{"id":6678,"date":"2021-11-16T00:00:10","date_gmt":"2021-11-16T00:00:10","guid":{"rendered":"https:\/\/advwisdom.com\/a\/volcon-inc-managements-discussion-and-analysis-of-financial-condition-and-results-of-operations-form-10-q\/"},"modified":"2021-11-16T00:00:10","modified_gmt":"2021-11-16T00:00:10","slug":"volcon-inc-managements-discussion-and-analysis-of-financial-condition-and-results-of-operations-form-10-q","status":"publish","type":"post","link":"https:\/\/advwisdom.com\/a\/volcon-inc-managements-discussion-and-analysis-of-financial-condition-and-results-of-operations-form-10-q\/","title":{"rendered":"VOLCON, INC. MANAGEMENT&#8217;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)"},"content":{"rendered":"<p><\/p>\n<div id=\"grantexto\">\n<p>You should read the following discussion and analysis of our financial condition<br \/>\nand results of operations in conjunction with the financial statements and the<br \/>\nrelated notes appearing elsewhere in this Form 10-Q. This discussion contains<br \/>\nforward-looking statements reflecting our current expectations that involve<br \/>\nrisks and uncertainties. Actual results and the timing of events could differ<br \/>\nmaterially from those discussed in our forward-looking statements as a result of<br \/>\nmany factors, including those set forth under &#8220;Risk Factors&#8221; and elsewhere in<br \/>\nthis Form 10-Q.<\/p>\n<pre>\n\n\nOverview\n\n\n<\/pre>\n<p>We are an all-electric, off-road powersports vehicle company developing and<br \/>\nbuilding electric two and four-wheel motorcycles and utility terrain vehicles<br \/>\n(UTVs), also known as side-by-sides. In <chron>October 2020<\/chron>, we launched our offerings<br \/>\nwith two off-road motorcycles &#8211; the Grunt and the Runt. We are currently taking<br \/>\norders on our website for these initial offerings and began delivering the<br \/>\nGrunts in the third quarter of 2021. We expect to begin delivering Runts in the<br \/>\nsecond quarter of 2022. Also in 2022, we expect to introduce a prototype of the<br \/>\nVolcon Stag which we expect to be available for sale in the first half of 2023.<br \/>\nThe Stag will be followed with the introduction the Beast, of a higher<br \/>\nperformance, longer range UTV which will be available for sale in the first half<br \/>\nof 2024.<\/p>\n<p>We are assembling the Grunt in a leased production facilities in <location value=\"LU\/us.tx.rouock\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">Round Rock,<br \/>\nTexas<\/location>. We will be leasing a dedicated, built-to-suit manufacturing facility on<br \/>\n53 acres in <location value=\"LU\/us.tx.libill\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">Liberty Hill, Texas<\/location>, 25 miles northwest of downtown <location value=\"LU\/us.tx.austin\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">Austin<\/location> from an<br \/>\nentity controlled by our founders. We expect to begin production at this<br \/>\nfacility in the first quarter of 2023.<\/p>\n<p>We initially intended to sell and distribute our vehicles and accessories in the<br \/>\n<location value=\"LC\/us\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">U.S.<\/location> on a direct-to-consumer sales platform. We are currently negotiating<br \/>\ndealership agreements with retail partners to display and sell our vehicles and<br \/>\naccessories. These retail partners will also provide warranty and repair<br \/>\nservices to our customers.<\/p>\n<p>As of <chron>September 30, 2021<\/chron>, <location value=\"LC\/us\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">U.S.<\/location> customers have made deposits for 277 Grunts, plus<br \/>\naccessories and a deliver fee representing total deposits of <money>$1.9 million<\/money>. These<br \/>\norders are cancelable by the customer until the vehicle is delivered and after a<br \/>\n14-day acceptance period, therefore the deposits have been recorded as deferred<br \/>\nrevenue. Based on our current production capacity, we believe we will deliver<br \/>\nall of the Grunts by <chron>March 2022<\/chron>.