UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20212023
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: 001-40867
Volcon, Inc.
(Exact (Exact Name of Registrant as Specified in Its Charter)
| Delaware | 84-4882689 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| 78665 | ||
| (Address of Principal Executive Offices) | (Zip Code) |
(512) 400-4271
(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 |
| Common Stock | VLCN | The NASDAQ Stock Market LLC |
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. Yes☐ No ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically if any, 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). Yes ☒ No ☐
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 ☐ |
| Non-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. ☐
Securities registered pursuant to Section 12(b) 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 [●], 2021.
August 10, 2023.
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements under the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of this Form 10-Q. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “should,” “would,” “could,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or “continue,” and the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to known and unknown risks, uncertainties and assumptions about us, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements.
While we believe we have identified material risks, these risks and uncertainties are not exhaustive. Other sections of this Form 10-Q may 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.
Forward-looking statements include, but are not limited to, statements about:
We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-Q in the case of forward-looking statements contained in this Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. Although we believe that the expectations reflected in the forward looking-statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, you should not rely on any of the forward-looking statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
PART I -— FINANCIAL INFORMATION
ItemITEM 1. Financial Statements.FINANCIAL STATEMENTS
VOLCON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2021 | December 31, 2020 | June 30, 2023 | December 31, 2022 | |||||||||||||
| (unaudited) | ||||||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash | $ | 2,657,379 | $ | 536,082 | $ | 7,967,622 | $ | 10,986,592 | ||||||||
| Accounts receivable | 35,663 | 0 | ||||||||||||||
| Restricted cash | 551,250 | 551,250 | ||||||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $105,947 and $62,451 at June 30, 2023 and December 31, 2022, respectively | 233,604 | 864,957 | ||||||||||||||
| Inventory | 2,328,686 | 0 | 4,693,738 | 5,645,883 | ||||||||||||
| Inventory deposits | 2,940,314 | 0 | 2,275,376 | 427,662 | ||||||||||||
| Prepaid expenses and other current assets | 341,314 | 102,789 | 2,804,783 | 1,850,666 | ||||||||||||
| Total current assets | 8,303,356 | 638,871 | 18,526,373 | 20,327,010 | ||||||||||||
| Long term assets: | ||||||||||||||||
| Property and equipment, net | 761,042 | 305,271 | 904,786 | 601,766 | ||||||||||||
| Intangible assets - domain names, net | 20,248 | 16,954 | ||||||||||||||
Intangible assets, net | 2,906 | 5,813 | ||||||||||||||
| Other long-term assets | 749,187 | 50,560 | 285,037 | 285,037 | ||||||||||||
| Right of use asset - operating lease | 2,296,872 | 842,357 | ||||||||||||||
| Right-of-use assets - operating leases | 1,324,310 | 1,505,987 | ||||||||||||||
| Total assets | $ | 12,130,705 | $ | 1,854,013 | $ | 21,043,412 | $ | 22,725,613 | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable | $ | 1,330,714 | $ | 81,400 | $ | 655,376 | $ | 1,036,628 | ||||||||
| Accrued liabilities | 154,366 | 34,044 | 1,447,051 | 2,045,239 | ||||||||||||
| Accrued purchase commitments | – | 28,600 | ||||||||||||||
| Current portion of notes payable | 17,438 | 8,873 | 14,550 | 18,670 | ||||||||||||
| Right of use operating lease liability, short term | 328,337 | 141,943 | ||||||||||||||
| Convertible notes, net of issuance costs | 28,579,123 | 17,353,748 | ||||||||||||||
| Conversion liabilities | 2,934,986 | – | ||||||||||||||
| Warrant liabilities | 9,642,075 | – | ||||||||||||||
| Right-of-use operating lease liabilities, short-term | 412,159 | 391,117 | ||||||||||||||
| Customer deposits | 2,334,105 | 55,865 | 319,210 | 23,471 | ||||||||||||
| Promissory Notes | 1,138,844 | 0 | ||||||||||||||
| SAFE liability | 0 | 2,000,000 | ||||||||||||||
| Total current liabilities | 5,303,804 | 2,322,125 | 44,004,530 | 20,897,472 | ||||||||||||
| Notes payable, net of discount and current portion | 73,218 | 59,329 | ||||||||||||||
| Right of use operating lease liability, long term | 1,964,779 | 614,414 | ||||||||||||||
| Notes payable, net of current portion | 77,401 | 50,116 | ||||||||||||||
| Right-of-use operating lease liabilities, long-term | 947,604 | 1,143,011 | ||||||||||||||
| Total liabilities | 7,341,801 | 2,995,868 | 45,029,535 | 22,090,599 | ||||||||||||
| COMMITMENTS AND CONTINGENCIES | – | – | ||||||||||||||
| Stockholders' equity (deficit): | ||||||||||||||||
| Preferred stock: $par value, shares authorized, 2,900,000 shares designated | ||||||||||||||||
| Series A Preferred Stock: $par value, 1,400,000 shares designated shares issued and outstanding as of September 30, 2021, designated, issued or outstanding as of December 31, 2020 | 12 | 0 | ||||||||||||||
| Series B Preferred Stock: $ par value,1,500,000 shares designated, shares issued and outstanding as of September 30, 2021, designated, issued or outstanding as of December 31, 2020 | 11 | 0 | ||||||||||||||
| Common stock: $par value, shares authorized, shares issued and outstanding as of September 30, 2021, issued or outstanding as of December 31, 2020 | 13 | 8 | ||||||||||||||
| Stockholders' (deficit) equity: | ||||||||||||||||
| Preferred stock: $par value, shares authorized, shares outstanding | – | – | ||||||||||||||
| Common stock: $par value, shares authorized, shares issued and outstanding at June 30, 2023 and shares authorized, shares issued and outstanding as of December 31, 2022 | 260 | 198 | ||||||||||||||
| Additional paid-in capital | 31,509,121 | 232,550 | 82,076,207 | 76,369,742 | ||||||||||||
| Accumulated deficit | (26,720,253 | ) | (1,374,413 | ) | (106,062,590 | ) | (75,734,927 | ) | ||||||||
| Total stockholders’ equity (deficit) | 4,788,904 | (1,141,855 | ) | |||||||||||||
| Total stockholders’ (deficit) equity | (23,986,123 | ) | 635,013 | |||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | $ | 12,130,705 | $ | 1,854,013 | ||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | $ | 21,043,412 | $ | 22,725,613 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
VOLCON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 2021
2023 AND THE THREE MONTHS ENDED SEPTEMBER 30, 2020
AND THE PERIOD FEBRUARY 21, 2020 (INCEPTION) TO SEPTEMBER 30, 2020
(unaudited)2022
(Unaudited)
| Three Months Ended | Nine Months Ended | Period February 21, 2020 to | ||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Revenue | $ | 75,067 | $ | 0 | $ | 75,067 | $ | 0 | ||||||||
| Cost of goods sold | 1,176,691 | 0 | 1,176,691 | 0 | ||||||||||||
| Gross margin | (1,101,624 | ) | 0 | (1,101,624 | ) | 0 | ||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 1,135,205 | 9,346 | 1,937,745 | 26,946 | ||||||||||||
| Product development | 3,021,207 | 281,462 | 7,595,581 | 331,621 | ||||||||||||
| General and administrative expenses | 586,494 | 13,751 | 14,634,037 | 18,090 | ||||||||||||
| Total operating expenses | 4,742,906 | 304,559 | 24,167,363 | 376,657 | ||||||||||||
| Loss from operations | (5,844,530 | ) | (304,559 | ) | (25,268,987 | ) | (376,657 | ) | ||||||||
| Other income (expense) | (3,842 | ) | 0 | (9,332 | ) | 0 | ||||||||||
| Interest expense | (42,183 | ) | 0 | (67,521 | ) | 0 | ||||||||||
| Total other expense | (46,025 | ) | 0 | (76,853 | ) | 0 | ||||||||||
| Loss before provision for income taxes | (5,890,555 | ) | (304,559 | ) | (25,345,840 | ) | (376,657 | ) | ||||||||
| Provision for income taxes | 0 | 0 | 0 | 0 | ||||||||||||
| Net loss | $ | (5,890,555 | ) | $ | (304,559 | ) | $ | (25,345,840 | ) | $ | (376,657 | ) | ||||
| Net loss per common share – basic and diluted | $ | (2.55 | ) | $ | (2.42 | ) | $ | (11.95 | ) | $ | (7.31 | ) | ||||
| Weighted average common shares outstanding – basic and diluted | 2,303,508 | 125,687 | 2,121,129 | 51,520 | ||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Revenue | $ | 519,300 | $ | 2,367,853 | $ | 1,689,758 | $ | 3,552,355 | ||||||||
| Cost of goods sold | (334,647 | ) | (6,009,327 | ) | (1,564,628 | ) | (9,537,042 | ) | ||||||||
| Gross margin | 184,653 | (3,641,474 | ) | 125,130 | (5,984,687 | ) | ||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 2,380,617 | 1,645,907 | 4,169,987 | 2,660,813 | ||||||||||||
| Product development | 1,166,732 | 2,102,709 | 2,953,083 | 4,598,421 | ||||||||||||
| General and administrative expenses | 1,568,700 | 2,529,451 | 3,458,791 | 5,324,390 | ||||||||||||
| Total operating expenses | 5,116,049 | 6,278,067 | 10,581,861 | 12,583,624 | ||||||||||||
| Loss from operations | (4,931,396 | ) | (9,919,540 | ) | (10,456,731 | ) | (18,568,311 | ) | ||||||||
| Other income (expense) | 10,618 | (2,131 | ) | 16,503 | 38,986 | |||||||||||
| Loss on extinguishment of Convertible Notes | (22,296,988 | ) | – | (22,296,988 | ) | – | ||||||||||
| Gain on change in fair value of financial liabilities | 5,792,788 | – | 5,792,788 | – | ||||||||||||
| Interest expense | (1,603,216 | ) | (4,791 | ) | (3,383,235 | ) | (9,483 | ) | ||||||||
| Total other expense | (18,096,798 | ) | (6,922 | ) | (19,870,932 | ) | 29,503 | |||||||||
| Loss before provision for income taxes | (23,028,194 | ) | (9,926,462 | ) | (30,327,663 | ) | (18,538,808 | ) | ||||||||
| Provision for income taxes | – | – | – | – | ||||||||||||
| Net loss | $ | (23,028,194 | ) | $ | (9,926,462 | ) | $ | (30,327,663 | ) | $ | (18,538,808 | ) | ||||
| Net loss per common share – basic | $ | (0.85 | ) | $ | (0.41 | ) | $ | (1.17 | ) | $ | (0.81 | ) | ||||
| Net loss per common share – diluted | $ | (0.85 | ) | $ | (0.41 | ) | $ | (1.17 | ) | $ | (0.81 | ) | ||||
| Weighted average common shares outstanding – basic | 27,120,614 | 24,243,189 | 25,835,014 | 23,001,040 | ||||||||||||
| Weighted average common shares outstanding – diluted | 27,120,614 | 24,243,189 | 25,835,014 | 23,001,040 | ||||||||||||
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 SIX MONTHS ENDED JUNE 30, 2022
(Unaudited)
| Common stock | ||||||||||||||||||||
| Number of | Additional paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | capital | deficit | Total | ||||||||||||||||
| Balance at January 1, 2022 | 17,309,187 | $ | 128 | $ | 47,803,643 | $ | (41,499,522 | ) | $ | 6,304,249 | ||||||||||
| Issuance of common stock for public offering, net of issuance costs of $1,910,883 | 6,666,667 | 67 | 18,089,117 | – | 18,089,184 | |||||||||||||||
| Issuance of common stock for cashless exercise of warrants | 83,552 | – | – | – | – | |||||||||||||||
| Issuance of common stock for exercise of stock options and restricted options | 234,769 | 2 | 39,998 | – | 40,000 | |||||||||||||||
| Stock-based compensation | 44,623 | – | 2,199,869 | – | 2,199,869 | |||||||||||||||
| Forfeiture of performance shares | (2,876 | ) | – | – | – | – | ||||||||||||||
| Net loss | – | – | – | (18,538,808 | ) | (18,538,808 | ) | |||||||||||||
| Balance at June 30, 2022 | 24,335,922 | $ | 197 | $ | 68,132,627 | $ | (60,038,330 | ) | $ | 8,094,494 | ||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
VOLCON, INC.
CONSOLIDATED STATEMENTSSTATEMENT OF CHANGES IN SHAREHOLDERS'STOCKHOLDERS' EQUITY (DEFICIT)
(unaudited)
FOR THE PERIOD FROM FEBRUARY 21, 2020 (INCEPTION) TO SEPTEMBERSIX MONTHS ENDED JUNE 30, 20202023
(Unaudited)
| Common stock | Series A preferred stock | Series B preferred stock | Additional | |||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | paid-in | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | Total | ||||||||||||||||||||||||||||
| Balance at February 21, 2020 | – | $ | – | – | $ | – | – | $ | – | $ | – | $ | – | $ | – | |||||||||||||||||||||
| Issuance of founders shares for cash | 1,625,000 | 7 | – | – | – | – | 10,826 | – | 10,833 | |||||||||||||||||||||||||||
| Stock-based compensation | 312,500 | 1 | – | – | – | – | 60,962 | – | 60,963 | |||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | (376,657 | ) | (376,657 | ) | |||||||||||||||||||||||||
| Balance at September 30, 2020 | 1,937,500 | $ | 8 | – | $ | – | – | $ | – | $ | 71,788 | $ | (376,657 | ) | $ | (304,861 | ) | |||||||||||||||||||
| Common stock | ||||||||||||||||||||
| Number | Additional paid-in | Accumulated | ||||||||||||||||||
| of Shares | Amount | capital | deficit | Total | ||||||||||||||||
| Balance at January 1, 2023 | 24,426,260 | $ | 198 | $ | 76,369,742 | $ | (75,734,927 | ) | $ | 635,013 | ||||||||||
| Issuance of common stock for exercise of stock options and vesting of restricted stock units | 50,000 | 1 | 24,999 | – | 25,000 | |||||||||||||||
| Issuance of common stock for public offering, net of issuance costs of $501,300 | 6,000,000 | 60 | 3,998,640 | – | 3,998,700 | |||||||||||||||
| Stock-based compensation | 138,859 | 1 | 1,682,826 | – | 1,682,827 | |||||||||||||||
| Net loss | – | – | – | (30,327,663 | ) | (30,327,663 | ) | |||||||||||||
| Balance at June 30, 2023 | 30,615,119 | $ | 260 | $ | 82,076,207 | $ | (106,062,590 | ) | $ | (23,986,123 | ) | |||||||||
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
| Common stock | Series A preferred stock | Series B preferred stock | Additional | |||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | paid-in | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | Total | ||||||||||||||||||||||||||||
| Balance at January 1, 2021 | 1,937,500 | $ | 8 | – | $ | – | – | $ | – | $ | 232,550 | $ | (1,374,413 | ) | $ | (1,141,855 | ) | |||||||||||||||||||
| Proceeds from WeFunder offering, net of issuance costs of $53,500 | – | – | – | – | – | – | 2,205,440 | – | 2,205,440 | |||||||||||||||||||||||||||
| Issuance of series A preferred stock, net of issuance costs of $205,470 | 79,750 | – | 415,287 | 4 | – | – | 2,464,504 | – | 2,464,508 | |||||||||||||||||||||||||||
| Conversion of WeFunder offering to series A preferred stock | – | – | 351,832 | 4 | – | – | (4 | ) | – | – | ||||||||||||||||||||||||||
| Conversion of SAFE Liability to series A preferred stock | – | – | 424,269 | 4 | – | – | 1,999,996 | – | 2,000,000 | |||||||||||||||||||||||||||
| Issuance of series B preferred stock, net of issuance costs of $890,026 | 123,296 | – | – | – | 1,105,827 | 11 | 9,615,320 | – | 9,615,331 | |||||||||||||||||||||||||||
| Issuance of common stock with promissory notes, net of issuance costs of $65,000 | 266,664 | 3 | – | – | – | – | 734,997 | – | 735,000 | |||||||||||||||||||||||||||
| Stock-based compensation | 162,507 | 2 | – | – | – | – | 14,256,318 | – | 14,256,318 | |||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | (25,345,840 | ) | (25,345,840 | ) | |||||||||||||||||||||||||
| Balance at September 30, 2021 | 2,569,717 | $ | 13 | 1,191,388 | $ | 12 | 1,105,827 | $ | 11 | $ | 31,509,121 | $ | (26,720,253 | ) | $ | 4,788,904 | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
VOLCON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 2021
2023 AND FOR THE PERIOD FROM FEBRUARY 21, 2020 (INCEPTION) TO SEPTEMBER 30, 2020
(unaudited)2022
(Unaudited)
| Nine Months Ended | Period February 21, 2020 to | June 30, | June 30, | |||||||||||||
| September 30, 2021 | September 30, 2020 | 2023 | 2022 | |||||||||||||
| Cash flow from operating activities: | ||||||||||||||||
| Net loss | $ | (25,345,840 | ) | $ | (376,657 | ) | $ | (30,327,663 | ) | $ | (18,538,808 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Loss on extinguishment of convertible notes | 22,296,988 | – | ||||||||||||||
| Gain on change in fair value of financial liabilities | (5,792,788 | ) | – | |||||||||||||
| Stock-based compensation | 14,256,318 | 60,963 | 1,682,827 | 2,199,869 | ||||||||||||
| Loss on disposal of tooling | 145,000 | 0 | ||||||||||||||
| Expenses funded by related party | 0 | 53,662 | ||||||||||||||
| Amortization of right of use asset | 252,951 | 0 | ||||||||||||||
| Noncash interest expense | 58,312 | 0 | ||||||||||||||
| Loss on write down of inventory and inventory deposits | 165,324 | 606,963 | ||||||||||||||
| Loss on lease terminations | – | 395,848 | ||||||||||||||
| (Gain) loss on sale/write off of property & equipment | (6,423 | ) | 79,712 | |||||||||||||
| Bad debt expense | 51,198 | – | ||||||||||||||
| Write off of intangible assets | – | 6,427 | ||||||||||||||
| Non-cash interest expense | 3,385,204 | – | ||||||||||||||
| Amortization of right-of-use assets | 181,677 | 257,647 | ||||||||||||||
| Depreciation and amortization | 134,557 | 194 | 106,625 | 306,756 | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable | (35,663 | ) | 0 | 580,155 | (1,093,909 | ) | ||||||||||
| Inventory | (2,328,686 | ) | 0 | 786,821 | (1,971,245 | ) | ||||||||||
| Inventory deposits | (2,940,314 | ) | 0 | (1,847,714 | ) | 1,787,673 | ||||||||||
| Prepaid assets and other current assets | (238,525 | ) | (10,000 | ) | (954,117 | ) | (225,547 | ) | ||||||||
| Other assets | (698,627 | ) | 0 | – | (9,453 | ) | ||||||||||
| Accounts payable | 1,249,314 | 59,230 | (381,252 | ) | (96,224 | ) | ||||||||||
| Accrued liabilities | 120,322 | 0 | (626,788 | ) | 550,889 | |||||||||||
| Right of use liabilities - operating lease | (194,175 | ) | 0 | |||||||||||||
| Right-of-use liabilities - operating leases | (174,365 | ) | (199,966 | ) | ||||||||||||
| Customer deposits | 2,278,240 | 0 | 295,739 | (2,275,386 | ) | |||||||||||
| Net cash provided by (used in) operating activities | (13,286,816 | ) | (212,608 | ) | (10,578,552 | ) | (18,218,754 | ) | ||||||||
| Cash flow from investing activities: | ||||||||||||||||
| Purchase of property and equipment | (694,553 | ) | 0 | (393,291 | ) | (517,205 | ) | |||||||||
| Purchase of intangible assets | (13,125 | ) | (17,438 | ) | ||||||||||||
| Proceeds from sale of vehicles | 89,000 | – | ||||||||||||||
| Net cash used by investing activities | (707,678 | ) | (17,438 | ) | (304,291 | ) | (517,205 | ) | ||||||||
| Cash flow from financing activities: | ||||||||||||||||
| Proceeds from SAFE liability | 0 | 1,625,000 | ||||||||||||||
| Proceeds from WeFunder offering, net of offering costs of $53,500 | 2,205,440 | 0 | ||||||||||||||
| Repayment of notes payable | (8,488 | ) | 0 | (72,859 | ) | (8,424 | ) | |||||||||
| Repayment of related party note | 0 | (21,286 | ) | |||||||||||||
| Proceeds from issuance of Series A preferred stock, net of $205,470 of issuance costs | 2,464,508 | 0 | ||||||||||||||
| Proceeds from issuance of Series B preferred stock, net of $890,026 of issuance costs | 9,615,331 | 0 | ||||||||||||||
| Proceeds from issuance of promissory notes, net of issuance costs of $96,000 | 1,104,000 | 0 | ||||||||||||||
| Proceeds from issuance of founders shares | 0 | 10,833 | ||||||||||||||
| Proceeds from issuance of common stock with promissory notes, net of $65,000 of issuance costs | 735,000 | 0 | ||||||||||||||
| Proceeds from issuance of common stock from public offering, net if issuance costs of $501,300 | 3,998,700 | – | ||||||||||||||
| Proceeds from issuance of convertible notes and warrants, net of issuance costs of $586,968 | 3,913,032 | – | ||||||||||||||
| Proceeds from issuance of common stock from public offering, net of issuance costs of $1,910,803 | – | 18,089,184 | ||||||||||||||
| Proceeds from exercise of stock options | 25,000 | 40,000 | ||||||||||||||
| Net cash provided by financing activities | 16,115,791 | 1,614,547 | 7,863,873 | 18,120,760 | ||||||||||||
| NET CHANGE IN CASH | 2,121,297 | 1,384,501 | ||||||||||||||
| CASH AT BEGINNING OF PERIOD | 536,082 | 0 | ||||||||||||||
| CASH AT END OF PERIOD | $ | 2,657,379 | $ | 1,384,501 | ||||||||||||
| NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (3,018,970 | ) | (615,199 | ) | ||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | 11,537,842 | 5,572,199 | ||||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 8,518,872 | $ | 4,957,000 | ||||||||||||
SUPPLEMENTAL CASH FLOW INFORMATION
| 2023 | 2022 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 4,648 | $ | 6,020 | ||||
| Cash paid for income taxes | $ | – | $ | – | ||||
| Non-cash transactions | ||||||||
| Recognition of initial right of use asset - operating lease | $ | – | $ | 143,540 | ||||
| Acquisition of property and equipment with note payable | $ | 96,024 | $ | – | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 7 |
VOLCON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021
AND FOR THE PERIOD FROM FEBRUARY 21, 2020 (INCEPTION) TO SEPTEMBER 30, 2020
(unaudited)
| Nine Months Ended | Period February 21, 2020 to | |||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 9,209 | $ | 0 | ||||
| Cash paid for income taxes | $ | 0 | $ | 0 | ||||
| Non-cash transactions | ||||||||
| Recognition of initial Right of use asset - operating lease | $ | 1,707,466 | $ | 0 | ||||
| Acquisition of property and equipment with note payable | $ | 30,942 | $ | 0 | ||||
| Conversion of SAFE liability to Series A preferred stock | $ | 2,000,000 | $ | 0 | ||||
| Noncash increase in related party notes payable | $ | 0 | $ | 53,662 | ||||
VOLCON, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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,corporation, under the name Frog ePowersports, Inc. The Company was renamed Volcon, Inc. on October 1, 2020. Volcon is developerdesigns and manufacturer ofsells all-electric off roadoff-road powersport vehicles.
On January 5, 2021, the Company created Volcon ePowersports, LLC (“Volcon LLC”), a Colorado wholly ownedwholly-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. Due
In August 2022, the Company ceased manufacturing the Grunt motorcycle in Round Rock, Texas and has outsourced all manufacturing of its vehicles to these conditions, it raisedthird-parties. Further, the Company has, or plans to, outsource the manufacturing of all its future vehicles to third-parties for the foreseeable future. The Company has also outsourced certain design and prototype services of its vehicles to third-parties. In September 2022, management reduced headcount and employee related costs in its product development and administrative departments to reduce operating costs.
Also in August 2022, the Company received net proceeds of approximately $22.3 million for the issuance of convertible notes due February 2024 (“Convertible Notes”) and warrants (see Note 6). The Convertible Notes required the Company to have unrestricted and unencumbered cash on deposit of $10,000,000 if the outstanding principal (and interest, if any) of the Convertible Notes is $15,000,000 or greater as of September 30, 2023 and December 31, 2023.
The Company received net proceeds of approximately $3.9 million for the issuance of additional convertible notes in May 2023 due February 2024 (“New Notes”) and warrants. On the issuance date of the New Notes, the Company exchanged the Convertible Notes for Series A and Series B notes (collectively the “Exchange Notes). The Exchange Notes require the Company to have unrestricted and unencumbered cash on deposit of $10,000,000 if the outstanding principal (and interest, if any) of the Exchange Notes is $15,000,000 or greater as of December 31, 2023 (the September 30, 2023 requirement under the Convertible Notes was removed). The cash on deposit requirement is reduced dollar for dollar to the extent the outstanding principal (and interest, if any) of the Exchange Notes is less than $15,000,000 on this dates. The Company also exchanged the warrants issued with the Convertible Notes for new warrants (the “Exchange Warrants”) (see Note 6 for further discussion).
In May 2023, the Company also received net proceeds of approximately $4.0 million for the issuance of shares of common stock at $ per share.
Management anticipates that our cash on hand as of June 30, 2023 plus the cash expected to be generated from operations will not be sufficient to fund planned operations and maintain required cash balances for the Exchange Notes beyond one year from the date of the issuance of the financial statements as of and for the three and six months ended June 30, 2023. 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 about itsregarding our ability to continue as a going concern. Management intends to finance operating costs over the next twelve months with loans or the sale of equity. The consolidated financial statements do not include any adjustments that may result should the Company be unable to continue as a going concern.
| 8 |
Impact of COVID-19Russia and Ukraine Conflict
On February 24, 2022, Russia invaded Ukraine. The outbreakconflict between Russia and Ukraine could impact the availability of nickel, an element used in the 2019 novel coronavirus disease (“COVID-19”),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 was declared a global pandemic by the World Health Organization on March 11, 2020, and the related responses by public health and governmental authoritieswould result in higher costs to contain and combat its outbreak and spread, has severelyproduce our vehicles. These sanctions have also impacted the U.S. and world economies. Economic recessions, including those brought on by the COVID-19 outbreak may haveglobal economies and could result in an economic recession which could cause a negative effect on the demand for the Company’s products and the Company’s operating results. The range of possible impacts on the Company’s business from the coronavirus pandemic could include: (i) changing demand for the Company’s products; and (ii) potentialbroader disruption to the Company’s supply chain and distribution network.network and customer demand for our products.
NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The significantaccompanying interim consolidated financial statements have been prepared in accordance with accounting policies followedprinciples generally accepted in the preparationUnited 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, 2022, which was filed with the Securities and Exchange Commission ("SEC") on March 7, 2023. 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.
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 follows:of June 30, 2023, and for the three and six months ended June 30, 2023 and 2022. These adjustments are of a normal recurring nature and consistent with the adjustments recorded to prepare the annual audited consolidated financial statements as of December 31, 2022.
Basis of presentationPresentation
The basis of accounting applied is United States generally accepted accounting principles (US GAAP). 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.
Stock Dividend
On July 27, 2021, the board of directors approved a common stock dividend of 1.5 shares for each share of common stock. The Company has accounted for this as a stock split since all common stock shares, warrants, options and restricted stock unit amounts and common stock per share amounts will be adjusted for this stock dividend. All periods presented have been adjusted to reflect this stock dividend. As a result of the stock dividend, Series A and Series B preferred stock will convert at a ratio of 2.5 common share for each preferred share outstanding.
Use of estimatesEstimates
The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”)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.
Management utilizes various estimates, including but not limited to determining the estimated lives of long-lived assets and the fair value of conversion features and warrants with variable exercise prices, and the valuation allowance for deferred tax assets. The results of any changes in accounting estimates are reflected in the financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.
Cash, Cash Equivalents and cash equivalentsRestricted 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 no cash equivalents as of June 30, 2023 or December 31, 2022. Restricted cash includes cash restricted as collateral for the Company’s corporate credit cards and a letter of credit with the Company’s bank.
| 9 |
Revenue recognitionRecognition
Revenue isFor sales of the Grunt motorcycle directly to consumers, revenue was recognized when the Company transferstransferred control of the product to the customerconsumer and the 14-day acceptance period hashad expired, or earlier acceptance hashad been received from the customer.consumer. Sales directly to consumers were completed as of June 1, 2022. Beginning in February 2023 the Company began selling the Brat E-Bike 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.
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. Consideration that is received in advance of the transfer of goods areis 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. If a right of return exists, the Company adjusts revenue for the estimated effect of returns. Until the Company develop sales history, it will estimate expected returns based on industry data for sales returns as a percent of sales, type of product, and a projection of this experience into the future. OurThe 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 distributerrebates, distributor fees, dealer co-op advertising and volume incentives. Sales promotions and incentives are estimated based on contracts with distributors.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 salesgoods sold when control has transferred to the customer.
Product warrantiesWarranties
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 a vehiclerevenue is delivered to the customer.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 ourthe evaluation of historical data. The Company reviews its reserves quarterly to ensure that itsthe accruals are adequate in meetingto 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 revenuesgoods sold in the statement of operations. The portion of the warranty provision whichoperations and is expected to be incurred within 12 months from the balance sheet date will be classifiedrecognized as a current while the remaining amount will be classified as long-term liabilities.liability.
Inventory and Inventory Deposits
Inventory costs include material, laborInventories and manufacturing overhead costs, including depreciation expense associated with the manufacture and distribution of the Company’s products. Inventoriesprepaid 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 will manufacture and ship our 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.
| 10 |
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. In May 2023, the Company transferred substantially all of its raw materials and work-in-process inventory for the Grunt to the third-party manufacturer. Title to the inventory transferred to the third-party manufacturer and it will provide the Company with a credit towards future purchases of finished goods once it begins production of the Grunt EVO.
Property plant and equipmentEquipment
Property plant 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 providedrecorded using the straight-line method over the estimated useful lives of the assets as follows:
| Schedule of estimated useful lives for property, plant and equipment | ||
| Category | Estimated Useful Lives | |
| Machinery, tooling and equipment | ||
| Vehicles | 5 years | |
| Internal use manufactured vehicles | 1 year | |
| Furniture & Fixtures | 5 years | |
| Computers | 3 years |
Leasehold improvements are depreciated over the shorter period of their estimated useful life or term of the lease.
Long-livedIntangible Assets
Intangible assets include acquired domain names and software. Domain names are amortized over 15 years and software is amortized over the life of the shorter of the software term or three years.
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 carrying 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 itsthe 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.
Leases
Right-of-use ("ROU"(“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 expenseexpenses 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 componentcomponent.
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 expenseexpenses in our statements of operations.
| 11 |
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 an implicit rate, 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 expensesDevelopment Expenses
The Company records research and development expenses in the period in which they are incurred as a component of product development expenses.
Income taxesTaxes
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 valueValue of financial instrumentsFinancial Instruments
The Company discloses
ASC Topic 820 Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value measurements for financial and non-financial assets and liabilities measured atin accordance with generally accepted accounting principles.
ASC Topic 820 defines fair value. Fair value is based onas 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.
The accounting standard ASC Topic 820 establishes a fair value hierarchy that prioritizes observabledistinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and unobservable inputs used to measure(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 intohierarchy consists of three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observableunadjusted quoted prices that are based on inputs not quoted onin active markets but are corroborated by market data.
Level 3: Unobservable inputs are used when littlefor identical assets or no market data is available. The fair value hierarchy givesliabilities (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.
| 12 |
Debt
The fair value of the Company’s debt, which approximated the carrying value of the Company’s debt as of June 30, 2023 and December 31, 2022. 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 7.
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 is classified as Level 3 inputs.within the Company’s fair value hierarchy. Please refer to Note 7, Derivative Instruments, for further discussion of the measurement of fair value of the derivatives and their underlying assumptions.
| 13 |
Stock-based compensation Stock-Based Compensation
The Company has a stock-based incentive award plan for our 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.
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 three of its vehicles and this third-party is also performing product design and development services on these vehicles.
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.
Recently issued accounting pronouncementsIssued Accounting Pronouncements
In December 2019,June 2016, the FASBFinancial Accounting Standards Board ("FASB") issued ASU No. 2019-12, Income TaxesAccounting Standards Update 2016-13, “Financial Instruments - Credit Losses (Topic 740)326): Measurement of Credit Losses on Financial Instruments” (“ASU 2019-12”2016-13”): Simplifying the Accounting for Income Taxes. The new standard eliminates certain exceptions related. ASU 2016-13 requires companies to the approach for intraperiod tax allocation, themeasure credit losses utilizing a methodology for calculating income taxes in an interim period,that reflects expected credit losses and the recognitionrequires a consideration of deferred tax liabilities for outside basis differences relateda broader range of reasonable and supportable information to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. For public business entities, itinform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2020,2022, including interim periods within those fiscal years. The Company is currently evaluatingadopted ASU 2016-13 effective January 1, 2023. The Company determined that the potentialupdate applied to trade receivables, but that there was no material impact to the consolidated financial statements from the adoption of this standard on its financial statements.ASU 2016-13.
From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) 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.
NOTE 3 – INVENTORY
Inventory consists of the following:
| Schedule of inventory | ||||||||
June 30, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | 2,071,795 | $ | 3,060,160 | ||||
| Work in process | – | 439,839 | ||||||
| Finished goods | 2,621,943 | 2,145,884 | ||||||
| Total inventory | $ | 4,693,738 | $ | 5,645,883 | ||||
The Company has purchase commitments for future payments due for inventory where initial deposits were paid as of June 30, 2023. The total additional payments due subsequent to June 30, 2023 are $463,967.
| 14 |
NOTE 4 –LONG – LIVED ASSETS
Property and equipmentEquipment
Property and equipment consist of the following:
| Schedule of property and equipment | ||||||||||||||||
| September 30, 2021 | December 31, 2020 | June 30, 2023 | December 31, 2022 | |||||||||||||
| Machinery, tooling and equipment | $ | 454,303 | $ | 215,995 | $ | 586,245 | $ | 352,137 | ||||||||
| Vehicles | 134,144 | 73,202 | 213,528 | 156,648 | ||||||||||||
| Demonstration vehicles | 113,985 | 0 | ||||||||||||||
| Internal use manufactured vehicles | 274,385 | 274,385 | ||||||||||||||
| Fixtures & furniture | 72,346 | 0 | 90,768 | 50,768 | ||||||||||||
| Leasehold improvements | 17,124 | 0 | 44,663 | 44,663 | ||||||||||||
| Computers | 78,879 | 18,112 | 234,898 | 228,671 | ||||||||||||
| 870,780 | 307,309 | 1,444,487 | 1,107,272 | |||||||||||||
| Less: Accumulated depreciation | (109,738 | ) | (2,038 | ) | (539,701 | ) | (505,506 | ) | ||||||||
| Total property, plant and equipment | $ | 761,042 | $ | 305,271 | ||||||||||||
| Total property and equipment | $ | 904,786 | $ | 601,766 | ||||||||||||
Depreciation expense for the three and ninesix months ended SeptemberJune 30, 2021,2023 was $57,44853,330 and $124,726103,718, respectively. There was no depreciation expense for the period from February 21, 2020 (inception) through September 30, 2020.
Intangible assets
During 2020, the Company acquired certain domain names for $17,438. The domain names are being amortized over an estimated useful life of 15 years. AmortizationDepreciation expense for the three and ninesix months ended SeptemberJune 30, 2021,2022 was $3,741192,322 and $9,831303,849. Amortization expense for the three months ended September 30, 2020, and the period from February 21, 2020 (inception) through September 30, 2020, was $194., respectively
NOTE 45 –NOTES PAYABLE AND PROMISSORY NOTES
Notes Payable
In December 2020, the Company entered into a financing arrangement for $75,702 with an interest rate of 8.64% for a vehicle. The Company willwas required to make monthly payments of $1,211 over 72 months. In April 2021, the Company entered into a financing arrangement for $30,942 with an interest rate of 7.64% for a vehicle. The Company willwas required to make monthly payments of $753 over 48 months. The Company sold both vehicles in the three months ended March 31, 2023 and paid off these notes.
In March 2023, the Company entered into two financing arrangements to purchase two vehicles. The total principal of these arrangements is $96,024 with interest rates of 11.44% and 8.63% and monthly payments totaling $1,923 are due through January 2028 and $908 per month until February 2029.
The following table provides the maturities of these notes payable as of SeptemberJune 30, 2021:2023:
| Schedule of maturities for notes payable | ||||||||
| Remainder of 2021 | $ | 5,921 | ||||||
| 2022 | 23,685 | |||||||
| 2023 | 23,685 | |||||||
| Remainder of 2023 | $ | 11,536 | ||||||
| 2024 | 23,685 | 23,073 | ||||||
| 2025 | 17,664 | 23,073 | ||||||
| 2026 and thereafter | 14,654 | |||||||
| 2026 | 23,073 | |||||||
| 2027 | 23,073 | |||||||
| 2028 | 11,913 | |||||||
| 2029 | 1,816 | |||||||
| Total future payments | 109,294 | 117,557 | ||||||
| Less: Interest | (18,638 | ) | (25,606 | ) | ||||
| Total notes payable | 90,656 | 91,951 | ||||||
| Less current portion | (17,438 | ) | (14,550 | ) | ||||
| Long-term notes payable | $ | 73,218 | $ | 77,401 | ||||
Promissory Notes
| 15 |
NOTE 6 - CONVERTIBLE NOTES
On September 10, 2021,August 24, 2022, the Company entered intoissued senior convertible notes with an agreement with two lenders to issue 6% promissory notesaggregate principal amount of $2.027,173,913 million.due February 24, 2024. The promissory notes bore interest at Convertible Notes had a conversion price of $62.25 per share of common stock ( total shares if fully converted) and were issued with an original issue discount of 8.0% and are duedid not bear interest unless an event of default occurred, upon which interest would have accrued at 10% per annum. The holders of the earlierConvertible Notes could have converted any portion of one year from issuance or immediately upon completionthe principal at any time during the term of an initial public offeringthe notes. The holders of the Convertible Notes also received fully vested warrants (the “Note Warrants”) to purchase shares of the Company’s common stock.stock at an exercise price of $2.85 per share. The conversion and warrant exercise prices were subject to adjustment if the Company declared a stock dividend, stock split or recapitalization. The Company received net cash proceeds, after issuance costs (excluding the value of the warrants issued to the placement agent as discussed below) of $22,300,321.
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 $15,122,345 being allocated to the Convertible Notes recorded as a current liability in the balance sheet and net proceeds of $6,561,247 being allocated to the Note Warrants which was recorded in equity. The Company recorded non-cash interest expense through May 24, 2023 (see below for discussion of issuance of additional convertible notes) to accrete the allocated value of the Convertible Notes using the effective interest method and an interest rate of 39.6%. The Company incurred debt issuance costs of $3,316,409 upon issuance of the Convertible Notes, which includes $616,730 for the fair value of the warrants issued to the placement agent of the Convertible Notes as further described in Note 9. These debt issuance costs were amortized as additional interest expense through May 24, 2023. Total interest expense for the Convertible Notes for the three and six months ended June 30, 2023 was $1,136,997 and $2,913,632, respectively, prior to the recognition of the unamortized discount and issuance costs upon issuance of the addition senior convertible notes noted below.
On May 24, 2023, the Company issued additional senior convertible notes (“New Notes'') with an aggregate principal amount of $4,934,783 due February 24, 2024 to the same investors of the Convertible Notes. The New Notes had an initial conversion price of $2.54 per share of common stock, which was subject to adjustment to $ upon stockholder approval ( total shares if fully converted at $0.75 per share, stockholder approval was received on August 3, 2023, see Note 13). The conversion price is also agreedsubject to further adjustment if the Company completes an equity or convertible note offering with a price below $0.75, or completes a stock split, reverse stocks split or recapitalization where the five-day VWAP of the Company’s stock price is below $, with a floor price of $0.22 (subject to stockholder approval, see Note 13). The New Notes were issued with an original issue discount of 266,6649.7% and do not bear interest unless an event of default has occurred, upon which interest accrues at 10% per annum. The holders of the New Notes also received fully vested warrants (the “New Warrants”) to purchase shares of the Company’s common stock at an initial exercise price of $1.09 per share, which was also subject to adjustment to $ upon stockholder approval which approval was received on August 3, 2023 (see Note 13). The New Warrants expire on August 24, 2027.
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 is $3,690,422 and these are convertible into the Company’s common stock at $0.75 per share ( total shares if fully converted). The aggregate principal amount of the Series B Notes is $23,483,491 were initially convertible into the Company’s common stock at $ per share ( total shares if fully converted) but were subject to adjustment to $0.75 upon stockholder approval ( total shares if fully converted at $0.75 per share), which approval was received on August 3, 2023, (see Note 13).
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 can force conversion of the Series A and Series B Notes at any time if the weighted average price of the Company’s common stock for ten consecutive trading days equals or exceeds $1.17 or $1.69, respectively, subject to the lenders. Proceedsshare limitations described above. In addition to default interest of 10% accruing on the May 2023 Notes, the holders may require the Company to redeem a portion or all of the outstanding May 2023 Notes.
| 16 |
Events of default for the May 2023 Notes are defined in the note agreements and include the following:
| · | Failure of the Company to file a registration statement, and have declared effective to register the shares of the Company’s common stock within a specified period (the Company has met this requirement as of June 28, 2023) | |
| · | Suspension of trading, or failure to be listed, of the Company’s common stock on an eligible market, as defined, for a period of two consecutive trading days or an aggregate of ten trading days in a 365-day period | |
| · | Failure to deliver shares of the Company’s common stock within five days following a conversion notification | |
| · | Failure to reserve shares of the Company’s common stock for the conversion of the May 2023 Notes and May 2023 Warrants | |
| · | Any acceleration prior to maturity of any indebtedness of the Company, declaration of bankruptcy, or court ordered bankruptcy | |
| · | Final judgment or judgments for payment aggregating in excess of $250,000 are rendered against the Company not covered by insurance or indemnity and are not discharged or stayed pending appeal within 60 days of judgment | |
| · | Breach of any representation, warranty or covenant by the Company to the transaction documents of the May 2023 Notes and Exchange Warrants | |
| · | Any material damage to, or loss, theft or destruction of a material amount of the property of the Company | |
| · | Failure to remove any restrictive legends on any shares of the Company’s common stock issued to the holders of the May 2023 Notes | |
| · | Electronic transfer of shares of the Company’s common stock is not available |
As of June 30, 2023, the Company is in compliance with all covenants. The May 2023 Notes require the Company to have unrestricted and unencumbered cash on deposit of $10,000,000 or greater if the outstanding principal (and interest, if any) of the May 2023 Notes is $15,000,000 or greater as of December 31, 2023. The cash on deposit requirement is reduced dollar for dollar to the extent that the outstanding principal (and interest, if any) of the May 2023 Notes is less than $15,000,000 on December 31,2023.
The Company also exchanged the 9,057,951 Note Warrants with an exercise price of $800,0002.85 per share issued with the Convertible Notes in August 2022 for 17,057,091 warrants which had an initial exercise price of $1.09 per share (the “Exchange Warrants”), and which exercise price was adjusted to $0.75 per share upon stockholder approval, which approval was received on August 3, 2023 (see Note 13). 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”) are subject to further adjustment in the event that the Company issues additional common stock, stock options, warrants or convertible notes with prices below $ per share, or completes a stock split or reverse stock split where the Company’s five day volume weighted average stock price is below $ per share with a floor of $0.22 per share see Note 13).
Holders of the May 2023 Notes and the Exchange Warrants (collectively the “Holders”) do not have voting rights to the extent they have not converted their notes or exercised their warrants.
The May 2023 Warrants contain 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 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.
| 17 |
The Company has evaluated the issuance of the New Notes and Exchange Notes and related warrants and has determined that the Convertible Notes have been extinguished based on the conclusion that the terms of the New Notes and Exchange Notes are substantially different than the Convertible Notes in accordance with ASC 470, Debt. In addition, the Company has 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 promissory note are recorded as shareholders’ equity based onissuance of New Notes and New Warrants, less the allocationfair value of the proceeds betweeni) New Notes and conversion option, ii) New Warrants, iii) Exchange Notes and conversion options, and i) Exchange Warrants. The resulting loss on extinguishment was $22,296,988, which includes the promissory note and shares of common stock issued. In addition, totalunamortized issuance costs of $161,0001,330,296 of the Convertible Notes as of the date of the issuance of the New Notes. The fair value of the May 2023 Notes were estimated based on the future cash flows discounted at an interest rate of 14.9%. The May 2023 Notes were recorded at their initial fair values as follows:
| Summary of convertible notes | ||||||||
| Fair Value | Principal Amount | |||||||
| New Notes | $ | 4,410,058 | $ | 4,934,783 | ||||
| Series A Exchange Notes | 3,298,012 | 3,690,422 | ||||||
| Series B Exchange Notes | 20,986,449 | 23,483,891 | ||||||
| Total May 2023 Notes | $ | 28,694,519 | $ | 32,109,096 | ||||
The Company recognized interest expense of $406,353 were allocatedin the three and six months ended June 30, 2023 for the accretion of the discount on the May 2023 Notes during the periods.
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 7 below.
The Company incurred debt issuance costs of $586,968 upon issuance of the New Notes and New Warrants. The Company will amortize these issuance costs as additional interest expense over the remaining term of the New Notes. The Company recognized interest expense of $65,219 for the amortization of these issuance costs for the three and six months ended June 30, 2023.
As of June 30, 2023, no conversions of the May 2023 Notes or exercise of the May 2023 Warrants or warrants issued to the promissory noteplacement agent for the Convertible Notes offering have occurred.
NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS
As discussed in Note 6, the Company recognized a loss on the extinguishment of the Convertible Notes based on the fair values of the New Notes including the conversion feature, New Warrants, Exchange Notes and shareholders’ equityconversion feature and Exchange Warrants. The Company determined that there was a derivative liability associated with the conversion features in the New Notes and Exchange Notes due to the variable conversion price subject to stockholder approval in the conversion feature. Therefore, the Company has separated conversion features from the New Notes and Exchange Notes and has recorded them at fair value and will continue to adjust them to fair value until the conversion price is fixed. The Company has also determined that the New Warrants and Exchange Warrants are derivative liabilities due to the potential adjustment in the exercise prices. The Company has accounted for the New Warrants and Exchange Warrants as liabilities at fair value and will continue to adjust them to fair value until the exercise prices are fixed.
| 18 |
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 | ||||||||
| May 24, 2023 | June 30, 2023 | |||||||
| Conversion Feature Liabilities | ||||||||
| Company stock price on valuation date | $ | 0.70 | $ | 0.57 | ||||
| Volatility (closing prices of guideline comparable public companies) | 86.3% | 81.8% | ||||||
| Conversion price per share | $ | 0.75 | $ | 0.75 | ||||
| Note term (years) | 0.76 | 0.65 | ||||||
| Risk free interest rate | 5.1% | 5.30% | ||||||
| Warrant Liabilities | ||||||||
| Company stock price on valuation date | $ | 0.70 | $ | 0.57 | ||||
| Volatility (closing prices of guideline comparable public companies) | 119.2% | 116.4% | ||||||
| Conversion price per share | $ | 0.75 | $ | 0.75 | ||||
| Warrant term (years) | 4.25 | 4.15 | ||||||
| Risk free interest rate | 3.8% | 4.2% | ||||||
In addition to the above factors, the Company also used a probability assessment 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.
Based on the above factors, the estimated fair value of the Company’s derivative liabilities carried at fair value at May 24, 2023 and June 30, 2023 as follows:
| Schedule of fair value of derivative liabilities | ||||||||
| May 24, 2023 | June 30, 2023 | |||||||
| Conversion Feature - New Notes | $ | 663,096 | $ | 338,657 | ||||
| Conversion Feature - Series A Exchange Notes | 970,805 | 497,276 | ||||||
| Conversion Feature - Series B Exchange Notes | 4,324,792 | 2,099,053 | ||||||
| New Warrants | 3,123,682 | 2,418,090 | ||||||
| Exchange Warrants | 9,287,474 | 7,223,985 | ||||||
| Total | $ | 18,369,849 | $ | 12,577,061 | ||||
The Company recognized a gain of $96,000 5,792,788for the change in the fair values of the conversion features of the May 2023 Notes and $65,000, respectively. The promissory notes were repaid on October 8, 2021, with the proceeds receivedNew Warrants and Exchange Warrants from the Company’s initial public offering in the amount of $2,007,333, which includes interest due for the period the promissory notes were outstanding (see Note 11).from May 24, 2023 to June 30, 2023.
NOTE 58 –RELATED PARTY TRANSACTIONS
During the period from February 21, 2020 (inception) through December 31, 2020,2022, the Company entered intoissued purchase orders and made prepayments for prototype parts of $21,860 to a notes payable agreement with a companyvendor that Pink Possum, LLC (“Pink Possum”), an entity controlled by a founder and directorMr. Okonsky, one of the Company which were secured by all assetsCompany’s founders, Chairman of the Company, for cash proceedsBoard and Chief Technology Officer, holds an equity interest of $75,000. The notes were due October 1, 2020, and were repaid in full25% as of December 31, 2020. The Company also received cash proceedsJune 30, 2023. This vendor is expected to provide additional prototype and product parts for a prototype of $5,000 from a company controlled by the Company’s Chairman and founding stockholder which was unsecured, due on demand and non-interest bearing. The amount was repaid in full prior to December 31, 2020.
A related party paid expenses of $63,083 on behalfan upgraded version of the Company. These advances were unsecured, and due on demand. The Company repaid $63,083 plus interest of $7,624 duringStag expected to be released in the period from February 21, 2020 (inception) through December 31, 2020.
future.
On October 1, 2020, the Company entered into an agreement with a consultant to serve as Chief Operating Officer and to manage the Company’s product development efforts. The consultant provided statements of work for the various projects to be executed and charged the Company hourly rates for his services. The Company also agreed to compensate a company owned by the consultant and his spouse $5,560 per month for the use of a warehouse and office space on a month-to-month basis. Subsequent to December 31, 2020, the Company amended the agreement to increase the rental cost to $11,120 per month, with a 90-day cancellation provision. In May 2021, the consultant became a salaried employee of the Company. As of September 30, 2021, the Company continues to rent the warehouse and office space under the same terms. Total expense recognized for this lease for the three and nine months ended September 30, 2021, were $100,080 and $33,360
In November 2020, 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. The lease hashad a lease term of 5 years, and monthly payments ranging from approximately $15,000 per month to $17,000 per month over the lease term.term and gave the Company access to the land for use in testing its vehicles prior to the construction of any facilities. In February 2021, the Company entered into an amendment of the lease related to its future headquarters to expand the leased premises. The Company paid an additional security deposit of $139,230 and additional prepaid rent of $315,588. The total minimum lease payments under the amended lease totaltotaled approximately $3,930,170.
In October 2021, the Company began discussions for an additional amendment to the lease, in anticipation of manufacturing the Stag at this location, which would have resulted in the monthly payment increasing to $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 beginwould have begun at the time a certificate of occupancy iswas received by the landlord, which is expectedlandlord.
The Company evaluated the cost of this facility in relation to other lower cost options, including having a third-party manufacturer the Stag, and determined that it would be in the first quarterbest interest of the Company to terminate this lease. 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. This refund would be paid to the Company once the landlord has sold the land and the landlord will release the Company from any remaining obligations under the lease and amendments. The unrefunded portion of the prepaid rent and security deposit relates to some survey, architecture and construction design costs that were incurred by the landlord prior to the Company terminating the lease. The Company has recognized a loss on the termination of this lease of $247,525 in the year ended December 31, 2022.
Total amortization expense for the right-of-use asset recorded for the initial lease for the three and six months ended June 30, 2022 was $12,342 and $49,367, respectively. There was no amortization expense recorded in 2023.
In June 2021, the Company entered into an agreement with a company controlled by the Company’s Chairman and co-founder to lease office space for $2,000 per month for a period of one year. In May 2022, the Company informed the landlord that it would terminate this lease, and the landlord confirmed that the lease terminated effective September 1, 2022. Total expense recorded for this lease for the three and six months ended June 30, 2022 was $6,000 and $12,000, respectively.
On August 28, 2020, the Company entered into three year consulting agreements with Pink Possum, 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 consideration for entering into the consulting agreements, the Company issued the two entities ten-year warrants to purchase the Company’s common stock at an exercise price of $0.004 per share. The number of shares of common stock issuable pursuant to the warrants was based on the number of shares of the Company’s common stock outstanding at the time of exercise and provided that Pink Possum and Highbridge would receive 18.75% and 25%, respectively, of the Company’s shares of common stock outstanding at the time of exercise on a fully diluted basis. 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 and shares, respectively, of common stock at an exercise price of $. During the year ended December 31, 2021, the Company recognized compensation expenses of $5.6 million and $7.4 million for the warrants issued to Pink Possum and Highbridge, respectively. On December 20, 2021, Highbridge exercised all of its warrants on a cashless basis and the Company issued shares of common stock to Highbridge.
| 20 |
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.
In December 2022, the Company entered into an employment agreement with Mr. Okonsky whereby Mr. Okonsky became an employee on January 2, 2023 and the consulting agreement with Pink Possum was terminated. However, the warrants to Pink Possum, and the provisions for a Fundamental Transaction and the market capitalization thresholds and related payments owed to Pink Possum if these were to occur remain in effect subsequent to the employment agreement.
NOTE 69 –STOCKHOLDERS’ EQUITY
The Company isOn June 14, 2023, the Company’s stockholders approved an increase in the Company’s authorized to issue up to shares of common stock withfrom 100,000,000 to . The Company’s common stock has a par value of $. 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.
Common stockStock
During the period ending September 30, 2020,On February 1, 2022, the Company sold shares of its common stock to founders for cashin a public offering at $ per share. The Company received net proceeds of $10,83318,089,184 after underwriter commissions and expenses of $1,910,883. The Companyunderwriter was also issued a warrant to purchase 312,500333,334 shares of the Company’s common stock toat an individual for services and recognizedexercise price of $2,0883.75 per share that expires five years from the date of expense related to this grant. issuance.
On October 8, 2021,May 24, 2023, the Company completedsold shares of its initialcommon stock in a public offering at $ per share. The Company received net proceeds of $3,998,700 after underwriter commissions and sold expenses of $3,025,000501,300. The underwriter agreement provided the underwriter with a right of first refusal for any additional securities offerings within twelve months of this offering.
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 net proceedsfuture issuance of approximately $15 millionshares for the conversion of the May 2023 Notes and on October 29, 2021,exercise of the Company sold an additionalMay 2023 Warrants and shares for net proceedsthe exercise of $1.1 million (see Note 11).the placement agent warrants. The placement agent agreement provided the placement agent with the right of first refusal for any additional securities offerings within twelve months of this offering.
SAFE Agreements
During the period ended December 31, 2020, the Company entered into SAFE agreements (Simple Agreement for Future Equity) with investors through an exchange for cash investments totaling $2,000,000. Upon a future equity financing, the SAFE agreements would convert into the same securities in that equity financing at the lower of the price per share of the funding, or a price per share based on a $5 million company valuation using a fully diluted common stock basis. The SAFE agreements had no interest rate or maturity date, and the SAFE investors had no voting right prior to conversion. The SAFE agreements were recorded as a liability of $2,000,000 as of December 31, 2020. In January 2021, upon closing of the Series A preferred stock offering discussed below, the amount invested under these SAFE agreements were converted into shares of Series A Preferred Stock.
In January 2021, the Company completed a WeFunder SAFE offering which was convertible into Preferred Stock upon future financing events. The Company received gross proceeds of $2,258,940 and paid expenses of $53,500, reflected as costs of capital. In connection with the Series A Preferred stock offering as discussed below, the WeFunder SAFE investments were converted into shares of Series A Preferred Stock.
Preferred Stock
In 2021, the Company designated 1,400,000 shares of preferred stock as Series A Preferred Stock. The Series A Preferred Stock has a par value of $0.0001, has no voting rights, no dividends and each share will automatically convert into 2.5 shares of common stock of the Company at the time of the Company’s initial public offering. In February 2021, the Company completed an offering of shares of Series A Preferred Stock and received gross proceeds of $2,669,978. The Company paid expenses of $205,470 related to the offering including issuing to one financial broker dealer shares of common stock and fully vested warrants with a 5 year exercise term to purchase common stock with an exercise price of $2.57.
In 2021, the Company designated 1,500,000 shares of preferred stock as Series B Preferred Stock, with a par value of $0.00001 per share and a stated value of $ per share. The Series B Preferred Stock will receive dividends equivalent to any such dividends paid on common stock in the future, has no voting rights, and each share will automatically convert into 2.5 shares of common stock upon completion of the Company’s initial public offering. In May 2021, the Company completed an offering of shares of Series B Preferred Stock and received gross proceeds $10,505,357. The Company paid expenses of $890,026 related to the offering, including issuing to two financial broker dealers shares of common stock and fully vested warrants to purchase common stock with a 5 year exercise term and an exercise price of $3.80.
The Series A and Series B Preferred stock was converted to shares of common stock upon the closing of the Company’s initial public offering (see Note 11).
Warrants
During the period for the three and nine months ended September 30, 2021,As discussed in Note 6, the Company issued warrants to consultantsthe Note Warrants, which were fully vested, to purchase the Company’s common stock. During the three months and period from February 21, 2020 (inception) through September 30, 2020, the Company issued warrants to purchaseshares of the Company’s common stock to consultants. The common stock warrants issued in 2021 have an exercise price ranging from $0.245 - $1.00 and the warrants issued in 2020 haveat an exercise price of $0.004 per share. All$2.85. The Note Warrants expire five years from the issuance date. Also, the Company issued to the placement agent of the Convertible Notes, fully vested warrants haveto purchase shares of the Company’s common stock at an exercise termprice of 10 years,$3.5625. The warrants were not exercisable until February 24, 2023 and certain 2020 warrants vest over periods of up to eighteen months while all 2021 warrants are fully vested. expire on February 24, 2028. The Company estimated the fair valuevalued all of the 2020these warrants using the fair valueclosing price of itsthe Company’s common stock based on the most recent fundraising at $1.88 per share. The Company valued the 2021 warrants using an estimated fair valueAugust 24, 2022 of the shares of common stock between $0.76 – $1.18,$2.44, volatility of 105%79.81% based on peer companies, risk free interest rate of 0.85%3.03%, no dividends and an estimated life of years.
Additionally, the Company’s two founders, whom are both directors and one of which is the ChairmanIn May 2023, all of the Board, each entered into an anti-dilution warrant with the Company. In the event of their ownershipNote Warrants to purchase 9,057,971 shares of the Company’s fully diluted capitalization being less than 25% or 18.75%, each individual would have received common stock warrantswere exchanged for Exchange Warrants to purchase 17,057,971 shares of the Company’s common stock with an initial exercise price of $0.0041$1.09 per share (which was adjusted to $0.75 per share upon stockholder approval, see Note 13). The Exchange Warrants expire August 24, 2027. Also in May 2023, in connection with the issuance of the New Notes, the Company also issued New Warrants to purchase sufficient shares to return them to those ownership percentages. The warrants were fully vested upon grant and have an exercise period of 10 years from the date of grant. As of December 31, 2020, no warrants were owed to the two founders. As discussed below, subsequent to December 31, 2020, the anti-dilution warrants were exchanged for a fixed number of warrants.
In March 2021, the Company agreed to exchange the two anti-dilution warrants that were issued to Company founders for a total of warrants to purchase shares of common stock at an initial exercise price of $0.981.09 for a period of (which was adjusted to $100.75 years. In connection with this exchange, the Company amended its existing consulting agreements with the founders, to allow for the payment of compensation totaling $30,000,000 in the event that the Company’s market capitalization exceeds $300,000,000 for 21 consecutive trading days. The Company will have the option to settle the amount by issuing shares of common stock based on the closing price of the Company’s stock at the start of the 21-day period. In addition to this payment, each of the two founders will continue to receive a cash payment equal to 1% of the gross sale price in the event of a change of control of the Company with a sale price of at least $100,000,000. In connection with the exchange, the Company recognized expense of $13,031,989 for the estimated fair value of the warrants on a Black-Scholes option pricing model utilizing the following assumptions: 1) volatility of 106% based on a peer group of companies; 2) risk-free rate of 1.67%; 3) dividend rate of 0.0%; and 4) an expected term of 10 years.per share upon stockholder approval, see Note 13).
During the three and ninesix months ended SeptemberJune 30, 2021,2023, the Company recognized expense and during the three and six months ended June 30, 2022, the Company recognized expense of $ and $, respectively, related to common stock warrants. During the three months ended Septemberwarrants as all warrants are fully vested as of June 30, 2020, and the period February 21, 2020 (inception) through September 30, 2020,2023. As noted in Note 7 above, the Company has determined that the Exchange Warrants and New Warrants are derivative liabilities and is recording them at fair value with changes being recorded in earnings. Additional gains or losses will be recognized in the future for the change in the fair value of the May 2023 warrants due to the potential adjustment to the exercise price based on stockholder approval. No expense will be recognized for any other warrants outstanding as of $ related to common stock warrants. The Company expects to recognize $14,605 over the remaining vesting period of these warrants.
The following is the activity related to common stock warrants during the ninesix months ended SeptemberJune 30, 2021:2023:
| Schedule of warrant activity | ||||||||||||||||||||||||||||||||
| Common Stock Warrants | Common Stock Warrants | |||||||||||||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Weighted average Remaining Life in years | Intrinsic Value | Shares | Weighted Average Exercise Price | Weighted Average Remaining Life in years | Intrinsic Value | |||||||||||||||||||||||||
| Outstanding at January 1, 2021 | 151,590 | $ | 0.004 | 9.17 | ||||||||||||||||||||||||||||
| Outstanding at January 1, 2023 | 15,085,618 | $ | 2.33 | |||||||||||||||||||||||||||||
| Granted | 11,427,052 | 1.04 | 9.35 | 22,492,754 | $ | 1.09 | ||||||||||||||||||||||||||
| Cancelled | 0 | $ | – | – | ||||||||||||||||||||||||||||
| Canceled | – | $ | – | |||||||||||||||||||||||||||||
| Exchanged | (9,057,971 | ) | $ | 2.85 | ||||||||||||||||||||||||||||
| Expired | 0 | $ | – | – | – | $ | – | |||||||||||||||||||||||||
| Exercised | 0 | $ | – | – | – | $ | – | |||||||||||||||||||||||||
| Outstanding at September 30, 2021 | 11,578,642 | $ | 1.03 | 9.34 | $ | 45,713,770 | ||||||||||||||||||||||||||
| Exercisable at September 30, 2021 | 11,578,642 | $ | 1.03 | $ | 46,010,840 | |||||||||||||||||||||||||||
| Outstanding at June 30, 2023 | 28,520,401 | $ | 1.19 | 4.76 | $ | 38,386 | ||||||||||||||||||||||||||
| Exercisable at June 30, 2023 | 28,520,401 | $ | 1.19 | 4.76 | $ | 38,386 | ||||||||||||||||||||||||||
| 22 |
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 hasinitially reserved a total of shares of the Company’s common stock for issuance under the 2021 Plan,Plan. On July 26, 2022, the Company’s stockholders approved an increase of shares of the Company’s common stock for issuance under the 2021 plan, which may be adjusted for changes in capitalization and certain corporate transactions. 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. Shares available for issuance under the 2021 Plan as of SeptemberJune 30, 2021,2023, were . shares. 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. The Company has granted awards with time-based vesting and performance-based vesting features.
Restricted Stock Units
Beginning in October 2020, the Company entered into various agreements with employees where the Company agreed to award a total of shares of restricted stock units (RSUs) which vest equally over a period of three years. The Company estimated the fair value of the shares of common stock using the estimated fair value of its common stock based on the most recent fundraising at $1.88 per share.
In July 2021, the Company’s CEO resigned effective July 30, 2021. The share-based awards of RSUs and stock options awarded to the former CEO were forfeited and were returned to the shares available for issuance under the 2021 Plan and all previously recognized compensation expense for his RSUs and stock options was reversed in the three and nine months ended September 30, 2021. During the three and nine months ended September 30, 2021, the Company recognized (benefit) expense of $ and $, respectively, for RSUs. The Company expects to recognize additional compensation expense of $ related to RSUs assuming all awards outstanding at September 30, 2021 will vest.
The following is the restricted stock unit activity for the ninesix months ended SeptemberJune 30, 2021: 2023:
| Schedule of restricted stock unit activity | ||||
| Outstanding January 1, | ||||
| Granted | ||||
| Vested | ||||
| ( | ) | |||
| Outstanding June 30, 2023 | 50,000 | |||
| (1) | 25,000 RSUs were 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 $31,487 during the three months ended March 31, 2023 related to this modification. |
In January 2022, the Company modified the vesting terms of 100,000 RSUs that had vested as of December 31, 2021 to extend the vesting through May 15, 2022. The Company granted an additional RSUs to the holders of these RSUs that vesting was extended and these additional RSUs vested as of May 15, 2022. The Company recorded an additional expense of $ during 2022 related to these modifications.
For the three and six months ended June 30, 2023, the Company recognized expense for RSUs of $ and $, respectively. For the three and six months ended June 30, 2022, the Company recognized expense for RSUs of $ and $, respectively. The Company expects to recognize additional compensation expenses of $ related to RSUs assuming all awards outstanding at June 30, 2023 will vest.
Performance Shares
In January 2021,On March 1, 2022, the Board of Directors authorized common shares to be reserved under the 2021 Plan for issuance to employees upon achieving multiple performance milestones. The allocationCompensation Committee of the numberboard of shares to be awarded was to be determined upon achievement of all the milestones. In July 2021, the Board of Directorsdirectors approved a grant of shares sincefor the achievement of some of the Company’s 2021 performance milestones, were met. Theand the Company recognized share-based compensation expenseexpenses of $ related to the grant of these shares.shares in the quarter ended March 31, 2022. Certain individuals whose employment terminated subsequent to December 31, 2021 forfeited their share grants totaling shares and such shares are available for future issuance under the 2021 Plan.
In 2022 the compensation committee approved reserving 250,000 shares from the 2021 Plan to issue based on achievement of the Company’s 2022 performance milestones to employees who are employed in 2022 and are active employees on the date of approval in 2023 by the compensation committee. On February 6, 2023 the compensation committee of the board of directors approved a grant of shares ( were issued due a forfeiture of shares and shares withheld for payment of employee withholding taxes) for the achievement of some of the Company’s 2022 performance milestones. The Company recognized share-based compensation expenses of $ related to the grant of these shares in the quarter ended March 31, 2023. The compensation committee also approved reserving the remaining 95,017 not issued for 2022 performance milestones for issuance to active employees on the date the first Stag is shipped to a customer.
| 23 |
In addition, the compensation committee also approved reserving 250,000 shares from the 2021 Plan to issue to employees based on achievement of the Company’s 2023 performance milestones to employees who are employed in 2023 and are active employees on the date of approval in 2024 by the compensation committee.
Stock Options
The following is thesummarizes activity relating to common stock options to employees and consultants for services during the ninesix months ended SeptemberJune 30, 2021:2023:
| Schedule of stock option activity | ||||||||||||||||||||||||||||||||
| Common Stock Options | Common Stock Options | |||||||||||||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Weighted average Remaining Life in years | Intrinsic Value | Shares | Weighted Average Exercise Price | Weighted Average Remaining Life in years | Intrinsic Value | |||||||||||||||||||||||||
| Outstanding at January 1, 2021 | 0 | $ | 0 | |||||||||||||||||||||||||||||
| Outstanding at January 1, 2023 | 3,288,830 | $ | 3.08 | |||||||||||||||||||||||||||||
| Granted | 1,892,375 | $ | 2.72 | – | – | 314,000 | $ | 1.27 | ||||||||||||||||||||||||
| Forfeited | (218,125 | ) | $ | 1.00 | – | – | (297,333 | ) | $ | 3.43 | ||||||||||||||||||||||
| Exercised | 0 | $ | 0 | – | 0 | (25,000 | ) | $ | 1.00 | |||||||||||||||||||||||
| Outstanding at September 30, 2021 | 1,674,250 | $ | 1.73 | $ | 5,503,000 | |||||||||||||||||||||||||||
| Exercisable at September 30, 2021 | 0 | $ | 0 | – | $ | 0 | ||||||||||||||||||||||||||
| Outstanding at June 30,2023 | 3,280,497 | $ | 2.89 | $ | 0 | |||||||||||||||||||||||||||
| Exercisable at June 30, 2023 | 1,267,917 | $ | 2.81 | $ | 0 | |||||||||||||||||||||||||||
The Company valued the options using the closing stock price of the Company’s common stock on the date of grant, an estimated fair value of the shares of common stock between $ – $, volatility between %78.5% - %81.2% based on peer companies, risk free interest rate between %3.54% - %3.94%, no dividends and an estimated life of years. During the three and ninesix months ended SeptemberJune 30, 2021,2023 the Company recognized expenseshare-based compensation expenses of $, and $, respectively, related to these common stock options.options. During the three and six months ended June 30, 2022 the Company recognized share-based compensation expenses of $, and $, respectively, related to common stock options. The Company expects to recognize additional compensation expenseexpenses of $ related to these common stock options assuming all awardsawards will vest.
Total stock-based compensation recorded for the three and ninesix months ended SeptemberJune 30, 20212023 and 2022 for all stock based compensation awards, including warrants, has been recorded as follows:
| Schedule of stock-based compensation expense | ||||||||||||||||||||||||
Three Months September 30, 2021 | Nine Months September 30, 2021 | Three Months June 30, 2023 | Three Months June 30, 2022 | Six Months June 30, 2023 | Six Months June 30, 2022 | |||||||||||||||||||
| Cost of Goods Sold | $ | 188,860 | $ | 269,266 | $ | 149,601 | $ | 55,373 | $ | 356,079 | $ | 277,879 | ||||||||||||
| Sales and Marketing | 160,622 | 237,028 | 233,113 | 188,529 | 544,871 | 461,856 | ||||||||||||||||||
| Product Development | 354,439 | 379,160 | 100,379 | 233,050 | 308,971 | 579,194 | ||||||||||||||||||
| General and Administrative | 145,804 | 13,370,865 | 142,301 | 147,662 | 472,906 | 880,850 | ||||||||||||||||||
| Total | $ | 849,725 | $ | 14,256,318 | $ | 625,394 | $ | 624,614 | $ | 1,682,827 | $ | 2,199,779 | ||||||||||||
The basic net loss per common share is calculated by dividing the Company'sCompany’s net loss available to common shareholdersstockholders by the weighted average number of common shares during the year. The diluted net loss per common share is calculated by dividing the Company'sCompany’s net loss available to common shareholdersstockholders 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. Common shares consisting ofDiluted net loss per common stock warrants, stock options and restricted stock units totaling 13,641,017 shares as of September 30, 2021, and Series A and Series B preferred stock of 1,191,388 and 1,105,827, respectively, convertible into shares of common stock as of September 30, 2021, and any potential shares issuable under the anti-dilution warrants discussed above were excluded from the calculation of dilutedshare is equal to basic net loss per share due to their antidilutive effect. There were nothe Company’s net loss and any potentially issuable shares are anti-dilutive.
| Schedule of earnings per share | ||||||||||||||||
| Three months | Three months | Six months | Six months | |||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | (23,028,194 | ) | $ | (9,926,462 | ) | $ | (30,327,663 | ) | $ | (18,538,808 | ) | ||||
| 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 instruments outstanding as of SeptemberJune 30, 2020.2023 and 2022 are as follows:
| Schedule of diluted net loss per share due to their antidilutive effect | ||||||||||||||||
| Three months | Three months | Nine months | Period ended | |||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | (5,890,555 | ) | $ | (304,559 | ) | $ | (25,345,840 | ) | $ | (376,657 | ) | ||||
| Denominator: | ||||||||||||||||
| Denominator for basic and diluted net loss per common share - weighted average of common shares | 2,303,508 | 125,687 | 2,121,129 | 51,520 | ||||||||||||
| Basic and diluted net loss per common share | $ | (2.55 | ) | $ | (2.42 | ) | $ | (11.95 | ) | $ | (7.31 | ) | ||||
| Schedule of anti-dilutive shares | ||||||||
| June 30, 2023 | June 30, 2022 | |||||||
| Convertible Notes | $ | 28,407,879 | $ | – | ||||
| Warrants | 28,520,401 | 5,423,783 | ||||||
| Stock options | 3,280,497 | 2,150,247 | ||||||
| Restricted stock units | 50,000 | 150,000 | ||||||
| Total | $ | 60,258,777 | $ | 7,724,030 | ||||
NOTE 912 –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.
| 25 |
Significant components of the Company's deferred tax assets and liabilities at June 30, 2023 and December 31, 2022 are as follows:
| Schedule of deferred tax assets and liabilities | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| Deferred tax assets | ||||||||
| Net operating losses | $ | 2,634,433 | $ | 242,000 | ||||
| Depreciation and amortization | 28,481 | 0 | ||||||
| Research & development credit | 54,571 | 0 | ||||||
| Lease liability | 481,554 | 0 | ||||||
| Stock-based compensation | 2,858,033 | 0 | ||||||
| Accrued expenses | 32,417 | 0 | ||||||
| Other | 336 | 0 | ||||||
| Total | 6,089,825 | 242,000 | ||||||
| Valuation allowance | (5,607,482 | ) | (242,000 | ) | ||||
| Net deferred tax asset | (482,343 | ) | 0 | |||||
| Deferred tax liabilities | ||||||||
| Right of use assets | (482,343 | ) | 0 | |||||
| Net Deferred tax liabilities | $ | 0 | $ | 0 | ||||
| Schedule of deferred tax assets and liabilities | ||||||||
June 30, 2023 | December 31, 2022 | |||||||
| Deferred tax assets | ||||||||
| Net operating losses | $ | 10,499,611 | $ | 9,106,430 | ||||
| Depreciation and intangible assets | 1,745,020 | 1,502,868 | ||||||
| Research & development credit | 1,457,766 | 1,308,956 | ||||||
| Lease liability | 285,550 | 322,167 | ||||||
| Inventory | 1,253,237 | 1,290,968 | ||||||
| Stock-based compensation | 3,202,130 | 3,103,037 | ||||||
| Accrued expenses | 284,550 | 233,284 | ||||||
| Capital loss carryover | 276,522 | 261,922 | ||||||
| Other | 25,966 | 177,074 | ||||||
| Total | 19,030,354 | 17,306,705 | ||||||
| Valuation allowance | (18,276,890 | ) | (16,661,612 | ) | ||||
| Net deferred tax asset | 753,464 | 645,093 | ||||||
| Deferred tax liabilities | ||||||||
| Prepaid expenses | (475,358 | ) | (328,836 | ) | ||||
| Right-of-use assets | (278,106 | ) | (316,257 | ) | ||||
| Total net deferred taxes deferred tax liabilities | $ | – | $ | – | ||||
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. The Company believes that carryforward limitations will be applied to the historical net operating losses due to the recent change of control transition.that occurred upon the completion of the Company’s initial public offering. The Company's cumulative net operating loss carry forward of approximately $12,545,00050.0 million as of September 30, 2021,June 30,2023, may be limited in future years depending on future taxable income in any given fiscal year. The net operating losses can be carried forward indefinitely.
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 1013 –LEASES
The Company did not have any leases during the period from February 21, 2020 (inception) to September 30, 2020. The components of lease cost for operating leases for the three and ninesix months ended SeptemberJune 30, 2021, were2023 and 2022 is as follows:
| Schedule of lease cost for operating leases | ||||||||||||||||||||||||
Three Months Ended September 30, 2021 | Nine months Ended September 20, 2021 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||||||
| Lease Cost | ||||||||||||||||||||||||
| Operating lease cost | $ | 121,932 | $ | 252,951 | $ | 117,250 | $ | 140,583 | $ | 234,499 | $ | 299,256 | ||||||||||||
| Short-term lease cost | 61,226 | 132,697 | 29,730 | 90,782 | 89,520 | 131,380 | ||||||||||||||||||
| Variable lease cost | 0 | 0 | – | – | – | – | ||||||||||||||||||
| Sublease income | 0 | 0 | – | – | – | – | ||||||||||||||||||
| Total lease cost | $ | 183,158 | $ | 385,648 | $ | 146,980 | $ | 231,365 | $ | 324,019 | $ | 430,636 | ||||||||||||
| 26 |
Supplemental cash flow information related to leases for the ninesix months ended SeptemberJune 30, 2021, was2023 and 2022, is as follows:
| Schedule of supplemental cash flow information related to leases | ||||||||||||
| September 30, 2020 | 2023 | 2022 | ||||||||||
| Other Lease Information | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||
| Operating cash flows from operating leases | $ | 194,175 | $ | 174,365 | $ | 199,966 | ||||||
| Amortization of right-of-use assets | $ | 181,677 | $ | 257,647 | ||||||||
The following table summarizes the lease-related assets and liabilities recorded on the balance sheet at SeptemberJune 30, 20212023 and December 31, 2020:2022:
| Schedule of lease-related assets and liabilities | ||||||||||||||||
| September 30, 2021 | December 31, 2020 | June 30, 2023 | December 31, 2022 | |||||||||||||
| Lease Position | ||||||||||||||||
| Operating Leases | ||||||||||||||||
| Operating Leases: | ||||||||||||||||
| Operating lease right-of-use assets | $ | 2,296,872 | $ | 842,357 | $ | 1,324,310 | $ | 1,505,987 | ||||||||
| Right of use liability operating lease short term | 328,337 | 141,943 | ||||||||||||||
| Right of use liability operating lease long term | 1,964,779 | 614,414 | ||||||||||||||
| Right-of-use liabilities operating leases short-term | 412,159 | 391,117 | ||||||||||||||
| Right-of-use liabilities operating leases long-term | 947,604 | 1,143,011 | ||||||||||||||
| Total operating lease liabilities | $ | 2,293,116 | $ | 756,357 | $ | 1,359,763 | $ | 1,534,128 | ||||||||
The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable. The Company recognized an initial right of use asset and lease liability of $1,707,466 for leases entered into in the nine months ended September 30, 2021.
| Schedule of right of use asset and lease liability | |||||
| Lease Term and Discount Rate | June 30, 2023 | ||||
| Weighted-average remaining lease term (years): | |||||
| Operating leases | |||||
| Weighted-average discount | |||||
| Operating leases | |||||
The following table provides the maturities of lease liabilities at SeptemberJune 30, 2021:2023:
| Schedule of maturities of lease liabilities | ||||||||
| Operating | Operating | |||||||
| Leases | Leases | |||||||
| Maturity of Lease Liabilities at September 30, 2021 | ||||||||
| Remainder of 2021 | $ | 100,632 | ||||||
| 2022 | 759,522 | |||||||
| 2023 | 1,184,356 | |||||||
| Remainder of 2023 | $ | 231,384 | ||||||
| 2024 | 1,143,532 | 471,638 | ||||||
| 2025 | 1,118,146 | 485,702 | ||||||
| 2026 and thereafter | 910,289 | |||||||
| 2026 | 340,591 | |||||||
| Total future undiscounted lease payments | 5,216,476 | 1,529,315 | ||||||
| Less: Interest | (599,568 | ) | (169,552 | ) | ||||
| Present value of lease liabilities | $ | 4,616,908 | $ | 1,359,763 | ||||
Note that amounts above include future payments for a lease related to a facility to be constructed in Liberty Hill, Texas by an entity associated with the Company’s founders (see Note 5)
| 27 |
NOTE 11 – 14 -SUBSEQUENT EVENTSEVENT
On October 8, 2021,As required under the May 24, 2023 New Notes and New Warrants and Exchange Notes and Exchange Warrant transactions discussed in Note 6, the Company completedheld a special meeting of the stockholders on August 3, 2023 where a quorum of stockholders approved the adjustment of the conversion price of the New Notes and Series B Exchange Notes to $0.75 per share. In addition, the Floor Price, as defined in the transaction agreements, for the New Notes and Series B Exchange Notes conversion price and the New Warrants and Exchange Warrants exercise prices was reduced to $0.22 per share.
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 initial public offering and sold 3,025,000 sharescommon stock. On July 6, 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 at $5.50had been below $1.00 per share. share for 30 consecutive business days.
The Company received net proceeds of $15,040,125 after underwriter commissionsuntil January 2, 2024, to regain compliance with both the MVLS requirement and expenses of $1,597,375. The underwriting agreement provided the underwriterminimum bid price requirement. To regain compliance with the option to sell an additional 226,875 shares (the “Overallotment”) which can be soldMVLS requirement, the Company’s MVLS must close at $35 million or more for up to 45a minimum of ten consecutive business days subsequent toduring this grace period. To regain compliance with the completion ofminimum bid price rule, the initial public offering at $5.50 per share. The underwriter was also issued a warrant to purchase 151,250 sharesminimum bid price of the Company’s common stock at $6.88must meet or exceed $1.00 per share. The warrant expires five years fromshare for a minimum of ten consecutive business days during this grace period. While the date of issuance.
TheCompany may be able to qualify for additional time to attempt to regain compliance, there can be no assurance that it will qualify for additional time to regain compliance, or that it will regain compliance with or without such additional time. If the Company does not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that the Company’s Series A and Series B Preferred Stock was converted to 5,743,175 shares of common stock upon completion of the initial public offering. Shares issued upon conversion arewill be subject to a lockup period of 180 days, upon which one-third of the shares can be sold, after an additional 30 days, another one-third of the shares can be sold, and after 30 more days, all shares can be sold.delisting.
On October 26, 2021,July 12, 2023, the Company received notification that the underwriter was exercising its OverallotmentCompany’s board of directors approved a total of stock option grants with an exercise price equal to $per share and on October 29, 2021, the Company sold the additional sharesa one-year vesting period to all employees and received net proceeds of $1,135,509. The underwriter was also issued a warrant to purchase 11,344 sharesindependent members of the Company’s common stock at $6.88 per share. The warrant expires five years from the dateboard of issuance.directors.
As of November 10, 2021, the Company has received exercise notices from warrant holders, other than the Company’s founders and the underwriter, representing 317,018 shares of common stock, that they are exercising their warrants on a cashless basis for 236,220 shares of common stock, of which 170,257 shares are subject to the same lockup period as the common shares issued upon conversion of the preferred stock.
On November 12, 2021, the Company’s chief operating officer submitted his resignation to the Company to pursue a full-time role as chief executive officer of Monday Motorbikes. He will continue support the Company as needed through a 30-day transition period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read theThe following discussion and analysis is intended as a review of oursignificant 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 the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. 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, 2022, previously filed with the Securities and Exchange Commission. Results for the three and six months ended June 30, 2023 are not necessarily indicative of results for the year ending December 31, 2023 or any future period.
Special Note Regarding Forward-Looking Statements
This discussionQuarterly Report on Form 10-Q, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements reflectingwithin 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 currentrepresentatives 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; and our business prospects and opportunities. You can identify forward-looking statements by those that involveare 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; our capital 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. Actualuncertainties 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 and the timing of events couldto differ materially from those discussedcontained in ourany 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 a resultpredictions of many factors, including those set forthfuture events. We are under “Risk Factors” and elsewhere inno duty to update any of these forward-looking statements after the date of this Form 10-Q.10-Q to conform our prior statements to actual results or revised expectations, and we do not intend to do so.
| 29 |
Forward-looking statements include, but are not limited to, statements about:
| · | 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; | |
| · | our ability to obtain financing (floor plan) for our dealers to finance their inventory purchases from us; | |
| · | 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 the Ukraine and the potential adverse effect it may have on the availability of batteries for our vehicles. |
Overview
We are an all-electric, off-road powersports vehicle company developing and building electric two and four-wheel motorcycles and utility terrain vehicles, (UTVs),or UTVs, also known as side-by-sides.side-by-sides, along with a complete line of upgrades and accessories. In October 2020, we launchedbegan building and testing prototypes for our future offerings with two off-road motorcycles – the Grunt and the Runt. We are currently taking orders on our websiteOur motorcycles feature unique frame designs protected by design patents. Additional utility and design patents have been filed for these initial offerings and began delivering the Grunts in the third quarterother aspects of 2021. We expect to begin delivering Runts in the second quarter of 2022. Also in 2022, we expect to introduce a prototype of the Volcon Stag which we expect to be available for sale in the first half of 2023. The Stag will be followed with the introduction the Beast, of a higher performance, longer range UTV which will be available for sale in the first half of 2024.
We are assembling the Grunt in a leased production facilities in Round Rock, Texas. We will be leasing a dedicated, built-to-suit manufacturing facility on 53 acres in Liberty Hill, Texas, 25 miles northwest of downtown Austin from an entity controlled by our founders. We expect to begin production at this facility in the first quarter of 2023.Volcon’s vehicles.
We initially intendedbegan to sell and distribute our vehiclesthe Grunt and related accessories in the U.S.United States on a direct-to-consumer sales platform. We are currently negotiating dealership agreements with retail partnersterminated our direct-to-consumer sales platform in November 2021. Prior to display and sellthe termination of our vehicles and accessories. These retail partners will also provide warranty and repair services to our customers.
As of September 30, 2021,direct-to-consumer sales platform, U.S. customers haveconsumers made deposits for 277360 Grunts (net of cancellations) and five Runts, plus accessories and a deliverdelivery fee representing total deposits of $1.9$2.2 million. These orders arewere cancelable by the customerconsumer until the vehicle iswas delivered and after a 14-day acceptance period, therefore the deposits have beenwere recorded as deferred revenue. Based onAs of June 30, 2022, we had completed shipping of all Grunts sold through our current production capacity,direct-to-consumer sales platform. Due to delays in developing the Runt, we believe we will deliverrefunded the deposits made for all of the Grunts by March 2022.Runts.
Beginning in November 2021, we began negotiating dealership agreements with powersports dealers to display and sell our vehicles and accessories. Customers can now, or will soon be able to, buy our vehicles and accessories directly from a local dealership. Some of these dealers will also provide warranty and repair services to customers. As of June 30, 2023, we have 142 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 planexpect to be able to offer the dealers a financing option, or “floor plan” to make larger purchases of our vehicles, but we do not currently have this financing option available. We have agreements with third-party financing companies to provide financing to qualified customers of each dealer. There is no recourse to the Company or the dealer if the dealer’s customer defaults on the financing agreement with the third-party.
| 30 |
As of June 30, 2023, we have signed agreements with six importers in Latin America and one importer for the Caribbean Region, collectively referred to herein as the LATAM importers, to sell our vehicles and accessories globally in a three-phase rollouttheir assigned countries/markets. In June 2022, we signed an exclusive distribution agreement with Torrot Electric Europa S.A., referred to herein as Torrot, to distribute their electric motorcycles for youth riders in Latin America. We will use our LATAM importers to sell Torrot’s products in Latin America.
In October 2022, we signed an expanded agreement with Torrot to also be the exclusive distributor of export sales–Torrot and Volcon co-branded youth electric motorcycles in the United States as well as Latin AmericaAmerica. This agreement supersedes the original Torrot agreement and once all Torrot branded inventory is sold, we will no longer distribute Torrot branded motorcycles. Finally, in December 2022, we signed an expanded agreement with Torrot to be the exclusive distributor of Volcon co-branded youth electric motorcycles in Canada. In June 2023, we wrote down all remaining Torrot branded inventory in the amount of $84,000.
We expect to expand our global sales of our vehicles and accessories beyond our current LATAM importer base. We expect to sign more LATAM importers in 2021,2023 and expect to begin selling in Canada Europe, and Africa in 2022 and Southeast Asia plus Australia in 2023. Export2024. We expect export sales areto be executed with individual importers in each country that buy vehicles by the container. Each importer will sell vehicles and accessories to local dealers or directly to customers. Local dealers will provide warranty and repair services for vehicles purchased in their country.
AsIn July 2022, we expanded our offerings with the introduction of the first of our Volcon UTV models, the Stag, which we anticipate will be available for delivery to customers in the fourth quarter of 2023, followed by additional models of the Stag expected in 2024 and 2025 and the introduction of a higher performance, longer range UTV (to be named) which we expect to begin delivering in 2025. The Stag will be manufactured by a third-party and incorporate electrification units, which include batteries, drive units and control modules provided by General Motors. Beginning in June 2022, we have taken non-binding pre-production orders which are cancelable prior to delivery.
Through August 2022, we assembled the Grunt in a leased production facility in Round Rock, Texas. In August 2022, we announced that we will outsource the manufacturing of the Grunt to a third-party manufacturer, which we anticipate will reduce costs and improve profitability on the Grunt. We also outsourced the manufacturing of the 2023 Grunt EVO to the same third-party manufacturer. The 2023 Grunt EVO will replace the Grunt and has a belt drive rather than a chain drive as well as an updated rear suspension. We have received prototypes of the Grunt EVO in the first quarter of 2023 and expect to begin sales in the third quarter of 2023.
In September 30, 2021,2022, we reduced our headcount in our product development and administration departments as we outsourced the design and development of certain components of our vehicle development. We also hired our Chief Marketing Officer and expect to hire additional sales and marketing employees and increase marketing activities to further support our brand and products.
We began taking pre-orders for an E-Bike, the Brat, in September 2022 and shipments to customers began in the fourth quarter of 2022. The Brat is being manufactured by a third-party. In January 2023, we began selling the Brat directly to consumers through our website. Consumers who order the Brat from our website can have the Brat shipped to their specified destination.
In November 2022, we finalized an agreement for a third-party to manufacture the Runt LT. We received prototypes of the Runt LT in the first quarter of 2023 and expect to begin sales in the fourth quarter of 2023.
The estimated fulfillment of all orders we have received assumes that our third-party manufacturers can successfully meet our order quantities and deadlines. If they are unable to satisfy orders from Latin America importers for 92 Grunts. Payment for these orders is due prior to shipment and are cancelable until shipped. Based on a timely basis, our current production capacity, we believe we will be able to fulfill all pending orders by March 2022.customers may cancel their orders.
Results of Operations
We were formed on February 21, 2020. OperationsThe following financial information is for the period from February 21, 2020 (inception) to September 30, 2020,three and the threesix months ended SeptemberJune 30, 2020 are not materially different; therefore, the financial information for 2020 below is from the inception through September 30, 2020.2023 and 2022.
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||||
| February 21, 2020 (inception) to September 30, 2020 | Three months ended September 30, 2021 | Nine months ended September 30, 2021 | ||||||||||||||||||||||||||
| Revenue | $ | – | $ | 75,067 | $ | 75,067 | $ | 519,300 | $ | 2,367,853 | $ | 1,689,758 | $ | 3,552,355 | ||||||||||||||
| Cost of goods sold | – | 1,176,691 | 1,176,691 | (334,647 | ) | (6,009,327 | ) | (1,564,628 | ) | (9,537,042 | ) | |||||||||||||||||
| Gross margin | – | (1,101,624 | ) | (1,101,624 | ) | 184,653 | (3,641,474 | ) | 125,130 | (5,984,687 | ) | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||
| Sales and marketing | 26,946 | 1,123,206 | 1,937,745 | 2,380,617 | 1,645,907 | 4,169,987 | 2,660,813 | |||||||||||||||||||||
| Product development | 331,621 | 3,021,207 | 7,595,581 | 1,166,732 | 2,102,709 | 2,953,083 | 4,598,421 | |||||||||||||||||||||
| General and administrative | 18,090 | 586,492 | 14,634,037 | |||||||||||||||||||||||||
| General and administrative expenses | 1,568,700 | 2,529,451 | 3,458,791 | 5,324,390 | ||||||||||||||||||||||||
| Total operating expenses | 376,657 | 4,730,906 | 24,167,363 | 5,116,049 | 6,278,067 | 10,581,861 | 12,583,624 | |||||||||||||||||||||
| Loss from operations | (376,657 | ) | (5,832,529 | ) | (25,268,987 | ) | (4,931,396 | ) | (9,919,540 | ) | (10,456,731 | ) | (18,568,311 | ) | ||||||||||||||
| Interest and other expense | – | (46,025 | ) | (76,853 | ) | |||||||||||||||||||||||
| Other income (expense) | 10,618 | (2,131 | ) | 16,503 | 38,986 | |||||||||||||||||||||||
| Loss on extinguishment of Convertible Notes | (22,296,988 | ) | – | (22,296,988 | ) | – | ||||||||||||||||||||||
| Gain on change in fair value of financial liabilities | 5,792,788 | – | 5,792,788 | – | ||||||||||||||||||||||||
| Interest expense | (1,603,216 | ) | (4,791 | ) | (3,383,235 | ) | (9,483 | ) | ||||||||||||||||||||
| Total other expense | (18,096,798 | ) | (6,922 | ) | (19,870,932 | ) | 29,503 | |||||||||||||||||||||
| Loss before provision for income taxes | (23,028,194 | ) | (9,926,462 | ) | (30,327,663 | ) | (18,538,808 | ) | ||||||||||||||||||||
| Provision for income taxes | – | – | – | – | ||||||||||||||||||||||||
| Net loss | $ | (376,657 | ) | $ | (5,878,554 | ) | $ | (25,345,840 | ) | $ | (23,028,194 | ) | $ | (9,926,462 | ) | $ | (30,327,663 | ) | $ | (18,538,808 | ) | |||||||
Due to recurring losses there is no provision for income taxes for any period presented.
Revenue
Revenue for the three months ended June 30, 2023, was $519,300 which represents sales of Brats of $384,681, Volcon Youth and Torrot motorcycles of $48,113 and accessories and parts of $24,833 and an adjustment of $67,654 to reduce dealer rebates due to a change in the rebate program for remaining unsold Grunts in dealer inventory.
Revenue for the six months ended June 30, 2023, was $1,689,758 which represents sales of Grunts of $170,388, Brats of $1,042,198, Volcon Youth of $260,479 and accessories and parts of $151,980.
Revenue for the three and ninesix months ended SeptemberJune 30, 2021,2022, was $75,067$2,367,853 and $3,552,355 which represents the salesales of 11 Grunts.Grunts of $2,270,924 and $3,436,635, and accessories and parts of $96,930 and $115,720, respectively.
| 32 |
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 2023 was $334,647 including payroll costs of $280,240 and stock based compensation of $149,601 for employees performing warehouse and logistics management and quality control testing of Brats and Volcon Youth Motorcycles. Product costs for Brats and Volcon Youth sold during the period were $229,024 and $59,730, respectively. We recorded expense of $85,245 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 $146,370 the Company was recording for excess quantities of raw materials that it was no longer obligated to purchase by paying these fees. Facilities costs were $88,846 for our warehouse facility and third-party warehousing costs. Also, the one year warranty for parts and labor on Grunts sold prior to June 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. The Company also recorded a credit of $198,120 due to our third-party manufacturer of the Grunt EVO agreeing to take approximately $1.4 million of inventory, which was previously reduced to its estimated net realizable value, and gave the Company a credit of $1,600 for the first 1,000 Grunt EVOs we purchase. Finally, the Company recorded an expense of $84,000 to write off excess and obsolete Torrot inventory which was on hand as of June 30, 2023.
Cost of goods sold for the six months ended June 30, 2023, were $1,564,628. Costs include payroll costs of $682,343 and stock-based compensation of $356,079 for share-based award for employees performing warehouse and logistics management and quality control testing of Brats and Volcon Youth Motorcycles. Product costs for Brats, Volcon Youth and Grunts sold during the period were $595,640, $255,409, and $163,985, respectively. We recorded expense of $138,752 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 $179,670; 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 June 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 $211,157 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.
Cost of goods sold for the three and nine months ended SeptemberJune 30, 2021, was $1,176,691. Costs2022 include labor costs of $476,027$678,809 for employees and contractors performing parts purchasing, assembly and quality control testing of Grunts and stock-based compensation of $188,860$55,372 for share basedshare-based awards for employees. Part costs for Grunts sold during the periodsperiod were $152,830.$4,106,542, which includes an adjustment of $615,682 to reduce inventory to its net realizable value and other inventory adjustments of $427,694. Facilities costs were $48,321$167,639 for our manufacturing facility and inventory warehouse.warehousing costs. Shipping costs and duties/tariffs for inventory purchases and shipments to customers were $350,259.
InCost of goods sold for the next 6-9six months ended June 30, 2022 include labor costs of $1,363,971 for employees and contractors performing assembly and quality control testing of Grunts and stock-based compensation of $278,450 for share-based awards for employees. Part costs for Grunts sold during the period were $4,253,413. Facilities costs were $327,306 for our manufacturing facility and inventory warehousing costs. Shipping costs and duties/tariffs for inventory purchases and shipments to customers were $1,358,516.
Beginning in the third quarter of 2023 we could experience manufacturing delays due to shipping constraints in our supply chain. We expect revenue and cost of goods sold to increase as we sell higher quantitiesfurther due to the expected sales of Grunts, but we expect the Grunt EVO in the third quarter and Runt LT and Stag in the fourth quarter of 2023. Our cost per Grunt EVO and Runt LT is fixed in our contract with the third-party manufacturer. We have identified a supplier who can build and deliver the Grunt EVO at a lower cost than we were able to decrease as we gain efficienciessource parts and assemble the Grunt EVO ourselves. We also transferred Grunt parts inventory of approximately $1.4 million to this supplier in exchange for a per unit reduction in the manufacturing process andcontractual cost the third-party manufacturer will charge the Company. Additional cost savings may be realized if the third-party manufacturer can source or manufacture parts at a lower cost.
Other than the cost of parts is reduced asthe batteries, we purchasehave a fixed cost per unit for the Stag in our contract with our third-party manufacturer. However, not all components have been fully sourced and additional costs for these components or price increases from suppliers for components already sourced could result in a higher volumescost per unit and source additional suppliers.we may not be able to increase the price we sell each unit to our customers which could negatively impact our expected margin.
| 33 |
Sales and marketingMarketing 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 for the period ended September 30, 2020, were not significant as we did not have significant operations during this period as there were no sales and marketing employees. Sales and marketing expense were $1,123,206 and $1,937,745 for the three and nine months ended September 30, 2021, respectively.
For the three months ended SeptemberJune 30, 2021,2023, sales and marketing expenses were $2,380,617 and include $967,982 for promoting our products and brand, $783,229 for employee payroll costs, stock-based compensation expense of $233,113 for share-based awards granted to employees and consultants, $46,685 related to facilities costs, and travel costs of $109,035 primarily related to costs incurred for travel to build our dealer and distributor network. Bad debt expense was $70,383 and legal and consulting fees related to entering into international distribution agreements were $116,447.
Sales and marketing expenses were $4,169,987 for the six months ended June 30, 2023 and were primarily related to expenses associated with promoting our products and brand of $459,996, professional fees of $192,468, composed primarily of legal fees of $152,498 to develop our dealer agreements and evaluate compliance with dealer laws across the United States,$1,556,303, employee payroll costs of $179,279, and$1,506,591, stock-based compensation of $160,622$544,872 for share basedshare-based awards granted to employees. employees and consultants, and travel costs of $180,277 primarily related to costs incurred for travel to build our dealer network. Facilities costs were $85,137. Bad debt expense was $51,198 and legal and consulting fees mainly related to entering into international distribution agreements were $141,223.
For the ninethree months ended SeptemberJune 30, 2021,2022 sales and marketing expenses were primarily related to expenses associated with$1,645,907 and includes $525,766 for promoting our products and brand, of $788,840, professional fees of $272,042, primarily composed of legal fees of $153,784 to develop our dealer network and evaluate compliance with dealer laws across the United States,$468,880 for employee payroll costs, of $420,994, and stock-based compensation expense of $237,028$188,529 for share basedshare-based awards granted to employees and consultants.consultants, $223,434 for facilities costs, primarily to operate our dealership in Denver, Colorado and travel costs of $66,073 primarily related to costs incurred for travel to build our dealer network.
For the six months ended June 30, 2022 sales and marketing expenses were $2,660,813 and includes $662,246 for promoting our products, employee payroll costs of $900,063, stock-based compensation of $461,286 for share-based awards granted to employees and consultants, $297,541 for facilities costs, primarily to operate our dealership in Denver, Colorado and travel costs of $106,290 primarily related to costs incurred for travel to build our dealer network.
We expect sales and marketing expenseexpenses to increase as we expand our U.S. dealer and international distributor networks and promote our brand and products.
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. General
For the three months ended June 30, 2023, general and administrative expenses were $1,568,700 and were primarily related to expenses associated with employee payroll costs of $526,478, stock-based compensation of $142,301 for share-based awards granted to employees and consultants, professional fees of $228,199 (including legal fees of $127,906 for legal services and tax and audit fees of $31,827 and recruiting fees of $29,500), software costs of $83,936, insurance costs of $333,220, other public company expenses of $60,065 and the periodannual stockholders meeting cost $87,315.
For the six months ended SeptemberJune 30, 2020, were not significant as we did not have significant operations during this period as there were no employees. General2023, general and administrative expenseexpenses were $586,492$3,458,791 and $14,634,037were primarily related to expenses associated with employee payroll costs of $1,139,459, stock-based compensation of $472,906 for the threeshare-based awards granted to employees and nine months ended September 30, 2021, respectively.consultants, professional fees of $503,940 (including legal fees of $214,881, tax and audit fees of $187,177 and recruiting fees of $29,500), software costs were $235,394, insurance costs of $683,191, and other public company expenses were $140,754.
| 34 |
For the three months ended SeptemberJune 30, 2021,2022, general and administrative expenses were $2,529,451 and were primarily related to expenses associated with employee payroll costs of $179,321,$692,565, stock-based compensation of $145,804 for share based awards granted to employees and consultants, and$152,364, professional fees of $165,742,$768,637, including professionallegal fees related to employee recruitment of $108,177. $629,974 and recruiting fees of $42,879, and insurance costs of $289,338.
For the ninesix months ended SeptemberJune 30, 2021,2022, general and administrative expenses were $5,324,390 and were primarily related to expenses associated with employee payroll costs of $431,304,$1,426,225, stock-based compensation of $13,370,864 (consisting of $13.0 million due to warrants issued to our founders in March 2021 and $338,875 due to share based awards granted to employees and consultants), and$894,974, professional fees of $661,570,$1,567,128, including legal fees of $175,115,$1,118,806, tax and accounting fees of $232,354$193,928, and recruiting fees of $189,177.$144,049, and insurance costs of $746,157.
We expect general and administrative expenses other than stock-based compensation related to the founder warrants, to increase over the next several quarters as we expect costs such as product liability insurance to increase staffingdue to support sales, manufacturing,new product developmentofferings and increased costs due to comply with public company reporting and compliance requirements.
Product Development Expense
Product development expenses relate to development and testing of our products and process to manufacture these products. Product development expense was not significant for the period from February 21, 2020 (inception) through September 30, 2020, as we did not have any employees as of September 30, 2020. Product development expenses for the three and nine months ended September 30, 2021, were $3,021,207 and $7,595,581, respectively.
Product development expenses forFor the three months ended SeptemberJune 30, 2021, are2023, product development expenses totaled $1,166,732 and primarily relate to expenses associated with employee payroll costs of $893,266,$431,833, stock-based compensation of $543,299$100,379 for share basedshare-based awards granted to employees and consultants, prototype vehicles and parts costs of $384,479, facilities costs of $45,482 and $49,497 for supplies and software.
Product development expenses were $2,953,083 for the six months ended June 30, 2023 and were primarily related to expenses associated with employee payroll costs of $939,509, stock-based compensation of $308,971 for share-based awards granted to employees and consultants, professional fees of $366,530$367,083 for product design, prototype vehicles and parts andcosts of $980,268, including $70,173 in tooling costs, shipping costs of $1,664,529$45,836 related to shipping prototypes, $87,424 for supplies and software and facilities costscost of $104,885. Product$93,306
For the three months ended June 30, 2022, product development expenses in for the nine months ended September 30, 2021, aretotaled $2,102,709 and primarily relate to expenses associated with employee payroll costs of $1,341,112,$1,027,495, stock-based compensation of $459,566$228,437 for share basedshare-based awards granted to employees and consultants, professional fees of $955,391, including $790,676$55,182 for product design and $151,925$0 for employee recruitment, prototype parts and tooling costs $4,068,523of $96,451, facilities cost of $48,110 and software fees, small equipment, tools and shop supplies of $39,042.
For the six months ended June 30, 2022, product development expenses totaled $4,598,421 and primarily related to expenses associated with employee payroll costs of $1,877,885, stock-based compensation of $565,159 for share-based awards granted to employees and consultants, professional fees of $543,261 for product design and $95,130 for employee recruitment, prototype parts and tooling costs of $1,071,274, and facilities cost of $265,398.$130,241.
We expect product development costs related to increaseemployee costs to remain consistent with the expense level of the six months ended June 30, 2023 since we have outsourced certain design and development of our new vehicle models in the futurefourth quarter of 2022. We expect cost increases due to outsourced design and development costs and costs related to prototype costs for the Stag, Grunt EVO and Runt LT. Prototype costs, especially for the Stag, will be significant as our product development activities expand for new vehicle models.we begin receiving Stag units that will be used to validate engineering and manufacturing design and costs incurred to perform testing to ensure the vehicles meet regulatory compliance requirements where we expect to sell these vehicles.
Interest and Other Expenses
Interest and other income/expenses for the three and six months ended June 30, 2023 were $18,096,798 and $19,870,932, respectively. A loss on extinguishment of the Convertible Notes of $22,296,988 was recognized in the three and six months ended June 30, 2023 (see Note 6 to the consolidated financial statements). Non-cash interest expense of $1,136,997 and $2,913,632 was recognized for the amortization of debt issuance costs and accretion of principal on the Convertible Notes issued in August 2022 for the three and six months ended June 30, 2023, respectively. In addition, non-cash interest expense of $471,572 was recognized for the amortization of debt issuance costs and accretion of principal on the New Notes and Exchange Notes issued in May 2023 in the three and six months ended June 30, 2023. A gain on the change in the valuation of derivative financial liabilities of $5,792,788 was recognized in the three and six months ended June 30, 2023 (see Note 7 to the consolidated financial statements).
| 35 |
Interest expense for the three and ninesix months ended SeptemberJune 30, 2021, primarily relates2022 was not significant.
We expect interest expense to increase in the future as we recognize interest on the New Notes and Exchange Notes issued in May 2023. The New Notes and Exchange Notes were discounted using a 14.9% interest rate. This discount ($3,008,158 as of June 30, 2023) will be accreted to interest on ourexpense over the term of these notes payable usedand does not result in any cash payments to purchase two vehicles and accretion onbe made unless the promissory notes issuedCompany has an event of default as discussed in September 2021.Note 6 to the financial statements. Additional interest will be recognized for the amortization of the remaining unamortized debt issuance costs of $521,749 as of June 30, 2023..
Net Loss
Net loss for the three and six months ended June 30, 2023, was $23,028,194 and $30,327,663, respectively.
Net loss for the three and six months ended SeptemberJune 30, 2020,2022, was $9,926,462 and the period from February 21, 2020 (inception) through September 30, 2020, was $304,559 and $376,657,$18,538,808, respectively, compared to $5,878,554 and $25,345,840 for the three and nine months ended September 30, 2021, respectively.
Liquidity and Capital Resources
On SeptemberJune 30, 2021,2023, we had cash and restricted cash of $2.7$8.5 million, including $0.5 million of restricted cash, and we had a working capital deficit of $3.0$25.5 million. Since inception in February 2020, we have funded our operations from proceeds from debt and equity sales.
Cash used in operating activities
Operating activities for the period from February 21, 2020 (inception) to September 30, 2020, mainly included research and development costs, and professional fees for consultants and attorneys for the formation of the Company and early product development efforts. Some of these costs were paid for by the founders on behalf of the Company. Net cash used in operating activities was $13.3$10.6 million for the ninesix months ended SeptemberJune 30, 2021,2023 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 liabilities, loss on extinguishment of Convertible Notes, bad debt expense and gain on sale of property and equipment. Cash used in operating activities includes a decrease in accounts receivable of $0.6 million for collections net of sales, decreases in inventory of $0.8 million due to the transfer of inventory to one of our third-party manufacturers and an increase inventory deposits of $1.9 million as we made purchases and deposits for Brats and Volcon Youth motorcycles, a decrease of $0.4 million in accounts payable and $0.6 million in accrued liabilities due to payment of outstanding amounts due and a reversal of an accrual for anticipated shipping and tariffs related to shipping raw material and subassembly inventory to our third-party manufacturer as it was no longer necessary. We received $0.3 million in customer deposits, primarily from two of our Latin America distributors as prepayment for shipments of Brats and Grunt EVOs.
Net cash used in operating activities was $18.2 million for the six months ended June 30, 2022 and includes all of our operating costs except stock-based compensation, write down of inventory and prepaid inventory and depreciation and amortization. Cash used in operating activities includes increases in accounts receivable of $1.2 million for sales made to dealers, an increase in inventory and prepaidof $0.9 million offset by a reduction in inventory totaling $5.3deposits of $1.1 million as we made payments andfewer deposits based on the timing of inventory purchases domestically versus internationally to purchase raw materials to begin production of the Grunt in September 2021build Grunts for delivery to customers, cash provided by customer depositsa decrease of $2.3 million as we recognized revenue for shipments to the remaining direct to consumer customers in the six months ended June 30, 2022, and an increase of $0.3 million due to higher accrued liabilities due to the timing of invoices received from vendors and an increase in accounts payableprepaid expenses of $1.2$0.3 million.
Cash used in investing activities
Net cash used in investing activities was $0.7$0.3 million for the ninesix months ended SeptemberJune 30, 2021,2023, consisting of $0.4 million of purchases of equipment and mainly includedtooling offset by proceeds received of $0.1 million for the sale of two vehicles. Net cash used in investing activities was $0.5 million for the six months ended June 30, 2022, consisting of purchases of equipment and tooling related to our Grunt manufacturing and product development and certain intangible assets. Cash uses from investing activities for the period ended September 30, 2020, was not significant.development.
| 36 |
Cash provided by financing activities
Cash provided by financing activities for the six months ended June 30, 2023, was $7.9 million and was related primarily to proceeds from the public offering of 6 million shares of our common stock for net proceeds of $4.0 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. 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.
Cash provided from financing activities for the periodsix months ended SeptemberJune 30, 2020,2022, was $1.6$18.1 million and was related to proceeds received from the SAFEpublic offering that was partially completed at September 30, 2020. Net cash provided by financing activities was $16.1 million for the nine months ended September 30, 2021.
In January 2021, we completed a WeFunder SAFE offering which was convertible into preferred stock upon future financing events. We received gross proceeds of $2,258,940 and paid expenses of $53,500.
In February 2021, we completed an offering of our Series A preferred stock. We received gross proceeds of $2,669,978 and issued 415,287 shares of Series A preferred stock. We paid commissions and expenses of $205,470 and issued 79,750 shares of common stock and warrants to purchase 79,750 shares of common stock with an exercise price of $2.57 to placement agents in connection with the offering. This equity financing resulted in the SAFE investments of $2.0 million as of December 31, 2020, converting into 424,269 shares of Series A preferred stock and the WeFunder SAFE investments converting into 351,832 shares of Series A preferred stock.
From April 2021 to September 2021, we sold 1,105,827 shares of Series B preferred stock at $9.50 per share resulting in gross proceeds of $10.5 million. We paid commissions and expenses of $890,026 and issued 123,295 shares of common stock and warrants to purchase 197,272 shares of common stock with an exercise price of $3.80 to placement agents in connection with the offering.
On September 10, 2021, the Company entered into an agreement with a lender for a 6% promissory note of $2 million. The promissory note has a maturity date of one year from inception or immediately upon the completion of this offering. For providing the above promissory note, the Company agreed to issue 266,664 shares of our common stock and agreed to pay $35,000 of the placement agent’s and investor’s legal costs and paid a 6% commission to the placement agent, who is the underwriter of this offering. Such payment is cash compensation for providing services for a private placement in accordance with FINRA Rule 5110 Supplementary Material .01(b)(2).February 2022 where we sold 6,666,667 shares at $3.00 per share.
Our continuation as a going concern is dependent upon our ability to attain profitable operations and if necessary, obtain continued financial support from our stockholders, necessary equity financing to continue operations and the attainmentissuance of profitable operations.debt or equity. As of SeptemberJune 30, 2021,2023, we had incurred an accumulated deficit of $26.7$106.1 million since inception andinception. Additionally, one of the covenants for our May 2023 Notes requires us to have generated less than $0.1$10 million in revenue. Additionally, managementof cash on hand if principal (and interest, if any) of $15 million or more of the May 2023 Notes is outstanding as of December 31, 2023 (subject to adjustment if the principal (and interest, if any) is below $15 million).
Management anticipates that our cash on hand as of SeptemberJune 30, 2021, is insufficient2023 plus the cash expected to be generated from operations will not be sufficient to fund planned operations and maintain required cash balances at December 31, 2023 for the May 2023 Notes beyond one year from the date of the issuance of the financial statements as of and for the three and ninesix months ended September 30, 2021.June, 2023. There can be no assurance that additional funding 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.
On October 8, 2021, and October 29, 2021, the Company completed its initial public offering and sold 3,025,000 and 226,875 shares of its common stock at $5.50 per share. The Company received net proceeds of $16.6 million after underwriter commissions and expenses of $1,7 million. The Company expects to incur additional expenses of approximately $150,000 related to this offering. The underwriter was also issued 151,250 warrants to purchase the Company’s common stock at $6.88 per share.
The proceeds from initial public offering, along with proceeds from sales of the Grunt and related accessories which began in September 2021, and Runts and related accessories which are expected to begin in the second quarter of 2022, may not provide sufficient capital to fund 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, 2021, due to the ongoing development of our vehicles. We may be required to raise additional proceeds to fund our operations and there is no guarantee that we will be able to raise funding with favorable terms, if at all.
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
Use of Estimates in Financial Statement Presentation
The preparation of theunaudited financial statements and related disclosures in conformity with accounting principles generally accepted accounting principles in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities asat the date of the dates of theunaudited financial statements, and the reported amounts ofincome and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Derivative Financial 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 periods.period.
Making estimates requires management
We account for the conversion features of our New Notes and Exchange Notes and related Note Warrants and Exchange Warrants issued in connection with the New Notes and Exchange Notes as derivative financial liabilities in accordance with ASC 815. Accordingly, we recognize these derivative financial liabilities at fair value initially and adjust them to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised or until the conversion feature share price and the warrant 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, couldprice become fixed, and any change in the near term due to one or more future confirming events. Accordingly, actual results could differ significantly from those estimates.
Revenue recognition
Revenuefair value is recognized when we transfer control of the product to the customer and a 14-day acceptance period has expired or the customer has acknowledged acceptance prior to the end of the 14-day acceptance period. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring control of our vehicles, parts and accessories. Consideration that is received in advance of the transfer of goods is deferred until delivery has occurred. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. If a right of return exists, we adjust revenue for the estimated effect of returns. Until we develop sales history, we will estimate expected returns based on industry data for sales returns as a percent of sales, type of product, and a projection of this experience into the future. Our sales do not have a financing component.
Sales promotions and incentives. We provide for estimated sales promotion and incentive expenses, which are recognized as a component of sales in measuring the amount of consideration we expect to receive in exchange for transferring goods or providing services. Examples of sales promotion and incentive programs include distributer fees and volume incentives. Sales promotion and incentive expenses are estimated based on current programs for each product line. We record 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 in order 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. We record shipping and handling charged to the customer and related shipping costs as a component of cost of sales when control has transferred to the customer.
Product warranties
We provide a one-year warranty on our vehicles, and a two-year warranty on the battery pack. We accrue warranty reserves at the time a vehicle is delivered to the customer. Warranty reserves include our 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 our evaluation of historical data. We review our reserves quarterly to ensure that our accruals are adequate in meeting expected future warranty obligations, and we will adjust our 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 revenues in the statement of operations. The portionfair value of these financial instruments were initially measured at fair value using a Monte Carlo simulation model and subsequently, the fair value was also estimated using a Monte Carlo simulation model as of June 30, 2023. In addition, we made a probability assessment as to whether our stockholders would approve the adjustment of the warranty provision which is expectedconversion prices and exercise prices of the derivative financial liabilities. The determination of the fair value of the warrant liability may be subject to be incurred within 12 months fromchange as more current information becomes available and accordingly the balance sheet date will beactual results could differ significantly. These conversion features of the New Notes and Exchange Notes are classified as current whileliabilities as the remaining amount will beconvertible notes are due February 2024. The New Warrants and Exchange Warrants are also classified as long-term liabilities.
Income taxes
Deferred taxes are determined utilizingcurrent liabilities as the “asset and liability” method, whereby deferred tax asset and liability account balances are determined based on differences between financial reportingtiming of their exercise is at the discretion of the warrant holders 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. We provide a valuation allowance, when it is more likely than not that deferred tax assets will not be realized in the foreseeable future.
The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classifiedwarrants were fully vested as a component of the provisions for income taxes.
Stock-based compensation
We measure the total amount of employee stock-based compensation expense for a grant based on the grant date fair value of each award and recognizes the stock-based compensation expense on a straight-line basis over the requisite service period of an award. Stock-based compensation is based on unvested outstanding awards. We have elected to recognize forfeitures when realized.they were issued.
Off-balance Sheet Arrangements
As of September 30, 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
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 and Changes in Internal Control over Financial Reporting
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 theour 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 supervisionssupervision 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 SeptemberJune 30, 2021.2023 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 threesix months ended SeptemberJune 30, 2021,2023, that have materially affected, or are reasonablereasonably likely to materially effect,affect, our internal controls over financial reporting.
Due to a transition period established by SEC rules applicable to newly public companies, our management is not required to evaluate the effectiveness of our internal control over financial reporting until after the filing of our Annual Report on Form 10-K for the year ended December 31, 2022. As a result, this Quarterly Report on Form 10-Q does not address whether there have been any changes in our internal control over financial reporting.
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.
We are not at this time involved in any legal proceedings.
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 7, 2023, which is accessible on the SEC’s website at www.sec.gov.
InvestingThe terms of the May 2023 Notes and May 2023 Warrants imposed additional challenges on our ability to raise capital.
The agreements related to the sale of the May 2023 Notes and May 2023 Warrants contain a number of restrictive covenants that may impose significant operating and financial restrictions on us while the May 2023 Notes and May 2023 Warrants remain outstanding, unless the restrictions are waived by consent of each holder, including, but not limited to, restrictions on our ability to incur additional indebtedness and guarantee indebtedness; incur liens or allow mortgages or other encumbrances; redeem, or repurchase certain other debt; pay dividends or make other distributions or repurchase or redeem our capital stock; sell assets or enter into or effect certain other transactions; issue additional equity; and enter into variable rate transactions, among other restrictions.
A breach of the covenants or restrictions under the agreements related to the May 2023 Notes and May 2023 Warrants governing our indebtedness could result in an event of default under such agreements. As a result of these restrictions, we may be limited in how we conduct our business, unable to finance our operations through additional debt or equity financings and/or unable to compete effectively or to take advantage of new business opportunities.
Further, while we could potentially receive up to an aggregate of $16.9 million in gross proceeds from the exercise of the May 2023 Warrants, assuming the exercise in full of all of the May 2023 Warrants at $0.75 per share, no assurances can be made that the holders of such warrants will elect to exercise any or all of such warrants and, accordingly, no assurance that we will receive any proceeds from the exercise of the May 2023 Warrants. If the trading price for our common stock involves a high degreeis less than the exercise price for the May 2023 Warrants, we believe the holders of risk. You should carefully consider eachsuch warrants will be unlikely to exercise their warrants. Accordingly, we may not receive cash proceeds with respect to the May 2023 Warrants and we are restricted in our ability to conduct additional debt or equity financings.
The issuance of the following risks, togetherour common stock in connection with the financial statementsMay 2023 Notes and the related notes, before making a decision to buy our common stock. If any of the following risks actually occurs, our businessMay 2023 Warrants, could be harmed. In that case,cause substantial dilution, which could materially affect the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to the Company’s Business, Operations, and Industry
stock.
Our losses from operations could continue
The May 2023 Notes and May 2023 Warrants are exercisable or convertible, as applicable, for up to raise substantial doubt regarding65,304,348 shares of our ability to continue as a going concern. Our ability to continue as a going concern requires that we obtain sufficient funding to finance our operations.
We do not have sufficient existing cash and cash equivalents, even giving effect tocommon stock. The additional shares of common stock issued upon the proceeds from the securities offerings completed in October 2021, to fund our operations for the twelve months following the filingexercise or conversion of the September 30, 2021, financial statements. Our independent registeredforegoing securities will result in dilution to our then existing holders of common stock and increase the number of shares eligible for resale in the public accounting firm has included an explanatory paragraphmarket. Sales of a substantial numbers of such shares in its report on our financial statements as of December 31, 2020, and for the period from February 21, 2020 (inception) to December 31, 2020, stating that our recurring losses from operations since inception and required additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern. If we are unable to obtain sufficient funding, wepublic market could be forced to delayadversely affect the rolloutmarket price of our vehicles, and our financial condition and results of operations will be materially and adversely affected, and we may be unable to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms or at all.
Our independent auditor registered public accounting firm previously identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses or we or our auditor identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price.
In connection with the preparation and audit of our consolidated financial statements for the period ended December 31, 2020, our auditor identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. These material weaknesses are as follows:
common stock.
We have begun efforts to remediate these material weaknesses including hiring a chief financial officer and a controller and have begun developing written policies and procedures. While we believe these efforts will remediate the material weaknesses, we may not be able to complete our evaluation, testing or any required remediation in a timely fashion, or at all. We cannot assure you that the measures we have taken to date and may take in the future, will be sufficient to remediate the control deficiencies that led to our material weaknesses in internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. If we are unable to remediate the material weakness, our ability to record, process and report financial information accurately, and to prepare financial statements within the time periods required of public companies could be adversely affected which, in turn, may adversely affect our reputation and business and the market price of our common stock. In addition, any such failures could result in litigation or regulatory actions by the SEC or other regulatory authorities, loss of investor confidence, delisting of our securities and harm our reputation and financial condition, or diversion of financial and management resources from the operation of our business.
We are an early-stage company, and although orders of our initial vehicles have commenced, we have delivered a limited number of vehicles to customers.
We formed our corporation in February 2020. Since formation, we have focused on designing our initial vehicles, the Grunt and the Runt, and commencing the marketing of such vehicles by accepting reservations on our website. As of September 30, 2021, we have delivered 11 vehicles to customers. We may never achieve commercial success. We have no meaningful historical financial data upon which we may base our projected revenue and operating expenses. Our limited operating history makes it difficult for potential investors to evaluate our products or prospective operations and business prospects. We are subject to all the risks inherent in business development, financing, unexpected expenditures, and complications and delays that often occur in a new business. Investors should evaluate an investment in us in light of the uncertainties encountered by developing companies in a competitive environment. There can be no assurance that our efforts will be successful or that we will ultimately be able to attain profitability.
As we have increased our production, we have experienced delays or other complications in the design, manufacture, launch and production ramp of our vehicles and our future planned vehicles which could harm our brand, business, prospects, financial condition and operating results.
We may encounter unanticipated challenges, such as supply chain constraints, that lead to initial delays in producing our vehicles. We have experienced longer lead times with certain suppliers to obtain parts, especially those imported where shipping delays from out bound and inbound ports have caused delays or required us to use air freight and incur higher shipping costs. These challenges may be more significant for our Stag and Beast vehicles as we have not finalized the designs for these vehicles or begun to establish the assembly lines for these prospective vehicles. Any significant delay or other complication in the production of our vehicles or the development, manufacture, and production ramp of our future vehicles such as the Stag and Beast, including complications associated with expanding our production capacity and supply chain or obtaining or maintaining regulatory approvals, and/or coronavirus impacts, could materially damage our brand, business, prospects, financial condition and operating results.
We may be unable to meet our growing production plans and delivery plans, any of which could harm our business and prospects.
Our plans call for achieving and sustaining significant increases in vehicles production and deliveries. Our ability to achieve these plans depends upon a number of factors, including our ability to utilize our current manufacturing capacity, achieve the planned production yield and further increase capacity as planned while maintaining our desired quality levels and optimize design and production changes, and our suppliers’ ability to support our needs. We have experienced delays in increasing production volume due to lower production yields resulting in delayed customer shipments. We are currently developing improved production processes to increase efficiencies and production yields, although there is no assurance we will be successful in these efforts. If we are unable to realize our plans, our brand, business, prospects, financial condition and operating results could be materially damaged.
We are dependent on our suppliers, the majority of which are single-source suppliers, and the inability of these suppliers to deliver necessary componentsThe sale of our products accordingcommon stock by the holders of the May 2023 Notes and May 2023 Warrants, or the perception that stock sales may occur, could cause the price of our common stock to decline.
The sale of our schedulecommon stock in the public market by the holders of our May 2023 Notes and May 2023 Warrants, or the perception that such sales could occur, could harm the prevailing market price of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at prices, quality levelsa price that we deem appropriate (which ability to sell equity securities is also subject to restrictions under the terms of the agreement related to the May 2023 Notes and volumes acceptableMay 2023 Warrants). If and when we do issue shares of common stock to us,the holders of the May 2023 Notes and May 2023 Warrants upon the conversion or exercise, as applicable, of the May 2023 Notes and May 2023 Warrants, the holders may resell all, some or none of those shares of common stock at any time or from time to time in their discretion. Resales of our inabilitycommon stock may cause the market price of our securities to efficiently manage these components,drop significantly, regardless of the performance of our business.
If we fail to satisfy all applicable continued listing requirements of the Nasdaq Capital Market our common stock may be delisted from Nasdaq, which could have a materialan adverse effectimpact on the liquidity and market price of our financial condition and operating results.common stock.
Our vehicles contain numerous purchased parts whichcommon stock is currently listed on the Nasdaq Capital Market. In order to maintain that listing, we source globally from direct suppliers, the majority of whom are currently single-source suppliers. Any significant unanticipated demand would require us to procure additional components in a short amount of time. While we believemust satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum bid price, and certain corporate governance requirements. There can be no assurances that we will be able to secure additional or alternate sourcescomply with the applicable listing standards.
On July 5, 2023, we received a notice from Nasdaq that we were not in compliance with Nasdaq’s Listing Rule 5550(b)(2), which requires that we maintain a market value of supply for mostlisted securities (“MVLS”) of $35 million. MVLS is calculated by multiplying our shares outstanding by the closing price of our components incommon stock. On July 6, 2023, we received a relatively short time frame, there is no assurancenotice from Nasdaq that we willwere 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.
We have until January 2, 2024, to regain compliance with both the MVLS requirement and the minimum bid price requirement. To regain compliance with the MVLS requirement, our MVLS must close at $35 million or more for a minimum of ten consecutive business days during this grace period. To regain compliance with the minimum bid price rule, the minimum bid price of our common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during this grace period. While we may be able to do so or develop our own replacementsqualify for certain highly customized components of our products.
If we encounter unexpected difficulties with key suppliers such as our battery and chassis suppliers, and if we are unableadditional time to fill these needs from other suppliers, we could experience production delays and potential loss of accessattempt to important technology and parts for producing, servicing and supporting our vehicles. This limited, and in many cases single source, supply chain exposes us to multiple potential sources of delivery failure or component shortages for the production of our vehicles. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to design changes and delays in product deliveries to our customers, which could hurt our relationships with our customers and result in negative publicity, damage to our brand and a material and adverse effect on our business, prospects, financial condition and operating results.
Changes in our supply chain may result in increased cost. If we are unsuccessful in our efforts to control and reduce supplier costs, our operating results will suffer.
There is no assurance that our suppliers will ultimately be able to meet our cost, quality and volume needs, or do so at the times needed. Furthermore, as the scale of our production increases, we will need to accurately forecast, purchase, warehouse and transport to our manufacturing facilities components at much higher volumes than we have experience with. If we are unable to accurately match the timing and quantities of component purchases to our actual needs, or successfully implement automation, inventory management and other systems to accommodate the increased complexity in our supply chain, we may incur unexpected production disruption, storage, transportation and write-off costs, which could have a material adverse effect on our financial condition and operating results.
The duration and scope of the impacts of the COVID-19 pandemic are uncertain and has adversely affect our supply chain and may in affect our operations, distribution, and demand for our products.
If we were to encounter a significant disruption due to COVID-19 at one or more of our suppliers, we may not be able to satisfy customer demand for a period of time. We have recently experienced delays and extended delivery dates with respect to the computer chips we utilize for our vehicles. Although we believe these delays will not affect our ability to deliver our initial vehicles, they may restrict our ability to deliver vehicles in the future. Furthermore, the impact of COVID-19 on the economy, demand for our products and impacts to our operations, including the measures taken by governmental authorities to address it, may precipitate or exacerbate other risks and/or uncertainties, including specifically many of the risk factors set forth herein, which may have a significant impact on our operating results and financial condition, although we are unable to predict the extent or nature of these impacts at this time.
We are currently taking orders for the Grunt, and if this vehicle fails to perform as expected, our reputation could be harmed and our ability to develop, market and sell our vehicles could be harmed.
If our vehicles were to contain defects in design and manufacture that cause them not to perform as expected or that require repair or take longer than expected to deliver, our ability to develop, market and sell our vehicles could be harmed. While we intend to perform internal testing on the vehicles we assemble, as a start-up company our frame of reference by which to evaluate detailed long-term quality, reliability, durability and performance characteristics of our vehicles is based on industry metrics rather than historical data. Although we have procedures to test all of our vehicles for defects,regain compliance, there can be no assurance that we will be ablequalify for additional time to detect and fix all defects in our products prior to their sale to consumers. Any product defects, delays,regain compliance, or other failure of our products to perform as expected could harm our reputation and result in delivery delays, product recalls, product liability claims, significant warranty and other expenses, and could have a material adverse impact on our business, financial condition, operating results and prospects.
Our successthat we will depend on our ability to economically produce our vehicles at scale, and our ability to produce vehicles of sufficient quality and appeal to customers on schedule and at scale is unproven.
Our business success will depend in large part on our ability to economically produce, market and sell our vehicles at sufficient capacity to meet the demands of our customers. We will need to scale our production capacity in order to successfully implement our business strategy, and we plan to do so in the future by, among other things, completing the build-out of anregain compliance with or without such additional facility we leased in August 2021 in Round Rock, Texas and our Liberty Hill, Texas assembly facility when it is constructed.
We have no experience in large-scale production of our vehicles, andtime. If we do not know whether weregain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that our shares of common stock will be ablesubject to develop efficient, automated, low-cost production capabilities and processes, such that we will be able to meet the quality, price, and production standards, as well as the production volumes, required to successfully market our vehicles and meet our business objectives and customer needs. Any failure to develop and scale our production capability and processes could have a material adverse effect on our business, results of operations or financial condition.
We may not succeed in establishing, maintaining and strengthening our brand, which could materially and adversely affect customer acceptance of our products, which could in turn materially affect our business, results of operations or financial condition.
Our business and prospects heavily depend on our ability to develop, maintain and strengthen the Volcon brand. If we are unable to establish, maintain and strengthen our brand, we may lose the opportunity to build and maintain a critical mass of customers. Our ability to develop, maintain and strengthen our brand will depend heavily on the success of our marketing efforts. Failure to develop and maintain a strong brand would materially and adversely affect customer acceptance of our vehicles, could result in suppliers and other third parties being less likely to invest time and resources in developing business relationships with us, and could materially adversely affect our business, results of operations or financial condition.
If we are unable to achieve our targeted manufacturing costs for our vehicles, our financial condition and operating results will suffer.
As a start-up company, we have no historical data that allows us to ensure our targeted manufacturing costs will be achievable. While we expect in the future to better understand our manufacturing costs, there is no guarantee we will be able to achieve sufficient cost savings to reach our gross margin and profitability goals. We may also incur substantial costs or cost overruns in utilizing and increasing the production capability of our vehicle assembly facilities.
If we are unable to achieve production cost targets on our vehicles pursuant to our plans, we may not be able to meet our gross margin and other financial targets. Many of the factors that impact our manufacturing costs are beyond our control, such as potential increases in the costs of our materials and components, such as batteries and chassis. If we are unable to continue to control and reduce our manufacturing costs, our operating results, business and prospects will be harmed.
Increases in costs, disruption of supply, or shortage of materials could harm our business.
We may experience increases in the cost or a sustained interruption in the supply or shortage of materials. Any such increase, supply interruption or shortage could materially and negatively impact our business, prospects, financial condition and operating results. The prices for these materials fluctuate, and their available supply may be unstable, depending on market conditions and global demand for these materials, including as a result of increased production of electric vehicle (EV) products by our competitors, and could adversely affect our business and operating results. For instance, we are exposed to multiple risks relating to battery packs. These risks include:
Our business is dependent on the continued supply of battery cells for the battery packs used in our vehicles. Any disruption in the supply of battery cells could disrupt production of our vehicles. Substantial increases in the prices for our materials or prices charged to us, such as those charged by battery cell suppliers, would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased prices. Any attempts to increase prices in response to increased material costs could result in cancellations of vehicle orders and therefore materially and adversely affect our brand, image, business, prospects and operating results.
An adverse determination in any significant product liability claim against us could materially adversely affect our business, results of operations or financial condition.
The development, production, marketing, sale and usage of our vehicles will expose us to significant risks associated with product liability claims. The powersports vehicles industry in particular is vulnerable to significant product liability claims, and we may face inherent risk of exposure to claims in the event our vehicles do not perform or are claimed to not have performed as expected. If our products are defective, malfunction or are used incorrectly by our customers, it may result in bodily injury, property damage or other injury, including death, which could give rise to product liability claims against us. Any losses that we may suffer from any liability claims and the effect that any product liability litigation may have upon the brand image, reputation and marketability of our products could have a material adverse impact on our business, results of operations or financial condition. No assurance can be given that material product liability claims will not be made in the future against us, or that claims will not arise in the future in excess or outside of our insurance coverage and contractual indemnities with suppliers and manufacturers. We believe we have adequate product liability insurance; however, as we release new products and expand our sales channels, we may not be able to obtain adequate product liability insurance or the cost of doing so may be prohibitive. Adverse determinations of material product liability claims made against us could also harm our reputation and cause us to lose customers and could have a material adverse effect on our business, results of operations or financial condition.
The markets in which we operate are in their infancy and highly competitive, and we may not be successful in competing in these industries as the industry further develops. We currently face competition from new and established competitors and expect to face competition from others in the future, including competition from companies with new technology.
The EV market is in its infancy, and we expect it will become more competitive in the future. There is no assurance that our vehicles will be successful in the respective markets in which they compete. A significant and growing number of established and new companies, as well as other companies, have entered or are reported to have plans to enter the EV market, including the off-road market that we intend to pursue. Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing, sales networks and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Increased competition could result in lower vehicles sales, price reductions, revenue shortfalls, loss of customers and loss of market share, which could harm our business, prospects, financial condition and operating results.
We may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur substantial costs.
Others, including our competitors, may hold or obtain patents, copyrights, trademarks or other proprietary rights that could prevent, limit or interfere with our ability to make, use, develop, sell or market our products and services, which could make it more difficult for us to operate our business. From time to time, the holders of such intellectual property rights may assert their rights and may bring suits alleging infringement or misappropriation of such rights. In addition, if we are determined to have infringed upon a third party’s intellectual property rights, we may be required to cease making, selling or incorporating certain components or intellectual property into the products we offer, to pay substantial damages and/or license royalties, to redesign our products, and/or to establish and maintain alternative branding for our products.
We have applied for trademark rights for the “Volcon” brand name and our logo in the United States and Latin America. We have received notice from two entities who have indicated they will protest the issuance of a trademark for the Volcon name due to the similarity of Volcon to their trademarks, even though our products are different. We are currently in negotiation with these entities to obtain an agreement that our Volcon trademark can co-exist with their trademarks. If we are unsuccessful in obtaining agreement with these entities, we will need to consider the use of a different trademark for our Company and our products.delisting.
In the event that we were required to take oneour common stock is delisted from Nasdaq and is not eligible for quotation or more such actions,listing on another market or exchange, trading of our business, prospects, operating results and financial conditioncommon stock could be materially adversely affected.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 addition, any litigationsuch event, it could become more difficult to dispose of, or claims, whether orobtain 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 valid, could result in substantial costs, negative publicity and diversion of resources and management attention.listed on a major exchange.
Potential tariffs or a global trade war could increase our costs and could further increase the cost of our products, which could adversely impact the competitiveness of our products and our financial results.
Our vehicles depend on materials from China, namely batteries, which are among the main components of our vehicles. We cannot predict what actions may be taken with respect to tariffs or trade relations between the United States and China, what products may be subject to such actions, or what actions may be taken by the China in retaliation. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs, trade agreements or related policies have the potential to adversely impact our supply chain and access to equipment, our costs and our product margins. Any such cost increases or decreases in availability could slow our growth and cause our financial results and operational metrics to suffer.
Subsequent to fulfilling orders we have received directly from consumers, we intend toprimarily sell our vehicles and accessories through a network of third parties, and there is no assurance that we will be able to successfully build out this network.
Initially, in the U.S.In November 2021 we intendedbegan negotiating dealer agreements to sell our vehicles directlyand accessories in the United States to the consumer via our website. We will cease selling vehicles directly to consumers and intendpowersport vehicle dealers. As of June 30, 2023, we have 142 dealers active dealers to sell our vehicles and accessories. We hired our first regional sales manager in the U.S.Canada in June 2022 to powersport vehicle dealers
We are alsobegin developing a line of aftermarket accessories for our vehicles that will be manufactured and produced by third parties. We intend to market our accessories on our website but also use our dealer network for Canadian powersports vehicle dealers. To date we have not signed any Canadian dealers as we have not homologated our products to display and sell these accessories.
We also intend to sell our vehicles internationally through international distributors. We have signed distributor agreements with distributors in Central and South America. We are relying on these distributors to market, promote, sell and service our vehicles and sell accessories in their designated countries/territories.
We believe our success will be highly dependent on our ability to build out this network in the major markets in which we intend to compete for customers, and to maintain this network in the future. Our model is dependent not only on our ability to create the foregoing network, but also on the commitment and motivation of these third parties to promote our brand and products.
Orders for vehicles are cancelable and the deposit fully refundable until delivered to and accepted by the customer 14 days from delivery, and there can be no assurance that such orders will be converted into sales.
As of September 30, 2021, U.S. customers have made deposits for 277 Grunts and 5 Runts, plus accessories and a deliver fee representing total deposits of $1.9 million. These orders are cancelable by the customer until themeet Canadian vehicle is delivered and after a 14-day acceptance period, therefore the deposits have been recorded as deferred revenue. Based on our current production capacity, we believe we will deliver all of the Grunts by March 2022 and the Runts by the second quarter of 2022.
regulations.
As of September 30, 2021, we have received orders from Latin America importers for 92 Grunts. Payment for these orders is due prior to shipment and are cancelable until shipped. Based on our current production capacity, we believe we will be able to fulfill all pending orders by March 2022.
The estimated fulfillment of all orders we have received assumes we are successfully able to increase our production capacity in the future, of which there is no assurance. We only recently commenced assembling vehicles and we have encountered delays as we increased production. If we are unable to satisfy pending orders on a timely basis, customers may cancel their orders.
In some cases, there will be significant time between a customer ordering a vehicle and the eventual delivery of the vehicle, which creates a heightened risk that a customer that ordered a vehicle may change his or her mind and not ultimately take delivery of the vehicle, and accessories if purchased in their order, even though the customer paid the full list price to complete their order. As a result, no assurance can be made that orders will not be cancelled. Any cancellations could harm our financial condition, business, prospects and operating results.
We are developing our dealer network in the United States, and we may not be able to obtain a sufficient number of dealers to sell our vehicles to be commercially successful.
We initially intended to sell and distribute our vehicles and accessories in the U.S. on a direct-to-consumer sales platform. We are currently negotiating dealership agreements with retail partners to display and sell our vehicles and accessories which will require us to discontinue selling and distributing our vehicles under the direct-to-consumer model.
We will be required to comply with manufacture/dealer laws in each state in which we sell our vehicles through dealers. Dealer laws vary by state and although our dealer agreements are intended to comply with these laws, we may be required to amend our agreements if these laws are changed or are challenged by dealers or other OEMs. Our dealer and distribution agreements are generally short-term in nature and the dealer, distributor or we may cancel these agreements under certain circumstances and we may not be able to retain or expand the scope of our dealer and/or distribution network in the future.
Many dealers will require us to identify financing sources for dealers to purchase vehicle inventory and to identify financing sources for the dealers’ customers to finance their purchase. Because we are a young company with limited sales history and recurring losses, we have not been able to obtain these inventory financing sources which may result in dealers not wanting to sell our vehicles. We continue to look for alternative financing sources, we may not be successful in obtaining a source that could finance dealer inventory at a scale that will allow us to be profitable. To the extent we do find a financing source, we will incur costs under these financing arrangements to incentivize dealers to buy our vehicles including free dealer financing for certain periods or based on purchase volumes, interest rate buy downsbuydowns on the dealers’ customer financing to incentivize their customers’ purchase of our vehicles. Since we are a young company with limited sales history and recurring losses, we may not be able to obtain these financing sourcesvehicles which may result in dealers not wanting to sellwill reduce our profit margin on our vehicles.
We may be unable to improvebelieve our existing products and develop and market new products that respond to customer needs and preferences and achieve market acceptance.
We may not be able to compete as effectively with our competitors, and ultimately satisfy the needs and preferences of our customers, unless we can successfully enhance existing products, develop new innovative products and distinguish our products from our competitors’ products through innovation and design. Product development requires significant financial, technological, and other resources. There can be no assurance that wesuccess will be ablehighly dependent on our ability to incur a level of investmentbuild out this dealer network in research and development that will be sufficient to successfully make us competitive in product innovation and design. In addition, even if we are able to successfully enhance existing products and develop new products, there is no guarantee that the markets for our existing products and new products will progress as anticipated. If any of themajor markets in which our existing products compete do not develop as expected, our business, results of operations or financial condition could be materially adversely affected.
We have no experience servicing our vehicles, we intend to primarily utilizecompete for customers, and to maintain this network in the future. Our business model is dependent not only on our ability to create the foregoing network, but also on the commitment and motivation of these third parties to servicepromote our vehicles,brand and if we are unable to address the service requirements of our customers, our business could be materially and adversely affected.products.
We have no experience servicing or repairing our vehicles and we are developing our service manual and service procedures to repair our vehicles. We are in the process of developing a network of service providers who will also be our dealers as many states require that only dealers can provide warranty service on vehicles.
Servicing electric vehicles is different than servicing vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing techniques. If we are unable to successfully address the service requirements of our customers, our business and prospects will be materially and adversely affected. If we are unable to successfully address the servicing requirements of our customers or establish a market perception that we maintain high-quality support, our reputation could be harmed, we may be subject to claims from our customers, and our business, results of operations or financial condition may be materially and adversely affected.
Significant product repair and/or replacement due to product warranty claims or product recalls could have a material adverse impact on our business, results of operations or financial condition.
We will provide a one-year warranty against defects for our vehicles, and a two-year warranty on the batteries in our vehicles. Our warranty will generally require us to repair or replace defective products during such warranty periods at no cost to the consumer. We will record provisions based on an estimate of product warranty claims, but there is the possibility that actual claims may exceed these provisions and therefore negatively impact our results of operations of financial condition.
In addition, we may in the future be required to make product recalls or could be held liable in the event that some of our products do not meet safety standards or statutory requirements on product safety, even if the defects related to any such recall or liability are not covered by our limited warranty. The repair and replacement costs that we could incur in connection with a recall could have a material adverse effect on our business, results of operations or financial condition. Product recalls could also harm our reputation and cause us to lose customers, particularly if recalls cause consumers to question the safety or reliability of our products, which could have a material adverse effect on its business, results of operations or financial condition.
Our success is dependent upon the success of the off-road vehicle industry and upon consumers’ willingness to adopt electric vehicles.
Our success is dependent upon the success of the off-road vehicle industry as a whole, and in particular upon consumers’ willingness to adopt electric vehicles as an alternative to combustion vehicles. If the market for electric off-road vehicles does not develop at the rate or in the manner or to the extent that we expect, our business, results of operations or financial condition may be adversely materially affected. The market for electric vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standard, frequent new vehicle announcements and changing consumer demands and behaviors. Factors that may influence the adoption of electric vehicles include:
The influence of any of the factors described above may cause our customers not to purchase our vehicles and may otherwise materially adversely affect our business, results of operations or financial condition.
We currently operate in an area that is not heavily regulated, and future changes in government oversight may subject us to increased regulations, which may increase our expenses.
The off-road vehicle market is not heavily regulated, as compared to on-road vehicles, and, as such, we are not currently subject to significant government regulations. As this market develops and grows, it may come under increased regulatory scrutiny, which may result in increased regulations. This increase in regulations may result in increased costs and expenses, which may materially and adversely affect our business, results of operations or financial condition.
We will lease a new facility from an entity controlled by our founders, and this arrangement was not conducted on an arm’s length basis.
We will be leasing a dedicated, built-to-suit manufacturing facility on 53 acres in Liberty Hill, Texas from an entity controlled by our founders. Although we believe the lease terms are at or below current market rates, due to the relationship between our company and our founders, the negotiation of the lease agreement was not conducted on an arm’s length basis. As such, it is possible that the terms were less favorable to us than in a transaction negotiated in an arm’s length transaction.
Our directors and executive officers will continue to exercise significant control over us, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.
The existing holdings of our directors and executive officers, assuming full exercise of the warrants held by such individuals, will be, in the aggregate, approximately 54% of our outstanding common stock. As a result, these stockholders will be able to influence our management and affairs and control the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets.
These stockholders acquired their shares of common stock for substantially less than the price of the shares of common stock being acquired in this offering, and these stockholders may have interests, with respect to their common stock, that are different from those of investors in this offering and the concentration of voting power among one or more of these stockholders may have an adverse effect on the price of our common stock.
In addition, this concentration of ownership might adversely affect the market price of our common stock by: (1) delaying, deferring or preventing a change of control of our company; (2) impeding a merger, consolidation, takeover or other business combination involving our company; or (3) discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.
We are party to certain agreements with our founders that may create a conflict of interest for our board of directors in evaluating a potential change of control transaction.
We have entered into consulting agreements with Pink Possum, LLC (“Pink Possum”), an entity controlled by Mr. Okonsky, and Highbridge Consultants, LLC (“Highbridge”), an entity controlled by Mr. James, pursuant to which Messrs. Okonsky and James provide us with services. Pursuant to the consulting agreements, upon the occurrence of a Fundamental Transaction, which generally includes a business combination, merger, or sale of all or substantially all of our assets (or similar events), 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. Since Messrs. Okonsky and James are entitled to these payments, they may have a conflict of interest in determining whether a particular Fundamental Transaction is in the best interests of our shareholders. Furthermore, these payments upon the consummation of a Fundamental Transaction may make our company less attractive to a potential acquirer or may reduce the valuation we receive in connection with a Fundamental Transaction.
Your ownership may be diluted if additional capital stock is issued to raise capital, to finance acquisitions or in connection with strategic transactions.
We intend to seek to raise additional funds, finance acquisitions or develop strategic relationships by issuing equity or convertible debt securities in addition to the shares issued in this offering, which would reduce the percentage ownership of our existing stockholders. Our board of directors has the authority, without action or vote of the stockholders, to issue all or any part of our authorized but unissued shares of common or preferred stock. Our certificate of incorporation authorizes us to issue up to 100,000,000 shares of common stock and 5,000,000 shares of preferred stock. Future issuances of common or preferred stock would reduce your influence over matters on which stockholders vote and would be dilutive to earnings per share. In addition, any newly issued preferred stock could have rights, preferences and privileges senior to those of the common stock. Those rights, preferences and privileges could include, among other things, the establishment of dividends that must be paid prior to declaring or paying dividends or other distributions to holders of our common stock or providing for preferential liquidation rights. These rights, preferences and privileges could negatively affect the rights of holders of our common stock, and the right to convert such preferred stock into shares of our common stock at a rate or price that would have a dilutive effect on the outstanding shares of our common stock.
General Risk Factors
If our stock price fluctuates, you could lose a significant part of your investment.
The market price of our common stock is subject to wide fluctuations in response to, among other things, the risk factors described in this filing and other factors beyond our control, such as fluctuations in the valuation of companies perceived by investors to be comparable to us. Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions, such as recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our common stock. In the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
If securities or industry analysts do not publish research or reports about us, or if they adversely change their recommendations regarding our common stock, then our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us, our industry and our market. If no analyst elects to cover us and publish research or reports about us, the market for our common stock could be severely limited and our stock price could be adversely affected. As a small-cap company, we are more likely than our larger competitors to lack coverage from securities analysts. In addition, even if we receive analyst coverage, if one or more analysts ceases coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. If one or more analysts who elect to cover us issue negative reports or adversely change their recommendations regarding our common stock, our stock price could decline.
As an “emerging growth company” under the Jumpstart Our Business Startups Act, or JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.
As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of:
For so long as we remain an emerging growth company, we will not be required to:
We intend to take advantage of all of these reduced reporting requirements and exemptions, other than the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act.
Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding management’s assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or CEO pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.
We cannot predict if investors will find our securities less attractive due to our reliance on these exemptions. If investors were to find our common stock less attractive as a result of our election, we may have difficulty raising all of the proceeds we seek in this offering.
On October 8, 2021, we closed our initial public offering of 3,025,000 shares of common stock at a price to the public of $5.50 per share. The gross proceeds from our initial public offering, before deducting underwriting discounts and commissions, were $16.6 million. We granted the underwriters in the offering a 45-day option to purchase up to an additional 226,875 shares of common stock. The underwriters exercised this option and sold 226,875 shares of common stock at a price of $5.50 per share and we received gross proceeds of $1.1 million. The offer and sale of all of the shares in the offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-259468), which was declared effective by the SEC on October 5, 2021. Aegis Capital Corp. acted as underwriter for the offering.ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on October 8, 2021 pursuant to Rule 424(b). No direct or indirect payments were made by us to any of our directors or officers or their associates, to persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries. Pending the uses described, we intend to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.During the period covered by this Quarterly Report, none of the Company’s directors or executive officers has adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934, as amended).
ITEM 6. EXHIBITS
INDEX TO EXHIBITS
Exhibit Number | Description | |
| 1.1 | Underwriting Agreement, dated May 22, 2023, with Aegis Capital Corp. (incorporated by reference to exhibit 1.1 of the Form 8-K filed May 25, 2023) | |
| 4.1 | Form of Convertible Notes issued in May 2023 Offering (incorporated by reference to exhibit 4.1 of the Form 8-K filed May 22, 2023) | |
| 4.2 | Form of New Warrants (incorporated by reference to exhibit 4.2 of the Form 8-K filed May 22, 2023) | |
| 4.3 | Form of Exchange Notes (incorporated by reference to exhibit 4.3 of the Form 8-K filed May 22, 2023) | |
| 4.4 | Form of Exchange Warrants (incorporated by reference to exhibit 4.4 of the Form 8-K filed May 22, 2023) | |
| 10.1 + | Securities Purchase and Exchange Agreement by and among the Company and the Buyers, dated May 19, 2023 (incorporated by reference to exhibit 10.1 of the Form 8-K filed May 25, 2023) | |
| 10.2 | Registration Rights Agreement by and among the Company and the Buyers, dated May 19, 2023 (incorporated by reference to exhibit 10.2 of the Form 8-K filed May 22, 2023) | |
| 10.3 | Placement Agent Agreement between the Company and Aegis Capital Corp. (incorporated by reference to exhibit 10.3 of the Form 8-K filed May 22, 2023) | |
| 31.1* | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of | |
| 31.2* | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of | |
| 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 | |
| 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 | |
| 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 |
______________
| * | Filed herewith. |
| † | Schedules and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish a copy of any omitted schedule or exhibit to the SEC upon request. |
| (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. |
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/ Jordan Davis | Chief Executive Officer and Director | |||
| Jordan Davis | (principal executive officer) | |||
| /s/ Greg Endo | Chief Financial Officer | |||
| Greg Endo | (principal financial and accounting officer) |