UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017

 

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission file number 001-38078

 

 

ADOMANI, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware 46-0774222

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

620 Newport Center Drive, Suite 1100

Newport Beach, CA 92660

(Address of principal executive offices, including zip code)

 

(949) 200-4613

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No ý

 

Indicate by check mark whether the Registrant (1) has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨
       
Non-accelerated filer ý (Do not check if a smaller reporting company) Smaller reporting company ¨
       
    Emerging growth company ý

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

 

The number of shares outstanding of the Registrant’s only class of common stock as of August 7, 2017 was 68,070,930.

 

 

 

 

 

 

ADOMANI, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017

 

Note About Forward-Looking Statements

 

Part I. FINANCIAL INFORMATION

 

    PAGE
Item 1. Financial Statements :  
     
  Unaudited Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016 1
     
  Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016 2
     
  Unaudited Consolidated Statement of Stockholders’ Equity (Deficit) for the Six Months Ended June 30, 2017 3
     
  Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 4
     
  Notes to Unaudited Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 11
     
Item 3. Quantitative and Qualitative Disclosure about Market Risk 21
     
Item 4. Controls and Procedures 21
     
Part II. OTHER INFORMATION
     
Item 1. Legal Proceedings 22
     
Item 1A. Risk Factors 22
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
     
Item 3. Defaults Upon Senior Securities 23
     
Item 4. Mine Safety Disclosures 23
     
Item 5. Other Information 23
     
Item 6. Exhibits 23
     
Signatures 24

 

 

 

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, or Quarterly Report, contains “forward-looking statements” that involve substantial risks and uncertainties. Forward-looking statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.

 

You should not place undue reliance on forward-looking statements. The cautionary statements set forth in this Quarterly Report, including in “Risk Factors” and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:

 

· Our ability to generate demand for our zero-emission or hybrid drivetrains and conversion kits in order to generate revenue;

 

· Our dependence upon external sources for the financing of our operations, particularly given that our independent registered accounting firm’s report on our consolidated financial statements for the year ended December 31, 2016 contains a statement concerning our ability to continue as a going concern;

 

· Our ability to effectively execute our business plan;

 

· Our ability to scale our manufacturing, assembling, and converting processes effectively and quickly from low volume production to high volume production;

 

· Our ability to manage our expansion, growth and operating expenses and reduce and adequately control the costs and expenses associated with operating our business;

 

· Our ability to obtain, retain and grow our customers;

 

· Our ability to enter into, sustain and renew strategic relationships on favorable terms;

 

· Our ability to achieve and sustain profitability;

 

· Our ability to evaluate and measure our current business and future prospects;

 

· Our ability to compete and succeed in a highly competitive and evolving industry;

 

· Our ability to respond and adapt to changes in electric or hybrid drivetrain technology; and

 

· Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand.

 

You should read this Quarterly Report and the documents that we reference elsewhere in this Quarterly Report completely and with the understanding that our actual results may differ materially from what we expect as expressed or implied by our forward-looking statements. In light of the significant risks and uncertainties to which our forward-looking statements are subject, you should not place undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. We discuss many of these risks and uncertainties in greater detail in this Quarterly Report, particularly in Part II. Item 1A. “Risk Factors.” These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report regardless of the time of delivery of this Quarterly Report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report.

 

Unless expressly indicated or the context requires otherwise, references in this Quarterly Report on Form 10-Q to “ADOMANI,” “Company,” “we,” “our,” and “us” refer to ADOMANI, Inc. and our subsidiaries, unless the context indicates otherwise. 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

    June 30,
2017 		  December 31,
2016
ASSETS                
Current assets:                
Cash and cash equivalents   $ 6,868     $ 938  
Notes receivable, net     1,000       454  
Inventory     434       314  
Other current assets     203       1,039  
Total current assets     8,505       2,745  
Property, plant and equipment, net     446       417  
Other investments     120       120  
Other non-current assets     122       124  
Total assets   $ 9,193     $ 3,406  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                
Current liabilities:                
Accounts payable   $ 179     $ 107  
Accrued liabilities     165       236  
Notes payable, net     4,245       5,177  
Convertible debt, net     -       593  
Total current liabilities     4,589       6,113  
Total liabilities     4,589       6,113  
                 
Commitments and contingencies                
                 
Stockholders' equity (deficit):                
Preferred stock, 100,000,000 authorized $0.00001 par value none issued and outstanding, respectively     -       -  
Common stock, 2,000,000,000 authorized $0.00001 par value, 68,070,930 and 58,542,350 issued and outstanding, respectively     1       1  
Additional paid-in capital     35,321       18,366  
Accumulated deficit     (30,718 )     (21,074 )
Total stockholders' equity (deficit)     4,604       (2,707 )
Total liabilities and stockholders' equity (deficit)   $ 9,193     $ 3,406  

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.  

 

1

 

ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

                   

 

    Three Months Ended   Six Months Ended
    June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016
         
Net sales   $ -     $ 68     $ -     $ 68  
Cost of sales     -       50       -       50  
Gross profit     -       18       -       18  
Operating expenses:                                
Payroll expense     528       181       912       424  
Other general and administrative     4,822       772       5,735       1,668  
Consulting     2,143       124       2,163       238  
Research and development     460       -       519       16  
Total operating expenses     7,953       1,077       9,329       2,346  
Loss from operations     (7,953 )     (1,059 )     (9,329 )     (2,328 )
                                 
Other income (expense):                                
Interest expense     (147 )     (285 )     (362 )     (557 )
Other income     22       -       49       1  
Total other income (expense)     (125 )     (285 )     (313 )     (556 )
                                 
Loss before income taxes     (8,078 )     (1,344 )     (9,642 )     (2,884 )
Income tax expense     -       -       (2 )     -  
Net loss   $ (8,078 )   $ (1,344 )   $ (9,644 )   $ (2,884 )
                                 
Net loss per share to common shareholders:                                
Basic and diluted   $ (0.12 )   $ (0.02 )   $ (0.15 )   $ (0.04 )
                                 
Weighted shares used in the computation of net loss per share:                                
Basic and diluted     66,815,898       66,551,134       64,978,905       73,276,408  

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

2

 

ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands, except per share data)

(unaudited)

                   

 

            Additional        
    Common Stock   Paid-In   Accumulated   Stockholders'
    Shares   Amount   Capital   Deficit   Equity (Deficit)
Balance, December 31, 2016     58,542,350     $ 1     $ 18,366     $ (21,074 )   $ (2,707 )
                                         
Common stock issued due to debt conversion     6,868,578       -       726       -       726  
Common stock issued for cash     2,510,002       -       12,550       -       12,550  
Offering costs netted against proceeds from common stock issued for cash     -       -       (4,437 )     -       (4,437 )
Common stock issued for prepaid services cancelled     (100,000 )     -       (100 )     -       (100 )
Common stock issued as offering costs     250,000       -       1,250               1,250  
Warrants issued for services     -       -       1,241               1,241  
Warrants issued as offering costs     -       -       681               681  
Stock based compensation     -       -       5,044       -       5,044  
Net loss     -       -       -       (9,644 )     (9,644 )
Balance, June 30, 2017     68,070,930     $ 1     $ 35,321     $ (30,718 )   $ 4,604  

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

 

3

 

ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

           

 

    Six Months Ended
    June 30, 2017   June 30, 2016
Cash flows from operating activities:                
Net loss     (9,644 )     (2,884 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     6       8  
Accretion of discount on note receivable     (46 )     -  
Amortization of debt discount     130       211  
Stock based compensation expense     5,044       1,278  
Warrant issued for services     1,241       87  
Gain on disposal of property and equipment     (1 )     -  
Changes in assets and liabilities:                
Inventory     (120 )     -  
Other current assets     (103 )     (46 )
Other non-current assets     3       2  
Accounts payable     73       78  
Accrued liabilities     9       (322 )
Deferred revenue     -       (68 )
Net cash used in operating activities     (3,408 )     (1,656 )
                 
Cash flows from investing activities:                
Purchases of property, plant and equipment, net     (34 )     (46 )
Investment in note receivable, net     (500 )     -  
Other Investments     -       (10 )
Net cash used in investing activities     (534 )     (56 )
                 
Cash flows from financing activities:                
Proceeds from issuance of common stock     12,550       184  
Payments for stock rescission     -       (64 )
Proceeds from issuance of debt, net of issuance costs     500       -  
Principal repayments of debt     (1,510 )     (8 )
Payments for deferred offering costs     (1,668 )     (354 )
Net cash provided (used) by financing activities     9,872       (242 )
                 
Net change in cash and cash equivalents     5,930       (1,954 )
Cash and cash equivalents at the beginning of the year     938       4,537  
                 
Cash and cash equivalents at the end of the year   $ 6,868     $ 2,583  
                 
Non-cash transactions:                
Common stock issued due to debt conversion   $ 726     $ -  
Deferred offering costs reclassifed to equity   $ 838     $ -  
Common stock issued for prepaid services rescinded   $ 100     $ -  
Common stock issued as offering costs   $ 1,250     $ -  
Warrants issued as offering costs   $ 681          
                 
Supplemental cash flow disclosures:                
Cash paid for interest expense   $ 207     $ 214  
Cash paid for income taxes   $ -     $ -  

 

 

See Accompanying Notes to Unaudited Consolidated Financial Statements.

 

4

 

ADOMANI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1. Organization and operations

 

ADOMANI, Inc. (“we”, “us”, “our”, the “Company) was incorporated in Florida in August 2012 and was reincorporated in Delaware in November 2016. The Company is a provider of new purpose-built zero-emission electric and hybrid vehicles and replacement drivetrains and as a result is focused on reducing the total cost of vehicle ownership for fleet operators. The Company also provides gas/diesel to all-electric and gas/electric to plug-in hybrid vehicle conversions to school bus and medium to heavy-duty fleet operators. ADOMANI, Inc. is the parent company of its wholly-owned subsidiaries, ADOMANI California, Inc. and ADOMANI China. The Company is headquartered in Newport Beach, CA.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation —The consolidated financial statements and related disclosures as of June 30, 2017 and for the six months ended June 30, 2017 and 2016, are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. In our opinion, these unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These unaudited financial statements should be read in conjunction with our audited financial statements for the years ended December 31, 2016 and 2015 included in our Form 253(g)(2) filed with the SEC on June 19, 2017.  The results of operations for the six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year.

 

The Company has incurred losses for the past several years while developing infrastructure and planning an initial public offering (“IPO”). The Company incurred net losses of $9.6 million and $2.9 million during the six months ended June 30, 2017 and 2016, respectively. The Company completed its IPO on June 9, 2017, as discussed in Note 5 below.

 

 

The Company’s independent registered public accounting firm expressed in its report on the Company’s financial statements for the year ended December 31, 2016 disclosed substantial doubt about the Company’s ability to continue as a going concern. Based on management’s plans and the significant capital raised during the six months ended June 30, 2017, that substantial doubt has been alleviated.

 

Principles of Consolidation —The accompanying financial statements reflect the consolidation of the individual financial statements of ADOMANI, Inc., ADOMANI California, Inc. and ADOMANI China. All significant intercompany accounts and transactions have been eliminated.

 

Revenue Recognition —The Company recognizes revenue from the sales of advanced zero-emission electric drivetrain systems for fleet vehicles. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.

 

Stock-Based Compensation —The Company accounts for employee stock-based compensation in accordance with the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.  The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered.

 

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees.  In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered.

 

5

 

Recent Accounting Pronouncements —In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): “Scope of Modification Accounting.” The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including any interim period, for reporting periods for which financial statements have not been issued. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

 

Reclassification

 

Certain amounts in the 2016 financial statements have been reclassified to conform to the 2017 financial presentation. These reclassifications have no impact on net loss.

 

3. Notes Receivable

 

On June 29, 2017, the Company loaned $500,000 to an unaffiliated third party with engineering expertise in the electric bus technology industry, with whom the Company may seek an alliance at some future date, in order to provide it with working capital. The stated interest rate is 9% per annum, with interest payments due monthly beginning July 31, 2017. The note is secured by the assets of the borrower and matures on December 31, 2017. The Company loaned an additional $500,000 to another third party in December 2016 (see Note 4).

 

4. Debt

 

During 2016, 2015 and 2014, the Company issued convertible notes for total proceeds of $42,160, $20,275 and $207,465, respectively, to Acaccia Family Trust (“Acaccia”), formerly a related party. As of December 31, 2016, the outstanding balance of such convertible notes was $359,000. During 2014, the Company issued convertible notes for total proceeds of $286,000 to various third parties. As of December 31, 2016, the aggregate face value of the convertible notes issued to third and related parties was $645,000. All notes had a three-year maturity and bore interest at rates of 3% or 5% per annum. The terms of such loans permitted conversion of all outstanding principal and accrued interest into shares of common stock, with loans totaling $45,000 convertible at a rate of $0.50 per share and loans totaling $600,000, including the convertible notes issued to Acaccia, convertible at $0.10 per share. During 2016, the Company’s CFO purchased $25,000 of the $645,000 convertible notes outstanding from Acaccia. Effective January 30, 2017, all holders of such convertible debt converted their debt, which totaled $725,584, consisting of the outstanding principal amount and accrued and unpaid interest as of the date of conversion, into 6,868,578 shares of common stock (“Common Stock”) in anticipation of our IPO. As of June 30, 2017, all such convertible notes have been converted and no balance remains outstanding thereunder. No gain or loss resulted from the conversion of this debt to equity.

 

As these notes had an effective conversion price that was less than the fair market value of the Common Stock, these notes gave rise to a beneficial conversion feature totaling $42,160 and $20,275 during 2016 and 2015, respectively, which was recognized as an increase to paid-in capital and a corresponding debt discount. The debt discount was being amortized to interest expense on an effective interest basis over the maturity of the notes. For the six months ended June 30, 2017 and 2016, debt discount amortization associated with these notes was $51,935 and $50,532, respectively, which was recognized as interest expense in the accompanying consolidated statement of operations. The unamortized discount of these convertible notes was $0 and $51,935 at June 30, 2017 and December 31, 2016, respectively.

 

During 2015, the Company issued two-year secured promissory notes with an aggregate face value of $5,147,525 to third-party lenders for cash. The notes are secured by all the assets of the Company, mature between January and November 2017 and bear interest at 9%. The Company has notified all holders of the 9% secured notes payable with maturities in January through August 2017 that it was exercising its option to extend the maturity dates six months pursuant to the provisions of the notes. In connection with these notes, the Company incurred debt issuance costs of $514,753, which are being recognized as a debt discount and amortized over the life of the notes. During the six months ended June 30, 2017 and 2016, the debt discount amortization associated with these notes was $29,006 and $160,688, respectively, which was recognized as interest expense in the accompanying unaudited consolidated statements of operations. As of June 30, 2017, the debt issuance costs associated with these notes have been fully amortized. A $7,500 repayment of principal was issued to a lender in January 2016 and another $10,000 repayment was issued to a different lender in March 2017. In September 2016, the Company authorized the exchange of $884,700 principal amount of these notes for 884,700 shares of Common Stock. There was no gain or loss that resulted from the conversion of the notes to equity.

 

6

 

On November 18, 2016, the Company issued a promissory note with a principal amount of $500,000 to a stockholder in order to insure adequate working capital through the close of its IPO. The loan evidenced by the note is for a period of one year, at an interest rate of 5% per annum, with the principal and any unpaid interest due and payable in cash at maturity. On March 17, 2017, due to unforeseen delays in the closing of the IPO, the Company issued a second promissory note with a principal amount of $500,000 to the same stockholder in order to address additional liquidity concerns. The second note also bears interest at a rate of 5% per annum, with the principal and any unpaid interest due and payable in cash at maturity. The loans mature on November 15, 2017, unless previously repaid in accordance with the terms thereof. On May 12, 2017, the Company repaid both notes, plus accrued and unpaid interest of $15,685, from the proceeds of the initial closing of the IPO.

 

In December 2016, the Company borrowed $500,000 from an unaffiliated third party. The loan matured on June 15, 2017. It contains no stipulated interest rate, but the Company was obligated to pay loan fees of $50,000 to the lender. The proceeds of the loan were immediately used to loan $500,000 to a company in the zero-emissions technology industry that specializes in drivetrain solutions for zero emission and hybrid vehicles. The loan, carried as a note receivable on the balance sheet, contains the same provisions, including the loan fees payable to the Company, as the note payable discussed above in this paragraph, and also matured on June 15, 2017. The Company repaid the loan to the unaffiliated third party on May 12, 2017 from the proceeds of the initial closing of the IPO. The maturity date for the note receivable has been extended to December 31, 2017. During the six months ended June 30, 2017, the related amortization expense recognized on this loan amounted to $45,833.

 

In January 2015, in connection with the 2015 9% secured notes payable financing discussed above, the Company agreed to issue a warrant exercisable for 1,250,000 shares of Common Stock of the Company at an exercise price of $4.00 per share. The warrant, actually issued in September 2016, was valued using the Black Scholes valuation model and the resulting fair market value of $349,042 was recorded in 2015 as debt discount and is being amortized over the term of the notes. Interest expense relating to the amortization of this discount was $3,347 and $87,022 for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017, the fair market value of the warrant was fully amortized.

 

 

7

 

Details of notes payable at June 30, 2017 and December 31, 2016 are as follows:

 

    As of June 30,
2017 		  As of December 31,
2016
Convertible Debt                
Principal amount outstanding   $ -     $ 645,000  
Cumulative discount for notes with beneficial conversion feature     -       (349,560 )
Cumulative amortization of debt discount     -       297,625  
Subtotal of convertible notes @ $0.10 or $.50/share     -       593,065  
                 
Notes Payable                
Principal amount outstanding     4,245,325       5,255,325  
Cumulative discount for finance charges incurred     (514,753 )     (514,753 )
Cumulative discount for warrant     (349,042 )     (349,042 )
Cumulative discount for 9% notes     (50,000 )     (50,000 )
Cumulative amortization of finance charges     514,753       485,747  
Cumulative amortization of warrant expense     349,042       345,695  
Cumulative amortization of 9% notes     50,000       4,167  
Subtotal of notes payable     4,245,325       5,177,139  
Total of debt   $ 4,245,325     $ 5,770,204  

 

5. Common Stock

 

Effective January 30, 2017, all holders of the $645,000 original principal amount of convertible debt converted their debt, which totaled $725,584, consisting of the outstanding principal amount and accrued and unpaid interest as of the date of conversion, into 6,868,578 shares of Common Stock.(see Note 4).

 

In March 2017, Dennis Di Ricco, who formerly served as the trustee of Acaccia, along with his family members and trusts) relinquished voting and investment power over all securities of the Company they owned, which constituted approximately 22% of the outstanding Common Stock of the Company. Mr. Di Ricco also surrendered his options to purchase up to 7,000,000 shares of common stock for forfeiture and cancellation, and sold (in a private transaction to which the Company was not a party) all 2,500,000 shares of Common Stock held as of record by his IRA. In connection with the foregoing, the Company and Mr. Di Ricco also terminated their consulting relationship. See Note 6.

 

In March 2016, the Company entered into a consulting agreement with Redwood Group International Limited (“Redwood”). In exchange for its services, Redwood received $5,000 per month in retainer payments and was eligible to receive other fees and warrants, as set forth in the consulting agreement. The initial term of the consulting agreement was 12 months, ending on February 28, 2017, although the term would automatically extend for an additional 12 months unless terminated by either party. On September 29, 2016, the Company executed a letter agreement with Redwood, pursuant to which it issued to Redwood an additional 100,000 shares of Common Stock, subject to Redwood satisfying certain performance thresholds. If Redwood failed to meet such performance thresholds, the agreement provided the Company with an exclusive option to reacquire all or a portion of the shares of Common Stock at $0.00001 per share. On November 15, 2016, the Company and Redwood agreed to terminate the original consulting agreement and entered into it a new consulting agreement that was set to expires upon thirty days’ written notice by either party following the successful completion of the Company’s IPO. The new consulting agreement was substantially similar to the prior agreement with respect to fees and warrants due to Redwood, and provided that the Company would pay Redwood a sum of $800,000 and issue Redwood a warrant to acquire 350,000 shares of Common Stock. In May 2017, the Company and Redwood mutually agreed to terminate this agreement. On June 8, 2017, the Company paid a fee of $800,000 to Redwood and issued Redwood a warrant to purchase 350,000 shares of Common Stock, in connection with which the Company cancelled the 100,000 shares of Common Stock it had previously issued pursuant to the September 2016 letter agreement. The warrant to purchase 350,000 shares of Common Stock was valued using the Black Scholes method resulting in a fair market value of $1.24 million. The assumptions used in the valuation included the term of 5 years, the exercise price of $5.00 per share, volatility of 92% and a risk free interest rate of 1.75%. The fair value of the warrant was recorded as consulting expense during the three months ended June 30, 2017.

 

8

 

 

On June 9, 2017, the Company consummated the final closing of the IPO, as discussed in Note 2 above. The Company sold an aggregate of 2,852,275 shares of Common Stock, of which 342,273 shares were sold on behalf of certain stockholders of the Company who elected to participate in the IPO, for aggregate gross proceeds of $14,261,375. Net proceeds received after deducting commissions, expenses and fees of approximately $2.5 million and the $1,711,365, amounted to approximately $10.0 million. The Company remitted the $1,711,365 in aggregate gross proceeds resulting from the sale of shares on behalf of the selling stockholders to such stockholders. As such, the Company issued and sold an aggregate of 2,510,002 shares of Common Stock in connection with the IPO, excluding the shares sold by the selling stockholders. In connection with the final closing of the IPO on June 9, 2017, the Company issued an additional 250,000 shares of Common Stock, valued at $1,250,000, under the terms of a consulting agreement. Under the terms of the underwriting agreement executed in connection with the IPO, the Company issued to Boustead Securities, LLC a warrant to purchase 199,659 shares of Common Stock. The warrant to purchase 199,659 shares of Common Stock was valued using the Black Scholes method resulting in a fair market value of $680,543. The assumptions used in the valuation included the term of 5 years, the exercise price of $6.00 per share, volatility of 92% and a risk free interest rate of 1.75%. The fair value of the warrant was recorded as offering costs and netted against additional paid in capital during the three months ended June 30, 2017.

 

6. Stock-Based Compensation

 

In March 2017, Dennis Di Ricco surrendered his options to purchase up to 7,000,000 shares of Common Stock for forfeiture or cancellation (see Note 5).

 

In March 2017, the board of directors of the Company (the “Board”) consented to the grant of options to purchase an aggregate of 3,600,000 shares of Common Stock to 13 people (employees and current and prospective Board members). The options will vest over a three-year period, and the exercise price was determined based on the average of the trading price of the Company’s Common Stock on the Nasdaq Capital Market for the first ten days following the close of its IPO, which was $10.49. The options were valued using the Black Scholes method, resulting in a fair market value of $37.6 million   The assumptions used in the valuation included an expected term of 4.75 years; volatility of 86% and a riskfree interest rate of 2.02%.

 

Stock option activity for the six months ended June 30, 2017 is as follows:

 

    Number of
Shares 		  Weighted
Average
Exercise
Price 		  Weighted
Average
Remaining
Contractual Life
(years)
Outstanding at December 31, 2016     33,775,000     $ 0.10          
Granted     3,600,000       10.49          
Forfeited     (7,000,000 )                
Outstanding at June 30, 2017     30,375,000     $ 3.56       4.5  
                         
Exercisable at June 30, 2017     21,586,495     $ 3.56       3.9  

 

9

 

Stock-based compensation expense was $5.0 million and $1.3 million for the six months ended June 30, 2017 and 2016, respectively, and is included in general and administrative expense in the accompanying unaudited consolidated statements of operations. As of June 30, 2017, the Company expects to recognize $38.1 million of stock-based compensation for the non-vested outstanding options over a weighted-average period of 2.62 years.

 

7. Commitments

 

Employment Agreements —Effective September 1, 2014, the Company executed an employment agreement with James Reynolds, its Chief Executive Officer. The term of the employment agreement is 5 years, and the agreement provides for an annual base salary of $240,000 and entitles Mr. Reynolds to receive a bonus of five percent of the Company’s net profits on an annual basis.

 

Effective September 1, 2014, the Company executed an employment agreement with Edward Monfort, its Chief Technology Officer. The term of the employment agreement was 5 years, and the agreement provided for an annual base salary of $240,000 and entitled Mr. Monfort to receive a bonus of five percent of the Company’s net profits. In June 2016, Mr. Monfort entered into a new employment agreement with a two-year term, which superseded the 2014 employment agreement, pursuant to which his salary was reduced to $120,000 per annum Additionally, the Company pays up to $7,000 per month to ELO, LLC, an entity owned by Mr. Monfort, for invoiced expenses relating to research and development pursuant to a consulting relationship.

 

Effective January 1, 2017, the Company entered into an employment agreement with Michael Menerey, its Chief Financial Officer. The term of the employment agreement is five years and the agreement provides for an annual base salary of $200,000.

 

Operating Leases —In 2015, the Company signed an office and warehouse lease agreement for a facility in Orange, California, to serve as its primary facility for research and development activity. The initial term of the lease expired on February 29, 2016, at which time the Company extended the lease for two additional years, until February 28, 2018. The total amount due annually under the lease is $44,856. The Company signed a one-year office lease for office space in Newport Beach, California, to serve as office space for its headquarters. The initial term of the lease expired on December 31, 2016, at which time the Company extended the lease on a month-to-month basis. The total amount due monthly is approximately $3,400. In 2016, the Company also signed a lease for office space in Los Altos, California, to serve as office space for its Northern California operations. The lease expired February 28, 2017 and the Company executed a new one-year lease in February 2017. The total amount due under the lease is $5,200 and the lease period is from March 1, 2017 through February 28, 2018.

 

Other Agreements —In 2015, the Company entered into a contract with THINKP3 to provide services with the goal of securing federal grant assistance for development of the Company’s zero-emission and hybrid transportation solutions for school bus, commercial, government and utility fleets. The initial term of this contract was December 1, 2015 through November 30, 2016. On November 21, 2016, the parties renewed the agreement through November 30, 2017. Fees for these services are $8,000 per month. The contract can be terminated by either party with 30-days advance notice.

 

In March 2015, the Company signed a licensing option agreement with Silicon Turbines Systems, Inc. for use of its patent in manufacturing. The option calls for a payment of $10,000 per month, beginning March 1, 2015, up to a full investment amount of $3,000,000. The agreement provided that the original option would terminate on August 31, 2015, but the parties agreed verbally to both extend the date of termination of the option and delay the Company’s obligation to make any monthly payments under the option agreement while both companies evaluate the relationship. As such, no payments have been made in 2017. For the year ended December 31, 2016, the Company made one $10,000 payments. This amount appears as Other Investments on the unaudited consolidated balance sheets.

10

 

In 2016, the Company signed an advisor agreement with Dennis Di Ricco, formerly a related party and stockholder, pursuant to which Mr. Di Ricco would provide consulting services to the Company. In March 2017, we terminated this agreement (see Note 5).

 

The following table summarizes our future minimum payments under contractual commitments, excluding debt, as of June 30, 2017:

 

    Payments due by period
    Total   Less than
one year 		  1 - 3 years   3 - 5 years   More than
5 years
Operating lease obligations     33,688       33,688       -       -       -  
Employment contracts     1,640,000       660,000       680,000       300,000       -  
Total     1,673,688       693,688       680,000       300,000       -  

 

8. Subsequent Events

 

During July and August 2017, the Company repaid principal of $739,500, plus accrued interest of $1,877, to holders of two-year 9% secured promissory notes whose original maturity dates were in January and February 2017, before the Company exercised its option to extend for six months (see Note 4).

 

On July 28, 2017, the Company repaid principal of $60,000, less $6,000 withheld for finance charges, for a net payment of $54,000 to another secured promissory note holder (see Note 4).

 

11

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-looking statements

 

The following discussion of our financial condition and the results of operations should be read in conjunction with the “Consolidated Financial Statements” and notes thereto included elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report. This discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, those identified under the “Cautionary Statement Regarding Forward-Looking Statements” above, and elsewhere in this Quarterly Report, particularly in Part II. Item 1A. “Risk Factors,” below.

 

Overview of ADOMANI

 

We are a provider of advanced zero-emission electric and hybrid vehicles and replacement drivetrains that is focused on reducing the total cost of vehicle ownership. We help fleet operators unlock the benefits of green technology and address the challenges of traditional fuel price cost instability and local, state and federal environmental regulatory compliance.

 

We design, manufacture and install advanced zero-emission electric and hybrid drivetrain systems for use in new school buses and medium to heavy-duty commercial fleet vehicles. We also design, manufacture and install unique and patented conversion kits to replace conventional drivetrain systems for diesel and gasoline powered vehicles zero-emission electric or hybrid drivetrain systems. The hybrid drivetrain systems are available in both an assistive hybrid format and a full-traction format for use in private and commercial fleet vehicles of all sizes. We seek to expand our product offerings to include the sale of zero-emission vehicles manufactured by OEM partners, but to be marketed, sold, warrantied and serviced through our developing distribution and service network.

 

Our drivetrain systems can be built with options for remote monitoring, electric power-export and various levels of grid-connectivity. Our zero-emission systems may also grow to include automated charging infrastructure and “intelligent” stationary energy storage that enables fast vehicle charging, emergency back-up facility power, and access to the developing, grid-connected opportunities for the aggregate power available from groups of large battery packs.

 

We generated virtually no revenue from inception through June 30, 2017. For the years ended December 31, 2016 and 2015, our net losses were $10.7 million and $6.0 million, respectively, for the six months ended June 30, 2017 and 2016, our net losses were $9.6 million and $2.9 million, respectively, and for the three months ended June 30, 2017 and 2016, our net losses were $8.1 million and $1.3 million, respectively.

 

Factors Affecting Our Performance

 

We believe that the growth and future success of our business depend on various opportunities, challenges and other factors, including the following:

 

New Customers.  We are competing with other companies and technologies to help fleet managers and their districts/companies more efficiently and cost-effectively manage their fleet operations. Once these fleet managers have decided they want to buy from us, we still face challenges helping them obtain financing options to reduce the cost barriers to purchasing. We may also encounter customers with inadequate electrical services at their facilities that may delay their ability to purchase from us.

 

Investment in Growth.  We plan to continue to invest for long-term growth. We anticipate that our operating expenses will increase in the foreseeable future as we invest in research and development to enhance our zero-emission systems; design, develop and manufacture our drivetrains and their components; increase our sales and marketing to acquire new customers; and increase our general and administrative functions to support our growing operations. We believe that these investments will contribute to our long-term growth, although they will adversely affect our results of operations in the near term. In addition, the timing of these investments can result in fluctuations in our annual and quarterly operating results. We believe the completion of our initial public offering (the “IPO”) has provided us with the necessary working capital to move forward with our business plan.

