Empery Digital Inc 10-Q for FY2024 Q3
Empery Digital Inc. (EMPD)
About this 10-Q
Empery Digital Inc filed this 10-Q on November 12, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.08M
- up 120.7% from $487.43K a year earlier
- Net loss
- $13.64M
- compared with a net loss of $11.33M a year earlier
- Diluted EPS
- -$23.93
- compared with -$66,245.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to__________
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| The |
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| Smaller Reporting Company | |
| Emerging Growth Company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The registrant had shares of common stock outstanding at November 11 , 2024. Such amount does not include shares of common stock to be issued in connection with the treatment of fractional shares pursuant to the reverse split completed by the registrant on November 8, 2024, which amount is not known as of November 11, 2024.
TABLE OF CONTENTS
| 2 |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOLCON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Inventory | ||||||||
| Inventory deposits | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Long-term assets: | ||||||||
| Property and equipment, net | ||||||||
| Other long-term assets | ||||||||
| Right-of-use assets - operating leases | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Vendor settlements - short-term | ||||||||
| Current portion of notes payable | ||||||||
| Convertible notes, net of discount and issuance costs | ||||||||
| Warrant liabilities | ||||||||
| Right-of-use operating lease liabilities - short-term | ||||||||
| Customer deposits | ||||||||
| Total current liabilities | ||||||||
| Notes payable, net of current portion | ||||||||
| Vendor settlements - long-term | ||||||||
| Right-of-use operating lease liabilities - long-term | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock: $par value, shares authorized, shares designated, shares issued and outstanding as of September 30, 2024 and December 31, 2023 | ||||||||
| Common stock: $ par value, shares authorized, shares issued and outstanding as of September 30, 2024 and shares issued and outstanding as of December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 3 |
VOLCON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2024 AND 2023
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross margin | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Operating expenses | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Product development | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on conversion and extinguishment of Convertible Notes | ( | ) | ( | ) | ||||||||||||
| Loss on repayment of May 2024 Notes | ( | ) | ( | ) | ||||||||||||
| Gain (loss) on exercise of and change in fair value of financial liabilities | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share – basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share – diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding – basic | ||||||||||||||||
| Weighted average common shares outstanding – diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
VOLCON, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024
(Unaudited)
Series A Convertible Preferred Stock | Common stock | Additional | ||||||||||||||||||||||||||
| Number of Shares | Amount | Number Shares | Amount | paid -in capital | Accumulated deficit | Total | ||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock for exercise of pre-funded warrants | – | ( | ) | |||||||||||||||||||||||||
| Issuance of common stock for exercise of Series A warrants | – | |||||||||||||||||||||||||||
| Proceeds received for exercise of buydown warrants | – | |||||||||||||||||||||||||||
| Common stock issued for conversion of convertible notes | – | |||||||||||||||||||||||||||
| Conversion of Convertible Notes | – | |||||||||||||||||||||||||||
| Conversion of Preferred Stock for common stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock for exercise of Series B Warrants | – | |||||||||||||||||||||||||||
| Reclassification of warrant liability to equity | – | – | ||||||||||||||||||||||||||
| Proceeds received for Issuance of warrants with May 2024 Notes, net of issuance costs of $ | – | – | ||||||||||||||||||||||||||
| Issuance of common stock and pre-funded warrants, net of issuance costs of $ | – | |||||||||||||||||||||||||||
| Stock-based compensation | – | – | ||||||||||||||||||||||||||
| Common stock issued for reverse stock split due to rounding | – | |||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
VOLCON, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023
(Unaudited)
| Common stock | Additional | |||||||||||||||||||
| Number | paid-in | Accumulated | ||||||||||||||||||
| of Shares | Amount | capital | deficit | Total | ||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock for exercise of stock options and vesting of restricted stock units | ||||||||||||||||||||
| Issuance of common stock for public offering, net of issuance costs of $ | ||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Reclassification of derivative liabilities to equity | – | |||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
VOLCON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024
AND 2023
(Unaudited)
| September 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Cash flow from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Loss on repayment of May 2024 Notes | ||||||||
| Loss on extinguishment of convertible notes | ||||||||
| Loss on conversion of convertible notes to common stock | ||||||||
| Loss (gain) on change in fair value of financial liabilities | ( | ) | ||||||
| Gain on exercise of Series B Warrants | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Loss on write down of inventory and inventory deposits | ||||||||
| Loss on lease termination | ||||||||
| Loss (gain) on sale/write off of property & equipment | ( | ) | ||||||
| Bad debt (recovery) expense | ( | ) | ||||||
| Non-cash interest expense | ||||||||
| Amortization of right-of-use assets | ||||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Inventory deposits | ( | ) | ||||||
| Prepaid assets and other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities and vendor settlements | ( | ) | ||||||
| Right-of-use liabilities - operating leases | ( | ) | ( | ) | ||||
| Customer deposits | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flow from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property and equipment | ||||||||
| Proceeds from insurance settlement | ||||||||
| Proceeds from sale of vehicles | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flow from financing activities: | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock and pre-funded warrants from public offering, net of issuance costs of $ | ||||||||
| Repayment of May 2024 Notes | ( | ) | ||||||
| Proceeds from issuance of May 2024 Notes and warrants, net of issuance costs of $ | ||||||||
| Proceeds from exercise of Series B Warrants | ||||||||
| Proceeds from exercise of buy down warrants | ||||||||
| Proceeds from issuance of common stock from public offering, net of issuance costs of $ | ||||||||
| Proceeds from issuance of convertible notes and warrants, net of issuance costs of $ | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ( | ) | ||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | $ | ||||||
| 7 |
SUPPLEMENTAL CASH FLOW INFORMATION
| 2024 | 2023 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash transactions: | ||||||||
| Conversion of Convertible Notes for common stock | $ | $ | ||||||
| Exchange of Convertible Notes for Preferred Stock | $ | $ | ||||||
| Reclassification of warrant liability to equity for cashless exercise of Series A Warrants | $ | $ | ||||||
| Reclassification of warrant liability to equity for modification of Series B Warrants | $ | $ | ||||||
| Exchange of property & equipment in lieu of payments due for inventory purchases | $ | |||||||
| Exchange of finished goods inventory with vendor for raw materials inventory | $ | $ | ||||||
| Acquisition of property and equipment with note payable | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 8 |
VOLCON, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND GOING CONCERN
Organization and Nature of Operations
Volcon, Inc. (“Volcon” or the “Company”) was formed on February 21, 2020, as a Delaware corporation, under the name Frog ePowersports, Inc. The Company was renamed Volcon, Inc. on October 1, 2020. Volcon designs and sells all-electric off-road powersport vehicles.
On January 5, 2021, the Company created Volcon ePowersports, LLC (“Volcon LLC”), a Colorado wholly-owned subsidiary of the Company, to sell Volcon vehicles and accessories in the United States. Volcon LLC is no longer used for selling vehicles and accessories.
Going Concern
The accompanying interim consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has recurring losses and has generated negative cash flows from operations since inception.
In February and March 2024, certain holders of
the May 2023 Convertible Notes issued in May 2023 converted approximately $
As discussed further in Note 7 below, on May 22,
2024, the Company issued Senior Notes with an aggregate principal amount of $
On July 12, 2024, Company sold shares
of the Company’s common stock at a purchase price of $29.20 per share and pre-funded warrants to purchase shares of common
stock at $29.19992 per pre-funded warrant. The Company received net proceeds of $
Management anticipates that our cash on hand as of September 30, 2024 plus the cash expected to be generated from operations will not be sufficient to fund planned operations beyond one year from the date of the issuance of the financial statements as of and for the three and nine months ended September 30, 2024. There can be no assurance that additional funding, if needed, would be available to the Company on acceptable terms, or at all. These factors raise substantial doubt regarding our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that may result should the Company be unable to continue as a going concern.
Nasdaq Compliance
On July 5, 2023, the Company received a notice from Nasdaq that it was not in compliance with Nasdaq’s Listing Rule 5550(b)(2), which requires that it maintain a market value of listed securities (“MVLS”) of $35 million. MVLS is calculated by multiplying the Company’s shares outstanding by the closing price of its common stock. On December 19, 2023, the Company received a notice from Nasdaq that it was not in compliance with Nasdaq’s Listing Rule 5550(a)(2), as the minimum bid price of its common stock had been below $1.00 per share for 30 consecutive business days.
On December 26, 2023, the Company was notified by Nasdaq that it was not in compliance with Nasdaq’s Listing Rule 5810(c)(3)(A)(iii) as the closing bid price of our common stock had been below $0.10 for ten consecutive trading days from December 11, 2023 through December 22, 2023 and was subject to delisting on January 2, 2024. On January 4, 2024, the Company received notice from Nasdaq that it did not meet the MVLS requirement and it was subject to delisting. The Company submitted a hearing request to Nasdaq’s Hearings Department for both of these matters, which stayed the suspension of the Company’s common stock. The Company participated in a hearing with Nasdaq’s Hearings Department on March 26, 2024 and on April 2, 2024, they informed the Company that the Company has until June 24, 2024 to regain compliance with the above listing rules.
| 9 |
On June 11, 2024, the Company received a notice from the Nasdaq that the Company no longer met the minimum 500,000 publicly held shares requirement for Nasdaq and, as such, it no longer complied with Listing Rule 5550(a)(4). Furthermore, the notice indicated that this matter would serve as an additional basis for delisting the Company’s securities from Nasdaq, that the Panel would consider this matter in their decision regarding the Company’s continued listing on Nasdaq, and that the Company should present its views with respect to this additional deficiency to the Panel in writing no later than June 18, 2024. On June 18, 2024, the Company submitted a letter to Nasdaq notifying them that the Company was in compliance with Listing Rule 5550(a)(4) due to the issuance of additional shares of common stock from the conversion of preferred stock to common stock by certain Preferred Stockholders.
On July 17, 2024, Nasdaq informed the Company that it had regained compliance with the above listing rules but will continue to be monitored for ongoing compliance.
Employment Matters
On January 13, 2024, the Company’s Chief
Executive Officer (“CEO”), Jordan Davis, resigned his employment with the Company effective February 2, 2024. The Company
entered into a 30-day consulting agreement with Mr. Davis and paid him $
On January 30, 2024, John Kim, an independent
board member of the Company signed an employment agreement with the Company to become the CEO effective February 3, 2024. Mr. Kim’s
salary is $
On January 30, 2024, Greg Endo, the Company’s
Chief Financial Officer, signed a new employment agreement with the Company. Mr. Endo’s salary will be increased to $
On February 23, 2024, Katherine Hale resigned
her position as Chief Marketing Officer. Ms. Hale was provided a severance amount of $
Impact of Russia and Ukraine Conflict
On February 24, 2022, Russia invaded Ukraine. The conflict between Russia and Ukraine could impact the availability of nickel, an element used in the production of lithium ion cells used in batteries that power our vehicles. The shortage of these cells could have an impact on our ability to produce vehicles to meet our customers’ demands. In addition, sanctions against Russia could impact the price of elements, including nickel, that are used in the production of batteries which would result in higher costs to produce our vehicles. These sanctions have also impacted the U.S. and global economies and could result in an economic recession which could cause a broader disruption to the Company’s supply chain and distribution network and customer demand for our products.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission (“SEC”) on March 28, 2024. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been omitted from this report on Form 10-Q pursuant to the rules and regulations of the SEC.
| 10 |
Results for the interim periods in this report are not necessarily indicative of future financial results and have not been audited by our independent registered public accounting firm. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly our interim consolidated financial statements as of September 30, 2024, and for the three and nine months ended September 30, 2024 and 2023. These adjustments are of a normal recurring nature and are consistent with the adjustments recorded to prepare the annual audited consolidated financial statements as of December 31, 2023.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts, transactions and balances have been eliminated in consolidation.
As discussed in Note 10, the Company completed
a reverse
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of any contingent assets and liabilities as of the dates of the financial statements and the reported amounts of expenses during the reporting periods.
Making estimates requires management to exercise judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, actual results could differ significantly from those estimates.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include short-term investments
with original maturities of 90 days or less at the date of purchase. The recorded value of our cash and cash equivalents approximates
their fair value. There were
Revenue Recognition
For sales to dealers or distributors, revenue is recognized when transfer of control of the product is made as there is no acceptance period or right of return. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring control of vehicles, parts, and accessories. Beginning in February 2023 the Company began selling the Brat E-Bike and Volcon Youth motorcycles directly to consumers in addition to dealers. Beginning in the third quarter of 2024, the Company began selling the Grunt EVO motorcycles directly to consumers in addition to dealers. Revenue for direct to consumer sales is recognized when transfer of control of the product is made to the consumer.
Consideration that is received in advance of the transfer of goods is recorded as customer deposits until delivery has occurred or the customer cancels their order, and the consideration is returned to the customer. Sales and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. The Company’s sales do not presently have a financing component.
