Provision for Income Taxes
We account for income taxes in accordance with Financial Accounting Standards Board (“FASB”) ASC 740 “Income Taxes,” which requires the recognition of deferred income tax assets and liabilities for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations. Because we have incurred only losses to this point, no provision for income taxes has been made in 2022.
The following discussion compares operating data for the three and six months ended June 30, 2022 to the corresponding periods ended June 30, 2021:
Sales were $2,087,700 and $188,266 for the three months ended June 30, 2022 and 2021, respectively, and $3,196,200 and $659,059 for the six months ended June 30, 2022 and 2021, respectively. Sales for the three months ended June 30, 2022 consisted of three cargo vans sold to factory authorized representatives, one cargo van sold to a dealer and 11 cargo vans sold primarily to customers in New Jersey who utilized a voucher from the NJ Zip program, three cab and chassis trucks and three resale buses were also sold. Sales for the six months ended June 30, 2022 consisted of the sales in the second quarter plus 10 cargo vans sold to factory authorized representatives and two vans sold to the Newark Public Library in New Jersey who utilized a voucher from the NJ Zip program. Sales attributable to higher vehicle selling price were $317,150 and $192,736 for the three and six months ended June 30, 2022, respectively.
Cost of sales were $1,260,480 and $147,932 for the three months ended June 30, 2022 and 2021, respectively, and $1,952,042 and $461,366 for the six months ended June 30, 2022 and 2021, respectively. Cost of sales for the three and six months ended June 30, 2022 and 2021 consisted of the costs related to the sale of the vehicles sold as described above and for the costs of providing maintenance and inspection services.
General and Administrative Expenses
General and administrative expenses were $1,646,136 and $836,246 for the three months ended June 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 ended June 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 ended June 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 the Osceola, 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 ended June 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 ended June 30. 2021 included
non-cash
depreciation expense of $35,576.
Consulting expenses were $99,518 and $95,108 for the three months ended June 30, 2022 and 2021, respectively, and $170,318 and $105,358 for the six months ended June 30, 2022 and 2021, respectively. The increase in the current year period was due primarily to payments to an Arkansas state relationship and incentive consulting firm that assisted the Company in securing the manufacturing facility in Osceola, Arkansas and to the cost of the ASC 805 valuation report related to the Merger.