 

12

 

 

Zero-emission electric and hybrid drivetrain experience.  Our dealer and service network is not currently established, although we do have certain agreements in place. One issue they may have, and we may encounter, is finding appropriately trained technicians with zero-emission electric and hybrid drivetrain experience. Our performance will depend on having a robust dealer and service network, which will require appropriately trained technicians to be successful. Because our vehicles are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in zero-emission electric and hybrid vehicles may not be available to hire, and we may need to expend significant time and expense training the employees we do hire. If we are not able to attract, assimilate, train or retain additional highly qualified personnel in the future, or do so cost-effectively, our performance would be significantly and adversely affected.

 

Market Growth.  We believe the market for all-electric and hybrid solutions for alternative fuel technology, specifically all-electric and hybrid vehicles, is very large today, and will continue to grow as more purchases of new zero emission vehicles and as more conversions of existing fleet vehicles to zero-emission vehicles are made. However, unless the costs to produce such vehicles decrease dramatically, purchases of our products will continue to depend in large part on financing subsidies from government agencies. We cannot be assured of the continued availability or the amounts of such assistance to our customers.

 

Revenue Growth from Additional Products . We seek to add to our product offerings additional zero-emission vehicles of all sizes manufactured by outside OEM partners, to be marketed, sold, warrantied and serviced through our developing distribution and service network, as well as add other ancillary products discussed elsewhere in this report.

 

Revenue Growth from Additional Geographic Markets.  We believe that growth opportunities for our products exist internationally in addition to domestically, and through our wholly-owned subsidiary ADOMANI China, we will be pursuing international growth as well. Our future performance will depend in part upon the growth of these additional markets. Accordingly, our business and operating results will be significantly affected by our ability to timely enter and effectively address these emerging markets and the speed with which and extent to which demand for our products in these markets grows.

 

Components of Our Results of Operations

 

Revenue

 

Revenue is recognized from the sales of advanced zero-emission electric and hybrid drivetrain systems for fleet vehicles and from the sale of new, purpose-built zero-emission electric or hybrid vehicles. Revenue is recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and title has passed, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.

 

Cost of Sales

 

Cost of sales includes those costs related to the development, manufacture, and distribution of our products. Specifically, we include in cost of sales each of the following: material costs (including commodity costs); freight costs; labor and other costs related to the development and manufacture of our products; and other associated costs.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative costs include all corporate and administrative functions that support our company. These costs also include stock-based compensation expense; warranty, including product recall and customer satisfaction program costs; consulting costs; and other costs that cannot be included in cost of sales.

 

Consulting and Research and Development Costs

 

These costs are substantially related to our research and development activity.

 

13

 

 

Other Income/Expenses, Net

 

Other income/expenses include non-operating income and expenses, including interest expense.

 

Provision for Income Taxes

 

We account for income taxes in accordance with FASB ASC 740 “Income Taxes,” which requires the recognition of deferred income tax assets and liabilities for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations. Because we have incurred only losses to this point, no provision for income taxes has been made.

 

14

 

 
 

Results of Operations

 

The following table compares operating data for the three and six months ended   June 30, 2017 to June 30,2016:

 

ADOMANI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share data)

 

    Three Months Ended   Six Months Ended
    June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016
                 
Net sales   $ -     $ 68     $ -     $ 68  
Cost of sales     -       50       -       50  
Gross profit     -       18       -       18  
Operating expenses:                                
General and administrative [1]     5,350       953       6,647       2,092  
Consulting     2,143       124       2,163       238  
Research and development     460       -       519       16  
Total operating expenses, net     7,953       1,077       9,329       2,346  
Loss from operations     (7,953 )     (1,059 )     (9,329 )     (2,328 )
                                 
Other income (expense):                                
Interest expense     (147 )     (285 )     (362 )     (557 )
Other income (expense)     22       -       49       1  
Total other income (expense)     (125 )     (285 )     (313 )     (556 )
                                 
Loss before income taxes     (8,078 )     (1,344 )     (9,642 )     (2,884 )
Income tax expense     -       -       (2 )     -  
Net loss   $ (8,078 )   $ (1,344 )   $ (9,644 )   $ (2,884 )
                                 
Net loss per share to common shareholders:                                
Basic and diluted   $ (0.12 )   $ (0.02 )   $ (0.15 )   $ (0.04 )
                                 
Weighted shares used in the computation of net loss per share:                                
Basic and diluted     66,815,898       66,551,134       64,978,905       73,276,408  

 

[1] Includes stock-based compensation expense as follows:

    Three Months Ended   Six Months Ended
    June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016
General and administrative expenses     4,438       638       5,044       1,275  
Total stock-based compensation expense     4,438       638       5,044       1,275  

 

15

 

 

Revenues

 

Revenue for each of the three and six months ended June 30, 2017 was $0, as compared to revenue of $68,000 for each of the three and six months ended June 30, 2016. We expect to begin generating revenues in the fourth quarter of 2017.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of the following:

 

•                 personnel-related expenses, including stock-based compensation costs;

•                 costs related to raising capital and becoming a public reporting company; and

•                 business development-related expenses.

 

General and administrative expenses increased by $4.4 million and $4.6 million for the three and six months ended June 30, 2017, respectively, as compared to the prior-year periods. The increases are primarily due to increases in stock-based compensation expense of $3.80 million and $3.82 million for the three and six months ended June 30, 2017, respectively, as compared to the prior-year periods, due to the additional options granted in March 2017 (see “Options to Purchase Common Stock” below and Note 6 to the unaudited consolidated financial statements included in this report). We anticipate stock-based compensation expense to continue to increase as we expand our infrastructure in order to begin generating revenue. Other increases in the current-year periods over the prior-year periods include payroll, sales and marketing, and investor relations expenses, which increased by $421,723 and $604,277 for the three and six months ended June 30, 2017, respectively, as compared to the prior-year periods, due to the Company’s need to expand its sales and marketing infrastructure, as well as the incurrence of certain costs associated with its status as a public company.  

 

Consulting Expenses

 

Consulting expenses increased by $2.0 million and $1.9 million for the three and six months ended June 30, 2017, respectively, as compared to the prior-year periods. The increases are primarily due to the issuance of a warrant to purchase 350,000 shares of Common Stock as part of a settlement agreement, which was valued at $1.2 million, and a payment of $800,000 required under the same agreement. Additionally, $75,000 previously paid to the party involved in the settlement agreement, and originally classified as deferred offering costs, was reclassified as consulting expense. See Note 5 of the unaudited consolidated financial statements contained in this report.

 

Research and Development Expenses

 

Research and development expenses increased by $460,068   and $512,577   for the three and six months ended June 30, 2017, respectively, as compared to the prior-year periods. This increase is primarily due to $420,000 incurred in the second quarter of 2017 to build and install our drivetrain system on a chassis of a Type D school bus , on a promotional basis, for a potential customer    . The project also enabled us to evaluate a third-party firm that performed the work.

 

Liquidity and Capital Resources

 

Our principal source of cash is our existing cash and cash equivalents balance, sourced primarily from the net proceeds from the IPO. As of June 30, 2017, we had cash and cash equivalents of $6.9 million. On May 12, 2017, we repaid the three unsecured promissory notes discussed in Note 4 to the unaudited consolidated financial statements included in this report and in “Debt” below with funds from the initial closing of our IPO. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in Part II. Item 1A. “Risk Factors.” See the discussion below under “Going Concern” regarding the closing of the IPO.

 

We believe that our existing cash and cash equivalents, including the net proceeds from the IPO of approximately $10 million, will be sufficient to fund our operations at least through the end of calendar year 2018. However, there can be no assurance that we will successfully execute our business plan, and if we do not, we may need additional capital to continue our operations. We do not expect to be able to satisfy our cash requirements solely through product sales in the near future, therefore we expect to rely on the net proceeds from our IPO to fund our operations. The sale of additional equity securities in the future could result in additional dilution to our stockholders and those securities may have rights senior to those of our Common Stock. The incurrence of additional indebtedness in the future would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure that such capital, if required, will be available on terms that are favorable to us or at all. We are currently incurring operating deficits that are expected to continue for the foreseeable future, and as we begin to execute our marketing plan, we expect our operating deficit will continue to grow initially until we begin to generate a sufficient level of revenue from our sales and marketing efforts.

 

16

 

 

From our initial incorporation in 2012 as a Florida corporation and until the IPO, we financed our operations and capital expenditures through issuing equity capital, convertible notes and notes payable. A significant portion of this funding has been provided by affiliated stockholders, although significant equity capital was also raised in late 2015, and the majority of the convertible notes outstanding was also raised in 2015 from non-affiliated third parties, as discussed below and in Note 3 to the unaudited consolidated financial statements contained in this report.

 

Debt

 

As of December 31, 2016, the Company had borrowed $645,000 from Acaccia Family Trust, formerly a related party, and other parties by issuing notes convertible into Common Stock at prices ranging from $0.10 per share to $0.50 per share. On January 30, 2017, the notes plus accrued interest, a total of $725,584, were converted into 6,868,578 shares of Common Stock. As of December 31, 2016, we also had outstanding a total of $4,255,325 of secured promissory notes, net of $884,700 principal amount of these secured notes that were exchanged for 884,700 shares of Common Stock on September 1, 2016. In November 2016, we borrowed $500,000 from an unaffiliated stockholder for working capital needs and, in March 2017, borrowed an additional $500,000 from the same stockholder for additional working capital required due to delays in completing our IPO. In December 2016, we borrowed $500,000 from a third party pursuant to a secured promissory note, and immediately made a $500,000 loan to another third party who operates in the zero-emissions drivetrain technology industry. All notes referenced in this paragraph were scheduled to mature in 2017. In connection with the initial closing of our IPO, on May 12, 2017, we repaid the $1,500,000 outstanding under the three unsecured notes payable. See Note 4 to the unaudited consolidated financial statements contained in this report.

 

Equity Financings

 

In a series of closings during the fiscal years ended 2012, 2013, 2014, 2015 and 2016, the Company sold an aggregate of 58,542,350, shares of Common Stock to certain of its officers, directors and other related parties for an aggregate purchase price of $5,270,860. See also the discussion below under “Going Concern” regarding the closing of the IPO.