Sales promotions and incentives. The Company provides for estimated sales promotions and incentives, which are recognized as a component of sales in measuring the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Examples of sales promotion and incentive programs include rebates, distributor fees, dealer co-op advertising and volume incentives. Sales promotions and incentives are estimated based on contractual requirements. The Company records these amounts as a liability in the balance sheet until they are ultimately paid. Adjustments to sales promotions and incentives accruals are made as actual usage becomes known to properly estimate the amounts necessary to generate consumer demand based on market conditions as of the balance sheet date.
Shipping and handling charges and costs. The Company records shipping and handling amounts charged to the customer and related shipping costs as a component of cost of goods sold when control has transferred to the customer.
| 11 |
Product Warranties
The Company provides a one-year warranty on vehicles, and a two-year warranty on the battery pack. The Company accrues warranty reserves at the time revenue is recognized. Warranty reserves include the Company’s best estimate of the projected cost to repair or to replace any items under warranty, based on actual warranty experience as it becomes available and other known factors that may impact the evaluation of historical data. The Company reviews its reserves quarterly to ensure that the accruals are adequate to meet expected future warranty obligations and will adjust estimates as needed. Factors that could have an impact on the warranty reserve include the following: changes in manufacturing quality, shifts in product mix, changes in warranty coverage periods, product recalls and changes in sales volume. Warranty expense is recorded as a component of cost of goods sold in the statement of operations and is recognized as a current liability.
Inventory and Inventory Deposits
Inventories and prepaid inventory deposits are stated at the lower of cost (first-in, first-out method) or net realizable value.
Certain vendors require the Company to pay an upfront deposit before they manufacture and ship the Company’s vehicles, parts or accessories. These payments are classified as prepaid inventory deposits on the balance sheet until title and risk of loss transfers to the Company, at which time they are classified as inventory.
Raw materials inventory costs include the cost of parts, including duties, tariffs and shipping. Work in process and finished goods include the cost of parts, labor and manufacturing overhead costs associated with the assembly of the vehicle. Finished goods also include accessories for the vehicle and branded merchandise such as hats and shirts.
Through August 2022 the Company assembled the Grunt motorcycle in a leased facility. The Company ceased assembly operations at the end of August and outsourced the assembly of the Grunt to a third party.
The Company transferred substantially all of its raw materials and
work-in-process inventory for the Grunt to the third party manufacturer in the second quarter of 2023. Title to the inventory transferred
to the third party manufacturer and it provides the Company with a credit towards future purchases of the Grunt EVO.
Property and Equipment
Property and equipment are valued at cost. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets as follows:
| Schedule of estimated useful lives of the assets | ||
| Category | Estimated Useful Lives | |
| Machinery, tooling and equipment | ||
| Vehicles | ||
| Internal use manufactured vehicles | ||
| Furniture & Fixtures | ||
| Computers |
Leasehold improvements are depreciated over the shorter period of their estimated useful life or term of the lease.
Long-Lived Assets
The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the historical carrying cost value of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to the carrying value. If the carrying value exceeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset.
| 12 |
Leases
Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expenses for these leases on a straight-line basis over the lease term. The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component.
ASC 842 defines initial direct costs as only the incremental costs of signing a lease. Initial direct costs related to leasing that are not incremental are expensed as general and administrative expenses in our statements of operations.
The Company’s operating lease agreements primarily consist of leased real estate and are included within ROU assets – operating leases and ROU lease liabilities – operating leases on the balance sheets. The Company’s lease agreements may include options to extend the lease, which are not included in minimum lease payments unless they are reasonably certain to be exercised at lease commencement. The Company’s leases do not provide implicit interest rates, therefore the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
Research and Development Expenses
The Company records research and development expenses in the period in which they are incurred as a component of product development expenses.
Income Taxes
Deferred taxes are determined utilizing the “asset and liability” method, whereby deferred tax asset and liability account balances are determined based on the differences between financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, when it’s more likely than not that deferred tax assets will not be realized in the foreseeable future. Deferred tax liabilities and assets are classified as current or non-current based on the underlying asset or liability or if not directly related to an asset or liability based on the expected reversal dates of the specific temporary differences.
Fair Value of Financial Instruments
ASC Topic 820 Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value
in accordance with generally accepted accounting principles.
ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows:
| · | Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. | |
| · | Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
| · | Level 3 — Inputs that are unobservable for the asset or liability. |
The following section describes the valuation methodologies that the Company used to measure different financial instruments at fair value.
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Debt
The fair value of the Company’s debt, which approximated the carrying value of the Company’s debt as of September 30, 2024 and December 31, 2023. Factors that the Company considered when estimating the fair value of its debt included market conditions, and term of the debt. The level of the debt would be considered as Level 2.
The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, to classify certain convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.
The Company accounts for derivative instruments in accordance with ASC Topic 815, Derivatives and Hedging (“ASC Topic 815”), and all derivative instruments are reflected as either assets or liabilities at fair value on the consolidated balance sheets. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between able and willing market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC Topic 820, based on the hierarchical framework associated with the three levels or price transparency utilized in measuring financial instruments at fair value as discussed above.
Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.
Initial Measurement
The Company records its financial instruments classified as a liability, temporary equity or permanent equity at issuance at the fair value, or cash received.
Subsequent Measurement - Financial instruments classified as liabilities
The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other expense/income. The Monte Carlo simulation is used to determine the fair value of derivatives for instruments with embedded conversion features and for free standing warrants as discussed further in Note 8.
Additional Disclosures Regarding Fair Value Measurements
The carrying value of cash, accounts receivable, inventory, other assets, and accounts payable and accrued expenses approximate their fair value due to the short-term maturity of those items.
Warrant Liabilities and Convertible Liabilities
The fair value of the derivative liabilities and warrant liabilities is classified as Level 3 within the Company’s fair value hierarchy. Refer to Note 8, Derivative Instruments, for further discussion of the measurement of fair value of the derivatives and their underlying assumptions.
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Stock-Based Compensation
The Company has a stock-based incentive award plan for employees, consultants and directors. The Company measures stock-based compensation at the estimated fair value on the grant date and recognizes the amortization of stock-based compensation expense on a straight-line basis over the requisite service period, or when it is probable criteria will be achieved for performance-based awards. Fair value is determined based on assumptions related to the fair value of the Company common stock, stock volatility and risk-free rate of return. The Company has elected to recognize forfeitures when realized.
Concentration Risk
The Company outsources certain portions of product design and development for its vehicles to third parties. In addition, the Company has outsourced the manufacturing of all of its vehicles to third party manufacturers, including one manufacturer for two of its vehicles, the Stag and Grunt EVO, and this third party was also performing product design and development services on the Stag until it reached production in February 2024.
One supplier provides the battery and drivetrain components for the Company’s utility terrain vehicle, the Stag. The components are critical to the operation of the Stag. The third party manufacturer sources other components from third party suppliers or fabricates them from materials sourced from third parties.
On January 8, 2024, the Company notified the manufacturer
of the Volcon Youth motorcycles that it was terminating the co-branding and distribution agreement with them due to lower than anticipated
sales of these units. In March 2024, the Company agreed to allow the manufacturer to keep all fully paid for units manufactured and held
by the manufacturer, cease selling the Volcon Youth motorcycles as of June 30, 2024, and pay cash of $
In June 2024, the Company was notified by the
manufacturer of a suspension component for the Stag that due to the Company’s initial production forecast provided by the third
party manufacturer of the Stag, the vendor had acquired raw materials to fulfill several months’ worth of this component needed
for the forecast. Although the Company had provided updated forecasts to the third party manufacturer of the Stag, the revised forecasts
were not provided timely to this vendor. The Company entered into an agreement to pay for the excess raw materials by making weekly payments
in the amount of $15,704 over an eighteen-month period once the Company validates the inventory quantities and amounts paid by the vendor.
In August 2024, the Company and the manufacturer determined that the inventory quantities and amount were less than the initial amount
and adjusted the weekly payments to $13,791. The Company initially recorded an expense of $
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board or other standard setting bodies that the Company adopts as of the specified effective date. The Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on the Company’s financial position or results of operations upon adoption.
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NOTE 3 – INVENTORY
Inventory consists of the following:
| Schedule of inventory | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
In September 2024, the Company lowered the sales price of the Grunt
EVO that are sold to dealers and distributors. Since the unit sales price is below the unit cost the Company paid to the manufacturer,
the Company wrote down the Grunt EVO finished goods inventory and recorded an expense of $
In October 2024, the Company notified the manufacturer of the Stag that the Company intended to terminate the manufacturing agreement between the parties due to breaches of the manufacturing agreement arising from significant costs increases over the original contracted cost, quality issues resulting in significant costs incurred by the Company for rework, manufacturing assistance required to be provided by the Company’s employees to program vehicles, significant delays in production and low production volumes. In response to the Company’s notice of termination, the manufacturer has indicated that it does not believe the assertions set forth in the Company’s notice are accurate and has asserted that it believes the Company lacks good cause to terminate the agreement. In addition, the manufacturer has asserted that it believes the Company has breached the manufacturing agreement and that the manufacturer intends to file a lawsuit claiming direct and consequential damages against the Company, including for lost profits, in an aggregate amount of $26.7 million. The Company intends to vigorously defend any claims brought by the manufacturer.
Pursuant to the manufacturing agreement, the
manufacturer has 60 days to cure the breaches indicated in the notice of termination, to the extent the breaches are curable. The
Company asked the manufacturer to provide a plan for curing its breaches and to provide assurances that the manufacturer would be
able to perform. The manufacturer has not responded to this request from the Company. The Company evaluated the probability that the
manufacturer could remediate the breach within 60 days of notification and concluded that it would not be probable. Therefore the
Company has written down all of the Stag parts inventory as the Company does not believe that it would be able to recover the
inventory since it is in the manufacturer’s possession, and even it could the Company does not believe that it could find
another manufacturer who could build the Stag without the Company incurring additional significant costs to have the manufacturer
set up a production facility. In addition, the Company wrote off all prepaid deposits and advances paid to vendors and the
manufacturer of the Stag. The total write off related to Stag inventory, prepaid inventory and advances was $
In June 2023, the Company wrote down all remaining Torrot branded
inventory in the amount of $
As of September 30, 2024, the Company has purchase
commitments for future payments due for inventory of $
NOTE 4 – LONG – LIVED ASSETS
Property and Equipment
Property and equipment consist of the following:
| Schedule of property and equipment | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| Machinery, tooling and equipment | $ | $ | ||||||
| Vehicles | ||||||||
| Internal use manufactured vehicles | ||||||||
| Fixtures & furniture | ||||||||
| Leasehold improvements | ||||||||
| Computers | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment | $ | $ | ||||||
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Depreciation expense for the three and nine months
ended September 30, 2024 was $
NOTE 5 – NOTES PAYABLE
In March 2023, the Company entered into two financing
arrangements to purchase two vehicles. The total principal of these arrangements is $
The following table provides the maturities of notes payable as of September 30, 2024:
| Schedule of maturities of notes payable | ||||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Total future payments | ||||
| Less: Interest | ( | ) | ||
| Total notes payable | ||||
| Less current portion | ( | ) | ||
| Long-term notes payable | $ | |||
NOTE 6 - CONVERTIBLE NOTES
On August 24, 2022, the Company issued Senior Convertible Notes (“Convertible Notes”) with an aggregate principal amount of
$
The Company allocated the net proceeds received
from the issuance of the Convertible Notes and Note Warrants based on the relative fair values of each resulting in net proceeds of $
On May 24, 2023, the Company issued additional
Senior Convertible Notes (“New Notes”) with an aggregate principal amount of $
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The holders of the New Notes also received fully
vested warrants (the “New Warrants”) to purchase
The Company incurred debt issuance costs of $
Concurrent with the issuance of the New Notes,
the Company exchanged the Convertible Notes into two new notes, Series A Notes and Series B Notes both due February 24, 2024 (collectively
the “Exchange Notes” and collectively with the New Notes the “May 2023 Notes”). The aggregate principal amount
of Series A Notes was $
In September 2023, the holders of the May 2023 Notes agreed to modify the due date of these notes to January 31, 2025. The Company also executed a security interest to the holders for substantially all of the assets of the Company.
Events of default for the May 2023 Notes were defined in the note agreements and the Company was in compliance with all covenants until the May 2023 Notes were exchanged for Series A Convertible Preferred Stock (“Preferred Stock”) on March 4, 2024 as discussed below.
The fair value of the May 2023 Notes was estimated based on the future cash flows discounted at an interest rate of
| Schedule of initial fair values | ||||||||
| Fair Value | Principal Amount | |||||||
| New Notes | $ | $ | ||||||
| Series A Exchange Notes | ||||||||
| Series B Exchange Notes | ||||||||
| Total May 2023 Notes | $ | $ | ||||||
The Company estimated the fair value of the conversion features of the New Notes, Exchange Notes, New Warrants and Exchange Warrants as of May 24, 2023, as discussed in Note 8 below.