<\/p>\n<p>We plan to sell our vehicles and accessories globally in a three-phase rollout<br \/>\nof export sales- <location value=\"LR\/cam\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">Latin America<\/location> importers in 2021, <location value=\"LC\/ca\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">Canada<\/location>, <location value=\"LR\/eur\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">Europe<\/location>, and <location value=\"LR\/afr\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">Africa<\/location> in<br \/>\n2022 and <location value=\"LR\/asp\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">Southeast Asia<\/location> plus <location value=\"LC\/au\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">Australia<\/location> in 2023. Export sales are executed with<br \/>\nindividual importers in each country that buy vehicles by the container. Each<br \/>\nimporter will sell vehicles to local dealers or directly to customers. Local<br \/>\ndealers will provide warranty and repair services for vehicles purchased in<br \/>\ntheir country.<\/p>\n<p>As of <chron>September 30, 2021<\/chron>, we have received orders from <location value=\"LR\/cam\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">Latin America<\/location> importers<br \/>\nfor 92 Grunts. Payment for these orders is due prior to shipment and are<br \/>\ncancelable until shipped. Based on our current production capacity, we believe<br \/>\nwe will be able to fulfill all pending orders by <chron>March 2022<\/chron>.<\/p>\n<pre>\n\n\n\n\n\n\n  22\n\n\n\n\n\n\nResults of Operations\n\n\n<\/pre>\n<p>We were formed on <chron>February 21, 2020<\/chron>. Operations for the period from <chron>February 21,<br \/>\n2020<\/chron> (inception) to <chron>September 30, 2020<\/chron>, and the three months ended <chron>September 30,<br \/>\n2020<\/chron> are not materially different; therefore, the financial information for 2020<br \/>\nbelow is from the inception through <chron>September 30, 2020<\/chron>.<\/p>\n<pre>\n\n\n                                          February 21,\n                                              2020\n                                           (inception)      Three months       Nine months\n                                               to               ended             ended\n                                          September 30,     September 30,     September 30,\n                                              2020              2021               2021\nRevenue                                   $           -     <money>$      75,067<\/money><money>$       75,067<\/money>\nCost of goods sold                                    -         1,176,691          1,176,691\nGross margin                                          -        (1,101,624 )       (1,101,624 )\n\nOperating expenses:\nSales and marketing                              26,946         1,123,206          1,937,745\nProduct development                             331,621         3,021,207          7,595,581\nGeneral and administrative                       18,090           586,492         14,634,037\nTotal operating expenses                        376,657         4,730,906         24,167,363\n\nLoss from operations                           (376,657 )      (5,832,529 )      (25,268,987 )\n\nInterest and other expense                            -           (46,025 )          (76,853 )\nNet loss                                  <money>$    (376,657 )<\/money><money>$  (5,878,554 )<\/money><money>$  (25,345,840 )<\/money><\/pre>\n<p>Due to recurring losses there is no provision for income taxes for any period<br \/>\npresented.<\/p>\n<pre>\n\n\nRevenue\n\n\n<\/pre>\n<p>Revenue for the three and nine months ended <chron>September 30, 2021<\/chron>, was <money>$75,067<\/money> and<br \/>\nrepresents the sale of 11 Grunts.