 

Initial Public Offering

 

On June 9, 2017, we completed the IPO. For more information about the IPO, see Note 5 to our unaudited consolidated financial statements.

 

Options to Purchase Common Stock

 

As of June 30, 2017, we had granted options to purchase 30,375,000 shares of Common Stock. 21,218,612 shares of Common Stock are issuable upon the exercise of options vested as of June 30, 2017, at an exercise price of $0.10 per share, and 367,883 shares of Common Stock are issuable upon the exercise of options vested as of June 30, 2017, at an exercise price of $10.49 per share. If all vested options to purchase Common Stock were exercised, we would receive proceeds of $5,980,956 and we would be required to issue 21,586,495 shares of Common Stock. There can be no assurance, however, that any such options will be exercised. See Note 6 to the unaudited consolidated financial statements contained in this report.

 

17

 

 

In March 2017, a co-founder of the Company (including family members and trusts) relinquished voting and investment power over all securities of the Company they owned. The co-founder surrendered his options to purchase 7,000,000 shares of Common Stock for forfeiture and cancellation, and sold the shares owned by his IRA.

 

2015 Note Financing and Warrants to Purchase Common Stock

 

During 2015, the Company issued two-year secured promissory notes to third party lenders in an aggregate principal amount of $5,147,525 (the “Note Financing”). In January 2016, we repaid $7,500 of the aggregate principal amount outstanding under the notes, and in March 2017, we repaid another $10,000 of such outstanding amount. The secured promissory notes are due on various dates between January 31 and November 30, 2017, unless extended by the Company at its option for an additional six months. The notes bear interest at an annual rate of 9%, payable monthly in arrears. The note obligations are secured by a lien on all assets of the Company. On September 1, 2016, holders of $884,700 of principal amount of the notes exchanged their notes for 884,700 shares of Common Stock, thereby reducing the principal amount outstanding under the notes to $4,245,325.

 

In connection with the Note Financing, in 2015, the Company agreed to issue a warrant to a third party to purchase 1,250,000 shares of Common Stock at $4.00 per share, exercisable through September 1, 2021. On September 1, 2016, the Company issued the warrant.

 

The Company may repay its secured promissory notes from proceeds from the IPO or from any cash exercise of the warrant prior to maturity of the secured promissory notes. The Company may also elect to extend the maturity of the notes for 6 months without approval by the noteholders. Any subsequent extension requires the consent of the noteholders. As of June 30, 2017, the Company has extended the maturity dates for those notes maturing in January through August 2017. See Note 4 to the unaudited consolidated financial statements contained in this report.

 

Credit Facilities

 

We do not have any credit facilities or other access to bank credit. If, however, we elect to repay the secured promissory notes at maturity, or believe that making an acquisition is appropriate, or see that sales of product are more rapidly using working capital than anticipated, we may seek to obtain a credit facility to address these issues.

 

Capital Expenditures

 

We do not have any contractual obligations for ongoing capital expenditures at this time. We do, however, purchase equipment necessary to conduct our operations on an as needed basis.

 

Going Concern

 

As of June 30, 2017, we had working capital of $3.9 million and stockholders’ equity of approximately $4.6 million. During the six months ended June 30, 2017, we incurred a net loss attributable to holders of our Common Stock of approximately $9.6 million. We have not generated any material revenues and have incurred net losses since inception. Our recurring operating losses and our need for additional sources of capital to fund our ongoing operations raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our audited consolidated financial statements as of December 31, 2016 and 2015 and for the years then ended with respect to this uncertainty. However, on June 9, 2017, we completed our IPO. We sold 2,852,275 shares of Common Stock for gross proceeds of $14,261,375, of which $1,711,365 was paid to the selling stockholders, as discussed in Note 5 to the unaudited consolidated financial statements, for 342,273 shares they sold in the offering. Based on our management’s plans and the significant capital raised in the IPO, we believe the substantial doubt about our ability to continue as a going concern has been alleviated.

 

18

 

 

Cash Flows

 

The following table summarizes our cash flows used in operating, investing, and financing activities for the six months ended June 30, 2017 and 2016.

 

    Six Months Ended
    June 30, 2017   June 30, 2016
Consolidated Statements of Cash Flow Data:        
Cash flows used in operating activities   $ (3,408 )   $ (1,656 )
Cash flows used in investing activities     (534 )     (56 )
Cash flows provided by (used in) financing activities     9,872       (242 )
                 
Increase (decrease) in cash and cash equivalents   $ 5,930     $ (1,954 )

 

Operating Activities

 

Cash used in operating activities is primarily the result of our operating losses, reduced by the impact of the non-cash stock-based compensation amounts. These numbers are further impacted by adjustments for non-cash interest expense.

 

Net cash used in operating activities during the six months ended June 30, 2017 was $3.4 million, as a result of a net loss of $9.6 million, stock-based compensation of $5.0 million, other non-cash charges of $1.3 million, and changes in operating assets and liabilities that used $138,293 in cash. Other current assets increased by $103,114, inventory increased by $120,000, accounts payable increased by $72,634, accrued liabilities increased by $9,279, and other non-current assets decreased by $2,908.

 

Net cash used in operating activities during the six months ended June 30, 2016 was $1.7 million, as a result of a net loss of $2.9 million, stock-based compensation of $1.3 million, other non-cash charges of $306,179    , and changes in operating assets and liabilities that used $356,781 in cash.

 

We expect cash used in operating activities to fluctuate significantly in future periods as a result of a number of factors, some of which are outside of our control, including, among others: the success we achieve in generating revenue; the success we have in helping our customers obtain financing to subsidize their purchases of our products; our ability to efficiently develop our dealer and service network; the costs of batteries and other materials utilized to make our products; the extent to which we need to invest additional funds in research and development; and the amount of expense we incur to satisfy future warranty claims.

 

Investing Activities

 

Net cash used in investing activities during the six months ended June 30, 2017 was $533,652. This was due to the acquisition of property and equipment and issuing a note to a third party. See Note 2 to the unaudited consolidated financial statements contained in this report.

 

Net cash used in investing activities during the six months ended June 30, 2016 was $55,990 This was due to the acquisition of $45,990 of property and equipment and a $10,000 investment in Silicon Turbine Solutions.

 

Financing Activities

 

Net cash provided by financing activities during the six months ended June 30, 2017 was $9.9 million. This is due to net proceeds of $12.6 million received from the closing of our IPO, a $1.5 million repayment of notes payable principal and related accrued and unpaid interest, and net notes payable proceeds of $500,000. This is offset by payments for costs related to our IPO of $1.7 million. See Note 5 to the unaudited consolidated financial statements contained in this report.

 

Net cash used by financing activities during the six months ended June 30, 2016 was $241,445 This is due to net proceeds of $184,900   from sales of capital stock, $64,000 paid for a stock rescission, and to a $7,500 repayment of notes payable principal, offset by payments for costs related to our IPO of $354,845.

 

19

 

 

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.

 

Jumpstart Our Business Startups Act of 2012 (JOBS Act)

 

We are an “emerging growth company,” or an EGC, as defined in the JOBS Act. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for EGCs. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We have chosen to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an EGC we are not required to, among other things, (i) being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure, (ii) not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting, (iii) not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, (iv) reduced disclosure obligations regarding executive compensation or (v) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

We will retain our EGC status until the first to occur of: (i) the end of the fiscal year in which the fifth anniversary of the completion of our IPO occurred, (ii) the end of the fiscal year in which our annual revenues exceed $1 billion, (iii) the date on which we issue more than $1 billion in non-convertible debt during any three-year period or (iv) the date on which we qualify as a “large accelerated filer.”

 

Critical Accounting Policies Judgments and Estimates

 

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

 

We believe that the assumptions and estimates associated with the preparation of the financial statement information presented in this Quarterly Report are not significant because we have not generated any appreciable revenue. Therefore, we have not had to make assumptions or estimates related to a reserve for bad debt expense, or for future warranty costs to be incurred, two items that will have the greatest potential impact on our consolidated financial statements in the future. We also have no significant current litigation on which we have to provide reserves or estimate accruals and our investment to date in property, plant and equipment has not been significant. We therefore have not had to rely on estimates related to impairment. We have not generated any taxable income to date, so have not had to make any decisions about future profitability that would impact recording income tax expense. Assuming we are able to generate future profits by executing our business plan, these areas, among others, will most likely be our critical accounting policies and estimates. For further information on all of our significant accounting policies, see Note 2 to our unaudited consolidated financial statements.

 

There have been no material changes to the critical accounting policies disclosed in the Company’s Form 1-A, which was declared qualified by the Securities and Exchange Commission (the “SEC”) on April 25, 2017.

 

20

 

 

Recent Accounting Pronouncements

 

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): “Scope of Modification Accounting.” The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including any interim period, for reporting periods for which financial statements have not been issued. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

We are exposed to market risks in the ordinary course of our business. We do not currently face material market risks such as interest rate fluctuation risk and foreign currency exchange risk. Our cash and cash equivalents include cash in readily available checking and money market accounts. These investments are not dependent on interest rate fluctuations that may cause the principal amount of these investments to fluctuate, and we do not expect such fluctuation will have a material impact on our financial conditions. If we issue additional debt in the future, we will be subject to interest rate risk. The majority of our expenses are denominated in the U.S. dollar.

 

As we continue our commercialization efforts internationally, we may generate revenue and incur expenses denominated in currencies other than the U.S. dollar, a majority of which we expect to be denominated in Chinese Yuan. As a result, as operations of ADOMANI China expand in the future, our revenue may be significantly impacted by fluctuations in foreign currency exchange rates. We may face risks associated with the costs of raw materials, primarily batteries, as we go into production. To the extent these and other risks materialize, they could have a material effect on our operating results or financial condition. We currently anticipate that our international selling, marketing and administrative costs related to foreign sales will be largely denominated in the same foreign currency, which may mitigate our foreign currency exchange risk exposure.

 

ITEM 4. CONTROLS AND PROCEDURES

 

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Our management, with the participation of our chief executive officer and chief financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act). Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of June 30, 2017 due to the material weaknesses in internal control over financial reporting which existed since December 31, 2016. Specifically, these material weaknesses are as follows: (1) limited segregation of duties; (2) lack of system in place to keep appropriate records for expenses incurred, specifically for operations in China; and (3) need for training and expertise to account for complex equity transactions, which may result in a greater than normal risk that material errors may occur in the financial statements and not be detected timely. The Company has not conducted an evaluation of the effectiveness of internal control over financial reporting. We will be required to assess internal control over financial reporting for the year ending December 31, 2018, and report any material weaknesses in such internal control, but we intend to address this issue prior to such date.

