The following discussion of our financial condition and the results of operations should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q ("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 "Special Note Regarding Forward-Looking Statements" above, and elsewhere in this Quarterly Report, particularly in Part II, Item 1A "Risk Factors," below.
Overview
We are a provider of purpose-built zero-emission electric vehicles focused on reducing the total cost of vehicle ownership and helping fleet operators unlock the benefits of green technology. We serve commercial and last-mile fleets, school districts, public and private transportation service companies and colleges and universities to meet the increasing demand for light to heavy-duty electric vehicles. Our vehicles address the challenges of traditional fuel price instability and local, state and federal regulatory compliance. As discussed in Item 1, Notes 2 and 3 to the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q, as a result of the closing of the Merger onMarch 15, 2021 , the historical results discussed in this section of the Quarterly Report on Form 10-Q are those of EVTDS as ofJune 30, 2022 , which include the consolidated balance sheet accounts ofEnvirotech Vehicles, Inc. (formerlyADOMANI, Inc. ) and subsidiaries, and for the fiscal period endedJune 30, 2022 , which include the consolidated results of operations ofEVTDS andEnvirotech Vehicles, Inc. (formerlyADOMANI, Inc. ) and subsidiaries for the entire three month period. The consolidated financial statements and related disclosures as ofMarch 31, 2021 include the consolidated balance sheet accounts ofEnvirotech Vehicles, Inc. (formerlyADOMANI, Inc. ) and subsidiaries, including EVTDS. The consolidated results of operations for the three months endedMarch 31, 2021 include the results of operations of EVTDS for the entire period and include the consolidated results of operations ofEnvirotech Vehicles, Inc. (formerlyADOMANI, Inc. ) and subsidiaries for the post-merger periodMarch 16, 2021 throughMarch 31, 2021 . OnMay 26, 2021 , the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company with the Secretary of State of theState of Delaware to change its name fromADOMANI, Inc. toEnvirotech Vehicles, Inc. , effective as ofMay 26, 2021 . For the three months endedJune 30, 2022 and 2021, we generated sales revenue of$2,087,700 and$188,266 , respectively, and our net losses were$1,010,264 and$893,079 , respectively. For the six months endedJune 30, 2022 and 2021, we generated sales revenue of$3,196,200 and$659,059 , respectively, and our net losses were$3,557,661 and$1,551,589 , respectively. The 2022 loss includes approximately$1.65 million of non-cash expenses.
Factors Affecting Our Performance
We believe that the growth and future success of our business depend on various opportunities, challenges and other factors, including the following:
COVID-19
pandemic.
Global health concerns related to the ongoing COVID-19 pandemic have resulted in social, economic and labor instability in the countries in which we or the third parties with whom we engage operate, and resulted in unexpected legal and regulatory changes, such as travel, social distancing and quarantine policies, boycotts, curtailment of trade, and other business restrictions that have negatively impacted our ability to procure and sell our products and provide our services. Accordingly, our future performance will depend in part upon our ability to successfully respond and adapt to these challenges. We have developed, and continue to develop, plans to address the ongoing effects and help mitigate the potential negative impact of the pandemic on our business. Availability of government subsidies, rebates and economic incentives. We believe that the availability of government subsidies, rebates, and economic incentives is currently a critical factor considered by our customers when purchasing our zero-emission systems or converting their existing vehicles to zero-emission-electric or hybrids, and that our growth depends in large part on the availability and amounts of these subsidies and economic incentives. As an alternative to being dependent on such funding, however, we are exploring the possibility of leasing our vehicles to our customers as well.
New customers. We are competing with other companies and technologies to help fleet managers and their districts/companies more efficiently and cost-effectively manage their fleet operations. Once these fleet managers have decided they want to buy from us, we still face challenges helping them obtain financing options to reduce the cost barriers to purchasing. We may also encounter customers with inadequate electrical services at their facilities that may delay their ability to purchase from us.
Dependence on external sources of financing of our operations. We have historically depended on external sources for capital to finance our operations. Accordingly, our future performance will depend in part upon our ability to achieve independence from external sources for the financing of our operations.
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Investment in growth. We plan to continue to invest for long-term growth. We anticipate that our operating expenses will increase in the foreseeable future as we invest in research and development to enhance our zero-emission electric vehicles and systems; design, develop and manufacture our commercial fleet vehicles and their components; increase our sales and marketing to acquire new customers; and increase our general and administrative functions to support our growing operations. We believe that these investments will contribute to our long-term growth, although they will adversely affect our results of operations in the near term. In addition, the timing of these investments can result in fluctuations in our annual and quarterly operating results. Zero-emission electric vehicle experience. Our dealer and service network is not currently completely 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 fleet vehicle experience. Our performance will depend on having a robust dealer and service network, which will require appropriately trained technicians to be successful. Because vehicles that utilize our technology are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in zero-emission electric vehicles may not be available to hire, and we may need to expend significant time and expense training the employees we do hire. If we are not able to attract, assimilate, train or retain additional highly qualified personnel in the future, or do so cost-effectively, our performance would be significantly and adversely affected. Market growth. We believe the market for all-electric solutions for alternative fuel technology, specifically all-electric vehicles, will continue to grow as more purchases of new zero-emission vehicles and as more conversions of existing fleet vehicles to zero-emission vehicles are made. However, unless the costs to produce such vehicles decrease dramatically, purchases of our products will continue to depend in large part on financing subsidies from government agencies. We cannot be assured of the continued availability, the amounts of such assistance to our customers, or our ability to access such funds. Sales revenue growth from additional products . We seek to add to our product offerings additional zero-emission vehicles of all sizes to be marketed, sold, warrantied and serviced through our developing distribution and service network, as well as add other ancillary products discussed elsewhere in this report.
Third-party contractors, suppliers and manufacturers. We rely upon third parties to supply us with raw materials, parts, components and services in adequate quantity in a timely manner and at reasonable prices, quality levels, and volumes acceptable to us.
Components of Results of Operations
Sales
Sales are recognized from the sales of new, purpose-built zero-emission electric vehicles and from providing vehicle maintenance and safety inspection services. Sales are recognized in accordance with Accounting Standards Codification ("ASC") Topic 606, as discussed in Note 2 to our unaudited consolidated financial statements included in this Quarterly Report.
Cost of Sales
Cost of sales includes those costs related to the development, manufacture, and distribution of our products. Specifically, we include in cost of sales each of the following: material costs (including commodity costs); freight costs; labor and other costs related to the development and manufacture of our products; and other associated costs. Cost of sales also includes costs related to the valuation of inventory due to impairment, obsolescence, or shrinkage.
General and Administrative Expenses
Selling, general and administrative expenses include all corporate and administrative functions that support our company, including personnel-related expense and stock-based compensation costs; costs related to investor relations activities; warranty costs, including product recall and customer satisfaction program costs; consulting costs; marketing-related expenses; and other expenses that cannot be included in cost of sales.
Consulting and Research and Development Costs
These expenses are related to our consulting and research and development activity.