<\/p>\n<pre>\n\n\nCost of goods sold\n\n\n<\/pre>\n<p>Cost of goods sold for the three and nine months ended <chron>September 30, 2021<\/chron>, was<br \/>\n<money>$1,176,691<\/money>. Costs include labor costs of <money>$476,027<\/money> for employees and contractors<br \/>\nperforming parts purchasing, assembly and quality control testing of Grunts and<br \/>\nstock-based compensation of <money>$188,860<\/money> for share based awards for employees. Part<br \/>\ncosts for Grunts sold during the periods were <money>$152,830<\/money>. Facilities costs were<br \/>\n<money>$48,321<\/money> for our manufacturing facility and inventory warehouse.<\/p>\n<p>In the next 6-9 months we could experience manufacturing delays due to shipping<br \/>\nconstraints in our supply chain. We expect cost of goods sold to increase as we<br \/>\nsell higher quantities of Grunts, but we expect the cost per Grunt to decrease<br \/>\nas we gain efficiencies in the manufacturing process and the cost of parts is<br \/>\nreduced as we purchase in higher volumes and source additional suppliers.<\/p>\n<pre>\n\n\nSales and marketing\n\n\n<\/pre>\n<p>Sales and marketing expenses relate to costs to increase exposure and awareness<br \/>\nfor our products and developing our network of <location value=\"LC\/us\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">U.S.<\/location> dealers and international<br \/>\ndistributors. Sales and marketing expenses for the period ended <chron>September 30,<br \/>\n2020<\/chron>, were not significant as we did not have significant operations during this<br \/>\nperiod as there were no sales and marketing employees. Sales and marketing<br \/>\nexpense were <money>$1,123,206<\/money> and <money>$1,937,745<\/money> for the three and nine months ended<br \/>\n<chron>September 30, 2021<\/chron>, respectively.<\/p>\n<pre>\n\n\n\n\n\n\n\n\n  23\n\n\n\n\n\n<\/pre>\n<p>For the three months ended <chron>September 30, 2021<\/chron>, sales and marketing expenses were<br \/>\nprimarily related to expenses associated with promoting our products and brand<br \/>\nof <money>$459,996<\/money>, professional fees of <money>$192,468<\/money>, composed primarily of legal fees of<br \/>\n<money>$152,498<\/money> to develop our dealer agreements and evaluate compliance with dealer<br \/>\nlaws across <location value=\"LC\/us\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">the United States<\/location>, employee payroll costs of <money>$179,279<\/money>, and<br \/>\nstock-based compensation of <money>$160,622<\/money> for share based awards granted to<br \/>\nemployees. For the nine months ended <chron>September 30, 2021<\/chron>, sales and marketing<br \/>\nexpenses were primarily related to expenses associated with promoting our<br \/>\nproducts and brand of <money>$788,840<\/money>, professional fees of <money>$272,042<\/money>, primarily<br \/>\ncomposed of legal fees of <money>$153,784<\/money> to develop our dealer network and evaluate<br \/>\ncompliance with dealer laws across <location value=\"LC\/us\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">the United States<\/location>, employee payroll costs of<br \/>\n<money>$420,994<\/money>, and stock-based compensation of <money>$237,028<\/money> for share based awards<br \/>\ngranted to employees and consultants.<\/p>\n<p>We expect sales and marketing expense to increase as we expand our <location value=\"LC\/us\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">U.S.<\/location> dealer<br \/>\nand international distributor networks and promote our products.<\/p>\n<p>General and Administrative Expense<\/p>\n<p>General and administrative expenses relate to costs for our finance, accounting<br \/>\nand administrative functions to support the development, manufacturing and sales<br \/>\nof our products. General and administrative expenses for the period ended<br \/>\n<chron>September 30, 2020<\/chron>, were not significant as we did not have significant<br \/>\noperations during this period as there were no employees. General and<br \/>\nadministrative expense were <money>$586,492<\/money> and <money>$14,634,037<\/money> for the three and nine<br \/>\nmonths ended <chron>September 30, 2021<\/chron>, respectively.