20, 2019, Mr. Brooks filed his first amended complaint (“FAC”) reasserting his breach of contract claim and alleging five additional claims for (i) violations of Cal. Corp. Code Section 25401, (ii) fraud, negligent misrepresentation, (iv) elder abuse, and (v) unfair competition. We answered the FAC on November 12, 2019, generally denying the allegations in the FAC and asserting affirmative defenses. Fact discovery in this matter remains ongoing. On August 10, 2021, we filed a motion for summary judgement and dismissal of plaintiff’s FAC. The parties participated in two days of mediation with Mark LeHocky. Mr. LeHocky provided the parties with a mediator’s proposal. Both parties accepted the proposal and reduced the proposal to a written settlement agreement. Pursuant to the settlement agreement, the Company has agreed to pay plaintiffs $ 197,500 in cash and $ 197,500 in shares of common stock. In addition, the Company’s insurance carrier has agreed to pay plaintiffs $ 170,000 . On January 14, 2022, the parties filed a joint motion for an order approving the fairness of the terms of the settlement agreement. On March 7, 2022, the Court issued an Order approving the settlement and the parties are in the process of effectuating its terms. On April 5, 2022, the Company and Boustead resolved Boustead’s cross claim for indemnification in the Brooks action. This settlement is still subject to court approval. There are no further claims pending in the Brooks action and, if and when the Court approves the settlement, it should be dismissed.   On February 3, 2020, the Company acquired substantially all the assets of Ebus in a foreclosure sale through a credit bid in the amount of $ 582,000 , representing the amount then owed by Ebus to the Company evidenced by a secured promissory note. Following the Company’s successful credit bid at the foreclosure sale, Ebus’s obligations under the note were extinguished and the Company was entitled to take possession of substantially all of the assets of Ebus. While the Company was able to take possession of some of the assets, Ebus prevented the Company from taking possession of all of the assets purchased at the foreclosure sale. As a result, on April 13, 2020, the Company filed a complaint captioned ADOMANI, Inc. v. Ebus, Inc., et al., in the Superior Court of California for the County of Los Angeles, Case No. 20ST CV 14275, against Ebus and certain of its insiders and affiliates seeking to recover the remainder of the assets and related damages. On January 14, 2021, a cross- complaint was filed against the Company by Ebus, Inc. and Anders B. Eklov for Unjust Enrichment and Conversion of Domain Name, seeking monetary damages and injunctive relief. A settlement agreement was entered into on March 15, 2022.   66 Table of Contents     13. Leases   In October 2017, ADOMANI, Inc. signed a non-cancellable lease for its former corporate office space in Corona, California, to serve as its corporate headquarters. The lease was for a period of  65  months, terminating  February 28, 2023. The base rent for the term of the lease was $ 568,912 . The total amount due monthly is $ 7,600  at commencement and would have escalated to $ 10,560  by its conclusion had ADOMANI, Inc. remained a tenant. In November 2020, ADOMANI, Inc. vacated this space following staff reductions and moved remaining staff into the space discussed in the following paragraph. The Company ceased paying the rent on this facility after October 2020, but the expense was accrued. Two of the four suites covered by this lease were re-leased by the building management in March and April 2021, ending the Company’s obligation on those two suites. In June 2021, the landlord advised the Company that the remaining two suites were re-leased with a commencement date of September  1, 2021. On July  2, 2021, a resolution was reached with the landlord, whereby the parties mutually agreed to terminate the lease as of July  31, 2021 and the Company would be released from all obligations under the lease, in consideration of the Company’s agreement to pay the landlord an amount equal to $ 60,630 , representing the aggregate amount then owed to the landlord under the lease net of the Company’s $ 11,616  security deposit retained by the landlord, which amount was paid in full on July  2, 2021.     As of December 31, 2022 , the Company is a party to eight operating leases. Five of these leases are office or warehouse leases; the remaining three are equipment leases (see Note 10 ). As disclosed in Note 2, the Company accounts for leases as required by ASC Topic 842. The Company has elected to apply the short-term lease exception to all leases of one year or less. In applying the guidance in ASC 842, the Company has determined that all current leases as of December 31, 2022 should be classified as short-term operating leases.   The Company has entered into the SRI Equipment Leases (see Note 10 ). Rent expense under the SRI Equipment Leases was $ 93,247 for each of the years ended December 31, 2022 and 2021 .   The Company has entered into the SRI Office Lease (see Note 10 ). Rent expense under the SRI Office Lease was $ 26,390 and $ 24,711 for the years ended December 31, 2022 and 2021 , respectively.   The Company has entered into the ABCI Office Lease (see Note 10 ). Rent expense under the ABCI Office Lease was $ 33,600 and $ 30,800 , for the years ended December 31, 2022 and 2021 , respectively.   The Company has entered into the Toledo Jet Center Lease for office space in the Ft. Lauderdale, Florida area effective February 15, 2022. The lease has a one -year term with the option to renew after one year. Rent expense for the Toledo Jet Center Lease for the year ended December 31, 2022 was $ 16,853 .   In February 2017, ADOMANI, Inc. signed a lease for storage space in Stockton, California to serve as a location to store vehicles and other equipment utilized for marketing and trade-show purposes. The lease is on a month-to-month basis and can be terminated by either party with 30 -days’ notice. The total amount due monthly is $ 1,000 .   In December 2019, ADOMANI, Inc. signed a lease for combined office space and warehouse location in Corona, California. The facility had been used to conduct research and development activity, stage materials, assemble and/or manufacture vehicles, perform pre-delivery inspections, test demo vehicles, and securely store vehicles, equipment, parts and finished goods vehicle inventories prior to November 2020 when ADOMANI, Inc. vacated its former corporate office space in Corona, California, and made such facility the new corporate office location in addition to its prior use. The lease is for a period of 36 months, commencing on January 1, 2020, and terminating on December 31, 2022. The base rent for the term of the lease was $ 495,720 , with $ 265 due per month for fire sprinkler alarm monitoring and landscape maintenance. The base rent amount due monthly was $ 13,108 at commencement and would have escalated to $ 13,906 by its conclusion. However, the Company vacated the premises effective March 31, 2022, and the lease was taken over on April 1, 2022 by its sublease tenant, as discussed below.   On February 4, 2020, ADOMANI, Inc. 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 was February 1, 2020, and it expires when the Company’s lease on the Corona, California facility 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. On April 1, 2022, Masters took over the remaining lease obligation for the facility.   As required by ASC 842, in conjunction with the Corona, California lease, the Company recognized an operating liability with a corresponding Right-Of-Use (“ROU”) asset of the same amounts based on the present value of the minimum rental payments of such lease. As of December 31, 2021 , the ROU asset had a balance of $ 133,672 , which is included in other non-current assets in the consolidated balance sheet. Current liabilities relating to the ROU asset, which are included in accrued liabilities in the consolidated balance sheet, were $ 131,245 at December 31, 2021 . Non-current liabilities relating to the ROU asset, which are included in other non-current liabilities in the consolidated balance sheet, were $ 2,427 as of December 31, 2021 . Because the lease was assumed by Masters effective April 1, 2022, and terminated on December 31, 2022, there were no remaining ROU assets or lease liabilities as of December 31, 2022 .   Quantitative information regarding the Company’s leases is as follows:       Year Ended December 31,       2022     2021   Lease expenses                 Operating lease expenses   $ 61,380     $ 164,234   Short-term lease expenses   $ 167,367     $ 88,312   Total lease cost   $ 228,747     $ 252,546   Other information                 Cash paid for the amounts included in the measurement of lease liabilities for operating leases:                 Operating cash flows   $ 45,767     $ 212,955   Weighted-average remaining lease term (in years):                 Operating leases     0.60       1.03   Weighted-average discount rate:                 Operating leases     14 %     14 %   67 Table of Contents      14. Subsequent Events   EVTV evaluated its subsequent events through September 25, 2023, which is the date the financial statements were issued or available to be issued.     In March 2023, the Company entered into an agreement with  Berthaphil, Inc. to sublease approximately 3,600 square yards of a warehouse building based in the Clark Freeport Zone in the Philippines. The term of the lease is two years and two months with a turnover date of July 1, 2023 ( "turnover date") and a rental commencement date of September 1, 2023. There is a grace period of two months for rental payments, starting from the turnover date. The monthly rent for the first year is $ 15,000 , escalating to $ 15,750 for the second year and $ 16,530 for the remaining term. The sublease may be renewed for an additional period that is mutually agreed upon subject to certain terms and conditions. The Company intends to use the leased space as a production facility as it seeks to expand its business presence both in the region and the United States.           68 Table of Contents     Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   None.