Filing identity and period
Important identity discrepancy: The request identifies Empery Digital Inc., but the supplied filing is Volcon, Inc. (NASDAQ: VLCN), Form 10-Q for the quarter ended September 30, 2022. This summary reflects the supplied filing; verify that it is the intended company.
Volcon develops and sells all-electric off-road powersports vehicles and accessories. The financial statements are unaudited and cover the three and nine months ended September 30, 2022, compared with the same 2021 periods.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $242,710 | $75,067 | $3,795,065 | $75,067 |
| Gross loss | $1,770,119 | $1,101,624 | $7,754,806 | $1,101,624 |
| Operating expenses | $5,544,572 | $4,742,906 | $18,128,196 | $24,167,363 |
| Net loss | $7,899,184 | $5,890,555 | $26,437,991 | $25,345,840 |
| Basic and diluted loss per share | $(0.32) | $(2.55) | $(1.13) | $(11.95) |
- Margins: Gross margin was negative in both periods: gross costs exceeded revenue by $1.77 million in Q3 and $7.75 million year to date. The filing reports gross loss rather than a gross-margin percentage.
- Cash flow: Net cash used in operations was $24.8 million for the first nine months of 2022, versus $13.3 million a year earlier. Investing used $0.6 million; financing provided $40.4 million. Cash, cash equivalents and restricted cash totaled $20.5 million at period-end, including $0.55 million restricted.
- Liquidity: Current assets were $25.9 million and current liabilities $19.3 million; management reported working capital of $6.6 million. Total assets were $28.4 million, total liabilities $20.6 million, and stockholders’ equity $7.8 million.
- Debt: August 2022 convertible notes had $27.2 million principal, a $15.7 million net carrying amount and a February 2024 maturity. They bear no stated interest absent default, but the company recorded $0.61 million of non-cash interest expense for the quarter. Other notes payable were also outstanding; the balance sheet reports $15.8 million current and $54,927 long-term notes payable.
Changes versus the prior comparable periods
- Revenue increased year to date as the company moved from early sales to dealer sales, but Q3 revenue remained modest and gross losses widened.
- Q3 net loss increased by about $2.0 million year over year; the nine-month net loss increased by about $1.1 million. Q3 interest expense rose substantially following the convertible-note financing.
- Nine-month operating expenses declined, primarily because 2021 included a large non-cash charge for founder warrants. In Q3 2022, general and administrative expense increased to $2.1 million from $0.6 million.
- Operating cash use increased year over year. Financing in 2022 included $18.1 million net from a February common-stock offering and $22.3 million net cash proceeds from the August convertible-note and warrant financing.
Outlook, commentary and risks
- Management said it expects Q4 2022 revenue to be consistent with Q3, citing Grunt and Brat inventory availability. It expected Brat shipments to begin in Q4 2022, Grunt deliveries from the outsourced manufacturer in November 2022, and Stag LE deliveries in the first half of 2023. These are forward-looking expectations, not reported results.
- The company stopped assembling Grunt vehicles in its Round Rock facility in August 2022 and shifted Grunt manufacturing to a third party in Mexico. It also outsourced some design and prototype work, reduced product-development and administrative headcount, and closed its Denver store. Management expects outsourcing to reduce costs, but execution, product quality, manufacturing capacity and supplier timing remain risks.
- The company reported recurring losses and negative operating cash flows since inception and stated that these conditions raise substantial doubt about its ability to continue as a going concern. Management believed available cash, cost reductions and expected operating proceeds could fund operations for the next 12 months, but said additional financing might be needed and might not be available on acceptable terms.
- The convertible notes may convert at $2.25 per share and were accompanied by warrants for 9.1 million shares at $2.85. The notes also include redemption and default provisions and require $10 million of unrestricted cash on specified 2023 dates if at least $15 million of principal remains outstanding. Potential dilution and compliance with these terms warrant attention.
- Other disclosed risks include supply-chain and battery-material availability, customer adoption, third-party manufacturing performance, warranty or product-liability claims, and possible effects of COVID-19 and the Russia-Ukraine conflict. The filing gives no formal numerical earnings or cash-flow guidance.
- Management concluded disclosure controls and procedures were not effective as of September 30, 2022; it said it was identifying corrective actions. The filing reported no material changes to internal control over financial reporting during the quarter.
Key facts for investors to verify
- Confirm whether this Volcon 10-Q is the intended filing, given the Empery Digital Inc. request metadata.
- Review subsequent filings for actual Q4 sales, Brat and Grunt delivery timing, production volumes, unit economics and the progress of outsourced manufacturing.
- Track operating cash burn, available unrestricted cash, funding needs and compliance with the convertible-note cash covenant.
- Assess the notes’ conversion, redemption and default terms, accrued non-cash interest, and potential dilution from conversion and warrants.
- Reconcile reported revenue with the filing’s discussion of dealer rebates: the statements report Q3 revenue of $242,710, while the MD&A’s stated Grunt sales and rebate figures do not clearly reconcile to that total.
- Monitor remediation of the disclosed ineffective controls and any material changes in the company’s going-concern assessment.