<\/p>\n<p>For the three months ended <chron>September 30, 2021<\/chron>, general and administrative<br \/>\nexpenses were primarily related to employee payroll costs of <money>$179,321<\/money>,<br \/>\nstock-based compensation of <money>$145,804<\/money> for share based awards granted to employees<br \/>\nand consultants, and professional fees of <money>$165,742<\/money>, including professional fees<br \/>\nrelated to employee recruitment of <money>$108,177<\/money>. For the nine months ended <chron>September<br \/>\n30, 2021<\/chron>, general and administrative expenses were primarily related to employee<br \/>\npayroll costs of <money>$431,304<\/money>, stock-based compensation of <money>$13,370,864<\/money> (consisting<br \/>\nof <money>$13.0 million<\/money> due to warrants issued to our founders in <chron>March 2021<\/chron> and<br \/>\n<money>$338,875<\/money> due to share based awards granted to employees and consultants), and<br \/>\nprofessional fees of <money>$661,570<\/money>, including legal fees of <money>$175,115<\/money>, accounting fees<br \/>\nof <money>$232,354<\/money> and recruiting fees of <money>$189,177<\/money>.<\/p>\n<p>We expect general and administrative expenses, other than stock-based<br \/>\ncompensation related to the founder warrants, to increase as we increase<br \/>\nstaffing to support sales, manufacturing, product development and to comply with<br \/>\npublic company reporting and compliance requirements.<\/p>\n<pre>\n\n\nProduct Development Expense\n\n\n<\/pre>\n<p>Product development expenses relate to development of our products and process<br \/>\nto manufacture these products. Product development expense was not significant<br \/>\nfor the period from <chron>February 21, 2020<\/chron> (inception) through <chron>September 30, 2020<\/chron>, as<br \/>\nwe did not have any employees as of <chron>September 30, 2020<\/chron>. Product development<br \/>\nexpenses for the three and nine months ended <chron>September 30, 2021<\/chron>, were <money>$3,021,207<\/money><br \/>\nand <money>$7,595,581<\/money>, respectively.<\/p>\n<p>Product development expenses for the three months ended <chron>September 30, 2021<\/chron>, are<br \/>\nprimarily employee payroll costs of <money>$893,266<\/money>, stock-based compensation of<br \/>\n<money>$543,299<\/money> for share based awards granted to employees and consultants,<br \/>\nprofessional fees of <money>$366,530<\/money> for product design, prototype parts and tooling<br \/>\ncosts of <money>$1,664,529<\/money> and facilities costs of <money>$104,885<\/money>. Product development<br \/>\nexpenses in for the nine months ended <chron>September 30, 2021<\/chron>, are primarily employee<br \/>\npayroll costs of <money>$1,341,112<\/money>, stock-based compensation of <money>$459,566<\/money> for share<br \/>\nbased awards granted to employees and consultants, professional fees of<br \/>\n<money>$955,391<\/money>, including <money>$790,676<\/money> for product design and <money>$151,925<\/money> for employee<br \/>\nrecruitment, prototype parts and tooling costs <money>$4,068,523<\/money> and facilities cost of<br \/>\n<money>$265,398<\/money>.<\/p>\n<p>We expect product development costs to increase in the future as our product<br \/>\ndevelopment activities expand for new vehicle models.<\/p>\n<pre>\n\n\n\n\n\n\n\n\n  24\n\n\n\n\n\n\nInterest and Other Expenses\n\n\n<\/pre>\n<p>Interest and other expense for the three and nine months ended <chron>September 30,<br \/>\n2021<\/chron>, primarily relates to interest on our notes payable used to purchase two<br \/>\nvehicles and accretion on the promissory notes issued in <chron>September 2021<\/chron>.<\/p>\n<pre>\n\n\nNet Loss\n\n\n<\/pre>\n<p>Net loss for the three months ended <chron>September 30, 2020<\/chron>, and the period from<br \/>\n<chron>February 21, 2020<\/chron> (inception) through <chron>September 30, 2020<\/chron>, was <money>$304,559<\/money> and<br \/>\n<money>$376,657<\/money>, respectively, compared to <money>$5,878,554<\/money> and <money>$25,345,840<\/money> for the three and<br \/>\nnine months ended <chron>September 30, 2021<\/chron>, respectively.<\/p>\n<p>Liquidity and Capital Resources<\/p>\n<p>On <chron>September 30, 2021<\/chron>, we had cash of <money>$2.7 million<\/money> and we had working capital of<br \/>\n<money>$3.0 million<\/money>. Since inception in <chron>February 2020<\/chron>, we have funded our operations<br \/>\nfrom proceeds from debt and equity sales.<\/p>\n<p>Cash used in operating activities<\/p>\n<p>Operating activities for the period from <chron>February 21, 2020<\/chron> (inception) to<br \/>\n<chron>September 30, 2020<\/chron>, mainly included research and development costs, and<br \/>\nprofessional fees for consultants and attorneys for the formation of the Company<br \/>\nand early product development efforts. Some of these costs were paid for by the<br \/>\nfounders on behalf of the Company. Net cash used in operating activities was<br \/>\n<money>$13.3 million<\/money> for the nine months ended <chron>September 30, 2021<\/chron>, and includes all of<br \/>\nour operating costs except stock-based compensation, and depreciation and<br \/>\namortization. Cash used in operating activities includes increases in inventory<br \/>\nand prepaid inventory totaling <money>$5.3 million<\/money> as we made payments and deposits to<br \/>\npurchase raw materials to begin production of the Grunt in <chron>September 2021<\/chron> for<br \/>\ndelivery to customers, cash provided by customer deposits of <money>$2.3 million<\/money> and an<br \/>\nincrease in accounts payable of <money>$1.2 million<\/money>.<\/p>\n<p>Cash used in investing activities<\/p>\n<p>Net cash used in investing activities was <money>$0.7 million<\/money> for the nine months ended<br \/>\n<chron>September 30, 2021<\/chron>, and mainly included purchases of equipment and tooling<br \/>\nrelated to our product development and certain intangible assets. Cash uses from<br \/>\ninvesting activities for the period ended <chron>September 30, 2020<\/chron>, was not<br \/>\nsignificant.<\/p>\n<p>Cash provided by financing activities<\/p>\n<p>Cash provided from financing activities for the period ended <chron>September 30, 2020<\/chron>,<br \/>\nwas <money>$1.6 million<\/money> and was related to proceeds received from the SAFE offering<br \/>\nthat was partially completed at <chron>September 30, 2020<\/chron>. Net cash provided by<br \/>\nfinancing activities was <money>$16.1 million<\/money> for the nine months ended <chron>September 30,<br \/>\n2021<\/chron>.<\/p>\n<p>In <chron>January 2021<\/chron>, we completed a WeFunder SAFE offering which was convertible<br \/>\ninto preferred stock upon future financing events. We received gross proceeds of<br \/>\n<money>$2,258,940<\/money> and paid expenses of <money>$53,500<\/money>.<\/p>\n<p>In <chron>February 2021<\/chron>, we completed an offering of our Series A preferred stock. We<br \/>\nreceived gross proceeds of <money>$2,669,978<\/money> and issued 415,287 shares of Series A<br \/>\npreferred stock. We paid commissions and expenses of <money>$205,470<\/money> and issued 79,750<br \/>\nshares of common stock and warrants to purchase 79,750 shares of common stock<br \/>\nwith an exercise price of <money>$2.57<\/money> to placement agents in connection with the<br \/>\noffering. This equity financing resulted in the SAFE investments of <money>$2.0 million<\/money><br \/>\nas of <chron>December 31, 2020<\/chron>, converting into 424,269 shares of Series A preferred<br \/>\nstock and the WeFunder SAFE investments converting into 351,832 shares of Series<br \/>\nA preferred stock.<\/p>\n<pre>\n\n\n\n\n\n\n\n\n  25\n\n\n\n\n\n<\/pre>\n<p>From <chron>April 2021<\/chron> to <chron>September 2021<\/chron>, we sold 1,105,827 shares of Series B<br \/>\npreferred stock at <money>$9.50<\/money> per share resulting in gross proceeds of <money>$10.5 million<\/money>.<br \/>\nWe paid commissions and expenses of <money>$890,026<\/money> and issued 123,295 shares of common<br \/>\nstock and warrants to purchase 197,272 shares of common stock with an exercise<br \/>\nprice of <money>$3.80<\/money> to placement agents in connection with the offering.<\/p>\n<p>On <chron>September 10, 2021<\/chron>, the Company entered into an agreement with a lender for a<br \/>\n6% promissory note of <money>$2 million<\/money>. The promissory note has a maturity date of one<br \/>\nyear from inception or immediately upon the completion of this offering. For<br \/>\nproviding the above promissory note, the Company agreed to issue 266,664 shares<br \/>\nof our common stock and agreed to pay <money>$35,000<\/money> of the placement agent&#8217;s and<br \/>\ninvestor&#8217;s legal costs and paid a 6% commission to the placement agent, who is<br \/>\nthe underwriter of this offering. Such payment is cash compensation for<br \/>\nproviding services for a private placement in accordance with FINRA Rule 5110<br \/>\nSupplementary Material .01(b)(2).<\/p>\n<p>Our continuation as a going concern is dependent upon our ability to obtain<br \/>\ncontinued financial support from our stockholders, necessary equity financing to<br \/>\ncontinue operations and the attainment of profitable operations. As of <chron>September<br \/>\n30, 2021<\/chron>, we had incurred an accumulated deficit of <money>$26.7 million<\/money> since<br \/>\ninception and have generated less than <money>$0.1 million<\/money> in revenue. Additionally,<br \/>\nmanagement anticipates that our cash on hand as of <chron>September 30, 2021<\/chron>, is<br \/>\ninsufficient to fund planned operations beyond one year from the date of the<br \/>\nissuance of the financial statements as of and for the three and nine months<br \/>\nended <chron>September 30, 2021<\/chron>. These factors raise substantial doubt regarding our<br \/>\nability to continue as a going concern.<\/p>\n<p>On <chron>October 8, 2021<\/chron>, and <chron>October 29, 2021<\/chron>, the Company completed its initial<br \/>\npublic offering and sold 3,025,000 and 226,875 shares of its common stock at<br \/>\n<money>$5.50<\/money> per share. The Company received net proceeds of <money>$16.6 million<\/money> after<br \/>\nunderwriter commissions and expenses of <money>$1,7 million<\/money>. The Company expects to<br \/>\nincur additional expenses of approximately <money>$150,000<\/money> related to this offering.<br \/>\nThe underwriter was also issued 151,250 warrants to purchase the Company&#8217;s<br \/>\ncommon stock at <money>$6.88<\/money> per share.<\/p>\n<p>The proceeds from initial public offering, along with proceeds from sales of the<br \/>\nGrunt and related accessories which began in <chron>September 2021<\/chron>, and Runts and<br \/>\nrelated accessories which are expected to begin in the second quarter of 2022,<br \/>\nmay not provide sufficient capital to fund operations beyond one year from the<br \/>\ndate of the issuance of the financial statements as of and for the three and<br \/>\nnine months ended <chron>September 30, 2021<\/chron>, due to the ongoing development of our<br \/>\nvehicles. We may be required to raise additional proceeds to fund our operations<br \/>\nand there is no guarantee that we will be able to raise funding with favorable<br \/>\nterms, if at all.<\/p>\n<p>JOBS Act Accounting Election<\/p>\n<p>The recently enacted JOBS Act provides that an &#8220;emerging growth company&#8221; can<br \/>\ntake advantage of the extended transition period provided in Section 7(a)(2)(B)<br \/>\nof the Securities Act of 1933, as amended, for complying with new or revised<br \/>\naccounting standards. In other words, an &#8220;emerging growth company&#8221; can delay the<br \/>\nadoption of certain accounting standards until those standards would otherwise<br \/>\napply to private companies. We have irrevocably elected not to avail ourselves<br \/>\nof this extended transition period and, as a result, we will adopt new or<br \/>\nrevised accounting standards on the relevant dates on which adoption of such<br \/>\nstandards is required for other public companies.<\/p>\n<p>We have implemented all new accounting pronouncements that are in effect and may<br \/>\nimpact our financial statements and we do not believe that there are any other<br \/>\nnew accounting pronouncements that have been issued that might have a material<br \/>\nimpact on our financial position or results of operations.<\/p>\n<p>Critical Accounting Policies<\/p>\n<p>Use of Estimates in Financial Statement Presentation<\/p>\n<p>The preparation of the financial statements in conformity with generally<br \/>\naccepted accounting principles in <location value=\"LC\/us\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">the United States of America<\/location> (&#8220;<location value=\"LC\/us\" idsrc=\"https:\/\/www.marketscreener.com\/quote\/stock\/VOLCON-INC-127770677\/news\/VOLCON-INC-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-RESULTS-OF-OP-37033501\/xmltag.org\">U.S.<\/location> GAAP&#8221;)<br \/>\nrequires management to make estimates and assumptions that affect the reported<br \/>\namounts of assets and liabilities and disclosure of contingent assets and<br \/>\nliabilities as of the dates of the financial statements and the reported amounts<br \/>\nof expenses during the reporting periods.<\/p>\n<pre>\n\n\n\n\n\n\n  26\n\n\n\n\n\n<\/pre>\n<p>Making estimates requires management to exercise judgment. It is at least<br \/>\nreasonably possible that the estimate of the effect of a condition, situation or<br \/>\nset of circumstances that existed at the date of the financial statements, which<br \/>\nmanagement considered in formulating its estimate, could change in the near term<br \/>\ndue to one or more future confirming events. Accordingly, actual results could<br \/>\ndiffer significantly from those estimates.<\/p>\n<pre>\n\n\nRevenue recognition\n\n\n<\/pre>\n<p>Revenue is recognized when we transfer control of the product to the customer<br \/>\nand a 14-day acceptance period has expired or the customer has acknowledged<br \/>\nacceptance prior to the end of the 14-day acceptance period. Revenue is measured<br \/>\nas the amount of consideration we expect to receive in exchange for transferring<br \/>\ncontrol of our vehicles, parts and accessories. Consideration that is received<br \/>\nin advance of the transfer of goods is deferred until delivery has occurred.<br \/>\nSales and other taxes we collect concurrent with revenue-producing activities<br \/>\nare excluded from revenue. If a right of return exists, we adjust revenue for<br \/>\nthe estimated effect of returns. Until we develop sales history, we will<br \/>\nestimate expected returns based on industry data for sales returns as a percent<br \/>\nof sales, type of product, and a projection of this experience into the future.<br \/>\nOur sales do not have a financing component.<\/p>\n<p>Sales promotions and incentives. We provide for estimated sales promotion and<br \/>\nincentive expenses, which are recognized as a component of sales in measuring<br \/>\nthe amount of consideration we expect to receive in exchange for transferring<br \/>\ngoods or providing services. Examples of sales promotion and incentive programs<br \/>\ninclude distributer fees and volume incentives. Sales promotion and incentive<br \/>\nexpenses are estimated based on current programs for each product line. We<br \/>\nrecord these amounts as a liability in the balance sheet until they are<br \/>\nultimately paid. Adjustments to sales promotions and incentives accruals are<br \/>\nmade as actual usage becomes known in order to properly estimate the amounts<br \/>\nnecessary to generate consumer demand based on market conditions as of the<br \/>\nbalance sheet date.<\/p>\n<p>Shipping and handling charges and costs. We record shipping and handling charged<br \/>\nto the customer and related shipping costs as a component of cost of sales when<br \/>\ncontrol has transferred to the customer.<\/p>\n<pre>\n\n\nProduct warranties\n\n\n<\/pre>\n<p>We provide a one-year warranty on our vehicles, and a two-year warranty on the<br \/>\nbattery pack. We accrue warranty reserves at the time a vehicle is delivered to<br \/>\nthe customer. Warranty reserves include our best estimate of the projected cost<br \/>\nto repair or to replace any items under warranty, based on actual warranty<br \/>\nexperience as it becomes available and other known factors that may impact our<br \/>\nevaluation of historical data. We review our reserves quarterly to ensure that<br \/>\nour accruals are adequate in meeting expected future warranty obligations, and<br \/>\nwe will adjust our estimates as needed. Factors that could have an impact on the<br \/>\nwarranty reserve include the following: changes in manufacturing quality, shifts<br \/>\nin product mix, changes in warranty coverage periods, product recalls and<br \/>\nchanges in sales volume. Warranty expense is recorded as a component of cost of<br \/>\nrevenues in the statement of operations. The portion of the warranty provision<br \/>\nwhich is expected to be incurred within 12 months from the balance sheet date<br \/>\nwill be classified as current, while the remaining amount will be classified as<br \/>\nlong-term liabilities.<\/p>\n<pre>\n\n\nIncome taxes\n\n\n<\/pre>\n<p>Deferred taxes are determined utilizing the &#8220;asset and liability&#8221; method,<br \/>\nwhereby deferred tax asset and liability account balances are determined based<br \/>\non differences between financial reporting and the tax bases of assets and<br \/>\nliabilities and are measured using the enacted tax rates and laws that will be<br \/>\nin effect when the differences are expected to reverse. We provide a valuation<br \/>\nallowance, when it is more likely than not that deferred tax assets will not be<br \/>\nrealized in the foreseeable future.<\/p>\n<p>The impact of an uncertain income tax position on the income tax return is<br \/>\nrecognized at the largest amount that is more-likely-than-not to be sustained<br \/>\nupon audit by the relevant tax authority. An uncertain income tax position will<br \/>\nnot be recognized if it has less than a 50% likelihood of being sustained.<br \/>\nInterest and penalties on income taxes will be classified as a component of the<br \/>\nprovisions for income taxes.<\/p>\n<pre>\n\n\n\n\n\n\n  27\n\n\n\n\n\n\nStock-based compensation\n\n\n<\/pre>\n<p>We measure the total amount of employee stock-based compensation expense for a<br \/>\ngrant based on the grant date fair value of each award and recognizes the<br \/>\nstock-based compensation expense on a straight-line basis over the requisite<br \/>\nservice period of an award. Stock-based compensation is based on unvested<br \/>\noutstanding awards. We have elected to recognize forfeitures when realized.<\/p>\n<p>Off-balance Sheet Arrangements<\/p>\n<p>As of <chron>September 30, 2021<\/chron>, we did not have any relationships with unconsolidated<br \/>\nentities or financial partnerships, such as entities often referred to as<br \/>\nstructured finance or special purpose entities, established for the purpose of<br \/>\nfacilitating off-balance sheet arrangements or other contractually narrow or<br \/>\nlimited purposes.<\/p>\n<p>\u00a9 Edgar Online, source <servicename>Glimpses<\/servicename><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes appearing elsewhere in this Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events could differ [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-6678","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/advwisdom.com\/a\/wp-json\/wp\/v2\/posts\/6678","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/advwisdom.com\/a\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/advwisdom.com\/a\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/advwisdom.com\/a\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/advwisdom.com\/a\/wp-json\/wp\/v2\/comments?post=6678"}],"version-history":[{"count":0,"href":"https:\/\/advwisdom.com\/a\/wp-json\/wp\/v2\/posts\/6678\/revisions"}],"wp:attachment":[{"href":"https:\/\/advwisdom.com\/a\/wp-json\/wp\/v2\/media?parent=6678"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/advwisdom.com\/a\/wp-json\/wp\/v2\/categories?post=6678"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/advwisdom.com\/a\/wp-json\/wp\/v2\/tags?post=6678"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}