 

21

 

 

Effective June 9, 2017, we added three independent directors to our Board to replace three employee directors. We created concurrently three committees of the Board, including an audit committee, on which the three independent directors serve. Except as noted above, there were no other changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2017.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

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.

 

ITEM 1A. RISK FACTORS

 

There were no material changes from the risk factors previously disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017, as filed with the SEC on June 19, 2017.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

(a)       Recent Sales of Unregistered Securities

 

In March 2017, the Board consented to the grant of options to purchase an aggregate of 3,600,000 shares of Common Stock to 13 people (employees and current and prospective Board members). The options will vest over a three-year period and the exercise price per share is $10.49, which was determined on the basis of the average of the trading price of the Company’s Common Stock on the Nasdaq Capital Market for the first ten days following the close of the IPO.

 

On May 12, 2017, the Company issued a warrant to purchase 199,659 shares of Common Stock, subject to stock splits or other similar changes in our capital structure, to Boustead Securities, LLC for services rendered in connection with the closing of our IPO. The warrant has an exercise price of $6.00 per share, becomes exercisable on October 22, 2017, and expires on April 25, 2022. See Note 5 to the unaudited consolidated financial statements contained in this report.

 

On June 19, 2017, the Company issued a warrant to purchase 350,000 shares of Common Stock, subject to stock splits or other similar changes in our capital structure, to Redwood Group International Limited under the terms of a settlement agreement. The warrant has an exercise price of $5.00 per share, becomes exercisable on December 16, 2017, and expires on June 19, 2022. See Note 5 to the unaudited consolidated financial statements contained in this report.

 

The issuances described above were made pursuant to written compensatory plans or agreements in reliance on the exemption provided by Rule 701 promulgated under Section 3(b) of the Securities Act or in reliance on Section 4(a)(2) and Regulation D promulgated under the Securities Act as transactions by an issuer not involving a public offering, to the extent an exemption from such registration was required. Except as set forth above, no underwriters were involved in the foregoing sales of securities.

 

22

 

 

(b)       Use of Proceeds

 

Not applicable.

 

(c)        Issuer Purchases of Equity Securities

 

Not applicable.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

A list of exhibits is set forth on the Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

 

23

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  

 

  ADOMANI, Inc.  
       
Date: August 14, 2017 By: /s/ James L. Reynolds  
    James L. Reynolds  
    Chief Executive Officer  
    (Principal Executive Officer)  
       
Date: August 14, 2017 By: /s/ Michael K. Menerey  
    Michael K. Menerey  
    Chief Financial Officer  
    (Principal Financial and Accounting Officer)  
       

 

 

24

 

 

Exhibit Index

 

    Incorporated by Reference  

Exhibit

Number

Exhibit Description Form File No. Exhibit

Filing

Date

Filed

Herewith

             
4.1 Form of Common Stock Purchase Warrant, dated June 26, 2017, issued to Boustead Securities, LLC         X
             
4.2 Form of Common Stock Purchase Warrant, dated June 19, 2017, issued to Redwood Group International Limited         X
             
31.1 Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer         *
             
31.2 Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer         *
             
32.1# 18 U.S.C. Section 1350 Certification of Chief Executive Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002         *
             
32.2# 18 U.S.C. Section 1350 Certification of Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002         *
             
101.INS XBRL Instance Document*          
             
101.SCH XBRL Taxonomy Extension Schema Document*          
             
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*          
             
101.LAB XBRL Taxonomy Extension Label Linkbase Document*          
             
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*          
             
101.DEF XBRL Taxonomy Extension Definitions Linkbase Document*          

 

#       The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act (including this report), unless the Registrant specifically incorporates the foregoing information into those documents by reference.

 

*       In accordance with Rule 402 of Regulation S-T, this interactive data file is deemed not filed or part of this Quarterly Report for purposes of Sections 11 or 12 of the Securities Act or Section 18 of the Exchange Act and otherwise is not subject to liability under these sections.

 

 

25

 

Exhibit 4.1

 

THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES BY HIS, HER OR ITS ACCEPTANCE HEREOF, THAT SUCH HOLDER WILL NOT FOR A PERIOD OF ONE HUNDRED EIGHTY (180) DAYS FOLLOWING THE QUALIFICATION DATE (AS DEFINED BELOW) OF THE OFFERING STATEMENT: (A) SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT TO ANYONE OTHER THAN OFFICERS OR PARTNERS OF BOUSTEAD SECURITIES, LLC, EACH OF WHOM SHALL HAVE AGREED TO THE RESTRICTIONS CONTAINED HEREIN, IN ACCORDANCE WITH FINRA CONDUCT RULE 5110(G)(1), OR (B) CAUSE THIS PURCHASE WARRANT OR THE SECURITIES ISSUABLE HEREUNDER TO BE THE SUBJECT OF ANY HEDGING, SHORT SALE, DERIVATIVE, PUT OR CALL TRANSACTION THAT WOULD RESULT IN THE EFFECTIVE ECONOMIC DISPOSITION OF THIS PURCHASE WARRANT OR THE SECURITIES HEREUNDER, EXCEPT AS PROVIDED FOR IN FINRA RULE 5110(G)(2).

 

THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO OCTOBER 22, 2017. VOID AFTER 5:00 P.M., EASTERN TIME, APRIL 25, 2022.

 

COMMON STOCK PURCHASE WARRANT

For the Purchase of 199,659 Shares of Common Stock of

ADOMANI, INC.

 

1.    Purchase Warrant . THIS CERTIFIES THAT, pursuant to that certain Underwriting Agreement by and between Adomani, Inc., a Delaware corporation (the “ Company ”) and Boustead Securities, LLC (“ Boustead ”), as representative (the “ Representative ”) of the several underwriters listed in Schedule A thereto (the “ Underwriters ”), dated May 12, 2017 (the “ Underwriting Agreement ”), Boustead (in such capacity with its permitted successors or assigns, the “ Holder ”), as registered owner of this Purchase Warrant, is entitled, at any time or from time to time from October 22, 2017 (the “ Exercise Date ”), and at or before 5:00 p.m., Eastern time, April 25, 2022 (the “ Expiration Date ”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to 199,659 shares of common stock of the Company, par value $0.00001 per share (the “ Shares ”), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law or executive order to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period commencing on the date hereof and ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $6.00 per Share (one hundred twenty percent (120.0%)) of the price of the Shares sold in the Offering); provided, however, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term “ Exercise Price ” shall mean the initial exercise price or the adjusted exercise price, depending on the context. Any term not defined herein shall have the meaning ascribed thereto in the Underwriting Agreement.

 

2.    Exercise .

 

2.1    Exercise Form . In order to exercise this Purchase Warrant, the exercise form attached hereto as Exhibit A (the “ Exercise Form ”) must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check to the order of the Company. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.

 

 

 

2.2    Cashless Exercise . In lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the Exercise Form, in which event the Company shall issue to Holder, Shares in accordance with the following formula:

 

X = Y(A − B)  
A  

 

Where, X = The number of Shares to be issued to Holder;
  Y = The number of Shares for which the Purchase Warrant is being exercised;
  A = The fair market value of one Share; and
  B = The Exercise Price.

 

For purposes of this Section 2.2 , the fair market value of a Share is defined as follows:

 

(i)    if the Company’s common stock is traded on a securities exchange, the value shall be deemed to be the closing price on such exchange on the trading day immediately prior to the Exercise Form being submitted in connection with the exercise of this Purchase Warrant; or

 

(ii)    if the Company’s common stock is actively traded over-the-counter, the value shall be deemed to be the closing bid price on the trading day immediately prior to the Exercise Form being submitted in connection with the exercise of the Purchase Warrant; if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors.

 

2.3    Legend . Each certificate for the securities purchased under this Purchase Warrant shall bear a legend as follows unless such securities have been registered under the Securities Act of 1933, as amended (the “ Act ”):

 

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Act”), or applicable state law. Neither the securities nor any interest therein may be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act, or pursuant to an exemption from registration under the Act and applicable state law which, in the opinion of counsel to the Company, is available.”

 

 3.    Transfer.

 

3.1    General Restrictions . The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not for a period of one hundred eighty (180) days following the Qualification Date of the Offering Statement: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant to anyone other than: (i) Boustead or an underwriter or a selected dealer participating in the offering (the “ Offering ”) contemplated by the Underwriting Agreement, or (ii) officers or partners of Boustead, each of whom shall have agreed to the restrictions contained herein, in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(g)(2). On and after that date that is one hundred eighty (180) days after the Qualification Date of the Offering Statement, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto as Exhibit B duly executed and completed, together with this Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) Business Days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.

 

 

 

3.2    Restrictions Imposed by the Act . The securities evidenced by this Purchase Warrant shall not be transferred unless and until: (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration under the Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company, (ii) a Registration Statement relating to the offer and sale of such securities that includes a current prospectus with respect to which the Holder has exercised its registration rights pursuant to Section 4.2 herein, has been filed and declared effective by the Securities and Exchange Commission (the “ Commission ”) and compliance with applicable state securities law has been established.

 

4.    Registration Rights .

 

4.1 Demand Registration .

 

4.1.1   Grant of Right . The Company, upon written demand (a “ Demand Notice ”) of the Holder(s) of at least fifty-one percent (51%) of the Purchase Warrants and/or the underlying shares (“ Majority Holders ”), agrees to register, on one occasion, all or any portion of the shares underlying the Purchase Warrants (collectively, the “ Registrable Securities ”). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; provided , however , that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 4.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The demand for registration may be made at any time during a period of four (4) years beginning on the Exercise Date. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holder(s) to all other registered Holders of the Purchase Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice.

 

4.1.2   Terms . The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 4.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such States as are reasonably requested by the Holder(s); provided , however , that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal stockholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 4.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 4.1.2, the Holder shall be entitled to a demand registration under this Section 4.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the qualification date of the registration statement in accordance with FINRA 5110(f)(2)(G)(iv).

 

 

 

4.2 “Piggy-Back” Registration .