The Company recognized interest expense of $
The Company also exchanged the Note Warrants with an exercise price of $513,000.00 per share issued with the Convertible Notes in August 2022 for warrants which had an initial exercise price of $196,200.00 per share (the “Exchange Warrants”) and was adjusted to $135,000.00 per share upon stockholder approval received on August 3, 2023. The Exchange Warrants expire August 24, 2027.
The conversion prices of the Exchange Notes, and the exercise prices of the New Warrants and Exchange Warrants (collectively the “May 2023 Warrants”) were subject to further adjustment in the event that the Company issues additional common stock, stock options, warrants or convertible notes with prices below the exercise price in effect at the time of issuance, or completes a stock split, reverse stock split or recapitalization where the lowest day’s VWAP of the Company’s stock price is below the then exercise price in the five days following the stock split with a floor of $0.22 per share.
The Company evaluated the issuance of the New
Notes and Exchange Notes and related warrants and determined that the Convertible Notes were extinguished based on the conclusion that
the terms of the New Notes and Exchange Notes are substantially different from the Convertible Notes in accordance with ASC 470, Debt.
In addition, the Company recognized a loss on the extinguishment of the Convertible Notes based on the carrying value of the Convertible
Notes at the transaction date, plus gross proceeds received from the issuance of New Notes and New Warrants, less the fair value of the
i) New Notes and conversion option, ii) New Warrants, iii) Exchange Notes and conversion options, and iv) Exchange Warrants. The resulting
loss on extinguishment of the Convertible Notes was $
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The May 2023 Notes contain certain conversion limitations, providing that no conversion may be made if, after giving effect to the conversion, the holder, together with any of its affiliates, would own in excess of 9.99% of the Company’s outstanding shares of common stock after giving effect to such conversion. The Company had the option to force conversion of the Series A and Series B Notes but the weighted average price of the Company’s common stock did not equal or exceed the amounts specified in the May 2023 Note agreements while these notes were outstanding.
In September 2023, the Company and the holders
of the Exchange Warrants entered into a warrant inducement agreement whereby the Exchange Warrant holders agreed to exercise Exchange
Warrants at a reduced exercise price of $63,000.00 per share. The Company issued the holders 11 warrants (“Reload Warrants”)
with an initial exercise price of $
The May 2023 Warrants and Reload Warrants contained certain conversion limitations, providing that a holder thereof may not exercise such warrants to the extent that, if after giving effect to such conversion, the holder or any of its affiliates would beneficially own in excess of 4.99% of the outstanding shares of the Company’s common stock immediately after giving effect to such exercise. The May 2023 Warrants and Reload Warrants provide the holders the right to exercise these warrants on a non-cash basis if the Company does not have an effective registration statement for the underlying shares of common stock.
Holders of the May 2023 Notes, the May 2023 Warrants and Reload Warrants did not have voting rights to the extent they did not convert their notes or exercise their warrants.
In September 2023, the Company completed a public
offering and sold shares of common stock at $ per share. The holders of the May 2023 Notes waived their right to reduce the
conversion price to the equity issuance price and agreed to reduce the conversion price to $99,000.00 per share. The exercise price of
the May 2023 Warrants was reduced to $
On October 13, 2023, the Company completed a
During the three months ended March 31, 2024,
$
As a result of the exchange for Preferred Stock,
the May 2023 Notes are no longer outstanding, there are no remaining covenants related to the May 2023 Notes that the Company must comply
with and the security interest on the assets of the Company has been released by the noteholders. The May 2023 Warrants exercise price
was reduced to $
NOTE 7 - MAY 2024 SENIOR NOTES
On May 22, 2024, the Company issued Senior Notes with an aggregate principal amount of $
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The Company allocated the net proceeds received
from the issuance of the May 2024 Notes and May 2024 Note Warrants based on the relative fair values of each resulting in net proceeds
of $
| Schedule of senior notes | ||||
| Principal amount | $ | |||
| Unamortized discount and issuance costs | ( | ) | ||
| Net carrying amount | $ | |||
During the three and nine months
ended September 30, 2024, the Company recorded non-cash interest expense of $
NOTE 8 - DERIVATIVE FINANCIAL INSTRUMENTS AND WARRANT LIABILITIES
May 2023 Notes and May 2023 Warrants
As discussed in Note 6, the Company recognized a loss on the extinguishment of the Convertible Notes based on the fair values of the May 2023 Notes including the conversion feature, and the May 2023 Warrants. The Company determined that there was a derivative liability associated with the conversion features in the May 2023 Notes due to the conversion price being subject to stockholder approval in the conversion feature. Therefore, the Company separated the conversion features from the May 2023 Notes and recorded them at fair value and continued to adjust them to fair value until stockholder approval was received on August 3, 2023 as the conversion price is then only adjusted based on anti-dilutive provisions. The Company also determined that the May 2023 Warrants were derivative liabilities due to the potential adjustment in the exercise prices being subject to stockholder approval. Once stockholder approval was received on August 3, 2023, the exercise price of the warrants only adjusts based on anti-dilutive provisions and they are no longer derivative liabilities
The fair value of the conversion features and warrant liabilities were calculated using a Monte Carlo simulation and the following assumptions and methodologies:
| Schedule of assumptions and methodologies | ||||||||
| May 24, 2023 | August 3, 2023 | |||||||
| Conversion Feature Liabilities | ||||||||
| Company stock price on valuation date | $ | $ | ||||||
| Volatility (closing prices of guideline comparable public companies) | ||||||||
| Conversion price per share | $ | $ | ||||||
| Note term (years) | ||||||||
| Risk free interest rate | ||||||||
| Warrant Liabilities | ||||||||
| Company stock price on valuation date | $ | $ | ||||||
| Volatility (closing prices of guideline comparable public companies) | ||||||||
| Conversion price per share | $ | $ | ||||||
| Warrant term (years) | ||||||||
| Risk free interest rate | ||||||||
In addition to the above factors, the Company also used a probability assessment for the initial and August 3, 2023 valuation to evaluate whether stockholder approval would be received to lower the conversion and exercise prices. The Company utilized a 50/50 assessment that stockholders would or would not approve the lower conversion and exercise price. Management notes that at the time of the assessment, the stockholder vote had not yet started therefore there was no data to determine whether one scenario was more likely than another. Since the stockholders approved the lower conversion and exercise price on August 3, 2023, no probability assessment was used.
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Based on the above factors, the estimated fair value of the Company’s derivative liabilities carried at fair value at May 24, 2023 and August 3, 2023 as follows:
| Schedule of derivative liabilities carried at fair value | ||||||||
| May 24, 2023 | August 3, 2023 | |||||||
| Conversion Feature - New Notes | $ | $ | ||||||
| Conversion Feature - Series A Exchange Notes | ||||||||
| Conversion Feature - Series B Exchange Notes | ||||||||
| New Warrants | ||||||||
| Exchange Warrants | ||||||||
| Total | $ | $ | ||||||
On August 3, 2023, stockholders approved the adjustment
of the conversion price of the New Notes and Exchange Notes and the exercise price of the New Warrants and Exchange Warrants. The conversion
and exercise prices can adjust to a floor of $0.22 per share based on certain events defined in the agreements related to these instruments.
The Company concluded that as of August 3, 2023, the conversion feature of the May 2023 Notes and the May 2023 Warrants are no longer
derivative liabilities and reclassified them to equity on August 3, 2023. The Company recognized a (loss) gain of $(
The Company
calculated the fair value of May 2023 Warrants at August 3, 2023, and recognized a gain of $
Series A and Series B Warrants
As discussed in Note 10 below, the Company issued
Series A and Series B Warrants (the “November 2023 Warrants”) in connection with the sale of common units and pre-funded warrant
units. Under the terms of the November 2023 Warrants, the number and exercise price are subject to adjustment if the Company completes
certain transactions specified in these warrant agreements. In addition, the Series A Warrants have a cashless exercise provision, if
approved by stockholders, that would allow holders to cashless exercise one warrant for three shares of the Company’s common stock.
Such adjustments were subject to stockholder approval (which was received on January 12, 2024) and are further described in Note 10.
The Company has determined that these warrants should be classified as liabilities and has used a Monte Carlo simulation to estimate the fair value. The following assumptions were used in the valuations:
| Schedule of assumptions | ||||
| December 31, 2023 | ||||
| Company stock price on valuation date | $ | |||
| Volatility | ||||
| Risk free interest rate | ||||
| Dividend yield | ||||
| Warrant term (years) | ||||
| Time to future transaction (years) | ||||
| Future transaction probability | ||||
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In addition to the above factors, the Company also used a probability assessment for the initial and December 31, 2023 valuation to evaluate whether stockholder approval would be received on January 12, 2024 to lower the conversion and exercise prices. Management notes that at the time of the assessment, the stockholder vote had not yet started but there was a requirement in the offering that the board of directors, management, and a significant stockholder vote in favor of these adjustments which included approximately 20.1% of the shares outstanding as of the transaction date. Further, significant investors in the transaction held shares acquired prior to the record date for eligible stockholders to vote. Although these same investors could not vote the shares received in the November 17, 2023 offering, they could abstain from voting those shares for the stockholder vote and such shares would count towards whether a quorum of shares was received to hold the special meeting for the stockholder approval. Finally, management notes that approval was overwhelmingly positive to adjust the conversion price for the May 2023 Notes and May 2023 Warrants and exercise prices. The Company concluded that it was 100% likely that stockholders would approve the provisions to adjust the number of warrants and exercise price.
Based on the above factors, the estimated fair value of the Series A and Series B Warrant liabilities at December 31, 2023 is as follows:
| Schedule of estimated fair value of the Series A and Series B Warrant liabilities | ||||
| December 31, 2023 | ||||
| Series A Warrant | $ | |||
| Series B Warrant | $ | |||
The Company allocated the gross proceeds from
the issuance of the common units and pre-funded warrant units based on the relative fair values from the November 17, 2023 valuation resulting
in a value of $
Subsequent to the approval by stockholders of
the cashless exercise provision of the Series A Warrant, the fair value of each Series A Warrant is the value of three shares of the Company’s
common stock. Based on the closing price of the Company’s common stock on September 30, 2024 of the fair value of each Series
A Warrant is $
As discussed in Note 10 below, on May 17, 2024,
certain terms of the Series B Warrants were amended, including a cashless exercise provision, which resulted in the Series B warrants
no longer being liabilities. The fair value of each Series B warrant is the value of the closing stock price of the Company times 0.81,
the cashless exercise exchange ratio. Based on the closing price of the Company’s common stock on May 17, 2024 of $, the fair
value of each Series B Warrant is $
As discussed in Note 10, certain holders of the
Series A and Series B Warrants exercised their warrants. The Company reclassified the fair value of the Series A Warrants exercised on
a cashless basis to stockholders equity. The Company recognized a gain of $
The following represents the activity associated with the Series A and Series B Warrants for the nine months ended September 30, 2024:
| Schedule of derivative liability | ||||||||||||
| Series A | Series B | Total | ||||||||||
| Fair value on December 31, 2023 | $ | $ | $ | |||||||||
| Loss on changes in fair value | ||||||||||||
| Exercise of warrants | ( | ) | ( | ) | ( | ) | ||||||
| Reclassification to equity | ( | ) | ( | ) | ||||||||
| Balance at September 30, 2024 | $ | $ | $ | |||||||||
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NOTE 9 – RELATED PARTY TRANSACTIONS
In March 2024, the Company entered into a
consulting agreement with Christian Okonsky, one of the Company’s founders, former Chairman of the Board and former Chief
Technology Officer, pursuant to which he was entitled to a monthly fee of $
During 2022, the Company issued purchase orders
and made prepayments for prototype parts of $
In December 2022, the Company entered into an employment agreement with Mr. Okonsky whereby Mr. Okonsky became an employee on January 2, 2023 with an annual salary of $170,000 and healthcare and other benefits that are also provided to all Company employees. The consulting agreement with Pink Possum, discussed below, was terminated upon execution of the employment agreement. Mr. Okonsky informed the Company on January 27, 2024 that he would resign his employment and forfeit his salary and benefits effective February 1, 2024.
In November 2020 and February 2021, the Company entered into an operating lease with an entity controlled by the Company’s two founders for its future headquarters and production facility in Liberty Hill, Texas. In October 2021, the Company began discussions for an additional amendment to the lease, in anticipation of manufacturing vehicles at this location, which would have resulted in the monthly payment of $100,000 for the first year of the lease and increasing annually throughout the term of the lease to $107,000 in the final year. Monthly payments for the initial lease and the amended agreement would have begun at the time a certificate of occupancy was received by the landlord. No monthly rent payments were made on these leases.
