Filing identity and reporting period
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 unaudited quarter and nine months ended September 30, 2023; the filing was signed November 1, 2023.
Volcon designs and sells all-electric off-road powersports vehicles, including motorcycles and utility terrain vehicles (UTVs), and accessories. It relies on third parties for manufacturing and certain design and development work.
Financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0.49 million | $0.24 million | $2.18 million | $3.80 million |
| Gross loss | $3.06 million | $1.77 million | $2.93 million | $7.75 million |
| Operating loss | $9.45 million | $7.31 million | $19.91 million | $25.88 million |
| Net loss | $11.33 million | $7.90 million | $41.66 million | $26.44 million |
| Basic and diluted loss per share | $1.84 | $1.62 | $7.57 | $5.64 |
- Nine-month revenue fell about 43% year over year, while Q3 revenue increased year over year from a low base. Q3 cost of goods sold included a $1.62 million write-down of co-branded youth motorcycles; the company reported negative gross margin in both comparison periods.
- The nine-month net loss included a $22.30 million loss on extinguishment of convertible notes and a $5.11 million gain from changes in fair value of financial liabilities. These unusual, largely non-cash items materially affected the comparison with 2022.
- At September 30, cash was $2.43 million and restricted cash was $0.55 million. Nine-month operating cash use was $16.80 million; investing cash use was $0.73 million; financing provided $8.97 million. Cash and restricted cash ended the period at $2.98 million, down from $11.54 million at year-end 2022.
- Current assets were $13.45 million against current liabilities of $36.17 million, a $22.72 million working-capital deficit. Total liabilities were $37.09 million, compared with total assets of $16.15 million; stockholders’ deficit was $20.94 million.
- Convertible notes were reported at $29.71 million net of issuance costs on the balance sheet. The notes’ stated principal was approximately $32.11 million; their maturity was amended to January 31, 2025. Other notes payable totaled $88,009.
Material changes and management outlook
- Volcon’s nine-month operating loss narrowed from 2022, reflecting lower cost of goods sold and operating expenses overall, but net loss worsened because of the note extinguishment loss and higher interest expense. Sales and marketing expense increased year over year for the nine-month period, while product development and general and administrative expenses declined.
- Management expected Grunt EVO deliveries and Stag UTV deliveries to increase revenue and cost of goods sold beginning in Q4 2023; Stag customer deliveries were expected to begin in November after delays. The filing gives no quantified revenue or earnings guidance.
- The company said Grunt EVO unit costs were fixed under its manufacturing contract, while Stag costs were fixed except for batteries; unsourced components or supplier price increases could pressure margins. Management also expected cost reductions from September and October headcount actions, with product-development costs likely to rise near term for outsourced work and prototypes.
- Management stated that September 30 cash, subsequent warrant proceeds and expected operating cash generation would not be sufficient to fund planned operations and required cash balances for more than one year from the financial-statement issuance date. The filing cites substantial doubt about the company’s ability to continue as a going concern and says additional financing may not be available on acceptable terms, or at all.
- Under the amended note terms, the company must sell at least 250 Stag units by December 31, 2023. If note principal and interest remain at least $15 million, it must maintain $5 million of unrestricted, unencumbered cash on June 30, 2024, subject to reduction if the amount owed is below $15 million.
Risks, contingencies and subsequent events
- Volcon had regained Nasdaq’s minimum-bid-price compliance by October 30, 2023, but still had to meet the $35 million market-value-of-listed-securities requirement by January 2, 2024 or risk delisting.
- The May 2023 notes and warrants carry restrictive covenants and potential conversion or exercise dilution. Following the October 2023 reverse 1-for-5 split, the conversion and warrant exercise prices were adjusted to $1.369 per share. The filing states that the notes and warrants could result in issuance of up to 27,952,678 shares, subject to applicable limitations and terms.
- Subsequent to quarter-end, Volcon reported warrant inducement transactions, including an October 29 agreement that reduced the exercise price on warrants for 350,000 shares to $0.01 in exchange for $346,500. The filing says warrant inducements from September 29 through October 30 raised $1,027,495 in total.
- Other disclosed risks include dependence on third-party manufacturers and suppliers, reliance on a single supplier for Stag batteries and drivetrain components, potential supply disruption related to the UAW strike and battery materials, dealer-network and customer-demand uncertainty, and inventory valuation risk.
- Disclosure controls and procedures were judged ineffective as of September 30, 2023, following previously late filings and because remediation had not been implemented and tested. Management said it was identifying corrective actions. The filing reported no material change in internal control over financial reporting during the nine-month period.
- Other post-quarter events included elimination of the Chief Operating Officer position and an agreement giving a supplier extended payment terms and warrants. The filing also disclosed a lease-termination loss of $85,756 in 2023 and described ordinary-course legal proceedings for which aggregate reasonably possible losses could not be estimated.
Important facts for investors to verify
- Confirm the intended issuer: the provided filing is Volcon, Inc., not Empery Digital Inc.
- Assess the company’s cash runway, access to financing, and ability to meet the $5 million cash condition and other note covenants.
- Track Stag production and delivery timing and whether Volcon achieves the 250-unit sales requirement by December 31, 2023.
- Review the full note and warrant terms, share-reservation and conversion limits, subsequent inducements, and resulting potential dilution.
- Check Nasdaq’s market-value compliance status and progress on remediation of ineffective disclosure controls.