 

4.2.1   Grant of Right . Unless all of the Shares underlying the Purchase Warrants (collectively, the “ Registrable Securities ”) are included in an effective registration statement with a current prospectus, the Holder shall have the right, for a period of five (5) years commencing one hundred eighty (180) days after the Qualification Date, to include the remaining Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145 promulgated under the Act or pursuant to Form S-3 or any equivalent form); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of shares of Common Stock which may be included in the registration statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such registration statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities.

 

4.2.2   Terms . The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 4.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty

(30) days written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice, within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Purchase Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 4.2.2 .

 

4.3 General Terms .

 

4.3.1   Indemnification . The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”), against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriter contained in Section 5.1 of the Underwriting Agreement. The Holder(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriter has agreed to indemnify the Company.

 

 

 

4.3.2   Exercise of Purchase Warrants . Nothing contained in this Purchase Warrant shall be construed as requiring the Holder(s) to exercise their Purchase Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.

 

4.3.3   Documents Delivered to Holders . If the registration statement includes an underwritten public offering, the Company shall furnish to each underwriter of any such offering, a signed counterpart, addressed to such underwriter, of: (i) an opinion of counsel to the Company, dated as of the date on which the Registrable Securities are delivered to the underwriter for sale pursuant to such registration, and (ii) a “cold comfort” letter dated the effective date of such registration statement and the date of the closing under the underwriting agreement signed by the independent registered public accounting firm which has issued a report on the Company’s financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriter(s) in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter(s) to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.

 

4.3.4   Underwriting Agreement . The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 4 , which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing Underwriter, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such Underwriter(s) shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the Underwriter(s) except as they may relate to such Holders, their Shares and their intended methods of distribution.

 

 

 

 

4.3.5   Documents to be Delivered by Holder(s) . Each of the Holder(s) participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.

 

4.3.6   Damages . Should the registration or the effectiveness thereof required by Section 4.3 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holder(s) shall, in addition to any other legal or other relief available to the Holder(s), be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.

 

4.3.7 Rule 144 Registration . The provisions of this Section 4 shall be inapplicable to the extent the Registrable Securities become eligible for sale by the Holder without the need for current pubic information or other restriction pursuant to Rule 144 under the Act.

 

5.    New Purchase Warrants to be Issued .

 

5.1    Partial Exercise or Transfer . Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereof, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.

 

5.2    Lost Certificate . Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.

 

6.    Adjustments .

 

6.1    Adjustments to Exercise Price and Number of Shares . The Exercise Price and the number of Shares underlying this Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:

 

6.1.1   Share Dividends; Split Ups . If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding shares, and the Exercise Price shall be proportionately decreased.

 

6.1.2   Aggregation of Shares . If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding shares, and the Exercise Price shall be proportionately increased.

 

 

 

6.1.3   Replacement of Shares upon Reorganization, etc . In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 6.1.1 or Section 6.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or Section 6.1.2 , then such adjustment shall be made pursuant to Section 6.1.1 , Section 6.1.2 and this Section 6.1.3 . The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.

 

6.1.4   Changes in Form of Purchase Warrant . This form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1 , and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the date hereof or the computation thereof.

 

6.2              Substitute Purchase Warrant . In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares of the Company for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 6 . The above provision of this Section 6 shall similarly apply to successive consolidations or share reconstructions or amalgamations.

 

6.3              Elimination of Fractional Interests . The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.

 

 

 

7.    Reservation and Listing . The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of this Purchase Warrant, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of this Purchase Warrant and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. The Company further covenants and agrees that upon exercise of this Purchase Warrant and payment of the exercise price therefor, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. As long as this Purchase Warrant shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of this Purchase Warrant to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.

 

8.    Certain Notice Requirements .

 

8.1    Holder’s Right to Receive Notice . Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a shareholder for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen days prior to the date fixed as a record date or the date of closing the transfer books (the “ Notice Date ”) for the determination of the shareholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other shareholders of the Company at the same time and in the same manner that such notice is given to the shareholders.

 

8.2    Events Requiring Notice . The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.

 

8.3    Notice of Change in Exercise Price . The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change (“ Price Notice ”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Financial Officer.

 

 

 

8.4    Transmittal of Notices . All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made (1) when hand delivered, (2) when mailed by express mail or private courier service, (3) when the event requiring notice is disclosed in all material respects and filed in a current report on Form 8-K or in a definitive proxy statement on Schedule 14A prior to the Notice Date or (4) if sent by electronic mail, on the day the notice was sent if during regular business hours and, if sent outside of regular business hours, on the following business day: (i) if to the registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to following address or to such other address as the Company may designate by notice to the Holders:

 

If to the Holder:

 

Boustead Securities, LLC

898 North Sepulveda Blvd, #400 El Segundo, California 90245 Facsimile: 815-301-8099

Attn: Daniel J. McClory, Managing Director With a copy (which shall not constitute notice) to:

Orrick, Herrington & Sutcliffe LLP 405 Howard Street

San Francisco, California 94105 Facsimile: 415-773-5759

Attn: Andrew Thorpe, Esq.

 

If to the Company:

 

Adomani, Inc.

620 Newport Center Drive, Suite 1100 Newport Beach, California 90245 Email: jim.r@adomanielectric.com

Attn: Jim Reynolds, Chief Executive Officer With a copy (which shall not constitute notice) to:

DLA Piper LLP (US)

2000 University Avenue

East Palo Alto, California 94303-2215 Facsimile: 650-687-1170

Attn: Curtis L. Mo, Esq.

 

9.    Miscellaneous .

 

9.1    Amendments . The Company and Boustead may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and Boustead may deem necessary or desirable and that the Company and Boustead deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.

 

 

 

9.2    Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.

 

9.3    Entire Agreement . This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

 

9.4    Binding Effect . This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees and respective successors and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.

 

9.5    Governing Law; Submission to Jurisdiction . This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York located in the Borough of Manhattan in the City of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor.

 

9.6    Waiver, etc . The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.

 

9.7    Exchange Agreement . As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and Boustead enter into an agreement (“ Exchange Agreement ”) pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.

 

 

 

9.8    Execution in Counterparts . This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.

 

[Remainder of page intentionally left blank.]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT A

 

Form to be used to exercise Purchase Warrant: Date: _____, 20 _____

 

The undersigned hereby elects irrevocably to exercise the Purchase Warrant for Shares of Adomani, Inc., a Delaware corporation (the “ Company ”) and hereby makes payment of $ (at the rate of $ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.

 

or

 

The undersigned hereby elects irrevocably to convert its right to purchase Shares under the Purchase Warrant for Shares, as determined in accordance with the following formula:

 

X = Y(A − B)  
A  

 

Where, X = The number of Shares to be issued to Holder;
  Y = The number of Shares for which the Purchase Warrant is being exercised;
  A = The fair market value of one Share which is equal to $ ; and
  B = The Exercise Price which is equal to $ per share

 

The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.

 

Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.

 

Signature

 

Signature Guaranteed

 

 

 

 

 

INSTRUCTIONS FOR REGISTRATION OF SECURITIES

 

Name:

 

(Print in Block Letters) Address:

 

NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.

 

 

 

 

EXHIBIT B

 

 

Form to be used to assign Purchase Warrant:

 

(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):

 

FOR VALUE RECEIVED, does hereby sell, assign and transfer unto the right to purchase shares of Adomani, Inc., a Delaware corporation (the “ Company ”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.

 

Dated: _____, 20 _____

 

Signature

 

 

NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever.

 

 

 

Exhibit 4.2

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

 

THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES BY HIS, HER OR ITS ACCEPTANCE HEREOF, THAT SUCH HOLDER WILL NOT FOR A PERIOD OF ONE HUNDRED EIGHTY (180) DAYS FOLLOWING THE EARLIER OF (I) DECEMBER 16, 2017 OR (II) A CHANGE OF CONTROL (AS DEFINED BELOW): (A) SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT TO ANYONE, OR (B) CAUSE THIS PURCHASE WARRANT OR THE SECURITIES ISSUABLE HEREUNDER TO BE THE SUBJECT OF ANY HEDGING, SHORT SALE, DERIVATIVE, PUT OR CALL TRANSACTION THAT WOULD RESULT IN THE EFFECTIVE ECONOMIC DISPOSITION OF THIS PURCHASE WARRANTOR THE SECURITIES HEREUNDER, EXCEPT AS PROVIDED FOR IN FINRA RULE 5110(G)(2).

 

THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO THE EARLIER OF (A) DECEMBER 16, 2017 OR (B) A CHANGE OF CONTROL (AS DEFINED BELOW). VOID AFTER 5:00 P.M., EASTERN TIME, JUNE 19, 2022.

 

COMMON STOCK PURCHASE WARRANT ADOMANI, INC.

 

Number of Shares of Common Stock: 350,000 Date of Issuance: June 19, 2017

 

1.                   Purchase Warrant . THIS CERTIFIES THAT, pursuant to that certain Settlement and Release Agreement by and between ADOMANI, Inc., a Delaware corporation (the “ Company ”) and Redwood Group International Limited (“ Redwood ”), dated June 8, 2017 (the “ Agreement ”), Redwood (in such capacity with its permitted successors or assigns, the “ Holder ”), as registered owner of this Purchase Warrant, is entitled, at any time or from time to time from the earlier of (a) December 16, 2017 or (b) a Change of Control (the “ Exercise Date ”), and at or before 5:00 p.m., Eastern time, June 19, 2022 (the “ Expiration Date ”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to 350,000 shares of common stock of the Company, par value $0.00001 per share (the “ Shares ”), subject to adjustment as provided in Section 5 hereof. If the Expiration Date is a day on which banking institutions are authorized by law or executive order to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period commencing on the date hereof and ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $5.00 per Share; provided, however , that upon the occurrence of any of the events specified in Section 5 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term “ Exercise Price ” shall mean the initial exercise price or the adjusted exercise price, depending on the context, and the term “ Change of Control ” shall mean (i) the consummation of a merger or consolidation in which the Company is not the surviving entity, except for a transaction in which the holders of the outstanding voting securities of the Company immediately prior to such merger or consolidation hold as a result of holding securities of the Company prior to such transaction, in the aggregate, securities of the Company possessing at least fifty percent (50%) of the total combined voting power of all outstanding voting securities of the surviving entity immediately after such merger or consolidation; or (ii) the sale, transfer, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole.