On April 27, 2022, the Company informed the landlord
that it would be terminating the lease. On May 27, 2022, the landlord notified the Company that the landlord would refund $85,756 of the
prepaid rent and security deposit balance of $601,818 paid by the Company and the Company recognized a loss on the unrefunded prepaid
rent and security deposit amount in 2022. In October 2023, the landlord notified the Company that there were additional costs that exceeded
the amount of the refund, and the landlord released the Company from paying any amounts in excess of the original expected refund. The
landlord also released the Company from any remaining obligations under the lease and amendments. The Company recognized a loss on the
termination of this lease of $
On August 28, 2020, the Company entered into consulting
agreements with Pink Possum, an entity controlled by Mr. Okonsky, and Highbridge Consultants, LLC (“Highbridge”), an entity
controlled by Mr. Adrian James, a co-founder of the Company, pursuant to which Messrs. Okonsky and James provide the Company with services
in exchange for warrants. On March 26, 2021 and March 25, 2021, respectively, Pink Possum and Highbridge entered into amendments to the
consulting agreements agreeing to exchange the original warrants for new ten-year warrants to purchase
| 23 |
In addition, pursuant to the consulting agreements, upon the occurrence of a Fundamental Transaction (as defined below) for an aggregate gross sales price of $100.0 million or more, each entity will receive a cash payment equal to 1% of such gross sales price. For the purposes of the consulting agreements, “Fundamental Transaction” means any of the following: (i) a consolidation or merger involving the Company if the holders of the voting securities of the Company that are outstanding immediately prior to the consummation of such consolidation or merger do not, immediately after the consummation of such consolidation or merger, hold voting securities that collectively possess at least a majority of the voting power of all the outstanding securities of the surviving entity of such consolidation or merger or such surviving entity’s parent entity; (ii) a transfer or issuance (in a single transaction or series of related transactions) by one or more of the Company and its stockholders to one person or to any group of persons acting in concert, of shares of the Company’s capital stock then collectively possessing 50% or more of the voting power of all then outstanding shares of the Company’s capital stock (computed on an as-converted to common stock basis); or (iii) any sale, license, lease, assignment or other disposition of all or substantially all of the assets of the Company. Furthermore, commencing upon the completion of the Company’s initial public offering of the shares of our common stock, if the Company’s market capitalization exceeds $300.0 million for a period of 21 consecutive trading days, each of the entities will receive an additional cash payment equal to $15.0 million; provided that the Company will have the right, in its sole discretion, to make the foregoing $15.0 million payment by the issuance of shares of the Company’s common stock. The foregoing amounts will be payable to the entities if the above milestones occur any time prior to the ten-year anniversary of the original consulting agreements, or August 28, 2030. The foregoing provision was terminated as to Pink Possum in connection with the consulting agreement between the Company and Mr. Okonsky described above.
NOTE 10 – STOCKHOLDERS’ EQUITY
On June 14, 2023, the Company’s stockholders approved an increase in the Company’s authorized shares of common stock from 100,000,000 to . In addition, the Company is authorized to issue shares of preferred stock with a par value of $. The specific rights of the preferred stock, when so designated, shall be determined by the board of directors.
On October 13, 2023, the Company completed a reverse
Common Stock
On July 12, 2024, Company sold shares
of the Company’s common stock at a purchase price of per share and pre-funded warrants to purchase shares of common
stock at $ per pre-funded warrant. The Company received net proceeds of $
On May 24, 2023, the Company sold shares of
its common stock in a public offering at $ per share. The Company received net proceeds of $
On September 18, 2023, the Company sold shares
of its common stock in a public offering at $ per share. The Company received net proceeds of $
As discussed in Note 6 above, on May 24, 2023 the Company issued the May 2023 Notes and May 2023 Warrants, along with the warrants to the placement agent in August 2022 with the issuance of the Convertible Notes. The Company received consent from the underwriter to issue such securities. In addition, the Company was required to reserve shares of common stock for future issuance of shares for the conversion of the May 2023 Notes and exercise of the May 2023 Warrants and shares for the exercise of the placement agent warrants.
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Series A Convertible Preferred Stock
On March 4, 2024, the Company designated
shares of preferred stock as Series A Convertible Preferred Stock with a par value of $ per share and exchanged the remaining May
2023 Notes (principal of $
The Preferred Stock conversion price per share
is subject to adjustment in the event of a stock split based on the lowest 5-day daily VWAP in the five days subsequent to the completion
of a stock split. As a result of the reverse stock split completed on June 6, 2024, the conversion price of the Preferred Stock was adjusted
to $
As of September 30, 2024, all of the Preferred Stock ( preferred shares) have been converted for shares of common stock.
November 2023 Common Units and Pre-Funded Warrant Units
On November 17, 2023, the Company sold (i)
common units (“Common Units”), each consisting of one share of the Company’s common stock, a Series A warrant to purchase
one share of common stock at an initial exercise price of $19,800.00 per share or pursuant to an alternative cashless exercise option
(described below), which warrant will expire on the five-year anniversary of the original issuance date (the “Series A Warrants”)
and a Series B warrant to purchase one share of common stock at an initial exercise price of $30,240.00 per share, which warrant will
expire on the five-year anniversary of the original issuance date (the “Series B Warrants” and together with the Series A
Warrants, the “Warrants”); and (ii) pre-funded units (the “Pre-funded Units” and together with the Common
Units, the “Units”), each consisting of one pre-funded warrant to purchase one share of common stock (the “Pre-funded
Warrants”), a Series A Warrant and a Series B Warrant. The purchase price of each Common Unit was $15,120.00, and the purchase price
of each Pre-Funded Unit was $15,119.64. The Pre-Funded Warrants were immediately exercisable and may be exercised at any time until all
of the Pre-Funded Warrants are exercised in full. As of December 31, 2023,
In addition, the Company granted the underwriter
a 45-day option to purchase additional 179 shares of common stock and/or Pre-Funded Warrants, representing up to 15% of the number of
common stock and Pre-Funded Warrants sold in the Public Offering, and/or additional 24 Series A Warrants representing up to 15% of the
Series A Warrants sold in the Public Offering, and/or additional 24 Series B Warrants representing up to 15% of the Series B Warrants
sold in the Public Offering solely to cover over-allotments, if any. The underwriter partially exercised its over-allotment option with
respect to 24 Series A Warrants and Series B Warrants. A total of each of Series A and B Warrants were issued in the transaction.
The net proceeds were approximately $
Series A Warrants
Each Series A Warrant had an initial exercise
price per share equal to $
| 25 |
Share Combination Event Adjustments
Conditioned upon the receipt of the Warrant Stockholder Approval at a required special meeting of stockholders (“Special Meeting”), if at any time on or after the date of issuance there occurs any share split, share dividend, share combination, recapitalization or other similar transaction involving the Company’s common stock (collectively a “Share Event”) and the lowest daily VWAP during the five consecutive trading days prior to the date of such event and the five consecutive trading days after the date of such event is less than the exercise price then in effect, then the exercise price of the Series A Warrant shall be reduced to the lowest daily VWAP during such period and the number of warrant shares issuable shall be increased such that the aggregate exercise price payable thereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price on the date of issuance. Approval of this adjustment by the stockholders was made on January 12, 2024.
Cashless Exercise
If at the time a holder exercises its Series A Warrants, a registration statement registering the issuance of the shares of common stock underlying the Series A Warrants under the Securities Act is not then effective or available and an exemption from registration under the Securities Act is not available for the issuance of such shares, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of common stock determined according to a formula set forth in the Series A Warrants.
Conditioned upon the receipt of the Warrant Stockholder Approval at a required Special Meeting, a holder of Series A Warrants may also provide notice and elect an “alternative cashless exercise” pursuant to which they would receive an aggregate number of shares equal to the product of (x) the aggregate number of shares of common stock that would be issuable upon a cash exercise of the Series A Warrant and (y) 3.0. Approval of this adjustment by the stockholders was made on January 12, 2024.
As discussed above, the Company completed a 1 for 45 reverse stock split on February 2, 2024. Prior to this reverse split, 24 Series A Warrants were exercised under the alternative cashless exercise provision in the period from January 1, 2024 to February 2, 2024. As a result of the 1 for 45 reverse stock split, the total number of Series A Warrants and exercise price for the remaining warrants was adjusted per the provisions of a Share Event and the total number of Series A Warrants became 4,975 and the exercise price became $1,491.68. A total of 4,923 of the Series A Warrants were exercised under the alternative cashless exercise provision subsequent to this reverse stock split and 53 remained outstanding prior to the June 6, 2024 reverse stock split.
The Company completed a
As of September 30, 2024,
Series B Warrants
Each Series B Warrant offered has an initial exercise
price per share equal to $
As a result of the reverse 1 for 45 stock split completed on February 2, 2024, the total number of Series B Warrants and exercise price for the remaining warrants was adjusted per the provisions of a Share Event and the total number of Series B Warrants became 8,922 and the exercise price became $1,491.68. A total of 88 of the Series B Warrants were exercised for proceeds of $130,522 and 8,834 remained outstanding as of March 4, 2024, when the Company exchanged the May 2023 Notes for Series A Convertible Preferred Stock with a conversion price of $133.00 per share, as discussed above. As a result of this exchange, the Series B Warrant amounts and exercise price were further adjusted based on certain anti-dilution provisions and the new number of Series B Warrants is 18,183 and the exercise price is $724.72.
| 26 |
On May 17, 2024, the Company entered into separate
warrant amendment agreements (collectively, the “Warrant Amendment”) with the holders of a majority-in-interest of the holders
of the Company’s Series B warrants issued November 2023. Pursuant to the Warrant Amendment, all outstanding Series B Warrants were
amended to delete the following sections: (i) a provision providing for the adjustment of the exercise price and number of shares issuable
pursuant to the Series B Warrants if the Company completed a future offering at a price per share less the exercise price of the Series
B Warrants then in effect; and (ii) a provision providing for the adjustment of the exercise price and number of shares issuable pursuant
to the Series B Warrants if price of the Company’s common stock after the completion of a share split, share dividend, share combination,
recapitalization or other similar transaction is less the exercise price of the Series B Warrants then in effect. In addition, the Warrant
Amendment provides that the holders may also exercise the Series B Warrants on a cashless basis and receive an aggregate number of shares
equal the product of the aggregate number of shares of common stock that would be issuable upon exercise of the Series B Warrants by means
of a cashless exercise rather than a cash exercise, multiplied by
On May 17, 2024, after giving effect to the Warrant
Amendment, the Company and certain holders of Series B Warrants to purchase an aggregate of
As of September 30, 2024,
Other Warrants
As discussed in Note 6, the Company issued the
Note Warrants, which were fully vested, to purchase
In May 2023, all of the Note Warrants to purchase
shares of the Company’s common stock were exchanged for Exchange Warrants to purchase shares of the Company’s common stock with an initial exercise price of $196,200.00 per share (which was adjusted to $135,000.00
per share upon stockholder approval which was received on August 3, 2023). The Exchange Warrants expire
As noted below, 11 of the Exchange Warrants were
exercised at a price of $63,000.00 per share and 11 Reload Warrants were issued with an exercise price of $
On October 13, 2023, the Company entered into an amendment (the “Amendment”) to its Stag UTV development and Stag supplier agreements with GLV Ventures (“GLV”). Pursuant to the Amendment, GLV agreed to provide the Company with extended payment terms and provide the Company with credit against new vehicles for the value of certain parts purchased by the Company. In consideration for entering into the Amendment No. 1, the Company agreed to issue GLV (or its designee) five-year warrants to purchase 12 shares of Company common stock with an exercise price of $75,600.00 per share, which was equal to the closing price of the Company’s common stock on the date of the Amendment No. 1, 6 shares were fully vested upon issuance and the remaining warrants vested 6 days from the issuance date.
| 27 |
Warrant Inducements
On October 13, 2023, the Company
entered into an inducement offer letter agreement (the “Inducement Letter”) with the three holders (each, a “Holder”)
of the May 2023 Warrants. The Company agreed to reduce the exercise price of up to 28 to the lesser of (i) $63,000.00 (after giving effect
to the stock splits noted above) and (ii) the exercise price in effect at the time of exercise of the Existing Warrants if further adjusted
in accordance with the terms of the May 2023 Warrants ($49,284.00 per share after adjustment for the lowest day’s VWAP for the five
days following the reverse stock split). The reduction of the exercise price of such Existing Warrants remained in effect until October
27, 2023 (the “Inducement Period”). In addition, pursuant to the Inducement Letter, the Holders who exercise such Existing
Warrants for cash on or prior to October 27, 2023 would receive a new warrant (“Reload Warrant”) to purchase the same number
of shares of common stock equal to the number of shares of common stock exercised and at the same exercise price as the Existing Warrants.
