Business context and reporting period
Filing identity discrepancy: The request identifies Empery Digital Inc., but the supplied Form 10-Q is for Volcon, Inc. (Nasdaq: VLCN), an electric off-road powersports vehicle company. This summary reflects the filing text; verify the issuer before relying on it. The filing covers the unaudited quarter ended March 31, 2023, compared with the quarter ended March 31, 2022.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $1.17 million | $1.18 million |
| Gross loss / margin | $59,523 loss; approximately (5.1%) | $2.34 million loss; approximately (197.8%) |
| Operating expenses | $5.47 million | $6.31 million |
| Operating loss | $5.53 million | $8.65 million |
| Interest and other expense (income) | $1.77 million expense | $36,426 income |
| Net loss | $7.30 million; $0.30 per share | $8.61 million; $0.40 per share |
| Cash used in operations | $6.48 million | $9.45 million |
Revenue was nearly flat year over year, but the mix shifted: Q1 2023 sales included Brat e-bikes ($658,000), Volcon Youth products ($212,000), Grunts ($170,000), and parts/accessories ($127,000). The prior-year quarter was predominantly Grunt sales. Lower cost of goods sold and operating expenses reduced operating loss; the reported gross-loss improvement also reflects a $279,000 shipping-and-tariff accrual reversal. Q1 2023 interest expense was primarily non-cash accretion of the convertible notes’ discount and issuance costs.
At March 31, 2023, cash was $4.22 million and restricted cash was $551,000, down from combined cash and restricted cash of $11.54 million at year-end. Working capital deficit was $7.1 million. Current liabilities were $21.70 million versus current assets of $14.64 million. Total liabilities were $22.82 million and stockholders’ deficit was $5.58 million. Convertible notes had a $27.17 million principal amount and $19.13 million net carrying amount; separate notes payable totaled $95,000. Operating lease liabilities were $1.45 million.
Changes, outlook and risks
- Management states that cash on hand and anticipated operating cash generation will not fund planned operations and required note-related cash balances beyond one year from issuance of the financial statements. The filing says these conditions raise substantial doubt about the Company’s ability to continue as a going concern; additional financing may not be available on acceptable terms or at all.
- The convertible notes mature in February 2024. If principal and interest of at least $15 million remain outstanding at September 30 or December 31, 2023, the Company is generally required to hold $10 million of unrestricted, unencumbered cash on those dates, subject to a dollar-for-dollar reduction if outstanding principal is below $15 million. The Company reported covenant compliance at March 31, 2023.
- The notes are convertible at $2.25 per share into approximately 12.1 million shares; associated warrants cover approximately 9.1 million shares at $2.85, with additional placement-agent and other warrants. These securities represent substantial potential dilution. The Company was seeking shareholder approval to increase authorized common shares from 100 million to 250 million.
- Management expected sales and cost of goods sold to increase from Q2 2023 with anticipated Grunt EVO, Runt and Stag sales. It expected higher sales and marketing costs as dealer and distributor networks expand, and product-development costs for outsourced design, prototypes and testing. Stag component sourcing and supplier pricing could raise unit costs and pressure margins. No quantified revenue or earnings guidance is provided.
- Manufacturing and some product development have been outsourced. The filing identifies reliance on third-party manufacturers and suppliers, vehicle quality and delivery execution, customer adoption, warranty/product-liability exposure, and potential battery-material and supply-chain disruptions as risks. It reports 143 active dealers and agreements with six Latin American importers and one Caribbean importer as of March 31, 2023.
- Disclosure controls and procedures were deemed not effective as of March 31, 2023, following prior late filings and because remediation had not been implemented and tested. Management was working to identify corrective actions. The filing reports no material change to internal control over financial reporting during the quarter.
- The filing reports no material changes to the risk factors in the 2022 Form 10-K and no specified material legal proceeding outcome; it says potential litigation losses could not be estimated in aggregate.
Important facts to verify
- Confirm the issuer: the supplied filing is Volcon, Inc., not Empery Digital Inc.
- Verify the cover-page share count: it contains the apparent placeholder “123,456 shares … at May [_], 2023,” which conflicts with the balance-sheet count of 24,615,119 shares outstanding at March 31, 2023.
- Check subsequent cash, financing, note conversions/redemptions, and ability to meet the $10 million cash covenant dates and February 2024 maturity.
- Track actual launch timing, deliveries, sales, unit costs and gross margins for the Grunt EVO, Runt and Stag, including manufacturing and supplier performance.
- Assess dilution from convertible notes, warrants, stock awards and any increase in authorized shares; monitor remediation of disclosure-control weaknesses.