Envirotech Vehicles Inc

Previous wording

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.

Current wording

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”) and the audited financial statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC on March 28, 2024. 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 in this Quarterly Report.

Previous wording

For the three months ended March 31, 2024 and 2023, we generated sales revenue of $810,490 and $523,199, respectively, and our net loss for the three months ended March 31, 2024 and March 31, 2023 was $4,532,363 and $2,267,908, respectively. Included in our net loss for the three months ended March 31, 2024 is a non-cash unrealized loss on financial instruments of $1,569,927.

Current wording

For the three months ended June 30, 2024 and 2023, we generated sales revenue of $812,770 and $2,132,880, respectively, and our net loss for the three months ended June 30, 2024 and June 30, 2023 was $755,092 and $1,254,029, respectively. Included in our net loss for the three months ended June 30, 2024 is a non-cash unrealized gain on financial instruments of $570,519.

Previous wording

***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.

Current wording

***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 with helping them to 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.

Previous wording

***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.

Current wording

***Investment in growth.We plan to continue to invest for long-term growth. We anticipate that our operating expenses will continue increasing for 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.

Previous wording

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.

Current wording

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 ASC 606, as discussed in Note 2 to our unaudited consolidated financial statements included in this Quarterly Report.

Previous wording

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

Current wording

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

Previous wording

We account for income taxes in accordance with Income Taxes ("ASC 740") 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 ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations. Because we have incurred only losses to this point, no provision for income taxes has been made in 2024.

Current wording

We account for income taxes in accordance with ASC 740 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 ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations. Because we have incurred only losses to this point, no provision for income taxes has been made in 2024.

Previous wording

The following discussion compares operating data for the three months ended March 31, 2024 to the corresponding period ended March 31, 2023:

Current wording

The following discussion compares our results of operations for the three andsix months ended June 30, 2024 to the corresponding periods ended June 30, 2023:

Previous wording

Cost of sales for the three months ended March 31, 2024 and 2023 were $502,271 and $404,836, respectively. These costs consisted of the costs related to the sale of the vehicles sold as described above.

Current wording

Cost of sales for the three months ended June 30, 2024 and 2023 were $608,947 and $1,253,886, respectively. Cost of sales for the six months ended June 30, 2024 and 2023 were $1,111,218 and $1,658,722, respectively. These costs consisted of the costs related to the sale of the vehicles sold as described above. The decrease in cost of sales was due to the decrease in sales during the periods in 2024 as compared to 2023.

Previous wording

G&A expenses were $3,194,251 and $2,165,532 for the three months ended March 31, 2024 and 2023, respectively. G&A expenses increased by $1,028,719 primarily due to an increase of $1,731,239 in stock compensation expense due to equity awarded during the first quarter of 2024 that vested immediately, partially offset by, among other things, lower litigation costs of $129,859, lower marketing costs of $164,778, lower travel costs of $169,626, lower contract labor costs of $159,890 and lower overall other expenses of $78,367, all of which were due to our cost savings initiative implemented to conserve spending.

Current wording

G&A expenses were $4,660,999 and $4,206,678 for the six months ended June 30, 2024 and 2023, respectively. G&A expenses increased by $454,321 primarily due to an increase of $1,661,118 in stock compensation expense due to equity awarded during the first quarter of 2024 that vested immediately, partially offset by, among other things, lower litigation costs of $198,975, lower marketing costs of $251,687, lower travel costs of $261,687, lower contract labor costs of $269,944, lower payroll costs of $56,054 and lower overall other expenses of $168,450, most of which were due to our cost savings initiative implemented to conserve spending.

Previous wording

Consulting expenses were zero and $174,809 for the three months ended March 31, 2024 and 2023, respectively. The decrease in consulting expenses was due to a decrease in search costs for key employees.

Current wording

Consulting expenses were $0 and $46,433 for the three months ended June 30, 2024 and 2023, respectively. Consulting expenses were $0 and $221,242 for thesix months ended June 30, 2024 and 2023, respectively. The decrease in consulting expenses was due to a decrease in search costs for key employees.

Previous wording

R&D expenses were $70,265 and $70,888 for the three months ended March 31, 2024 and 2023, respectively as the level of activity remained significantly unchanged.

Current wording

R&D expenses were $61,616 and $57,924 for the three months ended June 30, 2024 and 2023, respectively, as the level of activity remained significantly unchanged. R&D expenses were $131,880 and $128,812 for thesix months ended June 30, 2024 and 2023, respectively as the level of activity remained significantly unchanged.

Previous wording

We recorded a non-cash unrealized loss of $1,569,927 on our financial instruments that we elected to measure at fair value.

Current wording

We recorded a non-cash unrealized gain of $570,519 and an unrealized loss of $999,408 for the three and six months ended June 30, 2024, respectively, on our financial instruments that we elected to measure at fair value.

Previous wording

The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2024 and 2023:

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 was $735,571, primarily due to a net loss of $4,532,363, partially offset by changes in operating assets and liabilities, net of $369,270 and non-cash operating charges of $3,427,522, of which $1,569,927 was related to a non-cash unrealized loss on financial instruments measured at fair values, $1,818,383 was related to non-cash stock-based compensation expense and the remaining $39,212 was related to depreciation and amortization. The changes in operating assets and liabilities, net was due to a decrease of $466,757 in inventory deposits, a decrease in prepaid expenses of $257,086, a decrease in other current assets of $25,439, a decrease in other non-current assets of $65,010, an increase in accounts payable of $171,363 and an increase in accrued liabilities of $207,437, partially offset by an increase in inventory of $410,126, an increase in accounts receivable of $333,085 as sales outpaced cash collections and a decrease of $80,611 in other liabilities.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 was $1,700,563, primarily due to a net loss of $5,287,455, partially offset by changes in operating assets and liabilities, net of $658,185 and non-cash operating charges of $2,928,519. The changes in operating assets and liabilities, net was due to a decrease in inventory deposits of $443,074, a decrease in prepaid expenses of $187,474, a decrease in inventory of $127,372, a decrease in other assets of $164,467, an increase in accounts payable of $195,786 and an increase in accrued liabilities of $438,089, partially offset by an increase in accounts receivable of $733,998 and a decrease in other liabilities of $164,079.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2023 was $2,248,663, primarily due to a net loss of $2,267,908 and changes in operating assets and liabilities, net of $104,078, partially reduced by non-cash operating charges of $123,323. The changes in operating assets and liabilities, net was due to inventory deposits of $339,939, accrued liabilities of $294,676, inventory of $62,095 and other current assets of $33,337, partially offset by changes in accounts receivable of $184,177, prepaid expenses of $161,495 and accounts payable of $280,297.

Current wording

Net cash used in operating activities for the six months ended June 30, 2023 was $3,073,334, primarily due to a net loss of $3,521,937, partially offset by changes in operating assets and liabilities, net of $233,300 and non-cash operating charges of $260,519. The changes in operating assets and liabilities, net was due to a decrease in inventory deposits of $1,771,454, a decrease in prepaid expenses of $356,742 and an increase in accounts payable of $317,469, partially offset by an increase in inventory of $1,266,924, an increase in accounts receivable of $660,028 and a decrease in accrued liabilities of $264,486.

Previous wording

Net cash provided by investing activities during the three months ended March 31, 2023 was $1,310,118, primarily due to the sale of our marketable securities of $1,329,599, partially offset by $19,481 of capital expenditures. Net cash provided by investing activities during the three months ended March 31, 2022 was $2,987,561, primarily due to the net sale of our marketable securities of $3,000,063, partially offset by $12,502 of capital expenditures.

Current wording

Net cash provided by investing activities during the six months ended June 30, 2023 was $1,293,268, primarily due to the sale of our marketable securities of $1,329,599, partially offset by $36,331 of capital expenditures.

Previous wording

Net cash provided by financing activities during the three months ended March 31, 2024 was $1,328,209, primarily from the issuance of a convertible note that resulted in proceeds of $901,000, proceeds of sale of our common stock to certain investors totaling $585,499, partially offset by debt repayment in the amount of $158,290.

Current wording

Net cash provided by in financing activities during the six months ended June 30, 2024 was $1,816,196, primarily due to proceeds from the issuance of our common stock of $949,248, proceeds from the issuance of a convertible note of $901,000, and proceeds from issuance of debt for $232,067, partially offset by the repayment of debt of $266,119. See Note 4 - Debt to our unaudited consolidated financial statements included in this Quarterly Report for additional information regarding these financing activities.

Previous wording

As of March 31, 2024, we had cash and cash equivalents of $1,049,357 and working capital of approximately $8.1 million. We believe that our existing cash and cash equivalents will be sufficient to fund our operations during the next twelve months and beyond. However, we may not successfully execute our business plan, and if we do not, we may need additional capital to continue our operations and support the increased working capital requirements associated with the fulfillment of purchase orders.

Current wording

As of June 30, 2024, we had cash and cash equivalents of $437,064 and working capital of approximately $7,706,057. We believe that our existing cash and cash equivalents will be sufficient to fund our operations during the next twelve months and beyond. However, we may not successfully execute our business plan, and if we do not, we may need additional capital to continue our operations and support the increased working capital requirements associated with the fulfillment of purchase orders.

Previous wording

On February 2022, we announced Osceola, Arkansas as the site of our state-of-the-art manufacturing facility and new corporate offices. We moved into an approximately 580,000 square foot facility and are currently in final stages of due diligence and contract negotiation with the City of Osceola and the Arkansas Economic Development Commission. However, additional debt and/or equity capital will be required in order to purchase related equipment and set up production lines and is expected to require up to $80 million of additional investment through 2027. Investments and employee hiring requirements over the next 10 years will provide an opportunity for us to obtain local tax incentives of up to $27 million, provided that the qualifying expenditures are made. We are not currently contractually obligated to make the expenditures.

Current wording

In February 2022, we announced Osceola, Arkansas as the site of our state-of-the-art manufacturing facility and new corporate offices. The facility of approximately 580,000 square feet is currently our headquarters and is planned to become our primary manufacturing facility. We are currently in final stages of due diligence and contract negotiation with the City of Osceola and the Arkansas Economic Development Commission. However, additional debt and/or equity capital will be required in order to purchase related equipment and set up production lines and is expected to require significant investment through the foreseeable future. We expect that investments and employee hiring requirements over the next 10 years will provide an opportunity for us to obtain significant local tax incentives, provided that the qualifying expenditures are made, and other related conditions are met. We are not currentlycontractually obligated to make these expenditures.

Previous wording

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 we transfer assembly and corporate functions to the Osceola Arkansas facility.

Current wording

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 continue increasing those expenditures as we transfer assembly and corporate functions to the Osceola Arkansas facility.

Previous wording

We define our critical accounting policies as those accounting principles generally accepted in the United States of America that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles.

Current wording

We define our critical accounting policies as those accounting principles under GAAP that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles.