Empery Digital Inc. — Q1 2024 Form 10-Q summary
Filing identity note: The supplied filing is for Volcon, Inc. (Nasdaq: VLCN), not Empery Digital Inc. The summary below describes the filing text provided and should not be attributed to Empery Digital without verification. The filing covers the unaudited three months ended March 31, 2024; it was signed May 7, 2024.
Business context and results
Volcon designs and sells all-electric off-road powersports vehicles, including motorcycles, e-bikes and utility terrain vehicles. It reported its first Stag delivery in February 2024 and said it had 105 active dealers as of May 3, 2024.
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $1.03 million | $1.17 million |
| Cost of goods sold | $1.62 million | $1.23 million |
| Gross loss | $588,032 | $59,523 |
| Operating expenses | $3.66 million | $5.47 million |
| Loss from operations | $4.24 million | $5.53 million |
| Net loss | $26.05 million | $7.30 million |
| Net cash used in operating activities | $4.54 million | $6.48 million |
Revenue fell about 12% year over year, while gross loss widened substantially. Lower sales and marketing and product development costs reduced operating expenses, but the net loss increased sharply, largely because of a noncash $20.0 million loss from remeasuring warrant liabilities. The filing also reports $1.65 million of losses on conversion and exchange of convertible notes and $330,000 of interest expense.
Financial position, liquidity and capital structure
- At March 31, 2024, cash was $3.57 million and restricted cash was $105,000, down from combined cash and restricted cash of $8.19 million at year-end. Working capital was approximately $2.18 million.
- Total assets were $17.38 million; total liabilities were $13.59 million; stockholders’ equity was $3.79 million. Current liabilities included $8.59 million of warrant liabilities. Notes payable totaled about $40,600; convertible notes were no longer outstanding.
- Operating cash use was $4.54 million; investing cash use was $66,000; financing cash provided was $90,000. Ending cash and restricted cash totaled $3.68 million.
- In March, holders converted about $7.4 million of note principal into common stock and exchanged the remaining approximately $24.7 million for Series A convertible preferred stock. The exchange released the notes’ covenants and the security interest in company assets. Preferred stock initially converts at $1.33 per common share.
- At March 31, approximately 14.5 million Series B warrants remained outstanding, alongside substantial potential dilution from warrants and preferred stock. The filing reports 18.75 million common shares outstanding at March 31 and 25.10 million at May 6.
Outlook, risks and unusual items
- Going concern: Management said available cash and expected operating cash will not fund planned operations beyond one year from issuance of the financial statements, and the company needs additional financing before Q3 2024. It had no financing commitment; failure to raise funds could require modifying or ceasing operations. The filing states substantial doubt about the company’s ability to continue as a going concern.
- Management outlook: Volcon expected revenue and cost of goods sold to increase during the rest of 2024 as sales of the Grunt EVO and Stag grow. It anticipated lower product-development costs for models already in production, while development spending on potential future models could rise. No specific revenue, earnings or cash-flow guidance was provided.
- Nasdaq: The company disclosed deficiencies involving the minimum bid price and listing requirements, and said Nasdaq had granted until June 24, 2024 to regain compliance, subject to conditions. The filing discusses a proposed reverse stock split and financing as potential steps; failure to comply could result in delisting. It describes listing criteria in more than one way, so the precise applicable requirements should be checked against Nasdaq notices.
- Dilution and valuation: Warrant fair values depend on stock price and other model inputs, producing a large noncash quarterly loss. Warrant and preferred-stock provisions may adjust exercise or conversion prices and share counts following certain financings, stock splits or other events, potentially increasing dilution and complicating future fundraising.
- Other operating exposures: Manufacturing is outsourced, including production of the Stag and Grunt EVO; the filing identifies supplier and production-capacity risks and reliance on a supplier for key Stag battery and drivetrain components. Inventory purchase commitments were $2.13 million. A Torrot-related settlement left a $1.60 million liability at quarter-end, with scheduled payments described in the filing.
- Controls and leadership: Management concluded disclosure controls were not effective at March 31, 2024, citing previously late filings and unremediated control deficiencies. The CEO changed in February; the new CEO’s agreement includes salary, bonus and change-of-control and equity provisions.
Most important facts for investors to verify
- Confirm the registrant: the provided 10-Q is Volcon, Inc., not Empery Digital Inc.
- Verify current cash, financing availability and the company’s ability to fund operations, given the stated need for financing before Q3 2024.
- Check subsequent Nasdaq compliance status and any delisting or reverse-split developments after the filing date.
- Review updated common shares outstanding, preferred conversions, warrant adjustments and the resulting potential dilution.
- Assess Stag and Grunt EVO production, deliveries, unit economics and whether sales can improve gross margins.
- Confirm subsequent payments and remaining obligations under the Torrot settlement, and monitor inventory commitments and other liquidity needs.