 

 

 

2.                   Exercise .

 

2.1               Exercise Form . In order to exercise this Purchase Warrant, the exercise form attached hereto as Exhibit A (the “ Exercise Form ”) must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check to the order of the Company. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.

 

2.2               Cashless Exercise . In lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the Exercise Form, in which event the Company shall issue to Holder, Shares in accordance with the following formula:

 

X = Y (A – B)

      A

 

where:

 

X = the number of Shares to be issued to the Holder pursuant to this Section 2 ;

Y = the number of Shares that would be issuable upon exercise of this Purchase if such exercise were by means of a cash exercise pursuant to Section 2.1 rather than a cashless exercise pursuant to this Section 2.2 ;

A = the fair market value of one Share, as determined in accordance with the provisions of this Section 2 ; and

B = the Exercise Price in effect under this Purchase Warrant at the time the election to exercise the Purchase Warrant on a cashless basis is made pursuant to this Section 2 .

 

For purposes of this Section 2.2, the fair market value of a Share is defined as follows:

 

(i)                  if the Company’s common stock is traded on a securities exchange, the value shall be deemed to be the arithmetic average of the closing price on such exchange for the five (5) consecutive trading days ending on the date immediately preceding the date of the Exercise Form submitted in connection with the exercise of this Purchase Warrant; or

 

(ii)                if the Company’s common stock is actively traded over-the-counter, the value shall be deemed to be the arithmetic average of the closing bid price for the five (5) consecutive trading days ending on the date immediately preceding the date of the Exercise Form submitted in connection with the exercise of the Purchase Warrant; or

 

(iii) if there is no active public market for the Company’s common stock, the value

 

  2  

 

shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors.

 

2.3               Legend . Each certificate for the securities purchased under this Purchase Warrant shall bear a legend as follows unless such securities have been registered under the Securities Act of 1933, as amended (the “ Act ”):

 

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “ Act ”), or applicable state securities laws. Neither the securities nor any interest therein may be offered for sale, sold, transferred or assigned (i) in the absence of (a) an effective registration statement for the securities under the Act or (b) an opinion of counsel selected by the Holder, in form and substance reasonably acceptable to the Company, that registration is not required under the Act.”

 

3.                   Transfer .

 

3.1               General Restrictions . The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not for a period of one hundred eighty (180) days following the Exercise Date (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant to anyone or (b) cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(g)(2). On and after that date that is one hundred eighty (180) days after the Exercise Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto as Exhibit B duly executed and completed, together with this Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) Business Days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.

 

4.                   New Purchase Warrants to be Issued .

 

4.1               Partial Exercise or Transfer . Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereof, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.

 

4.2               Lost Certificate . Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.

 

5.                   Adjustments .

 

5.1               Adjustments to Exercise Price and Number of Shares . The Exercise Price and the number of Shares underlying this Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:

 

  3  

 

(a)                 Share Dividends; Split Ups . If, after the date hereof, and subject to the provisions of Section 5.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding shares, and the Exercise Price shall be proportionately decreased.

 

(b)                Aggregation of Shares . If, after the date hereof, and subject to the provisions of Section 5.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding shares, and the Exercise Price shall be proportionately increased.

 

(c)                 Replacement of Shares upon Reorganization, etc . In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 5.1(a) or Section 5.1(b) hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 5.1(a) or Section 5.1(b) , then such adjustment shall be made pursuant to Section 5.1(a) , Section 5.1(b) and this Section 5.1(c) . The provisions of this Section 5.1(c) shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.

 

(d)                Changes in Form of Purchase Warrant . This form of Purchase Warrant need not be changed because of any change pursuant to this Section 5.1 . The acceptance by the Holder of the issuance of a new Purchase Warrant reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the date hereof or the computation thereof.

 

5.2               Substitute Purchase Warrant . In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares of the Company for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 5 . The above provision of this Section 5 shall similarly apply to successive consolidations or share reconstructions or amalgamations.

 

  4  

 

5.3               Elimination of Fractional Interests . The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.

 

6.                   Reservation of Shares . The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of this Purchase Warrant, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of this Purchase Warrant and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any stockholder.

 

7.                   Certain Notice Requirements .

 

7.1               Holder’s Right to Receive Notice . Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a stockholder for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 7.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen days prior to the date fixed as a record date or the date of closing the transfer books (the “ Notice Date ”) for the determination of the stockholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other stockholders of the Company at the same time and in the same manner that such notice is given to the stockholders.

 

7.2               Events Requiring Notice . The Company shall be required to give the notice described in this Section 7 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.

 

7.3               Notice of Change in Exercise Price . The Company shall, within a reasonable time after an event requiring a change in the Exercise Price pursuant to Section 5 hereof, send notice to the Holders of such event and change (“ Price Notice ”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Financial Officer.

 

  5  

 

7.4               Transmittal of Notices . All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made (1) when hand delivered, (2) when mailed by express mail or private courier service, (3) when the event requiring notice is disclosed in all material respects and filed in a current report on Form 8-K or in a definitive proxy statement on Schedule 14A prior to the Notice Date or (4) if sent by electronic mail, on the day the notice was sent if during regular business hours and, if sent outside of regular business hours, on the following business day: (i) if to the registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to following address or to such other address as the Company may designate by notice to the Holders:

 

If to the Holder:

 

Han Kun Law

Suite 906, Office Tower C1, Oriental Plaza, No. 1

East Chang An Ave., Beijing 100738, P.R. China

Attention: Charles Li

Email: beijing@hankunlaw.com

 

With a copy (which shall not constitute notice) to:

 

Paul Hastings LLP

515 South Flower Street, Twenty-Fifth Floor

Los Angeles, California 90071

Attention: Nicolas Morgan

Email: nicholasmorgan@paulhastings.com

 

If to the Company:

 

ADOMANI, Inc.

620 Newport Center Drive, Suite 1100

Newport Beach, California 90245

Attention: Jim Reynolds, Chief Executive Officer

Email: jim.r@adomanielectric.com

 

With a copy (which shall not constitute notice) to:

 

K&L Gates LLP

1 Park Plaza, Twelfth Floor

Irvine, California 92614

Attention: Michael A. Hedge

Email: michael.hedge@klgates.com

 

8.                   Miscellaneous .

 

8.1               Amendments . The Company and Redwood may from time to time supplement or amend this Purchase Warrant in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and Redwood may deem necessary or desirable. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.

 

8.2               Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or

provisions of this Purchase Warrant.

 

  6  

 

8.3               Entire Agreement . This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

 

8.4               Binding Effect . This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees and respective successors and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.

 

8.5               Governing Law; Submission to Jurisdiction . This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of California, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the state or federal courts located in Orange County, California, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 7 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor.

 

8.6               Waiver, etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.

 

8.7               Execution in Counterparts . This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.

 

[Remainder of page intentionally left blank.]

 

 

  7  

 

IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the 19th day of June, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT

 

 

EXHIBIT A

 

EXERCISE FORM

The undersigned holder hereby exercises the right to purchase of the shares of Common Stock (“ Warrant Shares ”) of ADOMANI, Inc., a Delaware corporation (the “ Company ”), evidenced by the attached Common Stock Purchase Warrant (the “ Purchase Warrant ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Purchase Warrant.

 

1.     Form of Exercise Price . The Holder intends that payment of the Exercise Price shall be made

as:

 

______ a “ Cash Exercise ” with respect to ______ Warrant Shares; and/or

 

______ a “Cashless Exercise ” with respect to ______ Warrant Shares.

 

2.       Payment of Exercise Price . In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the aggregate Exercise Price in the sum of $ to the Company in accordance with the terms of the Purchase Warrant.

 

3.      Delivery of Warrant Shares . The Company shall deliver to the holder Warrant Shares in accordance with the terms of the Purchase Warrant. Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

 

 

 

___________________________________

 

Date: ____________________, _________

 

 

 

___________________________________

Name of Registered Holder

 

 

By:             Name:

Title:

 

 

 

 

 

 

E XHIBIT A

E XERCISE F ORM

 

 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

FOR VALUE RECEIVED, the undersigned registered owner of this Purchase Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned within the Purchase Warrant, with respect to the number of shares of Common Stock set forth below.

 

Name of Assignee   Address and Phone Number   No. of Shares
         
         

 

The undersigned also represents that, by assignment hereof, the Assignee acknowledges that this Purchase Warrant and the shares of stock to be issued upon exercise hereof or conversion thereof are being acquired for investment and that the Assignee will not offer, sell or otherwise dispose of this Purchase Warrant or any shares of stock to be issued upon exercise hereof or conversion thereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. Further, the Assignee has acknowledged that upon exercise of this Purchase Warrant, the Assignee shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the shares of stock so purchased are being acquired for investment and not with a view toward distribution or resale.

 

 

 

Signature of Holder

 

Date

 

The undersigned assignee agrees to be bound by all of the terms and conditions of this Purchase Warrant.

 

 

Signature of Assignee

 

Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

E XHIBIT B

A SSIGNMENT F ORM

 

Exhibit 31.1

 

Certification pursuant to

Rules 13a-14(a) and 15d-14(a) of the

Securities Exchange Act of 1934

 

I, James L. Reynolds, certify that:

 

1.       I have reviewed this Quarterly Report on Form 10-Q of ADOMANI, Inc.;

 

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2017

 

By: /s/ James L. Reynolds
  James L. Reynolds
  Chief Executive Officer
  (Principal Executive Officer)

 

 

 

 

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a) OR RULE 15d-14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

I, Michael K. Menerey, certify that:

 

1.       I have reviewed this Quarterly Report on Form 10-Q of ADOMANI, Inc.;

 

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2017

 

By: /s/ Michael K. Menerey
  Michael K. Menerey
  Chief Financial Officer
  (Principal Financial Officer)

 

 

 

Exhibit 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350

 

In connection with the Quarterly Report of ADOMANI, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James L. Reynolds, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 

(i)       the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

(ii)       the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 14, 2017

 

By: /s/ James L. Reynolds
Name: James L. Reynolds
Title: Chief Executive Officer
  (Principal Executive Officer)

 

 

A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification will not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference.

 

 

 

 

Exhibit 32.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350

 

In connection with the Quarterly Report of ADOMANI, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael K. Menerey, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 

(i)       the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

(ii)       the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 14, 2017

 

By: /s/ Michael K. Menerey
  Michael K. Menerey
  Chief Financial Officer
  (Principal Financial Officer)

 

 

A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification will not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference.