Volcon(VLCN) - 2023 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for the company Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Volcon, Inc., including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's accounting policies, financial instruments, and specific account balances Consolidated Balance Sheets The company's financial position deteriorated from December 31, 2022, to March 31, 2023, with total assets decreasing by $5.5 million and stockholders' equity shifting from a positive balance to a deficit of $(5.6) million, primarily due to a significant reduction in cash and an increase in convertible notes Consolidated Balance Sheets | Metric | March 31, 2023 | December 31, 2022 | Change | | :-------------------------------- | :------------- | :---------------- | :----- | | Total Assets | $17,241,437 | $22,725,613 | -$5,484,176 | | Current Assets | $14,638,511 | $20,327,010 | -$5,688,499 | | Cash | $4,220,884 | $10,986,592 | -$6,765,708 | | Inventory | $6,120,748 | $5,645,883 | +$474,865 | | Total Liabilities | $22,823,458 | $22,090,599 | +$732,859 | | Convertible Notes, net | $19,130,384 | $17,353,748 | +$1,776,636 | | Total Stockholders' (Deficit) Equity | $(5,582,021) | $635,013 | -$6,217,034 | Consolidated Statements of Operations For the three months ended March 31, 2023, the company reported a net loss of $7.3 million, an improvement from the $8.6 million net loss in the prior year period, driven by reduced cost of goods sold and operating expenses despite flat revenue and increased interest expense Consolidated Statements of Operations | Metric | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :-------------------------------- | :---------------------------- | :---------------------------- | :----------- | | Revenue | $1,170,458 | $1,184,502 | -1.2% | | Cost of Goods Sold | $(1,229,981) | $(3,527,715) | -65.1% | | Gross Margin | $(59,523) | $(2,343,213) | +97.5% | | Total Operating Expenses | $5,465,812 | $6,305,558 | -13.3% | | Loss from Operations | $(5,525,335) | $(8,648,771) | +36.1% | | Interest Expense | $(1,780,019) | $(4,691) | +37,845.0% | | Net Loss | $(7,299,469) | $(8,612,345) | +15.2% | | Net Loss per Common Share – Basic | $(0.30) | $(0.40) | +25.0% | Consolidated Statements of Stockholders' Equity The company's stockholders' equity transitioned from a positive balance of $635,013 at the beginning of 2023 to a deficit of $(5,582,021) by March 31, 2023, primarily due to the net loss incurred, contrasting with a significant increase in equity from a public offering in the prior year Stockholders' (Deficit) Equity | Metric | January 1, 2023 | March 31, 2023 | Change | | :-------------------------------- | :-------------- | :------------- | :----- | | Total Stockholders' (Deficit) Equity | $635,013 | $(5,582,021) | -$6,217,034 | | Net Loss | N/A | $(7,299,469) | N/A | | Stock-based compensation | N/A | $1,057,435 | N/A | Stockholders' Equity (Prior Year) | Metric | January 1, 2022 | March 31, 2022 | Change | | :-------------------------------- | :-------------- | :------------- | :----- | | Total Stockholders' Equity | $6,304,249 | $17,371,253 | +$11,067,004 | | Issuance of common stock for public offering, net | N/A | $18,089,184 | N/A | | Net Loss | N/A | $(8,612,345) | N/A | Consolidated Statements of Cash Flows Net cash used in operating activities decreased to $6.5 million in Q1 2023 from $9.4 million in Q1 2022, while financing activities shifted from providing $18.1 million in 2022 to using less than $0.1 million in 2023, resulting in a significant net decrease in cash and restricted cash Consolidated Statements of Cash Flows | Cash Flow Activity | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :-------------------------------- | :---------------------------- | :---------------------------- | :----------- | | Net Cash Used in Operating Activities | $(6,476,651) | $(9,448,022) | +$2,971,371 | | Net Cash Used in Investing Activities | $(244,619) | $(223,632) | -$20,987 | | Net Cash (Used) Provided by Financing Activities | $(44,438) | $18,099,420 | -$18,143,858 | | Net Change in Cash and Restricted Cash | $(6,765,708) | $8,427,766 | -$15,193,474 | | Cash and Restricted Cash at End of Period | $4,772,134 | $13,999,965 | -$9,227,831 | Notes to the Financial Statements The notes provide detailed explanations of the company's financial statements, including its organization, accounting policies, and specific financial instrument details, highlighting the company's going concern doubt, outsourced manufacturing, convertible notes, related party transactions, and stock-based compensation NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND GOING