Volcon(VLCN) - 2024 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements for June 30, 2024, show decreased cash, a shift to stockholders' equity, a significant net loss, and a going concern warning Consolidated Balance Sheets As of June 30, 2024, total assets decreased due to lower cash, while total liabilities sharply fell, shifting the company from a stockholders' deficit to equity Consolidated Balance Sheet Highlights (Unaudited) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $14,024,448 | $19,532,296 | | Cash | $2,052,175 | $7,983,346 | | Inventory | $9,586,328 | $8,973,134 | | Total Assets | $15,790,198 | $22,126,397 | | Total Current Liabilities | $6,617,343 | $40,913,110 | | Convertible notes, net | $– | $30,149,579 | | Total Liabilities | $7,892,811 | $41,757,418 | | Total Stockholders' Equity (Deficit) | $7,897,387 | $(19,631,021) | Consolidated Statements of Operations For the six months ended June 30, 2024, revenue increased, but a significant gross margin loss and a $26.7 million net loss were reported, impacted by financial liabilities Consolidated Statements of Operations Summary (Unaudited) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Revenue | $1,974,411 | $1,689,758 | | Cost of goods sold | $(4,735,009) | $(1,564,628) | | Gross margin | $(2,760,598) | $125,130 | | Total operating expenses | $(7,013,038) | $(10,581,861) | | Loss from operations | $(9,773,636) | $(10,456,731) | | Net loss | $(26,654,462) | $(30,327,663) | | Net loss per common share – basic | $(110.71) | $(26,417.82) | Consolidated Statements of Cash Flows For the six months ended June 30, 2024, net cash used in operations and investing led to a $6.0 million decrease in cash, despite financing activities Consolidated Statements of Cash Flows Summary (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,198,103) | $(10,578,552) | | Net cash used in investing activities | $(182,539) | $(304,291) | | Net cash provided by financing activities | $2,344,471 | $7,863,873 | | Net Change in Cash | $(6,036,171) | $(3,018,970) | | Cash at End of Period | $2,157,175 | $8,518,872 | Notes to the Consolidated Financial Statements Notes detail accounting policies, a going concern warning, reverse stock splits, convertible note conversions, new note issuance, and a subsequent $12 million equity offering - Management has substantial doubt about the Company's ability to continue as a going concern, with cash on hand insufficient to fund operations beyond one year[22] - In March 2024, the company exchanged $24.7 million of May 2023 Convertible Notes for Series A Convertible Preferred Stock, following an earlier $7.4 million conversion into common stock, extinguishing the debt[20][79] - The company executed three reverse stock splits: 1-for-5 in October 2023, 1-for-45 in February 2024, and 1-for-100 in June 2024, with all share and per-share amounts retroactively adjusted[33][104] - Subsequent to quarter end, on July 12, 2024, the company raised approximately $12.0 million in gross proceeds through the sale of common stock and pre-funded warrants[156] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's electric off-road vehicle business, Q2 2024 revenue growth with negative gross margin, and critical liquidity issues raising going concern doubts Overview Volcon develops all-electric off-road powersports vehicles, including motorcycles, E-Bikes, and UTVs, utilizing an outsourced manufacturing model and a dealer network - The company develops and sells all-electric off-road powersports vehicles, including motorcycles (Grunt EVO), E-Bikes (Brat), and UTVs (Stag)[163][164][167] - Volcon outsources all vehicle manufacturing to third-party international manufacturers and has experienced production delays[172] - Sales are conducted through a network of 105 active U.S. dealers and international importers, with direct-to-consumer sales for certain models[170][171] Results of Operations Q2 2024 revenue increased to $0.94 million, but a significant gross loss resulted from vendor settlements and tooling write-offs, while net loss narrowed due to financial liability gains Revenue by Product (Three Months Ended June 30, 2024) | Product | Revenue | | :--- | :--- | | Grunt EVOs | $284,147 | | Stags | $194,887 | | Brats | $240,750 | | Volcon Youth | $192,924 | | Accessories & Parts | $52,696 | | Total | $940,863 | - Cost of goods sold in Q2 2024 included a $1,117,429 vendor settlement and a $466,481 loss on Stag tooling disposal, leading to a significant negative gross margin[179] - Sales and marketing expenses for Q2 2024 decreased to $0.54 million from $2.38 million in Q2 2023, reflecting reduced promotional spending[185][187] Liquidity and Capital Resources The company's liquidity is severely constrained with $2.2 million cash and a $147.5 million accumulated deficit, requiring additional funding by Q2 2025 and raising going concern doubts - The company ended Q2 2024 with $2.2 million in cash and restricted cash and a working capital of $7.4 million[199] - Management anticipates that cash on hand, even with the July 2024 equity offering, will not suffice for operations beyond one year, requiring additional funding by Q2 2025[206] - The company's financial condition raises substantial doubt regarding its ability to continue as a going concern[206] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Volcon, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide disclosures about market risk[212] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to missed filing deadlines, with no material changes to internal controls - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to previously missed filing deadlines[214] - There were no material changes to internal control over financial reporting during the six months ended June 30, 2024[215] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings outside the ordinary course of business - The company is not currently involved in any material legal proceedings outside the ordinary course of business[216] Item 1A. Risk Factors Key risks include the company's ability to continue as a going concern, requiring additional funding by Q2 2025, and potential immediate Nasdaq delisting due to a panel monitor - A primary risk is the company's ability to continue as a going concern, requiring additional funding by Q2 2025 to finance operations[217][218] - The company regained Nasdaq compliance but is under a one-year Discretionary Panel Monitor, where any new deficiency could result in immediate delisting[219][222] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell any unregistered equity securities during the period, except as previously reported on Form 8-K - No unregistered sales of equity securities occurred during the quarter that were not previously reported[223] Item 5. Other Information No director or officer adopted or terminated any Rule 10b5-1 trading arrangement during the quarter ended June 30, 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the quarter[226]