Other Income/Expenses, Net
Other income/expenses include non-operating income and expenses, including interest income and expense. 19
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Provision for Income Taxes
We account for income taxes in accordance with
Results of Operations
The following discussion compares operating data for the three and six months
ended
Sales
Sales were
Cost of Sales
Cost of sales were
General and Administrative Expenses
General and administrative expenses were$1,646,136 and$836,246 for the three months endedJune 30, 2022 and 2021, respectively, an increase of$809,890 . The increase was primarily due to$389,036 of professional fees mostly legal fees; to$199,640 of increased payroll expense; to contract labor costs of$95,062 primarily related to engineering and technical assistance; to advertising and marketing expenses of$75,923 ; to insurance costs of$52,568 ; and to travel and related expenses of$62,000 related primarily to tradeshows; and to increases in other general and administrative expenses of$12,780 . These increases were partially reduced by a reduction in rents of$77,117 compared to the 2021 period. The second quarter 2022 general and administrative expenses include$18,948 non-cash depreciation expense. The general and administrative expenses for the three months endedJune 30 . 2021 included non-cash depreciation expense of$27,380 . General and administrative expenses were$4,522,984 and$1,422,149 for the six months endedJune 30, 2022 and 2021, respectively, an increase of$3,100,835 . The increase was primarily related to$1,614,845 non-cash stock-based compensation expense recorded with respect to the stock options granted during the first quarter of 2022 compared to no similar expense recorded during the 2021 period. Other increases were due to payroll-related expenses of$542,409 ; to professional fees of$229,082 mostly legal fees; to contract labor costs of$190,917 primarily related to engineering and technical assistance; to advertising and marketing expenses of$169,073 ; to travel and related expenses of$139,959 related primarily to finalizing logistics and moving into theOsceola, Arkansas manufacturing location and tradeshows; to insurance costs of$135,402 ; and to increases in other general and administrative expenses of$163,983 . These increases were partially reduced by a reduction in rents of$84,835 compared to the 2021 period. The general and administrative expenses for the six months endedJune 30, 2022 include$1,652,453 in non-cash charges, with depreciation expense of$37,608 being added to the stock-based compensation expense discussed above. The general and administrative expenses for the six months endedJune 30 . 2021 included non-cash depreciation expense of$35,576 .
Consulting Expenses
Consulting expenses were
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Research and Development Expenses
Research and development expenses were
Cash Flows
The following table summarizes our cash flows from operating, investing, and
financing activities for the six months ended
Six months ended June 30, 2022 2021 Cash flows (used in), provided by operating activities$ (6,626,388 ) $ (6,817,467 ) Cash flows provided by investing activities 5,943,620 (8,809,744 ) Cash flows provided by financing activities 106,755 22,239,279 Net change in cash, restricted cash and cash equivalents$ (576,013 ) $ 6,612,068 Operating Activities Cash (used in) operating activities is primarily the result of our operating losses, reduced by the impact of non-cash expenses, including non-cash stock-based compensation, and changes in the asset and liability accounts. Net cash used in operating activities for the six months endedJune 30, 2022 was$6,626,388 versus net cash used in operating activities of$6,817,467 for the six months endedJune 30, 2021 , a decrease of$191,079 . The decrease in net cash used in operating activities was due to a decrease in prepaid expenses of$2,235,846 , an increase in non-cash expenses of$1,617,077 (primarily stock-based compensation expense of$1,614,845 ), a reduction in decreased accrued liabilities of$1,470,482 , and a decrease in inventory deposits of$276,983 . These uses of cash were partially offset by an increase in net loss of$1,992,574 , an increase in accounts receivable of$2,967,461 , and an increase in inventory additions of$547,937 .
We expect cash used in operating activities to fluctuate significantly in future periods as a result of a number of factors, some of which are outside of our control, including, among others: the success we achieve in generating revenue; the success we have in helping our customers obtain financing to subsidize their purchases of our products; our ability to efficiently develop our dealer and service network; the costs of batteries and other materials utilized to make our products; the extent to which we need to invest additional funds in research and development; and the amount of expenses we incur to satisfy future warranty claims.
Investing Activities
Net cash provided by investing activities during the six months ended
Financing Activities
Net cash provided by financing activities during the six months ended
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Liquidity and Capital Resources
As of
On
Line of Credit
Effective
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 and will begin increasing those expenditures as
the Company transfers assembly and corporate functions to the newly announced
Contractual Obligations
Other than as disclosed in the unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q for the three and six months endedJune 30, 2022 , the Company has no contractual obligations.
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed consolidated financial statements are prepared in accordance with AAP. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
We define our critical accounting policies as those accounting principles
generally accepted in
Emerging Growth Company and Smaller Reporting Company Status
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. We may take advantage of these exemptions until the last day of the fiscal year following the fifth anniversary of our initial public offering or until such earlier time that we are no longer an "emerging growth company."
We are also a "smaller reporting company" as defined in Rule 12b-2 under the
Exchange Act. We may continue to be a smaller reporting company if either (i)
the market value of our shares held by non-affiliates is less than
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