The exercise price for any Warrants not exercised prior to the end of the Inducement Period would not result in a change in the exercise
price under the original terms of the Existing Warrants. The Holders exercised 5 warrants of the 28 warrants available for exercise. Due
to the reverse
On October 29, 2023, in an effort
to raise cash, the Company entered into an inducement offer letter agreement (the “Inducement Reprice Letter”) with the Holders
of the Company’s May 2023 Warrants. Pursuant to the Inducement Reprice Letter, in exchange for an aggregate cash payment of $
As discussed in Note 7, the Company issued the
May 2024 Note Warrants on May 22, 2024, which are fully vested, to purchase shares of the Company’s common stock at an exercise
price of $
The following is the activity related to common stock warrants during the nine months ended September 30, 2024:
| Schedule of warrant activity | ||||||||||||||||
| Common Stock Warrants | ||||||||||||||||
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Life in years | Intrinsic Value | |||||||||||||
| Outstanding at January 1, 2024 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Canceled | $ | |||||||||||||||
| Expired | $ | |||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Outstanding at September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2024 | $ | $ | ||||||||||||||
In January 2021, the Company’s board of directors adopted the Volcon, Inc. 2021 Stock Plan, (the “2021 Plan”). The 2021 Plan is a stock-based compensation plan that provides for discretionary grants of stock options, stock awards, and restricted stock unit awards to employees, members of the board of directors and consultants (including restricted stock units issued prior to the adoption of the plan as further discussed below). The Company has reserved shares of the Company’s common stock for issuance under the 2021 Plan. To the extent that an award, if forfeitable, expires, terminates or lapses, or an award is otherwise settled in cash without the delivery of shares of common stock to the participant, then any unpaid shares subject to the award will be available for future grant or issuance under the 2021 Plan. There are shares available for issuance under the 2021 Plan as of September 30, 2024. Awards vest according to each agreement and as long as the employee remains employed with the Company or the consultant continues to provide services in accordance with the terms of the agreement.
| 28 |
Restricted Stock Units
There were no restricted stock units outstanding
in 2024 and no expense was recognized for any period of 2024. In February 2023, 1 RSU was subject to cancellation due to termination of
employment. However, the Company entered into a modification to allow the employee to fully vest in these RSUs as part of a severance
agreement. The Company recorded additional expense of $
For the three and nine months ended September 30, 2023, the Company recognized (benefit) expense for RSUs of $ and $, respectively.
Performance Shares
In 2022 the compensation committee approved reserving
In addition, the compensation committee also approved
reserving
Stock Options
The following summarizes activity relating to common stock options to employees and consultants for services during the nine months ended September 30, 2024:
| Schedule of stock option activity | ||||||||||||||||
| Common Stock Options | ||||||||||||||||
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Life in years | Intrinsic Value | |||||||||||||
| Outstanding at January 1, 2024 | $ | |||||||||||||||
| Granted* | $ | |||||||||||||||
| Forfeited | ( | ) | $ | |||||||||||||
| Canceled | ( | ) | $ | |||||||||||||
| Outstanding at September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2024 | $ | $ | ||||||||||||||
| * |
The Company valued the options using the closing stock price of the Company’s common stock on the date of grant and the following assumptions:
| Schedule of assumptions | ||||||||
| 2024 | 2023 | |||||||
| Volatility (based on the Company’s volatility in 2024 and peer companies in 2023) | % - % | % - % | ||||||
| Risk free interest rate | % - % | % - % | ||||||
| Dividends | ||||||||
| Estimated life in years | ||||||||
| 29 |
During the three and nine months ended September
30, 2024, the Company recognized share-based compensation (benefit) expense of $ and $, respectively, related to common stock
options. The share-based compensation for the nine months ended September 30, 2024 includes a net benefit of $
Total stock-based compensation recorded for the three and nine months ended September 30, 2024 and 2023 for all stock-based compensation awards, including warrants, has been recorded as follows:
| Schedule of stock-based compensation | ||||||||||||||||
Three Months September 30, 2024 | Three Months September 30, 2023 | Nine Months September 30, 2024 | Nine Months September 30, 2023 | |||||||||||||
| Cost of Goods Sold | $ | $ | $ | ( | ) | $ | ||||||||||
| Sales and Marketing | ||||||||||||||||
| Product Development | ||||||||||||||||
| General and Administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The basic net loss per common share is calculated by dividing the Company’s net loss available to common stockholders by the weighted average number of common shares during the year. The diluted net loss per common share is calculated by dividing the Company’s net loss available to common stockholders by the diluted weighted average number of common shares outstanding during the year. The diluted weighted average number of common shares outstanding is the basic weighted number of common shares adjusted for any potentially dilutive debt or equity. Diluted net loss per common share is equal to basic net loss per share due to the Company’s net loss and any potentially issuable shares are anti-dilutive.
| Schedule of loss per common share | ||||||||||||||||
| Three months | Three months | Nine months | Nine months | |||||||||||||
September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Denominator for basic and diluted net loss per common share - weighted average of common shares | ||||||||||||||||
| Basic and diluted net loss per common share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Common shares consisting of shares potentially dilutive as of September 30, 2024 and 2023 are as follows:
| Schedule of shares potentially dilutive | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Convertible Notes | ||||||||
| Warrants | ||||||||
| Stock options | ||||||||
| Restricted stock units | ||||||||
| Total | ||||||||
| 30 |
NOTE 13 – INCOME TAXES
Deferred taxes are determined by applying the provisions of enacted tax laws and rates for the jurisdictions in which the Company operates to the estimated future tax effects of the differences between the tax basis of assets and liabilities and their reported amounts in the Company’s financial statements. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.
Due to losses since inception and for all periods presented, no income tax benefit or expense has been recognized as a full valuation allowance has been established for any tax benefit that would have been recognized for the loss in any period presented.
The components of income tax expense (benefit) for the three and nine months ended September 30, 2024 and 2023 are as follows:
| Schedule of components of income tax expense benefit | ||||||||||||||||
Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | |||||||||||||
| Expected federal income tax benefit at statutory rate | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Non-deductible expenses | ( | ) | ( | ) | ||||||||||||
| Research and development credit | ( | ) | ( | ) | ||||||||||||
| Prior year true up | ||||||||||||||||
| Return to provision true up | ( | ) | ( | ) | ||||||||||||
| Change in valuation allowance | ||||||||||||||||
| Income tax benefit | $ | $ | $ | $ | ||||||||||||
Significant components of the Company’s deferred tax assets and liabilities at September 30, 2024 and December 31, 2023 are as follows:
| Schedule of deferred tax assets and liabilities | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| Deferred tax assets | ||||||||
| Net operating losses | $ | $ | ||||||
| Debt basis difference | ||||||||
| Depreciation and amortization | ||||||||
| Research & development credit | ||||||||
| Lease liability | ||||||||
| Stock-based compensation | ||||||||
| Inventory | ||||||||
| Accrued expenses | ||||||||
| Capital loss carryover | ||||||||
| Dealer rebates | ||||||||
| Vendor settlements and reserves | ||||||||
| Other | ||||||||
| Total | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | ||||||||
| Deferred tax liabilities | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Right-of-use assets | ( | ) | ( | ) | ||||
| Total net deferred taxes deferred tax liabilities | $ | $ | ||||||
| 31 |
Management currently believes that since the Company
has a history of losses it is more likely than not that the deferred tax regarding the loss carry forwards and other temporary differences
will not be realized in the foreseeable future. Due to the impact of the reverse stock split in June 2024 on the adjusted number of outstanding
options and exercise prices, the Company concluded that it is a remote possibility that any options will be exercised and therefore wrote
off the deferred tax asset and related valuation allowance for stock-based compensation. The utilization of the Company’s net operating
losses and credit carryovers may be subject to limitation due to the “change in ownership provisions” under Section 382 of
the Internal Revenue Code. The Company’s cumulative net operating loss carry forward of $
The Company has recorded no liability for income taxes associated with unrecognized tax benefits at the date of adoption and has not recorded any liability associated with unrecognized tax benefits. Accordingly, the Company has not recorded any interest or penalty in regard to any unrecognized benefit.
NOTE 14 – LEASES
The components of lease cost for operating leases for the three and nine months ended September 30, 2024 and 2023 is as follows:
| Schedule of lease costs for operating leases | ||||||||||||||||
Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | |||||||||||||
| Lease Cost | ||||||||||||||||
| Operating lease cost | $ | $ | $ | |||||||||||||
| Short-term lease cost | ||||||||||||||||
| Variable lease cost | ||||||||||||||||
| Sublease income | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
Supplemental cash flow information related to leases for the nine months ended September 30, 2024 and 2023, is as follows:
| Schedule of supplemental cash flow information related to leases | ||||||||
| 2024 | 2023 | |||||||
| Other Lease Information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Amortization of right-of-use assets | $ | $ | ||||||
The following table summarizes the lease-related assets and liabilities recorded on the balance sheet at September 30, 2024 and December 31, 2023:
| Schedule of lease related assets and liabilities | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| Lease Position | ||||||||
| Operating Leases: | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Right-of-use liabilities operating leases short-term | ||||||||
| Right-of-use liabilities operating leases long-term | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| 32 |
The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable.
| Schedule of lease term and discount rate | ||||
| Lease Term and Discount Rate | September 30, 2024 | |||
| Weighted-average remaining lease term (years): | ||||
| Operating leases | ||||
| Weighted-average discount rate: | ||||
| Operating leases | ||||
The following table provides the maturities of lease liabilities at September 30, 2024:
| Schedule of maturities of lease liabilities | ||||
| Operating | ||||
| Leases | ||||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total future undiscounted lease payments | ||||
| Less: Interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
NOTE 15 - SUBSEQUENT EVENT
On October 15, 2024, the “Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with an institutional shareholder (the “Shareholder”) pursuant to which the Shareholder agreed to exchange 774,569 shares of the Company’s common stock (the “Shares”) for pre-funded warrants to purchase 774,569 shares of the Company’s common stock.
Subject to certain ownership limitations, each pre-funded warrant is exercisable into one share of Company common stock at a price per share of $0.00001. In lieu of making the cash payment the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Company common stock determined according to a cashless exercise formula set forth in the pre-funded warrant.
| 33 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K, which contains audited financial statements of the Company as of and for the year ended December 31, 2023, previously filed with the Securities and Exchange Commission. Results for the three months ended September 30, 2024 are not necessarily indicative of results for the year ending December 31, 2024 or any future period.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions.
In addition, from time to time, we or our representatives may make forward-looking statements orally or in writing. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance, including: our financial performance and projections; our growth in revenue and earnings; our product development and production releases; and our business prospects and opportunities. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “hopes” or the negative of these or similar terms. In evaluating these forward-looking statements, you should consider various factors, including: our ability to change the direction of the Company; our ability to keep pace with new technology and changing market needs; and the competitive environment of our business. These and other factors may cause our actual results to differ materially from any forward-looking statement. Forward-looking statements are only predictions. The forward-looking events discussed in this document and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. We are not obligated to publicly update or revise any forward-looking statement, whether as a result of uncertainties and assumptions, the forward-looking events discussed in this document and other statements made from time to time by us or our representatives might not occur.
While we believe we have identified material risks, these risks and uncertainties are not exhaustive. Other sections of this Form 10-Q describe additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations, and we do not intend to do so.
| 34 |
Forward-looking statements include, but are not limited to, statements about:
| · | our ability to maintain the listing of our common stock on the Nasdaq Stock Market; | |
| · | our ability to generate revenues from sales, generate cash from operations, or obtain additional funding to market our vehicles and develop new products; | |
| · | our ability to successfully implement and effectively manage our outsourced manufacturing, design and development model and achieve any anticipated benefits; | |
| · | the ability of third party manufacturers to produce our vehicles in accordance with our design and quality specifications, with sufficient scale to satisfy customers and within a reasonable cost; | |
| · | anticipated timing for the manufacture, design, production, shipping and launch of our vehicles; | |
| · | the inability of our suppliers to deliver the necessary components for our vehicles at prices and volumes acceptable to our third party manufacturers; | |
| · | our ability to establish a network of dealers and international distributors to sell and service our vehicles on the timeline we expect; | |
| · | whether our vehicles will perform as expected; | |
| · | our facing product warranty claims or product recalls; | |
| · | our facing adverse determinations in significant product liability claims; | |
| · | customer adoption of electric vehicles; | |
| · | the development of alternative technology that adversely affects our business; | |
| · | increased government regulation of our industry; | |
| · | tariffs and currency exchange rates; and | |
| · | the conflict with Russia and Ukraine and the potential adverse effect it may have on the availability of materials used in the manufacturing of batteries for our vehicles. |
Overview
We are an all-electric, off-road powersports vehicle company developing electric two-wheeled E-Bikes and motorcycles and four-wheeled and utility terrain vehicles, or UTVs, also known as side-by-sides, along with a line of upgrades and accessories. In October 2020, we began building and testing prototypes for our future offerings with two off-road motorcycles – the Grunt and the Runt. Our motorcycles feature unique frame designs protected by design patents. Additional utility and design patents have been filed for other aspects of Volcon’s vehicles.
Two-Wheeled Products
We began selling the Grunt in September 2021. In August 2022, we ceased manufacturing of the Grunt and we outsourced the manufacturing of the remaining Grunts and the 2023 Grunt EVO to the same third party manufacturer as the Stag UTV discussed below. The 2023 Grunt EVO has replaced the Grunt and has a belt drive rather than a chain drive as well as an updated rear suspension. We began selling the Grunt EVO in the third quarter of 2023. We determined in the first quarter of 2024 that we would not develop the Runt for production and terminated efforts to develop this product.
In January 2023, we began selling Volcon co-branded youth electric motorcycles under a distribution agreement with Torrot Electric Europa S.A. (“Torrot”). In December 2023 we notified Torrot that we were terminating our agreements due to continued lower than expected sales at significantly discounted pricing. In conjunction with a settlement agreement with Torrot we ceased selling these motorcycles as of June 30, 2024.
In the fourth quarter of 2022, we began selling an E-Bike, the Brat which is manufactured by a third party. The Brat is a class 2 E-Bike and can be used on-road or off-road.
Beginning in the second quarter of 2024, we began evaluating other potential electric motorcycle offerings. We are determining what features and specifications would be included for new offerings including considering a street legal version that would be dual purpose as an on-road/off-road motorcycle (not highway legal). We have identified one new model which we are working on developing with a third party manufacturer. We do not have prototypes yet, but once received we will test them to evaluate the feasibility to produce and sell them. We will continue to evaluate other potential two-wheel product offerings throughout the remainder of 2024 and into 2025.
| 35 |
Utility Terrain Vehicles (UTVs)
In July 2022, we announced we were expanding our offerings with the introduction of the first of our Volcon UTV models, the Stag. We delivered the first Stag to a customer in February 2024. The Stag is being manufactured by a third party and incorporates electrification units, which include batteries, drive units and control modules provided by General Motors. Beginning in June 2022, we took non-binding pre-production orders which were cancelable prior to delivery. In October 2024, the Company notified the manufacturer of the Stag that the Company intended to terminate the manufacturing agreement between the parties due to breaches of the manufacturing agreement arising from significant costs increases over the original contracted cost, quality issues resulting in significant costs incurred by the Company for rework, manufacturing assistance required to be provided by the Company’s employees to program vehicles, significant delays in production and low production volumes. In response to the Company’s notice of termination, the manufacturer has indicated that it does not believe the assertions set forth in the Company’s notice are accurate and has asserted that it believes the Company lacks good cause to terminate the agreement. In addition, the manufacturer has asserted that it believes the Company has breached the manufacturing agreement and that the manufacturer intends to file a lawsuit claiming direct and consequential damages against the Company, including for lost profits, in an aggregate amount of $26.7 million. The Company intends to vigorously defend any claims brought by the manufacturer.
Pursuant to the manufacturing agreement, the manufacturer has 60 days to cure the breaches indicated in the notice of termination, to the extent the breaches are curable. The Company asked the manufacturer to provide a plan for curing its breaches and to provide assurances that the manufacturer would be able to perform. The manufacturer has not responded to this request from the Company. The Company evaluated the probability that the manufacturer could remediate the breach within 60 days of notification and concluded that it would not be probable. Therefore the Company has written down all of the Stag parts inventory as the Company does not believe that it would be able to recover the inventory since it is in the manufacturer’s possession and even it could the Company does not believe that it could find another manufacturer who could build the Stag without the Company incurring additional significant costs to have the manufacturer set up a production facility. In addition, the Company wrote off all prepaid deposits and advances paid to vendors and the manufacturer of the Stag. The total write off related to Stag inventory, prepaid inventory and advances was $8,712,644. Notwithstanding the foregoing, in the unlikely event the manufacturer is able to cure the breaches set forth in the notice of termination, the Company would continue to sell the Stag in accordance with the terms of the manufacturing agreement.
Beginning in the second quarter of 2024, we began discussions with various third party manufacturers of UTVs to identify models that we could purchase that are electric, or have internal combustion engine versions that could be modified to all electric. These models would be primarily used for utility purposes, have two or three passenger options, a dump bed or flatbed for hauling cargo, with speeds up to 30 miles per hour. These models may also include an enclosed cab with optional air conditioning.
In the three months ended September 30, 2024, we have signed an agreement with a manufacturer to distribute one of these utility UTV models, the VLCN HF1 in North America for five years, which includes a royalty agreement with the manufacturer for them to distribute the vehicle outside of North America. Royalties would commence in the third year of this agreement. We have also signed another agreement with a different manufacturer to distribute other light UTV models, the VLCN MN1 in the United States.
Customers
We initially sold the Grunt directly to consumers but ceased in November 2021. Since November 2021, we have sold the Grunt, Grunt EVO, Stag and related accessories through powersports dealers. As of November 11, 2024, we have 110 active dealers. Dealers can order any of our available products provided they are current on their accounts receivable and are within their established credit limit. We are offering dealers payment terms of 30 to 90 days to make larger purchases of our vehicles. We have entered into an accounts receivable factoring arrangement to allow us the ability to generate cash for working capital. We have agreements with third party financing companies to provide financing to qualified customers of each dealer. There is no recourse to us or the dealer if the dealer’s customer defaults on the financing agreement with the third party. We also sell the Brat to some powersports dealers as well as bicycle retailers and directly to consumers through our website, where consumers can have the Brat delivered to a location of their choosing in the continental U.S. Beginning in the first quarter of 2024, we began selling the Grunt EVO through our website where continental U.S. customers can pay a deposit and complete their purchase at one of our U.S. powersports dealer locations. Grunt EVO customers who are not located in a state where we have a powersports dealer or within a reasonable distance from a powersports dealer in their state, can have the Grunt EVO shipped directly to a location they specify.
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In addition to selling our two-wheeled vehicles through powersports dealers, bicycle retailers and direct to consumers through our website, we also sell them internationally through importers. Each importer buys vehicles by the container and sells vehicles and accessories to local dealers or directly to consumers. Local dealers or the importer will provide warranty and repair services for vehicles purchased in their country. As of November 11, 2024, we have signed agreements with six importers in Latin America, one importer for the Caribbean Region, collectively referred to herein as the LATAM importers, one importer in New Zealand, and one distributor in Japan to sell our two-wheel vehicles and accessories in their assigned countries/markets. Through the remainder of 2024 and in 2025, we expect to expand our global sales of our vehicles and accessories beyond our current distributor base.
Manufacturers
We outsource the manufacturing of all of our vehicles and accessories to third party manufacturers and suppliers. The estimated fulfillment of all two-wheeled and UTV orders we have received, or will receive, assumes that our third party manufacturers can successfully meet our order quantities and deadlines. We have experienced delays due to our third party manufacturers being unable to timely meet our order deadlines, and there is no assurance that we will not experience delays in the future until such time as we are able to source products from multiple manufacturers or from larger, more established manufacturers. If they are unable to satisfy orders on a timely basis, our customers may cancel their orders. Also, due to the limited number of third party manufacturers who manufacture our products, if any one of them experiences financial hardship and cannot manufacture our products, our customers may cancel their orders which will harm our sales. All of our products are manufactured internationally. If there is a change in import laws, including an increase in tariffs, the cost of our products will increase. We could also experience delays in receiving shipments of our products if there are delays in getting carriers to ship our products or delays at the port of entry.
Results of Operations
The following financial information is for the three and nine months ended September 30, 2024 and 2023.
| Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Revenue | $ | 1,075,864 | $ | 487,430 | $ | 3,050,275 | $ | 2,177,188 | ||||||||
| Cost of goods sold | (10,294,720 | ) | (3,542,468 | ) | (15,029,729 | ) | (5,107,096 | ) | ||||||||
| Gross margin | (9,218,856 | ) | (3,055,038 | ) | (11,979,454 | ) | (2,929,908 | ) | ||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 470,692 | 1,870,532 | 1,774,927 | 6,040,519 | ||||||||||||
| Product development | 528,352 | 2,983,197 | 2,148,847 | 5,936,280 | ||||||||||||
| General and administrative expenses | 1,916,712 | 1,544,344 | 6,005,020 | 5,003,135 | ||||||||||||
| Total operating expenses | 2,915,756 | 6,398,073 | 9,928,794 | 16,979,934 | ||||||||||||
| Loss from operations | (12,134,612 | ) | (9,453,111 | ) | (21,908,248 | ) | (19,909,842 | ) | ||||||||
| Other (expense)income | (3,702 | ) | (54,702 | ) | 17,741 | (38,199 | ) | |||||||||
| Loss on extinguishment of Convertible Notes | – | – | (1,647,608 | ) | (22,296,988 | ) | ||||||||||
| Loss on repayment of May 2024 Notes | (1,470,554 | ) | – | (1,470,554 | ) | – | ||||||||||
| Gain (loss) on change in fair value of financial liabilities | 53,724 | (684,994 | ) | (14,673,972 | ) | 5,107,794 | ||||||||||
| Interest expense | (83,334 | ) | (1,135,089 | ) | (610,299 | ) | (4,518,324 | ) | ||||||||
| Total other expense | (1,503,866 | ) | (1,874,785 | ) | (18,384,692 | ) | (21,745,717 | ) | ||||||||
| Loss before provision for income taxes | (13,638,478 | ) | (11,327,896 | ) | (40,292,940 | ) | (41,655,559 | ) | ||||||||
| Provision for income taxes | – | – | – | – | ||||||||||||
| Net loss | $ | (13,638,478 | ) | $ | (11,327,896 | ) | $ | (40,292,940 | ) | $ | (41,655,559 | ) | ||||
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Revenue
Revenue for the three months ended September 30, 2024, was $1,075,864, which represents sales of Brats of $361,978, Grunt EVOs of $346,189, Stags of $144,901, MN1s of $24,000 and accessories and parts of $137,722.
Revenue for the nine months ended September 30, 2024, was $3,050,275 which represents sales of Brats of $1,135,534, Grunt EVOs of $959,953, Stags of $379,787, Volcon Youth of $286,680, MN1s of $24,000 and accessories and parts of $224,522.
Revenue for the three months ended September 30, 2023, was $487,430 which represents sales of Brats of $686,331, Grunt EVO motorcycles of $37,193, Volcon Youth and Torrot motorcycles of $43,407 and accessories and parts of $52,613 offset by an adjustment of $333,524 to increase dealer rebates due to a change in the rebate program for remaining unsold Grunts in dealer inventory and for discounts to dealers for a reduction in the manufacturer’s suggested retail price for Brats and Volcon Youth motorcycles.
Revenue for the nine months ended September 30, 2023, was $2,177,188 which represents sales of Grunt motorcycles of $170,388, Brats of $1,728,528, Grunt EVO motorcycles of $37,193, Volcon Youth of $303,886 and accessories and parts of $204,593 offset by an adjustment of $269,218 to increase dealer rebates due to a change in the rebate programs during the period for remaining unsold Grunts in dealer inventory and for discounts to dealers for a reduction in the manufacturer’s suggested retail price for Brats and Volcon Youth motorcycles.
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 2024 were $10,294,720, including payroll costs of $56,996 for employees performing product fulfillment, logistics management, and service and warranty. Product costs for Brats, MN1s, and Grunt EVOs sold during the period were $300,880 (before the write down of inventory as discussed below), $22,900, and $878,633, respectively. Stag product costs were $224,784 before the write off of Stag inventory and prepaid deposits. As discussed above in “Overview – Utility Terrain Vehicles (UTVs)”, the Company wrote off all Stag parts inventory, including prepaid inventory deposits resulting in expense of $8,712,644. The Company also wrote down the Grunt EVO finished goods inventory by $535,013 due to the Company lowering the sales price to dealers and distributors. Offsetting expenses includes an adjustment of $136,121 to the vendor settlement for Stag suspension components recorded in the three months ended June 30, 2024 after auditing the inventory quantities and costs. The Company also recorded $175,000 as an offset to expenses for the partial recovery of a previously written off prepaid inventory deposit. Facilities costs related to operations were $98,254. Loss on disposal of Runt tooling and other equipment was $195,635.
Cost of goods sold for the nine months ended September 30, 2024 were $15,029,729 including payroll costs of $211,955 for employees performing product fulfillment, logistics management, and service and warranty. Product costs for Brats and Grunt EVOs, sold during the period were $1,105,054 and $1,515,175 (before the finished goods inventory write down discussed below), respectively. Volcon Youth product costs were $186,813 before the additional expense of $81,911 for the write down of all Volcon Youth inventory as the Company could no longer sell Volcon Youth motorcycles or parts after June 30, 2024. Stag product costs were $944,299, which includes an expense of $112,168 for the already delivered and future delivery of vehicles to a customer where the Company agreed to provide additional units at a sales price less than the manufactured cost of the units. As noted above, the Company also wrote off all Stag parts inventory and prepaid inventory deposits resulting in an expense of $8,712,644. The Company also recognized an expense of $976,420 for a settlement agreement with a vendor who supplies certain suspension components for the Stag. The Company also wrote down the Grunt EVO finished goods inventory by $535,013 due to the Company lowering the sales price to dealers and distributors. The Company recorded a loss on disposal of assets of $817,736 primarily related to Stag, Grunt EVO and Runt tooling. The Company also recorded $175,000 as an offset to expenses for the partial recovery of a previously written off prepaid inventory deposit.
Cost of goods sold for the three months ended September 30, 2023 were $3,542,468 including payroll costs of $287,117 and stock-based compensation of $131,526 for employees performing warehouse and logistics management and quality control testing. Product costs for Brats, Grunt EVOs, and Volcon Youth sold during the period were $555,265, $96,332 and $40,018 (before net realizable value write down), respectively. We recorded a write down of Volcon Youth motorcycles of $1,622,262 to reduce their costs to the expected net realizable value. We recorded an expense of $19,500 related to fees paid to cancel purchase orders to reduce raw material quantities. Facilities costs were $126,501 for our warehouse facility and third party warehousing costs. The Company also recorded an expense of $350,000 due to a reduction of the credit per Grunt EVO our third party manufacturer will provide for inventory previously provided to it. The credit was reduced to $1,250 from $1,600 due to inventory provided by the Company that is in excess of the 1,000 units. Future credits could be received if the Company has the third party manufacturer build more than 1,000 units.
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Cost of goods sold for the nine months ended September 30, 2023, were $5,107,096. Costs include payroll costs of $969,461 and stock-based compensation of $487,605 for share-based awards for employees performing warehouse and logistics management and quality control testing. Product costs for Brats, Grunts, Grunt EVOs, and Volcon Youth, sold during the period were $1,150,905, $459,690, $97,051, and $295,427 (before inventory write down), respectively. We recorded write downs of Volcon Youth and Torrot Youth motorcycles of $1,622,262 to reduce the inventory value to its expected net realizable value. We recorded expense of $158,252 related to fees paid to cancel purchase orders to reduce raw material quantities, which was offset by a reduction in the net realizable valuation expense of $198,061 the Company was recording for excess quantities of raw materials that it was no longer obligated to purchase by paying these fees. Also, the one-year warranty for parts and labor on Grunts sold prior to September 30, 2022 expired (excluding the battery which is warranted for 2 years) and an adjustment to reduce the warranty accrual in the amount of $459,800 was recorded which reduced cost of goods sold. Facilities costs were $337,658 for our warehouse facility and third party warehousing costs. Shipping costs were reduced by $347,729 due to the reversal of an accrual for shipping costs and tariffs expected to be incurred to ship our Grunt raw materials and work-in-process inventory to our third party manufacturer in Mexico which was no longer needed.
For the remainder of 2024 we expect revenue and cost of goods sold to increase due to the expected increase in sales of the Brat and Grunt EVOs. To the extent the new products, the MN1s and HF1s, arrive and sales begin before the end of 2024, revenue and costs of sales may also increase. Additional cost savings may be realized if the third party manufacturer for these vehicles can source or manufacture parts at a lower cost. The increase in costs for products will partially be offset by reductions in cost for salaries and benefits due to reductions in headcount completed in 2023.
Sales and Marketing Expense
Sales and marketing expenses relate to costs to increase exposure and awareness for our products and developing our network of U.S. dealers and international distributors.
Sales and marketing expenses were $470,692 for the three months ended September 30, 2024 and were primarily related to expenses associated with promoting our products and brand of $161,625, employee payroll costs of 91,684, which includes stock-based compensation expense of $10,053. Professional fees for legal and consulting services were $62,850.
Sales and marketing expenses
were $1,774,927 for the nine months ended September 30, 2024 and were primarily related to expenses associated with promoting our products
and brand of $570,398, employee payroll costs of $677,993, including $112,500 for severance costs for our former Chief Marketing Officer
and stock-based compensation of $21,983. Travel expenses related to roadshows showcasing the Stag and EVO were $68,671, facilities costs
were $77,041, professional fees for legal and consulting services were $147,186 and depreciation expense was $93,810.
For the three months ended September 30, 2023, sales and marketing expenses were $1,870,532 and include $683,349 for promoting our products and brand, $816,564 for employee payroll costs, stock-based compensation expense of $134,073 for share-based awards granted to employees and consultants, $43,684 related to facilities costs, and travel costs of $79,500 primarily related to costs incurred for travel to build our dealer and distributor network and to attend events to promote our products. Bad debt expense was $15,792 and legal and consulting fees were $15,577.
Sales and marketing expenses were $6,040,519 for the nine months ended September 30, 2023 and were primarily related to expenses associated with promoting our products and brand of $2,239,652, employee payroll costs of $2,323,155, stock-based compensation of $678,944 for share-based awards granted to employees and consultants, and travel costs of $259,777 primarily related to costs incurred for travel to build our dealer and distributor network and to attend events to promote our products. Facilities costs were $128,821. Bad debt expense was $66,990 and legal and consulting fees mainly related to entering into international distribution agreements were $156,846.
We expect sales expenses to increase slightly as we begin expanding our international distributors and selling commissions for increased sales of Brats, Grunt EVOs and to the extent the new products, the MN1s and HF1s, arrive and sales begin before the end of 2024. We expect marketing expenses to increase when we launch new products.
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Product Development Expense
Product development expenses relate to the development and testing of our products and process to manufacture these products.
Product development expenses were $528,352 for the three months ended September 30, 2024 and were primarily related to expenses associated with employee payroll costs of $387,976, facilities costs of $59,952, and travel expenses of $40,331.
Product development expenses were $2,148,847 for the nine months ended September 30, 2024 and were primarily related to expenses associated with employee payroll costs of $1,345,848, including stock-based compensation of $126,337 for share-based awards granted to employees, facilities costs of $184,019, prototype costs of $203,287 and professional fees related to product development in the amount of $64,581, travel expenses of $126,921 and depreciation expense of $85,646.
For the three months ended September 30, 2023, product development expenses totaled $2,983,198 and primarily relate to expenses associated with employee payroll costs of $426,332, stock-based compensation of $80,759 for share-based awards granted to employees, professional fees of $274,389 for consultants assisting with product design and programming, prototype vehicles and parts costs of $2,003,330, facilities costs of $49,879 and $38,000 for supplies and software.
Product development expenses were $5,936,280 for the nine months ended September 30, 2023 and were primarily related to expenses associated with employee payroll costs of $1,365,841, stock-based compensation of $389,729 for share-based awards granted to employees and consultants, professional fees of $570,364 for consultants assisting with product design and programming, prototype vehicles and parts costs of $2,913,425, tooling costs of $70,173 for prototype parts, testing costs of $143,072 to complete testing of vehicles including any required regulatory tests, shipping costs of $56,133 related to shipping prototypes, $133,571 for supplies and software and facilities costs of $143,185.
We expect the remaining 2024 and 2025 product development costs related to employee costs to remain consistent with the quarter ended September 30, 2024. We expect costs for design and development costs related to the Grunt EVO to decrease since it is in production and we have received all units from the manufacturer. We expect design and development costs to increase for development of the HF1 and the MN1 and motorcycle lineup being considered for future release.
General and Administrative Expense
General and administrative expenses relate to costs for our finance, accounting and administrative functions to support the development, manufacturing and sales of our products.
For the three months ended
September 30, 2024, general and administrative expenses were $1,916,712 and were primarily related to expenses associated with employee
payroll costs of $543,084, professional fees of $260,447 (which includes legal fees of $143,197), software costs of $129,404, travel costs
of $52,121, facilities costs of $53,530 and insurance costs of $664,457.
For the nine months ended September 30, 2024, general and administrative expenses were $6,005,020 and were primarily related to expenses associated with employee payroll costs of $1,808,888, including stock-based compensation of $159,388 for share-based awards granted to employees, professional fees of $863,220 (including legal fees of $434,292, tax and accounting fees of $77,155 and audit fees of $193,275), software costs of $423,018, insurance costs of $1,983,672, annual and special shareholder meeting costs of $133,531 and other public company expense costs of $243,342.
For the three months ended September 30, 2023, general and administrative expenses were $1,544,344 and were primarily related to expenses associated with employee payroll costs of $509,914, stock-based compensation of $194,171 for share-based awards granted to employees and consultants, professional fees of $161,523 (including legal fees of $61,201 for legal services and tax and audit fees of $71,008), software costs of $93,190, insurance costs of $339,714, facilities costs of $131,974, which includes $85,756 of lease termination costs, other public company expenses of $23,555 and the special stockholders meeting cost $104,840.
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For the nine months ended September 30, 2023, general and administrative expenses were $5,003,135 and were primarily related to expenses associated with employee payroll costs of $1,649,373, stock-based compensation of $667,077 for share-based awards granted to employees, professional fees of $665,463 (including legal fees of $276,082, tax and audit fees of $258,185 and recruiting fees of $30,098), software costs were $328,584, insurance costs of $1,022,905, facilities costs of $214,488, which includes $85,756 of lease termination costs, annual and special shareholder meeting costs of $192,155 and other public company expenses were $164,308.
We expect general and administrative expenses to remain consistent over the next several quarters. Costs such as product liability insurance may increase due to the introduction of new products.
Interest and Other Expenses
Interest and other income/expenses for the three months ended September 30, 2024 was $1,503,866. We recognized a loss of $1,470,554 when we repaid the outstanding principal of the May 2024 Notes with the proceeds received from our July 2024 equity offering. Non-cash interest expense of $55,146 was recognized for the amortization of debt issuance costs and accretion of principal on the May 2024 Notes until they were repaid. We recorded a gain on the change in the estimated fair value of the Series A Warrant liability of $53,724.
Interest and other income/expenses for the nine months ended September 30, 2024 was $18,384,692. Non-cash interest expense of $314,838 was recognized for the amortization of debt issuance costs and accretion of principal on the May 2023 Notes through the date these notes were exchanged for Preferred Stock in March 2024. We recorded a loss on the conversion of some of these notes of $333,544 and a loss from the exchange of these notes for Preferred Stock of $1,314,065. We recognized a loss of $1,470,554 when we repaid the outstanding principal of the May 2024 Notes with the proceeds received from our July 2024 equity offering. Non-cash interest expense of $238,965 was recognized for the amortization of debt issuance costs and accretion of principal on the May 2024 Notes until they were repaid. We recorded a loss on the change in the estimated fair value of the Series A and Series B Warrant liabilities of $14,839,326 which was partially offset by a gain of $165,355 from the exercise of some of the Series B Warrants.
Interest and other income/expenses for the three and nine months ended September 30, 2023 were $1,874,785 and $21,745,717, respectively. A loss on extinguishment of the Convertible Notes of $22,296,988 was recognized in the nine months ended September 30, 2023 (see Note 6 to the consolidated financial statements). Non-cash interest expense of $1,130,837 and $4,516,041 was recognized for the amortization of debt issuance costs and accretion of principal on the Convertible Notes issued in August 2022 prior to extinguishment of the Convertible Notes and for the May 2023 Notes for the three and nine months ended September 30, 2023, respectively. A (loss) gain on the change in the valuation of derivative financial liabilities of ($684,994) and $5,107,794 was recognized in the three and nine months ended September 30, 2023 (see Note 8 to the consolidated financial statements).
Non-cash interest expense will no longer be recognized on the May 2023 Notes in the future due to the exchange of the May 2023 Notes for Series A Convertible Preferred Stock. Non-cash interest expense will no longer be recognized on the May 2024 Senior Notes after repayment of these notes in July 2024 with the proceeds from the sale of common stock.
Net Loss
Net loss for the three and nine months ended September 30, 2024, was $13,638,478 and $40,292,940, respectively.
Net loss for the three and nine months ended September 30, 2023, was $11,327,896 and $41,655,559, respectively.
Liquidity and Capital Resources
On September 30, 2024, we had cash and restricted cash of $5.9 million, including $0.1 million of restricted cash, and we had a working capital of $4.5 million. Since inception we have funded our operations from proceeds from debt and equity sales. On July 12, 2024, we sold 820,836 shares of common stock at a purchase price of $3.65 per share and pre-funded warrants to purchase 2,466,836 shares of common stock at $3.64999 per pre-funded warrant and received net proceeds of $10.8 million and $2.9 million was used to repay the principal on the May 2024 Notes.
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Cash used in operating activities
Net cash used in operating activities was $12.3 million for the nine months ended September 30, 2024 and includes all of our operating costs except depreciation and amortization of $0.3 million, write down of Stag, Grunt EVO and Volcon Youth inventory and inventory deposits of $9.1 million, non-cash interest expense for the amortization of debt issuance costs and accretion of principal on the May 2023 Notes and May 2024 Notes of $0.6 million, loss on change in derivative financial liabilities of $14.8 million, losses on conversion and exchange of Convertible Notes of $1.6 million, $1.5 million loss on repayment of the May 2024 Notes, $0.8 million from the loss on disposal of fixed assets, and stock based compensation of $0.3 million. Cash used in operating activities includes an increase in accounts receivable of $0.1 million due to sales to our U.S. dealers, an increase of $1.0 million in prepaid inventory deposits primarily for purchases of Stag raw materials, a decrease of $0.6 million in accounts payable, and an increase of $0.5 million in accrued liabilities primarily due to the vendor settlement noted above and $0.6 million used to pay our lease liabilities. As of September 30, 2024, we have a decrease of $0.3 million in customer deposits, primarily due to orders being fulfilled for two of our Latin American distributors for shipments of Brats and Grunt EVOs paid for previously.
Net cash used in operating activities was $16.8 million for the nine months ended September 30, 2023 and includes all of our operating costs except stock-based compensation, write down of inventory, depreciation and amortization, non-cash interest expense for the amortization of debt issuance costs and accretion of principal on Convertible Notes and May 2023 Notes, gain on change in derivative financial liabilities, loss on extinguishment of Convertible Notes, bad debt expense and gain on sale of assets and loss on lease termination. Cash used in operating activities includes a decrease in accounts receivable of $0.6 million for collections net of sales, increases in inventory of $3.2 million due to the purchase of Brats, Volcon Youth motorcycles and purchases of batteries for the Stag offset by the transfer of Grunt inventory of $1.4 million to one of our third party manufacturers, an increase of $2.4 million in accounts payable primarily due to purchases of batteries for the Stag and amounts due to our third party manufacturer of the Stag and Grunt EVO, a decrease of $0.3 million in accrued liabilities due reversal of an accrual for anticipated shipping and tariffs related to shipping raw material and subassembly inventory for the Grunt to our third party manufacturer. As of September 30, 2023 we have $0.2 million in customer deposits, primarily from two of our Latin America distributors as prepayment for shipments of Brats and Grunt EVOs.
Cash used in investing activities
Net cash used in investing activities was $0.2 million for the nine months ended September 30, 2024, primarily consisting of $0.3 million of purchases of equipment and tooling offset by $0.1 million received from an insurance settlement for a vehicle that was totaled in the period.
Net cash used in investing activities was $0.7 million for the nine months ended September 30, 2023, consisting of $0.8 million of purchases of equipment and tooling offset by proceeds of $0.1 million received for the sale of two vehicles.
Cash provided by financing activities
Cash provided by financing activities for the nine months ended September 30, 2024, was $10.2 million and was primarily related to the net proceeds from the issuance of common stock and pre funded warrants in July 2024 for net proceeds of $10.8 million and net proceeds from the issuance May 2024 Senior Notes and May 2024 Note Warrants of $2.3 million offset by the repayment of the May 2024 Senior Notes of $2.9 million.
Cash provided by financing activities for the nine months ended September 30, 2023, was $9.0 million and was related primarily to proceeds from the public offerings of 42 shares of our common stock for net proceeds of $4.6 million and issuance of convertible notes in a private offering with a principal amount of $4.9 million and net proceeds of $3.9 million. We also received proceeds of $0.5 million from proceeds from the exchange of 11 warrants for new warrants . In addition, we used $0.1 million from proceeds received from the sale of two vehicles to pay off the related notes payable on the vehicles.
Our continuation as a going concern is dependent upon our ability to attain profitable operations and if necessary, obtain continued financial support from the issuance of debt or equity. As of September 30, 2024, we had incurred an accumulated deficit of $161.1 million since inception.
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Management anticipates that our cash on hand as of September 30, 2024 plus the net proceeds from the equity offering completed in July 2024 and cash expected to be generated from operations will not be sufficient to fund planned operations during the near term and not beyond one year from the date of the issuance of the financial statements as of and for the three and nine months ended September 30, 2024. To continue our operations, we currently estimate that we will need to obtain additional funding by the first quarter of 2025. We do not have commitments for any such financing, and there can be no assurance that such additional funding would be available to the Company on acceptable terms, or at all. If we are unable to raise additional near-term financing, we will be required to modify or cease our operations. These factors raise substantial doubt regarding our ability to continue as a going concern.
JOBS Act Accounting Election
The recently enacted JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
We have implemented all new accounting pronouncements that are in effect and may impact our financial statements and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including conversion features of our convertible debt and warrants issued in connection with our convertible debt, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative financial instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period.
We account for the Series A Warrants (and the Series B Warrants until May 17, 2024 when they were modified) issued in connection with the November 2023 Common Units and Pre-funded Warrant Units as a financial liability in accordance with ASC 815. Accordingly, we recognized these financial liabilities at fair value initially and adjust it to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised or until warrant exercise price and number of warrants become fixed (as was the case with the Series B Warrants upon modification), and any change in fair value is recognized in the statement of operations. The fair value of these financial instruments were initially measured at fair value using a Monte Carlo simulation model. The Series A Warrant measurement was changed once the shareholders approved the alternative cashless exercise provision of the Series A Warrants to allow a holder to cashless exercise the warrant and receive three shares of common stock. The measurement of the Series A Warrants is now based on the closing price of the Company’s common stock multiplied by three. The Series A Warrants are classified as current liabilities as the timing of their exercise is at the discretion of the warrant holders and the warrants were fully vested as of the date they were issued.
The modification of the Series B Warrants fixed the number of warrants. One of the provisions of the modification also included a provision that allowed a Series B Warrant holder to cashless exercise the warrant and receive .81 of a share of common stock. We calculated the fair value of the Series B Warrants on the date of the modification based on the modified terms. The Series B Warrant valuation was based on our closing stock price on the modification date multiplied by .81. We recognized a gain in the statement of operations for the three and six months ended June 30, 2024 and reclassified the liability to equity.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to our Chief Executive Officer, who serves as our principal executive officer, and Chief Financial Officer, who serves as our principal financial officer, as appropriate, to allow timely discussions regarding required disclosure. We, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were not effective as of September 30, 2024 to provide assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management as appropriate, to allow timely decisions regarding disclosures as we have previously missed filing certain forms timely and we have not implemented and tested controls and procedures to conclude that we have remediated this deficiency. Notwithstanding this conclusion, we believe that our unaudited consolidated financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects. Management is working to identify corrective actions for the weakness and will periodically re-evaluate the need to add personnel and implement improved review procedures.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting during the nine months ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time in the ordinary course of our business, we may be involved in legal proceedings, the outcomes of which may not be determinable. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. We are not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable. We have insurance policies covering potential losses where such coverage is cost effective.
Although the Company is not presently a party to any material legal proceedings, as described in “Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations – Overview - Utility Terrain Vehicles (UTVs)” the manufacturer of the Company’s Stag vehicle has threatened legal proceedings against the Company. In October 2024, the Company notified the manufacturer that the Company intended to terminate the manufacturing agreement between the parties due to breaches of the manufacturing agreement arising from significant costs increases over the original contracted cost, quality issues resulting in significant costs incurred by the Company for rework, manufacturing assistance required to be provided by the Company’s employees to program vehicles, significant delays in production and low production volumes. In response to the Company’s notice of termination, the manufacturer has indicated that it does not believe the assertions set forth in the Company’s notice are accurate and has asserted that it believes the Company lacks good cause to terminate the agreement. In addition, the manufacturer has asserted that it believes the Company has breached the manufacturing agreement and that the manufacturer intends to file a lawsuit claiming direct and consequential damages against the Company, including for lost profits, in an aggregate amount of $26.7 million. The Company intends to vigorously defend any claims brought by the manufacturer.
ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes to the risk factors included in the Form 10-K filed with the SEC on March 28, 2024, and our Form 10-Q for the period ended June 30, 2024, each of which is accessible on the SEC’s website at www.sec.gov.
Our ability to continue as a going concern requires that we obtain sufficient funding to finance our operations in the near-term.
We anticipate that our cash on hand as of September 30, 2024 plus the cash raised from the July 2024 equity offering and cash expected to be generated from operations will not be sufficient to fund planned operations for one year from the issuance of the September 30, 2024 financial statements. To continue our operations, we currently estimate that we will need to obtain additional funding by the first quarter of 2025. We can provide no assurance that such funding would be available to us on acceptable terms, or at all. If we fail to raise additional proceeds, we will be required to modify or cease our operations. These factors raise substantial doubt regarding our ability to continue as a going concern.
We have in the past failed to maintain compliance with all applicable continued listing requirements of the Nasdaq Capital Market, and if we fail to maintain compliance with all applicable continued listing requirements of the Nasdaq Capital Market in the future, we will not be afforded traditional cure periods under Nasdaq rules and our common stock will be delisted from Nasdaq, which could have an adverse impact on the liquidity and market price of our common stock.
On December 19, 2023, we were notified by the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) that we were not in compliance with Nasdaq’s Listing Rule 5550(a)(2), as the minimum bid price of our common stock had been below $1.00 per share for 30 consecutive business days. On January 4, 2024, the Staff notified us that the market value of our listed securities had been below the minimum $35,000,000 required for continued listing as set forth in Nasdaq’s Listing Rule 5550(b)(2) for the previous 180 calendar days and served as an additional basis for delisting.
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We submitted a hearing request to Nasdaq’s Hearings Department, which stayed the suspension of our common stock. The hearing was held on March 26, 2024. On April 2, 2024, we received notification from the Nasdaq Hearings Panel (“Panel”) that it had granted an extension until June 24, 2024, to demonstrate compliance with Listing Rules 5550(a)(2) and 5550(b)(1) (which requires at least $2.5 million in shareholders’ equity), subject to certain conditions.
On July 17, 2024, we received a letter from the Nasdaq Office of General Counsel confirming the decision of the Panel that we had demonstrated compliance with the requirements for continued listing on The Nasdaq Capital Market, but that we will be subject to a Discretionary Panel Monitor for a period of one year. As such, in the event that we have another deficiency or deficiencies, we will immediately go back into Nasdaq’s hearings process. In the event that the Nasdaq Hearings Department does not grant us an extension to demonstrate compliance our common stock would be delisted from Nasdaq and trading of our common stock could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such an event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed on a major exchange.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Except as previously reported on Form 8-K, we did not sell any equity securities during the period covered by the report that were not registered under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the quarter ended September
30, 2024, no director or officer
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ITEM 6. EXHIBITS
INDEX TO EXHIBITS
|
Exhibit Number |
Description | |
| 4.1 | Form of Pre-Funded Warrant issued in July offering (incorporated by reference to exhibit 4.1 of the Form 8-K filed July 12, 2024) | |
| 4.2 | Form of Pre-Funded Warrant issued in October 2024 exchange offering (incorporated by reference to exhibit 4.1 of the Form 8-K filed October 16, 2024) | |
| 10.1 | Form of Securities Purchase Agreement by and among the Company and the Investors, dated July 11, 2024 (incorporated by reference to exhibit 10.1 of the Form 8-K filed July 12, 2024) | |
| 10.2 | Placement Agent Agreement between the Company and Aegis Capital Corp. dated July 11, 2024 (incorporated by reference to exhibit 10.2 of the Form 8-K filed July 12, 2024) | |
| 10.3 | Form of Exchange Agreement by and between the Company and the shareholder party thereto (incorporated by reference to exhibit 10.1 of the Form 8-K filed October 16, 2024) | |
| 10.4 | At-The-Market Issuance Sales Agreement, dated October 18, 2024, by and between Volcon, Inc. and Aegis Capital Corp. (incorporated by reference to exhibit 10.1 of the Form 8-K filed October 18, 2024) | |
| 31.1* | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 | |
| 31.2* | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 | |
| 32.1*(1) | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2*(1) | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in inline XBRL, and included in exhibit 101). |
______________
| * | Filed herewith. |
| (1) | The certifications on Exhibit 32 hereto are deemed not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| VOLCON, INC. | ||||
| SIGNATURE | TITLE | DATE | ||
|
|
||||
| /s/ John Kim | Chief Executive Officer and Director | November 12, 2024 | ||
| John Kim | (principal executive officer) | |||
| /s/ Greg Endo | Chief Financial Officer | November 12, 2024 | ||
| Greg Endo | (principal financial and accounting officer) |
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Exhibit 31.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
I, John Kim, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2024 of Volcon, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 12, 2024
By: /s/ John Kim
John Kim
Chief Executive Officer
(Principal executive officer)
Exhibit 31.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER
I, Greg Endo, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2024 of Volcon, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 12, 2024
By: /s/ Greg Endo
Greg Endo
Chief Financial Officer
(Principal financial and accounting officer)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Volcon, Inc., a Delaware corporation (the "Company"), does hereby certify, to such officer’s knowledge, that:
The quarterly report on Form 10-Q for the quarter ended September 30, 2024 (the “Form 10-Q”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
November 12, 2024
By: /s/ John Kim
John Kim
Chief Executive Officer
(Principal Executive Officer)
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Volcon, Inc., a Delaware corporation (the "Company"), does hereby certify, to such officer’s knowledge, that:
The quarterly report on Form 10-Q for the quarter ended September 30, 2024 (the “Form 10-Q”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
November 12, 2024
By: /s/ Greg Endo
Greg Endo
Chief Financial Officer
(Principal financial and accounting officer)