Filing summary
Entity mismatch: The request identifies Empery Digital Inc., but the supplied Form 10-Q is for Volcon, Inc. (Nasdaq: VLCN). This summary covers Volcon’s quarter and six months ended June 30, 2022; the filing was signed August 15, 2022.
Business context
Volcon develops and manufactures all-electric off-road powersports vehicles. It began shipping Grunt vehicles to dealers in May 2022, had entered into more than 100 dealership agreements by June 30, and had shipped all remaining direct-to-consumer orders. The filing is unaudited.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $2.37 million | $3.55 million | No revenue |
| Gross loss | $3.64 million | $5.98 million | No cost of sales |
| Operating loss | $9.92 million | $18.57 million | $4.12 million and $19.42 million loss, respectively |
| Net loss | $9.93 million | $18.54 million | $4.14 million and $19.46 million loss, respectively |
| Basic and diluted loss per share | $(0.41) | $(0.81) | $(2.00) and $(9.59), respectively |
Gross margin was negative: gross loss equaled about 154% of quarterly revenue and 168% of six-month revenue. Six-month sales consisted mainly of Grunts ($3.44 million), plus parts and accessories ($0.12 million). Six-month cost of goods sold included inventory write-downs and other inventory adjustments; management cited $615,682 for the quarter’s net-realizable-value adjustment.
At June 30, cash was $4.72 million and restricted cash was $0.24 million; working capital was reported as $6.6 million. Total assets were $12.88 million, total liabilities $4.79 million, and stockholders’ equity $8.09 million. Notes payable totaled $77,562; operating lease liabilities were reported as $811,071. Accumulated deficit was $60.04 million.
For the six months, operating cash use was $18.22 million, investing cash use $0.52 million, and financing cash inflow $18.12 million. Financing was primarily net proceeds of $18.09 million from a February 2022 public offering of 6,666,667 shares at $3.00 per share. Cash, cash equivalents and restricted cash declined by $0.62 million to $4.96 million.
Changes versus prior period
- Revenue began in 2022; there was no revenue in the first half of 2021, when the company was still developing the Grunt. The six-month net loss narrowed by about $0.92 million, but the quarterly net loss increased by about $5.79 million year over year.
- Six-month operating expenses fell to $12.58 million from $19.42 million, largely because 2021 included a substantial founder-warrant compensation charge. In the second quarter, operating expenses rose to $6.28 million from $4.12 million, with higher sales and marketing and general and administrative costs.
- Cash and restricted cash totaled $4.96 million at June 30, down from $5.57 million at year-end, despite the February equity raise, as operating cash outflow was significant.
- Current liabilities declined to $4.22 million from $6.48 million, partly reflecting customer deposits falling from $2.28 million to $2,221 as direct-to-consumer orders were delivered and revenue recognized.
Outlook, risks and unusual items
- Going concern: Management said cash on hand was insufficient to fund planned operations beyond one year from issuance of the statements and that additional funding would be needed in 2022. The filing states that substantial doubt exists about the company’s ability to continue as a going concern; management planned to seek loans or equity financing.
- Product and operating outlook: Management expected the Brat e-bike to begin selling in the fourth quarter of 2022, the Runt and Grunt EVO in 2023, and initial Stag deliveries in the first half of 2023. These are forward-looking expectations, not guarantees. The company expected higher cost of goods sold as volumes and product offerings grew, while anticipating lower Grunt unit costs from manufacturing efficiencies and additional suppliers.
- Production and supply risks: Management warned of possible manufacturing delays from shipping constraints over the next 6–9 months. It cited potential battery-cell availability and cost effects from the Russia-Ukraine conflict, as well as COVID-19, supply-chain, dealer-network, demand, product-quality and warranty risks.
- Facility decision: Volcon terminated plans for a founder-controlled manufacturing facility, recording a $247,525 loss. A promised $85,756 refund from the $601,818 prepaid rent and security-deposit balance is contingent on the landlord selling the land and releasing the company from remaining obligations. Volcon was evaluating third-party manufacturing or other facilities for the Stag.
- Other lease actions: The company closed its Denver store and recorded a $148,322 loss related to the facility; it also arranged other lease terminations and a new Round Rock office lease. The filing describes related-party lease arrangements with entities connected to founders and former executives.
- Equity compensation and dilution: The company raised $18.09 million net through an offering that increased issued shares by 6.67 million. At June 30, warrants, options and restricted stock units totaled 7.72 million potentially dilutive shares, excluded from loss per share as anti-dilutive. Shareholders approved an additional 4 million shares for the stock plan in July 2022.
- Controls: Management concluded disclosure controls and procedures were not effective as of June 30, 2022, and said corrective actions were being considered. It reported no material change in internal control over financial reporting during the six-month period.
- The filing reported no material changes to previously disclosed risk factors other than the manufacturing-facility risk described above, and no material legal proceeding details or quantified range of possible losses.
Most important facts to verify
- Confirm the intended issuer: the supplied filing is for Volcon, Inc., not Empery Digital Inc.
- Check the company’s subsequent financing, cash runway and progress toward resolving the going-concern uncertainty.
- Verify whether the $85,756 facility refund was received and whether the landlord released Volcon from remaining lease obligations.
- Track Grunt unit economics, inventory write-downs, production delays and delivery performance against the stated product timelines.
- Review the status of Stag manufacturing arrangements, dealer expansion, and the effectiveness of remedial disclosure-control actions.
- Assess the potential dilution from outstanding warrants, options and stock awards, along with the impact of future equity financing.