CONCERN Volcon, Inc. designs and sells all-electric off-road powersport vehicles, facing substantial doubt about its ability to continue as a going concern due to recurring losses and negative operating cash flows, while outsourcing manufacturing and being subject to a cash deposit requirement for its convertible notes - Volcon, Inc. designs and sells all-electric off-road powersport vehicles[20] - The company has recurring losses and negative cash flows from operations since inception, raising substantial doubt about its ability to continue as a going concern[22][25] - Manufacturing of all vehicles and certain design/prototype services have been outsourced to third-parties since August 2022 to reduce operating costs[23] - A covenant for convertible notes requires $10 million in unrestricted cash if outstanding principal is $15 million or greater as of September 30, 2023, and December 31, 2023. Management anticipates current cash and expected operational cash will not be sufficient to meet this requirement beyond one year[24][25] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's significant accounting policies, including interim financial statement presentation, revenue recognition, inventory valuation, and the adoption of ASU 2016-13, highlighting the company's reliance on outsourced manufacturing and associated concentration risk - Interim consolidated financial statements are prepared in accordance with U.S. GAAP, omitting certain disclosures, and are unaudited[29] - Revenue recognition for direct-to-consumer sales of the Brat EBike occurs upon transfer of control, while sales to dealers/distributors are recognized upon transfer of control with no acceptance period or right of return[36][37] - The company outsources product design, development, and all vehicle manufacturing to third parties, leading to concentration risk with certain suppliers (e.g., battery/drivetrain for Stag)[59][60] - Adopted ASU 2016-13 (Credit Losses) effective January 1, 2023, with no material impact on financial statements[61] NOTE 3 – INVENTORY Inventory, valued at the lower of cost (FIFO) or net realizable value, increased to $6.1 million at March 31, 2023, from $5.6 million at December 31, 2022, with raw materials decreasing while work in process and finished goods increased, alongside additional purchase commitments Inventory by Category | Inventory Category | March 31, 2023 | December 31, 2022 | Change | | :----------------- | :------------- | :---------------- | :----- | | Raw materials | $2,827,402 | $3,060,160 | -$232,758 | | Work in process | $460,031 | $439,839 | +$20,192 | | Finished goods | $2,833,315 | $2,145,884 | +$687,431 | | Total inventory | $6,120,748 | $5,645,883 | +$474,865 | - The company has future purchase commitments for inventory totaling $679,646 as of March 31, 2023[63] NOTE 4 – LONG – LIVED ASSETS Property and equipment, net, increased to $897,599 at March 31, 2023, from $601,766 at December 31, 2022, driven by additions to machinery, tooling, equipment, vehicles, and fixtures/furniture, while depreciation expense decreased significantly year-over-year Property and Equipment, Net | Asset Category | March 31, 2023 | December 31, 2022 | Change | | :----------------------------- | :------------- | :---------------- | :----- | | Machinery, tooling and equipment | $525,728 | $352,137 | +$173,591 | | Vehicles | $213,528 | $156,648 | +$56,880 | | Total property and equipment, net | $897,599 | $601,766 | +$295,833 | - Depreciation expense for the three months ended March 31, 2023, was $50,388, a decrease from $111,527 in the prior year period[64] NOTE 5 – NOTES PAYABLE The company paid off two older vehicle financing arrangements in Q1 2023 and entered into two new financing arrangements totaling $96,057 for vehicle purchases, resulting in total notes payable, net of interest, of $95,372 as of March 31, 2023 - In Q1 2023, the company paid off two vehicle financing arrangements from 2020 and 2021[65] - New financing arrangements totaling $96,057 were entered into for two vehicle purchases in Q1 2023[66] Notes Payable | Metric | Amount (March 31, 2023) | | :-------------------- | :---------------------- | | Total notes payable | $95,372 | | Current portion | $(14,200) | | Long-term notes payable | $81,172 | NOTE 6 - CONVERTIBLE NOTES On August 24, 2022, the company issued $27.2 million in senior convertible notes due February 2024, with a conversion price of $2.25 per share and warrants to purchase 9.1 million shares at $2.85 per share, with the net carrying amount at $19.1 million as of March 31, 2023, and the company in compliance with all covenants - Issued $27,173,913 in senior convertible notes on August 24, 2022, due February 24, 2024, with a conversion price of $2.25 per share[68] - Warrants were issued to purchase 9,057,971 shares at an exercise price of $2.85 per share, expiring August 24, 2027[68][73] Convertible Notes Details | Metric | Amount (March 31, 2023) | | :-------------------------- | :---------------------- | | Principal amount | $27,173,913 | | Unamortized discount and issuance costs | $(8,043,529) | | Net carrying amount | $19,130,384 | | Fair value (Level 2) | $24,889,879 | - The company is in compliance with all covenants as of March 31, 2023, including a cash deposit requirement of $10 million if outstanding principal is $15 million or greater by September 30, 2023, and December 31, 2023[72] NOTE 7 – RELATED PARTY TRANSACTIONS The company has engaged in various related party transactions, including prepayments for prototype parts to a vendor with a co-founder's equity interest, terminated operating leases with co-founder-controlled entities, and consulting agreements involving warrant issuances and potential cash payments upon specific milestones - Prepayments of $21,860 were made to a vendor for prototype parts, where an entity controlled by a co-founder holds a 25% equity interest[77] - Previous operating leases for headquarters and office space with entities controlled by co-founders were terminated in 2022, resulting in a recognized loss of $247,525 on the headquarters lease termination[78][80][82] - Consulting agreements with co-founder entities (Pink Possum, Highbridge) involved issuing warrants for common stock and include provisions for cash payments if specific market capitalization ($300 million) or fundamental transaction ($100 million gross sales price) milestones are met by August 28, 2030[83][84] NOTE 8 – STOCKHOLDERS' EQUITY The company is authorized to issue 100 million shares of common stock and 5 million shares of preferred stock, with a proposal to increase authorized common shares to 250 million, following a February 2022 public offering that generated $18.1 million net proceeds, and with 15.1 million warrants outstanding at March 31, 2023 - Authorized common stock is 100,000,000 shares, with a proposal to increase to 250,000,000 shares for shareholder approval on May 24, 2023[86] - A public offering on February 1, 2022, sold 6,666,667 common shares at $3.00 per share, yielding net proceeds of $18,089,117[87] Common Stock Warrants Outstanding | Metric | March 31, 2023 | | :-------------------------------- | :------------- | | Common Stock Warrants Outstanding | 15,085,618 | | Weighted Average Exercise Price | $2.33 | | Weighted Average Remaining Life (years) | 5.55 | | Intrinsic Value | $2,593,084 | NOTE 9 – STOCK-BASED COMPENSATION The 2021 Stock Plan allows for discretionary grants of stock options, stock awards, and restricted stock units (RSUs) to employees, directors, and consultants, with 2.8 million shares available for issuance as of March 31, 2023, and total stock-based compensation expense for the three months ended March 31, 2023, at $1.1 million - The 2021 Stock Plan provides for grants of stock options, stock awards, and restricted stock units (RSUs)[92] - Shares available for issuance under the 2021 Plan as of March 31, 2023, were 2,826,282[92] Stock-Based Compensation Expense | Expense Category | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :------------------------ | :---------------------------- | :---------------------------- | :----------- | | Cost of Goods Sold | $206,477 | $222,507 | -7.2% | | Sales and Marketing | $311,759 | $273,326 | +14.1% | | Product Development | $208,594 | $346,144 | -39.7% | | General and Administrative | $303,605 | $733,188 | -58.6% | | Total Stock-Based Compensation | $1,057,435 | $1,575,165 | -32.8% | NOTE 10 – LOSS PER COMMON SHARE Basic and diluted net loss per common share for the three months ended March 31, 2023, was $(0.30), an improvement from $(0.40) in the prior year, with diluted EPS equaling basic EPS due to the net loss making potentially issuable shares anti-dilutive, and total potentially dilutive shares significantly increasing to 30.6 million in 2023 Net Loss Per Common Share | Metric | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :-------------------------------- | :---------------------------- | :---------------------------- | :----------- | | Net Loss per Common Share – Basic | $(0.30) | $(0.40) | +25.0% | | Net Loss per Common Share – Diluted | $(0.30) | $(0.40) | +25.0% | | Weighted Average Common Shares Outstanding – Basic | 24,535,131 | 21,745,089 | +12.8% | Potentially Dilutive Shares | Potentially Dilutive Shares | 2023 | 2022 | | :-------------------------- | :--------- | :--------- | | Convertible Notes | 12,077,295 | – | | Warrants | 15,085,618 | 5,501,293 | | Stock options | 3,405,497 | 2,369,729 | | Restricted stock units | 50,000 | 335,000 | | Total | 30,618,410 | 8,206,022 | NOTE 11 – INCOME TAXES The company has not recognized any income tax benefit or expense due to recurring losses and a full valuation allowance against deferred tax assets, with a cumulative net operating loss carryforward of approximately $48.6 million as of March 31, 2023, which may be limited in future years due to a change of control - No income tax benefit or expense has been recognized due to recurring losses and a full valuation allowance against deferred tax assets[104] - Cumulative net operating loss carryforward was approximately $48.6 million as of March 31, 2023, which may be subject to limitations due to a recent change of control[105] NOTE 12 – LEASES Total lease cost for the three months ended March 31, 2023, was $177,039, slightly higher than the prior year, with operating lease right-of-use assets and total operating lease liabilities both at approximately $1.4 million, a weighted-average remaining lease term of 3.4 years, and a weighted-average discount rate of 6.05% Lease Costs | Lease Cost Category | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | | :------------------ | :---------------------------- | :---------------------------- | | Operating lease cost | $117,249 | $158,672 | | Short-term lease cost | $59,790 | $17,120 | | Total lease cost | $177,039 | $175,792 | Lease Position | Lease Position (March 31, 2023) | Amount | | :-------------------------------- | :------------- | | Operating lease right-of-use assets | $1,415,930 | | Total operating lease liabilities | $1,448,097 | | Weighted-average remaining lease term | 3.4 years | | Weighted-average discount rate | 6.05% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition for the three months ended March 31, 2023, detailing shifts in sales strategy, product development, and operational changes, alongside discussions of liquidity challenges, going concern doubt, and future outlook Special Note Regarding Forward-Looking Statements This section provides a cautionary statement regarding forward-looking statements, emphasizing that they are based on current expectations and projections, but actual results may differ materially due to various factors, including the company's ability to generate revenue, manage outsourced manufacturing, and adapt to market changes, with no obligation for updates - Forward-looking statements are based on expectations and projections about future events, and actual results may differ materially due to various factors[113] - Key risks include the ability to generate revenue, manage outsourced manufacturing, meet production timelines, secure components, establish dealer networks, and address product performance, warranty claims, and market adoption of electric vehicles[120] - The company is not obligated to publicly update or revise any forward-looking statements[115] Overview Volcon is an all-electric, off-road powersports vehicle company developing two and four-wheel motorcycles and UTVs, which transitioned to a dealership model with 143 active dealers, expanded globally, and is developing new models like the Stag UTV, Grunt EVO, and Runt, with all manufacturing outsourced - Volcon designs and sells all-electric off-road powersports vehicles, including two and four-wheel motorcycles and UTVs[117] - Transitioned from direct-to-consumer sales to a dealership model in November 2021, with 143 active dealers as of March 31, 2023[118][119] - Expanded global sales with six LATAM importers and one Caribbean importer, with plans for further expansion in 2023, including Canada[121][123] - Introduced new models: Stag UTV (deliveries expected H1 2023), Grunt EVO (sales expected Q2 2023), Runt (sales expected Q2 2023), and launched Brat E-Bike (shipments Q4 2022, direct-to-consumer sales Jan 2023). All manufacturing is outsourced[124][125][127][128] Results of Operations The company's net loss improved by 15.2% year-over-year for the three months ended March 31, 2023, reaching $(7.3) million, primarily due to a significant reduction in cost of goods sold and operating expenses, despite flat revenue and a substantial increase in interest expense Key Financial Metrics | Metric | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :-------------------------------- | :---------------------------- | :---------------------------- | :----------- | | Revenue | $1,170,458 | $1,184,502 | -1.2% | | Gross Margin | $(59,523) | $(2,343,213) | +97.5% | | Total Operating Expenses | $5,465,812 | $6,305,558 | -13.3% | | Net Loss | $(7,299,469) | $(8,612,345) | +15.2% | Revenue Revenue for Q1 2023 was $1.17 million, a slight decrease from $1.18 million in Q1 2022, with a significant shift in revenue mix as Brat E-Bike and Volcon Youth sales became major contributors, while Grunt sales substantially decreased Revenue by Product Category | Product Category | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :--------------- | :---------------------------- | :---------------------------- | :----------- | | Total Revenue | $1,170,458 | $1,184,502 | -1.2% | | Grunts | $170,388 | $1,165,712 | -85.4% | | Brats | $657,516 | – | N/A | | Volcon Youth | $212,365 | – | N/A | | Accessories and Parts | $127,496 | $18,790 | +579.6% | Cost of Goods Sold Cost of goods sold decreased significantly by 65.1% to $1.23 million in Q1 2023 from $3.53 million in Q1 2022, primarily due to lower labor and part costs and a credit from shipping accrual reversal, with expectations for increases in Q2 2023 due to new product launches Cost of Goods Sold by Component | Cost Component | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :----------------------------- | :---------------------------- | :---------------------------- | :----------- | | Total Cost of Goods Sold | $1,229,981 | $3,527,715 | -65.1% | | Labor costs | $402,104 | $685,162 | -41.3% | | Stock-based compensation | $206,477 | $223,077 | -7.5% | | Part costs for Grunts | $165,842 | $1,190,248 | -86.0% | | Net inbound/outbound shipping, duties, tariffs | $(278,774) | $900,393 | N/A (credit vs expense) | - Expects revenue and cost of goods sold to increase in Q2 2023 due to expected sales of Grunt EVO, Runt, and Stag[136] - Cost per Grunt EVO and Runt is fixed with the third-party manufacturer; Stag has a fixed cost per unit excluding batteries[136][137] Sales and Marketing Expense Sales and marketing expenses increased by 76.3% to $1.79 million in Q1 2023 from $1.01 million in Q1 2022, driven by higher spending on product promotion, employee payroll, and travel to expand dealer/distributor networks, with further increases anticipated Sales and Marketing Expenses | Expense Component | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :------------------------ | :---------------------------- | :---------------------------- | :----------- | | Total Sales and Marketing Expenses | $1,789,370 | $1,014,906 | +76.3% | | Product promotion and brand awareness | $588,321 | $176,696 | +233.0% | | Employee payroll costs | $723,362 | $431,183 | +67.8% | | Stock-based compensation | $311,759 | $272,756 | +14.3% | | Travel costs | $71,243 | $40,217 | +77.1% | - Expects sales and marketing expenses to increase with expansion of U.S. dealer and international distributor networks and brand promotion[141] General and Administrative Expense General and administrative expenses decreased by 32.4% to $1.89 million in Q1 2023 from $2.79 million in Q1 2022, mainly due to lower professional fees and stock-based compensation, despite increased insurance costs, with future increases expected due to new product liability insurance and public company reporting requirements General and Administrative Expenses | Expense Component | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :------------------------ | :---------------------------- | :---------------------------- | :----------- | | Total General and Administrative Expenses | $1,890,091 | $2,794,940 | -32.4% | | Employee payroll costs | $612,981 | $733,660 | -16.4% | | Stock-based compensation | $330,605 | $742,610 | -55.5% | | Professional fees (total) | $275,741 | $825,259 | -66.6% | | Insurance costs | $349,972 | $333,441 | +4.9% | - Expects general and administrative expenses to increase due to new product liability insurance and public company reporting/compliance requirements[145] Product Development Expense Product development expenses decreased by 28.4% to $1.79 million in Q1 2023 from $2.50 million in Q1 2022, primarily due to lower employee payroll, stock-based compensation, and prototype costs, reflecting outsourced design and development, with future costs expected to increase for new vehicle development Product Development Expenses | Expense Component | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :------------------------ | :---------------------------- | :---------------------------- | :----------- | | Total Product Development Expenses | $1,786,351 | $2,495,712 | -28.4% | | Employee payroll costs | $507,676 | $850,390 | -40.3% | | Stock-based compensation | $208,592 | $336,722 | -38.0% | | Prototype parts and tooling costs | $543,616 | $774,823 | -29.8% | - Expects product development costs to increase due to outsourced design/development and significant prototype costs for Stag, Grunt EVO, and Runt, especially for engineering validation and regulatory compliance testing[149] Interest and Other Expenses Interest and other expenses significantly increased to $1.77 million in Q1 2023, primarily due to $1.78 million in non-cash interest expense from the amortization of debt issuance costs and accretion of principal on convertible notes issued in August 2022, with this expense expected to continue increasing Other Expense | Expense Category | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :----------------------- | :---------------------------- | :---------------------------- | :----------- | | Total Other Expense | $(1,774,134) | $36,426 | N/A (significant increase) | | Non-cash interest expense | $1,776,636 | – | N/A | - Interest expense is expected to increase due to the accretion of the significant discount on the Convertible Notes issued in August 2022, which does not result in cash payments unless there is an event of default[151] Net Loss The net loss for the three months ended March 31, 2023, was $7.3 million, an improvement from $8.6 million in the same period of 2022, reflecting reduced operating expenses and cost of goods sold, partially offset by increased interest expense Net Loss | Metric | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :------- | :---------------------------- | :---------------------------- | :----------- | | Net Loss | $(7,299,469) | $(8,612,345) | +15.2% | Liquidity and Capital Resources As of March 31, 2023, the company had $4.8 million in cash and restricted cash and a working capital deficit of $7.1 million, historically funding operations through debt and equity sales, but anticipates current cash and expected operational cash will not be sufficient to fund planned operations and meet convertible note cash balance requirements beyond one year, raising substantial doubt about its going concern ability Liquidity Metrics | Metric | March 31, 2023 | | :-------------------- | :------------- | | Cash and Restricted Cash | $4.8 million | | Working Capital Deficit | $7.1 million | | Accumulated Deficit | $83.0 million | - The company's continuation as a going concern is dependent on achieving profitable operations or securing additional debt/equity funding[159] - Management anticipates current cash and expected operational cash will not be sufficient to fund planned operations and maintain required cash balances for convertible notes beyond one year, raising substantial doubt about the company's ability to continue as a going concern[160] Cash used in operating activities Net cash used in operating activities decreased to $6.5 million in Q1 2023 from $9.4 million in Q1 2022, primarily due to a reduction in accounts receivable, lower accounts payable and accrued liabilities, and a reversal of an accrual for shipping costs, partially offset by increases in inventory and inventory deposits Operating Cash Flow Items | Operating Cash Flow Item | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :------------------------------- | :---------------------------- | :---------------------------- | :----------- | | Net cash used in operating activities | $(6,476,651) | $(9,448,022) | +$2,971,371 | | Decrease in accounts receivable | +$154,686 | $(82,397) | N/A | | Increase in inventory | $(489,708) | $(1,519,431) | +$1,029,723 | | Increase in inventory deposits | $(778,656) | +$393,741 | N/A | | Decrease in accounts payable | $(479,216) | +$35,097 | N/A | | Decrease in accrued liabilities | $(484,789) | +$483,830 | N/A | | Customer deposits | $(20,327) | $(1,216,883) | +$1,196,556 | Cash used in investing activities Net cash used in investing activities remained relatively stable at $0.2 million for Q1 2023, consisting of equipment and tooling purchases offset by proceeds from vehicle sales Investing Cash Flow Items | Investing Cash Flow Item | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :------------------------------- | :---------------------------- | :---------------------------- | :----------- | | Net cash used by investing activities | $(244,619) | $(223,632) | -$20,987 | | Purchase of property and equipment | $(333,619) | $(223,632) | -$109,987 | | Proceeds from sale of property and equipment | $89,000 | – | N/A | Cash provided by financing activities Cash flow from financing activities shifted dramatically from providing $18.1 million in Q1 2022 (due to a public offering) to using less than $0.1 million in Q1 2023, primarily for notes payable repayment, partially offset by stock option exercises Financing Cash Flow Items | Financing Cash Flow Item | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | Change (YoY) | | :------------------------------- | :---------------------------- | :---------------------------- | :----------- | | Net cash (used) provided by financing activities | $(44,438) | $18,099,420 | -$18,143,858 | | Proceeds from issuance of common stock (public offering) | – | $18,089,184 | N/A | | Repayment of notes payable | $(69,438) | $(4,764) | -$64,674 | JOBS Act Accounting Election The company has irrevocably elected not to use the extended transition period for complying with new or revised accounting standards provided by the JOBS Act for emerging growth companies, adopting new standards on the same dates as other public companies, and expects no material impact from recently issued standards - The company has irrevocably elected not to use the extended transition period for complying with new or revised accounting standards under the JOBS Act[162] - The company adopts new or revised accounting standards on the same dates as other public companies[162] - No recently issued accounting pronouncements are expected to have a material impact on the company's financial position or results of operations[163] Critical Accounting Policies As of March 31, 2023, the company reported no critical accounting policies or estimates - No critical accounting policies or estimates existed as of March 31, 2023[164] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Volcon, Inc. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Volcon, Inc. is not required to provide quantitative and qualitative disclosures about market risk[165] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2023, due to past filing deficiencies and insufficient remediation, though no material changes to internal control over financial reporting occurred during the period Evaluation of Disclosure Controls and Procedures The company's management, including the CEO and CFO, concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to past failures in timely filing and insufficient control implementation, despite believing the financial statements fairly present the company's financial position - Disclosure controls and procedures were deemed not effective as of March 31, 2023[167] - Ineffectiveness is due to past failures in timely filing certain forms and insufficient implementation/testing of controls to remediate deficiencies[167] - Management believes the unaudited consolidated financial statements fairly present the financial position, results of operations, and cash flows in all material respects[167] Changes in Internal Control over Financial Reporting There were no material changes to the company's internal control over financial reporting during the three months ended March 31, 2023 - No material changes to internal control over financial reporting occurred during the three months ended March 31, 2023[168] PART II — OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, other information, and exhibits Item 1. Legal Proceedings The company may be involved in unpredictable legal proceedings in the ordinary course of business, which could be time-consuming and costly, diverting significant management resources, though the company maintains insurance policies for potential losses where cost-effective - The company may be involved in unpredictable legal proceedings in the ordinary course of business[169] - Legal claims could be time-consuming, costly, and divert significant management resources[169] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Form 10-K filed on March 7, 2023 - No material changes to risk factors since the Form 10-K filed on March 7, 2023[170] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[171] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None[172] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[173] Item 5. Other Information There is no other information to report for the period - None[174] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, forms of securities, agreements, and certifications - The section provides an index of exhibits, including corporate documents, forms of common stock and warrants, convertible note agreements, and certifications[177] Signatures This section contains the official signatures of the company's CEO and CFO, certifying the report's submission Signatures The report is signed by Jordan Davis, Chief Executive Officer and Director, and Greg Endo, Chief Financial Officer, on May 5, 2023, certifying its submission pursuant to the Securities Exchange Act of 1934 - The report was signed by Jordan Davis (CEO) and Greg Endo (CFO) on May 5, 2023[181]